(5) Commutative – because the

CHAPTER 1: GENERAL PROVISIONS undertaking of each of the partner is

PARTNERSHIP considered as the equivalent of that of
the others, depends on how the parties
➢ Definition: By the contract of partnership, agreed.
two or more persons bind themselves to (6) Principal – because it does not depend
contribute money, property, or industry to for its existence or validity upon some
a common fund, with the intention of other contract, and
dividing the profits among themselves (7) Preparatory – because it is entered into
as a means to an end, i.e., to engage in
➢ Explanation: business for the realization of profits with
- It is a type of business structure. the view of dividing them among the
- An association of two or more person contracting parties.
to carry on as co-owners as business
for profit. ELEMENTS OF DELECTUS PERSONAE
- It is a legal relation based upon the
(1) Right to choose co-partners
expressed or implied agreement of
- No one ca become a partner without
two or more competent persons
the consent of all the other
whereby they unite their property,
associates.
labor, or skill in carrying on some
(2) Power to dissolve partnership
lawful business as principals for their
- Mutual agency arises and the
joint profits.
doctrine of delectus personae allows
- It is an entity, distinct, and apart from
them to have the power, although not
the members composing it. It is duly
necessarily the rights, to dissolve the
performed under the law, it is a
partnership but he must act in good
juridical person to which the law
faith.
grants a juridical personality separate
and distinct from that of each of the
ESSENTIAL FEATURES OF
partners. It may acquire and possess
PARTNERSHIP
property of all kinds, as well as incur
obligations and bring civil or criminal (1) There must be valid contract
actions in conformity with the laws - There must be at least two (2)
and regulations of its organization. competent parties to embody the
terms of association in a written
CHARACTERISTIC ELEMENTS OF document known as Articles of
PARTNERSHIP Partnership. Since it is contractual, all
the requisites of valid contract must
(1) Consensual – because it is perfected by
be present, Consent, Object, Cause.
mere consent, that is, upon the express
- Partnership is a form of voluntary
or implied agreement of two or more
association entered into by the
persons.
associates. It is a personal relation in
(2) Nominate – because it has a special
which the element of delectus
name or designation in our law. It has a
personae exists. No one can become
name itself
a member of the partnership
(3) Bilateral – because it is entered into by
association without the consent of all
two or more persons and the rights and
the other associates.
obligations arising therefrom are always
reciprocal. Parties has likewise duties
(2) The parties must have legal capacity
and obligations
to enter into the contract
(4) Onerous – because each of the parties
- Before there can be a valid contract of
aspires to procure for himself a benefit
partnership, it is essential that the
through the giving of something
contracting parties have the

1
 necessary legal capacity to enter into RULES TO DETERMINE EXISTENCE OF
the contract. Hence, PARTNERSHIP (ART.1769)

a) unemancipated minors, (1) Except as provided by Article 1825,

b) insane or demented persons, persons who are not partners as to
c) deaf-mutes who do not know each other are not partners as to third
how to write persons.
d) persons suffering civil - If they are not partners as between
interdiction themselves, they cannot be partners
e) incompetents who are under as to third persons.
guardianship. - Exception: PARNERSHIP BY
ESTOPPEL, where persons by their
- cannot give their consent to a contract acts, consent, or representations
of partnership have misled third persons or parties
into believing that the former are
(3) There must be a mutual contribution partners in a non-existing partnership,
of money, property, or industry to a such persons become subject to
common fund. liabilities of partners to all who, in
- The partners must contribute money, good faith, deal with them in their
property, and/or industry or services apparent relations.
to the common business. It may be in
the form of money, referring to (2) Co-ownership or co-possession does
currency which is legal tender in the not of itself establish a partnership,
Philippines. Property, all kinds of whether such co-owners or co-
property, either real or personal, possessors do or do not share any
tangible or intangible. And in the profits made by the use of the
absence of money or property, the property.
law permits the contribution of - Co-ownership does not itself
industry which means service or establish the partnership, although it
work. is an essential element., the profit
must be derived from the joint
(4) The object must be lawful ownership of the property and not
- It must not be contrary to law, morals, merely property ownership.
good customs, public order, or public
policy. The purpose of the partnership (3) The sharing of gross returns does not
must be lawful, otherwise no of itself establish a partnership,
partnership can arise. whether or not the persons sharing
them have a joint or common right or
(5) The purpose or primary purpose must interest in any property from which
be to obtain profits and to divide the the returns are derived.
same among the parties. - In partnership, it is not merely the
- There must be an intention to realize sharing of profits but also sharing of
and divide profits which is the very them as a co-owner of the business
reason for existence of partnership. that makes one a partner.
This element distinguishes the
contract of partnership from voluntary (4) The receipt by a person of a share of
religious or social organizations. the profits of a business is prima facie
evidence that he is a partner in the
business, but no such inference shall
be drawn if such profits were received
in payment: (a) as a debt by
installment (b) as wages of an

2
 employee or rent to a landlord (c) as CONJUGAL PARTNERSHIP OF GAINS
an annuity to a widow or
representative of a deceased partner ➢ Definition: A partnership formed by the
(d) as interest on a loan € as the marriage of husband and wife by virtue of
consideration for the sale of a which, they place a common fund the
goodwill of a business or other fruits and income form their separate
property by installment. properties and those acquired through
- The presumption that partnership their efforts or by chance, unless
arises from profit-sharing agreement. otherwise agreed in the marriage
An agreement to share both profit and settlement.
losses establish the existence of
Partnership Conjugal
partnership and lack of such
gains
agreement disprove its existence.
However, sharing of profits by a Parties Voluntary Future
person is not a prima facie evidence agreement of spouses- A
that he is a partner in the business in two or more man and
the cases where profits were received partners woman
in payment: Law which stipulation By law
governs
Partnership Co-ownership Juridical Separate none
creation Created by Created by law personality personality
contract and exist without commence Begins from the On the date of
contract ment moment of the celebration of
Juridical Separate No juridical execution of the the marriage
personality juridical personality contract
personality Purpose Obtain profit Regulate the
purpose Realization of Common property
profits enjoyment of a relations of
thing or right husband and
duration No limit Keep the thing wife during
undivided for marriage
more than 10 Distributio Based on equally
years is not n of profits stipulation
allowed. Managem Manage equally The husband’s
Disposal Partner may May freely do so ent by all partners decisions
of interest not dispose of prevail
his individual Disposition Whole interest of Share of
interest unless of share a partner may be spouse cannot
agreed by other disposed be disposed of
partners without the during the
Power to A partner may Cannot consent of the marriage even
act with bind the represent the others with the
third partnership co-ownership consent of the
persons other
Effect of dissolution Does not
death dissolve the co-
ownership

3
TWO (2) ESSENTIAL ELEMENTS OF A illegal activity. If a partner's property was
CONTRACT OF PARTNERSHIP instrumental in committing the crime, it
may be forfeited.
(1) Legality of the object
- The partnership must be formed for a TWO (2) REQUIREMENTS WHERE THE
lawful purpose. If the business or CAPITAL OF THE PARTNERSHIP IS
activity it engages in is illegal (e.g., 3,000 OR MORE
smuggling, drug trade), the
partnership is void and has no legal (1) The contract must appear in a public
standing. instrument
(2) Community of benefit or interest of - The partnership agreement must be
the partners in writing and notarized to be legally
- The partners must agree to share in valid and enforceable. This ensures
the profits and losses of the transparency and provides legal proof
business. This mutual interest of the partnership’s existence.
ensures that all partners contribute (2) It must be recorded or registered with
toward and benefit from the success the Securities and Exchange
of the partnership, aligning their Commissions.
efforts toward a common goal. - The partnership must be formally
registered with the SEC to acquire
EFFECTS OF AN UNLAWFUL juridical personality, allowing it to
PARTNERSHIP transact business, enter into
contracts, and be recognized as a
(1) The contract is void ab initio, and the legal entity separate from its partners.
partnership never existed in the eyes
of the law. REQUIREMENTS WHERE IMMOVABLE
- The contract is considered null and PROPERTY IS CONTRIBUTED
void, meaning the partnership never
legally existed. It has no legal (1) The contract must be in a public
recognition or protection under the instrument
law. - The partnership agreement must be
(2) The profit shall be confiscated in favor in writing and notarized to ensure
of the government validity, provide public notice, and
- Any profits gained from the illegal protect the interests of all parties
activities of the partnership will be involved.
seized by the government, as they (2) An inventory of the property
are considered proceeds of an contributed must be made, signed by
unlawful enterprise. the parties, and attached to the public
(3) The instruments or tools and instrument.
proceeds of the crime shall also be - A detailed inventory of the
forfeited in favor of the government immovable property contributed
- Any tools, equipment, or assets used must be prepared, signed by all
to commit the illegal act, along with partners, and attached to the
any direct earnings from the crime, public instrument. This serves as
will also be confiscated by the proof of the property's inclusion in the
government. partnership and helps prevent
(4) The contributions of the partners shall disputes over ownership and
not be confiscated unless they fall valuation.
under No. 3
- The personal contributions of the
partners will not be confiscated unless
they were directly used in or linked to the

4
IMPORTANCE OF GIVING PUBLICITY (6) As to publicity
TO ARTICLES OF PARTNERHSIP a. Secret partnership – not known
b. Open or notorious partnership
- To give protection not only of the – existence is known to the public
members themselves but also third (7) As to purpose
persons. a. Commercial or trading partners
– one formed for the transaction of
CLASSIFICATIONS OF PARTNERSHIP business
(1) As to the extent of its subject matter b. Professional or non-trading
a. Universal Partnership – all partnership – to exercise of a
present property or to all profits profession.
b. Particular partnership – only
certain property is being KINDS OF PARTNERS
contributed (a) Capitalist partner – one who contributes
(2) As to liability of the partners money or property to the common fund
a. General partnership – partners (b) Industrial partner – one who contributes
are liable pro rata and subsidiarily only his industry or personal service
b. Limited partnership – a partner (c) General partner – whose liability to third
is not personally liable for the persons extends to his separate
obligations of the partnership, at property; he may either be a capitalist or
least one general partner is liable industrial partner
up to the extent of his personal (d) Limited partner – liability to third
property. persons is limited to his capital
(3) As to its duration contribution
a. Partnership at will – no time is (e) Managing partner – one who manages
specified and is not formed for a the affairs or business of the partnership,
particular undertaking or venture. real or general partner
b. Partnership with a fixed term – (f) Liquidating partner – one who takes
which the term for which the charge of the winding up of partnership
partnership is to exist is fixed or affairs upon dissolution
agreed upon or one formed for a (g) Partner by estoppel – who is not really
particular undertaking. a partner, not being a party to a
(4) As to legality of its existence partnership agreement, but is liable as a
a. De jure partnership – complied partner for the protection of innocent third
with all the legal requirements persons. He is one who represented as
b. De factor partnership – failed to being, in fact, a partner, but who is not so
comply as between the partners themselves.
(5) As to representation to others (h) Continuing partner – one who
a. Ordinary or real partnership – continues the business of a partnership
one which actually exists among after it has been dissolved by reason of
the partners and as to third the admission of a new partner, or the
persons retirement, death or expulsion of one or
b. Ostensible or partnership by more partner.
estoppel – one which in reality is (i) Surviving partner – one who remains
not a partnership, but is after a partnership has been dissolved by
considered a partnership only in the death of any partner.
relation to those who,, by their (j) Sub partner – one who, not being a
conduct, or admission, are member of the partnership, contracts
precluded to deny or disprove its with a partner with reference to the
existence. latter’s share in the partnership.

5
(k) Ostensible partner – one who takes according to the terms of their
active part and known to the public as a agreement. This type of partnership is
partner in the business, whether or not he typically formed when there is a high level
has an actual interest in the firm. Subject of trust among the partners, such as
to doctrine of estoppel between family members or long-term
(l) Secret partner – one who takes active business associates, since it involves
part in the business but is not known to complete sharing of all current assets.
be a partner by outside parties nor held
out as a partner by the other partners.
(m) Silent Partner – one who does
not take any active part in the business CHAPTER 2: OBLIGATIONS OF THE
although he may be known to be a PARTNERS
partner.
(n) Dormant partner – one who does not RELATIONS CREATED BY A CONTRACT OF
take active part in the business and is not PARTNERSHIP
known or held out as a partner. He is a (4 DISTINCT JURIDICAL RELATIONS)
silent and secret partner.
(o) Original partner – one who is a member (1) Relations among the partners
of the partnership from the time of its themselves
organization. - This governs the internal dynamics
(p) Incoming partner – a person lately, or between partners, including their
about to be, taken into a partnership as a rights, duties, profit-and-loss sharing,
member management roles, and decision-
(q) Retiring partner – one withdrawn from making authority as defined by the
the partnership. partnership agreement or law.
(2) Relations of the partners with the
UNIVERSAL PARTNERSHIP OF ALL partnership
PRESENT PROPERTY - Each partner has obligations to
contribute capital, property, or
➢ Definition: One in which the partners
industry and must act in good faith for
contribute all the properties which belong
the benefit of the partnership.
to each of them at the time of the
Partners are also liable for losses
constitution of the partnership to a
according to their agreed or
common fund, with the intention of
proportional share.
dividing the same among themselves as
(3) Relations of the partnership with third
well as the profits which they may acquire
persons with whom it contracts
therewith.
- The partnership, as a separate legal
entity in some jurisdictions, can enter
➢ Explanation: It is a legal arrangement in
into contracts, own property, sue, and
which all partners agree to contribute all
be sued. It is responsible for
the property they own at the time of
obligations incurred through its
forming the partnership into a common
business dealings.
fund. This includes assets such as
(4) Relations of the partners with such
money, real estate, equipment, or any
third persons.
other valuable possessions. The primary
- Partners, especially in general
goal of this partnership is to share not
partnerships, may be personally liable
only the contributed property but also any
for partnership obligations. They may
profits or benefits that arise from those
also act as agents of the partnership,
assets. Once the partnership is
meaning their actions can legally bind
established, the combined assets are
the partnership in transactions with
managed collectively, and any income
third parties.
generated is divided among the partners

6
 PARTNERSHIP WITH A FIXED TERM must account for any benefits (such
as income or fruits) that the
➢ Definition: One in which the term of its partnership would have received from
existence has been agreed upon the time it was due until actual
expressly (as when there is a definite delivery.
period) or impliedly (as when a particular (4) To preserve said property with the
enterprise or transaction is undertaken. diligence of a good father of a family
pending delivery of the partnership
➢ Explanation: is a partnership established - Until the property is delivered, the
for a specific duration or purpose, either partner must take care of it as a
expressly agreed upon (e.g., a five-year “good father of a family” (a legal
term) or impliedly determined by a standard requiring reasonable care
particular project or transaction. Once the and diligence).
agreed period ends or the purpose is (5) To indemnify the partnership for any
fulfilled, the partnership dissolves damage caused to it by the retention
automatically unless the partners choose of the same or by the delay in its
to extend or renew it. This type of contribution.
partnership provides clarity on the - If the delay or wrongful retention of
commitment period and helps partners the contribution causes harm to the
plan for dissolution or continuation partnership, the responsible partner
accordingly. must compensate the partnership for
the damage suffered.
OBLIGATIONS OF A PARTNER WITH
RESPECT TO PROPERTY HE PROMISED TO EVICTION
CONTRIBUTE
❖ Definition: Under the law on sales,
(1) To contribute at the beginning of the eviction shall take place whenever by a
partnership or at the stipulated time final judgement based on a right prior to
the money, property, or industry, the sale or an act imputable to the
which he may have promised to vendor, the vendee is deprived of the
contribute whole or part of the thing purchased. This
- A partner must contribute the agreed- obligation of warranty in case of eviction
upon money, property, or industry is an consequence of the character of the
(skills/labor) at the beginning of the contract of partnership which is an
partnership or at the stipulated time. onerous contract.
Failure to do so can lead to liability.
(2) To answer for eviction in case the APPRAISAL OF GOODS OR PROPERTY
partnership is deprived of the CONTRIBUTED
determinate property contributed
- If the partnership is deprived of a » The appraisal of the value of the goods
specific property contributed due to a contributed is necessary to determine
legal claim by a third party, the how much has been contributed by the
contributing partner must partners
compensate the partnership for the
loss. How shall it have made?
(3) To answer to the partnership for the
fruits of the property the contribution (a) In the absence of stipulation, the
of which he delayed, from the date share of each partner in the profits
they should have been contributed up and losses is in proportion to what he
to the time of actual delivery may have contributed.
- If a partner delays contributing
- Unless otherwise agreed, each
property that was promised, they
partner’s share in profits and losses is
7
 based on the value of their - If a partner fails to contribute on time
contribution. or misuses partnership funds, they
(b) The appraisal is made firstly, in the must pay the agreed or legal interest
manner prescribed by the contract of on the amount until it is reimbursed.
partnership; secondly, in the absence This compensates the partnership for
of stipulation, by experts chosen by the financial impact of the delay.
the partners and according to current (d) To indemnify the partnership for the
prices. damages caused to it by the delay in the
- The valuation is done first according contribution or the conversion of any
to the terms set in the partnership sum for his personal benefit.
contract. If no method is stipulated, - If the delay in contribution or misuse
experts selected by the partners will of funds causes losses or harm to the
assess the value based on current partnership, the responsible partner
market prices. must compensate the partnership for
(c) After the goods have been the damages suffered.
contributed, the partnership bears the
risk or gets the benefit of subsequent INDUSTRIAL PARTNER
changes in their value. ❖ Definition: One who contributes his
- Once the contribution is made, any industry, labor, or services to the
increase or decrease in value benefits partnership. He is considered the owner
or affects the partnership, not the of his services, which are his contribution
individual partner who contributed the to the common fund.
➢ Explanation: An industrial partner is a
asset.
partner who contributes their labor,
skills, knowledge, or expertise instead
OBLIGATIONS WITH RESPECT TO THE
of money or property to a partnership.
CONTRIBUTION OF MONEY AND MONEY Unlike a capitalist partner, who invests
CONVERTED TO PERSONAL USE financial capital or assets, an industrial
(a) To contribute on the date due the amount partner provides services as their
primary contribution to the business.
he has undertaken to contribute to the
partnership REMEDIES WHERE INDUSTRIAL PARTNER
- A partner must contribute the agreed ENGAGES IN BUSINESS
amount on the due date. Delays in
contribution may affect business (1) Exclude him from the firm
- The partnership may choose to expel
operations and financial stability. the industrial partner for violating
(b) To reimburse any amount he may have their obligation of loyalty. This
taken from the partnership coffers and effectively removes them from the
converted to his own use. partnership and terminates their
- If a partner takes money from the rights to share in profits.
partnership for personal use, they are (2) The capitalist partner avails
themselves of the benefits which
obligated to return the full amount.
industrial partner may have obtained.
(c) To pay the agreed or legal interest, if he - Instead of expelling the industrial
fails to pay his contribution on time or in partner, the capitalist partners can
case he takes any amount from the claim the earnings or benefits that
common fund and converts it to his own the industrial partner gained from the
use competing business. This prevents

8
 the industrial partner from unfairly - One where the collecting partner is a
profiting at the partnership’s expense. creditor (the partnership owes them
money).
REQUISITES BEFORE A CAPITALIST - Another where the partnership is the
PARTNER MAY BE OBLIGED TO SELL HIS creditor (the partner owes money to
INTEREST TO THE OTHERS the partnership).
(2) Both debts are demandable
(1) There is an imminent loss of the - The debts must be legally due and
business of the partnership enforceable, meaning they are not
- The partnership is at serious financial subject to conditions or future
risk, and without additional capital, obligations.
the business is likely to fail. (3) The partner who collects is authorized
(2) The majority of the capitalist partners to manage and actually manages the
are of the opinion that an additional partnership.
contribution to the common fund - The partner seeking to apply
would save the business compensation must:
- The majority of capitalist partners - Have explicit authority to manage the
believe that injecting more capital into partnership’s affairs, OR
the business will help save it from - Actually, manage the partnership,
collapse. even without formal designation.
(3) The capitalist partner refuses
(deliberately not because of his ✓ If these conditions are met, the
financial inability to do so) to partner can offset their personal
contribute an additional share to the debt with the amount the
capital and partnership owes them, instead of
- The capitalist partner refuses to making separate payments.
provide additional funds deliberately, However, if any of these requisites
not because they are financially are missing, the offset may not be
incapable but because they choose legally permitted.
not to.
(4) There is no agreement that even in REQUISITES OF THE APPLICATION OF
case of an imminent loss of the RULES WHERE A PARTNER RECEIVED, IN
business the partners are not obliged WHOLE OR IN PART, HIS SHARE OF A
to contribute. PARTNERSHIP CREDIT, WHEN THE
- If there is a prior agreement stating
OTHER PARTNERS HAVE NOT COLLECTED
that partners are not required to
THEIRS
contribute additional capital, then
the partner cannot be forced to sell (1) A partner has received, in whole or in
their interest, even if the business is part, his share of the partnership
in danger. credit
- One partner has received full or
REQUISITES OF WHERE MANAGING partial payment from a debtor who
PARTNER COLLECTS DEBT SHALL owes the partnership money.
APPLIED TO TWO CREDITS IN (2) The other partners have not collected
PROPORTION TO THER AMOUNTS their shares
- The remaining partners have not yet
(1) There exist at least two (2) debts, one received their portion of the
where the collecting partner is partnership’s receivable.
creditor, and the other, where the (3) The partnership debtor has become
partnership is the creditor insolvent.

9
 - The debtor, who owes money to the the risk remains with the partner since
partnership, is no longer able to pay the ownership does not transfer.
the remaining amount due. - However, if the goods deteriorate
naturally, the loss is borne by the
EFFECT OF THESE CONDITIONS: partnership.
(4) Things contributed to be sold
• The partner who already collected their - If property is contributed for the
share must return what they received purpose of being sold, the partnership
to the partnership to ensure fairness. bears the risk of loss after receiving
• This prevents unjust enrichment, the goods.
where one partner benefits while others - If the goods are lost or damaged
are left unpaid due to the debtor's before sale, the partnership takes the
insolvency. loss unless a different agreement
exists.
(5) Things brought and appraised in the
FIVE (5) CASES CONTEMPLATED FOR THE
inventory
DETERMINATION OF THE RISK OF THE - If assets are valued and listed in the
THINGS CONTRIBUTED TO THE partnership’s inventory, ownership is
PARTNERSHIP presumed to have been transferred.
The risk of loss, damage, or deterioration of - The partnership bears the risk of any
property contributed to a partnership depends loss unless otherwise agreed.
on the type of property and the conditions of its
contribution. The following five cases apply: RULES FOR DISTRIBUTION OF PROFITS
AND LOSSES
(1) Specific and determinate things which
(1) The partners share the profits
are not fungible where only the use is
according to their agreement subject
contributed
to article 1799
- If a partner contributes a specific item
- If the partners have a specific
(e.g., a car or machine) only for use,
agreement on profit-sharing, that
the partner retains ownership, and the
agreement governs how profits are
risk of loss remains with them.
divided.
- If the item is lost or damaged without
- However, this is subject to Article
the partnership’s fault, the
1799, which states that a stipulation
contributing partner bears the loss.
excluding one partner from any share
(2) Specific and determinate things the
in the profits is void.
ownership of which is transferred to
(2) If there is no such agreement
the partnership
a. The share of each capitalist
- If a partner transfers ownership of a
partner shall be in proportion to
specific item (e.g., a building or land),
his capital contribution. This
the partnership bears the risk of loss
rule is based on the presumed
once the contribution is completed.
will of the partners
- If the property is lost without fault, the
▪ Each capitalist partner
loss belongs to the partnership, not
(who contributes money
the original owner.
or property) gets a
(3) Fungible things or things which
share based on their
cannot be kept without deteriorating
contribution to the
even if they are contributed only for
the use of the partnership. partnership.
▪ This rule is based on
- If a partner contributes fungible
the presumed intention
(replaceable) or perishable goods
of the partners, as it is
(e.g., grains, oil, or food) only for use,
fair that those who

10
 invest more should decision rather than the original
receive a larger share of contract.
the profits.
b. The industrial partner shall REQUISITES FOR APPLICATION OF RULE
receive such share, which must WHERE THERE ARE TWO OR MORE
be satisfied first before the PARTNES AND ONE OF THEM OPPOSE
capitalist partners shall divide THE ACTS OF THE OTHER, THE DECISION
the profits, as may be just and OF THE MAJORITY SHALL PREVAIL. AND
equitable under the IN CASE OF TIE, THE MATTER SHALL BE
circumstances. DECIDED BY THE PARTNERS OWNING
▪ The industrial partner THE CONTROLLING INTEREST
(who contributes labor
or services instead of (1) Two (2) or more partners have been
money) is entitled to a appointed as managers
fair and equitable share - The partnership must have multiple
of the profits. managing partners who are
▪ This must be satisfied authorized to make decisions on
first before the capitalist behalf of the business.
partners divide their (2) There is no specification of their
share. respective duties
▪ The exact amount - The partnership agreement does not
depends on the nature assign specific roles or
of the business and the responsibilities to each managing
value of the industrial partner.
partner’s contribution. - If duties are clearly assigned, then
each manager must act within their
TWO (2) DISTINCT CASES OF designated function, and this rule will
APPOINTMENTS not apply.
(3) There is no stipulation that one of
(1) Appointment as manager in the them shall not act without the consent
articles of partnership of all the others.
- If a partner is appointed as a manager - If the partnership agreement explicitly
in the partnership agreement (articles states that one manager cannot act
of partnership), their appointment without the approval of the others,
cannot be revoked without just or then this rule does not apply.
lawful cause unless all partners - In that case, the partners must follow
unanimously agree to remove them. the agreed-upon decision-making
- Since this appointment is part of the process.
original contract, it has greater
stability, and the manager has RULES WHEN MANNER OF MANAGEMENT
stronger rights. HAS NOT BEEN AGREED UPON
(2) Appointment as manager after
constitution of the partnership (1) All partners considered managers
- If the appointment is made after the - Every partner has equal rights to
partnership has already been participate in the management and
established (i.e., not mentioned in the decision-making of the partnership.
original articles of partnership), the - Any partner can act on behalf of the
manager can be removed at any time business as long as their actions are
by a majority decision of the partners. in the ordinary course of business.
- This type of appointment is less (2) Unanimous consent required for any
secure since it is based on a later important alteration in immovable
property of partnership

11
 - If a decision involves a major change - Article 1807 states that every partner
in partnership-owned real estate must act in good faith and must
(e.g., selling land, constructing a account for any profits or benefits
building, or making significant received from the partnership’s
renovations), all partners must agree. transactions or from the use of its
- This ensures that no single partner property.
can unilaterally dispose of or alter - If a partner earns personal gains from
valuable assets. partnership resources without
informing the others, the affected
SUBPARTNERSHIP partners can demand an accounting.
(4) Whenever other circumstances render
❖ Definition: The partnership formed it just and reasonable
between a member of a partnership and - If there is suspicion of fraud,
a third person for a division of the profits mismanagement, or financial
coming to him from the partnership irregularities, any partner may
enterprise. request an accounting.
➢ Explanation: is a separate agreement - Example: If a partner is making secret
between a partner in an existing deals or hiding profits, another
partnership and a third party, where the partner can demand an accounting to
third-party shares in the original partner's uncover any wrongdoing.
profits without becoming a direct partner
in the main firm. This arrangement does SECTION 2: PROPERTY RIGHTS OF A
not affect the rights, duties, or liabilities of PARTNER
the main partnership, as the sub-partner
has no legal relationship with the other THE PROPERTY RIGHTS OF A
partners or control over the business. PARTNER ARE (PRINCIPAL RIGHTS)
The original partner remains solely
responsible for all obligations within the (1) His rights in specific partnership
main partnership, while the sub-partner is property
entitled only to a portion of the profits as - A partner has a right to use
agreed. partnership property exclusively for
the benefit of the partnership but
ANY PARTNER SHALL HAVE THE RIGHT does not own the property
TO A FORMAL ACCOUNT AS TO individually.
PARTNERSHIP AFFAIRS (2) His interest in the partnership
- A partner’s share of profits and losses
(1) If he is wrongfully excluded form the represents their financial interest in
partnership business or possession the business.
of its property by his co-partners - This interest can usually be
- If a partner is unjustly denied access transferred, but the transferee does
to the business operations or is not automatically become a partner or
prevented from using partnership gain management rights.
assets by their co-partners, they can (3) His right to participate in the
demand an accounting. management
(2) If the right exists under the terms of - Every partner has a right to take part
any agreement in decision-making and business
- If the partnership contract specifies operations, unless the partnership
that accounting will be done at certain agreement states otherwise.
times (e.g., quarterly or annually), - However, in a limited partnership,
then partners can enforce this right as only general partners have this right,
per the agreement. while limited partners do not.
(3) As provided by Article 1807

12
 RELATED RIGHTS (5) Partner’s interest not a debt due from
partnership
(1) The right to reimbursement for
amounts advanced to the partnership PROFIT
and to indemnification for risk in
consequences of management ❖ Definition: The excess of returns over
- A partner who advances money for expenditure in a transaction or series of
partnership expenses or takes on transactions; or the net income of the
personal risk for the business has the partnership for a given period
right to be reimbursed. ➢ Explanation: Profits are typically shared
(2) The right to access and inspection of among the partners according to the
partnership books terms of their partnership agreement. If
- Every partner has the right to review no specific agreement exists, profits are
financial records and business divided in proportion to each partner’s
transactions. capital contribution. However, an
- This ensures transparency and industrial partner (one who contributes
prevents fraud or mismanagement. labor or services instead of capital) is
(3) The right to true and full information entitled to a just and equitable share of
of all things affecting the partnership the profits before the remaining amount
- Partners must provide each other with is distributed among the capitalist
honest and complete details about all partners.
matters affecting the business.
- No partner can withhold or hide SURPLUS
important information that could ❖ Definition: refers to the assets of the
impact decision-making. partnership after partnership debts and
(4) The right to a formal account of liabilities are paid and settled and the
partnership affairs under certain rights of the partners among themselves
circumstances are adjusted. It is the excess of assets
- Partners can demand an official over liabilities.
financial report under certain ➢ Explanation: net assets represent the
circumstances, such as exclusion true value of the business that belongs to
from management, suspicion of the partners. It is determined by
fraud, or business dissolution. subtracting total liabilities (such as loans,
(5) the right to have the partnership accounts payable, and expenses) from
dissolved also under certain total assets (such as cash, inventory, and
conditions. property). The net assets are then
- A partner can request dissolution if distributed among the partners based on
legal or financial conditions justify their respective ownership interests.
ending the business.
- Common reasons include fraud, CONSIDERED AS THE EXTENT OF THE
breach of agreement, or the inability PARTNER’S INTEREST
to continue operations profitably.
- Nothing is to be considered as the
THE LEGAL INCIDENTS OF COMMON share of a partner but his proportion
RIGHT IN PARTNERSHIP / INCIDENT of the residue or balance after an
OF CO-OWNERSHIP ARE SUCH THAT account has been taken of the debts
and credits, including the amount paid
(1) Equal right of possession of the by the several partners in liquidating
property for partnership purposes firm debts or in making advances to
(2) Assignment of right to the property the partnership, and until that occurs,
(3) Attachment of execution it is impossible to determine the
(4) Legal support extent of his interest. This interest in

13
 the surplus alone is available for the SECTION 3 OBLIGATIONS OF THE
satisfaction of the separate debts of PARTNERS WITH REGARD TO THIRD
the partners. PERSONS
- On the dissolution of the partnership,
the value of the partner’s share
usually cannot be accurately FIRM
determined until liquidation of the
business has taken place and ❖ Definition: Name, title, or style under
partnership accounts have been which a company transacts business. It is
settled. synonymous with “company”

EFFECT OF ASSIGNEMENT OF ➢ Explanation: A business name, title, or

PARTNER’S WHOLE INTEREST IN style is the official name that a company
PARNETSHIP uses when conducting its operations. It
represents the company's identity. This
(1) Rights withheld from assignee – name appears on legal documents,
however, such assignment does not contracts, advertisements, and any
grant the assignee the right formal communications. In many cases,
a. To interfere in the management it is synonymous with the company itself,
b. To require any information or meaning that the business is legally and
account publicly identified by this name.
c. To inspect any of the partnership ➢ A name is necessary to distinguish the
books partnership which has a distinct and
(2) Status and rights of assignor in the separate juridical personality from the
partnership unaffected – the legal effect individuals composing the partnership
of the conveyance is that same as that of and from other partnership, and thus,
a partner association another in his share helps to facilitate business transactions
or interest. by the partnership. It must be registered
with the DTI.
RIGHTS OF THE ASSIGNEE OF THE
PARTNERS’ INTEREST PRO-RATA
(1) To receive in accordance with his ❖ Definition: equally or jointly and not
contract the profits accruing to the proportionately which its literal meaning
assigning partner because the pro-rating is based on the
(2) To avail himself of the usual remedies number of partners and not the amount
provided by law in the event of fraud of their contributions to the common fund.
in the management ➢ Explanation: In a partnership, unless
(3) To receive the assignor’s interest in otherwise agreed, partners are generally
case of dissolution equally responsible for obligations,
(4) To require an account of partnership even if their contributions to the capital
affairs, but only in case the differ. This applies to profit-sharing,
partnership is dissolved, and such losses, and liabilities.
account shall cover the period form
the date only of the last account SUBSIDIARY OR SECONDARY
agreed to by all the partners.
❖ Definition: The partners become
personally liable only after all the
partnership assets have been exhausted,
unless a particular partner assumes a
separate obligation to perform a
partnership contract or make himself
solidarity liable on a partnership contract.

14
 ➢ Explanation: In a general partnership, - A partner cannot settle a legal dispute
creditors must first go after the or modify the partnership’s
partnership’s assets to settle debts. If obligations unilaterally.
the assets are insufficient, the partners - This ensures fairness and prevents
then become personally liable for the losses due to poor judgment.
remaining balance. However, their (6) Submit a partnership claim or liability
liability remains subsidiary, meaning it to arbitration
only applies when the partnership itself - Arbitration agreements waive the
cannot fully pay its obligations. right to go to court, so a partner
cannot commit the partnership to
ART. 1818. ONE OR MORE BUT LESS THAN arbitration without mutual consent.
ALL PARTNERS HAVE NO AUTHORITY TO: (7) Renounce a claim of the partnership
- A partner cannot unilaterally give up a
(1) Assign the partnership property in legal right or claim that belongs to the
trust for creditors or on the assignee’s partnership.
promise to pay the debts of the - Doing so could harm the interests of
partnership the other partners.
- A partner cannot transfer partnership
assets to a trustee for the benefit of ART. 1819. THE REAL PROPERTY MAY BE
creditors or assign them based on an REGISTERED OR OWN IN THE NAME OF
assignee’s promise to pay
partnership debts without the consent (1) Title in partnership name, conveyance
of all partners. in partnership name
- This protects the partnership from - If the real property is registered in the
unauthorized liquidation of assets. name of the partnership, any sale,
(2) Dispose of the goodwill of the mortgage, or conveyance must also
partnership be made in the partnership's name.
- Goodwill represents the reputation (2) Title in partnership name. conveyance
and customer relationships of the in partner’s name
business. - If the property is registered in the
- Selling or transferring goodwill partnership’s name but is sold by an
without all partners' approval could individual partner, it is only valid if the
devalue the partnership. partner has authority.
(3) Do any other act which would make it (3) Title in one or more of partners,
impossible to carry on the ordinary conveyance in name of partner or
business of a partnership partners in whose name title stands
- Any action that renders the - If the property is registered under one
partnership unable to operate, such or more partners' names (instead of
as selling all assets or dissolving key the partnership), they can legally
agreements, requires unanimous transfer it, as they are the registered
approval. owners.
(4) Confess a judgement (4) Title in name of one or more or all
- A partner cannot admit liability or partners or a third person in trust for
accept a legal judgment against the partnership, conveyance executed in
partnership without consulting other partnership name or in name of
partners. partner
- This protects the partnership from - If a partner or a third person holds
unfair or premature legal claims. property on behalf of the partnership,
(5) Enter into a compromise concerning a they must convey it either in the name
partnership claim or liability of the partnership or in their name as
trustee.

15
 (5) Title in name of all partners, CASES A PARTNERS SOLIDARILY LIABLE
conveyance in name of all partners. WITH THE PARTNERS TO THIRD PERSONS
- If the property is registered under all
partners’ names, then any transfer or (1) Any wrongful act or omission of any
conveyance must also be executed partner acting in the ordinary course
by all partners. of the business of the partnership or
with the authority of his co-partners,
EQUITABLE INTEREST OR TITLE loss or injury is caused to any person,
not being a partner in the partnership,
❖ Definition: One not duly recognized by or any penalty is incurred.
law but in equity alone; it is a right or - If a partner, while acting in the
interest in property which is imperfect ordinary course of business or with
and unenforceable at law but which the authority of co-partners, commits
under well-recognized equitable a wrongful act or omission that
principles should and is convertible into a causes loss, injury, or penalty to a
legal right or title. third party, all partners are solidarily
➢ Explanation: An equitable interest or title liable.
refers to a right or interest in property that (2) Where one partner acting within the
is not formally recognized by legal scope of his apparent authority
ownership but is still acknowledged by receives money or property of a third
principles of fairness (equity). It arises in person and misapplies it
situations where, although a person does - If a partner, while acting within his
not hold the legal title, they have a rightful apparent authority, receives money or
claim to the property based on fairness property from a third party and
and good conscience. misuses or misapplies it, the
partnership and the responsible
THREE (3) CASES OF KNOWLEDGE OF A
partner are solitarily liable.
PARTNER ART. 1321 (3) Where the partnership in the course of
(1) Knowledge of the partner acting in the its business receives money or
particular matter acquired while a property of a third person and the
partner money or property so received is
- If a partner learns something relevant misapplied by any partner while it is in
to the partnership’s business while the custody of the partnership
being a partner, that knowledge is - If the partnership itself receives
imputed to the partnership. money or property from a third party
(2) Knowledge of the partner in the during the course of business, and
particular matter then present to his any partner misapplies it while in the
mind custody of the partnership, the entire
- If a partner is already aware of partnership is responsible.
something at the moment they act on
behalf of the partnership, that REQUISITES FOR LIABILITY
knowledge applies to the partnership (1) The partner must be guilty of a
as well. wrongful act or omission
(3) Knowledge of any other partner who - The partner must have committed a
reasonably could and should have negligent, fraudulent, or wrongful
communicated it to the acting partner act that results in harm, financial loss,
- If another partner reasonably could or penalties.
and should have shared information (2) He must be acting in the ordinary
with the acting partner, then the course of business or with the
partnership is also considered to have authority of his co-partners even if the
that knowledge. act is not connected with the business

16
 - The wrongful act must occur while - However, his share in the partnership
conducting partnership business property may be used to satisfy these
or when the partner has been given obligations.
authority by co-partners (even if the
(2) Extends to his separate property for
act is unrelated to the business itself).
subsequent obligations
ESTOPPEL - After becoming a partner, he is fully
liable, just like any other partner, for
➢ Definition: a bar which precludes a
obligations incurred after his
person from denying or asserting
anything contrary to that which has been admission.
established as the truth by his own deed - This liability extends to his personal
or representation, either express or assets, meaning creditors can go
implied. after his separate property if the
➢ Explanation: Estoppel is a legal partnership assets are insufficient.
principle that prevents a person from
denying or asserting anything that
contradicts what has already been
established as the truth through their own CHAPTER 3: DISSOLUTION AND
actions, statements, or conduct, whether WINDING UP
expressed explicitly or implied. This
doctrine is used to ensure fairness and DISSOLUTION
consistency, preventing individuals from
going back on their word if others have ➢ Definition: It is the change in the relation
relied on their previous representations of the partners caused by any partner
to their detriment. ceasing to be associated in the carrying
on of the business.
PARTNERSHIP BY ESTOPPEL ➢ Explanation: It is the point in time when
the partners cease to carry on the
➢ Definition: A person not a partner held business together. It is not meant to
liable to third persons as if he were a extinguish the business; the affairs
partner should be liquidated and distribution
➢ Explanation: he is partner by estoppel made to those entitled to the partners’
when by words or by conduct he (a) interest. The partnership continues until
directly represents himself to anyone as the winding up is completed. Dissolution
a partner in an existing partnership or in refers to the changed in partnership
a non-existing partnership (b) indirectly relations and structure and not the actual
represents himself by consenting to cessation of the partnership business.
another representing him as partner in an
existing partnership or in a non-existing WINDING-UP
partnership
➢ Definition: Process of settling the
business or partnership affairs after
LIABILITY OF INCOMING PARTNER
dissolution
FOR EXISTING OBLIGATIONS
(1) Limited to his share in partnership ➢ Explanation: This involves concluding
all financial and legal matters, such as
property for existing obligations
selling assets, paying off debts, and
- An incoming partner is not personally distributing any remaining assets among
liable for debts and obligations the partners or shareholders according to
incurred before joining the the agreement or legal requirements.
partnership. The goal of winding-up is to ensure that
all obligations are fulfilled, and the

17
 business is properly closed, bringing its (2) In contravention of the agreement
operations to a formal end. between the partners, where the
circumstances do not permit a
dissolution under any other provision
of this article, by the express will of any
TERMINATION partner at any time.
➢ Definition: Point in time when all
(3) By any event which makes it unlawful
partnership affairs are completely wound
for the business of the partnership to
up and finally settled. It signifies the end
be carried on or for the members to
of the partnership life.
carry it on in partnership – dissolution
➢ Explanation: It marks the official end of may be caused involuntarily when a
the partnership’s existence, meaning all supervening event makes the business
debts have been paid, assets have been itself of the partnership unlawful. A
distributed, and all legal and financial partnership must have a lawful object or
obligations have been fulfilled. Once purpose.
termination occurs, the partnership
(4) When a specific thing, which a partner
ceases to exist as a legal entity.
and promised to contribute to the
partnership, perishes before the
CAUSES OF DISSOLUTION
delivery; in any case by the loss of the
(1) Without violation of the agreement thing, when the partner who
between the partners. contributed it having reserved the
ownership thereof, has only
a. By the termination of the transferred to the partnership the use
definite term or particular or enjoyment of the same; but the
undertaking specified in the partnership shall not be dissolved by
agreement. – after the expiration the loss of the thing when it occurs
of the term or fulfilling an after the partnership has acquired the
undertaking, the partnership is ownership thereof;
dissolved.
(5) By the death of any partner – the
b. By the express will of any deceased partner ceases to be
partner, who must act in good associated in the carrying of the business.
faith, when no definite term or Hence, the dissolution of the partnership
particular undertaking is by his death.
specified. – partners have power
to terminate the partnership at any (6) By the insolvency of any partner or of
time but he must act in good faith. the partnership - If a partner, after the
exhaustion of partnership asset, can no
c. By the express will of all the longer operate financially. He will have no
partners who have not assigned authority to act for the partnership. The
their interests or suffered them insolvency of the partnership renders
to be charged for their separate them unable to continue the business,
debts, either before or after the which amounts to dissolution.
termination of any specified
term or particular undertaking (7) By the civil interdiction of any partner -
A convicted person renders him
d. By the expulsion of any partner incapacitated. During, civil interdiction,
from the business bona fide in the offender during the time of his
accordance with such a power sentence deprives him the right to
conferred by the agreement manage his property
between the partners

18
 (8) By decree of court under the following d) A partner willfully or persistently
article (1700a and 1701a) - When the commits a breach of the partnership
court orders dissolution agreement, or otherwise so conducts
himself in matters relating to the
LOSS OF A SPECIFIC THING partnership business that it is not
reasonably practicable to carry on the
(a) Before delivery – the partnership is
business in partnership with him –
dissolved because there is no
contribution in as much as the thing to be
contributed cannot be substituted with
e) The business of the partnership can
another. There is, here a failure of the
only be carried on at a loss - since the
partner to fulfill his part of the obligation.
business goal is to make profit, if it is not
(b) After delivery – the partnership is not making profit anymore, the operation
dissolved but it assumes the loss of the shall be dissolved.
thing having acquired ownership thereof. f) Other circumstances render a
The partners may contribute additional dissolution equitable - such as
capital to save venture unresolved dispute, or other serious
issues
(c) Loss where only use of enjoyment
contributed – the partner having (2) On application by a purchaser of
reserved the ownership thereof, the lass partner’s interest
of the same before or after delivery,
a. After the specific term ends: A third party
dissolves the partnership. The partner
who buys a partner’s interest can request
bears the loss, and therefore, he is
dissolution after the contract ends.
considered in default with rest to this
contribution. b. At any time if there is no specific term or
when the partnership is partnership at will: a
GROUNDS FOR DISSOLUTION BY buyer of a partner’s share can dissolve the
DECREE OF COURT partnership anytime.
(1) On application by a partner
1832.
a) A partner has been declared insane in
Except so far as maybe necessary to wind up
any judicial proceeding or is shown to
partnership affairs or to complete transactions
be of unsound mind- The partner is
begun but not then finished,
legally declared mentally incapable,
making business operations impossible Dissolution terminates all authority of any
partner to act for the partnership:
b) A partner becomes in any other way
incapable of performing his part of the (1) With respect to the partners,
partnership contract - partner is unable
to contribute due to injury or illness, or a. When the dissolution is not by the
insolvent act, insolvency or death of the
partner,
c) A partner has been guilty of such
conduct as tends to affect b. When the dissolution is by such
prejudicially the carrying on of the act, insolvency or death of a
business- when a partner negatively partner, in cases where Article
impacts the business and constantly 1833 so requires.
violates the terms of the partnership, (2) With respect to persons not partners, as
making cooperation impossible. declared in Article 1834

19
 1833. partnership assets alone when such partner had
been prior to dissolution
Where the dissolution is caused by the act,
death, or insolvency of a partner, each partner (1) Unknown as a partner to the person
is liable to his co-partners for his share of any with whom the contract is made; and
liability created by any partners acting for the
partnership as if the partnership had not been (2) So far unknown and inactive in
dissolved unless partnership affairs that the business
reputation of the partnership could not
(1) The dissolution being by act of any be said to have been in any degree
partner, the partner acting for the due to this connection with it.
partnership had knowledge of the
dissolution; or The partnership is in no case bound by any act
of a partner after dissolution
(2) The dissolution being by the death or
insolvency of a partner, the partner acting (1) Where the partnership is dissolved
for the partnership ha knowledge or because it is unlawful to carry on the
notice of the death or insolvency. business, unless the act is appropriate
for winding up partnership affairs; or
1834 (2) Where the partner has become
After dissolution, a partner can bind the insolvent or
partnership, except as provided in the third
paragraph of this article (3) Where the partner had no authority to
wind up partnership affairs; except by
(1) By an act appropriate for winding up a transaction with one who
partnership affairs or completing
transactions unfinished at dissolution a. Had extended credit tot eh partnership
prior to dissolution, and had no
(2) By any transaction which would bind the knowledge or notice of his want of
partnership if dissolution had not taken authority or
place, provided the other party to the
transaction b. Had not extended credit to the
partnership prior to dissolution, and
a. Had extended credit to the having no knowledge or notice of his
partnership prior to dissolution want of authority, the fact of his want
and had no knowledge or notice of of authority has not been advertised in
the dissolution; or the manner provided for advertising
the fact of dissolution in the first
b. Though he had not so extent paragraph, NO. 2(b)
credit, had nevertheless known of
the partnership prior to dissolution Nothing in this article shall affect the liability
and having no knowledge or under Article 1825 of any person who after
notice of dissolution, the fact dissolution represents himself or consents to
dissolution had not been another representing him as a partner in a
advertised in the newspaper of partnership engaged in carrying on business.
general circulation in the place (or
in each place if more than one) at
which the partnership was
regularly carried on
The liability of a partner under the first
paragraph, No.2, shall be satisfied out of

20