apply. Art.

1773 is meant to protect third

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

Rules to determine the existence of a

B. Form of Contract
General Rule: No special form is required for its
validity or existence.
Exceptions:
1. Where immovable property or real rights are
contributed.
must be in writing in a public instrument
with an inventory of the property
contributed, signed by the parties
2. Where the contract of partnership has a capital
of P3,000 or more, in money or property. it shall
appear in a public instrument and must be
recorded in the Office of the Securities and
Exchange Commission. However, a partnership has
a juridical personality even in case of failure to
comply with this requirement.
To be considered a juridical personality, a
partnership must fulfill these requisites:
(1) two or more persons bind themselves
to contribute money, property or industry
to a common fund; and (2) intention on
the part of the partners to divide the
profits among themselves. It may be
constituted in any form; a public
instrument is necessary only where
immovable property or real rights are
contributed thereto. This implies that since
a contract of partnership is consensual, an
oral contract of partnership is as good as a
written one. Where no immovable property
or real rights are involved, what matters is
that the parties have complied with the
requisites of a partnership. (Tocao v CA)
There is no need to attach an inventory for
what has been contributed in the
partnership by the parties werent
immovable property or real rights. None of
the partners contributed either a fishpond
or a real right to any fishpond. Art. 1773 of
the Civil Code is not in point. (Agad v
Mabato)
When there are no third parties involved
who may be prejudiced Art. 1773 does not
partnership:
General Rule: Persons who are not partners to each
other are not partners as to third persons.
exception: partnership by estoppel.
Co-ownership of a property does not itself
establish a partnership, even though the
co-owners share in the profits derived from
the incident of joint ownership.
Sharing of gross returns alone does not
indicate a partnership, whether or not the
persons sharing them have a joint or
common right or interest in any property
from which the returns are derived;
The receipt of the share in the profits is a
strong presumptive evidence of
partnership. However, no such inference
will be drawn if such profits were received
in payment:
As a debt by installments or
otherwise;
As wages of an employee or rent
to a landlord;
As an annuity to a widow or
representative of a deceased
partner;
As interest on a loan, though the
amount of payment vary with the
profits of the business;
As the consideration for the sale of
a goodwill of a business or other
property by installments or
otherwise. (art. 1769)
All of essential features or characteristics
of partnership must be shown as being
present. Art. 1769 seeks to exclude from
the category of partnership certain
features enumerated therein which, by
themselves, are not indicative of the
existence of a partnership
Issue as to whether a partnership exists is
a factual matter. Where circumstances
taken singly may be inadequate to prove
the intent to form a partnership,
nevertheless the collective effect of these
 circumstances may be such as to support a distinct from
finding of the existence of the parties that of each
intent. (Heirs of Tan Eng Kee v CA) partner
Purpose Realization of Common
DISTINCTIONS: profits enjoyment of a
thing or right
Partnership Corporation
Duration No limitation An agreement to
Created by mere Created by operation of
upon the keep the thing
agreement of the law
duration is set undivided for
parties;
by law more than 10
years is not
allowed
May be organized by Requires at least 5
only two persons incorporators; Transfer of A partner may A co-owner can
Interests not dispose of dispose of his
his individual share without
Juridical personality Personality commences interest in the the consent of
commences from the from the date of partnership so the others
moment of execution of issuance of the as to make
the contract of certificate of the assignee
partnership incorporation by the a partner
SEC without
unanimous
consent
May exercise any power Can exercise such
Power to act Generally a A co-ower
authorized by the powers expressly
with Third partner may cannot
partners as long as it is granted by law or Persons
not contrary to law, etc. incident to its existence bind the represent the
partnership co-ownership
Dissolution Death or Death or
If no agreement as to Power to do business is incapacity of incapacity of a
mgt. - every partner is vested in the board of a partner co-owner does
an agent of the directors/ trustees dissolves the not necessarily
partnership partnership dissolve the co-
ownership
A partner as such may Suit against the board
sue a co-partner who of director who Representation There is There is no
mismanages mismanages must be mutual mutual
brought in the corp.s agency representation
name Profits Must be Must always
Has no right of stipulated depend upon
succession upon proportionate
Has right of succession
shares and any
stipulation to
The partners are liable The stockholders are the contrary is
personally and liable to the extent of void.
subsidiarily for the shares subscribed
partnership debts by them Under Art. 1768, a partnership "has a
juridical personality separate and distinct
Based on delectus Not based on delectus from that of each of the partners." The
personam personam partners cannot be held liable for the
obligations of the partnership unless it is
shown that the legal fiction of a different
May be established for May not be formed for a juridical personality is being used for
any period of time period exceeding 50 fraudulent, unfair, or illegal purposes.
stipulated by the years (Aguila v CA)
partners
May be dissolved at May be dissolved only ISSUE: WON 2 or more medium-sized
anytime by the will of with the consent of the corporations (contractors) may enter into a
any or all partners state partnership or joint venture/consortium
HELD: The general rule is that a
Governed by the Civil Governed by the
Code Corporation Code corporation cannot enter into a contract of
partnership with another corporation or
individual. This limitation is based on
public policy, since in a partnership the
corporation would be bound by the acts of
Partnership Co-ownership persons who are not duly appointed and
Creation Always Generally authorized agents and officers, which
created by a created by law, would be entirely inconsistent with the
contract ether but may exist policy of the law that the corporation shall
express or even without a manage its own affairs, separately and
implied contract exclusively. Exceptions may be
Juridical Has a juridical Has no juridical allowed as long as the following are met:
Personality personality personality 1. The articles of incorporation of the
separate and corporations involved must expressly
 authorized the corporation to enter into
contracts of partnership with others in the
pursuit of its business;
2. The agreement of articles of
partnership must provide that all the
partners will manage the partnership; and
3. The articles of partnership must
stipulate that all the partners are and shall
be jointly and severally liable for all the
obligations of the partnership.
Moreover, two or more corporations may
enter into a joint venture/consortium if the
nature of the venture is in line with
business authorized by its charter through
a contract or voluntary agreement between
the said parties. Please note that no
independent legal entity is borne out of it
and the same need not be registered with
the Commission. Moreover when the joint
venture/consortium would result in the
formation of a corporation or partnership,
the same has to be registered with the
Commission and the conditions and
requirements abovementioned should be
complied with. (SEC OPINION to
Antonio Librea dated Feb. 29, 1980)
In deciding as to whether or not
Gatchalian, et al. formed a partnership, the
Court held that they organized a
partnership of a civil nature because each
of them put up money to buy a
sweepstakes ticket for the sole purpose of
dividing equally the prize which they may
win. The partnership was not only formed,
but upon the organization thereof and the
winning of the prize, Jose Gatchalian
personally appeared in the office of the
Philippine Charity Sweepstakes, in his
capacity as co-partner, as such collected
the prize, the office issued the check for
P50,000 in favor of Jose Gatchalian and
Company, and the said partner, in the
same capacity, collected the said check.
These circumstances prove the existence
of a partnership. (Gatchalian v Collector
of Internal Revenue)
There is co-ownership and not
unregistered partnership when no evidence
that petitioners entered into an agreement
to contribute money, property or industry
to a common fund, and that they intended
to divide the profits among themselves.
Other indications (as presented in the
case):
Petitioners bought parcels of land
but they did not sell the same nor
make any improvements thereon.
It was only after several years
when, they sold the land.
The transactions were isolated.
The character of habituality
peculiar to business transactions
for the purpose of gain was not
present. (Pascual and Dragon v
Commissioner of Internal
Revenue)
Since petitioners were not engaged in any
joint venture by reason of that isolated
transaction and the division of the profit
was merely incidental to the dissolution of
the co-ownership, which was in fact merely
a temporary state, they cannot be
considered partners. CC Art. 1769 provides
that "the sharing of gross returns does not
of itself establish a partnership, whether or
not the persons sharing them have a joint
or common right or interest in any
property from which the returns are
derived". There must be an unmistakable
intention to form a partnership or joint
venture. (Obillos v CIR)
Particular partnership distinguished from a
joint adventure: A joint adventure
presupposes generally a parity of standing
between the joint co-ventures or partners,
in which each party has an equal
proprietary interest in the capital or
property contributed, and where each
party exercises equal rights in the conduct
of the business. In Aurbach v. Sanitary
Wares, it was held that a joint adventure
may be likened to a particular partnership.
The legal concept of a joint adventure is
hardly distinguishable from the
partnership. The main distinction is that
the partnership contemplates a general
business with some degree of continuity,
while the joint adventure is formed for the
execution of a single transaction, and is
thus of a temporary nature. In the
Philippines this is not entirely accurate,
since under the CC, a partnership may be
particular or universal, and a particular
partnership may have for its object a
specific undertaking. Thus, under
Philippine law, a joint adventure is a form
of partnership. The Supreme Court has
however recognized a distinction between
these two business forms, and has held
that although a corporation cannot enter
into a partnership contract, it may however
engage in a joint adventure with others.
(Heirs of Tan Eng Kee v CA)
A partnership constituted in such a
manner, the existence of which was only
known to those who had an interest in the
same, there being no mutual agreements
between the partners, and without a
corporate name indicating to the public in
some way that there were other people
besides the one who ostensibly managed
and conducted the business, is exactly the
accidental partnership of cuentas on
participacion defined in article 239 of the
Code of Commerce.
Those who contract with the person under
whose name the business of such
partnership of cuentas en participacion is
conducted, shall have only a right of action
against such person and not against the
other persons interested, and the latter, on
the other hand, shall have no right of
action against the third person who
contracted with the manager unless such
manager formally transfers his right to
them. (Bourns v Camran)
A partnership generally presupposes a
parity of standing between the partners, in
which each party has an equal proprietary
interest in the capital or property
contributed and where each party
exercises equal rights in the conduct of the
 business. (Sevila v CA)
II. CLASSIFICATION OS PARTNERSHIPS
AND PARTNERS
Art. 1776. As to its object, a partnership is either
universal or particular. As regards the liability of
the partners, a partnership may be general or
limited. (1671a)
A. Kinds of partnerships
1) as to the extent of its subject matter
a. universal (1777)
i. as to all present property (1778)
ii. as to profits (1780)
b. particular (1783)
2) as to liability of the partners
a. general - liable pro rata (1816) or
solidarily (1822-1824)
b. limited (1843)
3) as to its duration
a. at will (1785)
b. with a fixed term
4) as to legality of its existence
a. de jure - one w/c has complied with all
the legal requirements for its establishment
(1772par2, 1773)
b. de facto one w/c has failed to comply
with all the legal requirements for its establishment
5) as to representation to others
a. ordinary or real one w/c actually
exists among the partners and also as to third
persons
b. ostensible or by estoppel one w/c in
reality is not a partnership, but is considered one in
relation to those who, by their conduct or
admission, are precluded to deny or disprove its
existence (1825)
6) as to publicity
a. secret
b. open or notorious
7) as to purpose
a. commercial or trading (1767)
b. professional or non-trading
A partnership that does not fix its term is a
partnership at will. The 'purpose' of the
partnership is not the specific undertaking
referred to in the law. Otherwise, all
partnerships, which necessarily must have
a purpose, would all be considered as
partnerships for a definite undertaking.
There would therefore be no need to
provide for articles on partnership at will
as none would so exist. Apparently what
the law contemplates, is a specific
undertaking or 'project' which has a
definite or definable period of completion."
The birth and life of a partnership at will is
predicated on the mutual desire and
consent of the partners. The right to
choose with whom a person wishes to
associate himself is the very foundation
and essence of that partnership. Its
continued existence is, in turn, dependent
on the constancy of that mutual resolve,
along with each partner's capability to give
it, and the absence of a cause for
dissolution provided by the law itself.
(Ortega v CA)
A partnership for the practice of law cannot
be likened to partnerships formed by other
professionals or for business. It is not a
legal entity; it is a mere relationship or
association for a particular purpose it is
not a partnership formed for the purpose
of carrying on trade or business or of
holding property. Thus, it has been stated
that the use of a nom de plume, assumed
or trade name in law practice is improper.
(In re Sycip)
A general professional partnership, unlike
an ordinary business partnership (which is
treated as a corporation for income tax
purposes and so subject to the corporate
income tax), is not itself an income
taxpayer. The income tax is imposed not
on the professional partnership, which is
tax exempt, but on the partners
themselves in their individual capacity
computed on their distributive shares of
partnership profits. Under the Tax Code on
income taxation, the general professional
partnership is deemed to be no more than
a mere mechanism or a flow-through
entity in the generation of income by, and
the ultimate distribution of such income to,
respectively, each of the individual
partners. (Tan v del Rosario)
B. Kinds of partners (under the CC)
a. capitalist contributes money or property
b. industrial contributes industry or personal
service
c. general liability extends to separate
property
- may be capitalist or industrial
- aka real
d. limited liability to 3rd persons limited to
capital contribution
- aka special
e. managing manages the affairs or business
of the partnership
- may be appointed either in the articles
of partnership or after the constitution of
the partnership
- aka general or real
f. liquidating takes charge of the winding up
g. by estoppel liable as if he is a partner for
the protection of 3rd persons
- aka by implication or nominal or quasi-
partner
h continuing continues the business after
partnership has been dissolved
i. surviving remains after dissolution due to
death
j. subpartner not a partner, but contracts w/ a
partner re the latters share in the
partnership
Industrialist Capitalist
Partner Partner
Contribution Contributes his Contributes
industry money or
property
Prohibition Cannot engage Cannot
to engage in in any business generally
other for himself engage in the
business same or
similar
 enterprise as partnership;
that of his firm (2) When no partnership liability results, he is
liable pro rata with the other persons, if any, so
Profits Receives a just Shares in
consenting to the contract or representation as to
and equitable profits
share according to
incur liability, otherwise separately.
agreement When a person has been thus represented to be a
thereon partner in an existing partnership, or with one or
more persons not actual partners, he is an agent of
if none, pro
the persons consenting to such representation to
rata to his
bind them to the same extent and in the same
contribution
manner as though he were a partner in fact, with
Losses Exempted as to 1. stipulation respect to persons who rely upon the
losses as as to losses representation. When all the members of the
between existing partnership consent to the representation,
partners but it a partnership act or obligation results; but in all
is liable to 3rd 2. if none, the
other cases it is the joint act or obligation of the
persons without agreement as
to profits person acting and the persons consenting to the
prejudice to
representation. (n)
reimbursement
from the
capitalist 3. if none, pro When is a person a partner by estoppel?
partners rata to When by words or by conduct he:
contribution 1. Directly represents himself to
anyone as a partner in an existing
partnership or in a non-existing
partnership (w/ one or more
The ff become common property of all partners:
persons not actual partners);
property w/c belonged to each of them at
2. Indirectly represents himself by
the time of the constitution of the
consenting to another
partnership
representing him as a partner in
profits w/c thay may acquire from the
an existing partnership or in a
property contributed
non-existing partnership.
To hold the party liable, the 3rd person
General rule:
must prove such misrepresentation and
future properties cannot be contributed
that a bona fide reliance by him upon it
profits from other sources (not from the
caused him injury.
properties contributed) will become
common property only if there is a
When partnership liability results
stipulation
When all actual partners
consented to the representation,
Please note: Art. 1782. Persons who are
then the liability of the person who
prohibited from giving each other any donation or
represented himself to be a
advantage cannot enter into universal partnership.
partner or who consented to such
(1677)
representation and the actual
partners is considered a
Art. 739. The following donations shall be void:
partnership liability.
(1) Those made between persons who were
Case of partnership by estoppel.
guilty of adultery or concubinage at the time of
donation;
When liability pro rata
(2) Those made between persons found guilty of
When there is no existing
the same criminal offense, in consideration thereof;
partnership and all those
(3) Those made to a public officer or his wife,
represented as partners consented
descendants and ascendants, by reason of his
to the representation, or not all of
office.
the partners of an existing
partnership consented to the
C. Partnership and Partner by representation, then, the liability
Estoppel of the person who represented
himself to be a partner or who
Art. 1825. When a person, by words spoken or consented to his being
written or by conduct, represents himself, or represented as partner, and all
consents to another representing him to anyone, as those who made and consented to
a partner in an existing partnership or with one or such representation, is joint or pro
more persons not actual partners, he is liable to rata.
any such persons to whom such representation has
been made, who has, on the faith of such When liability separate
representation, given credit to the actual or When there is no existing
apparent partnership, and if he has made such partnership and not all but only
representation or consented to its being made in a some of those represented as
public manner he is liable to such person, whether partners consented to the
the representation has or has not been made or representation, or none of the
communicated to such person so giving credit by or partners in an existing partnership
with the knowledge of the apparent partner making consented to such representation,
the representation or consenting to its being made: then the liability will be separate
(1) When a partnership liability results, he is that of the person who
liable as though he were an actual member of the represented himself as a partner
 or who consented to his being
represented as partner, and those
who made and consented to the
representation, or that only of the
person who represented himself as
partner.
Art. 1825 does not create a partnership as
between the alleged partners. The law
considers them as partners and the
association as a partnership only insofar as
favorable to 3rd persons by reason of
estoppel.
The law will not permit a denial or such
representation where 3rd parties have in
the exercise of reasonable diligence relied
thereon to their detriment.
Difference w/ Art. 1834 (last par), w/c is
not a partnership by estoppel, but rather, a
partnership liability w/c continues for lack
of proper termination.
Applicability of general provisions of
partnership
If the law recognizes a defectively
organized partnership as de facto
as far as 3rd persons are
concerned, it should have such
attribute of partnership as
domicile.
Although it has no legal standing
or juridical personality, it is a
partnership de facto and the
general provisions of the Civil
Code applicable to all partnerships
apply to it.
Domicile place where partnership
conducts business; registration of a chattel
mortgage therein is valid.
Elements to establish liability as a partner
on ground of estoppel
1. Proof by plaintiff that he was
individually aware of defendants
representations as to his being a
partner or that such
representations were made by
others and not denied or refuted
by the defendant;
2. Reliance on such representations
by the plaintiff;
3. Lack of any denial or refutation of
the statements by the defendant;
such denial need not precede
plaintiffs acting thereon if the
denial was forthcoming promptly
upon hearing of the
representations, and if, by
prudence and diligence the
plaintiff might have learned of the
truth or untruth of the
representations.
The Corporation Code (Sec. 21) makes
liable as general partners all persons who
assume to act as a corporation and may
include persons who attempt, but fail to
form a corporation and who carry on
business under the corporate name. A de
facto partnership among them is created.
While an unregistered commercial
partnership has no juridical personality,
nevertheless, where two or more persons
attempt to create a partnership, failing to
comply with all the legal formalities, the
law considers them as partners. The
association then is a partnership in so far
as it is a favorable to third persons, by
reason of the equitable principle of
estoppe. If the law recognizes a defectively
organized partnership as de facto as far as
third persons are concerned, for purposes
of its de facto existence it should have
such attribute of a regular partnership as a
domicile. (MacDonald v. National City
Bank)
While it is ordinarily held that persons who
attempt but fail to form a corporation and
who carry on business under the corporate
name occupy the position of partners inter
se, persons cannot be made to assume the
relation of partners, as between
themselves, when their purpose is that no
partnership shall exist. (Pioneer
Insurance v. CA)
D. Relations created by a contract of
partnership
Relations among the partners
themselves
Relations of the partners with the
partnership
Relations of the partnership with
3rd persons with whom it contracts
Relations of the partners with such
3rd persons
III. OBLIGATIONS OF PARTNERS
A. Contribute
1. Obligation with respect to contribution of
property
Art. 1786. Every partner is a debtor of the
partnership for whatever he may have promised to
contribute thereto. He shall also be bound for
warranty in case of eviction with regard to specific
and determinate things which he may have
contributed to the partnership, in the same cases
and in the same manner as the vendor is bound
with respect to the vendee. He shall also be liable
for the fruits thereof from the time they should
have been delivered, without the need of any
demand. (1681a)
To contribute at the beginning of the
partnership or the stipulated time the
money, property, or industry which he may
have promised to contribute
To answer for eviction in case the
partnership is deprived of the determinate
property contributed
To answer to the partnership for the fruits
of the property the contribution of which
he delayed, from the date they should
have been contributed up to the time of
actual delivery.
To preserve said property with the
diligence of a good father of a family
pending delivery to the partnership
 To indemnify the partnership for any
damage caused to it by the retention of
the same or by the delay in its contribution
Effect of failure to contribute property promised:
makes the partner ipso jure a debtor of the
partnership even in the absence of any demand.
Remedy of other partner or partnership: not
rescission but an action for specific performance
with damages and interest
2. Appraisal of goods or property
contributed
Art. 1787. When the capital or a part thereof
which a partner is bound to contribute consists of
goods, their appraisal must be made in the manner
prescribed in the contract of partnership, and in the
absence of stipulation, it shall be made by experts
chosen by the partners, and according to current
prices, the subsequent changes thereof being for
account of the partnership.
3. Obligation with respect to
contribution of money and money converted
to personal use
Art. 1788. A partner who has undertaken to
contribute a sum of money and fails to do so
becomes a debtor for the interest and damages
from the time he should have complied with his
obligation.
The same rule applies to any amount he may
have taken from the partnership coffers, and his
liability shall begin from the time he converted the
amount to his own use. (1682)
To contribute on the date due the amount
he has undertaken to contribute
To reimburse any amount he may have
taken from the partnership coffers and
converted to his own use
To pay the agreed or legal interest, if he
fails to pay his contribution on time or in
case he takes any amount from the
common fund and converts it into his own
use.
To indemnify the partnership for he
damages caused to it by the delay in the
contribution or the conversion of any sum
for his personal benefit.
An action for rescission under art.1191
cannot be applied to a case where a
partner failed to contribute what he
promised to the partnership, because it
refers to the resolution of obligations in
general, whereas Arts. 1681 and 1682,
OCC now Arts. 1786 and 1788 specifically
refer to the contract of partnership in
particular.(Sancho v Lizarraga)
Equipment which was contributed by one
of the partners to the partnership becomes
the property of the property and as such
cannot be disposed of by the party
contributing the same without the consent
or approval of the partnership or of the
other partner. (Lozana v Depakakibo)
When money or property have been
received by a partner for a specific purpose
and he later misappropriated it, such
partner is guilty of estafa. (Liwanag v
CA)
The capital having been received by the
partnership, and with the business
commenced and profits accrued, the action
that lies with the partner who furnished
the capital for the recovery of his money is
not a criminal action for estafa, but a civil
one arising from the partnership contract
for a liquidation of the partnership and a
levy on its assets if there should be any.
(US v Clarin)
4. Bring to partnership capital
credit received
Art. 1790. Unless there is a stipulation to the
contrary, the partners shall contribute equal shares
to the capital of the partnership.
Above rule not applicable to industrial
partner unless in addition to his services,
he contributed capital.
5. Obligation of capitalist partner
to contribute additional capital
Art. 1791. If there is no agreement to the
contrary, in case of an imminent loss of the
business of the partnership, any partner who
refuses to contribute an additional share to the
capital, except an industrial partner, to save the
venture, shall he obliged to sell his interest to the
other partners.
Requisites:
There is an imminent loss of the business
The majority of the capitalist partners are
of the opinion that an additional
contribution to the common fund would
save the business
The capitalist partner refuses deliberately
to contribute an additional share
There is no agreement to the contrary
An industrial partner is exempted from the
requirement to contribute
6. Obligation of partner who
receives share of partnership credit
Art. 1793. A partner who has received, in whole or
in part, his share of a partnership credit, when the
other partners have not collected theirs, shall be
obliged, if the debtor should thereafter become
insolvent, to bring to the partnership capital what
he received even though he may have given receipt
for his share only.
Different from 1792 which treats 2 distinct
credits, one in favor of the partnership and
another in favor of the managing partner.
Requisites:
A partner has received, in whole or in part,
his share of the partnership credit
The other partners have not collected their
shares
The partnership debtor has become
insolvent
B. Pay damages
Art. 1794. Every partner is responsible to the
partnership for damages suffered by it
through his fault, and he cannot
 compensate them with the profits and agreed upon:
benefits which he may have earned for the All partners considered managers and
partnership by his industry. However, the agents.
courts may equitably lessen this All partners have equal rights in the
responsibility if through the partner's management and conduct of partnership
extraordinary efforts in other activities of affairs and whatever any one of them may
the partnership, unusual profits have been do alone shall bind the partnership
realized. (1686a) (subject to Art 1801 that in case of timely
opposition of any partner, the matter shall
General Rule: The damages caused by a partner to first be decided by the majority vote. In
the partnership cannot be offset by the profits or case of a tie, the matter shall be decided
benefits which he may have earned for the by the vote of the partners representing
partnership by his industry. the controlling interest.).
Exception: If unusual profits are realized through Note: Art. 1803(1) should be read in relation to
extraordinary efforts of the partner at fault, the Article 1818.
courts may equitably mitigate or lessen his liability Unanimous consent required for alteration
for damages. Rule rests on equity. of immovable property.
Consent need not be express, but may be
C. Bear risk of loss presumed from the fact of knowledge of
the alteration without interposing any
objection.
Art. 1795. The risk of specific and determinate
things, which are not fungible, contributed to the
Art. 1818. Powers of partner as agent of
partnership so that only their use and fruits may be
partnership
for the common benefit, shall be borne by the
partner who owns them.
If the things contribute are fungible, or cannot Acts for carrying on in Every partner is an agent
the usual way the and may execute acts
be kept without deteriorating, or if they were
business of the with binding effect even if
contributed to be sold, the risk shall be borne by
partnership he has no authority
the partnership. In the absence of stipulation, the
risk of the things brought and appraised in the Except: when 3rd person
inventory, shall also be borne by the partnership, has knowledge of lack of
and in such case the claim shall be limited to the authority
value at which they were appraised. (1687) Act w/c is not Does not bind partnership
apparently for the unless authorized by
Risk of loss of things contributed carrying of business other partners
in the usual way
Specific and determinate Risk is borne by
things which are not partner
Acts of strict
fungible where only the
dominion or
use is contributed
ownership:
Specific and determinate Risk is borne by
things the ownership of partnership
which is transferred to Assign partnership
the partnership property in trust for
creditors
Fungible things Risk is borne by
(consumable) partnership
Things contributed to be Risk is borne by Dispose of good-will
sold partnership of business

Things brought and Risk is borne by

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

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

not been agreed upon, the following rules shall be
observed:
(1) All the partners shall be considered agents Enter into
and whatever any one of them may do alone compromise
shall bind the partnership, without prejudice to concerning a
the provisions of Article 1801. partnership claim or
(2) None of the partners may, without the liability
consent of the others, make any important
alteration in the immovable property of the
Submit partnership
partnership, even if it may be useful to the claim or liability to
partnership. But if the refusal of consent by the arbitration
other partners is manifestly prejudicial to the
interest of the partnership, the court's
intervention may be sought. (1695a) Renounce claim of
partnership
Rules when manner of management has not been Acts in contravention Partnership not liable to
 of a restriction on 3rd persons having actual
authority or presumptive
knowledge of the
restrictions
Art. 1807. Every partner must account to the
Liability of partner acting without
authority: generally, personal liability.
Art. 1698 declares that a member of a civil
partnership is not liable solidarily
(solidariamente) with his co-partners for
its entire indebtedness; but read in
connection with art. 1137, each is liable
with the others (mancomunadamente) for
his part of such indebtedness (Co-Pitco
vs. Yulo/Bachrach v. La Protectora).
Strangers dealing with a partnership have
the right to assume, in the absence of
restrictive clauses in the co-partnership
agreement, that every general partner has
power to bind the partnership, specially
those partners acting with ostensible
authority. Though Art. 129, Code of
Commerce provides that if the
management of the general partnership
has not been limited by special agreement
to any of the members, all shall have the
Art. 1816. All partners, including industrial ones,
power to take part in the direction and
management of the common business, and
the members present shall come to an
agreement for all contracts or obligations
which may concern the association, this
obligation is one imposed by law on the
partners among themselves, and doesnt
necessarily affect the validity of the acts of
a partner, while acting within the scope of
the ordinary course of business of the
partnership, as regards third persons
without notice. (Goquiolay et al v Sycip)
Note: This case creates a presumption which 1818
does not provide.
The stipulation in the articles of
partnership that any of the two managing
partners may contract and sign in the
name of the partnership with the consent
of the other, creates an obligation between
the two partners, which consists in asking
the other's consent before contracting for
the partnership. This is not imposed upon
a third person who contracts with the
partnership. A third person may and has a
right to presume that the partner with
whom he contracts has, in the ordinary
and natural course of business, the
consent of his copartnert. (Litton v Hill)
E. Render full information
Art. 1806. Partners shall render on demand true
and full information of all things affecting
the partnership to any partner or the legal
representative of any deceased partner or
of any partner under legal disability. (n)
A partner is not only bound to give
information on demand in certain
circumstances, but he is under the duty of
voluntary disclosure of material facts
within his knowledge relating to or
affecting partnership affairs (see Art.
1821)
F. Account for benefits
partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other partners
from any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use by him of its
property. (n)
Relationship between partners is
essentially fiduciary involving trust and
confidence. Duties of a partner are
analogous to those of a trustee.
A partner cannot, at the expense or to the
detriment of the other partners, sue or
apply exclusively to his own individual
benefit partnership assets or the results of
the knowledge and information gained in
the character of partner (Pang Lim v. Lo
Seng)
G. Liable for Partnership contracts
shall be liable pro rata with all their
property and after all the partnership
assets have been exhausted, for the
contracts which may be entered into in the
name and for the account of the
partnership, under its signature and by a
person authorized to act for the
partnership. However, any partner may
enter into a separate obligation to perform
a partnership contract. (n)
Partnership liability- All partners, including
the industrial partner, are liable to
creditors of the partnership for its
contractual obligations.
Individual liability- a partner may assume
a separate undertaking in his name with
a3rd party to perform a partnership
contract or make himself solidarily liable
ob a partnership contract. In such case,
partner is personally bound.
There is a marked distinction between a
liability and a loss, and the inability of a
partnership to pay a debt to a third party
at a particular time does not necessarily
mean that the partnership business, as a
whole, has been operated at a loss. The
partnership may have outstanding credits
which for the moment may be unavailable
for the payment of debts, but which
eventually may be realized upon and yield
profits more than sufficient to cover all
losses. Bearing this in mind it will be found
that there in reality is no conflict between
the two articles quoted; one speaks of
liabilities, the other of losses. (Pacific
Commercial vs. Aboitiz)
The exemption of the industrial partner to
pay for losses relates exclusively to the
settlement of the partnership affairs
among the partners themselves and has
nothing to do with the liabilities of the
partners to third persons. (La Compania
 Maritima v Munoz)
Art. 1817. Any stipulation against the liability laid
down in the preceding article shall be void, except
as among the partners. (n)
The dismissal of the complaint to favor one
of the general partners of a partnership
does not increase the liability of each of
the remaining partners. In the instant
case, there were 5 general partners when
the promissory note in question was
executed for and in behalf of the
partnership. Since the liability of the
partners is pro rata, the liability of each
partner shall be limited to only 1/5 of the
obligations of United. The fact that the
complaint against Lumauig was dismissed,
upon motion of Island Sales, does not
unmake Lumauig as a general partner in
United. In so moving to dismiss the
complaint, Island Sales merely condoned
Lumauigs individual liability.(Island Sales
v. United Pioneers)
It is but fair that the consequences of any
wrongful act committed by any of the
partners therein should be answered
solidarily by all the partners and the
partnership as a whole. While the liability
of the partners are merely joint in
transactions entered into by the
partnership, a third person who transacted
with said partnership can hold the partners
solidarily liable for the whole obligation if
the case of the third person falls under
Articles 1822 or 1823. The obligation is
solidary because the law protects him who
in good faith relied upon the authority of a
partner, whether such authority is real or
apparent. (Muasque v. CA)
Art. 1826. A person admitted as a partner into an
existing partnership is liable for all the obligations
of the partnership arising before his admission as
though he had been a partner when such
obligations were incurred, except that this liability
shall be satisfied only out of partnership property,
unless there is a stipulation to the contrary. (n)
Liability of incoming partner for partnership
obligations:
Limited to his share in partnership
property for existing obligations.
Extends to his separate property for
subsequent obligations
Incoming partner personally not liable for
existing partnership obligations unless
there is a stipulation to the contrary.
Liability of outgoing / incoming partner:
Where a partner gives notice of his
retirement or withdrawal, he is freed from
any liability on contracts entered into
thereafter, but his liability on existing
incomplete contracts continues.
He is liable for goods sold and delivered
after his retirement or withdrawal and
notice thereof, if the sale was pursuant to
a contract made before such retirement or
withdrawal.
H. Solidarily liable with partnership
Art. 1824. All partners are liable solidarily with the
partnership for everything chargeable to
the partnership under Articles 1822 and
1823. (n)
Art. 1822. Where, by any wrongful act or omission
of any partner acting in the ordinary course of the
business of the partnership or with the authority of
co-partners, loss or injury is caused to any person,
not being a partner in the partnership, or any
penalty is incurred, the partnership is liable
therefor to the same extent as the partner so
acting or omitting to act. (n)
Art. 1823. The partnership is bound to make good
the loss: (1) Where one partner acting within the
scope of his apparent authority receives money or
property of a third person and misapplies it; and
(2) Where the partnership in the course of its
business receives money or property of a third
person and the money or property so received is
misapplied by any partner while it is in the custody
of the partnership. (n)
IV. OBLIGATION OF PARTNERSHIP
A. Bear risk of loss
Art. 1795. The risk of specific and determinate
things, which are not fungible, contributed to the
partnership so that only their use and fruits may be
for the common benefit, shall be borne by the
partner who owns them.
If the things contribute are fungible, or cannot
be kept without deteriorating, or if they were
contributed to be sold, the risk shall be borne by
the partnership. In the absence of stipulation, the
risk of the things brought and appraised in the
inventory, shall also be borne by the partnership,
and in such case the claim shall be limited to the
value at which they were appraised. (1687)
B. Reimburse
Art. 1796. The partnership shall be responsible to
every partner for the amounts he may have
disbursed on behalf of the partnership and for the
corresponding interest, from the time the expense
are made; it shall also answer to each partner for
the obligations he may have contracted in good
faith in the interest of the partnership business,
and for risks in consequence of its management.
(1688a)
1796 speaks of the 3 obligations of the partnership
to the partners:
1. Refund amounts disbursed on behalf of the
partnership plus corresponding interest from the
time expenses are made (not from date of
demand). Here, the law refers to loans or
advances made by a partner to the partnership
other than capital contributed by him.
2. Answer for obligations the partner may have
contracted in good faith in the interest of the
partnership business, and
3. Answer for risks in consequence of its
management.
Being a mere agent, the partner is NOT
personally liable, provided, however, that
he is free from all fault (Art. 1912), and
 acted within the scope of his authority
(1897, 1898, 1910 par. 2). But unlike an
ordinary agent, he is not given the right of
retention if he is not reimbursed or
indemnified (1914).
C. Operate under firm name
Art. 1815. Every partnership shall operate under a
firm name, which may or may not include the
name of one or more of the partners.
Those who, not being members of the
partnership, include their names in the firm name,
shall be subject to the liability of a partner. (n)
Liability for inclusion of name in the firm name:
Persons who, not being partners include their name
in the firm name do not acquire the rights of a
partner BUT they shall be subject to liabilities of a
partner.
Art. 1815 does NOT cover
a limited partner who allows his name to
be included in the firm name (Art. 1815)
a person continuing the business of a
partnership after a dissolution who uses
the name of the dissolved partnership or
the name of a deceased partner as part
thereof (Art. 1840, last par.)
The corporate name should contain the
word Corporation or Incorporated, while
the partnership name should contain the
word Company. The only instance when
a domestic partnership name may be
recorded in this Commission without the
use of the word Company is when the
primary purpose for which the partnership
is organized is to engage in the practice of
profession of a particular discipline. (SEC
Opinion dated Oct 19, 1984 addressed
to Atty. Renato J. Santiago)
Note that the ruling in In re Sycip here has
been abandoned in view of Rule 3.02 of
the Code of Professional Responsibility,
which permits the surviving partners of a
law firm the continued use of the name of
a deceased partner provided there is an
indication that the partner is already dead.
D. Bound by admission of partner
Art. 1820. An admission or representation made
by any partner concerning partnership affairs
within the scope of his authority in accordance with
this Title is evidence against the partnership. (n)
General Rule: Person is not bound by the act,
admission, statement, or agreement of another of
w/c he has no knowledge or to w/c he has not
given his consent except by virtue of a particular
relation between them.
Exception: Admissions by a party as testified to by
a 3rd person are admissible in evidence against him
in litigation. Admissions by another are received
against a party if the former is acting in the
capacity of agent of the latter. Under Art. 1820,
the admission of a partner made during the
existence of the partnership are binding against the
partnership and co-partners when such admissions
refer to a matter concerning partnership affairs and
made w/in the scope of his authority.
Exception to exception: When a partner makes
admissions for himself only w/o purporting to act
for the partnership, he alone shall be chargeable w/
his admissions.
An admission by a partner who was no
longer a partner at the time is not
admissible in evidence against the
partnership. (Congco vs. Trillana)
E. Bound by notice to partner
Art. 1821. Notice to any partner of any matter
relating to partnership affairs, and the knowledge
of the partner acting in the particular matter,
acquired while a partner or then present to his
mind, and the knowledge of any other partner who
reasonably could and should have communicated it
to the acting partner, operate as notice to or
knowledge of the partnership, except in the case of
fraud on the partnership, committed by or with the
consent of that partner. (n)
F. Liable for wrongful act of partner
Art. 1822. Where, by any wrongful act or omission
of any partner acting in the ordinary course of the
business of the partnership or with the authority of
co-partners, loss or injury is caused to any person,
not being a partner in the partnership, or any
penalty is incurred, the partnership is liable
therefor to the same extent as the partner so
acting or omitting to act. (n)
Art. 1823. The partnership is bound to make good
the loss:
(1) Where one partner acting within the scope of
his apparent authority receives money or
property of a third person and misapplies it;
and
(2) Where the partnership in the course of its
business receives money or property of a third
person and the money or property so received
is misapplied by any partner while it is in the
custody of the partnership. (n)
V. RIGHTS OF PARTNERS
A. Share in losses and profits
Art. 1797. The losses and profits shall be
distributed in conformity with the agreement. If
only the share of each partner in the profits has
been agreed upon, the share of each in the losses
shall be in the same proportion.
In the absence of stipulation, the share of each
partner in the profits and losses shall be in
proportion to what he may have contributed, but
the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner
shall receive such share as may be just and
equitable under the circumstances. If besides his
services he has contributed capital, he shall also
receive a share in the profits in proportion to his
capital. (1689a)
Rules for distribution of profits and losses
 DISTRIBUTION DISTRIBUTION reasonable hour: reasonable hours on
OF PROFITS OF LOSSES business days throughout the year and not
merely during some arbitrary period of a
With According to According to
agreement few days chosen by the managing partners
agreement agreement
(Pardo v. Lumber Co.)
Without Share of capitalist If sharing of
agreement partner is in profits is
proportion to his stipulated - apply D. Obtain formal account
capital to sharing of
contribution losses Art. 1809. Any partner shall have the right to a
Share of If no profit sharing formal account as to partnership affairs:
industrial partner stipulated - losses (1) If he is wrongfully excluded from the
is not fixed - as shall be borne partnership business or possession of its
may be just and according to property by his co-partners;
equitable under capital (2) If the right exists under the terms of any
the circumstances contribution agreement;
Purely industrial
(3) As provided by article 1807;
partner not liable (4) Whenever other circumstances render it just
for losses and reasonable. (n)

Art. 1807. Every partner must account to the

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

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

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

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

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

between a member of a partnership and a third partner may:
person for a division of the profits coming to him contribute to the partnership only
from the partnership enterprise. Subpartner does the use of property
not acquire the rights of a partner, nor is he liable allow the partnership to use his
for partnership debts separate propert
hold the title to partnership
C. Access partnership books property in his own name without
having it belong to him.
Property acquired by a partners with
Art. 1805. The partnership books shall be kept,
partnership funds.
subject to any agreement between the partners, at
General rule: Property acquired by a partner in his
the principal place of business of the partnership,
own name with partnership funds
and every partner shall at any reasonable hour
is partnership property.
have access to and may inspect and copy any of
Exceptions:
them. (n)
Contrary intention appears
Property was acquired after dissolution but
Access to partnership books at any
before the winding up [but he would be
 liable to account to the partnership]
Art. 1811. A partner is co-owner with his partners
of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title
and to any agreement between the partners,
has an equal right with his partners to possess
specific partnership property for partnership
purposes; but he has no right to possess such
property for any other purpose without the
consent of his partners;
(2) A partner's right in specific partnership property
is not assignable except in connection with the
assignment of rights of all the partners in the
same property;
(3) A partner's right in specific partnership property
is not subject to attachment or execution
except on a claim against the partnership.
When partnership property is attached for a
partnership debt the partners, or any of them,
or the representatives of a deceased partner,
cannot claim any right under the homestead or
exemption laws;
(4) A partner's right in specific partnership property
is not subject to legal support under Article
291. (n)
Art. 291,CC is now Art. 195,FC
Art. 195. Subject to the provisions of the
succeeding articles, the following are obliged to
support each other to the whole extent set forth in
the preceding article:
(1) The spouses;
(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and the
legitimate and illegitimate children of the
latter;
(4) Parents and their illegitimate children and the
legitimate and illegitimate children of the
latter; and
(5) Legitimate brothers and sisters, whether of
full or half-blood (291a)
A partner cannot separately assign his
right to specific partnership property.
A partners right is limited to his share of
what remains after all partnership debts
have been paid. Thus,specific partnership
property is not subject to attachment,
execution, garnishment, or injunction,
without the consent of all partners, except
on a claim against the partnership
Art. 1812. A partner's interest in the partnership
is his share of the profits and surplus. (n)
Profit net income during the carrying out
of the business of the partnership
Surplus the excess of assets over
liabilities (after accounting/dissolution)
Art. 1813. A conveyance by a partner of his whole
interest in the partnership does not of itself
dissolve the partnership, or, as against the other
partners in the absence of agreement, entitle the
assignee, during the continuance of the
partnership, to interfere in the management or
administration of the partnership business or
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 his contract
the profits to which the assigning partner would
otherwise be entitled. However, in case of fraud in
the management of the partnership, the assignee
may avail himself of the usual remedies.
In case of a dissolution of the partnership, the
assignee is entitled to receive his assignor's
interest and may require an account from the date
only of the last account agreed to by all the
partners. (n)
Rights of the What assignees
transferee or cannot do
assignee
To receive in accordance Interfere in the
with his contract the management;
profits accruing to the
assigning partner
To avail of the usual Require any information
remedies provided by or account
law in the event of
fraud in the
management
To receive the Inspect any of the
assignors interest in partnership books.
case of dissolution
Partnership is a relation in which delectus
personae is an important element. No one
may be introduced into the firm as a
partner without the unanimous consent of
the other partners.
Art. 1814. Without prejudice to the preferred
rights of partnership creditors under Article 1827,
on due application to a competent court by any
judgment creditor of a partner, the court which
entered the judgment, or any other court, may
charge the interest of the debtor partner with
payment of the unsatisfied amount of such
judgment debt with interest thereon; and may then
or later appoint a receiver of his share of the
profits, and of any other money due or to fall due
to him in respect of the partnership, and make all
other orders, directions, accounts and inquiries
which the debtor partner might have made, or
which the circumstances of the case may require.
The interest charged may be redeemed at any
time before foreclosure, or in case of a sale being
directed by the court, may be purchased without
thereby causing a dissolution:
(1) With separate property, by any one or more
of the partners; or
(2) With partnership property, by any one or
more of the partners with the consent of all the
partners whose interests are not so charged or
sold.
Nothing in this Title shall be held to deprive a
partner of his right, if any, under the
exemption laws, as regards his interest in the
partnership. (n)
F. Convey real property
Art. 1819. Where title to real property is in the
partnership name, any partner may convey title to
such property by a conveyance executed in the
partnership name; but the partnership may recover
such property unless the partner's act binds the
partnership under the provisions of the first
paragraph of article 1818, or unless such property
has been conveyed by the grantee or a person
claiming through such grantee to a holder for value
without knowledge that the partner, in making the partners of the partnership
conveyance, has exceeded his authority. (1818) hence binding
Where title to real property is in the name of the partnership
the partnership, a conveyance executed by a
partner, in his own name, passes the equitable
interest of the partnership, provided the act is one Art. 1819 provides that: Where the title to
within the authority of the partner under the real property is in the names of all the
provisions of the first paragraph of Article 1818. partners a conveyance executed by all the
Where title to real property is in the name of one partners passes all their rights in such
or more but not all the partners, and the record property. The term conveyance used in
does not disclose the right of the partnership, the this provision includes a mortgage. (Syjuco
partners in whose name the title stands may v Castro)
convey title to such property, but the partnership NOTE: This is different from the provisions on
may recover such property if the partners' act does agency, which provide that a special power to sell
not bind the partnership under the provisions of excludes the power to mortgage [Art. 1879].
the first paragraph of Article 1818, unless the
purchaser or his assignee, is a holder for value,
without knowledge.
VI. RIGHTS OF PARTNERSHIP
Where the title to real property is in the name
of one or more or all the partners, or in a third A. Acquire immovables
person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or Art. 1774. Any IMMOVABLE property OR an
in his own name, passes the equitable interest of INTEREST therein may be acquired in the
the partnership, provided the act is one within the partnership name. Title so acquired can be
authority of the partner under the provisions of the conveyed ONLY in the partnership name. (n)
first paragraph of Article 1818.
Where the title to real property is in the name *cf. Art. 1819
of all the partners a conveyance executed by all the
partners passes all their rights in such property. (n)
B. Preference of creditors
Effects of Conveyance of Real Property
Art. 1827. The creditors of the partnership shall
Title in partnership Conveyance passes
be preferred to those of each partner AS REGARDS
name title but partnership
PARTNERSHIP PROPERTY. Without prejudice to this
can recover unless:
Any partner may convey right, the private creditors of each partner may ask
1)The partner who sold
under partnership name the attachment and public sale of the share of the
it was carrying on in
the usual way the latter in the partnership assets. (n)
business of the
partnership (1818)
hence binding
partnership; or
the
2)
VII. DISSOLUTION AND WINDING UP
Buyer had no
knowledge of the lack
of authority of the Art. 1828. The dissolution of a partnership is the
seller CHANGE IN RELATION of the partners caused by
ANY PARTNER CEASING TO BE ASSOCIATED in the
Title in partnership Conveyance does not
carrying on as distinguished from the winding up of
name, pass title but only
equitable interest. the business. (n)
Conveyance in partner's
Provided that: The
name Any change in the membership of a
partner who sold it was
carrying on in the partnership produces an immediate
usual way the business dissolution of the existing partnership
of the partnership relation and the formation of a new one.
(1818) hence binding Strictly and technically speaking, there is
the partnership no such thing as an incoming partner or
Title in name of 1/ more Conveyance passes admission of a person into an existing
partners, Conveyance in title but partnership firm. All persons forming the new
name if partner/partners can recover unless: partnership upon the admission of the new
in whose name title 1)The partner who sold person into the business are incoming
stands it was carrying on in partners, even though the same business
the usual way the has theretofore been conducted by the
business of the others.
partnership (1818)
hence binding the Art. 1829. On dissolution the partnership is NOT
partnership; or 2) TERMINATED, but continues until the winding up of
Buyer had no partnership affairs is COMPLETED. (n)
knowledge of the lack
of authority of the Effects of Dissolution:
seller Dissolution does not automatically result in
Title in name of Conveyance will only the termination of the legal personality of
1/more/all partners or pass equitable interest. the partnership, nor of the relations of the
3rd person in trust for Provided that: The partners among themselves. Partnership
partnership, Conveyance partner who sold it was continues for the limited purpose of
executed in partnership carrying on in the winding up its affairs.
name of in name of usual way the business
 Perpetua had, the partnership bond having
The dissolution of a partnership must not been dissolved. (Bearneza v Dequilla)
be understood in the absolute and strict
sense so that at the termination of the The dissolution of the partnership did not
object for which it was created the mean that the juridical entity was
partnership is extinguished, pending the immediately terminated and that the
winding up of some incidents and distribution of the assets to its partners
obligations of the partnership, but in such should perfunctorily follow. The dissolution
case, the partnership will be reputed as simply effected a change in the
existing until the juridical relations arising relationship among the partners. The
out of the contract are dissolved. The partnership, although dissolved, continues
dissolution of a firm does not relieve any of to exist until its termination, at which time
its members from liability for existing the winding up of its affairs should have
obligations, although it does save them been completed and the net partnership
from new obligations to which they have assets are partitioned and distributed to
not expressly or impliedly assented, and the partners. (Sy v CA)
any of them may be discharged from old
obligations by novation or other form of A. Causes of Dissolution
release. (Testate of Mota v Serra)
The statutory enumeration of causes of dissolution
The three final stages of a partnership are:
is exclusive. Art. 1830 (extrajudicial) and
(1) Dissolution- the change in the relation
1831(judicial) provide for causes of dissolution.
of the partners caused by any partner
Other causes are provided in Art. 1840.
ceasing to be associated in the carrying on
of the business (Art. 1828). It is that point
Causes:
of time the time the partners cease to
Without violation of the agreement
carry on the business together.
between the partners:
(2) Winding Up - the process of settling
termination of the definite term or
business affairs of dissolution. (Ex: paying
particular undertaking specified in
of previous obligations; collecting of assets
the agreement;
previously demandable; even new business
express will of any partner, who
if needed to wind up, as the contracting
must act in good faith, when no
with a demolition company for the
definite term or particular is
demolition of the garage used in a "used
specified;
car" partnership.)
express will of all the partners who
(3) Termination Defined- the point in time
have not assigned their interests
after all the partnership affairs have been
or suffered them to be charged for
wound up. (Idos v CA)
their separate debts, before or
after the termination of any
The provision prohibiting the dissolution of
specified term or particular
the association under review, except by
undertaking;
the consent and agreement of two-thirds
expulsion of any partner in
of its partners, in no wise limited or
accordance with such a power
restricted the rights of the individual
conferred by the agreement;
partners in the event the dissolution of the
when business becomes unlawful
association was effected, not by any act of
when a specific thing promised to
theirs, but by the express mandate of
be contributed to the partnership
statutory law. It would be unreasonable to
perishes before delivery
hold that such an association could never
loss of a specific thing when the
be dissolved and liquidated without the
partner reserved ownership over it
consent and agreement of two-thirds of its
death
partners, notwithstanding that it had lost
insolvency of a partner/
all its capital, or had become bankrupt, or
partnership
that the enterprise for which it had been
civil interdiction
organized had been concluded or
abandoned. (Lichauco v Lichauco)
In contravention of the agreement
Not being a mercantile partnership (hence,
between the partners:
not governed by the Code of Commerce,
where the circumstances do not
but the CC), it was dissolved by the death
permit a dissolution under 1830 by
of Perpetua. It cannot be maintained that
the express will of any partner at
the partnership continued to exist after the
any time; 1830
death of Perpetua for it does not appear
that any stipulation to that effect has ever
Upon application of a partner:
been made by her and Dequilla, pursuant
partner has been declared insane
to the provisions of art. 1704. The
or is shown to be of unsound
partnership having been dissolved, its
mind;
subsequent legal status was that of a
partner becomes incapable of
partnership in liquidation, and the only
performing his part of the
rights inherited by Perpetuas heir, were
contract;
those resulting from the liquidation in favor
partner has been guilty of such
of the Perperua, and nothing more. Before
conduct that prejudices the
this liquidation is made, it is impossible to
business;
determine what rights or interests, if any,
 partner wilfully or persistently continued existence is, in turn, dependent
commits a breach of the on the constancy of that mutual resolve,
partnership agreement along with each partner's capability to give
business of the partnership can it, and the absence of a cause for
only be carried on at a loss; dissolution provided by the law itself.
equitable grounds Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act
in good faith, not that the attendance of
On the application of the purchaser of a bad faith can prevent the dissolution of the
partner's interest under Article 1813 or partnership but that it can result in a
1814: liability for damages. (Ortega v CA)
TERMINATION of the term
or undertaking Under art. 1830, a partner may cause the
when partnership is at will dissolution of the partnership, even if there
and the INTEREST of one is specified term in the articles of
partner is ASSIGNED partnership and even before the expiration
of this period, with or without justifiable
cause. If no cause was given or if it is
Art. 1813. A conveyance by a partner of his whole unjustified, the withdrawing partner
interest in the partnership does not of itself becomes liable for damages, but he cannot
dissolve the partnership, or, as against the other be compelled to remain in the firm. (Rojas
partners in the absence of agreement, entitle the v. Maglana)
assignee, during the continuance of the
partnership, to interfere in the management or B. Consequences of dissolution
administration of the partnership business or
affairs, or to require any information or account of
1. As to partner's authority to act for the
partnership transactions, or to inspect the
partnership
partnership books; but it merely entitles the
assignee to receive in accordance with his contract
General Rule: Authority of partners to bind
the profits to which the assigning partner would
partnership is terminated (1832)
otherwise be entitled. However, in case of fraud in
Exception:
the management of the partnership, the assignee
Wind up partnership affairs
may avail himself of the usual remedies.
Complete transactions not finished
In case of a dissolution of the partnership, the
Qualifications:
assignee is entitled to receive his assignor's
1.With respect to the partners (1833)
interest and may require an account from the date
if dissolution is not by act, insolvency, or
only of the last account agreed to by all the
death of a partner the general rule applies.
partners.
Dissolution terminates the actual authority
of a partner to undertake new business for
Art. 1814. Without prejudice to the preferred
the partnership.
rights of partnership creditors under Article 1827,
if dissolution is by act, insolvency or death
on due application to a competent court by any
of a partner the rule is that the authority of
judgment creditor of a partner, the court which
partners inter se to act for the partnership
entered the judgment, or any other court, may
is not deemed terminated. Thus, each
charge the interest of the debtor partner with
partner is liable to his copartners for his
payment of the unsatisfied amount of such
share of any liability created by any
judgment debt with interest thereon; and may then
partner acting for the partnership as if the
or later appoint a receiver of his share of the
partnership has not been dissolved.
profits, and of any other money due or to fall due
Exception:
to him in respect of the partnership, and make all
a. The cause of the dissolution is the act of a
other orders, directions, accounts and inquiries
partner and the acting partner had
which the debtor partner might have made, or
knowledge of such dissolution
which the circumstances of the case may require.
b. the cause of dissolution is the death or
The interest charged may be redeemed at any
insolvency of a partner and the acting
time before foreclosure, or in case of a sale being
partner had knowledge or notice of such
directed by the court, may be purchased without
dissolution
thereby causing a dissolution:
2. With respect to third persons (1834)
(1) With separate property, by any one or more
When partner continues to bind the
of the partners; or
partnership even after dissolution
(2) With partnership property, by any one or
By an act appropriate for winding
more of the partners with the consent of all the
up partnership affairs
partners whose interests are not so charged or
Act for completing unfinished
sold.
transactions
Nothing in this Title shall be held to deprive a
Transaction which would bind the
partner of his right, if any, under the exemption
partnership if dissolution had not
laws, as regards his interest in the partnership. (n)
taken place provided that the
other party:
The birth and life of a partnership at will is
predicated on the mutual desire and
Had extended credit to partnership prior to
consent of the partners. The right to
dissolution
choose with whom a person wishes to
Had no knowledge/notice of dissolution,
associate himself is the very foundation
OR
and essence of that partnership. Its
Did not extend credit to partnership
Had known partnership prior to dissolution
Had no knowledge/notice of dissolution/fact of
dissolution not advertised in a newspaper of
general circulation in the place where partnership is
regularly carried on
When partner cannot bind the partnership
after dissolution
where partnership was dissolved
because it was unlawful to carry
on the business except when the
act is for winding up
where the partner has become
insolvent
where the partner is unauthorized
to wind up partnership affairs,
except by transaction with one
who:
Had extended credit to partnership prior to
dissolution &
Had no knowledge/notice of dissolution,
OR
Did not extend credit to partnership prior to
dissolution
Had known partnership prior to dissolution
Had no knowledge/notice of dissolution/fact of
dissolution not advertised in a newspaper of
general circulation in the place where partnership is
regularly carried on
2. As to partner's existing
liability
General Rule: Dissolution does not automatically
discharge the existing liability of any partner.
(1835)
Exception: A partner may be relieved from all
existing liabilities upon dissolution only by an
agreement between:
1. partner concerned
2. person/partnership continuing the business
3. partnership creditors
3. Liability of
person/partnership continuing the business
Art. 1840. In the following cases creditors of the
dissolved partnership are also creditors of the
person or partnership continuing the business:
(1) When any new partner is admitted into an
existing partnership, or when any partner retires
and assigns (or the representative of the deceased
partner assigns) his rights in partnership property
to two or more of the partners, or to one or more
of the partners and one or more third persons, if
the business is continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign (or
the representative of a deceased partner assigns)
their rights in partnership property to the
remaining partner, who continues the business
without liquidation of partnership affairs, either
alone or with others;
(3) When any partner retires or dies and the
business of the dissolved partnership is continued
as set forth in Nos. 1 and 2 of this article, with the
consent of the retired partners or the
representative of the deceased partner, but without
any assignment of his right in partnership
property;
(4) When all the partners or their representatives
assign their rights in partnership property to one or
more third persons who promise to pay the debts
and who continue the business of the dissolved
partnership;
(5) When any partner wrongfully causes a
dissolution and the remaining partners continue the
business under the provisions of article 1837,
second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership
affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or with
others without liquidation of the partnership affairs.
The liability of a third person becoming a
partner in the partnership continuing the
business, under this article, to the
creditors of the dissolved partnership shall
be satisfied out of the partnership property
only, unless there is a stipulation to the
contrary.
This article treats more of a commercial
partnership, with a goodwill to protect
rather than a professional partnership with
no saleable goodwill but whose reputation
depends on the personal qualifications of
its individual members.
Creditors of the old partnership can go
after the partnership continuing the
business except: (1) when there is a
stipulation to the contrary; and, (2) when
there has been a liquidation of partnership
affairs
Not only the retiring partners but also the
new partnership itself which continued the
business of the old, dissolved, one, are
liable for the debts of the preceding
partnership. A withdrawing partner
remains liable, to a third party creditor of
the old partnership. (Singsong vs.
Isabela Sawmill)
The liability of a third person becoming a
partnership continuing the business, under
1840, to the creditors of the dissolved
partnership shall be satisfied out of the
partnership property only, unless there is a
stipulation to the contrary. When the
business of a partneship after dissolution is
continued under any conditions set forth in
1840 the creditors of the retiring or
deceased partner or the representative of
the deceased partner, have a prior right to
any claim of the retired partner or the
representative of the deceased partner
against the person or partnership
continuing the business on account of the
retired or deceased partner's interest in
the dissolved partnership on account of
any consideration promised for such
interest or for his right in partnership
property. Nothing in this article shall be
held to modify any right of creditors to set
wide any assignment on the ground of
fraud. (Yu v NLRC)
C. Rights of Partners upon
dissolution
1. Right to wind up
Art. 1836. Unless otherwise agreed, the partners
who have not wrongfully dissolved the partnership
or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any
partner, his legal representative or his assignee,
upon cause shown, may obtain winding up by the
court. (n)
Winding up may be done either: judicially
or extrajudicially
The ff. are authorized to wind up the
affairs of the partnership:
1. partners designated by the
agreement
2. in the absence of such agreement,
all the partners who have not
wrongfully dissolved the
partnership, or
3. the legal representative (executor/
administrator) of the last surviving
partner (when all the partners are
already dead), not insolvent
The court may appoint a receiver to wind
up the partnership affairs.
Powers of a liquidating partner:
Make new contracts
Raise money to pay partnership debts
Incur obligations to complete existing
contracts or preserve partnership assets
Incur expenses necessary in the conduct of
litigation
wrongfully dissolved -done in in contravention of agreement (unless
contravention of the agreement
When a member of a mercantile
partnership dies, the duty of liquidating its
affairs devolves upon the surviving
member/s of the firm, not upon the legal
representatives of the deceased partner.
Upon the death of a partner, it is the duty
of the surviving associates to take the
proper steps to settle the affairs of the
firm,and any claim against him or his
estate should be prosecuted against his
estate in administration. (Lota v liabilities of partnership
Tolentino)
2. Right to damages for wrongful
dissolution
Art. 1837. When dissolution is caused in
contravention of the partnership agreement the
rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution
wrongfully shall have:
(b) The right, as against each partner who
has caused the dissolution wrongfully, to
damages breach of the agreement.
3. Right to continue business on
wrongful dissolution
Art. 1837. xxx When dissolution is caused in
contravention of the partnership agreement the
rights of the partners shall be as follows:
(2) The partners who have not caused the
dissolution wrongfully, if they all desire to
continue the business in the same name either
by themselves or jointly with others, may do
so, during the agreed term for the partnership
and for that purpose may possess the
partnership property, provided they secure the
payment by bond approved by the court, or
pay any partner who has caused the
dissolution wrongfully, the value of his interest
in the partnership at the dissolution, less any
damages recoverable under the second
paragraph, No. 1 (b) of this article, and in like
manner indemnify him against all present or
future partnership liabilities.
(3) A partner who has caused the dissolution
wrongfully shall have:
(a) If the business is not continued under the
provisions of the second paragraph, No. 2,
all the rights of a partner under the first
paragraph, subject to liability for damages
in the second paragraph, No. 1 (b), of this
article.
(b) If the business is continued under the
second paragraph, No. 2, of this article,
the right as against his co-partners and all
claiming through them in respect of their
interests in the partnership, to have the
value of his interest in the partnership, less
any damage caused to his co-partners by
the dissolution, ascertained and paid to
him in cash, or the payment secured by a
bond approved by the court, and to be
released from all existing liabilities of the
partnership; but in ascertaining the value
of the partner's interest the value of the
good-will of the business shall not be
considered. (n)
4. Rights where dissolution not
otherwise agreed), which constitute the
partners lien:
to have the partnership property applied to
discharge partnership liabilities and
the surplus assets, if any, distributed in
cash to the respective partners, after
deducting what may be due to the firm
from them as partners
5. Rights of innocent party:
(dissolution in contravention of agreement)
Apply partnership property to discharge
Apply surplus, if any to pay in cash the net
amount owed to partners
Indemnity for damages caused by partner
guilty of wrongful dissolution
Continue business in same name during
agreed term
Posses partnership property if business is
continued
6.Rights of guilty party: one who
wrongly caused dissolution
If business not continued by others - apply
partnership property to discharge liabilities
of partnership & receive in cash his share
of surplus less damages caused by his
wrongful dissolution
If business continued by others - have the
value of his interest at time of dissolution
ascertained and paid in cash/secured by
bond & be released from all existing/future
partnership liabilities
7. Rights of injured partner where
partnership contract is rescinded on ground of
fraud/misrepresentation by 1 party: (1838)
Right to lien on surplus of partnership
 property after satisfying partnership
liabilities
Right to subrogation in place of creditors
after payment of partnership liabilities
Right of indemnification by guilty partner
against all partnership debts & liabilities
8. Right of retiring/ deceased
partner
Art. 1841. When any partner retires or dies, and
the business is continued under any of the
conditions set forth in the preceding article, or in
Article 1837, second paragraph, No. 2, without any
settlement of accounts as between him or his
estate and the person or partnership continuing the
business, unless otherwise agreed, he or his legal
representative as against such person or
partnership may have the value of his interest at
the date of dissolution ascertained, AND shall
receive as an ordinary creditor an amount equal to
the value of his interest in the dissolved
partnership with interest, or, at his option or at the
option of his legal representative, in lieu of
interest, the profits attributable to the use of his
right in the property of the dissolved partnership;
provided that the creditors of the dissolved
partnership as against the separate creditors, or
the representative of the retired or deceased
partner, shall have priority on any claim arising
under this article, as provided Article 1840, third
paragraph. (n)
9. Right to account
Art. 1842. The right to an account of his interest
shall accrue to any partner, or his legal
representative as against the winding up partners
or the surviving partners or the person or
partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the
contrary. (n)
The profits of a business cannot be
determined by taking into account the
result of one particular transaction instead
of all the transactions had, hence the need
for a general liquidation before a partner
may claim a specific sum as his share of
the profits [Sison vs. McQuaid].
A partners share cannot be retuned
without first dissolving and liquidating the
partnership, for the firms outside creditors
have preference over the assets of the
enterprise [Arts. 1839(2), 1827] and the
firms property cannot be diminished to
their prejudice [Magdusa vs. Albaran].
VIII. SETTLEMENT OF ACCOUNTS
BETWEEN PARTNERS
Art. 1839. In settling accounts between the
partners after dissolution, the following rules shall
be observed, subject to any agreement to the
contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners
necessary for the payment of all the
liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in
order of payment, as follows:
(a) Those owing to creditors other than
partners,
(b) Those owing to partners other than for
capital and profits,
(c) Those owing to partners in respect of
capital,
(d) Those owing to partners in respect of
profits.
(3) The assets shall be applied in the order of
their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(4) The partners shall contribute, as provided by
article 1797, the amount necessary to satisfy
the liabilities.
(5) An assignee for the benefit of creditors or any
person appointed by the court shall have the
right to enforce the contributions specified in
the preceding number.
(6) Any partner or his legal representative shall
have the right to enforce the contributions
specified in No. 4, to the extent of the amount
which he has paid in excess of his share of the
liability.
(7) The individual property of a deceased partner
shall be liable for the contributions specified in
No. 4.
(8) When partnership property and the individual
properties of the partners are in possession of
a court for distribution, partnership creditors
shall have priority on partnership property and
separate creditors on individual property,
saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his
estate is insolvent, the claims against his
separate property shall rank in the following
order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of
contribution. (n)
This provision sets forth a priority system
for the distribution of partnership property
[see Art. 1810] and individual property
when a partnership is dissolved.
These rules are subject to variation by
agreement of the partners, either in their
original partnership agreement or in a
dissolution agreement, subject to the
rights of partnership creditors.
ORDER OF PAYMENT IN THE WINDING UP
OF PARTNERSHIP LIABILITIES in a general
partnership: 1839 (2)
1. Those owing to creditors other
than partners;
2. Those owing to partners other
than for capital or profits;
3. Those owing to partners in respect
of capital;
4. Those owing to partners in respect
of profits.
Doctrine of Marshalling of Assets 1839 (8):
1. Partnership creditors have preference in
partnership assets
2. Separate or individual creditors have preference
in separate or individual properties
3. Anything left from either goes to the other
IX. LIMITED PARTNERSHIP
Art. 1843. A limited partnership is one formed by
two or more persons under the provisions of the
effect of Retirement, Does not have
following article, having as members one or more
retirement death, same effect;
general partners and one or more limited partners.
death insanity insolvency, rights
The limited partners as such shall not be bound by or insolvency insanity of transferred to
the obligations of the partnership. gen partner legal
dissolves representative
Characteristics: partnership
formed by compliance with the statutory (1860)
requirements (1844)
firm name must contain Name must be
One or more general partners control the
the word followed by
business and are personally liable to
company or "limited" (SEC
creditors (1848, 1850) Co. (SEC Memo Circular
One or more limited partners contribute to Memo Circular No. 14-00)
the capital and share in the profits but do No. 14-00)
not participate in the management of the
*unless it is a
business and are not personally liable for
professional
partnership obligations beyond the amount
partnership
of their capital contributions. (1845, 1848,
1856) members of composed composed of
The limited partners may ask for the return the only of one or more
of their capital contributions under the partnership general general
conditions prescribed by law (1844(h), partners partners and
one or more
1857)
limited
The partnership debts are paid out of the
partners
common fund and the individual properties
of the general partners.

General Limited Essential requirements for the formation of a

Partnership Partnership limited partnership: (1844)
the certificate or articles of the limited
extent of Personally Liability
liability liable for extends only to partnership which states the matters
partnership his capital enumerated in the article, must be signed
obligations contributions and sworn to.
(1848) Such certificate must be filed for record in
the office of the SEC
right to When manner No
paticipate in of mgt. not participation in
Who may become Limited Partners
the agreed upon, management
management all gen
A partnership cannot become a limited
partners have partner.
an equal right A general partnership may be changed into
in the mgt. of a limited one, and a partner in the former
the business general partnership may become a limited
partner in the limited partnership just
contribution Contribute Contribute
formed.
cash, property cash or
or industry property only,
not industry The general rule for those who seek to
(1845) avail of the protection of the laws
permitting the creation of limited
proper party Proper party Not proper partnerships must show a substantially full
to proceedings to party to compliance of such laws. A limited
by or against proceedings proceedings
partnership that has not complied with the
the by/against by/against
law of its creation is not considered a
partnership partnership partnership
unless: limited partnership at all; but a general
partnership in which all members are
1. he is also a liable. (Jo Chung Cang V. Pacific
general partner Commercial)
2. where the
object of the Art. 1847. If the certificate contains a false
proceedigns is statement, one who suffers loss by reliance on
to enforce a such statement may hold liable any party to the
limited certificate who knew the statement to be false:
partner's right (1) At the time he signed the certificate, or
against or (2) Subsequently, but within a sufficient time
liability to the
before the statement was relied upon to enable him
partnership
to cancel or amend the certificate, or to file a
inclusion of Name may Name must petition for its cancellation or amendment as
partner's appear in firm appear in firm provided in Article 1865.
name in the name name
firm name Art. 1864. The certificate shall be cancelled when
prohibition to Prohibition No prohibition the partnership is dissolved or all limited partners
engage in against against cease to be such.
other business engaging in engaging in A certificate shall be amended when:
business business (1) There is a change in the name of the
partnership or in the amount or character of the
contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes
insolvent or insane, or is sentenced to civil
interdiction and the business is continued under
Article 1860;
(6) There is a change in the character of the
business of the partnership;
(7) There is a false or erroneous statement in the
certificate;
(8) There is a change in the time as stated in the
certificate for the dissolution of the partnership or
for the return of a contribution;
(9) A time is fixed for the dissolution of the
partnership, or the return of a contribution, no time
having been specified in the certificate, or
(10) The members desire to make a change in any
other statement in the certificate in order that it
shall accurately represent the agreement among
them.
Requirements to amend a certificate:
amendment must be in writing;
it must be signed and sworn to by
all the members, including the
new members, and the assigning
members in case of substitution or
addition of a GP or LP; and
the certificate, as amended, must
be filed for record in the SEC
Requirements to cancel a certificate:
in writing;
signed by all the members; and
filed with the SEC; if the
cancellation is ordered by the
court, a certified copy of such
order shall be filed with the SEC as
well
Art. 1860. The retirement, death, insolvency,
insanity or civil interdiction of a general partner
dissolves the partnership, unless the business is
continued by the remaining general partners:
(1) Under a right so to do stated in the
certificate, or
(2) With the consent of all members.
X. LIMITED PARTNER
A. Contribution
Art. 1845. The contributions of a limited partner
may be cash or property, but not services.
B. Liability
Art. 1848. A limited partner shall not become
liable as a general partner unless, in addition to the
exercise of his rights and powers as a limited
partner, he takes part in the control of the
business.
What constitutes control of the business
sufficient to make a limited partner liable
as a general partner has not been clearly
defined by the courts.
Examples of limited partner taking part in
the control of business:
Board of directors chosen by
limited partners
An appointee of a limited partner
becomes the directing manager of
the firm
Art. 1858. A limited partner is liable to the
partnership:
(1) For the difference between his contribution as
actually made and that stated in the certificate as
having been made; and
(2) For any unpaid contribution which he agreed in
the certificate to make in the future at the time and
on the conditions stated in the certificate.
A limited partner holds as trustee for the
partnership:
(1) Specific property stated in the certificate as
contributed by him, but which was not contributed
or which has been wrongfully returned, and
(2) Money or other property wrongfully paid or
conveyed to him on account of his contribution.
Liabilities of a limited partnership:
1. To the partnership (see 1858)
2. To partnership creditors and other partners
a. Art. 1845 when he contributes
services
b. Art. 1846
c. Art. 1847
d. Art. 1848
e. Art. 1854 in fraud of partnership
creditors
f. Art. 1844 (2) failure to substantially
comply with the legal requirements governing
formation of limited partnerships
3. To separate creditors (see 1862)
The liabilities of a limited partner as set
forth in this article can be waived or
compromised only by the consent of all
members; but a waiver or compromise
shall not affect the right of a creditor of a
partnership who extended credit or whose
claim arose after the filing and before a
cancellation or amendment of the
certificate, to enforce such liabilities.
C. Rights in common with general
partner
The specific rights of a limited partner are as
follows:
To require that partnership books be kept
at the principal place of business of the
partnership
To inspect and copy at a reasonable hour
partnership books or any of them
To demand true and full information of all
things affecting the partnership
To demand a formal account of partnership
affairs whenever circumstances render it
just and reasonable
To ask for dissolution and winding up by
decree of the court
To receive a share of the profits or other
compensation by way of income
To receive the return of his contribution
provided the partnership assets are in
excess of all its liabilities
D. Loan and other Business
 Transactions with Limited
Partnership
Art. 1854. A limited partner also may loan money
to and transact other business with the
partnership, and, unless he is also a
general partner, receive on account of
resulting claims against the partnership,
with general creditors, a pro rata share of
the assets. No limited partner shall in
respect to any such claim:
(1) Receive or hold as collateral security and
partnership property, or
(2) Receive from a general partner or the
partnership any payment, conveyance, or
release from liability if at the time the
assets of the partnership are not sufficient
to discharge partnership liabilities to
persons not claiming as general or limited
partners.
The receiving of collateral security, or
payment, conveyance, or release in
violation of the foregoing provisions is a
fraud on the creditors of the partnership.
3 allowable transactions:
1. granting loans to partnership
2. transacting other business with
it
3. receiving a pro rata share of the
partnership assets with general creditors if
he is not also a general partner
Art. 1854 does not prohibit absolutely the taking as
collateral security by a limited property of any
partnership property, as no. 1 & 2 are modified by
the requirement of sufficient assets to discharge
the obligation of the partnership.
Prohibited transactions:
Receiving or holding as collateral security
any partnership property
Receiving any payment, conveyance, or
release from liability if it will prejudice the
right of third persons
Third persons always enjoy a preferential
right insofar as partnership assets are
concerned
E. Return of contribution
Art. 1855. Where there are several limited
partners the members may agree that one
or more of the limited partners shall have
a priority over other limited partners as to
the return of their contributions, as to their
compensation by way of income, or as to
any other matter. If such an agreement is
made it shall be stated in the certificate,
and in the absence of such a statement all
the limited partners shall stand upon equal
footing.
Art. 1857. A limited partner shall not receive from
a general partner or out of partnership
property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities
to general partners and to limited partners
on account of their contributions, have
been paid or there remains property of the
partnership sufficient to pay them;
(2) The consent of all members is had, unless the
return of the contribution may be rightfully
demanded under the provisions of the
second paragraph; and
(3) The certificate is cancelled or so amended as to
set forth the withdrawal or reduction.
Subject to the provisions of the first paragraph,
a limited partner may rightfully demand
the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its
return has arrived, or
(3) After he has six months' notice in writing to all
other members, if no time is specified in
the certificate, either for the return of the
contribution or for the dissolution of the
partnership.
In the absence of any statement in the
certificate to the contrary or the consent of
all members, a limited partner, irrespective
of the nature of his contribution, has only
the right to demand and receive cash in
return for his contribution.
A limited partner may have the partnership
dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands the
return of his contribution, or
(2) The other liabilities of the partnership have not
been paid, or the partnership property is
insufficient for their payment as required
by the first paragraph, No. 1, and the
limited partner would otherwise be entitled
to the return of his contribution.
Art. 1855
By agreement of all members, preference may be
given over other limited partners as to the:
Return of their contributions
Their compensation by way of income
Any other matter
Absent such agreement, all limited partners shall
stand on the same footing in respect of those
matters.
Art. 1857
Requisites for the return of contribution of limited
partner:
All liabilities of the partnership have been
paid
If not paid: assets of the partnership are
sufficient to pay such liabilities
consent of all members
certificate is cancelled or so amended as to
set forth such withdrawal or reduction of
the contribution
Limited partner may demand return of his
contribution provided requisites 1 & 3 are complied
with:
on the dissolution of the partnership; or
upon arrival of the date specified in the
certificate for the return; or
after the expiration of 6 mos. notice in
writing given by him to the other partners
if no time is fixed in the certificate for the
return of the contribution or for the
dissolution of the partnership
F. Share of profits
Art. 1856. A limited partner may receive from the
partnership the share of the profits or the
compensation by way of income stipulated
for in the certificate; provided that after
such payment is made, whether from
property of the partnership or that of a
 general partner, the partnership assets are
in excess of all liabilities of the partnership
except liabilities to limited partners on
account of their contributions and to
general partners.
G. Assign interests
Art. 1859. A limited partner's interest is
assignable.
A substituted limited partner is a person admitted
to all the rights of a limited partner who
has died or has assigned his interest in a
partnership.
An assignee, who does not become a substituted
limited partner, has no right to require any
information or account of the partnership
transactions or to inspect the partnership
books; he is only entitled to receive the
share of the profits or other compensation
by way of income, or the return of his
contribution, to which his assignor would
otherwise be entitled.
An assignee shall have the right to become a
substituted limited partner if all the
members consent thereto or if the
assignor, being thereunto empowered by
the certificate, gives the assignee that
right.
An assignee becomes a substituted limited partner
when the certificate is appropriately
amended in accordance with Article 1865.
The substituted limited partner has all the rights
and powers, and is subject to all the
restrictions and liabilities of his assignor,
except those liabilities of which he was
ignorant at the time he became a limited
partner and which could not be ascertained
from the certificate.
The substitution of the assignee as a limited
partner does not release the assignor from
liability to the partnership under Articles
1847 and 1848.
Art. 1847. If the certificate contains a false
statement, one who suffers loss by
reliance on such statement may hold liable
any party to the certificate who knew the
statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time
before the statement was relied upon to
enable him to cancel or amend the
certificate, or to file a petition for its
cancellation or amendment as provided in
Article 1865.
Art. 1848. A limited partner shall not become
liable as a general partner unless, in
addition to the exercise of his rights and
powers as a limited partner, he takes part
in the control of the business.
Requisites in order that the assignee may
become a substituted limited partner:
1. All the members must consent to
the assignee becoming a
substituted limited partner OR the
limited partner, being empowered
by the certificate, must give the
assignee the right to become a
limited partner
2. The certificate must be amended
in accordance with Art. 1865
3. The certificate as amended must
be registered in the SEC.
Substitution, withdrawal, death,
insolvency, insanity, civil interdiction,
addition of a limited partner does not
necessarily dissolve the partnership.
H. Effect of death
Art. 1861. On the death of a limited partner his
executor or administrator shall have all the
rights of a limited partner for the purpose
of setting his estate, and such power as
the deceased had to constitute his
assignee a substituted limited partner.
The estate of a deceased limited partner shall be
liable for all his liabilities as a limited
partner.
I. Right of creditor
Art. 1862. On due application to a court of
competent jurisdiction by any creditor of a
limited partner, the court may charge the
interest of the indebted limited partner
with payment of the unsatisfied amount of
such claim, and may appoint a receiver,
and make all other orders, directions and
inquiries which the circumstances of the
case may require.
The interest may be redeemed with the separate
property of any general partner, but may
not be redeemed with partnership
property.
The remedies conferred by the first paragraph
shall not be deemed exclusive of others
which may exist.
Nothing in this Chapter shall be held to deprive a
limited partner of his statutory exemption.
Creditor of a limited partner may apply to
the proper court for an order charging the
limited partners interest in the partnership
for the payment of his claim.
J. Person erroneously believing he is
a limited partner
Art. 1852. Without prejudice to the provisions of
Article 1848, a person who has contributed
to the capital of a business conducted by a
person or partnership erroneously
believing that he has become a limited
partner in a limited partnership, is not, by
reason of his exercise of the rights of a
limited partner, a general partner with the
person or in the partnership carrying on
the business, or bound by the obligations
of such person or partnership, provided
that on ascertaining the mistake he
promptly renounces his interest in the
profits of the business, or other
compensation by way of income.
This article provides exemption from
general liability of a person who
contributed capital with an erroneous belief
that he has become a limited partner in a
limited partnership, or in general
partnership thinking that it is a limited
 one.

Conditions for exemption:

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

K. Dissolution

Any of such causes in 1860 affecting a

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

A limited partnership may be dissolved for:

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

When the firm is dissolved by the

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

Order of Payment: Limited Partnership (1863) -DSP

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