Finals Reviewer PARTNERSHIP 1

st
Sem; 2003
INTRODUCTION
Brief Historical Background
Development of partnership The earliest form of
conducting business was the single entrepreneur ownership
plan (one individual! "nder this s#stem$ growth of the
business was limited (limitation of capital$ s%ill or %nowledge
and so partnership was developed!
Ancient origin of partnership as a business
organization &evelopment of partnership often
credited to the Romans!
'istoricall#$ partnership was used long before the
Romans! (s earl# as 2300 )!*! the )ab#lonian s#stem of
laws provided for regulation of partnership! *ommercial
partnerships at that time were generall# for single
transactions or underta%ings!
Following the )ab#lonian period$ there were clear+cut
references to partnerships in ,ewish law!
The relative newness of the law of partnership
&espite its long histor# of use$ there is not a
correspondingl# long line of precedents and decisions
dealing with the sub-ect! This is because .nglish courts of
-ustice scarcel# dealt with the sub-ect! &isputes between
merchants were disposed of b# special courts!
The law of merchants /n the 0iddle (ges$
merchants had a special and peculiar %ind of law that
was applicable to them and their legal affairs!
&uring this period$ the common law courts of .ngland
were slow and methodicall# e1act as to form! 0erchants
moved more rapidl# than the law and re2uired speedier
-ustice! 'ence$ the special courts!
English law of partnership /n time the special
courts were discontinued and the law courts too% over!
*hief ,ustice$ 3ord 0ansfield sought to establish a
common law for commercial matters! /t was not until the
latter #ears of the 14
th
centur# that the law of
partnership as we %now it toda# began to assume both
form and substance!
/n 1554$ 3ord 0ansfield decided a case that dealt
with the rights of partnership! /n 1567$ 8illiam 8atson
wrote a te1t on partnership!
Beginning of law of partnership These two
sources mar% the beginning of printed precedents and the
publication of the principles of law in partnerships!
/ncrease in use of partnership and comple1it# of business
brought forth a rapid succession of decisions on
partnerships!
American Uniform Acts (ttempt made in "S to
secure uniformit# of state laws dealing with partnership!
The "niform 9artnership (ct and the "niform 3imited
9artnership (ct helped to achieve this uniformit#! The
"niform 9artnership (ct is similar with .ngland:s
9artnership (ct of 1460! .nglish settlers brought the
partnership concept to their new countr# as part of the
common law!
0odern partnership law contains a combination of
principles and concepts developed from three sources;
the Roman law$ the
law merchant and
e2uit#$ and the
common law courts!
Goerning la! in our
"urisdiction
)efore the new *ivil
*ode$ commercial or
mercantile partnerships
were governed b# the
*ode of *ommerce and
non+commercial or civil
partnerships b# the old
Spanish *ivil *ode! The
new *ivil *ode
superseded the old *ivil
*ode and e1pressl#
repealed in toto the
provisions in the *ode
of *ommerce relating to
partnerships!
*onse2uentl#$ the new
*ivil *ode provisions are
intended to provide all
the rules regarding
partnerships! There is
no more distinction
between commercial
and civil partnerships!
The partnerships
contemplated are
those formed for
private interest or
purpose!
Sources of our la! on
#artners$i#
The *ivil *ode
provisions on
partnership were mostl#
ta%en from the old *ivil
*ode and from the "S:s
"niform 9artnership (ct
and the "niform 3imited
9artnership (ct! Some
provisions were ta%en
from the *ode of
*ommerce as well as
from the opinions of
civilians! <ew rules
were also formulated b#
the *ode *ommission!
CHAPTER %& GENERA'
PRO(ISIONS
Art& %)*)& B+ t$e
contract of
#artners$i# t!o or
,ore #ersons -ind
t$e,seles to
contri-ute ,one+.
#ro#ert+. or industr+
to a co,,on fund.
!it$ t$e intention of
diiding t$e #rofits
a,ong t$e,seles&
T!o or ,ore
#ersons ,a+
also for, a
#artners$i# for
t$e e/ercise of a
#rofession&
Conce#t of #artners$i#
The above article
gives the legal
definition of
partnership (often
called =co+
partnership> from
the viewpoint of a
contract!
9artnership$
however$ has
also been
defined as; 1!
(n association;
2! ( legal relation;
3! ( status;
7! (n organi?ation;
@! (n entit#;
A! ( -oint underta%ing!
BSee pp. 7-8 of De Leon
(2002 Ed.) for full
definitions. I think OK n
if !e "ust kno! the #odl
definition n$!$.C
9artnership is a legal
concept$ but the
determination of the
e1istence of a
partnership ma# involve
inferences drawn from
the circumstances
attending its creation and
operation!
%i&il l! #on#ept nd
'(eri#n #on#ept of
prtnership
distin)uished
Ciil Code A,erican
Basis of 9artnership as a 9artnership as a
conce#t contract; the relation; the
agreement itself result of the
out of which a contract or
'elen *! (revalo 1 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
partnership is agreement; the
created! -uridical relation!
Possession =.ntit# theor#>; =(ggregate
of se#arate 9artnership has a theor#>; <o
#ersonalit+ -uridical separate -uridical
personalit# of its personalit#;
own$ distinct and merel# an
separate from that e1tension of its
of each of the members$ a
partners! conglomerate of
individuals!
Ta/ 9artnerships$ 9artnership not
Conse0uence e1cept general ta1ed! /ndividual
professional members
partnerships$ are severall# pa#
treated for income their income
ta1 purposes as ta1es$ partnership
corporations and regarded merel#
sub-ect to ta1 as as source of
such! income!
General Professional Partners$i#
9ar! 2 relates to the e1ercise of a profession!
B*rofession; a group of men pursuing a learned art as a common
calling in the spirit of public service D no less a public service
because it ma# incidentall# be a means of livelihood!C
The practice of a profession is not a business or an
enterprise for profit! 'owever$ the law allows the -oint
pursuit thereof b# two or more persons as partners! /t
is the individual partners$ and not the partnership$ who
engage in the practice of the profession and are
responsible for their own acts as such! The law does
not allow the practice of a profession as a corporate
entit#! 9ersonal 2ualifications for such practice cannot
be possessed b# a corporation!
Partners$i# for t$e #ractice of la!
A mere association for non-business purpose -
Right to practice law not a constitutional right but
a privilege or franchise! /t cannot be li%ened to
partnerships formed b# other professionals or for
business!
/t is not formed for the purpose of carr#ing on
trade or business or of holding propert#! Thus$ use of
a no( de plu(e+ assumed$ or trade name is improper!
Distinguished from business /t is intimatel#
and peculiarl# related to the administration of -ustice;
not a mere mone#+ma%ing trade! 9rimar#
characteristics which distinguish it;
1! &ut# of public service;
2! Relation as an officer of court to the
administration of -ustice;
3! 'ighl# fiduciar# relation to clients;
7! Relation to colleagues at the bar characteri?ed
b# candor$ fairness$ etc!
C$aracteristic ele,ents of #artners$i#
1! *onsensual; perfected b# mere
consent (e1pressEimplied;
2! <ominate; has a special nameEdesignation in
our law;
3! )ilateral; two or
more parties$
reciprocal rights
and obligations;
7! Fnerous; .ach of
the parties aspires
to procure a
benefit through the
giving of
something;
@! *ommutative;
underta%ing of each
partner is
considered the
e2uivalent of that of
the others;
A! 9rincipal; does
not depend
upon some
other contract
for its
e1istenceEvalidit
#;
5! 9reparator#; entered
into as a means to an
end! ( partnership
contract$ in its essence$
is a contract of
agenc#!
Essential features of
#artners$i#
1! There must be a
valid contract;
2! 9arties must
have legal
capacit# to enter
into the
contract;
3! 0utual
contribution of
mone#$
propert#$ or
industr# to a
common fund;
7! Fb-ect must be
lawful;
@! 9rimar# purpose;
to obtain profits
and to divide them
among the parties!
/t is also re2uired that
the articles of partnership
must not be %ept secret
among the members;
otherwise$ the association
shall have no legal
personalit# and shall be
governed b# the provisions
relating to co+ownership!
E/istence of a alid
contract
Partnership relation
fundamentall
contractual
9artnership is a
voluntar# relation
created b#
agreement of the
parties!
(ctuall#$ the
partnership relation is
not the contract itself$
but the result of the
contract!
!orm The relation
is evidenced b# the terms
of the contract which ma#
be oral or written$ e1press
or implied from the acts
and declarations of the
parties!
Articles of
partnership 8hile the
partnership relation ma#
be informall# created and
its e1istence proved b# the
manifestations of the
parties$ it is customar# to
embod# the terms of the
association in a written
document %nown as
=(rticles of 9artnership>!
"e#uisites Since
partnership is contractual$
all the essentials of a valid
contract must be present;
1! *onsent and
capacit# of parties;
2! Fb-ect;
3! *ause!
( person cannot enter into a
contract of partnership
solel# b# himself; there
must be two contracting
parties! For a partnership to
be valid$ there must be a
valid
consideration e1isting as
between the partners! .ach
surrenders to the
partnership some sort of
contribution!
Partnership relation
fiduciar in nature
9artnership is a form of
voluntar# association
entered into b# the
associates! /t is a personal
relation in which the
element of dele#tus
persone e1ists$ involving
as it does trust and
confidence between the
partners! 0embership
re2uires the consent of all!
/ts fiduciar# nature and
the liabilit# of each
partner for the acts of the
others re2uire that each
person be granted the
right to choose with whom he will be associated with!
'elen *! (revalo 2 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
(mong partners$ mutual agenc# arises and the doctrine
of dele#tus persone allows them to have the power to
dissolve the partnership! (n# partner ma#$ at his sole
pleasure$ dictate dissolution at will! 'e must$ however$ act
in good faith or he:ll be liable for damages!
Application of principles of estoppel
9artnership liabilit# ma# be imposed when one holds
himself out$ or permits himself to be held out$ as a
partner! There is no actual or legal partnership relation
but merel# a partnership liabilit# imposed b# law in favor
of third persons!
'egal ca#acit+ of t$e #arties to enter into t$e
contract
$ndividuals General rule; an# person who is
capable of entering into contractual relations ma# be a
partner! The following cannot;
1! 0inors;
2! /nsane or demented persons;
3! &eaf+mutes who do not %now how to write;
7! 9ersons who are suffering from civil interdiction;
@! /ncompetents who are under guardianship!
9ersons who are prohibited from giving each other
an# donation cannot enter into a universal partnership!
Partnerships There is no prohibition against a partnership
being a partner in another partnership! (ll the members of
the constituent partnerships will be held
liable to the creditors of the combined partnership!
%orporations "nless authori?ed b# statute or b#
its charter$ a corporation is without capacit# or power to
enter into a contract of partnership! This is based on
public polic#$ since in a partnership the corporation would
be bound b# the acts of persons who are not its dul#
appointed and authori?ed agents and officers$ which would
be entirel# inconsistent with the polic# that the
corporation shall manage its own affairs separatel# and
e1clusivel#!
.1ceptions;
1! ,oint ventures where the nature of the venture is in
line with the business authori?ed b# its charter!
2! 9artnership agreement provides that the two
partners will manage the partnership so that the
management of corporate interest is not
surrendered!
3! .ntr# of foreign corp as a limited partner in a
limited partnership merel# for investment
purposes!
Contri-ution of ,one+. #ro#ert+. or industr+ to a
co,,on fund
E&istence of proprietar interest The partners
must have a proprietar# interest in the business or
underta%ing$ that is$ the# must contribute capital which
ma# be mone#$ or propert#$ or their services$ or both$ to
the common business!
'one 3egal tender in the 9hils!
Propert Real or personal$ corporeal or incorporeal!
$ndustr (ctive cooperation$ the wor% of the part#
associated!
Proof of contribution
1 9roof is necessar# that
there be contribution of
mone#$ propert#$ or
industr# to a common
fund with the intention of
dividing the income or
profits obtained
therefrom! /f onl# one
partner gives$ no
enforceable contract
e1ists!
'egalit+ of t$e o-"ect
The ob-ect is
unlawful when it is
contrar# to law$ morals$
good customs$ public
order$ or public polic#! /f
purpose unlawful$ no
partnership can arise as
the contract is ine1istent
and void , initio!
Pur#ose to o-tain
#rofits
The ver reason for
e&istence of
partnership
The idea of obtaining
pecuniar# profit or gain is
the ver# reason for the
e1istence of a partnership!
(eed onl be the
principal) not
e&clusive aim
pecuniar# profit need not
be the e1clusive aim! /t
is sufficient that it is the
principal purpose even if
there are$ incidentall#$
other ends!
S$aring of #rofits
(ot necessaril in
e#ual shares There
must be intention to
divide the profits but not
necessaril# in e2ual
shares! There must be a
-oint interest in the
profits!
( stipulation
which e1cludes a
partner from an#
participation in the
profits is void!
(ot conclusive
evidence of
partnership The
sharing of profits is
merel# presumptive
and not conclusive
evidence of
partnership!
S$aring of losses
(ecessar corollar
of sharing in profits
The right to share in the
profits carries with it the
dut# to contribute to the
losses$ if an#! (
communit# in losses is a
necessar# corollar# of a
participation in profits!
Agreement not
necessar /t is not
necessar# for the parties
to agree on a s#stem of
sharing losses$ for the
obligation is implied from
the partnership relation! /f
onl# 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!
Generall#$ a
stipulation which
e1cludes one or more
partners from an# share
in the profits or losses is
void!
Art& %)*2& T$e
#artners$i# $as a
"uridical #ersonalit+
se#arate and distinct
fro, t$at of eac$ of t$e
#artners een in case of
failure to co,#l+ !it$
t$e re0uire,ents of art&
%))3. %
st
#aragra#$&
Partners$i#. a "uridical
#erson
(s an independent
-uridical person$ a
partnership ma# enter
into contracts$ ac2uire
and possess propert# of
all %inds in its name$ as
well as incur obligations
and bring civil or criminal
actions!
Thus$ a partnership
ma# be declared insolvent
even if the partners are
not! /t ma# enter into
contracts and ma# sue and
be sued in its firm name or
b# its dul# authori?ed
representative! /t is
sufficient that service of
summons be served on
an# partner!
'elen *! (revalo 3 Section
3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
9artners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a
different -uridical personalit# is being used for a fraudulent$
unfair or illegal purpose!
Effect of failure to co,#l+ !it$ statutor+
re0uire,ents
Under art* +,,- 9artnership still ac2uires
personalit# despite failure to compl# with the
re2uirements of e1ecution of public instrument and
registration of name in S.*!
Under arts* +,,. and +,,/ 9artnership with
immovable propert# contributed$ if without re2uisite
inventor#$ signed and attached to public instrument$
shall not ac2uire an# -uridical personalit# because the
contract itself is void! This is also true for secret
associations or societies!
To organi4e a #artners$i# not an a-solute rig$t
/t is but a privilege which ma# be en-o#ed onl# under
such terms as the State ma# deem necessar# to impose!
Art& %)*5& In deter,ining !$et$er a
#artners$i# e/ists. t$ese rules s$all a##l+6
%&7 E/ce#t as #roided -+ art& %238. #ersons
!$o are not #artners as to eac$ ot$er are
not #artners as to 9
rd
#ersons:
3&7 Co;o!ners$i# or co;#ossession does not of
itself esta-lis$ a #artners$i#. !$et$er suc$
co;o!ners$i# or co;#ossessors do or do not
s$are an+ #rofits ,ade -+ t$e use of t$e
#ro#ert+:
9&7 T$e s$aring of gross returns does not of itself
esta-lis$ a #artners$i#. !$et$er or not t$e
#ersons s$aring t$e, $ae a "oint or co,,on
rig$t or interest in an+ #ro#ert+ fro, !$ic$ t$e
returns are deried:
<&7 T$e recei#t -+ a #erson of a s$are of t$e
#rofits of a -usiness is prima facie eidence
t$at $e is a #artner in t$e -usiness. -ut no
suc$ inference s$all -e dra!n if suc$ #rofits
!ere receied in #a+,ent6
a&7 As a de-t -+ install,ents or
ot$er!ise:
-&7 As !ages of an e,#lo+ee or rent to a
landlord:
c&7 As an annuit+ to a !ido! or
re#resentatie of a deceased
#artner:
d&7 As interest on a loan. t$oug$ t$e
a,ount of #a+,ent ar+ !it$ t$e
#rofits of t$e -usiness:
e&7 As t$e consideration for t$e sale of a
good!ill of a -usiness or ot$er
#ro#ert+ -+ install,ents or ot$er!ise&
Rules to deter,ine e/istence of #artners$i#
/n general$ to establish the e1istence of a partnership$
ll of its essential features or characteristics must be
shown as being present! /n case of doubt$ art!
15A6 shall appl#! This
article see%s to e1clude
from the categor# of
partnership certain
features enumerated
therein which$ b#
themselves$ are not
indicative of the
e1istence of a
partnership!
Persons not #artners as
to eac$ ot$er
9ersons who are
partners as between
themselves are partners as
to third persons! Generall#$
the converse is true; if the#
are not partners between
themselves$ the# cannot be
partners as to third persons!
9artnership is a
matter of intention$ each
partner giving his consent
to become a partner!
'owever$ whether a
partnership e1ists
between the parties is a
factual matter! 8here
parties declare the# are
not partners$ this$ as a
rule$ settles the 2uestion
between themselves! )ut
where a person misleads
third persons into
believing that the# are
partners in a non+e1istent
partnership$ the# become
sub-ect to liabilities of
partners (doctrine of
estoppel!
8hether or not the
parties call their
relationship or believe it
to be a partnership is
immaterial! Thus$ with
the e1ception of
partnership b# estoppel$
a partnership cannot
e1ist as to third persons
if no contract of
partnership has been
entered into between the
parties themselves!
Co;o!ners$i# or co;
#ossession
There is co+ownership
whenever the ownership of
an undivided thing or right
belongs to different
persons!
%lear intent to derive
profits from operation
of business *o+
ownership does not of
itself establish the
e1istence of a partnership$
although it is one of its
essential elements! This is
true even if profits are
derived from the -oint
ownership! The profits
must be derived from the
operation of business b#
the members of the
association and not merel#
from propert# ownership!
The law does not impl#
a partnership between co+
owners because of the
fact that the# develop or
operate a common
propert#$ since the# ma#
rightfull# do this b# virtue
of their respective titles!
There must be a clear
intent to form a
partnership!
E&istence of
fiduciar relationship
9artners have a well+
defined fiduciar#
relationship between
them! *o+owners do not!
Should there be dispute$
the remed# of partners is
an action for dissolution$
termination and
accounting! For co+owners
it would be one$ for
instance$ for non+
performance of contract!
9eople can become co+
owners without a contract
but the# cannot become
partners without one!
Persons living
together without
benefit of marriage
9ropert# ac2uired
governed b# rules on co+
ownership!
S$aring of gross returns
(ot even
presumptive
evidence of
partnership
The mere sharing of gross
returns alone does not
even constitute pri(
f#ie evidence of
partnership$ since in a
partnership$ the partners
share profits after
satisf#ing all of the
partnership:s liabilities!
'elen *! (revalo 7 Section
3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
"eason for the rule 9artner interested in both
failures and successes; it is the chance of loss or gain that
characteri?es a business! 8here the contract re2uires a
given portion of gross returns to be paid over$ the portion
is paid over as commission$ wages$ rent$ etc!
0here there is evidence of mutual management
8here there is further evidence of mutual
management and control$ partnership ma# result!
Recei#t of s$are in t$e #rofits
1trong presumptive evidence of partnership
(n agreement to share both profits and losses tends
strongl# to establish the e1istence of a partnership! /t is
not conclusive$ however$ -ust pri( f#ie and ma# be
rebutted b# other circumstances!
0hen no such inference will be drawn "nder
par! 7 of art! 15A6$ sharing of profits is not pri( f#ie
evidence of partnership in the cases enumerated under
subsections (a D (e! /n these cases$ the profits are not
shared as partner but in some other respects or purpose!
The basic test of partnership is whether the business
is carried on in behalf of the person sought to be held
liable!
1haring of profits as owner /t is not merel# the
sharing of profits$ but the sharing of them as co+owner of
the business or underta%ing$ that ma%es one partner!
Test; &oes the recipient have an e2ual voice as proprietor
in the conduct and control of the businessH &oes he own
a share of the profits as proprietor of the business
producing themH
Fne must have an interest with another in the profits
of a business as profits!
Burden of #roof and #resu,#tion
The burden of proving the e1istence of a partnership
rests on the part# having the affirmative of that issue!
The e1istence of a partnership must be proved and
will not be presumed!
The law presumes that those acting as partners have
entered into a contract of partnership! 8here the law
presumes the e1istence of partnership$ the burden of
proof is on the part# den#ing its e1istence!
8hen a partnership is shown to e1ist$ the presumption
is that it continues and the burden of proof is on the
person asserting its termination!
Fne who alleges partnership cannot prove it merel#
b# evidence of an agreement using the term =partner>!
<on+use of the term$ however$ is entitled to weight!
The 2uestion of whether a partnership e1ists is not
alwa#s dependent upon the personal arrangement or
understanding of the parties! 9arties intending to do a
thing which in law constitutes partnership are partners!
Le)l intention is the cru1 of partnership! 9arties ma#
call themselves partners but their contract ma# be
ad-udged something 2uite different! *onversel#$ parties
ma# e1pressl# state that theirs in not a partnership #et
the law ma# determine otherwise on the basis of legal
intent! 'owever$ courts will be influenced to some e1tent
b# what the parties call their contract!
Tests and incidents of
#artners$i#
/n determining
whether a
partnership e1ists$
it is important to
distinguish between
tests or indicia and
incidents of
partnership!
Fnl# those terms
of a contract upon
which the parties
have reached an
actual
understanding$
either e1pressl# or
impliedl#$ ma#
afford a test b#
which to ascertain
the legal nature of
the contract!
Some of the
t#pical incidents
of a partnership
are; 1! The
partners share in
profits and
losses!
2! The# have
e2ual rights in
the mgt and
conduct of the
partnership
business!
3! .ver# partner is
an agent of the
partnership$ and
entitled to bind
the others b# his
acts! 'e ma#
also be liable for
the entire
partnership
obligations!
7! (ll partners are
personall#
liable for the
debts of the
partnership
with their
separate
propert# e1cept
that limited
partners are
not bound
be#ond the
amount of their
investment!
@! ( fiduciar#
relation e1ists
between the partners!
A! Fn dissolution$
the partnership
is not
terminated$ but
continues until
the winding up of
partnership is
completed!
Such incidents ma#
be modified b#
stipulation of the
partners!
Partners$i#
distinguis$ed fro, a
la-or union
Partners$i# 'a-or Union
Pur#ose To enable its members$ *ollective
as principals$ to conduct bargaining;
a lawful business$ trade$ dealing with
or profession for emplo#ers
pecuniar# gain of concerning terms
partners$ and no one and conditions of
ma# become a partner emplo#ment!
wEo consent of all!
Partners$i# distinguis$ed fro, a -usiness trust
Partners$i# Trust
Agenc+ (ll members are Trustee is onl# a
principals and principal and is not
agents for each an agent!
other!
O!ners$i# 9artners are co+ )eneficiar# has
of #ro#ert+ owners of specific e2uitable ownership
partnership of propert# while
propert#! trustee owns legal
title to such
propert#!
Partners$i# distinguis$ed fro, co;o!ners$i#
Partners$i# Co;o!ners$i#
Creation (lwa#s created b# Generall# created
contract$ whether b# law! /t ma#
e1press or implied! e1ist even wEo a
contract!
=uridical 'as a -uridical <o separate
#ersonalit+ personalit# separate -uridical
'elen *! (revalo @ Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
and distinct from personalit#!
that of each partner!
Pur#ose Reali?ation of profits! *ommon
en-o#ment of a
thing or right!
Duration <o limitation under 10 #ear limit!
the law!
Dis#osal of 9artner ma# not *o+owner ma#
interests dispose of his assign wEo
individual interest in consent of other
the partnership so as co+owners!
to ma%e the
assignee partner wEo
consent of all!
Po!er to 9artner ma# bind *o+owner cannot
act !> 9
rd
partnership! represent co+
#ersons ownership!
Effect of &eath of partner &eath of co+
deat$ results in dissolution! owner does not
necessaril#
dissolve co+
ownership!
Partners$i# distinguis$ed fro, con"ugal
#artners$i# of gains
Ordinar+> Con"ugal
-usiness #artners$i# of
#artners$i# gains
Parties *reated b# (rises in case the
voluntar# future spouses D
agreement of 2 or a man and a
more partners woman D agree
belonging to either that it shall
se1! govern their
propert# relations
during marriage!
'a!s !$ic$ Stipulation of the 3aw!
goern parties!
=uridical 0eron! 8ala!
#ersonalit+
Co,,ence; )egins from *ommences
,ent moment of precisel# on the
e1ecution of date of the
contract$ unless celebration of the
otherwise marriage and an#
stipulated! stipulation to
contrar# is void!
Pur#ose To obtain profits! To regulate the
propert# relations
of husband and
wife during
marriage!
Distri-ution &ivided according .2ual!
of #rofits to agreement or in
proportion to
capital
contributions!
?anage,ent Shared e2uall# b# (lthough
partners unless administration
one or more belongs to both
appointed -ointl#$ husband:s
managers! decision prevails
in case of
disagreement!
Dis#osition 8hole interest of a Share of each
of s$ares partner ma# be spouse cannot be
disposed of disposed of
without consent of during marriage
others! even wE consent
of other!
Partners$i# distinguis$ed fro, a oluntar+
association
Partners$i# (oluntar+
association
=uridical 0eron! 8ala!
#ersonalit+
Pur#ose (lwa#s for <ot!
pecuniar# profit!
Contri-utions *ontribution of (lthough fees
of ,e,-ers capital$ either are usuall#
mone#$ propert# collected from
or services! the members$ no
contribution of
capital!
'ia-ilit+ of 9artnership is 0embers are
,e,-ers the one liable in individuall# liable
the 1
st
place for for debts of
debts of the firm! association!
Partners$i# distinguis$ed fro, a cor#oration
Partners$i# Cor#oration
?anner of 0ere agreement of 3aw or operation
creation parties! of law!
Nu,-er of (t least two! (t least five!
incor#orators
Co,,ence; From moment of From date of
,ent of e1ecution of issuance of
"uridical contract of certificate of
#ersonalit+ partnership! incorporation b#
S.*!
Po!ers 9artnership ma# *orp can onl#
e1ercise an# power e1ercise powers
authori?ed b# e1pressl#
partners provided granted b# law
not contrar# to or implied from
morals$ good those granted or
customs$ etc! incident to its
e1istence!
?anage,ent 8hen mgt not 9ower to manage
agreed upon$ ever# vested in board
partner is agent! of directors or
trustees!
Effect of 9artner can sue co+ Suit against
,is,anage; partner who member of board
,ent mismanages! of directors or
trustees who
'elen *! (revalo A Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
mismanages
must be in name
of corp!
Rig$t of 8ala! 0eron!
succession
E/tent of 9artners (e1cept Stoc%holders
lia-ilit+ to 9
rd
limited partners liable onl# to
#ersons are liable e1tent of the
personall# and shares
subsidiaril# subscribed b#
(sometimes them!
solidaril# for
partnership debts
to 3
rd
persons!
Transfer; 9artner cannot Stoc%holder has
a-ilit+ of transfer his interest generall# the
interest so as to ma%e right to transfer
transferee a his shares wEo
partner wEo prior consent of
consent of others! the other
Dele#tus stoc%holders!
personru(.
Ter, of (n# period of time @0 #ears ma1!
e/istence stipulated b# the e1tendible to
partners! another @0!
@ir, na,e 3imited partnership *orp ma# adopt
re2:d to add word an# firm name
=3td!> provided not
same or similar
to an# registered
firm name!
Dissolution 0a# be dissolved at *an onl# be
an# time b# the will dissolved with
of an# or all of the consent of State!
partners!
Goerning *ivil *ode! *orporation
la! *ode!
Si,ilarities -et!een a #artners$i# and
a cor#oration
1! )oth have -uridical personalit# separate and
distinct from that of the individuals
composing it;
2! )oth can onl# act through its agents;
3! )oth are organi?ations composed of
an aggregate of individuals;
7! )oth distribute profits to those who contribute
capital to the business;
@! )oth can onl# be organi?ed where there is a law
authori?ing is organi?ation;
A! 9artnerships are ta1able as corporations!
Art& %))A& A #artners$i# ,ust $ae a la!ful
o-"ect or #ur#ose. and ,ust -e esta-lis$ed for
t$e co,,on -enefit or interest of t$e #artners&
B$en an unla!ful #artners$i# is dissoled -+
a "udicial decree. t$e #rofits s$all -e confiscated
in faor of t$e State. !it$out #re"udice to t$e
#roisions of t$e Penal Code goerning t$e
confiscation of t$e
instru,ents and
effects of a cri,e&
O-"ect or #ur#ose of
#artners$i#
The provision of the
1
st
paragraph reiterates
2 essential elements of a
contract of partnership;
1! legalit# of the ob-ect;
and 2! communit# of
benefit or interest of the
partners!
The parties possess
absolute freedom to
choose the transaction or
transactions the# must
engage in! The onl#
limitation is that the ob-ect
must be lawful and for the
common benefit of the
members!
The illegalit# of the
ob-ect will not be
presumed; it must appear
to be of the essence of the
relationship!
Effects of an unla!ful
#artners$i#
1! The contract is void
, initio and the
partnership never
e1isted in the e#es
of the law;
2! The profits shall
be confiscated in
favor of the
government;
3! The instruments
or tools and
proceeds of the
crime shall also
be forfeited in
favor of the
government;
7! The contributions
of the partners
shall not be
confiscated
unless the# fall
under I3!
( partnership is
dissolved b# operation of
law upon the happening of
an event which ma%es it
unlawful!
( -udicial decree is not
necessar# to dissolve an
unlawful partnership!
'owever$ advisable that
-udicial decree be secured!
3
rd
persons who deal wE
partnership wEo %nowledge
of illegal purpose are
protected!
Rig$t to return of
contri-ution !$ere
#artners$i# is
unla!ful
9artners must be
reimbursed the amount of
their respective
contributions! The partner
who limits himself to
demanding onl# the
amount contributed b#
him need not resort to the
partnership contract on
which to base his claim or
action! Since the purpose
for which the contribution
was made has not come
into e1istence$ the mgr or
administrator must return
it$ and he who has paid
his share is entitled to
recover it!
Rig$t to receie
#rofits !$ere
#artners$i# is
unla!ful
3aw does not permit
action for obtaining
earnings from an unlawful
partnership because for
that purpose$ the partner
will have to base his
action upon the
partnership contract$
which is null and without
legal e1istence b# reason
of its unlawful ob-ect; and
it is self+evident that what
does not e1ist cannot be a
cause of action!
9rofits earned do
not constitute or
represent the partner:s
contribution! 'e must
base his claim on the
contract which is void!
/t would be immoral
and un-ust for the law to
permit a profit from an
industr# prohibited b# it!
The courts will refuse to
recogni?e its e1istence$
and will not lend their aid
to assist either of the
parties thereto in an action
against each other!
Therefore$ there can be no
accounting demanded of a
partner for the
'elen *! (revalo 5 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
profits which ma# be in his hands$ nor can recover# be
had!
Effect of #artial illegalit+ of #artners$i# -usiness
8here a part of the business is legal and part illegal$
an account of that which is legal ma# be had!
8here$ wEo the %nowledge or participation of the
partners$ the firm:s profits in a lawful business have been
increased b# wrongful acts$ the innocent partners are not
precluded as against the guilt# partners from recovering
their share of the profits!
Effect of su-se0uent illegalit+ of #artners$i#
-usiness
*ontract will not be nullified! 8here the business for
which the partnership is formed is legal when the
partnership is entered into$ but afterward becomes illegal$
an accounting ma# be had as to the business transacted
prior to such time!
Co,,unit+ of interest -et!een t$e #artners for
-usiness #ur#oses
The salient features of an ordinar# partnership are a
communit# of interest in profits and losses$ a communit#
of interest in the capital emplo#ed$ and a communit# of
power in administration!
This communit# of interest is the basis of the
partnership relation! 'owever$ although ever#
partnership is founded on a communit# of interest$
ever# communit# of interest does not necessaril#
constitute a partnership!
9ropert# used in the business ma# belong to one or
more partners$ so that there is no -oint propert#$ other
than -oint earnings! To state that partners are co+owners of
a business is to state that the have the power if ultimate
control! )ut partners ma# agree upon concentration of
management$ leaving some of their members entirel#
inactive or dormant!
Fnl# one of these features$ profit+sharing$ seems to
be absolutel# essential! )ut a mere sharing of profits of
itself does not of necessit# constitute a partnership!
The court must consider all the essential elements in
light of the facts of the particular case before deciding
whether a partnership e1ists!
Art& %))%& A #artners$i# ,a+ -e constituted in
an+ for,. e/ce#t !$ere i,,oa-le #ro#ert+ or real
rig$ts are contri-uted t$ereto. in !$ic$ case a
#u-lic instru,ent s$all -e necessar+&
@or, of #artners$i# contract
2eneral rule <o special form re2uired for validit# or
e1istence of the contract of partnership! *ontract ma# be
made orall# or in writing regardless of the value of the
contributions!
0here immovable propert or real rights are
contributed .1ecution of public instrument necessar# for
validit# of contract of partnership! To affect 3
rd
persons$ the
transfer of real propert# to the partnership must be dul#
registered in the Registr# of 9ropert#!
0hen partnership
agreement covered b
the 1tatute of !rauds
(n agreement to enter in a
partnership at a future
time$ which b# its terms is
not to be performed wEin a
#ear from the ma%ing
thereof is covered b# the
Statute of Frauds! Such
agreement is
unenforceable unless it is
in writing or at least
evidenced b# some note or
memorandum!
Partners$i# i,#lied
fro, conduct
Binding effect
.1istence of partnership
ma# be implied from the
acts or conduct of the
parties$ as well as from
other declarations$ and
such implied contract
would be as binding as a
written and e1press
contract!
Ascertainment of
intention of parties /n
determining whether a
particular transaction
constitutes a partnership$
as between the parties$ the
intention as disclosed b#
the entire transaction$ and
as gathered from the facts
and from the language
emplo#ed b# the parties as
well as their conduct$
should be ascertained!
%onflict between
intention and terms
of contract /f the
parties intend a general
partnership$ the# are
general partners
although their purpose
is to avoid the creation
of such a relation!
Art& %))3& Eer+
contract of #artners$i#
$aing a ca#ital of
t$ree t$ousand #esos
or ,ore. in ,one+ or
#ro#ert+. s$all a##ear
in a #u-lic instru,ent.
!$ic$ ,ust -e
recorded in t$e Office
of t$e Securities and
E/c$ange Co,,ission&
@ailure to co,#l+
!it$ t$e re0uire,ents
of t$e #receding
#aragra#$ s$all not
affect t$e lia-ilit+ of t$e
#artners$i# and t$e
,e,-ers t$ereof to
t$ird #ersons&
Registration of
#artners$i#
Partnership with
capital of P.)333 or
more 2 re2uirements;
1! The contract must
appear in a public
instrument; 2! /t must
be recorded or
registered wE the S.*!
'owever$ failure to
compl# wE the above
re2uirements does not
prevent the formation of
the partnership or affect
its liabilit# and that of the
partners to 3
rd
persons!
)ut an# partner is
granted the right b# law
to compel each other to
e1ecute the contract in a
public instrument!
Purpose of
registration
Registration is necessar#
as a condition for the
issuance of licenses to
engage in business and
trade! /n this wa#$ the ta1
liabilities of big
partnerships cannot be
evaded and the public can
determine more accuratel#
their membership and
capital before dealing with
them!
0hen partnership
considered registered
The ob-ective of the
law is to ma%e the
recorded instrument
open to all and to give
notice thereof to
interested parties!
This ob-ective is
achieved from the date
the partnership papers
are presented to and left
for record in the
*ommission! This is the
effective date of
registration! /f the
certificate of recording is
issued on a subse2uent
date$ its effectivit#
retroacts to date of
presentation!
'elen *! (revalo 4 Section
3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Art& %))9& A contract of #artners$i# is oid.
!$eneer i,,oa-le #ro#ert+ is contri-uted
t$ereto. if an inentor+ of said #ro#ert+ is not
,ade. signed -+ t$e #arties. and attac$ed to t$e
#u-lic instru,ent&
Partners$i# !it$ contri-ution of i,,oa-le
#ro#ert+
8here immovable propert# contributed$ failure to
compl# wE the following re2uisites will render the
partnership contract void;
1! The contract must be in a public instrument; 2!
(n inventor# of the propert# contributed must
be made$ signed b# the parties$ and attached to
the public instrument!
(rt! 1553 is intended primaril# to protect 3
rd
persons! 8E
regard to 3
rd
persons$ a de f#to partnership or
partnership b# estoppel ma# e1ist! There is nothing to
prevent the court from considering the partnership
agreement an ordinar# contract from which the parties:
rights and obligations to each other ma# be inferred and
enforced!
B$en inentor+ is not re0uired
(n inventor# is re2uired onl# whenever immovable
propert# is contributed! /f not contributed or if personal
propert#$ no inventor# re2uired!
I,#ortance of ,aking inentor+ of real #ro#ert+ in a
#artners$i#
(n inventor# is ver# important in a partnership to
show how much is due from each partner to complete
his share in the common fund and how much is due to
each of them in case of li2uidation!
The e1ecution of a public instrument of partnership
would be useless if there is no inventor# of immovable
propert# contributed because wEo its description and
designation$ the instrument cannot be sub-ect to
inscription in the Registr# of 9ropert#$ and the
contribution cannot pre-udice 3
rd
persons!
Art& %))<& An+ i,,oa-le #ro#ert+ or an
interest t$erein ,a+ -e ac0uired in t$e
#artners$i# na,e& Title so ac0uired can -e
cone+ed onl+ in t$e #artners$i# na,e&
Ac0uisition or cone+ance of #ro#ert+ -+
#artners$i#
Since partnership has -uridical personalit# of its own$ it
ma# ac2uire immovable propert# in its own name! Title so
ac2uired can be conve#ed onl# in the partnership name!
Art& %))8& Associations and societies. !$ose
articles are ke#t secret a,ong t$e ,e,-ers. and
!$erein an+ one of t$e ,e,-ers ,a+ contract in
$is o!n na,e !it$ t$ird #ersons. s$all $ae no
"uridical #ersonalit+. and s$all -e goerned -+ t$e
#roisions relating to co;o!ners$i#&
Secret #artners$i#s
!it$out "uridical
#ersonalit+
9artnership relation is
created onl# b# the
voluntar# agreement of
the partners! /t is
essential that the
partners are full#
informed not onl# of the
agreement but of all
matters affecting the
partnership! Secret
partnerships are not b#
nature partnerships!
Secret
partnerships shall
be governed b#
the provisions
relating to co+
ownership!
I,#ortance of
giing #u-licit+
to articles of
#artners$i#
/t is essential that the
arts of partnership be
given publicit# for the
protection not onl# of the
members themselves but
also 3
rd
persons from
fraud and deceit! (
member who transacts
business for the secret
partnership in his own
name becomes personall#
bound to 3
rd
persons
unaware of the e1istence
of such association!
9artnership liabilit# ma#
still result$ however$ in
cases of estoppel!
Art& %))*& As to
its o-"ect. a
#artners$i# is
eit$er uniersal or
#articular&
As regards
t$e lia-ilit+ of
t$e #artners. a
#artners$i# ,a+
-e general or
li,ited&
Classifications of
#artners$i#
As to e&tent of its
sub4ect matter
1! "niversal
partnership! ((rt!
1555
a!
"niv
ersal
part
ners
hip
of all
pres
ent
prop
ert#!
((rt!
1554

b!
"niver
sal
partne
rship
of
profits!
((rt!
1540
2! 9articular
partnership! ((rt!
1543
As to liabilit of the
partners
1! General
partnership; one
consisting of
general partners
who are liable
pro rt and
subsidiaril# and
sometimes
solidaril# wE their
separate propert#
for partnership
debts!
2! 3imited
partnership; one
formed b# two or
more persons
having as
members one or
more general
partners and one
or more limited
partners$ the latter
not being
personall# liable
for the obligations
of the partnership!
As to duration
1! 9artnership at will;
one in wEc no time
is specified and is
not formed for a
particular
underta%ing or
venture and wEc
ma# be terminated
at an# time b#
mutual agreement
of the partners$ or
b# the will of an#
one partner alone;
or one for a fi1ed
term or particular
underta%ing wEc is
continued after the
end of the term or underta%ing wEo e1press
agreement!
2! 9artnership with a fi1ed term; one wEc the term
for wEc the partnership is to e1ist is fi1ed or
agreed upon or one formed for a particular
underta%ing!
As to the legalit of
its e&istence
1! &e -ure
partnership; one
wEc has complied
wE all the legal
re2uirements for
its establishment!
'elen *! (revalo 6 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
2! &e facto partnership; one wEc has failed to
compl# wE all the legal re2uirements for its
establishment!
As to representation to others
1! Frdinar# or real partnership; one wEc actuall#
e1ists among the partners and also as to 3
rd

persons!
2! Fstensible partnership or partnership or
partnership b# estoppel; one wEc in realit# is not a
partnership$ but is considered a partnership onl# in
relation to those who$ b# their conduct or
admission$ are precluded to den# or disprove its
e1istence!
As to publicit
1! Secret partnership; one wherein the e1istence of
certain persons as partners is not avowed or made
%nown to the public b# an# of the partners!
2! Fpen or notorious partnership; one whose
e1istence is avowed or made %nown to the
public b# the members of the firm!
As to purpose
1! *ommercial or trading partnership; one formed
for the transaction of business!
2! 9rofessional or non+trading partnership; one
formed for the e1ercise of a profession!
Cinds of #artners
Under the %ivil %ode
1! *apitalist partner; one who contributes mone# or
propert# to the common fund!
2! /ndustrial partner; one who contributes onl# his
industr# or personal service!
3! General partner; (a!%!a! =real partner> one
whose liabilit# to 3
rd
persons e1tends to his
separate propert#!
7! 3imited partner; (a!%!a! =special partner> one
whose liabilit# to 3
rd
persons is limited to his
capital contribution!
@! 0anaging partner; (a!%!a! =general> or =real>
partner D ho! #onfusin)- one who manages the
affairs or business of the partnership!
A! 3i2uidating partner; one who ta%es charge of the
winding up of partnership affairs upon dissolution!
5! 9artner b# estoppel; (a!%!a! =partner b#
implication> or =nominal partner> or even =2uasi+
partner> one who is not reall# a partner but is
liable as a partner for the protection of innocent 3
rd
persons! 'e is one represented as being a partner
but who is not so between the partners
themselves!
4! *ontinuing partner; one who continues the
business of a partnership after it has been
dissolved b# reason of the admission of a new
partner$ or the retirement$ death or e1pulsion of
one or more partners!
6! Surviving partner; one who remains after a
partnership has been dissolved b# the death of
an# partner!
10! Subpartner; one
who$ not being a
member of the
partnership$
contracts wE a
partner wE
reference to the
latter:s share in the
partnership!
5ther classifications

1! Fstensible
partner; one
who ta%es
active part and
%nown to the
public as a
partner!
2! Secret partner;
one who ta%es
active part in the
business but is
not %nown to be a
partner b# outside
parties nor held
out as a partner
b# the other
partners! 'e is an
actual partner!
3! Silent partner; one
who does not ta%e
an# active part in
the business
although he ma#
be %nown to be a
partner!
7! &ormant partner;
(a!%!a! =sleeping
partner one who
does not ta%e
active part in the
business and is
not %nown or held
out as a partner!
'e would be both
a silent and a
secret partner!
@! Friginal
partner; one
who is a
member of the
partnership
from the time
of its
organi?ation!
A! /ncoming
partner; a
person latel#$ or
about to be$
ta%en into an
e1isting
partnership as a
member!
5! Retiring
partner;
one
withdrawn
from the
partnership
; a
withdrawin
g partner!
(rt! 1555! (
universal
partnership ma#
refer to all the
present propert# or
to all the profits!
Art& %))2& A
#artners$i# of all
#resent #ro#ert+ is
t$at in !$ic$ t$e
#artners contri-ute all
t$e #ro#ert+ !$ic$
actuall+ -elongs to
t$e, to a co,,on
fund. !it$ t$e
intention of diiding
t$e sa,e a,ong
t$e,seles. as !ell as
all t$e #rofits t$e+ ,a+
ac0uire t$ere!it$&
Art& %))5& In a
uniersal #artners$i# of
all #resent #ro#ert+.
t$e #ro#ert+ !$ic$
-elongs to eac$ of t$e
#artners at t$e ti,e of
t$e constitution of t$e
#artners$i#. -eco,es
t$e co,,on #ro#ert+
of all t$e #artners. as
!ell as all t$e #rofits
!$ic$ t$e+ ,a+ ac0uire
t$ere!it$&
A sti#ulation for t$e
co,,on en"o+,ent of
an+ ot$er #rofits ,a+
also -e ,ade: -ut t$e
#ro#ert+ !$ic$ t$e
#artners ,a+ ac0uire
su-se0uentl+ -+
in$eritance. legac+ or
donation cannot -e
included in suc$
sti#ulation. e/ce#t t$e
fruits t$ereof&
Uniersal
#artners$i# of all
#resent #ro#ert+
e/#lained
( universal
partnership of profits is
one wEc comprises all that
the partners ma# ac2uire
b# their industr# or wor%
during the e1istence of
the partnership and the
usufruct of movable or
immovable propert# wEc each of the partners ma#
possess at the time of the celebration of the contract!
/n this %ind of partnership$ the following become the
common propert# of all the partners;
1! 9ropert# wEc belonged to each of them at the
time of the
constitution of
the
partnership;
2! 9rofits wEc the#
ma# ac2uire
from the
propert#
contributed!
'elen *! (revalo
10 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Contri-ution of future #ro#ert+
General rule; future properties cannot be contributed!
The ver# essence of the contract of partnership that the
properties contributed be included in the partnership
re2uires the contribution of things determinate! The
position of a partner is li%e that of a donor$ and donations
cannot comprehend future propert#! Thus$ propert#
subse2uentl# ac2uired b# 1! inheritance; 2! legac#; or 3!
donation cannot be included b# stipulation e1cept the
fruits thereof! 'ence$ an# stipulation including propert# so
ac2uired is void!
9rofits from other sources (not from properties
contributed will become common propert# onl# is
there:s a stipulation!
Art& %)2A& A uniersal #artners$i# of #rofits
co,#rises all t$at t$e #artners ,a+ ac0uire -+
t$eir industr+ or !ork during t$e e/istence of t$e
#artners$i#&
?oa-le or i,,oa-le #ro#ert+ !$ic$ eac$ of
t$e #artners ,a+ #ossess at t$e ti,e of t$e
cele-ration of t$e contract s$all continue to
#ertain e/clusiel+ to eac$. onl+ t$e usufruct
#assing to t$e #artners$i#&
Uniersal #artners$i# of #rofits e/#lained
( universal partnership of profits is one wEc comprises
all that the partners ma# ac2uire b# their industr# or wor%
during the e1istence of the partnership and the usufruct
of movable or immovable propert# wEc each of the
partners ma# possess at the time of the celebration of the
contract!
5wnership of present and future propert The
partners retain their ownership over their present and
future propert#! 8hat passes to the partnership are the
profits or income and the use or usufruct of the same!
*onse2uentl#$ upon dissolution$ such propert# is returned
to the partners who own it!
Profits ac#uired through chance Since the law
onl# spea%s of profits wEc the partners ma# ac2uire b#
their industr# or wor%$ profits ac2uired purel# b# chance
are not included!
!ruits of propert subse#uentl ac#uired Fruits
of propert# subse2uentl# ac2uired b# the partners do not
belong to the partnership! Such profits$ however$ ma# be
included b# e1press stipulation!
Art& %)2%& Articles of uniersal #artners$i#.
entered into !it$out s#ecification of its nature. onl+
constitute a uniersal #artners$i# of #rofits&
Presu,#tion in faor of uniersal #artners$i# #f
#rofits
Reason for presumption; universal partnership of
profits imposes less obligations on the partners$ since
the# preserve the ownership of their separate propert#!
Art& %)23& Persons !$o are #ro$i-ited fro,
giing eac$ ot$er an+ donation or adantage
cannot enter into a uniersal #artners$i#&
'i,itations u#on t$e
rig$t to for, a
#artners$i#
9ersons who are
prohibited b# law to give
donations cannot enter
into a universal
partnership for the reason
that each of the partners
virtuall# ma%es a
donation! To allow it
would be permitting them
to do indirectl# what the
law e1pressl# prohibits!
( partnership formed
in violation of this article
is null and void!
*onse2uentl#$ no legal
personalit# is ac2uired!
( husband and
wife$ however$ ma#
enter into a
particular
partnership or be
members thereof!
Relevant provisions;
1! (rt! 45; &onations
between spouses
during marriage
void$ e1cept
moderate gifts on
occasion of famil#
re-oicing! (lso
applies to those
living together as
husband and wife
wEo valid
marriage!
2! (rt! 536; The
following
donations
are void; a!
Those made
between
persons
who are
guilt# of
adulter#
or
concubin
age at
the time
of the
donation
(no need
for
convictio
n;
preponde
rance of
evidence
onl#
re2uired
;
b! Those
made
betwee
n
persons
found
guilt# of
the
same
criminal
offense$
in
conside
ration
thereof;
c! Those
made
to a
public
officer
or his
wife$
descen
dants
and
ascenda
nts$ b#
reason
of his
office!
Art& %)29& A
#articular #artners$i#
$as for its o-"ect
deter,inate t$ings.
t$eir use or fruits. or a
s#ecific undertaking.
or t$e e/ercise of a
#rofession or ocation&
Particular #artners$i#
e/#lained
( particular partnership
is one wEc is neither a
universal partnership of
present propert# nor a
universal partnership of
profits!
The fundamental
difference between a
universal partnership and a
particular partnership lies in
the scope of their sub-ect
matter or ob-ect! /n the
former$ the ob-ect is vague
and indefinite$
contemplating a general
business wE some degree of
continuit#$ while in the
latter$ it is limited and well+
defined$ being confined to
an underta%ing of a single$
temporar#$ or d ho#
nature!
Business of
#artners$i# need not
-e continuing in
nature
The carr#ing on of a business of a continuing nature is
not essential to constitute a partnership! (n agreement to
underta%e a particular piece of wor% or a single
transaction or a limited number of transactions and
immediatel# divide the resulting profits would seem to fall
wEin the meaning of the
term =partnership> as
used in the law!
"ule under
American law The
above is not true under
the "niform 9artnership
(ct wEc does not include
-oint ventures wEc e1ists
for a single transaction or
a limited number of
transactions!
'elen *! (revalo
11 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
6oint venture 8hile a -oint venture is not a formal
partnership in the legal or technical sense$ both are
governed$ sub-ect to certain 2ualifications$ practicall# b#
the same rules or principles of partnership! This is logical
since in a -oint venture$ li%e in a partnership$ there is a
communit# of interest in the business and a mutual right of
control and an agreement to share -ointl# in profits and
losses!
%orporation as a partner 8hile under the
9hilippine *ivil *ode$ a -oint venture is a form of
partnership wE a legal personalit# separate and distinct
from the parties composing it$ and should thus be
governed b# the law of partnership$ the Supreme *ourt
has recogni?ed the distinction between these two business
forms$ and has held that although a corporation cannot
enter into a partnership contract$ it ma#$ however$ engage
in a -oint venture if the nature of the venture is authori?ed
b# its charter!
CHAPTER 3& OB'IGATIONS O@ THE PARTNERS
1E%T$5( +* 5B7$2AT$5(1 5! T8E PA"T(E"1
A'5(2 T8E'1E79E1
Relations created -+ a contract of #artners$i#
1! Relations among the partners themselves;
2! Relations of the partners with the partnership;
3! Relations of the partnership with third persons;
7! Relations of the partners with third persons!
Rig$ts and o-ligations. in general. or #artners
inter se
Partnership relationship essentiall one of
mutual trust and confidence .ach partner is a
trustee and a #estui .ue trust at the same time! 'e is a
trustee to the e1tent that his duties bind him$ a #estui
.ue trust as far as the duties that rest on his co+partners!
The man# particular rights and duties are but aspects of
the broad fiduciar# relation!
!iduciar relationship remains until partnership
terminated The relation of trust applies also to matters
concerned with the formation of the partnership and when
a partnership is dissolved$ the assets of the partnership
must still be managed in accordance with this fiduciar#
principle! The fiduciar# obligation of a partner remains
until the relationship is terminated and the e2uities
between the partners ad-usted and satisfied!
"elationship in a limited partnership The rights
and obligations of the partners as to each other are
provided on the theor# that a partner is both a principal
and an agent in relation to his co+partners! )ut the
relationship between a limited partner and the other
partners in a limited partnership does not involve the
element of trust and confidence$ as in the case of a
general partnership!
Art& %)2<& A
#artners$i# -egins
fro, t$e ,o,ent of
t$e e/ecution of t$e
contract. unless it is
ot$er!ise sti#ulated&
Co,,ence,ent and
ter, of #artners$i#
(s a consensual
contract$ a partnership
e1ists from the moment
of the celebration of the
contract! /ts registration
with the S.* is not
essential to give it
-uridical personalit#!
The birth and life of a
partnership is predicated
on the mutual desire and
consent of the parties!
"nli%e corporations$ no
time limit is prescribed b#
law for a partnership:s
lifetime! 9artners ma# fi1
in their contract an#
term!
Rules goerning
#artners$i# relation
8hat is necessar# for
the e1istence of
partnership is that the
essential re2uisites of a
contract of partnership
are present even when
the partners have not #et
actuall# started
businessEgiven
contributions$ etc!
8here a partnership
relation results$ the law
itself fi1es the incidents
and conse2uences of this
relation if the parties fail
to do so! This is true
even if parties call their
relation something
different or state that
the# are not partners!
E/ecutor+ agree,ent of
#artners$i#
The above rule on
commencement of a
partnership is not
absolute!
!uture partnership
The partners ma#
stipulate some other date
for the commencement of
the partnership! There
can be a future
partnership which at the
moment has no -uridical
e1istence #et!
/f it is not to start
within a #ear of the
ma%ing of the contract$ it
should be in writing in
order to be enforceable
(Statute of Frauds!
Agreement to create
partnership (
partnership in fact cannot
be predicated on an
agreement to enter into a
co+partnership at a future
da# unless it is shown
that such an agreement
was actuall#
consummated! So long as
the agreement remains
e1ecutor# the partnership
is inchoate!
The death of either
part# to an e1ecutor#
agreement prevents the
formation of the firm$
since such agreement is
based on the continuance
of the life of each!
!ailure to agree on
material terms 0a#
prevent an# rights and
obligations from arising on
either side for lac% of
complete contract!
Art& %)28& B$en a
#artners$i# for a fi/ed
ter, or #articular
undertaking is
continued after t$e
ter,ination of suc$
ter, or #articular
undertaking !it$out
an+ e/#ress agree,ent.
t$e rig$ts and duties of
t$e #artners re,ain t$e
sa,e as t$e+ !ere at
suc$ ter,ination. so far
as is consistent !it$ a
#artners$i# at !ill&
A continuation of t$e
-usiness -+ t$e #artners
or suc$ of t$e, as
$a-ituall+ acted t$erein
during t$e ter,. !it$out
an+ settle,ent or
li0uidation of
'elen *! (revalo
12 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
t$e #artners$i# affairs. is #ri,a facie eidence of a
continuation of t$e #artners$i#&
Continuation of #artners$i# -e+ond fi/ed ter,
( partnership with a fi1ed term is one which the term of
its e1istence has been agreed upon e1pressl# (definite
period or impliedl# (particular enterprise or transaction!
The e1piration of such term or accomplishment of
underta%ing will cause automatic dissolution!
"ights and duties of partners 9artnership ma#
be e1tended or renewed b# the partners b# e1press
agreement$ written or oral$ or impliedl#$ b# the mere
continuation of the business after the termination pf
such term or particular underta%ing without an#
settlement or li2uidation! /n such case$ the rights and
duties remain the same!
8ith such continuation$ the partnership is dissolved
and a new one$ a partnership at will$ is created b# implied
agreement the continued e1istence of which will depend
upon the mutual desire and consent of the partners!
Dissolution of partnership (n# one of the
partners ma#$ at his sole pleasure$ dictate a dissolution of
a partnership at will! 'e must$ however$ act in good faith
or else be liable for damages!
.ven a partnership for a fi1ed term ma# be terminated
b# the e1press will of an# partner before the time
mentioned! There is no such thing as an indissoluble
partnership!
Continuation of #artners$i# for an indefinite ter,
Partnership for a term impliedl fi&ed (n
agreement ma# evidence an understanding that the
relation should continue until the accomplishment of a
particular underta%ing or certain things have been done
or have ta%en place!
Partnership with mere e&pectation that business
will be profitable ( hope that the partnership earnings
would pa# for all the necessar# e1penses does not
establish even b# implication a fi1ed term or particular
underta%ing! 0ere e1pectation that a business would be
successful is not sufficient to create a partnership for a
term!
Art& %)2*& Eer+ #artner is a de-tor of t$e
#artners$i# for !$ateer $e ,a+ $ae #ro,ised to
contri-ute t$ereto&
He s$all also -e -ound for !arrant+ in case of
eiction !it$ regard to s#ecific and deter,inate
t$ings !$ic$ $e ,a+ $ae contri-uted to t$e
#artners$i#. in t$e sa,e cases and in t$e sa,e
,anner as t$e endor is -ound !it$ res#ect to t$e
endee& He s$all also -e lia-le for t$e fruits t$ereof
fro, t$e ti,e t$e+ s$ould $ae -een deliered.
!it$out t$e need of an+ de,and&
O-ligations !it$ res#ect to contri-ution of
#ro#ert+
1! To contribute at
the beginning of
the partnership or
at the stipulated
time the mone#$
propert#$ or
industr# he had
promised;
2! To answer for
eviction in case
the partnership is
deprived of the
determinate
propert#
contributed;
3! To answer to the
partnership for the
fruits of the
propert# the
contribution of
which he dela#ed$
from the date the#
should have been
contributed up to
the time of actual
deliver#;
7! To preserve said
propert# with the
diligence of a
good father of a
famil# pending
deliver# to the
partnership;
@! To indemnif# the
partnership for
an# damage
caused to it b#
the retention of
the same or b#
the dela# in its
contribution!
Effect of failure to
contri-ute #ro#ert+
#ro,ised
Failure to contribute
ma%es the partner ipso
"ure a debtor of the
partnership even in the
absence of an#
demand!
Remed#; not
rescission but an
action for specific
performance (to collect
what is owing with
damages and interest!
'ia-ilit+ of #artner in
case of eiction
The partner is bound in
the same cases and in the
same manner as the
vendor is bound with
respect to the vendee with
regard to specific and
determinate things which
he ma# have contributed!
This matter is governed b#
the law on sales!
'ia-ilit+ of #artner for
fruits of #ro#ert+ in
case of dela+
<o demand is
necessar# to put the
partner at fault! The
in-ur# to the partnership
is constant!
'ia-ilit+ of #artner
for failure to #erfor,
serice sti#ulated
Partner generall
not liable "nless
there is a special
agreement to that
effect$ the partners are
not entitled to charge
each other$ or the
partnership$ for their
services in the firm
business!
E&ception The
general rule that partners
are not entitled to
compensation for their
services is inapplicable
where the reason of it
fails!
/f a partner neglects or
refuses$ without
reasonable cause$ to
render the service which
he agreed to perform b#
reason of which the
partnership suffered loss$
he should be responsible
for this breach!
/f the partner is
compelled to ma%e good the
loss$ each member of the
firm$ including himself$ will
receive his proportion of the
amount in the distribution
of assets
D this cannot be
considered compensation
for services rendered!
The proper measure of
damages in such case is
the value of services
wrongfull# withheld!
Art& %)2)& B$en t$e
ca#ital or a #art t$ereof
!$ic$ a #artner is -ound
to contri-ute consists of
goods. t$eir a##raisal
,ust -e ,ade in t$e
,anner #rescri-ed in t$e
contract of #artners$i#.
and in
'elen *! (revalo
13 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
t$e a-sence of sti#ulation. it s$all -e ,ade -+
e/#erts c$osen -+ t$e #artners. and according to
current #rices. t$e su-se0uent c$anges t$ereof
-eing for t$e account of t$e #artners$i#&
A##raisal of goods or #ro#ert+ contri-uted
(ppraisal is necessar# to determine how much has been
contributed b# the partners! /n the absence of stipulation$ the
share of each partner in the profits or losses is in proportion
to what he ma# have contributed!
The appraisal is made;
1! /n manner prescribed b# contract of partnership;
2! /f no stipulation$ b# e1perts chosen b# the
partners and according to current prices!
(fter the goods have been contributed$ the
partnership bears the ris% or gets the benefits of
subse2uent changes of value!
/n the case of immovable propert#$ the appraisal is
made in the inventor# of said propert#; otherwise it ma#
be made as provided in art! 1545!
Art& %)22& A #artner !$o $as undertaken to
contri-ute a su, of ,one+ and fails to do so
-eco,es a de-tor for t$e interest and da,ages
fro, t$e ti,e $e s$ould $ae co,#lied !it$ $is
o-ligation&
T$e sa,e rule a##lies to an+ a,ount $e ,a+
$ae taken fro, t$e #artners$i# coffers. and $is
lia-ilit+ s$all -egin fro, t$e ti,e $e conerted t$e
a,ount to $is o!n use&
O-ligations !it$ res#ect to contri-ution of ,one+
and ,one+ conerted to #ersonal use
1! To contribute on the date due the amount he
has underta%en to contribute;
2! To reimburse an# amount he ma# have ta%en
from the partnership coffers and converted to
his own use;
3! To pa# the agreed or legal interest$ if he fails to
pa# his contribution on time or in case he ta%es
an# amount from the common fund and converts
it to his own use;
7! To indemnif# the partnership for the damages
caused to it b# the dela# in the contribution or
for the conversion of an# sum for his personal
benefit!
'ia-ilit+ of guilt+ #artner for interest and da,ages
The guilt# partner is liable for interest and damages not
from the time -udicial or e1tra -udicial demand is made but
from the time he should have complied with his obligation
or from the time he converted the amount to his own use!
"nless otherwise stipulated$ obligation to contribute arises
from the commencement of the partnership (perfection of
the contract!
'ia-ilit+ of #artner for failure to return #artners$i#
,one+ receied
0here fraudulent misappropriation committed
9artner is guilt# of estafa if he misappropriates
partnership mone# or
propert# received b#
him for a specific
purpose of the
partnership!
0here there is
mere failure to
return <o estafa!
Remed#; civil action
for li2uidation of
the partnership and
a lev# of its assets!
Art& %)25& An
industrial #artner cannot
engage in -usiness for
$i,self unless t$e
#artners$i# e/#ressl+
#er,its $i, to do so: and
if $e s$ould do so. t$e
ca#italist #artners ,a+
eit$er e/clude $i, fro,
t$e fir, or aail
t$e,seles of t$e
-enefits !$ic$ $e ,a+
$ae o-tained in iolation
of t$is #roision. !it$ a
rig$t to da,ages in
eit$er case&
O-ligations of industrial
#artner
(n industrial
partner is one who
contributes his
industr#$ labor or
services to the
partnership! 'e is
considered the
owner of his
services$ which is his
contribution to the
common fund!
"nless the contrar# is
stipulated$ he becomes a
debtor of the partnership
for his wor% or services
from the moment the
partnership relation
begins! /n effect$ the
partnership ac2uires an
e1clusive right to avail
itself of his industr#!
*onse2uentl#$ if he
engages in business for
himself$ such act is
considered pre-udicial to
the interest of the other
partners!
(ction for specific
performance not
available against him D
involuntar# servitude!
Pro$i-ition against
engaging in -usiness
As regards an
industrial partner
(bsolute
prohibition; an#
%ind of business!
As regards capitalist
partners 9rohibition
e1tends onl# to an#
operation which is of the
same %ind of business in
which the partnership is
engaged!
Re,edies !$ere
industrial #artner
engages in
-usiness
The capitalist
partners have
the right either
to; 1! .1clude
him from the
firm; or
2! (vail themselves
of the benefits
which he ma#
have obtained!
/n either case$ the#
have a right to
damages!
Art& %)5A& Unless
t$ere is a sti#ulation
to t$e contrar+. t$e
#artners s$all
contri-ute e0ual
s$ares to t$e ca#ital
of t$e #artners$i#&
E/tent of contri-ution
to #artners$i# ca#ital
9artners can stipulate
contribution of une2ual
funds to the common
fund$ but in the absence
of such stipulation$ the
presumption is that their
contribution shall be in
e2ual shares!
Fbviousl#$ this does not
appl# to an industrial
partner unless he also
contributes capital!
Art& %)5%& If t$ere
is no agree,ent to t$e
contrar+. in case of an
i,,inent loss of t$e
-usiness of t$e
#artners$i#. an+
#artner !$o refuses
to contri-ute an
additional s$are to t$e
ca#ital. e/ce#t an
industrial #artner. to
sae t$e
'elen *! (revalo
17 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
enture. s$all -e o-liged to sell $is interest to t$e
ot$er #artners&
O-ligation of ca#italist #artner to contri-ute
additional ca#ital
General rule; *apitalist partner not bound to
contribute more than what he agreed to!
.1cept; /n case of imminent loss of the business$ and
there is no agreement to the contrar#$ he is under
obligation to contribute an additional share to save the
venture! /f he refuses to contribute$ he shall be obliged to
sell his interest to the other partners!
"e#uisites for application of rule
1! /mminent loss of the business of the
partnership;
2! 0a-orit# of capitalist partners are of the opinion
that an additional contribution to the common
fund would save the business;
3! *apitalist partner refuses deliberatel# (not co?
he ain:t got no mone# to contribute an
additional share to the capital;
7! There is no agreement that even in case of an
imminent loss of the business the partners are
not obliged to contribute!
The industrial partner is e1empt! 'aving contributed
his entire industr#$ he can do nothing further!
"eason for the sanction Refusal of partner to
contribute additional share reflects lac% of interest in the
continuance of the partnership! "n-ust for him to reap
benefits when he doesn:t also help!
Art& %)53& If a #artner aut$ori4ed to ,anage
collects a de,anda-le su,. !$ic$ !as o!ed to $i,
in $is o!n na,e. fro, a #erson !$o o!ed t$e
#artners$i# anot$er su, also de,anda-le. t$e su,
t$us collected s$all -e a##lied to t$e t!o credits in
#ro#ortion to t$eir a,ounts. een t$oug$ $e ,a+
$ae gien a recei#t for $is o!n credit onl+: -ut
s$ould $e $ae gien it for t$e account of t$e
#artners$i# credit. t$e a,ount s$all -e full+ a##lied
to t$e latter&
T$e #roisions of t$is article are understood to
-e !it$out #re"udice to t$e rig$t granted to t$e
de-tor -+ article %383. -ut onl+ if t$e #ersonal
credit of t$e #artner s$ould -e ,ore onerous to
$i,&
O-ligation of ,anaging #artner !$o collects de-t
"e#uisites for application of rule
1! There e1ists at least two debts$ one where the
collecting partner is creditor$ and the other$
where the partnership is creditor;
2! )oth debts are demandable;
3! The partner who collects is authori?ed to manage
and actuall# manages the partnership!
"eason for appling pament to partnership
credit The law safeguards the interests of the
partnership b# preventing the possibilit# of their being
subordinated b# the managing partner to his own
interest to the pre-udice of the other partners!
&oes not appl# to
partner not authori?ed to
manage! 8here manner
of mgt not agreed upon
and all partners
participate in mgt$ ever#
partner considered
managing partner!
"ight of debtor to
application of
pament
&ebtor given right to
prefer pa#ment of credit of
partner if it should be
more onerous to him!
Art& %)59& A #artner
!$o $as receied. in
!$ole or in #art. $is
s$are of a #artners$i#.
!$en t$e ot$er
#artners $ae not
collected t$eirs. s$all
-e o-liged. if t$e de-tor
s$ould t$ereafter
-eco,e insolent. to
-ring to t$e #artners$i#
ca#ital !$at $e
receied een t$oug$
$e ,a+ $ae gien
recei#t for $is s$are
onl+&
O-ligation of
#artner !$o
receies s$are of
#artners$i#
credit
"e#uisites for
application of rule
1! ( partner has
received$ in
whole or in part$
his share of the
partnership
credit;
2! The other
partners
have not
collected
their shares;
3! The partnership
debtor has become
insolvent!
"eason for
imposing obligation to
return the debt
becomes a bad debt! /t
would be un-ust for that
one partner not to share
in the loss! 9rovision is
based on communit# of
interest among the
partners!
Credit
collected
after
dissolution
of t$e
#artners$i#
&oes the obligation
refer onl# to that collected
during the e1istence of the
partnership or does it also
refer to that collected after
dissolutionH
Some commentators
answer this 2uestion in
the affirmative basing
their answer in the
communit# and e2ualit#
which ought to e1ist
among the partners!
0anresa and Ricci
believed
otherwise!
Reasons; 1! /t
would not be -ust
that he who
diligentl# collected
his 2uota should
suffer the
conse2uence of the
negligence of his
associates! 2! "pon
dissolution$ the tie that
unites the
partnership
ceases! Thus$
the reason for
the obligation
disappears!
Art& %)5<& Eer+
#artner is res#onsi-le
to t$e #artners$i# for
da,ages suffered -+ it
t$roug$ $is fault. and
$e cannot co,#ensate
t$e, !it$ t$e #rofits
and -enefits !$ic$ $e
,a+ $ae earned for
t$e #artners$i# -+ $is
industr+& Ho!eer. t$e
courts ,a+ e0uita-l+
lessen t$is
res#onsi-ilit+ if t$roug$
t$e #artnerDs
e/traordinar+ efforts in
ot$er actiities of t$e
#artners$i#. unusual
#rofits $ae -een
reali4ed&
O-ligation of #artner
for da,ages to
#artners$i#
This article follows the
general rule in contracts
that an# person guilt# of
negligence or fault in the
fulfillment of his obligation
shall be liable for
damages! The partner:s fault$ however$ must be determined in
'elen *! (revalo
1@ Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
accordance with the nature of the obligation and the
circumstances of the person$ time and place!
Co,#ensation of da,ages !it$ #rofits earned for
#artners$i# -+ guilt+ #artner
Damages not generall sub4ect to set-off (s a
general rule$ the damages caused b# a partner to the
partnership cannot be offset b# the profits or benefits
which he ma# have earned for the partnership b# his
industr#!
9artner has obligation to secure benefits for
partnership! 9rofits which he ma# have earned are the
partnership:s as a matter of law or right!
'e also has the obligation to e1ercise diligence!
9artner is debtor to partnership for his industr#$ and at
the same time obliged to repair in-ur# which he might
have caused through his fault!
E&ception /f unusual profits are reali?ed through
the e1traordinar# efforts of the partner at fault$ the
courts ma# e2uitabl# mitigate or lessen his liabilit# for
damages! This rule rests on e2uit#!
Art& %)58& T$e risk of s#ecific and deter,inate
t$ings. !$ic$ are not fungi-le. contri-uted to t$e
#artners$i# so t$at onl+ t$eir use and fruits ,a+ -e
for t$e co,,on -enefit. s$all -e -orne -+ t$e
#artner !$o o!ns t$e,&
If t$e t$ings contri-uted are fungi-le. or cannot -e
ke#t !it$out deteriorating. or if t$e+ !ere contri-uted
to -e sold. t$e risk s$all -e -orne -+ t$e #artners$i#& In
t$e a-sence of sti#ulation. t$e risks of t$ings -roug$t
and a##raised in t$e inentor+. s$all also -e -orne -+
t$e #artners$i#. and in suc$ case t$e clai, s$all -e
li,ited to t$e alue at !$ic$ t$e+ !ere a##raised&
Risk of loss of t$ings contri-uted
1! Specific and determinate things which are not
fungible where onl# the use is contributed D Ris%
of loss is borne b# the partner because he remains
the owner of the things!
2! Specific and determinate things the ownership of
which is transferred to the partnership D Ris% of
loss for the account of partnership as owner!
3! Fungible things or things which cannot be %ept
without deteriorating even if the# are contributed
onl# for the use of the partnership D Ris% of loss
borne b# partnership! Fwnership was being
transferred since use is impossible without the
things being consumed or impaired!
7! Things contributed to be sold D 9artnership
bears ris% of loss! 9artnership intended to be
owner or it could not effect the sale!
@! Things brought and appraised in the inventor#+
9artnership bears ris% of loss because intention of
parties was to contribute to the partnership the
price of the things contributed with an appraisal
in the inventor#! There is thus an implied sale
ma%ing the partnership owner!
The above presuppose that the things have been
delivered actuall# or constructivel#! )efore deliver#$ ris%
of loss borne b# partner
since he remains owner!
'e is debtor to
partnership for what he
promised to contribute!
/f loss is due to an# of
the partners$ the# shall
be liable for damages!
Art& %)5*& T$e
#artners$i# s$all -e
res#onsi-le to eer+
#artner for t$e a,ounts
$e ,a+ $ae dis-ursed
on -e$alf of t$e
#artners$i# and for t$e
corres#onding interest.
fro, t$e ti,e t$e
e/#enses are ,ade: it
s$all also ans!er to
eac$ #artner for t$e
o-ligations $e ,a+
$ae contracted in good
fait$ in t$e interest of
t$e #artners$i#
-usiness. and for risks
in conse0uence of its
,anage,ent&
Res#onsi-ilit+ of t$e
#artners$i# to t$e
#artners
/n the absence of
stipulation to the
contrar#$ ever# partner is
an agent of the
partnership for the
purpose of its business!
'ence$ the partnership
has the obligation to;
1! Refund amounts
disbursed b# the
partner in behalf
of the partnership
plus interest from
time e1penses
made;
2! (nswer for
obligations the
partner ma#
have
contracted in
good faith in
the interest of
the
partnership
business;
3! (nswer
for
ris%s in
conse2
uence
of its
manag
ement!
)eing a mere agent$
the partner is not
personall# liable as long
as he is free from fault
and acted within the
scope of his authorit#! )ut
unli%e an ordinar# agent$
he is not give the right of
retention if he is not
reimbursed or
indemnified!
Art& %)5)& T$e
losses and #rofits
s$all -e distri-uted in
confor,it+ !it$ t$e
agree,ent& If onl+ t$e
s$are of eac$ #artner
in t$e #rofits $as -een
agreed u#on. t$e
s$are of eac$ in t$e
losses s$all -e in t$e
sa,e #ro#ortion&
In t$e a-sence of
sti#ulation. t$e s$are of
eac$ #artner in t$e
#rofits and losses s$all
-e in #ro#ortion to !$at
$e ,a+ $ae
contri-uted. -ut t$e
industrial #artner s$all
not -e lia-le for losses&
As for t$e #rofits. t$e
industrial #artner s$all
receie suc$ s$are as
,a+ -e "ust and
e0uita-le under t$e
circu,stances& If
-esides $is serices $e
$as contri-uted ca#ital.
$e s$all also receie a
s$are in t$e #rofits in
#ro#ortion to $is
ca#ital&
Rules for distri-ution of
#rofits and losses
Distribution of
profits
1! The partners
share the profits
according to their
agreement
sub-ect to art!
1566!
2! /f there is no such
agreement;
a! The share
of each
capitalist
partner
shall be in
proportion
to his
capital
contributio
n!
b! /ndustrial
partner
shall receive such share$ which must be
satisfied first before the capitalist partners
shall divide
'elen *! (revalo
1A Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
the profits$ as ma# be -ust and e2uitable
under the circumstances! /t is not fi1ed!
( partner is entitled to receive onl# his share of the
profits actuall# reali?ed b# the venture! .ven when
assurance was made b# a partner that the# would earn a
huge amt of profits$ in the absence of fraud$ the others
cannot claim a right to recover profits promised where
the business was highl# speculative and turned out to be
a failure!
Distribution of losses
1! (ccording to agreement!
2! <o such agreement$ but contract provides for
share in profits$ share in losses in accordance
with profit+sharing ratio$ but industrial partner
not liable for losses!
3! <o profit+sharing stipulated$ losses in proportion to
capital contributions$ but purel# industrial partner
not liable for losses!
Art& %)52& If t$e #artners $ae agreed to intrust
to a t$ird #erson t$e designation of t$e s$are of
eac$ one in t$e #rofits and losses. suc$ designation
,a+ -e i,#ugned onl+ !$en it is ,anifestl+
ine0uita-le& In no case ,a+ a #artner !$o $as
-egun to e/ecute t$e decision of t$e t$ird #erson. or
!$o $as not i,#ugned t$e sa,e !it$in a #eriod of
t$ree ,ont$s fro, t$e ti,e $e $ad kno!ledge
t$ereof. co,#lain of suc$ decision&
T$e designation of losses and #rofits cannot -e
intrusted to one of t$e #artners&
Designation -+ a t$ird #erson of s$are in #rofits
and losses
Delegation to a third person &esignation of
share in profits and losses ma# be delegated to a 3
rd
person b# common consent!
9rohibition in 2
nd
paragraph necessar# to guarantee
utmost impartialit# in distribution!
Binding force of designation b .
rd
person
Generall# binding unless manifestl# ine2uitable! .ven then$
a partner who has begun to e1ecute the decision of the 3rd
person or who fails to impugn the same within 3 months
from the time he had %nowledge of it can no longer
complain! 'e is estopped$ deemed to have given consent
or ratification!
Reason for 3 months; forestall an# paral#?ation in
operations of partnership!
Art& %)55& A sti#ulation !$ic$ e/cludes one or
,ore #artners fro, an+ s$are in t$e #rofits or
losses is oid&
Sti#ulation e/cluding a #artner fro, an+ s$are in
#rofits or losses
1tipulation generall void) but partnership
subsists 9artnership must e1ist for common benefit
and interest of the partners! 'ence$ such a stipulation
contravenes the ver# purpose of partnership contract D
profit+sharing among partners! 'owever$ although
stipulation void$ partnership otherwise valid$ subsists
and profits or losses
shall be apportioned
as if there were no
stipulation!
1tipulation) a
factor to show no
partnership e&ists
such a stipulation
ma# be a factor in
determining that no
partnership e1ists!
0here person
e&cluded not intended
b parties to become a
partner Stipulation
valid! 'owever$ if held
himself out to be partner$
liable!
0here person
e&cluded from losses is
industrial partner
Since law itself e1cludes
him from losses$
stipulation e1empting him
from such naturall# valid!
0here stipulation
provides for une#ual
shares
This is fine as long as the
ine2ualit# is not so gross
that it amounts to
e1clusion!
Sti#ulation
e/e,#ting a
#artner fro,
losses s$ould -e
allo!ed
/f a person can ma%e a
gift to another$ there is no
sound reason wh# a
person cannot also bear
all the losses that a
partnership ma# suffer$ in
order to e1empt his co+
partners from sharing in
the said losses!
(s far as third
persons concerned$
such stipulation ma#
properl# be declared
void!
Art& %2AA& T$e
#artner !$o $as -een
a##ointed ,anager in
t$e articles of
#artners$i# ,a+
e/ecute all acts of
ad,inistration des#ite
t$e o##osition of $is
#artners. unless $e
s$ould act in -ad fait$:
and $is #o!er is
irreoca-le !it$out "ust
or la!ful cause& T$e
ote of t$e #artners
re#resenting t$e
controlling interest
s$all -e necessar+ for
suc$ reocation of
#o!er&
A #o!er granted
after t$e #artners$i#
$as -een constituted
,a+ -e reoked at an+
ti,e&
Rig$ts and
o-ligations
!it$
res#ect to
,anage,e
nt
.ach partner has a
right to an e2ual voice in
the conduct of the
partnership business! This
right is not dependent on
the amount or si?e of the
partner:s capital
contribution!
Appointment as
manager in the arts of
partnership 9artner
appointed in arts of
partnership ma# e1ecute
all acts of administration
notwithstanding the
opposition of the other
partners$ unless he should
act in bad faith! 'is power
is revocable onl# upon -ust
and lawful cause and upon
the vote of the partners
representing the
controlling interest!
Reason; revocation
represents change in
terms of contract!
/n case of
mismanagement; "sual
remedies allowed b# law
including dissolution!
Appointment as
manager after the
constitution of the
partnership
(ppointment ma# be
revo%ed at an# time for
an# cause whatsoever!
Reason; revocation
not founded on a change
of will on the part of the
partners! (ppointment
not condition of
contract! /t is merel# a
simple contract of
agenc# which ma# be
revo%ed at an# time! /t
is believed that the vote
for revocation must also
represent the controlling
interest!
'elen *! (revalo
15 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Sco#e of #o!er of a ,anaging #artner
General rule; partner appointed as manager has all
the powers of a general agent as well as all the
incidental powers necessar# to carr# out the ob-ect of
the partnership in the transaction of its business!
.1ception; when powers of mgr specificall# restricted!
( managing partner ma# not bind the partnership b# a
contract wholl# foreign to its business!
Co,#ensation for serices rendered
Partner generall not entitled to compensation
/n the absence of an agreement to the contrar#$ each
member of the partnership assumes the dut# to give his
time$ attention$ and s%ill to the mgt of its affairs$ so far$ at
least$ as ma# be reasonabl# necessar# to the success of
the common enterprise; and for this service a share of the
profits is his onl# compensation!
/n managing partnership affairs$ a partner is
practicall# ta%ing care of his own interest or managing
his own business!
/n the absence of an# prohibition in the arts! of
partnership for the pa#ment of salaries to general
partners$ there is nothing to prevent the partners to
enter into a collateral verbal agreement to that effect!
E&ceptions /n proper cases$ the law ma# impl# a
contract for compensation;
1! ( partner engaged b# his co+partners to perform
services not re2uired of him in fulfillment of the
duties and in capacit# other than that of a partner!
2! 8hen there is e1traordinar# neglect on the part of
one partner to perform his duties$ imposing entire
burden on remaining partner!
3! Fne partner ma# emplo# the other to do wor%
for him outside of and independent of the co+
partnership!
7! 9artners e1empted b# terms of partnership from
rendering services ma# demand pa# for services
rendered!
@! 8here one partner is entrusted wE mgt and
devotes his whole time and devotion at the
instance of the other partners who are attending to
their individual business and giving no time or
attention to the partnership business!
Art& %2A%& If t!o or ,ore #artners $ae -een
intrusted !it$ t$e ,anage,ent of t$e #artners$i#
!it$out s#ecification of t$eir res#ectie duties. or
!it$out sti#ulation t$at one of t$e, s$all not act
!it$out t$e consent of all t$e ot$ers. eac$ one ,a+
se#aratel+ e/ecute all acts of ad,inistration. -ut if an+
one of t$e, s$ould o##ose t$e acts of t$e ot$ers. t$e
decision of t$e ,a"orit+ s$all #reail& In case of tie. t$e
,atter s$all -e decided -+ t$e #artners o!ning t$e
controlling interest&
B$ere res#ectie duties of t!o or ,ore ,anaging
#artners not s#ecified
Each one ma separatel perform acts of
administration
1! /f one or more of
the managing
partners shall
oppose the acts of
the others$ then
the decision of the
ma-orit# of the
managing partners
shall prevail! Right
to oppose can be
e1ercised onl# b#
those entrusted
with mgt!
2! /n case of tie$
matter shall
be decided b#
the vote of the
partners
owning the
controlling
interest!
/E01ISI2ES 3O/
'**LI%'2IO4 O3 /1LE

1! Two or more
partners have
been appointed
as managers;
2! There is no
specification
of their
respective
duties;
3! There is no
stipulation that
one of them shall
not act without the
consent of all the
others!
Art& %2A3& In case it
s$ould $ae -een
sti#ulated t$at none of
t$e ,anaging #artners
s$all act !it$out t$e
consent of t$e ot$ers.
t$e concurrence of all
s$all -e necessar+ for
alidit+ of t$e acts. and
t$e a-sence or
disa-ilit+ of an+ one of
t$e, cannot -e
alleged. unless t$ere is
i,,inent danger of
grae or irre#ara-le
in"ur+ to t$e
#artners$i#&
B$en unani,it+ of
action sti#ulated
%oncurrence
necessar for validit
of acts The partners
ma# stipulate that none of
the managing partners
shall act without the
consent of the others! /n
such a case$ the
unanimous consent of all
the managing partners
shall be necessar# for the
validit# of their acts! This
consent is so
indispensable that neither
absence nor disabilit# of
an# one of them ma# be
alleged as e1cuse to
dispense with
re2uirement!
.1ception; 8hen
there is imminent danger
of grave or irreparable
in-ur# to the partnership
then a partner ma# act
alone without consent of
partner who is absent or
under disabilit#!
%onsent of
managing partners not
necessar in routine
transactions The
re2uirement of written
authorit# refers evidentl#
to formal and unusual
written contracts!
(rt! 1403! 8hen the
manner of
management has not
been agreed upon$ the
following rules shall be
observed;
%&7 All t$e
#artners
s$all -e
considered
agents and
!$ateer an+
one of t$e,
,a+ do alone
s$all -ind t$e
#artners$i#.
!it$out
#re"udice to
t$e
#roisions of
article %2A%&
3&7 None of t$e
#artners ,a+.
!it$out t$e
consent of t$e
ot$ers. ,ake
an+ i,#ortant
alteration in
t$e i,,oa-le
#ro#ert+ of t$e
#artners$i#.
een if it ,a+
-e useful to
t$e
#artners$i#&
But if t$e
refusal of
consent -+ t$e ot$er #artners is ,anifestl+
#re"udicial to t$e interest of t$e
#artners$i#.
t$e courtDs
interention
,a+ -e soug$t&
'elen *! (revalo
14 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Rules !$en ,anner of ,anage,ent $as not -een
agreed u#on
All partners considered managers and agents
(ll partners shall have e2ual rights in the mgt and conduct
of partnership affairs! (ll of them shall be considered mgrs
and agents and whatever an# one of them ma# do alone
shall bind the partnership! /f there is timel# opposition$
however$ the matter shall be decided b# ma-orit# vote! /n
case of tie$ vote of partners representing controlling
interest!
Unanimous consent re#uired for alteration of
immovable propert The consent need not be e1press!
/t ma# be presumed from the fact of %nowledge of the
alteration without interposing an# ob-ection!
9rohibition onl# applies to immovable propert#
because of the greater importance of this %ind of
propert#$ and the alteration thereof must be important!
This would be an act of strict dominion!
/f refusal to give consent is manifestl# pre-udicial to
the interest of the partnership$ court intervention ma# be
sought! *onsent ma# be presumed from silence (lac% of
opposition despite %nowledge!
/f alteration is necessar# for preservation of the
propert#$ consent of the other partners not re2uired!
Art& %2A<& Eer+ #artner ,a+ associate anot$er
#erson !it$ $i, in $is s$are. -ut t$e associate s$all
not -e ad,itted into t$e #artners$i# !it$out t$e
consent of all t$e ot$er #artners. een if t$e #artner
$aing an associate s$ould -e a ,anager&
Contract of su-#artners$i#
(ature The partnership formed between a member
of a partnership and a 3
rd
person for a division of the
profits coming to him from the partnership enterprise is
termed su,prtnership.
/t is a partnership within a partnership and is distinct
and separate from the main or principal partnership!
"ight of person associated with partner:s share
Subpartnership agreements do not affect the
composition$ e1istence$ or operations of the firm! The
subpartners are partners inter se+ but in the absence of
the mutual assent of all the parties$ a subpartner does
not become a member of the partnership$ even if the
other partners %now about the agreement!
<ot being a member of the partnership$ he does not
ac2uire the rights of a partner nor is he liable for its
debts!
"eason for the rule 9artnership is based on
mutual trust and confidence among the partners!
/nclusion of new partner would be a modification of the
original contract of partnership re2uiring unanimous
consent of all the partners! 9rohibition applies even if
person associated is alread# a partner!
Art& %2A8& T$e #artners$i# -ooks s$all -e ke#t.
su-"ect to an+ agree,ent -et!een t$e #artners. at
t$e #rinci#al #lace of -usiness of t$e #artners$i#.
and eer+ #artner s$all at an+ reasona-le $our $ae
access to and ,a+ ins#ect and co#+ an+ of t$e,&
Cee#ing of #artners$i#
-ooks
Partner with dut to
;eep partnership
boo;s
The dut# to %eep true and
correct boo%s showing the
firm:s accounts$ such
boo%s being at all times
open to inspection of all
members of the firm$
primaril# rests on the
managing or active
partner! /t is presumed
that the partners have
%nowledge of the contents
of the partnership boo%s
and that said boo%s state
accuratel# the state of
accounts$ but errors can
be corrected!
"ights with respect
to partnership boo;s

)oo%s should be %ept at

the principal place of
business as each partner
has the right to free
access to them and to
inspect or cop# an# of
them at an# reasonable
time$ even after
dissolution!
/nspection rights
not absolute$ can be
restrained from using
info for other than
partnership purpose!
Access to
partnership boo;s
Rights can be e1ercised
at an# reasonable hour!
This means reasonable
hours on business da#s
throughout the #ear and
not merel# during some
arbitrar# period of a few
da#s chosen b# the
managing partners!
Art& %2A*& Partners
s$all render on de,and
true and full
infor,ation of all t$ings
affecting t$e
#artners$i# to an+
#artner or t$e legal
re#resentatie of an+
deceased #artner or of
an+ #artner under legal
disa-ilit+&
Dut+ to render
infor,ation
There must be no
concealment between
partners in all matters
affecting the partnership!
/nfo must be used onl#
for partnership purpose!
<ot -ust on demand but
partner also has dut# of
voluntar# disclosure! )ut
dut# to render info does
not arise with respect to
matters appearing in
partnership boo%s since
each partner has the right
to inspect those!
Good faith not onl#
re2uires that a partner
should not ma%e a false
statement but also that he
should abstain from an#
false concealment!
Art& %2A)& Eer+
#artner ,ust account to
t$e #artners$i# for an+
-enefit. and $old as
trustee for it an+ #rofits
deried -+ $i, !it$out
t$e consent of t$e ot$er
#artners fro, an+
transaction connected
!it$ t$e for,ation.
conduct. or li0uidation
of t$e #artners$i# or
fro, an+ use -+ $i, of
its #ro#ert+&
Partner accounta-le as
fiduciar+
The relation between
the partners is essentiall#
fiduciar# involving trust
and confidence$ each
partner being considered
in law$ as he is$ in fact$ the
confidential agent of the
others! The duties of a
partner are analogous to
those of a trustee!
Dut to act for
common benefit
*annot use and appl#
e1clusivel# to own
individual benefit
partnership assets or
results of %nowledge and
info gained in character of
partner!
0anaging partners
particularl# owe a
fiduciar# dut# to inactive
partners!
'elen *! (revalo
16 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Dut begins during formation of partnership
9rinciple of good faith applies not onl# during
partnership but during the negotiations leading to the
formation of the partnership!
(lso$ a person who agreed wE another to form a
partnership has the obligation to account for
commissions and discounts received in ac2uiring
propert# for the future partnership!
Dut continues even after dissolution of
partnership &ut# of partner to act wE utmost good
faith towards his co+partners continues throughout the
entire life of the partnership even after dissolution for
whatever reason or whatever means$ until the
relationship is terminated$ i.e. the winding up of
partnership affairs is completed!
Dut to account for secret and similar profits
The dut# of a partner to account as a fiduciar# operates
to prevent from ma%ing a secret profit out of the
operation of the partnership and from carr#ing on the
business for his private advantage or a business in
competition wE the firm wEo consent of other partners!
Jiolation ma# be ground for dissolution!
Dut to account for earnings accruing even after
termination of partnership /f a partner uses info
obtained b# him from the partnership for his own
account wEo the consent of the other partners$ he is
liable to account for an# benefit he might obtain!
Dut to ma;e full disclosure of information
belonging to partnership ( partner is also sub-ect to
the fiduciar# dut# of undivided lo#alt# and complete
disclosure of info of all things affecting the partnership! )#
infor(tion is meant information which can be used for
the purposes of the partnership! /nfo cannot be
used for a partner:s private gain D even if after
termination!
Dut not to ac#uire interest or right adverse to
partnership /f partner does$ he holds it in trust for the
benefit of the partnership and must account to the firm for
the profits of the transaction$ unless it appears that the
others consented (must be =informed consent>$ i.e. with
%nowledge of facts necessar# to the giving of an intelligent
consent!
Art& %2A2& T$e ca#italist #artners cannot
engage for t$eir o!n account in an+ o#eration
!$ic$ is of t$e kind of -usiness in !$ic$ t$e
#artners$i# is engaged. unless t$ere is a
sti#ulation to t$e contrar+&
An+ ca#italist #artner iolating t$is #ro$i-ition
s$all -ring to t$e co,,on funds an+ #rofits
accruing to $i, fro, $is transactions. and s$all
#ersonall+ -ear all t$e losses&
Pro$i-ition against #artner engaging in -usiness
Prohibition relative 9rohibition against capitalist
partner to engage in business is relative$ unli%e the
industrial partner who is absolutel# prohibited from
engaging in an# business for himself!
*apitalist partner is onl# prohibited from engaging for
his own account in an# operation which is the same as or
similar to the business in which the partnership is
engaged and which is
competitive wE said
business! Jiolation
obligation to bring to
common fund an# profits
derived and in case of
losses$ he shall bear them
alone! 9artners$ however$
b# stipulation ma# permit
it!
The law permits him
to carr# on a business
not connected or
competing with that of
the partnership!
3aw is silent on
whether he can engage in
same line of business for
the account of another!
9rohibition still applies
because of fiduciar#
position imposing duties
of utmost good faith! 'e
ma# not carr# on an#
other business in rivalr#
wE the partnership!
"eason for
prohibition
Fiduciar# nature of
relationship imposes
obligation of utmost
good faith! Rule
prevents use of info
obtained in course of
transaction of
partnership business
or b# reason of
connection wE firm
regarding business
secrets and
clientele of firm to its
pre-udice!
Art& %2A5& An+
#artner s$all $ae t$e
rig$t to a for,al
account as to
#artners$i# affairs6
%&7 If $e is
!rongfull+
e/cluded fro,
t$e
#artners$i#
-usiness or
#ossession of
its #ro#ert+
-+ $is co;
#artners:
3&7 If t$e rig$t
e/ists under
t$e ter,s of
an+
agree,ent:
9&7 As #roided -+
article %2A):
<&7 B$eneer
ot$er
circu,stance
s render it
"ust and
reasona-le&
Rig$t of #artner to a
for,al account
2eneral rule &uring
e1istence of partnership$ a
partner is not entitled to a
formal account of
partnership affairs!
Reason; rights of partner
ampl# protected in arts
140@ and 140A! (lso$ it
would cause much
inconvenience and
unnecessar# waste of
time!
E&ceptions /n the
special and unusual
situations enumerated
under art! 1406!
Right of partner to
demand an accounting
wEo bringing about
dissolution is a necessar#
corollar# to right to share
in profits! ( formal
account is a necessar#
incident to the dissolution
of the partnership!
Prescriptive period
Right to demand
accounting e1ists as long
as partnership lasts!
9rescription onl# begins
to run upon dissolution
when final accounting is
done!
1E%T$5( -* P"5PE"T<
"$28T1 5! A PA"T(E"
Art& %2%A& T$e
#ro#ert+ rig$ts of a
#artner are6 %&7 His
rig$ts in s#ecific
#artners$i#
#ro#ert+: 3&7 His
interest in t$e
#artners$i#: and
9&7 His rig$t to
#artici#ate in t$e
,anage,ent&
E/tent of #ro#ert+
rig$ts of a #artner
Principal rights
1! Rights in specific
partnership propert#;
2! /nterest in
partnership;
3! Right to participate
in management!
'elen *! (revalo
20 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
/EL'2ED /I562S
1! Right to reimbursement for amounts advanced
to partnership and to indemnification for ris%s
in conse2uence of management (art! 156A!
2! Right of access and inspection of partnership
boo%s (art! 140@!
3! Right to true and full information of all things
affecting partnership (art! 140A!
7! Right to formal account of partnership
affairs under certain circumstances (art!
1406!
@! Right to have partnership dissolved also
under certain conditions (arts! 1430+1431!
Partners$i# #ro#ert+ and #artners$i#
ca#ital distinguis$ed
Partners$i# Partners$i#
#ro#ert+ ca#ital
C$anges Jariable; its value *onstant; it
in alue ma# var# from da# to remains unchanged
da# wE changes in as the amount is
mar%et value! fi1ed b# agreement
of the partners$ and
is not affected b#
fluctuations in the
value of the
partnership
propert#$ although
it ma# be increased
and decreased b#
unanimous consent
of the partners!
Assets /ncludes not onl# the The aggregate of
included original capital the individual
contributions$ but all contributions made
propert# subse2uentl# b# the partners in
ac2uired on account establishing or
of the partnership or continuing the
wE partnership funds$ partnership!
including partnership
name and goodwill!
O!ners$i# of certain #ro#ert+
Propert used b the partnership 8here there
is no e1press agreement that propert# used b# a
partnership constitutes partnership propert#$ such use
does not ma%e it partnership propert#$ and whether it
is so depends on the intention of the parties$ wEc ma#
be shown b# proving an e1press agreement or acts of
particular conduct!
The intent of the parties is the controlling factor!
Propert ac#uired b a partner w= partnership
funds "nless a contrar# intention appears$ propert#
ac2uired b# a partner in his own name wE partnership
funds is partnership propert#! )ut if the propert# was
ac2uired after dissolution but before the winding up of
the partnership affairs$ it would be his separate
propert# but he would be liable to account to the
partnership for the funds used in its ac2uisition!
Art& %2%%& A #artner is co;o!ner !it$ $is
#artners of s#ecific #artners$i# #ro#ert+&
T$e incidents of
t$is co;o!ners$i#
are suc$ t$at6
%&7 A #artner.
su-"ect to t$e
#roisions of
t$is Title and to
an+ agree,ent
-et!een t$e
#artners. $as an
e0ual rig$t !it$
$is #artners to
#ossess s#ecific
#artners$i#
#ro#ert+ for
#artners$i#
#ur#oses: -ut $e
$as no rig$t to
#ossess suc$
#ro#ert+ for an+
ot$er #ur#ose
!it$out t$e
consent of $is
#artners:
3&7 A #artnerDs rig$t
in s#ecific
#artners$i#
#ro#ert+ is not
assigna-le e/ce#t
in connection !it$
t$e assign,ent of
rig$ts of all t$e
#artners in t$e
sa,e #ro#ert+:
9&7 A #artnerDs rig$t
in s#ecific
#artners$i#
#ro#ert+ is not
su-"ect to
attac$,ent or
e/ecution.
e/ce#t on a
clai, against t$e
#artners$i#&
B$en
#artners$i#
#ro#ert+ is
attac$ed for a
#artners$i# de-t
t$e #artners. or
an+ of t$e,. or
t$e
re#resentaties
of a deceased
#artner. cannot
clai, an+ rig$t
under t$e
$o,estead or
e/e,#tion la!s:
<&7 A #artnerDs
rig$t in
s#ecific
#artners$i#
#ro#ert+ is
not su-"ect to
legal su##ort
under art&
35%&
Nature of a #artnerDs
rig$t in s#ecific
#artners$i# #ro#ert+
(rt! 1411
contemplates tangible
propert# but not
intangible things!
( partner is a co+owner
wE his partners of specific
partnership propert#$ but
the rules on co+ownership
do not necessaril# appl#!
The legal incidents of this
tenanc# in partnership are
distinctivel# characteristic
of the partnership relation!
The# are as follows;
E#ual right of
possession Frdinaril#$
a partner has an e2ual
right to possess specific
partnership propert# for
partnership purposes!
<one of the partners can
possess and use the
specific partnership
propert# other than for
partnership purposes wEo
the consent of the other
partners!
Should an# of them
use the propert# for his
own benefit$ he must
account$ li%e a stranger$ to
the others for the profits
derived therefrom or the
value of his wrongful
possession or occupation!
( partner wrongfull#
e1cluded from possession
of partnership propert# b#
a co+partner has a right to
formal account and ma#
even appl# for a -udicial
decree of dissolution!
Fn the death of a
partner$ his right in
specific partnership
propert# vests in the
surviving partners!
)# agreement$ the right
to possess specific
partnership propert# ma#
be surrendered! /n the
absence of special
agreement$ however$
neither partner separatel#
owns$ or has the e1clusive
right of possession of an#
partnership propert# or
an# proportional part
thereof! .ach has dominion
over the entire partnership
propert#!
The possession of
partnership propert# b# one partner is the possession
of all until his possession becomes adverse! ( partner
cannot initiate title b#
'elen *! (revalo 21 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
adverse possession until and unless he ma%es an
adverse claim!
"ight not assignable ( partner cannot separatel#
assign his right to specific partnership propert# but all of
them can assign their rights in the same propert#!
Reasons for non+assignabilit#;
1! /t prevents interference b# outsiders in
partnership affairs;
2! /t protects the right of other partners and
partnership creditors to have partnership assets
applied to firm debts;
3! /t is often impossible to determine the e1tent of a
partner:s beneficial interest in a particular
partnership asset!
Reason for impossibilit#; .ach partner$ having a beneficial
interest in the partnership propert# considered as a whole$
has a beneficial interest in each part!
8here$ however$ none of the above reasons appl#$ an
authori?ed assignment b# a partner of his right in specific
partnership propert# is void$ but it ma# be regarded as a
valid assignment of the partner:s interest in the
partnership!
The law allows a retiring partner to assign his rights in
partnership propert# to the partner(s continuing the
business!
"ight limited to share of what remains after
partnership debts have been paid Strictl# spea%ing$
no particular partnership propert# or an# specific or an
ali2uot part thereof can be considered the separate or
individual propert# of an# partner! The whole of
partnership propert# belongs to the partnership considered
as a -uridical person$ and a partner has no interest in it but
his share of what remains after all partnership debts are
paid!
*onse2uentl#$ specific partnership propert# is not
sub-ect to attachment$ e1ecution$ garnishment$ or
in-unction$ wEo the consent of all the partners e1cept on a
claim against the partnership!
For the same reason that the propert# belongs to the
partnership$ the partners cannot claim an# right under the
homestead or e1emption laws when it is attached for
partnership debts! )ut a partner:s interest in the
partnership itself ma# be levied upon b# a -udgment
creditor because it is actuall# his propert#$ b# means of a
=charging order!>
The right of the partners to specific partnership
propert# is not sub-ect to legal support since the
propert# belongs to the partnership and not to the
partners! )ut their interest in the partnership is!
The method of reaching a -udgment debtor:s interest in
partnership propert# is specificall# set forth in art! 1417!
Art& %2%3& A #artnerDs interest in t$e #artners$i# is
$is s$are of t$e #rofits and sur#lus&
E7*6'SI8E-
Nature of #artnerDs interest in t$e #artners$i#
1hare of the profits and surplus The partner:s
interest in the partnership consists of his share in the
undistributed profits
during the life of the
partnership as a going
concern and his share in
the undistributed surplus
after its dissolution!
Profits> the e1cess
of returns over e1penditure
in a transaction or series of
transactions; or the net
income of the partnership
for a given period of time!
1urplus> the assets of
the partnership after
partnership debts and
liabilities are paid and settled
and the rights of the partners
among themselves are
ad-usted! /t is the e1cess of
assets over liabilities! /f the
liabilities are more than the
assets$ the difference
represents the e1tent of the
loss!
E&tent of the
partner:s interest The
interest in surplus alone
wEc remains after the
firm:s debts have been
paid and the e2uities
between the partner and
his co+partners have been
ad-usted and the partner:s
share has been
ascertained and set apart!
Partner:s
interest not a
debt due from
partnership (
partner is not a
creditor of the
partnership for
the amount of his
share!
Art& %2%9& A
cone+ance -+ a
#artner of $is !$ole
interest in t$e
#artners$i# does not of
itself dissole t$e
#artners$i#. or. against
t$e ot$er #artners in
t$e a-sence of
agree,ent. entitle t$e
assignee. during t$e
continuance of t$e
#artners$i#. to interfere
in t$e ,anage,ent or
ad,inistration of t$e
#artners$i# -usiness or
affairs. or to re0uire an+
infor,ation or account
of #artners$i#
transactions. or to
ins#ect t$e #artners$i#
-ooks: -ut it ,erel+
entitles t$e assignee to
receie in accordance
!it$ $is contract t$e
#rofits to !$ic$ t$e
assigning #artner !ould
ot$er!ise -e entitled&
Ho!eer. in case of
fraud in t$e
,anage,ent of t$e
#artners$i#. t$e
assignee ,a+ aail
$i,self of t$e usual
re,edies&
In case of
dissolution of t$e
#artners$i#. t$e
assignee is entitled to
receie $is assignorDs
interest and ,a+
re0uire an account
fro, t$e date onl+ of
t$e last account agreed
to -+ all t$e #artners&
Effect of assign,ent of
#artnerDs !$ole
interest in #artners$i#
( partner:s right in
specific partnership
propert# is not
assignable but he ma#
assign his interest in the
partnership to an# of his
co+partners or to a 3
rd

person irrespective of the
consent of the other
partners$ in the absence
of agreement to the
contrar#!
"ights withheld from
assignee
1! To interfere in the
management;
2! To re2uire an#
information or
account;
3! To inspect an# of
the partnership boo%s!
(ature of
partnership relation
The legal effect of such a
conve#ance is the same as
that of a partner
associating another in his
share or interest!
Remember dele#tus
personru(! <o+one can
be compelled to be
partners wE someone else!
The assignment does not
divest the assignor of his
status and rights as a
partner nor operate as a
dissolution! The law$
however$ provides the
non+assigning partners wE
a ground for dissolving the
partnership if the# so
desire!
'elen *! (revalo
22 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Re,ed+ of ot$er #artners
Dissolution of partnership not intended 0an#
partnership agreements are made merel# as securit# for
loans$ the assigning partner never intending to destro# the
partnership relation! /f the assigning partner neglects his
duties after assignment$ the other partners ma# dissolve
the partnership under art! 1430(1$c!
Dissolution of partnership intended ( partner:s
conve#ance of his interest in the partnership operates as a
dissolution of the partnership onl# when it is clear that the
parties contemplated and intended the entire withdrawal
from the partnership of such partner and the termination
of the partnership as between the partners!
Rig$ts of assignee of #artnerDs interest
1! To receive in accordance wE his contract the
profits accruing to the assigning partner;
2! To avail himself of the usual remedies provided b#
law in the event of fraud in the management;
3! To receive the assignor:s interest in case of
dissolution;
7! To re2uire an account of partnership affairs$ but onl#
in case the partnership is dissolved$ and such
account shall cover the period from the date onl# of
the last account agreed to b# all partners!
The purchaser of a partner:s interest ma# appl# to
the court for dissolution after the termination of the
specified term or underta%ing or at an# time if the
partnership is one at will!
Art& %2%<& Bit$out #re"udice to t$e #referred
rig$ts of #artners$i# creditors under art& %23). on
due a##lication to a co,#etent court -+ an+
"udg,ent creditor of a #artner. t$e court !$ic$
entered t$e "udg,ent. or an+ ot$er court. ,a+
c$arge t$e interest of t$e de-tor #artner !it$
#a+,ent of t$e unsatisfied a,ount of suc$
"udg,ent de-t !it$ interest t$ereon: and ,a+ t$en
or later a##oint a receier of $is s$are of t$e
#rofits. and of an+ ot$er ,one+ due or to fall due to
$i, in res#ect of t$e #artners$i#. and ,ake all
ot$er orders. directions. accounts and in0uiries
!$ic$ t$e de-tor #artner ,ig$t $ae ,ade. or
!$ic$ circu,stances of t$e case ,a+ re0uire&
T$e interest c$arged ,a+ -e redee,ed at an+ ti,e
-efore foreclosure. or in an+ case of a sale -eing
directed -+ t$e court. ,a+ -e #urc$ased !it$out
t$ere-+ causing a dissolution6
%&7 Bit$ se#arate #ro#ert+. -+ an+ one or
,ore of t$e #artners: or
3&7 Bit$ #artners$i# #ro#ert+. -+ an+ one or
,ore of t$e #artners !it$ t$e consent of all
t$e #artners !$ose interest are not so
c$arged or sold&
Not$ing in t$is Title s$all -e $eld to de#rie a
#artner of $is rig$t. if an+. under t$e e/e,#tion
la!s. as regards $is interest in t$e #artners$i#&
E7*6'SI8E-
Re,edies of
se#arate
"udg,ent
creditor of a
#artner
Application for a
?charging order@ after
securing 4udgment on
his credit 8hile a
separate creditor of a
partner cannot attach or
lev# upon specific
partnership propert# for
the satisfaction of his
credit because partnership
assets are reserved for
partnership creditors$ he
can secure a -udgment on
his credit and then appl#
to the proper court for a
=charging order>$
sub-ecting the interest of
the debtor partner in the
partnership wE the
pa#ment of the unsatisfied
amount of such -udgment
wE interest thereon wE the
least interference wE the
partnership business and
the rights of the other
partners! )# virtue of the
charging order$ an#
amount or portion thereof
wEc the partnership would
otherwise pa# to the
debtor+partner should
instead be given to the
-udgment creditor!
This remed#$
however$ is wEo
pre-udice to the
preferred rights of
partnership creditors
whose claims should be
satisfied first!
Availabilit of other
remedies (rt! 1417
have made this an
e1clusive remed# so that
a writ of e1ecution will
not be proper! 'owever$
if the -udgment debt
remains unsatisfied$ the
court ma# resort to other
courses of action
notwithstanding the
issuance of the charging
order!
Rede,#tion or
#urc$ase of interest
c$arged
"edemptioner The
interest of the debtor+
partner so charged ma# be
redeemed or purchased wE
the separate propert# of
an# one or more of the
partners$ or wE partnership
propert# but wE the
consent of all the partners
whose interests are not so
charged or sold!
"edemption price
The value of the partner:s
interest in the partnership
has no bearing on the
redemption price wEc is
li%el# to be lower since it
will be dependent on the
amount of the unsatisfied
-udgment debt!
"ight of redeeming
non-debtor partner
The redeeming non+debtor
partner does not ac2uire
absolute ownership over
the debtor+partner:s
interest but holds it in
trust for him consistent wE
principles of fiduciar#
relationship!
Rig$ts of #artner under
e/e,#tion la!s
"nder art! 1411$ a
partner cannot claim an#
right under the
homestead laws or
e1emption laws when
specific partnership
propert# is attached for
partnership debt!
8E respect$ however$
to the partner:s interest
in the partnership as
distinguished from his
interest in specific
partnership propert#$ the
partner ma# avail himself
of the e1emption laws
after partnership debts
have been paid! (
partner:s interest or
share in the partnership
propert# is reall# his
propert#!
1E%T$5( .
5B7$2AT$5(1 5!
T8E PA"T(E"1
0$T8 "E2A"D T5
T8$"D PE"15(1
'elen *! (revalo 23 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Art& %2%8& Eer+ #artners$i# s$all o#erate under
a fir, na,e. !$ic$ ,a+ or ,a+ not include t$e
na,e of one or ,ore of t$e #artners&
T$ose !$o. not -eing ,e,-ers of t$e
#artners$i#. include t$eir na,es in t$e fir, na,e.
s$all -e su-"ect to t$e lia-ilit+ of a #artner&
Re0uire,ent of a fir, na,e
'eaning of word ?firm@> The name$ title$ or st#le
under which a compan# transacts business; a partnership
pf two or more persons; a commercial house! /n its
common acceptation$ the term implies a partnership! The
term is also used as s#non#mous with =compan#$>
=house$> and =concern!>
$mportance of having a firm name ( partnership
must have a firm name under which it will operate! ( firm
name is necessar# to distinguish the partnership which has
a distinct and separate -uridical personalit# from the
individuals composing the partnership and from other
partnerships and entites!
"ight of partners to choose firm name The
partners en-o# the utmost freedom in the selection of the
partnership name! (s a general rule$ the# ma# adopt an#
firm name desired!
Use of misleading name The partners cannot
use a name that is identical or deceptivel# confusingl#
similar to that of an# e1isting partnership or corporation
or to an# other name alread# protected b# law or is
patentl# deceptive$ confusing or contrar# to e1isting laws$
as to mislead the public b# passing itself off as another
partnership or corporation$ or its goods or services as
those of such other compan#!
Use of names of deceased partners Ruling of
S* in F?aeta$ Romulo$ etc! abandoned! Rule 3!02 of the
*ode of 9rofessional Responsibilit# provides that the
continued use of the name of a deceased partner is
permissible provided that the firm indicates in all its
communications that said partner is deceased!
'ia-ilit+ for inclusion of na,e in fir, na,e
9ersons who$ not being partners$ include their names in
the firm name do not ac2uire the rights of a partner but
shall be sub-ect to the liabilit# of a partner insofar as 3
rd

persons without notice are concerned! Such persons
become partners b# estoppel!
(rt! 141@ does not cover the case of a limited partner
who allows his name to be included in the firm name$ or of
a person continuing the business of a partnership after
dissolution$ who uses the name of the dissolved
partnership or the name of a deceased partner as part
thereof!
Art& %2%*& All #artners. including industrial ones.
s$all -e lia-le pro rata !it$ all t$eir #ro#ert+ and
after all t$e #artners$i# assets $ae -een
e/$austed. for t$e contracts !$ic$ ,a+ -e entered
into in t$e na,e and for t$e account of t$e
#artners$i#& Ho!eer. an+ #artner ,a+ enter into a
se#arate o-ligation to #erfor, a #artners$i#
contract&
E7*6'SI8E-
'ia-ilit+ for
contractual
o-ligations of
t$e
#artners$i#
Partnership liabilit
9artners are principals to
the other partners and
agents for them and the
partnership! The# are liable
to 3
rd
persons who have
dealt with one of them in
the same wa# that a
principal is liable to 3
rd

persons who have dealt with
an agent! The general rule
is that a partner has the
right to ma%e all partners
liable for contracts he
ma%es for the partnership in
the name and for the
account of the partnership!
$ndividual liabilit
( partner$ however$ ma#
assume a separate
underta%ing in his name
with a 3
rd
part# to
perform a partnership
contract or ma%e himself
solidaril# liable on a
partnership contract! /n
such case$ the partner is
personall# bound b# his
contract even if onl# the
partnership is shown to
have derived benefits
from it!
Nature of indiidual
lia-ilit+ of #artners
Pro rata .2uall# or
-ointl#$ not proportionatel#!
9ro rating is based on the
number of partners and
not on the amount of their
contributions to the
common fund$ sub-ect to
ad-ustment among the
partners!
1ubsidiar or
secondar /t is
subsidiar# or secondar#
because the partners
become personall# liable
onl# after all the
partnership assets have
been e1hausted! Thus$ the
partners are liable as
guarantors in favor of
partnership creditors to
the e1tent that the asets
of the firm are not
sufficient to meet its
obligations! The# ma# be
-oined as part# defendants
in the same action against
the partnership sub-ect to
their right to prior
e1haustion of partnership
propert#!
.ven the industrial
partner who$ ordinaril#$ is
not liable for losses would
have to pa# but$ of course$
he can recover the amount
he has paid from the
capitalist partners unless
there is an agreement to
the contrar#!
Distinction -et!een a
lia-ilit+ and a loss
The inabilit# of a
partnership to pa# debt to
a 3
rd
part# at a particular
time does not necessaril#
mean that the partnership
business$ as a whole$ has
been operated at a loss!
The partnership ma# have
outstanding credits which
for the moment ma# be
unavailable for the
pa#ment of debts$ but
which eventuall# ma# be
reali?ed upon and #ield
profits more sufficient to
cover all losses! (rticle
141A refers to =liabilities>
while (rticle 15A5 spea%s
of =losses!> There is$
therefore$ no conflict
between the two articles!
The e1emption of the
industrial partner to pa#
losses relates e1clusivel#
to the settlement of the
partnership affairs among
the partners themselves
and has nothing to do with
the li,ilities of the
partners to 3
rd
persons!
(n industrial partner is not
e1empted from liabilit# to
3
rd
persons for the debts
of the partnership!
No distinction -et!een
o-ligations and losses
&uring the e1istence
of a partnership$ the
gains or the losses are
set off$ and the
difference is either in
favor of or against the
concern! (s to the
industrial
'elen *! (revalo
27 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
partner$ it is not a matter of stri%ing a balance from time to
time$ but one of the final ad-ustment of assets and
liabilities! (s long as there is propert# belonging to the
partnership$ obligations in favor of 3
rd
persons are covered
b# the primar# and direct responsibilit# of the partnership!
The 2uestion arises when the assets of the partnership
are e1hausted and it becomes necessar# to enforce the
subsidiar# liabilit# of the private propert# of the partners!
/n this case$ such obligations constitute the e1treme
losses in the li2uidation of the partnership!
Art& %2%)& An+ sti#ulation against t$e lia-ilit+
laid do!n in t$e #receding article s$all -e oid.
e/ce#t as a,ong #artners&
Sti#ulation against lia-ilit+
( stipulation among the partners contrar# to the pro
rt and subsidiar# liabilit# e1pressl# imposed b# (rticle
141A is void and of no effect insofar as it affects the rights
of 3
rd
persons! /t is valid and enforceable onl# as among
the partners!
Art& %2%2& Eer+ #artner is an agent of t$e
#artners$i# for t$e #ur#ose of its -usiness. and t$e
act of eer+ #artner. including t$e e/ecution in t$e
#artners$i# na,e of an+ instru,ent. for a##arentl+
carr+ing on in t$e usual !a+ t$e -usiness of t$e
#artners$i# of !$ic$ $e is a ,e,-er. -inds t$e
#artners$i#. unless t$e #artner so acting $as in fact
no aut$orit+ to act for t$e #artners$i# in t$e
#articular ,atter. and t$e #erson !it$ !$o, $e is
dealing $as kno!ledge of t$e fact t$at $e $as no
suc$ aut$orit+&
An act of a #artner !$ic$ is not a##arentl+ for
carr+ing on of t$e -usiness of t$e #artners$i# in
t$e usual !a+ does not -ind t$e #artners$i# unless
aut$ori4ed -+ t$e ot$er #artners&
E/ce#t !$en aut$ori4ed -+ t$e ot$er #artners
or unless t$e+ $ae a-andoned t$e -usiness. one
or ,ore -ut less t$an all t$e #artners $ae no
aut$orit+ to6
%&7 Assign t$e #artners$i# #ro#ert+ in trust for
creditors or on t$e assigneeDs #ro,ise to #a+
t$e de-ts of t$e #artners$i#:
3&7 Dis#ose of t$e good!ill of t$e -usiness:
9&7 Do an+ ot$er act !$ic$ !ould ,ake it
i,#ossi-le to carr+ on t$e ordinar+
-usiness of a #artners$i#:
<&7 Confess a "udg,ent:
8&7 Enter into a co,#ro,ise concerning a
#artners$i# clai, or lia-ilit+:
*&7 Su-,it a #artners$i# clai, or lia-ilit+ to
ar-itration:
)&7 Renounce a clai, of t$e #artners$i#&
No act of a #artner in contraention of a
restriction on aut$orit+ s$all -ind t$e #artners$i#
to #ersons $aing kno!ledge of t$e restriction&
E7*6'SI8E-
Po!er of #artner as
agent of #artners$i#
/n the absence of an
agreement to the
contrar#$ all partners
have e2ual rights in the
management and
conduct of the
partnership business!
As among
themselves 8hen a
partner performs an act
within the scope of his
actual$ implied$ or
apparent authorit#$ he is
not onl# a principal as to
himself$ but is also for all
purposes$ an agent as to
his co+partners or to the
partnership$ considered
as a group! 9rinciple of
mutual agenc#!
As to third persons
3imitations upon the
authorit# of an# one of the
partners are not binding
upon innocent 3
rd
persons
dealing with the
partnership who have the
right to assume that ever#
general partner has power
to bind the partnership
especiall# those partners
acting with ostensible
authorit#$ b# whatever is
proper for the transaction
in the ordinar# and usual
manner of the business of
the partnership!
(o dut to ma;e
in#uiries as to acting
partner:s authorit 3
rd
persons are not bound$ in
entering a contract with
an# of the partners$ to
ascertain whether or not
the partner with whom the
transaction is made has
the consent of the other
partners! 'is %nowledge is
enough that he is
contracting with a partner!
Presumption that
acting partner has
authorit to bind
partnership There is a
general presumption that
each individual partner is
an agent of the firm and
that he has authorit# to
bind the firm in carr#ing
on the partnership
transactions! The
presumption is sufficient to
permit 3
rd
persons to hold
the firm liable on
transactions entered into
b# an# one of the
members of the firm acting
apparentl# in its behalf
and within the scope of his
authorit#!
(o right to
assume that acting
partner has unlimited
authorit The
apparent scope of the
partner:s authorit# is the
whole scope of the
partnership:s customar#
business! 'owever$ 3
rd

parties should not
assume that a partner
has unlimited authorit#!
Generall#$ a partner has
no authorit# to do the
cats enumerated in the
3
rd
paragraph of (rticle
1414! 8hen a 3
rd
part#
deals with a partner who
has no e1press$ implied$
or apparent authorit#$ the
partnership is not liable
for his acts unless the
other partners ratif# his
acts or are estopped from
asserting the partner:s
lac% of authorit#!
'ia-ilit+ of #artners$i#
for acts of #artners
The acts of a partner
mentioned in (rticle 1414
ma# be grouped into
three;
1! Acts for
apparentl
carring on in
the usual wa
the business of
the partnership
(pr. 9)
.ver# partner is
an agent and ma#
e1ecute such acts
with binding
affect on the
partnership even
if he has in fact
no authorit#
unless the 3
rd

person has
%nowledge of
such lac% of
authorit#! There
are two re2uisites
in order that the
partnership will
not be liable;
a! The
partn
er so
actin
g has
in
fact
no
autho
rit#;
and
'elen *! (revalo
2@ Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
b! The 3
rd
person %nows that the acting
partner has no authorit#!
1sul !$; usual for the particular
partnership or usual for similar partnerships!
(ctuall#$ the acts mentioned in <o! 1 refer onl#
to acts of administration!
2! Acts of strict dominion (prs. 2 nd :) For
acts which are not apparentl# for carr#ing on in
the usual wa# of business of the partnership$ the
partnership is not bound$ unless authori?ed b# ll
the other partners or unless the# have abandoned
the business! The general rule is that powers not
specificall# delegated in a partnership agreement
are presumed to be withheld! 9aragraph 3 gives
instances of acts generall# outside the implied
power of a partner and constitute limitations to the
authorit# to bind partnership!
3! Acts in contravention of a restriction on
authorit (pr. ;) The partnership is not liable
to third persons having actual or presumptive
%nowledge of the restrictions$ whether or not the
acts are for apparentl# carr#ing on in the usual
wa# the business of the partnership!
Fn the other hand$ persons not having such
notice have a right to assume that the authorit#
of a partner is co+e1tensive with the business
transacted b# the firm!
'ia-ilit+ of #artner acting !it$out aut$orit+
(s a general rule$ the particular partner who underta%es
to bind his co+partners b# a contract without authorit# is
himself personall# liable on such contract!
Such partner binds himself no matter in what name
he contracts! The fact that he attempts to bind his co+
partners and does not succeed does not avoid his own
act! 'e cannot be admitted to sa# that he was not
authori?ed to ma%e a contract$ as he is estopped to den#
its effect or validit#!
Art& %2%5& B$ere title to real #ro#ert+ is in t$e
#artners$i# na,e. an+ #artner ,a+ cone+ title to
suc$ #ro#ert+ -+ a cone+ance e/ecuted in t$e
#artners$i# na,e: -ut t$e #artners$i# ,a+ recoer
suc$ #ro#ert+ unless t$e #artnerDs act -inds t$e
#artners$i# under t$e #roisions of t$e first
#aragra#$ of article %2%2. or unless suc$ #ro#ert+
$as -een cone+ed -+ t$e grantee or a #erson
clai,ing t$roug$ suc$ grantee to a $older for alue
!it$out t$e kno!ledge t$at t$e #artner. in ,aking
t$e cone+ance. $as e/ceeded $is aut$orit+&
B$ere title to real #ro#ert+ is in t$e na,e of t$e
#artners$i#. a cone+ance e/ecuted -+ a #artner. in
$is o!n na,e. #asses t$e e0uita-le interest of t$e
#artners$i#. #roided t$e act is one !it$in t$e
aut$orit+ of t$e #artner under t$e #roisions of t$e
first #aragra#$ of article %2%2&
B$ere title to real #ro#ert+ is in t$e na,e of
one or ,ore -ut not all t$e #artners. and t$e
record does not
disclose t$e rig$t of
t$e #artners$i#. t$e
#artners in !$ose
na,e t$e title stands
,a+ cone+ title to
suc$ #ro#ert+. -ut
t$e #artners$i# ,a+
recoer suc$
#ro#ert+ if t$e
#artnersD act does
not -ind t$e
#artners$i# under
t$e #roisions of t$e
first #aragra#$ of
Article %2%2. unless
t$e #urc$aser or $is
assignee. is a $older
for alue. !it$out
kno!ledge&
B$ere t$e title to
real #ro#ert+ is in
t$e na,e of one or
,ore or all t$e
#artners. or in a
t$ird #erson in trust
for t$e #artners$i#.
a cone+ance
e/ecuted -+ a
#artner in t$e
#artners$i# na,e.
or in $is na,e.
#asses t$e e0uita-le
interest of t$e
#artners$i#.
#roided t$e act is
one !it$in t$e
aut$orit+ of t$e
#artner under t$e
#roisions of t$e
first #aragra#$ of
Article %2%2&
B$ere t$e title to
real #ro#ert+ is in
t$e na,es of all t$e
#artners a
cone+ance
e/ecuted -+ all t$e
#artners #asses all
t$eir rig$ts in suc$
#ro#ert+&
DE-E7*6'SI8E-
Title Deed Signator+
()* K ()* K ( or ) or
*o! *o! *
()* K ()* K ($ )$ and 9asses
*o! *o! * legal title
()* K ( or ) ( or ) or 9asses
*o! or * * e2uitable
interest
($) or 9asses
($* or title
)$*
1 or ()* K 9asses
more or *o! or e2uitable
all or in his interest
trustee name
($ ) ($ )$ 9asses
and * and * legal title
If this doesn<t (ke
sense+ ok ln). =de-
e(phsi>e? n(n
eh-
Effects of cone+ance
of real #ro#ert+
-elonging to t$e
#artners$i#
The ownership of real
estate is pri( f#ie
that indicated b# the
muniment of title!
Frdinaril#$ title to real
propert# or interest
therein belonging to the
partnership is registered
in the partnership name!
'owever$ for one reason
or another$ the title to
the propert# is not held
b# the partnership$
although as between the
partners there is no
2uestion that it is a
partnership propert#!
The presumption is that$
propert# purchased with
partnership funds
belongs to the
partnership unless a
contrar# intent is
shown!
(rticle 1416 gives the
legal effects of the
conve#ance of real
propert# belonging to the
partnership depending in
whose name it is
registered and in whose
name it is
'elen *! (revalo
2A Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
conve#ed! "nder the article$ the real propert# ma# be
registered or owned in the name of;
1! The partnership (pars! 1$2;
2! Fne or more but not all the partners (par! 3;
3! Fne or more or all the partners$ or in a 3
rd
person in trust for the partnership (par! 7;
7! (ll the partners (par! @!
/t will be noticed that under paragraphs 1$ 3 and @$
what is conve#ed is title or ownership$ while under
paragraphs 2 and 7$ what is conve#ed is merel# e2uitable
interest! =*onve#ance> interpreted to include a mortgage!
Thus$ the right to mortgage is included in the right to
conve# (unli%e in agenc#!
Innocent #urc$asers !it$out notice
Regardless of the fact that one partner cannot conve#
partnership realt# without the concurrence of his co+
partners$ it is fundamental that innocent purchasers
without notice ma# be protected!
8here the legal title is in the partner ma%ing the
conve#ance$ although the e2uitable title is in the firm$ a
purchaser without notice ma# ac2uire a valid title$ since
he has the right to presume that possession or interest of
the partnership is subordinate to and not inconsistent with
the record title!
( conve#ance b# a partner of partnership propert# in
the partnership name even without authorit#$ cannot be
recovered b# the partnership where it has been conve#ed
b# the grantee to a holder for value and without notice or
%nowledge that the partner$ in ma%ing the conve#ance$
had e1ceeded his authorit#!
The purchaser need not have either actual or
constructive notice of an# trust or other condition
limiting the authorit# of the partner ma%ing the
conve#ance!
Aut$ori4ation or ratification of cone+ance
( conve#ance of partnership realt# b# one partner ma#
be authori?ed b# his co+partners$ or when made without
authorit#$ ma# be ratified b# them! Such authorit# or
ratification must affirmativel# appear$ for the authorit# of
one partner to ma%e and ac%nowledge a deed for the
partnership will not be presumed!
(fter the lapse of man# #ears$ authorit# or
ratification will be presumed!
(uthorit# ma# also be implied from the nature of the
partnership business! 8here a firm is engaged in the
business of bu#ing and selling real estate$ the contract is
valid!
Fther partners will also be bound if there is
subse2uent adoption of the act!
Ratification ma# be inferred from the presence of the
other partners at the e1ecution and deliver#$ or from their
acting under it or %nowingl# ta%ing the benefits arising
therefrom!
Art& %23A& An ad,ission or re#resentation ,ade -+
an+ #artner concerning #artners$i# affairs !it$in t$e
sco#e of $is aut$orit+ in accordance !it$ t$is Title is
eidence against t$e #artners$i#&
E7*6'SI8E-
Effects of ad,ission -+
a #artner
(s a general rule$ a
person is not bound b# the
act$ admission$ statement$
or agreement of another
of which he has no
%nowledge or to which he
has not given his consent
e1cept b# virtue of a
particular relation between
them!
)ut admissions b# a
part# as testified to b# a
3
rd
person are admissible
in evidence against him
in litigation! (dmissions
b# another are received
against a part# if the
former is acting in the
capacit# of agent of the
latter! Thus$ under (rticle
1420$ the admission of a
partner made during the
e1istence of the
partnership are binding
against the partnership
(and co+partners when
such admissions refer to
a matter concerning
partnership affairs and
made within the scope of
his authorit#! )ut when a
partner ma%es no
admissions for himself
onl# without purporting
to act for the
partnership$ he alone
shall be chargeable with
his admissions!
(fter dissolution$
admission made b# a
partner will bind the co+
partners if connected with
the winding up of
partnership affairs!
E/istence of #artners$i#
,ust -e #roed
)efore the partnership
can be charged with the
admissions of a partner
under (rticle 1420$ the
partnership relation must
be shown and proof of that
fact must be made b#
evidence other than the
admission itself!
'owever$ admissions
and declarations made in
the presence of the
person to be charged are
admissible to prove the
e1istence of the
partnership!
(n admission made b#
a partner who was no
longer a partner at the
time of the declaration is
not admissible in evidence
against the partnership!
Art& %23%& Notice to
an+ #artner of an+
,atter relating to
#artners$i# affairs. and
t$e kno!ledge of t$e
#artner acting in t$e
#articular ,atter.
ac0uired !$ile a
#artner or t$en #resent
to $is ,ind. and t$e
kno!ledge of an+ ot$er
#artner !$o reasona-l+
could and s$ould $ae
co,,unicated it to t$e
acting #artner. o#erate
as notice to or
kno!ledge of t$e
#artners$i# e/ce#t in
case of a fraud on t$e
#artners$i#. co,,itted
-+ or !it$ t$e consent
of t$at #artner&
DE-E7*6'SI8E-
Notice to. or
kno!ledge of. a
#artner of ,atter
affecting
#artners$i# affairs
<otice to$ or %nowledge
of$ an# partner of an#
matter relating to
partnership affairs operates
as a notice to or %nowledge
of the partnership e1cept in
case of fraud!
( 3
rd
person desiring
to give notice to a
partnership of some
matter pertaining to the
partnership business
need not communicate
with all the partners! /f
notice is delivered to a
partner$ that is an
effective communication
to the partnership
notwithstanding the
'elen *! (revalo
25 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
failure of the partner to communicate such notice or
%nowledge to his co+partners!
Cases of kno!ledge of a #artner
1! Lnowledge of the partner acting in the particular
matter ac2uired while a partner;
2! Lnowledge of the partner acting in the particular
matter then present to his mind; and
3! Lnowledge of an# other partner who reasonabl#
could and should have communicated it to the
acting partner!
Art& %233& B$ere. -+ an+ !rongful act or
o,ission of an+ #artner acting in t$e ordinar+
course of t$e -usiness of t$e #artners$i# or !it$
t$e aut$orit+ of $is co;#artners. loss or in"ur+ is
caused to an+ #erson. not -eing a #artner in t$e
#artners$i#. or an+ #enalt+ is incurred. t$e
#artners$i# is lia-le t$erefore to t$e sa,e e/tent
as t$e #artner so acting or o,itting to act&
Art& %239& T$e #artners$i# is -ound to ,ake
good t$e loss6
%&7 B$ere one #artner acting !it$in t$e sco#e of
$is a##arent aut$orit+ receies ,one+ or
#ro#ert+ of a t$ird #erson and ,isa##lied it:
and
3&7 B$ere t$e #artners$i# in t$e course of its
-usiness receies ,one+ or #ro#ert+ of a t$ird
#erson and t$e ,one+ or #ro#ert+ so receied is
,isa##lied -+ an+ #artner !$ile it is in t$e
custod+ of t$e #artners$i#&
Art& %23<& All #artners are lia-le solidaril+ !it$
t$e #artners$i# for eer+t$ing c$argea-le to t$e
#artners$i# under Articles %233 and %239&
9822-;@ E7*6'SI8E-
'ia-ilit+ arising fro, #artnerDs tort or -reac$ of
trust
(ature of liabilit The above 3 articles provide for
the solidar# liabilit# of the partners and the partnership to
3
rd
persons for the wrongful act or omission or breach of
trust of a partner acting within the scope of the firm:s
business or with the authorit# of his co+partners! This is
true even though the other partners did not participate in$
or ratif#$ or had no %nowledge of the act or omission!
This liabilit# of the partners is different from their
liabilit# for #ontr#tul obligations as defined in (rticle
141A! 'ere$ it is solidar#$ while in (rticle 141A$ it is -oint
and subsidiar#! Furthermore$ while the liabilit# in (rticle
141A refers to partnership obligations$ this article covers
the liabilit# of the partnership arising from the wrongful
acts or omissions of an# partner! The act or omission is
called tort when it does not constitute a crime or felon#
punishable b# law!
/n wor%men:s compensation cases$ the liabilit# of
business partners arising from compensable in-ur# or
death of an emplo#ee should be solidar#!
"eason for
imposition of wider
liabilit 9ublic polic#!
The rule of respondet
superior (vicarious
liabilit# applies!
The obligation is
solidar# because the law
protects him who$ in
good faith$ relied upon
the authorit# of a
partner$ whether such
authorit# is real or
apparent!
$n4ured part ma
proceed against
partnership or an
partner Since the
partners are liable
solidaril#$ the part#
aggrieved has his election
to sue the firm or to sue
one or more of its
members! 'e ma# even
single out for suit a
partner who$ personall#$
was in no wise involved in
the commission of the tort
or breach of trust!
"e#uisites for
liabilit>
1! The partner must
be guilt# of a
wrongful act or
omission; and
2! 'e must be acting in
the ordinar# course
of business$ or with
the authorit# of his
co+partners even if
the act is
unconnected with
the business!
The partnership is not
liable if the partner acted
on his own and not for
the benefit of the
partnership in the course
of some transaction not
connected with the
partnership business!
( non+acting partner in
a partnership engaged in
a lawful business is not
criminall# liable for the
criminal acts of another
partner but he is
criminall# liable if the
partnership is involved in
an unlawful enterprise
with his %nowledge or
consent!
%riminal liabilit of
partnership
9artnership liabilit#
under (rticle 1422 does
not e1tend to criminal
liabilit# where the
wrongdoing is regarded
as individual in
character!
)ut where the crime
is statutor#$ especiall#
where it involves a fine
rather than
imprisonment$ even
criminal liabilit# ma# be
imposed!
?isa##lication of
,one+ or #ro#ert+
of a t$ird #erson
"nder article 1423$ the
partnership is liable for
an# losses suffered b# a
3
rd
person whose mone#
or propert# is
misappropriated b# a
partner who received it
within the scope of his
authorit# or b# an# other
partner after it was
received b# the
partnership in the ordinar#
course of business while in
its custod#!
Art& %238& B$en a
#erson. -+ !ords
s#oken or !ritten or -+
conduct. re#resents
$i,self. or consents to
anot$er re#resenting
$i, to an+one. as a
#artner in an e/isting
#artners$i# or !it$ one
or ,ore #ersons not
actual #artners. $e is
lia-le to an+ suc$
#ersons to !$o, suc$
re#resentation $as
-een ,ade. !$o $as.
on t$e fait$ of suc$
re#resentation gien
credit to t$e actual or
a##arent #artners$i#.
and if $e $as ,ade
suc$ re#resentation or
consented to its -eing
,ade in a #u-lic
,anner $e is lia-le to
suc$ #erson. !$et$er
t$e re#resentation $as
or $as not -een ,ade
or co,,unicated to
suc$ #erson so giing
credit -+ or !it$ t$e
kno!ledge of t$e
a##arent #artner
,aking t$e
re#resentation or
consenting to its -eing
,ade6
'elen *! (revalo
24 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
%&7 B$en a #artners$i# lia-ilit+ results. $e is
lia-le as t$oug$ $e !ere an actual ,e,-er
of t$e #artners$i#:
3&7 B$en no #artners$i# lia-ilit+ results. $e is
lia-le pro rata !it$ t$e ot$er #ersons. if
an+. so consenting to t$e contract or
re#resentation as to incur lia-ilit+.
ot$er!ise se#aratel+&
B$en a #erson $as -een t$us re#resented to -e a
#artner in an e/isting #artners$i#. or !it$ one or
,ore #ersons not actual #artners. $e is an agent of
t$e #ersons consenting to suc$ re#resentation to
-ind t$e, to t$e sa,e e/tent and in t$e sa,e
,anner as t$oug$ $e !ere a #artner in fact. !it$
res#ect to #ersons !$o rel+ u#on t$e re#resentation&
B$en all t$e ,e,-ers of t$e e/isting #artners$i#
consent to t$e re#resentation. a #artners$i# act or
o-ligation results: -ut in all ot$er cases it is t$e "oint
act or o-ligation of t$e #erson acting and t$e
#ersons consenting to t$e re#resentation&
E7*6'SI8E- %O77E42'/A (not so (u#h #odl)
I(portnt@ Differen#e ,et!een prtner ,$ estoppel nd
prtnership ,$ estoppel.
Partner -+ esto##el: #artners$i# -+ esto##el
'eaning and effect of estoppel .stoppel is a bar
which precludes a person from den#ing or asserting
an#thing contrar# to that which has been established as
the truth b# his own deed or representation$ either
e1press or implied! Through estoppel$ an admission or
representation is rendered conclusive upon the person
ma%ing it and cannot be denied or disapproved as against
the person rel#ing thereon!
0hen person a partner b estoppel ( person not
a partner ma# become a partner b# estoppel and thus be
held liable to 3
rd
persons as if he were a partner$ when b#
words or b# conduct he;
1! &irectl# represents himself to an#one as a
partner in an e1isting partnership or in a non+
e1isting partnership (with one or more persons
not actual partners! B$ the person hi(self; or
2! /ndirectl# represents himself b# consenting to
another representing him as a partner in an
e1isting partnership or in an non+e1isting
partnership! B$ his #onsent or !ith his
kno!led)e.
To hold the part# liable$ the 3
rd
person must prove;
1! The misrepresentation; and
2! That a ,on fide reliance b# him upon it caused
him in-ur#!
0hen partnership liabilit results /f all the actual
partners consented to the representation$ then the
liabilit# of the person who represented himself to be a
partner or who consented to such representation and the
actual partners is considered a partnership liabilit#! This is
a case of partnership b estoppel! The person becomes
an agent of the partnership and his act or obligation that
of the partnership!
0hen liabilit pro
rata 8hen there is no
e1isting partnership and
all those represented as
partners consented to the
representation$ or not all
of the partners of an
e1isting partnership
consented to the
representation$ then$ the
liabilit# of the person who
represented himself to be
a partner or who
consented to his being
represented as partner$
nd all those who made
and consented to such
representation$ is -oint or
pro rt.
0hen liabilit
separate 8hen there is
no e1isting partnership
and not all but onl# some
of those represented as
partners consented to the
representation$ or none of
the partners in an e1isting
partnership consented to
such representation$ then
the liabilit# will be
separate D that of the
person who represented
himself as a partner or
who consented to his
being represented as a
partner$ and those who
made and consented to
the representation$ or that
onl# of the person who
represented himself as
partner!
Estoppel does
not create
partnership Fnl#
liabilit# is created!
7iabilit as partners
ma arise contrar to
their intentions The
2uestion of liabilit# is not
what the parties intended
b# their contract but
whether 3
rd
persons had
a right to rel# on their
-oint credit!
Fne who is deemed to
be liable as a partner b#
reason of estoppel does
not thereb# obtain full
rights as a partner!
Application of
estoppel as between
partners
The doctrine of estoppel
has no application as
between actual partners!
9artners become such b#
agreement and not b#
estoppel! /t is true that a
single partner ma# become
liable to 3
rd
persons be#ond
the limits fi1ed b# the
partnership agreement b#
holding out as partners to
an e1tent greater than that
specified in the partnership
agreement! (s between the
partners$ such an action
might be the basis for a
dissolution of the
partnership but it would
appl# primaril# to 3
rd

persons who had acted on
the representations to their
detriment!
Application of
estoppel as to third
parties /t is in this
area that the doctrine of
estoppel has been
applied!
Applicabilit of
general provisions on
partnership /f the law
recogni?es a defectivel#
organi?ed partnership as
de f#to as far as 3
rd

persons are concerned$ for
purposes of its de f#to
e1istence$ it should have
such attribute of a
partnership as domicile!
(lthough it has no legal
standing or -uridical
personalit#$ it is a
partnership de f#to and
the general provisions of
the *ivil *ode applicable
to partnerships appl# to it!
Ele,ents to
esta-lis$ lia-ilit+
as a #artner on
ground of
esto##el
1! 9roof b# plaintiff
that he was
individuall#
aware of the
defendant:s
representations
as to his being a
partner or that
such
representations
were made b#
others and not
denied or refuted
b# the
defendant;
2! Reliance on such
representations b#
the plaintiff; and
'elen *! (revalo
26 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
3! 3ac% of an# denial or refutation of the
statements b# the defendant!
'ia-ilit+ as general #artners of #ersons !$o
assu,e to act as a cor#oration
The law ma%es liable as general partners all persons
who ssu(e to act as a corporation and ma# include
persons who attempt but fail to form a corporation and
who carr# on business under the corporate name! ( de
f#to partnership among them is created! Fnl# the active
members of the unsuccessfull# attempted corporation
should be liable as general partners! Subscribers to
stoc%s who ta%e no part in the supposed corporation are
not personall# liable!
Art& %23*& A #erson ad,itted as a #artner into
an e/isting #artners$i# is lia-le for all t$e
o-ligations of t$e #artners$i# arising -efore $is
ad,ission as t$oug$ $e $ad -een a #artner !$en
suc$ o-ligations !ere incurred. e/ce#t t$at t$is
lia-ilit+ s$all -e satisfied onl+ out of #artners$i#
#ro#ert+. unless t$ere is a sti#ulation to t$e
contrar+&
'ia-ilit+ of inco,ing #artner for #artners$i#
o-ligations
7imited to his share in partnership propert for
e&isting obligations 8hen a partner is admitted as a
partner into an e1isting partnership$ he is liable for all
obligations e1isting at the time of his admission as though
he was alread# a partner when such obligations were
incurred! For such obligations$ his liabilit# is limited to his
share in the partnership propert#$ unless there is a
stipulation to the contrar#!
E&tends to his separate propert for subse#uent
obligations Those who were alread# partners at the time
when the obligations were incurred are liable with their
separate propert#! For all the obligations accruing subse2uent
to the admission of the new partner$ all the partners are liable
with their separate properties!
Rig$ts of e/isting and su-se0uent creditors
.1isting and subse2uent creditors have e2ual rights as
against partnership propert# and separate propert# of the
previousl# e1isting members of the partnership while onl#
subse2uent creditors have rights against the separate
estate of the newl# admitted partner!
0here business is continued 8here there is one
continuous business$ all the creditors of the partnership$
irrespective of the times when the# became creditors and
the e1act combinations of persons owning the business
should have e2ual rights in propert# emplo#ed in the
business!
0here incoming partner has assumed obligation
of retiring partner /f an incoming partner has assumed
the obligation of the retiring partner as one of the terms of
the contract b# which he was admitted into the firm$ he is
liable directl# to the old partnership creditors if the
assumption was made primaril# to benefit the firm
creditors (stipulation pour utrui!
"eason for rule
ma;ing the new
partner liable
<ew partner parta%es also
of the benefits of the
partnership propert# and
an established business!
'e has ever# means of
obtaining full %nowledge
of the debts of the
partnership and protecting
himself because he ma#
insist on the li2uidation or
settlement of e1isting
partnership debts! Fn the
other hand$ these means
are not afforded the
creditor!
'ia-ilit+ of outgoing
#artner > inco,ing
#artner
%ontract made
before retirement or
withdrawal
8here a partner gives
notice of his retirement or
withdrawal from the
partnership$ he is freed
from an# liabilit# on
contracts entered into
thereafter$ but his liabilit#
on e1isting incomplete
contracts continues! Thus$
he is liable for goods sold
and delivered after his
retirement or withdrawal
and notice thereof$ if the
same was pursuant to a
contract made before such
retirement or withdrawal!
Performance after
admission of new
partner
/n the case of an incoming
partner$ he is not personall#
liable for the e1isting
partnership obligations
unless there is a stipulation
to the contrar#! )ut he is
liable for goods delivered to
the partnership after his
admission to it$ where the
goods so delivered are in
the performance of a
contract made before his
admission! The result is that
both the retiring and the
incoming persons are liable
for the debt created b#
deliver# of such goods!
Art& %23)& T$e
creditors of t$e
#artners$i# s$all -e
#referred to t$ose of
eac$ #artner as regards
t$e #artners$i#
#ro#ert+& Bit$out
#re"udice to t$is rig$t.
t$e #riate creditors of
eac$ #artner ,a+ ask
t$e attac$,ent and
#u-lic sale of t$e s$are
of t$e latter in t$e
#artners$i# assets&
Preference of
#artners$i# creditors
in #artners$i#
#ro#ert+
8ith respect to
partnership assets$ the
partnership creditors
are entitled to priorit#
of pa#ment!
The rule applies onl# in
the event of the disposition
of partnership propert#
among its creditors to pa#
partnership debts! The
partners ma# deal with
partnership propert# in the
usual course of business as
the# see fit!
Re,ed+ of #riate
creditors of a #artner
8ithout pre-udice to
the right of preference of
partnership creditors$ the$
the creditors of each
partner ma# as% for the
attachment and public
sale of the share of the
latter in the partnership
assets! Such share reall#
belongs to the partner!
The purchaser at the
public sale does not
become a partner!
CHAPTER 9&
DISSO'UTION AND
BINDING UP
Sources of #roisions6
"niform 9artnership (ct
'elen *! (revalo
30 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Art& %232& T$e dissolution of a #artners$i# is
t$e c$ange in t$e relation of t$e #artners caused
-+ an+ #artner ceasing to -e associated in t$e
carr+ing on as distinguis$ed fro, t$e !inding u#
of t$e -usiness&
E7*6'SI8E@ E33E%2S.
Effects of c$ange in ,e,-ers$i# of a #artners$i#
1! Dissolution of e&isting partnership and
formation of a new one (n# change in the
membership of a partnership produces technicall#
an immediate dissolution of the e1isting partnership
relation$ and the formation of a new one$ although
common business usage spea%s of the admission of
a partner to a firm and regards the firm as
subsisting so long as the course of its business is
not materiall# interrupted!
2! Transformation of all partners into incoming
partners (ll persons forming the new partnership
upon admission of a new person are technicall#
=incoming partners> even though the same business
had theretofore been conducted b# the others
through the medium of partnership!
3! %ontinuance b remaining partners of
partnership as before The change in the
relation of the partners will dissolve the
partnership but will not disturb the continuance b#
the remaining partners or b# the e1isting and new
partners of the business as before!
Dissolution. !inding u#. and ter,ination defined
Dissolution> The change in the relation of the partners
caused b# an# partner ceasing to be associated in the
carr#ing on of the business! /t is that point in time when
the partners cease to carr# on the business together! /t
represents the demise of a partnership!
0inding up> The process of settling the business or
partnership affairs after dissolution!
Termination> That point in time when all partnership
affairs are completel# wound up and finall# settled! /t
signifies the end of the partnership life!
Art& %235& On dissolution t$e #artners$i# is not
ter,inated. -ut continues until t$e !inding u# of
#artners$i# affairs is co,#leted&
E7*6'SI8E-
Effects of dissolution
1! Partnership not terminated &issolution does
not automaticall# result in the termination of the
legal personalit# of the partnership$ nor the
relations of the partners among themselves who
remain as co+partners until the partnership is
terminated!
2! Partnership continues for a limited purpose
(fter dissolution$ a partnership is considered as
maintaining a limited e1istence for the purpose of
ma%ing good all outstanding engagements$ of
ta%ing and settling all accounts$ and collecting all
the propert#$
means and assets
of the partnership
e1isting at the
time of its
dissolution for the
benefit of all
interested!
3! Transaction of
new business
prohibited
"pon dissolution$
no new partnership
business should be
underta%en$ but
affairs should be
li2uidated and
distribution made
to those entitled to
the partners:
interest!
/t is onl# after winding
up is accomplished that
the e1istence of the
partnership is terminated!
Thus$ dissolution refers to
the change in partnership
relation and not the actual
cessation of the
partnership business! /t is
not necessaril# followed b#
a winding up of
partnership affairs!
&issolution of a
partnership must be
distinguished from a mere
suspension in the conduct
of its business or
operation!
Art& %29A&
Dissolution is
caused6
%&7 Bit$out
iolatio
n of t$e
agree,
ent
-et!ee
n t$e
#artner
s6
a&7 B+ t$e
ter,in
ation
of t$e
definit
e ter,
or
#artic
ular
undert
aking
s#ecifi
ed in
t$e
agree
,ent:
-&7 B+ t$e
e/#ress
!ill of
an+
#artner.
!$o ,ust
act in
good
fait$.
!$en no
definite
ter, or
#articular
undertaki
ng is
s#ecified:
c&7 B+ t$e
e/#ress
!ill of all
t$e
#artners
!$o
$ae not
assigned
t$eir
interests
or
suffered
t$e, to
-e
c$arged
for t$eir
se#arate
de-ts.
eit$er
-efore or
after t$e
ter,inati
on of an+
s#ecified
ter, or
#articula
r
undertak
ing:
d&7 B+ t$e
e/#ulsion
of an+
#artner
fro, t$e
-usiness
bona fide
in
accordanc
e !it$
suc$ a
#o!er
conferred
-+ t$e
agree,en
t -et!een
t$e
#artners:
3&7 In contraention
of t$e
agree,ent
-et!een t$e #artners. !$ere t$e
circu,stances do not #er,it a dissolution
under an+ ot$er #roision of t$is article. -+
t$e e/#ress !ill of an+ #artner at an+ ti,e:
9&7 B+ an+ eent !$ic$ ,akes it unla!ful for
t$e -usiness of t$e #artners$i# to -e
carried out on or for t$e ,e,-ers to carr+ it
on in #artners$i#:
<&7 B$en a s#ecific t$ing. a #artner $ad
#ro,ised to contri-ute to t$e #artners$i#.
#eris$es -efore t$e delier+: in an+ case -+
t$e loss of t$e
t$ing. !$en t$e
#artner !$o
contri-uted it
$aing resered
t$e o!ners$i#
t$ereof. $as onl+
transferred to
t$e #artners$i#
t$e use or
en"o+,ent of t$e
sa,e: -ut t$e
#artners$i# s$all
not -e dissoled
-+ t$e loss of
t$e t$ing !$en it
occurs after t$e
#artners$i# $as
ac0uired t$e
o!ners$i#
t$ereof:
8&7 B+ t$e deat$ of
an+ #artner:
'elen *! (revalo
31 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
*&7 B+ t$e insolenc+ of an+ #artner or of t$e
#artners$i#:
)&7 B+ t$e ciil interdiction of an+ #artner:
2&7 B+ decree of court under t$e follo!ing
article&
E7*6'SI8E-
Causes of dissolution
1tatutor enumeration e&clusive (rticles 1430
and 1431 provide for the causes of dissolution! Fther
causes are provided in (rticle 1470!
"nder (rticle 1430$ e1tra-udicial dissolution ma# be
caused !ithout &ioltion of the agreement between the
partners (<o! 1 or in #ontr&ention of said agreement
(<o! 2! /t ma# be &oluntr$ when caused b# the will of
one or more or all of the partners (<os! 1 and 2 or
in&oluntr$ when brought about independentl# of the will
of the partners or ,$ opertion of l! (<os! 3$ 7$ @$ A$ 5
and 4.
The voluntar# dissolution of partnership ma# be
effected e1tra-udiciall# (<os! 1 to 5 or "udi#ill$+ that is$
b# decree of court! (<o! 4$ in relation to (rt! 1431! /t will
be observed that the causes provided in (rticle 1430 result
in the uto(ti# dissolution of the partnership!
The statutor# enumeration of the causes of
dissolution precludes dissolution for an# other cause!
Effect of sale or assignment b one partner of his
entire interest in the partnership to a third person
/t does not ipso f#to bring about the dissolution of the
partnership! That it produces dissolution ma# be inferred$
however$ from the definition of dissolution under (rticle
1424! )ut the dissolution created in such case is onl#
technical$ and not actual$ i.e.+ onl# in the sense that his
connection with the partnership is terminated!
/n practice$ the S.* accepts for registration amended
articles of partnership together with the deed of sale of the
interest of the withdrawing partner!
Dissolution effected !it$out iolation of
#artners$i# agree,ent
There are 7 wa#s b# which a partnership ma# be
dissolved without violation of the partnership
agreement;
1! Termination of the definite term or particular
underta;ing (fter the e1piration of the term of
particular underta%ing$ the partnership is
automaticall# dissolved! /f after said e1piration$
the# continue wEo ma%ing a new agreement$ a
partnership at will is created!
2! B the e&press will of an partner (
partnership at will ma# be dissolved at an# time b#
an# partner wEo the consent of his co+partners wEo
breach of contract$ provided$ the said partner acts
in good faith! /f there is bad faith$ the dissolution is
wrongful and the dissolving partner will be liable for
damages!
3! B the e&press will of all the partners <o
particular form of agreement is necessar# to
dissolve a partnership b# consent! Such
dissolution ma# be
accomplished either
b# an e1press
agreement or b#
words and acts
impl#ing an
intention to
dissolve! The
agreement to
dissolve before the
termination of
termEparticular
underta%ing must
be unanimous! )ut
those who have
assigned their
interests or have
suffered them to be
charged for their
separate debts$ do
not get to vote!
7! B e&pulsion of
an partner
The e1pulsion
must be made in
good faith$ and
strictl# in
accordance with
the power
conferred b# the
agreement
between the
partners! The
partner e1pelled
in bad faith can
claim damages!
Dissolution
effected in
contraentio
n of
#artners$i#
agree,ent
Dissolution ma be
for an cause or
reason
(n# partner ma# cause the
dissolution of the
partnership at an# time
wEo consent of his co+
partners for an# reason
which he deems sufficient
b# e1pressl# withdrawing
therefrom even though the
partnership was entered
into for a definite term or
particular underta%ing!
&issolution of such
partnership is$ however$ a
contravention of the
agreement!
The legal effects of
this dissolution are liad
down in article 1435$
par! 2$ <os! 1$ 2 and 3!
Power of
dissolution alwas
e&ists There is no such
thing as an indissoluble
partnership in the sense
that there is alwa#s the
po!er of dissolution! The
doctrine of dele#tus
persone allows the
partners to have the
power$ although not
necessaril# the right$ to
dissolve the partnership!
(n un-ustified dissolution
b# a partner can sub-ect
him to a possible action
for damages!
Business -eco,es
unla!ful
&issolution ma#
be caused
involuntaril# when a
supervening event
ma%es the business
itself of the
partnership unlawful
or ma%es it unlawful
for the partners to
carr# it on together! (
partnership must
have a lawful ob-ect
or purpose!
'oss of s#ecific t$ing
The provision refers
onl# to specific things!
8hen the thing to be
contributed is not specific$
(rticles 154A (par! 1 and
1544 shall govern!
7oss before
deliver 9artnership
is dissolved because
there is no contribution
inasmuch as the thing to
be contributed cannot be
substituted with another!
There is here a failure of
a partner to fulfill his
part of the obligation!
7oss after deliver
9artnership not
dissolved but it assumes
the loss of the thing
having ac2uired
ownership thereof! The
partners ma# contribute
additional capital to save
the venture!
7oss where onl
the use or en4oment
contributed 3oss
before or after deliver#
dissolves the partnership
because in either case$
the partner cannot fulfill
his underta%ing to ma%e
available the use of the
specific thing contributed! 'ere$ the contributing partner bears the loss since he retains ownership and$
'elen *! (revalo
32 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
therefore$ he is considered in default with respect to his
contribution! "pon dissolution$ the partners ma# demand
for an accounting and li2uidation!
The mere failure b# a partner to contribute his share of
capital does not prevent the e1istence of a firm! Such
failure ma# be waived b# the others!
Deat$ of an+ #artner
The deceased partner ceases to be associated in the
carr#ing on of the business; hence$ the ipso f#to
dissolution of the partnership b# his death b# operation
of law! The surviving partners have no authorit# to
continue the business e1cept as provided in (rticle 1433!
1tatus of partnership Subse2uent legal status of
partnership is that of a partnership in li2uidation$ and the
onl# rights inherited b# the heirs are those resulting from
said li2uidation! )efore li2uidation is made$ it is
impossible to determine the share of the deceased
partner!
7i#uidation of its affairs The li2uidation is
entrusted to the surviving partners$ or to li2uidators
appointed b# them and not the administrator or
e1ecutor of the deceased partner!
%ontinuation of business without li#uidation (
clause in the articles of partnership providing for the
continuance of the firm notwithstanding the death of one
of the partners is legal!
)# common agreement$ the surviving partners and
the heirs of the deceased ma# decide to continue the
partnership! )ut the# become liable to the old creditors
of the firm!
Insolenc+ of an+ #artner or of #artners$i#
The insolvenc# of the partner or of the partnership
must be ad-udged b# a court!
The insolvenc# of a partner sub-ects his interest in the
partnership to the right of his creditors and ma%es it
impossible for him to satisf# with his propert# partnership
obligations to its creditors in the event that partnership
assets have been e1hausted! Thus$ b# his insolvenc#$ its
credit is impaired! (n insolvent partner has no authorit# to
act for the partnership not the other partners to act for
him!
The insolvenc# of the partnership renders its propert#
in the hands of the partners liable for the satisfaction of
partnership obligations resulting in their inabilit# to
continue the business$ which practicall# amounts to a
dissolution! )ut the reconve#ance b# the assignee of the
properties of the partnership pursuant to an order of the
court after the termination of the insolvenc# proceedings
involving the partnership has the effect of restoring the
partnership to its sttus .uo.
Ciil interdiction of an+ #artner
( partnership re2uires the capacit# of the partners! (
person under civil interdiction cannot validl# give consent$
as his capacit# to act is limited thereb#!
*ivil interdiction deprives the offender during the time
of his sentence of the right to manage his propert# and
dispose of such propert# b# an# act or an#
conve#ance inter
&i&os. Fne who is
wEo capacit# to
manage his own
propert# should not
be allowed to
manage partnership
propert#!
Rig$t to e/#el a #artner
/n the absence of an
e1press agreement to
that effect$ there e1ists
no right or power of an#
member$ or even a
ma-orit# of the members$
to e1pel all other
members of the firm at
will! <or can the# at will
forfeit the share or
interest of a member and
compel him to 2uit the
firm$ even pa#ing what is
due him!
Partner guilt of
e&treme and gross
faults
0ere derelictions do not
ipso f#to forfeit his right
to the common propert#
or assets of the
partnership! There ma#
be$ however$ e1treme and
gross faults which would
wor% a forfeiture$
especiall# where there
was an e1treme
emergenc# for him to
perform his dut#$ and to
be prompt and faithful!
$ndustrial partners)
engaging in business
for himself The law
authori?es the capitalist
partners to e1clude an
industrial partner who
engages in business for
himself wEo e1press
permission of the
partnership!
Power e&pressl
given b agreement
( power of e1pulsion ma#
be e1pressl# given b#
agreement! )ut the
power is not validl#
e1ercised if it is shown to
have been e1ercised
unfairl# and wEo regard
to the general interest of
the partnership!
Art& %29%& On
a##lication -+ or for
a #artner. t$e court
s$all decree a
dissolution
!$eneer6
%&7 A #artner $as
-een declared
insane in an+
"udicial
#roceeding or
is s$o!n to -e
of unsound
,ind:
3&7 A #artner
-eco,es in
an+ ot$er
!a+
inca#a-le
of
#erfor,ing
$is #art of
t$e
#artners$i#
contract:
9&7 A #artner $as
-een guilt+ of
suc$ conduct as
tends to affect
#re"udiciall+ t$e
carr+ing on of
t$e -usiness:
<&7 A #artner
!illfull+ or
#ersistentl+
co,,its a
-reac$ of t$e
#artners$i#
agree,ent. or
ot$er!ise so
conducts $i,self
in ,atters
relating to t$e
#artners$i#
-usiness t$at it
is not reasona-l+
#ractica-le to
carr+ on t$e
-usiness in
#artners$i# !it$
$i,:
8&7 T$e -usiness of
t$e #artners$i#
can onl+ -e
carried on at a
loss:
*&7 Ot$er
circu,stances
render a
dissolution
e0uita-le:
On t$e
a##lication of t$e
#urc$aser of a
#artnerDs interest
under Article %2%9
or %2%<6
%&7 After t$e
ter,inatio
n of t$e
s#ecified
ter, or #articular undertaking:
3&7 At an+ ti,e if t$e #artners$i# !as a
#artners$i# at !ill !$en t$e interest !as
assigned or !$en t$e c$arging order !as
issued&
E7*6'SI8E-
=udicial deter,ination
as to dissolution
'elen *! (revalo
33 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
.vents which ma%e it impossible to carr# on the
business as intended ma# have such serious effect that the
partnership ought to be dissolved b# decree of the court!
Such events as unlawfulness$ death$ or insolvenc# of a
partner are certain and une2uivocal! Their occurrence and
effect is not a matter of dispute or doubt!
Fn the other hand$ the facts ma# be so far open to
dispute as to ma%e a necessar# -udicial determination as
to dissolution rather than allow them to be the occasion for
automatic dissolution b# operation of law! (mong the facts
or acts which will warrant a dissolution b# -udicial decree
are those enumerated in the 1
st
paragraph of article 1431!
Grounds for dissolution -+ decree of court
&issolution of a partnership ma# be decreed -udiciall#
on application$ either (1 b# a partner in the cases
mentioned in paragraph 1$ <os! 1+A; or (2 b# the
purchaser or assignee of a partner:s interest under
paragraph 2$ <os! 1 and 2!
5n application b a partner>
$nsanit The partner ma# have been previousl#
declared insane in a -udicial proceeding; otherwise$ the
fact of his being of unsound mind must be dul# proved!
$ncapacit This refers to incapacit# other than
insanit#! The incapacit# must be lasting from which the
prospect of recover# is remote! /f the disabilit# is merel#
temporar#$ there is no fit ground to decree a dissolution!
'isconduct and persistent breach of
partnership agreement li%e incapacit#$ conduct
pre-udicial to the carr#ing on of the business and
persistent breach of the partnership agreement are
grounds for -udicial dissolution$ for the# defeat and
materiall# affect and obstruct the purpose of the
partnership!
(gain$ temporar# grievances$ etc!$ will not suffice! )ut
courts can order dissolution over pett# arguments when
these are continuous and to such an e1tent that all
confidence and cooperation is gone!
Business can be carried on onl at a loss
Since the purpose of the partnership is the carr#ing of a
business for profit$ it ma# be dissolved b# decree of court
when it becomes apparent that it is unprofitable with no
reasonable prospects of success!
( court is authori?ed to decree a dissolution
notwithstanding that the partnership has been ma%ing
profit where it appears at the time of the application that
the business can onl# be carried on at a loss!
5ther circumstances .1amples of
circumstances which render a dissolution e2uitable are
abandonment of the business$ fraud in the management
of the business$ refusal wEo -ustifiable cause to render
accounting of partnership affairs$ etc!
5n application b a purchaser of a partner:s
interest /n either of the two cases mentioned in the last
paragraph$ a purchaser of a partner:s interest under
(rticle 1413 or 1417 ma# appl# for -udicial dissolution of a
partnership!
Art& %293& E/ce#t so
far as ,a+ -e
necessar+ to !ind u#
#artners$i# affairs or
to co,#lete
transactions -egun -ut
not t$en finis$ed.
dissolution ter,inates
all aut$orit+ of an+
#artner to act for t$e
#artners$i#6
%&7 Bit$ res#ect to
t$e #artners.
a&7 B$en
t$e
dissolu
tion is
not -+
t$e act.
insole
nc+ or
deat$
of a
#artner
: or
-&7 B$en t$e
dissoluti
on is -+
suc$ act.
insolenc
+ or
deat$ or
a
#artner.
in cases
!$ere
Article
%299 so
re0uires:
3&7 Bit$ res#ect
to #ersons
not #artners.
as declared
in Article
%29<&
Effect of dissolution on
aut$orit+ of #artner
2eneral rule "pon
dissolution$ the
partnership ceases to be
an on+going concern and
the partner:s power of
representation is confined
onl# to acts incident to
winding up or completing
transactions begun but
not then finished!
The event of
dissolution terminates the
actual authorit# of a
partner to underta%e new
business for the
partnership!
Aualifications to the
rule>
$nsofar as the
partners themselves
are concerned) the
authorit# of an# partner to
bind the partnership b# a
new contract is
immediatel# terminated
when the dissolution is not
b# the act$ insolvenc#$ or
death of a partner! 8hen
the dissolution is b# such
act$ insolvenc#$ or death$
the termination of
authorit# depends upon
whether or not the partner
had %nowledge or notice of
the dissolution as provided
in (rticle 1433!
0ith respect to
third persons) the
partnership is generall#
bound b# the new
contract although the
authorit# of the acting
partner as it effects his
co+partners is alread#
deemed terminated!
'owever$ the innocent
partners ma# recover
from the acting partner!
Art& %299& B$ere
t$e dissolution is
caused -+ t$e act.
deat$ or insolenc+ of
#artner. eac$ #artner
is lia-le to $is co;
#artners for $is s$are
of an+ lia-ilit+ created
-+ an+ #artner acting
for t$e #artners$i# as
if t$e #artners$i# $ad
not -een dissoled
unless6
%&7 T$e
dissoluti
on -eing
t$e act
of an+
#artner.
t$e
#artner
acting
for t$e
#artners
$i# $ad
kno!led
ge of t$e
dissoluti
on: or
3&7 T$e dissolution
-eing -+ t$e
deat$ or
insolenc+ of a
#artner. t$e
#artner acting
for t$e
#artners$i# $ad kno!ledge or notice of t$e
deat$ or insolenc+&
4ECE/ 7I4D 26IS-
Rig$t of #artner to
contri-ution fro, co;
#artners
The above article
spea%s of dissolution
caused b# act$ insolvenc#$
or death of a partner!
'elen *! (revalo
37 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
8here a partner enters into a new contract with a 3
rd

person after dissolution$ partners generall# bound!
Aut$orit+ of #artners inter se to act for t$e
#artners$i#
The authorit# of a partner as it affects his co+partners
(not 3
rd
persons is deemed terminated e1cept in <os! 1
and 2 of 1433!
Cno!ledge or notice of cause of dissolution
Dissolution b death or insolvenc 8hen partner
dead or ban%rupt and other partner did not %now it when
he entered into transaction$ he ma# call on other partners
to contribute!
Dissolution b court decree or resulting from
unlawfulness No problem e1ists in these cases! /f b#
court decree$ all partners have actual notice of dissolution!
/f due to unlawfulness$ general rules governing actions
arising out of illegal transactions appl#!
B$en a #artner $as kno!ledge or notice of a fact
"niform 9artnership (ct;
Bnowledge> <ot onl# actual but also %nowledge of such
other facts as in the circumstances show bad faith! (otice>
8hen the person who claims the benefit of
the notice;
1! States the fact to such person; or
2! &elivers through the mail or b# other means of
communication$ a written statement of the fact or
to a proper person at his place of business or
residence!
Art& %29<& After dissolution. a #artner can -ind
t$e #artners$i# e/ce#t as #roided in t$e t$ird
#aragra#$ of t$is article6
%&7 B+ an+ act a##ro#riate for !inding u#
#artners$i# affairs or co,#leting
transactions unfinis$ed at dissolution: or
3&7 B+ an+ transaction !$ic$ !ould -ind t$e
#artners$i# if dissolution $ad not taken
#lace. #roided t$e ot$er #art+ to t$e
transaction6
a&7 Had e/tended credit to t$e
#artners$i# #rior to dissolution and
$ad no kno!ledge or notice of t$e
dissolution: or
-&7 T$oug$ $e $ad not so e/tended credit.
$ad neert$eless kno!n of t$e
#artners$i# #rior to dissolution. and.
$aing no kno!ledge or notice of
dissolution. t$e fact of dissolution $ad
not -een adertised in a ne!s#a#er of
general circulation in t$e #lace Eor in
eac$ #lace if ,ore t$an one7 at !$ic$
t$e #artners$i# -usiness !as regularl+
carried on&
T$e lia-ilit+ of a #artner under t$e first
#aragra#$. No& 3. s$all -e satisfied out of
#artners$i# assets alone !$en suc$ #artner $ad
-een #rior to dissolution6
%&7 Unkno!n as a
#artner to t$e
#erson !it$
!$o, t$e
contract is
,ade: and
3&7 So far unkno!n
and inactie in
#artners$i#
affairs t$at t$e
-usiness
re#utation of
t$e #artners$i#
could not -e
said to $ae
-een in an+
degree due to
$is connection
!it$ it&
T$e #artners$i# is
in no case -ound -+
an+ act of a #artner
after dissolution6
%&7 B$ere t$e
#artners$i# is
dissoled
-ecause it is
unla!ful to
carr+ on t$e
-usiness.
unless t$e act
is a##ro#riate
for !inding u#
#artners$i#
affairs: or
3&7 B$ere t$e
#artner $as
-eco,e
insolent: or
9&7 B$ere t$e
#artner $as
no aut$orit+
to !ind u#
#artners$i#
affairs.
e/ce#t -+ a
transaction
!it$ one
!$o 1
a&7 Had
e/tende
d credit
to t$e
#artners
$i# #rior
to
dissoluti
on and
$ad no
kno!led
ge or
notice of
$is !ant
of
aut$orit
+: or
-&7 Had not
e/tended
credit to
t$e
#artners$i
# #rior to
dissolutio
n. and.
$aing no
kno!ledg
e or
notice of
$is !ant
of
aut$orit+.
t$e fact of
$is !ant
of
aut$orit+
$as not
-een
adertised
in t$e
,anner
#roided
for
adertisin
g t$e fact
of
dissolutio
n in t$e
first
#aragra#$
. No& 3&
Not$ing in t$is
article s$all effect
t$e lia-ilit+ under
Article %238 of an+
#erson !$o after
dissolution
re#resents $i,self or
consents to anot$er
re#resenting $i, as
a #artner in a
#artners$i# engaged
in carr+ing in
-usiness&
4O2 4E%ESS'/ILA %OD'L
B12 %O77E42'/A I7*2.
Po!er of #artners to
-ind dissoled
#artners$i# to t$ird
#ersons
(rticle 1437
enumerates the cases
when a partner continues
to bind the partnership
even after dissolution (par!
1$ <os! 1 and 2 and the
case when he cannot bind
the partnership after
dissolution (par! 3$ <os! 1$
2 and 3!
0here there is no
notice to third persons of dissolution "pon
dissolution of the partnership$ as between themselves$
the power of one partner to act and bind the others is
effectivel# terminated! )ut the authorit# of a partner ma#
apparentl# continue as regards 3
rd
persons on the
assumption that the partnership is still e1isting! Since a
partnership once established is$ in the absence of
an#thing to indicate its termination$ presumed to e1ist$
the law$ for the
protection of innocent 3
rd
persons$ imposes upon
partners the dut# of
giving notice of the
dissolution of the
partnership!
0here there is actual
or constructive
;nowledge b third
persons of dissolution
The measure of the right of
3
rd
persons who continue to
deal with a dissolved
partnership depends upon
the 2uestion
'elen *! (revalo
3@ Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
of whether the# %new or should have %nown of the fact of
dissolution! /f the# did$ the validit# of their transactions is
governed b# the 2uestion whether those transactions
were necessar# to li2uidate the partnership affairs!
Notice of dissolution to creditors
As to persons who e&tended credit to
partnership prior to dissolution 0ust have
%nowledge or notice of the dissolution to relieve
partnership from liabilit#!
As to persons who had not e&tended credit prior
to dissolution but had ;nown of partnership:s
e&istence Fact that dissolution had been published in
the newspaper sufficient even if the# did not actuall# read
the advertisement!
0here acting partner has no authorit to wind up
partnership affairs under the 3
rd
paragraph$ notice of
dissolution is unnecessar# e1cept in case <o! 3$ where the
partner has no authorit# to wind up partnership affairs! 3
rd
persons dealing with the partner wEo such authorit# are
protected under the same circumstances mentioned in
paragraph 1$ <o! 2 (a and
(b!
0here acting partner has become insolvent
/nnocent partner (did not %now of other partner:s
insolvenc# is protected in his continued right to ma%e
binding partnership agreements$ but no similar protection
is e1tended to a 3
rd
person who innocentl# contracts with
an insolvent partner because it is incumbent upon him to
%now the status of the insolvent partner!
0here dissolution caused b death of a partner
&eath is not considered to be notice per se whether as
to surviving partner or as to 3
rd
persons!
C$aracter of notice re0uired
The character of notice re2uired to relieve a retiring
partner or the representatives of a deceased partner
from subse2uent liabilit# on partnership obligations
varies in accordance with the class of persons re2uired to
be notified!
As to prior dealers <otice must be actual! mere
mailing of a letter is insufficient if notice never received!
Furthermore$ there is no dut# on the part of the prior
dealer to in2uire into the 2uestion of retirement! That the
retirement was mentioned in a newspaper is insufficient!
( prior or former dealer is one who has e1tended
credit on the faith of the partnership! 0ere dealing with
the firm on a cash basis does not constitute one as a
prior dealer!
As to all others (ctual notification not necessar#!
(dvertisement in local newspaper enough! /t should be
noted$ however$ that the re2uirement of newspaper notice
appears to e1ist onl# where the 3
rd
part# %new of the
partnership prior to dissolution! /f not$ he is entitled to no
notice whatsoever!
Dor,ant #artner need not gie notice
Since dormant partner
never %nown or held out
to be a partner$ 3
rd

persons$ not having dealt
with the partnership in
reliance upon the
membership of the
dormant partner$ are not
entitled to notice of his
withdrawal!
Partners$i# -+ esto##el
after dissolution
(rticle 1437 (last par!
touches upon the sub-ect
of partnership be estoppel
((rt! 142@$ since a
partnership is held to e1ist
as to 3
rd
persons though it
does not e1ist as a going
concern so far as the
partners themselves are
concerned! The situation
differs from a partnership
b# estoppel$ however$ in
that a partnership did once
e1ist and liabilit# is based
on its continuance as a
matter of law as far as 3
rd

persons are concerned! (
partnership b# estoppel
involves a holding out b#
parties as partners when$
in fact$ the# are not
partners!
Art& %298& T$e
dissolution of t$e
#artners$i# does not of
itself disc$arge t$e
e/isting lia-ilit+ of an+
#artner&
A #artner is
disc$arged fro, an+
e/isting lia-ilit+ u#on
dissolution of t$e
#artners$i# -+ an
agree,ent to t$at effect
-et!een $i,self. t$e
#artners$i# creditor and
t$e #erson or #artners$i#
continuing t$e -usiness:
and suc$ agree,ent ,a+
-e inferred fro, t$e
course of dealing
-et!een t$e creditor
$aing kno!ledge of t$e
dissolution and t$e
#erson or #artners$i#
continuing t$e -usiness&
T$e indiidual
#ro#ert+ of a deceased
#artner s$all -e lia-le for
all o-ligations of t$e
#artners$i# incurred
!$ile $e !as a #artner.
-ut su-"ect to t$e #rior
#a+,ent of $is se#arate
de-ts&
Effect of dissolution on
#artnerDs e/isting
lia-ilit+
The dissolution of
a partnership does
not of itself discharge
the e1isting liabilit# of
a partner!
( partner ma# be
relieved from all e1isting
liabilities upon dissolution
onl# b# an agreement to
that effect between
himself$ the partnership
creditor$ and the other
partners! The consent$
however$ of the creditor
and the other partners to
the novation ma# be
implied from their conduct!
'ia-ilit+ of estate of
deceased #artner
/n accordance with
(rticle 141A$ the
individual propert# of a
deceased partner shall
be liable for all
obligations of the
partnership incurred
while he was a partner!
<ote that the individual
creditors of the
deceased partner are to
be preferred over
partnership creditors
with respect to the
separate propert# of
said deceased partner!
Art& %29*& Unless
ot$er!ise agreed. t$e
#artners !$o $ae not
!rongfull+ dissoled
t$e #artners$i# or t$e
legal re#resentatie of
t$e last suriing
#artner. not insolent.
$as t$e rig$t to !ind u#
t$e #artners$i# affairs.
#roided. $o!eer. t$at
an+ #artner. $is legal
re#resentatie or $is
assignee. u#on cause
s$o!n. ,a+ o-tain
!inding u# -+ t$e
court&
'elen *! (revalo
3A Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
?anner of !inding u#
The manner of winding up of the dissolved
partnership ma# be done either;
1! 6udiciall 1 "nder the control and direction of the
proper court upon cause shown b# an# partner$ his
legal representative$ or his assignee!
2! E&tra4udiciall )# the partners themselves
wEo intervention of the court!
Nature of action for li0uidation
(n action for the li2uidation of a partnership is a
personal one; hence$ it ma# be brought in the place of
residence of either the plaintiff or the defendant!
Persons aut$ori4ed to !ind u#
1! The partners designated b# agreement;
2! /n the absence of such agreement$ all the
partners who have not wrongfull# dissolved the
partnership; or
3! The legal representative (e1ecutor or administrator
of the last surviving partner (when all the partners
are alread# dead$ not insolvent!
7! *ourt+appointed receiver!
SuriorDs rig$t and dut+ to li0uidate
8hen a member of a partnership dies$ the dut# of
li2uidating its affairs devolves upon the surviving
member(s of the firm$ not upon the legal representative
of the deceased partner! The latter has no right to interfere
so long as the surviving partner proceeds in good faith!
Po!ers of li0uidating #artner
1! 'a;e new contracts For the purpose of
winding up the partnership$ a li2uidating partner is
sole agent of the partnership$ but merel# for that
one specific purpose! 'e cannot ma%e new
contracts wEo e1press authorit#!
2! "aise mone to pa partnership debts For
the purpose of winding up the concern$ however$
the li2uidating partner ma# bind the partnership b#
borrowing mone# to meet its accruing liabilities$
and ma# sell its real estate to raise mone# to pa#
its debts!
3! $ncur obligations to complete e&isting
contracts or preserve partnership assets (
li2uidating partner has power to incur obligations
necessar# to the completion of e1isting contracts$
and to incur debts or other obligations necessar#
for the reasonable preservation of partnership
assets or in procuring a favorable mar%et for their
disposal!
7! $ncur e&penses necessar in the conduct of
litigation 'e has power to emplo# an attorne#
when necessar# for winding up of affairs!
Art& %29)& B$en dissolution is caused in an+ !a+.
e/ce#t in contraention of t$e #artners$i# agree,ent.
eac$ #artner. as against $is co;#artners and all
#ersons clai,ing t$roug$ t$e, in
res#ect of t$eir
interests in t$e
#artners$i#. unless
ot$er!ise agreed. ,a+
$ae t$e #artners$i#
#ro#ert+ a##lied to
disc$arge its lia-ilities.
and t$e sur#lus a##lied
to #a+ in cas$ t$e net
a,ount o!ing to t$e
res#ectie #artners& But
if dissolution is caused
-+ e/#ulsion of a
#artner. bona fide under
t$e #artners$i#
agree,ent and if t$e
e/#elled #artner is
disc$arged fro, all
#artners$i# lia-ilities.
eit$er -+ #a+,ent or
agree,ent under t$e
second #aragra#$ of
Article %298. $e s$all
receie in cas$ onl+ t$e
net a,ount due $i,
fro, t$e #artners$i#&
B$en dissolution is
caused in
contraention of t$e
#artners$i#
agree,ent t$e rig$ts
of t$e #artners s$all
-e as follo!s6
%&7 Eac$
#artne
r !$o
$as
not
caused
dissolu
tion
!rongf
ull+
s$all
$ae6
a&7 All t$e
rig$ts
s#ecifi
ed in
t$e
first
#aragr
a#$ of
t$is
article
. and
-&7 T$e rig$t.
as against
eac$
#artner
!$o $as
caused
t$e
dissolutio
n
!rongfull
+. to
da,ages
for -reac$
of t$e
agree,en
t&
3&7 T$e #artners
!$o $ae not
caused t$e
dissolution
!rongfull+. if
t$e+ all desire
to continue t$e
-usiness in t$e
sa,e na,e
eit$er -+
t$e,seles or
"ointl+ !it$
ot$ers. ,a+ do
so. during t$e
agreed ter, for
t$e #artners$i#
and for t$at
#ur#ose ,a+
#ossess t$e
#artners$i#
#ro#ert+.
#roided t$e+
secure t$e
#a+,ent -+
-ond a##roed
-+ t$e court. or
#a+ to an+
#artner !$o
$as caused t$e
dissolution
!rongfull+. t$e
alue of $is
interest in t$e
#artners$i# at
t$e dissolution.
loss an+
da,ages
recoera-le
under t$e
second
#aragra#$. No&
% E-7 of t$is
article. and in
like ,anner
inde,nif+ $i,
against all
#resent or
future
#artners$i#
lia-ilities&
9&7 A #artner !$o
$as caused
t$e
dissolution
!rongfull+
s$all $ae6
a&7 If t$e
-usiness
is not
continued
under t$e
#roisions of t$e second #aragra#$.
No& 3. all t$e rig$ts of a #artner under
t$e first #aragra#$. su-"ect to lia-ilit+
for da,ages in t$e second #aragra#$.
No& %E-7. of t$is article&
-&7 If t$e -usiness is continued under t$e
second #aragra#$. No& 3. of t$is
article. t$e rig$t as against $is
co#artners and all clai,ing t$roug$
t$e, in res#ect of t$eir interests in
t$e #artners$i#. to $ae t$e alue of
$is interest in t$e #artners$i#. less
an+
da,age
caused to
$is co;
#artners
-+ t$e
dissolutio
n.
ascertain
ed and
#aid to
$i, in
cas$. or
t$e
#a+,ent
secured
-+ a -ond
a##roed
-+ t$e
court.
and to -e
released
fro, all
e/isting
lia-ilities
'elen *! (revalo
35 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
of t$e #artners$i#: -ut in ascertaining
t$e alue of t$e #artnerDs interest t$e
alue of t$e good!ill of t$e -usiness
s$all not -e considered&
DEI4S D' D'D E2O-
Rig$t of #artner to a##lication of #artners$i#
#ro#ert+ on dissolution
The ob-ectives of article 1435 are$ in the main$ to
provide for the pa#ment of the partner who leaves the
firm$ and to indemnif# him against e1isting or possible
future liabilit#! ( partner:s lien is created!
Rig$ts !$ere dissolution not in contraention of
agree,ent
1! To have partnership propert# applied to discharge
the liabilities of the partnership; and
2! To have the surplus$ if an#$ applied to pa# in cash
the net amount owing to the respective partners!
Rig$ts !$ere dissolution in contraention of
agree,ent
"ights of partner who has not caused the
dissolution wrongfull>
1! To have partnership propert# applied for the
pa#ment of its liabilities and to receive in cash
his share of the surplus;
2! To be indemnified for damages caused b# the
partner guilt# of wrongful dissolution;
3! To continue the business in the same name
during the agreed term of the partnership$ b#
themselves or -ointl# with others; and
7! To possess partnership propert# should the#
decide to continue the business!
"ights of partner who has wrongfull caused
the dissolution>
1! /f business not continued b# the other partners; to
have the partnership propert# applied to discharge
its liabilities and to receive in cash his share of the
surplus less damages caused b# his wrongful
dissolution!
2! /f the business is continued;
a! To have the value of his interest in the
partnership at the time of the dissolution$
less an# damage caused b# the dissolution
to his co+partners$ ascertained and paid in
cash or secured b# bond approved b# the
court; and
b! To be released from all e1isting and
future liabilities of the partnership!
Good!ill of a -usiness6 The advantage which it has
from its establishment or from the patronage of its
customers$ over and above the mere value of its
propert# and capital!
2oodwill as part of partnership assets Good will
of partnership$ if of mone# value$ is usuall# considered part
of the propert# and assets of the firm$ in the absence of a
contract to the contrar#!
!irm name as part
of goodwill The
name of a firm is an
important part of the
good will and its use
ma# be protected
accordingl#!
E&istence of a
saleable goodwill The
goodwill of a business is a
proper sub-ect of sale!
'owever$ a saleable
goodwill can e1ist onl# in a
commercial partnership
(not in a professional
one!
Art& %292& B$ere a
#artners$i# contract
is rescinded on t$e
ground of t$e fraud or
,isre#resentation of
one of t$e #arties
t$ereto. t$e #art+
entitled to rescind is.
!it$out #re"udice to
an+ ot$er rig$t.
entitled6
%&7 To a lien on. or
rig$t of
retention of. t$e
sur#lus of t$e
#artners$i#
#ro#ert+ after
satisf+ing t$e
#artners$i#
lia-ilities to 9
rd

#ersons for an+
su, of ,one+
#aid -+ $i, for
t$e #urc$ase of
an interest in t$e
#artners$i# and
for an+ ca#ital or
adances
contri-uted -+
$i,:
3&7 To stand. after
all lia-ilities to
9
rd
#ersons
$ae -een
satisfied. in
t$e #lace of
t$e creditors of
t$e
#artners$i# for
an+ #a+,ents
,ade -+ $i, in
res#ect of t$e
#artners$i#
lia-ilities: and
9&7 To -e
inde,nified -+
t$e #erson
guilt+ of fraud
or ,aking t$e
re#resentation
against all de-ts
and lia-ilities of
t$e #artners$i#&
DEI4S 4' DI4 E2O-
Rig$t of #artner to
rescind contract of
#artners$i#
/f one is induced b#
fraud or misrepresentation
to become a partner$ the
contract is voidable or
annullable!
/f the contract is
annulled$ the in-ured part#
is entitled to restitution!
'ere$ the fraud or
misrepresentation vitiates
consent! 'owever$ until the
partnership contract is
annulled b# a proper action
in court$ the partnership
relations e1ist and the
defrauded partner is liable
for all obligations to 3
rd

persons!
Rig$ts of in"ured
#artner !$ere
#artners$i#
contract
rescinded
1! Right of lien on$ or
retention of$ the
surplus of
partnership
propert# after
satisf#ing
partnership
liabilities for an#
sum of mone#
paid or
contributed b#
him;
2! Right to
subrogation in
place of
partnership
creditors after
pa#ment of
partnership
liabilities; and
3! Right of
indemnification
b# the guilt#
partner against
all debts and
liabilities of the
partnership!
Art& %295& In settling
accounts -et!een t$e
#artners after
dissolution. t$e
follo!ing rules s$all -e
o-sered. su-"ect to
an+ agree,ent to t$e
contrar+6
%&7 T$e assets of t$e #artners$i# are6
a&7 T$e #artners$i# #ro#ert+.
'elen *! (revalo
34 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
-&7 T$e contri-utions of t$e #artners
necessar+ for t$e #a+,ent of all t$e
lia-ilities s#ecified in No& 3&
3&7 T$e lia-ilities of t$e #artners$i# s$all rank
in order of #a+,ent. as follo!s6
a&7 T$ose o!ing to creditors ot$er t$an
#artners.
-&7 T$ose o!ing to #artners ot$er t$an
for ca#ital and #rofits.
c&7 T$ose o!ing to #artners in res#ect of
ca#ital.
d&7 T$ose o!ing to #artners in res#ect of
#rofits&
9&7 T$e assets s$all -e a##lied in t$e order of
t$eir declaration in No& % of t$is article to
t$e satisfaction of t$e lia-ilities&
<&7 T$e #artners s$all contri-ute. as #roided
-+ Article %)5). t$e a,ount necessar+ to
satisf+ t$e lia-ilities&
8&7 An assignee for t$e -enefit of creditors or
an+ #erson a##ointed -+ t$e court s$all
$ae t$e rig$t to enforce t$e contri-utions
s#ecified in t$e #receding nu,-er&
*&7 An+ #artner or $is legal re#resentatie s$all
$ae t$e rig$t to enforce t$e contri-utions
s#ecified in No& <. to t$e e/tent of t$e a,ount
!$ic$ $e $as #aid in e/cess of $is s$are of
t$e lia-ilit+&
)&7 T$e indiidual #ro#ert+ of a deceased
#artner s$all -e lia-le for t$e contri-utions
s#ecified in No& <&
2&7 B$en #artners$i# #ro#ert+ and t$e indiidual
#ro#erties of t$e #artners are in #ossession
of a court for distri-ution. #artners$i#
creditors s$all $ae #riorit+ on #artners$i#
#ro#ert+ and se#arate creditors on indiidual
#ro#ert+. saing t$e rig$ts of lien or secured
creditors&
5&7 B$ere a #artner $as -eco,e insolent or
$is estate is insolent. t$e clai,s against
$is se#arate #ro#ert+ s$all rank in t$e
follo!ing order6
a&7 T$ose o!ing to se#arate creditors:
-&7 T$ose o!ing to #artners$i#
creditors:
c&7 T$ose o!ing to #artners -+ !a+ of
contri-ution&
K4OD 26E /1LES O4 SE22LI45 '%%O142S. =It<s lon)
,ut it is si(ple?
'i0uidation and distri-ution of assets of dissoled
#artners$i#
The process of winding up$ where the business of the
dissolved partnership is not continued$ consists in reducing
the propert# to cash and distributing the proceeds! The
propert# must be li2uidated and distributed! 9artners
severall# have the implied authorit# to sell partnership
propert# and to collect obligations due to the partnership!
These powers ma# be delegated
to one or more of their
number as li2uidating
partner or partners!
The law$ however$ does
not re2uire a partnership
to convert all its assets
into cash before ma%ing a
distribution to the
partners! /t is within the
power of the court to
order a distribution of its
assets in cash$ propert#$
or a combination of both!
9ropert# which ma# be
made available for
distribution includes$ in
addition to the partnership
propert#$ contributions
which ma# be collected
from the partners so far
as ma# be necessar# for
the pa#ment of
partnership obligations to
creditors and to partners!
( partner has a right
to have debts owing to
the partnership from his
co+partners deducted
from their respective
shares! This right is
called =e2uitable lien> or
=2uasi lien!> /t e1ists onl#
when the affairs of the
partnership are rounded
up and the shares of the
partners are computed
after dissolution!
Rules in settling
accounts -et!een
#artners after
dissolution
(rticle 1436 sets forth a
priorit# s#stem for the
distribution of partnership
propert# (see (rt! 1410
and individual propert#
when a partnership is
dissolved!
The following
rules are sub-ect to
variation b#
agreement of the
partners!
Assets of the
partnership>
1! 9artnership
propert# (including
good will; and
2! *ontributions of
the partners
necessar# for the
pa#ment of all
liabilities in
accordance with
(rticle 1565!
5rder of application
of the assets>
1! Those owing to
partnership creditors;
2! Those owing to
partners other
than for capital
and profits such
as loans given b#
the partners or
advances for
business
e1penses;
3! Those
owing for
the return
of the
capital
contribute
d b# the
partners;
and
7! The share of
the profits$ if
an#$ due to
each partner!
7oans and advances
made b partners to the
partnership are not capital!
<or are the# undivided
profit$ unless otherwise
agreed! *apital
contributions are
returnable onl# on
dissolution$ but loans are
pa#able at maturit# and
accumulated profits ma#
be withdrawn at an# time
b# consent of a ma-orit#!
(mounts paid into the
partnership in e1cess of a
partner:s agreed capital
contributions constitute
loans or advances which
draw interest on which
the# were made!
(ccumulated profits do not
draw interest$ as the# are
not regarded as loans and
advances merel# because
the# are left with the firm!
%apital contributed
b partners *apital
represents a debt of the
firm to the contributing
partners! /f$ on
dissolution$ partnership
assets are insufficient to
repa# capital
investments$ the deficit
is a capital loss which
re2uires contribution li%e
an# other loss! The
return of the amount
e2uivalent to the capital
contribution of each
partner shall be
increased b# his share of
undistributed profits or decreased b# his share of net losses!
'elen *! (revalo
36 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
( partner who furnishes no capital but contributes
merel# his s%ill and services is not entitled to an# part of
the firm capital on dissolution in the absence of
agreement! 'e must loo% for his compensation to his share
of the profits remaining after repa#ment of the capital to
the contributors!
"ight of a partner where assets insufficient /f
the assets enumerated in <o! 1 are insufficient$ the deficit
is a capital loss which re2uires contribution li%e an# other
loss! (n# partner or his legal representative$ or an#
assignee for the benefit of the creditors or an# person
appointed b# the court$ shall have the right to enforce the
contributions! /f an# partner does not pa# his share$ the
others will pa# but the# can sue the non+pa#ing partner
for indemnification!
7iabilit of deceased partner:s individual
propert The individual propert# of a deceased
partner shall be liable for his share of the contributions
necessar# to satisf# the liabilities of the partnership
incurred while he was a partner!
Priorit to pament of partnership
creditors=partners: creditors Do#trine of (rshlin)
of ssets@ 9artnership assets to partnership creditors!
/ndividual assets to individual creditors! (n#thing left
from either goes to the other!
Distribution of propert of insolvent partner /f a
partner is insolvent$ his individual propert# shall be
distributed as follows;
1! To those owing to separate creditors;
2! To those owing to partnership creditors; and
3! To those owing to partners b# wa# of
contribution!
Art& %2<A& In t$e follo!ing cases creditors of t$e
dissoled #artners$i# are also creditors of t$e #erson
of #artners$i# continuing t$e -usiness6
%&7 B$en an+ ne! #artner is ad,itted into an
e/isting #artners$i#. or !$en an+ #artner
retires and assigns Eor t$e re#resentatie of
t$e deceased #artner assigns7 $is rig$ts in
#artners$i# #ro#ert+ to t!o or ,ore of t$e
#artners. or to one or ,ore of t$e #artners
and one or ,ore t$ird #ersons. if t$e -usiness
is continued !it$out li0uidation of t$e
#artners$i# affairs:
3&7 B$en all -ut one #artner retire and assign Eor
t$e re#resentatie of a deceased #artner
assigns7 t$eir rig$ts in #artners$i# #ro#ert+ to
t$e re,aining #artner. !$o continues t$e
-usiness !it$out li0uidation of #artners$i#
affairs. eit$er alone or !it$ ot$ers:
9&7 B$en an+ #artner retires or dies and t$e
-usiness of t$e dissoled #artners$i# is
continued as set fort$ in Nos& % and 3 of t$is
article. !it$ t$e consent of t$e retired
#artners or t$e re#resentatie of t$e deceased
#artner. -ut !it$out an+ assign,ent of $is
rig$t in #artners$i# #ro#ert+:
<&7 B$en all t$e #artners or t$eir
re#resentaties assign t$eir rig$ts in
#artners$i#
#ro#ert+ to one
or ,ore t$ird
#ersons !$o
#ro,ise to #a+
t$e de-ts and
!$o continue
t$e -usiness of
t$e dissoled
#artners$i#:
8&7 B$en an+
#artner
!rongfull+
causes a
dissolution and
t$e re,aining
#artners
continue t$e
-usiness under
t$e #roisions of
Article %29).
second
#aragra#$. No&
3. eit$er alone or
!it$ ot$ers. and
!it$out
li0uidation of
#artners$i#
affairs:
*&7 B$en a #artner
is e/#elled and
t$e re,aining
#artners
continue t$e
-usiness eit$er
alone or !it$
ot$ers !it$out
li0uidation of
t$e #artners$i#
affairs&
T$e lia-ilit+ of a t$ird
#erson -eco,ing a
#artner in t$e
#artners$i# continuing
t$e -usiness. under t$is
article. to t$e creditors
of t$e dissoled
#artners$i# s$all -e
satisfied out of t$e
#artners$i# #ro#ert+
onl+. unless t$ere is a
sti#ulation to t$e
contrar+&
B$en t$e -usiness
of a #artners$i# after
dissolution is continued
under an+ conditions
set fort$ in t$is article
t$e creditors of t$e
dissoled #artners$i#.
as against t$e se#arate
creditors of t$e retiring
or deceased #artner.
$ae a #rior rig$t to
an+ clai, of t$e retired
#artner or t$e
re#resentatie of t$e
deceased #artner
against t$e #erson or
#artners$i# continuing
t$e -usiness. on
account of t$e retired
or deceased #artnerDs
interest in t$e dissoled
#artners$i# or on
account of an+
consideration #ro,ised
for suc$ interest of for
$is rig$t in #artners$i#
#ro#ert+&
Not$ing in t$is
article s$all -e $eld to
,odif+ an+ rig$t of
creditors to set aside
an+ assign,ent on t$e
ground of fraud&
T$e use -+ t$e
#erson or #artners$i#
continuing t$e -usiness
of t$e #artners$i#
na,e. or t$e na,e of a
deceased #artner as
#art t$ereof. s$all not
of itself ,ake t$e
indiidual #ro#ert+ of
t$e deceased #artner
lia-le for an+ de-ts
contracted -+ suc$
#erson or #artners$i#&
4O2 /E'LLA %OD'L B12
%O77E42'/A-
Dissolution of
a #artners$i#
-+ c$ange in
,e,-ers$i#
%auses>
1! <ew partner is
admitted;
2! 9artner retires;
3! 9artner dies;
7! 9artner withdraws;
@! 9artner is e1pelled
from partnership;
A! Fther
partners
assign
their rights
to sole
remaining
partner;
5! (ll the partners
assign their rights
in partnership
propert# to 3
rd

persons!
(n# change in
membership dissolves a
partnership and creates
a new one!
%ontinuation of
partnership without
li#uidation
( partnership dissolved b# an# of these happenings
need not undergo the
procedure relating to
dissolution
'elen *! (revalo
70 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
and winding up of its business affairs! The remaining
partners (andEor new partners ma# elect to continue the
business of the old partnership wEo interruption b# simpl#
ta%ing over the business enterprise owned b# the
preceding partner and continuing the use of the old name!
The rights and obligations of the partners as among
themselves in case of such continuation are set forth in
(rticle 1435! /t is$ however$ technicall# considered a new
partnership!
Rig$ts of creditors of dissoled #artners$i# !$ic$
is continued
This article deals with the rights of creditors when the
partnership is dissolved b# a change of membership and its
business is continued!
E#ual rights of dissolved and new partnership
creditors The creditors of the old partnership are also
the creditors of the new partnership which continues the
business of the old one wEo li2uidation of partnership
affairs!
7iabilit of persons continuing business <ote that
under par! 2$ the liabilit# of the new or incoming partners
shall be satisfied out of partnership propert# onl# unless
there is a stipulation to the contrar#!
<ote that par! 1$ <o! 7$ applies onl# when the 3
rd

person continuing the business promises to pa# the
debts of the partnership! Ftherwise$ creditors of the
dissolved partnership have no claim on the person or
partnership continuing the business or its propert#
unless the assignment can be set aside as a fraud on
creditors under par! 7!
Prior right of dissolved partnership creditors as
against purchaser 8hen a retiring or deceased partner
has sold his interest in the partnership wEo a final settlement
with creditors of the partnership$ such creditors have an
e2uitable lien on the consideration paid to the retiring or
deceased partner b# the purchaser thereof! This lien comes
ahead of the claims of the separate creditors of the retired or
deceased partner!
Continuation of dissoled #artners$i# -usiness -+
anot$er co,#an+
0hen corporation deemed a mere continuation
of prior partnership 8here a corporation was formed
b#$ and consisted of$ members of a partnership whose
business and propert# was conve#ed and transferred to
the corporation for the purpose of continuing business$ in
pa#ment for which corporate capital stoc% was issued$
such corporation is presumed to have assumed
partnership debts and is pri( f#ie liable therefor!
0hen obligations of compan bought out
considered assumed b vendee 8hen said
obligations are not of considerable amount or value
especiall# when incurred in the ordinar# course$ and when
the business of the latter is continued! (<FT when the
obligation is of e1traordinar# value$ and the compan# was
bought out to eliminate competition D not to continue
business!
E/e,#tion fro,
lia-ilit+ of indiidual
#ro#ert+ of deceased
#artner
The last paragraph of
(rticle 1470 primaril#
deals with the e1emption
from liabilit# to creditors
of a dissolved partnership
of the individual propert#
of the deceased partner
for debts contracted b#
the person or partnership
which continues eth
,usiness using the
partnership name or
name of the deceased
partner as part thereof!
8hat the law
contemplates is a hold+
over situation
preparator# to formal
reorgani?ation!
/t treats more of a
#o((er#il
partnership with a
good will to protect
rather than a
professional
partnership with no
saleable good will!
Art& %2<%& B$en an+
#artner retires or dies.
and t$e -usiness is
continued under an+ of
t$e conditions set fort$
in t$e #receding article.
or in Article %29).
second #aragra#$. No&
3. !it$out an+
settle,ent of accounts
as -et!een $i, or $is
estate and t$e #erson
or #artners$i#
continuing t$e -usiness.
unless ot$er!ise
agreed. $e or $is legal
re#resentatie as
against suc$ #erson or
#artners$i# ,a+ $ae
t$e alue of $is interest
at t$e date of
dissolution ascertained.
and s$all receie as an
ordinar+ creditor an
a,ount e0ual to t$e
alue of $is interest in
t$e dissoled
#artners$i# !it$
interest. or at $is o#tion
or at t$e o#tion of $is
legal re#resentatie. in
lieu of interest. t$e
#rofits attri-uta-le to
t$e use of $is rig$t in
t$e #ro#ert+ of t$e
dissoled #artners$i#:
#roided t$at t$e
creditors of t$e
dissoled #artners$i#
as against t$e se#arate
creditors. or t$e
re#resentatie of t$e
retired or deceased
#artner. s$all $ae
#riorit+ on an+ clai,
arising under t$is
article. as #roided -+
Article %2<A. t$ird
#aragra#$&
Rig$ts of retiring. or of
estate of deceased.
#artner !$en -usiness
continued
1! To have the value
of the interest of
the retiring
partner or
deceased partner
in the
partnership
ascertained as of
the date of
dissolution (i.e.
date of
retirement or
death; and
2! To receive
thereafter$ as an
ordinar# creditor$
an amount e2ual
to the value of his
share in the
dissolved
partnership with
interest$ or$ at his
option$ in lieu of
interest$ the profits
attributable to the
use of his right!
Art& %2<3& T$e rig$t
to an account of $is
interest s$all accrue to
an+ #artner. or $is legal
re#resentatie as
against t$e !inding u#
#artners or t$e
suriing #artners or
t$e #erson or
#artners$i# continuing
t$e -usiness. at t$e
date of dissolution. in
t$e a-sence of an+
agree,ent to t$e
contrar+&
E7*6'SI8E-
Accrual and
#rescri#tion of a
#artnerDs rig$t to
account of $is interest
'elen *! (revalo
71 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
The right to demand an accounting of the value of his
interest accrues to an# partner or his legal representative
after dissolution in the absence of an agreement to the
contrar#!
9rescription beings to run onl# upon the dissolution of
the partnership when the final accounting is done! "nder
(rticles 140A$ 1405$ and 1406$ the right to demand an
accounting e1ists as long as the partnership e1ists!
Person lia-le to render an account
1! The winding up partner;
2! The surviving partner; or
3! The person or partnership continuing the
business!
'i0uidation necessar+ for deter,ination of
#artnerDs s$are
1hare of the profits The profits of a business
cannot be determined b# ta%ing into account the result of
one particular transaction instead of all the transactions
had! 'ence$ the need for a general li2uidation before a
member of a partnership ma# claim a specific sum as his
share of the profits!
8hen there is lac% of evidence to ascertain the
profits for a given period of time$ the average will be
used of the time prior or subse2uent thereto for which
there e1ists evidence!
1hare in the partnership ( partner:s share cannot
be returned wEo first dissolving and li2uidating the
partnership$ for the firm:s outside creditors have preference
over the assets of the enterprise and the firm:s propert#
cannot be diminished to their pre-udice!
<o specific amounts or properties ma# be ad-udicated to
the heir or legal representative of the deceased partner wEo
the li2uidation being first terminated!
B$en li0uidation not re0uired
(s a general rule$ when a partnership is dissolved$ a
partner or his legal representative is entitled to the
pa#ment of what ma# be due after a li2uidation! )ut no
li2uidation is necessar# when there is alread# a
settlement or an agreement as to what he shall receive!
CHAPTER <& 'I?ITED PARTNERSHIP
Brief $istor+
(pparentl# even more ancient than ordinar#
partnership! (n outgrowth of Roman 3awMschwar$
schwar$ schwarM
Sources of Ciil Code #roisions6 "niform 3imited
9artnership (ct!
Article %2<9& A li,ited #artners$i# is one for,ed
-+ t!o or ,ore #ersons under t$e #roisions of t$e
follo!ing article. $aing as ,e,-ers one or ,ore
general #artners and one or ,ore li,ited #artners&
T$e li,ited #artners as
suc$ s$all not -e
-ound -+ t$e
o-ligations of t$e
#artners$i#&
K4OD 26E
%6'/'%2E/IS2I%SF
DI33E/E4%ES BE2DEE4
5E4E/'L '4D LI7I2ED
*'/24E/S6I*.
Conce#t of li,ited
#artners$i#
The form of business
association composed of
one or more general
partners and one or more
special partners$ the
latter not being liable for
the partnership debts!
The liabilit# of
limited partners is
limited to a fi1ed
amount D their capital
contributions or the
amount the# have
invested in the
partnership!
C$aracteristics of
li,ited #artners$i#
1!
For
med
b#
com
plian
ce
with
stat
utor
#
re2u
irem
ents
;
2! Fne or more
general
partners
control the
business and
are personall#
liable to
creditors;
3! Fne or more
limited
partners
contribute to
the capital
and share in
the profits but
do not
participate in
the
management
of the
business and
are not
personall#
liable for
partnership
obligations
be#ond the
amount of their
capital
contributions;
7! The limited
partners ma#
as% for the
return of their
capital
contributions
under the
conditions
prescribed b#
law; and
@! The partnership
debts are paid
out of common
fund and the
individual
properties of the
general partners!
Business
reason and
#ur#ose of
statutes
aut$ori4ing
li,ited
#artners$i#s
1! Secure capital
from others for
one:s business
and still retain
control;
2! Share in
profits of a
business
without ris%
of personal
liabilit#;
3! (ssociate as
partners with
those having
business s%ill
Differences
-et!een a
general #artner>
#artners$i# and a
li,ited
#artner>#artners$
i#
General #artner 'i,ited #artner
9ersonall# liable for 3iabilit# e1tends onl# to his
partnership obligations! capital contribution!
8hen the manner of mgt <o share in the mgt of a
has not been agreed upon$ limited partnership! 'e
all of the general partners becomes liable as a
have an e2ual right in the general partner if he ta%es
mgt of the business! part in control of business!
0a# contribute mone#$ 0ust contribute cash or
propert#$ or industr#! propert#! <ot services!
9roper part# to <FT a proper part# in such
proceedings b# or against proceedings!
partnership!
'is interest cannot be 'is interest is freel#
assigned as to ma%e the assignable$ with the
assignee a new partner assignee ac2uiring all the
wEo the consent of the rights of a limited partner
other partners! sub-ect to certain
'elen *! (revalo
72 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
2ualifications!
'is name ma# appear in Generall#$ his name must
the firm name! not!
9rohibited from engaging <o such prohibition!
in a business which is of
the %ind of business in
which the partnership is
engaged (if capitalist or
an# business for himself (if
industrial!
'is retirement$ death$ 'is retirement$ death$
insanit#$ or insolvenc# insanit#$ insolvenc# does
dissolves the partnership! not!
The above also indicate the differences between a
general partnership and a limited partnership! The
other differences are;
General #artners$i# 'i,ited Partners$i#
0a# be constituted in an# *reated b# the members
form b# contract or after compliance with the
conduct of the parties! re2uirements set forth b#
law!
*omposed onl# of general *omposed both of general
partners! and limited partners!
(n# firm name desired as 0ust operate under a firm
long as not same$ name followed b# the word
confusingl# similar! =3imited!>
Art& %2<<& T!o or ,ore #ersons desiring
to for, a li,ited #artners$i# s$all6
%&7 Sign and s!ear to a certificate. !$ic$
s$all state 1
a&7 T$e na,e of t$e #artners$i#.
adding t$ereto t$e !ord F'i,itedG:
-&7 T$e c$aracter of t$e -usiness:
c&7 T$e location of t$e #rinci#al #lace
of -usiness:
d&7 T$e na,e and #lace of residence
of eac$ ,e,-er. general and
li,ited #artners -eing
res#ectiel+ designated:
e&7 T$e ter, for !$ic$ t$e #artners$i#
is to e/ist:
f&7 T$e a,ount of cas$ and a
descri#tion of and t$e agreed alue
of t$e ot$er #ro#ert+ contri-uted -+
eac$ li,ited #artner:
g&7 T$e additional contri-utions. if an+.
to -e ,ade -+ eac$ li,ited #artner
and t$e ti,es at !$ic$ or eents on
t$e $a##ening of !$ic$ t$e+ s$all
-e ,ade:
$&7 T$e ti,e. if agreed u#on. !$en t$e
contri-ution of eac$ li,ited
#artner is to -e returned:
i&7 T$e s$are of t$e #rofits or t$e ot$er
co,#ensation -+ !a+ of inco,e !$ic$
eac$ li,ited #artner s$all receie -+
reason of $is contri-ution:
"&7 T$e rig$t. if gien. of a li,ited
#artner to su-stitute an assignee
as
contri
-utor
in $is
#lace.
and
t$e
ter,s
and
condit
ions
of t$e
su-sti
tution
:
k&7 T$e
rig$t. if
gien.
of
#artner
s to
ad,it
addition
al
li,ited
#artner
s:
l&7 T$e rig$t.
if gien. of
one or
,ore of
t$e li,ited
#artners
to #riorit+
oer ot$er
li,ited
#artners.
as to
contri-utio
ns or as to
co,#ensat
ion -+ !a+
of inco,e.
and t$e
nature of
suc$
#riorit+:
,&7 T$e rig$t.
if gien. of
t$e
re,aining
general
#artner or
#artners to
continue
t$e
-usiness on
t$e deat$.
retire,ent.
ciil
interdiction
. insanit+ or
insolenc+
of a general
#artner:
and
n&7 T$e
rig$t. if
gien.
of a
li,ited
#artner
to
de,an
d and
receie
#ro#ert
+ ot$er
t$an
cas$ in
return
for $is
contri-
ution&
3&7 @ile for record
t$e certificate in
t$e Office of t$e
Securities and
E/c$ange
Co,,ission&
A li,ited #artners$i#
is for,ed if t$ere $as
-een su-stantial
co,#liance in good
fait$ !it$ t$e foregoing
re0uire,ents&
4O2 %OD'L B12
%O77E42'/A.
'i,ited #artners$i# not
created -+ ,ere
oluntar+ agree,ent
( limited
partnership is formed
if there has been
substantial
compliance in good
faith with the
re2uirements set
forth in (rticle 1477!
The creation of a limited
partnership is a formal
proceeding and is not a
mere voluntar# agreement$
as in the case of a general
partnership! (ccordingl#$
the re2uirements of the
statute must be followed;
otherwise$ the liabilit# of
the limited partners
becomes the same as that
of general partners!
Re0uire,ent
s for
for,ation of
a li,ited
#artners$i#
1! The certificate or
articles of the
limited
partnership
which states the
matters
enumerated in the article$ must be signed and
sworn to; and
2! Such certificate must be filed for record in the
Fffice of the S.*!
E/ecution of t$e #rescri-ed certificate
( prime re2uisite to the formation of a limited
partnership$ under (rticle 1477$ is the e1ecution of the
prescribed certificate! This
document$ as a rule$ must
contain the matters
enumerated in said article!
Thus$ a limited
partnership cannot be
constituted orall#!
This is to protect those
who deal with the
firm! The statements
re2uired in the
certificate must be
true at the time the
certificate and other
re2uired papers are filed
with the S.*!
'elen *! (revalo 73 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
( person who files a false certificate thereb# renders
himself liable as a general partner!
Su-stantial co,#liance in good fait$ sufficient
"ules applicable where there is no substantial
compliance The firm becomes a general partnership
onl# as to its relation to 3
rd
persons! /t is$ in form$ still a
limited partnership sub-ect to all the rules applicable to a
limited partnership! Thus$ a limited partner treated as a
general partner as far as 3
rd
persons are concerned is
entitled to reimbursement from the general partner for
whatever obligations he might have paid to partnership
creditors be#ond his capital contribution!
"ule where partnership creditor guilt of
estoppel /f attaching creditors recogni?e and deal
with a firm as a limited partnership$ the# will be
estopped from insisting that there is no such
partnership$ or that the terms of the partnership were
not sufficientl# stated in the notice of its formation!
Presu,#tion of general #artners$i#
( partnership transacting business is$ pri( f#ie$ a
general partnership and those who see% to avail
themselves of the protection of laws permitting the
creation of limited partnerships must show due
compliance with such laws!
Construction of #roisions on li,ited #artners$i#s
General rule; courts should adopt and enforce a
construction which$ on the one hand$ will not defeat one
of the ob-ects of the law and$ upon the other hand$ will
not under cover of a substantial compliance with the
re2uirements with the re2uirements of the statute$ fritter
awa# the protection which the law has thrown around
persons dealing with such partnerships!
*ourts must consider substance rather than form in
construing the law! 'owever$ it should be construed to
insure substantial compliance with all the statutor#
provisions which are designed for the protection of
persons dealing with the partnership!
B$o ,a+ -eco,e li,ited #artners
"nder a statute which provides that the membership of
a limited partner consists of specified =persons>$ a
partnership cannot become a limited partner! (n e1isting
general partnership ma# be changed into a limited one$
and a partner in the former general partnership ma#
become a limited partner in the limited partnership thus
formed!
Art& %2<8& T$e contri-utions of a li,ited #artner ,a+
-e cas$ or ot$er #ro#ert+. -ut not serices&
E7*6'SI8E-
'i,ited #artnerDs contri-ution
'edium ( limited
partner is not allowed to
contribute services! 'e
can contribute onl#
mone# or propert#;
otherwise$ he shall be
considered as industrial
and general partner$ in
which case$ he shall not
be e1empted from
personal liabilit#!
( partner ma# be a
general partner and a
limited partner in the
same partnership at the
same time$ provided
that this fact shall be
stated in the certificate$
but a limited partner
ma# not be an industrial
partner without being a
general partner!
Time The
contribution of each
limited partner must be
paid before the formation
of the limited partnership$
although with respect to
the additional
contributions the# ma# be
paid after the limited
partnership has been
formed!
Art& %2<*& T$e
surna,e of a li,ited
#artner s$all not
a##ear in t$e
#artners$i# na,e
unless6
%&7 It is also t$e
surna,e of a
general #artner:
or
3&7 Prior to t$e ti,e
!$en t$e li,ited
#artner -eca,e
suc$. t$e
-usiness $ad
-een carried on
under a na,e in
!$ic$ $is
surna,e $ad
a##eared&
A li,ited #artner
!$ose surna,e
a##ears in a
#artners$i# na,e
contrar+ to t$e
#roisions of t$e first
#aragra#$ is lia-le as a
general #artner to
#artners$i# creditors
!$o e/tend credit to
t$e #artners$i# !it$out
actual kno!ledge t$at
$e is not a general
#artner&
Effect !$ere surna,e
of li,ited #artner
a##ears in #artners$i#
na,e
3imited partner
becomes liable to
partnership creditors wEo
the rights of a general
partner! Ff course$ such
limited partner shall not
be liable as a general
partner wE respect to 3
rd

persons wE actual
%nowledge that he is onl#
a limited partner!
Art& %2<)& If t$e
certificate contains
false state,ents. one
!$o suffers loss -+
reliance on suc$
state,ent ,a+ $old
lia-le an+ #art+ to t$e
certificate !$o kne!
t$e state,ent to -e
false6 %&7 At t$e ti,e
$e signed t$e
certificate: or
3&7 Su-se0uentl+.
-ut !it$in a
sufficient ti,e
-efore t$e
state,ent !as
relied u#on to
ena-le $i, to
cancel or
a,end t$e
certificate. or
to file a
#etition for its
cancellation or
a,end,ent as
#roided in
Article %2*8&
'ia-ilit+ for false
state,ent in certificate
"nder this
provision$ an# partner
to the certificate
containing a false
statement is liable
provided the following
re2uisites are present;
1! 'e %new the
statement to be
false at the time
he signed the
certificate$ or
subse2uentl#$ but
having sufficient
time to cancel or
amend it or file a
petition for its
cancellation or
amendment$ he failed to do so;
'elen *! (revalo
77 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
2! The person see%ing to enforce liabilit# has relied
upon the false statement in transacting business
with the partnership; and
3! The person suffered loss as a result of reliance
upon such false statement!
Art& %2<2& A li,ited #artner s$all not -eco,e
lia-le as a general #artner unless. in addition to t$e
e/ercise of $is rig$ts and #o!ers as a li,ited
#artner. $e takes #art in t$e control of t$e
-usiness&
E7*6'SI8E-
'ia-ilit+ of li,ited #artner for #artici#ating in
,anage,ent of #artners$i#
( limited partner is liable as a general partner for the
firm:s obligations if he ta%es part or interfere in the
management of the firm:s business! )are grant of apparent
control does not ma%e him liable where he has not actuall#
participated in the control of the partnership!
8hether the limited partner has participated in the
management is to be determined b# whether he has
e1ercised a controlling power in the firm:s transactions!
Actie ,anage,ent of #artners$i# -usiness
conte,#lated
Such control contemplates active participation in the
management of the partnership business and does not
comprehend the mere giving of advice to general
partners!
The limited partner ta%es part in the management of
the business and is liable generall# for the firm:s
obligations where;
1! The business of the partnership is in fact carried on
b# a board of directors chosen b# the limited
partners;
2! )# the terms of the contract between the
parties$ an appointee of the limited partner
becomes the directing manager of the firm;
3! The limited partner purchases the entire propert#
of the partnership$ ta%ing title in himself and then
carries on the business in his own name and for
his own e1clusive benefit; or
7! 'e ma%es or is a part# to a contract with creditors
of an insolvent firm with respect to the disposal of
the firm:s assets in pa#ment of the firm:s debts!
The interference contemplated is with respect to an
e1isting limited partnership! ( limited partner is not
sub-ect to general liabilit# for ta%ing part in the
management of the firm because he settles its affairs
after dissolution!
Art& %2<5& After t$e for,ation of a li,ited
#artners$i#. additional li,ited #artners ,a+ -e
ad,itted u#on filing an a,end,ent to t$e original
certificate in accordance !it$ t$e re0uire,ents of
Article %2*8&
Ad,ission of additional
li,ited #artners
(fter a limited
partnership has been
formed$ additional limited
partners ma# be
admitted$ provided there
is proper amendment to
the certificate which must
be signed and sworn to b#
all the partners$ including
the new limited partners$
and filed with the S.*!
Art& %28A& A general
#artner s$all $ae t$e
rig$ts and #o!ers and
-e su-"ect to all t$e
restrictions and
lia-ilities of a
#artners$i# !it$out
li,ited #artners&
Ho!eer. !it$out t$e
!ritten consent or
ratification of t$e
s#ecific act -+ all t$e
li,ited #artners. a
general #artner or all
of t$e general #artners
$ae no aut$orit+ to6
%&7 Do an+
act in
contra
entio
n of
t$e
certific
ate:
3&7 Do an+ act
!$ic$ !ould
,ake it
i,#ossi-le to
carr+ on t$e
ordinar+
-usiness of t$e
#artners$i#:
9&7 Confess a
"udg,ent against
t$e #artners$i#:
<&7 Possess
#artners$i#
#ro#ert+. or
assign t$eir
rig$ts in s#ecific
#artners$i#
#ro#ert+. for
ot$er t$an a
#artners$i#
#ur#ose:
8&7 Ad,it a #erson
as a general #artner:
*&7 Ad,it a #erson
as a li,ited
#artner. unless
t$e rig$t so to
do is gien in
t$e certificate:
)&7 Continue t$e
-usiness !it$
#artners$i#
#ro#ert+ on t$e
deat$.
retire,ent.
insanit+. ciil
interdiction or
insolenc+ of a
general #artner.
unless t$e rig$t
so to do is gien
in t$e certificate&
E7*6'SI8E-
Rig$ts. #o!ers. and
lia-ilities of a general
#artner
The essential feature
of a limited partnership is
the union of 2 classes of
members D limited and
general partners! The law
e1pressl# re2uires there
to be at least one general
partner with unlimited
liabilit#!
"ight of
control=unlimited
personal liabilit (
general partner in a
limited partnership is
vested with the entire
control of the firm:s
business and has all the
rights and powers and is
sub-ect to all the
liabilities and restrictions
of a partner in a
partnership without
limited partners$ i.e.+ in a
general partnership! /t is
in consideration of his
unlimited personal
liabilit# for the obligation
of the partnership that he
is granted the general
authorit# to manage the
firm:s business!
Acts of
administration=acts
of strict dominion
(s a rule$ he ma# bind the
partnership b# an# act of
administration$ but he has
no power to do the specific
acts enumerated in (rticle
14@0 (even if agreed to b#
all the general partners
without the written
consent or at least
ratification of all the
limited partners! The said
acts are acts of strict
dominion or ownership and
are$ therefore$ be#ond the
scope of the authorit# of a general partner!
The general partner who violates the re2uirement
imposed b# (rticle
14@0 is liable for
damages to the
limited partners!
'elen *! (revalo
7@ Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
5ther limitations The general partners$ of course$
have no power to bind the limited partners be#ond the
latter:s investment! <either do the# have the power to act
for the firm be#ond the purpose and scope of the
partnership$ and the# have no authorit# to change the
nature of the business wEo the consent of the limited
partners!
Art& %28%& A li,ited #artner s$all $ae t$e sa,e
rig$ts as a general #artner to6
%&7 Hae t$e #artners$i# -ooks ke#t at t$e
#rinci#al #lace of -usiness of t$e
#artners$i#. and at a reasona-le $our to
ins#ect and co#+ an+ of t$e,:
3&7 Hae on de,and true and full infor,ation of
all t$ings affecting t$e #artners$i#. and a
for,al account of #artners$i# affairs
!$eneer circu,stances render it "ust and
reasona-le: and
9&7 Hae dissolution and !inding u# -+ decree
of court&
A li,ited #artner s$all $ae t$e rig$t to receie a
s$are of t$e #rofits or ot$er co,#ensation -+ !a+
of inco,e. and to t$e return of $is contri-ution as
#roided in articles %28* and %28)&
E7*6'SI8E-
Rig$ts. in general. of a li,ited #artner
The limited partner is viewed as a partner onl# to a
certain e1tent! 'is powers$ actual or implied$ are much
more limited than those of a general partner! (s between
the members of the firm$ the limited partner$ in order to
protect his interest in the firm$ has the same right to
compel the partners to account as a general partner has!
8rongdoing or improper acts on the part of general
partners ma# not give a limited partner greater rights than
the law and what his contract grants him!
S#ecific rig$ts of a li,ited #artner
1! To re2uire that the partnership boo%s be %ept at
the principal place of business of the partnership;
2! To inspect and cop# at a reasonable hour
partnership boo%s or an# of them;
3! To demand true and full information of all things
affecting the partnership;
7! To demand a formal account of partnership
affairs whenever circumstances render it -ust
and reasonable;
@! To as% for dissolution and winding up b# decree of
court;
A! To receive a share of the profits or other
compensation b# wa# of income; and
5! To receive the return of his contribution provided
the partnership assets are in e1cess of all its
liabilities!
Art& %283& Bit$out
#re"udice to t$e
#roisions of article
%2<2. a #erson !$o
$as contri-uted to t$e
ca#ital of t$e -usiness
conducted -+ a #erson
or #artners$i#
erroneousl+ -elieing
t$at $e $as -eco,e a
li,ited #artner in a
li,ited #artners$i#. is
not. -+ reason of $is
e/ercise of t$e rig$ts
of a li,ited #artner. a
general #artner !it$
t$e #erson or in t$e
#artners$i# carr+ing on
t$e -usiness. or -ound
-+ t$e o-ligations of
suc$ #erson or
#artners$i#: #roided
t$at on ascertaining
t$e ,istake $e
#ro,#tl+ renounces $is
interest in t$e #rofits
of t$e -usiness or
ot$er co,#ensation -+
!a+ of inco,e&
Status of #artner
!$ere t$ere is failure
to create li,ited
#artners$i#
( limited partnership is
formed when there is
substantial compliance in
good faith with the
re2uirements of the law! /f
not complied with$ the
limited partner will have
the liabilit# of a general
partner as to 3
rd
persons!
(rticle 14@2 provides for
an e1emption!
Status of #erson
erroneousl+ -elieing
$i,self to -e a li,ited
#artner
%onditions for
e&emption from
liabilit as
general partner>
1! Fn
ascertaining
the mista%e$
he promptl#
renounces
his interest
in the profits
of the
business or
other
compensatio
n b# wa# of
income;
2! 'is surname does
not appear in the
partnership
name; and
3! 'e does not
participate in
the
management of
the business!
(ecessit of
renouncing his interest
The person must
promptl# renounce his
interest before the
partnership has become
liable to 3
rd
persons who
cannot be blamed for
considering him a general
partner! 8here no
partnership creditors are
pre-udiced$ it would seem
that renunciation of his
interest is not necessar#!
5bligation to pa
bac; profits and
compensation alread
received There are two
opinions as to whether the
limited partner should also
return profits and
compensation alread#
received! Some sa# #es$
some sa# no! )oth views
have merit!
Status of $eirs of
a deceased
general #artner
ad,itted as
#artners
(n heir of a deceased
general partner admitted
as a partner ordinril$
becomes a li(ited
partner! 'e ma#$ however$
choose to become a
general partner if he so
wishes! The right of an
heir of a deceased
partner to be admitted as
a partner$ when provided
in the articles of
partnership$ can be
waived b# the heir! 'e
cannot be compelled to
become a partner! /t is his
choice!
Art& %289& A #erson
,a+ -e a general
#artner and a li,ited
#artner in t$e sa,e
#artners$i# at t$e sa,e
ti,e. #roided t$at t$is
fact s$all -e stated in
t$e certificate #roided
for in Art& %2<<&
'elen *! (revalo
7A Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
A #erson !$o is a general. and also at t$e sa,e
ti,e a li,ited #artner. s$all $ae all t$e rig$ts and
#o!ers and -e su-"ect to all t$e restrictions of a
general #artner: e/ce#t t$at. in res#ect to $is
contri-ution. $e s$all $ae t$e rig$ts against t$e
ot$er ,e,-ers !$ic$ $e !ould $ae $ad if $e !ere
not also a general #artner&
One #erson. -ot$ a general #artner and a li,ited
#artner
( person ma# be a general and a limited partner at the
same time in the same partnership provided that this fact
is stated in the certificate signed$ sworn to$ and recorded
in the Fffice of the Securities and .1change *ommission!
Generall#! 'is rights and powers are those of a
general partner! 'ence$ he is liable with his separate
propert# to 3
rd
persons! 'owever$ with respect to his
contribution as a limited partner$ he would have the right
of a limited partner insofar as the other partners are
concerned! This means that while he is not relieved from
personal liabilit# to 3
rd
persons for partnership debts$ he
is entitled to recover from the general partners the
amount he has paid to such 3
rd
persons; and in settling
accounts after dissolution$ he shall have priorit# over
general partners in the return of their respective
contributions!
Art& %28<& A li,ited #artner also ,a+ loan
,one+ to and transact ot$er -usiness !it$ t$e
#artners$i#. and. unless $e is also a general
#artner. receie on account of resulting clai,s
against t$e #artners$i#. !it$ general creditors a
pro rata s$are of t$e assets& No li,ited #artner
s$all in res#ect to an+ suc$ clai,6
%&7 Receie or $old as collateral securit+ an+
#artners$i# #ro#ert+: or
3&7 Receie fro, a general #artner or t$e
#artners$i# an+ #a+,ent. cone+ance or
release fro, lia-ilit+. if at t$e ti,e t$e
assets of t$e #artners$i# are not sufficient
to disc$arge #artners$i# lia-ilities to
#ersons as general or li,ited #artners&
T$e receiing of collateral securit+. or a #a+,ent.
cone+ance. or release in iolation of t$e foregoing
#roisions is a fraud on t$e creditors of t$e
#artners$i#&
'oan and ot$er -usiness transactions !it$ li,ited
#artners$i#
Allowable transactions>
1! Granting loans to the partnership;
2! Transacting other business with it;
3! Receiving a pro rt share of the partnership
assets with general creditors if he is not also a
general partner!
Prohibited transactions>
1! Receiving or holding as collateral securit# an#
partnership propert#; or
2! Receiving an#
pa#ment$
conve#ance$ or
release from
liabilit# if it will
pre-udice the
right of 3
rd

persons!
(n# violation of the
prohibition will give rise
to the presumption
that it has been made
to defraud partnership
creditors!
Preferential
rights of third
persons /n
transacting business
with the partnership as
a non+member$ the
limited partner is
considered as a non+
partner creditor!
'owever$ 3
rd
persons
alwa#s en-o#
preferential rights
insofar as partnership
assets are concerned in
view of the natural
tendenc# of the
partners to give
preference to each
other!
Art& %288& B$ere
t$ere are seeral
li,ited #artners t$e
,e,-ers ,a+ agree
t$at one or ,ore of t$e
li,ited #artners s$all
$ae #riorit+ oer ot$er
li,ited #artners as to
t$e return of t$eir
contri-utions. as to
t$eir co,#ensation -+
!a+ of inco,e. or as to
an+ ot$er ,atter& If
suc$ an agree,ent is
,ade. it s$all -e stated
in t$e certificate. and in
t$e a-sence if suc$ a
state,ent. all t$e
li,ited #artners s$all
stand u#on e0ual
footing&
Preferred li,ited
#artners
)# an agreement of all
the members (general and
limited stated in the
certificate$ priorit# ma# be
given to some limited
partners over other limited
partners as to the;
1! Return of their
contributions;
2! Their compensation
b# wa# of income; or
3! (n# other matter!
/n the absence of such
statement in the certificate$
even if there is an
agreement$ all the limited
partners shall stand on
e2ual footing in respect to
these matters!
Art& %28*& A li,ited
#artner ,a+ receie
fro, t$e #artners$i#
t$e s$are of t$e #rofits
or t$e co,#ensation
-+ !a+ of inco,e
sti#ulated for in t$e
certificate: #roided.
t$at after suc$
#a+,ent is ,ade.
!$et$er fro, t$e
#ro#ert+ of t$e
#artners$i# or t$at of a
general #artner. t$e
#artners$i# assets are
in e/cess of all
lia-ilities to li,ited
#artners on account of
t$eir contri-utions and
to general #artners&
Co,#ensation of li,ited
#artner
The right of the limited
partner to receive his
share of the profits or
compensation b# wa# of
income stipulated for in
the certificate is sub-ect to
the condition that
partnership assets will still
be in e1cess of partnership
liabilities after such
pa#ment! /n other words$
3
rd
part# creditors have
priorit# over the limited
partner:s rights!
/n determining the
liabilities of the
partnership$ the
liabilities to the limited
partners for their
contribution and to
general partners$
whether for
contributions or not$ are
not considered!
'elen *! (revalo
75 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
Art& %28)& A li,ited #artner s$all not receie
fro, a general #artner or out of #artners$i#
#ro#ert+ an+ #art of $is contri-utions until6
%&7 All lia-ilities of t$e #artners$i#. e/ce#t
lia-ilities to general #artners and to
li,ited #artners on account of t$eir
contri-utions. $ae -een #aid or t$ere
re,ains #ro#ert+ of t$e #artners$i#
sufficient to #a+ t$e,:
3&7 T$e consent of all ,e,-ers is $ad. unless
t$e return of t$e contri-ution ,a+ -e
rig$tfull+ de,anded under t$e #roisions of
t$e second #aragra#$: and
9&7 T$e certificate is cancelled or so a,ended
as to set fort$ t$e !it$dra!al or reduction&
Su-"ect to t$e #roisions of t$e first #aragra#$. a
li,ited #artner ,a+ rig$tfull+ de,and t$e return of
$is contri-ution6
%&7 On t$e dissolution of a #artners$i#: or
3&7 B$en t$e date s#ecified in t$e certificate for
its return $as arried: or
9&7 After $e $as gien si/ ,ont$sD notice in
!riting to all ot$er ,e,-ers. if no ti,e is
s#ecified in t$e certificate. eit$er for t$e
return of t$e contri-ution or for t$e
dissolution of t$e #artners$i#&
In t$e a-sence of an+ state,ent in t$e
certificate to t$e contrar+ or t$e consent of all
,e,-ers. a li,ited #artner. irres#ectie of t$e
nature of $is contri-ution. $as onl+ t$e rig$t to
de,and and receie cas$ in return for $is
contri-utions&
A li,ited #artner ,a+ $ae t$e #artners$i#
dissoled and its affairs !ound u# !$en:
%&7 He rig$tfull+ -ut unsuccessfull+ de,ands
$is return of $is contri-ution: or
3&7 T$e ot$er lia-ilities of t$e #artners$i# $ae
not -een #aid. or t$e #artners$i# #ro#ert+ is
insufficient for t$eir #a+,ent as re0uired -+
t$e first #aragra#$. No& %. and t$e li,ited
#artner !ould ot$er!ise -e entitled to t$e
return of $is contri-ution&
Re0uisites for return of contri-ution of li,ited
#artner
1! (ll liabilities of the partnership have been paid or if
the# have not #et been paid$ the assets of the
partnership are sufficient to pa# such liabilities;
2! The consent of all members (general and
limited has been obtained e1cept when the
retuirn ma# be rightfull demanded; and
3! The certificate is cancelled or so amended as to
set forth the withdrawal or reduction of the
contribution!
B$en return a ,atter of rig$t
1! Fn the dissolution of the partnership; or
2! "pon arrival of the date specified in the
certificate for the return; or
3! (fter the e1piration
of the A months:
notice in writing
given b# him to the
other partners if no
time is fi1ed in the
certificate for the
return of the
contribution or for
the dissolution of
the partnership!
Rig$t of li,ited
#artner to cas$
in return for
contri-ution
"nder the 3
rd
paragraph$
even if a limited partner has
contributed propert#$ he has
onl# the right to demand
and receive cash for his
contribution! .1ceptions;
1! 8hen there is
stipulation to the
contrar# in the
certificate; or
2! 8here all the
partners
(general and
limited consent
to the return
other than in the
form of cash!
B$en li,ited
#artner ,a+
$ae
#artners$i#
dissoled
The 7
th
paragraph
provides for additional
grounds for the
dissolution of the
partnership upon petition
of a limited partner;
1! 8hen his demand
for the return of
his contribution is
denied although
he has a right to
such return; or
2! 8hen his
contribution is not
paid although he
is entitled to its
return because
the other
liabilities of the
partnership have
not been paid or
the partnership
propert#
insufficient for
their pa#ment!
The limited partner
must first as% the other
partners to have the
partnership dissolved; if
the# refuse$ then he can
see% the dissolution of the
partnership b# -udicial
decree!
Art& %282& A
li,ited #artner is
lia-le to t$e
#artners$i#6
%&7 @or t$e
difference
-et!een $is
contri-ution as
$aing -een
,ade. and
3&7 @or an+
un#aid
contri-ution
!$ic$ $e
agreed in
t$e
certificate to
,ake in t$e
future at t$e
ti,e and on
t$e
conditions
stated in t$e
certificate&
A li,ited
#artner $olds
as trustee for
t$e
#artners$i#6
%&7 S#ecific #ro#ert+
stated in t$e
certificate as
contri-uted -
$i,. -ut !$ic$
!as not
contri-uted or
!$ic$ $as -een
!rongfull+
returned. and
3&7 ?one+ or ot$er
#ro#ert+
!rongfull+ #aid
or cone+ed to
$i, on account
of $is
contri-ution&
T$e lia-ilities of a
li,ited #artner as set
fort$ in t$is article can
-e !aied or
co,#ro,ised onl+ -+
t$e consent of all
,e,-ers: -ut a !aier
or co,#ro,ise s$all
not affect t$e rig$t of a
creditor of a
#artners$i# !$o
e/tended credit or
!$ose clai, arose after
t$e filing and -efore a
cancellation or
a,end,ent of t$e
certificate. to enforce suc$ lia-ilities&
'elen *! (revalo
74 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
B$en a contri-utor $as rig$tfull+ receied t$e
return in !$ole or in #art of t$e ca#ital of $is
contri-ution. $e is neert$eless lia-le to t$e
#artners$i# for an+ su,. not in e/cess of suc$
return !it$ interest. necessar+ to disc$arge its
lia-ilities to all creditor !$o e/tended credit or
!$ose clai,s arose -efore suc$ return&
DEI4S 4' E2O-
'ia-ilities of a li,ited #artner
To the partnership 3iabilit# of limited partners is
to partnership$ not the creditors of the partnership!
To partnership creditors and other partners (
limited partner is liable for partnership obligations when;
1! *ontributes services;
2! (llows his surname to appear in name of firm;
3! Fails to have false statement in certificate
corrected when he %new it to be false;
7! Ta%es part in control of business;
@! Receives partnership propert# as collateral
securit#$ pa#ment$ conve#ance$ or release in
fraud of partnership creditors;
A! Failure to substantiall# compl# with legal
re2uirements of formation of limited partnership!
To separate creditors *reditor of limited partner
ma# also appl# for a =charging order> sub-ecting the
interest in the partnership of the debtor partner for the
pa#ment of his obligation!
'ia-ilit+ for un#aid contri-ution
3imited partner liable not onl# for the difference
between the amount of his actual contributions and that
stated in the certificate as having been made but also for
an# unpaid contribution he agreed to ma%e at a future
time!
'ia-ilit+ as trustee
3imited partner considered as trustee for the
partnership for;
1! Specific propert# stated in the certificate as
contributed b# him but which he had not
contributed;
2! Specific propert# of the partnership which had
been wrongfull# returned to him;
3! 0one# wrongfull# paid or conve#ed to him on
account of his contribution; and
7! Fther propert# wrongfull# paid or conve#ed to
him on account of his contribution!
Re0uisites for !aier or co,#ro,ise of lia-ilities
1! 8aiver or compromise is made with the consent of
all the partners; and
2! The waiver or compromise does not pre-udice
partnership creditors who e1tended credit or
whose claims arose before the cancellation or
amendment of the certificate!
'ia-ilit+ for return of contri-ution la!full+
receied
The limited partner is
liable to the partnership
for the return of
contribution lawfull#
received b# him to pa#
creditors who e1tended
credit or whose claim
arose before such return!
'is liabilit#$ of course$
cannot e1ceed the sum
received b# him with
interest!
Art& %285& A
li,ited
#artnerDs
interest is
assigna-le&
A su-stituted
li,ited #artner is a
#erson ad,itted to all
t$e rig$ts of a li,ited
#artner !$o $as died
or $as assigned $is
interest in a
#artners$i#&
An assignee. !$o
does not -eco,e a
su-stituted li,ited
#artner. $as no rig$t to
re0uire an+ infor,ation
or account of t$e
#artners$i#
transactions or to
ins#ect t$e #artners$i#
-ooks: $e is onl+
entitled to receie t$e
s$are of t$e #rofits or
ot$er co,#ensation -+
!a+ of inco,e. or t$e
return of $is
contri-ution. to !$ic$
$is assignor !ould
ot$er!ise -e entitled&
An assignee s$all
$ae t$e rig$t to
-eco,e a su-stituted
li,ited #artner if all t$e
,e,-ers consent
t$ereto or if t$e
assignor. -eing
t$ereunto e,#o!ered
-+ t$e certificate. gies
t$e assignee t$at rig$t&
An assignee
-eco,es a
su-stituted li,ited
#artner !$en t$e
certificate is
a##ro#riatel+
a,ended in
accordance !it$
article %2*8&
T$e su-stituted
li,ited #artner $as all
t$e rig$ts and #o!ers.
and is su-"ect to all t$e
restrictions and
lia-ilities of $is
assignor. e/ce#t t$ose
lia-ilities of !$ic$ $e
!as ignorant at t$e
ti,e $e -eca,e a
li,ited #artner and
!$ic$ could not -e
ascertained for t$e
certificate&
T$e su-stitution of
t$e assignee as a
li,ited #artner does not
release t$e assignor
fro, lia-ilit+ to t$e
#artners$i# under
Articles %2<) and %282&
DEI4S 4' E2O-
Effect of c$ange in t$e
relation of li,ited
#artners
&oes not necessaril#
dissolve the partnership!
<o limited partner$
however$ can withdraw
his contribution until all
liabilities to creditors are
paid!
Rig$ts of assignee of
li,ited #artner
(ssignee is onl#
entitled to receive the
share of the profits or
other compensation b#
wa# of income or the
return of the contribution
to which the assignor
would otherwise be
entitled! 'e has no right to
re2uire an# information or
account of the partnership
transactions or to inspect
partnership boo%s!
The assignee
ac2uires all the rights
of the limited partner
onl# when he becomes
a substituted limited
partner!
B$en assignee ,a+
-eco,e su-stituted
li,ited #artner
Re2uisites;
1! (ll the members
must consent to
the assignee
becoming a
substituted
limited partner
or the
'elen *! (revalo
76 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
limited partner$ being empowered b# the
certificate$ must give the assignee the right to
become a limited partner;
2! The certificate must be amended;
3! The certificate as amended must be registered in
the S.*!
'ia-ilit+ of su-stituted #artner and assignor
Substituted limited partner is liable for all the liabilities of
his assignor e1cept onl# those of which he was ignorant at
the time he became a limited partner and which could not be
ascertained from the certificate!
Art& %2*A& T$e retire,ent. deat$. insolenc+.
insanit+ or ciil interdiction of a general #artner
dissoles t$e #artners$i#. unless t$e -usiness is
continued -+ t$e re,aining general #artners6
%&7 Under a rig$t so to do stated in t$e
certificate. or
3&7 Bit$ t$e consent of all ,e,-ers&
Effect of retire,ent. deat$. etc& of a general
#artner
&issolution of partnership! /f limited partner$ does
not dissolve partnership unless he is the onl# limited
partner!
/f the business is continued b# the remaining partners
under the rights given in the certificate or with the consent
of all members$ no dissolution but certificate must be
amended for limited partners to still avail of limited
liabilit#!
Art& %2*%& On t$e deat$ of a li,ited #artner $is
e/ecutor or ad,inistrator s$all $ae all t$e rig$ts
of a li,ited #artner for t$e #ur#ose of settling $is
estate. and suc$ #o!er as t$e deceased $ad to
constitute $is assignee a su-stituted li,ited
#artner&
T$e estate of a deceased li,ited #artner s$all
lia-le for all $is lia-ilities as a li,ited #artner&
Rig$t of e/ecutor on deat$ of a li,ited #artner
1! (ll the rights for purposes of settling the affairs of
the limited partner; and
2! The right to constitute the deceased:s assignee as
substituted limited partner (if deceased was
empowered to so assign under certificate!
Art& %2*3& On due a##lication to a court of
co,#etent "urisdiction -+ an+ creditor of a li,ited
#artner. t$e court ,a+ c$arge t$e interest of t$e
inde-ted li,ited #artner !it$ #a+,ent of t$e
unsatisfied a,ount of suc$ clai,. and ,a+ a##oint a
receier. and ,ake all ot$er orders. directions. and
in0uiries !$ic$ t$e circu,stances of t$e case ,a+
re0uire&
T$e interest ,a+ -e redee,ed !it$ t$e se#arate
#ro#ert+ of an+ general #artner. -ut ,a+ not -e
redee,ed !it$ #artners$i# #ro#ert+&
T$e re,edies
conferred -+ t$e first
#aragra#$ s$all not -e
dee,ed e/clusie of
ot$ers !$ic$ ,a+ e/ist&
Not$ing in t$is
C$a#ter s$all -e $eld to
de#rie a li,ited
#artner of $is statutor+
e/e,#tion&
Rig$ts of creditors of
li,ited #artner
(ppl# to court for
charging order on limited
partner:s interest in the
partnership!
Art& %2*9& In settling
accounts after
dissolution t$e
lia-ilities of t$e
#artners$i# s$all -e
entitled to #a+,ent in
t$e follo!ing order6
%&7 T$ose to
creditors. in t$e
order of #riorit+
as #roided -+
la!. e/ce#t
t$ose to li,ited
#artners on
account of t$eir
contri-utions.
and to general
#artners:
3&7 T$ose to li,ited
#artners in
res#ect to t$eir
s$are of t$e
#rofits and ot$er
co,#ensation -+
!a+ of inco,e on
t$eir
contri-utions:
9&7 T$ose to
li,ited
#artners in
res#ect to t$e
ca#ital of t$eir
contri-utions:
<&7 T$ose to
general
#artners
ot$er t$an
for ca#ital
and #rofits:
8&7 T$ose to
general
#artners in
res#ect to
#rofits:
*&7 T$ose to
general
#artners in
res#ect to
ca#ital&
Su-"ect to an+
state,ent in t$e
certificate or to
su-se0uent agree,ent.
li,ited #artners s$are
in t$e #artners$i#
assets in res#ect to
t$eir clai,s for ca#ital.
and in res#ect to t$eir
clai,s for #rofits or for
co,#ensation -+ !a+ of
inco,e on t$eir
contri-ution
res#ectiel+. in
#ro#ortion to t$e
res#ectie a,ounts of
suc$ clai,s&
E7*6'SI8E-
Dissolution of a li,ited
#artners$i#
%auses>
1! 0isconduct of a
general partner;
2! Fraud practiced
on the limited
partner b# the
general
partner;
3! Retirement$ death$
etc! of a general
partner; 7! 8hen all
the limited partners
ceased to be such; @!
.1piration of the term
for which partnership
was
to e1ist; or
A! 0utual
consent of
the
partners
before the
e1piration
of the
firm:s
original
term!
1uit for dissolution
( limited partner ma#
bring a suit for the
dissolution of the firm$ an
accounting$ and the
appointment of a receiver
when the misconduct of a
general partner or the
insolvenc# of the firm
warrants it! Similarl#$
creditors of a limited
partnership are entitled to
such relief where the firm
is insolvent!
( limited partner ma#
have the partnership
dissolved and its affairs
wound up when he rightfull# but unsuccessfull# demands the
return of his contribution$ or the other liabilities of the
partnership$ e1cept liabilities to general partners and to
limited partners on account
of their contributions$ have
not been paid$ or the
'elen *! (revalo
@0 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
partnership propert# is insufficient for their pa#ment$
and the limited partner would otherwise be entitled to
the return of his contribution!
(otice of dissolution 8hen the firm is dissolved b#
the e1piration of the term fi1ed in the certificate$ notice of
the dissolution need not be given since the papers filed
and recorded in the S.* are notice to all the world of the
term of the partnership! 8here$ however$ the dissolution is
b# the e1press will of the partners$ the certificate shall be
canceled$ and a dissolution of the partnership is not
effected until there has been compliance with the
re2uirement in this respect!
0inding up 8hen a limited partnership has been
dul# dissolved$ the general partners have the right and
power to wind up its affairs! /t is not the dut# of the
limited partner or of the representatives of a deceased
limited partner to care for or collect the assets of the
firm!
Priorit+ in t$e distri-ution of #artners$i# assets
The partnership liabilities shall be settled in the
following order;
1! Those due to creditors$ in#ludin) li(ited prtners+
e1cept those on account of their contributions$ in
the order of priorit# as provided b# law;
2! Those due to limited partners in respect to their
share of the profits and other compensation b#
wa# of income on their contributions;
3! Those due to limited partners for the return of
the capital contributed;
7! Those due to general partners other than that
for capital and profits;
@! Those due to general partners in respect to
profits; and
A! Those due to general partners for the return of
the capital contributed!
9artnership creditors are entitled to first distribution$
followed b# limited partners who ta%e priorit# over
general partners!
<ote that in a general partnership$ the claims of the
general partners in respect of capital en-o# preference
over those in respect of profits!
S$ares of li,ited #artners in #artners$i# assets
/n the absence of an# statement in the certificate as to
the share of the profits which each partner shall receive
b# reason of his contribution and sub-ect to an#
subse2uent agreement$ limited partners share in the
partnership assets in respect to their claims for capital
and profits in proportion to the respective amounts of
such claims!
This proportional sharing b# the limited partners ta%es
place where the partnership assets are insufficient to pa#
such claims!
Priorit+ of clai,s of li,ited #artners
The members of a limited partnership$ as among
themselves$ ma# include in the partnership articles an
agreement for priorit# of distribution on the winding up of
partnership affairs! Such agreement ordinaril#
becomes controlling as
between the partners
themselves! /n the
absence of an# contrar#
agreement$ all the
limited partners stand
upon e2ual footing!
The claims of limited
partners for profits and
other compensation b#
wa# of income and return
of capital contributions
rate ahead with respect to
all claims of general
partners! For claims
arising from individual
loans to$ or other business
transactions with$ the
partnership$ other than for
capital contributions$ the
limited partner is placed in
the same categor# as a
non+member creditor! /f
return is made to a limited
partner of his contribution
before creditors are paid$
he is under an obligation
to reimburse such
pa#ments$ with interest$
so far as necessar# to
satisf# claims of creditors!
/n the event of
insolvenc# of the
partnership$ its creditors
ta%e preference over
both general and limited
partners!
Art& %2*<& T$e
certificate s$all -e
cancelled !$en t$e
#artners$i# is
dissoled or all
li,ited #artners
cease to -e suc$&
A certificate
s$all -e
a,ended
!$en6 %&7
T$ere is a
c$ange in
t$e na,e of
t$e
#artners$i# or
in t$e a,ount
or c$aracter of
t$e
contri-ution of
an+ li,ited
#artner:
3&7 A #erson is
su-stituted as a
li,ited #artner:
9&7 An additional
li,ited #artner is
ad,itted:
<&7 A #erson is
ad,itted as a
general #artner:
8&7 A general
#artner retires.
dies. -eco,es
insolent or
insane. or is
sentenced to
ciil
interdiction and
t$e -usiness is
continued
under Article
%2*A:
*&7 T$ere is a
c$ange in t$e
c$aracter of
t$e -usiness
of t$e
#artners$i#:
)&7 T$ere is a false
or erroneous
state,ent in
t$e certificate:
2&7 T$ere is a
c$ange in t$e
ti,e as stated
in t$e
certificate for
t$e
dissolution of
t$e
#artners$i# or
for t$e return
of a
contri-ution:
5&7 A ti,e is fi/ed
for t$e
dissolution of
t$e #artners$i#.
or t$e return of
a contri-ution.
no ti,e $aing
-een s#ecified
in t$e
certificate: or
%A&7 T$e ,e,-ers
desire to ,ake
a c$ange in an+
ot$er
state,ent in
t$e certificate
in order t$at it
s$all accuratel+
re#resent t$e
agree,ent
a,ong t$e,&
E7*6'SI8E-
B$en certificate s$all
-e cancelled or
a,ended
The certificate
shall be
cancelled$ not
merel# amended;
1! 8hen the partnership is dissolved other than b#
reason of the e1piration of the term of the
partnership; or
2! 8hen all the limited partners cease to be such! (
limited
partnership
cannot e1ist as
such if there are
no more limited
partners!
'elen *! (revalo
@1 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
/n other cases$ onl# an amendment of the certificate is
re2uired!
Art& %2*8& T$e !riting to a,end a certificate
s$all6
%&7 Confor, to t$e re0uire,ents of Article
%2<< as far as necessar+ to set fort$ clearl+
t$e c$ange in t$e certificate !$ic$ it is
desired to ,ake: and
3&7 Be signed and s!orn to -+ all ,e,-ers. and
an a,end,ent su-stituting a li,ited #artner
or adding a li,ited or general #artner s$all
-e signed also -+ t$e ,e,-er to -e
su-stituted or added. and !$en a li,ited
#artner is to -e su-stituted. t$e a,end,ent
s$all also -e signed -+ t$e assigning li,ited
#artner&
T$e !riting to cancel a certificate s$all -e
signed -+ all ,e,-ers&
A #erson desiring t$e cancellation or a,end,ent
of a certificate. if an+ #erson designated in t$e first
and second #aragra#$s as a #erson !$o ,ust
e/ecute t$e !riting refuses to do so. ,a+ #etition
t$e court to order a cancellation or a,end,ent
t$ereof&
If t$e court finds t$at t$e #etitioner $as a rig$t to
$ae t$e !riting e/ecuted -+ a #erson !$o refuses to
do so. it s$all order t$e Office of t$e Securities and
E/c$ange Co,,ission !$ere t$e certificate is recorded.
to record t$e cancellation or a,end,ent of t$e
certificate: and !$en t$e certificate is to -e a,ended.
t$e court s$all also cause to -e filed for record in said
office a certified co#+ of its decree setting fort$ t$e
a,end,ent&
A certificate is a,ended or cancelled !$en
t$ere is filed for record in t$e Office of t$e
Securities and E/c$ange Co,,ission. !$ere t$e
certificate is recorded6
%&7 A !riting in accordance !it$ t$e
#roisions of t$e first or second
#aragra#$: or
3&7 A certified co#+ of t$e order of court in
accordance !it$ t$e #roisions of t$e
fourt$ #aragra#$:
9&7 After t$e certificate is dul+ a,ended in
accordance !it$ t$is article. t$e a,ended
certificate s$all t$ereafter -e for all
#ur#oses t$e certificate #roided for in t$is
C$a#ter&
DEI4S 4' E2O-
Re0uire,ents for a,end,ent and cancellation of
certificate
Re2uirements to amend;
1! (mendment must be in writing;
2! /t must be signed and sworn to b# all the
members; and
3! The certificate$ as amended$ must be filed for
record in the S.*!
Re2uirements to
cancel; same! /f
cancellation is ordered
b# the court$ certified
cop# of such order shall
be filed with the S.*!
(pproval b#
*ommission is not
re2uired for either
case!
Art& %2**& A
contri-utor. unless $e
is a general #artner. is
not a #ro#er #art+ to
#roceedings -+ or
against a #artners$i#.
e/ce#t !$ere t$e
o-"ect is to enforce a
li,ited #artnerDs rig$t
against or lia-ilit+ to
t$e #artners$i#&
DEI4S 4' DI4 E2O-
'i,ited #artner. a ,ere
contri-utor
( limited partner is a
mere contributor! 'e is
practicall# a stranger in
the limited partnership
whose liabilit# is limited
to his interest in the firm$
without an# right and
power to participate in
the management and
control of the business!
Relationship between
limited partner and
partnership is not one of
trust and confidence!
Parties to action -+ or
against #artners$i#
Since limited partners
are not principals in
partnership transactions$
their liabilit#$ as a general
rule$ is to the partnership$
not the creditors of the
partnership! For the same
reason$ the# have no right
of action against 3
rd

persons against whom the
partnership has an#
enforceable claim!
B$en li,ited #artner a
#ro#er #art+
1! 8here the ob-ect
is to enforce
limited partner:s
individual rights
against the
partnership$ and
to recover
damages for
violation of such
right!
2! 8hen it:s a
proceeding to
enforce his
liabilit# to the
partnership;
3! *reditors ma# go
against him if he
had withdrawn
sums from the
capital of the firm
with outstanding
debts on a
voluntar#
dissolution!
Nature of li,ited
#artnerDs interest in
fir,
1! 3imited
partner:s
contributions
are not lon+
and he is not
#reditor of the
firm because of
such
contribution;
2! 3imited
partner:s
contribution
is not (ere
in&est(ent;
3! 3imited partner is$
in sense+ n
o!ner+ which in
interest in the
capital of the firm
and its business as
such$ but he has no
propert$ ri)ht in
the fir(<s ssetsF
7! 3imited partners:
interest is in personl
propert$F @! The
nature of the limited
partner:s interest in the
firm (ounts to
shre in the
prtnership ssets
after its liabilities
have been
deducted and a
balance struc%!
This interest in
#hose in #tion+
and hence$
intn)i,le personl
propert$.
Art& %2*)& A li,ited
#artners$i# for,ed
under t$e la! #rior to
t$e effectiit+ of t$is
Code. ,a+ -eco,e a
li,ited #artners$i# under t$is C$a#ter
'elen *! (revalo
@2 Section 3&
Finals Reviewer PARTNERSHIP 1
st
Sem; 2003
-+ co,#l+ing !it$ t$e #roisions of Article %2<<.
#roided t$e certificate sets fort$6
%&7 T$e a,ount of t$e original contri-ution of
eac$ li,ited #artner. and t$e ti,e !$en
t$e contri-ution !as ,ade: and
3&7 T$at t$e #ro#ert+ of t$e #artners$i#
e/ceeds t$e a,ount sufficient to
disc$arge its lia-ilities to #ersons not
clai,ing as general or li,ited #artners -+
an a,ount greater t$an t$e su, of t$e
contri-utions of its li,ited #artners&
A li,ited #artners$i# for,ed under t$e la!
#rior to t$e effectiit+ of t$is Code. until or
unless it -eco,es a li,ited #artners$i# under
t$is C$a#ter. s$all continue to -e goerned -+
t$e #roisions of t$e old la!&
*'2I E2O DEI4S 4'-
Proisions for e/isting li,ited #artners$i#s
( limited partnership formed under the former law
ma# become a limited partnership b# compl#ing with
the provisions of (rticle 1477$ provided the certificate
sets forth the information re2uired b# (rticle 14A5! "ntil
or unless it becomes a limited partnership under this
chapter$ it shall continue to be governed b# the
provisions of the old law!
Good 'uckH
'elen *! (revalo @3 Section 3&