KORBEL FOUNDATION COLLEGE, INC.

Purok Spring 1, Brgy. Morales, Koronadal City

Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

WEEK 1 It is perfected by mere consent, that is, upon the

PARTNERSHIP (ART. 1767-1867) express or implied agreement of two or more persons.
There is perfected contract upon consent of both parties.
(2) Nominate
PARTNERSHIP
It has a special name or designation in our law. The
It is a contract whereby two or more persons contract is called Partnership.
bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing (3) Bilateral
the profits among themselves, or in order to exercise a
profession. It is also a status and a fiduciary relation It is entered into by two or more persons and the rights
subsisting between persons carrying on a business in and obligations arising there from are always reciprocal.
common with a view on profit (1767). (4) Onerous

PROFESSION Each of the parties aspires to procure for himself a

benefit through the giving of something
A profession has been defined as “a group of men
pursuing a learned art as a common calling in the spirit (5) Commutative
of public service – no less a public service because it
may incidentally be a means of livelihood” [In the Matter The undertaking of each of the partners is considered as
of the Petition for Authority to Continue Use of Firm the equivalent of that of the others
name “Sycip, Salazar, etc.”/“Ozaeta, Romulo, etc.”
(6) Principal
(1979)].
It does not depend for its existence or validity upon
some other contracts; and
Strictly speaking, the practice of a profession is not a
business or an enterprise for profi t. However, the law (7) Preparatory
allows the joint pursuit thereof by two or more persons It is entered into as a means to an end, i.e., to engage in
as partners. In such case, it is the individual partners, business or specific venture for the realization of profits
and not the partnership, who engage in the practice of with the view of dividing them among the contracting
the profession and are responsible for their own acts as parties.
such.

Fernando Santos v. Sps. Arsenio & Nieves Reyes GR

135813, Oct. 25, 2001 Essential features of partnership.

FACTS: The “Articles of Agreement” stipulated that the The following are the essential features of a partnership
signatories shall share the profits of the business in a contract:
70-15-15 manner, with petitioner getting the lion’s share.
(1) There must be a valid contract;
Issue: Was there a partnership established?
a) Partnership relation fundamentally contractual
HELD: The stipulation clearly proved the establishment
Partnership is a voluntary relation created by agreement
of a partnership. By the contract of partnership, two or
of the parties. It excludes from its concept all other
more persons bind themselves to contribute money, associations which do not have their origin in a contract,
property, or industry to a common fund, with the express or implied. There is no such thing as a
intention of dividing the profits among themselves. partnership created by law or by operation or implication
of law alone.
Characteristic elements of partnership
Obviously, a person cannot enter into a contract of
The contract of partnership is: partnership solely with himself; there must be at least
two competent parties. As in other cases of contracts, in
(1) Consensual order to make an agreement for a partnership valid,
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

there must be a valid consideration existing as between (3) There must be a mutual contribution of money,
the partners. property, or industry to a common fund;

(a) Existence of proprietary interest.

b) Partnership relation fiduciary in nature. The partners must have a proprietary interest in the
business or undertaking, that is, they must contribute
Partnership is a form of voluntary association entered capital which may be money or property, or their
into by the associates. It is a personal relation, in which services, or both, to the common business. Without the
the element of delectus personae (Trust and confidence) element of mutual contribution to a common fund there
exists between the partners. can be no partnership

b.1) Right to choose co-partners (a.1) Money.

Unless otherwise provided in the partnership agreement, The term is to be understood as referring to currency
no one can become a member of the partnership which is legal tender in the Philippines. Legal tender is
association without the consent of all the other the currency which in a given jurisdiction can be used in
associates. The fiduciary nature of the partnership the payment of debts.
relation and the liability of each partner for the acts of the
others within the scope of the partnership business (Art. (a.2) Property
1818.) require that each person be granted the right to
choose with whom he will be associated in the firm. The property contributed may be real or personal,
corporeal or incorporeal. Real Properties are immovable
b.2) Power to dissolve partnership. things such as land, buildings and construction adhered
to the land. Personal Properties are those properties
Neither would the presence of a period for its specific other than real properties. Corporeal are those tangible
duration or the statement of a particular purpose for its things such as bikes, lands, cars while incorporeal are
creation prevent the dissolution of any partnership by an those intangibles such as copyright and patents
act or will of a partner
(a.3) Industry

(2) The parties (two or more persons) must have In the absence of money or property, or in concurrence
legal capacity to enter into the contract 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
General Rule: Any person capacitated to contract may associated, which may be either personal manual efforts
enter into a contract of partnership. or intellectual, and for which he receives a share in the
profits of the business
The following persons CANNOT enter into a contract of (4) The object must be lawful;
partnership:
Article 1770 (1). A partnership must have a lawful
(1) Those suffering from civil interdiction; object or purpose, and must be established for the
(2) Minors; common benefit or interest of the partners.
(3) Insane or demented persons;
(4) Deaf-mutes who do not know how to write; The object is unlawful when it is contrary to law, morals,
(5) Incompetents who are under guardianship. good customs, public order, or public policy.
If there is no lawful purpose, then the partnership
Although a corporation cannot enter into a partnership agreement is void ab initio (void from the very
contract, it may, however, engage in a joint venture with beginning). Contracts whose purpose is contrary to law
others [Aurbach vs. Sanitary Wares Manufacturing Corp, are void from the beginning. [Art1409 (1)].
G.R. No. 75875 (1989)]
(5) The primary purpose must be to obtain profits
On the other hand, there is no prohibition against a and to divide the same among the parties.
partnership being a partner in another partnership [De
Leon (2010)]. A partnership is formed to carry on a business. The idea
of obtaining pecuniary (estimated) profit or gain directly
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

through or as a result of the business to be carried on is

the very reason for the existence of a partnership.

Sharing Profits

A partnership is essentially a business enterprise The partnership can, in general:

established for profit.
1) Acquire and possess property of all kinds (Art. 46,
Since the partnership is engaged for the common benefit Civil Code);
or interest of the partners (Art. 1770.), it is necessary
that there be an intention to divide the profits among the 2) Incur obligations (Art. 46, Civil Code);
members, although not necessarily in equal shares. In
the words of the Supreme Court, “there must be a joint 3) Bring civil or criminal actions (Art. 46, Civil Code);
interest in the profi ts.” (Fernandez vs. De la Rosa,
supra.) Without this sharing of profits, it cannot be said 4) Can be adjudged INSOLVENT even if the individual
that an agreement of partnership has been entered into, members be each financially solvent. (Campos Rueda
and exists. If all the other elements create a partnership, and Co. v. Pac. Com. Co., 44 Phil. 916).
a stipulation which excludes one or more partners from
any participation in the profits (or losses) is void. (Art.
1799) ART. 1769. In determining whether a partnership
exists, these rules shall apply:
Sharing of Losses
When the intent of the parties is clear, such intent shall
Under Article 1767 partnership define as “profit” only and
govern.
silent as to “losses”. The reason is that the object of
partnership is primarily the sharing of profits, while the
distribution of losses is but a possible consequence. When it does not clearly appear, the following rules
apply:
The right to share in the profits carries with it to
contribute to the losses if any. The essence of (1) Persons who are not partners to each other are not
partnership is that the profits and losses arising from the partners as to third persons.
undertaking will be shared between and among
members Generally, if they are not partners as between
themselves they cannot be partners as to third person.
Partnership is a matter of intention and where parties
(6) The partnership has a juridical personality expressly declare they are not partners, this settles the
separate from individual partners [Article 1768].
question as between themselves. But where persons by
ART. 1768. The partnership has a juridical their act, consent or representations have misled third
personality separate and distinct from that of each of person or parties into believing that the former are
the partners even in case of failure to comply with partners in a non-existing partnership, such person shall
the requirements of Article 1772, first paragraph. become subject to liabilities of partners to all whom, in
good faith deal with them in their apparent relationship.
Art. 1772. Every contract of partnership having a
capital of three thousand pesos or more, in money
or property, shall appear in a public instrument, (2) Co-ownership or co-possession does not of itself
which must be recorded in the Office of the establish a partnership, even when there is sharing of
Securities and Exchange Commission. profits in the use of the property.
Co-ownership or co-possession exist when the
Partnership duly formed under the law is a juridical
ownership of an undivided thing or right belongs to
person to which its juridical personality is SEPARATE
and DISTINCT from that of each of the partners. (Thus, different persons, as such, it does not create partnership
in the partnership “Sundiang and Castillo,” there are event there is a profit derived from it.
three persons: Sundiang, Castillo, and the firm
“Sundiang and Castillo”.) (3) Sharing of gross returns does not of itself establish a
partnership, even when the parties have joint or common
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

interest in any property from which the returns are assignee a partner, without
derived. consent of others

The mere sharing of gross return alone does not indicate

a partnership , since in a partnership, the partners share PARTNERSHIP DISTINGUISH FROM
profits after satisfying all of the partnership liabilities. It CORPORATION
is not merely the sharing of profit but the sharing of them
as co-owner of the business that makes one a partner PARTNERSHIP CORPORATION
Has juridical personality separate and distinct from
(4) The receipt by a person of a share in the profits of a
its individual members
business is prima facie evidence that he is a partner. As
Composed of an aggregate of individuals
to the fourth, no such inference is drawn if the profits are
received in payment: Distributes its profits to those who contributed capital
to the business
(1) As a debt by installments or otherwise; Can only be organized where there is a law
(2) As wages of an employee or rent to a authorizing its organization
landlord; Created by agreement Created by operation of
(3) As an annuity to a widow or representative law (B.P 68 as amended
of a deceased partner; by R.A 11232)
(4) As interest on a loan, though the amount of Involves at least two Can be one person or
payment vary with the profits of the business; persons without limit one incorporator with
(5) As the consideration for the sale of a goodwill maximum of 15
of a business or other property by installments or
Personality commences Personality commences
otherwise
from the moment of from the issuance of
An agreement to share bot profits and losses tends execution of the contract certificate of
strongly establish the existence of a partnership, and incorporation
conversely, the lack of such agreement tends strongly to Can exercise any power Can exercise only
disprove the existence of partnership. authorized by partners powers conferred by the
Corporation Code or by
PARTNERSHIP DISTINGUISH FROM CO- its articles of
OWNERSHIP incorporation, and such
as are necessary or
PARTNERSHIP CO-OWNERSHIP incidental to the exercise
Generally created by either Generally created by law of such powers
express or implied contract and may exist even
When management is Management is vested in
without a contract
not agreed upon, every the board of directors or
Has a separate juridical Has no separate juridical
personality personality partner may act for the trustees
Generally, the purpose is to The purpose is the partnership
obtain profits common enjoyment of a Partners are generally Stockholders are liable
thing or right liable for partnership only to the extent of their
Duration has no limitation An agreement to keep a debts shares
thing undivided for more May be dissolved at any May only be dissolved
than ten years is not time by one or all of the with the consent of the
allowed, but may be state
partners
extended
Death or incapacity of a partner Death or incapacity Of a
dissolves the partnership co-owner does not
dissolve the co-ownership
A partner cannot dispose of his A co-owner can dispose
interest, so as to make the of his share without
consent of others
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(a) The contract must appear in a public instrument;

and
PARTNERSHIP DISTINGUISH FROM COOPERATIVE
PARTNERSHIP COOPERATIVE (b) Attached to such instrument must be an
inventory, signed by the parties, of the property
PARTNERSHIP COOPERATIVE
contributed [Articles 1771 and 1773];
Has juridical personality separate and distinct from
its individual members
(2) Where the capital is at least P3,000, in money
Composed of an aggregate of individuals
or property:
Distributes its profits to those who contributed capital
to the business (a) The contract must appear in a public instrument;
Can only be organized where there is a law and
authorizing its organization
(b) It must be recorded in the Office of the Securities
Created by agreement Created by operation of and Exchange Commission (SEC).
law (Republic Act 6938
or Cooperative Code) As to the second, failure to comply with these
Personality commences Personality commences requirements, however, does NOT affect the liability
from the moment of from the issuance of of the partnership and the partners to third persons
execution of the contract certificate of [Articles 1768 and 1772]
incorporation
When management is Management Is govern
not agreed upon, every by democratic control Art. 1773. A contract of partnership is void,
partner may act for the where the members in whenever immovable property is contributed
partnership primary cooperatives thereto, if an inventory of said property is not
shall have equal voting made, signed by the parties, and attached to the
rights public instrument
Organized for Profit Organized to provide
goods and service to its Where immovable property, regardless of its value, is
members and enable contributed by any of the partners, the failure to comply
them to attain increased with the forgoing requirements will render the
income and savings, partnership void in so far as the contracting parties are
investment, productivity
concerned:
and purchasing power
(a) The contract must be in a public instrument (Art.
Art. 1771. A partnership may be constituted in 1771.); and
any form, except where immovable property or (b) An inventory of the property contributed must be
real rights are contributed thereto, in which case made, signed by the parties, and attached to the
a public instrument shall be necessary public instrument.

An inventory is required only “whenever immovable

General rule: The contract may be constituted in
property is contributed.” Hence, Article 1773 does not
any form [Article 1771].
apply in the case of immovable property which may be
possessed or even owned by the partnership but not
Exceptions: contributed by any of the partners

(1) Where immovable property or real rights are

contributed:
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(2) As to liability of the partners

ART. 1774. Any immovable property or an interest
therein may be acquired in the partnership name. (a) General partnership or one consisting of general
Title so acquired can be conveyed only in the partners who are liable pro rata and subsidiarity (Art.
partnership name. 1816.) and sometimes solidarity (Arts. 1822-1824.) with
their separate property for partnership debts; or
Since a partnership has juridical personality separate
from and independent of that of the persons or members (b) Limited partnership or one formed by two or more
composing it (Art. 1768.), it is but logical and natural that persons having as members one or more general
immovable property may be acquired in the partnership partners and one or more limited partners, the latter not
name. Title so acquired can, therefore, be conveyed only being personally liable for the obligations of the
in the partnership name. partnership. (Art. 1843.)

ART. 1775. Associations and societies, whose (3) As to its duration.

articles are kept secret among the members, and
wherein any one of the members may contract in his (a) Partnership at will or one in which no time is specified
own name with third persons, shall have no juridical and is not formed for a particular undertaking or venture
personality, and shall be governed by the provisions and which may be terminated at anytime by mutual
relating to coownership. agreement of the partners, or by the will of any one
partner alone; or one for a fixed term or particular
Associations whose articles or agreements are kept undertaking which is continued by the partners after the
secret among the members (i.e., known to some termination of such term or particular undertaking
members only but withheld from the rest) and wherein without express agreement (see Art. 1785.); or
anyone of them may contract in his own name with third
persons are, by this article, deprived of juridical (b) Partnership with a fixed term or one in which the term
personality for evidently such associations are not for which the partnership is to exist is fixed or agreed
partnerships. As among themselves, they shall be upon or one formed for a particular undertaking, and
governed by the provisions relating to co-ownership. upon the expiration of the term or completion of the
particular enterprise, the partnership is dissolved, unless
ART. 1776. As to its object, a partnership is either continued by the partners.
universal or particular. As regards the liability of the
partners, a partnership may be general or limited. (4) As to the legality of its existence

Classifications of partnership (a) De jure partnership or one which has complied with
all the legal requirements for its establishment (see Arts.
(1) As to the extent of its subject matter 1772, par. 2; 1773.); or
(b) De facto partnership or one which has failed to
(a) Universal partnership or one which refers to all comply with all the legal requirements for its
the present property or to all profits. (Art. 1777.) establishment

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

(5) As to representation to others
(1) Universal partnership of all present property. This is
defined in Article 1778; and (a) Ordinary or real partnership or one which actually
exists among the partners and also as to third persons;
(2) Universal partnership of profits. This is defined in or
Article 1780; (b) Ostensible partnership or partnership by estoppel or
one which in reality is not a partnership, but is
considered a partnership only in relation to those who,
(b) Particular partnership. — This is defined in by their conduct or admission, are precluded to deny or
Article 1783. disprove its existence.
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(13) Silent partner, who does not take active part in the
business, but may be known to be a partner by third
6) As to publicity persons;
(14)Dormant partner, who does not take active part in
(a) Secret partnership or one wherein the existence of the business and is not known or held out as a partner;
certain persons as partners is not avowed or made (15)Original partner, who has been a partner since the
known to the public by any of the partners; or constitution of the partnership;
(16) Incoming partner, who is about to be taken as a
(b) Open or notorious partnership or one whose member into an existing partnership;
existence is avowed or made known to the public by the (17) Retiring partner, who is withdrawing from the
members of the fi rm. partnership

(7) As to purpose
ART. 1777. A universal partnership may refer to all
(a) Commercial or trading partnership or one formed for the present property or to all the profits.
the transaction of business (Art. 1767.); or
ART. 1778. A partnership of all present property is
(b) Professional or non-trading partnership or one that in which the partners contribute all the property
formed for the exercise of a profession. which actually belongs to them to a common fund,
with the intention of dividing the same among
Kinds of partners themselves, as well as all the profits they may
acquire therewith.
(1) Capitalist partner, whose contribution is money or
property; ART. 1779. In a universal partnership of all present
(2) Industrial partner, contribution is only his industry; property, the property which belongs to each of the
(3) General partner, whose liability to third persons partners at the time of the constitution of the
extends to his separate property; partnership, becomes the common property of all
(4) Limited partner, whose liability to third persons is the partners, as well as all the profits which they
limited to his capital contribution; may acquire therewith. A stipulation for the common
(5) Managing partner, who was designated to manage enjoyment of any other profits may also be made;
the affairs or business of the partnership; but the property which the partners may acquire
(6) Liquidating partner, who takes charge of the winding subsequently by inheritance, legacy or donation
up of partnership affairs; cannot be included in such stipulation, except the
(7) Partner by estoppel, who is not really a partner but is fruits thereof.
liable as such for the protection of innocent third
persons; A universal partnership of all present property is one in
(8) Continuing partner, who continues the business after which the partners contribute all the properties which
dissolution of the partnership by admission of a new actually belong to each of them at the time of the
partner, or retirement, death or expulsion of existing constitution of the partnership to a common fund, with
partners; the intention of dividing the same among themselves as
(9) Surviving partner, who remains a partner after well as profit which they may acquire.
dissolution by death of any partner;
(10) Subpartner, who is not a member of the partnership In universal partnership of all present property, Property
but contracts with a partner with regard to the share of which belongs to each of the partners at the time of the
the latter in the partnership; constitution of partnership and the profits which may
(11) Ostensible partner, who takes active part in the acquire from the property contributed becomes a
business of the partnership and is known by the public; common property of partners.
(12) Secret partner, who takes active part in the
business, but is unknown to the third persons as a EXAMPLE:
partner; A and B are partners in a partnership known as X & Co.
They agreed that they would contribute all their
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

properties to a common fund for the purpose of dividing Under the law, future properties or their fruit cannot form
the same between themselves, as well as the profits to part of universal partnership of all present properties
be derived therefrom. A contributed all his properties except when there is a stipulation.
consisting of two big parcels of agricultural land and a
tractor. B contributed also his properties consisting of In the present case, since there was no stipulation
P100,000.00 cash and farm implements. between A and B regarding inheritance or future
properties thus it shall not belong to the partnership.
The partnership formed by the contract of A and B is a
universal partnership of all present property.
ART. 1780. A universal partnership of profits
comprises all that the partners may acquire by their
Future Property industry or work during the existence of the
partnership. Movable or immovable property which
General Rule: each of the partners may possess at the time of the
celebration of the contract shall continue to pertain
Future (by inheritance, legacy, donation) property exclusively to each, only the usufruct passing to the
cannot be included in the stipulation regarding the partnership.
universal partnership of all present property because
Universal partnership of profits is one which comprises
of the following:
all that the partners may acquire by their industry or work
(a) First, as a rule, contracts regarding successional during the existence of the partnership and the usufruct
rights cannot be made. of movable or immovable property which each of the
(b) Secondly, a partnership demands that the partners may possess at the time of the celebration of
contributed things be determinate, known, and the contract.
certain.
(c) Thirdly, a universal partnership of all present (1) Ownership of present and future property. — It is
properties really implies a donation, and it is well- to be noted that in this class of partnership, the partners
known that generally, future property cannot be retain their ownership over their present and future
donated. (See 11 Manresa, pp. 304-314 and Art. property. What passes to the partnership are the profits
751, Civil Code) or income and the use or usufruct of the same.
Consequently, upon the dissolution of the partnership,
Exception: such property is returned to the partners who own it.
When there is a stipulation that profits from other
(2) Profits acquired through chance. — Since the law
sources will become common property.
speaks only of profits which the partners may acquire by
their industry or work, it follows that profits acquired by
the partners through chance, such as lottery or by
Example:
lucrative title without employment of any physical or
intellectual efforts, are not included.
1. A and B entered into a universal partnership of all
present property. No stipulation was made regarding
(3) Fruits of property subsequently acquired. — In
other properties. Subsequently, A received a parcel of
view of paragraph 2, fruits of property subsequently
land by inheritance from his father; and another parcel of
acquired by the partners do not belong to the
land from the San Beda College as remuneration for A’s
partnership. Such profits may, however, be included by
work as professor therein Are the two parcels of land
express stipulation. But profits which the partners may
and their fruits to be enjoyed by the partnership?
acquire by their industry or work during the existence of
the partnership as well as the usufruct of their present
Answer:
properties belong to the partnership as a matter of right.
No, the two parcels of land and their fruits is not part of
An express stipulation is necessary to exclude any of
partnership.
them.
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(c) Those guilty of the same criminal offense, if the

partnership was entered into in consideration of the
same. (Art. 739, Civil Code)

Example: Art. 1783. A particular partnership has for its object

determinate things, their use or fruits, or specific
1. In a universal partnership of profits, A contributed undertaking, or the exercise of a profession or
vocation.
the use of his car. At the end of the partnership,
should the car be returned to him?
The above article defines a particular partnership. In
other words, it is a partnership which is neither a
Answer: universal partnership of present property nor a universal
partnership of profits.
Yes, the car should be returned to A.
Examples of particular partnerships are those formed for
Under the law, the universal partnership of profit the acquisition of an immovable property for the purpose
Movable property which each of the partners at the of reselling it at a profit or for the common enjoyment of
time of celebration of contract will be used as its use and the benefits derived therefrom, or those
usufruct only and the ownership shall be the partner established for the purpose of carrying out a specific
whom contributed the same. enterprise such as the construction of a building, or
those formed for the practice of a profession or vocation.
In the present case, since the ownership of the car is
always been with A and the use is only usufruct thus Example:
at the end of partnership the car should be returned To construct a building; to buy and sell real estate; to
to A. practice the law profession. Here in a sense, it is as if all
Art. 1783 CIVIL CODE OF THE PHILIPPINES, the
members are industrial partners.
ART. 1781. Articles of universal partnership, entered
into without specification of its nature, only OBLIGATION OF PARTNERSHIP
constitute a universal partnership of profits.
Different Relationships
Presumption in favor of universal partnership of
profits. When two persons, A and B, form a partnership,
different relations may arise:
Where the articles of partnership do not specify the
nature of the partnership, whether it is one of “present (a) Relations between A and B;
property” or of “profits” only, it will be presumed that the
(b) Relations between A and B on the one hand, and the
parties intended merely a partnership of profits. The
partnership on the other hand;
reason for this presumption is that a universal
partnership of profits imposes less obligations on the (c) Relations between A and B on the one hand, and
partners, since they preserve the ownership of their third persons on the other hand;
separate property.
(d) Relations between the partnership and the third
ART. 1782. Persons who are prohibited from giving persons.
each other any donation or advantage cannot enter
into a universal partnership. Some Obligations of a Partner

Persons Who Together Cannot Form a Universal (a) To give his contribution. (Arts. 1786, 1788, Civil
Partnership Code).
(a) Husband and wife — as a rule. (Art. 133, Civil Code).
(b) Those guilty of adultery or concubinage. (Art. 739, (b) Not to convert firm money or property for his own
Civil Code). use. (Art. 1788, Civil Code).
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(c) Not to engage in unfair competition with his own firm.

(Art. 1808, Civil Code).
Duration of a Partnership
(d) To account for and hold as trustee, unauthorized
personal profits. (Art. 1807, 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
(e) Pay for damages caused by his fault. (Art. 1794, Civil
Code). agreed upon.

(f) Duty to credit to the firm, payment made by a debtor a. expressly (as when there is a definite period)
who owes him and the firm. (Art. 1792, Civil Code).
b. impliedly (as when a particular enterprise is
(g) To share with the other partners the share of the undertaken it being understood that the firm ends as
partnership credit which he has received from an soon as its purpose has been achieved)
insolvent firm debtor. (Art. 1743, Civil Code).

Art. 1784. A partnership begins from the moment of

the execution of the contract, unless it is otherwise 1786. Every partner is a debtor of the partnership for
stipulated. whatever he may have promised to contribute
thereto.
General Rule:
He shall also be bound for warranty in case of
Partnership begin from the moment of the execution of eviction with regard to specific and determinate
the contract things which he may have contributed to the
partnership, in the same cases and in the same
manner as the vendor is bound with respect to the
Exception:
vendee. He shall also be liable for the fruits thereof
from the time they should have been delivered,
When there is a contrary stipulation. without the need of any demand.

The Article presupposes that there can be a future The Article speaks of three things:
partnership which at the moment has no juridical
existence yet. (a) the duty to contribute what had been promised;

The agreement for a future partnership does not of itself (b) the duty to deliver the fruits of what should have been
result in a partnership. The intent must later on be delivered; and
actualized by the formation of the intended partnership.
(See Limuco v. Calinao, C.A., L-10099-R, Sept. 30, (c) the duty to warrant.
1953)
Effect of failure to contribute property promised:
Art. 1785. When a partnership for a fixed term or
particular undertaking is continued after the 1. Partners becomes ipso jure a debtor of the
termination of such term or particular undertaking partnership even in the absence of any demand
without any express agreement, the rights and
duties of the partners remain the same as they were 2. Remedy of the other partner is not rescission but
at such termination, so far as is consistent with a specific performance with damages from defaulting
partnership at will. A continuation of the business by partner
the partners or such of them as habitually acted
therein during the term, without any settlement or Obligation with Respect to contribution of Property:
liquidation of the partnership affairs, is prima facie
evidence of a continuation of the partnership. 1. To contribute at the beginning of partnership or at the
stipulated time, the money, property or industry which he
may have compromised to contribute thereto.
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2. To answer for eviction in case the partnership is undoubtedly also the rule applies to capitalist partners
deprived of the property contributed. apparently; however, the share of the industrial partner
3. To answer to the partnership for the fruits of the is undoubtedly also available, for his industry may be
property, the contribution of which he delayed, from the worth even more than the entire capital contributed.
date they should have promised to contribute.
4. To preserve said property with the diligence of a good Art. 1791 – If there is no agreement to the contrary,
father of family pending delivery to partnership. in case of an imminent loss of the business of the
5. To indemnify partnership for any damage caused by partnership, any partner who refuses to contribute
the delay in its contribution. an additional share to the capital,except an industrial
partner, to save the venture, shall he obliged to sell
Obligations with respect to contribution of money his interest to the other partners.
and money converted to personal use
When a Capitalist Partner Is Obliged to Sell His
Interest to the Other Partners
1. To contribute on the date fixed the amount he has
undertaken to contribute to the partnership (a) If there is imminent loss of the business of the
partnership;
2. To reimburse any amount he may have taken from the
partnership coffers and converted to his own use (b) and he refuses (deliberately and not because of
poverty, otherwise this would be unjust) to contribute an
3. To pay for the agreed or legal interest, if he fails to additional share to the capital;
pay his contribution on time or in case he takes any
amount from the common fund and converts it to his own (c) and provided further that there is no agreement to the
use contrary.

Rule for the Industrial Partners

4. To indemnify the partnership for the damages caused
to it by the delay in the contribution or conversion of any
Note that the industrial partner is exempted.
sum for his personal benefits
Reason: He is already giving his entire industry.

A partner who has undertaken to contribute a sum of Art. 1792 – If any partner authorized to manage
money and fails to do so becomes a debtor for the collects a demandable sum which was owed to him
interest and damages from the time he should have in his own name, from a person who owed the
complied with his obligation. (1788) partnership another sum also demandable, the sum
thus collected shall be applied to the two credits in
The same rule applies to any amount he may have taken proportion to their amounts, even though he may
from the partnership coffers, and his liability shall begin have given a receipt for his own credit only, but
from the time he converted the amount to his own use. should he have given it for the account of the
partnership credit, the amount shall be fully applied
Unless there is a stipulation to the contrary, the to the latter.
partners shall contribute equal shares to the capital
of the partnership. (1790) The provisions of this article are understood to be
without prejudice to the right granted to the other
Amount of Contribution debtor by article 1252 (Application for payment), but
only if the personal credit of the partner should be
(a) It is permissible to contribute unequal shares, if there
more onerous to him.
is a stipulation to this effect.
(b) In the absence of proof, the shares are presumed
equal. Rule if Managing Partner Collects a Credit

For this Article to apply the following requisites must

The rule applies to capitalist partners apparently;
concur:
however, the share of the industrial partner is
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(a) The existence of at least 2 debts (one where the firm

is the creditor; the other, where the partner is the
creditor).
(b) Both sums are demandable. Example
(c) The collecting partner is a managing partner.
X owes a firm P1 million. P, a partner, was given his
Example share of P500,000, there being only two partners. Later
X
P, a managing partner, is X’s creditor to the amount of becomes insolvent. Must P share the P500,000 with the
P1 million, already demandable. X also owes the other partner?
partnership P1 million, also demandable. P collects P1
million. ANS.: Yes, even if P had given a receipt for his share
only.
(a) If P gives a receipt for the firm, it is the firm’s credit
that has been collected. Reason for the law: Equity demands proportionate share
in the benefits and losses. (See 11 Manresa 353).
(b) If P gives a receipt for his own credit only, P500,000
will be given to him; the other P500,000, to the firm. Note that Art. 1793 applies whether the partner has
(Note the use of the word “proportion.”) received HIS SHARE wholly or in part. (See Art. 1793).

Exception: Every partner is responsible to the partnership for

damages suffered by it through his fault, and he
X may decide that he is paying only P’s credit in cannot compensate them with the profits and
accordance with his right of “application of payment.” benefits which he may have earned for the
(Art. 1262, Civil Code). This is all right; BUT only if the partnership by his industry. However, the courts
personal credit of P is more onerous to X (Art. 1792, may equitably lessen this responsibility if through
Civil Code). the partner’s extraordinary efforts in other activities
of the partnership, unusual profits have been
When Article Does Not Apply
realized. (1794)
Art. 1792 does not apply if the partner collecting is not a
managing partner. Here there is no basis for the The risk of specific and determinate things, which
suspicion that the partner is in BAD FAITH. 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
Art. 1793 – A partner who has received, in whole or them.
in part, his share of a partnership credit, when the If the things contribute are fungible, or cannot be
other partnership credit, when the other partners kept without deteriorating, or if they were
have not collected theirs, shall be obliged, if the contributed to be sold, the risk shall be borne by the
debtor should there after become insolvent, to bring partnership. In the absence of stipulation, the risk of
to the partnership capital what he received even the things brought and appraised in the inventory,
though he may have given receipt for his share only. shall also be borne by the partnership, and in such
case the claim shall be limited to the value at which
Art. 1792 Compared With Art. 1793 (Where a Partner they were appraised. (1795)
Receives His Share of a Partnership Credit)
Risk of Loss

Art. 1792 Art. 1793 (a) Specific and determinate things (NOT fungible) —
(a) two debts (a) one debt only (firm whose usufruct is enjoyed by a firm — like a car —
credit) partner who owns it bears loss for ownership was never
(b) applies only to (b) applies to any transferred to the firm.
managing partner partner (b) Fungible or Deteriorable — Firm bears loss for
evidently, ownership was being transferred; otherwise,
use is impossible.
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(a) The share in the profits of the capitalist partners shall

(c) Things Contributed to be Sold — Firm bears loss for be in proportion to their contributions.
evidently, firm was intended to be the owner; otherwise,
a sale could not be made. (b) The losses shall be borne by the capitalist partners,
also in proportion to the contributions.
(d) Contributed under Appraisal — Firm bears loss
because this has the effect of an implied sale. The share of the industrial partners in the profits is that
share as may be just and equitable. If he also
contributed capital, he will receive a share of the profits
The partnership shall be responsible to every in proportion to his contribution; and
partner for the amounts he may have disbursed on
behalf of the partnership and for the corresponding (d) The industrial partner, who did not contribute capital,
interest, from the time the expense are made; it shall is not liable for losses [Article 1797].
also answer to each partner for the obligations he
Example:
may have contracted in good faith in the interest of
the partnership business, and for risks in
A, B and C formed a partnership, whereby each of them
consequence of its Management. (1796) contributed 30,000.00. They agreed that should the
partnership realize profits, the same shall be distributed
Responsibility of Firm in the following proportions:

(a) To refund amounts disbursed on behalf of firm plus A, as managing partner – 40%
interest (legal) from the time expenses were made (and B, as managing partner – 30%
not from demand, since after all, a partner is an agent, C, as managing partner- 30%
and the rule on agency applies to him).
In this case, the partners shall share the profits in
conformity of the agreement. If there is not agreement
Art. 1797. The losses and profits shall be distributed with respect to the share of each partner, then, they shall
in conformity with the agreement. If only the share of share the profits equally.
each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same
proportion. In the absence of stipulation, the share Art. 1798. If the partners have agreed to intrust to a
of each partner in the profits and losses shall be in third person the designation of the share of each
proportion to what he may have contributed, but the one in the profits and losses, such designation may
industrial partner shall not be liable for the losses. be impugned only when it is manifestly inequitable.
As for the profits, the industrial partner shall receive In no case may a partner who has begun to execute
such share as may be just and equitable under the the decision of the third person, or who has not
circumstances. If besides his services he has impugned the same within a period of three months
contributed capital, he shall also receive a share in from the time he had knowledge thereof, complain of
the profits in proportion to his capital. such decision. The designation of losses and profits
cannot be intrusted to one of the partners.
RULES FOR DISTRIBUTION OF PROFITS AND
LOSSES Designation by Third Person of Shares in Profits and
Losses
The distribution of profits and losses shall be in
accordance with the following rules: (a) The Article speaks of a “third person,” not a partner.

(1) They shall be distributed in conformity with the

agreement. (b) When designation by 3rd party may be impugned —
“when it is MANIFESTLY INEQUITABLE.”
(2) If only the share in profits has been stipulated, the
share in the losses shall be in the same proportion. (c) When designation by third party cannot be impugned
even if manifestly inequitable:
(3) In the absence of any stipulation:
1) if the aggrieved partner has already begun to execute
the decision;
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2) or if he has not impugned the same within a period of b).

three months from the time he had knowledge thereof
(not from the time of making). A will get only 1/3 of P1.5 million.

Under the law even the industrial partner does not share
Art. 1799. A stipulation which excludes one or more the loss it does not mean he is exempted from the net
partners from any share in the profits or losses is loss. Also, it is understood that he share in the losses
void. insofar as these can be accommodated in the profits. It
is but fair to compute all the various transactions in
Stipulation Excluding a Partner from Profits or determining the net profits or losses.
Losses
In the present case, since during the 2 year operation of
(a) The general rule is that a stipulation excluding one or partnership they had a profit of 3 million and loss of 1.5
more partners from any share in the profits or losses is Million, hence the actual profit is only 1.5 Million because
void. it incurred a loss of 1.5 Million, does A will only get 1/3 of
1.5M.
Reason: The partnership is for COMMON BENEFIT.

(b) One exception is in the case of the industrial partner Art. 1800. The partner who has been appointed
whom the law itself excludes from losses. (Art. 1797, manager the articles of partnership may execute all
par.2). acts of administration despite the opposition of his
If the law itself does this, a stipulation exempting the partners, unless he should act in bad faith; and his
industrial partner from losses is naturally valid. (Of power is irrevocable without just or lawful cause.
course, it is permissible to stipulate that even the The vote of the partners representing the controlling
industrial partner shall be liable for losses.) interest shall be necessary for such revocation of
power.

Example: Appointment of Manager

A, B, and C were partners, the first one being an Art. 1800 speaks of two modes of appointment:
industrial partner. During the first year of operation, the
firm made a profit of P3 million. During the second year, (a) appointment as manager in the articles of
a loss of P1.5 million was sustained. Thus, the net profit partnership;
for the two years of operation was only P1.5 million. In
the articles of partnership it was stipulated that A, the (b) appointment as manager made in an instrument
industrial partner would get 1/3 of the profits, but would other than the articles of partnership or made orally.
not participate in the losses.
Appointment in Articles of Partnership
(a) Is the stipulation valid? Why?
(a) Power is irrevocable without just or lawful cause.
(b) How much will A get: 1/3 of P3 million or 1/3 of P1.5 THEREFORE:
million? Why?
1) To remove him for JUST cause, the controlling
Answer: partners (controlling financial interest) should vote to
OUST HIM. (See Art. 1800, par. 1)
a)
2) To remove him WITHOUT CAUSE, or FOR AN
Yes, the stipulation is valid. UNJUST CAUSE, there must be UNANIMITY
(including his own vote).
Under the law, the industrial partner is exempted from
loss and as to industrial partner share it should be fair. Extent of power:

In the present case, since A as industrial partner and his 1) If he acts in GOOD faith, he may do all acts of
profit share of 1/3 is fair thus the said stipulation is valid. ADMINISTRATION (not ownership) despite the
opposition of his partners.
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concurrence of all is necessary for the validity of the

2) if in BAD faith, he cannot (however, he is presumed to acts. The absence or disability of one cannot be alleged,
be acting in good faith; moreover, if he really is in bad unless there is imminent danger of grave or irreparable
faith the controlling interest should remove him.) injury to the partnership [Article 1802].

Power to act may be revoked at any time, with or without Two or more partners have been intrusted with the
just cause. management

Art. 1801 Article 1802

Art. 1801. If two or more partners have been
Without specification of
intrusted with the management of the partnership
their respective duties
without specification of their respective duties, or
without a stipulation that one of them shall not act Without a stipulation that There is stipulated that
without the consent of all the others, each one may one of them shall not act none of the managing
separately execute all acts of administration, but if without the consent of all partners shall act without
any of them should oppose the acts of the others, the others the consent of the others
the decision of the majority shall prevail. In case of a
Rule: Rule:
tie, the matter shall be decided by the partners
a. Each one may a. The concurrence of all
owning the controlling interest.
separately execute all shall be necessary for
acts of administration the validity of the acts.
Rule When There Are Two or More Managers
b. But if any of them b. The absence or
should oppose the acts disability of any one of
Art. 1801 applies when:
of the others, the them cannot be
(a) Two or more partners are managers;
decision of the majority alleged, unless there is
(b) There is NO specification of respective duties;
shall prevail. imminent danger of
(c) There is no stipulation requiring unanimity. grave or irreparable
c. In case of a tie, the
matter shall be decided injury to the
by the partners owning partnership.
the controlling
interest.
MANAGEMENT BY TWO OR MORE PARTNERS

When there are two or more managing partners

appointed, without specification of their duties or without Art. 1803. When the manner of management has not
a stipulation on how each one will act: been agreed upon, the following rules shall be
observed:
(1) Each one may separately execute all acts of
administration. (1) All the partners shall be considered agents and
(2) If any of them opposes the acts of the others, the whatever any one of them may do alone shall bind
decision of the majority prevails. the partnership, without prejudice to the provisions
(3) In case of a tie, the partners owning the interest will of Article 1801.
decide [Article 1801]
(2) None of the partners may, without the consent of
the others, make any important alteration in the
Art. 1802. In case it should have been stipulated that immovable property of the partnership, even if it may
none of the managing partners shall act without the be useful to the partnership. But if the refusal of
consent of the others, the concurrence of all shall be consent by the other partners is manifestly
necessary for the validity of the acts, and the prejudicial to the interest of the partnership, the
absence or disability of any one of them cannot be court’s intervention may be sought.
alleged, unless there is imminent danger of grave or
irreparable injury to the partnership. General rule:

STIPULATION OF UNANIMITY When the manner of management has not been

agreed upon, all the partners shall be considered
In case there is a stipulation that none of the managing agents and whatever any one of them may do alone
partners shall act without the consent of others, the shall bind the partnership, without prejudice to the
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provisions of article 1801. However, none of the partners

may, without the consent of the others, make any Art. 1804. Every partner may associate another
important alteration in the immovable property of the person with him in his share, but the associate shall
partnership, even if it may be useful to the partnership. not be admitted in the partnership without the
But if the refusal of consent by the other partners is consent of all the other partners, even if the partner
manifestly prejudicial to the interest of the partnership, having an associate should be a manager.
the court’s intervention may be sought. (1803)
Associate of Partner
An act of a partner which is not apparently for the
(a) For a partner to have an associate in his share,
carrying on of business of the partnership in the usual consent of the other partners is not required.
way does not bind the partnership unless authorized by
the other partners. (b) For the associate to become a partner, ALL must
consent (whether the partner having the associate is a
Except when authorized by the other partners or unless manager or not).
they have abandoned the business, one or more but less
than all the partners have no authority to Reasons:

1. Assign the partnership property in trust for 1) Mutual trust is the basis of partnership;
creditors or on the assignee’s promise to pay
2) Change in membership is a modification or novation
the debts of the partnership;
of the contract.
2. Dispose of the goodwill of the business;
3. Do any other act which would make it
impossible to carry on the ordinary business
of a partnership;
4. Confess a judgement,
5. Enter into a compromise concerning a Art. 1805. The partnership books shall be kept,
partnership claim or liability, subject to any agreement between the partners, at
the principal place of business of the partnership,
6. Submit a partnership claim or liability to and every partner shall at any reasonable hour have
arbitration; access to and may inspect and copy any of them.
7. Renounce a claim of the partnership.
Partnership Books
Rule on Alterations
(a) The right in this Article is granted to enable the
(a) Par. 2 deals with “important alterations” in partner to obtain true and full information of the
“immovable property of the partnership.” partnership affairs (Art. 1806), for after all, he is a co-
owner of the properties, including the books. (Art. 1811).
(b) “Alteration” here contemplates useful expenses, not
necessary ones. (b) However, the Article presupposes a “going
partnership,” not one pending dissolution, for here the
(c) Consent of the others may be express or implied (as right depends on the court’s discretion nor to one
when the partners had knowledge of the alteration and already dissolved, for here, although the books belong to
no opposition was made by them). all the partners (in the absence of a contrary
agreement), still no single partner is duty bound to
continue the place of business for the benefit of the
others. Neither is a purchaser of the firm’s goodwill duty-
bound to keep the books for the inspection of the former
partners. (Sanderson v. Cooke, supra).
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Art. 1806. Partners shall render on demand true and negotiating for the formation of partnership. (Walker v.
full information of all things affecting the partnership Patterson, 1926, 166 Minn. 215).
to any partner or the legal representative of any
deceased partner or of any partner under legal The trust relations end with the death of the partnership
disability. (Bayer v. Bayer, 1926, 214 N.Y.S. 322) unless the
foundation for the breach of trust took place even during
Duty of Partners to Give Information the existence of the fi rm. (See Hanlon v. Haussermann
and Beam, 40 Phil. 796).
Reason for the law:

There must be no concealment between partners in all Example:

matters affecting the firm’s interest. This is required by
good faith. Thus, this duty to give on demand “true and Facts:
full information.”
A and B are partners in the operation of a cinema
[NOTE: Even without the demand, honesty demands the business. The theater was mortgaged to C, who
giving of vital information, the refraining from all kinds of foreclosed the mortgaged debt. A, in his own behalf,
concealment. (See Poss v. Gottlieb, 1922, 18 Misc. redeemed the property with his own private funds.
318). Subsequently, A filed a petition for cancelation of the old
title of the partnership and the issuance of another title in
Errors in the Books his name alone.

If partnership books contain errors, but said errors have Issue: Did A become absolute owner of the property?
not been alleged, the books must be considered entirely
correct insofar as the keeper of said books of account is Ruling:
concerned. (Ternate v. Aniversario, 8 Phil. 292).
No, in this case, when A redeemed the property in
Who Can Demand Information question, he became a trustee for the benefit of his co-
partner, B, subject to his right to demand from the latter
Note that under Art. 1806, the following are entitled to his contribution to the price of redemption plus legal
true and full information: interest (Catalan vs. Gatchalian, 1959)
(a) Any partner
(b) Legal representative of a dead partner Art. 1808. The capitalist partners cannot engage for
(c) Legal representative of any partner under legal their own account in any operation which is of the
disability kind of business in which the partnership is
engaged, unless there is a stipulation to the
contrary. Any capitalist partner violating this
Art. 1807. Every partner must account to the prohibition shall bring to the common funds any
partnership for any benefit, and hold as trustee for it profits accruing to him from his transactions, and
any profits derived by him without the consent of the shall personally bear all the losses.
other partners from any transaction connected with
the formation, conduct, or liquidation of the
partnership or from any use by him of its property. Business Prohibition on Capitalist Partners

(1) Duty to Account While the industrial partner is prohibited from engaging
“in business for himself” (any business), the capitalist
(a) Reason for the law: The fiduciary relations between partner is prohibited from engaging for his own account
the partners are relationships of trust and confidence in any operation “which is of the kind of business in
which must not be abused (Pang Lim & Galvez v. Lo which the partnership is engaged” (same or similar
Seng, 42 Phil. 282) or used to personal advantage. business that may result in competition). The
(Einsweiler v. Einsweiler, 1945, 390 Ill. 286). competition may become unfair in view of the knowledge
by the capitalist partner of the firm’s business secrets.
(b) The trust relations exist only during the life of the
partnership, not before, nor after. Hence, fiduciary
relations do not exist between the persons still
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Instances When There Is No Prohibition (b) However, in the instances enumerated in Art. 1809, it
is evident that the formal accounting can properly and
(a) When it is expressly stipulated that the capitalist justifiably be asked for thus:
partner can so engage himself. (Art. 1808, par. 1).
In No. 1 — he may have access to the books
(b) When the other partners expressly allow him to do In No. 2 — there is no express stipulation
so.
In No. 3 — it is unfair if other partners can take undue
advantage of partnership funds or partnership
(c) When the other partners impliedly allow him to do so.
transactions. (See Art. 1807).
Example: When ALL of them are likewise violating the In No. 4 — as when one partner has been travelling for a
article. long period of time on a business involving the fi rm.

(d) When the company ceases to be engaged in

business (hence during the period of liquidation and
winding up, the article no longer applies, even if the PROPERTY RIGHTS OF A PARTNER
“engaging” partner is himself the “liquidating partner”).
The reason is clear: there can possibly be no unfair Art. 1810. The property rights of a partner are:
competition. (1) His rights in specific partnership property;
(2) His interest in the partnership; and
(e) When the general-capitalist partner becomes merely
a limited partner in a competitive enterprise for after all, (3) His right to participate in the management
a limited partner does not manage.
(a) Example of “specific partnership property”: A and B
Effect of Violation each contributed a car for the partnership. The two cars
are specific partnership property.
1. The violator shall bring to the partnership all the profits (b) Example of “interest in the partnership” — the
illegally obtained partner’s share of the profits and losses (without
mentioning any particular or specific property).
2. But he shall personally bear all the losses (c) Note that the right to participate in the management
is a very valuable property right
Art. 1809. Any partner shall have the right to a formal
account as to partnership affairs:

(1) If he is wrongfully excluded from the partnership

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

Partners right in specific partnership property A, a partner, mortgaged his interest in partnership X
then worth P500,000.00 to B, a bank, for P300,000.00.
1. Equal right with his partners to possess specific Subsequently, the partnership suffered losses, wiping
partnership property for partnership purposes but not for out A’s interest.
any other purpose without the consent for his partners
2. Not assignable except in connection with the Answer:
assignment of rights of all the partners in the same B has no legal claim against the partnership to the extent
property. of P300,000.00. Under Article 1813, the mortgage
3. Not subject to attachment or execution except on a merely entitles it to receive in accordance with its
claim against the partnership. But partnership property contract the profits to which A would otherwise be
can be attached for the partnership debt. entitled. In this case, since A’s interest was wipe out thus
4. Not subject to legal support. B has no claim toward X partnership.

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

his share of the profits and surplus. ART. 1814. Without prejudice to the preferred rights
of partnership creditors under article 1827, on due
Partners right in interest and surplus application to a competent court by any judgment
creditor of a partner, the court which entered the
While in general, a partner’s interest in specific judgment, or any other court, may charge the
partnership property cannot be assigned, cannot be interest of the debtor partner with payment of the
attached, and is not subject to legal support, a partner’s unsatisfied amount of such judgment debt with
interest in the partnership (his share in the profits and interest thereon; and may then or later appoint a
surplus) can in general be assigned, be attached, be receiver of his share of the profits, and of any other
subject to legal support money due or to fall due to him in respect of the
partnership, and make all other orders, directions,
Art. 1813. accounts and inquiries which the debtor partner
might have made, or which circumstances of the
This article permits the conveyance by a partner of his case may require.
whole interest in the partnership (e.g., sale, donation, as
collateral security for a loan) without causing dissolution. The interest charged may be redeemed at any time
However, such assignment does not grant the assignee before foreclosure, or in case of a sale being
the right: directed by the court, may be purchased without
(a) To interfere in the management; thereby causing a dissolution:
(b) To require any information or account; or
(c) To inspect any of the partnership books (1) With separate property, by any one or more of the
The only rights of the transferee or assignee are as partners; or
follows: (2) With partnership property, by any one or more of
(1) To receive in accordance with his contract the profits the partners with the consent of all the partners
accruing to the assigning partner (Machuca vs. whose interests are not so charged or sold.
Chuidian, 2 Phil. 210 [1903].)
(2) To avail himself of the usual remedies provided by Nothing in this Title shall be held to deprive a
law in the event of fraud in the management; partner of his right, if any, under the exemption laws,
(3) To receive the assignor’s interest in case of as regards his interest in the partnership.
dissolution; and
(4) To require an account of partnership affairs, but only
in case the partnership is dissolved, and such account
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CHARGING OF INTEREST BY PERSONAL already protected by law or is patently deceptive,

CREDITORS confusing or contrary to existing laws” [Section 18,
Corporation Code].
General rule: Partnership creditors are preferred over
the personal creditors of the partners as regards (2) Use of names of deceased partner in law firms is
partnership property. “permissible provided that the firm indicates in all its
communications that said partner is deceased” [Rule
Exception: On due application by any judgment creditor
3.02, Code of Professional Responsibility]
of a partner, a competent court may:
Liability of Strangers Who Include Their Names
(1) Charge the interest of the partner for the satisfaction
Strangers (those not members of the partnership)
of the judgment debt;
who include their names in the firm are liable as
(2) Appoint a receiver of the share of the profits and of partners because of estoppel (Art. 1815, par. 2) but
any other money due or to fall due to the partner; and do not have the rights of partners for after all, they
(3) Make all other orders, directions, accounts and had not entered into any partnership contract. The
inquiries, which the debtor partner might have made, or purpose of the law is to protect customers from
which the circumstances may require. being misled as to whom they are dealing with.
(Sagal v. Fylar, 89 Conn. 293).
The interest charged may be redeemed before
foreclosure or, in case of sale directed by the court, may NOTE: If a person misrepresents himself as a
be purchased without causing dissolution: partner, and as a consequence thereof, a stranger is
misled, the deceiver is liable as a partner (without
(1) With separate property, by one or more of the the rights of a partner) and this is true, even if he did
partners; or
not include his name in the firm name.]
(2) With partnership property, by one or more of the
partners, will consent of all, except the debtor partner.
LIABILITY OF PARTNERS FOR PARTNERSHIP
CONTRACTS
OBLIGATIONS OF THE PARTNERS WITH REGARD
TO THIRD PERSONS ACTS APPARENTLY FOR THE CARRYING ON
OF USUAL BUSINESS

ART. 1815. Every partnership shall operate under a General rule: Any act of a partner which is
firm name, which may or may not include the name apparently for the carrying on of the usual business
of one or more of the partners. of the partnership binds the latter, including the
execution of any instrument in the partnership name.
Those who, not being members of the partnership,
include their names in the firm name, shall be Exception: The partnership is not bound when the
subject to the liability of a partner. following concur:
(1) The partner has in fact no authority to act; and
General rule: (2) The person with whom he deals has knowledge
of such fact [Article 1818 (1)]
The partners may adopt any firm name desired.

Exceptions:

(1) They cannot use a name which is “identical or

deceptively or confusingly similar to an existing or
corporation [or partnership] or to any other name
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ACTS NOT APPARENTLY FOR CARRYING ON CONVEYANCE OF PARTNERSHIP REAL

OF THE USUAL BUSINESS PROPERTY (1819)

General rule: Acts of a partner which is not TITLE IN PARTNERSHIP NAME

apparently for carrying on of the usual business
does not bind the partnership. Any partner may convey the real property in the
name of the partnership. The partnership can
Exception: The partnership is bound if the other recover it,
partners authorized him to do the act [Article 1818,
2nd par.]. Except when:

ACTS OF STRICT DOMINION (1) The act of the partner binds the partnership,
when he has authority to carry out the usual
General rule: One or some of the partners have no business of the partnership, under Article 1818, 1st
authority to do the following acts of strict dominion: par.; or
(1) Assign the partnership property in trust for (2) If not so authorized, the property has been
creditors or on the assignee’s promise to pay the conveyed by the grantee, or a person claiming under
debts of the partnership; him, to a holder for value and without knowledge that
(2) Dispose of the goodwill of the business; the partner exceeded his authority [Article 1819, 1st
(3) Do any other act which makes it impossible to par.]
carry on the ordinary business of the partnership;
(4) Confess a judgment; A partner authorized to carry out the usual business
(5) Enter into a compromise concerning a may convey, in his own name, the equitable interest
partnership claim or liability; of the partnership [Article 1819, 2nd par.]
(6) Submit a partnership claim or liability to
arbitration; TITLE IN THE NAME OF OTHER PERSONS
(7) Renounce a claim of the partnership.
Where the title is in the name of one or more but not
Exceptions: They may do so if: all the partners, and the record does not disclose the
right of the partnership:
(1) Authorized by all the partners; or
(2) The other partners have abandoned the business (1) The partners having title may convey title.
[Article 1818, 3rd par.]. (2) The partnership may recover it when the partners
conveying title have no authority to carry on the
ACTS IN CONTRAVENTION OF A RESTRICTION usual business of the partnership, unless the
purchaser or his assignee is:
Any act of a partner in contravention of a restriction (a) A holder for value; and
on authority does not bind the partnership to persons (b) Without knowledge that the act exceeded
having knowledge of the restriction [Article 1818, 4th authority [Article 1819, 3rd par.].
par.]
Where the title is in the name of one or more or all the
partners, or in a third person in trust for the partnership a
partner authorized to carry on the usual business may
convey equitable title in the partnership name or in his
own name [Article 1819, 4th par.].
Where the title is in the names of all the partners, a
conveyance executed by all of them passes all the rights
to the property [Article 1819, 5th par.]
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ART. 1820. An admission or representation made A third person desiring to give notice to a partnership
by any partner concerning partnership affairs of some matter pertaining to the partnership
within the scope of his authority in accordance business need not communicate with all the
with this Title is evidence against the partners. If notice is delivered to a partner, that is an
partnership. effective communication to the partnership
notwithstanding the failure of the partner to
Admission or Representation Made By a Partner communicate such notice or knowledge to his co-
partners.
Generally, an admission by a partner is an
admission against the partnership under the Cases of knowledge of a partner.
conditions given:
Article 1821 speaks of three cases of knowledge,
(a) The admission must concern partnership affairs namely:
(b) Within the scope of his authority (1) Knowledge of the partner acting in the particular
matter acquired while a partner;
Restrictions on the Rule (2) Knowledge of the partner acting in the particular
matter then present to his mind; and
(a) Admissions made BEFORE dissolution are (3) Knowledge of any other partner who reasonably
binding only when the partner has authority to act on could and should have communicated it to the acting
the particular matter. partner.

(b) Admissions made AFTER dissolution are binding Art. 1822. Where, by any wrongful act or
only if the admissions were necessary to WIND UP omission of any partner acting in the ordinary
the business. course of the business of the partnership or with
the authority of his co-partners, loss or injury is
Art. 1821. Notice to any partner of any matter relating caused to any person, not being a partner in the
to partnership affairs, and the knowledge of the partnership, or any penalty is incurred, the
partner acting in the particular matter, acquired partnership is liable therefor to the same extent
while a partner or then present to his mind, and the as the partner so acting or omitting to act.
knowledge of any other partner who reasonably
could and should have communicated it to the Art. 1823. The partnership is bound to make
acting partner, operate as notice to or knowledge of
good the loss:
the partnership, except in the case of a fraud on the
partnership, committed by or with the consent of
(1) Where one partner acting within the scope of
that partner.
his apparent authority receives money or
property of a third person and misapplies it; and
Notice to, or knowledge of, a partner of matter
(2) Where the partnership in the course of its
affecting partnership affairs.
business receives money or property of a third
person and the money or property so received is
Like the law of agency, the law of partnership
misapplied by any partner while it is in the
imputes notice to, or knowledge of, any partner of
custody of the partnership.
any matter relating to partnership affairs to the
partnership except in case of fraud. The reason is
that members of a partnership stand in a fiduciary
relationship to one another, and it is presumed that
Liability of Partnership for Misappropriation The
the partners disclose to one another all relevant
difference between par. 1 and par. 2 is that in the former
information concerning partnership business.
the misappropriation is made by the receiving partner,
while in the latter, the culprit may be any partner. The
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effect however is the same in both cases, as can be EFFECT ON EXISTING PARTNERSHIP OR OTHER
seen from Art. 1824 PERSONS NOT ACTUAL PARTNERS

LIABILITY IN CASE OF PARTNERSHIP BY (1) When a person has been represented to be a partner
ESTOPPEL (a) in an existing partnership, or (b) with one or more
persons not actual partners, he is an agent of the
PARTNER BY ESTOPPEL persons consenting to such representation to bind them
to the same extent and in the same manner as though
A partner by estoppel is a person who, by words spoken he were a partner in fact, with respect to persons who
or written or by conduct rely upon the representation.
[1] represents himself as a partner or (2) When all the members of the existing partnership
[2] consents to another representing him to anyone consent to the representation, a partnership act or
as a partner: obligation results.
(1) In an existing partnership; or (3) In all other cases, it is the joint act or obligation of the
person acting and the persons consenting to the
(2) With one or more persons not actual partners
representation [Article 1825, 2nd par.]
[Article 1825, 1st par.].

LIABILITY OF A PARTNER BY ESTOPPEL NATURE OF LIABILITY

I. PERSONAL REPRESENTATION
Summarizing Article 1825, a partner by estoppel is liable
in the following manner:
A partner by estoppel is liable to any such persons:
(1) He is liable as though he were a partner when:
(1) To whom such representation has been made; and
(a) There is an existing partnership;
(2) Who has, on the faith of such representation, given
b) All the partners consented to the representation;
credit to the actual or apparent partnership [Article 1825, and
1st par.]
(c) A partnership liability results.

(2) He is liable jointly and pro rata as though he were a

II. PUBLIC REPRESENTATION
partner in fact with those who consented to the
representation when:
If he has made such representation or consented to its
(a) There is an existing partnership but not all the
being made in a public manner, whether the partners consented; or
representation has or has not been [personally] made or (b) There is no existing partnership and all those
communicated to such persons so giving credit by or represented as partners consented to the
with his knowledge, and: representation.
(1) Partnership liability results, he is liable as though he
(3) He is liable separately when:
were an actual member of the partnership.
(a) There is an existing partnership but none of the
(2) No partnership liability results, he is liable pro rata partners consented; or
with the other persons, if any, so consenting to the
(b) There is no existing partnership and not all of
contract or representation. those represented as partners consented to the
(3) When there are no such other persons, he is representation.
separately liable [Article 1825, 1st par.].
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ART. 1826. A person admitted as a partner into Article 1828. The dissolution of a partnership is the
an existing partnership is liable for all the change in the relation of the partners caused by any
obligations of the partnership arising before his partner ceasing to be associated in the carrying on
admission as though he had been a partner when as distinguished from the winding up of the
such obligations were incurred, except that this business.
liability shall be satisfied only out of partnership
property, unless there is a stipulation to the Article 1829. On dissolution the partnership is not
contrary. terminated, but continues until the winding up of
partnership affairs is completed.
LIABILITY OF AN INCOMING PARTNER
Dissolution – the change in the relation of the partners
A person admitted as a partner is liable: 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
(1) For obligations incurred subsequent to his admission terminate the partnership, which continues until the
as the other partners are liable; winding up of partnership affairs is completed [Article
(2) For obligations incurred before his admission, but will 1829].
be satisfied only out of the partnership property, unless
otherwise stipulated that he fully assumes such Winding up – the actual process of settling the
obligations. partnership business or affairs after dissolution. It
involves collection and distribution of partnership assets,
ART. 1827. The creditors of the partnership shall be payment of debts, and determination of the value of the
preferred to those of each partner as regards the interest of the partners in the partnership
partnership property. Without prejudice to this right,
the private creditors of each partner may ask the Termination – the point in time when all partnership
affairs are completely wound up and finally settled. It
attachment and public sale of the share of the latter
signifies the end of the partnership life [De Leon (2010)]
in the partnership assets.
WITHOUT VIOLATION OF THE AGREEMENT
Reason for the Preference of Partnership Creditors
(1) By the termination of the definite term or particular
After all, the partnership is a juridical person with whom undertaking specified in the agreement;
the creditors have contracted. Moreover, the assets of (2) By the express will of any partner, who must act in
the partnership must first be exhausted. good faith, when no definite term or particular is
specified.
Reason Why Individual Creditors May Still Attach the (3) By the express will of all the partners who have not
Partner’s Share assigned their interests or suffered them to be charged
for their separate debts, either before or after the
After all, the remainder (after paying partnership termination of any specified term or particular
undertaking;
obligations) really belongs to the partnership.
(4) By the expulsion of any partner from the business
bona fide in accordance with such a power conferred by
Sale by a Partner of His Share to a Third Party the agreement between the partners [Article 1830(1)].

If a partner sells his share to a third party, but the firm IN CONTRAVENTION OF THE AGREEMENT
itself still remains solvent, creditors of the partnership
cannot assail the validity of the sale by alleging that it is Where circumstances do not permit dissolution under
made in fraud of them, since they have not really been any other provision of Article 1830, it may also be
prejudiced. (Walch v. Lim & Chay Seng, 58 Phil. 13) dissolved by the express will of any partner at any time.

Thus, even if there is a specified term, one partner can

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

BY OPERATION OF LAW
Dissolution terminates all authority of any partner to act
for the partnership
(1) By any event which makes it unlawful for the
business of the partnership to be carried on or for the
members to carry it on in partnership; Exception:

(2) When a specific thing which a partner had promised 1. By any act appropriate for winding up partnership
to contribute, perishes before delivery, or by the loss of affairs or completing transactions unfinished at
the thing, only the use or enjoyment of which has been dissolution.
contributed; the loss of a specific thing, however, does
not dissolve the corporation after its ownership has 2. By any transaction which would bind the partnership
already been transferred to the partnership; dissolution had not taken place, provided the other party
(3) By the death of any partner; to the transaction:
(4) By the insolvency of any partner or of the
partnership; a. Had extended credit to the partnership prior to
(5) By the civil interdiction of any partner dissolution and had no knowledge or notice of his want
of authority; or

b. Though he had not extended credit nevertheless

known of the partnership prior to dissolution and having
BY DECREE OF COURT
no knowledge of notice of dissolution, the fact of
dissolution had not been advertised in a newspaper of
A partner may apply for dissolution in court when:
general circulation in place (or each place if more than
one) at which the partnership business was regularly
(1) A partner has been declared insane in any judicial
carried on.
proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract; Liability of partner shall be satisfied out of partnership
(3) A partner has been guilty of such conduct as tends to asset alone, when such partner had been prior to
affect prejudicially the carrying on of the business; dissolution
(4) A partner willfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts 1. Unknown as a partner to the person with whom the
himself in matters relating to the partnership business contract is made, and
that it is not reasonably practicable to carry on the
business in partnership with him; 2. So far unknown and inactive in partnership affairs that
(5) The business of the partnership can only be carried the business reputation of the partnership could not be
on at a loss; said to have been in any degree due to his connection
(6) Other circumstances render dissolution equitable. with it.

OTHER CAUSES With respect to the partners

(1) When a new partner is admitted into an existing
partnership; 1. When the dissolution is not by the act, insolvency or
(2) When any partner retires; death of partner, or
(3) When the other partners assign their rights to the
sole remaining partner; 2. When the dissolution is by such act, insolvency or
(4) When all the partners assign their rights in the death of a partner, each partner is liable to his co-
partnership property to third persons [Article 1840]. partners for this share of any liability created by any
partner acting for the partnership as if the partnership
The statutory enumeration of the causes of dissolution is had not been dissolved unless:
exclusive [De Leon (2010)]
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1. The dissolution being by act of any partner, ON EXISTING LIABILITY OF PARTNERS

the partner acting for the partnership had
knowledge of the dissolution, or General rule: Dissolution does not of itself discharge the
existing liability of any partner.
2. The dissolution being by the death or
insolvency of a partner, the partner acting for the Exception: A partner may be relieved when there is an
partnership had knowledge or notice of the agreement to that effect between:
death or insolvency.
(1) Himself;
With respect to persons not partners
(2) The partnership creditor; and
The partnership as in no case bound by any act of a
partner after dissolution towards person not partners in (3) The person or partnership continuing the business.
the following instances:
Such agreement may be inferred from the course of
a. Where the partnership is dissolved because it is dealing between the creditor having knowledge of the
unlawful to carry on the business, unless the act is dissolution and the person or partnership continuing the
appropriate for winding up partnership affairs or business.

b. Where the partner has become insolvent, or

In case of dissolution by death, the individual property of
a deceased partner is liable for obligations of the
c. Where the partner has no authority to wind up partnership incurred while he was a partner, after
partnership affairs except by transactions with one who payment of his separate debts [Article 1835]

1. Had extended credit to the partnership prior to Article 1836. Unless otherwise agreed, the partners
dissolution and had no knowledge or notice of who have not wrongfully dissolved the partnership
his want of authority, or or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the
2. Had not extended credit to the partnership partnership affairs, provided, however, that any
prior to dissolution and had no knowledge or partner, his legal representative or his assignee,
notice of his want of authority, the fact of his upon cause shown, may obtain winding up by the
want of authority has not been advertising the court.
fact of dissolution.
WHO MAY WIND UP
Article 1835. The dissolution of the partnership does
not of itself discharge the existing liability of any The following partners have the right to wind up the
partner. partnership affairs:

A partner is discharged from any existing liability (1) Those designated in an agreement;
upon dissolution of the partnership by an agreement
to that effect between himself, the partnership
(2) Those who have not wrongfully dissolved the
creditor and the person or partnership continuing
partnership; or
the business; and such agreement may be inferred
from the course of dealing between the creditor
having knowledge of the dissolution and the person (3) The legal representative of the last surviving partner,
or partnership continuing the business. who was not insolvent. Any partner or his legal
representative or assignee may obtain winding up by the
court, upon cause shown.
The individual property of a deceased partner shall
be liable for all obligations of the partnership
incurred while he was a partner, but subject to the
prior payment of his separate debts.
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MANNER OF WINDING UP (2) They pay any partner who has caused the dissolution
wrongfully the value of his interest in the partnership,
The winding up of the dissolved partnership may be less any damages recoverable, and indemnity against all
done either: present or future partnership liabilities [Article 1837(2)].

(1) Judicially, under the control and direction of the PARTNER WHO CAUSED THE DISSOLUTION
proper court upon cause shown by any partner, his legal
representative, or his assignee; or The partner who caused the dissolution wrongfully has
the following rights:
(2) Extrajudicially, by the partners themselves without
intervention of the court. (1) If the business is not continued, all the rights Article
1837, 1st par., subject to liability for damages;
RIGHTS OF PARTNERS IN CASE OF DISSOLUTION
(1837) (2) If the business is continued, the right, as against his
co-partners and all claiming through them, to:
DISSOLUTION WITHOUT VIOLATION OF THE
AGREEMENT (a) Ascertainment, without considering the value of the
goodwill of the business, and payment to him in cash the
Each partner may have: value of his partnership interest, less any damage, or
have the payment secured by a bond approved by the
(1) The partnership property applied to discharge the court; and
partnership liabilities; and
(b) Be released from all existing liabilities of the
partnership [Article 1837(3)]
(2) The surplus applied in cash to the net amount owing
to the respective partners. This is a right as against his
co-partners and all partners claiming through them in
respect of their interests in the partnership. It cannot be
availed if there is an agreement to the contrary [Article RIGHTS OF PARTNERS IN CASE OF RESCISSION
1837 (1)].
A partner, who is induced by fraud or misrepresentation
DISSOLUTION IN CONTRAVENTION OF THE to become such partner, may rescind the contract.
AGREEMENT (1837) Without prejudice to any other right, he is entitled:

The partners who did not cause the dissolution (1) To a lien on, or right of retention of, the surplus of
wrongfully has the following rights: the partnership property after satisfying the partnership
(1) To demand the right under Article 1837, 1st par.; liabilities to third persons for any sum of money paid by
may have the partnership property applied to discharge him for the purchase of an interest in the partnership and
its liabilities, and the surplus applied to pay in cash the for any capital or advances contributed by him;
net amount owing to the respective partners
(2) To be indemnified for damages for breach of the 2) To stand, after all liabilities to third persons have been
agreement against the partner who caused the satisfied, in the place of the creditors of the partnership
dissolution wrongfully [Article 1837(1)]; for any payments made by him in respect of the
(3) To continue the business: partnership liabilities; and
(a) In the same name;
(b) By themselves or jointly with others;
(3) To be indemnified by the person guilty of the fraud or
(c) During the agreed term for the partnership
making the representation against all debts and liabilities
of the partnership [Article 1838]
For the purpose of continuing the business, the said
partners may possess the partnership property provided:

(1) They secure the payment by bond approved by the

court; or
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

SETTLING OF ACCOUNTS BETWEEN PARTNERS ORDER OF APPLICATION OF ASSETS

(1839)
The partnership liabilities shall rank, in order of payment,
Subject to any agreement to the contrary, the following as follows:
rules shall be observed in settling accounts between
partners after dissolution. (1) Those owing to creditors other than partners;

COMPOSITION OF PARTNERSHIP ASSETS (2) Those owing to partners other than for capital and
profits;
(1) The partnership property; and
(3) Those owing to partners in respect of capital;
(2) The contributions of the partners necessary for the
payment of all the liabilities [Article 1839(1)]. (4) Those owing to partners in respect of profits [Article
1839(2)]
In accordance with the subsidiary liability of the partners,
the partnership property shall be applied first to satisfy DOCTRINE OF MARSHALING OF ASSETS
any liability of the partnership [Article 1839(3)].
When partnership property and the individual properties
AMOUNT OF CONTRIBUTION FOR LIABILITIES of the partners are in possession of a court for
distribution:
The rules for distribution of losses shall determine the
contributions of the partners [Article 1839(4)]. As such: (1) Partnership creditors have priority on partnership
property;
(1) The contribution shall be in conformity with the
agreement. (2) Separate creditors have priority on individual
property, saving the rights of lien of secured creditors.
(2) If only the share in profits has been stipulated, the
contribution shall be in the same proportion. (3) Anything left from either shall be applied to satisfy the
other [Article 1839(8)]
(3) In the absence of any stipulation, the contribution
shall be in proportion to the capital contribution [Article
1797]
LIMITED PARTNERSHIP
ENFORCEMENT OF CONTRIBUTION
ELEMENTS OF LIMITED PARTNERSHIP
The following persons have the right to enforce the
contributions: (1) A partnership;
(2) Formed by two or more persons;
(1) An assignee for the benefit of creditors; (3) Having as members:
(a) One or more general partners; and
(2) Any person appointed by the court; or (b) One or more limited partners.

(3) To the extent of the amount which he has paid in The limited partners as such shall not be bound by the
excess of his share of the partnership liability, any obligations of the partnership [Article 1843].
partner or his legal representative [Article 1839(5) and
(6)]. Exception:

The individual property of a deceased partner shall be 1. The name of the partnership failed to add the
liable for the contributions [Article 1839(7)].
word “Limited or “Ltd”.
2. Failure to file the article of co-partnership to SEC
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

3. The contributions of a limited partner may be cash Nature of contribution

or property, but not services (1845) Cash, property or industry Cash or property only, not
4. The surname of a limited partner appears in the industry
partnership name unless: Proper party in proceedings by or against partnership
a) It is also the surname of a general partner or Proper party Not proper party, unless
[1] he is also a general
b) Prior to the time when the limited partner partner; or
became such, the business has been carried on [2] where the object of the
under a name which his surname appeared (1845) proceedings is to enforce
5. A limited partner takes part in the control of the his right against or liability
business (1848) to the partnership
Effect of retirement, death, insanity or insolvency
CHARACTERISTICS Dissolves partnership Does not dissolve
partnership; rights
transferred to executor or
(1) A limited partnership is formed by compliance with
administrator for selling his
the statutory requirements [Article 1844]. estate
(2) The business is controlled or managed by one or
more general partners, who are personally liable to
creditors [Articles 1848 and 1850]. GENERAL AND LIMITED PARTNER AT THE SAME
(3) One or more limited partners contribute to the capital TIME
and share in the profits but do not manage the business
and are not personally liable for partnership obligations A person may be a general and a limited partner in the
beyond their capital contributions [Articles 1845, 1848 same partnership at the same time. This fact must be
and 1856]. (4) Obligations or debts are paid out of the stated in the certificate. A person who is a general, and
partnership assets and the individual property of the also at the same time a limited partner, shall have all the
general partners [Article 1843]. rights and powers, and be subject to all the restrictions
(5) The limited partners may have their contributions of a general partner, except that, in respect to his
back subject to conditions prescribed by law [Articles contribution as a limited partner, he shall have the rights
1844 and 1957]. against the other members which he would have had if
he were not also a general partner [Article 1853].
A limited partnership has the following advantages:
MANAGEMENT
(1) For general partners, to secure capital from others
while retaining control and supervision for the business; Only general partners have the right to manage the
partnership. If a limited partner takes part in the control
(2) For limited partners, to have a share in the profits of the business, he becomes liable as a general partner
without risk of personal liability [Article 1848]

OBLIGATIONS OF A LIMITED PARTNER

GENERAL AND LIMITED PARTNERS
DISTINGUISHED OBLIGATIONS RELATED TO CONTRIBUTION
The contributions of a limited partner may be cash or
General partner Limited partner other property, but not services [Article 1845].
Extent of liability
Personally, but Liable only to the extent of A limited partner is liable for partnership obligations
subsidiarily, liable for his capital contributions when he contributes services instead of only money or
obligations of the
property to the partnership [De Leon (2010)].
partnership
Right to participate in management
Unless otherwise agreed No right to participate in A limited partner is liable to the partnership:
upon, all general partners management
have an equal right to
manage the partnership
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

(1) For the difference between his actual contribution (2) He takes part in the control of the business [Article
and that stated in the certificate as having been made; 1848]
and
(2) For any unpaid contribution which he agreed in the RIGHTS OF A LIMITED PARTNER
certificate to make in the future at the time and on the
conditions stated in the certificate [Article 1858, 1st par.] IN GENERAL

A person who has contributed capital to a partnership, A limited partner shall have the same rights as a general
erroneously believing that he has become a limited partner to:
partner, but his name appears in the certificate as a (1) Require that the partnership books be kept at the
general partner or he is not designated as a limited principal place of business of the partnership;
partner, is not personally liable as a general partner by (2) To inspect and copy any of them at a reasonable
reason of his exercise of the rights of a limited partner, hour;
provided: (3) To demand true and full information of all things
affecting the partnership;
(1) On ascertaining the mistake, he promptly renounces (4) To demand a formal account of partnership affairs
his interest in the profits of the business or other whenever circumstances render it just and reasonable;
compensation by way of income [Article 1852]; (5) To ask for dissolution and winding up by decree of
(2) He does not participate in the management of the court;
business [Article 1848]; and (6) To receive a share of the profits or other
(3) His surname does not appear in the partnership compensation by way of income; and
name [Article 1846] (7) To receive the return of his contribution provided the
partnership assets are in excess of all its liabilities
He holds as trustee for the partnership: [Article 1851]
RIGHT TO TRANSACT BUSINESS WITH THE
(1) Specific property stated in the certificate as PARTNERSHIP
contributed by him, but which was not contributed or A limited partner may:
which has been wrongfully returned; and (1) Loan money to the partnership;
(2) Money or other property wrongfully paid or conveyed (2) Transact other business with the partnership; and
to him on account of his contribution [Article 1858, 2nd (3) Receive a pro rata share of the partnership assets
par.]. with general creditors if he is not also a general partner
[Article 1854, 1st par.].
These liabilities can be waived or compromised only by
the consent of all members. Such waiver or compromise, LIMITATIONS
however, shall not affect the right to enforce said
liabilities of a creditor: A limited partner, with respect to his transactions with
the partnership, cannot:
(1) Who extended credit; or (1) Receive or hold as collateral security any partnership
(2) Whose claim arose, after the filing or before a property; or
cancellation or amendment of the certificate, to enforce (2) Receive any payment, conveyance, or release from
such liabilities [Article 1858, 3rd par.] liability if it will prejudice the right of third persons [Article
1854, 1st par.].
LIABILITY TO PARTNERSHIP CREDITORS
Violation of the prohibition is considered a fraud on the
General rule: A limited partner is not liable as a general creditors of the partnership [Article 1854, 2nd par.]
partner. His liability is limited to the extent of his
contributions [Article 1843]. RIGHT TO SHARE IN PROFITS

Exceptions: The limited partner is liable as a general A limited partner may receive from the partnership the
partner when: share of the profits or the compensation by way of
(1) His surname appears in the partnership name, with income stipulated for in the certificate.
certain exceptions [Article 1846, 2nd par.].
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

This right is subject to the condition that partnership Exception: By an agreement of all the partners [general
assets will still be in excess of partnership liabilities after and limited] in the certificate, priority or preference may
such payment [Article 1856]. The partnership liabilities be given to some limited partners over others with
being referred to exclude the liabilities to the limited and respect to:
general partners (1) The return of contributions;
(2) Their compensation by way of income; or
RIGHT TO RETURN OF CONTRIBUTION (3) Any other matter [Article 1855]

A limited partner may have his contributions withdrawn RIGHT TO ASSIGN INTEREST
or reduced when:
(1) All the liabilities of the partnership, except liabilities to The interest of a limited partner is assignable.
general partners and to limited partners on account of
their contributions, have been paid or there remains The assignee may become:
property of the partnership sufficient to pay them; (1) A substituted limited partner; or
(2) The consent of all members is had, unless the return (2) A mere assignee
may be demanded as a matter of right; and
(3) The certificate is cancelled or so amended as to set A substituted limited partner is a person admitted to all
forth the withdrawal or reduction [Article 1857, 1st par.] the rights of a limited partner who has died or has
assigned his interest in a partnership. He has all the
The return of his contributions may be demanded, as a rights and powers, and is subject to all the restrictions
matter of right [i.e., even when not all the other partners and liabilities of his assignor
consent], when (1) and (2) above are complied with: Except those liabilities which:
(1) On the dissolution of the partnership; (1) The assignee was ignorant of; and
(2) Upon the arrival of the date specified in the certificate (2) Cannot be ascertained from the certificate [Article
for the return; or 1859, 2nd and 6th par
(3) After the expiration of a 6-month notice in writing
given by him to the other partners, if no time is fixed in An assignee is only entitled to receive the share of the
the certificate for: profits or other compensation by way of income, or the
(a) The return of the contribution; or return of contribution, to which the assignor would
(b) The dissolution of the partnership [Article 1857, 2nd otherwise be entitled.
par.]
He has no right:
General rule: A limited partner, irrespective of the nature (1) To require any information or account of the
of his contribution has only the right to demand and partnership transactions;
receive cash in return for his contribution. (2) To inspect the partnership books [Article 1859, 3rd
par.]

An assignee has the right to become a substituted

Exceptions: limited partner if:
He may receive his contribution in a form other than (1) All the partners consent thereto; or
cash when: (2) The assignor, being empowered to do so by the
(1) There is a statement in the certificate to the contrary; certificate, gives him that right [Article 1859, 4th par.]
or
(2) All the members of the partnership consent [Article An assignee becomes a substituted limited partner when
1857, 3rd par.] the certificate is appropriately amended [Article 1859,
5th par.]
PREFERENCE OF LIMITED PARTNERS

General rule: The limited partners stand on equal

footing.
 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: John Jay A. Locsin, JD A.Y. 2nd SEMESTER, 2021-2022

RIGHT TO ASK FOR DISSOLUTION (4) Those to general partners other than for capital and
profits;
A limited partner may have the partnership dissolved (5) Those to general partners in respect to profits;
and its affairs wound up when: (6) Those to general partners in respect to capital [Article
(1) He rightfully but unsuccessfully demands the 1863, 1st par.].
return of his contribution; or
(2) He has a right to contribution but his contribution
is not paid because the partnership property is REFERENCES:
insufficient to pay its liabilities [Article 1857, 4th par.]  Agency, Trust, Partnership and Joint
Ventures by Cesar L. Villanueva and Teresa
DISSOLUTION S. Villanueva-Tiansay (2015)
 Civil Code of the Philippines IV Annotated by
A limited partnership is dissolved in much the same way Edgardo Parras (2013)
and causes as an ordinary partnership [De Leon (2010)].  Civil Law Reviewer by Desiderio P. Jurado
(2019)
General rule: The retirement, death, insolvency, insanity  Agency, Partnership and Trust by Hector De
or civil interdiction of a general partner dissolves the Leon (2005)
partnership
 Agency, Partnership and Trust by Hector De
Leon (2010)
Exception: It is not so dissolved when the business is
 Civil Reviewer by UP LAW BAR Operation
continued by the remaining general partners:
Commission (2016)
(1) Under a right to do so stated in the certificate; or
(2) With the consent of all members [Article 1860]

Upon the death of a limited partner, his executor or

administrator shall have:
(1) All the rights of a limited partner for the purpose of
settling his estate; and
(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;