●​ As the consideration for the sale of goodwill of a

Partnership business or other property by instalments or

otherwise.
→ A contract whereby two or more persons bind
themselves to contribute money, property, or industry to Form of a partnership contract
a common fund, with the intention of dividing the profits
among themselves. Two or more persons may also form A partnership contract may be constituted in any form
a partnership for the exercise of a profession. except as follows:

What are the relations created by a contract of 1.​ Where the immovable property or real rights
partnership? are contributed to the partnership:
○​ The partnership contract must be in a
1.​ Relations among the partners themselves; public instrument;
2.​ Relations of the partners with the partnership; ○​ An inventory of the said property must
3.​ Relations of the partnership with third persons be made, signed by the parties, and
with whom it contracts; and attached to the public instrument.
4.​ Relations of the partners with such third 2.​ Effect if above requirements are not
persons. complied with:
○​ The partnership contract is void.
Characteristics of a contract of partnership: ○​ The partnership will not have any
juridical personality.
1.​ Consensual 3.​ Where the capital of the partnership is
2.​ Principal P3,000.00 or more, in money or property:
3.​ Bilateral or multilateral ○​ The partnership contract must be in a
4.​ Nominate public instrument;
5.​ Preparatory ○​ Registered with the Securities and
6.​ Onerous Exchange Commission.
7.​ Commutative 4.​ Effect if the above requirements are not
complied with:
Essential requisite of partnership: ○​ The partnership contract is still valid.
Accordingly, the partnership still
1.​ There must be a valid contract. acquires juridical personality.
2.​ There must be a mutual contribution of money, ○​ The liability of the partnership and the
property, or industry to a common fund. members thereof to third persons are
3.​ It must have a lawful object or purpose. not affected.
4.​ The partnership must be established for the
common benefit or interest of the partners. Who may become partners?

What is the legal effect of the receipt by a person of 1.​ Any natural person who is capacitated may
a share of the profits of a business? become a partner.
2.​ A partnership may enter into another partnership
Such receipt is prima facie evidence that he is a partner with individuals or other partnerships as there is
in the business. No such inference, however, shall be no prohibition thereto.
drawn if such profits were received in payment:
What are the obligations of the partners among
●​ As a debt by instalments or otherwise; themselves and to the partnership with respect to
●​ As wages of an employee or rent to a landlord; contribution of money or property?
●​ As an annuity to a widow or a representative of
a deceased partner; 1.​ To contribute at the beginning of the partnership
●​ As interest on a loan, though the amount of or at the stipulated time the money or property
payment may vary with the profits of the which he promised to contribute;
business; 2.​ To answer for eviction;

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 3.​ To answer to the partnership for the fruits of the 2. As to contribution:
property the contribution of which he delayed;
4.​ To preserve the said property; ●​ Capitalist partner
5.​ To indemnify the partnership for any damage ●​ Industrial partner
caused to it by the retention of the same or by
the delay in its contribution. 3. Other Classifications:

Kinds of partnership ●​ Managing partner

●​ Liquidating partner
1. As to object: ●​ Nominal partner
●​ Ostensible partner
●​ Universal partnership – either a universal ●​ Secret partner
partnership of all present property or a universal ●​ Silent partner
partnership of profits. ●​ Dormant partner
2.​ Universal partnership of all ●​ Real partner
present property ●​ Subpartner
3.​ Universal partnership of profits
●​ Particular partnership → has for its object Rules on division of profit and loss:
determinate things, their use or fruits, or a
specific undertaking, or the exercise of a 1. If all are capitalist partners:
profession.
●​ Agreement.
2. As to liability: ●​ If only the sharing of the partners in the profits
has been agreed upon, the share of each
●​ General Partnership partner is the losses shall be in the same
●​ Limited partnership proportion as the share of each in the profits.
●​ In the absence of both, in proportion to his
3. As to duration: capital contribution.

●​ Partnership for a fixed term 2. If aside from the capitalist partners, there is also
●​ Partnership for a particular undertaking an industrial partner (or there are industrial
●​ Partnership at will partners):

4. As to representation to others: ●​ Profits:

○​ Agreement.
●​ Ordinary partnership ○​ In the absence of any agreement, the
●​ Partnership by estoppel industrial partner shall first receive a just
and equitable share of the profits, and
5. As to legality of its existence: thereafter, each capitalist partner shall
share in the profits in proportion to his
●​ De jure partnership capital contribution.
●​ De facto partnership ●​ Losses:
○​ The industrial partner shall not share in
6. As to publicity: the losses.
○​ The capitalist partners shall share in the
●​ Secret partnership
losses as follows:
●​ Open or notorious partnership
■​ Agreement.
■​ In the absence of any
Kinds of partners
agreement, each capitalist
partner shall share in the losses
1. As to liability:
in the same proportion as the
share of each in the profits.
●​ General partner
●​ Limited partner
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 ■​ In the absence of both, based ○​ b) In case of a tie, the decision of the
on capital contribution. managing partners owning the
controlling interest shall prevail.
Designation in the share in the profits and losses by
a third person or by a partner: 4. When the manner of management has not been
agreed upon: → All the partners shall be considered
1.​ If entrusted by the partners to a third person: managers.
→ The same shall be binding upon the partners.
2.​ If entrusted to one of the partners: → The Rule in case of opposition of the other partners:
designation is void.
1.​ The decision of the majority shall prevail.
Rules on management: 2.​ In case of a tie, the decision of the partners
owning the controlling interest shall prevail.
1. When a partner has been appointed manager in
the articles of partnership: What are the obligations of an industrial partner?

●​ Revocation of appointment of managing → Not to engage in any other business for himself
partner: unless the partnership expressly permits him to do so;
2.​ With just or lawful causes – his otherwise:
appointment can be revoked by
the vote of the partners owning ●​ (1) The capitalist partners may exclude him from
the controlling interest. the firm; or
3.​ Without just cause or lawful ●​ (2) They may avail themselves of the benefits
cause – his appointment can be which the industrial partner may have obtained
revoked only with the consent of from other businesses, with a right to damages
all the partners, including the in either case.
managing partner.
May a capitalist partner engage in business for
2. When a partner has been appointed manager after himself?
the partnership has been constituted:
(1) As a rule, he cannot engage, for his own account, in
●​ He may be removed with or without just or lawful any operation which is of the same kind of business in
cause by the vote of the partners owning the which the partnership is engaged; otherwise:
controlling interest.
●​ (a) He shall be liable to the partnership for any
3. When two or more partners have been appointed profits he obtained from his transactions.
as managers: ●​ (b) He shall personally bear all his losses.

●​ When there is a specification of their Requirement to operate under a firm name

respective duties: Each managing partner shall
perform only the duties specified in his A partnership shall operate under a firm name, which
appointment. may or may not include the name of one or more of the
●​ When there is no specification of their partners.
respective duties or there is no stipulation
that one shall not act without the consent of Obligations of partners:
the others: Each one may separately execute
all acts of administration. 1.​ Contribution of capital.
●​ Rule in the case of opposition of the other 2.​ Contribution of property.
managers: 3.​ Contribution of money.
○​ a) The decision of the majority of the 4.​ Reimburse amount appropriated.
managing partners shall prevail. 5.​ Contribute additional capital.
6.​ Obligation of a partner who has received his
share of the partnership credit.
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 7.​ Obligation to pay damages to the partnership. ●​ For loss or injury caused to a third person or any
8.​ Obligation to bear risk for property contributed. penalty incurred by reason of the wrongful act or
9.​ Obligation to render information. omission of any partner acting in the ordinary
10.​ Obligation to account. course of the business of the partnership or with
11.​ Liability of a newly-admitted partner for the authority of his copartners.
obligations of the partnership. ●​ Where one partner acting within the scope of his
apparent authority receives money or property of
Rights of partners: a third person and misapplies it.
●​ Where the partnership, in the course of the
●​ To associate another person with him in his business, receives money or property of a third
share of the profits. person, and such money or property is
●​ To have access to and inspect and copy the misapplied by any partner while it is in the
partnership books at reasonable hours. custody of the partnership.
●​ To have a formal account of partnership affairs.
Liability of partnership to third persons for acts of
What are the property rights of every partner? partners

1.​ His rights in specific partnership property. 1.​ When the partnership is bound:
2.​ His interest in the partnership → A partner’s ○​ If the partner is authorized to act for the
interest in the partnership is his share of the partnership, the partnership is bound
profits and surplus. whether or not the act is for apparently
3.​ His right to participate in management. carrying on in the usual way the
business of the partnership.
State the rules in case a managing partner collects a ○​ If the partnership is not authorized to act
demandable debt from a person who also owes the for the partnership, the partnership is
partnership a demandable debt: bound if:
■​ i) The act is apparently carrying
1.​ The sum collected shall be applied to the two on in the usual way of business
credits in proportion to their amounts. of the partnership; and
2.​ It shall be fully applied to the partnership credit if ■​ ii) The third person has no
the receipt given is for the account of the same. knowledge of the partner’s lack
3.​ The debtor, however, has the right to have the of authority.
payment applied to his debt to the partner if it 2.​ When the partnership is not bound:
should be more onerous to him. ○​ When, although the act is for apparently
carrying on in the usual way the
Obligations of the partnership to the partners: business of the partnership, the partner
is not authorized to act for the
●​ To pay to the partner any amounts he may have partnership and the third person has
disbursed for the partnership with interest from knowledge of the partner’s lack of
the time the expenses were made. authority.
●​ To pay for the obligations which a partner may ○​ When the partner is not authorized to
have contracted in good faith in the interest of act for the partnership and the act is not
the partnership business. for apparently carrying on in the usual
●​ To answer for risks in consequence of its way the business of the partnership.
management.
Preference of partnership creditors in partnership
Obligations of partnership for wrongful act of assets over private creditor or a partner
partner/s
In the payment of the liabilities of the partnership and
The partnership shall be solidarily liable with all the those of the private debts of a partner, preference shall
partners in the following cases: be as follows:

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 1.​ Partnership creditors shall be paid first out of times at which or events on the
partnership assets. happenings of which they shall be
2.​ Thereafter, a partner’s separate creditor shall be made.
paid out of the share owing him if there is an ○​ h. The time agreed upon, when the
excess. contributions of each limited partner are
3.​ If the share of the debtor partner in the to be returned.
remaining assets is not enough to settle his ○​ i. The share of the profits or the
private debts, his private creditor can go after compensation by way of income which
the partner’s separate assets over which he has each limited partner shall receive by
preference. reason of his contribution.
○​ j. The right, if given, of a limited partner
to substitute an assignee or contributor
to his place and the terms and
DISSOLUTION AND WINDING UP conditions of the substitution.
○​ k. The right, if given, of the partners to
●​ Dissolution is the change in the relation of the admit additional limited partners.
partners caused by any partner ceasing to be ○​ l. The right, if given, of one or more of
associated in the carrying on of the business. the limited partners to priority over the
●​ Winding up is the process of settling the other limited partners, as to
business or affairs of the partnership after contributions or as to compensation by
dissolution. way of income and the nature of such
●​ Termination refers to the point when all the priority.
business or affairs of the partnership are ○​ m. The right, if given, of the remaining
completely wound up. general partner or partners to continue
the business on the death, retirement,
LIMITED PARTNERSHIP civil interdiction, insanity, or insolvency
of a general partner.
A partnership which has one or more general partners
○​ n. The right, if given, of a limited partner
and one or more limited partners.
to demand and receive property other
than cash in return for his contribution.
Requirements for Formation
2.​ They must file for record the certificate with
the Securities and Exchange Commission.
Two or more persons desiring to form a limited
partnership must comply with the following requirements:

1.​ They must subscribe and swear to a

Obligations of a Limited Partner
certificate, which shall state:
○​ a. The name of the partnership, adding
1.​ Not to allow the inclusion of his surname in
thereto the word “limited.”
the partnership.​
○​ b. The character of the business.
Exceptions:
○​ c. The location of the principal place of
○​ a. It is also the surname of a general
business.
partner.
○​ d. The name and place of residence of
○​ b. The business had been carried on
each member, general and limited
under a name in which his surname
partners being respectively designated.
appeared prior to his admission as a
○​ e. The term for which the partnership is
limited partner.
to exist.
2.​ To be liable as a general partner if he takes
○​ f. The amount of cash and a description
part in the control of the business.
of and the agreed value of the other
3.​ To be liable to the partnership for the
property contributed by each limited
following:
partner.
○​ a. For the difference between his actual
○​ g. Additional contributions, if any, to be
contribution and that stated in the
made by each limited partner and the
certificate.
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 ○​ b. For any unpaid contribution which he ●​ g. To receive the return of his contribution
agreed in the certificate to make in the provided partnership assets exceed the
future at the time and on the conditions liabilities.
stated in the certificate. ●​ h. To loan money to the partnership.
4.​ To hold as trustee for the partnership in the ●​ i. To transact business with the partnership.
following: ●​ j. To receive, unless he is also a general partner,
○​ a. Specific property stated in the on account of resulting claims against the
certificate as contributed by him, but partnership, with general creditors, a pro-rata
which was not contributed. share of the asset.
○​ b. Specific property which has been ●​ k. To agree with other limited partners that one
wrongfully returned to him. or more of them shall have priority over other
○​ c. Money or property wrongfully paid or limited partners as to:
conveyed to him on account of his 3.​ Return of their contribution
contribution. 4.​ Compensation by way of
5.​ To be liable to the partnership after he has income
rightfully received the return of his capital 5.​ Any other matter
contribution, for any sum not in excess of
such return with interest, which is necessary
to discharge its liabilities to all creditors who
extended credit or whose claims arose Assignment of Limited Partner’s Interest
before such return.
6.​ Not to receive or hold as collateral any 1.​ Rule: A limited partner’s interest is assignable.
partnership property on account of his 2.​ Effect of Assignment:
claims for loan granted to or other business ○​ a. The assignee does not become a
transaction with the partnership. substituted limited partner.
7.​ Not to receive from a general partner or the 1.​ The assignee is only entitled to
partnership on account of such claims any receive the following to which
payment, conveyance, or release from the assignor partner would
liability. If at the time the assets of the otherwise be entitled:
partnership are not sufficient to discharge ■​ a. Share of the profits
partnership liabilities to persons not claiming as ■​ b. Other compensation
general or limited partners. by way of income
■​ c. Return of the
contribution
2.​ He has no right to:
Rights of a Limited Partner 2.​ Require the
information or
●​ a. To have the partnership books kept at the account of
principal place of business of the partnership. partnership
●​ b. To inspect and copy the partnership books or transactions.
any of them at a reasonable hour. 3.​ Inspect
●​ c. To have on demand true and full information partnership
of all things affecting the partnership. books.
●​ d. To have on demand a formal account of
partnership affairs whenever circumstances
render it just and equitable.
●​ e. To have dissolution and winding up by decree Substituted Limited Partner​
of court. A substituted limited partner is a person admitted to all
●​ f. To receive a share in the profits or other the rights of a limited partner who has died or has
compensation by way of income stipulated in the assigned his interest in the partnership.
certificates.
Requisites in order that the assignee may become a
substituted limited partner:
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 ●​ a) All the members of the partnership must Order of Payment of Liabilities
consent to the assignee becoming a substituted
limited partner, unless the assignor is The liabilities of the partnership shall be entitled to
empowered by the certificate to give the payment in the following order:
assignee such right.
●​ b) The certificate must be amended to reflect the 1.​ Those to creditors, including limited partners, in
substitution. the order of priority as provided by law.
●​ c) The certificate must be registered with the 2.​ Those to limited partners by way of their share
SEC. of the profits and other compensation by way of
income on their contributions.
Rights and Liabilities of the Substituted Limited 3.​ Those to limited partners in respect to the capital
Partner: of their contributions.
4.​ Those to general partners other than for capital
●​ He has all the rights and powers, and is subject and profits.
to all restrictions and liabilities of the assignor, 5.​ Those to general partners in respect to profits.
except those liabilities of which he is ignorant at 6.​ Those to general partners in respect to capital.
the time he became a limited partner and which
could not be ascertained from the certificate.

Liabilities of the Assignor: Requirements for the Amendment or Cancellation of

a Certificate
●​ The substitution of the assignee as a limited
partner does not release the assignor from the 1.​ The amendment or cancellation must be in
following liability: writing.
1.​ To persons who rely on a false 2.​ It must be signed and sworn to by all the
statement in the certificate. members, including the new members, and the
2.​ To creditors who extended credit or assigning limited partner in case of substitution
whose claims arose before the or addition of a limited or general partner.
assignment. 3.​ The certificate, as amended, must be filed for
record in the Securities and Exchange
Commission.

Retirement, Death, Civil Interdiction, Insanity, or

Insolvency of a Partner

●​ Effect:
1.​ a) Partner is a general partner –
partnership is dissolved.
2.​ b) Partner is a limited partner –
partnership is not dissolved except if
there is no more limited partner because
in such a case, the requirement that
there must be at least one limited
partner in a limited partnership is no
longer complied with.
●​ Continuation of Business: The business may
be continued by the remaining general partners
if:
1.​ The right to do so is stated in the
certificate; or
2.​ All members consent.

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