Chapter 1 General Provisions
Article 1768
Article 1767
By the contract of partnership two or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership
for the exercise of a profession. (1665a).
NOMINATE
- There is a name given by the law
- Contract of Partnership: CONSENSUAL (meaning it is
perfected by both parties)
PERSONS
- Includes not only natural persons but also JURIDICAL
persons. A corporation may NOT be a partner but it may
engage in JOINT VENTURES.
BIND THEMSELVES
- Must be capable and competent, meaning, the following
may are not included:
1. Minors
2. Emancipated Minors
3. Those under civil interdiction accessory penalty of
being convicted of crimes
4. Insane persons
5. Incompetent persons (see oblicon notes)
- HOWEVER, if the person is only a SUSPECT, he may
still bind himself into a contract since there is no final
verdict yet.
TO CONTRIBUTE MONEY, PROPERTY OR INDUSTRY
- Makes the contract onerous since this is MUTAL and
ALL must give either one of the above
- Examples:
1. A and B create a partnership with a promise of
contributing P10,000 each in cash. A gave his share
while B gave a check worth P10,000. Is the
issuance a contribution of money?
No, unless the check is encashed.
2. Considering the same information above but with B
contributing P10,000 in equivalent dollars.
No, the contribution must be made using the legal
tender, in this case, Philippine pesos.
- Property contributed may be movable, immovable or
intangible property. (Ex: equipment, land, patents, etc.)
- If the partnership did not contribute money or property,
then industry was contributed.
- Note: Contributions may differ for each of the partners.
TO A COMMON FUND TO DIVIDE PROFITS AMONGST
EACH OTHER
- The primary objective of partnerships is to make profits.
Sharing profits need not be equal.
- Sharing ratios are determined by the partners
agreement, and if there was no agreement, then the
ratios will be based on the ratio of the partners
contributions.
- Sharing ratios for losses will be the same as the sharing
ratios for profits.
- The industrial partner shall NOT share in losses.
- The industrial partner is exempt only to the partners but
not to 3rd parties without prejudice to his right. A1816
CONSENT (DELECTUS PERSONAE)
- You cant join a partnership without the consent of ALL
partners.
Why?
Because the partnership will need to be dissolved
before you are admitted and a new partnership will be
made in its place.
The partnership has a juridical personality separate
and distinct from that of each of the partners, even in
case of failure to comply with the requirements of article
1772, first paragraph. (n)
Example
- If A and B form a partnership with X & Co., the property
of X & Co. is not A & Bs property and likewise, A & Bs
property is not X & Co.s.
- Since X & Co is a juridical entity, it can acquire any
property since the partners are merely agents.
- Thus the obligations of X & Co are not those of A & Bs.
- The partnership of X & Co can file against A & B and be
sued by A & B, likewise, if a third party sues X & Co., A
& B are not affected.
- The partnership will still be a juridical entity even without
compliance with A1772.
- If X & Co. is exempted from certain things, it does not
follow that A & B are included.
Consequences of being a Juridical Person
- Can sue and be sued
- Acquire any kind of property
- Insolvency of a partnership does not mean that the
partners themselves are insolvent.
Article 1769
In determining whether a partnership exists, these
rules shall apply:
(1) Except as provided by article 1825, persons who are
not partners as to each other are not partners as to
third persons.
(2) Co-ownership or co-possession odes not of itself
establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made
by the use of the property
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or
interest in any property from which the returns are
derived
(4) The receipt by a person of a share in the profits of a
business is prima facie evidence that he is partner
in the business, but no such inference shall be
drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord
(c) As an annuity to a widow or representative of a
deceased partner
(d) As interest on a loan, though the amounts of
payment vary with the profits of the business
(e) As consideration for the sale of a goodwill of a
business or other property by installments or
otherwise. (n)
Provides the rule in determining partnerships
Example for (1)
- If A & B say PUBLICLY that they are not partners, then
according to A1825, if they told C that they are and C
enters into a contract of partnership with them, then A
and B are in a PARTNERSHIP OF ESTOPPEL.
Example for (2)
- If A & B inherited land from their parents and
subsequently leased the land out for P50,000/month,
then it can be said that they share profits, but are they in
a partnership?
 No, they are merely co-owners. The P50,000 profit is
merely incidental and besides, it was not derived from
BUSINESS OPERATIONS.
- If they bought the land for P1,000,000 each to build a
house but instead opted to sell it for P2,500,000 then
they have a profit of P500,000 but are they partners?
No, because even if there was a profit of P500,000, this
is merely incidental to the sale and not from business
operations of A&B.
- If the land was instead used to build an apartment that
is rented out?
Yes, because A & B share profits from RENTING, this
can be considered as ordinary business operations.
Example for (3)
- If a person owns a big tract of land for planting rice and
entered into an agreement with a farmer that they will
divide the harvest, is the farmer partners with the owner
of the land?
No because of the following reasons:
(1) The farmer had no contribution
(2) The farmer has no say in the disposition of the land
(3) The farmer has no say in management
(4) In case of loss, the owner shall carry the entire
burden and the farmer need not pay anything
Example for (4)
- A partnership borrowed P50,000 and instead of giving
the creditor a specific amount to be repaid, they agreed
that the creditor will receive 1% of the partnerships
annual gross profit. Is the creditor a partner?
No because the receipt of share in net income happens
to be because of an existing debt.
To determine whether a person is a partner:
(1) Required contribution
(2) Say in management
(3) Share in losses
Article 1770
A partnership must have a lawful object or purpose,
and must be established for the common benefit or
interest of the partners.
When an unlawful partnership is dissolved by a
judicial decree, the profits shall be confiscated in favor
of the State, without prejudice to the provisions of the
Penal Code governing the confiscation of the
instruments and effects of a crime. (1666a)
The partnership must have a lawful object or purpose
- Lawful object refers to CAPITAL
- Lawful purpose refers to the BUSINESS itself
There must be common interest and benefit
Unlawfulness of the partnership will cause it to be dissolved
and profits shall be confiscated
Example of unlawful purpose:
- GAMBLING
A & B are partners where A contributed P100,000 in
cash and B contributes gambling paraphernalia. They
were raided and the gambling paraphernalia was
confiscated. Can the P100,000 also be confiscated?
No because the P100,000 was not the reason for the
crime in anyway. The state is therefore required to
return this amount to A.
Legal effects of a Judicial Dissolution
- Partnership is considered void from the beginning
- Profit and instrument of the crime is confiscated
- The only returnable items are those that were never
related to or connected with the crime committed
Article 1771
A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case, a public instrument
shall be necessary (1667a)
Can a partnership be created orally?
Yes. A partnership may be constituted in any form (as stated
in Article 1771)
Partnerships are not covered by the Statute of Fraud since
these are not necessarily required to be in writing (contract
of partnership can be in any form)
If immovable property and/or real rights are contributed to the
partnership, then the contract must be in a public instrument
(notarized documents)
In order to bind 3rd persons, the transfer of OWNERSHIP of
immovable property MUST BE REGISTERED with the
REGISTRY OF PROPERTY in the province or city where the
property is located
The article shows that partnerships can be perfected by MERE
CONSENT.
Article 1772
Every contract of partnership having a capital of
P3,000.00 or more, in money or property, shall appear in a
public instrument, which must be recorded in the office
of the Securities and Exchange Commission.
Failure to comply with the requirements of the
preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons. (n)
If the partnerships capital is P3, 000.00 or more (in any form),
it must be in a public instrument, recorded with the SEC and
note that property referred to here is MOVABLE since
immovable property is covered by Article 1771.
Failure to comply with the requirements of Article 1772 will not
affect the liability of the partnership to 3rd persons.
Isnt this inconsistent with Article 1358?
No, remember that in Article 1358, if the contract terms
exceed P500.00 then the contract must be in writing.
This is merely for purposes of convenience and not
validity or enforceability of the law. Also note that
according to Article 1768, the partnership will still be
valid and have a juridical entity.
How do we reconcile this with Article 1358 and 1357?
Article 1358 is for purposes of convenience and not for
validity or enforceability of the law.
Article 1357 states that contracting parties have the right
to compel each other to place the contract into writing.
Purpose of Registration:
(1) Condition for obtaining a license to engage in business
and in trade
(2) 3rd persons want proof that the partnership is existent,
who the partners are and what the capitalization is
before they enter into contracts/engage in business.
(3) The government requires this so that tax liabilities may
not be avoided (BIR)
Failure to comply with the Articles requirements will not
prevent the formation of the partnership
The Statute of Fraud will only apply if there was an agreement
made by the contracting parties
Example:
A and B promise to contribute to their partnership money
worth P10,000.00 each within one year from their
agreement. A contributes early but when the time comes for
B to contribute his share, he refuses to do so. Can A compel
B to give his contribution?
No, A cannot compel B to pay his contribution to the
partnership.
 Why?
Because the contract/agreement between the two parties
was purely ORAL and never really written, and it has already
been one year since they agreed to their contract terms.
Article 1773
A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties and attached to the public instrument. (1668a)
Refers specifically where one or both of the parties contribute
immovable property. The requirements are:
(1) The contract must be in a public instrument
(2) An inventory of the immovable property must be made,
signed by BOTH parties and attached to the public
instrument, otherwise the partnership is VOIDED.
Actual Case in Applying Article 1773:
A and B agree to form a partnership engaging in a fish pond
business where both partners will contribute cash; the cash
is later used to buy land that is converted into a fish pond. C
comes along and points out that the partnership is void
because no inventory of the land was made. Is the
partnership really void?
No, the partnership is not void because according to the
Supreme Court, Article 1773 need not apply since the land
was BOUGHT from the CASH CONTRIBUTION.
Suppose a partnership contributes immovable property but
does not conduct an inventory and enters into a contract with
A. The partnership does not fulfill its obligation to A and A
sues the partnership. Was A right in suing the partnership?
No, since the partnership was void from the beginning. A
should instead file against the partners themselves. They
will be sued under the legal basis of them being partners by
estoppels, as stated in Article 1825.
If A wishes to be in a partnership with B and promises to
contribute land but subsequently sells the same plot to C,
who immediately registers the transfer, who owns the land?
C owns the land because A never registered the transfer.
Estafa: when the owner of a property sells the same to two or
more different persons.
Article 1774
Any immovable property or an interest therein may
be acquired in the partnership name. Title so acquired
can be conveyed only in the partnership name. (n)
Being a juridical entity, a partnership can acquire property and
subsequently become its owner.
Article 1775
Associations and societies whose articles are kept
secret among members, and wherein anyone of the
members may contract in his own name with third
persons, shall have no juridical personality and shall be
governed by the provisions relating to co-ownership.
(1669)
There is no juridical entity since the members can contract with
3rd persons in their own name without binding others.
In a partnership:
(1) The partners are merely agents who cannot act alone
(2) Articles of Partnership are known to ALL partners AND
to the GENERAL PUBLIC.
Article 1776
As to its object, a partnership is either universal or
particular.
As regards to the liability of the partners, a
partnership may be general or limited. (1671a)
Classifications of Partnerships:
(1) As to the Object:
(a) Universal Partnership of All Present Property
defined in Article 1778
(b) Universal Partnership of All Profits defined in
Article 1780
(c) Particular Partnerships defined in Article 1783
(2) As to the Liability:
(a) General general partners are liable PRO-RATA
and subsidiarily, sometimes solitarily, with their own
property/assets if the partnership is insolvent. (may
include industrial partners)
(b) Limited limited partners are liable only up to the
extent of their contribution
(3) As to Duration:
(a) At will no particular undertaking, can be dissolved
at any time
(b) With a Fixed Term may only be dissolved upon
the end of its term unless continued by the partners
(4) As to Legality of Existence:
(a) De Jure complied with ALL requirements
(b) De Facto failed to comply with ALL requirements
(5) As to Representation to Others:
(a) Ordinary/Real actually exists
(b) Ostensible/by Estoppel exists only to partners
(6) As to Publicity:
(a) Secret some partners are not known to the public
(b) Open/Notorious all partners are known to the
public
(7) As to Purpose:
(a) Commercial/Trading business transactions
(b) Professional/Non-Trading exercise of professions
Kinds of Partners:
(1) Under the Civil Code:
(a) Capitalist contributes money/property
(b) Industrial contributes industry
(c) General liability extends to personal assets
(d) Limited liability up to contribution only
(e) Managing manages the partnership
(f) Liquidating responsible during dissolution
(g) By Estoppel not really a partner
(h) Continuing continues business after dissolution
(i) Surviving remains after partners death
(j) Sub-partner contracts with partners, Article 1804
(2) Other Classifications:
(a) Ostensible active, known to the public
(b) Secret active, unknown to the public
(c) Silent inactive, known to the public
(d) Dormant inactive, unknown to the public
(e) Original member at time of organization
(f) Incoming about to become a member
(g) Retiring about to withdraw
Article 1777
A universal partnership may refer to all the present
property or to all the profits. (1672)
Article 1778
A partnership of all present property is that in which
the partners contribute all the property which actually
belongs to them to a common fund, with the intention of
dividing the same among themselves, as well as the
profits which they may acquire therewith. (1673)
Article 1779
 In a universal partnership of all present property, the
property which belongs to each of the partners at the
time of the constitution of the partnership becomes the
common property of all the partners, as well as all the
profits which they may acquire therewith.
A stipulation for the common enjoyment of any
other profits may also be made; but the property which
the partners may acquire subsequently by inheritance,
legacy or donation cannot be included in such
stipulation, except the fruits thereof. (1674a)
Why is the universal partnership of all present property not
popular in the Philippines?
Property owned at the time of contribution will become
common property of the partnership eventually because only
the profits acquired through the contribution will become
common property, unless there was a stipulation that says
otherwise.
Example:
A and B form a Universal Partnership of All Present Property
and stipulate that property and profits that are acquired
during business operations will become common property
even if these were not due to their contributions and that if
anyone inherits property, it will become common property as
well. A acquires land as part of his compensation package
from AyalaLand and B inherits land from his parents. Whose
property will become common property?
Only As land will become common property because it was
essentially PAYMENT while Bs was inherited. The article
prohibits donations to become common property, only fruits
of such can become common property.
In a partnership, contributions must be determinate/certain and
partners are akin to donors. Donations cannot comprehend
future property but profits can be stipulated.
Article 1780
A universal partnership of profits comprises all that
the partners may acquire by their industry or work
during the existence of the partnership.
Movable or immovable property which each of the
partners may possess at the time of the celebration of
the contract shall continue to pertain exclusively to
each, only the usufruct passing to the partnership.
(1675)
Example:
Suppose A and B form a Universal Partnership of All Profits
and A wins in the lotto, P100,000.00. B tries to share in 50%
citing the existence of their partnership and that A used the
partnerships money to purchase the lottery ticket. Can B
really share in the lotto winnings?
No, B cannot since it came from CHANCE, not WORK.
If the P100,000.00 instead came from As work in DLSU, can
B share in the profits of A?
Yes, because it came from WORK.
As long as it is PROFIT, the profit becomes common property
to the partners UNLESS there was a stipulation in their
agreement
If A and B form a Universal Partnership of All Profits for a Taxi-
Cab business and both contribute vehicles that will serve as
the taxi, what they were actually contributing is the USE or
the RIGHT TO USE their vehicles. Upon dissolution, the
vehicles will be returned to them since there was never a
transfer of ownership.
Unique feature of the Universal Partnership of All Profits:
- The partners retain the title of ownership.
Article 1781
Articles of Universal Partnership, entered into
without specification of its nature, only constitute a
universal partnership of profits (1676)
If the articles of universal partnership are doubtful or unclear
then the presumption is that it is a universal partnership of all
profits.
- Because a universal partnership of all profits require
less obligations and is less onerous since the partners
get to retain ownership over the property that they
contribute.
Article 1782
Persons who are prohibited from giving each other
any donation or advantage cannot enter into a universal
partnership. (1677)
A husband and wife cannot join a universal partnership.
- They are not allowed to donate to each other and a
universal partnership essentially requires that the
partners donate to each other.
- They can join a particular partnership instead.
A partnership formed in violation of this article shall be null and
void. It shall not have any legal personality either.
Illustrative Case:
A, B and C form a partnership to engage in the importation,
marketing and operation of automatic phonographs, radios,
television sets, amusement machines and their parts
accessories, with B and C as limited partners. Subsequently,
A and B got married and thereafter, C sold his share to A and
B for a nominal amount. Was the partnership dissolved after
the marriage of A and B and Cs sale to them of his share in
the partnership?
No, the firm was not a universal partnership but a particular
one.
Pertinent Legal Provisions
(1) Article 87: Every donation or grant of gratuitous
advantage, direct or indirect, between spouses during
their marriage, valid or not, shall be void except
moderate gifts which the spouses may give each other
on the occasion of any family rejoicing.
(2) Article 739: The following donations shall be void:
(a) Those made between persons who were guilty of
adultery or concubinage at the time of the donation
(b) Those made between persons found guilty of the
same criminal offense, in consideration thereof
(c) Those made to a public officer or his wife,
descendants and ascendants by reason of his
office
Article 1783
A particular partnership has for its object
determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation
(1678)
Defines what a particular partnership is
Particular partnerships are those that are:
- Neither a universal partnership for all present property
nor a universal partnership for all profits
- Example: Those that are formed for the acquisition and
sale of property, Accounting Firms, Law Firms, etc.
- Popular because it is easy to join
Chapter 2 Obligations of the Partners
Section 1 Obligations of the Partners amongst
Themselves
 Relations created by a contract of partnership
(1) Relations among the partners themselves
(2) Relations of the partners with the partnership
(3) Relations of the partnership with third persons
(4) Relations of the partners with third persons
Article 1784
A partnership begins from the moment of the
execution of the contract, unless it is otherwise
stipulated. (1679)
Partnership is perfected by mere consent and if ALL the
requirements are met
Notwithstanding the fact that the partners have not given their
contributions yet
Example:
A and B agree to form a partnership that will begin on
December 1 and upon the arrival of certain machinery
needed by the business. In this situation, are A and B in
already in a partnership?
As long as the agreement remains executory, then A and B
are NOT partners therefore there is no partnership yet.
Partners may agree to form a partnership to take effect in the
future
Example:
A and B agree to form a partnership 1.5 years later, with
contributions of P100,000.00 each. A contributes his share
early but when the time comes for B to contribute his share,
he refuses and says he no longer wants to partake in the
partnership. Can A compel B to contribute his share to the
partnership?
NO. Because they cannot enforce the contract since it was
perfected 1.5 years ago and the contract was only oral.
Since the contract was for 1.5 years, it was greater than 1
year and should have been written instead.
The Statute of Fraud does not usually apply but to some
particular cases such as the example above, it will.
If the contribution is immovable property, comply with Article
1773 otherwise the partnership will be void.
Article 1785
When a partnership for a fixed term or particular
undertaking is continued after the termination of such
term or particular undertaking without any express
agreement, the rights and duties of the partners remain
the same as they were at such termination, so far as is
consistent with a partnership at will.
A continuation of the business by the partners or
such of them as habitually acted therein during the term,
without any settlement or liquidation of the partnership
affairs, is prima facie evidence of a continuation of the
partnership. (n)
A partnership with a fixed term/particular undertaking is
continued without express agreement
- Rights and duties remain the same as they were at
termination.
Example:
If A and B form a partnership to last until December 30, 2011
and A is the manager and they share profits 50-50 and after
December 30, 2011 they continue with their partnership.
What happens?
A and B retain their rights, meaning A is still the manager
and they still share profits 50-50.
If there was express agreement for the term of existence, then
when the term expires, the partnership is dissolved and
becomes a partnership at will
Continuation is when there is NO settlement/liquidation. There
must be prima facie evidence, meaning it must be seen on
first glance.
Article 1786
Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of
eviction with regard to specific and determinate things
which he may have contributed to the partnership, in the
same cases and in the same manner as the vendor is
bound with respect to the vendee. He shall also be liable
for the fruits thereof from the time they should have
been delivered, without the need of any demand. (1681a)
Article 1787
When the capital or a part thereof which a partner is
bound to contribute consists of goods, their appraisal
must be made in the manner prescribed in the contract
of partnership, and in the absence of stipulation, it shall
be made by experts chosen by the partners, and
according to current prices, the subsequent changes
thereof being the account of the partnership. (n)
Article 1788
A partner who has undertaken to contribute a sum
of money and fails to do so becomes a debtor for the
interest and damages from the time he should have
complied with his obligation.
The same rule applies to any amount he may have
taken from the partnership coffers, and his liability shall
begin from the time he converted the amount to his own
use. (1682)
Suppose A, B and C are partners. A promises to contribute a
RED CAR, B promises to contribute GOODS WORTH
P50,000.00 and C promises to contribute P50,000.00 IN
CASH on October 2011. On October 2011, none of them
comply. What happens?
A, B and C thus become debtors to the partnership.
Suppose B and C contribute their parts but A does not. Can B
and C ask for the recission or annulment of the contract?
NO. If one of the partners fails to comply with his
requirements, then the others can request for specific
performance with damages from the defaulting partner A.
What are the obligations of A before October 2011?
(1) To contribute what he promised
(2) To be held liable to answer for eviction if the partnership
is deprived of his contribution
(3) To take care of the contribution with the diligence of a
good father of a family.
Suppose A leased the car out and gets it back by December
2011.
Then A must deliver the car and the fruits (profits from lease)
to the partnership because there was a delay.
Suppose that after A contributes the car, a 3 rd person, D claims
to the real owner of the car and is able to prove so.
Then A is held liable for eviction because the partnership is
deprived for a specific thing. A is also held liable for
damages to BOTH the partnership and to D.
What about B? Can the partnership determine the value of the
goods he contributed?
In Article 1787, it clearly states that the goods SHOULD be
appraised by the partnership. If there was no
agreement/stipulation, then the partnership shall have the
goods appraised by an expert.
What if the goods appreciate/depreciate?
It will be charged to the partnerships account.
 What will happen if C fails to comply with his obligation?
C will be liable for his contribution plus interest and damages
from the date he was supposed to contribute. The same rule
will apply if the partners take money from the partnerships
funds without everyones consent. He will however, not be
charged for theft or estafa and his obligation will only be to
return the money he took plus interest and damages from
the time he took the money.
When will a partner be held criminally liable?
Suppose the partners set aside P10,000.00 for payment to
one of their creditors. A takes this amount from the fund and
is subsequently discovered to have done so.
- Then A can be charged for estafa since he
misappropriated the money ALREADY SET ASIDE.
Article 1789
An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to
do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail
themselves of the benefits which he may have obtained
in violation of this provision, with a right to damages in
either case. (n)
An industrial partner contributes his industry
- Partnership has the EXCLUSIVE RIGHT to his industry
- Prohibited from the engaging in business of ANY kind
unless the partnership has expressly permitted him to
do so.
Example:
Suppose that a partnership is engaged in a automobile
repair shop. A is the industrial partner (chief mechanic) and
works only up to 5PM every working day. Can he go home
and work on the partnerships customers autos, even if he
says it to the capitalist partners EVERY DAY before he
leaves?
The law says that there must be EXPRESSED permission,
in this situation, all A has is IMPLIED permission. The
capitalist partners remedy is therefore to either: (only one)
(1) Avail of the benefits from As business
(2) Exclude A from the partnership and demand for
damages
Capitalist partners are prohibited from engaging in SIMILAR
businesses only.
Industrial partners have the same remedies as capitalist
partners.
Article 1790
Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of
the partnership. (n)
The partners shall contribute to the capital of the partnership
as per their agreement, except if there was no agreement in
the first place, in which case, they shall contribute equally.
Example:
A and B decide to form a partnership and agree to contribute
to the capital in the ratio of 60:40, how much should the
partners contribute to the partnership?
The partners shall contribute in the ratio of 60:40, meaning if
their partnership capital is a combined total of P10, 000.00
then A contributed P6, 000.00 and B contributed P4, 000.00.
A and B decide to form a partnership but did not say how
much the other should contribute, how much should each
partner contribute to the partnership?
Since the partners did not give any sort of agreement as to
the ratio of their capital contribution, we shall assume that
they will contribute in equal proportions, meaning if the
partnership capital is a combined total of P10, 000.00, then
each partner contributed P5, 000.00.
Article 1791
If there is no agreement to the contrary, in case of
imminent loss of the business of the partnership, any
partner who refuses to contribute an additional share to
the capital, except an industrial partner, to sav4e the
venture, shall be obliged to sell his interest to the other
partners. (n)
If there is an imminent loss in the partnership, the partner who
refuses to contribute additional funds, IF HE IS CAPABLE
TO DO SO, shall sell his share TO THE PARTNERS, unless
he is an industrial partner.
- Imminent Loss
There is a need for the capitalist partners to
contribute additional funds to save the partnership
The industrial partner need not do so because he
has already given 100% of his efforts
If the capitalist partner is WILLING but NOT
FINANCIALLY CAPABLE, the article will NOT apply
to him because he is already insolvent
- Selling of interest
Refusal to contribute additional funds to save the
partnership means that the partner no longer has
any interest in the partnership
He should not be allowed to reap the benefits that
the other partners have worked hard for because
he had not done anything to help anyway
He cannot complain of being removed from the
partnership because he will be paid what is due to
him for his share in the interest of the partnership
- Agreement that the partner need not contribute
additional funds in cases of loss
The capitalist partner will not be required since it
was in their agreement in the first place.
Note that more contribution to the partnership
capital would mean you share more in the profits
but this should be voluntary
Things to consider:
(1) There must be an IMMINENT LOSS
(2) The partner who is unwilling to contribute must be
SOLVENT/FINANCIALLY CAPABLE
(3) There was no agreement that the partners will not have
to contribute additional funds in cases of loss
If the purpose of additional contribution is simply to raise
capital, then this article will not apply.
Article 1792
If a partner authorized to manage collects a
demandable sum, which was owed to him in his own
name, from a person who owed the partnership another
sum also demandable, the sum thus collected shall be
applied to the two credits in proportion to their amounts,
even though he may have given a receipt for his own
credit only; but should he have given it for the account
of the partnership credit, the amount shall be fully
applied to the latter.
The provisions of this article are understood to be
without prejudice to the right granted to the debtor by
Article 1252, but only if the personal credit of that
partner should be more onerous to him. (1684)
A and B are in a partnership where A is the managing partner.
C owes A a sum of P5,000.00 and the partnership a sum of
P10,000.00. The credit to A is due on September 1 while the
partnerships is due on September 15, both debts are due
 and demandable. A collects from C a total of P3,000.00 only
and A subsequently issues a receipt in his name. Is the
partnership entitled to share in the P3,000.00?
Yes but in proportion to their respective debts so A gets
P1,000.00 and the partnership gets P2,000.00.
Supposing there was no mention as to who the managing
partner is, will the requisites of Article 1792 still be present?
Yes, in the absence of information relating to the identity of
the managing partner, the assumption shall be that ALL
partners are managing partners.
If A issues a receipt on the name of the partnership instead, to
whose credit will the P3,000.00 be put?
The entire P3,000.00 will go to the partnership.
Supposing the credit of A carries 18% while that of the
partnership carries only 10%. C pays A and says that the
P3,000.00 shall be applied to As credit. Is the partnership
entitled to share in the P3,000.00 still?
No, the debtor is given the right to apply payment to
whichever debt is more onerous.
Things to remember:
The two conditions should be both present in order for the
Article to apply, otherwise, the entire amount will go to
whoever collects payment from the debtor.
(1) 2 debts and both are due and demandable
(2) The one collecting should be the managing partner
Article 1793
A partner who was received, in whole or in part, his
share of a partnership credit, when the other partners
have not collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring to the
partnership capital what he received even though he
may have given receipt for his share only. (1685a)
In this case, there is only ONE debt but 2 or more debtors,
both of which are partners.
Example:
A and B are partners and C owes the partnership a sum of
P10,000.00. B is the managing partner but A collects his
share in the P10,000.00 and C pays A P5,000.00 to which A
issues a receipt in his name. When Bs turn to collect comes,
C is already insolvent. What should A do?
A shall return his P5,000.00 to the partnership and split it
with B because C has already become insolvent.
Take not that whoever collects doesnt matter as it doesnt
make a difference
If you get your share early and the other parties cannot get
theirs because the debtor has become insolvent, then you
must return YOUR share to the partnership so that no one
gets more than he should have.
Article 1794
Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he
may have earned for the partnership by his industry.
However, the courts may equitably lessen this
responsibility if through the partners extraordinary
efforts in other activities of the partnership, unusual
profits have been realized. (1686a)
Why compensation will not apply:
Compensation will not apply because in compensation, you
should be both a debtor and a creditor at the same time.
However, the partner here is only a DEBTOR for damages
and he cannot compensate using his profits and benefits
earned for the partnership because it IS HIS DUTY to do so
in the first place.
Responsibility may be equitably mitigated by the courts if,
through extraordinary efforts of the partner, unusual profits
are recognized/realized.
Example:
A partnership between A and B is engaged in an autoshop
business. A customer brought his car in to be painted
YELLOW but A bought RED paint instead and the car is
painted RED. Damages are suffered by the partnership for
P30,000.00 due to the repainting. Can A compensate this
loss using the profits he earned for the partnership?
A cannot compensate it with the profits he earned because it
is his obligation to bring profits in the first place. The
responsibility of the P30,000.00, however, may be mitigated
by the court if by other activities, A is able to bring about
unusual or extraordinary profits, meaning, he may be
allowed by the courts to pay back just P15,000.00 instead.
Follows that if the partner is guilty of fraud or damages, he
shall be liable for that.
Article 1795
The risk of specific and determinate things which
are not fungible, contributed to the partnership so that
only their use and fruits may be for the common benefit,
shall be borne by the partner who owns them.
If the things contributed are fungible, or cannot be
kept without deteriorating, or if they were contributed to
be sold, the risk shall be borne by the partnership. In the
absence of stipulation, the risk of things brought and
appraised in the inventory, shall also be borne by the
partnership, and in such case the claim shall be limited
to the value at which they were appraised. (1687)
Refers to rules as to who bears the risks made by contributions
If the contribution is determinate and non-fungible but only the
use is contributed, when it is lost, then the one who
contributes it is liable for it.
If fungible things are contributed, the partnership shall be the
one to shoulder the risks
The partnership shall also be the one to bear the risk for items
brought for sale in inventory for appraisal for the value at
which they were appraised.
Article 1796
The partnership shall be responsible to every
partner for the amounts he may have disbursed on
behalf of the partnership and for the corresponding
interest from the time the expenses are made; it shall
also answer to each partner for the obligations he may
have contracted in good faith in the interest of the
partnership business, and for the risks in consequence
of its management. (1688a)
Refers to the obligation of the partnership to the partners
The partners are merely agents so they are not personally
liable except if they are at fault or if they exceeded their
expressed authority
Obligations of the Partnership:
(1) To reimburse any amount disbursed by the partners in
behalf of the partnership
- Example:
A partnership borrows from the bank a sum of
P10,000.00 for additional funds but cannot pay it
back when it is due to be paid back. A pays back
the P10,000.00 using his personal funds. Should he
be reimbursed by the partnership?
Yes, the partnership should reimburse A for the sum
of P10,000.00 PLUS legal interest starting from the
date A disbursed the P10,000.00.
(2) To answer for any obligation contracted in good faith
 - Example:
A partnership needs office supplies so B contracts
for P10,000.00 worth of supplies. Who will pay for
the contract price of P10,000.00?
The partnership shall be the one to shoulder the
cost as it was made in good faith and B did not
overstep his authority.
If it was stated that the partners cannot contract for
more than P5,000.00 worth of supplies and B still
contracts for P10,000.00, how much will the
partnership pay?
The partnership will only pay what was allowed,
that is, P5,000.00 and B will pay the remaining
balance since B overstepped his authority.
(3) To answer for risks in management
- Example:
A partnership is engaged in selling goods and a
customer keeps asking for discounts and an
argument ensues between the customer, C and the
partner A. A gets injured and is brought to the
hospital. Who shall shoulder the hospital bills?
The partnership shall shoulder the hospital bills as it
was during As time in managing the business that
he was injured.
Article 1797
The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each
partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides
his services, he has contributed capital, he shall also
receive a share in the profits in proportion to his capital.
(1689a)
Article 1798
If the partners have agreed to entrust to a third
person the designation of the share of each one in the
profits and losses, such designation may be impugned
only when it is manifestly inequitable. In no case may a
partner who has begun to execute the decision of the
third person, or who has not impugned the same within
a period of three months from the time he had
knowledge thereof, complain of such decision.
The designation of losses and profits cannot be
entrusted to one of the partners. (1690)
Article 1799
A stipulation which excludes one or more partners from
any share in the profits or losses is void. (1691)
Lays out the rules in the distribution of profits and losses
A, B and C are partners with the following capital contributions,
P30,000.00, P20,000.00 and P10,000.00 respectively, where
C is a capitalist-industrialist partner. For one year of their
operations, their partnership had earned net profits of
P17,000.00. How shall these profits be divided among the
partners? (C is entitled to receive P2,000.00 out of the entire
P17,000.00)
(1) In accordance with any existing agreement between the
partners as to how they shall share.
(2) If there was no agreement, then the partners shall share
on a pro-rata basis
(3) The industrial partner shall get what is JUST and
EQUITABLE in the circumstances. (BONUS TO
PARTNER)
SHARE IN TOTAL
CAPITAL
P
CONTRIBUTION
RATIO DISTRIBUTABLE BONUS SHARE IN
PROFIT PROFITS
A P 30,000.00 3/6 P 7,500.00 - P 7,500.00
B P 20,000.00 2/6 P 5,000.00 - P 5,000.00
C P 10,000.00 1/6 P 2,500.00 P 2,000.00 P 4,500.00
P
TOTAL P 60,000.00 6/6 P 15,000.00 P 2,000.00
17,000.00
The same rules shall apply for losses in the partnerships
operations, however the industrial partner shall not share in
the losses as there is no way for him to retract his industry
and in the event of losses, his efforts would have been for
vain and it can thus be said that he has already shared.
What is the legal effect of having a stipulation that excludes a
partner from sharing in the profits or losses?
Under Article 1799, the stipulation shall be void because
there must be mutual sharing of profits and losses.
Can the partners appoint a 3rd person to designate the division
of their profits and losses?
Yes and they will not be allowed to question his decisions
unless the designation of shares is manifestly inequitable.
2 cases where partners ABSOLUTELY cannot question
designated shares by the 3rd parties:
(1) When a partner begins to execute the 3rd partys
decision
(2) When complaints are raised AFTER three months from
the point of knowledge of the designation
Can the partners designate one of themselves to distribute
profits or losses?
No, the law prohibits this situation because there may be
disparities when it comes to the distribution of net profits.
Article 1800
The partner who has been appointed manager in the
articles of partnership may execute all acts of
administration despite the opposition of his partners,
unless he should act in bad faith; and his power is
irrevocable without just and lawful cause. The vote of
the partners representing the controlling interest shall
be necessary for such revocation of power.
A power granted after the partnership has been
constituted may be revoked any time. (1692a)
2 Kinds of Managing Partners:
(1) Appointed DURING the Constitution of the Partnership
- May execute all administrative acts unless he acted
in bad faith. His power may not be revoked unless
there is a JUST and LAWFUL cause and the vote of
the partners with controlling interest
- Even if there are objections as to his decisions
coming from the partners, his authority will prevail
UNLESS he has acted in bad faith
- Acts of administration: ordinary business and
administrative transactions
- Why can he note be revoked for no reason?
Because if you revoke his power, you are in effect
changing the terms of the contract of partnership.
(2) Appointed AFTER the Constitution of the Partnership
- May have his power revoked with or without cause
- Decided upon by those partners who own
controlling interest in the partnership

Article 1801
If two or more partners have been entrusted with the
management of the partnership without specification of
their respective duties, or without stipulation that one of
them shall not act without the consent of the others,
each one may separately execute all acts of
administration, but if any of them should oppose the
acts of the others, the decision of the majority shall
prevail. In case of tie, the matter shall be decided by the
partners owning the controlling interest. (1693a)
Assume that A, B, C and D are all managing partners. A
appoints E as a secretary but B objects to this. Is the
appointment of E valid?
Yes since majority votes are first counted by head. If C&D
were the ones to object, and they owned a combined total of
51% of partnership interest, then the appointment will not be
valid. However, if B was still the one who objected and he
owns 51% of partnership interest, the appointment will still
be valid because majority votes are first counted by head.
If the partnership cannot make a decision and ends up in a tie
(head count and interest), then the partnership is to be
dissolved. This will be the only remedy, unless one of the
other partners will relent.
Article 1802
In case it should have been stipulated that none of
the managing partners shall act without the consent of
the others, the concurrence of all shall be necessary for
the validity of the acts, and the absence or disability of
any one of them cannot be alleged, unless there is
imminent danger of grave or irreparable injury to the
partnership. (1694)
This is a case wherein two partners, A and B, stipulate that one
cannot act without the consent of the other. Thus, there must
always be concurrence between the two before any
transactions may be entered into, the absence of the others
consent shall not be used as an excuse.
Illustrative Case:
A sold to B, one of the managing partners of Partnership X,
the other being C, a certain number of mining claims without
the consent of C. In an action by A to recover the unpaid
balance of the purchase price against Partnership X, C
claims that the contract is not binding upon the partnership
for the reason that under the articles of partnership, there is
a stipulation that one of the partners cannot bind the firm by
a written contract without the consent of others. Is the
transaction made by B binding upon the partnership?
According to the Supreme Court, the stipulation applies only
to B and C. A has the right to assume that B was authorized
to complete the transaction. Therefore, the partnership is
liable, and since B violated the terms of contract between
himself and C, he is required to reimburse C for the amount
C will be paying A on behalf of the partnership, the reason
being, it would be unfair to C who had no knowledge of Bs
transaction to have to pay when he never agreed anyway.
The only instance in which a partner may transact without
concurrence is when there is imminent danger of grave or
irreparable damage to the partnership if he does not do so.
However, the party involved must be able to prove so else
he shall become liable for what he has done.
Example:
A and B are in a partnership where they sell fruits, B notices
that the fruits in the warehouse are starting to rot so, without
consent of A, he sells them.
This will be alright because if the fruits rot, then it would have
been bad on the part of the partnership.
Article 1803
When the manner of management has not been
agreed upon, the following rules shall be observed:
(1) All of the partners shall be considered agents
and whatever any one of them may do alone
shall bind the partnership, without prejudice to
the provisions of article 1801.
(2) None of the partners may, without the consent of
the others, make any important alteration in the
immovable property of the partnership, even if it
may be useful to the partnership. But if the
refusal of consent by the other partners is
manifestly prejudicial to the interest of the
partnership, the courts intervention may be
sought. (1695a)
If there is no agreement as to who will be the managing
partners, during constitution and after constitution of the
partnership, then the assumption shall be that ALL the
partners are managing partners, without prejudice to Article
1801, meaning Article 1801 will then apply to their case.
The second paragraph of this article provides that the partners
cannot simply alter immovable property owned by the
partnership without the consent of the other partners
because this is NOT an act of administration but of
OWNERSHIP.
Note that consent here is no qualified, so it may be expressed
or it may be implied.
Example:
Suppose A, B, C and D are in a partnership where the
managing partner is not specified and A decides to put up a
warehouse in a piece of land owned by the partnership
without consent of other partners because he believes it to
be useful and beneficial to the partnership. His partners
come over, once the warehouse is finished, to look at it and
did not object to its existence. Was this valid?
Yes, since the partners did not object, then there is IMPLIED
consent. Since consent was never qualified in the article, it is
assumed that implied consent is enough.
Suppose before A builds the warehouse, he asks for the
consent of the other partners, who refuse to give it. When A
tries to convince them and asks why they refuse to give
consent, they simply say that they do not want it to be there,
making their objection manifestly prejudicial, meaning, there
is really no reason for their objection, what then, is the
remedy of A in this situation?
A may bring the matter to court. If the court finds the other
partners of having no solid reason to object, it may compel
the other partners to give their consent.
Article 1804
Every partner may associate another person with
him in his share, but the associate shall not be admitted
into the partnership without the consent of all the other
partners, even if the partner having an associate should
be a manager. (1696)
Refers to SUBPARTNERSHIP
A, B and C are in a partnership wherein A is the managing
partner. A enters into a contract with D that states D will
receive 50% of As share in partnership profits. Can A do this
even without the consent of the other partners?
Yes, because a sub-partnership will not affect the
composition of the partnership and D will not be able to
interfere with the partnerships management anyway.
 When are you required to share your partnership profits with 3 rd
persons?
When you contract with 3rd persons because perhaps in
some past event you needed money and they provided you
with it, and in your contract, it was agreed upon that you will
share in the partnership profits.
The 3rd person can also opt to receive ALL profits.
Can D become a partner without the consent of the other
partners, if he associates with the managing partner?
No, D would need to get the consent of all partners because
this would change the partnership composition.
Article 1805
The partnership books shall be kept, subject to any
agreement between the partners, at the principal place
of business of the partnership, and every partner shall
at any reasonable hour have access to and may inspect
and copy any of them. (n)
The partnership books shall be kept in the following places, in
order:
(1) In accordance with partnership agreements
(2) If there were no agreements, then the partnership books
shall be kept in the principal place of business of the
partnership (ex: headquarters)
Each partner will have access to ALL partnership books.
When will the partner be allowed to access the partnership
books?
The partner is allowed to access partnership books during
REASONABLE HOURS OF BUSINESS (8am-5pm),
according to the law. The one who is keeping the partnership
books cannot state when it can be inspected.
Article 1806
Partners shall render on demand true and full
information of all things affecting the partnership to any
partner or legal representative of any deceased partner
or of any partner under legal disability. (n)
The article does not mean that the partners need wait for
demands before disclosing information, when they get hold
of the information, they should disclose it immediately,
although additional details may be demanded.
If information is not disclosed and it is found out later on, the
partner/s who did not disclose such will be held liable for it
and be charged for misrepresentation.
Suppose A, B and C are in a partnership wherein A is sent to
inspect partnership property in Mindanao. A realizes that the
property contains oil deposits and does not disclose this
information to B and C. He also lies and says that the
property is completely useless for their business and offers
to buy B and Cs interests in the partnership. When A is the
only one holding the business, he develops the land and
gains substantial profits from the oil deposits. B and C later
on learn about the information A kept hidden from them and
demand that they be given their shares in the oil profits. The
question now is, can B and C, after having sold their
interests in the partnership, still share in the profits?
Yes, they will be allowed to share in the profits because the
information regarding oil deposits was present when they
sold their share to A, just that it was hidden from them.
Article 1807
Every partner must account to the partnership for
any benefit, and hold as trustee for it any profits derived
by him without the consent of the other partners from
any transaction connected with the formation, conduct
or liquidation of the partnership or from any use by him
of its property. (n)
A partner who receives benefits or profits derived without
consent of others shall account for it as the partnerships.
If particular property is mortgaged and foreclose, the partner
who uses personal funds is able to get the property back will
not become the new owner, he will only be its trustee.
If the partner gets the property back after ONE year from the
3rd party involved, then it shall become his as it was a private
transaction, so long as he uses his own funds.
Example:
A and B are partners engaged in the operation of a cinema
business. The theater was mortgaged to C who foreclosed
the mortgaged debt. A, in his own behalf, redeemed the
property with his own private funds. Subsequently, A files a
petition for the cancellation of the old title of the partnership
and the issuance of a new title in HIS name alone. Did A
become the absolute owner of the property?
No, the law says that he will only hold the property as the
trustee and will be entitled to reimbursement plus interest
from the time he redeemed the property.
Article 1808
The capitalist partners cannot engage for their own
account in any operation which is of the kind of
business in any operation which is of the kind of
business in which the partnership is engaged, unless
there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall
bring to the common fund any profits accruing to him
from his transaction, and shall personally bear all the
losses. (n)
The article is with regards to a capitalist partner engaging in
other businesses.
Is the capitalist partner allowed to engage in other businesses
aside from the one he has with the partnership?
Yes, as long as the business he engages in is something
dissimilar or different from the of the partnerships.
What will happen if the capitalist partner violates the law
regarding his ability to engage in other businesses?
Then he shall have to bring the profits he gained from the
other business to the partnership and be liable for losses
suffered by the partnership.
Why is the capitalist partner not allowed to engage in a similar
line of business?
Because he might take advantage of the information in the
partnership or of their clients, resulting in a conflict of interest
between himself and the other partners.
The capitalist partner can engage in a business similar to the
partnership if there was a stipulation in the contract of
partnership and if the business he operates exists in a
different area or place.
Article 1809
Any partner shall have the right to a formal account
as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners
(2) If the right exists under the terms of any
agreement
(3) As provided by Article 1807
(4) Whenever other circumstances render it just and
reasonable. (n)
General Rule:
 During existence, a partner is not required to demand for an
accounting because his interest is already protected by two
Articles of the law, Article 1805 and Article 1806. But for
specific cases, the law provides that he can DEMAND for an
accounting of the partnership books.
4 Cases where a partner can demand for an accounting:
(1) When he is wrongfully excluded from the partnership
operations (business and property possession)
(2) If the right exists under their agreement
(3) Under Article 1807
(4) Other circumstances which render it just and
reasonable.
Section 2 Property Rights of a Partner
Article 1810
The property rights of a partner are:
(1) His rights in specific partnership property
(2) His interest in the partnership
(3) His right to participate in the management. (n)
The partner has the following rights:
(1) Right to the ownership of partnership property
(2) Right to his interest in the partnership
(3) Right to participate in partnership management
Article 1811
A partner is co-owner with his partners of specific
partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title
and to any agreement between the partners, has
an equal right with his partners to possess
specific partnership property for partnership
purposes; but he has no right to possess such
property for any other purpose without the
consent of his partners;
(2) A partners right in specific partnership
property is not assignable except in connection
with the assignment of rights of all the partners
in the same property;
(3) A partners right in specific partnership
property is not subject to attachment or
execution, except on a claim against the
partnership. When partnership property is
attached for a partnership debt the partners, or
any of them, or the representatives of a
deceased partner, cannot claim any right under
the homestead or exemption laws;
(4) A partners right in specific partnership
property is not subject to legal support under
Article 291. (n)
The partners are considered co-owners of specific partnership
property
If A, B and C are partners who own specific property under the
partnerships name, what are their rights?
(1) They can use it for partnership business purposes
(2) They cannot use it for personal purposes WITHOUT the
consent of others.
Why cant A simply assign his right with respect to the
partnerships property?
(1) It doesnt belong to him
(2) The extent of his interest with regards to the property
cannot be determined before dissolution
The partnership can altogether assign a 3rd party with the right
to use the property for partnership business purposes.
The right of the partners as to the property is not subject to
attachment unless it is a claim against the partnership due to
the reason that any one partner is not the owner of it.
Under Article 291, the specific partnership property cannot be
used as the subject of legal support because it does not
belong to any one of the partners.
Article 1812
A partners interest in the partnership is his share of
the profits and surplus. (n)
The article defines what the partners interest in the partnership
is.
What is the partners interest in the partnership?
(1) DURING operations, the partners interest is his share in
profits and losses
(2) AFTER operations/LIQUIDATION/DISSOLUTION, his
interest is in the surplus of partnership assets after all
debts have been cleared.
Interest can be subject to attachment or execution because it
belongs to the partner, not the partnership.
Article 1813
A conveyance by a partner of his whole interest in
the partnership does not of itself dissolve the partner,
or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance
of the partnership, to interfere in the management or
administration of the partnership business or affairs, or
to require any information or account of partnership
transactions, or to inspect the partnership books but it
merely entitles the assignee to receive in accordance
with his contract the profits to which the assigning
partner would otherwise be entitled. However, in case of
fraud in the management of the partnership, the
assignee may avail himself of the usual remedies.
In case of dissolution of the partnership, the
assignee is entitled to receive his assignors interest
and may require an account from the date only of the
last account agreed to by all the partners. (n)
How can a partner convey his interest in the partnership
without getting the partnership dissolved?
(1) By selling it to a 3rd person
(2) By donating it to a 3rd person
(3) By using it as security on a loan from a 3rd person
Example:
D offers to buy As interest of P50,000.00 for P1,000,000.00
and A agrees to sell his interest. What happens now?
D becomes the assignee and A becomes the assignor but
the partnership will not be dissolved because his interest in
profits and surplus is the one being sold. A will also continue
to be the partner but D will be the one to receive his profits.
This is similar to sub-partnerships, so the consent of others is
not required for interest to be conveyed.
The assignee does not have any say in the management
Rights of the Assignee:
(1) He shall get the assignors share in profits/surplus
(2) He may avail of legal remedies of the partners in cases
of fraud by the assignor
(3) He can demand for an accounting upon dissolution but
only starting from the date of the last accounting
undertaken by the partnership
(4) Can ask for the dissolution of the partnership if it has
reached the end term or anytime if the partnership is
one at will, because he is interested in the surplus.
 The assignee, however, cannot become a partner without the
consent of the other partners because it will entail a change
in the partnerships composition.
Article 1814
Without prejudice to the preferred rights of a
partnership creditor under Article 1827, on due
application to a competent court by any judgment
creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest of
the debtor partner with payment of the unsatisfied
amount of such judgment debt with interest thereon;
and may then or later appoint a receiver of his share of
the profits, and of any other money due or to fall due to
him in respect of the partnership, and make all other
orders, directions, accounts and inquiries which the
debtor partner might have made, or which the
circumstances of the case may require.
The interest charged may be redeemed at any time
before foreclosure, or in case of a sale being directed by
the court, may be purchased without thereby causing
dissolution:
(1) With separate property, by any one or more of
the partners
(2) With partnership property, by any one or more of
the partners with the consent of all the partners
whose interests are not so charged or sold
Nothing in this Title shall be held to deprive a
partner of his right, if any, under the exemption laws, as
regards his interest in the partnership. (n)
Refers to a partner who obtained a loan from a 3rd person and
was unable to repay such.
For example, PARTNER A failed to pay CREDITOR C a sum of
P50,000.00, so C files against A, knowing that A, being a
partner, will receive his interest. C wins the case but A is still
unable to pay, so C asks that As interest be attached so that
it goes to C and cancels out As debt.
- Done to protect Cs interest
- Attached interest can be redeemed using the property of
the partners or the partnerships property, as long as all
partners consent to this, and are given reimbursement
from the defaulting partner
- Amount charged must e sufficient to pay the loan plus
legal interest
SECTION 3 Obligations of the Partners as to 3rd Persons
Article 1815
Every partnership shall operate under a firm name,
which may or may not include the name of one or more
of the partners.
Those who, not being members of the partnership,
include their names in the firm name, shall be subject to
the liability of a partner. (n)
Firm names are required for partnerships because they are
juridical persons in need of separate names so that they are
distinguishable from the partners and other partnerships.
The name can come from any of the partners or 3rd persons.
If a 3rd persons name is used with his consent, then he shall
be liable as a partner without the rights of a partner because
the partnership uses his name.
Partnership name must be registered with the (DTI)
DEPARTMENT OF TRADE AND INDSUTRY because if
there was already such an existing name, there might be
cases of duplication.
You cannot choose the name of a deceased partner as his
death caused the partnerships dissolution.
Sample General and Limited Partnership Names:
(1) GENERAL A & Company
(2) LIMITED A, Ltd.
Article 1816
All partners, including industrial ones, shall be
liable pro-rata with all their property and after all the
partnership assets have been exhausted, for the
contracts which may be entered into in the name and for
the account of the partnership under its signature and
by a person authorized to act for the partnership.
However, any partner may enter into a separate
obligation to perform a partnership contract. (n)
Article 1817
Any stipulation against the liability laid down in the
preceding article shall be void, expect as among the
partners. (n)
As to 3rd persons, ALL partners are liable pro-rata and
subsidiary, but as to each other, they are liable in proportion
to their capital contribution.
Examples:
(1) A, B and C are in a partnership where C is the industrial
partner and a sum of P26,000.00 is owed to D. A and B
contributed P15,000.00 and P5,000.00 respectively.
How shall the debt be shared?
As to D, the partners will share equally in the debt left
after exhausting all assets (P6,000.00) so they will each
have to pay P2,000.00 regardless of C being an
industrial partner. If C is insolvent, or if B died, or if A
has left the country, the liability of the partners cannot
be increased.
As to each other, they are liable in proportion to their
capital contribution, so B and C will be reimbursed by A.
(2) A, B, C, D and E are sued in court but E is later cleared
of his charges. The court orders A, B, C and D to pay
their creditor, but C moves to reconsider that all should
be charged, but this move was denied. Can A, B, C and
D alone be liable for the debt?
According to the Supreme Court, the 4 partners cannot
alone be liable for the debt because in excluding E, they
have increased the other partners liability and this is
prohibited by the law. The law states that the liability of
the partners cannot be increased such that they
shoulder the liability of another partner.
(3) What if there was an agreement that stated B is only
liable up to P5,000.00? How will A, B and C share in
their liability?
The stipulation shall be void as to 3rd persons, so they
will still share pro-rata. Anyway, B and C will be
reimbursed by A, because as among themselves, the
stipulation is valid and C is an industrial partner.
Article 1818
Every partner is an agent of the partnership for the
purpose of its business, and the act of every partner,
including the execution in the partnership name of any
instrument, for apparently carrying on in the usual way
the business of the partnership of which he is a member
binds the partnership, unless the partner so acting has
in fact no authority to act for the partnership in the
particular matter, and the person with whom he is
dealing has no knowledge of the fact that he has no
such authority.
An act of a partner which is not apparently for the
carrying on of business of the partnership in the usual
 way does not bind the partnership unless authorized by
the other partners.
Except when authorized by the other partners or
unless they have abandoned the business, one or more
but less than all the partners have no authority to:
(1) Assign the partnership property in trust for
creditors or o the assignees promise to pay the
debts of the partnership
(2) Dispose of the goodwill of the business
(3) Do any other act which would make impossible
to carry on the ordinary business of a
partnership
(4) Confess a judgment
(5) Enter into a compromise concerning a
partnership claim or liability
(6) Submit a partnership claim or liability to
arbitration
(7) Renounce a claim of the partnership
No act of a partner in contravention of a restriction
on authority shall bind the partnership to persons
having knowledge of the restriction. (n)
Qualifies the authority of partners.
Authority must be in the usual course of business.
Transactions beyond a partners authority is binding if it is
the usual course of business because the 3rd person
assumed to have no knowledge of his lack of authority.
When are transactions not binding?
(1) When a transaction is not in the usual course
business and has no consent from all other partners
(2) When the 3rd person had knowledge of the lack
authority of the acting partner
Article 1819
Where title to real property is in the partnership
name, any partner may convey title to such property by
a conveyance executed in the partnership name; but the
partnership may recover such property unless the
partners act binds the partnership under the provisions
of Article 1818, or unless such property has been
conveyed by the grantee or a person claiming through
such grantee to a holder for value without knowledge
that the partner, in making the conveyance, has
exceeded his authority.
Where title to real property is in the name of the
partnership, a conveyance executed by a partner, in his
own name, passes the equitable interest of the
partnership, provided the act is one within the authority
of the partner under the provisions of Article 1818.
Where title to real property is in the name of one or
more but not all the partners, and the record does not
disclose the right of the partnership, the partners in
whose name the title stands may convey title to such
property, but the partnership may recover such property
if the partners act does not bind the partnership under
Article 1818, unless the purchaser of his assignee, is a
holder for value without knowledge.
Where title to real property is in the name of one or
more or all partners, or in a 3trd person in trust for the
partnership, a conveyance executed by a partner in the
partnership name, or in his name, passes the equitable
interest of the partnership, provided the act is one
within the authority of the partner under Article 1818.
Where title to real property is in the names of all the
partners a conveyance executed by all the partners
passes all their rights in such property. (n)
Refers to the conveyance of immovable property
Suppose A, B and C are partners engaged in the buying and
selling of property, and the following situations occur:
(1) A, without authority, sells land to D in the partnerships
name but D immediately sells it to E. The land title was
originally under the partnerships name. Can the
partnership recover the land?
Title passes to D, then to E. The partnership cannot
recover the land once it has transferred to E but if the
land was still with D, they could have recovered it if the
contract was not binding .
(2) What if A sells the property under his name?
Only the equitable title passes to D.
(3) What if A sells the property and the land title is
registered under his name?
Title passes to D because land is registered under the
partners names. This will hold true if A, B and C are co-
owners of the land, even if only A sold it to D.
(4) Land title belongs to one or more or all of the partners or
a 3rd person in trust for the partnership.
Only the equitable title will pass to D if the seller had no
authority to sell such to D.
(5) A, B and C ALL sell the land to D, with the land title
belonging to ALL of them.
Title passes to D because ALL partners sell to him.
in
is Article 1820
An admission or representation made by any
partner concerning the partnership affairs within the
of scope of his authority in accordance with this Title is
evidence against the partnership. (n)
of
Anything a partner says or admits, as long as it is concerning
the partnership affairs and it is within the scope of his
authority, is sufficient evidence against the partnership.
This article is a rule of evidence
In order that admission/representation made can be used as
evidence, the existence of the partnership must be
established and proved first.
Example:
(1) Partner A borrows money from the bank and declares
that the money borrowed is for the partnership.
This statement, made by A, is enough evidence against
the partnership and the bank may use this in case the
partnership does not pay back the money borrowed.
(2) A, B, and C are partners. A told D, a 3rd person, that the
debtor already paid his obligation to the partnership. Is
this enough evidence against the partnership?
YES, since it concerns partnership affairs and the
partner has authority to say so.
Article 1821
Notice to any partner of any matter relating to
partnership affairs, and the knowledge of the partner
acting in the particular matter, acquired while a partner
or then present to his mind, and the knowledge of any
other partner who reasonably could and should have
communicated it to the acting partner, operate his notice
to or knowledge of the partnership, except in the case of
a fraud on the partnership, committed by or with the
consent of that partner. (n)
IN SHORT, notice to ANY of the partners is notice to the
partnership. (You don't have to notify EVERY partner in
relation to partnership affairs).
Knowledge of a partner acting in a particular manner (meaning
the partner is a managing partner), or knowledge of any
partner who SHOULD HAVE communicated it to the
managing partner, is knowledge to the partnership.
 This is so EVEN IF the non-managerial partner does not
communicate the information he knows regarding
partnership affairs. The partner SHOULD have
communicated this. Non knowledge by other partners is not
a reason to evade from obligations.
If notice is delivered to a partner, that is an effective
communication to the partnership, notwithstanding the failure
of the partner to communicate such notice or knowledge to
the other partners.
Example:
(1) A, B, and C are partners where B is the managing
partner. D, a 3rd person, filed a case against the
partners AND the partnership for some unknown
reason. Does D need to notify all of them?
If this is done, D just needs to notify either A, B, or C,
but doesn't have to notify ALL OF THEM (imagine if
there are 100 partners, it would be burdensome and
costly to notify all 100). So if A is notified about the case,
that is considered by D as notice to EVERYONE even if
A is not a managerial partner (since A should
communicate this to all partners).
(2) Suppose D wants to sell a piece of land to the
partnership and notifies B (the managing partner) about
it, but warns him that the land is under litigation and
there is a possibility of the land to be claimed by E. B
took the risk and purchased the land. Later on, E still
claimed the land. Can the partners reclaim this?
Even though ALL partners were not informed about the
litigation, the partnership cannot get the land anymore
since B was informed about it. Notice to B, the acting
partner, is already notice to the partnership.
(3) Suppose before B became a partner, D was able to talk
to him about the piece of land under litigation. Later on,
B became a managing partner and purchased the land
D told him about a long time ago. E won the litigation
and was able to claim the land. Can the partnership
reclaim the land?
The partnership cannot get it anymore. Even if D was
not informed WHILE he was a partner, the information
was still present in his mind. The issue here would be: If
B can still recall the conversation he had with D before
he became a managing partner.
(4) Suppose D informed C (who is not a managing partner)
about the land under litigation. Later on, D sold the land
to B, the managing partner, without informing him that
the land was under litigation (take note: the information
was given to C). Is notice to C, a notice to B?
YES, because C should have communicated the
information.
In cases (2), (3) and (4), the partnership can't file action
for damages against D since the "partnership had
knowledge" about the litigation but the partners still took
the risk of buying the land.
Article 1822
Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of
the partnership or with the authority of his co-partner,
loss or injury is caused to any person, not being a
partner in the partnership, or any penalty is incurred, the
partnership is liable therefore to the same extent as the
partner so acting or omitting to act. (n)
Article 1823
The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of
a third person and misapplies it; and
(2) Where the partnership in the course of its
business receives money or property of a third
person and the money or property so received is
misapplied by any partner while it is in the
custody of the partnership. (n)
Article 1824
All partners are liable solidarily with the partnership
for everything chargeable to the partnership under
Articles 1822 and 1823. (n)
In the following cases, obligation is not pro-rata or equal, but a
solidary obligation. Any partner MAY pay for the obligation
(Unlike in article 1816, each partner should only pay for their
SHARE):
(1) When by an unlawful act or omission, loss or injury is
caused to 3rd person.
- Example:
(a) A, B, and C are partners. A made an act of
omission with D as the victim. He caused
P50,000 worth of injury to D. What can D do?
D can go to A for the full amount of P50,000
OR FROM B OR C.
(b) Can D go to B for the whole e P50,000 since B
is the richest among the partners?
This is allowable since the partners have a
solidary obligation through As act of omission.
B will be entitled for reimbursement from the
one responsible, A.
- Any one of A, B, OR C, or all partners including the
partnership can pay without prejudice to the rights
of partners to get reimbursement from the one
responsible for the crime
(2) A partner, within the scope of his authority, receives
money or property from a third person and misapplies it.
- Example:
A partnership is engaged in a pawnshop business.
D, a 3rd person, pawned his watch to A and A sells
it. Who is liable for the watch?
All partners are solidarily liable to D since A
misapplies the watch received from D.
(3) The partnership, in its ordinary course of business,
receives money or property from a 3rd person and a
partner misapplies it while in the custody of the
partnership.
- Example:
The partnership is engaged in a pawnshop
business where it received a watch from D to be
pawned. The watch is placed in the partnership
VAULT. B, a partner, gets the watch from the vault
and sells it. Who is liable for the watch?
All partners are solidarily liable.
Article 1825
When a person, by words spoken or written or by
conduct, represents himself, or consents to another
representing him to anyone, as a partner in an existing
partnership or with one or more persons not actual
partners, he is liable to any such persons to whom such
representation has been made, who has, on the faith of
such representation, given credit to the actual or
apparent partnership, and if he has made such
representation or consented to its being made in a
public manner he is liable to such person, whether the
representation has or has not been made or
communicated to such person so giving credit by or
with the knowledge of the apparent partner making the
representation or consent to its being made:
 (1) When a partnership liability results, he is liable
as though he were an actual member of the
partnership;
(2) When no partnership liability results, he is liable
pro rata with the other persons, if any, so
consenting to the contract or representation as
to incur liability, otherwise separately.
When a person has been thus represented to be a
partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the
persons consenting to such representation to bind them
to the same extent and in the same manner as though
he were a partner in fact, with respect to persons who
rely upon the representation. When all the members of
the existing partnership consent to the representation, a
partnership act or obligation results; but in all other
cases it is the joint act or obligation of the person acting
and the persons consenting to the representation. (n)
2 things being mentioned:
(1) PARTNERSHIP by estoppels
- There is an existing partnership, and partners
misrepresent themselves together with a 3rd
person.
- EXAMPLE:
(a) Suppose there is a partnership, X, with
partners A, B, and C. D told E that he is a
partner of A, B, and C. E verified from the
actual partners of X partnership if D is really a
partner, A, B, and C consented. E entered in a
contract with D, believing he was a partner.
This is partnership by estoppels since A, B,
and C verified D as a partner. In this case, E
can go after A, B, and C.
(b) Suppose only A and B consented, is there a
partnership by estoppels?
There will be no partnership by estoppels since
only A and B, not all partners, consented to Ds
misrepresentation.
(2) PARTNERS by estoppels
- 2 or more persons pretend to be partners in the
eyes of 3rd persons.
- Example:
A, B, AND C said they were partners to D and
entered in a contract with the partners. When it
was time for them to pay D for their obligation, they
cannot for the reason that they are not partners.
What is their obligation to D?
Their obligation to D will be pro rata, as if they were
partners (since they are partners by estoppels)
Article 1826
A person admitted as a partner into an existing
partnership is liable for all the obligation of the
partnership arising before his admission as though he
had been a partner when such obligation were incurred,
except that this liability shall be satisfied only out of
partnership property, unless there is a stipulation to the
contrary. (n)
A new partner admitted to an existing partnership is also liable
to the obligations existing before he was admitted, but his
liability only extends to his contribution to the partnership
UNLESS stipulated.
A new partner is liable to his separate property when the
obligation was incurred when he was already a partner.
Example
A, B, and C are the original partners of the partnership X
with contributions of P10,000.00 each. X partnership owes
D P40,000.00. Later on, E entered the partnership and
contributed P4,000.00. How shall the debt be paid?
P34,000.00 will be paid to D out of the partnership assets,
and the P6,000 will be paid through A, B, and Cs personal
assets. The P6,000.00 will be divided among the 3 original
partners pro rata.
Article 1827
The creditors of the partnership shall be preferred
to those of each partner as regards the partnership
property. Without prejudice to this right, the private
creditors of each partner may ask for the attachment
and public sale of the share of the latter in the
partnership assets. (n)
Partnership creditors have BETTER RIGHTS to partner
obligation WITH REGARD TO PARTNERSHIP PROPERTY.
Personal creditors of partners have BETTER RIGHT than a
partnership creditor with regards to PERSONAL PROPERTY
of the partner.
EXAMPLE:
(1) A, B, and C are partners. A OWES E P6,000.00. The
PARTNERSHIP OWES D P28,000.00. The total
partnership assets amount to P40,000.00. Who has
better right to the partnership property?
In this case, D, the partnership creditor, has a better
right to the partnership property. When obligation to D
is paid, what will be left for the partners to share is
P4,000.00. If E, the personal creditor of A, demands
to be paid out of partnership property, he will only get
P4,000.00 from it since the priority is the partnership
creditor. The P2,000.00 will be paid out from As
personal property.
(2) If total partnership assets is only P28,000.00, and the
liability of the partnership is P40,000,, how shall the
debt be paid?
A, B, and C will have to pay E P6,000.00 each.
(3) If A only had P6,000.00 of personal property, who will
have the better right to this?
As priority is his personal creditor, E. So D cannot
collect As share of P4,000.00. D cannot, also,
increase the obligation of the other partners to be able
to collect their debt.
Chapter 3 Dissolution and Winding Up
Article 1828
The dissolution of a partnership is the change in the
relation of partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the
winding up of business. (n)
Article 1829
On dissolution, the partnership is not terminated,
but continues until the winding up of partnership affairs
is completed. (n)
Article 1830
Dissolution is caused:
(1) Without violation of the agreement between the
partners:
(2) In contravention of the agreement between the
partners, where the circumstances do not
permit a dissolution under any other provision
of this article, by the express will of any partner
at any time;
 (3) By any event which makes it unlawful for the
business of the partnership to be carried on or
the members to carry it on in partnership;
(4) When a specific thing, which a partner had
promised to contribute to the partnership,
perishes before the delivery; in any case by the
loss of the thing, when the partner who
contributed it having reserved the ownership
thereof, has only transferred to the partnership
the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership
has acquire the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the
partnership
(7) By the civil interdiction of any partner;
(8) By degree of court under the following article.
(1700a and 1701a)
Dissolution is usually caused by change a change of relation
between partners.
If there is dissolution, no new partnership business may be
undertaken
Upon dissolution, partnership continues until winding up and
liquidation is completed.
CAUSES OF DISSOLUTION:
(1) WITHOUT VIOLATION OF AGREEMENT
(a) Termination/expiration of term or specific
undertaking
(b) Upon express will of any partner if there is no term
or specific undertaking AS LONG AS PARTERS
ACT IN GOOD FAITH.
(c) Upon the will of the partners whose interest is not
assigned or charged.
- Example:
A sold his interest to E, and Bs interest is
charged to F because he borrowed P50,000
from him. C and D are the only ones who can
ask for dissolution since their interest is not
assigned or charged.
(d) Expulsion bona fide of a partner (a partner is
expelled in good faith in accordance with
agreement.
(e) Expulsion has the effect of decreasing the # of
partners.
(2) IN VIOLATION OF THE AGREEMENT
- Example:
A, B, and C agreed that the term of their
partnership is only until Dec. 31, 2011. A goes to
premature resignation (resigns early from
partnership). No one can prevent A from resigning,
but the partners can ask for damages for not
staying with the agreement.
(3) When it becomes unlawful for a partnership to carry on
the business or partner to carry on his role
(4) When specific thing is contributed, and before deliver, it
is lost.
- If it is lost after delivery, partnership is not
dissolved.
- If use is contributed, it is lost before or after delivery
(it doesnt matter when it was lost), partnership is
dissolved.
- If what is to be contributed is generic, and it is lost,
there is no dissolution.
Article 1831
On application by or for a partner, the court shall
decree dissolution whenever:
(1) A partner has been declared insane in any
judicial proceeding or is shown to be of unsound
mind;
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of the
business;
(4) A partner willfully or persistently commits breach
of the partnership agreement, or otherwise so
conducts himself in matters relating to the
partnership business that it is not reasonably
practicable to carry on the business in
partnership with him;
(5) The business of the partnership can only be
carried on at a loss
(6) Other circumstances that will render dissolution
equitable
On the application of the purchaser of a partners
interest under Article 1813 or 1814:
(1) After the termination of the specific term or
particular undertaking
(2) At any time the partnership was a partnership at
will when the interest was assigned or when the
charging order was issued. (n)
When can a partnership be dissolved judicially?
(1) When a partner is DECLARED insane
(2) When he becomes incapable of performing his part in
the partnership
(3) Misconduct of a partner prejudicially to the business
(4) Persistent breach of partnership agreement
(5) The business can only be carried out on a loss
(6) Other circumstances:
(a) Abandonment of the business
(b) Fraud
(c) Refusal to render an accounting
(7) On application of 3rd parties (who purchased or have
charged a partners interest) right as per Articles 1813
and 1814
Article 1832
Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun
but not then finished, dissolution terminates all
authority of any partner to act of the partnership:
(1) With respect to the partners
(a) When the dissolution is not by the act,
insolvency or death of a partner
(b) When the dissolution is by such act,
insolvency or death of a partner, in cases
where Article 1833 so requires
(2) With respect to persons not partners, as
declared in Article 1834
General Rule:
When partnerships are dissolved, partners cannot engage in
new business transactions because their authority to do so
terminates upon the occurrence of dissolution.
2 Cases with are Contrary to the General Rule:
(1) During the WINDING UP of Business
- Transactions relating to the winding up of business
such as the liquidation of partnership assets can be
entered into because the partners authorities to do
so shall continue.
(2) To complete unfinished transactions during dissolution
- Example:
A and B are in a partnership where they have
contracted with C to deliver goods in two
 installments. B resigns after the first delivery is
made, thus dissolving the partnership. Can A and B
cease to continue with their obligation?
NO. A and B must continue on with their obligation
to complete unfinished transactions.
If dissolution is not by an act, insolvency or death, the authority
of partners as among themselves is terminated.
- Example:
A partnership was dissolved due to the expiration of the
term. If C transacts with D after this and he defaults, he
will be the only one liable AS TO THE PARTNERS. If A
& B are to pay D, C shall reimburse them.
Article 1833
Where the dissolution is caused by the act, death or
insolvency of a partner, each partner is liable to his co-
partners for his share of any liability created by any
partner acting for the partnership as if the partnership
had not been dissolved unless:
(1) The dissolution being by act of any partner, the
partner acting for the partnership had
knowledge of the dissolution
(2) The dissolution being by death or insolvency of
a partner, the partner acting for the partnership
had knowledge or notice of the death or
insolvency
If dissolution is caused by an act, insolvency or death, then
each partner shall share in the liability of the partnership due
to the actions of a partner, unless he had knowledge of an
act, insolvency or death, or notice of the insolvency or death.
Example:
(1) B told A that he is resigning TODAY. The partnership is
thus dissolved. Should A enter into a contract with D,
who shall be liable?
As among themselves, only A because he had
knowledge of Bs resignation, thus knowing that they are
no longer in a partnership.
(2) If B texts his resignation to A because A is in Mindanao
and A contracts with D, was his authority terminated
when the text arrived?
No, As authority was not terminated as he has only
received a NOTICE. Mere notice cannot terminate the
authority of partners because the grounds are BY AN
ACT, and because of this it should be PERSONALLY
KNOWN by the acting partner.
(3) If C texts A that B had died, does their authority
terminate once A gets the text message?
Their authority is terminated because in this case, the
cause of dissolution is death. Mere notice is sufficient to
terminate authority if the grounds are due to the
insolvency or to the death of a partner.
Article 1834
After dissolution, a partner can bind the
partnership, except as provided in the third paragraph of
this article:
(1) By an act appropriate for winding up
partnership affairs or completing transactions
unfinished at dissolution
(2) By any transaction which would bind the
partnership is dissolution had not taken place,
provided the other party to the transaction:
(a) Had extended credit to the partnership prior
to dissolution and had no knowledge or
notice of the dissolution; or
(b) Though he had not so extended credit, had
nevertheless known of the partnership prior
to dissolution, and, having no knowledge or
notice of dissolution, the fact of dissolution
had not been advertised in a newspaper of
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 partnership assets alone
when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom
the contract is made; and
(2) So far unknown and inactive in partnership
affairs that the business reputation of the
partnership could not be said to have been in
any degree due to his connection with it
The partnership is in no case bound by any act of a
partner after dissolution:
(1) Where the partnership is dissolved because it is
unlawful to carry on the business, unless the
act is appropriate for winding up partnership
affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner had no authority to wind up
partnership affairs; except by a transaction with
one who
(a) Had extended credit to the partnership prior
to dissolution and had no knowledge or
notice of his want of authority; or
(b) Had not extended credit to the partnership
prior to dissolution, and, having no
knowledge or notice of his want of
authority, the fact of his want of authority
has not been advertised in the manner
provided for advertising the fact of
dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under
article 1825 of any person who after dissolution
represents himself or consents to another representing
him as a partner in a partnership engaged in carrying on
business (n)
Partners may still bind the partnership to transactions even
after dissolution if the transactions are with respect to the
winding up or the completion of unfinished transactions.
The transaction will be binding if:
(1) Credit was extended without knowledge of the
dissolution before the dissolution
(2) No credit was extended but there was knowledge of the
partnerships existence and none of the dissolution
The partnership is required to have the dissolution be
announced in general circulation newspapers of the place of
operations. As long as they do this, then it is sufficient notice
to all third persons. (If you dont read broadsheets, thats
your fault, not the partnerships)
Liabilities shall be satisfied out of partnership assets alone if
the partner being dealt with is a DORMANT partner.
Upon dissolution, the partnership is no longer bound by
transactions :
(1) When it becomes unlawful to carry on the business
(2) Insolvency of a partner
(3) Unauthorized winding up, except when
(a) Credit was extended and there was no knowledge
of the lack of authority
(b) No credit was extended and there was no
knowledge of the dissolution because there was no
advertisement of such
In the case wherein A still represents himself as a partner
even if the partnership has already been dissolved, then he
is a PARTNER BY ESTOPPEL.

Article 1835
The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
A partner is discharged from any existing liability
upon dissolution of the partnership by an agreement to
that effect between himself, the partnership creditor and
the person or partnership continuing the business; and
such agreement may be inferred from the course of
dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing
the business.
The individual property of a deceased partner shall
be liable for all obligations of the partnership incurred
while he was a partner, but subject to the prior payment
of his separate debts. (n)
Dissolution does not discharge the partnership and/or the
partners from existing liabilities
EXAMPLE:
Suppose A, B and C are in a partnership (X & Co.) and owe
D a sum of P 26,000.00. Total partnership assets equate to a
sum of P 20,000.00.
(1) What if C dies and his total assets are worth P2,000.00?
The law says that Cs individual property shall be used
to clear his liabilities when he was still alive. In all cases,
the PERSONAL CREDITOR has priority.
(2) What if A resigns? Can he ask to be discharged from his
obligation to pay D?
A can only be discharged from his obligation to pay D
the sum of P2,000.00 if it was agreed upon by all
concerned parties. Agreement can be EXPRESSED or
IMPLIED, based on our interpretation of the law.
Article 1836
Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal
representative of the last surviving partner, not
insolvent, has the right to wind up the partnership
affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may
obtain winding up by the court. (n)
Who can wind up partnership affairs?
(1) Whoever is so assigned by the agreement
(2) Partners who did not wrongfully cause the dissolution
(3) Legal representatives of the last surviving partner (who
is not insolvent)
(4) The court in a judicial winding up of partnership affairs.
Article 1837
When dissolution is caused in any way, except in
contravention of the partnership agreement, each
partner, as against his co-partners and all persons
claiming through them in respect of their interests in the
partnership, unless otherwise agreed, may have the
partnership property applied to discharge its liabilities,
and the surplus applied to pay in cash the net amount
owing to the respective partners. But if dissolution is
caused by expulsion of a partner, bona fide under the
partnership agreement and if the expelled partner is
discharged from all partnership liabilities, either by
payment or agreement under the second paragraph of
Article 1835, He shall receive in cash only the net
amount due him from the partnership.
When dissolution is caused in contravention of the
partnership agreement the rights of the partners shall be
as follows:
(1) Each partner who has not caused dissolution
wrongfully shall have:
(a) All the rights specified in the first
paragraph of this article, and
(b) The right, as against each partner who
caused the dissolution wrongfully to
damages for breach of the agreement
(2) The partners who have not caused the
dissolution wrongfully, if they all desire to
continue the business in the same name either
by themselves or jointly with others, may do so,
during the agreed term for the partnership and
for that purpose may possess the partnership
property, provided they secure the payment by
bond approved by the court, or pay to any
partner who has caused the dissolution
wrongfully, the value of his interest in the
partnership at the dissolution, less any
damages recoverable under the second
paragraph, No. 1 (b) of this article, and in like
manner indemnify him against all present or
future partnership liabilities.
(3) A partner who has caused the dissolution
wrongfully shall have:
(a) If the business is not continued under the
provisions of the second paragraph, No. 2,
all the rights of a partner under the first
paragraph, subject to liability for damages
in the second paragraph, No. 1 (b), of this
article.
(b) If the business is continued under the
second paragraph, No. 2, of this article, the
right as against his co-partners and all
claiming through them in respect of their
interests in the partnership, to have the
value of his interest in the partnership, less
any damage caused to his co-partners by
the dissolution ascertained and paid to him
in cash, or the payment secured by a bond
approved by the court, and to be released
from all existing liabilities of the
partnership; but in ascertaining the value of
the partners interest the value of the
goodwill of the business shall not be
considered. (n)
Suppose there is a situation wherein A, B and C are in a
partnership, X & Co., with total assets of P 26,000.00 and
liabilities to D amounting to P 20,000.00. If the partnership is
dissolved WITHOUT VIOLATION OF ANY AGREEMENTS,
naturally, the liability will be cleared because the partnership
assets are more than enough, and the surplus will be given
to each of the partners in proportion to their interest in the
partnership or as per their agreement.
What if the partnership was dissolved due to EXPULSION?
Suppose that A was the one expelled from the partnership,
then he can only get a share in the NET PROCEEDS of the
surplus that would have originally been his.
What if the partnership was dissolved due to VIOLATION OF
AGREEMENTS?
Determine the rights of the INNOCENT and GUILTY parties.
Suppose that in this situation, A was the one guilty of
violating an agreement. Then B and C will be allowed the
following rights:
(1) Apply partnership assets to partnership liabilities and
distribute the cash surplus amongst themselves.
(2) To be indemnified for the damages that A has caused.
(3) To continue the business up to the agreed term.
(4) To possess partnership property.
 While A will have the following rights:
(1) Partners decide not to continue the business
(a) Right to claim his share in the cash surplus, but
only the net proceeds of such meaning, the cash
surplus less damages.
(2) Continue the business
(a) Ascertain his interest in the business.
(b) Freedom from existing and future liabilities of the
partnership.
Article 1838
Where a partnership contract is rescinded on the
ground of the fraud or misrepresentation of one of the
parties thereto, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus
of the partnership property after satisfying the
partnership liabilities to third persons for any
sum of money paid by him for the purchase of
an interest in the partnership and for any capital
or advances contributed by him;
(2) To stand, after all liabilities to third persons
have been satisfied, in the place of the creditors
of the partnership for any payments made by
him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the
fraud or making the representation against all
debts and liabilities of the partnership. (n)
Considers a case wherein a partner was induced to join the
partnership by means of fraud or misrepresentation
The victim can ask for the recision or restitution of the contract
of partnership (return of all his contributions)
He has the right to the surplus for certain purposes
He has the rights of a 3rd person or a subrogated creditor after
the liabilities have already been paid to recollect what he
paid when he entered into the partnership.
He is entitled to be indemnified for all debts and liabilities that
he paid for during his time in the partnership.
Article 1839
In settling accounts between the partners after
dissolution, the following rules shall be observed,
subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property
(b) The contributions of the partners necessary
for the payment of all the liabilities
specified in No. 2
(2) The liabilities of the partnership shall rank in
order of payment, as follows:
(a) Those owing to creditors other than
partners
(b) Those owing to partners other than for
capital and profits
(c) Those owing to partners in respect of
capital
(d) Those owing to partners in respect of
profits
(3) The assets shall be applied in the order of their
declaration in No. 1 of this article to the
satisfaction of the liabilities
(4) The partners shall contribute, as provided by
Article 1797, the amount necessary to satisfy
the liabilities
(5) An assignee for the benefit of the cr4editor or
any person appointed by the court shall have
the right to enforce the contributions specified
in the preceding number.
(6) Any partner or his legal representative shall
have the right to enforce the contributions
specified in No. 4, to the extent of the amount
which he has paid in excess of his share of the
liability.
(7) The individual property of a deceased partner
shall be liable for the contributions specified in
No. 4
(8) When partnership property and the individual
properties of the partners are in possession of a
court for distribution, partnership creditors
shall have priority on partnership property and
separate creditors on individual property,
saving the rights of lien or secured creditors
(9) Where a partner has become insolvent or his
estate is insolvent, the claims against his
separate property shall rank in the following
order:
(a) Those owing to separate creditors
(b) Those owing to partnership creditors
(c) Those owing to partners by way of
contribution (n)
Considers the case of liquidation and the distribution of
partnership assets
Liquidation is when all the assets of the partnership is
converted to cash.
Total assets will include GOODWILL as well as the original
CONTRIBUTIONS of the partners.
Order of payment during liquidation:
(1) 3rd persons/outside creditors
(2) Partner creditors (partners who have claims)
(3) Normal partners (all partners)
(a) In accordance with the agreement
(b) In proportion to their contribution
Article 1840
In the following cases, creditors of the dissolved
partnership are also creditors of the person or
partnership continuing the business:
(1) When any new partner is admitted into an
existing partnership, or when any partner
retires and assigns (or the representative of the
deceased partner assigns) his rights in
partnership property to two or more of the
partners, or to one or more of the partners and
one or more third persons, if the business is
continued without liquidation of the partnership
affairs;
(2) When all but one partner retire and assign (or
the representative of a deceased partner
assigns) their rights in partnership property to
the remaining partner, who continues the
business without liquidation of partnership
affairs, either alone or with others;
(3) When any partner retires or dies and the
business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this
article, with the consent of the retired partner or
the representative of the deceased partner, but
without any assignment of his right in
partnership property;
(4) When all the partners or their representatives
assign their rights in partnership property to
one or more third persons who promise to pay
the debts and who continue the business of the
dissolved partnership;
 (5) When any partner wrongfully causes a
dissolution and the remaining partners continue
the business under the provisions of Article
1837, second paragraph, No. 2, either alone or
with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or
with others without liquidation of the
partnership affairs.
The liability of a third person becoming a partner in
the partnership continuing the business, under this
article, to the creditors of the dissolved partnership
shall be satisfied out of the partnership property only,
unless there is a stipulation to the contrary.
When the business of a partnership after
dissolution is continued under any conditions set forth
in this article, the creditors of the dissolved partnership,
as against the separate creditors of the retiring or
deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner
against the person or partnership continuing the
business, on account of the retired or deceased
partners interest in the dissolved partnership or on
account of any consideration promised for such interest
or for his right in partnership property.
Nothing in this article shall be held to modify any
right of creditors to set aside any assignment on the
ground of fraud.
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for
any debts contracted by such person or partnership. (n)
Explains the rights of the creditor in case of partnership
dissolution because of membership changes and the
business is continued without liquidation.
The membership changes include RETIREMENT,
EXPULSION, DEATH or ADDITION.
Note that the creditor of the OLD partnership will still be the
creditor of the NEW partnership if there is still an old
partner/original partner with the NEW partnership. (debt will
not be cleared or discharged)
The creditor will continue to be the creditor of the
remaining/new partnership in all cases except when:
(1) Rights are assigned to other people (no old partners)
(2) Unless there is a promise to pay debt from the new
partners or if the creditor can set aside the right of the
new partners on the ground of fraud.
Article 1841
When any partner retires or dies, and the business
is continued under any of the conditions set forth in the
preceding article, or in Article 1837, second paragraph,
No. 2, without any settlement of accounts as between
him or his estate and the person or partnership
continuing the business, unless otherwise agreed, he or
his legal representative as against such person or
partnership may have the value of his interest at the
date of dissolution ascertained, and shall receive as an
ordinary creditor an amount equal to the value of his
interest in the dissolved partnership with interest, or, at
his option or at the option of his legal representative, in
lieu of interest, the profits attributable to the use of his
right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership
as against the separate creditors, or the representative
of the retired or deceased partner, shall have priority on
any claim arising under this article, providing by Article
1840, third paragraph. (n)
Suppose that A retires but B and C continue the business
without liquidation. What are the rights of A?
The rights of A are as follows:
(1) That his interest be ascertained as of dissolution date
(2) Collect his interest in the partnership plus interest or
profits by the use of his right to these as a creditor
If A dies, and the same situation occurs (he did not retire),
then his legal representatives have the same rights as
mentioned above.
Article 1842
The right to an account of his interest shall accrue
to any partner, or his legal representative as against the
winding up partners or the surviving partners or the
person or partnership continuing the business, at the
date of dissolution, in the absence of any agreement to
the contrary. (n)
Who can demand to know how much his interest is in the
partnership and from whom?
All involved parties can demand to know how much his
interest is. He can demand to know these from the
SURVIVING, CONTINUING and WINDING UP partners.
CHAPTER 4 LIMITED PARTNERSHIP
Article 1843
A limited partnership is one formed by two or more
persons under the provisions of the following article,
having as members one or more general partners and
one or more limited partners. The limited partners as
such shall not be bound by the obligations of the
partnership.
Defines what a limited partnership is.
It is sufficient that there is 1 general and 1 limited partner in a
limited partnership.
The reason for the existence of a limited partnership is to
address the needs of all those who wish to join a partnership
without the risk of losing any personal property.
Characteristics:
(1) Comply with the statutory requirements of Article 1824
(2) General partners control the partnership and are
personally liable for partnership debts.
(3) Limited partners contribute capital and are not liable
personally for partnership debts.
Article 1844
Two or more persons desiring to form a limited
partnership shall:
(1) Sign and swear to a certificate, which shall state
(a) The name of the partnership, adding thereto
the word Limited
(b) The character of the business
(c) The location of the principal place of
business
(d) The name and place of residence of each
member, general and limited partners being
respectively designated
(e) The term for which the partnership is to
exist
(f) The amount of cash and a description of
and the agreed value of the other property
contributed by each limited partner
 (g) The additional contributions, if any, to be
made by each limited partner and the times
at which or events on the happening of
which they shall be made
(h) The time, if agreed upon, when the
contribution of each limited partner is to be
returned
(i) The share of the profits or the other
compensation by way of income which
each limited partner shall receive by reason
of his contribution
(j) The right, if give, of a limited partner to
substitute an assignee as contributor in his
place, and the terms and conditions of the
substitution
(k) The right, if given, of the partners to admit
additional limited partners
(l) The right, if given, of one or more of the
limited partners to priority over other
limited partners, as to contributions or as to
compensation b way of income, and the
nature of such priority
(m) The right, if given, of the remaining general
partner or partners to continue the
business on the death, retirement, civil
interdiction, insanity or insolvency of a
general partner
(n) The right, if given, of a limited partner to
demand and receive property other than
cash in return for his contribution
(2) File for record the certificate in the Office of the
Securities and Exchange Commission.
A limited partnership is formed if there has been
substantial compliance in good faith with the foregoing
requirements.
Two requirements in a limited partnership:
(1) Sign and swear to a certificate containing the data
mentioned in the article (a) to (n)
(2) Have the certificate recorded with the SEC
Can a limited partnership be formed orally?
No. A limited partnership contract is not perfected by mere
agreement as it requires formal proceedings.
Partnership must SUBSTANTIALLY comply with the
requirements.
What if the partnership does not comply with the
requirements? Will it be void?
No, it will only become a GENERAL PARTNERSHIP.
Why is it that the certificate must be registered?
Registration is the notice, to all 3 rd persons who will be
dealing with or are dealing with the partnership, that there
are partners with limited liability.
The presumption is that when a partnership deals with a 3 rd
person, the partnership is a GENERAL partnership.
Article 1845
The contributions of a limited partner may be cash
or other property, but not services.
Limited partners can only contribute cash or other property, not
services because if he does so, then he shall become a
GENERAL INDUSTRIAL PARTNER.
Contribution must be given immediately. If he has promised
additional contribution, then it should be given on the date
promised or agreed upon.
Article 1846
The surname of a limited partner shall not appear in
the partnership name unless:
(1) It is also the surname of a general partner
(2) Prior to the time when the limited partner
became such, the business had been carried on
under a name in which his surname appeared
A limited partner whose surname appears in a
partnership name contrary to the provisions of the first
paragraph is liable as a general partner to partnership
creditors who extend credit to the partnership without
actual knowledge that he is not a general partner.
The surname of the limited partner should not appear except if
it is also the surname of a general partner or if at the time of
his admission, it was already being used.
If the limited partner allows that his surname be used, then he
shall be held liable as a general partner as to 3rd persons
who extended credit not knowing he was a limited partner.
If the creditor has knowledge of his being a limited partner,
then this rule shall not apply.
Article 1847
If the certificate contains a false statement, one who
suffers loss by reliance on such statement may hold
liable any party to the certificate who knew the
statement to be false:
(1) At the time he signed the certificate
(2) Subsequently, but within a sufficient time before
the statement was relied upon to enable him to
cancel or amend the certificate, or to file a
petition for its cancellation or amendment as
provided in Article 1865.
If there are false statements in the certification and 3 rd persons
should suffer loss due to these, then he can hold liable all
those who had knowledge of the false statement at the time
certification was signed.
The same shall apply if the partners concerned had sufficient
time to have the certificate cancelled but did not do so.
Article 1848
A limited partner shall not become liable as a
general partner unless, in addition to the exercise of his
rights and powers as a limited partner, he takes part in
the control of the business.
The limited partner who, aside from his powers, participates in
the management of the partnership becomes liable as a
general partner.
Article 1849
After the formation of a limited partnership,
additional limited partners may be admitted upon filing
an amendment to the original certificate in accordance
with the requirements of Article 1865.
Suppose that in a limited partnership, there are only 2 general
partners and 1 limited partner. Can you add another limited
partner?
Yes, amend the certificate under Article 1865 and do so.
Article 1850
A general partner shall have all the rights and
powers and be subject to all the restrictions and
liabilities of a partner in a partnership without limited
partners. However, without the written consent or
ratification of the specific act by all the limited partners,
 a general partner or all of the general partners have no
authority to:
(1) Do any act in contravention of the certificate
(2) Do any act which would make it impossible to
carry on the ordinary business of the
partnership
(3) Confess a judgment against the partnership
(4) Possess partnership property, or assign their
rights in specific partnership property, for other
than a partnership purpose
(5) Admit a person as a general partner
(6) Admit a person as a limited partner, unless the
right to do so is given in the certificate
(7) Continue the business with partnership
property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner,
unless the right to do so is given in the
certificate
Refers to the power, liabilities and limitations of general
partners in a limited partnership.
A general partner has the same rights, powers and limitations
in a limited partnership as when he would have been in a
general partnership.
A general partner, without written consent from ALL limited
partners, cannot:
(1) Do any act in contravention of the certificate
(2) Do any act which would make it impossible to carry on
the ordinary business of the partnership
(3) Confess a judgment against the partnership
(4) Possess partnership property, or assign their rights in
specific partnership property
(5) Admit a person as a general partner
(6) Admit a person as a limited partner, unless the right to
do so is given in the certificate
(7) Continue the business with partnership property on the
death, retirement, insanity, civil interdiction or insolvency
of a general partner, unless the right to do so is given in
the certificate
If there are 100 general partners and 1 dies, the partnership
will be dissolved. However, this rule will not apply in the case
of limited partners. If there are 5 limited partners and 1 dies,
then the partnership will still continue.
A limited partnership will continue (not dissolve) even in cases
of the death of a limited partner as long as there is still ONE
surviving limited partner in the partnership.
Article 1851
A limited partner shall have the same rights as a
general partner to:
(1) Have the partnership books kept at the principal
place of business of the partnership, and at a
reasonable hour to inspect and copy any of
them
(2) Have on demand true and full information of all
things affecting the partnership, and a formal
account of partnership affairs whenever
circumstances render it just and reasonable
(3) Have dissolution and winding up by decree of
court
A limited partner shall have the right to receive a
share of the profits or other compensation by way of
income and to the return of his contribution as provided
in Articles 1856 and 1857.
This Article is important as far as the limited partner is
concerned as it shows them what rights they have.
A limited partner is given the same rights as the general
partner, that is:
(1) They can require that the partnership books be kept at
the principal place of business.
(2) Inspect and copy partnership books.
(3) Demand true and full information regarding all matters
concerning the partnership.
(4) Demand for legal winding up or dissolution
(5) Share in profits, other compensation by way of income
and the return of contributions.
Article 1852
Without prejudice to the provisions of Article 1848, a
person who has contributed to the capital of a business
conducted by a person or partnership erroneously
believing that he has become a limited partner in a
limited partnership, is not, by reason of his exercise of
the rights of a limited partner, a general partner with the
person or in the partnership carrying on the business,
or bound by the obligations of such person or
partnership, provided that on ascertaining the mistake
he promptly renounces his interest in the profits of the
business, or other compensation by way of income.
Refers to a failure to create a limited partnership.
Suppose A, B and C form a limited partnership, with C being
the limited partner with a contribution of P20,000.00. The
certificate that they sign says that C is a general partner.
What, then, if C, believing himself to be a limited partner,
begins to exercise his rights as such?
C cannot be held liable, as a general partner, if upon his
realization of the error, he promptly renounces his
involvement with the partnership, except:
(1) If he participates in the management of the partnership
(2) If his surname is used in the partnership name
Consider the situation above, but this time, Cs name is not
mentioned at all. What happens then?
If that is the case, then there is no limited partnership
because there is no limited partner mentioned .
The law anticipates a situation where in the person is a limited
partner but his name is not mentioned as such or not
mentioned at all in the certificate.
Article 1853
A person may be a general partner and a limited
partner in the same partnership at the same time,
provided that this fact shall be stated in the certificate
provided for in Article 1844.
A person who is a general, and also at the same
time a limited partner, shall have all the rights and
powers and be subject to all the restrictions of a general
partner; except that, in respect to his contribution, he
shall have the rights against the other members which
he would have had if he were not also a general partner.
A partner can be a limited and general partner at the same
time provided that this fact is STATED IN THE
CERTIFICATE that he signs.
Who are they to 3rd persons then?
They are general partners as to 3rd persons but as amongst
the partners themselves, they are seen as limited partners
with regards to their contribution.
Article 1854
A limited partner also may loan money to and
transact with other businesses with the partnership,
and, unless he is also a general partner, receive on
account of resulting claims against the partnership, with
 general creditors, a pro rata share of the assets. No
limited partner shall in respect to any such claim:
(1) Receive or hold as collateral security any
partnership property
(2) Receive from a general partner or the
partnership any payment, conveyance, or
release from liability, if at the time the assets of
the partnership are not sufficient to discharge
partnership liabilities to persons not claiming
as general or limited partners.
The receiving of collateral security, or a payment,
conveyance or release in violation of the foregoing
provisions is a fraud on the creditors of the partnership.
Provides that a limited partner can extend credit or transact
with partnerships that he is part of.
He is also entitled to partnership assets pro rata to creditors
but it cannot be used as collateral from the partnership.
Suppose X & Co. owes D a sum of P20,000.00 and C, a
limited partner, P20,000.00. The total assets of the
partnership is P50,000.00. How shall these be settled?
Both C and D can simultaneously collect from the
partnership as partnership assets are sufficient to cover
BOTH. However, if partnership assets are only P20,000.00,
C cannot share in it because it would prejudice Ds claim.
Article 1855
Where there are several limited partners the
members may agree that one or more of the limited
partners shall have a priority over other limited partners
as to the return of their contributions, as to their
compensation by way of income, or as to any other
matter. If such an agreement is made, it shall be stated
in the certificate, and in the absence of such a
statement, all the limited partners shall stand upon
equal footing.
Suppose that there are three limited partners. These partners
can agree (because there are more than 1) that one of them
can have priority over the others provided that such
SHOULD BE STATED IN THE CERTIFICATE.
Article 1856
A limited partner may receive from the partnership
the share of the profits or the compensation by way of
income stipulated for in the certificate; provided, that
after such payment is made, whether from the property
of the partnership or that of a general partner, the
partnership assets are in excess of all liabilities of the
partnership except liabilities to limited partners on
account of their contributions and to general partners.
The limited partner is entitled to share in payment by share in
profits or other compensation by way of income provided
that the partnership assets are sufficient to meet such.
To determine total liability, do not deduct contributed capital.
Liabilities owed to general partners are not considered part of
the partnerships total liabilities.
The ability of the limited partner to share is based on the total
liability, which must be known.
Suppose that A, B and C are in partnership wherein C is the
limited partner and total assets are P50,000.00. They owe D
a sum of P10,000.00, C P15,000.00 and A P50,000.00, is C
still entitled to share in the surplus after clearing liabilities?
Yes, because total liabilities in this case is only P25,000.00
and the assets are still sufficient to pay out the surplus.
Article 1857
A limited partner shall not receive from a general
partner or out of partnership property any part of his
contribution until:
(1) All liabilities of the partnership, except liabilities
to general partners and to limited partners on
account of their contributions, have been paid
or there remains property of the partnership
sufficient to pay them
(2) The consent of all members is had, unless the
return of the contribution may be rightfully
demanded under the provisions of the second
paragraph
(3) The certificate is cancelled or so amended as to
set forth the withdrawal or reduction
Subject to the provisions of the first paragraph, a
limited partner may rightfully demand the return of his
contribution:
(1) On the dissolution of a partnership
(2) When the date specified in the certificate for its
return has arrived
(3) After he has given six months notice in writing
to all other members, if no time is specified in
the certificate, either for the return of the
contribution or for the dissolution of the
partnership.
In the absence of any statement in the certificate to
the contrary or the consent of all members, a limited
partner, irrespective of the nature of his contribution,
has only the right to demand and receive cash in return
for his contribution.
A limited partner may have the partnership
dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands the
return of his contribution
(2) The other liabilities of the partnership have not
been paid, or the partnership property is
insufficient for their payment as required by the
first paragraph, No. 1, and the limited partner
would otherwise be entitled to the return of his
contribution.
What are the requisites for the limited partner to be entitled to
the return of his contribution?
(1) When, after deducting partnership liabilities, partnership
assets are sufficient to do so.
(2) If he has the consent of all partners unless the right can
be demanded.
(3) The certificate must be amended to reflect the return of
his contribution.
When may a limited partner rightfully demand the return of his
contribution?
(1) During dissolution
(2) Upon arrival of the date of return of his contribution
(3) After he has given 6 months notice, WRITTEN, and
there was no date of return nor dissolution
The limited partner is only entitled to the return of his
contribution, IN CASH, except:
(1) If it was agreed upon
(2) He has the consent of all the partners
When can a limited partner ask for dissolution?
(1) He rightfully but unsuccessfully demanded the return
(2) If he was entitled to receive his contribution and the
certificate was already amended but partnership assets
are not sufficient to pay off partnership creditors.
Article 1858
A limited partner is liable to the partnership:
 (1) For the difference between his contribution as
actually made and that stated in the certificate
as having been made
(2) For any unpaid contribution which he agreed in
the certificate to make in the future of the time
and on the conditions stated in the certificate
A limited partner holds as trustee for the
partnership:
(1) Specific property stated in the certificate as
contributed by him, but which was not
contributed or which has been wrongfully
returned
(2) Money or other property wrongfully paid or
conveyed to him on account of his contribution
The liabilities of a limited partner as set forth in this
article can be waived or compromised only by the
consent of all members; but a waiver or compromise
shall not affect the right of a creditor of a partnership
who extended credit or whose claim arose after the
filing and before a cancellation or amendment of the
certificate, to enforce such liabilities.
When a contributor has rightfully received the
return in whole or in part of the capital of his
contribution, he is nevertheless liable to the partnership
for any sum, not in excess of such return with interest,
necessary to discharge its liabilities to all creditors who
extended credit or whose claims arose before such
return.
Suppose A promises to contribute P20,000.00 but only pays
P15,000.00. What is his obligation to the partnership?
Then A must pay the P5,000.00 difference NOW.
Suppose C, the limited partner, promises to contribute
P20,000.00 more. What should be done?
It should be paid on the date he promised to pay it.
When can a limited partner be held as trustee?
(1) When he promises specific things but does not follow
through with the promise of delivery
(2) In circumstances of wrongful returns
(3) In cases of money and/or property that is wrongfully
conveyed
Can the partnership waive the difference of contributions? (EX:
the first situation)
Yes, as long as it will not affect creditors who had extended
credit before the waiver of such.
Can the partnership reclaim the returns if it is needed? (EX:
Cs contribution was already returned but the partnership
needs it to finish paying off D, a creditor)
Yes, as long as the claim came into existence before the
return of contribution.
Article 1859
A limited partners interest is assignable.
A substituted limited partner is a person admitted to
all the rights of a limited partner who has died or has
assigned his interest in a partnership.
An assignee, who does not become a substituted
limited partner, has no right to require any information
or account of the partnership transactions or to inspect
the partnership books; he is only entitled to receive the
share of the profits or other compensation by way of
income, or return of his contribution, to which his
assignor would otherwise be entitled.
An assignee shall have the right to become a
substituted limited partner if all the members consent
thereto or if the assignor, being thereunto empowered
by the certificate, gives the assignee that right.
An assignee becomes a substituted limited partner
when the certificate is appropriately amended in
accordance with Article 1865.
The substituted limited partner has all the rights and
powers, and is subject to all the restrictions and
liabilities of his assignor, except those liabilities of
which he was ignorant at the time he became a limited
partner and which could not be ascertained from the
certificate.
The substitution of the assignee as a limited partner
does not release the assignor from liability to the
partnership under Articles 1847 and 1858.
The interest of a limited partner can be assigned. His interest is
his share in profits, other compensation by way of income or
his return.
A substituted limited partner is the person admitted and has all
the rights of a limited partner who dies or has assigned his
interest.
What if the person is not qualified to be a substituted limited
partner?
Then he shall remain an assignee with the following rights
and limitations:
(1) Receive share in profits, other compensation by way of
income or return of contribution
(2) Cannot demand information on partnership activities nor
inspect partnership books.
When will the assignee become a substituted limited partner?
(1) If consent from all other partners was given
(2) If the limited partner is empowered by the certificate to
constitute a substituted limited partner, and the
certificate is amended under Article 1865
What are the rights of a substituted limited partner?
He has all the powers, limitations and liabilities as his
assignor except those which he was ignorant of at the time
he became a limited partner and those that could not be
ascertained from the certificate.
What about the assignor?
The assignor is still liable for false statements and claims
before the admittance of a substitute limited partner, as in
Articles 1847 and 1858.
Article 1860
The retirement, death, insolvency, insanity or civil
interdiction of a general partner dissolves the
partnership, unless the business is continued by the
remaining general partners:
(1) Under a right so to do stated in the certificate
(2) With the consent of all the members
Again, this does not apply to limited partners because as long
as there is ONE limited partner still living, then the
partnership is continued.
General partners can only continue the business if:
(1) The right was stated in the certificate
(2) All partners consent to such.
Article 1861
On the death of a limited partner, his executor or
administrator shall have the rights of a limited partner
for the purpose of settling his estate, and such power as
the deceased had to constitute his assignee a
substituted limited partner.
The estate of a deceased limited partner shall be
liable for all his liabilities as a limited partner.
The executor/administrator has the power to settle the dead
partners estate and those to constitute his assignee as a
 substituted limited partner, if the limited partner originally had
the power to do so, or was allowed such.
The estate of a limited partner will pay for all his liabilities as a
limited partner.
Article 1862
On due application to a court of competent,
jurisdiction by any creditor of a limited partner, the court
may charge the interest of the indebted limited partner
with payment of the unsatisfied amount of such claim,
and may appoint a receiver, and make all other orders,
directions, and inquiries which the circumstances of the
case may require.
The interest may be redeemed with the separate
property of any general partner, but may not be
redeemed with partnership property.
The remedies conferred by the first paragraph shall
not be deemed exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a
limited partner of his statutory exemption.
Similar to Article 1814 for general partnerships.
If a 3rd person files a case against the limited partners for non-
payment or non-compliance with their contract, he can ask
for the partners interests to be attached.
The attached interest may be redeemed using separate
general partners property but not partnership property
UNLESS all partners have consented to such.
Article 1863
In settling accounts after dissolution, the liabilities
of the partnership shall be entitled to payment in the
following order:
(1) Those to creditors, in the order of priority as
provided by the law, except those to limited
partners on account of their contributions, and
to general partners
(2) Those to limited partners in respect to their
share of the profits and other compensation by
way of income on their contributions
(3) Those to limited partners in respect to the
capital of their contributions
(4) Those to general partners other than for capital
and profits
(5) Those to general partners in respect to profits
(6) Those to general partners in respect to capital
Subject to any statement in the certificate or to
subsequent agreement, limited partners share in the
partnership assets in respect to their claims for capital,
and in respect to their claims for profits or for
compensation by way of income on their contribution
respectively, in proportion to the respective amounts of
such claims.
Who has priority over distribution of assets in a limited
partnership?
(1) Creditors, including limited partners who have a claim
against the partnership.
(2) Limited partners share in profits
(3) Limited partners return of capital contribution
(4) General partners who have claims against the
partnership
(5) General partners share in profits
(6) General partners return of capital contribution
The difference of this with general partnerships is that in a
general partnership, capital contributions are returned
BEFORE profits from surplus are shared.
Article 1864
The certificate shall be cancelled when the
partnership is dissolved or all limited partners cease to
be such.
A certificate shall be amended when:
(1) There is a change in the name of the
partnership or in the amount or character of the
contribution of any limited partner
(2) A person is substituted as a limited partner
(3) An additional limited partner is admitted
(4) A person is admitted as a general partner
(5) A general partner retires, dies, becomes
insolvent or insane, or is sentenced to civil
interdiction and the business is continued
under Article 1860
(6) There is a change in the character of the
business of the partnership
(7) There is a false or erroneous statement in the
certificate
(8) There is a change in the time as stated in the
certificate for the dissolution of the partnership
or for the return of a contribution
(9) A time is fixed for the dissolution of the
partnership, or the return of a contribution, no
time having been specified in the certificate
(10) The members desire to make a change in any
other statement in the certificate in order that it
shall accurately represent the agreement
among them.
When should a certificate be cancelled?
(1) Upon DISSOLUTION
(2) When ALL limited partners cease to be such
When should the certificate be amended?
In all cases other than those that will cause the certificate to
be cancelled.
Article 1865
The writing to amend a certificate shall:
(1) Conform to the requirements of Article 1844 as
far as necessary to set forth clearly the change
in the certificate which it is desired to make
(2) Be signed and sworn to by all members, and an
amendment substitution a limited partner or
adding a limited or general partner shall be
signed also by the member to be substituted or
added, and when a limited partner is to be
substituted, the amendment shall also be
signed by the assigning limited partner.
The writing to cancel a certificate shall be signed by
all members.
A person desiring the cancellation or amendment of
a certificate, if any person designated in the first and
second paragraphs as a person who must execute the
writing refuses to do so, may petition the court to order
a cancellation or amendment thereof.
If the court finds that the petitioner has a right to
have the writing executed by a person who refuses to do
so, it shall order the Office of the Securities and
Exchange Commission where the certificate is recorded,
to record the cancellation or amendment of the
certificate; and when the certificate is to be amended,
the court shall also cause to be filed for record in the
said office a certified copy of its decree setting forth the
amendment.
A certificate is amended or cancelled when there is
filed for record in the Office of the Securities and
Exchange Commission where the certificate is recorded:
 (1) A writing in accordance with the provisions of
the first or second paragraph
(2) A certified copy of the order of court in
accordance with the provisions of the fourth
paragraph
(3) After the certificate is duly amended in
accordance with this article, the amended
certificate shall thereafter be for all purposes
the certificate provided for in this Chapter.
What are the requisites for certificates to be amended or
cancelled?
(1) It must be in writing
(2) It must be signed AND sworn by ALL concerned parties
(3) It must be registered with the SEC
Article 1866
A contributor, unless he is a general partner, is not a
proper party to proceedings by or against a partnership,
except where the object is to enforce a limited partners
right against or liability to the partnership.
A limited partner is a mere contributor, meaning, he is
practically a stranger. This is because he has no
participation in management and control and is only liable to
the partnership, not to 3rd persons and if he is filed against as
a general partner, he can file a counterclaim for wrongful
inclusion.
2 exceptions to this rule:
(1) To enforce his right against the partnership
(2) If he refuses to restore his contribution when the
partnership assets are not sufficient to pay creditors
Article 1867
A limited partnership formed under the law prior to
the effectivity of this Code, may become a limited
partnership under this Chapter by complying with the
provisions of Article 1844, provided the certificate sets
forth:
(1) The amount of the original contribution of each
limited partner and the time when the
contribution was made\
(2) That the property of the partnership exceeds
the amount sufficient to discharge its liabilities
to persons not claiming as general or limited
partners by an amount greater than the sum of
the contributions of its limited partners.
A limited partnership formed under the law prior to
the effectivity of this Code, until or unless it becomes a
limited partnership under this Chapter, shall continue to
be governed by the provisions of the old law.
This is a transitory law.
Articles 145 to 150 of the Code of Commerce used to govern
limited partnerships.
What happens to a limited partnership existing before the Civil
Code?
The partnership must first comply with the following
requirements before they can become a limited partnership
under the Civil Code:
(1) State the amount of contribution and the time it was
contributed
(2) After paying off all liabilities, the total assets of the
partnership must be greater than the contribution of all
limited partners, otherwise, it will continue to be
governed by the Code of Commerce.