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ACRF - Partnership and Corporation (Domingo)

Cost Accounting (University of the Philippines System)

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ACAUD 3149

CHAPTER 1: GENERAL PROVISIONS ON  Since partnership is consensual, an oral

PARTNERSHIP contract of partnership is as good as the
written one.
Art. 1767. By the contract of partnership,
two or more persons bind themselves to Characteristics of a Contract of Partnership
contribute money, property, or industry to a 1. Consensual
common fund, with the intention of dividing o Perfected by mere consent
the profits among themselves. o Exception to mere consent
Two or more persons may also form a i. Contribution of real property
partnership for the exercise of profession. —there should be a public
instrument and inventory
Common Fund ii. Contract falls under Statute
1. Money—medium of exchange authorized of Fraud—must be in
or adopted by a government as part of its writing; otherwise,
currency UNENFORCEABLE
2. Property—any external thing over which iii. Capital contribution is
the rights of possession, use, and greater than PHP3,000—
enjoyment are exercised should be in writing and
3. Industry—diligence in the performance of registered with SEC
a task. A particular for or branch of 2. Commutative—equal contributions among
productive labor partners
3. Principal—independent from other
Essential requisites of a contract of partnership contracts
1. A valid contract 4. Bilateral—multiplicity of partners is
2. A contribution of money, property, or involved
industry to a common fund 5. Onerous—something is expected from all
3. Must be organized for gain or profit parties
4. Should have a lawful object or purpose 6. Nominate—has a name; “CONTRACT OF
and must be established for the common PARTNERSHIP”
benefit or interest of the partners 7. Preparatory—preparatory to operations
and profit-generations of partnership
Test of existence of a partnership
1. Test for existence of agreement to Partnership vs. Joint Venture
contribute MPI to a common fund  Both has the same elements
2. Test for existence of an intent to divide  Both is formed out of interests in the
profits among contracting parties business and sharing of profits and losses
 Joint venture is a form of partnership
Partnership—A Juridical Person Requisites  Joint venture is governed by the law on
1. Two or more persons bind themselves to partnership
contribute MPI to a common fund
2. Intention to divide profits among Delectus Personae (Choice of the Person)
themselves  The right to choose with whom a person
wishes to associate himself
Constitution  The very foundation and essence of
 Partnership may be constituted in any partnership
form  Any one of the partners may, at his sole
 PUBLIC INSTRUMENT pleasure, dictate a dissolution of the
o Necessary when an immovable partnership at will
property or real rights are  But an unjustified dissolution can subject
contributed him to action for damages

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(4) The receipt by a person of a share of

Partnership at Will the profits of a business is a prima
 A partnership that does not fix its term facie evidence that he is a partner in
 Birth and life of a partnership at will is the business, but no such inference
predicated on the mutual desire and shall be drawn if such profits were
consent of the partners received in payment;
a. As a debt by installments or
otherwise;
b. As wages of an employee or
rent to a landlord; (contract of
employment)
c. As an annuity to a widow or
representative of a deceased
partner;
Art. 1768. The partnership has a judicial d. As interest on a loan, though
personality separate and distinct from that the amount of payment vary
of each of the partners, even in case of with the profits of the
failure to comply with the requirements of business;
Article 1772, first paragraph. e. As the consideration for the
sale of a goodwill of a business
Artificial/Juridical Person or other property by
 An entity, such as a corporation, created installments or otherwise.
by law and given certain legal rights and
duties of a human being Rule 1
 There are four persons in the partnership  Partnership by estoppel is an exception
of A, B, and C (the natural persons and the  Partnership by estoppel—a partnership not
juridical person) duly organized has been recognized in its
 Rights of a JP dealings with certain persons where the
o Acquire and possess real and persons dealing with it are estopped
personal property (precluded) from denying its partnership
o Incur obligations existence
o Bring civil or criminal actions
Rule 2: Co-ownership or co-possession
Art. 1769. In determining whether a
partnership exists, these rules shall apply: Partnership Co-ownership
(1) Except as provided by Article 1825, Creation
persons who are not partners as to By contract By contract and law
Juridical Personality
each other are not partners as to
Has legal or juridical No legal or juridical
third persons; personality personality
(2) Co-ownership or co-possession does
not of itself establish a partnership, Can be sued Cannot be sued
whether such co-owners or co- Purpose
possessors do or do not share any For profit For common
profits made by the use of the enjoyment of a thing
property; or right
(3) The sharing of gross returns does not
Not necessarily for
of itself establish a partnership, profit
whether or not the persons sharing Profit
them have a joint or common right or May be stipulated Must always depend
interest in any property from which upon on proportionate
the returns are derived; shares

Any stipulation to the

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contrary is void 2. A partnership formed to furnish houses for

Dissolution prostitution purposes
Dissolved by death or Not dissolved by death 3. A partnership formed to create illegal
incapacity of a partner or incapacity of co- monopolies or combinations in restraint of
owner
trade
Form
May appear in any
form No public instrument Effects of unlawful partnership
is needed even if a 1. Contract is void from the beginning
Public instrument is real property is the 2. Profits shall be confiscated in favor of the
required when real object of co-ownership government
property is contributed 3. Instruments/tools and proceeds of the
crime shall be forfeited in favor of the
government
Rule 3: Sharing of gross returns (does not)
4. Contributions of partners shall not be
 Sharing of net profit—a contract of
confiscated unless they are #3
partnership is presumed
 Sharing of gross returns—no presumption
Art. 1771. A partnership may be constituted
of a contract of partnership
in any form, except where immovable
property or real rights are contributed
Rule 4: Sharing of the profits of the business
thereto, in which case a public instrument
(prima facie)
shall be necessary.
 Prima facie—sufficient to establish a fact
 NOT A PARTNERSHIP
Form
o Agreement of sharing gross returns
of
o Joint purchase of property (they are Exception:
merely tenants)
o Agreement of sharing the profits or If real properties or real rights in
losses on sale of such property real properties are contributed,
o Common ownership of property
THERE SHOULD BE A PUBLIC
INSTRUMENT
&
Art. 1770. A partnership must have a lawful AN INVENTORY ATTACHED TO THE
object or purpose, and must be established PUBLIC INSTRUMENT
for the common benefit or interest of the
partners. Otherwise, the contract of
When an unlawful partnership is partnership is VOID.
dissolved by a judicial decree, the profits
shall be confiscated in favor of the State, Contract of Partnership
without prejudice to the provisions of the  General rule: No form is required
Penal Code governing the confiscation of
the instruments and effects of a crime. Terms
 Real rights—right connected with a thing
Lawful Object of Purpose rather than a person (personal right)
 Must be within the commerce of man  Public instrument—document prepared by
 Not impossible a notary public in the presence of the
 Must not be contrary to law, morals, good parties who sign it before witnesses
customs, public order, or public policy
Art. 1772. Every contract of partnership
Examples of unlawful partnership having a capital of three thousand pesos or
1. A partnership formed for gambling more, in money or property, shall appear in
purposes a public instrument, which must be

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If the capital is three thousand pesos

or more,

recordedTHERE SHOULD
in the Office BE
of Athe
PUBLIC
Securities and Universal partnership Particular partnership
INSTRUMENT
Exchange Commission. (1) Of all present
Failure to & comply with the property - Has for its
SUCH MUST
requirements ofBEthe
REGISTERED
preceding WITH
paragraph object
shall not affect SEC. the liability of the All the property determinate
contributed to things, their
partnership and the members thereof to
Otherwise, the contract is STILL the common fund use or fruits, or
third persons. with the intention of specific
VALID.
dividing the undertaking, or
same among the exercise of
themselves as well profession or
as the profits which vocation.
may be acquired
therewith.

(2) Of all profits

All that the

partners acquire
by industry or work
during the
existence of
the partnership.
Liability
General partnership Limited partnership
- All the partners - At least one
are general general partner
partners and one limited
- Partners are partner
liable up to the - A limited
extent of their partner is liable
separate only to the
properties after extent of his
the assets of contribution
the partnership
have been
exhausted
Duration
Partnership at Partnership Partnership
will with a fixed for a
(either:) term particular
- no fixed - life or undertaking
term period of - exists until
- not formed existence the
for a has been purpose is
particular agreed fulfilled
undertakin upon by
g partners
- one for a
fixed term
of
particular
undertakin
g that is
continued
after
terminatio
n of such
term
- particular

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undertakin becomes the common property of all the

g without partners, as well as the profits of which
any they may acquire therewith.
express
agreement
Representation to Others A stipulation for the common enjoyment of
Ordinary Partnership Partnership by any other profits may also be made; but the
- where two or more estoppel property which the partners may acquire
persons bind - persons (by words subsequently by inheritance, legacy, or
themselves to spoken or written donation cannot be included in such
contribute MPI to a by conduct) stipulation, except the fruits thereof.
common fund represent
- with the intention themselves or
of dividing the consent to another Future Property (inheritance, legacy, or donation)
profits among representing them Such cannot be included because:
themselves to anyone as 1. As a rule, contracts regarding successional
partners in an rights cannot be made
existing 2. A partnership demands that the
partnership with contributed things be determinate, known
one or more
and certain
persons not
actually partners 3. A universal partnership of all present
Legality of Its Existence properties really implies a donation, and it
De Jure Partnership De Facto Partnership is well-known that generally, future
- complied with all - has not complied property cannot be donated
legal requirements with all the legal
for its creation requirements for Art. 1780. A universal partnership of profits
its creation
comprises all that the partners may acquire
by their industry or work during the
existence of the partnership.
Art. 1777. A universal partnership may refer Movable or immovable property
to all the present property or to all the which each of the partners may possess at
profits. the time of the celebration of the contract
shall continue to pertain exclusively to
Kinds of Universal Partnerships each, only the usufruct passing to the
1. Partnership of all present property partnership.
2. Partnership of all profits
Universal partnership of profits
Art. 1778. A partnership of all present  Partners retain ownership over their
property is that in which the partners present and future property
contribute all the property which actually  Only the use of the asset and the profits
belongs to them to a common fund, with the are passed to the partnership
intention of dividing the same among
themselves, as well as all the profits which
they may acquire therewith.

Contributions of partners
1. All properties actually belonging to the
partners All Present Property Profits
2. Profits acquired with said properties All present property Only the usufruct (use
belonging to partners and fruits) of the
that were contributed properties of the
Art. 1779. In a universal partnership of all become common partners becomes
present property, the property which property of all common property of
belongs to each of the partners at the time partners and the all the partners and
of the constitution of the partnership, partnership the partnership

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General Rule: All profits acquired advantage cannot enter into universal
Only the profits of said through the “industry” partnership.
contributed property or “work” of the
become common partners become Rationale
property, but not common property.
 Universal partnership is virtually a
profits arising from the
other property of donation of each partner’s properties (or
owners. at least, their usufruct)
 Therefore, if persons are prohibited to
Exception: donate to each other, they should not be
If stipulated, the allowed to do indirectly what the law
profits from other
forbids directly.
property of the
partners may become
common.

Note:
The properties In violation
subsequently acquired  The partnership becomes null and void,
by inheritance, legacy,
raised anytime
or donation cannot be
included in the Persons who cannot enter into a universal
stipulation, but the partnership
fruits thereof can be 1. Legally married spouses
included in the a. However, particular partnership for
stipulation. exercise of a profession or vocation
is allowed
Art. 1781. Articles of universal partnership, 2. Persons living together as husband and
entered into without specification of its wife without valid marriage
nature, only constitute a universal 3. Persons guilty of adultery or concubinage
partnership of profits. at the time of the donation
4. Persons guilty of the same criminal offense
Presumption in favor of UPP 5. Person/s and a public officer or his wife,
 Less obligation is imposed because the descendants and ascendants, by reason of
real and personal properties are retained his office
by them in naked ownership.
Art. 1783. A particular partnership has for
Art. 1782. Persons who are prohibited from its object determinate things, their use or
giving each other any donation or fruits, or specific undertaking, or the
exercise of a profession or vocation.
CHAPTER 2: OBLIGATIONS OF THE PARTNERS manage the in the the winding
business or business or up or
affairs of the affairs of the liquidation of
Kinds of Partners (As to:) partnership partnership the
Contribution partnership
Capitalist Industrial Capital-industrial affairs after
partners partners partners dissolution
- Money or - Only industry - Money/prope Third Persons
property or labor rty and Ostensible Secret partners Dormant
industry or partners - Active part partners
all three - Active part - Not known - Do not take
Liability - Known active part
General partners Limited partners - Not known
- Those held liable to - Cannot be held liable Membership
third persons to the to third persons Real partners Partners by estoppel
extent of their - Partners in an existing - Not really partners but
separate property legal partnership represent themselves,
Management or consent to another
Managing Silent partners Liquidating or other representing
partners - Do not take partners them to anyone as
- Actively active part - Take charge of partners in an existing

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partnership or in one any business which 5. Property rights of

that is fictitious or is of the kind in partners
apparent
which the a) Rights in
Continuation of the business affairs after dissolution
Continuing partners Discontinuing partners partnership is specific
- Continue the - Do not continue the engaged partnership
partnership after partnership business 5. Obligation of b) Interest in the
dissolution after the dissolution managing partners partnership
Nature of the membership to credit to the c) Right to
Original partners Incoming Retiring partners
partnership the participate in
- Members of partners - Withdraw
the - Became from the payment made by a the
partnership members partnership debtor who owes management
from the after the them and the
time of its establishme partnership Note:
constitution nt 6. Obligation to share Limited
State of survivorship
with the other partners have no right
Surviving partners Deceased partners
- Continue the - Died while being a partners the share to participate in the
partnership after its member of the of the partnership management.
dissolution caused by partnership credit which they
death of a partner have received from
Effect of expulsion an insolvent
Expelled partners Expelling partners
partnership debtor
- Expelled from the - Cause the expulsion of
partnership by the a partner for a valid 7. Pay for damages
other partners for a cause suffered by the
valid cause partnership through
Value of the contribution their fault
Majority partners Nominal partners
- Contribution - Contribution to the
represents majority or partnership represents Art. 1784. A partnership begins from the
controlling interest the minority interest moment of the execution of the contract,
unless it is otherwise stipulated.

Section 1. Obligations of the Partners General rule

among Themselves  Partnership begins the moment the
contract is executed.
Legal relations created by a contract of
partnership Exception
1. Relations between partners  Partners can stipulate other dates for the
2. Relations between partners and the start of the partnership.
partnership Art. 1785. When a partnership for a fixed
3. Relations between partners and the third term or particular undertaking is continued
persons after the termination of such term or
4. Relations between the partnership and particular undertaking without any express
third persons agreement, the rights and duties of the
partners remain the same as they were at
Obligations and rights of partners such termination, so far as is consistent
Obligations Rights with a partnership at will.
1. To give their 1. Right to associate A continuation of the business by the
promised with another person
partners or such of them as habitually acted
contribution in their share
2. Not to convert 2. Right to have therein during the term, without any
partnership money access to inspect settlement or liquidation of the partnership
to their own use and copy affairs, is prima facie evidence of a
3. Account and hold as partnership books continuation of the partnership.
trustee for any 3. Right to demand a
profits derived formal account Rationale
without the consent 4. Right to ask for the
 A partnership can be continued by
of the other dissolution of the
partners partnership at the partners without express agreement after
4. Not to engage in proper time termination of term.

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thereof being for account of the

Art. 1786. Every partner is a debtor of the partnership.
partnership for whatever he may have
promised to contribute thereto. Manner of appraisal
He shall also be bound for warranty in 1. By stipulation
case of eviction with regard to specific and 2. In the absence of stipulation, by experts
determinate things which he may have chosen by the partners according to
contributed to the partnership, in the same current prices
cases and in the same manner as the
vendor is bound with respect to the vendee. Art. 1788. A partner who has undertaken to
He shall also be liable for the fruits thereof contribute a sum of money and fails to do
from the time they should have been so becomes a debtor for the interest and
delivered, without the need of any demand. damages from the time he should have
complied with his obligation.
Obligation of every partner The same rule applies to any amount
1. The obligation to contribute what had he may have taken from the partnership
been promised coffers, and his liability shall begin from the
 Failure to contribute is to make the time he converted the amount to his own
partner a debtor of the partnership use.
even without demand (this is an
exception to the general rule that Settled rule
there is no delay without demand) - Contribution failed to be made makes
 If there is failure to deliver the partner a debtor
promised contribution, REMEDY— - Debt = amount promised + interest and
specific performance with interest damages (from the time contribution
and damages occasioned thereby should’ve been made)
and not rescission
2. The obligation to deliver the fruits thereof Where liability for damages and interest is
 If property is promised, fruits recognized
should also be given (arising from 1. Money promised by a partner is not given
the time they should’ve been on time
delivered, without need of demand) 2. Money of the partnership is converted to
 If partner is in bad faith, partner partner’s own use
will be liable for the fruits and
those that could have been Demand is not necessary
produced 1. In the case of CONTRIBUTION—since time
 If money is promised and failed to is of the essence
be delivered, partner will become a 2. In the case of CONVERSION—demand is
debtor for the interest and necessary even without injury. Liability
damages from the time he should exists because the Article is absolute
have complied with his obligation
3. The obligation to warrant Art. 1789. An industrial partner cannot
 Warranty against eviction engage in business for himself, unless the
 Warranty against hidden defect partnership expressly permits him to do so;
Art. 1787. When the capital or a part and if he should do so, the capitalist
thereof which a partner is bound to partners may either exclude him from the
contribute consists of goods, their appraisal firm or avail themselves of the benefits
must be made in the manner prescribed in which he may have obtained in violation of
the contract of partnership, and in the this provision, with a right to damages in
absence of stipulation, it shall be made by either case.
experts chosen by the partners according to
current prices, the subsequent changes Partners’ contribution
1. Capitalist—money or property, or both

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2. Industrial—only industry who refuses to contribute an additional

3. Capitalist-industrialist—money or property share to the capital, except an industrial
and industry; or all three partner, to save the venture, shall be
Capitalist vs. Industrialist obliged to sell his interest to the other
Contribution partners.
Money or property Industry Obligation of the capitalist partners
Prohibition to engage in other business to contribute additional capital.
General rule: General rule:
Cannot engage in the Cannot engage in
General rule
same kind of business business for himself
in which the - Capitalist partners are not bound to
partnership is contribute additional capital.
engaged Exception:
If he is permitted by Exception
Exception: the partnership 1. Stipulation
Stipulation authorizing 2. If business is in imminent loss
him
Profits
According to According to If they refuse to contribute additional
agreement agreement capital to save the venture, they shall be
obliged to sell their interest to the other
If there is none, in If there is none, his capitalist partners who are willing to
proportion to his share shall be such contribute additional capital.
contribution that it is just and
equitable under the
Art. 1792. If a partner authorized to manage
circumstances
Losses collects a demandable sum which was owed
General rule: General rule: to him in his own name, from a person who
The agreement, if any. The agreement, if any. owes the partnership another sum also
If there is none, then demandable, the sum thus collected shall
the agreement as to be applied to the two credits in proportion
profits to their amounts, even though he may have
Exception:
given a receipt for his own credit only; but
Exception: In the absence of
In the absence of agreement, the should he have given it for the account of
agreement as to industrial partner is the partnership credit, the amount shall be
profits and losses, in NOT LIABLE FOR fully applied to the latter.
proportion to his LOSSES The provisions of this article are
contribution understood to be without prejudice to the
right granted to the debtor by Article 1242,
Remedies of capitalist partners against an but only if the personal credit of the partner
industrial partner who engaged in business for should be more onerous to him.
himself
1. CPs may exclude IP from the partnership; Rationale
plus damages - To prevent furtherance of the partner’s
2. CPs may avail themselves of the benefits personal interest to the detriment of the
which the IP may have obtained; plus partnership
damages - Applicable to managing partners only
because there is no basis for suspicion on
Art, 1790. Unless there is a stipulation to the non-managing partners to be
the contrary, the partners shall contribute managing in bad faith
equal shares to the capital of the
partnership. Requisites for the said managing partner
obligation
Art. 1791. If there is no agreement to the 1. There should be at least two debts (one
contrary, in case of an imminent loss of the with the MP as the creditor, one where the
business of the partnership, any partner partnership is the creditor)

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2. Both sums are demandable Art. 1795. The risk of specific and
determinate things, which are not fungible,
Art. 1793. A partner who has received, in contributed to the partnership so that only
whole or in part, his share of a partnership their use and fruits may be for the common
credit, when the other partners have not benefit, shall be borne by the partner who
collected theirs, shall be obliged, if the owns them.
debtor should thereafter become insolvent, If the things contributed are fungible,
to bring to the partnership capital what he or cannot be kept without deteriorating, or
received even though he may have given if they were contributed to be sold, the risk
receipt for his share only. shall be borne by the partnership. In the
absence of stipulation, the risk of the things
Article 1792 Article 1793 brought and appraised in the inventory,
As to the number of credits shall also be borne by the partnership, and
Two (one for MP, one Only one (for the in such case the claim shall be limited to
for partnership) partnership) the value at which they were separated.
As to applicability
Applies only if partner Applies to any partner
Risk of loss
is MP
As to debtor’s insolvency 1. Specific and determinate things which are
Debtor is not insolvent Debtor has become not fungible
insolvent  Only the use of the object is
Art. 1794. Every partner is responsible to contributed
the partnership for damages suffered by it  Ownership is not transferred by the
through his fault, and he cannot partner to the partnership
compensate them with the profits and  Thus, it is the partner who bears
benefits which he may have earned for the the risk of loss
partnership by his industry. However, the 2. (To 4) Fungible things, things contributed
courts may equitably lessen the to be sold, things brought and appraised in
responsibility if through the partner’s the inventory
extraordinary efforts in other activities of  The partnership bears the risk of
the partnership, unusual profits have been loss since there was transfer of
realized. ownership
Art. 1796. The partnership shall be
Rule responsible to every partner for the
- Damages caused by a partner’s amounts he may have disbursed on behalf
negligence cannot be off-set by the of the partnership and for the
benefits he earned for the partnership corresponding interest, from the time the
through his industry expenses are made; it shall also answer to
each partner for the obligations he may
Rationale have contracted in good faith in the interest
- He merely maintains his obligation to earn of the partnership business, and for risks in
benefits (an obligation) consequence of its management.
- It is his obligation not to cause damages
(an obligation) Obligation of the partnership to every partner
- Only a right and an obligation can be 1. Refund the amounts disbursed by partner
compensated on behalf of the partnership + interest
form the time the expenses were made
Mitigation 2. To answer to each partner for obligations
- In case a partner’s extraordinary efforts in contracted into in good faith in the interest
other activities caused the partnership to of the partnership, and for the risks in
realize unusual profits consequence of its management
- Principle rests on equity
Art. 1797. The losses and profits shall be
distributed in conformity with the

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agreement. If only the share of each partner who has not impugned the same within a
in the profits has been agreed upon, the period of three months from the time he
share of each in the losses shall be in the had knowledge thereof, complain of such
same proportion. decision.
In the absence of stipulation, the The designation of losses and profits
share of each partner in the profits and cannot be intrusted to one of the partners.
losses shall be in proportion to what he may Third person designating the share of
have contributed, but the industrial partner partners in the profits and losses.
shall not be liable for the losses. As for the
profits, the industrial partner shall receive General rule
such share as may be just and equitable - It is valid for a partner to intrust his share
under the circumstances. If besides his of the profits/losses to third persons
services he has contributed capital, he shall
also receive a share in the profits in Exception
proportion to his capital. - It is not valid and it may be questioned if it
is manifestly inequitable; unless:
Distribution of profits and losses of a o A partner began to execute the
partnership decision of the third person
Distribution of profits o A partner has not questioned the
According to If there is no said decision of the third person
agreement agreement
within a period of 3 months from
In proportion
Capital to what he the time he had knowledge thereof
ist may have
partne contributed to Art. 1799. A stipulation which excludes one
Shall be distributed in rs the common or more partners from any share in the
conformity with the fund profits or losses is void.
agreement That which is
Industr
just and
ial General rule
equitable
partne - Only the stipulation is void, not the
under the
rs contract of partnership
circumstances
Distribution of losses - Hence, the profits and losses shall be
According to If there is no distributed as if there was no agreement
agreement agreement as discussed in this article
Losses will be In proportion - The stipulation is also void since it
distributed in Capital to what he
opposes the main reason for the
conformity with the ist may have
agreement. partne contributed to partnership to exist which is the intent to
rs the common share profits
Agreement pertaining fund
to share of each Exception
partner in the profits Industr - An industrial partner is not liable for losses
will also apply to the ial Not liable for unless he waived the right
share of each in the partne losses
losses in the same rs
proportion. Why is an industrial partner not liable for losses?
- While capitalist partners can withdraw
their capital, the industrial partner cannot
Art. 1798. If the partners have agreed to withdraw any labor or industry he had
intrust to a third person the designation of already exerted
the share of each one in the profits and - He has already shared in the losses even
losses, such designation may be impugned before distribution of profit/loss. If the
only when it is manifestly inequitable. In no partnership shows no profit, this means he
case may a partner who has begun to has labored in vain
execute the decision of the third person, or Art. 1800. The partner who has been
appointed manager in the articles of

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partnership may execute all acts of of his partners

administration despite the opposition of his 2) If he acts in bad faith,
he cannot do any act
partners, unless he should act in bad faith; of administration. It
and his power is irrevocable without just or must be noted that
lawful cause. The vote of the partners the presumption in
law is in favor of good
representing the controlling interest shall
faith
be necessary for such revocation of power. Art. 1801. If two or more partners have
A power granted after the been intrusted with the management of the
partnership has been constituted may be partnership without specification of the
revoked at any time. respective duties, or without a stipulation
that one of them shall not act without the
Who shall manage the partnership? consent of all the others, each one may
- Either some or all of the partnerships separately execute all acts of
designated as managing partner/s administration, but if any of them should
o in the articles of partnership oppose the acts of the others, the decision
o after the contract of partnership of the majority shall prevail. In case of a tie,
had already been constituted the matter shall be decided by the partners
- If there is no agreement, management is owning the controlling interest.
vested on all of the partners
Requisites of two or more managing partners in
Two modes of appointment this article
1. Appointment as manager in the articles of 1. Two or more partners are managers
partnership 2. There is no specification of respective
2. Appointment as manager made in an duties
instrument other than the articles of 3. There is no stipulation requiring unanimity,
partnership that is, one of them shall not act without
the consent of all the others
Appointment in the Appointment in other
articles of partnership than the articles of
partnership General rule
General Rule - Each one may separately execute all acts
Power is irrevocable Power may be revoked of administration
without just or lawful any time, with or without
cause just cause by the
partners owning the
Exception
control interest If any of the managers oppose
1. The decision of the majority (per head) of
(Since such appointment the managing partners shall prevail
is a mere delegation of
power) 2. In case of a tie, the decision of the
Exception managing partners with controlling
1) To remove for just interest (more than 50%) shall prevail
cause, vote of
partners having
controlling interest is Note
necessary - The right to oppose is not given to non-
2) To remove without just managers because in appointing their
cause, UNANIMITY is
required.
other partners as managers, they have
(Represents a change stripped themselves of all participation in
in the will of the the administration
parties; a change in
the terms of the
contract; a novation) Art. 1802. In case it should have been
Extent of Power stipulated that none of the managing
1) If he acts in good The manager can do all partners shall act without the consent of
faith, he may do all acts of administration.
the others, the concurrence of all shall be
acts of administration
despite the opposition necessary for the validity of the acts, and

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the absence or disability of any one of them - An associate or sub-partner shall not be
cannot be alleged, unless there is imminent admitted into the partnership without the
danger of grave or irreparable injury to the consent of all the other partners based on
partnership. the following reasons
o Mutual trust is the basis of
General rule partnership
- Unanimous consent of all the managing o A change in membership is a
partners (even if one of them is absent or modification or novation of the
incapacitated) is necessary for the validity contract
of the acts and absence or disability of any
managing partner cannot be alleged Art. 1805. The partnership books shall be
kept, subject to any agreement between the
Exception partners, at the principal place of business
- Only when the partnership is in imminent of the partnership, and every partner at any
danger or grave irreparable injury reasonable hour have access to and may
Art. 1803. When the manner of inspect and copy any of them.
management has not been agreed upon, the
following rules shall be observed: Rationale
(1) All the partners shall be considered - A partner is given by law the right to have
agents and whatever any one of them access to, inspect, and copy the
may do alone shall bind the partnership books
partnership, without prejudice to the - Partnership books is an example of
provisions of Article 1801. partnership property that every partner
(2) None of the partners may, without co-owns
the consent of the others, make any
important alteration in the Reasonable hour
immovable property of the - Business days throughout the year, not
partnership, even if it may be useful merely during some arbitrary period of a
to the partnership. But if the refusal few days chosen by MPs
of consent by the other partners is Art. 1806. Partners shall render on demand
manifestly prejudicial to the interest true and full information of all things
of the partnership, the court’s affecting the partnership to any partner or
intervention may be sought the legal representative of any deceased
partner or of any partner under legal
Rules when manner of management has not been disability.
agreed upon
1. All the partners shall be considered as General rule
managers - Violation of the above article refers to
2. For important alterations in immovable concealment
property, unanimity is required - Who can demand true and full information
o Any partner
Art. 1804. Every partner may associate o Legal representative of any
another person with him in his share, but deceased partner
the associate shall not be admitted into the o Legal representative of any partner
partnership without the consent of all the under legal disability
other partners, even if the partner having
an associate should be a manager. Art. 1807. Every partner must account to
the partnership for any benefit, and hold as
Contract of Sub-partnership trustee for it any profits derived by him
- Relates to the article above without the consent of the other partners
- Where all partners can have an associate from any transaction connected with the
in his share or sub-partner formation, conduct, or liquidation of the

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partnership or from any use by him of its

property. Exceptions
- Items listed in the Article
Rationale
- The partners are governed by fiduciary INDUSTRIAL PARTNER CAPITALIST PARTNER
relationship, that is, mutual trust and Prohibition
confidence Absolute prohibition: Relative prohibition:
- This refers only to profits derived by a The industrial partner The capitalist partner
cannot engage in cannot engage in the
partner without the consent of the other
business for himself same kind of business
partners unless the partnership as that of the
expressly permits him partnership for his
Art. 1808. The capitalist partners cannot to do so. own account, unless
engage for their own account any operation there is a stipulation
which is of the kind of business in which the to the contrary.
partnership is engaged, unless there is a Remedy
stipulation to the contrary. Capitalist partners Capital partners in
may: violation shall:
Any capitalist partner violating this
1. Bring to the
prohibition shall bring to the common funds 1. Exclude him common fund any
any profits accruing to him from his from the firm plus profits accruing to
transactions, and shall personally bear all damages; and him from said
the losses. 2. Avail transactions; and
themselves of the personally bears
benefits which he all losses
Rationale
may have obtained
- The capitalist partner already knows of the
business secrets of the partnership

Effects of violation
- The capitalist partner shall bring to the
common fund any profits accruing to him;
and
- The capitalist partner shall personally bear
all the losses

Art. 1809. Any partner shall have the right

to a formal account as to partnership
affairs:
(1) If he is wrongfully excluded from the
Section 2. Property Rights of a Partner
partnership business or possession of
its property by his co-owners;
Art. 1810. The property rights of a partner
(2) If the rights exist under the terms of
are:
any agreement;
(1) His rights in specific partnership
(3) As provided by article 1807; and
property;
(4) Whenever other circumstances
(2) His interest in the partnership; and
render it just and reasonable.
(3) His right to participate in the
management.
General rule
- No formal accounting is demandable until
Explanation
after the dissolution of the partnership

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1. Specific partnership property 1. A partner has an equal right with his

 Partners have co-ownership over partners to possess specific partnership
the properties for the operation of property for partnership purposes
the partnership 2. A partner’s right in specific partnership
2. Interest in the partnership property is assignable
 Share in the contribution, profits  ASSIGNMENT—the transfer of rights
3. Right to participate in the management or property. The rights or property
 Without a stipulation, all partners so transferred
are managers and each partner can 3. A partner’s right in specific partnership
perform all acts of administration property is not subject to attachment or
execution
 Partners’ separate creditors cannot
Art. 1811. A partner is co-owner with his ask the court for attachment or
partners of specific partnership property. execution of these properties as
The incidents of this co-ownership these are now owned by the
are such that: partnership which has a separate
(1) A partner, subject to the provisions of juridical personality
this Title and to any agreement  ATTACHMENT—the legal process of
between the partners, has an equal seizing property to ensure
right with his partners to possess satisfaction of a judgment
specific partnership property for  EXECUTION—the carrying out of
partnership purposes; but he has no the course of conduct to its
right to possess such property for completion (if a partner has been
any other purpose without the executed a writ to seize his
consent of his partners; properties by a creditor he
(2) A partner’s right in specific defaulted)
partnership property is not 4. A partner’s right in specific partnership
assignable except in connection with property is not subject to legal support
the assignment of rights of all the
partners in the same property. Art. 1812. A partner’s interest in the
(3) A partner’s right in specific partnership is his share of the profits and
partnership property is not subject to surplus.
attachment or execution, except on a
claim against the partnership. When Unlike the preceding article,
partnership property is attached for a  A partner’s interest in the
partnership debt, the partners, or any partnership (partners’ share in the
of them, or the representatives of a profits and surplus) can be
deceased partner, cannot claim any assigned, attached, and subject to
right under the homestead or legal support.
exemption laws; Explanation
(4) A partner’s right in specific - PROFIT—the excess of revenues over
partnership property is not subject to expenditures in a business transaction
legal support under Article 291. - SURPLUS—the excess of receipts over
disbursements. Funds that remain after
dissolution and settlement of debts
Rule
- A partner’s interest in specific partnership
poverty cannot be assigned, attached, nor
be subjected to legal support

Explanation

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2. In case of fraud in the management of the

partnership, the assignee may avail
himself of the usual remedies provided by
Art. 1813. A conveyance by a partner of his law;
whole interest in the partnership does not 3. In case of dissolution, to receive the
of itself dissolve the partnership, or, as assignor’s interest; and
against the other partners in the absence of 4. In case of dissolution, the assignee may
agreement, entitle the assignee, during the require an account from the date only of
continuance of the partnership, to interfere the last account agreed to by all the
in the management or administration of the partners
partnership business or affairs, or to
require any information or account of
partnership transactions, or to inspect the
partnership books; but it merely entitles
the assignee to receive in accordance with Art. 1814. Without prejudice to the
his contract the profits to which the preferred rights of partnership creditors
assigning partner would otherwise be under Article 1827, on due application to a
entitled. However, in the case of fraud in competent court by any judgment creditor
the management of the partnership, the of a partner, the court which entered the
assignee may avail himself of the usual judgment, or any other court, may charge
remedies. the interest of the debtor partner with
In case of a dissolution of the payment of the unsatisfied amount of such
partnership, the assignee is entitled to judgment debt with interest thereon; and
receive his assignor’s interest and may may then or later appoint a receiver of his
require an account from the date only of the share of the profits, and of any other money
last account agreed to by all the partners. due or to fall due to him in respect of the
partnership, and make all other orders,
Conveyance directions, accounts and inquiries which the
- The voluntary transfer of a right or of debtor partner might have made, or which
property the circumstances of the case may require.
The interest charged may be
Effects of conveyance by partner of his whole redeemed at any time before foreclosure, or
interest in the partnership in case of a sale being directed by the
1. If a partnership conveys (assigns, sells, court, may be purchased without thereby
donates) his whole interest in the causing a dissolution:
partnership, it may still subsist (general (1) With separate property, by any one or
rule) or it may be dissolved (this is an more of the partners; or
exception, for example, if the remaining (2) With partnership property, by any
partners do not want to continue the one or more of the partners with the
operation of the business of the consent of all the partners whose
partnership interests are not so changed or sold.
2. The assignee: Nothing in this Title shall held to
a. Cannot interfere in the deprive a partner of his right, if any, under
management the exemption laws, as regards his interest
b. Cannot require information or in the partnership.
accounting of partners and
transactions “Charging order” upon a partner’s interest in the
c. Cannot inspect partnership books partnership
- Refers to the remedy available to a
Rights of the assignee judgment creditor of a debtor-partner
1. To receive the profits to which the - To charge the interest of the debtor-
assigning partner would otherwise be partner by means of a court order for the
entitled;

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purpose of satisfying the amount of the Right of a partner under exemption laws
judgment - A partner shall not be deprived of his right
- JUDGMENT CREDITOR: a person or under the exemption laws, as regards his
company that a court of law has decided interest in the partnership
has the legal right to receive money from - However, a partner cannot avail himself of
another person or company the exemption laws insofar as his right in
- A receiver of the debtor-partners’ share of specific partnership property is concerned
the profits may even be appointed
- This charging order, however, is always
subject to the preferred rights of
partnership creditors

Appointment of a receiver
- The court:
o Is the one who appoints the
receiver
o Make:
 All other orders
 Directions
 Accounts
 Inquiries which the debtor-
partner might have made,
or which the circumstances
of the case may require
- Receiver will receive:
o Debtor’s share of the profits
o Any other money due or to fall due
to the partner in respect of the Section 3. Obligations of the Partners
partnership with Regard to Third Persons

Redemption of interest charged Art. 1815. Every partnership shall operate

(by the partners other than the debtor-partner) under a firm name, which may or may not
include the name of one or more of the
Foreclosure—the action of taking partners.
possession of partner’s interest by the Those who, not being members of the
creditor partnership, include their names in the firm
name, shall be subject to the liability of the
Redemption—the extinguishment of the partner.
charge or attachment on the partner’s
interest in the profits General rule
- The partners may use any firm name
1. Before foreclosure desired and this will be the name of that
 Interest charged may be redeemed juridical person.
at any time before foreclosure
2. After foreclosure Exception
It may still be purchased without thereby - The partnership cannot use:
causing a dissolution: o An identical or deceptively
 With separate property of a confusingly similar name to that of
partner; or any existing partnership or
 With partnership property with the corporation or to any other name
consent already protected by law or is
patently deceptive or contrary to
existing laws

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- Non-partners who include their names in Art. 1817. Any stipulation against the
the firm name shall be subject to the liability laid down in the preceding article
liability of a partner. This is based on the shall be void, except as among the
principle of estoppel. partners.
o The purpose of the law is to protect
innocent third persons from being Stipulation against liability
misled - Stipulation against liability of all partners
o Such person has no right as a for the contracts entered into in the name
partner because he is in fact not a of the partnership is void as to third
partner persons
- But it is valid among the partners
Art. 1816. All partners, including industrial - EXAMPLE:
ones, shall be liable pro rata with all their o One partner cannot stipulate that
property and after all the partnership one of them will not be liable to the
assets have been exhausted, for the 3rd person beyond his contribution;
contracts which may be entered into in the such will be void.
name and for the account of the o But, such stipulation will be valid
partnership, under its signature and by a among partners. This, the partner
person authorized to act for the planned not to be liable still has to
partnership. However, any partner may pay to his share on the liability to
enter into a separate obligation to perform the 3rd person. But, he can ask
a partnership contract. reimbursement from the CPs (IP
excluded)
Liability for contractual obligations
- The article refers to liability and not to Art. 1818. Every partner is an agent of the
loss, which is why even an industrial partnership for the purpose of its business,
partner is also liable and the act of every partner, including the
- Industrial partner is only not liable with execution in the partnership name of any
respect to loss instrument, for apparently carrying on in
- All partners (including IPs) is liable pro rata the usual way the business of the
and subsidiary, unless otherwise partnership of which he is a member binds
stipulated the partnership, unless the partner so
- After payment, IP may demand equal acting has in fact no authority to act for the
reimbursement from capitalist partners partnership in the particular matter, and the
person with whom he is dealing has
knowledge of the fact that he has no such
authority.
An act of a partner which is not
Note: apparently for the carrying on of the
- Pro rata—equally or jointly business of the partnership in the usual way
- Subsidiary—the partners’ separate does not bind the partnership unless
property may be held liable only after the authorized by the other partners.
partnership creditors have exhausted the Except when authorized by the other
assets of the partnership partners or unless they have abandoned the
- Liability—as to third persons business, one or more but less than all the
- Losses—as between the partners partners have no authority to:
(1) Assign the partnership property in
Separate obligation of a partner trust for creditors or on the
- If a partner, in his own name, enters into a assignee’s promise to pay the debts
contract with a third person, then it is only of the partnership;
that partner who is liable and not the (2) Dispose of the good-will of the
partnership business;

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(3) Do any other act which would make it

impossible to carry on the ordinary
business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning Art. 1819. Where title to real property is in
a partnership claim or liability; the partnership name, any partner may
(6) Submit a partnership claim or convey title to such property by a
liability to arbitration; and conveyance executed in the partnership
(7) Renounce a claim of the partnership. name; but the partnership may recover such
property unless the partner’s act binds the
Partner as agent of the partnership partnership under the provisions of the first
- A contract of partnership is naturally paragraph of Article 1818, or unless such
fiduciary property has been conveyed by the grantee
- Thus, trust and confidence governs the or a person claiming through such grantee
partners to a holder for value without knowledge
- Hence, every partner is an agent of the that the partner, in making the conveyance,
other partners and the partnership has exceeded his authority.
Where title to real property is in the
I. Acts apparently for carrying on in the name of the partnership, a conveyance
usual way the business of the partnership executed by a partner, in his own name,
passes the equitable interest of the
This binds the partnership unless: partnership, provided the act is one within
a. The partner so acting has in fact no the authority of the partner under the
authority to act for the partnership provisions of the first paragraph or Article
b. The person with whom he is 1818.
dealing has knowledge of the fact Where title to real property is in the
that he has no such authority (bad name of one or more but not all the
faith) partners, and the record does not disclose
Act is still binding if acted by a person who the right of the partnership, the partners in
has no authority but such non-authority is whose name the title stands may convey
unknown to the person dealt with. title to such property, but the partnership
may recover such property if the partners’
II. Acts not apparently for the carrying on in act does not bind the partnership under the
the usual way of business of the provisions of the first paragraph of Article
partnership 1818, unless the purchaser or his assignee,
is a holder for value, without knowledge.
It does not bind the partnership, unless Where the title to real property is in
authorized by the other partners. the name of one or more or all of the
partners, or in a third person in trust for the
III. Acts of ownership partnership, a conveyance executed by a
partner in the partnership name, or in his
Authority must come from partners own name, passes the equitable interest of
unanimously. the partnership, provided the act is one
within the authority of the partner under
IV. Acts in contravention of a restriction on the provisions of the first paragraph of
authority Article 1818.
Where the title to real property is in
The act is not binding to the partnership the name of all the partners a conveyance
as to persons having knowledge of the executed by all the partners passes all their
restriction. rights in such property.

Title

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- A legal evidence of a person’s ownership Business:

rights in property; an instrument (such as Engaged in real estate
business
deed) that constitutes such evidence One or more (or all) of the partners
Conveyance: Additional:
Equitable interest Executed by a partner in Only the equitable
- An interest held by virtue of an equitable his/the partnership’s interest will be
name transferred to X
title or claimed on equitable grounds, such
as the interest held by a trust beneficiary Sale: X can ask for the
Valid and binding to the reformation of the
partnership contract of sale to
change the seller from
Business: partner to the
Engaged in real estate partnership
business
Equitable interest will not
be transferred if sale is
not in line with business
Real Property Registration operations
(Title to real property is in the name of:)
The Partnership Equitable interest will not
Conveyance: Additional: be transferred if C has no
Executed in the Sold land can be authority and X has
partnership name recovered if selling knowledge of it
partner has no authority All the Partners
Sale: to convey the land Conveyance: Sale:
Valid and binding to the Executed by all the Valid and binding to the
partnership Cannot be recovered if partners partnership
sale is in line with
Business: business operations Business:
Not mentioned as real Engaged in real estate
estate Cannot be recovered is business
buyer is in good faith (or Art. 1820. An admission or representation
no knowledge of C’s lack made by any partner concerning
of authority
partnership affairs within the scope of his
The Partnership
Conveyance: Additional: authority in accordance with this Title is
Executed in the partners’ Only the equitable evidence against the partnership.
name interest will be
transferred to X (3rd
Admission
Sale: person)
Valid and binding to the - A statement in which someone admits that
partnership X can ask for the something is true or that he or she has
reformation of the done something wrong
Business: contract of sale to
Engaged in real estate change the seller from - It is an evidence against the partnership if:
business partner to the o The admission concern partnership
partnership affairs
Equitable interest will not
o The admission is within the scope
be transferred if sale is of his authority
not in line with business - If done by a former partner after
operations retirement, it is not evidence against the
Equitable interest will not firm
be transferred if C has no
authority and X has Art. 1821. Notice to any partner of any
knowledge of it
matter relating to partnership affairs, and
One or more (but not all the partners)
Conveyance: Additional: the knowledge of the partner acting in the
Executed by partners Sold land cannot be particular matter, acquired while a partner
recovered if X is in good or then present to his mind, and the
Sale: faith
Valid and binding to the knowledge of any other partner who
partnership reasonably could and should have
communicated it to the acting partner,

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operate as notice to or knowledge of the money or property so received is

partnership, except in the case of fraud on misapplied by any partner while it is
the partnership, committed by or with the in the custody of the partnership.
consent of that partner.
Art. 1824. All partners solidarily with the
General rule partnership for everything chargeable to
- Notice to a partner is notice to the the partnership under Articles 1822 and
partnership 1823.

Instances where knowledge of a partner is Art. 1825. When a person, by words spoken
considered knowledge of the partnership or written or by conduct, represents
1. Knowledge of the partner acting in the himself, or consents to another
particular matter acquired while a partner; representing him to anyone as a partner in
2. Knowledge of the partner acting in the an existing partnership or with one or more
particular matter then present to his mind; persons not actual partners, he is liable to
and any such persons to whom such
3. Knowledge of any other partner who representation has been made, who has, on
reasonably could and should have the faith of such representation, given
communicated it to the acting partner credit to the actual or apparent partnership,
and if he has made such representation or
Exception consented to its being made in a public
- In the case of fraud on the partnership, manner he is liable to such person, whether
committed by or with the consent of that the representation has or has not been
partner made or communicated to such person so
giving credit by or with the knowledge of
Art. 1822. Where, by any wrongful act or the apparent partner making the
omission of any partner acting in the representation or consenting to its being
ordinary course of the business of the made:
partnership or with the authority of co- (1) When a partnership liability results,
partners, loss or injury is caused to any he is liable as though he were an
person, not being a partner in the actual member of the partnership;
partnership, or any penalty is incurred, the (2) When no partnership liability results,
partnership is liable therefor to the same he is liable pro rata with the other
extent as the partner so acting or omitting persons, if any, so consenting to the
to act. contract or representation as to incur
liability, otherwise separately.
When a person has been thus
represented to be a partner in an existing
Wrongful act or omission partnership, or with one or more persons
- The other partners and the partnership are not actual partners, he is an agent of the
solidarily liable with the negligent partner. persons consenting to such representation
- But the partners or the partnership can to blind them to the same extent and in the
recover from C same manner as though he were a partner
in fact, with respect to persons who rely
Art. 1823. The partnership is bound to make upon the representation. When all the
good the loss: members of the existing partnership
(1) Where one partner acting within the consent to the representation, a
scope of his apparent authority partnership act or obligation results; but in
receives money or property of a third all other cases it is the joint act or
person and misapplies it; and obligation of the person acting and the
(2) Where the partnership in the course persons consenting to the representation.
of its business receives money or
property of a third person and the

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- A creditor cannot go after the separate

Partnership by estoppel partner of the newly admitted partner is
- All partners consent to misrepresentation the latter is admitted after loan is incurred
of a third person who is not a real partner - Only the partners present upon incurrence
- This creates a partnership obligation of loan can the creditor go after
- All partners consenting are in bad faith,
they are all partners by estoppel Art. 1827. The creditors of the partnership
- Does not apply when the third person is shall be preferred to those of each partner
not deceived as regards the partnership property.
Without prejudice to this right, the private
Art. 1826. A person admitted into an creditors of each partner may ask the
existing partnership is liable for all the attachment and public sale of the share of
obligations of the partnership arising before the latter in the partnership assets.
his admission as though he had been a
partner when such obligations were Explanation
incurred, except that this liability shall be - This is due to the fact that the creditors of
satisfied only out of partnership property, the partnership contracted with the
unless there is a stipulation to the contrary. partnership which is a juridical person
having a separate juridical personality
Rule from the partner
CHAPTER 3: DISSOLUTION AND WINDING UP Up
The change in The process of The point in
General rule relation… settling time after all
- The partnership can only pay out what it business the
That point of affairs after partnership
has in its coffers, which consists of all its
time the dissolution. affairs have
assets partners been wound
- Before the partners can be paid their cease to carry Paying up
shares, the creditors of the partnership on the previous
must first be compensated. business obligations,
- Partners will only be paid whatever is left together collection of
of the partnership assets after all creditors assets
previously
have been paid
demandable,
contracting
Art. 1828. The dissolution of a partnership for new
is the change in the relation of the partners business
caused by any partner ceasing to be needed to
associated in the carrying on as wind up
distinguished from the winding up of the (contracting
with a
business.
demolition
company)
Dissolution
- The change in the relation of the parties Art. 1829. On dissolution the partnership is
caused by any partner ceasing to be not terminated, but continues until the
associated in the carrying on, as might be winding up of partnership affairs is
distinguished from the winding up of, the completed.
business.
- Upon dissolution, partnership continues After dissolution, all the transactions of the
and its legal personality is retained until partnerships should only pertain to liquidation or
the complete winding up of its business winding up which will happen over a period of
culminating in its termination time.

THREE FINAL STAGES OF A PARTNERSHIP

(1) Dissolution (2) Winding (3)Termination

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Art. 1830. Dissolution is caused: (8) By decree of court under the

(1) Without violation of the agreement following article. (1700a and 1701a)
between the partners:
(a) By the termination of the
definite term or particular
undertaking specified in the
agreement;
(b) By the express will of any
partner, who must act in good
faith, when no definite term or Kinds of dissolution
particular is specified; 1. Extrajudicial dissolution (nos. 1 to 7)
(c) By the express will of all the 2. Judicial dissolution (no. 8)
partners who have not a. Without violation of the agreement
assigned their interests or between the partners
suffered them to be charged - By the termination of the
for their separate debts, either definite term or particular
before or after the termination undertaking specified in the
of any specified term or agreement
particular undertaking; - Partnership with a
(d) By the expulsion of any partner fixed term which
from the business bona fide in naturally dissolves
accordance with such a power after fixed term
conferred by the agreement - By the express will of any
between the partners; partner, who must act in
(2) In contravention of the agreement good faith when no definite
between the partners, where the term or particular
circumstances do not permit a undertaking is specified
dissolution under any other provision - Partnership at will
of this article, by the express will of which dissolves if
any partner at any time; one of the partners
(3) By any event which makes it unlawful want to discontinue
for the business of the partnership to operations
be carried on or for the members to - By the express will of all the
carry it on in partnership; partners who have not
(4) When a specific thing which a partner assigned their interests or
had promised to contribute to the suffered them to be charged
partnership, perishes before the for their separate debts,
delivery; in any case by the loss of either before or after the
the thing, when the partner who termination of any specified
contributed it having reserved the term or particular
ownership thereof, has only undertaking
transferred to the partnership the - Dissolves if both the
use or enjoyment of the same; but partners want to
the partnership shall not be dissolved discontinue
by the loss of the thing when it operations
occurs after the partnership has - By the expulsion of any
acquired the ownership thereof; partner from the business
(5) By the death of any partner; bona fide in accordance
(6) By the insolvency of any partner or of with such a power conferred
the partnership; by the agreement between
(7) By the civil interdiction of any the partners
partner; b. In contravention of the agreement
between the partners, where the

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circumstances do not permit a (3) A partner has been guilty of such

dissolution under any other conduct as tends to affect
provision of this article, by the prejudicially the carrying on of the
express will of any partner at any business;
time (4) A partner willfully or persistently
- Ex. a partner wants the commits a breach of the partnership
partnership dissolves on the agreement, or otherwise so conducts
3rd year of a 5-year himself in matters relating to the
agreement partnership business that it is not
c. By any event which makes it reasonable practicable to carry on
unlawful for the business of the the business in partnership with him;
partnership to be carried on or for (5) The business of the partnership can
the members to carry it on in only be carried on at a loss;
partnership (6) Other circumstances render a
d. When a specific thing which a dissolution equitable.
partner had promised to contribute
to the partnership, perishes before On the application of the purchaser of a
the delivery; in any case by the partner’s interest under Article 1813 or
loss of the thing, when the partner 1814:
who contributed it having reserved (1) After the termination of the specified
the ownership thereof, has only term or particular undertaking;
transferred to the partnership the (2) At any time if the partnership was a
use or enjoyment of the same; by partnership at will when the interest
the partnership shall not be was assigned or when the charging
dissolved by the loss of the thing order was issued.
when it occurs after the partnership
has acquired the ownership thereof Those who can sue for judicial dissolution
e. By the death of any partner 1. A partner or any of the 1 to 6 grounds for
f. By the insolvency of any partner or judicial dissolution in the first paragraph
of the partnership 2. The purchaser of a partner’s interest in the
- INSOLVENCY: the liabilities partnership under Art. 1813 or 1814 after
are greater than the assets the termination of the specified term or
g. By the civil interdiction of any particular undertaking or if the partnership
partner is at will when the interest was assigned or
- CIVIL INTERDICTION: when the charging order was issued
deprives the offender during
the time of his sentence of On application by or for a partner
the right to manage his 1. A partner has been declared insane
property, and the right to  The presumption is in favor of
dispose of such property by sanity which must be duly proved
any act or any conveyance in court
inter vivos 2. A partner becomes incapable of
performing his part of the partnership
Art. 1831. On application by or for a partner contract
the court shall decree a dissolution 3. Guilty of conduct prejudicially affecting the
whenever: carrying on of the business
(1) A partner has been declared insane in 4. A partner willfully or persistently commits
any judicial proceeding or is shown to a breach of the partnership agreement
be of unsound mind;  A partner who is regularly drunk
(2) A partner becomes in any other way and tardy
incapable of performing his part of 5. The business of the partnership can only
the partnership contract; be carried on at a loss

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 The essence of partnership is to

divide profits among themselves Explanation
6. Other circumstances - Transactions entered into by B and C
A catch-all provision for grounds without their knowledge of the withdrawal
not mentioned above of A is valid and binding.
- If B, who knows of A’s withdrawal (or
On the application of the purchaser of a partner’s death), transacts with X, a third party who
interest has no knowledge about said withdrawal
 The purchaser of a partner’s interest after and is acting in good faith, the transaction
the termination of the specified term or is still valid and binding.
particular undertaking has the right to ask  A liability is created where B and C
the court to dissolve the partnership are liable
 After C’s payment of his share to X,
he can ask reimbursement of his
Art. 1832. Except so far as may be share from B
necessary to wind up partnership affairs or
to complete transactions begun but not Art. 1834. After dissolution, a partner can
then finished, dissolution terminates all bind the partnership, except as provided in
authority of any partner to act for the the third paragraph of this article:
partnership: (1) By any act appropriate for winding up
(1) With respect to the partners: partnership affairs or completing
(a) When the dissolution is not by transactions unfinished at
the act, insolvency or death of dissolution;
a partner; or (2) By any transaction which would bind
(b) When the dissolution is by such the partnership if dissolution had not
act, insolvency or death of a taken place, provided the other party
partner, in cases where article to the transaction:
1833 so requires (a) Had extended credit to the
(2) With respect to persons not partners, partnership prior to dissolution
as declared in Article 1834. and had no knowledge or
notice of the dissolution; or
Rule (b) Though he had not so extended
- When a partnership is dissolved, any of credit, had nevertheless known
the partners cannot bind the partnership. of the partnership prior to
dissolution, and, having no
Exceptions knowledge or notice of
- Those provided in Articles 1833 and 1834. dissolution, the fact of
dissolution had not been
Art. 1833. Where the dissolution is caused advertised in a newspaper of
by the act, death or insolvency of a partner, general circulation in the place
each partner is liable to his co-partners for (or in each place if more than
his share of any liability created by any one) at which the partnership
partner acting for the partnership as if the business was regularly carried
partnership had not been dissolved unless: on.
(1) The dissolution being by act of any
partner, the partner acting for the The liability of a partner under the
partnership had knowledge of the first paragraph, No. 2, shall be satisfied our
dissolution; or of partnership assets alone when such
(2) The dissolution being by the death or partner had been prior to dissolution:
insolvency of a partner, the partner (1) Unknown as a partner to the person
acting for the partnership had with whom the contract is made; and
knowledge or notice of the death or (2) So far unknown and inactive in
insolvency. partnership affairs that the business

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reputation of the partnership could a. Extended credit to the partnership

not be said to have been in any prior to dissolution and hand no
degree due to his connection with it. notice of such
b. Though had not extended credit,
The partnership is in no case bound had known of the partnership prior
by any act of a partner after dissolution: to dissolution, and, having no
(1) Where the partnership is dissolved notice of such, the fact of
because it is unlawful to carry on the dissolution had not been advertised
business, unless the act is in a newspaper or general
appropriate for winding up circulation
partnership affairs i. Ex. entering into a contract
(2) Where the partner has become of sale with X (who had no
insolvent; or knowledge) to buy goods
(3) Where the partner has no authority not related to dissolution
to wind up partnership affairs; Partnership is not liable
except by a transaction with one who: 1. Where dissolution was caused by
(a) Had extended credit to the unlawfulness to carry on the business
partnership prior to dissolution a. Ex. sales of unlawful products
and had no knowledge or makes the partnership not liable
notice of his want of authority; 2. Partner has become insolvent
or a. Contracts entered into by an
(b) Had not extended credit to the insolvent partner makes the
partnership prior to partnership not liable
dissolution, and, having no 3. Partner had no authority to wind up
knowledge or notice of his partnership affairs; except by a
want of authority, the fact of transaction with a third person who is in
his want of authority has not good faith
been advertised in the manner a. Partnership is not liable to
provided for advertising the transactions made by a non-
fact of dissolution in the first liquidating partner with a third
paragraph, No. 2. person. Such transactions will only
make the partnership liable of the
Nothing in this article shall affect the dissolution is not known to the third
liability under Article 1825 of any person person
who, after dissolution, represents himself
or consents to another representing him as Art. 1835. The dissolution of the
a partner in a partnership engaged in partnership does not of itself discharge the
carrying business. existing liability of any partner.
A partner is discharged from any
Partnership is liable existing liability upon dissolution of the
1. Act appropriate for winding up partnership partnership by an agreement to that effect
affairs between himself, the partnership creditor,
a. Ex. selling remaining goods and and the person or partnership continuing
inventories. Such transactions are the business; and such agreement may be
binding inferred from the course of dealing between
2. Act for completing transactions unfinished the creditor having knowledge of the
at dissolution dissolution and the person or partnership
a. Ex. delivering undelivered goods to continuing the business.
a client The individual property of a deceased
3. Transactions which would bind the partner shall be liable for all obligations of
partnership if dissolution had not taken the partnership incurred while he was a
place and the other party to the partner, but subject to the prior payment of
transaction: his separate debts.

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otherwise agreed, may have the partnership

General rule property applied to discharge its liabilities,
- Dissolution does not of itself discharge the and the surplus applied to pay in cash the
existing liability of any partner net amount owing to the respective
partners. But if dissolution is caused by
Discharge of partner’s liability expulsion of a partner, bona fide under the
In order for the liability of a partner to be partnership agreement and if the expelled
discharged, the following must agree: partner is discharged from all partnership
1. The partner liabilities, either by payment or agreement
2. The other partners under the second paragraph of Article 1835,
3. The creditors he shall receive in cash only the net amount
due him from the partnership.
Property of a deceased partner When dissolution is caused in
 Ex. the separate property of the deceased contravention of the partnership agreement
partner is liable to a partnership creditor the rights of the partners shall be as
(creditor prior to dissolution) but the follows:
separate/private liability must first be (1) Each partner who has not caused
paid. The remaining will be to satisfy his dissolution wrongfully shall have:
share in the partnership liability which was (a) All the rights specified in the
incurred prior to dissolution first paragraph of this article,
and
(b) The right, as against each
Art. 1836. Unless otherwise agreed, the partner who has caused the
partners who have not wrongfully dissolved dissolution wrongfully, to
the partnership or the legal representative damages breach of the
of the last surviving partner, not insolvent, agreement.
has the right to wind up the partnership (2) The partners who have not caused
affairs, provided, however, that any partner, the dissolution wrongfully, if they all
his legal representative or his assignee, desire to continue the business in the
upon cause shown, may obtain winding up same name either by themselves or
by the court. jointly with others, may do so, during
the agreed term for the partnership
Kinds of winding-up or liquidation and for that purpose may possess the
Extrajudicial Judicial partnership property, provided they
Liquidation is done without Liquidation is done secure the payment by bond
court intervention. under the control
approved by the court, or pay any
and direction of the
court under proper partner who has cause the dissolution
cause that it is wrongfully, the value of his interest in
Wind-up by: shown in court. the partnership at the dissolution,
- Liquidating partner (as
agreed upon by all the Wind-up by: less any damages recoverable under
partners - The person the second paragraph, No. 1 (b) of
- Partners who have not appointed by court this article, and in like manner
wrongfully dissolved the
indemnify him against all present or
partnership
- Legal representative of the future partnership liabilities.
last surviving partner who (3) A part who has caused the dissolution
is insolvent wrongfully shall have:
(a) If the business is not continued
Art. 1837. When dissolution is caused in any under the provisions of the
way, except in contravention of the second paragraph, No. 2, all
partnership agreement, each partner, as the rights of a partner under
against his co-partners and all persons the first paragraph, subject to
claiming through them in respect of their liability for damages in the
interests in the partnership, unless

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second paragraph, No. 1 (b), of a. To have the partnership property

this article. applied to discharge the liabilities
(b) If the business is continued of the partnership;
under the second paragraph, b. To have the surplus, if any, applied
No. 2, or this article, the right to pay in cash the net amount
as against his co-partners and owing to the respective partners;
all claiming through them in c. To be indemnified for damages
respect of their interests in the caused by the partner who caused
partnership, to have the value the dissolution wrongfully; and
of his interest in the d. To continue the business in the
partnership, less any damage same name either by themselves
caused to his co-partners by or jointly with others during the
the dissolution, ascertained agreed term of the partnership and
and paid to him in cash, or the for that purpose may possess the
payment secured by a bond partnership property
approved by the court, and to 2. Rights of the partner who wrongfully
be released from all existing caused the dissolution
liabilities of the partnership; a. If the business is not continued by
but in ascertaining the value of the other partners
the partner’s interest the value i. To have the partnership
of the good-will of the business property applied to
shall not be considered. discharge the liabilities of
the partnership and to
Right of partners in case of liquidation not caused receive in cash his share of
by violation/contravention of the agreement the surplus less damages
1. To have the partnership property applied caused by his wrongful
to discharge the liabilities of the dissolution
partnership; and b. If the business is continued by the
a. Noncash assets will be converted other partners
into cash to pay the creditors i. To have the value of his
2. To have the surplus, if any, applied to pay interest in the partnership,
in cash the net amount owing to the less any damage caused to
respective partners his co-partners by the
a. The remaining cash will be dissolution, ascertained and
distributed to the partner-creditor, paid to him in cash, or the
then to partners payment secured by a bond
approved by the court
Note ii. To be released from all
- If dissolution is caused by expulsion of a existing liabilities of the
partner partnership
 Bona fide under the partnership
agreement Note
 The expelled partner is discharged - In ascertaining the value of the partner’s
from all partnership liabilities interest who wrongfully caused the
(either by payment or agreement dissolution of the partnership, the value of
between him, the other partners, the goodwill of the business shall not be
and the partnership creditors) considered
- Shall receive in cash only the amount due - Such interest will be given as an addition
him from the partnership the interest of the partners who did not
Right of partners in case of liquidation caused by wrongfully cause the dissolution
violation/contravention of the agreement
1. Rights of partner who has not caused
dissolution wrongfully

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this article to the satisfaction of the

Art. 1838. Where a partnership contract is liabilities.
rescinded on the ground of the fraud or (4) The partners shall contribute, as
misrepresentation of one of the parties provided by Article 1797, the amount
thereto, the party entitled to rescind is, necessary to satisfy the liabilities.
without prejudice to any other right, (5) An assignee for the benefit of
entitled: creditors or any person appointed by
(1) To a lien on, or right of retention of, the court shall have the right to
the surplus of the partnership enforce the contributions specified in
property after satisfying the the preceding number.
partnership liabilities to third persons (6) Any partner or his legal
for any sum of money paid by him for representative shall have the right to
the purchase of an interest in the enforce the contributions specified in
partnership and for any capital or No. 4, to the extent of the amount
advances contributed by him; which he has paid in excess of his
(2) To stand, after all liabilities to third share of the liability.
persons have been satisfied, in the (7) The individual property of a deceased
place of the creditors of the partner shall be liable for the
partnership for any payments made contributions specified in No. 4.
by him in respect of the partnership (8) When partnership property and the
liabilities; and individual properties of the partners
(3) To be indemnified by the person are in possession of a court for
guilty of the fraud or making the distribution, partnership creditors
representation against all debts and shall have priority on partnership
liabilities of the partnership. property and separate creditors on
individual property, saving the rights
Three rights of a partner who is entitled to rescind of lien or secured creditors.
1. Right of lien or right of retention; (9) Where a partner has become
2. Right of subrogation; and insolvent or his estate is insolvent,
3. Right of indemnification the claims against his separate
property shall rank in the following
Art. 1839. In settling accounts between the order:
partners after dissolution, the following (a) Those owing to separate
rules shall be observed, subject to any creditors;
agreement to the contrary: (b) Those owing to partnership
(1) The assets of the partnership are: creditors;
(a) The partnership property, (c) Those owing to partners by
(b) The contributions of the way of contribution.
partners necessary for the
payment of all the liabilities Assets of the partnership
specified in No. 2 a. Partnership property; and
(2) The liabilities of the partnership shall b. Contributions of the partners necessary for
rank in order of payment, as follows: the payment of all liabilities
(a) Those owing to creditors other
than partners Liabilities of the partnership shall rank in order if
(b) Those owing to partners other payment
than for capital and profits a. Those owing to partnership creditors
(c) Those owing to partners in (other than partners)
respect of capital b. Those owing to partners (e.g. the partner
(d) Those owing to partners in or partners who gave a loan to the
respect of profits partnership)
(3) The assets shall be applied in the c. Those owing to partners in respect of
order of their declaration in No. 1 of capital; and

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 An industrial partner is not entitled the representative of the deceased

to participate in the capital partners assigns) his rights in
because he did not contribute partnership property to two or more
money or property or both of the partners, or to one or more of
d. Those owing to partners in respect of the partners and one or more of third
profits persons. If the business is continued
 An industrial partner is entitled to without liquidation of the partnership
participate affairs;
 The surplus of the assets after (2) When all but one partner retire and
payment of creditors, inside assign (or the representative of a
creditors, and capital, is distributed deceased partners assigns) their
to each partner according the rights in partnership property to the
profit-sharing agreement remaining partners, who continues
the business without liquidation of
Required new contribution partnership affairs, either alone or
- If the partnership assets were exhausted, with others;
the partners shall contribute the amount (3) When any partner retires or dies and
to satisfy the liabilities the business of the dissolved
partnership is continued as set forth
Enforced by in Nos. 1 and 2 of this article, with
1. An assignee for the benefit of creditors or the consent of the retired partners or
any person appointed by the court shall the representative of the deceased
have the right to enforce the contributions partner, but without any assignment
2. Any partner or his legal representative of his right in the partnership
shall have the right to implement the said property;
enforced contributions, to the extent of (4) When all the partners of their
the amount which he has paid in excess of representatives assign their rights in
his share of the liability partnership property to one or more
third persons who promise to pay the
Individual property of a deceased partner debts and who continue the business
- Shall be liable for his share of the of the dissolved partnership;
partnership liability incurred while he was (5) When any partner wrongfully causes
a partner a dissolution and the remaining
- His separate creditors have preference partners continue the business under
over these individual properties the provisions of article 1837, second
paragraph, No. 2, either alone or with
Preference of claims against the separate others, and without liquidation of the
property of an insolvent partner partnership affairs;
- Where a partner has become insolvent or (6) When a partner is expelled and the
his estate is insolvent, the claims against remaining partners continue the
his property shall rank in the following business either alone or with others
order: without liquidation of the partnership
 Separate creditors affairs.
 Partnership creditors The liability of a third person
 Partners by way of contribution becoming a partner in the partnership
continuing the business, under this article,
Art. 1840. In the following cases, creditors to the creditors of the dissolved partnership
of the dissolved partnership are also shall be satisfied out of the partnership
creditors of the person or partnership property only, unless there is a stipulation
continuing the business: to the contrary.
(1) When any new partner is admitted When the business of a partnership
into an existing partnership, or when after dissolution is continued under any
any partner retires and assigns (or conditions set forth in this article the

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creditors of the dissolved partnership, as - On the other hand, upon dissolution of a

against the separate creditors of the professional partnership, no goodwill can
retiring or deceased partner or the be distributed since the reputation of such
representative of the deceased partner, partnership depends on the individual skill
have a prior right to any claim of the retired of the members
partner or the representative of the
deceased partner against the person or Art. 1841. When any partner retires or dies,
representative of the deceased partner and the business is continued under any of
against the person or representative of the the conditions set forth in the preceding
deceased partner against the person or article, or in Article 1837, second
partnership continuing the business, on paragraph, No. 2, without any settlement of
account of the retired or deceased partner’s accounts as between him or his estate and
interest in the dissolved partnership or on the person or partnership continuing the
account of any consideration promised for business, unless otherwise agreed, he or his
such interest or for his right in partnership legal representative as against such person
property. or partnership may have the value of his
Nothing in this article shall be held to interest at the date of dissolution
modify any right of creditors to set aside ascertained, and shall receive as an
any assignment of the ground of fraud. ordinary creditor an amount equal to the
The use by the person or partnership value of his interest in the dissolved
continuing the business of the partnership partnership with interest, or, at his option
name, or the name of a deceased partner as or at the option of his legal representative,
part thereof, shall not of itself make the in lieu if interest, the profits attributable to
individual property of the deceased partner the use of his right in the property of the
liable for any debts contract by such person dissolved partnership; provided that the
or partnership. creditors of the dissolved partnership as
against the separate creditors, or the
Rationale: representative of the retired or deceased
- PRIMARILY, the article deals with the partner, shall have priority on any claim
exemption from liability in cases of a arising under this article, as provided by
dissolved partnership, of the individual Article 1840, third paragraph.
property of the deceased partner for debts
contracted by the person or partnership Rights of a partner who retires or dies and the
which continues the business with the business is continued without any settlement of
name of the deceased accounts
- SECONDLY, the article treats more of a 1. To have the value of his interest at the
commercial partnership with a goodwill to date of dissolution ascertained
protect rather than of a professional 2. To receive as an ordinary creditor an
partnership, with no saleable goodwill but amount equal to the value of his interest
whose reputation depends on the personal in the dissolved partnership with interest,
qualifications of its individual members or, at his option or at the option of his
 Thus, saleable goodwill can exist legal representative, in lieu of interest, the
only in a commercial partnership profits attributable to the use of his right
and not in professional in the property of the dissolved
partnerships consisting of lawyers partnership.
- As a general rule, upon the dissolution of a
commercial partnership, the succeeding Art. 1842. The right to an account of his
partners or parties have the right to carry interest shall accrue to any partner, or his
on the business under the old name, in the legal representative as against the winding
absence of a stipulation forbidding it, since up partners or the surviving partners or the
the name of a commercial partnership is a person or partnership continuing the
partnership asset inseparable from the business, at the date of dissolution, in the
goodwill of the firm absence of any agreement to the contrary.

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- The obligation to render an account (at the

Note date of dissolution, except of any
- The right to an account of his interest shall stipulation to the contrary):
accrue to any partner, or his legal  The winding up partners
representative  Surviving partners; or
 The person or partnership
continuing the business
CHAPTER 4: LIMITED PARTNERSHIP (f) The amount of cash and a
description of and the agreed
Art. 1843. A limited partnership is one value of the other property
formed by two or more persons under the contributed by each limited
provisions of the following article, having as partner;
members one or more general partners and (g) The additional contributions, if
one or more limited partners. The limited any, to be made by each
partners as such shall not be bound by the limited partner and the times
obligations of the partnership. at which or events on the
happening of which they shall
Characteristics of a limited partnership be made;
1. Formed by compliance in good faith with (h) The time, if agreed upon, when
the statutory requirements the contribution of each limited
2. General partners (one or more) partner is to be returned;
a. control the business and are (i) The share of the profits or the
personally liable to creditors other compensation by way of
b. their separate properties can be income which each limited
used to pay out partnership debts partner shall receive by reason
3. Limited partners (one or more) of his contribution;
a. contribute to the capital and share (j) The right, if given, of a limited
in the profits but do not participate partner to substitute an
in the management of the assignee as contributor in his
business; also known as special place, and the terms and
partners conditions of the substitution;
b. not personally liable for partnership (k) The right, if given, of the
obligations beyond their capital partners to admit additional
contributions limited partners;
c. may ask for the return of their (l) The right, if given, of one or
capital contributions more of the limited partners to
priority over other limited
Art. 1844. Two or more persons desiring to partners, as to contributions or
form a limited partnership shall: as to compensation by way of
(1) Sign and swear to a certificate, which income, and the nature of such
shall state— priority;
(a) The name of the partnership, (m) The right, if given, of the
adding thereto the word remaining general partner or
“Limited”; partners to continue the
(b) The character of the business; business on the death,
(c) The location of the principal retirement, civil interdiction,
place of business; insanity or insolvency of a
(d) The name and place of general partner; and
residence of each member, (n) The right, if given of a limited
general and limited partners partner to demand and receive
being respectively designated; property other than cash in
(e) The term for which the return for his contribution.
partnership is to exist;

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(2) File for record the certificate in the knowledge that he is not a general
Office of the Securities and Exchange partner.
Commission.
The surname of a limited partner shall
A limited partnership is formed if not appear in the partnership name.
there has been substantial
compliance in good faith with the Note
foregoing requirements.  In violation, said limited partner is liable as
a general partner only to partnership
Essential requisites in the formation of a limited creditors who extend credit to the
partnership partnership without actual knowledge that
1. Certificate of limited partnership he is not a general partner
a. Must be signed and sworn to  He will obtain same liability, but will not
b. Must contain all the enumerate acquire the rights of a general partner
items above
2. CLP should be filed in SEC Art. 1847. If the certificate contains a false
statement, one who suffers loss by reliance
Notes on such statement may hold liable any party
 General partnership can be verbal to the certificate who knew the statement
 A limited partnership must always be in to be false:
writing (the certificate) (1) At the time he signed the certificate,
 No limited partnership in case of non- or
compliance to the above requirements; (2) Subsequently, but within a sufficient
but there can be general partnership time before the statement was relied
 Partnership transacting business with 3rd upon to enable him to cancel or
persons is disputably presumed to be a amend the certificate, or to file a
general partnership petition for its cancellation or
Art. 1845. The contribution of a limited amendment as provided in Article
partner may be cash or property but not 1865
services.
Liability for a false statement in the certificate
Contributions in a limited partnership  One who suffers loss by reliance on such
 Limited partner—can contribute only false statement may hold liable any party
money, property, or both, but not services in the certificate of limited partnership
 Industrial partner—can only be a general who is in bad faith
partner

Art. 1946. The surname of a limited partner

shall not appear in the partnership name
unless: Art. 1848. A limited partner shall not
(1) It is also the surname of a general become liable as a general partner unless,
partner, or in addition to the exercise of his rights and
(2) Prior to the time when the limited powers as a limited partner, he takes part in
partner became such, the business the control of the business.
has been carried on under a name in
which his surname appeared. Liability of a limited partner who takes part in the
control of the business
A limited partner whose surname  He will be liable as a general partner
appears in a partnership name contrary  But he will not acquire the rights of a
to the provisions of the first paragraph is general partner
liable as a general partner to
partnership creditors who extend credit Art. 1849. After the formation of a limited
to the partnership without actual partnership, additional limited partners may

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be admitted upon filing an amendment to (1) Have the partnership books kept at
the original certificate in accordance with the principal place of business of the
the requirements of Article 1865. partnership, and at a reasonable hour
to inspect and copy and of them;
Additional limited partners may be admitted after (2) Have on demand true and full
the formation information of all things affecting the
 Only requirement—the amendment of the partnership, and a formal account of
original certificate which must be partnership affairs whenever
o Signed and sworn to by ALL circumstances render it just and
partners (original and newly reasonable; and
admitted) (3) Have dissolution and winding up by
o Filed with SEC decree of court

Art. 1850. A general partner shall have all A limited partner shall have the right to
the rights and powers and be subject to all receive a share of the profits or other
the restrictions and liabilities of a partner in compensation by way of income, and to
a partnership without limited partners. the return of his contribution as
However, without the written consent or provided in Articles 1856 and 1857.
ratification of the specific act by all the
limited partners, a general partner or all of Rights of a limited partner
the general partners have no authority to: 1. To have the books kept at the principal
(1) Do any act in contravention of the place of business and to inspect and copy
certificate; any of them at a reasonable hour
(2) Do any act which would make it 2. To demand true and full information of all
impossible to carry on the ordinary things affecting the partnership, and a
business of the partnership; formal account of partnership affairs
(3) Confess a judgment against the whenever circumstances render it just and
partnership; reasonable
(4) Possess partnership property, or 3. To have dissolution and winding up by
assign their rights in specific decree of court
partnership property, for other than a 4. To receive a share of the profits or other
partnership purpose compensation by way of income
(5) Admit a person as a general partner; 5. To receive return of his contribution if the
(6) Admit a person as a limited partner. partnership assets are in excess of the
Unless the right to do so is given in partnership liabilities
the certificate;
(7) Continue the business with Art. 1852. Without prejudice to the
partnership property on the death, provisions of Article 1848, a person who has
retirement, insanity, civil interdiction contributed to the capital of a business
or insolvency of a general partner, conducted by a person or partnership
unless the right to do so is given in erroneously believing that he has become a
the certificate. limited partner in a limited partnership, is
not, by reason of his exercise of the rights
Note of a limited partner, a general partner with
 As a rule, general partners can only do the person or in the partnership carrying on
acts of administration the business, or bound by the obligations of
 The items above refer to acts of such person or partnership, provided that
ownership. Thus, the general partners on ascertaining the mistake he promptly
must secure the written consent or renounces his interest in the profits of the
ratification by ALL of the limited partners business, or other compensation by way of
income.
Art. 1851. A limited partner shall have the
same rights as a general partner to:

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Contributor who erroneously believes that he has The receiving of collateral security, or
become a limited partner payment, conveyance, or release in
He is not liable as a general partner violation of the foregoing provisions is a
provided that: fraud on the creditors of the
1. On ascertaining the mistake, he promptly partnership.
renounces that his interest is the profits of
the business, or other compensation by Allowable business transactions of a limited
way of income; and partner with the partnership
2. He does not take part in the control of the 1. To lend money to the partnership
business 2. To transact business with the partnership
3. To receive on account of resulting claims
Art. 1853. A person may be a general against the partnership, with general
partner and a limited partner in the same creditors, a pro rata share of the assets
partnership at the same time, provided that
this fact shall be stated in the certificate Prohibited business transactions of a limited
provided for in Article 1844. partner with the partnership
A person who is a general, and also at 1. Receive or hold as collateral security and
the same time a limited partner, shall have partnership property
all the rights and powers and be subject to 2. Receive from a general partner any
all the restrictions of a general partner; payment, conveyance, or release from
except that, in respect to the contribution, liability if at the time the assets of the
he shall have the rights against the other partnership are not sufficient to discharge
members which he would have had if he partnership liabilities to persons not
were not also a general partner. claiming as general or limited partners.

General-limited partner Rationale

 RIGHTS:  To prevent illegal competition between the
o those of a general partner limited partner and partnership creditors
o as regards his contribution, his for the assets of the partnership
rights are those of a limited partner
insofar as the other partners are Note
concerned  Violation of the prohibition, as
 LIABILITIES: those of a general partner enumerated, will give rise to the
disputable presumption of fraud on the
Art. 1854. A limited partner also may loan creditors of the partnership
money to and transact other business with
the partnership, and, unless he is also a Art. 1855. Where there are several limited
general partner, receive on account of partners the members may agree that one
resulting claims against the partnership, or more of the limited partners shall have a
with general creditors, a pro rata share of priority over other limited partners as to
the assets. No limited partner shall in the return of their contributions, as to their
respect to any such claim: compensation by wat of income, or as to
(1) Receive or hold as collateral security any other matter. If such an agreement is
and partnership property, or made it shall be stated in the certificate,
(2) Receive from a general partner or the and in the absence of such a statement all
partnership any payment, the limited partners shall stand upon equal
conveyance, or release from liability footing.
if at the time the assets of the
partnership are not sufficient to Preference to some limited partners
discharge partnership liabilities to Preference may be given to some limited
persons not claiming as general or partners over other limited partners as to:
limited partners. 1. Return of their contributions;
2. Their compensation by way of income; or

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3. Any other matter. time is specified in the certificate,

either for the return of the
Art. 1856. A limited partner may receive contribution or for the dissolution of
from the partnership the share of the the partnership.
profits or the compensation by way of
income stipulated for in the certificate; In the absence of any statement in
provided that after such payment is made, the certificate to the contrary or the
whether from property of the partnership or consent of all members, a limited
that of a general partner, the partnership partner, irrespective of the nature of
assets are in excess of all liabilities of the his contribution, has only the right to
partnership except liabilities to limited demand and receive cash in return
partners on account of their contributions for his contribution.
and to general partners. A limited partner may have the
partnership dissolved and its affairs
Share of the profits or compensation by way of wound up when:
income of a limited partner (1) He rightfully but unsuccessfully
 Partnership assets should be in excess of demands the return of his
all liabilities of the partnership to third contribution, or
persons after payment of the profits or (2) The other liabilities of the
compensation by way of income of a partnership have not been paid, or
limited partner the partnership property is
insufficient for their payment as
required by the first paragraph, No.
1, and the limited partner would
Art. 1857. A limited partner shall not otherwise be entitled to the return of
receive from a general partner or out of the his contribution.
partnership property any part of his
contributions until: Requisites for the return of contributions of a
(1) All liabilities of the partnership, limited partner
except liabilities to general partners 1. All liabilities of the partnership, except
and to limited partners on account of liabilities to general partners and to
their contributions, have been paid or limited partners on account of their
there remains property of the contributions, have been paid or there
partnership sufficient to pay them; remains property of the partnership
(2) The consent of all members is had, sufficient to pay them;
unless the return of the contribution 2. The consent of all members (general and
may be rightfully demanded under limited partners) is had, unless the return
the provisions of the second of the contribution may be rightfully
paragraph; and demanded; and
(3) The certificate is cancelled or so 3. The certificate is cancelled or so amended
amended as to set forth the as to set forth the withdrawal or reduction
withdrawal or reduction. of the contribution
Subject to the provisions of the
first paragraph, a limited partner may
rightfully demand the return of his
contribution: When can the contributions of a limited partner
(1) On the dissolution of a partnership; be returned?
or 1. On the dissolution of a partnership
(2) When the date specified in the 2. When the date specified in the certificate
certificate for its return has arrived, for its return has arrived; or
or 3. After he has given six months’ notice in
(3) After he has given six months; notice writing to all other members, if no time is
in writing to all other members, if no specified in the certificate, either for the

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return of the contribution or for the consent of all members; but a waiver
dissolution of the partnership or compromise shall not affect the
right of a creditor of a partnership
Right of a limited partner to demand and receive who extended credit or whose claim
cash in return for his contribution arose after the filing and before a
A limited partner, irrespective of the cancellation or amendment of the
nature of his contribution, has only the right to certificate, to enforce such liabilities.
demand and receive cash in return for his When a contributor has rightfully
contribution. The exceptions are: received the return in whole or in part of
1. Where there is stipulation to the contrary the capital of his contribution, he is
in the certificate of limited partnership; or nevertheless liable to the partnership for
2. Where all the partners consent to the any sum, not in excess of such return with
return of his contribution other than in the interest, necessary to discharge its
form of cash. liabilities to all creditors who extended
credit or whose claims arose before such
When may a limited partner have the partnership return.
dissolved and liquidated?
A limited partner may have the Liability of a limited partner for unpaid
partnership dissolved and its affairs wound up contribution to a partnership
when: 1. For the difference between actual
1. He rightfully but unsuccessfully demands contribution and the contribution stated
the return of his contribution; or and agreed upon in the certificate
2. The other liabilities of the partnership 2. For any unpaid contribution which he
have not been paid, or the partnership agreed in the certificate to make in the
property is insufficient for their payment future at the time and on the conditions
and the limited partner would otherwise stated in the certificate
be entitled to the return of his
contribution. Liability of a limited partner as a trustee to the
partnership
Art. 1858. A limited partner is liable to the 1. Specific property stated in the certificate
partnership: as contributed by him, but which was not
(1) For the difference between his contributed or which has been wrongfully
contribution as actually made and returned, and
that stated in the certificate as 2. Money or other property wrongfully paid or
having been made; and conveyed to him on account of his
(2) For any unpaid contribution which he contribution
agreed in the certificate to make in
the future at the time and on the Liabilities of a limited partner may be waived
conditions stated in the certificate. The requisites are:
1. With the consent of all the other partners;
A limited partner holds as trustee for the 2. The waiver or compromise shall not affect
partnership: the right of partnership creditors who
(1) Specific property stated in the extended credit or whose claim arose after
certificate as contributed by him, but the filing and before a cancellation or
which was not contributed or which amendment of the certificate
has been wrongfully returned, and
(2) Money or other property wrongfully Liability of a limited partner despite return of his
paid or conveyed to him on account contribution
of his contribution.  A limited partner is nevertheless liable to
the partnership for any sum necessary to
The liabilities of a limited partner discharge its liabilities to all creditors who
as set forth in this article can be extended credit or whose claims arose
waived or compromised only by the before such return. However, the liability

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of threat limited partner is up to the o To require any information or

extent of his contribution. account of the partnership
transactions
Art. 1859. A limited partner’s interest is o To inspect partnership books
assignable.
A substituted limited partner is a Substituted limited partner
person admitted to all the rights of a  A person admitted to all the rights of a
limited partner who has died or has limited partner who has died or has
assigned his interest in a partnership. assigned his interest in a partnership
An assigned, who does not become a
substituted limited partner. Has no right to Requisites to becoming a substituted limited
require any information or account of the partner
partnership transactions or to inspect the 1. Consent of all partners or if the limited
partnership books; he is only entitled to partner-assignor, who is empowered in the
receive the share of the profits or other certificate of limited partnership, gives the
compensation by way of income, or the assignee that right;
return of his contribution, to which his 2. The certificate of limited partnership must
assignor would otherwise be entitled. be amended; and
An assignee shall have the right to 3. The certificate of limited partnership must
become a substituted limited partner if all be registered in the SEC.
the members consent thereto or if the
assignor, being thereunto empowered by
the certificate, gives the assignee that
right. Rights and liabilities of a substituted limited
An assignee becomes a substituted partner
limited partner when the certificate is 1. All the rights and powers, subject to all the
appropriately amended in accordance with restrictions and liabilities of his assignor.
Article 1865. Except:
The substituted limited partner has  Those liabilities which he was
all the rights and powers, and is subject to ignorant at the time he became a
all the restrictions and liabilities of his limited partner and which could not
assignor, except those liabilities of which he be ascertained from the certificate
was ignorant at the time he became a 2. The substitution of the assignee as a
limited partner and which could not be limited partner does not release the
ascertained from the certificate. assignor from liability to persons who
The substitution of the assignee as a suffered damage by reliance on a false
limited partner does not release the statement in the certificate of limited
assignor from liability to the partnership partnership and to creditors who extended
under Articles 1847 and 1858. credit or whose claims arose before the
substitution
Rights of an assignee of a limited partner
 To receive the share of the profits or other Art. 1860. The retirement, death,
compensation by receiving the following insolvency, insanity or civil interdiction of a
which the assignor is otherwise entitled general partner dissolves the partnership,
o Way of income unless the business is continued by the
o Return of his contribution remaining general partners:
 Only when he becomes a substituted (1) Under a right to do so stated in the
limited partner can he acquire all the certificate, or
rights of the limited partner. (2) With the consent of all members.

Note Retirement, death, insolvency, insanity, or civil

 An assignee who does not become an SLP interdiction of a general partner (no mention of
has no right: limited partner)

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 In these cases, the partnership is which the circumstances of the case may
dissolved unless: require.
o the business is continued by the
remaining general partners as Note
stated in the certificate of limited  Interest may be redeemed with the
partnership; or separate property of the general partner,
o with the consent of all the partners but may not be redeemed with partnership
property
Art. 1861. On the death of a limited partner
his executor or administrator shall have all Art. 1863. In setting accounts after
the rights of a limited partner for the dissolution the liabilities of the partnership
purpose of setting his estate, and such shall be entitled to payment in the following
power as the deceased had to constitute his order:
assignee a substituted limited partner. (1) Those to creditors, in the order of
The estate of a deceased limited priority as provided by law, except
partner shall be liable for all his liabilities those to limited partners on account
as a limited partner. of their contributions, and to general
partners;
Death of a limited partner (2) Those to limited partners in respect
 His executor or administrator shall have all to their share of the profits and other
the rights of a limited partner for the compensation by way of income on
purpose of: their contributions;
o setting his estate (3) Those to limited partners in respect
o constituting his assignee as a to the capital of their contributions;
substituted limited partner (4) Those to general partners other than
for capital and profits;
Art. 1862. On due application to a court of (5) Those to general partners in respect
competent jurisdiction by any creditor of a to profits;
limited partner, the court may charge the (6) Those to general partners in respect
interest of the indebted limited partner with to capital.
payment of the unsatisfied amount of such
claim, and may appoint a receiver, and make Subject to any statement in the
all other orders, directions and inquiries certificate or to subsequent
which the circumstances of the case may agreement, limited partners share in
require. the partnership assets in respect to
The interest may be redeemed with their claims for capital, and in respect
the separate property of any general to their claims for profits or for
partner, but may not be redeemed with compensation by way of income on
partnership property. their contribution respectively, in
The remedies conferred by the first proportion to the respective amounts
paragraph shall not be deemed exclusive of of such claims.
other which may exist.
Nothing in this Chapter shall be held Note
to deprive a limited partner of his statutory  The above article provides for the order of
exemption. payment in case of liquidation of a limited
partnership
Charging the interest of a limited partner  Limited partners are given priority over
 The court may charge the interest of the general partners.
indebted limited partner with payment of  Profits are given priority over capital
the unsatisfied amount of such claim, and
may appoint a receiver. And make all Art. 1864. The certificate shall be cancelled
other orders, directions and inquiries when the partnership is dissolved or all
limited partners cease to be such.

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A certificate shall be amended when: certificate which it is desired to

(1) There is a change in the name of the make; and
partnership or in the amount or (2) Be signed and sworn to by all
character of the contribution of any members. And an amendment
limited partner; substituting a limited partner or
(2) A person is substituted as a limited adding a limited or general partner
partner; shall be signed also by the member to
(3) An additional limited partner is be substituted or added, and when a
admitted; limited partner is to be substituted,
(4) A person is admitted as a general the amendment shall also be signed
partner; by the assigning limited partner.
(5) A general partner retires, dies, The writing to cancel a certificate
becomes insolvent or insane, or is shall be signed by all members.
sentenced to civil interdiction and the A person desiring the cancellation or
business is continued under Article amendment or a certificate, if any person
1860; designated in the first and second
(6) There is a change in the character of paragraphs as a person who must execute
the business of the partnership; the writing refuses to do so, may petition
(7) There is a false or erroneous the court to order a cancellation or
statement in the certificate; amendment thereof.
(8) There is a change in the time as If the court finds that the petitioner
stated in the certificate for the has a right to have the writing executed by
dissolution of the partnership or for a person who refuses to do so, it shall order
the return of a contribution; the Office of the Securities and Exchange
(9) A time is fixed for the dissolution of Commission where the certificate is
the partnership, or the return of a recorded, to record the cancellation or
contribution, no time having been amendment of the certificate; and when the
specified in the certificate, or certificate is to be amended, the court shall
(10) The members desire to make a also cause to be filed for record in said
change in other statement in the office a certified copy of its decree setting
certificate in order that it shall for the amendment.
accurately represent the agreement A certificate is amended or cancelled
among them. when there is filed for record in the Office of
the Securities and Exchange Commission,
Cancellation of the certificate of limited where the certificate is recorded:
partnership (1) A writing in accordance with the
1. When the partnership is dissolved; and provisions of the first or second
2. When all limited partners cease to be paragraph, or
limited partners. Take note that the (2) A certified copy of the order of the
composition of a limited partnership is court in accordance with the
that there should be at least one general provisions of the fourth paragraph;
partner and at least one limited partner. (3) After the certificate is duly amended
in accordance with this article, the
Note amended certified shall thereafter be
 In all other cases, only amendment of the for all purposes the certificate
certificate of limited partnership is provided for in this Chapter.
required.
Requirements for amendment
Art. 1865. The writing to amend a certificate 1. Must be in writing as far as necessary to
shall: set forth clearly the change in the
(1) Conform to the requirements of certificate which it is desired to make;
Article 1844 as far as necessary to 2. It must be signed and sworn to by all
set forth clearly the change in the members, and an amendment substituting

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a limited partner or adding a limited or the sum of the contributions of its

general partner shall be signed also by the limited partners.
member to be substituted or added, and
when a limited partner is to be General vs. Limited
substituted, the amendment shall also be GENERAL LIMITED
After compliance with
signed by the assigning limited partner; Creation
May be constituted in
the requirements of
3. The certificate of limited partnership as any form
law
amended, must be filed for record in the Limited partners—
Contribu Money, property, cash, property, or
Office of the Securities and Exchange tion industry both (but not
Commission. industry/service)
At least 1 general
Members partner
All general partners
Requirements for cancellation hip At least 1 limited
partner
1. Must be in writing;
Limited partners are
2. Must be signed and sworn to by all Extent of Partnership liable only to the
members; and liability obligations extent of their capital
contribution
3. Must be filed for record in the Office of the Manage All are managers Limited partners has
Securities and Exchange Commission ment unless there is a no participation in
right contrary stip. mgmt.
Capitalist partner—
Art. 1866. A contributor, unless he is a cannot engage for his
own account in any
general partner, is not a proper party to
operation which is of
proceedings by or against a partnership, the kind of business
Prohibiti
except where the object is to enforce a the partnership is
on to
engaged in, unless No prohibition in
limited partner’s right against or liability to engage
there is stipulation to engaging in business
in other
the partnership. the contrary
business
General rule Industrial partner—
 A limited partner is not a proper party for absolutely prohibited
to engage in other
proceedings by or against a partnership business
because Interest is not
Assignm
o He does not take assignable unless
ent of Assignable
consented to by all of
control/participate in the interest
the other partners
management of the business of the Effect of
death,
partnership insolvenc
 Except when: y,
Dissolves a Does not dissolve the
retireme
o The object is to enforce a limited nt, and
partnership partnership
partner’s right against or liability to insanity
of a
the partnership partner
Firm name must be
May or may not
Art. 1867. A limited partnership formed followed by “Limited”
Firm include the name of
where surname of
under the law prior to the effectivity of this name one or more of the
limited partner should
partners
Code, may become a limited partnership not appear
under this Chapter by complying with the Partnership vs. Corporation
Commercial Stock Corporation
provisions of Article 1844, provided the Partnership
certificate sets forth: Created by mere
(1) The amount of the original Creation agreement of the Created by law
parties
contribution of each limited partner, Juridical Has juridical Has juridical
and the time when the contribution personality personality personality
Depends on its
was made; and Purpose
To divide the profits
articles of
among partners
(2) That the property of the partnership incorporation
exceeds the amount sufficient to Term No limitation No limitation
Number of
discharge its liabilities to persons not Two or more Five to fifteen
organizers
claiming as general or limited Commence From the execution From the date of the
ment of of the contract issuance of the
partners by an amount greater than juridical unless otherwise certificate of
personality stipulated incorporation

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Partner may not

Transferabi dispose of his
lity of interest unless
interest agreed upon by all
of the partners
Manageme
nt
Effect of
death
Dissolution

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