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1.

Nature; Creation the guilty partners from recovering their


share of the profits
A. Definition
Article 1771. A partnership may be constituted in any
Article 1767. By the contract of partnership two or form, except where immovable property or real rights
more persons bind themselves to contribute money, are contributed thereto, in which case a public
property, or industry to a common fund, with the instrument shall be necessary. (1667a)
intention of dividing the profits among themselves.
Two or more persons may also form a partnership for Form of partnership contract
the exercise of a profession. (1665a) General Rule: no special form is required for
the validity or existence of the contract of
B. Creation partnership
Exception:
Article 1770. A partnership must have a lawful object o Where immovable property or real
or purpose, and must be established for the common rights are contributed without the
benefit or interest of the partners. public instrument, the contract is void.
o When partnership agreement
When an unlawful partnership is dissolved by a judicial covered by Statute of Frauds An
decree, the profits shall be confiscated in favor of the agreement to enter in a partnership at
State, without prejudice to the provisions of the Penal a future time, which by its terms is not
Code governing the confiscation of the instruments and to be performed within a year from the
effects of a crime. (1666a) making thereof

Partnership implied from conduct of the parties


2 essential elements of a contract of partnership
Binding effect: absence of express agreement
legality of the object and
implied from the acts or conduct of the parties, as well
community of benefit or interest of the as from other declarations, and such implied contract
partners. [Art. 1767] would be as binding as a written and express contract.
Intention of parties: as disclosed by the entire
Illegality of the object not presumed must transaction, and as gathered from the facts and from
appear to be of the essence of the relationship the language employed by the parties as well as their
conduct, should be ascertained
Effects of an unlawful partnership. Conflict between intention and terms of contract:
The contract is void ab initio and the intention of the parties
partnership never existed in the eyes of the law
[Art. 1409(1)]; Article 1772. Every contract of partnership having a
The profits shall be confiscated in favor of capital of three thousand pesos or more, in money or
the government; property, shall appear in a public instrument, which
The instruments or tools and proceeds of must be recorded in the Office of the Securities and
the crime shall also be forfeited in favor of Exchange Commission.
the government; and
The contributions of the partners shall NOT Failure to comply with the requirements of the
be confiscated unless they fall under No. 3 preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
A partnership is dissolved by operation of law (n)
upon the happening of an event which makes it Registration of partnership
unlawful for the business of the partnership to be Partnership with a capital of Php 3k or more
carried on, or for the members to carry it on in
The contract must appear in a public
partnership. [Art. 1830(3)]
instrument; and
Judicial decree NOT necessary to dissolve unlawful It must be recorded or registered with the
partnership Securities and Exchange Commission.

Third persons who deal with partnership without being Failure to comply does not prevent the formation of the
aware of its illegal purpose or character are protected partnership [Art. 1768]
unless there is knowledge can be presumed where the
transaction is plainly unlawful Any of the partners is granted by law to compel each
other to execute the contract in public instrument
Effect of partial illegality of partnership except partnership is void under Art. 1773
Where a part of the business of a partnership is
Purpose of registration: a condition for the
legal and a part illegal, an account of that
issuance of licenses to engage in business or trade. In
which is legal may be had.
this way, the tax liabilities of big partnerships cannot
Where, without the knowledge or
be evaded and the public can also determine more
participation of the partners, the firms accurately their membership and capital before dealing
profits in a lawful business have been with them.
increased by wrongful acts, the innocent
partners are NOT precluded as against
Article 1784. A partnership begins from the moment permissible provided that the firm indicates in all its
of the execution of the contract, unless it is otherwise communications that said partner is deceased.
stipulated. (1679)
Article 1141. Real actions over immovables prescribe
birth and life of a partnership is predicated on the after thirty years.
mutual desire and consent of the parties.
This provision is without prejudice to what is
no time limit is prescribed by law for the life of
established for the acquisition of ownership and other
partnership partners may fix in their contract any
real rights by prescription. (1963)
term and they shall be bound to remain under such a
relation for the duration of the term barring the
occurrence of any of the events causing dissolution of
the partnership before its expiration. C. Separate juridical personality
Article 1768. The partnership has a juridical
Future partnership: stipulation of parties As long as personality separate and distinct from that of each of
the agreement for a partnership remains inchoate or the partners, even in case of failure to comply with the
unperformed, the partnership is not consummated. requirements of article 1772, first paragraph. (n)

A partnership in fact CANNOT be predicated on an May enter into contracts, acquire and possess
agreement to enter into a co-partnership at a future property of all kinds in its name, as well as incur
day unless it is shown that such an agreement was obligations and bring civil or criminal actions in
actually consummated conformity with the laws and regulations of its
organizations.
Article 1815. Every partnership shall operate under a
firm name, which may or may not include the name of Failure to comply with statutory requirements
one or more of the partners. Art. 1772- partnership still acquires juridical
personality most partnerships are created
with very small capital to engage in small
Those who, not being members of the partnership,
business and it would be impractical to require
include their names in the firm name, shall be subject
that they appear in a public instrument and be
to the liability of a partner. (n)
registered as provided in Article 1772.
Art. 1773- partnership shall not acquire any
Firm
juridical personality because the contract itself
name, title, or style under which a company
is void
transacts business;
Art. 1775- regarding secret associations or
a partnership of two or more persons;
societies which do not acquire juridical
a commercial house. In its common personality
acceptation, the term implies a partnership.
The term is also used as synonymous with To organize a partnership not an absolute right but a
company, house, and concern. privilege which may be enjoyed only under such terms
as the State may deem necessary to impose
Importance of having a firm name: necessary to
distinguish the partnership which has a distinct and
separate juridical personality
Article 1775. Associations and societies, whose
Limitations: articles are kept secret among the members, and
partners cannot use a name that is identical or wherein any one of the members may contract in his
deceptively confusingly similar to that of any existing own name with third persons, shall have no juridical
[partnership] or corporation or to any other name personality, and shall be governed by the provisions
already protected by law or is patently deceptive, relating to co-ownership. (1669)
confusing or contrary to existing laws
Partnership relation is created only by the voluntary
Article 1815 does not cover agreement of the partners essential that the
the case of a limited partner who allows his partners are fully informed not only of the agreement
name to be included in the firm name [Art. but of all matters affecting the partnership
1846.], or
of a person continuing the business of a Essential that the articles of partnership be given
partnership after dissolution, who uses the publicity for the protection not only of the
name of the dissolved partnership or the name members themselves but also third persons from
of a deceased partner as part thereof. [Art. fraud and deceit to which otherwise they would be
1840, last par.] easy victims

Code of professional responsibility Rule 3.02 Member who transacts business for the secret
Rule 3.02 - In the choice of a firm name, no false, partnership in his own name personally bound to
misleading or assumed name shall be used. The third persons unaware of the existence of such
continued use of the name of a deceased partner is association, in the same way and for the same reason
that an agent who acts in his own name when dealing
with third persons is directly bound in favor of such (4) A partner's right in specific partnership property is
persons who may only sue or be sued by the agent and not subject to legal support under article 291. (n)
not his principal
Partner does not usually own any part of partnership
Person may be held liable as a partner or partnership property or property owned by the partnership as a
liability may result in favor of third persons by reason separate business entity, although he has rights in
of estoppel. [Art. 1825] specific partnership assets

NIRC Sec. 22(b) Partner is a co-owner with his partners of specific


(B) The term "corporation" shall include partnerships, partnership property but the rules on co-ownership
no matter how created or organized, joint-stock does not necessarily apply.
companies, joint accounts (cuentas en participacion), Equal right of possession for partnership
association, or insurance companies, but does not purposes parties may waive by stipulation
include general professional partnerships and a joint o possession of partnership property by
venture or consortium formed for the purpose of one partner is the possession of all
undertaking construction projects or engaging in partners until his possession becomes
petroleum, coal, geothermal and other energy adverse.
operations pursuant to an operating consortium o On the death of a partner, his right in
agreement under a service contract with the specific partnership property vests in
Government the surviving partners, not in the legal
"General professional partnerships" are representative of the deceased partner
partnerships formed by persons for the sole purpose of Right not assignable cannot assign on his
exercising their common profession, NO part of the own but all of the parties can assign their rights
income of which is derived from engaging in any trade o Impossible to determine the extent of
or business his beneficial interest in the property
until after the liquidation of partnership
NIRC Sec. 26 affairs
SEC. 26. Tax Liability of Members of General o consent of all the partners, either
Professional Partnerships. - A general professional express or implied, is the source and
partnership as such shall not be subject to the income limit of a partners right to deal with
tax imposed under this Chapter. partnership property for any but a
partnership purpose.
Persons engaging in business as partners in a general o Reason:
professional partnership shall be liable for income tax prevents interference by
only in their separate and individual capacities. outsiders in partnership affairs
protects the right of other
partners and partnership
For purposes of computing the distributive share of the
creditors to have partnership
partners, the net income of the partnership shall be
assets applied to firm debts;
computed in the same manner as a corporation.
and
Each partner shall report as gross income his it is often impossible to
distributive share, actually or constructively received, measure or value a partners
in the net income of the partnership. beneficial interest in a
particular partnership asset.
Article 1811. A partner is co-owner with his partners Right limited to share of what remains after
of specific partnership property. partnership debts have been paid
o specific partnership property is not
The incidents of this co-ownership are such that: subject to attachment, execution,
(1) A partner, subject to the provisions of this Title and garnishment, or injunction, without the
to any agreement between the partners, has an equal consent of all partners except on a
right with his partners to possess specific partnership claim against the partnership.
property for partnership purposes; but he has no right
to possess such property for any other purpose without Contemplates a tangible property (ex. Car)
the consent of his partners;
(2) A partner's right in specific partnership property is D. Mutual Agency
not assignable except in connection with the
assignment of rights of all the partners in the same Article 1803. When the manner of management has
property; not been agreed upon, the following rules shall be
(3) A partner's right in specific partnership property is observed:
not subject to attachment or execution, except on a (1) All the partners shall be considered agents and
claim against the partnership. When partnership whatever any one of them may do alone shall bind
property is attached for a partnership debt the the partnership, without prejudice to the provisions of
partners, or any of them, or the representatives of a article 1801.
deceased partner, cannot claim any right under the (2) None of the partners may, without the consent of
homestead or exemption laws; 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 (6) Submit a partnership claim or liability to
to the interest of the partnership, the court's arbitration;
intervention may be sought. (1695a)
(7) Renounce a claim of the partnership.
When management is NOT agreed upon:
All of them shall be considered as agents
No act of a partner in contravention of a restriction on
whatever any one of them may do alone shall
authority shall bind the partnership to persons having
bind the partnership (subject to Art. 1801)
knowledge of the restriction. (n)
Unanimous consent is required for
alteration of immovable property
Power of partner as an agent
consent can be express or implied (presumed
GR: all partners have equal rights in the management
from the fact of knowledge of the alteration
and conduct of the partnership business
without interposing any objection)
Exception: when there is an agreement
o Only applies to immovable property
because of the greater importance of
Among themselves: When a partner
this kind of property as compared to
performs an act within the scope of his actual,
movable property
implied, or apparent authority, he is not only a
o If refusal of one partner is manifestly
principal as to himself, but is also for all
prejudicial to the interest of the
purposes, an agent as to his co-partners or
partnership intervention by the court
to the partnership, considered as a group.
may be sought for authority to make
the necessary alteration.
As to third persons: Limitations upon the
o If the alteration is necessary for the
authority of any one of the partners are NOT
preservation of the property, it would
binding upon innocent third persons
seem that the consent of the other
dealing with the partnership who have the
partners is NOT required
right to assume that every general partner
has power to bind the partnership
Article 1803(1) should be read in relation to Article
especially those partners acting with
1818. (par. 3.)
ostensible authority, by whatever is proper
for the transaction in the ordinary and usual
Article 1818. Every partner is an agent of the manner of the business of the
partnership for the purpose of its business, and the act partnership.
of every partner, including the execution in the o Third person has no duty to make
partnership name of any instrument, for apparently inquiries as to the acting partners
carrying on in the usual way the business of the authority
partnership of which he is a member binds the o There is a general presumption that
partnership, unless the partner so acting has in fact no
each individual partner is an agent of
authority to act for the partnership in the particular
the firm and that he has authority to
matter, and the person with whom he is dealing has
bind the firm in carrying on the
knowledge of the fact that he has no such authority.
partnership transactions
o No right to assume that acting partner
An act of a partner which is NOT apparently for the has unlimited authority Generally, a
carrying on of business of the partnership in the partner has no authority to do the acts
usual way does NOT bind the partnership unless enumerated in the third paragraph of
authorized by the other partners. Article 1818.

Except when authorized by the other partners or unless Liability of partnership acts of partners
they have abandoned the business, one or more but Acts for apparently carrying on in the
less than all the partners have no authority to: usual way the business of the partnership
(par. 1.). refer to acts of administration
(1) Assign the partnership property in trust for o 2 requisites in order that the
creditors or on the assignee's promise to pay the partnership will not be liable:
debts of the partnership; (a) The partner so acting has in
fact no authority; and
(b) The third person knows that
(2) Dispose of the good-will of the business;
the acting partner has no
authority.
(3) Do any other act which would make it impossible Acts of strict dominion or ownership
to carry on the ordinary business of a (pars. 2 and 3.). the partnership is NOT
partnership; bound
o unless authorized by all the other
(4) Confess a judgment; partners or
o unless they have abandoned the
(5) Enter into a compromise concerning a business
partnership claim or liability;
Acts in contravention of a restriction on belongs to the partnership unless a contrary intent
authority (par. 4.). partnership is NOT is shown.
liable to third persons having actual or
presumptive knowledge of the restrictions, Real property may be registered or owned in the
whether or not the acts are for apparently name of:
carrying on in the usual way the business of (a) The partnership (pars. 1, 2.);
the partnership (b) One or more but not all the partners (par. 3.);
(c) One or more or all the partners, or in a third person
Liability of partner acting without authority in
Particular partner who undertakes to bind his co- trust for the partnership (par. 4.); or
partners by a contract without authority is himself (d) All the partners. (par. 5.)
personally liable on such contract.
Scope of term conveyance.
fact that he attempts to bind his co-partners and does Pars. 1, 3 & 5 what is conveyed is title or
not succeed does not avoid his own act. He cannot be ownership
admitted to say that he was not authorized to make a Pars. 2 & 4 what is conveyed is merely the
contract, as he is estopped to deny its effect or equitable interest Equitable interest or title
validity. is one not duly recognized by law but in equity
alone; it is a right or interest in property which
Article 1819. Where title to real property is in the is imperfect and unenforceable at law but
partnership name, any partner may convey title to which, under wellrecognized equitable
such property by a conveyance executed in the principles, should be and is convertible into a
partnership name; but the partnership may recover legal right or title.
such property unless the partner's act binds the Last paragraph taken from Section 10 of the
partnership under the provisions of the first paragraph American Uniform Partnership Act, has been
of article 1818, or unless such property has been interpreted to include a mortgage. Thus, the
conveyed by the grantee or a person claiming through right to mortgage is included in the right to
such grantee to a holder for value without knowledge convey.
that the partner, in making the conveyance, has
exceeded his authority. Innocent purchasers without notice
Under Article 1819, a conveyance by a partner of
Where title to real property is in the name of the partnership property in the partnership name even
partnership, a conveyance executed by a partner, in though without authority, CANNOT be recovered by the
his own name, passes the equitable interest of the partnership where it has been conveyed by the grantee
partnership, provided the act is one within the to a holder for value and without notice or knowledge
authority of the partner under the provisions of the first that the partner, in making the conveyance, had
paragraph of article 1818. exceeded his authority. (par. 1.)

Authorization or ratification of conveyance


Where title to real property is in the name of one or
must
more but not all the partners, and the record does not
affirmatively appear, for the authority of one partner to
disclose the right of the partnership, the partners in
make and acknowledge a deed for the partnership will
whose name the title stands may convey title to such
not be presumed
property, but the partnership may recover such
property if the partners' act does not bind the
partnership under the provisions of the first paragraph Article 1820. An admission or representation made by
of article 1818, unless the purchaser or his assignee, is any partner concerning partnership affairs within the
a holder for value, without knowledge. scope of his authority in accordance with this Title is
evidence against the partnership. (n)
Where the title to real property is in the name of one or
Admission by a partner
more or all the partners, or in a third person in trust for
GR: person is not bound by the act, admission
the partnership, a conveyance executed by a partner in
statement, or agreement of another of which he has no
the partnership name, or in his own name, passes the
knowledge or to which he has not given his consent
equitable interest of the partnership, provided the act
except by virtue of a particular relation between them
is one within the authority of the partner under the
provisions of the first paragraph of article 1818. Admissions by a party as testified to by a third
person are admissible in evidence against him
in litigation.
Where the title to real property is in the name of all the
Admissions by another are received against a
partners a conveyance executed by all the partners
party if the former is acting in the capacity of
passes all their rights in such property. (n)
agent of the latter.
When a partner makes admissions for himself
The ownership of real estate is prima facie that
only without purporting to act for the
indicated by the muniment of title.
partnership, he alone shall be chargeable with
his admissions.
If title to the property is not held by the partnership,
although as between the partners there is no question After dissolution, admission made by a partner
that it is a partnership property presumption is that, will bind the co-partners if connected with the
property purchased with partnership funds winding up of partnership affairs.
the representation has or has not been made or
Existence of partnership must be proved before the communicated to such person so giving credit by or
partnership can be charged with the admission of a with the knowledge of the apparent partner making the
partner under Article 1820 representation or consenting to its being made:
Admissions or declarations made in the
presence of the person to be charged (1) When a partnership liability results, he is liable as
as a partner are admissible to prove though he were an actual member of the partnership;
the existence of the partnership.
(2) When no partnership liability results, he is liable pro
Admission made by a partner who was rata with the other persons, if any, so consenting to the
no longer a partner at the time of the contract or representation as to incur liability,
declaration is not admissible in otherwise separately.
evidence against the partnership.
When a person has been thus represented to be a
Article 1821. Notice to any partner of any matter
partner in an existing partnership, or with one or more
relating to partnership affairs, and the knowledge of
persons not actual partners, he is an agent of the
the partner acting in the particular matter, acquired
persons consenting to such representation to bind
while a partner or then present to his mind, and the
them to the same extent and in the same manner as
knowledge of any other partner who reasonably could
though he were a partner in fact, with respect to
and should have communicated it to the acting
persons who rely upon the representation. When all the
partner, operate as notice to or knowledge of the
members of the existing partnership consent to the
partnership, except in the case of fraud on the
representation, a partnership act or obligation results;
partnership, committed by or with the consent of that
but in all other cases it is the joint act or obligation of
partner. (n)
the person acting and the persons consenting to the
representation. (n)
Law of partnership imputes notice to, or knowledge of,
any partner of any matter relating to partnership affairs
Partner by estoppel; partnership by estoppel.
to the partnership except in case of fraud reason:
Estoppel: bar which precludes a person from denying
fiduciary relationship and it is presumed that the
or asserting anything contrary to that which has been
partners disclose to one another all relevant
established as the truth by his own deed or
information concerning partnership business.
representation, either express or implied.
If notice is delivered to a partner, that is an effective
GR: Persons who are not partners as to each other are
communication to the partnership notwithstanding the
not partners as to third persons.
failure of the partner to communicate such notice or
Exception: doctrine of estoppel, one may become
knowledge to his co-partners.
liable as a partner even though he is not a partner in
fact.
Cases of knowledge of a partner
(1) Knowledge of the partner acting in the Partner by estoppel
particular matter acquired while a partner; (a) Directly represents himself to anyone as a
(2) Knowledge of the partner acting in the partner in an existing partnership or in a non-existing
particular matter then present to his mind; and partnership (with one or more persons not actual
once prior knowledge by the acting partner is shown, partners); or
such knowledge must be presumed to be then present (b) Indirectly represents himself by consenting to
to his mind, unless the partnership proves otherwise. another representing him as a partner in an existing
(3) Knowledge of any other partner who partnership or in a non-existing partnership.
reasonably could and should have communicated
it to the acting partner. Partnership by estoppel
If all the actual partners consented to the
Article 1822. Where, by any wrongful act or representation, then the liability of the person who
omission of any partner acting in the ordinary represented himself to be a partner or who consented
course of the business of the partnership or with to such representation and the actual partners is
the authority of his co-partners, loss or injury is considered a partnership liability
caused to any person, not being a partner in the
partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as no existing partnership and all those represented as
the partner so acting or omitting to act. (n) partners consented to the representation, or not all of
the partners of an existing partnership consented to
Article 1825. When a person, by words spoken or the representation, then, the liability of the person who
written or by conduct, represents himself, or consents represented himself to be a partner or who consented
to another representing him to anyone, as a partner in to his being represented as partner, and all those who
an existing partnership or with one or more persons not made and consented to such representation, is joint or
actual partners, he is liable to any such persons to pro rata.
whom such representation has been made, who has, Liability: pro rata (all those who made and consented to
on the faith of such representation, given credit to the such representation)
actual or apparent partnership, and if he has made
such representation or consented to its being made in When there is no existing partnership and not all but
a public manner he is liable to such person, whether only some of those represented as partners consented
to the representation, or none of the partners in an Article 1800. The partner who has been appointed
existing partnership consented to such representation, manager in the articles of partnership may execute all
then the liability will be separate that of the person acts of administration despite the opposition of his
who represented himself as a partner or who partners, unless he should act in bad faith; and his
consented to his being represented as a partner, and power is irrevocable without just or lawful cause. The
those who made and consented to the representation, vote of the partners representing the controlling
or that only of the person who represented himself as interest shall be necessary for such revocation of
partner power.

Estoppel does NOT create a partnership


A power granted after the partnership has been
constituted may be revoked at any time. (1692a)
One who is deemed to be liable as a partner by reason
of estoppel does not thereby obtain full rights as a
partner. Partners have the right to an equal voice in the conduct
and management of the partnership business
The doctrine of estoppel has no application as between
actual partners. Partners become such by agreement Partners may select a managing partner or make such
and not by estoppel. allocation of functions as the needs of the business
dictate especially in a large partnership.
Elements to establish liability as a partner on
ground of estoppel. Appointment as manager in the articles of
(1) Proof by plaintiff that he was individually aware of partnership may execute all acts of
the defendants representations as to his being a administration notwithstanding the opposition
partner or that such representations were made by of the other partners, unless he should act in
others and not denied or refuted by the defendant; bad faith power is revocable only upon just
(2) Reliance on such representations by the plaintiff; and lawful cause and upon vote of the
and representing the controlling interest
(3) Lack of any denial or refutation of the statements no party to a contract can violate the law of
by the defendant; such denial need not precede the contract without the consent of the others.
plaintiffs acting thereon if the denial was forthcoming In case of mismanagement, the other
promptly upon hearing of the representations, and if, partners may avail of the usual remedies
by prudence and diligence the plaintiff might have allowed by law, including an application for
learned of the truth or untruth of the representations. dissolution of the partnership by a judicial
decree.
Defendant need not be proved to be a man of financial Appointment as manager after the
ability. Sole reliance is not a requisite with respect to constitution of the partnership may be
dealings involving the one representing or represented revoked at any time for any cause whatsoever.
to be a partner partner (and not a stranger) appointed as
manager
The law makes liable as general partners all persons
who assume to act as a corporation and may include Article 1801. If two or more partners have been
persons who attempt, but fail to form a corporation and intrusted with the management of the partnership
who carry on business under the corporate name. A de without specification of their respective duties, or
facto partnership among themis created. without a stipulation that one of them shall not act
without the consent of all the others, each one may
Only the active members of the unsuccessfully separately execute all acts of administration, but if any
attempted corporation should be liable as general of them should oppose the acts of the others, the
partners. Subscribers to stocks who take no part in the decision of the majority shall prevail. In case of a tie,
supposed corporation are not personally liable. the matter shall be decided by the partners owning the
controlling interest. (1693a)
Rules of Court Evidence Rule 130 Sec 29
Section 29. How judicial record impeached. Any Article 1802. In case it should have been stipulated
judicial record may be impeached by evidence of: that none of the managing partners shall act without
(a) want of jurisdiction in the court or judicial officer, ( the consent of the others, the concurrence of all shall
b) collusion between the parties, or be necessary for the validity of the acts, and the
(c) fraud in the party offering the record, in respect to absence or disability of any one of them cannot be
the proceedings. (30a) alleged, unless there is imminent danger of grave or
irreparable injury to the partnership. (1694)
Rules of Court Civil Procedure Rule 14 Sec 11
Article 1832. Except so far as may be necessary to
Section 11. Service upon domestic private juridical wind up partnership affairs or to complete transactions
entity. When the defendant is a corporation, begun but not then finished, dissolution terminates all
partnership or association organized under the laws of authority of any partner to act for the partnership:
the Philippines with a juridical personality, service may
be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house (1) With respect to the partners,
counsel. (13a)
(a) When the dissolution is not by the act, insolvency or want of authority, the fact of his want of authority has
death of a partner; or not been advertised in the manner provided for
advertising the fact of dissolution in the first
(b) When the dissolution is by such act, insolvency or paragraph, No. 2 (b).
death of a partner, in cases where article 1833 so Nothing in this article shall affect the liability under
requires; article 1825 of any person who after dissolution
represents himself or consents to another representing
(2) With respect to persons not partners, as declared in him as a partner in a partnership engaged in carrying
article 1834. (n) on business. (n)

E. Distinguish From:
Article 1833. Where the dissolution is caused by the
1. Co-ownership; possession
act, death or insolvency of a partner, each partner is
Partnership Co-ownership
liable to his co-partners for his share of any liability
Generally created by Generally created by law
created by any partner acting for the partnership as if
either express or implied and may exist even
the partnership had not been dissolved unless:
contract without a contract
(1) The dissolution being by act of any partner, the Has a separate juridical Has no separate juridical
partner acting for the partnership had knowledge of personality personality
the dissolution; or
Generally, the purpose is The purpose is the
(2) The dissolution being by the death or insolvency of to obtain profits common enjoyment of a
a partner, the partner acting for the partnership had thing or right
knowledge or notice of the death or insolvency. Duration has no limitation An agreement to keep a
thing undivided for more
Article 1834. After dissolution, a partner can bind the than ten years is not
partnership, except as provided in the third paragraph allowed, but may be
of this article: extended
(1) By any act appropriate for winding up partnership There is mutual agency There is no mutual
affairs or completing transactions unfinished at between partners representation among co-
dissolution; owners
(2) By any transaction which would bind the Death or incapacity of a Death or incapacity of a
partnership if dissolution had not taken place, provided partner co-owner does not
the other party to the transaction: dissolves the dissolve the coownership
(a) Had extended credit to the partnership prior to partnership
dissolution and had no knowledge or notice of the A partner cannot A co-owner can
dissolution; or dispose of his dispose of his share
(b) Though he had not so extended credit, had interest, so as to without consent of
nevertheless known of the partnership prior to make the assignee others
dissolution, and, having no knowledge or notice of a partner, without
dissolution, the fact of dissolution had not been consent of others
advertised in a newspaper of general circulation in the
place (or in each place if more than one) at which the
partnership business was regularly carried on. 2. Tenancy in common; joint tenancy
The liability of a partner under the first paragraph, No.
3. Joint ventures
2, shall be satisfied out of partnership assets alone
Partnership Joint venture
when such partner had been prior to dissolution:
Operates with firm name Operates without firm
(1) Unknown as a partner to the person with whom the
and legal personality name and legal
contract is made; and
personality
(2) So far unknown and inactive in partnership affairs Generally relates to a Usually limited to a single
that the business reputation of the partnership could continuing business of transaction
not be said to have been in any degree due to his various transactions of a
connection with it. certain kind
The partnership is in no case bound by any act of a Corporations may not Corporations may enter
partner after dissolution: enter into a partnership into joint ventures
(1) Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is A joint venture is an agreement between two parties to
appropriate for winding up partnership affairs; or enter into a commercial undertaking. It may fall under
(2) Where the partner has become insolvent; or a partnership with a limited purpose.
(3) Where the partner has no authority to wind up
partnership affairs; except by a transaction with one Under Philippine law, a joint venture is a form of
who - partnership and should thus be governed by the laws
(a) Had extended credit to the partnership prior to of partnership [Auerbach vs. Sanitary Wares
dissolution and had no knowledge or notice of his want Manufacturing Corp].
of authority; or
4. Joint adventures
(b) Had not extended credit to the partnership prior to
5. Joint accounts
dissolution, and, having no knowledge or notice of his
6. Cuentas en participacion
7. Agency the amount of capital they may agree upon, and
participating in the favorable or unfavorable results
Article 1769. In determining whether a partnership thereof in the proportion they may determine.
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 Article 240. With regard to their formation, joint
third persons; accounts shall not be subjected to any formality, and
(2) Co-ownership or co-possession does not of itself may be privately contracted orally or in writing, and
establish a partnership, whether such-co-owners or co- their existence may be proved by any of the means
possessors do or do not share any profits made by the accepted by law, in accordance with the provisions of
use of the property; Article 51.
(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 Article 241. In the transactions treated of in the
in any property from which the returns are derived; foregoing articles, no commercial name common to all
(4) The receipt by a person of a share of the profits of a the participants can be adopted, nor can any further
business is prima facie evidence that he is a partner in direct credit be made use of except that of the
the business, but no such inference shall be drawn if merchant who transacts and manages the business in
such profits were received in payment: his own name and under his individual liability.
(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 Article 242. Persons transacting business with the
deceased partner; merchant carrying on the joint business shall only have
(d) As interest on a loan, though the amount of a right of action against the latter and not against the
payment vary with the profits of the business; other persons interested, and the latter, on the other
(e) As the consideration for the sale of a goodwill of a hand, shall have no right of action against the third
business or other property by installments or person who made the transaction with the manager
otherwise. (n) unless the said manager formally cedes his rights to
them.
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 Article 243. The liquidation shall be effected by the
an existing partnership or with one or more persons not manager, and after the transactions have been
actual partners, he is liable to any such persons to concluded, he shall render a proper account of its
whom such representation has been made, who has, results
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 SEC Opinion dated 29 Feb 1980
a public manner he is liable to such person, whether This has reference to your letter dated October 29,
the representation has or has not been made or 1979 requesting information on whether or not two or
communicated to such person so giving credit by or more medium-size corporations (contractors) may
with the knowledge of the apparent partner making the enter into a partnership or joint venture/consortium for
representation or consenting to its being made: the purpose of qualifying in terms of capitalization and
(1) When a partnership liability results, he is liable as equipment in large-scale projects of the Ministry of
though he were an actual member of the partnership; Public Highways through competitive bidding.
(2) When no partnership liability results, he is liable pro
This Commission hereby reiterates its previous
rata with the other persons, if any, so consenting to the
opinions that the weight of authority is to the effect
contract or representation as to incur liability,
that a corporation cannot ordinarily enter into a
otherwise separately.
contract of partnership with another corporation or
When a person has been thus represented to be a individual, to wit:
partner in an existing partnership, or with one or more "According to the prevailing view, a corporation has no
persons not actual partners, he is an agent of the implied power to become a partner with an individual
persons consenting to such representation to bind or another corporation. This limitation is based on
them to the same extent and in the same manner as public policy, since in a partnership the corporation
though he were a partner in fact, with respect to would be bound by the acts of persons who are not
persons who rely upon the representation. When all the duly appointed and authorized agents and officers,
members of the existing partnership consent to the which would be entirely inconsistent with the policy of
representation, a partnership act or obligation results; the law that the corporation shall manage its own
but in all other cases it is the joint act or obligation of affairs, separately and exclusively". (Am Jur par. 823)
the person acting and the persons consenting to the
representation. (n) "It is fairly well-settled that corporations cannot
ordinarily enter into partnerships with other
Code of Commerce Arts 239-243 corporations or individuals, for, in entering into a
Article 239. Merchants may interest themselves in the partnership the identity of the corporation is lost or
transaction of other merchants, contributing thereto merged with that of another and the direction of the
affairs is placed in other hands than those permitted by
the law of its creation. A corporation can act only assets;
through its duly authorized agents and is not bound by (2) Limited partnership, includes, aside from general
the acts of anyone else, while in a partnership each partner/s, limited partners, who are not personally
member binds the firm when acting within the scope of liable for partnership obligations.
the partnership." (6 Fletcher, Cyc Corps. Section 2520;
Cf. SEC Opinion dated Dec. 22, 1966, SEC Folio p. 279). AS TO ITS PUBLICITY:
(1) Secret partnership, where the existence of
Exceptions to the application of this general rule may certain persons as partners is not made known by the
be allowed by this Commission, provided that the partners;
following conditions are adequately met: (2) Open or notorious partnership, the existence of
1. The articles of incorporation of the corporations which is made known to the public by the partners.
involved must expressly authorize the corporation to
enter into contracts of partnership with others in the AS TO ITS PURPOSE:
pursuit of its business; 1. Commercial or trading partnership, for
2. The agreement or articles of partnership must transaction of business;
provide that all the partners will manage the 2. Professional or non-trading partnership, for the
partnership; and exercise of profession.
3. The articles of partnership must stipulate that
all the partners are and shall be jointly and severally A profession has been defined as a group of men
liable for all the obligations of the partnership. pursuing a learned art as a common calling in the spirit
of public service no less a public service because it
This Commission will not therefore interpose any may incidentally be a means of livelihood
objection to the recording of the said articles of
partnership which must be accompanied by the proper A. Universal
SEC verification slip regarding the proposed Article 1776. As to its object, a partnership is either
partnership name; the written undertaking to change universal or particular.
the partnership name in the event that another person, As regards the liability of the partners, a partnership
firm or entity has acquired a prior right to the use of may be general or limited. (1671a)
said name or is misleading or confusingly similar to it;
the Data Sheet of the registrant partnership and the
recording fee of 1/10 of 1% of the partnership's capital Article 1777. A universal partnership may refer to all
but not less than P100.00 or more than P50,000.00. the present property or to all the profits. (1672)

Moreover, two or more corporations may enter into a Article 1778. A partnership of all present property is
joint venture/consortium if the nature of the venture is that in which the partners contribute all the property
in line with the business authorized by its charter which actually belongs to them to a common fund, with
through a contract or voluntary agreement between the intention of dividing the same among themselves,
the said parties. Please note that no independent legal as well as all the profits which they may acquire
entity is borne out of it and the same need not be therewith. (1673)
registered with the Commission. However when the
joint venture/consortium would result in the formation Article 1779. In a universal partnership of all present
of a corporation or partnership, the same has to be property, the property which belonged to each of the
registered with the Commission and the conditions and partners at the time of the constitution of the
requirements above-mentioned should be complied partnership, becomes the common property of all the
with. partners, as well as all the profits which they may
acquire therewith.
II. Kinds of partnership A stipulation for the common enjoyment of any other
profits may also be made; but the property which the
AS TO THE LEGALITY OF ITS EXISTENCE: partners may acquire subsequently by inheritance,
(1) Partnership de jure is one which has complied legacy, or donation cannot be included in such
with all the requisites for its lawful establishment; stipulation, except the fruits thereof. (1674a)
(2) Partnership de facto is one which failed to so
comply.
Article 1780. A universal partnership of profits
AS TO ITS OBJECT: comprises all that the partners may acquire by their
(1) Universal partnership: industry or work during the existence of the
(a) Of all present property; partnership.
(b) Of profits; Movable or immovable property which each of the
(2) Particular partnership. partners may possess at the time of the celebration of
the contract shall continue to pertain exclusively to
AS TO ITS DURATION: each, only the usufruct passing to the partnership.
(1) For a fixed term or particular undertaking; (1675)
(2) At will.
Article 1781. Articles of universal partnership,
AS TO THE LIABILITY OF THE PARTNERS: entered into without specification of its nature, only
(1) General partnership, consisting of general constitute a universal partnership of profits. (1676)
partners only, who are liable pro rata for partnership
obligations with all their after exhaustion of partnership
Article 1782. Persons who are prohibited from giving of the partners remain the same as they were at such
each other any donation or advantage cannot enter termination, so far as is consistent with a partnership
into universal partnership. (1677) at will.

Article 739. The following donations shall be void: A continuation of the business by the partners or such
(1) Those made between persons who were guilty of of them as habitually acted therein during the term,
adultery or concubinage at the time of the donation; without any settlement or liquidation of the partnership
(2) Those made between persons found guilty of the affairs, is prima facie evidence of a continuation of the
same criminal offense, in consideration thereof; partnership. (n)
(3) Those made to a public officer or his wife,
descendants and ascendants, by reason of his office. G. Commercial
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of Article 1767. By the contract of partnership two or
the donor or donee; and the guilt of the donor and more persons bind themselves to contribute money,
donee may be proved by preponderance of evidence in property, or industry to a common fund, with the
the same action. (n) intention of dividing the profits among themselves.

B. Particular Two or more persons may also form a partnership for


Article 1776. As to its object, a partnership is either the exercise of a profession. (1665a)
universal or particular.
H. Profesional
As regards the liability of the partners, a partnership
may be general or limited. (1671a) 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
Article 1783. A particular partnership has for its intention of dividing the profits among themselves.
object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession or
vocation. (1678) Two or more persons may also form a partnership for
the exercise of a profession. (1665a)
C. General
I. By estoppel/apparent
Article 1776. As to its object, a partnership is either
universal or particular. 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
As regards the liability of the partners, a partnership an existing partnership or with one or more persons not
may be general or limited. (1671a) actual partners, he is liable to any such persons to
whom such representation has been made, who has,
D. Limited on the faith of such representation, given credit to the
Article 1776. As to its object, a partnership is either actual or apparent partnership, and if he has made
universal or particular. such representation or consented to its being made in
a public manner he is liable to such person, whether
As regards the liability of the partners, a partnership the representation has or has not been made or
may be general or limited. (1671a) communicated to such person so giving credit by or
with the knowledge of the apparent partner making the
E. At will representation or consenting to its being made:
Article 1785. When a partnership for a fixed term or (1) When a partnership liability results, he is liable as
particular undertaking is continued after the though he were an actual member of the partnership;
termination of such term or particular undertaking (2) When no partnership liability results, he is liable pro
without any express agreement, the rights and duties rata with the other persons, if any, so consenting to the
of the partners remain the same as they were at such contract or representation as to incur liability,
termination, so far as is consistent with a partnership otherwise separately.
at will.
When a person has been thus represented to be a
A continuation of the business by the partners or such partner in an existing partnership, or with one or more
of them as habitually acted therein during the term, persons not actual partners, he is an agent of the
without any settlement or liquidation of the partnership persons consenting to such representation to bind
affairs, is prima facie evidence of a continuation of the them to the same extent and in the same manner as
partnership. (n) though he were a partner in fact, with respect to
persons who rely upon the representation. When all the
F. For a term or undertaking 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
Article 1785. When a partnership for a fixed term or
the person acting and the persons consenting to the
particular undertaking is continued after the
representation. (n)
termination of such term or particular undertaking
without any express agreement, the rights and duties
III. Kinds of partners
Industrial partner Capitalist partner
Form of contribution
Industry Money or property
Share in profits
Just and equitable share According to agreement; if
none, in proportion to
contribution
Share in losses
Exempted as to losses as According to agreement; if
between partners, but none, in the same
liable to third persons, proportion as the agreed
without prejudice to share in profits; if none, in
reimbursement from proportion to contribution
capitalist partners
Engagement in business
Cannot engage in Cannot engage, for his
business for himself, own account, in the same
unless the partnership kind of business as that of
expressly permits him to the partnership, unless
do so; should he do so there is a stipulation to
without permission, the the contrary; should he do
capitalist partners may: so, he shall bring to the
[1] exclude him from the common fund any profits
firm; or accruing to him from his
[2] avail themselves of transactions and shall
the benefits obtained in personally bear all the
violation of the losses
prohibition, with right to [Article 1808]
damages in either case
[Article 1789]

A. Industrial
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)

Industrial partner- one who contributes his industry,


labor, or services to the partnership

GR: he becomes the debtor of the partnership for his


work or services from the moment the partnership
relation begins partnership acquires an exclusive
right to avail itself of his industry.
Exception: when the partnership expressly permits
him to engage in business for himself

If he engages in a business for himself without the


express permission act is considered prejudicial to
the interest of the other partners

Express permission mere tolerance will not exempt


the industrial partner from liability

Action for specific performance to compel partner to


perform the promised work or service is not available
as e remedy prohibited by the Constitution A partner is entitled to receive only his share of the
(Involuntary servitude) profits actually realized by the venture.

Prohibition against engaging in a business Rule for distribution of profits


As regards the industrial partner: GR: losses shall be distributed according to their
prohibition is absolute and applies whether agreement subject to Article 1799.
the industrial partner is to engage in the same
business in which the partnership is engaged If there is no agreement
or in any kind of business If the contract provides for the share of the partners in
Reason for prohibition: the profits
o to prevent conflict of interest Capitalist partners: the share of each in the
between the industrial partner and the losses shall be in accordance with the profit-
partnership sharing ratio
o to insure faithful compliance by said Industrial partner: not be liable for losses
partner with his prestation
If the contract does NOT provide for the share of the
As regards the capitalist partner: partners in the profits losses shall be borne by the
prohibition extends only to any operation which partners in proportion to their capital
is of the same kind of business in which the contributions, but the PURELY industrial partner
partnership is engaged unless there is a shall NOT be liable for the losses.
stipulation to the contrary.
B. Capitalist
Remedies where industrial partner engages in Article 1789. An industrial partner cannot engage in
business. business for himself, unless the partnership expressly
Capitalist partners have the right: permits him to do so; and if he should do so, the
o To exclude him from the firm or capitalist partners may either exclude him from the
o To avail themselves of the benefits firm or avail themselves of the benefits which he may
which he may have obtained have obtained in violation of this provision, with a right
to damages in either case. (n)
Article 1797. The losses and profits shall be
distributed in conformity with the agreement. If Article 1790. Unless there is a stipulation to the
only the share of each partner in the profits has been contrary, the partners shall contribute equal
agreed upon, the share of each in the losses shall be in shares to the capital of the partnership. (n)
the same proportion.
Partners can stipulate the contribution of unequal
In the absence of stipulation, the share of each partner shares in the common fund
in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner Rule is NOT applicable to an industrial partner
shall not be liable for the losses. As for the profits, the unless, besides his services, he has contributed capital
industrial partner shall receive such share as may be pursuant to an agreement to that effect
just and equitable under the circumstances. If besides
his services he has contributed capital, he shall also Article 1797. The losses and profits shall be
receive a share in the profits in proportion to his distributed in conformity with the agreement. If only
capital. (1689a) the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in
Rule for distribution of profits the same proportion.
GR: partners shall share their profits according to their
agreement subject to Art. 1799 In the absence of stipulation, the share of each partner
in the profits and losses shall be in proportion to what
If there is no agreement: he may have contributed, but the industrial partner
Share of capitalist partner proportion to shall not be liable for the losses. As for the profits, the
his capital contribution industrial partner shall receive such share as may be
Share of industrial partner paid his share just and equitable under the circumstances. If besides
first before the capitalist partners divide the his services he has contributed capital, he shall also
profit among themselves receive a share in the profits in proportion to his
o Share is according to just and capital. (1689a)
equitable under the circumstances
o profits is not fixed as it is very difficult Article 1808. The capitalist partners CANNOT engage
to ascertain the value of the services of for their own account in any operation which is of the
a person kind of business in which the partnership is
o Under Code of Commerce: industrial engaged, unless there is a stipulation to the contrary.
partner was placed in the distribution
in the same position as the capitalist Any capitalist partner violating this prohibition shall
partner having the smallest bring to the common funds any profits accruing
interest. to him from his transactions, and shall personally
bear all the losses. (n)
accordance with his right to application of payment
Prohibition only applies to businesses same as or
similar to the business in which the partnership is Article 1800. The partner who has been appointed
engaged and which is competitive with said business. manager in the articles of partnership may execute
all acts of administration despite the opposition
Reason for prohibition: of his partners, unless he should act in bad faith; and
relationship is fiduciary and imposes upon his power is irrevocable without just or lawful
them the obligation of the utmost good faith cause. The vote of the partners representing the
in their dealings with one another with controlling interest shall be necessary for such
respect to partnership affairs revocation of power.
to prevent a partner from availing himself
personally of information obtained by him in A power granted after the partnership has been
the course of the transaction of the partnership constituted may be revoked at any time. (1692a)
business or by reason of his connection with
the firm regarding the business secrets and Partners have the right to an equal voice in the conduct
clientele of the firm to its prejudice. and management of the partnership business
C. Managing Partners may select a managing partner or make such
Article 1792. If a partner authorized to manage allocation of functions as the needs of the business
collects a demandable sum which was owed to him dictate especially in a large partnership.
in his own name, from a person who owed the
partnership another sum also demandable, the Appointment as manager in the articles of
sum thus collected shall be applied to the two partnership may execute all acts of
credits in proportion to their amounts, even administration notwithstanding the opposition
though he may have given a receipt for his own credit of the other partners, unless he should act in
only; but should he have given it for the account of bad faith power is revocable only upon just
the partnership credit, the amount shall be fully and lawful cause and upon vote of the
applied to the latter. representing the controlling interest
no party to a contract can violate the law of
The provisions of this article are understood to be the contract without the consent of the others.
without prejudice to the right granted to the other In case of mismanagement, the other
debtor by article 1252, but only if the personal credit partners may avail of the usual remedies
of the partner should be more onerous to him. allowed by law, including an application for
(1684) dissolution of the partnership by a judicial
decree.
Obligation of managing partner who collects Appointment as manager after the
debt constitution of the partnership may be
Person is separately indebted to the partnership and to revoked at any time for any cause whatsoever.
the managing partner at the same time partner (and not a stranger) appointed as
GR: sum received by the managing partner shall be manager
applied to both credits in proportion to their amounts
Exception: where he received it for the account of the Article 1801. If two or more partners have been
partnership whole sum shall be applied to the intrusted with the management of the partnership
partnership credit only. without specification of their respective duties,
or without a stipulation that one of them shall
Requisites for the application of the rule not act without the consent of all the others,
There exist at least two debts, one where the each one may separately execute all acts of
collecting partner is creditor, and the other, administration, but if any of them should oppose the
where the partnership is the creditor; acts of the others, the decision of the majority shall
Both debts are demandable; and prevail. In case of a tie, the matter shall be decided by
The partner who collects is authorized to the partners owning the controlling interest. (1693a)
manage and ACTUALLY manages the
partnership. 2 or more partners have been entrusted with the
management
Reason: safeguards the interests of the partnership by without specification of their respective
preventing the possibility of their being duties, or
subordinated by the managing partner to his without a stipulation that one of them shall
own interest to the prejudice of the other partners. NOT act without the consent of all the
others
If no one is appointed as managing partner Art. 1803 each one may separately execute all acts of
would apply every partner is considered a managing administration
partner
If one or more managing partners shall oppose the
Right of the debtor to application of the payment (Art. acts of the others decision of the MAJORITY of the
1252) managing partners shall prevail
debtor is given the right to prefer payment of the credit
of the partner if it should be more onerous to him in In case of a tie matter shall have to be decided by
the vote of the partners owning the controlling interest with the knowledge of the apparent partner making the
(more than 50% of the capital investment) representation or consenting to its being made:

If there is a specification of the respective duties of (1) When a partnership liability results, he is liable as
the managing partners the decision of the partner though he were an actual member of the partnership;
concerned shall prevail subject only to the limitation
that he should act in good faith. (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,
Requisites for the application of the rule
otherwise separately.
Two or more partners have been appointed as
managers;
There is NO specification of their respective When a person has been thus represented to be a
duties; and partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the
There is NO stipulation that one of them shall
persons consenting to such representation to bind
not act without the consent of all the others.
them to the same extent and in the same manner as
though he were a partner in fact, with respect to
Article 1802. In case it should have been stipulated persons who rely upon the representation. When all the
that none of the managing partners shall act members of the existing partnership consent to the
without the consent of the others, the representation, a partnership act or obligation results;
concurrence of all shall be necessary for the validity but in all other cases it is the joint act or obligation of
of the acts, and the absence or disability of any one of the person acting and the persons consenting to the
them CANNOT be alleged, unless there is imminent representation. (n)
danger of grave or irreparable injury to the
partnership. (1694)
Partner by estoppel; partnership by estoppel.
Estoppel: bar which precludes a person from denying
Partners may stipulate that none of the managing or asserting anything contrary to that which has been
partners shall act without the consent of the others established as the truth by his own deed or
unanimous consent of ALL the managing representation, either express or implied.
partners shall be necessary for the validity of their
acts. GR: Persons who are not partners as to each other are
not partners as to third persons.
consent is so indispensable that neither the absence Exception: doctrine of estoppel, one may become
nor disability of any one of them may be alleged as liable as a partner even though he is not a partner in
excuse or justification to dispense with this fact.
requirement.
Partner by estoppel
ONLY exception: there is an imminent danger of (a) Directly represents himself to anyone as a
grave or irreparable injury to the partnership partner in an existing partnership or in a non-existing
partner may act alone without the consent of the partnership (with one or more persons not actual
partner who is absent or under disability, without partners); or
prejudice to his liability for damages under Article (b) Indirectly represents himself by consenting to
1794. another representing him as a partner in an existing
partnership or in a non-existing partnership.
Exception does NOT apply when one of the managers,
in the exercise of his right to oppose, objects to the Partnership by estoppel
proposed act. If all the actual partners consented to the
Reason: one of the essential conditions of the authority representation, then the liability of the person who
conferred on the managing partner is that the represented himself to be a partner or who consented
management should be with the consent of all to such representation and the actual partners is
the partners, and inasmuch as in this case such considered a partnership liability
unanimous consent is manifestly wanting, proposed
act is outside the scope of his authority
no existing partnership and all those represented as
D. By estoppel partners consented to the representation, or not all of
Article 1825. When a person, by words spoken or the partners of an existing partnership consented to
written or by conduct, represents himself, or consents the representation, then, the liability of the person who
to another representing him to anyone, as a partner in represented himself to be a partner or who consented
an existing partnership or with one or more persons not to his being represented as partner, and all those who
actual partners, he is liable to any such persons to made and consented to such representation, is joint or
whom such representation has been made, who has, pro rata.
on the faith of such representation, given credit to the Liability: pro rata (all those who made and consented to
actual or apparent partnership, and if he has made such representation)
such representation or consented to its being made in
a public manner he is liable to such person, whether When there is no existing partnership and not all but
the representation has or has not been made or only some of those represented as partners consented
communicated to such person so giving credit by or to the representation, or none of the partners in an
existing partnership consented to such representation,
then the liability will be separate that of the person vendee. He shall also be liable for the fruits thereof
who represented himself as a partner or who from the time they should have been delivered,
consented to his being represented as a partner, and without the need of any demand. (1681a)
those who made and consented to the representation,
or that only of the person who represented himself as Obligations with respect to contribution of
partner property
(1) To contribute at the beginning of the
Estoppel does NOT create a partnership partnership or at the stipulated time the money,
property, or industry which he may have promised
One who is deemed to be liable as a partner by reason to contribute;
of estoppel does not thereby obtain full rights as a (2) To answer for eviction in case the partnership is
partner. deprived of the determinate property
contributed; and
The doctrine of estoppel has no application as between (3) To answer to the partnership for the fruits of
actual partners. Partners become such by agreement the property the contribution of which he delayed,
and not by estoppel. from the date they should have been contributed
up to the time of actual delivery.
Elements to establish liability as a partner on
ground of estoppel. Additional obligations
(1) Proof by plaintiff that he was individually aware of (4) To preserve said property with the diligence of
the defendants representations as to his being a a good father of a family pending delivery to the
partner or that such representations were made by partnership [Art. 1163.]; and
others and not denied or refuted by the defendant; (5) To indemnify the partnership for any damage
(2) Reliance on such representations by the plaintiff; caused to it by the retention of the same or by the
and delay in its contribution. [Arts. 1788, 1170.]
(3) Lack of any denial or refutation of the statements
by the defendant; such denial need not precede Effect of failure to contribute property
plaintiffs acting thereon if the denial was forthcoming Makes the partner ipso jure a debtor of the partnership
promptly upon hearing of the representations, and if, even in the absence of any demand.
by prudence and diligence the plaintiff might have
learned of the truth or untruth of the representations. Remedy of other partners
Action for specific performance (to collect what is
Defendant need not be proved to be a man of financial owing) with damages and interest from the defaulting
ability. Sole reliance is not a requisite with respect to partner from the time he should have complied with his
dealings involving the one representing or represented obligation.
to be a partner
Liability of partner in case of eviction
The law makes liable as general partners all persons Bound by rules on sales: take place whenever by a
who assume to act as a corporation and may include final judgment based on a right prior to the sale or
persons who attempt, but fail to form a corporation and an act imputable to the vendor, the vendee is
who carry on business under the corporate name. A de deprived of the whole or a part of the thing
facto partnership among themis created. purchased.
Only the active members of the unsuccessfully Liability of partner for fruits of property in case
attempted corporation should be liable as general of delay.
partners. Subscribers to stocks who take no part in the no demand is necessary to put the partner in default
supposed corporation are not personally liable.
Rights and obligation in general, of partners Liability of partner for failure to perform service
inter se stipulated.
(1) Partnership relation essentially one of mutual trust GR: Partner NOT liable unless there is a special
and confidence agreement to that effect
(2) Fiduciary relationship remains until partnership is Exception:
terminated If a partner neglects or refuses, without
(3) Relationship in a limited partnership does not reasonable cause, to render the service which
involve trust and confidence he agreed to perform by reason of which the
partnership suffered loss
IV. Partners obligations to the partnership
If the partner is compelled to make good
A. To contribute; warrant
the loss, each member of the firm, including
Article 1786. Every partner is a debtor of the himself, will receive his proportion of the
partnership for whatever he may have promised to amount in the distribution of the partnership
contribute thereto. assets,
If under the circumstances of the case the
He shall also be bound for warranty in case of proper measure of the damages or loss (which
eviction with regard to specific and determinate may include unrealized profits) is the value of
things which he may have contributed to the the services wrongfully withheld, then the
partnership, in the same cases and in the same defendant should be charged this value
manner as the vendor is bound with respect to the
levy on its assets if there should be any.
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 Article 1790. Unless there is a stipulation to the
manner prescribed in the contract of contrary, the partners shall contribute equal
partnership, and in the absence of stipulation, it shares to the capital of the partnership. (n)
shall be made by experts chosen by the partners,
and according to current prices, the subsequent Above rule is NOT applicable to an industrial
changes thereof being for account of the partnership. partner unless, besides his services, he has
(n) contributed capital pursuant to an agreement to
that effect
Reason for appraisal: to determine how much has
been contributed by the partners In the absence Article 1791. If there is no agreement to the contrary,
of a stipulation, the share of each partner in the in case of an imminent loss of the business of the
profits and losses is in proportion to what he partnership, any partner who refuses to contribute
may have contributed. an additional share to the capital, except an
industrial partner, to save the venture, shall he
In the case of immovable property, the appraisal is obliged to sell his interest to the other partners.
made in the inventory of said property or as provided (n)
in this article
GR: capitalist partner is not bound to contribute to the
Article 1788. A partner who has undertaken to partnership more than what he agreed to contribute
contribute a sum of money and fails to do so Exception: in case of an imminent loss of the
becomes a debtor for the interest and damages business, and there is no agreement to the contrary, he
from the time he should have complied with his is under obligation to contribute an additional share to
obligation. save the venture

The same rule applies to any amount he may have Requisites for the application of the rule
taken from the partnership coffers, and his liability There is an imminent loss of the business of
shall begin from the time he converted the amount to the partnership;
his own use. (1682) The majority of the capitalist partners are of
the opinion that an additional contribution
2 distinct cases to the common fund would save the
Money promised but not given on time business;
Partnership money converted to the personal The capitalist partner refuses deliberately
use of the partner (not because of his financial inability to do so),
to contribute an additional share to the
Obligations of partners with respect to capital capital; and
To contribute on the date due the amount There is no agreement that even in case of an
he has undertaken to contribute to the imminent loss of the business the partners are
partnership; not obliged to contribute.
To reimburse any amount he may have
taken from the partnership coffers and Reason: refusal of the partner reflects his lack of
converted to his own use; interest in the continuance of the partnership
unjust for him to remain and reap the benefits of the
To pay the agreed or legal interest, if he
efforts of the others while he himself refuses to help.
fails to pay his contribution on time or in
case he takes any amount from the
common fund and converts it to his own Article 1795. The risk of specific and determinate
use; and things, which are not fungible, contributed to the
partnership so that only their use and fruits may be for
To indemnify the partnership for the
the common benefit, shall be borne by the partner who
damages caused to it by the delay in the
owns them.
contribution or the conversion of any sum
for his personal benefit.
If the things contribute are fungible, or cannot be kept
Liability of partner for failure to return without deteriorating, or if they were contributed to be
partnership money received. sold, the risk shall be borne by the partnership. In the
Where fraudulent misappropriation absence of stipulation, the risk of the things brought
committed partner is guilty of estafa if he and appraised in the inventory, shall also be borne by
misappropriates partnership money or property the partnership, and in such case the claim shall be
received by him for a specific purpose of the limited to the value at which they were appraised.
partnership. (1687)
Where there was mere failure to return
action that lies with the partner who furnished 5 cases contemplated
capital for the recovery of his money is a civil (1) Specific and determinate things which are not
one arising from the partnership contract fungible where only the use is contributed. The
for a liquidation of the partnership and a risk of loss is borne by the partner because he remains
the owner of the things (like car); would apply every partner is considered a managing
(2) Specific and determinate things the partner
ownership of which is transferred to the
partnership. The risk of loss is for the account of Right of the debtor to application of the payment (Art.
the partnership, being the owner; 1252)
(3) Fungible7 things or things which cannot be debtor is given the right to prefer payment of the credit
kept without deteriorating even if they are of the partner if it should be more onerous to him in
contributed only for the use of the partnership. accordance with his right to application of payment
The risk of loss is borne by the partnership for
evidently the ownership was being transferred since
use is impossible without the things (e.g., oil, wine) C. To compensate
being consumed or impaired;
(4) Things contributed to be sold. The Article 1794. Every partner is responsible to the
partnership bears risk of loss for there cannot be any partnership for damages suffered by it through his
doubt that the partnership was intended to be the fault, and he CANNOT compensate them with the
owner; otherwise, the partnership could not effect the profits and benefits which he may have earned
sale; and for the partnership by his industry. However, the
(5) Things brought and appraised in the courts may equitably lessen this responsibility if
inventory. The partnership bears the risk of loss through the partner's extraordinary efforts in other
because the intention of the parties was to contribute activities of the partnership, unusual profits have been
to the partnership the price of the things contributed realized. (1686a)
with an appraisal in the inventory. There is thus an
implied sale making the partnership owner of the said Obligation of partner for damages to partnership
things, the price being represented by their appraised Any person guilty of negligence or fault in the
value. fulfillment of his obligation shall be liable for damages
partners fault, however, must be determined in
B. To apply sums collected pro-rata accordance with the nature of the obligation and
Article 1792. If a partner authorized to manage the circumstances of the person, the time, and
collects a demandable sum which was owed to him in the place
his own name, from a person who owed the
partnership another sum also demandable, the sum Compensation of damages with profits earned for
thus collected shall be applied to the two credits in partnership by guilty partner.
proportion to their amounts, even though he may have GR: damages caused by a partner to the partnership
given a receipt for his own credit only; but should he CANNOT be offset by the profits or benefits which he
have given it for the account of the partnership credit, may have earned for the partnership by his industry
the amount shall be fully applied to the latter. partner has the obligation to secure
benefits for the partnership profits which
The provisions of this article are understood to be he may have earned pertain as a matter of law
without prejudice to the right granted to the other or right, to the partnership.
debtor by article 1252, but only if the personal credit of obligation to exercise diligence in the
the partner should be more onerous to him. (1684) performance of his obligation as a partner
Exception:
Obligation of managing partner who collects If unusual profits are realized through the
debt extraordinary efforts of the partner at fault, the courts
Person is separately indebted to the partnership and to may equitably mitigate or lessen his liability for
the managing partner at the same time damages
GR: sum received by the managing partner shall be
applied to both credits in proportion to their amounts D. To be loyal; fiduciary duty
Exception: where he received it for the account of the
partnership whole sum shall be applied to the Article 1807. Every partner must account to the
partnership credit only. partnership for any benefit, and hold as trustee for it
any profits derived by him without the consent of the
Requisites for the application of the rule other partners from any transaction connected with the
There exist at least two debts, one where the formation, conduct, or liquidation of the partnership or
collecting partner is creditor, and the other, from any use by him of its property. (n)
where the partnership is the creditor;
Both debts are demandable; and Duty to act for common benefit
The partner who collects is authorized to Pang Lim v. Lo Seng: He cannot, at the expense or to
manage and ACTUALLY manages the the detriment of the other partners, use or apply
partnership. exclusively to his own individual benefit partnership
assets or the results of the knowledge and information
Reason: safeguards the interests of the partnership by gained in the character of partner
preventing the possibility of their being
subordinated by the managing partner to his Duty begins during the formation of
own interest to the prejudice of the other partners. partnership
Duty continues even after dissolution
If no one is appointed as managing partner Art. 1803 Duty to account for earnings accruing even
after termination of partnership
Duty to make full disclosure of information Requisites for the application of the rule:
belonging to the partnership information A partner has received, in whole or in part,
which can be used for the purposes of the his share of the partnership credit;
partnership. The other partners have not collected their
o Information belongs to the partnership shares; and
in the sense of property in which it has The partnership debtor has become
a valuable right, if it is of the character insolvent
which might be employed to the
partnerships advantage Reason: the debt of the debtor of the partnership
Duty not to acquire interest or right become bad debt. It would be unjust and unfair for the
adverse to the partnership A partner may partner who collected the debt not to share the loss
not with the other partners or for the former to obtain more
o purchase, for his own benefit, property
of any kind in which the partnership is Provision is based on community of interest among
interested, or the partners
o lease property when the firm is entitled
to the benefit of such lease, or B. To share in profits/losses
o secure a valuable contract for himself
which it is his duty to secure for the Article 1797. The losses and profits shall be
firm, or distributed in conformity with the agreement. If only
o obtain secretly any right that should the share of each partner in the profits has been
belong to the partnership, and put it to agreed upon, the share of each in the losses shall be in
his own individual profit. the same proportion.

In the absence of stipulation, the share of each partner


Catalan v. Gatchalian: A partner redeemed with his in the profits and losses shall be in proportion to what
own private funds foreclosed property of partnership. he may have contributed, but the industrial partner
Held: Partner did not become absolute owner of shall not be liable for the losses. As for the profits, the
property. When A redeemed the property in question industrial partner shall receive such share as may be
he became a trustee for the benefit of his co-partner, just and equitable under the circumstances. If besides
subject to his right to demand from the latter his his services he has contributed capital, he shall also
contribution. receive a share in the profits in proportion to his
capital. (1689a)
Pang Lim v. Lo Seng: A partner, after selling to his
Rule for distribution of profits
co-partner his interest in a partnership and acquiring
GR: partners shall share their profits according to their
from a lessor the plant and land leased by the
agreement subject to Art. 1799
partnership, seeks to terminate the partnership
Held: A does not have the right to terminate the lease;
If there is no agreement:
he acted in bad faith. He had been in a relation of
Share of capitalist partner proportion to
confidence with B and in that position had acquired
knowledge of the possibilities of the property. on his capital contribution
account of his status as partner, A knew that the Share of industrial partner paid his share
original lease had veen extended and the extent of the first before the capitalist partners divide the
valuable improvements that had been made thereon. profit among themselves
o Share is according to just and
Lim Tanhu v. Ramolete: Widow of deceased partner equitable under the circumstances
seeks accounting from surviving partners who acquired o profits is not fixed as it is very difficult
with partnership assets, properties long after the to ascertain the value of the services of
dissolution of the partnership as a result of the death of a person
the deceased partner who was in control of partnership o Under Code of Commerce: industrial
affairs during his lifetime. partner was placed in the distribution
Held: Widow not entitled to accounting. A1807 not in the same position as the capitalist
applicable. Since B was in control of the affairs of the partner having the smallest
partnership, fraud by C & D of B is hard to believe. interest.

V. Partners obligation inter se A partner is entitled to receive only his share of the
profits actually realized by the venture.
A. To bring to collation
Rule for distribution of profits
Article 1793. A partner who has received, in whole or GR: losses shall be distributed according to their
in part, his share of a partnership credit, when the agreement subject to Article 1799.
other partners have not collected theirs, shall be
obliged, if the debtor should thereafter become If there is no agreement
insolvent, to bring to the partnership capital what he If the contract provides for the share of the partners in
received even though he may have given receipt for the profits
his share only. (1685a)
Capitalist partners: the share of each in the the inequality is so gross that it is, in effect, a
losses shall be in accordance with the profit- simulated form or attempt to exclude a partner from
sharing ratio any share in the profits or losses.
Industrial partner: not be liable for losses
C. To render true and full information
If the contract does NOT provide for the share of the
partners in the profits losses shall be borne by the Article 1806. Partners shall render on demand true
partners in proportion to their capital and full information of all things affecting the
contributions, but the PURELY industrial partner partnership to any partner or the legal representative
shall NOT be liable for the losses. of any deceased partner or of any partner under legal
disability. (n)
Article 1798. If the partners have agreed to intrust to there must be no concealment between them in all
a third person the designation of the share of each one matters affecting the partnership
in the profits and losses, such designation may be
impugned only when it is manifestly inequitable. In no information, to be sure, must be used only for a
case may a partner who has begun to execute the partnership purpose.
decision of the third person, or who has not impugned
the same within a period of three months from the use of the words on demand does not mean that a
time he had knowledge thereof, complain of such partner is under no obligation to make a voluntary
decision. disclosure of information affecting the partnership

The designation of losses and profits cannot be duty to render information does not arise with respect
intrusted to one of the partners. (1690) to matters appearing in the partnership books since
each partner has the right to inspect the books.
Reason for prohibition: to guarantee the utmost Good faith not only requires that a partner should not
impartiality in the distribution of shares in the profits make any false statement but also that he should
and losses abstain from any concealment.
Designation by the third person would generally be D. Not to engage in another business
binding unless manifestly inequitable.
Article 1789. An industrial partner cannot engage in
Reason behind the comparatively short period of
business for himself, unless the partnership expressly
3 months within which to impugn the
permits him to do so; and if he should do so, the
designation: to forestall any paralyzation in the
capitalist partners may either exclude him from the
operations of the partnership.
firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right
Article 1799. A stipulation which excludes one or to damages in either case. (n)
more partners from any share in the profits or losses is
void. (1691)
Prohibition against engaging in a business
As regards the industrial partner:
GR: law does NOT allow a stipulation excluding one or prohibition is absolute and applies whether
more partners from any share in the profits and losses
the industrial partner is to engage in the same
partnership must exist for the common benefit and
business in which the partnership is engaged
interest of the partners
or in any kind of business
Reason for prohibition:
Although the stipulation is void, the partnership, if
otherwise valid, subsists and the profits or losses shall o to prevent conflict of interest
be apportioned as if there were no stipulation on the between the industrial partner and the
same. partnership
o to insure faithful compliance by said
If there is a stipulation there shall be no liability for partner with his prestation
losses, or where from the nature of the contract, it is
clear that a party did not intend to share in the losses, As regards the capitalist partner:
such fact may be a factor in determining that no prohibition extends only to any operation which
partnership exists is of the same kind of business in which the
partnership is engaged unless there is a
One excluded from any share in the profits or stipulation to the contrary.
losses is NOT intended by the parties to become
a partner, the stipulation is, of course, valid Remedies where industrial partner engages in
business.
Stipulation excluding industrial partners is valid since Capitalist partners have the right:
law itself excludes them This is without prejudice, o To exclude him from the firm or
however, to the rights of third persons. To avail themselves of the benefits which he may
have obtained
Limitation does not mean that the partners cannot
stipulate for unequal shares in the profits or losses Article 1808. The capitalist partners cannot engage
even if their respective contributions are equal, unless for their own account in any operation which is of the
kind of business in which the partnership is engaged,
unless there is a stipulation to the contrary. The interest charged may be redeemed at any time
before foreclosure, or in case of a sale being directed
Any capitalist partner violating this prohibition shall by the court, may be purchased without thereby
bring to the common funds any profits accruing to him causing a dissolution:
from his transactions, and shall personally bear all the (1) With separate property, by any one or more of
losses. (n) the partners; or
(2) With partnership property, by any one or more of
Prohibition only applies to businesses same as or the partners with the consent of all the partners
similar to the business in which the partnership is whose interests are not so charged or sold.
engaged and which is competitive with said business.
Nothing in this Title shall be held to deprive a partner
Reason for prohibition: of his right, if any, under the exemption laws, as
relationship is fiduciary and imposes upon regards his interest in the partnership. (n)
them the obligation of the utmost good faith
in their dealings with one another with Separate creditor of a partner CANNOT attach or levy
respect to partnership affairs upon specific partnership property for satisfaction of
to prevent a partner from availing himself his credit
personally of information obtained by him in
the course of the transaction of the partnership Reason: partnership assets are reserved for
business or by reason of his connection with partnership creditors
the firm regarding the business secrets and
clientele of the firm to its prejudice. BUT he can secure a judgment credit and then apply to
the proper court for a CHARGING ORDER,
subjecting the interest of the debtor partner in the
partnership with the payment of the unsatisfied
amount of such judgment with interest thereon
with the least interference with the partnership
business and the rights of the other partners.

Result: any amount or portion thereof which the


partnership would otherwise pay the debtor-partner
would be given to the judgment creditor

Remedy is without prejudice to the preferred rights of


partnership creditors under Article 1827 claims of
the partnership creditors must be satisfied first before
the separate creditors of the partners can be paid out
of the interest charge

Exclusive remedy writ of execution will not be


proper

Court may resort to other courses of action provided in


Article 1814 if the judgment debt remains unsatisfied,
notwithstanding the issuance of the charging order
Appointment of receiver
Sale of interest
VI. Partners obligations to personal and
partnership creditor; third parties
Redemption or purchase of the interest charged
May be redeemed or purchases with
A. To have his partnership interest charged for
Separate property of any one or more of the
personal debts (primary)
partners, or
Article 1814. Without prejudice to the preferred rights
Partnership property but with the consent
of partnership creditors under article 1827, on due
of all the partners whose interests are not
application to a competent court by any
so charged or sold.
judgment creditor of a partner, the court which
entered the judgment, or any other court, may charge
Redemption price- value of partners interest has no
the interest of the debtor partner with payment
bearing
of the unsatisfied amount of such judgment debt
with interest thereon; and may then or later
Redeeming non-debtor partner does NOT acquire
appoint a receiver of his share of the profits, and
absolute ownership over the debtor-partners
of any other money due or to fall due to him in
interest but holds it in trust for him consistent with
respect of the partnership, and make all other
principles of fiduciary relationship.
orders, directions, accounts and inquiries which
the debtor partner might have made, or which the
circumstances of the case may require.
Partner can avail any rights under exemption laws if his
interest over the partnership and NOT over specific Nature of individual liability of partners
partnership property is attached (1) Pro rata must mean equally or jointly, and NOT
proportionately; because the pro-rating is based on the
Receiver of partners share in profits number of partners and not on the amount of their
Has the right in a proper action to have adjudicated the contributions to the common fund
nullity of any mortgage or any other assignment by (2) Subsidiary or secondary they become personally
some but not all of the partners of their interest in liable only after all the partnership assets have been
specific property of the partnership less than the whole exhausted [guarantors]
(3) Liability of industrial partner even him has to pay,
Article 1827. The creditors of the partnership subject to reimbursement by the capitalist partners
shall be preferred to those of each partner as regards
the partnership property. Without prejudice to this Liability v. loss
right, the private creditors of each partner may 1816 refers to liabilities while 1797 speaks of losses
ask the attachment and public sale of the share (1) The inability of a partnership to pay debt to a third
of the latter in the partnership assets. (n) party at a particular time does NOT necessarily mean
that the partnership business, as a whole, has been
With respect to partnership assets, the partnership operated at a loss partnership may have outstanding
creditors are entitled to priority of payment credits which for the moment may be unavailable for
the payment of debts, but which eventually may be
Rule applies only in the event of the disposition of realized upon and yield profits more than sufficient to
partnership property among its creditors to pay cover all losses.
partnership debts. (2) The exemption of the industrial partner to pay
losses relates exclusively to the settlement of the
Remedy of private creditors of a partner partnership affairs among the partners themselves
Creditors of each partner may ask for the attachment and has nothing to do with the liabilities of the partners
and public sale of the share of the latter in the to third persons. An industrial partner is not exempted
partnership assets from liability to third persons for the debts of the
partnership.
The purchaser at the public sale does NOT
become a partner. Industrial partner: is not a matter of striking a balance
from time to time, but one of the final adjustment of
B. To be liable pro rata for partnership debts assets and liabilities As long as there is property
(subsidiary & joint) belonging to the partnership, obligations in favor of
third persons are covered by the primary and direct
responsibility of the partnership.
Article 1816. All partners, including industrial ones,
shall be liable pro rata with all their property and
after all the partnership assets have been Article 1817. Any stipulation against the liability laid
exhausted, for the contracts which may be entered down in the preceding article shall be void, except as
into in the name and for the account of the among the partners. (n)
partnership, under its signature and by a person
authorized to act for the partnership. However, any
partner may enter into a separate obligation to Article 1835. The dissolution of the partnership does
perform a partnership contract. (n) not of itself discharge the existing liability of any
partner.
Partners are principals to the other partners and agents
for them and the partnership liable to 3rd persons A partner is discharged from any existing liability upon
who have dealt with one of them in the same way that dissolution of the partnership by an agreement to that
a principal is liable to third persons who have dealt effect between himself, the partnership creditor and
with an agent the person or partnership continuing the business; and
such agreement may be inferred from the course of
GR: partner has the right to make all partners liable for dealing between the creditor having knowledge of the
contracts he makes for the partnership in the name dissolution and the person or partnership continuing
and for the account of the partnership but only if the the business.
partner was authorized (actual or apparent authority)
The individual property of a deceased partner shall be
Implied authority: Carrying on in the usual way the
liable for all obligations of the partnership incurred
business of the partnership.
while he was a partner, but subject to the prior
payment of his separate debts. (n)
Individual liability: partner may assume a
separate undertaking in his name with a third
party to perform a partnership contract or make Dissolution of a partnership does not of itself discharge
himself solidarily liable on a partnership contract the existing liability of a partner.
partner is personally bound by his contract even if only
the partnership is shown to have derived benefits from Partner may be relieved from all existing liabilities upon
it.
dissolution only by an agreement to that effect between
himself, the partnership creditor, and the other partners.
partners even if the act is unconnected with
Consent of the creditor and the other partners to the the business
novation may be implied from their conduct Example:
Partners are liable for the negligent operation of a
Liability of the estate of deceased partner vehicle by a partner, acting in the course of the
individual property of a deceased partner shall be liable business which results in a traffic accident. But if he is
for all obligations of the partnership incurred while he driving a partnership-owned vehicle for purposes of his
own, although with the permission of the other
was a partner individual creditors of the deceased partners, the acting partner alone is liable.
partner are to be preferred over partnership creditors
with respect to the separate property of said deceased Misapplication of money or property of a 3rd person
partner partnership liable

Criminal liability for criminal acts.


Non-acting partner in a partnership engaged in a lawful
C. Tort liability; breach of trust liability (primary & business is not criminally liable for the criminal acts of
solidary) another partner but he is criminally liable if the
partnership is involved in an unlawful enterprise with
Article 1822. Where, by any wrongful act or omission his knowledge or consent
of any partner acting in the ordinary course of the
business of the partnership or with the authority of his Partnership liability under Article 1822 does not extend
co-partners, loss or injury is caused to any person, not to criminal liability, such as embezzlement, where the
being a partner in the partnership, or any penalty is wrongdoing is regarded as individual in character
incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act. (n) D. Liability in case of estoppel
Article 1825. When a person, by words spoken or
Article 1823. The partnership is bound to make good written or by conduct, represents himself, or consents
the loss: to another representing him to anyone, as a partner in
(1) Where one partner acting within the scope of his an existing partnership or with one or more persons not
apparent authority receives money or property of a actual partners, he is liable to any such persons to
third person and misapplies it; and whom such representation has been made, who has,
(2) Where the partnership in the course of its business on the faith of such representation, given credit to the
receives money or property of a third person and the actual or apparent partnership, and if he has made
money or property so received is misapplied by any such representation or consented to its being made in
partner while it is in the custody of the partnership. (n) 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
Article 1824. All partners are liable solidarily with the
with the knowledge of the apparent partner making the
partnership for everything chargeable to the
representation or consenting to its being made:
partnership under articles 1822 and 1823. (n)

Solidary liability of the partners and also the (1) When a partnership liability results, he is liable as
partnership to 3rd persons for the wrongful act or though he were an actual member of the partnership;
omission or breach of trust of a partner acting within (2) When no partnership liability results, he is liable pro
the scope of the firms business or with the authority of rata with the other persons, if any, so consenting to the
his co-partners even though the other partners did contract or representation as to incur liability,
not participate in, or ratify, or had no knowledge of the otherwise separately.
act or omission, without prejudice to their right to
recover from the guilty partner. When a person has been thus represented to be a
partner in an existing partnership, or with one or more
Different from liability under Article1816: 1816 is persons not actual partners, he is an agent of the
joint and subsidiary liability for contractual obligations persons consenting to such representation to bind
them to the same extent and in the same manner as
Reason for wider liability: public policy. Rule of though he were a partner in fact, with respect to
respondeat superior applies to the law of partnership in persons who rely upon the representation. When all the
the same manner as other rules governing the agency members of the existing partnership consent to the
representation, a partnership act or obligation results;
relationship but in all other cases it is the joint act or obligation of
the person acting and the persons consenting to the
Injured party may proceed against partnership or
representation. (n)
any partner

Requisites for liability Sec. 21. Corporation by estoppel. All persons who
Partner must be guilty of a wrongful act or assume to act as a corporation knowing it to be without
omission authority to do so shall be liable as general partners for
all debts, liabilities and damages incurred or arising as
He must be acting in the ordinary course of
a result thereof: Provided, however, That when any
business, or with the authority of his co-
such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed
by it as such, it shall not be allowed to use as a VII. Rights of a partner
defense its lack of corporate personality. x x x .
A. To associate another in his share
Law makes it liable as general partners all persons Article 1804. Every partner may associate another
who ASSUME TO ACT as a corporation and may person with him in his share, but the associate shall not
include persons who attempt, but fail to form a be admitted into the partnership without the consent of
corporation and who carry on business under the all the other partners, even if the partner having an
corporate name. associate should be a manager. (1696)
B. To access, inspect and copy partnership books
A de facto partnership among them is created
Article 1805. The partnership books shall be kept,
Only ACTIVE members of the unsuccessfully subject to any agreement between the partners, at the
attempted corporation should be liable as general principal place of business of the partnership, and
partners every partner shall at any reasonable hour have access
to and may inspect and copy any of them. (n)
Subscribers to stocks who take NO part in the
supposed corporation are NOT personally liable
C. To have a formal account
Summarizing Article 1825, a partner by estoppel is
liable in the following manner: Article 1809. Any partner shall have the right to a
(1) He is liable as though he were a partner when: formal account as to partnership affairs:
(a) There is an existing partnership; (1) If he is wrongfully excluded from the partnership
(b) All the partners consented to the business or possession of its property by his co-
representation; and partners;
(c) A partnership liability results. (2) If the right exists under the terms of any
(2) He is liable jointly and pro rata (as though he were agreement;
a partner in fact) with those who consented to the (3) As provided by article 1807;
representation when: (4) Whenever other circumstances render it just and
(a) There is an existing partnership but not all reasonable. (n)
the partners consented; or
(b) There is no existing partnership and all
Article 1842. The right to an account of his interest
those represented as partners consented to the
shall accrue to any partner, or his legal representative
representation.
as against the winding up partners or the surviving
(3) He is liable separately when:
partners or the person or partnership continuing the
(a) There is an existing partnership but none of
business, at the date of dissolution, in the absence of
the partners consented; or
any agreement to the contrary. (n)
(b) There is no existing partnership and not all
of those represented as partners consented to
the representation D. Property rights
Article 1810. The property rights of a partner are:
E. Liability of new partners (subsidiary) (1) His rights in specific partnership property;
(2) His interest in the partnership; and
Article 1826. A person admitted as a partner into an (3) His right to participate in the management (n)
existing partnership is liable for all the obligations of
the partnership arising before his admission as though
he had been a partner when such obligations were Partnership Partnership
incurred, except that this liability shall be satisfied only property capital
out of partnership property, unless there is a
stipulation to the contrary. (n)
Changes in Variable value Constant
value may vary from remains
Limited to his share in partnership property for day to day with unchanged as
existing obligations. changes in the the amount
market value of fixed by
Extends to his separate property for subsequent the partnership agreement of
obligations. assets the partners
Rights of existing and subsequent creditors
have equal rights as against partnership property and Assets Includes not Represents the
separate property of the previously existing members included only the original aggregate of the
of the partnership while only subsequent creditors capital individual
have rights against the separate estate of the newly contributions of contributions
admitted partner the partners but made by the
all property partners in
Liability of outgoing partner/ incoming partner. subsequently establishing or
acquired on continuing the
account of the partnership
partnership;
includes require an account from the date only of the last
partnership account agreed to by all the partners. (n)
name and
goodwill
E. To ask for dissolution 1830(2), 1831
Article 1830. Dissolution is caused:
(2) In contravention of the agreement between the
Ownership of certain property
partners, where the circumstances do not permit a
Property used by the partnership where dissolution under any other provision of this article, by
there is no express agreement that property the express will of any partner at any time;
used by the partnership constituted
partnership property, such use does not make
it partnership ptoperty Article 1831. On application by or for a partner the
Property acquired by a partner with court shall decree a dissolution whenever:
partnership funds unless a contrary (1) A partner has been declared insane in any judicial
intention appears, presumed to be partnership proceeding or is shown to be of unsound mind;
property, even if acquired in his own name (2) A partner becomes in any other way incapable of
Property carried in partnership books as performing his part of the partnership contract;
assets very strong inference that it is (3) A partner has been guilty of such conduct as tends
partnership property to affect prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach
of the partnership agreement, or otherwise so conducts
a. To possess specific partnership property himself in matters relating to the partnership business
Article 1811. A partner is co-owner with his partners that it is not reasonably practicable to carry on the
of specific partnership property. business in partnership with him;
The incidents of this co-ownership are such that: (5) The business of the partnership can only be carried
(1) A partner, subject to the provisions of this Title and on at a loss;
to any agreement between the partners, has an equal (6) Other circumstances render a dissolution equitable.
right with his partners to possess specific partnership
property for partnership purposes; but he has no right On the application of the purchaser of a partner's
to possess such property for any other purpose without interest under article 1813 or 1814:
the consent of his partners; (1) After the termination of the specified term or
(2) A partner's right in specific partnership property is particular undertaking;
not assignable except in connection with the (2) At any time if the partnership was a partnership at
assignment of rights of all the partners in the same will when the interest was assigned or when the
property; charging order was issued. (n)
(3) A partner's right in specific partnership property is
not subject to attachment or execution, except on a Dan Fue Leung v. IAC, 169 SCRA 746
claim against the partnership. When partnership US v. Clarin, supra
property is attached for a partnership debt the Emnace v. CA, 370 S 431
partners, or any of them, or the representatives of a
deceased partner, cannot claim any right under the VIII. Partnerships obligation to the partners
homestead or exemption laws;
(4) A partner's right in specific partnership property is A. To reimburse; to answer for obligations
not subject to legal support under article 291. (n) contracted
Article 1796. The partnership shall be responsible to
b. To convey partnership interest every partner for the amounts he may have disbursed
Article 1812. A partner's interest in the partnership is on behalf of the partnership and for the corresponding
his share of the profits and surplus. (n) interest, from the time the expense are made; it shall
also answer to each partner for the obligations he may
Article 1813. A conveyance by a partner of his whole have contracted in good faith in the interest of the
interest in the partnership does not of itself dissolve partnership business, and for risks in consequence of
the partnership, or, as against the other partners in the its management. (1688a)
absence of agreement, entitle the assignee, during the
continuance of the partnership, to interfere in the
management or administration of the partnership Martinez v. Ong Pong, 14 Phil 726
business or affairs, or to require any information or Agustin v. Inocencio, Phil 134
account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee IX. Rights of assignees
to receive in accordance with his contract the profits to
which the assigning partner would otherwise be A. To receive the interest 1813
entitled. However, in case of fraud in the management
of the partnership, the assignee may avail himself of Article 1813. A conveyance by a partner of his whole
the usual remedies. interest in the partnership does not of itself dissolve
In case of a dissolution of the partnership, the assignee the partnership, or, as against the other partners in the
is entitled to receive his assignor's interest and may absence of agreement, entitle the assignee, during the
continuance of the partnership, to interfere in the
management or administration of the partnership X. Dissolution & Winding Up
business or affairs, or to require any information or
account of partnership transactions, or to inspect the A. Dissolution; winding up; termination
partnership books; but it merely entitles the assignee
to receive in accordance with his contract the profits to Article 1828. The dissolution of a partnership is the
which the assigning partner would otherwise be change in the relation of the partners caused by any
entitled. However, in case of fraud in the management partner ceasing to be associated in the carrying on as
of the partnership, the assignee may avail himself of distinguished from the winding up of the business. (n)
the usual remedies.
Article 1829. On dissolution the partnership is not
In case of a dissolution of the partnership, the assignee terminated, but continues until the winding up of
is entitled to receive his assignor's interest and may partnership affairs is completed. (n)
require an account from the date only of the last
account agreed to by all the partners. (n)
B. Causes of dissolution
B. To require an account a. Without violating the agreement
Article 1830. Dissolution is caused:
Article 1813. A conveyance by a partner of his whole (1) Without violation of the agreement between the
interest in the partnership does not of itself dissolve partners:
the partnership, or, as against the other partners in the (a) By the termination of the definite term or particular
absence of agreement, entitle the assignee, during the undertaking specified in the agreement;
continuance of the partnership, to interfere in the (b) By the express will of any partner, who must act in
management or administration of the partnership good faith, when no definite term or particular is
business or affairs, or to require any information or specified;
account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee (c) By the express will of all the partners who have not
to receive in accordance with his contract the profits to assigned their interests or suffered them to be charged
which the assigning partner would otherwise be for their separate debts, either before or after the
entitled. However, in case of fraud in the management termination of any specified term or particular
of the partnership, the assignee may avail himself of undertaking;
the usual remedies. (d) By the expulsion of any partner from the business
bona fide in accordance with such a power conferred
by the agreement between the partners;
In case of a dissolution of the partnership, the assignee
is entitled to receive his assignor's interest and may
require an account from the date only of the last b. In contravention of the agreement
account agreed to by all the partners. (n)
Article 1830. Dissolution is caused:
C. To ask for dissolution (2) In contravention of the agreement between the
Article 1831. On application by or for a partner the partners, where the circumstances do not permit a
court shall decree a dissolution whenever: dissolution under any other provision of this article, by
the express will of any partner at any time;
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
c. By operation of law
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract; Article 1830. Dissolution is caused
(3) A partner has been guilty of such conduct as tends (3) By any event which makes it unlawful for the
to affect prejudicially the carrying on of the business; business of the partnership to be carried on or for the
members to carry it on in partnership;
(4) A partner wilfully or persistently commits a breach
of the partnership agreement, or otherwise so conducts (4) When a specific thing which a partner had promised
himself in matters relating to the partnership business to contribute to the partnership, perishes before the
that it is not reasonably practicable to carry on the delivery; in any case by the loss of the thing, when the
business in partnership with him; partner who contributed it having reserved the
ownership thereof, has only transferred to the
(5) The business of the partnership can only be carried partnership the use or enjoyment of the same; but the
on at a loss; partnership shall not be dissolved by the loss of the
(6) Other circumstances render a dissolution equitable. thing when it occurs after the partnership has acquired
the ownership thereof;
On the application of the purchaser of a partner's (5) By the death of any partner;
interest under article 1813 or 1814: (6) By the insolvency of any partner or of the
(1) After the termination of the specified term or partnership;
particular undertaking; (7) By the civil interdiction of any partner;
(2) At any time if the partnership was a partnership at
will when the interest was assigned or when the d. By court decree
charging order was issued. (n) Article 1830. Dissolution is caused:
(8) By decree of court under the following article.
(a) Had extended credit to the partnership prior to
Article 1831. On application by or for a partner the dissolution and had no knowledge or notice of the
court shall decree a dissolution whenever: dissolution; or
(1) A partner has been declared insane in any judicial (b) Though he had not so extended credit, had
proceeding or is shown to be of unsound mind; nevertheless known of the partnership prior to
(2) A partner becomes in any other way incapable of dissolution, and, having no knowledge or notice of
performing his part of the partnership contract; dissolution, the fact of dissolution had not been
(3) A partner has been guilty of such conduct as tends advertised in a newspaper of general circulation in the
to affect prejudicially the carrying on of the business; place (or in each place if more than one) at which the
partnership business was regularly carried on.
(4) A partner wilfully or persistently commits a breach
of the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business The liability of a partner under the first paragraph, No.
that it is not reasonably practicable to carry on the 2, shall be satisfied out of partnership assets alone
business in partnership with him; when such partner had been prior to dissolution:
(5) The business of the partnership can only be carried (1) Unknown as a partner to the person with whom the
on at a loss; contract is made; and
(6) Other circumstances render a dissolution equitable. (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
On the application of the purchaser of a partner's
connection with it.
interest under article 1813 or 1814:
(1) After the termination of the specified term or
particular undertaking; The partnership is in no case bound by any act of a
partner after dissolution:
(2) At any time if the partnership was a partnership at
will when the interest was assigned or when the (1) Where the partnership is dissolved because it is
charging order was issued. (n) 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
C. Effects of dissolution (3) Where the partner has no authority to wind up
a. Termination of mutual agency; partnership affairs; except by a transaction with one
exceptions who -
(a) Had extended credit to the partnership prior to
Article 1832. Except so far as may be necessary to dissolution and had no knowledge or notice of his want
wind up partnership affairs or to complete transactions of authority; or
begun but not then finished, dissolution terminates all (b) Had not extended credit to the partnership prior to
authority of any partner to act for the partnership: dissolution, and, having no knowledge or notice of his
(1) With respect to the partners, want of authority, the fact of his want of authority has
(a) When the dissolution is not by the act, insolvency or not been advertised in the manner provided for
death of a partner; or advertising the fact of dissolution in the first
paragraph, No. 2 (b).
(b) When the dissolution is by such act, insolvency or
death of a partner, in cases where article 1833 so
requires; Nothing in this article shall affect the liability under
(2) With respect to persons not partners, as declared in article 1825 of any person who after dissolution
article 1834. (n) represents himself or consents to another representing
him as a partner in a partnership engaged in carrying
Article 1833. Where the dissolution is caused by the
on business. (n)
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: D. Right to wind up
E. Article 1836. Unless otherwise agreed, the
(1) The dissolution being by act of any partner, the
partners who have not wrongfully dissolved the
partner acting for the partnership had knowledge of
partnership or the legal representative of the
the dissolution; or
last surviving partner, not insolvent, has the
(2) The dissolution being by the death or insolvency of right to wind up the partnership affairs,
a partner, the partner acting for the partnership had provided, however, that any partner, his legal
knowledge or notice of the death or insolvency. representative or his assignee, upon cause
shown, may obtain winding up by the court. (n)
Article 1834. After dissolution, a partner can bind the
partnership, except as provided in the third paragraph
of this article: F. Settling of accounts/application of
(1) By any act appropriate for winding up partnership properties/sharing of profits & losses
affairs or completing transactions unfinished at
dissolution; Article 1797. The losses and profits shall be
(2) By any transaction which would bind the distributed in conformity with the agreement. If only
partnership if dissolution had not taken place, provided the share of each partner in the profits has been
the other party to the transaction:
agreed upon, the share of each in the losses shall be in others, may do so, during the agreed term for the
the same proportion. partnership and for that purpose may possess the
partnership property, provided they secure the
In the absence of stipulation, the share of each partner payment by bond approved by the court, or pay any
in the profits and losses shall be in proportion to what partner who has caused the dissolution wrongfully, the
he may have contributed, but the industrial partner value of his interest in the partnership at the
shall not be liable for the losses. As for the profits, the dissolution, less any damages recoverable under the
industrial partner shall receive such share as may be second paragraph, No. 1 (b) of this article, and in like
just and equitable under the circumstances. If besides manner indemnify him against all present or future
his services he has contributed capital, he shall also partnership liabilities.
receive a share in the profits in proportion to his (3) A partner who has caused the dissolution wrongfully
capital. (1689a) shall have:
(a) If the business is not continued under the provisions
Article 1798. If the partners have agreed to intrust to of the second paragraph, No. 2, all the rights of a
a third person the designation of the share of each one partner under the first paragraph, subject to liability for
in the profits and losses, such designation may be damages in the second paragraph, No. 1 (b), of this
impugned only when it is manifestly inequitable. In no article.
case may a partner who has begun to execute the (b) If the business is continued under the second
decision of the third person, or who has not impugned paragraph, No. 2, of this article, the right as against his
the same within a period of three months from the time co-partners and all claiming through them in respect of
he had knowledge thereof, complain of such decision. 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
The designation of losses and profits cannot be
paid to him in cash, or the payment secured by a bond
intrusted to one of the partners. (1690)
approved by the court, and to be released from all
existing liabilities of the partnership; but in
Article 1799. A stipulation which excludes one or ascertaining the value of the partner's interest the
more partners from any share in the profits or losses is value of the good-will of the business shall not be
void. (1691) considered. (n)

Article 1827. The creditors of the partnership shall be Article 1838. Where a partnership contract is
preferred to those of each partner as regards the rescinded on the ground of the fraud or
partnership property. Without prejudice to this right, misrepresentation of one of the parties thereto, the
the private creditors of each partner may ask the party entitled to rescind is, without prejudice to any
attachment and public sale of the share of the latter in other right, entitled:
the partnership assets. (n) (1) To a lien on, or right of retention of, the surplus of
the partnership property after satisfying the
Article 1837. When dissolution is caused in any way, partnership liabilities to third persons for any sum of
except in contravention of the partnership agreement, money paid by him for the purchase of an interest in
each partner, as against his co-partners and all persons the partnership and for any capital or advances
claiming through them in respect of their interests in contributed by him;
the partnership, unless otherwise agreed, may have (2) To stand, after all liabilities to third persons have
the partnership property applied to discharge its been satisfied, in the place of the creditors of the
liabilities, and the surplus applied to pay in cash the partnership for any payments made by him in respect
net amount owing to the respective partners. But if of the partnership liabilities; and
dissolution is caused by expulsion of a partner, bona (3) To be indemnified by the person guilty of the fraud
fide under the partnership agreement and if the or making the representation against all debts and
expelled partner is discharged from all partnership liabilities of the partnership. (n)
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
G. Effects of rescission
partnership.

Article 1838. Where a partnership contract is


When dissolution is caused in contravention of the rescinded on the ground of the fraud or
partnership agreement the rights of the partners shall misrepresentation of one of the parties thereto, the
be as follows: party entitled to rescind is, without prejudice to any
(1) Each partner who has not caused dissolution other right, entitled:
wrongfully shall have: (1) To a lien on, or right of retention of, the surplus of
(a) All the rights specified in the first paragraph of this the partnership property after satisfying the
article, and partnership liabilities to third persons for any sum of
(b) The right, as against each partner who has caused money paid by him for the purchase of an interest in
the dissolution wrongfully, to damages breach of the the partnership and for any capital or advances
agreement. contributed by him;
(2) The partners who have not caused the dissolution (2) To stand, after all liabilities to third persons have
wrongfully, if they all desire to continue the business in been satisfied, in the place of the creditors of the
the same name either by themselves or jointly with
partnership for any payments made by him in respect who continues the business without liquidation of
of the partnership liabilities; and partnership affairs, either alone or with others;
(3) To be indemnified by the person guilty of the fraud (3) When any partner retires or dies and the business
or making the representation against all debts and of the dissolved partnership is continued as set forth in
liabilities of the partnership. (n) Nos. 1 and 2 of this article, with the consent of the
retired partners or the representative of the deceased
Article 1839. In settling accounts between the partner, but without any assignment of his right in
partners after dissolution, the following rules shall be partnership property;
observed, subject to any agreement to the contrary: (4) When all the partners or their representatives
(1) The assets of the partnership are: assign their rights in partnership property to one or
more third persons who promise to pay the debts and
(a) The partnership property,
who continue the business of the dissolved
(b) The contributions of the partners necessary for the partnership;
payment of all the liabilities specified in No. 2.
(5) When any partner wrongfully causes a dissolution
(2) The liabilities of the partnership shall rank in order and the remaining partners continue the business
of payment, as follows: under the provisions of article 1837, second paragraph,
(a) Those owing to creditors other than partners, No. 2, either alone or with others, and without
(b) Those owing to partners other than for capital and liquidation of the partnership affairs;
profits, (6) When a partner is expelled and the remaining
(c) Those owing to partners in respect of capital, partners continue the business either alone or with
(d) Those owing to partners in respect of profits. others without liquidation of the partnership affairs.
(3) The assets shall be applied in the order of their
declaration in No. 1 of this article to the satisfaction of The liability of a third person becoming a partner in the
the liabilities. partnership continuing the business, under this article,
(4) The partners shall contribute, as provided by article to the creditors of the dissolved partnership shall be
1797, the amount necessary to satisfy the liabilities. satisfied out of the partnership property only, unless
(5) An assignee for the benefit of creditors or any there is a stipulation to the contrary.
person appointed by the court shall have the right to
enforce the contributions specified in the preceding When the business of a partnership after dissolution is
number. continued under any conditions set forth in this article
(6) Any partner or his legal representative shall have the creditors of the dissolved partnership, as against
the right to enforce the contributions specified in No. 4, the separate creditors of the retiring or deceased
to the extent of the amount which he has paid in partner or the representative of the deceased partner,
excess of his share of the liability. have a prior right to any claim of the retired partner or
(7) The individual property of a deceased partner shall the representative of the deceased partner against the
be liable for the contributions specified in No. 4. person or partnership continuing the business, on
(8) When partnership property and the individual account of the retired or deceased partner's interest in
properties of the partners are in possession of a court the dissolved partnership or on account of any
for distribution, partnership creditors shall have priority consideration promised for such interest or for his right
on partnership property and separate creditors on in partnership property.
individual property, saving the rights of lien or secured
creditors. Nothing in this article shall be held to modify any right
(9) Where a partner has become insolvent or his estate of creditors to set aside any assignment on the ground
is insolvent, the claims against his separate property of fraud.
shall rank in the following order:
(a) Those owing to separate creditors; The use by the person or partnership continuing the
(b) Those owing to partnership creditors; business of the partnership name, or the name of a
(c) Those owing to partners by way of contribution. (n) 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)
H. Effects of continuation of the business

Article 1840. In the following cases creditors of the Article 1841. When any partner retires or dies, and
dissolved partnership are also creditors of the person the business is continued under any of the conditions
or partnership continuing the business: set forth in the preceding article, or in article 1837,
second paragraph, No. 2, without any settlement of
(1) When any new partner is admitted into an existing
accounts as between him or his estate and the person
partnership, or when any partner retires and assigns
or partnership continuing the business, unless
(or the representative of the deceased partner assigns)
otherwise agreed, he or his legal representative as
his rights in partnership property to two or more of the
against such person or partnership may have the value
partners, or to one or more of the partners and one or
of his interest at the date of dissolution ascertained,
more third persons, if the business is continued without
and shall receive as an ordinary creditor an amount
liquidation of the partnership affairs;
equal to the value of his interest in the dissolved
(2) When all but one partner retire and assign (or the partnership with interest, or, at his option or at the
representative of a deceased partner assigns) their option of his legal representative, in lieu of interest, the
rights in partnership property to the remaining partner, profits attributable to the use of his right in the
property of the dissolved partnership; provided that the Ortega v. CA, 245 SCRA 529
creditors of the dissolved partnership as against the Rojas v. Maglana, 192 SCRA 110
separate creditors, or the representative of the retired Lichauco v. Lichauco, 33 Phil 350
or deceased partner, shall have priority on any claim Bearneza v. Dequilla, 43 Phil 237
arising under this article, as provided article 1840, third Singson v. Isabela Sawmill, 88 SCRA 623
paragraph. (n) Bonnevie v. Hernandez, 95 Phil 175
Yu v. NLRC, 224 SCRA 75
Sunga-Chan v. CA, 555 SCRA 275
I. Prescription of action Primelink Properties v. Lazatin-Magat, 493 SCRA 444
Article 1153. The period for prescription of actions to
demand accounting runs from the day the persons who
should render the same cease in their functions.

The period for the action arising from the result of the
accounting runs from the date when said result was
recognized by agreement of the interested parties.
(1972)

Article 1114. Creditors and all other persons


interested in making the prescription effective may
avail themselves thereof notwithstanding the express
or tacit renunciation by the debtor or proprietor. (1937)

Idos v. CA, 296 S 194 (1998)