PARTNERSHIP

Partnership, nature:

Within the context of Philippine law, a"partnership" is

treated as an artificial being created by operation of law
with a legal personality separate and distinct from the
partners thereof. (juridical personality) It proceeds from
the concept that persons may be allowed to pool their
resources and funds to engage in the pursuit of a
common business objective without necessarily
organizing themselves into a corporation, upon which the
law imposes a much higher form of regulation, limitation
and standards. Philippine partnerships operate under the
concept of unlimited liability and unless otherwise agreed
upon by the partners, each one of them acts as manager
and agent of the partnership and consequently, their acts
bind the partnership.

A partnership is a contract of two or more persons who

bind themselves to contribute money, property or
industry, to a common fund, with the intention of dividing
the profits among themselves. Two or more persons may
also form a partnership for the exercise of profession.
(Article 1767 Civil Code)

Partnership, governing law:

Unlike corporations whose governing law is a special law

- the Revised Corporation Code of the Philippines,
partnerships in the Philippines are governed by and
covered under Articles 1767 to 1867 of the Civil Code of
the Philippines. These are the provisions of law which
govern all aspects of partnerships - from their creation,
formation, existence, operation and management to their
dissolution and liquidation, including the obligations of
the partners to one another, to the public or third
persons and to the government.

Characteristics:

1. Consensual- perfected by mere consent.

2. Principal - it does not depend upon other contracts for

its validity or existence.

3. Bilateral or multilateral – entered into by 2 or more

persons whose rights and obligations are reciprocal.

4. Nominate – it has a special name given to it by law.

5. Preparatory – It is a means by which other contracts

will be entered into as the partnership pursues its
business.

6. Onerous – the partners contribute money, property or

industry.

Essential Requisites:

1. There must be a valid contract. (FIDUCIARY) – TRUST

AND CONFIDENCE

2. There must be a mutual contribution of money, proper

or industry to a common fund.

3. It must have a lawful object or purpose.

4. The partnership must be established for the common
benefit or interest of the partners which is to obtain
profits and to divide the profits among the partners.

Form of partnership contract

A partnership contract may be constituted in any form,

(oral or written) except as follows:

1. Where immovable property or real rights are

contributed to the partnership (regardless of the
amount) (NI)

a. The contract must be in a public instrument

(notarized)

b. An inventory of the said property must be made,

signed by the parties, and attached to the public
instrument.

Effect if the requirements are not complied with –

- The partnership contract is void (Art. 1773)

- The partnership will not have any juridical
personality.

2. Where the capital of the partnership is P3,000.00

or more, in money or property (WR)

a. the partnership contract must be in writing.

b. Registered with the Securities and Exchange

Commission
Effect if not complied with –

- The partnership contract is still valid. Accordingly,

the partnership still acquires juridical personality.
(Arts. 1768, 1772)
- The liability of the partnership and the members
thereof to third persons are not affected (Art. 1772).

Reason for registration with SEC

Recording with the SEC is a condition for the

issuance to the partnership of a business license to
engage in business.

3. If the partnership is a limited partnership, a

certificate signed under oath by the partners and
recorded with the SEC is required. (NR)

Effect if not complied with –

- The partnership will be considered as general

partnership.

WHO MAY BECOME PARTNERS

1. Any natural persons who is capacitated may become a

partner.

2. Artificial persons like partnership and corporation may

likewise form a partnership with individuals or other
partnerships or corporation. A joint venture is a form of
partnership and governed by the law on partnership.
ARTICLE 1768. The partnership has a juridical
personality separate and distinct from that of each
of the partners, even in case of failure to comply
with the requirements of article 1772, first
paragraph.

As a JURIDICAL PERSON, a partnership may:

1. acquire and possess property of all kinds;

2. incur obligations; and

3. bring civil or criminal actions,

in conformity with the laws and regulations of their

organization. (See Art. 46)

PRINCIPLE OF DELECTUS PERSONARUM

DELECTUS PERSONAE—The selection or choice of the

person.

Implications: The assignment of a partner of his share

does not make assignee a partner (Art. 1804 and 1813)

• The existence of the partnership is closely tied-up to

the particular contractual relationship of the partners
(see instances of dissolution of the partnership upon
change of contractual relationship.) Orteqa v. CA, G.R.
No. 109248, July 3, 1995
'• Doctrine of Delectus Personae:

The birth and life of a partnership at will is predicated on

the mutual desire and consent of the partners. The right
to choose with whom a person wishes to associate
himself is the very foundation and essence of that
partnership.

MEANING of MUTUAL AGENCY

• In the absence of contractual stipulation, all partners

shall be considered agents and whatever any one of them
may do alone shall bind the partnership (Art. 1803[1],
1818)

• Partners can dispose of partnership property even

when in partnership name (Art. 1819)

• An admission or representation made by any partner

concerning partnership affairs is evidence against the
partnership (Art. 1820)

• Notice to any partner of any matter relating to

partnership affairs is notice to the partnership (Art. 1821)

• Wrongful act or omission of any partner acting for

partnership affairs makes the partnership liable (Art.
1822)

• Partnership bound to make good losses for acts or

misapplications of partners (Art. 1823)

UNLIMITED LIABILITY
• All partners are liable pro rata with all their
properties and after partnership assets have been
exhausted, for all partnership debts (Art. 1816)

• Any stipulation against personal liability of partners

for partnership debts is void , except as among them
(Art.1817)

• All partners are solidarily with the partnership for

everything chargeable to the partnership when caused by
the wrongful act or omission of any partner acting in the
ordinary course of business of the partnership or with
authority from the other partners and for partner's act or
misapplication of properties (Art. 1824)

• A newly admitted partner into an existing

partnership is liable for all the obligations of the
partnership arising before his admission but out of
partnership property shares (Art. 1826)

• Partnership creditors are preferred to those of each

of the partners as regards the partnership property (Art.
1827)

• Upon dissolution of the partnership, the partners hall

contribute the amounts necessary to satisfy the
partnership liabilities (Art. 1839[4], [7])

PARTNERSHIP DISTINGUISHED FROM CO-

OWNERSHIP AND CORPORATION

PARTNERS
OWNERS CORP
HIP
HIP
Creation Created by a Created by Created by
contract, by law law
mere
agreement of
the parties
Juridical Has a juridical None Has a
personal personality juridical
ity separate and personality
distinct from separate
that of each and distinct
partner from that of
each
Purpose Realization of Common stockholder
Depends
profits enjoyment on AOI
of a thing or
right
Duration/ No limitation 10 years 50 years
Term of maximum maximum,
existenc extendible to
e not more
than 50
years in any
one instance
Disposal / Partner may Co-owner Stockholde r
Transfer not dispose of may freely has a right
ability of his individual do so to transfer
interest interest unless shares
agreed upon without prior
by all partners consent of
other
stockholder
s

persons partner may the co- Board of

bind ownership Directors
partnership
(each partner
is agent of
partnership)
Effect of Death of Death of co- Death of
death partner results owner does stockholder
in dissolution not does not
of partnership necessarily dissolve
dissolve co- corporation
ownership
 Dissoluti May be May be Can only be
on dissolved at dissolved dissolved
any time by anytime by with the
the will of any the will of consent of
or all of the any or all of the state
partners the co-
owners
# of incor- Minimum of 2 Minimum of Minimum of
porators persons 2 persons 5
incorporato
Rs
Commen From the None From date of
cement of moment of issuance of
juridical execution of certificate of
personal contract of incorporati
ity partnership on by the
SEC

■ Heirs of Tan Enq Kee v. CA, G.R. No. 726887,., ：

October 3, 2000

： Particular partnership distinguished from joint venture

；

A particular partnership is distinguished from joint

venture, to wit:

1) a joint venture (an American concept similar to our

joint account) is a sort of informal partnership,

■ with no firm name and no legal personality. In a joint

account, the participating merchants can transact
business under their own name, and can be
individually liable therefore; and

2) usually, but not necessarily a joint venture is limited

to a single transaction, although the business of pursuing
to a successful termination may continue for a number of
years; a partnership generally relates to a continuing
business of various transactions of a certain kind.
WEAKNESSES OF A PARTNERSHIP

• Partners are co-owners of the partnership properties

and enjoy personal possession (Art. 1811)

• Partners may individually dispose of real property of

the partnership even when in partnership name (Art.
1819)

• Dissolution of the partnership can come about by the

change in the relationship of the partners, such as when
a partner choses to cease being part of the partnership
(Art. 1828, 1830[1]b)

• Expulsion of partner dissolves the partnership (Art.

1830[1]d)

• Dissolved by the loss of the thing promised to be

contributed to the partnership (Art. 1830[4])

• Death, insolvency, or civil interdiction of a partner

dissolves the partnership (Art. 1830 [5],[6],[7])

• Petition by partner will dissolve the partnership when

a partner has been declared insane; or the partner has
become incapable of performing his part of the
partnership contract; a partner has been found guilty of
such conduct as tends to affect prejudicially the
partnership business; partner willfully or persistently
commits a breach of partnership agreement; the
partnership business can only be carried at a loss; other
equitable reasons (Art. 1831)

NOTE:

• SEC Opinion, 28 April 1995: The death of a partner,

as a general rule, dissolves the partnership by operation
of law, except if the articles of partnership stipulate for
the continuance of the partnership relations upon the
death of any of the partners.

• SEC Opinion, 5 Auqust 1997: If the remaining

partners of the dissolved partnership intended for all
legal intents and purposes, to continue the partnership
business even after the death of a partner, there is
continuity of personality of the partnership as there
exists a "partnership at will." 

Rules to determine whether a partnership exists

1. Persons who are not partners as to each other are not

partners as to third persons except when a person
represents himself or consents to another representing
him to anyone, as a partner in an existing partnership or
with one or more persons not actual partners. (Art. 1769,
1825)

Exception: Partnership by estoppel

2. Co-ownership or co-possession does not of itself

establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property.

3. The sharing of gross returns does not of itself establish

a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived.

4. The receipt by a person of a share of the profits of a

business is a prima facie evidence that he is a partner in
a business.

Exceptions: No such inference shall be drawn if such

profits were received in payment of

- As a debt by installments or otherwise.

- As wages of an employee or rent to a landlord.
- As annuity to a widow or representative of a
deceased partner
- As interest on loan, though the amount of payment
vary with the profits of the business.
- As the consideration for the sale of goodwill of a
business or other property by installment or
otherwise (Art. 1769)

Art. 1770. A partnership must have a lawful object

or purpose, and must be established for the
common benefit or interest of the partners. When
an unlawful partnership is dissolved by a judicial
decree, the profits shall be confiscated in favor of
the State, without prejudice to the provisions of the
Penal Code governing the confiscation of the
instruments and effects of a crime.

EFFECTS OF AN UNLAWFUL PARTNERSHIP:

1. The contract is void ab initio and the partnership

never existed in the eyes of the law. (Art. 1409[1])

2. The profits shall be confiscated in favor of the

government. (Art. 1770)

3. The instruments or tools or proceeds of the crime

shall be forfeited favor of the government. (Art. 1770,
Art. 45-RPC)

4. The contributions of the partners shall not be

confiscated unless they fall under no. 3. (See Arts. 1411
and 1412)

WHO MAY BE PARTNERS

GENERAL RULE: Any person capacitated to contract

may enter into a contract of partnership.

EXCEPTIONS:

1. Persons who are prohibited from giving each other

any donation or advantage cannot enter into a universal
partnership. (Art. 1782)

2. Persons suffering from civil interdiction.

3. Persons who cannot give consent to a contract:

a. Minors

b. insane persons

c. deaf-mutes who do not know how to write

MAY CORPORATIONS ENTER INTO PARTNERSHIP?

Philippine Corporate Law (2001) by Dean Villanueva (p.

902) citing various SEC Opinions:

• Corporations may enter into partnership agreements on

the following conditions:

1. Authority to enter into a partnership relation is

expressly conferred by the charter or the articlesof
incorporation (AoI), and the nature of the business
venture to be undertaken by the partnership is in line
with the business authorized by the charter or AOI.

2. If it is a foreign corporation, it must obtain a license

to transact business in the country in accordance with the
Corporation Code of the Philippines.

Kinds of Partnership

1. As to object

a. Universal Partnership – A universal partnership may

either be a universal partnership of all present property
or a universal partnership of profits (Art. 1777)

Universal partnership of all present property – this

is a partnership in which all the partners contribute all
the property which actually belonged to them to the
common fund, with the intention of dividing the same
among themselves, as well as the profits which they
acquire therewith. (Art. 1778).

Property which shall belong to the common fund

- Property belonging to the partners at the time of the

constitution of the partnership (present property)
- Profits that may be acquired from the present
property
- Property acquired by each partner after the
formation of the partnership but only if stipulated.
(Art. 1779) This include the property itself except
that the stipulation shall not include property
acquired by inheritance, legacy or donation; the
profits and fruits therefrom including those from
property acquired by inheritance, legacy or donation
(Art. 1779).

Ex:

A and B formed a universal partnership of all present

property. At the time of the establishment of the
partnership, A owned a fleet of taxis which he had
purchased and an agricultural lot which he had inherited.
B, on the other hand, owned an apartment which he had
earlier acquired by exchange and shares of stock which
were donated to him. The partners agreed that property
acquired by each partner after the formation of the
partnership shall belong to the partnership. During the
first year of the operations of the partnership, the
following transaction took place:
a. Fare revenues of P200,000.00 realized from the
operation of the taxis.

b. Crops amounting to P100,000.00 were gathered from

the agricultural lot.

c. Rentals of P150,000.00 were collected from the

apartment.

d. Dividends of P50,000.00 were received from the

shares of stock.

e. A coconut plantation was purchased by A from his own

funds

f. Coconuts worth P80,000.00 were gathered from the

coconut plantation

g. A fishpond was received by B by way of donation from

a rich uncle.

h. Fish valued at P70,000.00 were harvested from the

fishpond.

Based on the foregoing, the following belong to the

partnership:

1. Fleet of taxis

2. Agricultural lot

3. Apartment

4. Shares of stock
5. Fare revenues

6. Crops gathered from the agricultural lot

7. rentals from the apartment

8. dividends from the shares of stock

9. coconut plantation

10. coconuts harvested

11. Fish harvested

The fishpond belongs to B because the stipulation on

future property does not include property acquired by
inheritance, legacy or donation. However, the fruits
therefrom, represented by the fish gathered, belong to
the partnership.

b. Universal partnership of all profits – This comprises all

that the partners may acquire by their work or industry
during the existence of the partnership (Art. 1780)

Property/Profits which shall belong to the partnership

1. Profits obtained by the partners by their work or

industry during the existence of the partnership.
Accordingly, profits acquired by the partners without the
exertion of physical or intellectual efforts, such as those
acquired by chance or lucrative title are excluded.

2. The usufruct (the use) of the property belonging to

each partner at the time of the constitution of the
partnership. The ownership (whether movable or
immovable) belonging to each partners at the time of the
constitution of the partnership shall continue to pertain
exclusively to each partner as only the usufruct is passed
on to the partnership.

3. The profits and fruits from the properties

aforementioned (items a and b)

4. Profits and fruits, if stipulated, of property acquired by

each partner after the constitution of the partnership.

Example:

A and B formed a universal partnership of profits. At the

time of the establishment of the partnership, A owned a
fleet of taxis which he had purchased and an agricultural
lot which he had inherited. B, on the other hand, had an
apartment which he had earlier acquired by exchange
and shares of stock which were donated to him. The
parties stipulated that fruits of future property shall
belong to the partnership. During the first year of
operations of the partnership, the following transactions
took place:

1. Fare revenues of P200,000.00 were realized from the

operation of the fleet of taxis.

2. Crops amounting to P100,000.00 were gathered from

the agricultural lot

3. Rentals of P150,000.00 were collected from the

apartment
4. Dividends of P50,000.00 were received from the
shares of stock.

5. Salary of P200,000.00 was received by A as professor

of a certain college

6. P1,000,000.00 was won by B in the lotto draw.

7. A coconut plantation was purchased by A from his own

funds

8. Coconuts worth P80,000.00 were gathered from the

coconut plantation.

9. A fishpond was received by B by way of a donation

from a rich uncle.

10. Fish valued at P70,000.000 were harvested from the

fishpond.

Based on the foregoing, the following belong to the

partnership:

1. fare revenues

2. crops gathered from agricultural lot

3. rentals from the apartment

4. dividends from the shares of stock

5. salary of A as professor in a certain college

6. coconuts gathered from the coconut plantation

7. Fish harvested from the fishpond

The fleet of taxis and agricultural lot shall continue to

pertain to A, while the apartment and shares of stock
shall continue to pertain to B, since only the use and
fruits of the said properties were contributed to the
partnership at the time of its establishment. The coconut
plantation belongs to A because it is not a fruit. The lotto
winnings and fishpond belong to B since they were
acquired by chance and lucrative title, respectively.
However, the coconuts gathered and the fish harvested
belong to the partnership because of the stipulation that
fruits of future property shall belong to the partnership.

Rule in case universal partnership is without any

specification

Articles of universal partnership entered into without

specification of its nature, only constitute a universal
partnership of profits. (Art. 1781). This is because a
universal partnership of profits transmits less rights and
interests. If the doubt refers to the incidents of a
gratuitous contract, the least transmission of rights shall
prevail (Art. 1378), a universal partnership being
considered a donation.

Prohibition to enter into universal partnership

Persons prohibited from giving any donation or

advantage cannot enter into a universal partnership.
(Art. 1782) This is because in a universal partnership, the
partners are in effect making a donation. Allowing such
persons to enter into a universal partnership will be a
circumvention of the prohibition on donation between
them. The following donations are void:

1. Donations between spouses during the marriage

except moderate gifts on the occasion of a family
rejoicing. These prohibition applies to persons living as
husband and wife without the benefit of a marriage. (Art.
87, Family Code)

2. Those made between persons who were guilty of

adultery or concubinage at the time of the donation. (Art.
789)

3. Those made to a public officer or his wife, descendants

or ascendants by reason of his office (Art. 789).

b. Particular Partnership

A particular partnership has for its object

determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession. (Art. 1783).

Ex: (1) A real estate partnership whereby partner A

contributed a parcel of land and partner B a building. (2)
A real estate lessor partnership whereby A contributed
cash and B the use and lease of his building. (3) A
partnership formed for the exercise of the law profession.

As to liability
a. General partnership – a partnership where all the
partners are general partners who are liable to the extent
of their separate property after the partnership assets
have been exhausted.

b. Limited partnership – A partnership where there is

at least one general partner and at least one limited
partner. The general partners are liable up to the extent
of their separate property, while the limited partners are
liable only to the extent of their investment in the
partnership.

c. General-limited partner – one who has all the rights

and powers and is subject to all the restrictions of a
general partner, except that, in respect to contribution,
he shall have the rights against the other members which
he would have had if he were not also a general partner.

Ex. Manuel, Alberto and Conrado are partners in MAC

Company, Ltd., with Manuel as limited partner, Alberto as
general partner and Conrado as general-limited partner.
The Partnership has an asset of P60,000.00 and liabilities
of P90,000.00. In the settlement, the assets will be first
exhausted. Thereafter, the creditors can collect the
balance of P30,000.00 from the separate assets of
Alberto and Conrado who will be liable for P15,000.00
each. After payment to creditors, Conrado may demand
reimbursement of P15,000.00 from Alberto. This is
because as to third persons, Conrado is a general
partner, but among the partners, he is a limited partner.
Manuel will not be liable with his separate assets being a
limited partner.
2. As to contribution

a. Capitalist partner – one who contributes money or

property to a common fund.

b. Industrial partner – contributes his/her

services/industry. It ma be physical or intellectual
industry.

c. Capitalist-industrial partner – contributes not only

money or property but also services.

3. Other classifications

a. Managing partner – manages the business/affairs

b. Liquidating partner – takes charges of the winding up

of the affairs of the partnership after it is dissolved.

c. Nominal partner – one who is not actually a partner

but who may become liable as such to third persons (ex.
Partner by estoppel)

d. Ostensible partner – active and known to the public as

a partner, such as by allowing his name to be included in
the firm name.

e. Secret partner – one whose connection with the

partnership is kept from the public.

f. Silent partner – has no voice in the management of the

business (though he shares in the profits/losses)
g. Dormant partner – does not participate in the
management of the business and not known to the public
as a partner.

Rules on division of profit and losses (Art. 1797)

1. If all are capitalist partners

a. Profits and losses shall be divided according to

agreement.

b. If only the sharing of the partners in the profits

has been agreed upon, the share of each partner in the
losses shall be in the same proportion as the share of
each in the profits.

c. In the absence of both, the share of each partner

in the profits and losses shall be in proportion to his
capital contribution.

Ex.

1. Zone Enterprises is owned by partners Zorina, Odessa,

Norma and Elma with capital contributions of
P10,000.00; P20,000.00; P30,000.00 and P40,000.00
respectively. During the year, a profit of P8,000.00 was
realized.

- Assuming they agreed to divide the profits in the

ratio of 2:1:2:5, Zorina will receive P1,600.00; Odessa,
P800.00; Norma, P1,600.00 and Elma P4,000.00
 - If the partners have no profit sharing
agreement, it will be divided according to the ratio of
capital contribution. Zorina’s share is P800.00; Odessa is
P1,600.00; Norma is P2,400.00 and Elma P3,200.00

2. Assuming the partnership sustained a loss of

P7,000.00 such loss shall be divided among the partners:

- In case they agreed to a loss sharing of

P3:2:1:4, Zorina’s share is P2,100.00; Odessa –
P1,400.00; Norma P700.00 and Elma P2,800.00

- If there is no profit sharing agreement, it will be

divided according to their profit sharing agreement in the
ration of 2:1:2:5. Zorina’s share is P1,400.00; Odessa-
P700.00; Norma P1,400.00 and Elma, P3,500.00;

- If the partners do not have any profit/loss

sharing agreement, the loss shall be divided according to
the ratio of their capital contribution: Zorina P700.00;
Odessa P1,400.00; Norma P2,100.00 and Elma
P2,800.00.

2. If aside from the capitalist partners, there is also

an industrial partner

a. Profits

1. It shall be divided according to their agreement.

 2. If there is no agreement, the industrial partner
shall first receive just and equitable share of the profits
and thereafter, each capitalist partner shall share in the
profits in proportion to their capital contribution.

Ex: Lucille, Abigail, Cherrie and Elaine are partners in

Lace Company. Lucille, Abigail and Cherrie are capitalist
partners with contributions of P20,000, P30,000 and
P50,000 respectively. Elaine is an industrial partner. They
have no profit-sharing arrangement. If profits of
P15,000.00 was earned, Elaine shall first be given an
equitable share to be decided by the partners, say
P3,000.00. The remaining profit of P12,000.00 shall be
divided among the capitalist partners in the ratio of their
capital contribution of 2:3:5. Lucille’s share is P2,400.00;
Abigail share is P3,600.0 and Cherrie’s share is
P6,000.00.

b. Losses

1. The industrial partner shall not share in the

losses.

2. The capitalist partners shall share in the losses as

follows:

a. according to their agreement

b. In the absence of the agreement, each capitalist

partners shall share in the losses in the same
proportion as the share of each in the profits.
 c. In the absence of both, each capitalist partners
shall share in the losses in the proportion to his
capital contribution.

Ex.

Carlos contributed P20,000.00; Albert – P30,000.00’

Roland – P50,000.00. Edwin contributed his industry.
During the year, the partnership suffered a loss of
P12,000.00.

- Assuming that the losses were agreed by Carlos,

Albert, and Roland in the ratio of 1:2:3, Carlos’ share
is P2,000.00; Albert is P4,000.00 and Roland is
P6,000.00. Edwin has no share in the losses.
- If there is no loss sharing agreement but they have
agreement on profit sharing in the ratio of 3:4:5:2,
the loss is divided as follows: Carlos, Albert and
Roland in the ratio of 3:4:5 or P3,000.00, P4,000.00
and P5,000.00 respectively. Edwin will not share as
an industrial partner.
- If the partners do not have a profit sharing
agreement, Carlos, Albert and Roland will divide the
losses based on the ratio of their capital contribution
of2:3:5 or P2,400.00, P3,600.00 and P6,000.00
respectively. Edwin will not share in the losses.

3. If aside from capitalist partners, there is also a

capitalist-industrial partner

a. Profits
 1. The profits shall be divided according to their
agreement.

2. In the absence of the agreement, follow the rules:

- The capitalist-industrial partner shall first

receive a just and equitable share of the profits in his
capacity as industrial partner.

- Thereafter, each capitalist partner including

the capitalist-industrial partner in his capacity as
capitalist partner, shall share in the profits in proportion
to his capital contribution.

Ex:

Mark, Orland, and Robert are capitalist partners with

contributions of P10,000.00, P20,000.00 and P30,000.00
respectively. Edgar is a capitalist-industrial partner with a
capital contribution of P40,000.00. In a year, they
realized a profit of P20,000.00.

Assuming that the partners have no profit sharing

agreement, Edgar will first receive an equitable share in
the profit in his capacity as industrial partner. If the
partners decide that such equitable share is P4,000.00,
the balance of P16,000.00 will be divided including Edgar
as capitalist partner according to the ratio of their capital
contribution of 1:2:3:4 or P1,600.00, P3,200.00,
P4,800.00 and P6,400.00, respectively.
b. Losses

1. Losses shall be divided among the partners, including

the Capitalist-Industrial partner, according to their
agreement.

2. In the absence thereof, losses shall be divided among

the partners including the C-I partner, according to their
capital contribution.

3. In both cases, the C-I partner shall not share in the

losses in his capacity as the industrial partner.

Ex:

Sonia, Ursula, Rowen and Elsa contributed P10,000.00,

P20,000.00, P30,000.00 and P40,000.00 respectively.
Elsa is also an industrial partner. If they sustained a loss
of P14,000.00 during a year –

- Assuming they agreed to share losses in the ration of

2:3:5:4: Sonia – P2,000.00; Ursula – P3,000.00;
Rowena – P5,000.00. Elsa – P4,000.00.
- If the partners have no loss sharing agreement, it
will be divided at the ratio of their capital
contribution of1:2:3:4 or P1,400,00.00, P2,800.00.
P4,200.00 and P5,600.00 respectively.
- In both cases, Elsa shall not share in the loss in her
capacity as industrial partner.

Note: Any stipulation which excludes one or more

partners from any share in the profits and losses is void.
(Art. 1799) except one which exempts an industrial
partner from losses because the law provides that he
shall not be liable therefor. (Art. 1797).

Designation of share in the profits and losses by a

third person or by a partner

1. If entrusted by the partners to a third persons

- the same shall be binding upon the partners and

may be impugned only when it is manifestly inequitable.
However, if such designation by a third person is
manifestly inequitable, in can no longer be impugned:

a. by the partner who has begun to execute it; or

b. by any partner if 3 months had already lapsed

from the time he obtained knowledge therefor. (Art.
1798)

2. If entrusted to one of the partners

- The designation is void because it cannot be

entrusted to one of the partners (Art. 1789). Accordingly,
the profits and losses shall be divided among the
partners as if there was no stipulation.

Rules of Management

1. When a partner has been appointed manager in

the Articles of Partnership
 a. Scope of authority

- he may execute all acts of administration

despite the opposition of his partners unless he acted in
bad faith. (Art. 1800)

b. Revocation of appointment

1. Without just/lawful cause – by vote of the

partners owning the controlling interest.

2. Without just/lawful cause – with the consent

of all partners including the managing partner because
such revocation would be a novation of the terms of
partnership.

2. When a partner has been appointed manager

after the partnership has been constituted

a. Scope of authority

- he may execute all acts of administration

but in case of opposition by the other partners, the
partners owning controlling interest may resort to voting
for his removal.

b. Revocation

- he may be removed with or without just or

lawful cause by the vote of the partners owning the
controlling interest. This is because such partner is only
an agent whose authority may be revoked at any time by
his principal which is the partnership.
3. When 2 or more partners are appointed as
managers.

a. When there is specification of respective

duties

Scope of authority - each managing

partner shall perform only the duties specified in the
appointment.

b. When there is no specification of respective

duties and there is no stipulation that one shall not
act without the consent of the others.

Scope of authority - each one may separately

execute all acts of administration (Art. 1801)

Rule in case of opposition of the other

managers.

a. The decision of the majority of the managing

partners shall prevail (per head)

b. In case of a tie, the decision of the managing

partner/s owning the controlling interest shall prevail
(Artl. 1801).

Ex: Partners contribution are as follows: Mary –

P10,000.00; Anna – P20,000.00; Rose – P30,000.00;
Irma – P40,000.00; Liza – P50,000.00; Edna –
P100,000.00 and Nora – P200,000.00. Except for Edna
and Nora, all the rest are managers without specification
of duties.

- Mary wants to bus goods from Excellent Company.

Liza opposes it. Anna and Rose side with Mary while Irma
sides with Liza. The group of Mary will prevail because
the constitute majority 3 over 2.

- Suppose Rose abstain creating a tie. The group of

Liza will prevail because she and Irma represent the
controlling interest among the managing partners.

C. When there is stipulation that none of the

managing partners shall act without the consent of the
others

Vote required – the concurrent of all of them shall be

necessary for the validity of the acts (Art. 1802)

Rule in case of absence or disability of one of the

managing partners – The absence or disability of one
managing partner cannot be alleged, i.e., the other
managing partners are not authorized to act for the
partnership unless there is imminent danger of grave or
irreparable injury to the partnership (Art. 1802)

4. When the manner of management has not been

agreed upon.

a. All partners are considered agents of the partnership –

all are considered managers. However, none of the
partners may, without the consent of the others, make
any important alteration in the immovable property of
the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the
partnership, the court’s intervention may be sought. (Art.
1803)

b. Whatever any one of them may do alone shall bind the

partnership.

c. Rule in case of opposition of the other partners.

- the decision of the majority shall prevail

- in case of a tie, the decision of the partners owning the

controlling interest shall prevail. (Art. 1801, 1803).

Right of Partners to engage in business

1. Industrial Partner

a. General rule and exception

An Industrial partners cannot engage in business

for himself unless the partnership expressly permits him
to do so. (Art. 1780) This prohibition applies even if the
business is of a kind different from the partnership
business.

b. Reason: The partnership is the owner of

the services of the industrial partner, which is his
contribution to the common fund of the partnership. (Art.
1789)
 c. Effect if the industrial partners engages
in business for himself without the express
permission of the partnership.

The capitalist partners may either:

- Exclude him from the partnership with a right of

damages, or
- Avail themselves of the benefits obtained from the
benefits he engaged in, with a right to damages.

2. Capitalist partner

a. Kind of business a capitalist partner may

engaged-

- The business he will engage in is of a kind

different from the partnership business.

- The business he will engage in is of the same

kinds as the partnership business, but there is a
stipulation allowing him to engage in that business. (Art.
1808)

b. Reason: The capitalist partner will be unfairly

competing with the partnership business by reason of the
information he has obtained from the partnership
business.

c. Effect if a capitalist partner engage in the

same kind of business without stipulation allowing
him to engage in that business.

- the capitalist partner shall bring to the common

fund any profits accruing to him from his transaction, and
 - he shall personally bear all the losses.

Rules on sharing of partnership liabilities to third

persons

1. Nature of liability

a. Pro rata – the liability of the partnership shall be

equally divided among the partners.

The liability shall be equal because it is imposed

on all the partners including an industrial partner whose
proportionate share cannot be determined in the absence
of a profit and loss sharing agreement since he has no
capital contribution.

b. Subsidiary – Each partner shall be liable with his

separate property after all the assets of the partnership
have been exhausted (Art. 1816)

2. Partners liable

a. capitalist partner, or

b. industrial partner

3. Status of stipulation exempting a partner from pro rata

and subsidiary liability after the exhaustion of partnership
assets.

a. void as to third persons

 b. valid among partners (Art. 1817)

The stipulation, however, will not totally exempt

a partner because his contribution will still be subject to
the payment of the partnership liabilities. This is to
reconcile Art. 1817 with Art. 1799 which declares void
any stipulation excluding a partner from losses, except in
the case of an industrial partner.

Accordingly, if there is such stipulation, the liabilities

shall be paid as follows:

a. The assets of the partnership shall first be used to

pay liabilities.

b. If the partnership assets are not sufficient, the

liability shall be paid equally from the separate assets of
the partners including any industrial partner.

c. Thereafter, the partners not exempted from pro

rata and subsidiary liability shall reimburse according to
partner’s profit and loss sharing agreement or in the ratio
of their capital contribution, whichever is applicable, to
the following partners the amount paid by them:

1. Industrial partner whom the law exempts

from losses.

2. General partners exempted from pro rata and

subsidiary liability.

Ex:
Calixto is an industrial partner while Hebron, Austria,
Roxas and Mendez are capitalist partners contributing
P20,000; P30,000 and P40,000 respectively. They
stipulated that Hebron shall not be liable for liabilities of
the partnership after its assets are exhausted.

After several years of operational losses, the

partnership’s assets declined at P120,000 while its
liabilities reached P160,000. How shall the liabilities be
paid?

a. The assets of P120,000 shall first be exhausted. This

application leaves a balance of P40,000.

b. The amount of P40,000 shall be share equally the five

partners at P8,000 each to be paid out of their separate
assets.

c. Based on the ratio of the capital contributions of

partners, Austria, Roxas and Mendez of 3:1:4, the actual
share of each in the balance of P40,000 is P15,000,
P5,000 and P20,000, respectively, while none are due
from Calixto and Hebron as shown in the following table:

Partner Payment to Actual Share Over (under

Creditors in the payment)
liability
Calixto 8,000 None 8,000
Hebron 8,000 None 8,000
Austria 8,000 15,000 7,000
Roxas 8,000 5,200 3,000
Mendez 8,000 20,000 12,000
As shown, Austria and Mende are to give an additional
amount of P7,000 and P12,000 respectively, to return
Calixto’s payment of P8,000, Hebron’s payment of P8,000
and Roxas’ overpayment of P3,000

Requirement to operate under firm name

A partnership shall operate under a firm name, which

may or may not include the name of one or more of the
partners. Those who, not being members of the
partnership, include their name in the firm name, shall be
subject to the liability of a partner (Art. 1815)

Obligation of partners

1. Contribution of capital

To contribute equally to the capital of the partnership

unless there is stipulation to the contrary. (Art. 1790)

2. Obligations with respect to contribution of

property

a. to deliver to the partnership at the time it was

constituted or on the date stipulated the property he has
promised to contribute.

b. to take care of the property before delivery to the

partnership with the diligence of a good father of the
family.

c. to be liable for damages in case of default.

 d. to answer for eviction in case the partnership is
deprived of the specific or determinate thing he has
contributed to the partnership.

e. to be liable for the fruits of the thing from the

time they should have been delivered without the need of
any demand (Art. 1786)

3. Obligations with respect to contribution of

money

a. to deliver to the partnership at the time it was

constituted or on the date stipulated the property he has
promised to contribute.

b. to pay interest on the amount he had promised to

contribute from the time he should have complied with
his obligation.

c. to pay damages suffered by the partnership by

reason of default (Art. 1788)

4. Obligations with respect to the amount

appropriated

a. to reimburse to the partnership the amount that

he has taken from the partnership coffers

b. to pay interest on the amount he had converted

for his own use from the time of conversion
 c. to pay the damages suffered by the partnership by
reason of the conversion (Art. 1788)

5. Obligation to contribute additional capital

a. to contribute additional share to the capital in case

of an imminent loss of the business, except - if he is an
industrial partner or if there is an agreement to the
contrary

b. to sell his interest to the other partners if he

refuses to contribute additional capital.

6. Obligation of a partner who has received his

share of the partnership credit

To bring to the partnership capital his share of a

partnership credit which he has received in whole or in
part even if he have given his receipt only if the following
requisites are present:

a. A partner has received, in whole or in part, his

share of the partnership credit;

b. The other partners have not collected their

shares; and

c. The partnership debtor has become insolvent.

7. Obligation to pay damages to the partnership.

Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he
may have earned for the partnership by his industry.
However, the courts may equitably lessen this
responsibility if through the partner’s extraordinary
efforts in other activities of the partnership, unusual
profits have been realized. (Art. 1794)

8. Obligation to bear risk for property contributed.

To bear the risk of specific and determinate things

owned by him which are not fungible, contributed to the
partnership so that only their use and fruits may be for
the common benefit.

The partnership shall bear the risk for the following

contributions of partners:

a. fungible things or those which cannot be kept

without deteriorating.

b. things contributed to be sold.

c. things brought and appraised in the inventory

unless there is a stipulation. (Art. 1795)

The purpose of such appraisal, as a rule, is to determine

how much shall be credited to the capital account of the
partner bringing the property to the ownership.
9. Obligation to render information

To render on demand true and full information of all

things affecting partnership to:

a. any partner; or

b. legal representative of any deceased partner, or

c. legal representative of any partner under legal

disability (Art. 1806)

10. Obligation to account

To the partnership for any benefit, and hold as trustee for

it any profits derived by him without the consent of the
other partners from any transaction connected with the
formation, conduct, or liquidation of the partnership or
from any use by him of its property.

11. Liability of newly-admitted partner for

obligations of the partnership.

a. obligations existing at the time of his admission.

- He is liable but only to the extend of his

contribution except if there is an agreement that his
liability shall extend to his separate property.

b. Obligations incurred after his admission

 - Liable like the other partners pro rata with their
separate property after the partnership assets have been
exhausted (Art. 1826)

Rights of partners

1. To associate another person with him in his

share.

The share referred to is the partner’s share of the

profits. The associate shall not be admitted into the
partnership without the consent of all the partners even if
the partner having an associate should be a manager.

2. To have access to an inspect and copy the

partnership books at reasonable hour.

The partnership books shall be kept, subject to any

agreement between the partners, at the principal place of
business of the partnership, and every partner shall at
any reasonable hour have access to and may inspect and
copy any of them. (Art. 1805)

3. To have a formal account of partnership affairs

(Art. 1809)

a. if he is wrongfully excluded from the partnership

business or possession of its property by his co-partners.

b. if the right exists under the terms of any

agreement.
 c. with respect to profits derived by a partner
without the consent of the other partners from any
transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of
its property. (Art. 1807)

d. whenever other circumstances render it just and

reasonable.

4. Property rights of a partner.

a. His rights in specific partnership property (Art.

1810).

A partner is a co-owner with his partners of specific

partnership property. Such co-ownership has the
following incidents (Art. 1811):

1. A partner, except as provided by law and as

agreed upon, has an equal right with his partner to
possess specific partnership property for partnership
purposes; however, he has no right to possess such
property for any other purpose without the consent of his
partners.

2. The right is not assignable, except in connection

with the assignment of rights of all the partners in the
same property.

3. The right is not subject to attachment or

execution except on a claim against the partnership.
 When a partnership property is attached for
partnership debt, the partners, or any of them or the
representatives of a deceased partner, cannot claim any
right under the homestead or exemption laws.

4. The right is not subject to legal support.

b. His interest in the partnership (Art. 1810)

1. A partner’s interest in the partnership is his share

of the profits and surplus (Art. 1812)

2. He may convey his whole interest in the

partnership

a. the conveyance does not cause the

dissolution of the partnership.

b. The assignee does not become a partner.

Accordingly, he has no right:

- to interfere in the management of the

business

- to require any information of partnership

transaction

- to inspect books

The assignee’s right is limited only to:

- Receive profits to which the assigning

partner is entitled
 - Avail himself of the usual remedies in case
of fraud of management
- In case the partnership is dissolve, to
require an account from the date only of the last
account agreed to by all the partners.

3. A partner’s interest in the partnership may be

attached for his separate debts, subject to the
preference for partnership creditors.

However, the partner may avail himself of the

exemption laws as against his separate creditors
after the partnership debts have been paid. (Art.
1814)

c. His rights to participate in management. (Art.

1810)

Application of payment when a person owes

separate demandable debts to the partnership and
to the partner authorized to receive payment.

1. If the partner authorized to receive payment issues

the receipt for the partnership, payment shall be applied
to the partnership credit.

2. If a partner authorized to manage collects a

demandable sum, which was owed to him in his own
name, from a person who owed the partnership another
sum also demandable, the sum thus collected shall be
applied to the two credits in proportion to their amounts.

There shall be no proportionate application, i.e.,

payment shall be applied to the partner’s credit in its
entirety in any of the ff:

a. the debt is owed to a partner not authorized to

receive payment.

b. the debt to the partnership is not yet due.

c. the debt owed to the partner authorized to receive

payment is more onerous to the debtor and the latter
exercises his right to apply the payment to such debt.

Ex. D owes C P10,000.00. He also owes P10,000.00 to

ABC and Company of which C is the managing partner
and who is authorized to collect the credits of the
partnership. Both debts are already due. D pays C
P10,000.00 informing C that the amount is in payment of
D’s debt to him. Accordingly, C issues his own receipt.
The payment will be divided proportionately between C’s
credit and the partnership credit at P5,000.00 each.
Partner C should not place his interest before that of the
partnership.

However, payment will be applied to C’s credit alone

in the ff:

a. If the debt of D to C is more onerous to D, such as

it is secured by a pledge of D’s ring and D exercised his
right to apply the payment to his debt to C.
 b. If the debt of D to C is already due and that debt
to the partnership is not yet due.

c. IF C is not the manager or partner authorized to

collect the debts due to the partnership.

Obligations of the partnership to the partners.

1. To pay to the partner any amounts he may have

disbursed for the partnership with interest from the time
the expenses were made.

2. To pay for the obligations which a partner may have

contracted in good faith in the interest of the partnership
business.

3. To answer for risks in consequence of its management

(Art. 1796).