PARTNERSHIP Where title to real property is in the name of the partnership, a

September 23 2019 Monday – 2hrs conveyance executed by a partner, in his own name, passes the
WWW EH 403 equitable interest of the partnership, provided the act isone within
the authority of the partner under the provisions of the first
RIGHTS OF A PARTNERSHIP AS A JURIDICAL PERSONALITY paragraph of article 1818.

Where title to real property is in the name of one or more but not
Rights Enjoyed as a Juridical Person all the partners, and the record does not disclose the right of the
(1) Right to due process partnership, the partners in whose name the title stands may
(2) Equal Protection convey title to such property, but the partnership may recover such
(3) Right to Own property if the partners' act does not bind the partnership under
(4) To sue and be sued the provisions of the first paragraph of article 1818, unless the
(5) Enter into contracts purchaser or his assignee, is a holder for value, without
(6) Against illegal searches and seizure knowledge.
(7) Freedom of Religion
Where the title to real property is in the name of one or more or all
Rights not Enjoyed the partners, or in a third person in trust for the partnership, a
(1) Right to life conveyance executed by a partner in the partnership name, or in
his own name, passes the equitable interest of the partnership,
(2) Right to liberty
provided the act is one within the authority of the partner under
(3) Right to vote the provisions of the first paragraph of article 1818.
Right to Own includes the following rights: Where the title to real property is in the name of all the partners a
(1) Right to possess conveyance executed by all the partners passes all their rights in
(2) Right to use such property.
(3) Right to dispose
(4) Right to the fruits
SUMMARY OF RULES
NOTE: If you possess all these rights, you become a full owner.
Title of Conveyanc What passes Can partnership
FULL OWNERSHIP vs NAKED OWNERSHIP Property e in the to buyer recover?
name of
Full Ownership (1) Legal title of YES, if:
Simply means you have the legal title Partnership Partnership the property (1)Conveyance not in
Name Name usual way of
Naked Ownership business; OR
Has legal title of the property but does not enjoy beneficial (2)Buyer had
knowledge that
interest; he is the owner but cannot fully enjoy all the rights
partner had no
authority even if
Equitable Interest in usual way of
A person does not own the property but enjoys the beneficial business
rights to use and its fruits
NO, if:
Formula Property already
Full Ownership = Naked Ownership + Beneficial Interest sold by buyer to
Naked Ownership = Full Ownership – Beneficial Ownership another who had no
knowledge of
As a juridical person, a partnership may register its ownership partner’s lack of
in the name of: authority (3rd person
(one-some-all-partnership itself) who is a purchaser
(1) Partnership’s name for value and in
(2) Name of one or more or not all of the partners good faith)
(3) Name of one or more or all of the partners
(4) Name of a third person in trust for the partnership (2)
(5) All the partners Partnership Partner’s Equitable YES, if:
Name Name Interest of the (1) Conveyance not
partnership in usual way of
(only the business; OR
CONVEYANCE OF PARTNERSHIP PROPERTY beneficial
AND ITS EFFECTS (2)Buyer had
ownership is
transferred) knowledge that
Article 1819— Where title to real property is in the partnership
partner had no
name, any partner may convey title to such property by a
conveyance executed in the partnership name; but the partnership Remedy of authority even if
may recover such property unless the partner's act binds the buyer: in usual way of
partnership under the provisions of the first paragraph of article Ask all business
1818, or unless such property has been conveyed by the grantee partners to
or a person claiming through such grantee to a holder for value ratify the
without knowledge that the partner, in making the conveyance, conveyance so
has exceeded his authority. he can have
full ownership

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(3) Article 1824 — All partners are liable solidarily with the partnership
One or Partner/s in Legal title of YES, if: for everything chargeable to the partnership under articles 1822
more the title the property (1) Conveyance not and 1823.
partners in usual way of
(not all business; OR Sources of Obligations
partners) (1) Law
(2)Buyer had
knowledge that (2) Contract
partner had no (3) Quasi-Contract
authority even if
(4) Delict
(5) Quasi-Delict
in usual way of
business Joint Obligation
Liable only up to his respective share in the obligation – ―to
each his own‖
NO, if:
Property already Solidary Obligation
sold by buyer to Liable up to the whole obligation – ―all for one, one for all‖
another who had no
knowledge of
partner’s lack of
authority
NATURE OF PARTNER’S LIABILITY
ACCORDING TO SOURCE OF OBLIGATION
Arising from Arising from Arising *Arising from a
contracts entered Law such as from Tort Moral Obligation
(4) into by the crimes or (act of charity
Name of a Partnership Equitable title YES, if: Partnership (delict) Damages decided by
third name or in of the (1) Conveyance not (quasi- partner)
person in the third partnership in usual way of delict)
trust person business; OR JOINT AND SOLIDARY LIABILITY SEPARATE
whose Remedy of SUBSIDIARY among: LIABILITY of
(2)Buyer had
name buyer: LIABILITY partner
appears in Ask all knowledge that
(1) Partner who caused
the title partners to partner had no (1) Primary liable the injury
ratify the authority even if - Partnership (2) Partnership
conveyance so in usual way of Innocent Partners –
he can have business (2) Subsidiarily subject to reimbursement
full ownership Liable – If still not
satisfied, against
(5) the partners and
Name of all Name of all Legal Title of NO, even thought their personal
Partners Partners the property the sale is not in properties (liable
usual way of jointly and pro-
business. rata)

NOTE: It cannot be
reconveyed because
this is a PERFECT
TITLE. It is the most
perfect contract.
LIABILITY OF PARTNERS
Relevant provisions: Articles 1822 – 1824
Article 1822— Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or injury is
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 the partner so acting or omitting to act.
Article 1823— The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property so
received is misapplied by any partner while it is in the custody of
the partnership.
*NOTE: Moral obligation was not included in the recitations
PARTNERSHIP BY ESTOPPEL
Article 1825 — When a person, by words spoken or written or by
conduct, represents himself, or consents to another representing
him to anyone, as a partner in an existing partnership or with one
or more persons not actual partners, he is liable to any such
persons to whom such representation has been made, who has,
on the faith of such representation, given credit to the actual or
apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to such
person, whether the representation has or has not been made or
communicated to such person so giving credit by or with the
knowledge of the apparent partner making the representation or
consenting toits being made:
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with
the other persons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner inan
existing partnership, or with one or more persons not actual

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partners, he is an agent of the persons consenting to such
representation to bind them to the same extent and in the same
manner as though he were a partner in fact, with respect to
persons who rely upon the representation. When all the members
of the existing partnership consent to the representation, a
partnership act or obligation results; but in all other cases it is the
joint act or obligation of the person acting and the persons
consenting to the representation.
Estoppel
Principle of Equity which precludes a person from denying or
asserting anything contrary to that which has been established
as the truth by his own deed or representation
Partner by Estoppel
A third person misrepresent himself as a partner to an existing
partnership without the consent of the existing partners
Partnership By Estoppel
A third person misrepresent himself as a partner to an existing
partnership without the consent of the partners
ILLUSTRATION – XYZ are not partners; X misrepresented
himself as a partner
Situation 1. X was authorized by Y & Z to
secure materials on credit
XYZ are not partners. They authorized X to go to a hardware
store to secure materials on credit. Later on, the material were
not paid.
Question: May the hardware sue XYZ for collection? Are they
being sued by Partnership by Estoppel?
No. Since they are not partners to begin with. They will be sued
as individuals.
X is not a partner by estoppel because there is no partnership
to begin with. Accordingly, he will also be sued individually.
Situation 2. X applied for purchase on credit
without consent from Y & Z; Hardware denied application
X applied for a purchase on credit. The hardware called up Y &
Z. They said that they do not know X at all, thus X was not
extended any credit.
Question: Do we have a Partnership by Estoppel?
No. Because there is no liability involved.
Bottom line of above illustrations:
There is only partner by estoppel if there is an existing
partnership and neither of the partners consented to the
representation. There is partnership by estoppel if the
partnership consented to the representation – in this case, in
case of liability, the partners who consented shall be liable pro-
rata. In either case, there should be an existing partnership.
If there is no existing partnership, we call all of them impostors
– thus, no partner by estoppel nor partnership by estoppel.
We always talk of liability when we talk of partner/ship by
estoppel. Otherwise, there is no need to talk of this
partner/ship by estoppel. We could therefore say as a rule of
thumb— no liabilities= no estoppel.
When would estoppel apply?
When there is liability accruing to the person who
misrepresented himself as a Partner
Situation 3. A B & C are partners.
X misrepresented himself as a partner without consent
X misrepresented himself to the hardware store as a partner of
ABC without authority. Based on this representation, the
hardware extended credit to X.
Question: Is there a Partnership by Estoppel?
No. Since ABC did not consent. However, X is liable as a partner
by estoppel.
LIAIBILITIES OF A NEW PARTNER
Article 1826— A person admitted as a partner into an 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 incurred, except that this liability shall
be satisfied only out of partnership property, unless there is a
stipulation to the contrary.
(1) As to existing liabilities PRIOR to admission – Liable
as a Limited Partner
• Liable only up to his contribution but not to
his personal assets
• His liability shall be satisfied only out of
partnership property
(2) As to liabilities AFTER admission – Liable as a
General Partner
• Liable up to his personal assets
• Since partner is now liable with their
separate properties
Discussion: In other words, the law has a cut-off date. This date
refers to the admission of a new partner. You will notice that
the date of admission as a new partner is very important. There
may be now a situation where we also have creditors of the
partnership.
For creditors (old) before the date of admission of new partner,
they can pursue against the new partner his contributions to
the partnership but not his personal assets. For creditors (new)
after the date of admission the new partner, they can pursue
his personal assets.
Thus, the law tells us that there is a dissolution of the
partnership before the admission because the old creditors
cannot pursue against the personal assets of the new partner
before his admission. The law is saying that personal assets as
to the date prior to admission belongs to the partner while
assets as to the date after admission belongs to the
partnership, which can be pursued by all creditors.
There could be a mixture of old and new partners on one hand,
and old and new creditors on the other hand.
PREFERENCE OF CREDITORS
Article 1827— The creditors of the partnership shall be preferred
to those of each partner as regards the partnership property.
Without prejudice to this right, the private creditors of each partner
may ask the attachment and public sale of the share of the latter
in the partnership assets.
SUMMARY OF RULES
(1) Partnership Property – partnership creditors are
preferred
(2) Personal Property of Partner – personal creditors of
the partners are preferred
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 DISSOLUTION
GENERAL RULE: Once the partnership is established, all
partners are considered agents of the partnership.
EXCEPTION: In case of dissolution, the partners cease to be
agents of partnership.
NOTE: Dissolution is not the end of the partnership. After the
dissolution, there is still winding up of partnership affairs. It is
only after winding up that there is actual termination. Thus, we
have three (3) stages:
(1) Dissolution
(2) Winding up
(3) Termination
Winding Up
In winding up, the following occurs:
(1) Collect the receivables and gather the assets
(2) Pay off partnership debts
(3) Distribute and deliver the surplus to the partners
EFFECT OF DISSOLUTION:
SUMMARY OF RULES
Relevant Provisions:
Article 1828. The dissolution of a partnership is the change in
the relation of the partners caused by any partner ceasing to
be associated in the carrying on as distinguished from the
winding up of the business.
Article 1829. On dissolution, the partnership is not terminated,
but continues until the winding up of partnership affairs is
completed.
Article 1832. Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun but not
then finished, dissolution terminates all authority of any
partner to act for the partnership:
(1) With respect to the partners,
a. When the dissolution is not by the act, insolvency or death of
a partner; or
b. When the dissolution is by such act, insolvency or death of a
partner, in cases where article 1833 so requires;
(2) With respect to persons not partners, as declared in article
1834.
Article 1833. Where the dissolution is caused by the act, death
or insolvency of a partner, each partner is liable to his co-
partners for his share of any liability created by any partner
acting for the partnership as if the partnership had not been
dissolved unless:
(1) The dissolution being by act of any partner, the partner
acting for the partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a
partner, the partner acting for the partnership had knowledge
or notice of the death or insolvency.
Article 1834. After dissolution, a partner can bind the
partnership, except as provided in the third paragraph of this
article:
(1) By any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if
dissolution had not taken place, provided the other party to the
transaction:
a. Had extended credit to the partnership prior to dissolution
and had no knowledge or notice of the dissolution; or
b. Though he had not so extended credit, had nevertheless
known of the partnership prior to dissolution, and, having no
knowledge or notice of dissolution, the fact of dissolution had
not been advertised in a newspaper of general circulation in
the place (or in each place if more than one) at which the
partnership business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall
be satisfied out of partnership assets alone when such partner
had been prior to dissolution:
(1) Unknown as a partner to the person with whom the
contract is made; and
(2) So far unknown and inactive in partnership affairs that the
business reputation of the partnership could not be said to
have been in any degree due to his connection with it.
The partnership is in no case bound by any act of a partner
after dissolution:
a. Where the partnership is dissolved because it is unlawful to
carry on the business, unless the act is appropriate for winding
up partnership affairs; or
b. Where the partner has become insolvent; or c. Where the
partner has no authority to wind up partnership affairs; except
by a transaction with one who –
a. Had extended credit to the partnership prior to dissolution
and had no knowledge or notice of his want of authority; or
b. Had not extended credit to the partnership prior to
dissolution, and, having no knowledge or notice of his want of
authority, the fact of his want of authority has not been
advertised in the manner provided for advertising the fact of
dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under article
1825 of any person who after dissolution represents himself or
consents to another representing him as a partner in a
partnership engaged in carrying on business.
SUMMARY OF RULES
GENERAL RULE: In case of dissolution, the partners cease to
be agents of partnership, hence there acts are not anymore
binding.
EXCEPTION: Partnership remains bound in the following
instances:
(A) In relation to Partners
(1) New transaction entered into involves winding up of
affairs of the partnership
(2) New transaction entered into is to complete
incomplete transaction already enter into PRIOR
dissolution
(3) New transaction entered into AFTER the dissolution
by a partner who had no knowledge of the act or no
knowledge or notice of the insolvency or death of
other partners
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(B) In relation to 3rd Persons GROUNDS FOR DISSOLUTION
(1) New transaction entered into involves winding up of Relevant Articles – 1830 & 1831
affairs of the partnership
(2) New transaction entered into is to complete
Article 1830— Dissolution is caused:
incomplete transaction already enter into PRIOR
(1) Without violation of the agreement between the partners:
dissolution
(a) By the termination of the definite term or particular
(3) Any transaction provided that the other party to the
undertaking specified in the agreement;
transaction is:
(a) A 3rd person who extended credit PRIOR
dissolution who has no knowledge or notice of (b) By the express will of any partner, who must act in good
faith, when no definite term or particular is specified;
the dissolution
(b) A 3rd person who did not extend credit but has
(c) By the express will of all the partners who have not
known the partnership PRIOR to the dissolution
and who has no knowledge or notice of the assigned their interests or suffered them to be charged for
dissolution since it had not been advertised in a their separate debts, either before or after the termination of
newspaper of general circulation in the place of any specified term or particular undertaking;
business of the partnership
(d) By the expulsion of any partner from the business bona fide
in accordance with such a power conferred by the agreement
EXCEPTION TO THE EXCEPTION: (dili ma bind si partnership)
(1) Where the partnership is dissolved because it is between the partners;
unlawful to carry on the business UNLESS the act is
appropriate for winding up partnership affairs; or (2) In contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under any
(2) Where the partner has become insolvent (since the
other provision of this article, by the express will of any partner
third person should be cautious enough to know
at any time;
whom he is dealing with); or
(3) Where the partner has no authority to wind up
(3) By any event which makes it unlawful for the business of
partnership affairs ; EXCEPT by a transaction with one
Article 1830— Dissolution is caused:
who –
(1) Without violation of the agreement between the partners:
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of
(a) By the termination of the definite term or particular
his want of authority
undertaking specified in the agreement;
(b) Had not extended credit to the partnership prior
to dissolution, and, having no knowledge or
(b) By the express will of any partner, who must act in good
notice of his want of authority, the fact of his
faith, when no definite term or particular is specified;
want of authority has not been advertised in the
manner provided for advertising the fact of
(c) By the express will of all the partners who have not
dissolution in the first paragraph No.2 (b)
assigned their interests or suffered them to be charged for
(Note: paragraph 2 (b) refers to publication)
their separate debts, either before or after the termination of
any specified term or particular undertaking;
NOTE: The last paragraph refers to a SUKI
(d) By the expulsion of any partner from the business bona fide
Rule for Notice to Suki and Not Suki
in accordance with such a power conferred by the agreement
If prior dealer of Actual notice is necessary. Mere mailing is
between the partners;
the partnership insufficient.
prior to
(2) In contravention of the agreement between the partners,
dissolution
where the circumstances do not permit a dissolution under any
other provision of this article, by the express will of any partner
If not a prior Advertisement of the dissolution in a at any time;
dealer but knew newspaper of general circulation in the
of the place of business of the partnership is (3) By any event which makes it unlawful for the business of
partnership prior sufficient
on in partnership;
the dissolution
(4) When a specific thing which a partner had promised to
contribute to the partnership, perishes before the delivery; in
any case by the loss of the thing, when the partner who
contributed it having reserved the ownership thereof, has only
transferred to the partnership the use or enjoyment of the
same; but the partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership has acquired
the ownership thereof;

(5) By the death of any partner;

(6) By the insolvency of any partner or of the partnership;

(7) By the civil interdiction of any partner;

(8) By decree of court under the following article.

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Article 1831— On application by or for a partner the court shall
decree a dissolution whenever:
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
(5) The business of the partnership can only be carried on at a
loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest
under article 1813 or 1814:
(1) After the termination of the specified term or particular
undertaking;
(2) At any time if the partnership was a partnership at will
when the interest was assigned or when the charging order
was issued.
SUMMARY OF GROUNDS
Grounds for Dissolution Categorized
(1) Not in contravention of their agreement
(2) In contravention of the Partnership agreement
(3) By operation of law
(4) Judicial Decree
(A) NOT IN CONTRAVENTION OF THEIR AGREEMENT (TEx3)
(1) Termination of definite term or undertaking
(2) Express will of any partner (Partnership at Will)
(3) Express will of all partners
(4) Expulsion of any partner from business
(B) IN CONTRAVENTION OF THEIR AGREEMENT
Example: Withdrawal can be a ground for dissolution. Again,
one cannot be compelled to stay as a partner against his will.
*(C) BY OPERATION OF LAW (DUCIL)
(1) Death of a partner
(2) Event which makes the partnership unlawful
(3) Civil interdiction of any partner
(4) Insolvency of any partner of the partnership
(5) Loss of a specific thing
*(D) BY JUDICIAL DECREE
(1) Insane or of unsound mind
(2) Incapable
(3) Conduct which affect prejudicially the carrying on of
the business
(4) Wilfully and persistently breach of partnership
agreement
(5) Business of partnership can only be carried on at a
loss
(6) Other circumstances equitable
*NOTE: Only the grounds under (c) by operation of law and (d)
by judicial decree were covered during recitations
DISCUSSION
NOT IN CONTRAVENTION OF THEIR AGREEMENT
(1) Termination of definite term or undertaking
If the undertaking is achieved, then there is no reason to
continue the partnership
(2) Express will of any partner (in a partnership at will)
Must act in good faith, although bad faith does not preclude
dissolution (only makes the partner liable for damages)
(3) Express will of all partners
If we all agree to terminate the partnership, then dissolve! No
one should be compelled to be a partner in a partnership
against his will The partners must not have assigned their
interests OR suffered them to be charged for their separate
debts (either before or after the termination of any specified
term or undertaking)
(4) Expulsion of any partner from the business bona fide in
accordance with such power
What if as part of their agreement, the partners have agreed to
attend First Friday Mass every Frist Friday, otherwise it would
be a ground for expulsion. If one partner does not abide, he
may be expelled in accordance with this agreement.
Another case, one was an Industrial partner who is a mechanic.
During the New Year, he tried to light up firecrackers but in the
process, he lost all of his fingers—expel
Note: Libog ni siya na example because I think this fits more in
as a cause of dissolution due to incapacity—maybe what he
meant was an industrial partner who engages for himself a
business other than the partnership business without the
express consent of other partners
IN CONTRAVENTION OF THEIR AGREEMENT
Example: Withdrawal can be a ground for dissolution. Again,
one cannot be compelled to stay as a partner against his will.
Withdrawal – when the partner wishes to leave the partnership
CAUSES BY OPERATION OF LAW
(1) Death of a Partner
This would result to a change in the membership in the
partnership since one of the original partners has died. This
would ipso facto dissolve the partnership.
Moreover, Partnership involves a fiduciary relationship among
the partners. Unlike in a corporation where the shared of the
partner may be passed on to their heirs simply because there
is no fiduciary relationship between the corporation and the
partners.
(2) By any event which makes the partnership unlawful
Dissolution here is caused involuntarily because of a
supervening event which makes the business itself unlawful or
makes it unlawful for the partners to carry it on together
Example: When there is a law passed banning the selling of
ukay-ukay.
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 (3) Civil Interdiction of any partner
This is also termed as civil death. When you are suffering from
civil interdiction – in so far as the law concerns, you are civilly
dead. Thus, you are no longer able to enter into contracts as
may be.
Ratio: Civil interdiction causes the dissolution of the
partnership because his capacity to act and manage his
properties will be duly limited. one who is without capacity to
manage his own property should not be allowed to manage
partnership property.‖ The partner is stripped of his civil rights.
Discussion: As a partner, there is a potential liability. If the
partnership assets cannot pay the liabilities, the partners have
to be personally liable – a partner suffering from civil
interdiction might not be able to perform this. That’s why the
law says that insofar as the law is concerned, you are dead
insofar as your assets, civil liability is concerned. You are civilly
dead. You can no longer enter into new contracts which might
be necessary as a new partner.
(4) Insolvency of any partner or the partnership
Insolvency – the partnership or the partner’s liabilities are
greater than their assets.
(5) Loss of a specific thing
Q: If A promised to contribute a car to the partnership. And he
promised to deliver the car September 30. While driving the car
in order to deliver it to the partnership, the car met an
accident. The car is totally damaged. Is the partnership
dissolved?
The partnership isn’t dissolved. The car is a generic property,
therefore he must give another car to the partnership.
Q: What if the car is a specific car?
Rules of Loss on Specific Thing:
Loss of the specific thing contributed BEFORE Partnership is
delivery dissolved
Loss of the specific thing BEFORE OR AFTER Partnership is
delivery when only its use is contributed and its dissolved
ownership is retained by the partner
Loss of the specific thing contributed AFTER Partner is NOT
delivery (partnership had already acquired dissolved.
ownership) Partnership
bears the loss.
Obligations can be extinguished by: (PaLoReMeCoNo)
a. Payment
b. Loss
c. Remission
d. Merger
e. Condonation
f. Novation
Novation
Novation is a mode of extinguishing an obligation by the
change of the obligation of the parties either by changing the
object of the contract or rights of the parties or change in the
parties
It could either be:
(a) Real Novation—change the object of the contract
(b) Personal Novation—change the person of the debtor/
creditor
(1) Active Novation—change the person of the creditor
(2) Passive Novation—change the person of the debtor
What if you, as a partner, promised to contribute a car but on
your way (prior delivery), it exploded? The partnership is not
dissolved because this is a promise to contribute a generic
thing. If you fail to deliver to the partnership such generic thing,
you become obliged to deliver another car. Genus does not
perish.
But, what if you promised to contribute your Red 2020 Model
Montero, Engine number blabla, Plate number blabla, and on
your way (prior delivery), it exploded? The partnership is
dissolved by the loss prior delivery of a specific thing to be
contributed
If only the use of the specific thing was contributed (and the
ownership was retained by the partner-owner)? Partnership is
dissolved whether or not the loss of the specific thing was
before or after delivery because what the partner contributed
was only the use of the specific thing. By the loss of the specific
thing, the partner would stand as not having contributed
anything. It would have been different if ownership has already
transferred to the partnership.
CAUSES BY JUDICIAL DECREE
(1) Insane or of unsound mind
(2) Incapable
(3) Conduct which affect prejudicially the carrying on of the
business
(4) Wilfully and persistently breach of partnership agreement
(5) Business of partnership can only be carried on at a loss
(6) Other circumstances equitable
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind; Why should
insanity be considered a cause of dissolution? The insanity
materially affects his capacity to perform contractual duties as
a partner
That insane person requires? Judicial declaration (or otherwise,
the fact of his being of unsound mind must be duly proved)
because nobody will admit that he is insane. It’s also for a
purpose because if there are 5 partners, the other partners can
just say that one of the partners is already insane so the
partnership should be dissolved. (Daghan pa siya’g chika about
mga anak na ipa-declare insane nalang ilang papa ug kadto
iyang anecdotes of his talented teammate who eventually got
admitted in a mental institution) It’s dangerous. That’s why
things like this require a judicial declaration
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;
Like the industrial partner who is a mechanic who lost his
fingers due to a firecracker accident. By such incapacity, he
becomes unable to perform his part of the partnership contract
as a mechanic.
In De Leon, he said ―incapacity‖ in this cause should be any
other incapacity that is not insanity as it is already covered in
the previous cause. Also, the incapacity must be permanent,
not temporary.
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(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
In De Leon, conduct that affects prejudicially the business is
persistent drunkenness of a partner even during work hours.
(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 that it is not
reasonably practicable to carry on the business in partnership
with him;
In De Leon, examples of such breach is when a partner keeps
and renders false accounts, or misuses partnership funds
(5) The business of the partnership can only be carried on at a
loss;
Exactly that the purpose of engaging in a partnership business
is to earn profit. If the partners can prove to the court that the
business can only be carried on at a loss, there is no use not
allowing dissolution. In previous transcripts, it was mentioned
that the partners need only prove to the court a probability of
loss not actual loss (like the market for the business is going
down or too much competition, etc)
(6) Other circumstances render a dissolution equitable.
In De Leon, some examples are when there is abandonment of
the business, fraud in the management, refusal to render
accounting without justifiable cause
On the application of the purchaser of a partner's interest
under article 1813 or 1814:
(1) After the termination of the specified term or particular
undertaking;
(2) At any time if the partnership was a partnership at will when
the interest was assigned or when the charging order was
issued.
WINDING UP OF PARTNERSHIP AFFAIRS
Article 1835. The dissolution of the partnership does not of
itself discharge the existing liability of any partner.
A partner is discharged from any existing liability upon
dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or
partnership continuing the business; and such agreement may
be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or
partnership continuing the business.
The individual property of a deceased partner shall be liable for
all obligations of the partnership incurred while he was a
partner, but subject to the prior payment of his separate debts.
In winding up, the following occurs:
(1) Collect the receivables and gather the assets
(2) Pay off partnership debts
(3) Distribute and deliver the surplus to the partners
When the partnership debts have to be settled upon the
winding up, how many persons are involved in the payment of
partnership debts?
3— Partnership (as the debtor), Creditors and Partners
(secondarily liable)
Partnership is included — Because the partnership, as a
separate juridical entity deals with third persons or creditors in
behalf of itself. In effect, it becomes directly liable for the
liabilities that it has incurred. It is the one that is primarily liable
for such obligations. The partnership is the debtor
Creditors are included — Because they are the ones entitled to
receive payment for their credits.
Partners are included — Because in case the partnership
assets are insufficient to pay off the liabilit ies, the partners’
personal assets will be secondarily liable for such payment.
They are secondarily liable up to their personal properties.
In payment of liabilities, it is first the partnership assets that
must be exhausted before the creditors can go after the
personal assets of the partners.
If there is a dissolution, can the partners say that they
should not anymore be held liable to pay off the partnership
debts?
No, the partners cannot release themselves from liability just
because of dissolution. Even after dissolution, they continue to
be secondarily liable for the partnership debts such that if the
partnership assets are already exhausted and are not enough,
then the creditors have the right to go after the separate or
personal assets of the partners. The partners have to stay until
everything is settled
However, some partners can be allowed to be freed form
liabilities. How do we release a partner from liability? It needs
the consent/ agreement of all the parties (the other partners
and the creditors) that the debtor-partner is released or
discharged from liabilities.
In effect, what are we doing?
Novation as a mode of extinguishing an obligation
What kind of novation?
Personal novation because of the change in the obligation of
the parties by changing the persons/ parties
Who are we changing?
The debtor-partner who wishes to free himself from liability.
Originally, the parties of the obligation are the creditors/third
persons, the debtor/partnership and the partners who are
secondarily liable for the obligations.
Such that when C who is a partner of A and B and wants to be
discharged, we need the consent of A, B and the creditor/s. In
novation, it is necessary that all consent to the change—only
then that the partner-debtor who wants to be released from
liability can be officially freed.
Rules to discharge a partner from liability
General Rule: All partners continue to be secondarily liable up
to their personal assets for partnership debts despite
dissolution
Exception: All partners and all creditors agree that one partner
is excused from the liability (Novation)
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