UP LAW BOC PARTNERSHIP CIVIL LAW

CIVIL LAW
PARTNERSHIP

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3. There must be a mutual contribution of

I. Contract of money, property, or industry to a common
Partnership fund;
4. The object must be lawful;
Article 1767. By the contract of partnership
two or more persons bind themselves to 5. The primary purpose must be to obtain
contribute money, property, or industry to a profits and to divide the same among the
common fund, with the intention of dividing parties;
the profits among themselves. 6. The partnership has a juridical
Two or more persons may also form a personality separate from individual
partnership for the exercise of a profession. partners [Article 1768].
(1665a)

B.1. LAWFUL PURPOSE

A. ELEMENTS: Article 1770 (1). A partnership must have a
(1) Two or more persons bind themselves to lawful object or purpose, and must be
contribute money, property, or industry to established for the common benefit or
a common fund, interest of the partners.
(2) With the intention of dividing the profits
among themselves
If there is no lawful purpose, then the
partnership agreement is void ab initio.
Contracts whose purpose is contrary to law
Common Fund
are void from the beginning. [Art1409 (1)].
The Civil Code requires the parties “bind
themselves to contribute” to a common fund.
The partnership may therefore exist even Article 1770 (2). When an unlawful partnership
before the common fund is created. The is dissolved by a judicial decree, the profits
common fund may not even come from the shall be confiscated in favor of the State,
partners themselves but may be borrowed without prejudice to the provisions of the
from third persons. The form of the common Penal Code governing the confiscation of the
fund may not even be cash or property; it can instruments and effects of a crime.
be in the form of credit or industry. [Lim Tong
Lim v Philippine Fishing Gear, G.R. No.
136448 (1999)] Upon the dissolution of an unlawful
partnership, the profits are simply
confiscated by the State. The previous rule is
Intention to Divide Profits to give such profits to a charitable institution.
If the common fund’s work is “indispensable,
beneficial and economically useful to the
business” of the partners and the profit The profit and tools/instruments in the
motive is the primordial reason to establish partnership with an unlawful purpose will be
the partnership, even if there are no actual confiscated in favor of the government but if
profits, then there is partnership. [AFISCO v the partners were not in pari delicto, they may
CA, G.R. No. 112675 (1999)] be able to recover their contribution to the
partnership instead of it being forfeited as
well.
B. ESSENTIAL FEATURES
1. There must be a valid contract; B.2. COMMON BENEFIT
2. The parties must have legal capacity; Article 1770. A partnership must have a lawful
object or purpose, and must be established

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for the common benefit or interest of the

partners.
Although a corporation cannot enter into a
partnership contract, it may, however,
engage in a joint venture with others
A partnership must be established for the [Aurbach vs. Sanitary Wares Manufacturing
common benefit of the partners. This Corp, G.R. No. 75875 (1989)]
“common benefit” is always pecuniary based
on Art 1799.
On the other hand, there is no prohibition
against a partnership being a partner in
Article 1799. A stipulation which excludes one another partnership [De Leon (2010)].
or more partners from any share in the profits
or losses is void.
D. OBJECT
B.3. JURIDICAL PERSONALITY D.1. OBJECT OF UNIVERSAL PARTNERSHIP

Article 1768. The partnership has a juridical A universal partnership may refer to:
personality separate and distinct from that of (1) All present property :
each of the partners, even in case of failure to
comply with the requirements of article 1772, • The partners contribute all the property
first paragraph. which belongs to them to a common fund,
with the intention of dividing the same
among themselves, as well as the profits
C. PARTIES they may acquire therewith [Article 1778].
General Rule: Any person capacitated to • The property contributed includes all
contract may enter into a contract of those belonging to the partners at the
partnership. time of the constitution of the partnership.
The following persons CANNOT enter into a • A stipulation for the common enjoyment
contract of partnership: of any other profits may also be made.
• Those suffering from civil interdiction; However, the property which the partners
may acquire subsequently by inheritance,
• Minors; legacy or donation cannot be included in
such stipulation, except the fruits thereof
• Insane or demented persons; [Article 1779].
• Deaf-mutes who do not know how to (2) All the profits:
write;
(a) It comprises all that the partners may
• Incompetents who are under acquire by their industry or work
guardianship. during the existence of the
partnership.
Exceptions : The capacity of the following (b) Only the usufruct over the property of
persons to enter into a contract of the partners passes to the
partnership, though capacitated to contract partnership [Article 1780].
generally, are limited:
• Those who are prohibited from giving When the articles of universal partnership do
each other any donation or advantage not specify its nature (all present property or
cannot enter into a universal partnership all the profits), the partnership will be
[Article 1782]; considered as one only of all the profits
• A corporation cannot enter into a [Article 1781].
partnership in the absence of express
authorization by statute or charter.
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D.2. OBJECT OF PARTICULAR

PARTNERSHIP
As to the second, failure to comply with these
A particular partnership has for its object requirements, however, does NOT affect the
determinate things, their use or fruits, or a liability of the partnership and the partners to
specific undertaking, or the exercise of a third persons [Articles 1768 and 1772].
profession or vocation [Article 1783].

F. DURATION
D.3. EFFECT OF UNLAWFUL OBJECT
F.1. COMMENCEMENT
If the partnership has an unlawful object or
purpose: Art 1784. A partnership begins from the
moment of the execution of the contract,
(1) The contract is void ab initio [Article unless otherwise stipulated
1409(1)].
(2) Once dissolved by judicial decree:
F.2. TERM
(a) The profits shall be confiscated by
favor of the State; As to period, a partnership may either be:

(b) The instruments or tools and For a fixed term or particular undertaking; or
proceeds of the crime shall also be At will, the formation and dissolution of
forfeited in favor of the State [Article which depend on the mutual desire and
1770]. consent of the parties. Any one of the
(3) The contributions of partners shall not be partners may, at his sole pleasure, dictate the
confiscated unless they are instruments dissolution of the partnership, even in bad
or tools of the crime [De Leon (2010)]. faith, subject to liability for damages [Ortega
v. CA, G,R, No. 109248 (1995)].

F.3. EXTENSION
E. FORM
A partnership term may be extended by:
General rule: The contract may be constituted
in any form [Article 1771]. (1) Express renewal; or

Exceptions: (2) Implied renewal, when these requisites

concur:
(1) Where immovable property or real
rights are contributed: (a) The partnership is for a fixed term or
particular undertaking;
(a) The contract must appear in a
public instrument; and (b) It is continued after the termination of
the fixed term or particular
(b) Attached to such instrument undertaking without any express
must be an inventory, signed by agreement [Article 1785].
the parties, of the property
contributed [Articles 1771 and
1773]; G.RULES TO DETERMINE EXISTENCE
(2) Where the capital is at least P3,000, When the intent of the parties is clear, such
in money or property: intent shall govern. When it does not clearly
(a) The contract must appear in a appear, the following rules apply:
public instrument; and (1) Persons who are not partners to each
(b) It must be recorded in the Office other are not partners as to third persons,
of the Securities and Exchange subject to the provisions on partnership
Commission (SEC). by estoppel.

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(2) Co-ownership or co-possession does not H.2. AS TO ITS OBJECT:

of itself establish a partnership, even
(1) Universal partnership:
when there is sharing of profits in the use
of the property. (a) Of all present property;
(3) Sharing of gross returns does not of itself (b) Of profits;
establish a partnership, even when the
(2) Particular partnership.
parties have joint or common interest in
any property from which the returns are
derived. H.3. AS TO ITS DURATION:
(4) The receipt by a person of a share in the (1) For a fixed term or particular undertaking;
profits of a business is prima facie
evidence that he is a partner. (2) At will.

As to the fourth, no such inference is drawn if H.4. AS TO THE LIABILITY OF THE

the profits are received in payment: PARTNERS:
1. As a debt by installments or (1) General partnership, consisting of general
otherwise; partners only, who are liable pro rata for
partnership obligations with all their property
2. As wages of an employee or rent to a after exhaustion of partnership assets;
landlord;
(2) Limited partnership, includes, aside from
3. As an annuity to a widow or general partner/s, limited partners, who are
representative of a deceased partner; not personally liable for partnership
4. As interest on a loan, though the obligations.
amount of payment vary with the
profits of the business;
H.5. AS TO ITS PUBLICITY:
5. As the consideration for the sale of a
goodwill of a business or other (1) Secret partnership, where the existence of
property by installments or otherwise certain persons as partners is not made
[Article 1769]. known by the partners;
(2) Open or notorious partnership, the
existence of which is made known to the
H. KINDS OF PARTNERSHIPS public by the partners.
H.1. AS TO THE LEGALITY OF ITS
EXISTENCE:
H.6. AS TO ITS PURPOSE:
(1) Partnership de jure is one which has
complied with all the requisites for its lawful (1) Commercial or trading partnership, for
establishment; transaction of business;
(2) Partnership de facto is one which failed to (2) Professional or non-trading partnership,
so comply. for the exercise of profession.

A profession has been defined as “a group of

men pursuing a learned art as a common
calling in the spirit of public service – no less
a public service because it may incidentally
be a means of livelihood” [In the Matter of the
Petition for Authority to Continue Use of Firm
name “Sycip, Salazar, etc.”/“Ozaeta, Romulo,
etc.” (1979)].

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I. KINDS OF PARTNERS (17) Retiring partner, who is withdrawing from

the partnership.
(1) Capitalist partner, whose contribution is
money or property;
(2) Industrial partner, contribution is only his Industrial Capitalist
industry;
partner partner
(3) General partner, whose liability to third
persons extends to his separate property; Form of contribution
(4) Limited partner, whose liability to third Industry Money or property
persons is limited to his capital
contribution; Share in profits
(5) Managing partner, who was designated
to manage the affairs or business of the Just and equitable According to
partnership; share agreement; if none,
in proportion to
(6) Liquidating partner, who takes charge of contribution
the winding up of partnership affairs;
Share in losses
(7) Partner by estoppel, who is not really a
partner but is liable as such for the Exempted as to losses According to
protection of innocent third persons; as between partners, agreement; if none,
(8) Continuing partner, who continues the but liable to third in the same
business after dissolution of the persons, without proportion as the
partnership by admission of a new prejudice to agreed share in
partner, or retirement, death or expulsion reimbursement from profits; if none, in
of existing partners; capitalist partners proportion to
contribution
(9) Surviving partner, who remains a partner
after dissolution by death of any partner; Engagement in business
(10) Subpartner, who is not a member of the
partnership but contracts with a partner Cannot engage in Cannot engage, for
with regard to the share of the latter in business for himself, his own account, in
the partnership; unless the partnership the same kind of
expressly permits him business as that of
(11) Ostensible partner, who takes active part to do so; should he do the partnership,
in the business of the partnership and is so without permission, unless there is a
known by the public; the capitalist partners stipulation to the
(12) Secret partner, who takes active part in may: [1] exclude him contrary; should he
the business, but is unknown to the third from the firm; or [2] do so, he shall
persons as a partner; avail themselves of the bring to the
benefits obtained in common fund any
(13) Silent partner, who does not take active violation of the profits accruing to
part in the business, but may be known to prohibition, with right him from his
be a partner by third persons; to damages in either transactions and
(14) Dormant partner, who does not take case [Article 1789] shall personally
active part in the business and is not bear all the losses
known or held out as a partner; [Article 1808]
(15) Original partner, who has been a partner
since the constitution of the partnership;
(16) Incoming partner, who is about to be
taken as a member into an existing
partnership;

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J. PARTNERSHIP, DISTINGUISHED Partnership Co-ownership

FROM OTHER CONTRACTS
Death or incapacity Death or incapacity of
Partnership Joint venture of a partner a co-owner does not
dissolves the dissolve the co-
Operates with firm Operates without partnership ownership
name and legal firm name and
personality legal personality A partner cannot A co-owner can
dispose of his dispose of his share
Generally relates to a Usually limited to interest, so as to without consent of
continuing business of a single make the assignee others
various transactions of transaction a partner, without
a certain kind consent of others
Corporations may not Corporations may
enter into a partnership enter into joint
ventures Partnership Corporation

Has juridical personality separate and distinct

from its individual members
A joint venture is an agreement between two
parties to enter into a commercial Can only act through agents
undertaking. It may fall under a partnership
with a limited purpose. Composed of an aggregate of individuals

Distributes its profits to those who

Under Philippine law, a joint venture is a form contributed capital to the business
of partnership and should thus be governed
by the laws of partnership [Auerbach vs. Can only be organized where there is a law
Sanitary Wares Manufacturing Corp]. authorizing its organization

Taxable as in a corporation
Partnership Co-ownership
Created by Created by operation of
Generally created Generally created by agreement law
by either express or law and may exist
implied contract even without a Involves at least Except for corporation
contract two persons sole, requires at least 5
incorporators
Has a separate Has no separate
juridical personality juridical personality Personality Personality
commences from commences from the
Generally, the The purpose is the the moment of issuance of certificate
purpose is to obtain common enjoyment of execution of the of incorporation
profits a thing or right contract

Duration has no An agreement to keep Can exercise any Can exercise only
limitation a thing undivided for power authorized powers conferred by
more than ten years is by partners the Corporation Code or
not allowed, but may by its articles of
be extended incorporation, and such
as are necessary or
There is mutual There is no mutual incidental to the
agency between representation among exercise of such powers
partners co-owners
When Management is vested

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Partnership Corporation be stipulated; equal

otherwise, in
management is in the board of proportion to
not agreed upon, directors or trustees contribution
every partner may
act for the Management Administration
partnership shared by all belongs to the
partners, unless spouses jointly, but
Partners are Stockholders are liable otherwise agreed decision of husband
generally liable for only to the extent of upon prevails in case of
partnership debts their shares disagreement
A partner cannot A stockholder has the Partner can dispose Spouse cannot
dispose of his right to transfer his of interest even dispose of interest
interest, so as to shares without consent without consent of during marriage, even
make the assignee of others others with consent
a partner, without
consent of others

Duration has no The term limit is 50 Partnership Voluntary association

limitation years, but may be
Has juridical Has no juridical
extended
personality personality
May be dissolved May only be dissolved
Organized for profit Not always organized
at any time by one with the consent of the
for profit
or all of the state
partners Capital is Capital is not
contributed contributed,
although fees are
collected from
members

Conjugal partnership The partnership is The members are

Partnership primarily liable; the liable individually for
of gains
partners are liable debts which they
Created by Arises in case the only subsidiarily authorized or ratified
voluntary spouses, of opposite
agreement of two or sex, agree before Share in profits may Share in profits is
more partners of marriage be stipulated; equal
either sex otherwise, in
proportion to
Governed by Governed by law contribution
agreement

Has juridical Has no juridical

personality personality

Commencement Commencement is on
date may be the date of the
stipulated celebration of the
marriage and any
stipulation to the
contrary is void

Share in profits may Share in profits is

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Exception: When there is an agreement to the

II. Rights and contrary, the contribution shall follow such
Obligations of the agreement [Art. 1790].

Partnership ADDITIONAL CAPITAL CONTRIBUTION

Requisites:
A. RIGHT TO CONTRIBUTION (1) There is an imminent loss of the business
The partnership has a right to the of the partnership;
contribution (or the partners are obliged to (2) The majority of the capitalist partners are
contribute). The money or property thus of the opinion that an additional
contributed, or their use or fruits, become the contribution to the common fund would
property of the partnership. save the business;
(3) The capitalist partner refuses
CONTRIBUTION OF MONEY OR PROPERTY deliberately (not because of financial
inability) to contribute an additional
With respect to contribution of property, a
partner is obliged to: share to the capital; and 


(1) To contribute, at the beginning of the • There is no agreement that even in case
partnership or at the stipulated time, the of imminent loss of the business, the
money, property or industry which he partners are not obliged to contribute. 

undertook to contribute;
(2) In case a specific and determinate thing is
to be contributed:
Any partner who refuses to contribute an
• To warrant against eviction in the same additional share to the capital, except an
manner as a vendor; and
 industrial partner, to save the venture, shall
(a) To deliver to the partnership the fruits be obliged to sell his interest to the other
of the property promised to be partners, unless there is an agreement to the
contributed, from the time they contrary [Art. 1791].
should have been delivered, without
need of demand [Art. 1786];
CONTRIBUTION OF INDUSTRY
(3) In case a sum of money is to be
contributed, or in case he took any An industrial partner is obliged to contribute
amount from the partnership coffers, to his industry at the stipulated time.
indemnify the partnership for:
(a) Interest; and General rule: An industrial partner cannot
(b) Damages from the time he should engage in business for himself. Should he do
have complied with his obligation, or so, the capitalist partners, as well as
from the time he converted the industrial partners [De Leon (2010)] may
amount to his own use, respectively either:
[Art. 1788]. • Exclude him from the firm; or

(2) Avail themselves of the benefit which he
AMOUNT OF CONTRIBUTION may have obtained.
General rule: Partners are to contribute equal Exception: He may engage in business for
shares to the capital of the partnership. himself when the partnership expressly
permits him to do so [Art. 1789].

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B. RIGHT TO APPLY PAYMENT already collected not to share in the loss of

RECEIVED TO PARTNERSHIP CREDIT the other partners.
General rule: A partner authorized to manage,
who collects a demandable sum owed to him D. RIGHT TO INDEMNITY FOR
in his own name from a person who also owes
DAMAGES
the partnership a demandable sum, is
obliged to apply the sum collected to both Every partner is responsible to the
credits pro rata, even if he issued a receipt for partnership for damages suffered by it
his own credit only. through his fault.
Requisites:
(1) There exist at least two debts, one where SET-OFF OF LIABILITY
the collecting partner is creditor, and the
General rule: The liability for damages cannot
other, where the partnership is the creditor;
be set-off or compensated by profits or
(2) Both debts are demandable ; and 
 benefits which the partner may have earned
for the partnership by his industry.
(3) The partner who collects is authorized to
manage and actually manages the Ratio: The partner has the obligation to
partnership. 
 secure the benefits for the partnership. As
such, the requirement for compensation, that
the partner be both a creditor and a debtor of
Exceptions: the partnership at the same time, is not
complied with [Art. 1278; De Leon (2010)].
(1) In case the receipt was issued for the
account of the partnership credit only, Exception : The court may equitably lessen
however, the sum shall be applied to the the liability if, through his extraordinary
partnership credit alone. efforts in other activities of the partnership,
unusual profits were realized [Art. 1794]. Note,
(2) When the debtor declares, pursuant to however, that there is still no compensation
Article 1252, at the time of making the in this case.
payment, to which debt the sum must be
applied, and if the personal credit of the
partner is more onerous to him, it shall be so SUIT FOR DAMAGES
applied [Art. 1792].
Before a partner may sue another for alleged
fraudulent management and resultant
C. RIGHT TO RETURN OF CREDIT damages, liquidation must first be effected to
determine the extent of the damage. Without
RECEIVED
liquidation of partnership affairs, a partner
A partner, authorized to manage or not, who cannot claim damages [Soncuya v. De Luna
already received, in whole or in part, his share (1939)].
of a partnership credit, is obliged to bring to
the partnership capital what he received
when: RESPONSIBILITY TO PARTNERS
(1) The other partners have not collected their In the absence of any stipulation to the
shares; and contrary, every partner is an agent of the
partnership for the purpose of its business. As
(2) The partnership debtor has become
such, it is responsible to every partner:
insolvent.
(1) For amounts, and the corresponding
This obligation exists even when he issued a
interest from the time the expenses were
receipt for his share only [Art. 1793].
made, which he may have disbursed on
Ratio: In this case, the debt becomes a bad behalf of the partnership;
debt. It would be unfair for the partner who

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(2) For obligations he may have contracted in

good faith in the interest of the partnership III. Rights and
business; and 
 Obligations of Partners
(3) For risks in consequence of the
management of the partnership [Art. 1796]. 

Inter Se
A. RIGHT TO ASSOCIATE ANOTHER IN
SHARE
Every partner may associate another person
with him in his share. The admission of the
associate to the partnership, however,
requires consent of all the other partners
even if the partner having an associate is a
managing partner [Art. 1804].
This arrangement refers to a contract of
subpartnership, which is a partnership within
a partnership, distinct and separate from the
main partnership. It is considered a
modification of the original contract [De Leon
(2010)].

B. RIGHT TO INSPECT PARTNERSHIP

BOOKS
The partnership books shall be kept:
(1) At a place agreed upon by the partners;
(2) When there is no such agreement, at the
principal place of business of the partnership.
Every partner shall, at any reasonable hour,
have access to and may inspect and copy any
of them.
Any reasonable hour means reasonable hours
on business days throughout the year [Pardo
v. Lumber Co. (1925)].

C. RIGHT TO FORMAL ACCOUNT

General rule: The right to a formal account of
partnership affairs accrues only when the
partnership is dissolved.
Exceptions: In the special and unusual cases
mentioned in Article 1809, formal accounting
may be demanded by any partner even before
dissolution:
(1) If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any
agreement; 

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(3) If, without his consent, a partner has (4) Other factors may be considered to
derived profits from any transaction determine ownership of the property. 

connected with the formation, conduct, or
liquidation of the partnership or from any use
of partnership property; 
 RIGHTS IN SPECIFIC PROPERTY
(4) Whenever other circumstances render it (1) The partners have equal rights to possess
just and reasonable [Art. 1809]. 
 partnership property for partnership
purposes.
(2) For other purposes, the consent of his
D. PROPERTY RIGHTS OF PARTNERS partners is necessary. 

IN GENERAL (3) If the partner is excluded, he may ask for:
The property rights of a partner are:
(a) Formal accounting [Art.1809]; or

(1) Rights in specific partnership property;
(b) Dissolution by judicial decree
(2) Interest in the partnership; and [Art.1831]. 

(3) Right to participate in the management (4) A partner’s right in such property is not
[Art. 1810]. assignable, except when all the partners
assign their rights in the same property; 

PROPERTY AND CAPITAL DISTINGUISHED (5) The right is not subject to attachment or
execution, except on claim against the
Partnership capital Partnership property partnership. In case of such attachment, the
partners, or any of them, or the
With constant Value varies with representatives of a deceased partner, cannot
value market conditions claim any right under the homestead or
exemption laws.
Includes only Includes the
actually contributions and (6) The right is not subject to legal support
contributed and property acquired by under Article 291 [Art. 1811].
promised capital the partnership

INTEREST IN PARTNERSHIP
OWNERSHIP OF CERTAIN PROPERTIES A partner’s interest in the partnership is his
(1) The ownership of property used by the share of the profits and surplus [Art. 1812].
partnership depends on the intention of the
parties, which may be drawn from an express
agreement or their conduct. ASSIGNMENT OF INTEREST

• A partner may allow the property to be Assignment by a partner of his whole interest
used by the partnership without transfer in the partnership, of itself:

of ownership, contributing only the use or (1) Does not dissolve the partnership; or

enjoyment thereof.
(2) Does not entitle the assignee to:
• He may also hold title to partnership
property, without acquiring ownership (a) Interfere in the management or
thereof [Art. 1819]. administration of the partnership business or
affairs;
(2) Property acquired by a partner with
partnership funds is presumed to be (b) Require information or account of
partnership property. 
 partnership; or 

(3) The same presumption also arises when (c) Inspect the partnership books. 

the property is indicated in the partnership
books as partnership asset. 

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It merely entitles the assignee to: (2) A number of partners appointed as

(1) Receive the profits to which the assigning managers, which may be appointed:

partner was entitled; (a) In the articles of partnership; or
(2) In case of fraud in management, avail 
 (b) After constitution of the
himself of the usual remedies; partnership.
(3) In case of dissolution:
(a) Receive his assignor’s interest; POWERS OF A MANAGING PARTNER
and
General rule: The partner designated as
(b) Require an accounting from the manager in the articles may execute all acts
date only of the last account agreed of administration despite opposition by the
to by all 
the partners [Art. 1813]. 
 other partners.
Exception: He cannot do so when he acts in
bad faith.
INTEREST BY PERSONAL CREDITORS
General rule: Partnership creditors are
preferred over the personal creditors of the REVOCATION OF POWER BY MANAGING
partners as regards partnership property. PARTNER
Exception: On due application by any The powers of the managing partner may be
judgment creditor of a partner, a competent revoked:
court may: (1) If appointed in the articles of partnership,
(1) Charge the interest of the partner for the when:
satisfaction of the judgment debt; (a) There is just or lawful cause for
(2) Appoint a receiver of the share of the revocation; and
profits and of any other money due or to fall (b) The partners representing the
due to 
the partner; and 
 controlling interest revoke such
(3) Make all other orders, directions, power.
accounts 
 and inquiries, which the debtor (2) If appointed after the constitution of the
partner might have made, or which the partnership, at any time and for any cause
circumstances may require. 
 [Art. 1800].
The interest charged may be redeemed
before foreclosure or, in case of sale directed
MANAGING BY TWO OR MORE PARTNERS

by the court, may be purchased without
causing dissolution: 
 (1) With separate When there are two or more managing
property, by one or more of the partners; or
 partners appointed, without specification of
(2) With partnership property, by one or more their duties or without a stipulation on how
of the partners, will consent of all, except the each one will act:
debtor partner [Art. 1814]. (1) Each one may separately execute all acts
of administration. 

E. RIGHT TO PARTICIPATE IN (2) If any of them opposes the acts of the
MANAGEMENT others, the decision of the majority prevails. 

Management of the partnership is primarily (3) In case of a tie, the partners owning the
governed by the agreement of the partners in controlling interest will decide [Art. 1801]. 

the articles of partnership. It may be
Requisites:
stipulated that the partnership will be
managed by: (1) Two or more partners have been
(1) All the partners; or appointed 
as managers; 


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(2) There is no specification of their 
evidence against the partnership [Art. 1820].
respective 
duties; and 
 

(3) There is no stipulation that one of them 
 (3) Notice to any partner of any matter
shall not act without the consent of all the relating to partnership affairs is notice to the
others. 
 
partnership [Art. 1821]. 

(4) Wrongful act or omission of any partner
acting for partnership affairs makes the
STIPULATION OF UNANIMITY
partnership liable [Art. 1822]. 

Art. 1802. In case there is a stipulation that
(5) Partnership is bound to make good losses
none of the managing partners shall act
without the consent of others, the 
 for wrongful acts or misapplications of
concurrence of all is necessary for the validity partners [Art. 1823]. 

of the acts, and the absence or disability of
one cannot be alleged, unless there is
imminent danger of grave or irreparable F. RIGHT TO PROFITS AND
injury to the partnership. OBLIGATIONS FOR LOSSES
RULES FOR DISTRIBUTION OF PROFITS AND
LOSSES
MANAGEMENT WHEN MANNER NOT
AGREED UPON The distribution of profits and losses shall be
in accordance with the following rules:
When there is no agreement as to the manner
of management, the following rules apply: (1) They shall be distributed in conformity
with the agreement. 

(1) All the partners are considered agents
(mutual agency). Whatever any one does (2) If only the share in profits has been
alone binds the partnership, unless there is a stipulated, the share in the losses shall be in
timely opposition to the act, under Article the same proportion. 

1801.
(3) In the absence of any stipulation:
(2) Any important alteration in the
immovable property of the partnership, even (a) The share in the profits of the
if useful to the partnership, requires capitalist 
partners shall be in
unanimity. If the alteration is necessary for proportion to their 
contributions.
the preservation of the property, however,
(b) The losses shall be borne by the
consent of the others is not required [De Leon
capitalist partners, also in
(2010)].
proportion to 
the contributions.

If the refusal is manifestly prejudicial to the
partnership, court intervention may be (c) The share of the industrial
sought [Art. 1803]. partners in 
the profits is that
share as may be just and
equitable. If he also contributed
MUTUAL AGENCY capital, he will receive a share of
the profits in proportion to his
In addition to the Article 1801, there is contribution; and 

effectively a mutual agency in the following
cases: (d) The industrial partner, who did
not contribute capital, is not
(1) Partners can dispose of partnership
property even when in partnership name [Art. liable for losses [Art. 1797]. 

1819].
(2) An admission or representation made by 
 EXCLUSION OF PARTNER FROM SHARE
any partner concerning partnership affairs is

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General rule: A stipulation excluding one or

more partners from any share in the profits or IV. Obligations of the
losses is void [Art. 1799].
Partnership/Partners
Exception: A stipulation exempting an
industrial partner from losses is valid, since, if to Third Persons
the partnership fails to realize profits, he can
no longer withdraw his work or labor [De Leon
A. OBLIGATION TO OPERATE UNDER A
(2010)]. FIRM NAME
Art. 1815. Every partnership shall operate
under a firm name, which may or may not
G. OBLIGATION TO RENDER include the name of one or more of the
INFORMATION partners.
Partners shall render on demand true and full Those who, not being members of the
information of all things affecting the partnership, include their names in the firm
partnership to: name, shall be subject to the liability of a
(1) Any partner; partner.

(2) The legal representative of any deceased

partner; or General rule: The partners may adopt any
(3) The legal representative of any partner firm name desired.
under legal disability [Art. 1806]. Exceptions:
• They cannot use a name which is
H. OBLIGATION TO ACCOUNT AND ACT “identical 
or deceptively or confusingly
AS TRUSTEE similar to an existing or corporation [or
partnership] or to any other name already
Every partner must (1) account to the protected by law or is patently deceptive,
partnership for any benefit and (2) hold as confusing or contrary to existing laws”
trustee for it any profits derived by him [Sec. 18, Corporation Code].
without the consent of the other partners:
• Use of names of deceased partner in law
(1) From any transaction connected with the firms is “permissible provided that the
formation, conduct, or liquidation of the firm indicates in all its communications
partnership; or that said partner is deceased” [Rule 3.02,
(2) From any use by him of its property [Art. Code of Professional Responsibility]. 

1807].

LIABILITY OF PARTNERS FOR PARTNERSHIP

CONTRACTS
The partnership is primarily liable for
contracts entered into:
(1) In its name and for its account;
(2) Under its signature; and
(3) By a person authorized to act for it.

Upon exhaustion of its assets, all partners are

liable pro rata with all their property.
Any
partner may enter into a separate obligation
to perform a partnership contract [Art. 1816].

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NATURE OF INDIVIDUAL LIABILITY LIABILITY OF PARTNERS FOR PARTNERSHIP

CONTRACTS
SUBSIDIARY
ACTS APPARENTLY FOR THE CARRYING ON
General rule: The partners are liable
OF USUAL BUSINESS
subsidiarily. It only arises upon exhaustion of
partnership assets [Cia. Maritima v. Muñoz General rule: Any act of a partner which is
(1907)]. apparently for the carrying on of the usual
business of the partnership binds the latter,
Exceptions:
including the execution of any instrument in
(1) A third person who transacted with the the partnership name.
partnership can hold the partners solidarily
Exception: The partnership is not bound when
(rather than subsidiarily) liable for the whole
the following concur:
obligation if the case falls under Articles 1822
or 1823 [Muñasque v. CA (1985)]. The (1) The partner has in fact no authority to act;
provisions refer to wrongful acts or omission and
and misapplication of money or property by a
(2) The person with whom he deals has
partner in the ordinary course of business.
knowledge of such fact [Art. 1818, par. 1].
(2) A person admitted as a partner into an
existing partnership is liable for all the
obligations of the partnership arising before ACTS NOT APPARENTLY FOR CARRYING ON
his admission, except that his liability shall be OF THE USUAL BUSINESS
satisfied only out of partnership property,
General rule: Acts of a partner which is not
unless there is a stipulation to the contrary
apparently for carrying on of the usual
[Art. 1826]. In other words, he is not
business does not bind the partnership.
personally liable.
Exception: The partnership is bound if the
other partners authorized him to do the act
PRO RATA [Art. 1818, par. 2].
The partners are liable pro rata.
This liability
is not increased even when a partner: ACTS OF STRICT DOMINION
(1) Has left the country and the payment of his General Rule: One or some of the partners
share of the liability cannot be enforced [Co- have no authority to do the following acts of
Pitco v. Yulo (1907)]; or strict dominion:
(2) His liability is condoned by the creditor (1) Assign the partnership property in trust
[Island Sales v. United Pioneers (1975)]. for 
creditors or on the assignee’s promise to

pay the debts of the partnership; 

LIABILITY OF AN INDUSTRIAL PARTNER (2) Dispose of the goodwill of the business; 

An industrial partner, who is not liable for (3) Do any other act which makes it
losses, is not exempt from this liability. impossible 
to carry on the ordinary business
However, he can recover the amount he has
of the 
partnership; 

paid from the capitalist partners, unless there
is a stipulation to the contrary [Cia. Maritima (4) Confess a judgment; 

v. Muñoz (1907)].
(5) Enter into a compromise concerning a
partnership claim or liability; 

STIPULATION AGAINST INDIVIDUAL (6) Submit a partnership claim or liability to
LIABILITY
arbitration; 

Any stipulation against this liability is:
(7) Renounce a claim of the partnership. 

(1) Void against third persons; but
(2) Valid among the partners[Art.1817].
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Exceptions: They may do so if:


(1) Authorized by all the partners; or
 Where the title is in the name of one or more
or all the partners, or in a third person in trust
(2) The other partners have abandoned the for the partnership a partner authorized to
business [Art. 1818, par. 3]. carry on the usual business may convey
equitable title in the partnership name or in
his own name [Art. 1819, par. 4].
ACTS IN CONTRAVENTION OF A
RESTRICTION Where the title is in the names of all the
partners, a conveyance executed by all of
Any act of a partner in contravention of a them passes all the rights to the property [Art.
restriction on authority does not bind the 1819, par. 5].
partnership to persons having knowledge of
the restriction [Art. 1818, par. 4].
LIABILITY OF PARTNERSHIP
CONVEYANCE OF PARTNERSHIP REAL FOR ADMISSION BY A PARTNER
PROPERTY An admission or representation by any
TITLE IN PARTNERSHIP NAME partner may be used as evidence against the
partnership when:
Any partner may convey the real property in
the name of the partnership.
The partnership (1) It concerns partnership affairs;
can recover it, except when: (2) Such affairs are within the scope of his
(1) The act of the partner binds the authority [Art. 1820].
partnership, 
when he has authority to carry
out the usual business of the partnership, LIABILITY OF PARTNERSHIP FOR
under Article 1818, 1st par.; or 
 WRONGFUL ACTS OF A PARTNER
(2) If not so authorized, the property has The partnership is solidarily liable with the
been conveyed by the grantee, or a person partner who causes loss or injury to any
claiming under him, to a holder for value and person not a partner, or incurs any penalty
without knowledge that the partner exceeded through any wrongful act or omission:
his authority [Art. 1819, par. 1]. 

(1) In the ordinary course of the business of
A partner authorized to carry out the usual the partnership; or
business may convey, in his own name, the
equitable interest of the partnership [Art. 1819, (2) Not in such ordinary course of business,
par. 2]. but with the authority of his co-partners [Art.
1822].

TITLE IN THE NAME OF OTHER PERSONS

LIABILITY OF THE PARTNERSHIP FOR
Where the title is in the name of one or more MISAPPLICATION OF MONEY OR PROPERTY
but not all the partners, and the record does
not disclose the right of the partnership: The partnership is liable for losses suffered by
a third person whose money or property was:
(1) The partners having title may convey title.
(2) The partnership may recover it when the (1) Received by a partner: 

partners conveying title have no authority to (a) Acting within the scope of his
carry on the usual business of the partnership, apparent authority; and
unless the purchaser or his assignee is:
(b) Misapplied it; 

(a) A holder for value; and
(2) Received by the partnership:
(b) Without knowledge that the act
exceeded authority [Art. 1819, par. 4]. (a) In the course of its business; and

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(b) Misapplied by any partner while it (2) No partnership liability results, he is liable
is in the custody of the partnership [Art. 1823]. pro rata with the other persons, if any, so

 consenting to the contract or representation.
LIABILITY OF THE OTHER PARTNERS UNDER (3) When there are no such other persons, he
ART. 1822 AND 1823 is separately liable [Art. 1825, par. 1].
All partners are solidarily liable with the
partnership for its liabilities under Articles EFFECT ON EXISTING PARTNERSHIP OR
1822 and 1823 [Art. 1824]. OTHER PERSONS NOT ACTUAL PARTNERS
This is without prejudice to the guilty partner (1) When a person has been represented to
being liable to the other partners. However, be a partner (a) in an existing partnership, or
as far as third persons are concerned, the (b) with one or more persons not actual
partnership is answerable [De Leon (2010)]. partners, he is an agent of the persons
consenting to such representation to bind
them to the same extent and in the same
LIABILITY IN CASE OF PARTNERSHIP BY manner as though he were a partner in fact,
ESTOPPEL with respect to persons who rely upon the
PARTNER BY ESTOPPEL representation. 

A partner by estoppel is a person who, by (2) When all the members of the existing
words spoken or written or by conduct (1) partnership consent to the representation, a
represents himself as a partner or (2) partnership act or obligation results. 

consents to another representing him to
anyone as a partner: (3) In all other cases, it is the joint act or
obligation of the person acting and the
(1) In an existing partnership; or persons consenting to the representation [Art.
(2) With one or more persons not actual 1825, par. 2]. 

partners [Art. 1825, par. 1].

NATURE OF LIABILITY
LIABILITY OF A PARTNER BY ESTOPPEL Summarizing Article 1825, a partner by
PERSONAL REPRESENTATION estoppel is liable in the following manner:
A partner by estoppel is liable to any such (1) He is liable as though he were a partner
persons: 
 (1) To whom such representation when:
has been made; and
(2) Who has, on the (a) There is an existing partnership; 

faith of such representation, given credit to
the actual or apparent partnership [Art. 1825, (b) All the partners consented to the
par. 1]. 
representation; and 

(c) A partnership liability results. 

PUBLIC REPRESENTATION (2) He is liable jointly and pro rata (as though
he were a partner in fact) with those who
If he has made such representation or
consented to the representation when:
consented to its being made in a public
manner, whether the representation has or (a) There is an existing partnership
has not been (personally) made or but not 
all the partners consented; or
communicated to such persons so giving
credit by or with his knowledge, and: (b) There is no existing partnership
and all those represented as partners
(1) Partnership liability results, he is liable as consented to the representation. 

though he were an actual member of the
partnership. (3) He is liable separately when:

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(a) There is an existing partnership

but none of the partners consented; or 

V. Dissolution and
(b) There is no existing partnership Winding Up
and not all of those represented as partners
consented to the representation.
A. CONCEPTS
LIABILITY OF AN INCOMING PARTNER Dissolution – the change in the relation of the
partners caused by any partner ceasing to be
A person admitted as a partner is liable: associated in the carrying on of the business.
(1) For obligations incurred subsequent to his It is different from the winding-up of the
admission as the other partners are liable; business [Article 1828]. It does not terminate
the partnership, which continues until the
(2) For obligations incurred before his winding up of partnership affairs is
admission, but will be satisfied only out of the completed [Article 1829].
partnership property, unless otherwise
stipulated that he fully assumes such
obligations. Winding up – the actual process of settling
the partnership business or affairs after
dissolution. It involves collection and
Ratio: distribution of partnership assets, payment of
(1) The new partner partakes of the benefits debts, and determination of the value of the
of the partnership property and an already interest of the partners in the partnership.
established business. 

(2) He has every means of obtaining full Termination – the point in time when all
knowledge of the debts of the partnership partnership affairs are completely wound up
and remedies that amply protect his interest and finally settled. It signifies the end of the
[De Leon (2010)]. 
 partnership life [De Leon (2010)].

NOTICE TO OR KNOWLEDGE OF THE B. CAUSES OF DISSOLUTION

PARTNERSHIP B.1. WITHOUT VIOLATION OF THE
The following operate as notice to or AGREEMENT
knowledge of the partnership: 1) By the termination of the definite term or
(1) Notice to any partner of any matter particular undertaking specified in the
relating to partnership affairs; 
 agreement;

(2) Knowledge of the partner acting in the
 2) By the express will of any partner, who
must act in good faith, when no definite
particular matter acquired while a partner; 

term or particular is specified.
(3) Knowledge of the partner acting in the 3) By the express will of all the partners who
particular matter then present to his mind; 
 have not assigned their interests or
or (4) Knowledge of any other partner who
 suffered them to be charged for their
reasonably could and should have separate debts, either before or after the
communicated it to the acting partner. 
 termination of any specified term or
particular undertaking;
4) By the expulsion of any partner from the
These do not apply in case of fraud on the
business bona fide in accordance with
partnership committed by or with the consent
such a power conferred by the agreement
of the partner [Art. 1821].
between the partners [Article 1830(1)].

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If, after the expiration of the definite term or

particular undertaking, the partners continue
B.4. BY DECREE OF COURT
the partnership without making a new
agreement, the firm becomes a partnership 1) A partner may apply for dissolution in
at will [Article 1785]. court when:
2) A partner has been declared insane in
any judicial proceeding or is shown to be
Any one of the partners may, at his sole
of unsound mind;
pleasure, dictate the dissolution of the
partnership at will. He must, however, act in 3) A partner becomes in any other way
good faith, not that the attendance of bad incapable of performing his part of the
faith can prevent the dissolution of the partnership contract;
partnership but that it can result in a liability
4) A partner has been guilty of such conduct
for damages [Ortega v. CA (1995)].
as tends to affect prejudicially the
carrying on of the business;
B.2. IN CONTRAVENTION OF THE 5) A partner willfully or persistently commits
AGREEMENT a breach of the partnership agreement, or
otherwise so conducts himself in matters
Where circumstances do not permit
relating to the partnership business that
dissolution under any other provision of
it is not reasonably practicable to carry on
Article 1830, it may also be dissolved by the
the business in partnership with him;
express will of any partner at any time.
6) The business of the partnership can only
be carried on at a loss;
Thus, even if there is a specified term, one
7) Other circumstances render a dissolution
partner can cause its dissolution by expressly
equitable.
withdrawing even before the expiration of the
period, with or without justifiable cause. If the
cause is not justified or no cause was given,
A person who acquires the interest of a
the withdrawing partner is liable for damages
partner may likewise apply:
but in no case can he be compelled to remain
in the firm [Rojas v. Maglana (1990)]. 1) After the termination of the specified
term or particular undertaking;
2) At any time if the partnership was a
B.3. BY OPERATION OF LAW
partnership at will when the interest
1) By any event which makes it unlawful for was assigned or when the charging
the business of the partnership to be order was issued
carried on or for the members to carry it
on in partnership;
B.5. OTHER CAUSES
2) When a specific thing which a partner
had promised to contribute, perishes (1) When a new partner is admitted into an
before delivery, or by the loss of the thing, existing partnership;
only the use or enjoyment of which has (2) When any partner retires;
been contributed; the loss of a specific
thing, however, does not dissolve the (3) When the other partners assign their
corporation after its ownership has rights to the sole remaining partner;
already been transferred to the (4) When all the partners assign their rights
partnership; in the partnership property to third
3) By the death of any partner; persons [Article 1840].
4) By the insolvency of any partner or of the
partnership; The statutory enumeration of the causes of
5) By the civil interdiction of any partner; dissolution is exclusive [De Leon (2010)].
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or notice of dissolution, the fact had

not been advertised in a newspaper
C. EFFECTS OF DISSOLUTION of general circulation in the place [or
C.1. ON AUTHORITY OF THE PARTNERS in each place if more than one] at
which the partnership business was
In general, upon dissolution, the authority of
regularly carried on [Article 1834, 1st
the partners to represent the partnership is
par.].
confined only to acts necessary to:
(1) Wind up partnership affairs; or
Note the character of the notice required:
(2) Complete transactions begun but not
then finished [Article 1832, 1st. par.]. • As to persons who extended credit to the
partnership prior to dissolution, notice
must be actual.
C.1.A. WITH RESPECT TO PARTNERS
• As to persons who merely knew of the
The authority of partners to act for the existence of the partnership, publication
partnership is terminated, with respect to in a newspaper of general circulation in
partners: the place of business of the partnership is
(1) When the dissolution is not by the act, sufficient.
insolvency or death of a partner; or
(2) When the dissolution is by such act, C.2. ON LIABILITY FOR TRANSACTIONS
insolvency or death, when the partner AFTER DISSOLUTION
acting for the partnership has knowledge
or notice of the cause [Articles 1832 and The liability of a partner, in general, is the
1833]. same as in ordinary contracts (pro rata and
subsidiary).

In other cases, each partner is still liable for

his share in the liability created by the partner In the following cases, however, the liability
acting for the partnership [Article 1833]. shall be satisfied out of the partnership
assets alone (i.e., there is no subsidiary
liability):
C.1.B. WITH RESPECT TO THIRD PERSONS 1) When the partner had been, prior to the
With respect to persons not partners: dissolution, unknown as a partner to the
person with whom the contract is made;
1) After dissolution, a partner can bind the
partnership by any act appropriate for: 2) When the partner had been, prior to the
dissolution, so far unknown or inactive in
(a) Winding up partnership affairs; or partnership affairs that the business
(b) Completing transactions reputation of the partnership could not be
unfinished at dissolution. said to have been in any degree due to his
connection with it [Article 1834].
2) He can also bind it by any transaction
which would bind the partnership as if
dissolution had not taken place, provided the Any act of a partner after dissolution in no
other party to the transaction: case binds the partnership in the following
(a) Had extended credit to the cases:
partnership prior to dissolution and 1) Where the partnership is dissolved because
had no knowledge or notice thereof; it is unlawful to carry on the business, unless
or the act is appropriate for winding up
(b) Had not so extended credit but partnership affairs;
had known of the partnership prior to 2) Where the partner has become insolvent;
dissolution, and having no knowledge
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3) Or, where the partner has no authority to 3. The person or partnership continuing the
wind up partnership affairs, except by a business.
transaction with one who:
a) Had extended credit to the
Such agreement may be inferred from the
partnership prior to dissolution and
course of dealing between the creditor having
had no knowledge or notice of his
knowledge of the dissolution and the person
want of authority; or
or partnership continuing the business.
b) Had not extended credit to the
partnership prior to dissolution, and,
having no knowledge or notice of his In case of dissolution by death, the individual
want of authority, the fact of his want property of a deceased partner is liable for
of authority has not been advertised obligations of the partnership incurred while
[Article 1834]. he was a partner, after payment of his
separate debts [Article 1835].

Article 1834 does not affect the liability under

Article 1825 of any person who, after D. WINDING UP PARTNERS
dissolution, represents himself or consents to
D.1. WHO MAY WIND UP
another representing him as a partner in a
partnership engaged in carrying on business The following partners have the right to wind
[Article 1834]. up the partnership affairs:
1) Those designated in an agreement;
C.3. ON LIABILITY FOR CONTRACTS AFTER 2) Those who have not wrongfully
DISSOLUTION BY SPECIFIC CAUSES dissolved the partnership; or
General rule: A contract entered into by a 3) The legal representative of the last
partner acting for the partnership after surviving partner, who was not
dissolution by act, death or insolvency of a insolvent.
partner binds the other partners.
Exceptions:
Any partner or his legal representative or
• The dissolution being by act of any assignee may obtain winding up by the court,
partner, the partner acting for the upon cause shown [Article 1836].
partnership had knowledge of the
dissolution; or
D.2. MANNER OF WINDING UP
• The dissolution being by death or
insolvency of a partner, the partner acting 1. Extrajudicial, by the partners
for the partnership had knowledge or themselves; or
notice of the death or insolvency [Article 2. Judicial, under the control and
1833]. direction of the proper court.

C.4. ON EXISTING LIABILITY OF

PARTNERS The action for liquidation of the partnership is
personal. The fact that sale of assets,
General rule: Dissolution does not of itself including real property, is involved does not
discharge the existing liability of any partner. change its character, such sale being merely
a necessary incident of the liquidation of the
partnership, which should precede and/or is
Exception: A partner may be relieved when part of its process of dissolution [Claridades v.
there is an agreement to that effect between: Mercader (1966)].
1. Himself;
2. The partnership creditor; and
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E. RIGHTS OF PARTNERS IN CASE OF of his interest in the partnership, less

DISSOLUTION any damages recoverable, and
indemnity against all present or
E.1. DISSOLUTION WITHOUT VIOLATION future partnership liabilities [Article
OF THE AGREEMENT 1837(2)].
Each partner may have:
1) The partnership property applied to II. PARTNER WHO CAUSED THE
discharge the partnership liabilities; DISSOLUTION
and
The partner who caused the dissolution
2) The surplus applied in cash to the net wrongfully has the following rights:
amount owing to the respective
partners. 1) If the business is not continued, all
the rights Article 1837, 1st par., subject
to liability for damages;
This is a right as against his co-partners and 2) If the business is continued, the right,
all partners claiming through them in respect as against his co-partners and all
of their interests in the partnership. It cannot claiming through them, to:
be availed if there is an agreement to the
contrary [Article 1837 (1)]. a) Ascertainment, without
considering the value of the
goodwill of the business, and
E.2. DISSOLUTION IN CONTRAVENTION payment to him in cash the value
OF THE AGREEMENT of his partnership interest, less
any damage, or have the payment
I. PARTNER WHO DID NOT CAUSE THE secured by a bond approved by
DISSOLUTION the court; and
The partners who did not cause the b) Be released from all existing
dissolution wrongfully has the following liabilities of the partnership
rights: [Article 1837(3)].
1) To demand the right under Article
1837, 1st par.;
The goodwill of a business may be defined to
2) To be indemnified for damages for be the advantage which it has from its
breach of the agreement against the establishment or from the patronage of its
partner who caused the dissolution customers, over and above the mere value of
wrongfully [Article 1837(1)]; its property and capital. The goodwill [which
3) To continue the business: includes the firm name] is part of the
partnership assets and may be subject of sale
a. In the same name; [De Leon (2010)].
b. By themselves or jointly with
others;
F. RIGHTS OF PARTNERS IN CASE OF
c. During the agreed term for
the partnership. RESCISSION
A partner, who is induced by fraud or
misrepresentation to become such partner,
For the purpose of continuing the business, may rescind the contract. Without prejudice
the said partners may possess the to any other right, he is entitled:
partnership property provided:
1) To a lien on, or right of retention of,
1. They secure the payment by bond the surplus of the partnership
approved by the court; or property after satisfying the
2. They pay any partner who has caused partnership liabilities to third persons
the dissolution wrongfully the value for any sum of money paid by him for
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the purchase of an interest in the

partnership and for any capital or
G.3. ENFORCEMENT OF CONTRIBUTION
advances contributed by him;
The following persons have the right to
2) To stand, after all liabilities to third
enforce the contributions:
persons have been satisfied, in the
place of the creditors of the 1. An assignee for the benefit of creditors;
partnership for any payments made
2. Any person appointed by the court; or
by him in respect of the partnership
liabilities; and 3. To the extent of the amount which he has
paid in excess of his share of the
3) To be indemnified by the person
partnership liability, any partner or his
guilty of the fraud or making the
legal representative [Article 1839(5) and
representation against all debts and
(6)].
liabilities of the partnership [Article
1838].
The individual property of a deceased partner
shall be liable for the contributions [Article
G. SETTLING OF ACCOUNTS BETWEEN 1839(7)].
PARTNERS
Subject to any agreement to the contrary, the
following rules shall be observed in settling G.4. ORDER OF APPLICATION OF ASSETS
accounts between partners after dissolution. The partnership liabilities shall rank, in order
of payment, as follows:
G.1. COMPOSITION OF PARTNERSHIP 1) Those owing to creditors other than
ASSETS partners;
1) The partnership property; and 2) Those owing to partners other than
for capital and profits;
2) The contributions of the partners
necessary for the payment of all the 3) Those owing to partners in respect of
liabilities [Article 1839(1)]. capital;
4) Those owing to partners in respect of
profits [Article 1839(2)].
In accordance with the subsidiary liability of
the partners, the partnership property shall
be applied first to satisfy any liability of the G.5. DOCTRINE OF MARSHALING OF
partnership [Article 1839(3)]. ASSETS
When partnership property and the individual
G.2. AMOUNT OF CONTRIBUTION FOR properties of the partners are in possession of
LIABILITIES a court for distribution:
The rules for distribution of losses shall 1. Partnership creditors have priority on
determine the contributions of the partners partnership property;
[Article 1839(4)]. As such: 2. Separate creditors have priority on
1) The contribution shall be in individual property, saving the rights
conformity with the agreement. of lien of secured creditors.
2) If only the share in profits has been 3. Anything left from either shall be
stipulated, the contribution shall be applied to satisfy the other [Article
in the same proportion. 1839(8)].
3) In the absence of any stipulation, the
contribution shall be in proportion to G.6. DISTRIBUTION OF PROPERTY OF
the capital contribution [Article 1797]. INSOLVENT PARTNER
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Where a partner has become insolvent or his and business is continued with the
estate is insolvent, the claims against his consent of the retired partner or the
separate property shall rank in the following representative of the deceased
order: partner, without assignment of their
rights to partnership property.
1) Those owing to separate creditors;
3. When the cause of dissolution is the
2) Those owing to partnership creditors;
assignment by all the partners or
3) Those owing to partners by way of their representatives of their rights in
contribution [Article 1839(9)]. partnership property to one or more
third persons who promise to pay the
debts and who continue the business
H. RIGHTS OF CREDITORS OF of the partnership [Article 1840, 1st
DISSOLVED PARTNERSHIP par.].
H.1. AS CREDITORS OF THE NEW
PARTNERSHIP H.2. LIABILITY OF A NEW PARTNER
In the following cases, creditors of the The liability to the creditors of the dissolved
dissolved partnership are also creditors of the partnership of a new partner in the
person or partnership continuing the partnership continuing the business shall be
business: satisfied out of the partnership property
1. When the business is continued alone. However, he may, through agreement,
without liquidation, and the cause of assume individual liability [Article 1840, 2nd
dissolution is: par.].
a. Admission of a new partner
into the existing partnership; H.3. PRIORITY OF CREDITORS OF
b. Retirement or death of any DISSOLVED PARTNERSHIP
partner, and his rights to Creditors of the dissolved partnership have
partnership property are prior right to any claim of the retired partner
assigned to [1] two or more of or the representative of the deceased partner
the partners, or [2] one or against the person or partnership continuing
more of the partners and one the business [Article 1840, 3rd par.].
or more third persons;
This is without prejudice to the right of
c. Retirement of all but one creditors to set aside any assignment on the
partner, and their rights to ground of fraud [Article 1840, 4th par.].
partnership property are
assigned to the remaining
partner, who continues the I. RIGHTS OF A RETIRED PARTNER OR
business, either alone or with
A REPRESENTATIVE OF DECEASED
others;
PARTNER
d. Wrongful dissolution by any
partner, and the remaining Unless otherwise agreed upon, when any
partners continue the partner retires or dies, and the business is
business, either alone or with continued without any settlement of accounts
others; as between him or his estate and the person
or partnership continuing the business, he or
e. Expulsion of a partner, and his legal representative, as against such
the remaining partners person or partnership, subject to the prior
continue the business, either rights of creditors of the dissolved
alone or with others. partnership:
2. When the cause of dissolution is the
retirement or death of any partner,

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1) May have the value of his interest at

the date of dissolution ascertained; VI. Limited Partnership
and A partnership;
2) Shall receive as an ordinary creditor: 1) Formed by two or more persons;
a) An amount equal to the value of 2) Having as members:
his interest in the dissolved
partnership with interest; or a) One or more general partners;
and
b) At his option or at the option of his
legal representative, in lieu of interest, b) One or more limited partners.
the profits attributable to the use of
his right in the property of the
dissolved partnership [Article 1841]. The limited partners as such shall not be
bound by the obligations of the partnership
[Article 1843].
J. RIGHT TO AN ACCOUNT
In the absence of any agreement to the B. CHARACTERISTICS
contrary, the right to an account of his
interest shall accrue to any partner, or his A limited partnership is formed by
legal representative at the date of dissolution, compliance with the statutory requirements
as against: [Article 1844].
1) The winding up partners; The business is controlled or managed by one
or more general partners, who are personally
2) The surviving partners; or liable to creditors [Articles 1848 and 1850].
3) The person or partnership continuing One or more limited partners contribute to
the business [Article 1842]. the capital and share in the profits but do not
manage the business and are not personally
liable for partnership obligations beyond
their capital contributions [Articles 1845, 1848
and 1856].
Obligations or debts are paid out of the
partnership assets and the individual
property of the general partners [Article 1843].
The limited partners may have their
contributions back subject to conditions
prescribed by law [Articles 1844 and 1957].

A limited partnership has the following

advantages:
1) For general partners, to secure
capital from others while retaining
control and supervision for the
business;
2) For limited partners, to have a share
in the profits without risk of personal
liability.

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C. GENERAL AND LIMITED PARTNERS Assignability of interest

DISTINGUISHED
Not assignable Assignable
General partner Limited partner

Extent of liability
D. GENERAL AND LIMITED
Personally, but Liable only to the PARTNERSHIP DISTINGUISHED
subsidiarily, liable extent of his capital
General Limited
for obligations of contributions
the partnership partnership partnership

Right to participate in management Creation

Unless otherwise No right to participate May be Partners must: [1] sign

agreed upon, all in management constituted in any and swear to a
general partners form, subject to certificate in compliance
have an equal right exceptions with Article 1844; and [2]
to manage the file the certificate for
partnership record in the SEC

Nature of contribution Composition

Cash, property or Cash or property only, Only general One or more general,
industry not industry partners and one or more limited
partners
Proper party in proceedings by or against
partnership Firm name

Proper party Not proper party, Must contain the Must include the word
unless [1] he is word “Company” “Limited” [SEC Memo.
also a general partner; [SEC Memo Circ Circ. No. 14-00]
or [2] where the object No. 14-00], except
of the proceedings is for professional
to enforce his right partnerships Must not include name
against or liability to of limited partners,
the partnership unless: [1] it is also the
May or may not surname of a general
Firm name include the name partner, or [2] prior to
of one or more of the time when the
Name may appear Name must not appear the partners limited partner became
in the firm name in the firm name such, the business has
been carried on under a
Prohibition to engage in other business name in which his
surname appeared
Prohibited [subject Not prohibited
to qualifications] Rules governing dissolution
Effect of retirement, death, insanity or Articles1828-1842 Articles 1860-1863
insolvency

Dissolves Does not dissolve

partnership partnership; rights E. FORMATION
transferred to executor E.1. GENERAL REQUIREMENTS
or administrator for
selling his estate Two or more persons desiring to form a
limited partnership shall:
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1) Sign and swear to a certificate stating E.4. FALSE STATEMENT IN THE

the items in Article 1844; and CERTIFICATE
2) File for record the certificate in the If the certificate contains a false statement,
SEC [Article 1844]. one who suffers loss by reliance thereon may
hold liable any party to the certificate who
knew the statement to be false:
A limited partnership is formed if there is
1) At the time he signed the certificate;
substantial compliance in good faith with the
or
requirements. When there is failure to
substantially comply with the requirements: 2) Subsequently, but within a sufficient
time before the statement was relied
In relation to third persons, the partnership is
upon to enable him to cancel or
general, unless they recognized that the firm
amend the certificate, or to file a
is a limited partnership; and
petition for its cancellation or
As between the partners, the partnership amendment [Article 1847].
remains limited, since they are bound by their
agreement [De Leon (2010)].
Requisites:
(1) The partner knew the statement to be
E.2. PURPOSE OF FILING false:
1) To give actual or constructive notice a) At the time he signed the
to potential creditors or persons certificate; or
dealing with the partnership; and
b) Subsequently, but having
2) To acquaint them with its essential sufficient time to cancel or amend
features, including the limited it, or file a petition for its
liability of limited partners [De Leon cancellation or amendment, and
(2010)]. he failed to do so;
(2) The person seeking to enforce liability has
relied upon the false statement in
E.3. FIRM NAME
transacting business with the
General rule: The surname of a limited partnership; and
partner shall not appear in the partnership
(3) The person suffered loss as a result of
name.
reliance upon such false statement.

Exceptions:
E.5. GENERAL AND LIMITED PARTNER AT
1. It is also the surname of a general THE SAME TIME
partner; or
A person may be a general and a limited
2. Prior to the time when the limited partner in the same partnership at the same
partner became such, the business time. This fact must be stated in the
had been carried on under a name in certificate.
which his surname appeared.
A person who is a general, and also at the
same time a limited partner, shall have all
A limited partner whose surname appears in the rights and powers, and be subject to all
a partnership name contrary to this the restrictions of a general partner, except
prohibition is liable as a general partner to that, in respect to his contribution as a
partnership creditors who extend credit limited partner, he shall have the rights
without actual knowledge that he is not a against the other members which he would
general partner. have had if he were not also a general partner
[Article 1853].

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F. MANAGEMENT
Only general partners have the right to A limited partner is liable to the partnership:
manage the partnership. If a limited partner 1) For the difference between his actual
takes part in the control of the business, he contribution and that stated in the
becomes liable as a general partner [Article certificate as having been made; and
1848].
2) For any unpaid contribution which he
A general partner shall have the rights and agreed in the certificate to make in
powers and be subject to all restrictions and the future at the time and on the
liabilities of a partner in a partnership without conditions stated in the certificate
limited partners. Thus, he has general [Article 1858, 1st par.].
authority over the business.
However, written consent or ratification by all
limited partners is necessary to authorize the He holds as trustee for the partnership:
general partners to: 1) Specific property stated in the
1. Do any act in contravention of the certificate as contributed by him, but
certificate; which was not contributed or which
has been wrongfully returned; and
2. Do any act which would make it
impossible to carry on the ordinary 2) Money or other property wrongfully
business of the partnership; paid or conveyed to him on account of
his contribution [Article 1858, 2nd
3. Confess a judgment against the par.].
partnership;
4. Possess partnership property, or
assign their rights in specific property, These liabilities can be waived or
for other than a partnership purpose; compromised only by the consent of all
members. Such waiver or compromise,
5. Admit a person as a general partner; however, shall not affect the right to enforce
6. Admit a person as a limited partner, said liabilities of a creditor:
unless the right to do so is given in 1) Who extended credit; or
the certificate;
2) Whose claim arose, after the filing or
7. Continue the business with before a cancellation or amendment
partnership property on the death, of the certificate, to enforce such
retirement, insanity, civil interdiction liabilities [Article 1858, 3rd par.].
or insolvency of a general partner,
unless the right so to do is given in
the certificate Even after a limited partner has rightfully
received the return in whole or in part of his
capital contribution, he is still liable to the
G. OBLIGATIONS OF A LIMITED partnership for any sum, not in excess of such
PARTNER return with interest, necessary to discharge
G.1. OBLIGATIONS RELATED TO its liabilities to all creditors:
CONTRIBUTION 1) Who extended credit; or
The contributions of a limited partner may be 2) Whose claims arose before such
cash or other property, but not services return [Article 1858, 4th par.].
[Article 1845].
A limited partner is liable for partnership
obligations when he contributes services A person who has contributed capital to a
instead of only money or property to the partnership, erroneously believing that he
partnership [De Leon (2010)]. has become a limited partner, but his name
appears in the certificate as a general partner
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or he is not designated as a limited partner, is Note: In a general partnership, the interest

not personally liable as a general partner by may be redeemed with partnership property
reason of his exercise of the rights of a limited with the consent of all the partners whose
partner, provided: interests are not charged [Article 1814].
1) On ascertaining the mistake, he
promptly renounces his interest in the
profits of the business or other H. RIGHTS OF A LIMITED PARTNER
compensation by way of income H.1. IN GENERAL
[Article 1852];
A limited partner shall have the same rights
2) He does not participate in the as a general partner to:
management of the business [Article
1) Require that the partnership books
1848]; and
be kept at the principal place of
3) His surname does not appear in the business of the partnership;
partnership name [Article 1846].
2) To inspect and copy any of them at a
reasonable hour;
G.2. LIABILITY TO PARTNERSHIP 3) To demand true and full information
CREDITORS of all things affecting the partnership;
General rule: A limited partner is not liable as 4) To demand a formal account of
a general partner. His liability is limited to the partnership affairs whenever
extent of his contributions [Article 1843]. circumstances render it just and
reasonable;

Exceptions: The limited partner is liable as a 5) To ask for dissolution and winding up
general partner when: by decree of court;

1) His surname appears in the 6) To receive a share of the profits or

partnership name, with certain other compensation by way of
exceptions [Article 1846, 2nd par.]. income; and

2) He takes part in the control of the 7) To receive the return of his

business [Article 1848]. contribution provided the partnership
assets are in excess of all its liabilities
[Article 1851].
G.3. LIABILITY TO SEPARATE CREDITORS
On due application to a court of competent H.2. RIGHT TO TRANSACT BUSINESS WITH
jurisdiction by any separate creditor of a THE PARTNERSHIP
limited partner, the court may:
A limited partner may:
1. Charge his interest with payment of
the unsatisfied amount of such claim; 1) Loan money to the partnership;

2. Appoint a receiver; and 2) Transact other business with the

partnership; and
3. Make all other orders, directions and
inquiries which the circumstances of 3) Receive a pro rata share of the
the case may require. partnership assets with general
creditors if he is not also a general
partner [Article 1854, 1st par.].
The interest so charged may be redeemed
with the separate property of any general
partner, but may not be redeemed with Limitations: A limited partner, with respect to
partnership property [Article 1862]. his transactions with the partnership, cannot:
1) Receive or hold as collateral security
any partnership property; or
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2) Receive any payment, conveyance, or when not all the other partners consent],
release from liability if it will prejudice when (1) and (2) above are complied with:
the right of third persons [Article 1854,
1) On the dissolution of the partnership;
1st par.].
2) Upon the arrival of the date specified
in the certificate for the return; or
Violation of the prohibition is considered a
3) After the expiration of a 6-month
fraud on the creditors of the partnership
notice in writing given by him to the
[Article 1854, 2nd par.].
other partners, if no time is fixed in
the certificate for:
H.3. RIGHT TO SHARE IN PROFITS a. The return of the
contribution; or
A limited partner may receive from the
partnership the share of the profits or the b. The dissolution of the
compensation by way of income stipulated partnership [Article 1857, 2nd
for in the certificate. par.].

This right is subject to the condition that General rule: A limited partner, irrespective of
partnership assets will still be in excess of the nature of his contribution has only the
partnership liabilities after such payment right to demand and receive cash in return for
[Article 1856]. The partnership liabilities being his contribution.
referred to exclude the liabilities to the
Exceptions: He may receive his contribution in
limited and general partners.
a form other than cash when:
1) There is a statement in the certificate
Ratio: Otherwise, he will receive a share to to the contrary; or
the prejudice of third-party creditors.
2) All the members of the partnership
consent [Article 1857, 3rd par.].
H.4. RIGHT TO RETURN OF
CONTRIBUTION
H.5. PREFERENCE OF LIMITED PARTNERS
A limited partner may have his contributions
General rule: The limited partners stand on
withdrawn or reduced when:
equal footing.
(1) All the liabilities of the partnership,
Exception: By an agreement of all the
except liabilities to general partners
partners [general and limited] in the
and to limited partners on account of
certificate, priority or preference may be given
their contributions, have been paid or
to some limited partners over others with
there remains property of the
respect to:
partnership sufficient to pay them;
1) The return of contributions;
(2) The consent of all members is had,
unless the return may be demanded 2) Their compensation by way of
as a matter of right; and income; or
(3) The certificate is cancelled or so 3) Any other matter [Article 1855].
amended as to set forth the
withdrawal or reduction [Article 1857,
1st par.]. H.6. RIGHT TO ASSIGN INTEREST
The interest of a limited partner is assignable.
The assignee may become:
The return of his contributions may be
demanded, as a matter of right [i.e., even A substituted limited partner; or
A mere assignee.
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A substituted limited partner is a person I. DISSOLUTION

admitted to all the rights of a limited partner
who has died or has assigned his interest in a A limited partnership is dissolved in much the
partnership. He has all the rights and powers, same way and causes as an ordinary
and is subject to all the restrictions and partnership [De Leon (2010)].
liabilities of his assignor, except those
liabilities which:
General rule: The retirement, death,
1) The assignee was ignorant of; and insolvency, insanity or civil interdiction of a
2) Cannot be ascertained from the general partner dissolves the partnership.
certificate [Article 1859, 2nd and 6th Exception: It is not so dissolved when the
pars.i.] business is continued by the remaining
general partners:

An assignee is only entitled to receive the 1) Under a right to do so stated in the

share of the profits or other compensation by certificate; or
way of income, or the return of contribution, 2) With the consent of all members
to which the assignor would otherwise be [Article 1860].
entitled. He has no right:
1) To require any information or account
Upon the death of a limited partner, his
of the partnership transactions;
executor or administrator shall have:
2) To inspect the partnership books
1) All the rights of a limited partner for
[Article 1859, 3rd par.].
the purpose of settling his estate; and
2) The power to constitute an assignee
An assignee has the right to become a as a substituted limited partner, if the
substituted limited partner if: deceased was so empowered in the
1) All the partners consent thereto; or certificate.

2) The assignor, being empowered to do

so by the certificate, gives him that The estate of a deceased limited partner shall
right [Article 1859, 4th par.]. be liable for all his liabilities as a limited
partner [Article 1861].

An assignee becomes a substituted limited

partner when the certificate is appropriately J. SETTLEMENT OF ACCOUNTS
amended [Article 1859, 5th par.].
J.1. ORDER OF PAYMENT
In settling accounts after dissolution, the
H.7. RIGHT TO ASK FOR DISSOLUTION liabilities of the partnership shall be entitled
A limited partner may have the partnership to payment in the following order:
dissolved and its affairs wound up when: 1) Those to creditors, including limited
1) He rightfully but unsuccessfully partners except those on account of
demands the return of his their contributions, in the order of
contribution; or priority as provided by law;

2) He has a right to contribution but his 2) Those to limited partners in respect

contribution is not paid because the to their share of the profits and other
partnership property is insufficient to compensation by way of income in
pay its liabilities [Article 1857, 4th their contributions;
par.]. 3) Those to limited partners in respect
to the capital of their contributions;
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4) Those to general partners other than sentenced to civil interdiction and the
for capital and profits; business is continued;
5) Those to general partners in respect 6) There is a change in the character of
to profits; the business of the partnership;
6) Those to general partners in respect 7) There is a false or erroneous
to capital [Article 1863, 1st par.]. statement in the certificate;
Note: In settling accounts of a general 8) There is a change in the time as
partnership, those owing to partners in stated in the certificate for the
respect to capital enjoy preference over those dissolution of the partnership or for
in respect to profits. the return of a contribution;
9) A time is fixed for the dissolution of
the partnership, or the return of a
J.2. SHARE IN THE PARTNERSHIP ASSETS
contribution, no time having been
The share of limited partners in respect to specified in the certificate; or
their claims for capital, profits, or for
10) The members desire to make a
compensation by way of income, is in
change in any other statement in the
proportion of their contribution, unless:
certificate in order that it shall
1) There is a statement in the certificate accurately represent the agreement
as to their share in the profits; or among them [Article 1864].
2) There is a subsequent agreement
fixing their share [Article 1863].
K.3. REQUIREMENTS FOR AMENDMENT
OR CANCELLATION
K. AMENDMENT OR CANCELLATION To amend or cancel a certificate:
OF CERTIFICATE 1. The amendment or cancellation must
K.1. CANCELLATION OF CERTIFICATE be in writing;
The certificate shall be cancelled when: 2. It must be signed and sworn to by all
the members including the new
1) The partnership is dissolved; or members, and the assigning limited
2) All limited partners cease to be such partner in case of substitution or
limited partners. addition of a limited or general
partner; and
3. The writing to amend (with the
K.2. AMENDMENT OF CERTIFICATE certificate, as amended) or to cancel
A certificate shall be amended when: must be filed for record in the SEC.
1) There is a change in the name of the When a person required to sign the writing, a
partnership or in the amount or person desiring the cancellation or
character of the contribution of any amendment may petition the court to order
limited partner; cancellation or amendment. The court shall
order the SEC to record the cancellation or
2) A person is substituted as a limited amendment if it finds that the petitioner has
partner; a right to have the writing executed.
3) An additional limited partner is From the moment the amended
admitted; certificate/writing or a certified copy of a
4) A person is admitted as a general court order granting the petition for
partner; amendment has been filed, such amended
certificate shall thereafter be the certificate of
5) A general partner retires, dies,
partnership [Article 1865].
becomes insolvent or insane, or is

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