CIVIL LAW | PARTNERSHIP for what has been contributed in the

partnership by the parties weren’t

I. NATURE; CREATION OF A PARTNERSHIP immovable property or real rights. None
of the partners contributed either a
Art. 1767 fishpond or a real right to any fishpond.
By the contract of partnership two or more Art. 1773 of the Civil Code is not in point.
persons bind themselves to contribute money, (Agad v Mabato)
property, or industry to a common fund, with the
intention of dividing the profits among themselves. • When there are no third parties involved
Two or more persons may also form a partnership who may be prejudiced Art. 1773 does
for the exercise of a profession. not apply. Art. 1773 is meant to protect
third persons. (Torres v CA)
A. Essential Features
• Art.1666 provides that "A partnership
1. There must be a valid contract must have a lawful object, and must be
2. The parties must have legal capacity to established for the common benefit of the
enter into the contract partners. When the dissolution of an
3. There must be a mutual contribution of unlawful partnership is decreed, the
money, property, or industry to a common profits shall be given to the charitable
fund institutions of the domicile of the
4. The object must be lawful partnership, or in default of such, to those
5. The purpose or primary purpose must be of the province." A charitable institution is
to obtain profits and divide the same not a necessary party in the present case
among the parties for the determination of the rights of the
parties. The action which may arise from
said article, in the case of an unlawful
B. Form of Contract
partnership, is that for the recovery of the
amounts paid in by the members from
General Rule: No special form is required for its those in charge of the administration of
validity or existence. said partnership, and it isn’t necessary for
Exceptions: the said partners to base their action on
1. Where immovable property or real rights are the existence of the partnership, but on
contributed. the fact of having contributed some
• must be in writing in a public instrument money to the partnership capital. (Arbes
• with an inventory of the property v Polistico)
contributed, signed by the parties
2. Where the contract of partnership has a capital Rules to determine the existence of a
of P3,000 or more, in money or property. it shall partnership:
appear in a public instrument and must be General Rule: Persons who are not partners to
recorded in the Office of the Securities and each other are not partners as to third persons.
Exchange Commission. However, a partnership exception: partnership by estoppel.
has a juridical personality even in case of failure
to comply with this requirement. • Co-ownership of a property does not itself
establish a partnership, even though the
• To be considered a juridical personality, a co-owners share in the profits derived
partnership must fulfill these requisites: from the incident of joint ownership.
(1) two or more persons bind themselves • Sharing of gross returns alone does not
to contribute money, property or industry indicate a partnership, whether or not the
to a common fund; and (2) intention on persons sharing them have a joint or
the part of the partners to divide the common right or interest in any property
profits among themselves. It may be from which the returns are derived;
constituted in any form; a public • The receipt of the share in the profits is a
instrument is necessary only where strong presumptive evidence of
immovable property or real rights are partnership. However, no such inference
contributed thereto. This implies that will be drawn if such profits were received
since a contract of partnership is in payment:
consensual, an oral contract of ⁃ As a debt by installments or
partnership is as good as a written one. otherwise;
Where no immovable property or real ⁃ As wages of an employee or rent
rights are involved, what matters is that to a landlord;
the parties have complied with the ⁃ As an annuity to a widow or
requisites of a partnership. (Tocao v CA) representative of a deceased
partner;
• There is no need to attach an inventory ⁃ As interest on a loan, though the

1 DSP NOTES | PARTNERSHIP | BSU-LAW

 amount of payment vary with the
profits of the business;
⁃ As the consideration for the sale The partners are The stockholders are
of a goodwill of a business or liable personally and liable to the extent of
other property by installments or subsidiarily for the shares subscribed
otherwise. (art. 1769) partnership debts by them

Based on delectus Not based on

• All of essential features or characteristics personam delectus personam
of partnership must be shown as being
present. Art. 1769 seeks to exclude from
the category of partnership certain May be established May not be formed for
features enumerated therein which, by for any period of time a period exceeding 50
themselves, are not indicative of the stipulated by the years
existence of a partnership partners
Issue as to whether a partnership exists is
May be dissolved at May be dissolved only
a factual matter. Where circumstances
anytime by the will of with the consent of
taken singly may be inadequate to prove
any or all partners the state
the intent to form a partnership,
nevertheless the collective effect of these Governed by the Civil Governed by the
circumstances may be such as to support Code Corporation Code
a finding of the existence of the parties’
intent. (Heirs of Tan Eng Kee v CA)

DISTINCTIONS: Partnership Co-ownership

Partnership Corporation Creation Always Generally

created by a created by law,
Created by mere Created by operation contract but may exist
agreement of the of law ether even without a
parties; express or contract
implied
May be organized by Requires at least 5 Juridical Has a Has no
only two persons incorporators; Personality juridical juridical
personality personality
separate
Juridical personality Personality and distinct
commences from the commences from the from that of
moment of execution date of issuance of each partner
of the contract of the certificate of
partnership incorporation by the Purpose Realization Common
SEC of profits enjoyment of a
thing or right
Duration No limitation An agreement
May exercise any Can exercise such upon the to keep the
power authorized by powers expressly duration is thing undivided
the partners as long granted by law or set by law for more than
as it is not contrary to incident to its 10 years is not
law, etc. existence allowed
Transfer of A partner A co-owner
If no agreement as to Power to do business Interests may not can dispose of
mgt. - every partner is vested in the board dispose of his share
is an agent of the of directors/ trustees his individual without the
partnership interest in consent of the
the others
A partner as such Suit against the board partnership
may sue a co-partner of director who so as to
who mismanages mismanages must be make the
brought in the corp.’s assignee a
name partner
Has no right of without
succession unanimous
Has right of
consent
succession

2 DSP NOTES | PARTNERSHIP | BSU-LAW

Power to Generally a A co-ower business authorized by its charter through
act with partner may cannot a contract or voluntary agreement
Third bind the represent the between the said parties. Please note
Persons partnership co-ownership that no independent legal entity is borne
out of it and the same need not be
Dissolution Death or Death or registered with the Commission.
incapacity of incapacity of a Moreover when the joint
a partner co-owner does venture/consortium would result in the
dissolves the not necessarily formation of a corporation or partnership,
partnership dissolve the the same has to be registered with the
co-ownership Commission and the conditions and
Representat There is There is no requirements abovementioned should be
ion mutual mutual complied with. (SEC OPINION to
agency representation Antonio Librea dated Feb. 29, 1980)
Profits Must be Must always
stipulated depend upon • In deciding as to whether or not
upon proportionate Gatchalian, et al. formed a partnership,
shares and the Court held that they organized a
any stipulation partnership of a civil nature because each
to the contrary of them put up money to buy a
is void. sweepstakes ticket for the sole purpose of
dividing equally the prize which they may
win. The partnership was not only formed,
• Under Art. 1768, a partnership "has a but upon the organization thereof and the
juridical personality separate and distinct winning of the prize, Jose Gatchalian
from that of each of the partners." The personally appeared in the office of the
partners cannot be held liable for the Philippine Charity Sweepstakes, in his
obligations of the partnership unless it is capacity as co-partner, as such collected
shown that the legal fiction of a different the prize, the office issued the check for
juridical personality is being used for P50,000 in favor of Jose Gatchalian and
fraudulent, unfair, or illegal purposes. Company, and the said partner, in the
(Aguila v CA) same capacity, collected the said check.
These circumstances prove the existence
• ISSUE: WON 2 or more medium-sized of a partnership. (Gatchalian v Collector
corporations (contractors) may enter into of Internal Revenue)
a partnership or joint venture/consortium
HELD: The general rule is that a • There is co-ownership and not
corporation cannot enter into a contract of unregistered partnership when no
partnership with another corporation or evidence that petitioners entered into an
individual. This limitation is based on agreement to contribute money, property
public policy, since in a partnership the or industry to a common fund, and that
corporation would be bound by the acts of they intended to divide the profits among
persons who are not duly appointed and themselves. Other indications (as
authorized agents and officers, which presented in the case):
would be entirely inconsistent with the ⁃ Petitioners bought parcels of land
policy of the law that the corporation shall but they did not sell the same nor
manage its own affairs, separately and make any improvements thereon.
exclusively. Exceptions may be ⁃ It was only after several years
allowed as long as the following are met: when, they sold the land.
1. The articles of incorporation of the ⁃ The transactions were isolated.
corporations involved must expressly ⁃ The character of habituality
authorized the corporation to enter into peculiar to business transactions
contracts of partnership with others in the for the purpose of gain was not
pursuit of its business; present. (Pascual and Dragon v
2. The agreement of articles of Commissioner of Internal
partnership must provide that all the Revenue)
partners will manage the partnership; and
3. The articles of partnership must • Since petitioners were not engaged in any
stipulate that all the partners are and shall joint venture by reason of that isolated
be jointly and severally liable for all the transaction and the division of the profit
obligations of the partnership. was merely incidental to the dissolution of
Moreover, two or more corporations may the co-ownership, which was in fact
enter into a joint venture/consortium if the merely a temporary state, they cannot be
nature of the venture is in line with considered partners. CC Art. 1769

3 DSP NOTES | PARTNERSHIP | BSU-LAW

 provides that "the sharing of gross returns such manager formally transfers his right
does not of itself establish a partnership, to them. (Bourns v Camran)
whether or not the persons sharing them
have a joint or common right or interest in • A partnership generally presupposes a
any property from which the returns are parity of standing between the partners, in
derived". There must be an unmistakable which each party has an equal proprietary
intention to form a partnership or joint interest in the capital or property
venture. (Obillos v CIR) contributed and where each party
exercises equal rights in the conduct of
• Particular partnership distinguished from the business. (Sevila v CA)
a joint adventure: A joint adventure
“presupposes generally a parity of II. CLASSIFICATION OS PARTNERSHIPS AND
standing between the joint co-ventures or PARTNERS
partners, in which each party has an
equal proprietary interest in the capital or Art. 1776. As to its object, a partnership is either
property contributed, and where each universal or particular. As regards the liability of
party exercises equal rights in the the partners, a partnership may be general or
conduct of the business.” In Aurbach v. limited. (1671a)
Sanitary Wares, it was held that a joint
adventure may be likened to a particular A. Kinds of partnerships
partnership. The legal concept of a joint
adventure is hardly distinguishable from 1) as to the extent of its subject matter
the partnership. The main distinction is a. universal (1777)
that the partnership contemplates a i. as to all present property (1778)
general business with some degree of ii. as to profits (1780)
continuity, while the joint adventure is b. particular (1783)
formed for the execution of a single 2) as to liability of the partners
transaction, and is thus of a temporary a. general - liable pro rata (1816) or
nature. In the Philippines this is not solidarily (1822-1824)
entirely accurate, since under the CC, a b. limited (1843)
partnership may be particular or 3) as to its duration
universal, and a particular partnership a. at will (1785)
may have for its object a specific b. with a fixed term
undertaking. Thus, under Philippine law, a 4) as to legality of its existence
joint adventure is a form of partnership. a. de jure - one w/c has complied with all
The Supreme Court has however the legal requirements for its establishment
recognized a distinction between these (1772par2, 1773)
two business forms, and has held that b. de facto – one w/c has failed to comply
although a corporation cannot enter into a with all the legal requirements for its
partnership contract, it may however establishment
engage in a joint adventure with others. 5) as to representation to others
(Heirs of Tan Eng Kee v CA) a. ordinary or real – one w/c actually
exists among the partners and also as to third
• A partnership constituted in such a persons
manner, the existence of which was only b. ostensible or by estoppel – one w/c in
known to those who had an interest in the reality is not a partnership, but is considered one
same, there being no mutual agreements in relation to those who, by their conduct or
between the partners, and without a admission, are precluded to deny or disprove its
corporate name indicating to the public in existence (1825)
some way that there were other people 6) as to publicity
besides the one who ostensibly managed a. secret
and conducted the business, is exactly b. open or notorious
the accidental partnership of cuentas on 7) as to purpose
participacion defined in article 239 of the a. commercial or trading (1767)
Code of Commerce. b. professional or non-trading
Those who contract with the person under
whose name the business of such • A partnership that does not fix its term is a
partnership of cuentas en participacion is partnership at will. The 'purpose' of the
conducted, shall have only a right of partnership is not the specific undertaking
action against such person and not referred to in the law. Otherwise, all
against the other persons interested, and partnerships, which necessarily must
the latter, on the other hand, shall have have a purpose, would all be considered
no right of action against the third person as partnerships for a definite undertaking.
who contracted with the manager unless There would therefore be no need to

4 DSP NOTES | PARTNERSHIP | BSU-LAW

 provide for articles on partnership at will - may be appointed either in the articles
as none would so exist. Apparently what of partnership or after the constitution of
the law contemplates, is a specific the partnership
undertaking or 'project' which has a - aka general or real
definite or definable period of f. liquidating – takes charge of the winding up
completion." g. by estoppel – liable as if he is a partner for
The birth and life of a partnership at will is the protection of 3rd persons
predicated on the mutual desire and - aka by implication or nominal or quasi-
consent of the partners. The right to partner
choose with whom a person wishes to h continuing – continues the business after
associate himself is the very foundation partnership has been dissolved
and essence of that partnership. Its i. surviving – remains after dissolution due to
continued existence is, in turn, dependent death
on the constancy of that mutual resolve, j. subpartner – not a partner, but contracts w/ a
along with each partner's capability to partner re the latter’s share in the
give it, and the absence of a cause for partnership
dissolution provided by the law itself.
(Ortega v CA)
Industrialist Capitalist
• A partnership for the practice of law Partner Partner
cannot be likened to partnerships formed
by other professionals or for business. It Contributio Contributes his Contributes
is not a legal entity; it is a mere n industry money or
relationship or association for a particular property
purpose… it is not a partnership formed Prohibition Cannot engage Cannot
for the purpose of carrying on trade or to engage in any business generally
business or of holding property.” Thus, it in other for himself engage in the
has been stated that “the use of a nom de business same or
plume, assumed or trade name in law similar
practice is improper.” (In re Sycip) enterprise as
that of his
• A general professional partnership, unlike firm
an ordinary business partnership (which Profits Receives a just Shares in
is treated as a corporation for income tax and equitable profits
purposes and so subject to the corporate share according to
income tax), is not itself an income agreement
taxpayer. The income tax is imposed not thereon
on the professional partnership, which is
tax exempt, but on the partners if none, pro
themselves in their individual capacity rata to his
computed on their distributive shares of contribution
partnership profits. Under the Tax Code Losses Exempted as 1. stipulation
on income taxation, the general to losses as as to losses
professional partnership is deemed to be between
no more than a mere mechanism or a partners but it
flow-through entity in the generation of is liable to 3rd 2. if none, the
income by, and the ultimate distribution of persons agreement as
such income to, respectively, each of the without to profits
individual partners. (Tan v del Rosario) prejudice to
reimbursement 3. if none, pro
B. Kinds of partners (under the CC) from the rata to
capitalist contribution
a. capitalist – contributes money or property partners
b. industrial – contributes industry or personal
service
c. general – liability extends to separate The ff become common property of all partners:
property • property w/c belonged to each of them at
- may be capitalist or industrial the time of the constitution of the
- aka real partnership
d. limited – liability to 3rd persons limited to • profits w/c thay may acquire from the
capital contribution property contributed
- aka special
e. managing – manages the affairs or business General rule:
of the partnership • future properties cannot be contributed

5 DSP NOTES | PARTNERSHIP | BSU-LAW

 • profits from other sources (not from the partnership or in a non-existing
properties contributed) will become partnership (w/ one or more
common property only if there is a persons not actual partners);
stipulation 2. Indirectly represents himself by
consenting to another
Please note: Art. 1782. Persons who are representing him as a partner in
prohibited from giving each other any donation or an existing partnership or in a
advantage cannot enter into universal partnership. non-existing partnership.
(1677) • To hold the party liable, the 3rd person
must prove such misrepresentation and
Art. 739. The following donations shall be void: that a bona fide reliance by him upon it
(1) Those made between persons who were caused him injury.
guilty of adultery or concubinage at the time of
donation; • When partnership liability results
(2) Those made between persons found guilty ⁃ When all actual partners
of the same criminal offense, in consideration consented to the representation,
thereof; then the liability of the person
(3) Those made to a public officer or his wife, who represented himself to be a
descendants and ascendants, by reason of his partner or who consented to such
office. representation and the actual
partners is considered a
C. Partnership and Partner by Estoppel partnership liability.
⁃ Case of partnership by estoppel.
Art. 1825. When a person, by words spoken or
written or by conduct, represents himself, or • When liability pro rata
consents to another representing him to anyone, ⁃ When there is no existing
as a partner in an existing partnership or with one partnership and all those
or more persons not actual partners, he is liable to represented as partners
any such persons to whom such representation consented to the representation,
has been made, who has, on the faith of such or not all of the partners of an
representation, given credit to the actual or existing partnership consented to
apparent partnership, and if he has made such the representation, then, the
representation or consented to its being made in a liability of the person who
public manner he is liable to such person, whether represented himself to be a
the representation has or has not been made or partner or who consented to his
communicated to such person so giving credit by being represented as partner, and
or with the knowledge of the apparent partner all those who made and
making the representation or consenting to its consented to such
being made: representation, is joint or pro rata.
(1) When a partnership liability results, he is
liable as though he were an actual member of the • When liability separate
partnership; ⁃ When there is no existing
(2) When no partnership liability results, he is partnership and not all but only
liable pro rata with the other persons, if any, so some of those represented as
consenting to the contract or representation as to partners consented to the
incur liability, otherwise separately. representation, or none of the
When a person has been thus represented to be partners in an existing
a partner in an existing partnership, or with one or partnership consented to such
more persons not actual partners, he is an agent representation, then the liability
of the persons consenting to such representation will be separate – that of the
to bind them to the same extent and in the same person who represented himself
manner as though he were a partner in fact, with as a partner or who consented to
respect to persons who rely upon the his being represented as partner,
representation. When all the members of the and those who made and
existing partnership consent to the representation, consented to the representation,
a partnership act or obligation results; but in all or that only of the person who
other cases it is the joint act or obligation of the represented himself as partner.
person acting and the persons consenting to the
representation. (n) • Art. 1825 does not create a partnership
as between the alleged partners. The law
• When is a person a partner by estoppel? considers them as partners and the
When by words or by conduct he: association as a partnership only insofar
1. Directly represents himself to as favorable to 3rd persons by reason of
anyone as a partner in an existing estoppel.

6 DSP NOTES | PARTNERSHIP | BSU-LAW

 comply with all the legal formalities, the
• The law will not permit a denial or such law considers them as partners. The
representation where 3rd parties have in association then is a partnership in so far
the exercise of reasonable diligence as it is a favorable to third persons, by
relied thereon to their detriment. reason of the equitable principle of
estoppe. If the law recognizes a
• Difference w/ Art. 1834 (last par), w/c is defectively organized partnership as de
not a partnership by estoppel, but rather, facto as far as third persons are
a partnership liability w/c continues for concerned, for purposes of its de facto
lack of proper termination. existence it should have such attribute of
a regular partnership as a domicile.
• Applicability of general provisions of (MacDonald v. National City Bank)
partnership
⁃ If the law recognizes a defectively • While it is ordinarily held that persons
organized partnership as de facto who attempt but fail to form a corporation
as far as 3rd persons are and who carry on business under the
concerned, it should have such corporate name occupy the position of
attribute of partnership as partners inter se, persons cannot be
domicile. made to assume the relation of partners,
⁃ Although it has no legal standing as between themselves, when their
or juridical personality, it is a purpose is that no partnership shall exist.
partnership de facto and the (Pioneer Insurance v. CA)
general provisions of the Civil
Code applicable to all D. Relations created by a contract of
partnerships apply to it. partnership
• Domicile – place where partnership
conducts business; registration of a • Relations among the partners
chattel mortgage therein is valid. themselves
• Relations of the partners with the
• Elements to establish liability as a partner partnership
on ground of estoppel • Relations of the partnership with
1. Proof by plaintiff that he was 3rd persons with whom it contracts
individually aware of defendant’s • Relations of the partners with
representations as to his being a such 3rd persons
partner or that such
representations were made by III. OBLIGATIONS OF PARTNERS
others and not denied or refuted
by the defendant;
A. Contribute
2. Reliance on such representations
by the plaintiff;
3. Lack of any denial or refutation of 1. Obligation with respect to contribution of
the statements by the defendant; property
such denial need not precede Art. 1786. Every partner is a debtor of the
plaintiff’s acting thereon if the partnership for whatever he may have promised
denial was forthcoming promptly to contribute thereto. He shall also be bound for
upon hearing of the warranty in case of eviction with regard to specific
representations, and if, by and determinate things which he may have
prudence and diligence the contributed to the partnership, in the same cases
plaintiff might have learned of the and in the same manner as the vendor is bound
truth or untruth of the with respect to the vendee. He shall also be liable
representations. for the fruits thereof from the time they should
have been delivered, without the need of any
• The Corporation Code (Sec. 21) makes demand. (1681a)
liable as general partners “all persons
who assume to act as a corporation” and • To contribute at the beginning of the
may include persons who attempt, but fail partnership or the stipulated time the
to form a corporation and who carry on money, property, or industry which he
business under the corporate name. A de may have promised to contribute
facto partnership among them is created. • To answer for eviction in case the
partnership is deprived of the determinate
• While an unregistered commercial property contributed
partnership has no juridical personality, • To answer to the partnership for the fruits
nevertheless, where two or more persons of the property the contribution of which
attempt to create a partnership, failing to he delayed, from the date they should

7 DSP NOTES | PARTNERSHIP | BSU-LAW

 have been contributed up to the time of specifically refer to the contract of
actual delivery. partnership in particular.(Sancho v
• To preserve said property with the Lizarraga)
diligence of a good father of a family
pending delivery to the partnership • Equipment which was contributed by one
• To indemnify the partnership for any of the partners to the partnership
damage caused to it by the retention of becomes the property of the property and
the same or by the delay in its as such cannot be disposed of by the
contribution party contributing the same without the
consent or approval of the partnership or
Effect of failure to contribute property promised: of the other partner. (Lozana v
makes the partner ipso jure a debtor of the Depakakibo)
partnership even in the absence of any demand.
Remedy of other partner or partnership: not • When money or property have been
rescission but an action for specific performance received by a partner for a specific
with damages and interest purpose and he later misappropriated it,
such partner is guilty of estafa. (Liwanag
2. Appraisal of goods or property v CA)
contributed
Art. 1787. When the capital or a part thereof • The capital having been received by the
which a partner is bound to contribute consists of partnership, and with the business
goods, their appraisal must be made in the commenced and profits accrued, the
manner prescribed in the contract of partnership, action that lies with the partner who
and in the absence of stipulation, it shall be made furnished the capital for the recovery of
by experts chosen by the partners, and according his money is not a criminal action for
to current prices, the subsequent changes thereof estafa, but a civil one arising from the
being for account of the partnership. partnership contract for a liquidation of
the partnership and a levy on its assets if
there should be any.(US v Clarin)
3. Obligation with respect to
contribution of money and money converted
to personal use 4. Bring to partnership capital
Art. 1788. A partner who has undertaken to credit received
contribute a sum of money and fails to do so Art. 1790. Unless there is a stipulation to the
becomes a debtor for the interest and damages contrary, the partners shall contribute equal
from the time he should have complied with his shares to the capital of the partnership.
obligation. • Above rule not applicable to industrial
The same rule applies to any amount he may partner unless in addition to his services,
have taken from the partnership coffers, and his he contributed capital.
liability shall begin from the time he converted the
amount to his own use. (1682) 5. Obligation of capitalist partner
to contribute additional capital
• To contribute on the date due the amount Art. 1791. If there is no agreement to the contrary,
he has undertaken to contribute in case of an imminent loss of the business of the
• To reimburse any amount he may have partnership, any partner who refuses to contribute
taken from the partnership coffers and an additional share to the capital, except an
converted to his own use industrial partner, to save the venture, shall he
• To pay the agreed or legal interest, if he obliged to sell his interest to the other partners.
fails to pay his contribution on time or in
case he takes any amount from the Requisites:
common fund and converts it into his own • There is an imminent loss of the business
use. • The majority of the capitalist partners are
• To indemnify the partnership for he of the opinion that an additional
damages caused to it by the delay in the contribution to the common fund would
contribution or the conversion of any sum save the business
for his personal benefit. • The capitalist partner refuses deliberately
to contribute an additional share
• An action for rescission under art.1191 • There is no agreement to the contrary
cannot be applied to a case where a • An industrial partner is exempted from the
partner failed to contribute what he requirement to contribute
promised to the partnership, because it
refers to the resolution of obligations in
general, whereas Arts. 1681 and 1682,
OCC now Arts. 1786 and 1788 6. Obligation of partner who

8 DSP NOTES | PARTNERSHIP | BSU-LAW

receives share of partnership credit Specific and Risk is borne by
Art. 1793. A partner who has received, in whole or determinate things partner
in part, his share of a partnership credit, when the which are not fungible
other partners have not collected theirs, shall be where only the use is
obliged, if the debtor should thereafter become contributed
insolvent, to bring to the partnership capital what
he received even though he may have given Specific and Risk is borne by
receipt for his share only. determinate things the partnership
ownership of which is
• Different from 1792 which treats 2 distinct transferred to the
credits, one in favor of the partnership partnership
and another in favor of the managing Fungible things Risk is borne by
partner. (consumable) partnership
Things contributed to Risk is borne by
Requisites: be sold partnership
• A partner has received, in whole or in
part, his share of the partnership credit Things brought and Risk is borne by
• The other partners have not collected appraised in the partnership
their shares inventory
• The partnership debtor has become
insolvent D. Mutual agency

B. Pay damages Art. 1803. When the manner of management has

not been agreed upon, the following rules shall be
Art. 1794. Every partner is responsible to the observed:
partnership for damages suffered by it (1) All the partners shall be considered agents
through his fault, and he cannot and whatever any one of them may do alone
compensate them with the profits and shall bind the partnership, without prejudice to
benefits which he may have earned for the provisions of Article 1801.
the partnership by his industry. However, (2) None of the partners may, without the
the courts may equitably lessen this consent of the others, make any important
responsibility if through the partner's alteration in the immovable property of the
extraordinary efforts in other activities of partnership, even if it may be useful to the
the partnership, unusual profits have partnership. But if the refusal of consent by
been realized. (1686a) the other partners is manifestly prejudicial to
the interest of the partnership, the court's
General Rule: The damages caused by a partner intervention may be sought. (1695a)
to the partnership cannot be offset by the profits
or benefits which he may have earned for the Rules when manner of management has not been
partnership by his industry. agreed upon:
Exception: If unusual profits are realized through • All partners considered managers and
extraordinary efforts of the partner at fault, the agents.
courts may equitably mitigate or lessen his liability • All partners have equal rights in the
for damages. Rule rests on equity. management and conduct of partnership
affairs and whatever any one of them may
C. Bear risk of loss do alone shall bind the partnership
(subject to Art 1801 that in case of timely
Art. 1795. The risk of specific and determinate opposition of any partner, the matter shall
things, which are not fungible, contributed to the first be decided by the majority vote. In
partnership so that only their use and fruits may case of a tie, the matter shall be decided
be for the common benefit, shall be borne by the by the vote of the partners representing
partner who owns them. the controlling interest.).
If the things contribute are fungible, or cannot Note: Art. 1803(1) should be read in relation to
be kept without deteriorating, or if they were Article 1818.
contributed to be sold, the risk shall be borne by • Unanimous consent required for alteration
the partnership. In the absence of stipulation, the of immovable property.
risk of the things brought and appraised in the • Consent need not be express, but may be
inventory, shall also be borne by the partnership, presumed from the fact of knowledge of
and in such case the claim shall be limited to the the alteration without interposing any
value at which they were appraised. (1687) objection.

Risk of loss of things contributed Art. 1818. Powers of partner as agent of

partnership

9 DSP NOTES | PARTNERSHIP | BSU-LAW

Acts for carrying on Every partner is an (solidariamente) with his co-partners for
in the usual way the agent and may execute its entire indebtedness; but read in
business of the acts with binding effect connection with art. 1137, each is liable
partnership even if he has no with the others (mancomunadamente) for
authority his part of such indebtedness (Co-Pitco
vs. Yulo/Bachrach v. La Protectora).
Except: when 3rd
person has knowledge • Strangers dealing with a partnership have
of lack of authority the right to assume, in the absence of
Act w/c is not Does not bind restrictive clauses in the co-partnership
apparently for the partnership unless agreement, that every general partner
carrying of business authorized by other has power to bind the partnership,
in the usual way partners specially those partners acting with
ostensible authority. Though Art. 129,
Code of Commerce provides that “if the
Acts of strict management of the general partnership
dominion or has not been limited by special
ownership: agreement to any of the members, all
shall have the power to take part in the
Assign partnership direction and management of the
property in trust for common business, and the members
creditors present shall come to an agreement for
all contracts or obligations which may
concern the association,” this obligation is
Dispose of good-will one imposed by law on the partners
of business among themselves, and doesn’t
necessarily affect the validity of the acts
of a partner, while acting within the scope
Do an act w/c would of the ordinary course of business of the
make it impossible partnership, as regards third persons
to carry on ordinary without notice. (Goquiolay et al v Sycip)
business of
partnership Note: This case creates a presumption which
1818 does not provide.
Confess a
• The stipulation in the articles of
judgement
partnership that any of the two managing
partners may contract and sign in the
Enter into name of the partnership with the consent
compromise of the other, creates an obligation
concerning a between the two partners, which consists
partnership claim or in asking the other's consent before
liability contracting for the partnership. This is not
imposed upon a third person who
contracts with the partnership. A third
Submit partnership person may and has a right to presume
claim or liability to that the partner with whom he contracts
arbitration has, in the ordinary and natural course of
business, the consent of his copartnert.
(Litton v Hill)
Renounce claim of
partnership
E. Render full information
Acts in Partnership not liable to
contravention of a 3rd persons having Art. 1806. Partners shall render on demand true
restriction on actual or presumptive and full information of all things affecting
authority knowledge of the the partnership to any partner or the legal
restrictions representative of any deceased partner or
of any partner under legal disability. (n)

• Liability of partner acting without • A partner is not only bound to give

authority: generally, personal liability. information on demand in certain
circumstances, but he is under the duty of
• Art. 1698 declares that a member of a voluntary disclosure of material facts
civil partnership is not liable solidarily within his knowledge relating to or

10 DSP NOTES | PARTNERSHIP | BSU-LAW

 affecting partnership affairs (see Art. found that there in reality is no conflict
1821) between the two articles quoted; one
speaks of liabilities, the other of losses.
F. Account for benefits (Pacific Commercial vs. Aboitiz)
• The exemption of the industrial partner to
Art. 1807. Every partner must account to the pay for losses relates exclusively to the
partnership for any benefit, and hold as settlement of the partnership affairs
trustee for it any profits derived by him among the partners themselves and has
without the consent of the other partners nothing to do with the liabilities of the
from any transaction connected with the partners to third persons. (La Compania
formation, conduct, or liquidation of the Maritima v Munoz)
partnership or from any use by him of its
property. (n) Art. 1817. Any stipulation against the liability laid
down in the preceding article shall be void, except
• Relationship between partners is as among the partners. (n)
essentially fiduciary involving trust and
confidence. Duties of a partner are • The dismissal of the complaint to favor
analogous to those of a trustee. one of the general partners of a
• A partner cannot, at the expense or to the partnership does not increase the liability
detriment of the other partners, sue or of each of the remaining partners. In the
apply exclusively to his own individual instant case, there were 5 general
benefit partnership assets or the results of partners when the promissory note in
the knowledge and information gained in question was executed for and in behalf
the character of partner (Pang Lim v. Lo of the partnership. Since the liability of the
Seng) partners is pro rata, the liability of each
partner shall be limited to only 1/5 of the
obligations of United. The fact that the
G. Liable for Partnership contracts
complaint against Lumauig was
dismissed, upon motion of Island Sales,
Art. 1816. All partners, including industrial ones, does not unmake Lumauig as a general
shall be liable pro rata with all their partner in United. In so moving to dismiss
property and after all the partnership the complaint, Island Sales merely
assets have been exhausted, for the condoned Lumauig’s individual liability.
contracts which may be entered into in (Island Sales v. United Pioneers)
the name and for the account of the
partnership, under its signature and by a • It is but fair that the consequences of any
person authorized to act for the wrongful act committed by any of the
partnership. However, any partner may partners therein should be answered
enter into a separate obligation to perform solidarily by all the partners and the
a partnership contract. (n) partnership as a whole. While the liability
of the partners are merely joint in
• Partnership liability- All partners, including transactions entered into by the
the industrial partner, are liable to partnership, a third person who
creditors of the partnership for its transacted with said partnership can hold
contractual obligations. the partners solidarily liable for the whole
• Individual liability- a partner may assume obligation if the case of the third person
a separate undertaking in his name with falls under Articles 1822 or 1823. The
a3rd party to perform a partnership obligation is solidary because the law
contract or make himself solidarily liable protects him who in good faith relied upon
ob a partnership contract. In such case, the authority of a partner, whether such
partner is personally bound. authority is real or apparent. (Muñasque
v. CA)
• There is a marked distinction between a
liability and a loss, and the inability of a Art. 1826. A person admitted as a partner into an
partnership to pay a debt to a third party existing partnership is liable for all the obligations
at a particular time does not necessarily of the partnership arising before his admission as
mean that the partnership business, as a though he had been a partner when such
whole, has been operated at a loss. The obligations were incurred, except that this liability
partnership may have outstanding credits shall be satisfied only out of partnership property,
which for the moment may be unavailable unless there is a stipulation to the contrary. (n)
for the payment of debts, but which
eventually may be realized upon and yield Liability of incoming partner for partnership
profits more than sufficient to cover all obligations:
losses. Bearing this in mind it will be • Limited to his share in partnership

11 DSP NOTES | PARTNERSHIP | BSU-LAW

 property for existing obligations. B. Reimburse
• Extends to his separate property for
subsequent obligations Art. 1796. The partnership shall be responsible to
• Incoming partner personally not liable for every partner for the amounts he may have
existing partnership obligations unless disbursed on behalf of the partnership and for the
there is a stipulation to the contrary. corresponding interest, from the time the expense
are made; it shall also answer to each partner for
Liability of outgoing / incoming partner: the obligations he may have contracted in good
• Where a partner gives notice of his faith in the interest of the partnership business,
retirement or withdrawal, he is freed from and for risks in consequence of its management.
any liability on contracts entered into (1688a)
thereafter, but his liability on existing
incomplete contracts continues. 1796 speaks of the 3 obligations of the
• He is liable for goods sold and delivered partnership to the partners:
after his retirement or withdrawal and 1. Refund amounts disbursed on behalf of the
notice thereof, if the sale was pursuant to partnership plus corresponding interest from the
a contract made before such retirement or time expenses are made (not from date of
withdrawal. demand). Here, the law refers to loans or
advances made by a partner to the partnership
H. Solidarily liable with partnership other than capital contributed by him.
2. Answer for obligations the partner may have
Art. 1824. All partners are liable solidarily with the contracted in good faith in the interest of the
partnership for everything chargeable to partnership business, and
the partnership under Articles 1822 and 3. Answer for risks in consequence of its
1823. (n) management.

Art. 1822. Where, by any wrongful act or • Being a mere agent, the partner is NOT
omission of any partner acting in the ordinary personally liable, provided, however, that
course of the business of the partnership or with he is free from all fault (Art. 1912), and
the authority of co-partners, loss or injury is acted within the scope of his authority
caused to any person, not being a partner in the (1897, 1898, 1910 par. 2). But unlike an
partnership, or any penalty is incurred, the ordinary agent, he is not given the right of
partnership is liable therefor to the same extent as retention if he is not reimbursed or
the partner so acting or omitting to act. (n) indemnified (1914).

Art. 1823. The partnership is bound to make good C. Operate under firm name
the loss: (1) Where one partner acting within the
scope of his apparent authority receives money or Art. 1815. Every partnership shall operate under
property of a third person and misapplies it; and a firm name, which may or may not include the
(2) Where the partnership in the course of its name of one or more of the partners.
business receives money or property of a third Those who, not being members of the
person and the money or property so received is partnership, include their names in the firm name,
misapplied by any partner while it is in the custody shall be subject to the liability of a partner. (n)
of the partnership. (n)
Liability for inclusion of name in the firm name:
IV. OBLIGATION OF PARTNERSHIP Persons who, not being partners include their
name in the firm name do not acquire the rights of
A. Bear risk of loss a partner BUT they shall be subject to liabilities of
a partner.
Art. 1795. The risk of specific and determinate
things, which are not fungible, contributed to the Art. 1815 does NOT cover
partnership so that only their use and fruits may • a limited partner who allows his name to
be for the common benefit, shall be borne by the be included in the firm name (Art. 1815)
partner who owns them. • a person continuing the business of a
If the things contribute are fungible, or cannot partnership after a dissolution who uses
be kept without deteriorating, or if they were the name of the dissolved partnership or
contributed to be sold, the risk shall be borne by the name of a deceased partner as part
the partnership. In the absence of stipulation, the thereof (Art. 1840, last par.)
risk of the things brought and appraised in the
inventory, shall also be borne by the partnership, • The corporate name should contain the
and in such case the claim shall be limited to the word ‘Corporation’ or ‘Incorporated’, while
value at which they were appraised. (1687) the partnership name should contain the
word ‘Company’.” The only instance

12 DSP NOTES | PARTNERSHIP | BSU-LAW

 when a domestic partnership name may knowledge of the partnership, except in the case
be recorded in this Commission without of fraud on the partnership, committed by or with
the use of the word “Company” is when the consent of that partner. (n)
the primary purpose for which the
partnership is organized is to engage in F. Liable for wrongful act of partner
the practice of profession of a particular
discipline. (SEC Opinion dated Oct 19, Art. 1822. Where, by any wrongful act or
1984 addressed to Atty. Renato J. omission of any partner acting in the ordinary
Santiago) course of the business of the partnership or with
the authority of co-partners, loss or injury is
• Note that the ruling in In re Sycip here caused to any person, not being a partner in the
has been abandoned in view of Rule 3.02 partnership, or any penalty is incurred, the
of the Code of Professional partnership is liable therefor to the same extent as
Responsibility, which permits the the partner so acting or omitting to act. (n)
surviving partners of a law firm the
continued use of the name of a deceased Art. 1823. The partnership is bound to make good
partner provided there is an indication the loss:
that the partner is already dead. (1) Where one partner acting within the scope of
his apparent authority receives money or
property of a third person and misapplies it;
D. Bound by admission of partner and
(2) Where the partnership in the course of its
Art. 1820. An admission or representation made business receives money or property of a
by any partner concerning partnership affairs third person and the money or property so
within the scope of his authority in accordance received is misapplied by any partner while it
with this Title is evidence against the partnership. is in the custody of the partnership. (n)
(n)
V. RIGHTS OF PARTNERS
General Rule: Person is not bound by the act,
admission, statement, or agreement of another of A. Share in losses and profits
w/c he has no knowledge or to w/c he has not
given his consent except by virtue of a particular Art. 1797. The losses and profits shall be
relation between them. distributed in conformity with the agreement. If
Exception: Admissions by a party as testified to by only the share of each partner in the profits has
a 3rd person are admissible in evidence against been agreed upon, the share of each in the losses
him in litigation. Admissions by another are shall be in the same proportion.
received against a party if the former is acting in In the absence of stipulation, the share of
the capacity of agent of the latter. Under Art. each partner in the profits and losses shall be in
1820, the admission of a partner made during the proportion to what he may have contributed, but
existence of the partnership are binding against the industrial partner shall not be liable for the
the partnership and co-partners when such losses. As for the profits, the industrial partner
admissions refer to a matter concerning shall receive such share as may be just and
partnership affairs and made w/in the scope of his equitable under the circumstances. If besides his
authority. services he has contributed capital, he shall also
Exception to exception: When a partner makes receive a share in the profits in proportion to his
admissions for himself only w/o purporting to act capital. (1689a)
for the partnership, he alone shall be chargeable
w/ his admissions.

• An admission by a partner who was no Rules for distribution of profits and

longer a partner at the time is not losses
admissible in evidence against the
partnership. (Congco vs. Trillana)
DISTRIBUTION DISTRIBUTION
OF PROFITS OF LOSSES
E. Bound by notice to partner
With According to According to
Art. 1821. Notice to any partner of any matter agreem agreement agreement
relating to partnership affairs, and the knowledge ent
of the partner acting in the particular matter, Without Share of If sharing of
acquired while a partner or then present to his agreem capitalist partner profits is
mind, and the knowledge of any other partner who ent is in proportion stipulated - apply
reasonably could and should have communicated to his capital to sharing of
it to the acting partner, operate as notice to or contribution losses

13 DSP NOTES | PARTNERSHIP | BSU-LAW

 Share of If no profit • Access to partnership books at “any
industrial sharing reasonable hour: reasonable hours on
partner is not stipulated - business days throughout the year and
fixed - as may losses shall be not merely during some arbitrary period of
be just and borne according a few days chosen by the managing
equitable under to capital partners (Pardo v. Lumber Co.)
the contribution
circumstances Purely industrial D. Obtain formal account
partner not liable
for losses Art. 1809. Any partner shall have the right to a
formal account as to partnership affairs:
(1) If he is wrongfully excluded from the
partnership business or possession of its
Art. 1798. If the partners have agreed to intrust to
property by his co-partners;
a third person the designation of the share of
(2) If the right exists under the terms of any
each one in the profits and losses, such
agreement;
designation may be impugned only when it is
(3) As provided by article 1807;
manifestly inequitable. In no case may a partner
(4) Whenever other circumstances render it just
who has begun to execute the decision of the
and reasonable. (n)
third person, or who has not impugned the same
within a period of three months from the time he
Art. 1807. Every partner must account to the
had knowledge thereof, complain of such
partnership for any benefit, and hold as trustee for
decision.
it any profits derived by him without the consent of
The designation of losses and profits cannot
the other partners from any transaction connected
be intrusted to one of the partners. (1690)
with the formation, conduct, or liquidation of the
partnership or from any use by him of its property.
Art. 1799. A stipulation which excludes one or
(n)
more partners from any share in the profits or
losses is void. (1691)
GEN RULE: During the existence of the
partnership, a partner is not entitled to a formal
• Although this stipulation is void, the
account of the partnership affairs.
partnership is valid, subsists and the
EXCEPTIONS: the special and unusual situations
profits or losses shall be apportioned as if
enumerated under Article 1809.
there were no stipulation on the same.
• The industrial partner is not liable for
• The right to an account of his interest
losses because he cannot withdraw the
shall accrue to any partner, or his legal
work or labor already done by him. His
representative as against the winding up
laboring in vain is his contribution to the
partners or the surviving partners or the
loss.
person or partnership continuing the
B. Associate another person business, at the date of dissolution, in the
absence of any agreement to the
Art. 1804. Every partner may associate another contrary. Articles 1806, 1807, and 1809
person with him in his share, but the associate show that the right to demand an
shall not be admitted into the partnership without accounting exists as long as the
the consent of all the other partners, even if the partnership exists. Prescription begins to
partner having an associate should be a manager. run only upon the dissolution of the
(1696) partnership when the final accounting is
done. (Fue Leung v. IAC)
Contract of subpartnership: The partnership
formed between a member of a partnership and a E. Property rights
third person for a division of the profits coming to
him from the partnership enterprise. Subpartner
Art. 1810. The property rights of a partner are:
does not acquire the rights of a partner, nor is he
(1) His rights in specific partnership property;
liable for partnership debts
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
C. Access partnership books
• Property used by the partnership. A
Art. 1805. The partnership books shall be kept, partner may:
subject to any agreement between the partners, ⁃ contribute to the partnership only
at the principal place of business of the the use of property
partnership, and every partner shall at any ⁃ allow the partnership to use his
reasonable hour have access to and may inspect separate propert
and copy any of them. (n) ⁃ hold the title to partnership

14 DSP NOTES | PARTNERSHIP | BSU-LAW

 property in his own name without
having it belong to him. Art. 1812. A partner's interest in the partnership is
• Property acquired by a partners with his share of the profits and surplus. (n)
partnership funds. • Profit – net income during the carrying out
General rule: Property acquired by a partner in of the business of the partnership
his own name with partnership funds • Surplus – the excess of assets over
is partnership property. liabilities (after accounting/dissolution)
Exceptions:
⁃ Contrary intention appears Art. 1813. A conveyance by a partner of his whole
⁃ Property was acquired after dissolution interest in the partnership does not of itself
but before the winding up [but he would dissolve the partnership, or, as against the other
be liable to account to the partnership] partners in the absence of agreement, entitle the
assignee, during the continuance of the
Art. 1811. A partner is co-owner with his partners partnership, to interfere in the management or
of specific partnership property. administration of the partnership business or
The incidents of this co-ownership are such that: affairs, or to require any information or account of
(1) A partner, subject to the provisions of this Title partnership transactions, or to inspect the
and to any agreement between the partners, partnership books; but it merely entitles the
has an equal right with his partners to assignee to receive in accordance with his
possess specific partnership property for contract the profits to which the assigning partner
partnership purposes; but he has no right to would otherwise be entitled. However, in case of
possess such property for any other purpose fraud in the management of the partnership, the
without the consent of his partners; assignee may avail himself of the usual remedies.
(2) A partner's right in specific partnership In case of a dissolution of the partnership, the
property is not assignable except in assignee is entitled to receive his assignor's
connection with the assignment of rights of all interest and may require an account from the date
the partners in the same property; only of the last account agreed to by all the
(3) A partner's right in specific partnership partners. (n)
property is not subject to attachment or
execution except on a claim against the
partnership. When partnership property is Rights of the What assignees
attached for a partnership debt the partners, transferee or cannot do
or any of them, or the representatives of a assignee
deceased partner, cannot claim any right
under the homestead or exemption laws; To receive in Interfere in the
(4) A partner's right in specific partnership accordance with his management;
property is not subject to legal support under contract the profits
Article 291. (n) accruing to the
assigning partner
Art. 291,CC is now Art. 195,FC To avail of the usual Require any
Art. 195. Subject to the provisions of the remedies provided by information or
succeeding articles, the following are obliged to law in the event of account
support each other to the whole extent set forth in fraud in the
the preceding article: management
(1) The spouses;
(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and the To receive the Inspect any of the
legitimate and illegitimate children of the assignor’s interest in partnership books.
latter; case of dissolution
(4) Parents and their illegitimate children and
the legitimate and illegitimate children of the • Partnership is a relation in which delectus
latter; and personae is an important element. No
(5) Legitimate brothers and sisters, whether of one may be introduced into the firm as a
full or half-blood (291a) partner without the unanimous consent of
the other partners.
• A partner cannot separately assign his
right to specific partnership property. Art. 1814. Without prejudice to the preferred
• A partner’s right is limited to his share of rights of partnership creditors under Article 1827,
what remains after all partnership debts on due application to a competent court by any
have been paid. Thus,specific partnership judgment creditor of a partner, the court which
property is not subject to attachment, entered the judgment, or any other court, may
execution, garnishment, or injunction, charge the interest of the debtor partner with
without the consent of all partners, except payment of the unsatisfied amount of such
on a claim against the partnership judgment debt with interest thereon; and may then

15 DSP NOTES | PARTNERSHIP | BSU-LAW

or later appoint a receiver of his share of the Effects of Conveyance of Real
profits, and of any other money due or to fall due Property
to him in respect of the partnership, and make all
other orders, directions, accounts and inquiries Title in partnership Conveyance passes
which the debtor partner might have made, or name title but partnership
which the circumstances of the case may require. Any partner may can recover unless:
The interest charged may be redeemed at convey under 1)The partner who
any time before foreclosure, or in case of a sale partnership name sold it was carrying
being directed by the court, may be purchased on in the usual way
without thereby causing a dissolution: the business of the
(1) With separate property, by any one or more partnership (1818)
of the partners; or hence binding the
(2) With partnership property, by any one or partnership; or 2)
more of the partners with the consent of all Buyer had no
the partners whose interests are not so knowledge of the
charged or sold. lack of authority of
Nothing in this Title shall be held to deprive a the seller
partner of his right, if any, under the Title in partnership Conveyance does
exemption laws, as regards his interest in the name, not pass title but only
partnership. (n) equitable interest.
Conveyance in
partner's name Provided that: The
F. Convey real property partner who sold it
was carrying on in
Art. 1819. Where title to real property is in the the usual way the
partnership name, any partner may convey title to business of the
such property by a conveyance executed in the partnership (1818)
partnership name; but the partnership may hence binding the
recover such property unless the partner's act partnership
binds the partnership under the provisions of the Title in name of 1/ Conveyance passes
first paragraph of article 1818, or unless such more partners, title but partnership
property has been conveyed by the grantee or a Conveyance in name can recover unless:
person claiming through such grantee to a holder if partner/partners in 1)The partner who
for value without knowledge that the partner, in whose name title sold it was carrying
making the conveyance, has exceeded his stands on in the usual way
authority. the business of the
Where title to real property is in the name of partnership (1818)
the partnership, a conveyance executed by a hence binding the
partner, in his own name, passes the equitable partnership; or 2)
interest of the partnership, provided the act is one Buyer had no
within the authority of the partner under the knowledge of the
provisions of the first paragraph of Article 1818. lack of authority of
Where title to real property is in the name of one the seller
or more but not all the partners, and the record
does not disclose the right of the partnership, the Title in name of Conveyance will only
partners in whose name the title stands may 1/more/all partners or pass equitable
convey title to such property, but the partnership 3rd person in trust for interest. Provided
may recover such property if the partners' act partnership, that: The partner who
does not bind the partnership under the provisions Conveyance executed sold it was carrying
of the first paragraph of Article 1818, unless the in partnership name of on in the usual way
purchaser or his assignee, is a holder for value, in name of partners the business of the
without knowledge. partnership (1818)
Where the title to real property is in the name hence binding the
of one or more or all the partners, or in a third partnership
person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or • Art. 1819 provides that: “Where the title to
in his own name, passes the equitable interest of real property is in the names of all the
the partnership, provided the act is one within the partners a conveyance executed by all
authority of the partner under the provisions of the the partners passes all their rights in such
first paragraph of Article 1818. property. The term “conveyance” used in
Where the title to real property is in the name this provision includes a mortgage.
of all the partners a conveyance executed by all (Syjuco v Castro)
the partners passes all their rights in such NOTE: This is different from the provisions on
property. (n) agency, which provide that a special power to sell
excludes the power to mortgage [Art. 1879].

16 DSP NOTES | PARTNERSHIP | BSU-LAW

 winding up of some incidents and
VI. RIGHTS OF PARTNERSHIP obligations of the partnership, but in such
case, the partnership will be reputed as
A. Acquire immovables existing until the juridical relations arising
out of the contract are dissolved. The
Art. 1774. Any IMMOVABLE property OR an dissolution of a firm does not relieve any
INTEREST therein may be acquired in the of its members from liability for existing
partnership name. Title so acquired can be obligations, although it does save them
conveyed ONLY in the partnership name. (n) from new obligations to which they have
not expressly or impliedly assented, and
*cf. Art. 1819 any of them may be discharged from old
obligations by novation or other form of
release. (Testate of Mota v Serra)
B. Preference of creditors
• The three final stages of a partnership
Art. 1827. The creditors of the partnership shall are:
be preferred to those of each partner AS (1) Dissolution- the change in the relation
REGARDS PARTNERSHIP PROPERTY. Without of the partners caused by any partner
prejudice to this right, the private creditors of each ceasing to be associated in the carrying
partner may ask the attachment and public sale of on of the business (Art. 1828). It is that
the share of the latter in the partnership assets. point of time the time the partners cease
(n) to carry on the business together.
(2) Winding Up - the process of settling
business affairs of dissolution. (Ex: paying
VII. DISSOLUTION AND WINDING UP of previous obligations; collecting of
assets previously demandable; even new
business if needed to wind up, as the
Art. 1828. The dissolution of a partnership is the contracting with a demolition company for
CHANGE IN RELATION of the partners caused the demolition of the garage used in a
by ANY PARTNER CEASING TO BE "used car" partnership.)
ASSOCIATED in the carrying on as distinguished (3) Termination Defined- the point in time
from the winding up of the business. (n) after all the partnership affairs have been
wound up. (Idos v CA)
• Any change in the membership of a
partnership produces an immediate • The provision prohibiting the dissolution
dissolution of the existing partnership of the association under review, except by
relation and the formation of a new one. the consent and agreement of two-thirds
• Strictly and technically speaking, there is of its partners, in no wise limited or
no such thing as an “incoming partner” or restricted the rights of the individual
“admission of a person into an existing partners in the event the dissolution of the
firm”. All persons forming the new association was effected, not by any act
partnership upon the admission of the of theirs, but by the express mandate of
new person into the business are statutory law. It would be unreasonable to
incoming partners, even though the same hold that such an association could never
business has theretofore been conducted be dissolved and liquidated without the
by the others. consent and agreement of two-thirds of its
partners, notwithstanding that it had lost
Art. 1829. On dissolution the partnership is NOT all its capital, or had become bankrupt, or
TERMINATED, but continues until the winding up that the enterprise for which it had been
of partnership affairs is COMPLETED. (n) organized had been concluded or
abandoned. (Lichauco v Lichauco)
Effects of Dissolution:
• Dissolution does not automatically result • Not being a mercantile partnership
in the termination of the legal personality (hence, not governed by the Code of
of the partnership, nor of the relations of Commerce, but the CC), it was dissolved
the partners among themselves. by the death of Perpetua. It cannot be
Partnership continues for the limited maintained that the partnership continued
purpose of winding up its affairs. to exist after the death of Perpetua for it
does not appear that any stipulation to
• The dissolution of a partnership must not that effect has ever been made by her
be understood in the absolute and strict and Dequilla, pursuant to the provisions
sense so that at the termination of the of art. 1704. The partnership having been
object for which it was created the dissolved, its subsequent legal status was
partnership is extinguished, pending the that of a partnership in liquidation, and the

17 DSP NOTES | PARTNERSHIP | BSU-LAW

 only rights inherited by Perpetua’s heir, • In contravention of the agreement
were those resulting from the liquidation between the partners:
in favor of the Perperua, and nothing ⁃ where the circumstances do not
more. Before this liquidation is made, it is permit a dissolution under 1830
impossible to determine what rights or by the express will of any partner
interests, if any, Perpetua had, the at any time; 1830
partnership bond having been dissolved.
(Bearneza v Dequilla) • Upon application of a partner:
⁃ partner has been declared insane
• The dissolution of the partnership did not or is shown to be of unsound
mean that the juridical entity was mind;
immediately terminated and that the ⁃ partner becomes incapable of
distribution of the assets to its partners performing his part of the
should perfunctorily follow. The contract;
dissolution simply effected a change in ⁃ partner has been guilty of such
the relationship among the partners. The conduct that prejudices the
partnership, although dissolved, business;
continues to exist until its termination, at ⁃ partner wilfully or persistently
which time the winding up of its affairs commits a breach of the
should have been completed and the net partnership agreement
partnership assets are partitioned and ⁃ business of the partnership can
distributed to the partners. (Sy v CA) only be carried on at a loss;
⁃ equitable grounds
A. Causes of Dissolution

The statutory enumeration of causes of

dissolution is exclusive. Art. 1830 (extrajudicial) • On the application of the purchaser of a
and 1831(judicial) provide for causes of partner's interest under Article 1813 or
dissolution. Other causes are provided in Art. 1814:
1840. ⁃ TERMINATION of the
term or undertaking
Causes: ⁃ when partnership is at
• Without violation of the agreement will and the INTEREST of
between the partners: one partner is
⁃ termination of the definite term or ASSIGNED
particular undertaking specified in
the agreement;
⁃ express will of any partner, who Art. 1813. A conveyance by a partner of his whole
must act in good faith, when no interest in the partnership does not of itself
definite term or particular is dissolve the partnership, or, as against the other
specified; partners in the absence of agreement, entitle the
⁃ express will of all the partners assignee, during the continuance of the
who have not assigned their partnership, to interfere in the management or
interests or suffered them to be administration of the partnership business or
charged for their separate debts, affairs, or to require any information or account of
before or after the termination of partnership transactions, or to inspect the
any specified term or particular partnership books; but it merely entitles the
undertaking; assignee to receive in accordance with his
⁃ expulsion of any partner in contract the profits to which the assigning partner
accordance with such a power would otherwise be entitled. However, in case of
conferred by the agreement; fraud in the management of the partnership, the
⁃ when business becomes unlawful assignee may avail himself of the usual remedies.
⁃ when a specific thing promised to In case of a dissolution of the partnership, the
be contributed to the partnership assignee is entitled to receive his assignor's
perishes before delivery interest and may require an account from the date
⁃ loss of a specific thing when the only of the last account agreed to by all the
partner reserved ownership over partners.
it
⁃ death Art. 1814. Without prejudice to the preferred
⁃ insolvency of a partner/ rights of partnership creditors under Article 1827,
partnership on due application to a competent court by any
⁃ civil interdiction judgment creditor of a partner, the court which
entered the judgment, or any other court, may
charge the interest of the debtor partner with

18 DSP NOTES | PARTNERSHIP | BSU-LAW

payment of the unsatisfied amount of such • if dissolution is not by act, insolvency, or
judgment debt with interest thereon; and may then death of a partner the general rule
or later appoint a receiver of his share of the applies. Dissolution terminates the actual
profits, and of any other money due or to fall due authority of a partner to undertake new
to him in respect of the partnership, and make all business for the partnership.
other orders, directions, accounts and inquiries • if dissolution is by act, insolvency or death
which the debtor partner might have made, or of a partner the rule is that the authority of
which the circumstances of the case may require. partners inter se to act for the partnership
The interest charged may be redeemed at is not deemed terminated. Thus, each
any time before foreclosure, or in case of a sale partner is liable to his copartners for his
being directed by the court, may be purchased share of any liability created by any
without thereby causing a dissolution: partner acting for the partnership as if the
(1) With separate property, by any one or partnership has not been dissolved.
more of the partners; or ⁃ Exception:
(2) With partnership property, by any one or a. The cause of the dissolution is the act of
more of the partners with the consent of all the a partner and the acting partner had
partners whose interests are not so charged or knowledge of such dissolution
sold. b. the cause of dissolution is the death or
Nothing in this Title shall be held to deprive a insolvency of a partner and the acting
partner of his right, if any, under the exemption partner had knowledge or notice of such
laws, as regards his interest in the partnership. (n) dissolution
2. With respect to third persons (1834)
• The birth and life of a partnership at will is • When partner continues to bind the
predicated on the mutual desire and partnership even after dissolution
consent of the partners. The right to ⁃ By an act appropriate for winding
choose with whom a person wishes to up partnership affairs
associate himself is the very foundation ⁃ Act for completing unfinished
and essence of that partnership. Its transactions
continued existence is, in turn, dependent ⁃ Transaction which would bind the
on the constancy of that mutual resolve, partnership if dissolution had not
along with each partner's capability to taken place provided that the
give it, and the absence of a cause for other party:
dissolution provided by the law itself.
Verily, any one of the partners may, at his Had extended credit to partnership prior to
sole pleasure, dictate a dissolution of the dissolution
partnership at will. He must, however, act Had no knowledge/notice of dissolution,
in good faith, not that the attendance of OR
bad faith can prevent the dissolution of Did not extend credit to partnership
the partnership but that it can result in a Had known partnership prior to dissolution
liability for damages. (Ortega v CA) Had no knowledge/notice of dissolution/fact of
dissolution not advertised in a newspaper of
• Under art. 1830, a partner may cause the general circulation in the place where partnership
dissolution of the partnership, even if is regularly carried on
there is specified term in the articles of
partnership and even before the • When partner cannot bind the partnership
expiration of this period, with or without after dissolution
justifiable cause. If no cause was given or ⁃ where partnership was dissolved
if it is unjustified, the withdrawing partner because it was unlawful to carry
becomes liable for damages, but he on the business except when the
cannot be compelled to remain in the firm. act is for winding up
(Rojas v. Maglana) ⁃ where the partner has become
insolvent
B. Consequences of dissolution ⁃ where the partner is unauthorized
to wind up partnership affairs,
1. As to partner's authority to act for the except by transaction with one
partnership who:

General Rule: Authority of partners to bind Had extended credit to partnership prior to
partnership is terminated (1832) dissolution &
Exception: Had no knowledge/notice of dissolution,
⁃ Wind up partnership affairs OR
⁃ Complete transactions not finished Did not extend credit to partnership prior to
Qualifications: dissolution
1.With respect to the partners (1833) Had known partnership prior to dissolution

19 DSP NOTES | PARTNERSHIP | BSU-LAW

Had no knowledge/notice of dissolution/fact of creditors of the dissolved partnership
dissolution not advertised in a newspaper of shall be satisfied out of the partnership
general circulation in the place where partnership property only, unless there is a stipulation
is regularly carried on to the contrary.

2. As to partner's existing • This article treats more of a commercial

liability partnership, with a goodwill to protect
General Rule: Dissolution does not automatically rather than a professional partnership
discharge the existing liability of any partner. with no saleable goodwill but whose
(1835) reputation depends on the personal
Exception: A partner may be relieved from all qualifications of its individual members.
existing liabilities upon dissolution only by an •
agreement between: • Creditors of the old partnership can go
1. partner concerned after the partnership continuing the
2. person/partnership continuing the business business except: (1) when there is a
3. partnership creditors stipulation to the contrary; and, (2) when
there has been a liquidation of
3. Liability of partnership affairs
person/partnership continuing the business
• Not only the retiring partners but also the
Art. 1840. In the following cases creditors of the new partnership itself which continued the
dissolved partnership are also creditors of the business of the old, dissolved, one, are
person or partnership continuing the business: liable for the debts of the preceding
(1) When any new partner is admitted into an partnership. A withdrawing partner
existing partnership, or when any partner retires remains liable, to a third party creditor of
and assigns (or the representative of the the old partnership. (Singsong vs.
deceased partner assigns) his rights in Isabela Sawmill)
partnership property to two or more of the
partners, or to one or more of the partners and • The liability of a third person becoming a
one or more third persons, if the business is partnership continuing the business,
continued without liquidation of the partnership under 1840, to the creditors of the
affairs; dissolved partnership shall be satisfied
(2) When all but one partner retire and assign (or out of the partnership property only,
the representative of a deceased partner assigns) unless there is a stipulation to the
their rights in partnership property to the contrary. When the business of a
remaining partner, who continues the business partneship after dissolution is continued
without liquidation of partnership affairs, either under any conditions set forth in 1840 the
alone or with others; creditors of the retiring or deceased
(3) When any partner retires or dies and the partner or the representative of the
business of the dissolved partnership is continued deceased partner, have a prior right to
as set forth in Nos. 1 and 2 of this article, with the any claim of the retired partner or the
consent of the retired partners or the representative of the deceased partner
representative of the deceased partner, but against the person or partnership
without any assignment of his right in partnership continuing the business on account of the
property; retired or deceased partner's interest in
(4) When all the partners or their representatives the dissolved partnership on account of
assign their rights in partnership property to one any consideration promised for such
or more third persons who promise to pay the interest or for his right in partnership
debts and who continue the business of the property. Nothing in this article shall be
dissolved partnership; held to modify any right of creditors to set
(5) When any partner wrongfully causes a wide any assignment on the ground of
dissolution and the remaining partners continue fraud. (Yu v NLRC)
the business under the provisions of article 1837,
second paragraph, No. 2, either alone or with C. Rights of Partners upon dissolution
others, and without liquidation of the partnership
affairs; 1. Right to wind up
(6) When a partner is expelled and the remaining
partners continue the business either alone or Art. 1836. Unless otherwise agreed, the partners
with others without liquidation of the partnership who have not wrongfully dissolved the partnership
affairs. or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the
• The liability of a third person becoming a partnership affairs, provided, however, that any
partner in the partnership continuing the partner, his legal representative or his assignee,
business, under this article, to the upon cause shown, may obtain winding up by the

20 DSP NOTES | PARTNERSHIP | BSU-LAW

court. (n) continue the business in the same name
either by themselves or jointly with others,
• Winding up may be done either: judicially may do so, during the agreed term for the
or extrajudicially partnership and for that purpose may possess
• The ff. are authorized to wind up the the partnership property, provided they secure
affairs of the partnership: the payment by bond approved by the court,
1. partners designated by the or pay any partner who has caused the
agreement dissolution wrongfully, the value of his interest
2. in the absence of such in the partnership at the dissolution, less any
agreement, all the partners who damages recoverable under the second
have not wrongfully dissolved the paragraph, No. 1 (b) of this article, and in like
partnership, or manner indemnify him against all present or
3. the legal representative future partnership liabilities.
(executor/ administrator) of the (3) A partner who has caused the dissolution
last surviving partner (when all wrongfully shall have:
the partners are already dead), (a) If the business is not continued under the
not insolvent provisions of the second paragraph, No.
• The court may appoint a receiver to wind 2, all the rights of a partner under the first
up the partnership affairs. paragraph, subject to liability for damages
in the second paragraph, No. 1 (b), of this
Powers of a liquidating partner: article.
• Make new contracts (b) If the business is continued under the
• Raise money to pay partnership debts second paragraph, No. 2, of this article,
• Incur obligations to complete existing the right as against his co-partners and all
contracts or preserve partnership assets claiming through them in respect of their
• Incur expenses necessary in the conduct interests in the partnership, to have the
of litigation value of his interest in the partnership,
less any damage caused to his co-
• “wrongfully dissolved” -done in partners by the dissolution, ascertained
contravention of the agreement and paid to him in cash, or the payment
secured by a bond approved by the court,
• When a member of a mercantile and to be released from all existing
partnership dies, the duty of liquidating its liabilities of the partnership; but in
affairs devolves upon the surviving ascertaining the value of the partner's
member/s of the firm, not upon the legal interest the value of the good-will of the
representatives of the deceased partner. business shall not be considered. (n)
Upon the death of a partner, it is the duty
of the surviving associates to take the 4. Rights where dissolution not
proper steps to settle the affairs of the in contravention of agreement (unless
firm,and any claim against him or his otherwise agreed), which constitute the
estate should be prosecuted against his partner’s lien:
estate in administration. (Lota v • to have the partnership property applied
Tolentino) to discharge partnership liabilities and
• the surplus assets, if any, distributed in
2. Right to damages for wrongful cash to the respective partners, after
dissolution deducting what may be due to the firm
from them as partners
Art. 1837. When dissolution is caused in
contravention of the partnership agreement the 5. Rights of innocent party:
rights of the partners shall be as follows: (dissolution in contravention of agreement)
(1) Each partner who has not caused dissolution • Apply partnership property to discharge
wrongfully shall have: liabilities of partnership
(b) The right, as against each partner who • Apply surplus, if any to pay in cash the
has caused the dissolution wrongfully, to net amount owed to partners
damages breach of the agreement. • Indemnity for damages caused by partner
guilty of wrongful dissolution
3. Right to continue business on • Continue business in same name during
wrongful dissolution agreed term
• Posses partnership property if business is
Art. 1837. xxx When dissolution is caused in continued
contravention of the partnership agreement the
rights of the partners shall be as follows: 6.Rights of guilty party: one who
(2) The partners who have not caused the wrongly caused dissolution
dissolution wrongfully, if they all desire to • If business not continued by others -

21 DSP NOTES | PARTNERSHIP | BSU-LAW

 apply partnership property to discharge share of the profits [Sison vs. McQuaid].
liabilities of partnership & receive in cash • A partner’s share cannot be retuned
his share of surplus less damages caused without first dissolving and liquidating the
by his wrongful dissolution partnership, for the firm’s outside
• If business continued by others - have the creditors have preference over the assets
value of his interest at time of dissolution of the enterprise [Arts. 1839(2), 1827] and
ascertained and paid in cash/secured by the firm’s property cannot be diminished
bond & be released from all to their prejudice [Magdusa vs. Albaran].
existing/future partnership liabilities
VIII. SETTLEMENT OF ACCOUNTS BETWEEN
7. Rights of injured partner where PARTNERS
partnership contract is rescinded on ground
of fraud/misrepresentation by 1 party: (1838) Art. 1839. In settling accounts between the
partners after dissolution, the following rules shall
• Right to lien on surplus of partnership be observed, subject to any agreement to the
property after satisfying partnership contrary:
liabilities (1) The assets of the partnership are:
• Right to subrogation in place of creditors (a) The partnership property,
after payment of partnership liabilities (b) The contributions of the partners
• Right of indemnification by guilty partner necessary for the payment of all the
against all partnership debts & liabilities liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in
8. Right of retiring/ deceased order of payment, as follows:
partner (a) Those owing to creditors other than
partners,
Art. 1841. When any partner retires or dies, and (b) Those owing to partners other than for
the business is continued under any of the capital and profits,
conditions set forth in the preceding article, or in (c) Those owing to partners in respect of
Article 1837, second paragraph, No. 2, without capital,
any settlement of accounts as between him or his (d) Those owing to partners in respect of
estate and the person or partnership continuing profits.
the business, unless otherwise agreed, he or his (3) The assets shall be applied in the order of
legal representative as against such person or their declaration in No. 1 of this article to the
partnership may have the value of his interest at satisfaction of the liabilities.
the date of dissolution ascertained, AND shall (4) The partners shall contribute, as provided by
receive as an ordinary creditor an amount equal article 1797, the amount necessary to satisfy
to the value of his interest in the dissolved the liabilities.
partnership with interest, or, at his option or at the (5) An assignee for the benefit of creditors or
option of his legal representative, in lieu of any person appointed by the court shall have
interest, the profits attributable to the use of his the right to enforce the contributions specified
right in the property of the dissolved partnership; in the preceding number.
provided that the creditors of the dissolved (6) Any partner or his legal representative shall
partnership as against the separate creditors, or have the right to enforce the contributions
the representative of the retired or deceased specified in No. 4, to the extent of the amount
partner, shall have priority on any claim arising which he has paid in excess of his share of
under this article, as provided Article 1840, third the liability.
paragraph. (n) (7) The individual property of a deceased
partner shall be liable for the contributions
9. Right to account specified in No. 4.
(8) When partnership property and the individual
Art. 1842. The right to an account of his interest properties of the partners are in possession of
shall accrue to any partner, or his legal a court for distribution, partnership creditors
representative as against the winding up partners shall have priority on partnership property and
or the surviving partners or the person or separate creditors on individual property,
partnership continuing the business, at the date of saving the rights of lien or secured creditors.
dissolution, in the absence of any agreement to (9) Where a partner has become insolvent or his
the contrary. (n) estate is insolvent, the claims against his
separate property shall rank in the following
• The profits of a business cannot be order:
determined by taking into account the (a) Those owing to separate creditors;
result of one particular transaction instead (b) Those owing to partnership creditors;
of all the transactions had, hence the (c) Those owing to partners by way of
need for a general liquidation before a contribution. (n)
partner may claim a specific sum as his

22 DSP NOTES | PARTNERSHIP | BSU-LAW

 extent of Personally Liability
• This provision sets forth a priority system liability liable for extends only
for the distribution of partnership property partnership to his capital
[see Art. 1810] and individual property obligations contributions
when a partnership is dissolved. (1848)
• These rules are subject to variation by
agreement of the partners, either in their right to When No
original partnership agreement or in a paticipate in manner of participation
dissolution agreement, subject to the the mgt. not in
rights of partnership creditors. management agreed management
• ORDER OF PAYMENT IN THE upon, all gen
WINDING UP OF PARTNERSHIP partners
LIABILITIES in a general partnership: have an
1839 (2) equal right in
1. Those owing to creditors other the mgt. of
than partners; the business
2. Those owing to partners other contribution Contribute Contribute
than for capital or profits; cash, cash or
3. Those owing to partners in property or property only,
respect of capital; industry not industry
4. Those owing to partners in (1845)
respect of profits. proper party Proper party Not proper
to to party to
Doctrine of Marshalling of Assets 1839 (8): proceedings proceedings proceedings
1. Partnership creditors have preference in by or against by/against by/against
partnership assets the partnership partnership
2. Separate or individual creditors have partnership unless:
preference in separate or individual properties
3. Anything left from either goes to the other 1. he is also a
general
IX. LIMITED PARTNERSHIP partner
2. where the
object of the
Art. 1843. A limited partnership is one formed by proceedigns
two or more persons under the provisions of the is to enforce a
following article, having as members one or more limited
general partners and one or more limited partner's right
partners. The limited partners as such shall not be against or
bound by the obligations of the partnership. liability to the
partnership
Characteristics:
inclusion of Name may Name must
• formed by compliance with the statutory
partner's appear in appear in firm
requirements (1844)
name in the firm name name
• One or more general partners control the
firm name
business and are personally liable to
creditors (1848, 1850) prohibition to Prohibition No prohibition
• One or more limited partners contribute to engage in against against
the capital and share in the profits but do other engaging in engaging in
not participate in the management of the business business business
business and are not personally liable for
partnership obligations beyond the
amount of their capital contributions. effect of Retirement, Does not
(1845, 1848, 1856) retirement death, have same
• The limited partners may ask for the death insolvency, effect; rights
return of their capital contributions under insanity or insanity of transferred to
the conditions prescribed by law (1844(h), insolvency gen partner legal
1857) dissolves representativ
• The partnership debts are paid out of the partnership e
common fund and the individual (1860)
properties of the general partners. firm name must contain Name must
the word be followed
General Limited company or by "limited"
Partnership Partnership Co. (SEC (SEC Memo
Memo Circular No.

23 DSP NOTES | PARTNERSHIP | BSU-LAW

 Circular No. 14-00) (2) A person is substituted as a limited partner;
14-00) (3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
*unless it is (5) A general partner retires, dies, becomes
a insolvent or insane, or is sentenced to civil
professional interdiction and the business is continued under
partnership Article 1860;
members of composed composed of (6) There is a change in the character of the
the only of one or more business of the partnership;
partnership general general (7) There is a false or erroneous statement in the
partners partners and certificate;
one or more (8) There is a change in the time as stated in the
limited certificate for the dissolution of the partnership or
partners for the return of a contribution;
(9) A time is fixed for the dissolution of the
partnership, or the return of a contribution, no time
Essential requirements for the formation of a having been specified in the certificate, or
limited partnership: (1844) (10) The members desire to make a change in
• the certificate or articles of the limited any other statement in the certificate in order that
partnership which states the matters it shall accurately represent the agreement among
enumerated in the article, must be signed them.
and sworn to.
• Such certificate must be filed for record in • Requirements to amend a certificate:
the office of the SEC ⁃ amendment must be in writing;
⁃ it must be signed and sworn to by
Who may become Limited Partners all the members, including the
• A partnership cannot become a limited new members, and the assigning
partner. members in case of substitution
• A general partnership may be changed or addition of a GP or LP; and
into a limited one, and a partner in the ⁃ the certificate, as amended, must
former general partnership may become a be filed for record in the SEC
limited partner in the limited partnership
just formed. • Requirements to cancel a certificate:
⁃ in writing;
• The general rule for those who seek to ⁃ signed by all the members; and
avail of the protection of the laws ⁃ filed with the SEC; if the
permitting the creation of limited cancellation is ordered by the
partnerships must show a substantially court, a certified copy of such
full compliance of such laws. A limited order shall be filed with the SEC
partnership that has not complied with the as well
law of its creation is not considered a
limited partnership at all; but a general Art. 1860. The retirement, death, insolvency,
partnership in which all members are insanity or civil interdiction of a general partner
liable. (Jo Chung Cang V. Pacific dissolves the partnership, unless the business is
Commercial) continued by the remaining general partners:
(1) Under a right so to do stated in the
Art. 1847. If the certificate contains a false certificate, or
statement, one who suffers loss by reliance on (2) With the consent of all members.
such statement may hold liable any party to the
certificate who knew the statement to be false: X. LIMITED PARTNER
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time A. Contribution
before the statement was relied upon to enable
him to cancel or amend the certificate, or to file a Art. 1845. The contributions of a limited partner
petition for its cancellation or amendment as may be cash or property, but not services.
provided in Article 1865.
B. Liability
Art. 1864. The certificate shall be cancelled when
the partnership is dissolved or all limited partners
Art. 1848. A limited partner shall not become
cease to be such.
liable as a general partner unless, in addition to
A certificate shall be amended when:
the exercise of his rights and powers as a limited
(1) There is a change in the name of the
partner, he takes part in the control of the
partnership or in the amount or character of the
business.
contribution of any limited partner;

24 DSP NOTES | PARTNERSHIP | BSU-LAW

 things affecting the partnership
• What constitutes control of the business • To demand a formal account of
sufficient to make a limited partner liable partnership affairs whenever
as a general partner has not been clearly circumstances render it just and
defined by the courts. reasonable
• Examples of limited partner taking part in • To ask for dissolution and winding up by
the control of business: decree of the court
⁃ Board of directors chosen by • To receive a share of the profits or other
limited partners compensation by way of income
⁃ An appointee of a limited partner • To receive the return of his contribution
becomes the directing manager provided the partnership assets are in
of the firm excess of all its liabilities

Art. 1858. A limited partner is liable to the D. Loan and other Business Transactions with
partnership: Limited Partnership
(1) For the difference between his contribution as
actually made and that stated in the certificate as Art. 1854. A limited partner also may loan money
having been made; and to and transact other business with the
(2) For any unpaid contribution which he agreed partnership, and, unless he is also a
in the certificate to make in the future at the time general partner, receive on account of
and on the conditions stated in the certificate. resulting claims against the partnership,
A limited partner holds as trustee for the with general creditors, a pro rata share of
partnership: the assets. No limited partner shall in
(1) Specific property stated in the certificate as respect to any such claim:
contributed by him, but which was not contributed (1) Receive or hold as collateral security and
or which has been wrongfully returned, and partnership property, or
(2) Money or other property wrongfully paid or (2) Receive from a general partner or the
conveyed to him on account of his contribution. partnership any payment, conveyance, or
release from liability if at the time the
Liabilities of a limited partnership: assets of the partnership are not sufficient
1. To the partnership (see 1858) to discharge partnership liabilities to
2. To partnership creditors and other partners persons not claiming as general or limited
a. Art. 1845 – when he contributes partners.
services
b. Art. 1846 • The receiving of collateral security, or
c. Art. 1847 payment, conveyance, or release in
d. Art. 1848 violation of the foregoing provisions is a
e. Art. 1854 – in fraud of partnership fraud on the creditors of the partnership.
creditors
f. Art. 1844 (2) – failure to substantially • 3 allowable transactions:
comply with the legal requirements governing 1. granting loans to partnership
formation of limited partnerships 2. transacting other business with
3. To separate creditors (see 1862) it
3. receiving a pro rata share of
• The liabilities of a limited partner as set the partnership assets with general creditors if
forth in this article can be waived or he is not also a general partner
compromised only by the consent of all
members; but a waiver or compromise Art. 1854 does not prohibit absolutely the taking
shall not affect the right of a creditor of a as collateral security by a limited property of any
partnership who extended credit or whose partnership property, as no. 1 & 2 are modified by
claim arose after the filing and before a the requirement of sufficient assets to discharge
cancellation or amendment of the the obligation of the partnership.
certificate, to enforce such liabilities.
Prohibited transactions:
C. Rights in common with general partner • Receiving or holding as collateral security
any partnership property
The specific rights of a limited partner are as • Receiving any payment, conveyance, or
follows: release from liability if it will prejudice the
• To require that partnership books be kept right of third persons
at the principal place of business of the • Third persons always enjoy a preferential
partnership right insofar as partnership assets are
• To inspect and copy at a reasonable hour concerned
partnership books or any of them
• To demand true and full information of all

25 DSP NOTES | PARTNERSHIP | BSU-LAW

E. Return of contribution Absent such agreement, all limited partners shall
stand on the same footing in respect of those
Art. 1855. Where there are several limited matters.
partners the members may agree that
one or more of the limited partners shall Art. 1857
have a priority over other limited partners Requisites for the return of contribution of limited
as to the return of their contributions, as partner:
to their compensation by way of income, • All liabilities of the partnership have been
or as to any other matter. If such an paid
agreement is made it shall be stated in • If not paid: assets of the partnership are
the certificate, and in the absence of such sufficient to pay such liabilities
a statement all the limited partners shall • consent of all members
stand upon equal footing. • certificate is cancelled or so amended as
to set forth such withdrawal or reduction
Art. 1857. A limited partner shall not receive from of the contribution
a general partner or out of partnership Limited partner may demand return of his
property any part of his contributions until: contribution provided requisites 1 & 3 are
(1) All liabilities of the partnership, except liabilities complied with:
to general partners and to limited partners • on the dissolution of the partnership; or
on account of their contributions, have • upon arrival of the date specified in the
been paid or there remains property of certificate for the return; or
the partnership sufficient to pay them; • after the expiration of 6 mos.’ notice in
(2) The consent of all members is had, unless the writing given by him to the other partners
return of the contribution may be rightfully if no time is fixed in the certificate for the
demanded under the provisions of the return of the contribution or for the
second paragraph; and dissolution of the partnership
(3) The certificate is cancelled or so amended as
to set forth the withdrawal or reduction. F. Share of profits
Subject to the provisions of the first paragraph, Art. 1856. A limited partner may receive from the
a limited partner may rightfully demand partnership the share of the profits or the
the return of his contribution: compensation by way of income
(1) On the dissolution of a partnership; or stipulated for in the certificate; provided
(2) When the date specified in the certificate for its that after such payment is made, whether
return has arrived, or from property of the partnership or that of
(3) After he has six months' notice in writing to all a general partner, the partnership assets
other members, if no time is specified in are in excess of all liabilities of the
the certificate, either for the return of the partnership except liabilities to limited
contribution or for the dissolution of the partners on account of their contributions
partnership. and to general partners.
In the absence of any statement in the
certificate to the contrary or the consent G. Assign interests
of all members, a limited partner,
irrespective of the nature of his Art. 1859. A limited partner's interest is
contribution, has only the right to demand assignable.
and receive cash in return for his A substituted limited partner is a person admitted
contribution. to all the rights of a limited partner who
A limited partner may have the partnership has died or has assigned his interest in a
dissolved and its affairs wound up when: partnership.
(1) He rightfully but unsuccessfully demands the An assignee, who does not become a substituted
return of his contribution, or limited partner, has no right to require any
(2) The other liabilities of the partnership have not information or account of the partnership
been paid, or the partnership property is transactions or to inspect the partnership
insufficient for their payment as required books; he is only entitled to receive the
by the first paragraph, No. 1, and the share of the profits or other compensation
limited partner would otherwise be by way of income, or the return of his
entitled to the return of his contribution. contribution, to which his assignor would
otherwise be entitled.
Art. 1855 An assignee shall have the right to become a
By agreement of all members, preference may be substituted limited partner if all the
given over other limited partners as to members consent thereto or if the
the: assignor, being thereunto empowered by
• Return of their contributions the certificate, gives the assignee that
• Their compensation by way of income right.
• Any other matter

26 DSP NOTES | PARTNERSHIP | BSU-LAW

An assignee becomes a substituted limited partner.
partner when the certificate is
appropriately amended in accordance I. Right of creditor
with Article 1865.
The substituted limited partner has all the rights Art. 1862. On due application to a court of
and powers, and is subject to all the competent jurisdiction by any creditor of a
restrictions and liabilities of his assignor, limited partner, the court may charge the
except those liabilities of which he was interest of the indebted limited partner
ignorant at the time he became a limited with payment of the unsatisfied amount of
partner and which could not be such claim, and may appoint a receiver,
ascertained from the certificate. and make all other orders, directions and
The substitution of the assignee as a limited inquiries which the circumstances of the
partner does not release the assignor case may require.
from liability to the partnership under The interest may be redeemed with the
Articles 1847 and 1848. separate property of any general partner,
but may not be redeemed with
Art. 1847. If the certificate contains a false partnership property.
statement, one who suffers loss by The remedies conferred by the first paragraph
reliance on such statement may hold shall not be deemed exclusive of others
liable any party to the certificate who which may exist.
knew the statement to be false: Nothing in this Chapter shall be held to deprive
(1) At the time he signed the certificate, or a limited partner of his statutory
(2) Subsequently, but within a sufficient time exemption.
before the statement was relied upon to
enable him to cancel or amend the • Creditor of a limited partner may apply to
certificate, or to file a petition for its the proper court for an order charging the
cancellation or amendment as provided in limited partner’s interest in the partnership
Article 1865. for the payment of his claim.
Art. 1848. A limited partner shall not become
J. Person erroneously believing he is a limited
liable as a general partner unless, in
partner
addition to the exercise of his rights and
powers as a limited partner, he takes part
in the control of the business. Art. 1852. Without prejudice to the provisions of
Article 1848, a person who has
• Requisites in order that the assignee may contributed to the capital of a business
become a substituted limited partner: conducted by a person or partnership
1. All the members must consent to erroneously believing that he has become
the assignee becoming a a limited partner in a limited partnership,
substituted limited partner OR the is not, by reason of his exercise of the
limited partner, being empowered rights of a limited partner, a general
by the certificate, must give the partner with the person or in the
assignee the right to become a partnership carrying on the business, or
limited partner bound by the obligations of such person
2. The certificate must be amended or partnership, provided that on
in accordance with Art. 1865 ascertaining the mistake he promptly
3. The certificate as amended must renounces his interest in the profits of the
be registered in the SEC. business, or other compensation by way
of income.
• Substitution, withdrawal, death,
insolvency, insanity, civil interdiction, • This article provides exemption from
addition of a limited partner does not general liability of a person who
necessarily dissolve the partnership. contributed capital with an erroneous
belief that he has become a limited
partner in a limited partnership, or in
H. Effect of death
general partnership thinking that it is a
limited one.
Art. 1861. On the death of a limited partner his
executor or administrator shall have all Conditions for exemption:
the rights of a limited partner for the • On ascertaining the mistake, he promptly
purpose of setting his estate, and such renounces his interest in the profits of the
power as the deceased had to constitute business or other compensation by way
his assignee a substituted limited partner. of income (interest must be renounced
The estate of a deceased limited partner shall before partnership has become liable to
be liable for all his liabilities as a limited

27 DSP NOTES | PARTNERSHIP | BSU-LAW

 3rd persons in good faith)
• His surname does not appear in the
partnership name
• He does not participate in the
management of the business

K. Dissolution

• Any of such causes in 1860 affecting a

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

• A limited partnership may be dissolved

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

• When the firm is dissolved by the

expiration of the term fixed in the
certificate, notice of the dissolution need
not be given since the papers filed and
recorded in the SEC are notice to all the
world. Where, however, the dissolution is
by the express will of the partners, the
certificate shall be cancelled, and a
dissolution is not effected until there has
been compliance with this requirement.

L. Settling accounts after dissolution

Order of Payment: Limited Partnership (1863)

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

28 DSP NOTES | PARTNERSHIP | BSU-LAW