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PARTNE R S H I P REVIEWER
Univ e r s i t y of The Philip p i n e s

PART NE R S H I P
 it is a CONTRACT wher e b y two or more perso n s (1) bind the m s elv e s to
CONTRIBUTE money, prop e r t y, or indust ry to a COMMO N FUND (2) with the
inte ntio n of dividing the PROFITS amon g the m s elv e s or in orde r to EXERCISE a
PROFES SIO N

 a STATUS and a FIDUCIARY RELATION subsistin g bet w e e n perso n s

carryin g on a busin e s s in com m o n with a view on profit

CHARACTERIST ICS OF THE CONTRACT OF PART NE R S H I P

[C, C, L, I, AS, NP]
1. CONSE N S UAL
 perfec t e d by mer e conse n t
2. CONTRIBUTION of money, prop e r t y or indus t ry to a COMMON FUND
3. object must be a LAWFUL one
4. INTENTION of DIVIDING the PROFIT amon g the PARTNER S
5. “AFFECTIO SOCIETATIS”
 the desir e to form ul a t e an ACTIVE UNION, with peopl e amon g whom ther e
exist a mut u al CONFIDE N C E and TRUSTS
6. NEW PERSONALITY
 the object must be for profit and not mer ely for the com m o n enjoym e n t
othe r wi s e only a co- owne r s hi p has been form e d. HOWEVER, pecu ni a r y profit
nee d not be the only aim, it is enou g h that it is the princip al purpo s e

BUSI N E S S TRUST S
 whe n cert ai n perso n s entr u s t their prop e r t y or money to othe r s who will
man a g e the sam e for the form e r

RULES ON CAPACITY TO BECO ME A PART NER

1. a perso n capa ci t a t e d to ent e r into contr a c t u a l relation s may beco m e a
par t n e r

2. an UNEMANCIPATED MINOR CANNOT beco m e a part n e r UNLESS his

par e n t or gua r di a n conse n t s

3. a MARRIED WOMAN, canno t cont ri b u t e conjug al funds as her cont ri b u t io n

to the part n e r s h i p UNLESS she is per mi t t e d to do so by her husb a n d OR
UNLES S she is the admi nist r a t o r of the conjug al part n e r s h i p , in which the
COURT must give its conse n t aut ho ri ty

4. a PARTNERS HI P being a juridical perso n by itself can form anot h e r

par t n e r s h i p

5. a CORPORATION canno t becom e a part n e r on grou n d s of public policy

 a par t n e r shar e s not only in profits but also in the losses of the firm

RULE:
 the part n e r s h i p has a PERSO NALITY SEPARATE and DISTINCT from that
of each par t n e r
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CONS EQ U E N C E S OF THE PART NE R S H I P BEING A JURIDICAL ENTITY

1. its juridic al perso n a lity is SEPARATE and DISTINCT from that of each
par t n e r

2. the part n e r s h i p CAN in GENERAL:

A) acqui r e and posse s s prope r t y of all kinds
B) incur obliga tion s
C) bring civil and criminal actions
D) can be adjud g e d insolve nt even if the individu al mem b e r s be each
financi ally solvent

3. unless he is gene r a lly sued, a part n e r has no right to make a sepa r a t e

app e a r a n c e in court, if the par t n e r s h i p being sued is alre a d y rep r e s e n t e d

LIMITATIO N S ON ALIEN PARTNE R S H I P

1) if 60% capit al is not owne d by Filipinos
 the firm canno t acqui r e by purc h a s e or othe r wi s e AGRICULTURAL
Philippin e lands
2) foreign part n e r s h i p may “leas e” lands provide d the period does not exce e d 99
year s
3) foreig n part n e r s h i p may be “MORTGAGEES” of land
 period of 5 years, rene w a bl e for anot h e r 5 years
 they cannot purc h a s e it in a foreclosu r e sale

RULES IN CASE OF ASSOCIATIO N S NOT LAWFULLY ORGANIZED AS

PART NE R S H I P
1. it posse s s e s NO LEGAL PERSONALITY
 it cannot sue as such HOWEVER, the part n e r s in thei r individu al capa city
CAN
2. one who ente r s into a cont r a c t with a part n e r s hi p as such cannot when sued
later on for recove r y of the debt, allege the lack of legal perso n ali ty on the
par t of the firm, even if inde e d it had no perso n ality
 ESTOPPEL

 whet h e r a par t n e r s h i p has a juridical perso n ality or not depe n d s on its

PERSONAL LAW of the par t n e r s h i p or the law of the place wher e the part n e r s h i p
was orga niz e d

REQUI SITE S FOR EXISTE NC E OF PARTNE R S H I P [I, CF, JI]

1. INTENTION to cre a t e a part n e r s h i p
2. COMMO N FUND obt ain e d from contrib u ti o n s
3. JOINT INTERESTS in the PROFITS

WHAT DO NOT ESTABLIS H A PART NE R S H I P

1. mer e co- owne r s hi p or co- poss e s si o n
 even with profit sha ri n g
2. mer e sha rin g of GROSS retu r n s
 even with joint owne r s hi p of the prope r ti e s involved

RULES TO DETERMI N E THE EXISTE NC E OF A PART NER S H I P

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1. perso n s who are not part n e r s to eac h othe r are not part n e r s as to third
perso n s
EXCEPTION:
 PARTNER S HIP BY ESTOPPEL

2. CO- OWNERS HIP of a prope r t y does not itself est a blish a part n e r s h i p, even
thou g h the co- owne r s shar e in the profits derive d from the incide n t of joint
owne r s hi p

3. SHARING OF GROSS RETURNS ALONE does not indicat e a part n e r s h i p

whe t h e r or not the perso n s sha rin g the m have a joint or com m o n right or
inter e s t in any prope r t y from which the ret u r n s are derive d

4. the rec eip t of the shar e in the profits is a stron g pres u m p t i v e evide nc e of
part n e r s h i p HOWEVER, no such infere n c e will be draw n if such profits wer e
receive d in paym e n t
A) as a DEBT by installm e n t s or othe r wi s e
B) as WAGES of an employe e
C) as RENT to a landlor d
D) as an ANNUITY to a widow or rep r e s e n t a t i v e of a dec e a s e d part n e r
E) as INTEREST on a LOAN, thou g h the amou n t of paym e n t vary with
the profits of the busine s s
F) as the CONSIDERATION for the sale of a GOOD WILL of a busin e s s or
othe r prop e r t y or othe r wi s e
 cre dit or s are not par t n e r s , for their only inte r e s t in the sharin g of
profits is the rec eip t or paym e n t of their cre dit s

 in a part n e r s h i p , the par t n e r s are suppos e d to trust and have

confide n c e in all the part n e r s

PART NE R S H I P BY ESTOPPEL
 IF 2 perso n s not part n e r s repr e s e n t the m s e lve s as par t n e r s to stra n g e r s , a
par t n e r s h i p by estop p el resul t s
 WHEN 2 perso n s, who are part n e r s , in conniva n c e with a friend who is not
a par t n e r infor m a str a n g e r that said friend is their part n e r , a par t n e r s h i p by
estop p e l also result to the end that the stra n g e r shoul d not be prejudi c e d

RULE: LAWFUL OBJECT or PURPO S E

 a par t n e r s h i p must have LAWFUL OBJECT or PURPOSE, and must be

est a blis h e d for the com m o n benefit or inte r e s t of the part n e r s

 it must be within the com m e n c e of man, possible and not cont r a r y to law,
mor als, good custo m s, public orde r or public policy

 IF a part n e r s h i p has SEVERAL PURPOSE S, one of which is UNLAWFUL,

the part n e r s h i p can still validly exist so long as the illegal pur pos e can be sepa r a t e d
from the legal purpo s e s

 NO nee d for JUDICIAL DECREE to dissolve an unlawful part n e r s h i p

 VOID AB INITIO

 one of the cause s for the dissolution of a part n e r s h i p is “ any eve nt which
mak e s it unlaw f ul for the busin e s s of the part n e rs hi p to be carried on”
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RULE :
 when an UNLAWFUL PARTNER S HIP is dissolve d by a judicial dec r e e , the
PROFITS shall be CONFISCATED in FAVOR of the STATE

G. R.
 a par t n e r s h i p may be constit u t e d in any form
EXCEPTIO N : PUBLIC INSTRU ME NT
1. IMMOVABLE PROPERTY is cont rib u t e d
2. REAL RIGHTS are cont ri b u t e d

* nee d for INVENTORY of IMMOVABLES

** for EFFECTIVITY of the par t n e r s h i p cont r a c t insofar as innoce n t third

per so n s are conce r n e d the sam e must be REGISTERED if REAL
PROPERTIES are INVOLVED

 a par t n e r s h i p cont r a c t is NOT CONVERED by the STATUTE of FRAUDS

 an AGREEME NT TO FORM a part n e r s h i p does not itself cre a t e a

par t n e r s h i p

 whe n the r e are condition s to be fulfilled or when a cert ai n period is to

lapse, the part n e r s h i p is not crea t e d till after the fulfillm en t of the condition s or the
arrival of the ter m and this is true even if one of the parti es has alre a d y adva nc e d
his agr e e d sha r e of the capit al

RULE: if CAPITAL is P3,000 or mor e

REQUIRE D:
1. PUBLIC INSTRUME NT
2. RECORDED – S.E.C.

*  FAILURE TO COMPLY – shall not effect the liability of the part n e r s hi p and its
mem b e r s to third perso n s

**  IF REAL PROPERTIES have bee n contrib u t e d , REGARDLESS of the VALUE, a

public instr u m e n t is nee d e d for the att ai n m e n t of legal perso n ality

REQUIRE M E N T S WHERE IMMOVA BLE / REAL PROPERTY IS

CONTRI B U T E D
1. PUBLIC INSTRUM E NT
2. INVENTORY – signe d and att a c h e d to the P.I.
*  applies reg a r dl e s s of the value of the real prop e r t y
*  applies even if only real right s over the real prope r t y are
cont ri b u t e d
*  applies if aside from real prop e r t y, cash or perso n a l prope r t y is
cont ri b u t e d

 TRANSFER of land to the part n e r s hi p must be duly “recor d e d ” in the ROD to

make the tran sf e r effective insofar as third perso n s are conc e r n e d

RULE:
 any immova bl e prope r t y or an inter e s t the r ei n maybe acqui r e d in the par t n e r s h i p
nam e
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 title so acqui r e d can be conveye d only in the part n e r s h i p nam e

IF the part n e r s h i p has ALIENS, it CANNOT OWN LANDS, whet h e r public or
privat e or whet h e r agric ult u r a l or com m e r c i al EXCEPT thro u g h HEREDITARY
SUCCES S IO N

LIMITATIO N S ON ACQUISITIO N
1. AGRICULTURAL LANDS – 1024 HECTARES
2. lease of public lands (GRAZING) – 2000 HAS.

RULES IF A) articles are kept secre t amon g the me m b e r s

B) any one of the me m b e r s may contrac t in his “own” nam e with
third perso n s
1. NOT a par t n e r s h i p – NOT a LEGAL PERSO N
2. it may be sued by third perso n und e r the com m o n nam e it uses
3. it cannot sue as such and canno t be ordin a rily be a party to a civil action
4. insofar as innoce n t third par ti e s are conc e r n e d
 the paritie s can be conside r e d as mem b e r s of a part n e r s h i p
5. as betw e e n the m s elv e s or insofa r as third perso n s are preju dic e d
 only the rules of co- owne r s hi p must apply

EFFECT OF CERTAIN TRAN SACTIO N S

1. cont r a c t s ent e r e d into by a “part n e r ” in his own nam e may be sue d upon still
by him in his individu al capa ci ty, not withst a n d i n g the abse n c e of a
par t n e r s h i p
2. when two or more individu al s, having a com m o n inter e s t s in a busin e s s
bring a cour t action, it shoul d be pre s u m e d that they pros e c u t e the sam e in
their individu al capa city as co- owne r s and not in behalf of a part n e r s h i p
which does not exist in legal cont e m pl a t i o n

CLASSIFICATIO N OF PART NER S H I P S

A) ACCORDI N G TO MAN N E R OF CREATIO N
1. ORALLY constit u t e d
2. constit u t e d in a PRIVATE INSTRUME NT
3. constit u t e d in a PUBLIC INSTRUME NT
4. REGISTERED – S.E.C.
B) ACCORDI N G TO OBJECT
1. UNIVERSAL
2. PARTICULAR
C) ACCORDI N G TO LIABILITY
1. LIMITED PARTNER S HIP
2. GENERAL PARTNERS HIP
D) ACCORDI N G TO LEGALITY
1. LAWFUL OR LEGAL
2. UNLAWFUL OR ILLEGAL
E) ACCORDI N G TO DURATIO N
1. for a SPECIFIC PEIOD or FIXED PERIOD
2. PARTNERS HI P AT WILL
F) ACCORDI N G TO REPRE S E N T A T I O N TO OTHER S
1. ORDINARY PARTNERS H IP
2. PARTNERS HI P BY ETOPPEL
G) AS TO LEGALITY OF EXISTE N C E
1. DE JURE PARTNERS HIP
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2. DE FACTO PARTNERS HI P
H ) AS TO PUBLICITY
1. SECRET PARTNERS HI P
2. NOTORIOU S / OPEN PARTNERS HIP
I) AS TO PURPS E
1. COMMERCIAL / TRADING
2. PROFES SIO NAL / NON- TRADING

GENERAL PART NE R S H I P
 one whe r e all the par t n e r s are gene r a l part n e r s
 they are LIABLE even with resp e c t to their individu al prope r t i e s, afte r the asse t s
of the part n e r s h i p has bee n exha u s t e d

LIMITED PATNER S H I P
 one whe r e at least one part n e r is a gene r al part n e r and the othe r s are limited
par t n e r s
 one whose liability is limite d only up to the exte n t of his cont ri b u ti o n

 a partn e r s hi p wher e all the part n e rs are limite d part n e rs cannot exist as a limit e d
partn e r s hi p
 REFUS ED REGISTRATION
 IF it contin uo u s as such, it will be conside r e d as a gene r a l part n e r s h i p and all
the part n e r s will be gen e r a l part n e r s

KIND S OF UNIVER SAL PART NE R S H I P

1. PARTNERS HI P OF ALL PRESE NT PROPERTY
2. PARTNERS HI P OF ALL PROFITS

*UNIVER SAL PART NE R S H I P OF ALL PRE SE N T PROPERTY

 CONTRIBUTION of
1. ALL the prop e r t i e s act u ally belongi n g to the part n e r s
2. the PROFITS acquir e d with said prop e r t y
 BECOMES COMMO N PROPERTY
 EXCEPT all FUTURE PROPERTY
 FRUITS of FUTURE PROPERTY – INCLUDED IF STIPULATED UPON

*UNIVER SAL PART NE R S H I P OF PROFIT S

 com p ri s e s all that the part n e r s may acqui r e by the INDUSTRY or WORK of the
par t n e r s beco m e com m o n prope r t y reg a r dl e s s of within said profits were obt ain e d
thro u g h the usufru c t cont ri b u t e d
 EXCEPT PRIZES and GIFTS

RULE :
 articles of univer s al part n e r s h i p, ent e r e d without specification of its nat u r e , only
constit u t e a univer s a l part n e r s h i p of PROFITS

RULE:
 perso n s who are prohibit e d from giving eac h othe r any dona tion or adva n t a g e
cannot ente r into univer s al part n e r s h i p
WHO :
1. HUSBAND and WIFE
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2. those guilty of ADULTERY or CONCUBINAGE

3. those guilty of the sam e criminal offense if the par t n e r s h i p was ent e r e d into
in consid e r a t i o n of the sam e

 while spous e s canno t ent e r into a univer s a l par t n e r s h i p , they can ent e r into a
par tic ul a r part n e r s h i p or be me m b e r s ther e of

 a unive rs al par t n e r s h i p is virtually a dona tio n to each othe r of the par t n e r s

prope r ti e s or at least thei r usufr u c t

PARTICULAR PARTNE R S H I P
 a par tic ul a r part n e r s h i p has for its OBJECT:
1. DETERNMI NATE THINGS – their use or fruits
2. SPECIFIC UNDERTAKING
3. EXERCISE of a PROFES SIO N or VOCATION

OBLIGATIO N S OF THE PART NE R S

RULE :
 a PARTNER S HI P BEGINS from the mom e n t of the EXECUTION of the CONTRACT

*  even if cont ri b u t io n s have not yet bee n mad e the firm alre a d y exists, for
par t n e r s h i p is a conse n s u a l cont r a c t

DURATIO N OF PART NER S H I P

 UNLIMITED
*  MAY BE AGREED UPON
1. EXPRES SLY – definite period
2. IMPLIEDLY – upon achieve m e n t of its purpos e

PART NE R S H I P AT WILL
 a par t n e r s h i p wher ei n its continu e d exist e n c e really depe n d s upon the will of the
par t n e r s or even on the will of any of the m
2 KIND S:
1. when the r e is no ter m, expr e s s or implied
2. when it is contin u e d by the habit u al man a g e r s althou g h the period has ende d
or the purpo s e has been accom plish e d

3 IMPORTA NT DUTIE S OF EVERY PART NE R [C, D- F, W]

1. duty to CONTRIBUTE what had been promis e d
2. duty to DELIVER the FRUITS of what should have bee n deliver e d
3. duty to WARRANT

RIULES ON THE DUTY TO CONTRIB U T E

1. the contri b u ti o n must be mad e at the time the part n e r s h i p is ent e r e d into
UNLES S a differe n t period is stipul a t e d

2. no dem a n d is nee d e d to put the part n e r in default

3. the part n e r must exer ci s e due dilige nc e in pres e r vi n g the prop e r t y to be

cont ri b u t e d befor e he actu ally cont ri b u t e s the sam e
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4. a part n e r who promis e s to cont ri b u t e to the part n e r s h i p beco m e s a

promisso ry debt o r of the part n e r s h i p

RULES ON THE DUTY TO DELIVER THE FRUIT S

1. IF prop e r t y has bee n promis e d , the fruits ther e of shoul d also be given

2. the fruits refe r r e d to are those arising from the time they shoul d have bee n
deliver e d , withou t a nee d of any dem a n d

3. IF the part n e r is in BAD FAITH, he is liable not only for the fruits actu ally
produ c e d , BUT also for those that could have bee n produ c e d
4. IF MONEY HAS BEEN PROMISED, INTEREST and DAMAGES from the time
he should have complie d with his obliga tion should be given

5. NO DEMAND is nee d e d to put the part n e r in default

6. it is DELIVERY, actu al or const r u c t ive that TRANSF ER S OWNER S HIP

RULES ON THE DUTY TO WARRANT

1. the war r a n t y in case of eviction refer s to specific and det e r m i n a t e things
alrea d y cont ri b u t e d

2. the r e is EVICTION when ev e r by a final judg m e n t base d on a right prior to

the sale or an act imput a bl e to the part n e r , the par t n e r s h i p is deprive d of the
whole or a part of the thing purc h a s e d

RULE WHE N CONTRI B U T IO N CONSI S T S OF GOODS

 APPRAISAL of VALUE is need e d to det e r m i n e how muc h was cont ri b u t e d

HOW APPRAI SA L MADE

1. as PRESCRIBED in the CONTRACT
2. in default, by EXPERTS chose n by the par t n e r s , and at CURRENT PRICES
* nece s si ty of the INVENTORY – APPRAISAL

RULE on RISK of LOSS

 after goods have bee n contri b u t e d , the par t n e r s h i p bea r s the risk of
subs e q u e n t chan g e s in the value

RULE:
 a par t n e r who has unde r t a k e n to contri b u t e a sum of money and fails to do so
becom e s a debt o r for the inter e s t and dam a g e s from the time he should have
complie d with his obliga tion

CAPITALIST PARTNE R
 one who FURNIS H E S CAPITAL
* NOT EXEMPTED from LOSSES
* he can enga g e in othe r busine s s PROVIDED the r e is no comp e ti tio n
betw e e n the par t n e r s h i p and his busine s s
* shar e in the profits accor di n g to agr e e m e n t s

INDU S T RIAL PART NE R

 one who FURNIS H E S INDUSTRY or LABOR
* he is EXEMPTED from LOSSES as bet w e e n the part n e r BUT liable to
stra n g e r s withou t preju dic e to reim b u r s e m e n t from the capit alist part n e r
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* he CANNOT enga g e in any othe r BUSINE S S WITHOUT the expr e s s

CONSE NT of the othe r part n e r s , OTHERWISE
1. he can be EXCLUDED from the firm
- plus dam a g e s OR
2. the BENEFITS he obtains from the othe r busine s s e s CAN BE AVAILED of by
the othe r part n e r s
- plus dam a g e s
 whet h e r or not ther e is COMPETITION
* in com p u ti n g always look for ----- NET PROFITS
----- NET LOSSES

CAPITALIST – INDU S T RIALIS T PART NER

 one who cont ri b u t e s BOTH CAPITAL and INDUSTRY

GENERAL PART NE R
 one who is liable “beyon d” the exten t of his cont ri b u ti o n

LIMITED PARTNE R
 one who is liable “only” to the exte n t of his cont rib u ti o n

*** an indust rial part n e r can only be a gene r al part n e r , neve r a limited par t n e r

MANAGING PART NER

 one who man a g e s actively the firms affairs

SILENT PART NER

 one who does not partici p a t e in the man a g e m e n t , thoug h he sha r e s in the
PROFITS or LOSSE S

LIQUIDATI NG PART NE R
 one who winds up or liquida t e s the affairs of the firm after it has been dissolve d

OSTE N S I B L E PART NE R
 one whose conne c tio n with the firm is public and open

SECRET PARTNE R
 one whose conne c tio n with the firm is conce al e d or kept secr e t

DORMA NT PARTN ER
 one who is both a secr e t (hidde n) and silent (not man a gi n g) par t n e r

NO MI N AL PART NE R
 one who is not really a part n e r BUT who may beco m e liable as such insofar as
third perso n s are conc e r n e d

RULE:
 part n e r s shall CONTRIBUTE EQUAL SHARES to the capital of the part n e r s hi p

* it is per mi ssi bl e to contri b u t e UNEQUAL SHARES IF ther e is a stipul a tion to

this effect

* in the abse n c e of proof, the shar e s are pre s u m e d to be equ al

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CONDITIO N S bef o r e a cap i t a l i s t par t n e r is obli g e d to sel l his sha r e s /

int e r e s t to th e ot h e r par t n e r s [IL, RC, NA]

1. if ther e is IMMINE NT LOSS of the BUSINE S S of the part n e r s h i p

2. he REFUSE S to CONTRIBUTE an ADDITIONAL SHARE to the CAPITAL

3. ther e is no agre e m e n t to the cont r a r y

* INDUSTRIAL PARTNER IS EXEMPTED

*RULE if MANAGING PARTN ER COLLECTS A CREDIT

REQUI SITE S:
1. exist e n c e of at least 2 debt s ---- PARTNER S HIP
---- PARTNER
2. both sum s are dem a n d a b l e
3. the collectin g part n e r is the man a gi n g part n e r

* the sum thus collect e d shall be applie d to the two credit s in

propo r ti o n to thei r amou n t s

RULE:
* wher e a part n e r receiv e s his share in the part n e rs hi p credit
CONDITIO N S :
1. a par t n e r has rec eive d his shar e in the par t n e r s h i p cre di t – in whole or in
part
2. the othe r part n e r s have not collect e d their part of the credit
3. the debt o r subs e q u e n t ly becom e s INSOLVENT

RULE : - the par t n e r shall be oblige d to bring to the part n e r s h i p

capit al what he rec eive d even thoug h he may have given recei pt for
his shar e only

* DOES NOT APPLY when debt was collect e d after dissolution of the par t n e r s hi p

RULE :
* every part n e r is respo n si bl e to the part n e r s h i p for dam a g e s suffer e d by it
thro u g h his fault

* he canno t comp e n s a t e the m with the profits and ben efits, which he may
have earn e d for the part n e r s h i p by his indust r y

* the court s may equit a bly lesse n his respo n si bility

“RES PERIT DOMI N O”

*RULES ON WHO BEARS THE RISK OF LOSS

1. if SPECIFIC and DETERMINATE THINGS NOT FUNGIBLE whos e

USUFR UCT is enjoyed by a firm
 11

 the PARTNER who OWNS it bea r s the loss for owne r s hi p was neve r
tra n sf e r r e d to the firm

2. FUNGIBLE or DETERIORABLE
 FIRM bea r s the loss for it is evide n t owne r s hi p was tra nsf e r r e d

3. THINGS CONTRIBUTED to be SOLD

FIRM bea r s the loss for evide n tly the firm was inte n d e d to be the owne r

4. CONTRIBUTED unde r APPRAISAL

 FIRM bea r s the loss beca u s e this has the effect of an implied sale

RULE on RESPO N S I B ILITY of the FIRM

1. to REFUND amou n t s disbu r s e d on beh alf of the firm plus legal inter e s t from
the time expe n s e s whe r e mad e

2. to ANSWER to eac h part n e r for OBLIGATIONS he may have ent e r e d into in

good faith in the inter e s t of the part n e r s h i p, as well as the risks in
conse q u e n c e of its man a g e m e n t

* REFUND must be mad e even in case of failur e of the ent e r p r i s e ent e r e d into,
provide d the part n e r is not at fault
* AMOUNT DISBURSED – does not refer to the ORIGINAL CAPITAL

*HOW PROFIT S ARE DISTRI B U T E D

1. accor di n g to AGREEME NT
2. IF NONE, accor di n g to amou n t of CONTRIBUTION

*HOW LOSSE S are DISTRI B U T E D

1. accor di n g to AGREEME NT as to losses
2. IF NONE, accor di n g to agre e m e n t as to PROFITS
3. IF NONE, accor di n g to amou n t of CONTRIBUTION

* an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE shar e in the

profits

*RULE on INDU S T RIAL PARTNE R S’ LIABILITIES

- may be held liable by third perso n s BUT he may recove r what he has paid from the
othe r capit alist part n e r s

*RULE on DESIG NATIO N by THIRD PERSO N of SHARE S in PROFITS and

LOSSE S
* third perso n is NOT a PART N E R -- appoi nt e d to only distri b u t e sha r e s

* the design a t io n of shar e s by third perso n s may be IMPUGNED, IF it is

MANIFESTLY INEQUITABLE
* the design a t io n of shar e s by third perso n s CANNOT be IMPUGNED EVEN IF
MANIFESTLY INEQUITABLE IF:
1. the agg ri ev e d part n e r has alrea d y BEGUN to EXECUTE the decision
 12

2. the agg ri ev e d part n e r has not IMPUGNED the distrib u tio n within 3 mont h s
he had knowle d g e

*RULE IF APPOIN T M E N T OTHER THAN in th e ARTICLES of PARTN ER S H I P

1. powe r to act may be REVOKED at ANY TIME with or withou t just caus e
 REMOVAL should be done by the cont rolling inte r e s t

2. EXTENT of POWER
 as long as he rem ai n s man a g e r , he can perfor m all acts of admini st r a t i o n
BUT – if othe r s oppose and he persi st s, he can be rem ov e d

*RULE WHE N th er e are 2 or MORE MANAGER S

CONDITIO N S :
1. 2 or more part n e r s are man a g e r s
2. ther e is no specificatio n of resp e c t iv e duties
3. ther e is no stipul a tion requi ri n g UNANIMITY

SPECIFIC RULES :
1. each may sepa r a t e ly execu t e all acts of admi nist r a t i o n
 UNLIMITED POWER to ADMINISTER

2. IF any of the man a g e r s OPPOSE

 MAJORITY RULE
 IN CASE OF A TIE
- perso n s owning cont rolling inte r e s t prevail provide d they are also
man a g e r s

* right to oppose is not given to NON- MANAGERS

* OPPOSITION shoul d be done BEFORE the acts produ c e legal effect s insofa r as
third perso n s are conc e r n e d

RULE WHE N UNA NI M ITY is REQUIRE D

1. the CONCURR E NC E of all shall be nece s s a r y for the validity of the acts

2. the ABSENCE or DISABILITY of ANYONE of the m CANNOT BE ALLEGED

UNLES S the r e is immin e n t dang e r of grave or irrep a r a b l e injury to the
par t n e r s h i p

RULE ON DUTY of THIRD PERSO N S

 third perso n s are not requi r e d to inquir e as to whet h e r or not a part n e r with
whom he tran s a c t s has the conse n t of all the man a g e r s

*RULE S to be ob s e r v e d wh e n th e m a n n e r of m a n a g e m e n t has no t be e n
agr e e d up o n:
1. all the part n e r s are consid e r e d AGENTS
 what ev e r any one of the m may do alone shall not bind the part n e r s h i p

2. IF the acts of one are oppos e d by the rest, the majority shall prevail

3. when a par t n e r acts in his OWN NAME, he does not bind the par t n e r s h i p

4. aut ho ri ty to bind the firm does not apply if som e b o dy else has bee n given
aut ho ri ty to man a g e in the article s of orga niza tio n or throu g h som e othe r
mea n s
 13

5. ALTERATIONS REQUIRE UNANIMITY

- IMMOVABLE part n e r s h i p prop e r t y
- BUT if the refus al to conse n t by the other s is prejudi ci al to the inter e s t of
the part n e r s h i p
- COURTS INTERVENTION may be sough t

RULES on ASSOCIATE of PART NER

1. every part n e r may associ a t e anot h e r perso n with him in his sha r e

2. for a par t n e r to have an associ a t e in his sha r e

 cons e n t of all the othe r par t n e r s is NOT REQUIRED

3. for the associ a t e to beco m e a par t n e r

 ALL MUST CONSE NT

RULES on PART NE R S H I P BOOKS

1. kept at the princip al plac e of busin e s s of the part n e r s h i p

2. at any reaso n a b l e hour, every part n e r shall have acces s to and may inspe c t
and copy any of the m

DUTY of PART NER S TO GIVE INFOR MATIO N

 good faith not only requir e s that a par t n e r should not make any FALSE
CONCEALMENT, BUT he shoul d abst ai n from all conce al m e n t

DUTY to ACCOUNT [B, P, U- P ]

 every part n e r mus t accoun t to the partn e r s hi p
1. any benefit acqui r e d
2. any profits receive d
3. any use of par t n e r s h i p prop e r t y

RIGHT TO DEMA N D a FORMAL ACCOU NT

 any part n e r shall have the right to a form al accoun t as to partn e r s hi p affairs
1. if wron gfully exclud e d from part n e r s hi p BUSINE S S
2. if wron gfully exclud e d from part n e r s hi p PROPERTY by his co- par t n e r s
3. if the right exists unde r the ter m s of agr e e m e n t
4. if the othe r part n e r receive s othe r benefits, profits or uses par t n e r s h i p
prope r t y
5. when ev e r othe r circu m s t a n c e s ren d e r it just and reaso n a b l e

* the right to dem a n d an accou n ti n g exists as long as the part n e r s h i p exists

* presc ri p tio n begins to run only upon the dissolution of the par t n e r s h i p when the
final accou n ti n g is done

PROPERTY RIGHT S OF PART NE R S [P, I, M]

1. right s in specific PARTNERS HIP PROPERTIES
2. INTERESTS in the PARTNERS HI P
3. right to PARTICIPATE in the MANAGEME NT

RULE :
 14

* a par t n e r is CO- OWNER with his part n e r s of SPECIFIC PARTNER S HIP

PROPERTY

* RIGHTS of a PART NER in SPECIFIC PARTNE R S H I P PROPERTY

1. he has equ al right s with his part n e r s to POSS ES S the prope r t y BUT only for
PARTNERS HI P PURPOSE S
 he may posse s s such prope r t y for othe r pur pos e s PROVIDED the othe r
par t n e r s expr e s sly or impliedly gives thei r CONSE NT

2. he CANNOT ASSIGN his right to the prop e r t y EXCEPT if all the othe r
par t n e r s assig n thei r right s in the sam e prop e r t y

3. his right to the prop e r t y is NOT SUBJECT to ATTACHME NT or EXECUTION,

EXCEPT on a claim agai ns t part n e r s h i p

4. his right to the prop e r t y is NOT SUBJECT to LEGAL SUPPORT

* if ther e is PARTNERS HIP DEBT, the specific prop e r t y can be att a c h e d

RULE:
* a PARTNER S INTEREST in the part n e r s h i p is his SHARE of the PROFITS and
SURPLUS
IT CAN BE : [A, A, LS]
1. ASSIGNED
2. ATTACHED
3. be subjec t to LEGAL SUPPORT

*EFFECT S of CONVEYANCE by PART NER of his INTERE S T in th e

PART NE R S H I P
1. IF he conveys his WHOLE INTEREST
A) par t n e r s h i p may still rem ai n
B) par t n e r s h i p may be dissolve d
* mer e conveya n c e does not dissolve the par t n e r s h i p

2. the ASSIGNEE does not nece s s a rily beco m e a part n e r

 the ASSIGNOR is still the part n e r , with a right to dem a n d accou n ti n g and
settle m e n t

3. the ASSIGNEE CANNOT inte rf e r e in the MANAGEME NT or

ADMINISTRATION of the firm
 the ASSIG N E E CAN N O T also DEMA N D [I, A, I]
A) INFORMATION
B) ACCOUNTING
C) INSPECTION of part n e r s h i p books

*** while a part n e r s INTEREST in the firm may be CHARGED or LEVIED upon, his
INTEREST in a specific firm PROPERTY CANNOT be att a c h e d .

RIGHTS of the ASSIG NE E

1. to get wha t e v e r profits the assig no r- par t n e r would have obt ain e d

2. to avail hims elf of the usual rem e di e s in case of fraud in the man a g e m e n t
 15

3. to ask for ANNULME NT of the cont r a c t of assign m e n t IF:

A) he was induc e d to ent e r into it throu g h any of the vices of cons e n t
OR
B) he himself was incap a ci t a t e d to give conse n t

4. to dem a n d an accou n ti n g BUT only if the part n e r s h i p is dissolve d

PREFERE N T IAL RIGHT S of PART NER S H I P CREDITOR S

* par t n e r s h i p credito r s are entitle d to PRIORITY over par t n e r s h i p asse t s, includi ng
the part n e r s inter e s t in the profits

** SEPARATE or INDIVIDUAL cre di tor s have PREFER E N C E in sep a r a t e or

individu al prop e r t i e s

* when the CHARGING ORDER is applie d for and gra n t e d , the court may appoi nt a
rec eive r of the par t n e r s shar e in the profits
 the receive r appoint e d is entitle d to any relief nec e s s a r y to conse rv e the
par t n e r s h i p asse t s for part n e r s h i p pur po s e s
* inter e s t char g e d may be red e e m e d at any time befor e foreclos u r e

* AFTER FORECLO S U R E the intere s t may still be rede e m e d by (witho u t causin g

dissolution)
1. with separat e prope rt y , by any one or more of the part n e r s OR

2. with part n e r s hi p propert y , by any one or more part n e r s with the cons e n t of all the
par t n e r s whose inter e s t s are not so char g e d or sold
* cons e n t of the delinq u e n t part n e r not need e d

RULE:
 every part n e r s h i p shall oper a t e unde r a FIRM NAME
* the firm nam e may or may not includ e the nam e of one or more of the part n e r s

** STRANGERS who include thei r nam e s in the firm are liable as part n e r s bec a u s e
of ESTOPPEL, BUT do NOT have the RIGHTS of part n e r s

** IF a LIMITED PARTNER includ e s his nam e in the firm na m e , he has obliga tion s
BUT not the right s of a gen e r a l part n e r

RULE on LIABILITY for CONTRACTUAL OBLIGATIO N S

* all part n e r s , includin g indus t ri al ones, shall be liable pro- rat a with all their
prope r t y and afte r all the part n e r s h i p asse t s have been exha u s t e d

* NOT APPLICABLE for TORTS or CRIMES ----- LOSS

----- INJURY
----- MISAPPROPRIATION

** while an INDUSTRIAL PARTNER is exe m p t e d by law from LOSSES as betw e e n

the part n e r s , he is NOT EXEMPTED from liability insofa r as third perso n s are
conce r n e d
 he may recove r wha t he has paid from the CAPITALIST par t n e r s
 16

* unde r the law the liability of the part n e r s is subsidia ry and joint NOT princi p al
and solida ry

*RULE on LIABILITY of a PARTN ER wh o has WITH DRAW N

1. a par t n e r who withd r a w s is not liable for liabilities cont r a c t e d after he has
withd r a w n

2. if his inter e s t has not yet bee n paid him

 his right to the sam e is that of a mer e cre dit o r

** a stipul a tio n exem p t i n g liability to third perso n s is VOID

* any par t n e r may ent e r into a sepa r a t e obligatio n to perfor m a part n e r s h i p

cont r a c t

RULE:
* every part n e r is an “age n t” of the par t n e r s hi p for the purpo s e of its busine s s

G.R.- the act of every part n e r for app a r e n t ly car ryin g on in the USUAL WAY the
busine s s of the part n e r s h i p of which he is mem b e r binds the part n e r s h i p
EXCEPT:
1. if he has NO AUTHORITY and
2. the perso n with whom he was dealing with HAS KNOWLEDGE of the fact that he
has no such autho ri ty

RULE:
 an act of a part n e r which is not appa r e n t ly for the carryin g on of busine s s of the
par t n e r s h i p in the usual way does not bind the part n e r s h i p UNLESS aut ho riz e d by
the othe r part n e r s

* a par t n e r s h i p is a CONTARCT of MUTUAL AGENCY, each part n e r acting as a

princip al on his own beh alf and as an age n t for his co- par t n e r s or the firm

REQUI SITE S on WHE N can a part n e r BIN D th e part n e r s h i p

1. expr e s sly or impliedly AUTHORIZED
2. when he acts in BEHALF AND IN THE NAME of the part n e r s h i p

INSTA NCE S of IMPLIED AUTHORIZATIO N

1. when the othe r par t n e r s DO NOT OBJECT, altho u g h they have knowl ed g e of
the act
2. when the act is for “appa r e n t l y carryin g on in the usual way the busine s s of
the part n e r s h i p
* this is bindin g on the firm even if the part n e r was not really aut ho riz e d
PROVIDED that the third party is in GOOD FAITH

RULE on UNU S U AL ACTS

 one or more but less than all the partn e r s HAVE NO AUTHORIT Y TO :
[AP, DG, AI, CJ, EC, SA, RC]
1. ASSIGN the PARTNERS PROPERTY
2. DISPOS E of GOODWILL
3. do any othe r act which would make it impossibl e to carry on the ordin a r y
busine s s of the part n e r s h i p
4. CONFES S a judgm e n t
5. ENTER into a COMPROMIS E
 17

6. SUBMIT to ARBITRATION
7. RENOUN C E to CLAIM

*RULES on CONVEYANCE of REAL PROPERTY

1. wher e title to real prope rt y is in the partn e r s hi p nam e

 any par t n e r may convey title to such prop e r t y by a conveya n c e exec ut e d in
the part n e r s h i p na m e

* PART N E R S H IP MAY RECOVE R SUC H PROPERT Y

EXCEPT :
1. if the firm is enga g e d in the buying and selling of land (USUAL
BUSINE S S)
2. if prope r t y was conveye d to a HOLDER for VALUE and who had NO
KNOWLEDGE of the part n e r s LACK of AUTHORITY

2. wher e title is in the nam e of the partn e r s hi p and part n e r sold in his OW N
NA M E

 IF DONE IN USUAL BUSINE S S

 buyer does not beco m e owne r BUT ACQUIRES EQUITABLE INTEREST

 IF NOT DONE IN USUAL BUSINE S S

 buyer does not beco m e owne r and is not even entitl ed to equit a bl e
inter e s t

3 . wher e title is in the nam e of one or more BUT not all the part n e rs

 par t n e r s in whose nam e the title is nam e d MAY CONVEY BUT the
PARTNER S HI P may RECOVER such prope r t y IF done not in its USUAL
BUSINES S EXCEPT if he had tran sf e r r e d it to a Holde r for value

4. whe n proper t y “held in trust” by part n e r

 a sale only conveys EQUITABLE INTEREST

5. whe n title is in the nam e of all partn e r s

 conveya n c e execu t e d by all part n e r s posse s s all right s of such prope r t y

EQUITABLE INTERE S T
-BENEFICIAL INTEREST, BUT NOT NAKED OWNERS HIP

*RULE on ADMIS S I O N or REPRE S E N T ATIO N MADE by a PARTNE R

 an admission by a part n e r is an admi ssio n against the part n e r si p,u n d e r the
followin g conditions :
1. the admissio n s must conce r n part n e r s h i p affairs
2. must be within the scop e of his aut ho ri ty

RESTRICTIO N S ON THE RULE:

1. admi ssion s made BEFORE DISSOLUTION are bindi ng only when the par t n e r
has aut ho ri ty to act on the partic ul a r mat t e r
 18

2. admi ssion s made AFTER DISSOLUTIO N are bindin g only if the admi ssion s
were nec e ss a r y to WIND UP the busine s s

3. an admissio n mad e by a form e r part n e r mad e afte r he has RETIRED from the
par t n e r s h i p is not evide n c e agains t the firm

EFFECT of NOTICE to a PARTNE R

 notice to a part n e r is notice to the part n e r s hi p

*notice to a part n e r , given while alre a dy a part n e r is a notice to the part n e r s h i p

PROVIDED it relat e s to par t n e r s h i p affairs

EFFECT of KNOWLE DGE ALTHOUG H NO NOTICE WAS GIVEN:

* kno wl e d g e of the partn e r is also kno wl e d g e of the firm PROVIDED THAT :

1. the knowle d g e was acqui r e d by a part n e r who is acting in the partic ul a r
mat t e r involved; a n d
2. the part n e r having knowle d g e , had reaso n to believe that the fact relat e d to
a matt e r which had some possibility of being the subjec t of the part n e r s h i p
busin e s s AND he was so situa t e d that he could com m u n i c a t e it to the
part n e r acting on that partic ul a r mat t e r

* SERVICE of PLEADINGS on the part n e r in a law firm is also servic e on the whole
firm and the othe r part n e r s

LOSS OR INJURY

RULE on WRONGF UL ACT or OMIS S IO N of a PART NE R (SOLIDARY

LIABILITY)
* the part n e r s hi p is solida rily liable with the part n e r if the wrongful act or
omission
1. the part n e r is acting in the ordin a ry cours e of busin e s s of the par t n e r s h i p
OR
2. with aut ho ri ty of his co- part n e r s

* innoce n t partn e r s have right to recove r from the guilty par t n e r

* Wh e n th e fir m an d ot h e r par t n e r s no t lia bl e :

1. if the wrongf ul act or omission was NOT DONE
A) within scope of part n e r s h i p busine s s
B) with aut ho ri ty of the othe r co- part n e r s

2. if the act or omission is NOT WRONGF UL

3. if the act or omission, altho u g h wrongful did not make the part n e r conce r n
liable
- DAMNUN ABSQUE INSURIA

4. if the wrongf ul act or omission was com mit t e d afte r the firm had bee n
dissolve d and the sam e was not in conne c t io n with the proc e s s of winding up.
 19

LIABILITY of PART NER S H I P for MISAPP R O P RIATIO N – (SOLIDARY

LIABILITY)
1. RECEIVING PARTY MISAPPROPRIATES
2. ANY PARTNER MISAPPPROP RIATES
- money or prop e r t y in custo dy of part n e r s h i p

PART NE R BY ESTOP PEL

 a perso n who rep r e s e n t s himself or conse n t s to anot h e r / othe r s rep r e s e n t i n g him
to anyon e as a part n e r eithe r in an existin g part n e r s h i p or in one that is fictitious or
app a r e n t

PART NE R S H I P BY ESTOPPEL
 when all the mem b e r s of the existin g part n e r s h i p conse n t to such rep r e s e n t a t i o n
of a part n e r by estop p el

RULES AND SITUATIO N S:

1. if a third person is misle d and acts becaus e of such misre p r e s e n t a ti o n
 the dec eive r is a part n e r by estop p el

2. if the partn e r s hi p conse n t e d to such misre pr e s e n t a ti o n

 par t n e r s h i p liability resul ts

3. if the firm had not conse n t e d

 no par t n e r s h i p liability resul t s BUT the deceive r is conside r e d still as a
“part n e r by estop p e l” with all the obligatio n s but not the right s of a part n e r

4. whe n a perso n repres e n t s hims el f as a partn e r of a NO N- EXIST E N T

partn e r s hi p
 NO part n e r s h i p liability result s BUT the dec eive r and all perso n s who may
have aided him in the misr e p r e s e n t a t i o n are still liable
 liability would be JOINT or PRO- RATA

* whe n althou g h the r e is misr e p r e s e n t a t i o n, if the third par ty is not dec eive d, the
doct ri n e of estop p el does not apply

BURDE N of PROOF
 the cre di tor or whoeve r alleg e s the exist e n c e of a par t n e r or part n e r s h i p by
estop p e l has the bur d e n of proving the exist e n c e of the MISREPR ES E N TATION
AND INNOCE NT RELIANCE on it

ENTRY OF A NEW PARTNE R int o an EXISTI NG PARTNE R S H I P

RULE:
* he shall be liable for all the obliga tion s of the part n e r s h i p BUT his liability will
exte n d only to his shar e in the par t n e r s h i p prope r t y

* his own individu al prop e r t y shall be exclud e d

* sam e liability of a limite d part n e r

PREFERE N C E of PARTNE R S H I P CREDITOR S

RULE:
* the cre di tor s of the part n e r s h i p shall be prefe r r e d to those of such part n e r as
rega r d s the par t n e r s h i p prop e r t y
 20

wi t h o u t pr e j u d i c e to thi s ri g h t
 the privat e cre dit o r s of eac h par t n e r may ask the att ac h m e n t and public sale of
the shar e of the latt e r in the part n e r s hi p asse t s

**IF a part n e r sells his sha r e to a third party, BUT the firm itself still rem ai n s
SOLVENT, part n e r s h i p cre dit o r s CANNOT assail the validity of the sale by allegin g
that it is mad e in fraud of the m , since they have not really bee n preju dic e d

DIS S OL UTIO N AND WINDI N G UP

 the chan g e in the relation of the part n e r s caus e d by any part n e r causin g to be
associa t e d in the carryi ng on of the busine s s
 it is the point of time the part n e r s ceas e to carry on the busin e s s toge t h e r

WIN DI N G UP
 the proce s s settling busin e s s affairs after dissolution

TERMI NATIO N
 the point in time afte r all the part n e r s h i p affairs have bee n woun d up

RULE ON DIS S OL UTIO N

* on dissolution the part n e r s hi p is not ter mi n a t e d BUT continu e s until the windin g
up of part n e r s h i p affairs is comple t e d

*EFFECT on OBLIGATIO N S
1. just bec a u s e a par t n e r s h i p is dissolve d this does not nece s s a r ily mea n that a
par t n e r can evade previou s obligatio n s ente r e d into by the part n e r s hi p

2. dissolution saves the form e r par t n e r s from new obligatio n s to which they
have not expr e s sly or impliedly conse n t e d UNLESS the sam e be esse n t i al for
windin g up

*CAUSE S OF DIS S OL UTIO N

1. without VIOLATION of the AGREEME NT betw e e n the par t n e r s
A) TERMINATION of the DEFINITE TERM or PARTICULAR
UNDERTAKING
B) EXPRES S WILL or ANY PARTY in GOOD FAITH (PARTNERS HI P by
WILL)
C) EXPRES S WILL of ALL of the PARTNER S except those who have
(inte r e s t s ) ASSIGNED or whos e inter e s t s have bee n (sep a r a t e debt s)
CHARGED
D) EXPULSION in good faith of a mem b e r
2. in CONTRAVENTION of the agre e m e n t betw e e n the part n e r s
 by the EXPRESS WILL of ANY PARTNER at any time
3. UNLAWFULN E S S of the BUSINES S
4. LOSS – thing promi se d
A) SPECIFIC THING – PERISHE S befor e delivery
B) USUFR UCT is lost EXCEPT if owne r s hi p had been tran sf e r r e d to the
par t n e r s h i p
5. DEATH of ANY part n e r
6. INSOLVENCY of any par t n e r or of the par t n e r s h i p
7. CIVIL INTERDICTION of any part n e r
8. DECREE of COURT
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*** if the caus e is not justified or no caus e was given, the withd r a wi n g par t n e r is
liable for DAMAGES BUT in no case can he be comp elle d to rem ai n in the firm

* the insolve ncy nee d not be judicially decla r e d , it is enou g h that the asse t s be less
than the liabilities

DIS S OL UTIO N by JUDICIAL DECREE WHE N ALOWED:

(I, UM, I- PP, C, PB, BL, OC)
1. par t n e r decla r e d “insa n e ” in any judicial proc e e di n g or is shown to be of
UNSOU N D MIND
2. par t n e r beco m e s INCAPABLE of perfor m i n g his part of the part n e r s hi p
cont r a c t
3. par t n e r has bee n guilty of such CONDUCT as tends to affect prejudi ci ally the
busine s s
4. par t n e r s PERSISTE NT BREACH of agr e e m e n t
5. the busin e s s of the part n e r s h i p can only be denie d on at a loss
6. othe r circu m s t a n c e s which rend e r dissolution equit a bl e

IN CASE OF PURCHA S E R of PARTNE R S INTERE ST

1. after the termi n a t i o n of the specified ter m or partic ul a r unde r t a ki n g
2. AT ANY TIME, if the part n e r s h i p was a “par t n e r s h i p at will” when the
inte r e s t was assig n e d or when the cha r gi n g orde r e d was issue d

* proof as to the exist e n c e of the firm must first be given

* even if a part n e r has not yet been previously decla r e d insan e by the court,
dissolution may be aske d, as long as the insa nity is duly prove d in court

* in a suit for dissolution, the cour t may appoin t a RECEIVER at its discr e ti o n

EFFECTS OF DIS SOLUTIO N

RULE:
* when the firm is dissolved, a par t n e r can no longe r bind the par t n e r s h i p

* a dissolv e d partn e r s hi p still has the personality for the windin g up of its affairs
 the firm is still allowe d to collect previously acqui r e d cre di ts
 the firm is still boun d to pay of its debt s

DIS S OL UTIO N CAUSE D by A- I- D

RULE: (STILL BOUND) – as to eac h part n e r s

G.R.  whe r e the dissolution is cause d by the ACT, INSOLVENCY or DEATH of a

par t n e r , each par t n e r is liable to his co- part n e r s for his shar e of any liability crea t e d
by any par t n e r acting for the par t n e r s hi p
EXCEPTIO N: - individu al liabilities
1. if dissolutio n by ACT
 the part n e r acting for the part n e r s h i p HAD KNOWLEDGE of the dissolution
OR
2. if dissolutio n by DEATH or INSOLVENCY
 the part n e r acting for the part n e r s h i p HAD “knowle d g e or notice” of the dea t h
or insolve ncy
 22

* only the par t n e r acting assu m e s liability

*AFTER DIS S OL UTIO N , a part n e r can still “bin d” th e PART NER S H I P

(WU, UT, TB)
1. By any ACT appr o p ri a t e for WINDING UP part n e r s h i p affairs

2. By COMPLETING tra ns a c t io n s UNFINIS H E D at dissolution

3. By any TRANSACTION which could bind the part n e r s h i p IF dissolution had

not take n plac e PROVIDED the othe r party is:
A) PREVIOUS CREDITOR and had NO KNOWLEDGE or NOTICE of the
dissolution OR
B) NOT a PREVIOUS CREDITOR, had NO KNOWLEDGE or NOTICE and
dissolution was NOT PUBLIS HED
* if the r e was publica tion of the dissolution it is pres u m e d he alre a dy know s,
rega r dl e s s of actu al knowle d g e on non knowle d g e

WHE N is the PARTNE R S H I P NOT BOU N D

1. new busin e s s with third parti e s who are in bad faith
2. firm dissolve d bec a u s e UNLAWFUL excep t for acts of winding up
3. par t n e r who act e d bec a m e INSOLVENT
4. par t n e r not aut ho riz e d to wind up EXCEPT if custo m e r in good faith

* if after dissolution, if a stra n g e r will repr e s e n t himself as a part n e r althou g h he

is not one he will be a part n e r by estop p el

RULE:
* the dissolution of the part n e r s h i p does not itself disch a r g e the “existin g liability”
of any part n e r
 NEED for an AGREE M E N T BET W E E N
1. par t n e r conce r n e d
2. othe r part n e r s
3. credito r s

RULE :
* the INDIVIDUAL PROPERTY of a DECEASED PARTNER shall be liable for all
obliga tion s of the par t n e r s h i p incur r e d while he was a part n e r BUT subjec t to prior
paym e n t s of his sepa r a t e debt s

* IF ther e be a NOVATION of the OLD PARTNERS HIP DEBTS and such novation is
done after one of the par t n e r s has “reti re d ” and without the conse n t of such part n e r
 said part n e r cannot be held liable by credito r s who made the novation with
knowle d g e of the firms dissolutio n

EXTRAJUDUCIAL AND JUDICIAL WIN DI N G - UP

EXTRAJUDICIAL:
1. by the part n e r s who have not wron gfully dissolve d the par t n e r s h i p
2. by the legal repr e s e n t a t i v e of the last surviving part n e r s

JUDICIAL:
 und e r the cont rol and direc tio n of the court, upon prope r caus e that is show n to
the court
 23

* profits that will actu ally ent e r the firm afte r dissolution as a conse q u e n c e of
tra n s a c t i o n s alre a dy mad e befor e dissolution are include d beca u s e they are
conside r e d as profits existing at the time of dissolutio n

* any othe r incom e ear n e d after the time, like inter e s t or divide n d s on stock owne d
by the part n e r s or part n e r s h i p at the time of dissolution should not be distri b u t e d as
profits BUT as mer ely addition al incom e to the capit al

BETTER RIGHT S of INNOCE N T PART NE R S

 innoce n t par t n e r s have bett e r right s than guilty par t n e r s and that the guilty
par t n e r s are req ui r e d to inde m nify for the dam a g e s caus e d

* RIGHT of INOCE NT PART NE R S TO CONTI N U E the BUSI N E S S

 in esse n c e this is a new par t n e r s h i p
 can use the sam e firm nam e
 can ask new mem b e r s to join
BUT shall: for prot e c tio n of guilty partn e r s
1. give a BOND appr ove d by the court
2. to PAY guilty part n e r s his inter e s t s at the time of dissolution MINUS
DAMAGES

* a guilty part n e r who is EXCLUDED will be inde m nifie d agai ns t all pres e n t or
futur e part n e r s h i p liabilities

RIGHT TO GET CASH

 in case on non- conti nu a n c e of the busine s s, the inter e s t of the part n e r should if he
desir e s be given in cash
 asse t s may be sold

 a guilty par t n e r , in asce r t a i ni n g the value of his inte r e s t is not entitle d to a

propo r ti o n al sha r e of the value of GOOD WIL

RIGHTS OF INNOCE N T PART NER S IN CASE of RESCIS S IO N bas e d on

FRAUD AND MISRE P R E S E N T ATIO N
1. Right to LIEN or RETENTION  SURPLUS
 CAPITAL
 ADVANCES
2. Right of SUBROGATION – as cre dit or
3. Right of INDEM NIFICATION

*ORDER of PAYME NT in WINDI NG - UP of PART NE R S H I P LIABILITIES

GENERAL PART NE R S H I P: [C, R, C, P]
1. thos e owing to “credit o r s” othe r than par t n e r s
2. thos e owing to “par t n e r s” othe r than for capit al or profits –
REIMBURS E M E N T S
3. thos e owing to part n e r s in resp e c t to CAPITAL
4. thos e owing to part n e r s in resp e c t to PROFITS

* IF the part n e r s h i p asse t s are insufficie nt, the othe r part n e r s must contri b u t e
more money or prop e r t y
 24

PREFERE N C E with RESPECT to the ASSET S

1. regardi n g part n e r s hi p propert y
 par t n e r s h i p cre dit o r s have prefe r e n c e

2. regardi n g individual proper ti e s of partn e r s

 individu al cre di tor s are prefe r r e d

RULE if PARTNE R is INSOLVE NT

- How INDIVIDUAL PROPERTY is DISTRIBUTED

ORDER OF PREFERE N C E:
1. INDIVIDUAL or SEPARATE CREDITORS
2. PARTNERS HI P CREDITORS
3. thos e owing to othe r par t n e r s by way of cont ri b u ti o n

*Wh e n cre d i t o r s of th e di s s o l v e d par t n e r s h i p are als o cr e d i t o r s of th e

par t n e r s h i p co n t i n u i n g bu s i n e s s :
1. new part n e r is admit t e d withou t liquida tio n
2. a part n e r retir e s and assig ns his right s IF the busin e s s is contin u e d withou t
liquida tion of the part n e r s hi p affairs
3. all but one part n e r retir e withou t liquida tio n
4. when all part n e r assig n their right to a perso n who will assu m e their debt
5. after wron gf ul dissolution, rem ai ni n g part n e r s continu e the busine s s without
liquida tion
6. when part n e r expelle d and rem ai ni n g part n e r s conti nu e the busin e s s withou t
liquida tion

* liability of third perso n becomi n g a par t n e r in the part n e r s h i p contin ui n g the

busine s s to the credito r s of the dissolved part n e r s h i p shall be satisfied out of the
par t n e r s h i p prop e r t y ONLY

G.R. – whe n a part n e r retir e s, he is entitl e d what is due him after liquida tio n BUT no
liquida tion is nee d e d if the r e is alre a dy a settle m e n t at the date of dissolution

JURISP R U D E N C E

BASTIDA vs. ME NZI

* articles of associ a tion by which 2 or more perso n s obliga t e the m s elv e s to place in
a com m o n fund any prop e r t y, indust r y, or any of thes e thing s, in orde r to obt ain
profit, shall be COMMER CIAL

BORJA vs. ADDISO N

* a surviving husb a n d may form a par t n e r s h i p with the heirs of the dec e a s e d wife
for the man a g e m e n t and cont rol of the com m u ni ty prope r t y
 BUT in the abse n c e of the form aliti es presc ri b e d by the Civil Code, knowl e d g e of
the exist e n c e of the new par t n e r s h i p or com m u n i ty of prop e r t y must at least be
broug h t hom e to third perso n s dealing with the surviving husb a n d in reg a r d to the
com m u ni t y real prop e r t y in orde r to bind the m by the com m u ni t y agr e e m e n t

KIEL vs. SABERT

 25

* the decla r a t i o n s of one part n e r , not mad e in the pres e n c e of his co- part n e r , are
not com p e t e n t to prove the exist e n c e of a part n e r s h i p betw e e n the m as again st such
par t n e r

* the exist e n c e of a par t n e r s h i p cannot be est a blish e d by gene r al repu t a t i o n,

rum o r or hea r s a y

EVENGELISTA vs. C.I.R.

* By the cont r a c t of par t n e r s h i p 2 or mor e perso n s bind the m s elv e s to cont ri b u t e
money, prop e r t y, or indust r y to a com m o n fund, with the inten ti on of dividing the
profits amon g the m s elv e s

ESSE NT IAL ELEME NT S of a PART NER S H I P

1. an agr e e m e n t to CONTRIBUTE money, prop e r t y, or indust r y to a COMMON
FUND
2. inten t to divide the profits amon g the cont r a c t i n g parti es

* when our inter n al Reven u e Code includ e s “part n e r s h i p s” amon g the entities
subjec t to the tax on “corpo r a t i o n s”, said code which are not nec e s s a r ily
“part n e r s h i p s ” in the tech ni c al sens e of the ter m

* PART NE R S H I P S – includ e s a SYNDICATE, GROUP, POOL, JOINT VENTURE, or

othe r uninco r p o r a t e d orga niz a tio n, thro u g h or by the mea n s of which any busine s s,
financi al oper a tio n, or vent u r e is carri e d on

* a joint vent u r e nee d not be unde r t a k e n in any of the stan d a r d forms,

or in confor mi ty with the usual req ui r e m e n t s of the law on part n e r s hi p s, in orde r
that one could be dee m e d constit u t e d for purpos e s of the TAX on corpo r a t i o n s

PASCUAL vs. C.I.R.

* co- owne r s hi p or co- posse s si o n does not itself est a blish a part n e r s h i p , whet h e r
such co- owne r s or co- posse s s o r s do or do not shar e any profits mad e by the use of
the prop e r t y

* the shari n g of gross ret u r n s does not itself est a blish a part n e r s hi p, within the
per so n s shari n g the m have a joint or com m o n right or inte r e s t in any prop e r t y from
which the ret u r n s are derive d

* aside from the circu m s t a n c e s of profit, the prese n c e of other ele m e n t s

constit u ti n g part n er s hi p is nec es s ar y, such as :
1. the clea r inte nt to form a part n e r s hi p
2. the exist e n c e of a juridical perso n ality differe n t from that of the individu al
par t n e r s AND
3. the freedo m to tra n sfe r or assign any inter e s t in the prop e r t y by one with the
conse n t of the othe r s

* an isolat e d tran s a c t i o n wher e by 2 or mor e perso n s cont ri b u t e funds to buy

cert ai n real est a t e for profit in the abse n c e of othe r circu m s t a n c e s showi ng a
cont r a r y inten tion canno t be consid e r e d a par t n e r s h i p

* perso n s who contri b u t e prope r t y or funds for a com m o n ent e r p r i s e and agr e e to
sha r e the gross ret u r n s of that ent e r p r i s e in propo r ti o n to their contri b u ti o n, BUT
who sever ally ret ai n the title to thei r resp e c tive cont ri b u ti o n, are not ther e b y
rend e r e d par t n e r s
 26

 they have no com m o n stock or capit al and no com m u ni t y of inte r e s t as

princip al prop ri e t o r s in the busin e s s itself which the proc e e d s derive d

* a joint purc h a s e of land, by two does not constit u t e a co- par t n e r s hi p in resp e c t
ther e t o, NOR does an agr e e m e n t to shar e the profits and losse s on the sale of land
crea t e a part n e r s h i p

* in ord er to con s t i t u t e a PART NE R S H I P INTER SESE th er e mu s t be:

A) an intent to form the sam e
B) gen e r a lly particip a ti n g in both profits and losses AND
C) such a com m u ni ty of inter e s t , as far as third perso n s are conce r n e d as
ena bl e s eac h party to make a cont r a c t , man a g e the busine s s, and
dispos e of the whole prop e r t y

* the com m o n owne r s hi p of prope r t y does not itself crea t e a part n e r s h i p bet w e e n
the owne r s, thou g h they may use it for the pur pos e of makin g gains AND they may
without beco mi n g par t n e r s , agre e amon g the m s elv e s as to the man a g e m e n t and use
of such prope r t y and the applica tion of the proc e e d s the r ef r o m

* the shari n g of ret u r n s does not in itself est a blish a part n e r s h i p within the
per so n s sha rin g ther ei n have a joint or com m o n right or inter e s t in the prope r t y
 th er e mu s t be:
1. clear inten t to form a part n e r s hi p
2. the exist e n c e of a juridical per so n a lity differe n t from the individu al part n e r s
AND
3. the free do m of each par ty to tran sfe r or assign the whole prope r t y

DUTERTE vs. RALLOS

* an agr e e m e n t betw e e n 2 perso n s to oper a t e a cockpit, by which one is to
cont ri b u t e his service s and the othe r to provide the capit al, the profits to be divided
betw e e n them , consti t u t e s a part n e r s hi p

DELUAO vs. CASTEEL

* a cont r a c t of part n e r s h i p to exploit a fishpon d pendin g its awar d to any qualified
par ty or applic a n t is VALID BUT a cont r a c t of part n e r s h i p to divide the fishpon d
after such awa r d is ILLEGAL

* one of the caus e s of dissolution is – any event which make it unlawf ul for the
busine s s of the par t n e r s h i p to be car ri e d on or for the mem b e r s to car ry it on in
par t n e r s h i p

C.I.R. vs. SUTER

* a UNIVERSAL PARTNER S HIP requir e s eithe r that the object of the associ a tio n
be:
1. all the pres e n t prop e r t y of the par t n e r s as contri b u t e d by them to the
com m o n fund OR
2. all that the part n e r s may acqui r e by their indust ry or work durin g the
exist e n c e of the part n e r s h i p

* the subs e q u e n t mar ri a g e of the part n e r s could not oper a t e to dissolve the
par t n e r s h i p beca u s e it is not one of the caus e s provide d for dissolution by law with
rega r d s to limite d part n e r s h i p s
 27

* par t n e r s h i p has distinct and sepa r a t e perso n a lity from that of its par t n e r s

* a husb a n d and wife may not ent e r into a cont r a c t of gene r a l co- part n e r s h i p/
UNIVERSAL part n e r s h i p

ACOAD vs. MABATO

* a part n e r s h i p may be constit u t e d in any form EXCEPT whe r e immova bl e
prope r t y or real right s are cont ri b u t e d ther e t o, in which case a public instr u m e n t
shall be nece s s a r y

* A CONTRACT of PARTN ER S H I P is VOID

 whe n e v e r immova bl e prop e r t y is cont ri b u t e d ther e t o, if “invent o ry” of said
prope r t y is not mad e, signe d by the parti es and att a c h e d to the public instr u m e n t

EVANGELISTA vs. ABAD SANTO S

* an INDUSTRIAL PARTNER cannot eng a g e in BUSINE S S FOR HIMSELF,
UNLES S the part n e r s h i p expr e s sly per m it s him to do so
 IF HE SHOULD DO SO, the capit alist part n e r s may eithe r :
1. EXCLUDE him from the firm OR
2. AVAIL the m s elv e s of the ben efits which he may have obtain e d in violation of
this provision
 with a right to DAMAGES in eithe r case

* the prohibi tion agains t an indust ri al part n e r eng a gi n g in busine s s for hims elf
seeks to preve n t any conflict of inte r e s t betw e e n the indus t ri al part n e r and the
par t n e r s h i p and to ensu r e faithful complia n c e by said part n e r with his prost a tio n