• When there are no third parties

I. NATURE; CREATION OF involved who may be prejudiced Art.

A PARTNERSHIP 1773 does not apply. Art. 1773 is
meant to protect third persons.
Art. 1767 (Torres v CA)
By the contract of partnership two or more
persons bind themselves to contribute money, • Art.1666 provides that "A partnership
property, or industry to a common fund, with must have a lawful object, and must be
the intention of dividing the profits among established for the common benefit of
themselves. the partners. When the dissolution of
Two or more persons may also form a an unlawful partnership is decreed, the
partnership for the exercise of a profession. profits shall be given to the charitable
institutions of the domicile of the
partnership, or in default of such, to
A. Essential Features: those of the province." A charitable
1. There must be a valid contract
institution is not a necessary party in
2. The parties must have legal capacity to
the present case for the determination
enter into the contract
of the rights of the parties. The action
3. There must be a mutual contribution of
which may arise from said article, in
money, property, or industry to a
the case of an unlawful partnership, is
common fund
that for the recovery of the amounts
4. The object must be lawful
paid in by the members from those in
5. The purpose or primary purpose must
charge of the administration of said
be to obtain profits and divide the same
partnership, and it isn’t necessary for
among the parties
the said partners to base their action
on the existence of the partnership, but
B. Form of Contract
on the fact of having contributed some
General Rule: No special form is required for its
money to the partnership capital.
validity or existence.
(Arbes v Polistico)
Exceptions:
1. Where immovable property or real rights are
Rules to determine the existence of
contributed.
a partnership:
• must be in writing in a public
General Rule: Persons who are not partners to
instrument
each other are not partners as to third persons.
• with an inventory of the property
exception: partnership by estoppel.
contributed, signed by the parties
2. Where the contract of partnership has a
• Co-ownership of a property does not
capital of P3,000 or more, in money or
itself establish a partnership, even
property. it shall appear in a public instrument
though the co-owners share in the
and must be recorded in the Office of the
profits derived from the incident of joint
Securities and Exchange Commission. However,
ownership.
a partnership has a juridical personality even in
• Sharing of gross returns alone does not
case of failure to comply with this requirement.
indicate a partnership, whether or not
the persons sharing them have a joint
• To be considered a juridical personality,
or common right or interest in any
a partnership must fulfill these
property from which the returns are
requisites: (1) two or more persons
derived;
bind themselves to contribute money,
• The receipt of the share in the profits is
property or industry to a common fund;
a strong presumptive evidence of
and (2) intention on the part of the
partnership. However, no such
partners to divide the profits among
inference will be drawn if such profits
themselves. It may be constituted in
were received in payment:
any form; a public instrument is
⁃ As a debt by installments or
necessary only where immovable
otherwise;
property or real rights are contributed
⁃ As wages of an employee or
thereto. This implies that since a
rent to a landlord;
contract of partnership is consensual,
⁃ As an annuity to a widow or
an oral contract of partnership is as
representative of a deceased
good as a written one. Where no
partner;
immovable property or real rights are
⁃ As interest on a loan, though
involved, what matters is that the
the amount of payment vary
parties have complied with the
with the profits of the
requisites of a partnership. (Tocao v
business;
CA)
⁃ As the consideration for the
sale of a goodwill of a business
• There is no need to attach an inventory
or other property by
for what has been contributed in the
installments or otherwise.
partnership by the parties weren’t
(art. 1769)
immovable property or real rights.
None of the partners contributed either
a fishpond or a real right to any
• All of essential features or
fishpond. Art. 1773 of the Civil Code is
characteristics of partnership must be
not in point. (Agad v Mabato)
shown as being present. Art. 1769
seeks to exclude from the category of
 partnership certain features assignee a partner without
enumerated therein which, by unanimous consent
themselves, are not indicative of the Power to act with Third Persons Generally a partner may bind th
existence of a partnership partnership
Issue as to whether a partnership Dissolution Death or incapacity of a partner
exists is a factual matter. Where dissolves the partnership
circumstances taken singly may be
inadequate to prove the intent to form Representation there is mutual agency
a partnership, nevertheless the
collective effect of these circumstances
may be such as to support a finding of
the existence of the parties’ intent.
(Heirs of Tan Eng Kee v CA)

DISTINCTIONS:
Profits must be stipulated upon
Partnership

Created by mere agreement of the parties; Created by operation of law

• Under Art. 1768, a partnership "has a
May be organized by only two persons juridical personality separate and
Requires at least 5 incorporators;
distinct from that of each of the
partners." The partners cannot be held
Juridical personality commences from the Personality commences
liable for from the date ofofissuance
the obligations the
moment of execution of the contract of of the certificate of incorporation
partnership unless by
it isthe sec that the
shown
partnership legal fiction of a different juridical
Can exercise such powers expressly
personality is being usedgranted by
for fraudulent,
May exercise any power authorized by the law or incident unfair,
to its existence
or illegal purposes.(Aguila v
partners as long as it is not contrary to law, etc. CA)
Power to do business is vested in the board of
If no agreement as to mgt. - every partner is an directors/• trustees;
ISSUE: WON 2 or more medium-sized
agent of the partnership corporations (contractors) may enter
into a partnership or joint
A partner as such may sue a co-partner who Suit against theventure/consortium
board of director who
mismanages; mismanages must HELD:be brought in the corp.’s
The general rule is that a
name; corporation cannot enter into a contract
Has no right of succession; of partnership with another corporation
The partners are liable personally and subsidiarily Has right of succession;
or individual. This limitation is based on
for partnership debts; public policy, since in a partnership the
The stockholders are liable would
corporation to the be
extent
boundof by
thethe acts
Based on delectus personam; shares subscribed by them;
of persons who are not duly appointed
and authorized agents and officers,
May be established for any period of time Not based on delectus personam;
which would be entirely inconsistent
stipulated by the partners; with the policy of the law that the
May not be formed for a period
corporation shallexceeding
manage50 its own
May be dissolved at anytime by the will of any or years; affairs, separately and exclusively.
all partners; Exceptions may be allowed as
long as the following are met:
Governed by the civil code May be dissolved1. only
The with the consent
articles of the
of incorporation of the
state; corporations involved must expressly
authorized the corporation to enter into
Governed by the corp. Code
contracts of partnership with others in
the pursuit of its business;
2. The agreement of articles of
partnership must provide that all the
partners will manage the partnership;
and
Partnership 3. The articles of partnership must
Creation Always created by a contract stipulate that all the partners are and
ether express or implied shall be jointly and severally liable for
all the obligations of the partnership.
Moreover, two or more corporations
Juridical Personality Has a juridical personality
may enter into a joint
separate and distinct from that
venture/consortium if the nature of the
of each partner
venture is in line with business
Purpose Realization of Profits
authorized by its charter through a
contract or voluntary agreement
Duration No limitation upon the duration between
is the said parties. Please note
set by law that no independent legal entity is
borne out of it and the same need not
Transfer of Interests A partner may not dispose of hisbe registered with the Commission.
individual interest in the Moreover when the joint
partnership so as to make the venture/consortium would result in the
 formation of a corporation or adventure “presupposes generally a
partnership, the same has to be parity of standing between the joint co-
registered with the Commission and the ventures or partners, in which each
conditions and requirements party has an equal proprietary interest
abovementioned should be complied in the capital or property contributed,
with. (SEC OPINION to Antonio and where each party exercises equal
Librea dated Feb. 29, 1980) rights in the conduct of the business.”
In Aurbach v. Sanitary Wares, it was
• In deciding as to whether or not held that a joint adventure may be
Gatchalian, et al. formed a partnership, likened to a particular partnership. The
the Court held that they organized a legal concept of a joint adventure is
partnership of a civil nature because hardly distinguishable from the
each of them put up money to buy a partnership. The main distinction is that
sweepstakes ticket for the sole purpose the partnership contemplates a general
of dividing equally the prize which they business with some degree of
may win. The partnership was not only continuity, while the joint adventure is
formed, but upon the organization formed for the execution of a single
thereof and the winning of the prize, transaction, and is thus of a temporary
Jose Gatchalian personally appeared in nature. In the Philippines this is not
the office of the Philippine Charity entirely accurate, since under the CC, a
Sweepstakes, in his capacity as co- partnership may be particular or
partner, as such collected the prize, the universal, and a particular partnership
office issued the check for P50,000 in may have for its object a specific
favor of Jose Gatchalian and Company, undertaking. Thus, under Philippine
and the said partner, in the same law, a joint adventure is a form of
capacity, collected the said check. partnership. The Supreme Court has
These circumstances prove the however recognized a distinction
existence of a partnership. between these two business forms, and
(Gatchalian v Collector of Internal has held that although a corporation
Revenue) cannot enter into a partnership
contract, it may however engage in a
• There is co-ownership and not joint adventure with others. (Heirs of
unregistered partnership when no Tan Eng Kee v CA)
evidence that petitioners entered into
an agreement to contribute money, • A partnership constituted in such a
property or industry to a common fund, manner, the existence of which was
and that they intended to divide the only known to those who had an
profits among themselves. Other interest in the same, there being no
indications (as presented in the case): mutual agreements between the
⁃ Petitioners bought parcels of partners, and without a corporate name
land but they did not sell the indicating to the public in some way
same nor make any that there were other people besides
improvements thereon. the one who ostensibly managed and
⁃ It was only after several years conducted the business, is exactly the
when, they sold the land. accidental partnership of cuentas on
⁃ The transactions were isolated. participacion defined in article 239 of
⁃ The character of habituality the Code of Commerce.
peculiar to business Those who contract with the person
transactions for the purpose of under whose name the business of
gain was not present. such partnership of cuentas en
(Pascual and Dragon v participacion is conducted, shall have
Commissioner of Internal only a right of action against such
Revenue) person and not against the other
persons interested, and the latter, on
• Since petitioners were not engaged in the other hand, shall have no right of
any joint venture by reason of that action against the third person who
isolated transaction and the division of contracted with the manager unless
the profit was merely incidental to the such manager formally transfers his
dissolution of the co-ownership, which right to them. (Bourns v Camran)
was in fact merely a temporary state,
they cannot be considered partners. CC • A partnership generally presupposes a
Art. 1769 provides that "the sharing of parity of standing between the
gross returns does not of itself partners, in which each party has an
establish a partnership, whether or not equal proprietary interest in the capital
the persons sharing them have a joint or property contributed and where each
or common right or interest in any party exercises equal rights in the
property from which the returns are conduct of the business. (Sevila v CA)
derived". There must be an
unmistakable intention to form a
partnership or joint venture. (Obillos v
II. CLASSIFICATION OS
CIR) PARTNERSHIPS AND
• Particular partnership distinguished PARTNERS
from a joint adventure: A joint
Art. 1776. As to its object, a partnership is mere relationship or association for a
either universal or particular. As regards the particular purpose… it is not a
liability of the partners, a partnership may be partnership formed for the purpose of
general or limited. (1671a) carrying on trade or business or of
holding property.” Thus, it has been
A. Kinds of partnerships stated that “the use of a nom de
1) as to the extent of its subject matter plume, assumed or trade name in law
a. universal (1777) practice is improper.” (In re Sycip)
i. as to all present property
(1778) • A general professional partnership,
ii. as to profits (1780) unlike an ordinary business partnership
b. particular (1783) (which is treated as a corporation for
2) as to liability of the partners income tax purposes and so subject to
a. general - liable pro rata (1816) or the corporate income tax), is not itself
solidarily (1822-1824) an income taxpayer. The income tax is
b. limited (1843) imposed not on the professional
3) as to its duration partnership, which is tax exempt, but
a. at will (1785) on the partners themselves in their
b. with a fixed term individual capacity computed on their
4) as to legality of its existence distributive shares of partnership
a. de jure - one w/c has complied with profits. Under the Tax Code on income
all the legal requirements for its establishment taxation, the general professional
(1772par2, 1773) partnership is deemed to be no more
b. de facto – one w/c has failed to than a mere mechanism or a flow-
comply with all the legal requirements for its through entity in the generation of
establishment income by, and the ultimate
5) as to representation to others distribution of such income to,
a. ordinary or real – one w/c actually respectively, each of the individual
exists among the partners and also as to third partners. (Tan v del Rosario)
persons
b. ostensible or by estoppel – one w/c B. Kinds of partners (under the CC)
in reality is not a partnership, but is considered a. capitalist – contributes money or
one in relation to those who, by their conduct or property
admission, are precluded to deny or disprove its b. industrial – contributes industry or
existence (1825) personal service
6) as to publicity c. general – liability extends to
a. secret separate property
b. open or notorious - may be capitalist or
7) as to purpose industrial
a. commercial or trading (1767) - aka real
b. professional or non-trading d. limited – liability to 3rd persons
limited to capital contribution
• A partnership that does not fix its term - aka special
is a partnership at will. The 'purpose' of e. managing – manages the affairs or
the partnership is not the specific business of the partnership
undertaking referred to in the law. - may be appointed either in
Otherwise, all partnerships, which the articles of partnership or after the
necessarily must have a purpose, constitution of the partnership
would all be considered as partnerships - aka general or real
for a definite undertaking. There would f. liquidating – takes charge of the
therefore be no need to provide for winding up
articles on partnership at will as none g. by estoppel – liable as if he is a
would so exist. Apparently what the law partner for the protection of 3rd persons
contemplates, is a specific undertaking - aka by implication or
or 'project' which has a definite or nominal or quasi-partner
definable period of completion." h continuing – continues the business
The birth and life of a partnership at after partnership has been dissolved
will is predicated on the mutual desire i. surviving – remains after dissolution
and consent of the partners. The right due to death
to choose with whom a person wishes j. subpartner – not a partner, but
to associate himself is the very contracts w/ a partner re the latter’s share in
foundation and essence of that the partnership
partnership. Its continued existence is,
in turn, dependent on the constancy of
that mutual resolve, along with each Industrialist Partner
partner's capability to give it, and the
contribution contributes his industry
absence of a cause for dissolution
provided by the law itself. (Ortega v prohibition to engage in other cannot engage in any business
CA) business for himself

• A partnership for the practice of law profits receives a just and equitable
cannot be likened to partnerships share
formed by other professionals or for
business. It is not a legal entity; it is a
losses or obligation of the person acting and the
exempted as to losses as
between partners but itpersons
is liableconsenting to the representation. (n)
to 3rd persons without prejudice
to reimbursement from the • When is a person a partner by
capitalist partners estoppel? When by words or by
conduct he:
1. Directly represents himself to
The ff become common property of all partners: anyone as a partner in an
• property w/c belonged to each of them existing partnership or in a
at the time of the constitution of the non-existing partnership (w/
partnership one or more persons not actual
• profits w/c thay may acquire from the partners);
property contributed 2. Indirectly represents himself
by consenting to another
General rule: representing him as a partner
• future properties cannot be contributed in an existing partnership or in
• profits from other sources (not from a non-existing partnership.
the properties contributed) will become • To hold the party liable, the 3rd person
common property only if there is a must prove such misrepresentation and
stipulation that a bona fide reliance by him upon it
caused him injury.
Please note: Art. 1782. Persons who are
prohibited from giving each other any donation • When partnership liability results
or advantage cannot enter into universal ⁃ When all actual partners
partnership. (1677) consented to the
representation, then the
Art. 739. The following donations shall be void: liability of the person who
(1) Those made between persons who were represented himself to be a
guilty of adultery or concubinage at the time of partner or who consented to
donation; such representation and the
(2) Those made between persons found guilty actual partners is considered a
of the same criminal offense, in consideration partnership liability.
thereof; ⁃ Case of partnership by
(3) Those made to a public officer or his wife, estoppel.
descendants and ascendants, by reason of his
office. • When liability pro rata
⁃ When there is no existing
C. Partnership and Partner by partnership and all those
Estoppel represented as partners
Art. 1825. When a person, by words spoken or consented to the
written or by conduct, represents himself, or representation, or not all of the
consents to another representing him to partners of an existing
anyone, as a partner in an existing partnership partnership consented to the
or with one or more persons not actual representation, then, the
partners, he is liable to any such persons to liability of the person who
whom such representation has been made, who represented himself to be a
has, on the faith of such representation, given partner or who consented to
credit to the actual or apparent partnership, his being represented as
and if he has made such representation or partner, and all those who
consented to its being made in a public manner made and consented to such
he is liable to such person, whether the representation, is joint or pro
representation has or has not been made or rata.
communicated to such person so giving credit
by or with the knowledge of the apparent • When liability separate
partner making the representation or ⁃ When there is no existing
consenting to its being made: partnership and not all but only
(1) When a partnership liability results, he is some of those represented as
liable as though he were an actual member of partners consented to the
the partnership; representation, or none of the
(2) When no partnership liability results, he is partners in an existing
liable pro rata with the other persons, if any, so partnership consented to such
consenting to the contract or representation as representation, then the
to incur liability, otherwise separately. liability will be separate – that
When a person has been thus represented to be of the person who represented
a partner in an existing partnership, or with one himself as a partner or who
or more persons not actual partners, he is an consented to his being
agent of the persons consenting to such represented as partner, and
representation to bind them to the same extent those who made and
and in the same manner as though he were a consented to the
partner in fact, with respect to persons who rely representation, or that only of
upon the representation. When all the members the person who represented
of the existing partnership consent to the himself as partner.
representation, a partnership act or obligation
results; but in all other cases it is the joint act • Art. 1825 does not create a partnership
 as between the alleged partners. The the legal formalities, the law considers
law considers them as partners and the them as partners. The association then
association as a partnership only is a partnership in so far as it is a
insofar as favorable to 3rd persons by favorable to third persons, by reason of
reason of estoppel. the equitable principle of estoppe. If
the law recognizes a defectively
• The law will not permit a denial or such organized partnership as de facto as far
representation where 3rd parties have as third persons are concerned, for
in the exercise of reasonable diligence purposes of its de facto existence it
relied thereon to their detriment. should have such attribute of a regular
partnership as a domicile. (MacDonald
• Difference w/ Art. 1834 (last par), w/c v. National City Bank)
is not a partnership by estoppel, but
rather, a partnership liability w/c • While it is ordinarily held that persons
continues for lack of proper who attempt but fail to form a
termination. corporation and who carry on business
under the corporate name occupy the
• Applicability of general provisions of position of partners inter se, persons
partnership cannot be made to assume the relation
⁃ If the law recognizes a of partners, as between themselves,
defectively organized when their purpose is that no
partnership as de facto as far partnership shall exist. (Pioneer
as 3rd persons are concerned, Insurance v. CA)
it should have such attribute of
partnership as domicile. D. Relations created by a contract
⁃ Although it has no legal of partnership
standing or juridical
personality, it is a partnership • Relations among the partners
de facto and the general themselves
provisions of the Civil Code • Relations of the partners with the
applicable to all partnerships partnership
apply to it. • Relations of the partnership with 3rd
• Domicile – place where partnership persons with whom it contracts
conducts business; registration of a • Relations of the partners with such 3rd
chattel mortgage therein is valid. persons

• Elements to establish liability as a

partner on ground of estoppel
III. OBLIGATIONS OF
1. Proof by plaintiff that he was PARTNERS
individually aware of
defendant’s representations as A. Contribute
to his being a partner or that
such representations were 1. Obligation with respect to
made by others and not denied contribution of property
or refuted by the defendant; Art. 1786. Every partner is a debtor of the
2. Reliance on such partnership for whatever he may have promised
representations by the to contribute thereto. He shall also be bound for
plaintiff; warranty in case of eviction with regard to
3. Lack of any denial or refutation specific and determinate things which he may
of the statements by the have contributed to the partnership, in the
defendant; such denial need same cases and in the same manner as the
not precede plaintiff’s acting vendor is bound with respect to the vendee. He
thereon if the denial was shall also be liable for the fruits thereof from
forthcoming promptly upon the time they should have been delivered,
hearing of the representations, without the need of any demand. (1681a)
and if, by prudence and
diligence the plaintiff might • To contribute at the beginning of the
have learned of the truth or partnership or the stipulated time the
untruth of the representations. money, property, or industry which he
may have promised to contribute
• The Corporation Code (Sec. 21) makes • To answer for eviction in case the
liable as general partners “all persons partnership is deprived of the
who assume to act as a corporation” determinate property contributed
and may include persons who attempt, • To answer to the partnership for the
but fail to form a corporation and who fruits of the property the contribution
carry on business under the corporate of which he delayed, from the date
name. A de facto partnership among they should have been contributed up
them is created. to the time of actual delivery.
• To preserve said property with the
• While an unregistered commercial diligence of a good father of a family
partnership has no juridical personality, pending delivery to the partnership
nevertheless, where two or more • To indemnify the partnership for any
persons attempt to create a damage caused to it by the retention of
partnership, failing to comply with all the same or by the delay in its
 contribution purpose and he later misappropriated
it, such partner is guilty of estafa.
Effect of failure to contribute property (Liwanag v CA)
promised: makes the partner ipso jure a debtor
of the partnership even in the absence of any • The capital having been received by the
demand. partnership, and with the business
Remedy of other partner or partnership: not commenced and profits accrued, the
rescission but an action for specific performance action that lies with the partner who
with damages and interest furnished the capital for the recovery of
his money is not a criminal action for
2. Appraisal of goods or estafa, but a civil one arising from the
property contributed partnership contract for a liquidation of
Art. 1787. When the capital or a part thereof the partnership and a levy on its assets
which a partner is bound to contribute consists if there should be any.(US v Clarin)
of goods, their appraisal must be made in the
manner prescribed in the contract of
partnership, and in the absence of stipulation, it 4. Bring to partnership capital
shall be made by experts chosen by the credit received
partners, and according to current prices, the Art. 1790. Unless there is a stipulation to the
subsequent changes thereof being for account contrary, the partners shall contribute equal
of the partnership. shares to the capital of the partnership.
• Above rule not applicable to industrial
partner unless in addition to his
3. Obligation with respect to services, he contributed capital.
contribution of money and money
converted to personal use 5. Obligation of capitalist
Art. 1788. A partner who has undertaken to partner to contribute additional capital
contribute a sum of money and fails to do so Art. 1791. If there is no agreement to the
becomes a debtor for the interest and damages contrary, in case of an imminent loss of the
from the time he should have complied with his business of the partnership, any partner who
obligation. refuses to contribute an additional share to the
The same rule applies to any amount he capital, except an industrial partner, to save the
may have taken from the partnership coffers, venture, shall he obliged to sell his interest to
and his liability shall begin from the time he the other partners.
converted the amount to his own use. (1682)
Requisites:
• To contribute on the date due the • There is an imminent loss of the
amount he has undertaken to business
contribute • The majority of the capitalist partners
• To reimburse any amount he may have are of the opinion that an additional
taken from the partnership coffers and contribution to the common fund would
converted to his own use save the business
• To pay the agreed or legal interest, if • The capitalist partner refuses
he fails to pay his contribution on time deliberately to contribute an additional
or in case he takes any amount from share
the common fund and converts it into • There is no agreement to the contrary
his own use. • An industrial partner is exempted from
• To indemnify the partnership for he the requirement to contribute
damages caused to it by the delay in
the contribution or the conversion of
any sum for his personal benefit.
6. Obligation of partner who
• An action for rescission under art.1191 receives share of partnership credit
cannot be applied to a case where a Art. 1793. A partner who has received, in
partner failed to contribute what he whole or in part, his share of a partnership
promised to the partnership, because it credit, when the other partners have not
refers to the resolution of obligations in collected theirs, shall be obliged, if the debtor
general, whereas Arts. 1681 and 1682, should thereafter become insolvent, to bring to
OCC now Arts. 1786 and 1788 the partnership capital what he received even
specifically refer to the contract of though he may have given receipt for his share
partnership in particular.(Sancho v only.
Lizarraga)
• Different from 1792 which treats 2
• Equipment which was contributed by distinct credits, one in favor of the
one of the partners to the partnership partnership and another in favor of the
becomes the property of the property managing partner.
and as such cannot be disposed of by
the party contributing the same without Requisites:
the consent or approval of the • A partner has received, in whole or in
partnership or of the other partner. part, his share of the partnership credit
(Lozana v Depakakibo) • The other partners have not collected
their shares
• When money or property have been • The partnership debtor has become
received by a partner for a specific insolvent
 been agreed upon:
B. Pay damages • All partners considered managers and
agents.
Art. 1794. Every partner is responsible to the • All partners have equal rights in the
partnership for damages suffered by it through management and conduct of
his fault, and he cannot compensate them with partnership affairs and whatever any
the profits and benefits which he may have one of them may do alone shall bind
earned for the partnership by his industry. the partnership (subject to Art 1801
However, the courts may equitably lessen this that in case of timely opposition of any
responsibility if through the partner's partner, the matter shall first be
extraordinary efforts in other activities of the decided by the majority vote. In case of
partnership, unusual profits have been realized. a tie, the matter shall be decided by
(1686a) the vote of the partners representing
the controlling interest.).
General Rule: The damages caused by a partner Note: Art. 1803(1) should be read in relation to
to the partnership cannot be offset by the Article 1818.
profits or benefits which he may have earned • Unanimous consent required for
for the partnership by his industry. alteration of immovable property.
Exception: If unusual profits are realized • Consent need not be express, but may
through extraordinary efforts of the partner at be presumed from the fact of
fault, the courts may equitably mitigate or knowledge of the alteration without
lessen his liability for damages. Rule rests on interposing any objection.
equity.
Art. 1818. Powers of partner as agent of
partnership
C. Bear risk of loss
Acts for carrying on in the usual way the businessEvery partner
Art. 1795. The risk of specific and determinate of the partnership with binding ef
things, which are not fungible, contributed to Except: when 3
the partnership so that only their use and fruits authority
may be for the common benefit, shall be borne Act w/c is not apparently for the carrying ofDoes not bind
by the partner who owns them. business in the usual way other partners
If the things contribute are fungible, or
cannot be kept without deteriorating, or if they Acts of strict dominion or ownership:
were contributed to be sold, the risk shall be Assign partnership property in trust for creditors
borne by the partnership. In the absence of
stipulation, the risk of the things brought and Dispose of good-will of business
appraised in the inventory, shall also be borne
by the partnership, and in such case the claim Do an act w/c would make it impossible to carry
shall be limited to the value at which they were on ordinary business of partnership
appraised. (1687)
Confess a judgement
Risk of loss of things contributed
Enter into compromise concerning a partnership
Specific and determinate things which are notRisk is claim
borneorbyliability
partner
fungible where only the use is contributed
Specific and determinate things the ownership ofRisk is Submit
borne by
partnership
partnership
claim or liability to arbitration
which is transferred to the partnership
Fungible things (consumable) Risk is Renounce claim of partnership
borne by partnership
Things contributed to be sold Risk is Acts
bornein by
contravention
partnership of a restriction on authority Partnership not
Things brought and appraised in the inventory Risk is borne by partnership or presumptive

D. Mutual agency • Liability of partner acting without

authority: generally, personal liability.
Art. 1803. When the manner of management
has not been agreed upon, the following rules • Art. 1698 declares that a member of a
shall be observed: civil partnership is not liable solidarily
(1) All the partners shall be considered (solidariamente) with his co-partners
agents and whatever any one of them may for its entire indebtedness; but read in
do alone shall bind the partnership, without connection with art. 1137, each is liable
prejudice to the provisions of Article 1801. with the others (mancomunadamente)
(2) None of the partners may, without the for his part of such indebtedness (Co-
consent of the others, make any important Pitco vs. Yulo/Bachrach v. La
alteration in the immovable property of the Protectora).
partnership, even if it may be useful to the
partnership. But if the refusal of consent by • Strangers dealing with a partnership
the other partners is manifestly prejudicial have the right to assume, in the
to the interest of the partnership, the absence of restrictive clauses in the co-
court's intervention may be sought. partnership agreement, that every
(1695a) general partner has power to bind the
partnership, specially those partners
Rules when manner of management has not acting with ostensible authority.
 Though Art. 129, Code of Commerce the results of the knowledge and
provides that “if the management of information gained in the character of
the general partnership has not been partner (Pang Lim v. Lo Seng)
limited by special agreement to any of
the members, all shall have the power G. Liable for Partnership
to take part in the direction and contracts
management of the common business,
and the members present shall come to Art. 1816. All partners, including industrial
an agreement for all contracts or ones, shall be liable pro rata with all their
obligations which may concern the property and after all the partnership assets
association,” this obligation is one have been exhausted, for the contracts which
imposed by law on the partners among may be entered into in the name and for the
themselves, and doesn’t necessarily account of the partnership, under its signature
affect the validity of the acts of a and by a person authorized to act for the
partner, while acting within the scope partnership. However, any partner may enter
of the ordinary course of business of into a separate obligation to perform a
the partnership, as regards third partnership contract. (n)
persons without notice. (Goquiolay et
al v Sycip) • Partnership liability- All partners,
including the industrial partner, are
Note: This case creates a presumption which liable to creditors of the partnership for
1818 does not provide. its contractual obligations.
• Individual liability- a partner may
• The stipulation in the articles of assume a separate undertaking in his
partnership that any of the two name with a3rd party to perform a
managing partners may contract and partnership contract or make himself
sign in the name of the partnership solidarily liable ob a partnership
with the consent of the other, creates contract. In such case, partner is
an obligation between the two partners, personally bound.
which consists in asking the other's
consent before contracting for the • There is a marked distinction between
partnership. This is not imposed upon a a liability and a loss, and the inability of
third person who contracts with the a partnership to pay a debt to a third
partnership. A third person may and party at a particular time does not
has a right to presume that the partner necessarily mean that the partnership
with whom he contracts has, in the business, as a whole, has been
ordinary and natural course of operated at a loss. The partnership
business, the consent of his copartnert. may have outstanding credits which for
(Litton v Hill) the moment may be unavailable for the
payment of debts, but which eventually
E. Render full information may be realized upon and yield profits
more than sufficient to cover all losses.
Art. 1806. Partners shall render on demand Bearing this in mind it will be found
true and full information of all things affecting that there in reality is no conflict
the partnership to any partner or the legal between the two articles quoted; one
representative of any deceased partner or of speaks of liabilities, the other of losses.
any partner under legal disability. (n) (Pacific Commercial vs. Aboitiz)
• The exemption of the industrial partner
• A partner is not only bound to give to pay for losses relates exclusively to
information on demand in certain the settlement of the partnership
circumstances, but he is under the duty affairs among the partners themselves
of voluntary disclosure of material facts and has nothing to do with the
within his knowledge relating to or liabilities of the partners to third
affecting partnership affairs (see Art. persons. (La Compania Maritima v
1821) Munoz)

F. Account for benefits Art. 1817. Any stipulation against the liability
laid down in the preceding article shall be void,
Art. 1807. Every partner must account to the except as among the partners. (n)
partnership for any benefit, and hold as trustee
for it any profits derived by him without the • The dismissal of the complaint to favor
consent of the other partners from any one of the general partners of a
transaction connected with the formation, partnership does not increase the
conduct, or liquidation of the partnership or liability of each of the remaining
from any use by him of its property. (n) partners. In the instant case, there
were 5 general partners when the
• Relationship between partners is promissory note in question was
essentially fiduciary involving trust and executed for and in behalf of the
confidence. Duties of a partner are partnership. Since the liability of the
analogous to those of a trustee. partners is pro rata, the liability of each
• A partner cannot, at the expense or to partner shall be limited to only 1/5 of
the detriment of the other partners, the obligations of United. The fact that
sue or apply exclusively to his own the complaint against Lumauig was
individual benefit partnership assets or dismissed, upon motion of Island Sales,
 does not unmake Lumauig as a general Art. 1823. The partnership is bound to make
partner in United. In so moving to good the loss: (1) Where one partner acting
dismiss the complaint, Island Sales within the scope of his apparent authority
merely condoned Lumauig’s individual receives money or property of a third person
liability.(Island Sales v. United and misapplies it; and
Pioneers) (2) Where the partnership in the course of its
business receives money or property of a third
• It is but fair that the consequences of person and the money or property so received
any wrongful act committed by any of is misapplied by any partner while it is in the
the partners therein should be custody of the partnership. (n)
answered solidarily by all the partners
and the partnership as a whole. While
the liability of the partners are merely
IV. OBLIGATION OF
joint in transactions entered into by the PARTNERSHIP
partnership, a third person who
transacted with said partnership can
hold the partners solidarily liable for
A. Bear risk of loss
the whole obligation if the case of the
third person falls under Articles 1822 or
Art. 1795. The risk of specific and determinate
1823. The obligation is solidary
things, which are not fungible, contributed to
because the law protects him who in
the partnership so that only their use and fruits
good faith relied upon the authority of
may be for the common benefit, shall be borne
a partner, whether such authority is
by the partner who owns them.
real or apparent. (Muñasque v. CA)
If the things contribute are fungible, or
cannot be kept without deteriorating, or if they
Art. 1826. A person admitted as a partner into
were contributed to be sold, the risk shall be
an existing partnership is liable for all the
borne by the partnership. In the absence of
obligations of the partnership arising before his
stipulation, the risk of the things brought and
admission as though he had been a partner
appraised in the inventory, shall also be borne
when such obligations were incurred, except
by the partnership, and in such case the claim
that this liability shall be satisfied only out of
shall be limited to the value at which they were
partnership property, unless there is a
appraised. (1687)
stipulation to the contrary. (n)
B. Reimburse
Liability of incoming partner for partnership
obligations:
Art. 1796. The partnership shall be responsible
• Limited to his share in partnership
to every partner for the amounts he may have
property for existing obligations.
disbursed on behalf of the partnership and for
• Extends to his separate property for
the corresponding interest, from the time the
subsequent obligations
expense are made; it shall also answer to each
• Incoming partner personally not liable
partner for the obligations he may have
for existing partnership obligations
contracted in good faith in the interest of the
unless there is a stipulation to the
partnership business, and for risks in
contrary.
consequence of its management. (1688a)
Liability of outgoing / incoming partner:
1796 speaks of the 3 obligations of the
• Where a partner gives notice of his
partnership to the partners:
retirement or withdrawal, he is freed
1. Refund amounts disbursed on behalf of the
from any liability on contracts entered
partnership plus corresponding interest from
into thereafter, but his liability on
the time expenses are made (not from date of
existing incomplete contracts
demand). Here, the law refers to loans or
continues.
advances made by a partner to the partnership
• He is liable for goods sold and delivered
other than capital contributed by him.
after his retirement or withdrawal and
2. Answer for obligations the partner may have
notice thereof, if the sale was pursuant
contracted in good faith in the interest of the
to a contract made before such
partnership business, and
retirement or withdrawal.
3. Answer for risks in consequence of its
management.
H. Solidarily liable with
partnership
• Being a mere agent, the partner is NOT
personally liable, provided, however,
Art. 1824. All partners are liable solidarily with
that he is free from all fault (Art.
the partnership for everything chargeable to the
1912), and acted within the scope of
partnership under Articles 1822 and 1823. (n)
his authority (1897, 1898, 1910 par.
2). But unlike an ordinary agent, he is
Art. 1822. Where, by any wrongful act or
not given the right of retention if he is
omission of any partner acting in the ordinary
not reimbursed or indemnified (1914).
course of the business of the partnership or
with the authority of co-partners, loss or injury
C. Operate under firm name
is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the
Art. 1815. Every partnership shall operate
partnership is liable therefor to the same extent
under a firm name, which may or may not
as the partner so acting or omitting to act. (n)
include the name of one or more of the
partners. admissions for himself only w/o purporting to
Those who, not being members of the act for the partnership, he alone shall be
partnership, include their names in the firm chargeable w/ his admissions.
name, shall be subject to the liability of a
partner. (n) • An admission by a partner who was no
longer a partner at the time is not
Liability for inclusion of name in the firm name: admissible in evidence against the
Persons who, not being partners include their partnership. (Congco vs. Trillana)
name in the firm name do not acquire the rights
of a partner BUT they shall be subject to E. Bound by notice to partner
liabilities of a partner.
Art. 1821. Notice to any partner of any matter
Art. 1815 does NOT cover relating to partnership affairs, and the
• a limited partner who allows his name knowledge of the partner acting in the
to be included in the firm name (Art. particular matter, acquired while a partner or
1815) then present to his mind, and the knowledge of
• a person continuing the business of a any other partner who reasonably could and
partnership after a dissolution who uses should have communicated it to the acting
the name of the dissolved partnership partner, operate as notice to or knowledge of
or the name of a deceased partner as the partnership, except in the case of fraud on
part thereof (Art. 1840, last par.) the partnership, committed by or with the
consent of that partner. (n)
• The corporate name should contain the
word ‘Corporation’ or ‘Incorporated’, F. Liable for wrongful act of
while the partnership name should partner
contain the word ‘Company’.” The only
instance when a domestic partnership Art. 1822. Where, by any wrongful act or
name may be recorded in this omission of any partner acting in the ordinary
Commission without the use of the course of the business of the partnership or
word “Company” is when the primary with the authority of co-partners, loss or injury
purpose for which the partnership is is caused to any person, not being a partner in
organized is to engage in the practice the partnership, or any penalty is incurred, the
of profession of a particular discipline. partnership is liable therefor to the same extent
(SEC Opinion dated Oct 19, 1984 as the partner so acting or omitting to act. (n)
addressed to Atty. Renato J.
Santiago) Art. 1823. The partnership is bound to make
good the loss:
• Note that the ruling in In re Sycip here (1) Where one partner acting within the scope
has been abandoned in view of Rule of his apparent authority receives money or
3.02 of the Code of Professional property of a third person and misapplies
Responsibility, which permits the it; and
surviving partners of a law firm the (2) Where the partnership in the course of its
continued use of the name of a business receives money or property of a
deceased partner provided there is an third person and the money or property so
indication that the partner is already received is misapplied by any partner while
dead. it is in the custody of the partnership. (n)

D. Bound by admission of
V. RIGHTS OF PARTNERS
partner
A. Share in losses and profits
Art. 1820. An admission or representation
made by any partner concerning partnership Art. 1797. The losses and profits shall be
affairs within the scope of his authority in distributed in conformity with the agreement. If
accordance with this Title is evidence against only the share of each partner in the profits has
the partnership. (n) been agreed upon, the share of each in the
losses shall be in the same proportion.
General Rule: Person is not bound by the act, In the absence of stipulation, the share of
admission, statement, or agreement of another each partner in the profits and losses shall be in
of w/c he has no knowledge or to w/c he has proportion to what he may have contributed,
not given his consent except by virtue of a but the industrial partner shall not be liable for
particular relation between them. the losses. As for the profits, the industrial
Exception: Admissions by a party as testified to partner shall receive such share as may be just
by a 3rd person are admissible in evidence and equitable under the circumstances. If
against him in litigation. Admissions by another besides his services he has contributed capital,
are received against a party if the former is he shall also receive a share in the profits in
acting in the capacity of agent of the latter. proportion to his capital. (1689a)
Under Art. 1820, the admission of a partner
made during the existence of the partnership
are binding against the partnership and co- Rules for distribution of profits and losses
partners when such admissions refer to a
matter concerning partnership affairs and made
w/in the scope of his authority. DISTRIBUTION OF PROFITS
Exception to exception: When a partner makes With agreement According to agreement
Without agreement (1)
Share of capitalist partner is in If he is wrongfully excluded from the
proportion to his capital partnership business or possession of its
contribution property by his co-partners;
Share of industrial partner(2) If the right exists under the terms of any
is not
fixed - as may be just and agreement;
equitable under the (3) As provided by article 1807;
circumstances (4) Whenever other circumstances render it
just and reasonable. (n)

Art. 1798. If the partners have agreed to Art. 1807. Every partner must account to the
intrust to a third person the designation of the partnership for any benefit, and hold as trustee
share of each one in the profits and losses, such for it any profits derived by him without the
designation may be impugned only when it is consent of the other partners from any
manifestly inequitable. In no case may a transaction connected with the formation,
partner who has begun to execute the decision conduct, or liquidation of the partnership or
of the third person, or who has not impugned from any use by him of its property. (n)
the same within a period of three months from
the time he had knowledge thereof, complain of GEN RULE: During the existence of the
such decision. partnership, a partner is not entitled to a formal
The designation of losses and profits cannot account of the partnership affairs.
be intrusted to one of the partners. (1690) EXCEPTIONS: the special and unusual situations
enumerated under Article 1809.
Art. 1799. A stipulation which excludes one or
more partners from any share in the profits or • The right to an account of his interest
losses is void. (1691) shall accrue to any partner, or his legal
representative as against the winding
• Although this stipulation is void, the up partners or the surviving partners or
partnership is valid, subsists and the the person or partnership continuing
profits or losses shall be apportioned as the business, at the date of dissolution,
if there were no stipulation on the in the absence of any agreement to the
same. contrary. Articles 1806, 1807, and
• The industrial partner is not liable for 1809 show that the right to demand an
losses because he cannot withdraw the accounting exists as long as the
work or labor already done by him. His partnership exists. Prescription begins
laboring in vain is his contribution to to run only upon the dissolution of the
the loss. partnership when the final accounting is
done. (Fue Leung v. IAC)
B. Associate another person
E. Property rights
Art. 1804. Every partner may associate
another person with him in his share, but the Art. 1810. The property rights of a partner
associate shall not be admitted into the are:
partnership without the consent of all the other (1) His rights in specific partnership property;
partners, even if the partner having an (2) His interest in the partnership; and
associate should be a manager. (1696) (3) His right to participate in the management.
(n)
Contract of subpartnership: The partnership
formed between a member of a partnership and • Property used by the partnership. A
a third person for a division of the profits partner may:
coming to him from the partnership enterprise. ⁃ contribute to the partnership
Subpartner does not acquire the rights of a only the use of property
partner, nor is he liable for partnership debts ⁃ allow the partnership to use his
separate propert
C. Access partnership books ⁃ hold the title to partnership
property in his own name
Art. 1805. The partnership books shall be kept, without having it belong to
subject to any agreement between the him.
partners, at the principal place of business of • Property acquired by a partners with
the partnership, and every partner shall at any partnership funds.
reasonable hour have access to and may General rule: Property acquired by a partner in
inspect and copy any of them. (n) his own name with partnership funds
is partnership property.
• Access to partnership books at “any Exceptions:
reasonable hour: reasonable hours on ⁃ Contrary intention appears
business days throughout the year and ⁃ Property was acquired after dissolution
not merely during some arbitrary but before the winding up [but he
period of a few days chosen by the would be liable to account to the
managing partners (Pardo v. Lumber partnership]
Co.)
Art. 1811. A partner is co-owner with his
D. Obtain formal account partners of specific partnership property.
The incidents of this co-ownership are such
Art. 1809. Any partner shall have the right to a that:
formal account as to partnership affairs: (1) A partner, subject to the provisions of this
 Title and to any agreement between the the usual remedies.
partners, has an equal right with his In case of a dissolution of the partnership,
partners to possess specific partnership the assignee is entitled to receive his assignor's
property for partnership purposes; but he interest and may require an account from the
has no right to possess such property for date only of the last account agreed to by all
any other purpose without the consent of the partners. (n)
his partners;
(2) A partner's right in specific partnership
property is not assignable except in Rights of the transferee or assignee Wha
connection with the assignment of rights of To receive in accordance with his contract theinterfere in the
all the partners in the same property; profits accruing to the assigning partner
(3) A partner's right in specific partnership To avail of the usual remedies provided by law inrequire any info
property is not subject to attachment or the event of fraud in the management
execution except on a claim against the inspect any of
partnership. When partnership property is To receive the assignor’s interest in case ofadd another ro
attached for a partnership debt the dissolution (jas, please add another row to thisphrase)
partners, or any of them, or the table and insert this last phrase)
representatives of a deceased partner, ndi ko maform
cannot claim any right under the walang table.
homestead or exemption laws; somewhere. he
(4) A partner's right in specific partnership 2 lang nagappe
property is not subject to legal support
under Article 291. (n) • Partnership is a relation in which
delectus personae is an important
Art. 291,CC is now Art. 195,FC element. No one may be introduced
Art. 195. Subject to the provisions of the into the firm as a partner without the
succeeding articles, the following are obliged to unanimous consent of the other
support each other to the whole extent set forth partners.
in the preceding article:
(1) The spouses; Art. 1814. Without prejudice to the preferred
(2) Legitimate ascendants and descendants; rights of partnership creditors under Article
(3) Parents and their legitimate children and 1827, on due application to a competent court
the legitimate and illegitimate children of by any judgment creditor of a partner, the court
the latter; which entered the judgment, or any other
(4) Parents and their illegitimate children and court, may charge the interest of the debtor
the legitimate and illegitimate children of partner with payment of the unsatisfied amount
the latter; and of such judgment debt with interest thereon;
(5) Legitimate brothers and sisters, whether and may then or later appoint a receiver of his
of full or half-blood (291a) share of the profits, and of any other money
due or to fall due to him in respect of the
• A partner cannot separately assign his partnership, and make all other orders,
right to specific partnership property. directions, accounts and inquiries which the
• A partner’s right is limited to his share debtor partner might have made, or which the
of what remains after all partnership circumstances of the case may require.
debts have been paid. Thus,specific The interest charged may be redeemed at
partnership property is not subject to any time before foreclosure, or in case of a sale
attachment, execution, garnishment, or being directed by the court, may be purchased
injunction, without the consent of all without thereby causing a dissolution:
partners, except on a claim against the (1) With separate property, by any one or
partnership more of the partners; or
(2) With partnership property, by any one or
Art. 1812. A partner's interest in the more of the partners with the consent of all
partnership is his share of the profits and the partners whose interests are not so
surplus. (n) charged or sold.
• Profit – net income during the carrying Nothing in this Title shall be held to deprive a
out of the business of the partnership partner of his right, if any, under the
• Surplus – the excess of assets over exemption laws, as regards his interest in
liabilities (after accounting/dissolution) the partnership. (n)
Art. 1813. A conveyance by a partner of his F. Convey real property
whole interest in the partnership does not of
itself dissolve the partnership, or, as against the Art. 1819. Where title to real property is in the
other partners in the absence of agreement, partnership name, any partner may convey title
entitle the assignee, during the continuance of to such property by a conveyance executed in
the partnership, to interfere in the management the partnership name; but the partnership may
or administration of the partnership business or recover such property unless the partner's act
affairs, or to require any information or account binds the partnership under the provisions of
of partnership transactions, or to inspect the the first paragraph of article 1818, or unless
partnership books; but it merely entitles the such property has been conveyed by the
assignee to receive in accordance with his grantee or a person claiming through such
contract the profits to which the assigning grantee to a holder for value without knowledge
partner would otherwise be entitled. However, that the partner, in making the conveyance, has
in case of fraud in the management of the exceeded his authority.
partnership, the assignee may avail himself of
 Where title to real property is in the name
of the partnership, a conveyance executed by a Art. 1774. Any IMMOVABLE property OR an
partner, in his own name, passes the equitable INTEREST therein may be acquired in the
interest of the partnership, provided the act is partnership name. Title so acquired can be
one within the authority of the partner under conveyed ONLY in the partnership name. (n)
the provisions of the first paragraph of Article
1818. *cf. Art. 1819
Where title to real property is in the name of
one or more but not all the partners, and the B. Preference of creditors
record does not disclose the right of the
partnership, the partners in whose name the Art. 1827. The creditors of the partnership
title stands may convey title to such property, shall be preferred to those of each partner AS
but the partnership may recover such property REGARDS PARTNERSHIP PROPERTY. Without
if the partners' act does not bind the prejudice to this right, the private creditors of
partnership under the provisions of the first each partner may ask the attachment and
paragraph of Article 1818, unless the purchaser public sale of the share of the latter in the
or his assignee, is a holder for value, without partnership assets. (n)
knowledge.
Where the title to real property is in the
name of one or more or all the partners, or in a
third person in trust for the partnership, a
VII. DISSOLUTION AND
conveyance executed by a partner in the WINDING UP
partnership name, or in his own name, passes
the equitable interest of the partnership,
provided the act is one within the authority of Art. 1828. The dissolution of a partnership is
the partner under the provisions of the first the CHANGE IN RELATION of the partners
paragraph of Article 1818. caused by ANY PARTNER CEASING TO BE
Where the title to real property is in the ASSOCIATED in the carrying on as distinguished
name of all the partners a conveyance executed from the winding up of the business. (n)
by all the partners passes all their rights in such
property. (n) • Any change in the membership of a
partnership produces an immediate
Effects of Conveyance of Real Property dissolution of the existing partnership
Title in partnership name Conveyance passesrelation title
and but partnershipof can
the formation a new
Any partner may convey under partnership name recover unless: 1)The
one. partner who sold it was
carrying •on in Strictly
the usualandway the business
technically of thethere
speaking,
partnership (1818) hence binding the partnership;
is no such thing as an “incoming
or 2) Buyer had no knowledge
partner” or “admissionof ofthea lack
personof into
authority of thean seller
existing firm”. All persons forming
Title in partnership name, Conveyance does the notnewpass title but only equitable
partnership upon the
Conveyance in partner's name interest. Provided that: The
admission of thepartner who sold
new person it the
into
was carrying on in the usual
business way the business
are incoming partners,ofeven
the partnership though (1818)the hence
same binding
businessthe has
partnership theretofore been conducted by the
Title in name of 1/ more partners, Conveyance inConveyance passes others. title but partnership can
name if partner/partners in whose name titlerecover unless: 1)The partner who sold it was
stands carrying on 1829.
Art. in the usual way the business
On dissolution of the is
the partnership
partnership
NOT (1818) hence binding
TERMINATED, the partnership;
but continues until the
or 2) winding
Buyer hadup ofno knowledge
partnership of the
affairs lack of
is COMPLETED.
authority
(n) of the seller
Title in name of 1/more/all partners or 3rd personConveyance will only pass equitable interest.
in trust for partnership, Conveyance executed inProvided Effects of Dissolution:
that: The partner who sold it was
partnership name of in name of partners carrying •on in Dissolution
the usual way does not automatically
the business of the
resulthence
partnership (1818) in the termination
binding of the legal
the partnership
personality of the partnership, nor of
the relations of the partners among
• Art. 1819 provides that: “Where the themselves. Partnership continues for
title to real property is in the names of the limited purpose of winding up its
all the partners a conveyance executed affairs.
by all the partners passes all their
rights in such property. The term • The dissolution of a partnership must
“conveyance” used in this provision not be understood in the absolute and
includes a mortgage. (Syjuco v Castro) strict sense so that at the termination
NOTE: This is different from the provisions on of the object for which it was created
agency, which provide that a special power to the partnership is extinguished,
sell excludes the power to mortgage [Art. pending the winding up of some
1879]. incidents and obligations of the
partnership, but in such case, the
partnership will be reputed as existing
VI. RIGHTS OF until the juridical relations arising out
PARTNERSHIP of the contract are dissolved. The
dissolution of a firm does not relieve
any of its members from liability for
A. Acquire immovables
existing obligations, although it does
 save them from new obligations to distribution of the assets to its partners
which they have not expressly or should perfunctorily follow. The
impliedly assented, and any of them dissolution simply effected a change in
may be discharged from old obligations the relationship among the partners.
by novation or other form of release. The partnership, although dissolved,
(Testate of Mota v Serra) continues to exist until its termination,
at which time the winding up of its
• The three final stages of a partnership affairs should have been completed and
are: the net partnership assets are
(1) Dissolution- the change in the partitioned and distributed to the
relation of the partners caused by any partners. (Sy v CA)
partner ceasing to be associated in the
carrying on of the business (Art. 1828). A. Causes of Dissolution
It is that point of time the time the
partners cease to carry on the business The statutory enumeration of causes of
together. dissolution is exclusive. Art. 1830 (extrajudicial)
(2) Winding Up - the process of settling and 1831(judicial) provide for causes of
business affairs of dissolution. (Ex: dissolution. Other causes are provided in Art.
paying of previous obligations; 1840.
collecting of assets previously
demandable; even new business if Causes:
needed to wind up, as the contracting • Without violation of the agreement
with a demolition company for the between the partners:
demolition of the garage used in a ⁃ termination of the definite term
"used car" partnership.) or particular undertaking
(3) Termination Defined- the point in specified in the agreement;
time after all the partnership affairs ⁃ express will of any partner,
have been wound up. (Idos v CA) who must act in good faith,
when no definite term or
• The provision prohibiting the dissolution particular is specified;
of the association under review, except ⁃ express will of all the partners
by the consent and agreement of two- who have not assigned their
thirds of its partners, in no wise limited interests or suffered them to
or restricted the rights of the individual be charged for their separate
partners in the event the dissolution of debts, before or after the
the association was effected, not by termination of any specified
any act of theirs, but by the express term or particular undertaking;
mandate of statutory law. It would be ⁃ expulsion of any partner in
unreasonable to hold that such an accordance with such a power
association could never be dissolved conferred by the agreement;
and liquidated without the consent and ⁃ when business becomes
agreement of two-thirds of its partners, unlawful
notwithstanding that it had lost all its ⁃ when a specific thing promised
capital, or had become bankrupt, or to be contributed to the
that the enterprise for which it had partnership perishes before
been organized had been concluded or delivery
abandoned. (Lichauco v Lichauco) ⁃ loss of a specific thing when
the partner reserved ownership
• Not being a mercantile partnership over it
(hence, not governed by the Code of ⁃ death
Commerce, but the CC), it was ⁃ insolvency of a partner/
dissolved by the death of Perpetua. It partnership
cannot be maintained that the ⁃ civil interdiction
partnership continued to exist after the
death of Perpetua for it does not
appear that any stipulation to that • In contravention of the agreement
effect has ever been made by her and between the partners:
Dequilla, pursuant to the provisions of ⁃ where the circumstances do
art. 1704. The partnership having been not permit a dissolution under
dissolved, its subsequent legal status 1830 by the express will of any
was that of a partnership in liquidation, partner at any time; 1830
and the only rights inherited by
Perpetua’s heir, were those resulting • Upon application of a partner:
from the liquidation in favor of the ⁃ partner has been declared
Perperua, and nothing more. Before insane or is shown to be of
this liquidation is made, it is impossible unsound mind;
to determine what rights or interests, if ⁃ partner becomes incapable of
any, Perpetua had, the partnership performing his part of the
bond having been dissolved. contract;
(Bearneza v Dequilla) ⁃ partner has been guilty of such
conduct that prejudices the
• The dissolution of the partnership did business;
not mean that the juridical entity was ⁃ partner wilfully or persistently
immediately terminated and that the commits a breach of the
 partnership agreement to associate himself is the very
⁃ business of the partnership can foundation and essence of that
only be carried on at a loss; partnership. Its continued existence is,
⁃ equitable grounds in turn, dependent on the constancy of
that mutual resolve, along with each
partner's capability to give it, and the
absence of a cause for dissolution
• On the application of the purchaser of a provided by the law itself. Verily, any
partner's interest under Article 1813 or one of the partners may, at his sole
1814: pleasure, dictate a dissolution of the
⁃ TERMINATION of the partnership at will. He must, however,
term or undertaking act in good faith, not that the
⁃ when partnership is at attendance of bad faith can prevent the
will and the INTEREST dissolution of the partnership but that it
of one partner is can result in a liability for damages.
ASSIGNED (Ortega v CA)

• Under art. 1830, a partner may cause

Art. 1813. A conveyance by a partner of his the dissolution of the partnership, even
whole interest in the partnership does not of if there is specified term in the articles
itself dissolve the partnership, or, as against the of partnership and even before the
other partners in the absence of agreement, expiration of this period, with or
entitle the assignee, during the continuance of without justifiable cause. If no cause
the partnership, to interfere in the management was given or if it is unjustified, the
or administration of the partnership business or withdrawing partner becomes liable for
affairs, or to require any information or account damages, but he cannot be compelled
of partnership transactions, or to inspect the to remain in the firm. (Rojas v.
partnership books; but it merely entitles the Maglana)
assignee to receive in accordance with his
contract the profits to which the assigning
partner would otherwise be entitled. However, B. Consequences of dissolution
in case of fraud in the management of the 1. As to partner's
partnership, the assignee may avail himself of authority to act for the partnership
the usual remedies.
In case of a dissolution of the partnership, General Rule: Authority of partners to bind
the assignee is entitled to receive his assignor's partnership is terminated (1832)
interest and may require an account from the Exception:
date only of the last account agreed to by all ⁃ Wind up partnership affairs
the partners. ⁃ Complete transactions not finished
Qualifications:
Art. 1814. Without prejudice to the preferred 1.With respect to the partners (1833)
rights of partnership creditors under Article • if dissolution is not by act, insolvency,
1827, on due application to a competent court or death of a partner the general rule
by any judgment creditor of a partner, the court applies. Dissolution terminates the
which entered the judgment, or any other actual authority of a partner to
court, may charge the interest of the debtor undertake new business for the
partner with payment of the unsatisfied amount partnership.
of such judgment debt with interest thereon; • if dissolution is by act, insolvency or
and may then or later appoint a receiver of his death of a partner the rule is that the
share of the profits, and of any other money authority of partners inter se to act for
due or to fall due to him in respect of the the partnership is not deemed
partnership, and make all other orders, terminated. Thus, each partner is
directions, accounts and inquiries which the liable to his copartners for his share of
debtor partner might have made, or which the any liability created by any partner
circumstances of the case may require. acting for the partnership as if the
The interest charged may be redeemed at partnership has not been dissolved.
any time before foreclosure, or in case of a sale ⁃ Exception:
being directed by the court, may be purchased a. The cause of the dissolution is the act
without thereby causing a dissolution: of a partner and the acting partner had
(1) With separate property, by any one or knowledge of such dissolution
more of the partners; or b. the cause of dissolution is the death or
(2) With partnership property, by any one insolvency of a partner and the acting
or more of the partners with the consent of all partner had knowledge or notice of
the partners whose interests are not so charged such dissolution
or sold. 2. With respect to third persons (1834)
Nothing in this Title shall be held to deprive • When partner continues to bind the
a partner of his right, if any, under the partnership even after dissolution
exemption laws, as regards his interest in the ⁃ By an act appropriate for
partnership. (n) winding up partnership affairs
⁃ Act for completing unfinished
• The birth and life of a partnership at transactions
will is predicated on the mutual desire ⁃ Transaction which would bind
and consent of the partners. The right the partnership if dissolution
to choose with whom a person wishes had not taken place provided
 that the other party: (3) When any partner retires or dies and the
business of the dissolved partnership is
Had extended credit to partnership prior to continued as set forth in Nos. 1 and 2 of this
dissolution article, with the consent of the retired partners
Had no knowledge/notice of dissolution, or the representative of the deceased partner,
OR but without any assignment of his right in
Did not extend credit to partnership partnership property;
Had known partnership prior to dissolution (4) When all the partners or their
Had no knowledge/notice of dissolution/fact of representatives assign their rights in
dissolution not advertised in a newspaper of partnership property to one or more third
general circulation in the place where persons who promise to pay the debts and who
partnership is regularly carried on continue the business of the dissolved
partnership;
• When partner cannot bind the (5) When any partner wrongfully causes a
partnership after dissolution dissolution and the remaining partners continue
⁃ where partnership was the business under the provisions of article
dissolved because it was 1837, second paragraph, No. 2, either alone or
unlawful to carry on the with others, and without liquidation of the
business except when the act partnership affairs;
is for winding up (6) When a partner is expelled and the
⁃ where the partner has become remaining partners continue the business either
insolvent alone or with others without liquidation of the
⁃ where the partner is partnership affairs.
unauthorized to wind up
partnership affairs, except by • The liability of a third person becoming
transaction with one who: a partner in the partnership continuing
the business, under this article, to the
Had extended credit to partnership prior to creditors of the dissolved partnership
dissolution & shall be satisfied out of the partnership
Had no knowledge/notice of dissolution, property only, unless there is a
OR stipulation to the contrary.
Did not extend credit to partnership prior to
dissolution • This article treats more of a commercial
Had known partnership prior to dissolution partnership, with a goodwill to protect
Had no knowledge/notice of dissolution/fact of rather than a professional partnership
dissolution not advertised in a newspaper of with no saleable goodwill but whose
general circulation in the place where reputation depends on the personal
partnership is regularly carried on qualifications of its individual members.
•
2. As to partner's existing • Creditors of the old partnership can go
liability after the partnership continuing the
General Rule: Dissolution does not business except: (1) when there is a
automatically discharge the existing liability of stipulation to the contrary; and, (2)
any partner. (1835) when there has been a liquidation of
Exception: A partner may be relieved from all partnership affairs
existing liabilities upon dissolution only by an
agreement between: • Not only the retiring partners but also
1. partner concerned the new partnership itself which
2. person/partnership continuing the business continued the business of the old,
3. partnership creditors dissolved, one, are liable for the debts
of the preceding partnership. A
3. Liability of withdrawing partner remains liable, to
person/partnership continuing the a third party creditor of the old
business partnership. (Singsong vs. Isabela
Sawmill)
Art. 1840. In the following cases creditors of
the dissolved partnership are also creditors of • The liability of a third person becoming
the person or partnership continuing the a partnership continuing the business,
business: under 1840, to the creditors of the
(1) When any new partner is admitted into an dissolved partnership shall be satisfied
existing partnership, or when any partner out of the partnership property only,
retires and assigns (or the representative of the unless there is a stipulation to the
deceased partner assigns) his rights in contrary. When the business of a
partnership property to two or more of the partneship after dissolution is continued
partners, or to one or more of the partners and under any conditions set forth in 1840
one or more third persons, if the business is the creditors of the retiring or deceased
continued without liquidation of the partnership partner or the representative of the
affairs; deceased partner, have a prior right to
(2) When all but one partner retire and assign any claim of the retired partner or the
(or the representative of a deceased partner representative of the deceased partner
assigns) their rights in partnership property to against the person or partnership
the remaining partner, who continues the continuing the business on account of
business without liquidation of partnership the retired or deceased partner's
affairs, either alone or with others; interest in the dissolved partnership on
 account of any consideration promised wrongfully, to damages breach of the
for such interest or for his right in agreement.
partnership property. Nothing in this
article shall be held to modify any right 3. Right to continue business
of creditors to set wide any assignment on wrongful dissolution
on the ground of fraud. (Yu v NLRC)
Art. 1837. xxx When dissolution is caused in
C. Rights of Partners upon contravention of the partnership agreement the
dissolution rights of the partners shall be as follows:
(2) The partners who have not caused the
1. Right to wind up dissolution wrongfully, if they all desire to
continue the business in the same name
Art. 1836. Unless otherwise agreed, the either by themselves or jointly with others,
partners who have not wrongfully dissolved the may do so, during the agreed term for the
partnership or the legal representative of the partnership and for that purpose may
last surviving partner, not insolvent, has the possess the partnership property, provided
right to wind up the partnership affairs, they secure the payment by bond approved
provided, however, that any partner, his legal by the court, or pay any partner who has
representative or his assignee, upon cause caused the dissolution wrongfully, the value
shown, may obtain winding up by the court. (n) of his interest in the partnership at the
dissolution, less any damages recoverable
• Winding up may be done either: under the second paragraph, No. 1 (b) of
judicially or extrajudicially this article, and in like manner indemnify
• The ff. are authorized to wind up the him against all present or future
affairs of the partnership: partnership liabilities.
1. partners designated by the (3) A partner who has caused the dissolution
agreement wrongfully shall have:
2. in the absence of such (a) If the business is not continued under
agreement, all the partners the provisions of the second paragraph,
who have not wrongfully No. 2, all the rights of a partner under
dissolved the partnership, or the first paragraph, subject to liability
3. the legal representative for damages in the second paragraph,
(executor/ administrator) of No. 1 (b), of this article.
the last surviving partner (b) If the business is continued under the
(when all the partners are second paragraph, No. 2, of this article,
already dead), not insolvent the right as against his co-partners and
• The court may appoint a receiver to all claiming through them in respect of
wind up the partnership affairs. their interests in the partnership, to
have the value of his interest in the
Powers of a liquidating partner: partnership, less any damage caused to
• Make new contracts his co-partners by the dissolution,
• Raise money to pay partnership debts ascertained and paid to him in cash, or
• Incur obligations to complete existing the payment secured by a bond
contracts or preserve partnership approved by the court, and to be
assets released from all existing liabilities of
• Incur expenses necessary in the the partnership; but in ascertaining the
conduct of litigation value of the partner's interest the value
of the good-will of the business shall
• “wrongfully dissolved” -done in not be considered. (n)
contravention of the agreement
4. Rights where dissolution
• When a member of a mercantile not in contravention of agreement (unless
partnership dies, the duty of liquidating otherwise agreed), which constitute the
its affairs devolves upon the surviving partner’s lien:
member/s of the firm, not upon the • to have the partnership property
legal representatives of the deceased applied to discharge partnership
partner. Upon the death of a partner, liabilities and
it is the duty of the surviving associates • the surplus assets, if any, distributed in
to take the proper steps to settle the cash to the respective partners, after
affairs of the firm,and any claim against deducting what may be due to the firm
him or his estate should be prosecuted from them as partners
against his estate in administration.
(Lota v Tolentino) 5. Rights of innocent party:
(dissolution in contravention of
2. Right to damages for agreement)
wrongful dissolution • Apply partnership property to discharge
liabilities of partnership
Art. 1837. When dissolution is caused in • Apply surplus, if any to pay in cash the
contravention of the partnership agreement the net amount owed to partners
rights of the partners shall be as follows: • Indemnity for damages caused by
(1) Each partner who has not caused partner guilty of wrongful dissolution
dissolution wrongfully shall have: • Continue business in same name during
(b) The right, as against each partner agreed term
who has caused the dissolution • Posses partnership property if business
 is continued sum as his share of the profits [Sison
vs. McQuaid].
6.Rights of guilty party: one • A partner’s share cannot be retuned
who wrongly caused dissolution without first dissolving and liquidating
• If business not continued by others - the partnership, for the firm’s outside
apply partnership property to discharge creditors have preference over the
liabilities of partnership & receive in assets of the enterprise [Arts. 1839(2),
cash his share of surplus less damages 1827] and the firm’s property cannot
caused by his wrongful dissolution be diminished to their prejudice
• If business continued by others - have [Magdusa vs. Albaran].
the value of his interest at time of
dissolution ascertained and paid in
cash/secured by bond & be released
VIII. SETTLEMENT OF
from all existing/future partnership ACCOUNTS
liabilities
BETWEEN
7. Rights of injured partner
where partnership contract is rescinded on
PARTNERS
ground of fraud/misrepresentation by 1
party: (1838) Art. 1839. In settling accounts between the
partners after dissolution, the following rules
• Right to lien on surplus of partnership shall be observed, subject to any agreement to
property after satisfying partnership the contrary:
liabilities (1) The assets of the partnership are:
• Right to subrogation in place of (a) The partnership property,
creditors after payment of partnership (b) The contributions of the partners
liabilities necessary for the payment of all the
• Right of indemnification by guilty liabilities specified in No. 2.
partner against all partnership debts & (2) The liabilities of the partnership shall rank in
liabilities order of payment, as follows:
(a) Those owing to creditors other than
8. Right of retiring/ deceased partners,
partner (b) Those owing to partners other than for
capital and profits,
Art. 1841. When any partner retires or dies, (c) Those owing to partners in respect of
and the business is continued under any of the capital,
conditions set forth in the preceding article, or (d) Those owing to partners in respect of
in Article 1837, second paragraph, No. 2, profits.
without any settlement of accounts as between (3) The assets shall be applied in the order of
him or his estate and the person or partnership their declaration in No. 1 of this article to
continuing the business, unless otherwise the satisfaction of the liabilities.
agreed, he or his legal representative as against (4) The partners shall contribute, as provided
such person or partnership may have the value by article 1797, the amount necessary to
of his interest at the date of dissolution satisfy the liabilities.
ascertained, AND shall receive as an ordinary (5) An assignee for the benefit of creditors or
creditor an amount equal to the value of his any person appointed by the court shall
interest in the dissolved partnership with have the right to enforce the contributions
interest, or, at his option or at the option of his specified in the preceding number.
legal representative, in lieu of interest, the (6) Any partner or his legal representative
profits attributable to the use of his right in the shall have the right to enforce the
property of the dissolved partnership; provided contributions specified in No. 4, to the
that the creditors of the dissolved partnership extent of the amount which he has paid in
as against the separate creditors, or the excess of his share of the liability.
representative of the retired or deceased (7) The individual property of a deceased
partner, shall have priority on any claim arising partner shall be liable for the contributions
under this article, as provided Article 1840, specified in No. 4.
third paragraph. (n) (8) When partnership property and the
individual properties of the partners are in
9. Right to account possession of a court for distribution,
partnership creditors shall have priority on
Art. 1842. The right to an account of his partnership property and separate creditors
interest shall accrue to any partner, or his legal on individual property, saving the rights of
representative as against the winding up lien or secured creditors.
partners or the surviving partners or the person (9) Where a partner has become insolvent or
or partnership continuing the business, at the his estate is insolvent, the claims against
date of dissolution, in the absence of any his separate property shall rank in the
agreement to the contrary. (n) following order:
(a) Those owing to separate creditors;
• The profits of a business cannot be (b) Those owing to partnership creditors;
determined by taking into account the (c) Those owing to partners by way of
result of one particular transaction contribution. (n)
instead of all the transactions had,
hence the need for a general liquidation
before a partner may claim a specific • This provision sets forth a priority
 system for the distribution of
partnership property [see Art. 1810]
and individual property when a
partnership is dissolved.
• These rules are subject to variation by
agreement of the partners, either in inclusion of partner's name in theName may appear in firm name
their original partnership agreement or firm name
in a dissolution agreement, subject to prohibition to engage in other Prohibition against engaging in
the rights of partnership creditors. business business
• ORDER OF PAYMENT IN THE WINDING
UP OF PARTNERSHIP LIABILITIES in a effect of retirement death Retirement, death, insolvency,
general partnership: 1839 (2) insanity or insolvency insanity of gen partner dissolves
1. Those owing to creditors other partnership (1860)
than partners;
firm name must contain the word company
2. Those owing to partners other
or Co. (SEC Memo Circular No.
than for capital or profits;
14-00)
3. Those owing to partners in
*unless it is a professional
respect of capital;
partnership
4. Those owing to partners in
members of the partnership composed only of general
respect of profits.
partners
Doctrine of Marshalling of Assets 1839 (8):
1. Partnership creditors have preference in
partnership assets
2. Separate or individual creditors have Essential requirements for the formation of a
preference in separate or individual properties limited partnership: (1844)
3. Anything left from either goes to the other • the certificate or articles of the limited
partnership which states the matters
enumerated in the article, must be
IX. LIMITED signed and sworn to.
• Such certificate must be filed for record
PARTNERSHIP in the office of the SEC

Who may become Limited Partners

Art. 1843. A limited partnership is one formed • A partnership cannot become a limited
by two or more persons under the provisions of partner.
the following article, having as members one or • A general partnership may be changed
more general partners and one or more limited into a limited one, and a partner in the
partners. The limited partners as such shall not former general partnership may
be bound by the obligations of the partnership. become a limited partner in the limited
partnership just formed.
Characteristics:
• formed by compliance with the • The general rule for those who seek to
statutory requirements (1844) avail of the protection of the laws
• One or more general partners control permitting the creation of limited
the business and are personally liable partnerships must show a substantially
to creditors (1848, 1850) full compliance of such laws. A limited
• One or more limited partners contribute partnership that has not complied with
to the capital and share in the profits the law of its creation is not considered
but do not participate in the a limited partnership at all; but a
management of the business and are general partnership in which all
not personally liable for partnership members are liable. (Jo Chung Cang
obligations beyond the amount of their V. Pacific Commercial)
capital contributions. (1845, 1848,
1856) Art. 1847. If the certificate contains a false
• The limited partners may ask for the statement, one who suffers loss by reliance on
return of their capital contributions such statement may hold liable any party to the
under the conditions prescribed by law certificate who knew the statement to be false:
(1844(h), 1857) (1) At the time he signed the certificate, or
• The partnership debts are paid out of (2) Subsequently, but within a sufficient time
the common fund and the individual before the statement was relied upon to enable
properties of the general partners. him to cancel or amend the certificate, or to file
a petition for its cancellation or amendment as
General Partnership provided in Article 1865.
extent of liability Personally liable for partnership
obligations Art. 1864. The certificate shall be cancelled
right to paticipate in the When manner of mgt. not when the partnership is dissolved or all limited
agreed
management partners
upon, all gen partners have an cease to be such.
equal right in the mgt. of the A certificate shall be amended when:
business (1) There is a change in the name of the
partnership or in the amount or character of the
contribution Contribute cash, property or
contribution of any limited partner;
industry
(2) A person is substituted as a limited partner;
proper party to proceedings by Proper party to proceedings
(3) An additional limited partner is admitted;
or against the partnership by/against partnership
(4) A person is admitted as a general partner; ⁃ Board of directors chosen by
(5) A general partner retires, dies, becomes limited partners
insolvent or insane, or is sentenced to civil ⁃ An appointee of a limited
interdiction and the business is continued under partner becomes the directing
Article 1860; manager of the firm
(6) There is a change in the character of the
business of the partnership; Art. 1858. A limited partner is liable to the
(7) There is a false or erroneous statement in partnership:
the certificate; (1) For the difference between his contribution
(8) There is a change in the time as stated in as actually made and that stated in the
the certificate for the dissolution of the certificate as having been made; and
partnership or for the return of a contribution; (2) For any unpaid contribution which he
(9) A time is fixed for the dissolution of the agreed in the certificate to make in the future
partnership, or the return of a contribution, no at the time and on the conditions stated in the
time having been specified in the certificate, or certificate.
(10) The members desire to make a change in A limited partner holds as trustee for
any other statement in the certificate in order the partnership:
that it shall accurately represent the agreement (1) Specific property stated in the certificate as
among them. contributed by him, but which was not
contributed or which has been wrongfully
• Requirements to amend a certificate: returned, and
⁃ amendment must be in (2) Money or other property wrongfully paid or
writing; conveyed to him on account of his contribution.
⁃ it must be signed and sworn to
by all the members, including Liabilities of a limited partnership:
the new members, and the 1. To the partnership (see 1858)
assigning members in case of 2. To partnership creditors and other partners
substitution or addition of a GP a. Art. 1845 – when he contributes
or LP; and services
⁃ the certificate, as amended, b. Art. 1846
must be filed for record in the c. Art. 1847
SEC d. Art. 1848
e. Art. 1854 – in fraud of partnership
• Requirements to cancel a certificate: creditors
⁃ in writing; f. Art. 1844 (2) – failure to
⁃ signed by all the members; substantially comply with the legal
and requirements governing formation of
⁃ filed with the SEC; if the limited partnerships
cancellation is ordered by the 3. To separate creditors (see 1862)
court, a certified copy of such
order shall be filed with the • The liabilities of a limited partner as set
SEC as well forth in this article can be waived or
compromised only by the consent of all
Art. 1860. The retirement, death, insolvency, members; but a waiver or compromise
insanity or civil interdiction of a general partner shall not affect the right of a creditor of
dissolves the partnership, unless the business is a partnership who extended credit or
continued by the remaining general partners: whose claim arose after the filing and
(1) Under a right so to do stated in the before a cancellation or amendment of
certificate, or the certificate, to enforce such
(2) With the consent of all members. liabilities.

C. Rights in common with general

X. LIMITED PARTNER partner

A. Contribution The specific rights of a limited partner are as

follows:
Art. 1845. The contributions of a limited • To require that partnership books be
partner may be cash or property, but not kept at the principal place of business
services. of the partnership
• To inspect and copy at a reasonable
B. Liability hour partnership books or any of them
• To demand true and full information of
Art. 1848. A limited partner shall not become all things affecting the partnership
liable as a general partner unless, in addition to • To demand a formal account of
the exercise of his rights and powers as a partnership affairs whenever
limited partner, he takes part in the control of circumstances render it just and
the business. reasonable
• To ask for dissolution and winding up
• What constitutes control of the by decree of the court
business sufficient to make a limited • To receive a share of the profits or
partner liable as a general partner has other compensation by way of income
not been clearly defined by the courts. • To receive the return of his contribution
• Examples of limited partner taking part provided the partnership assets are in
in the control of business: excess of all its liabilities
 the return of the contribution may be rightfully
D. Loan and other Business demanded under the provisions of the second
Transactions with Limited Partnership paragraph; and
(3) The certificate is cancelled or so amended
Art. 1854. A limited partner also may loan as to set forth the withdrawal or reduction.
money to and transact other business with the Subject to the provisions of the first
partnership, and, unless he is also a general paragraph, a limited partner may rightfully
partner, receive on account of resulting claims demand the return of his contribution:
against the partnership, with general creditors, (1) On the dissolution of a partnership; or
a pro rata share of the assets. No limited (2) When the date specified in the certificate for
partner shall in respect to any such claim: its return has arrived, or
(1) Receive or hold as collateral security and (3) After he has six months' notice in writing to
partnership property, or all other members, if no time is specified in the
(2) Receive from a general partner or the certificate, either for the return of the
partnership any payment, conveyance, or contribution or for the dissolution of the
release from liability if at the time the assets of partnership.
the partnership are not sufficient to discharge In the absence of any statement in the
partnership liabilities to persons not claiming as certificate to the contrary or the consent of all
general or limited partners. members, a limited partner, irrespective of the
nature of his contribution, has only the right to
• The receiving of collateral security, or demand and receive cash in return for his
payment, conveyance, or release in contribution.
violation of the foregoing provisions is a A limited partner may have the
fraud on the creditors of the partnership dissolved and its affairs wound up
partnership. when:
(1) He rightfully but unsuccessfully demands
• 3 allowable transactions: the return of his contribution, or
1. granting loans to (2) The other liabilities of the partnership have
partnership not been paid, or the partnership property is
2. transacting other business insufficient for their payment as required by the
with it first paragraph, No. 1, and the limited partner
3. receiving a pro rata share of would otherwise be entitled to the return of his
the partnership assets with general creditors if contribution.
he is not also a general partner
Art. 1855
Art. 1854 does not prohibit absolutely the By agreement of all members, preference may
taking as collateral security by a limited be given over other limited partners as to the:
property of any partnership property, as no. 1 & • Return of their contributions
2 are modified by the requirement of sufficient • Their compensation by way of income
assets to discharge the obligation of the • Any other matter
partnership. Absent such agreement, all limited partners
shall stand on the same footing in respect of
Prohibited transactions: those matters.
• Receiving or holding as collateral
security any partnership property Art. 1857
• Receiving any payment, conveyance, or Requisites for the return of contribution of
release from liability if it will prejudice limited partner:
the right of third persons • All liabilities of the partnership have
• Third persons always enjoy a been paid
preferential right insofar as partnership • If not paid: assets of the partnership
assets are concerned are sufficient to pay such liabilities
• consent of all members
E. Return of contribution • certificate is cancelled or so amended
as to set forth such withdrawal or
Art. 1855. Where there are several limited reduction of the contribution
partners the members may agree that one or Limited partner may demand return of his
more of the limited partners shall have a contribution provided requisites 1 & 3 are
priority over other limited partners as to the complied with:
return of their contributions, as to their • on the dissolution of the partnership; or
compensation by way of income, or as to any • upon arrival of the date specified in the
other matter. If such an agreement is made it certificate for the return; or
shall be stated in the certificate, and in the • after the expiration of 6 mos.’ notice in
absence of such a statement all the limited writing given by him to the other
partners shall stand upon equal footing. partners if no time is fixed in the
certificate for the return of the
Art. 1857. A limited partner shall not receive contribution or for the dissolution of the
from a general partner or out of partnership partnership
property any part of his contributions until:
(1) All liabilities of the partnership, except F. Share of profits
liabilities to general partners and to limited
partners on account of their contributions, have Art. 1856. A limited partner may receive from
been paid or there remains property of the the partnership the share of the profits or the
partnership sufficient to pay them; compensation by way of income stipulated for
(2) The consent of all members is had, unless in the certificate; provided that after such
payment is made, whether from property of the 3. The certificate as amended
partnership or that of a general partner, the must be registered in the SEC.
partnership assets are in excess of all liabilities
of the partnership except liabilities to limited • Substitution, withdrawal, death,
partners on account of their contributions and insolvency, insanity, civil interdiction,
to general partners. addition of a limited partner does not
necessarily dissolve the partnership.
G. Assign interests
H. Effect of death
Art. 1859. A limited partner's interest is
assignable. Art. 1861. On the death of a limited partner
A substituted limited partner is a person his executor or administrator shall have all the
admitted to all the rights of a limited partner rights of a limited partner for the purpose of
who has died or has assigned his interest in a setting his estate, and such power as the
partnership. deceased had to constitute his assignee a
An assignee, who does not become a substituted limited partner.
substituted limited partner, has no right to The estate of a deceased limited
require any information or account of the partner shall be liable for all his liabilities as a
partnership transactions or to inspect the limited partner.
partnership books; he is only entitled to receive
the share of the profits or other compensation I. Right of creditor
by way of income, or the return of his
contribution, to which his assignor would Art. 1862. On due application to a court of
otherwise be entitled. competent jurisdiction by any creditor of a
An assignee shall have the right to become a limited partner, the court may charge the
substituted limited partner if all the members interest of the indebted limited partner with
consent thereto or if the assignor, being payment of the unsatisfied amount of such
thereunto empowered by the certificate, gives claim, and may appoint a receiver, and make all
the assignee that right. other orders, directions and inquiries which the
An assignee becomes a substituted limited circumstances of the case may require.
partner when the certificate is appropriately The interest may be redeemed with the
amended in accordance with Article 1865. separate property of any general partner, but
The substituted limited partner has all the rights may not be redeemed with partnership
and powers, and is subject to all the restrictions property.
and liabilities of his assignor, except those The remedies conferred by the first
liabilities of which he was ignorant at the time paragraph shall not be deemed exclusive of
he became a limited partner and which could others which may exist.
not be ascertained from the certificate. Nothing in this Chapter shall be held to
The substitution of the assignee as a limited deprive a limited partner of his statutory
partner does not release the assignor from exemption.
liability to the partnership under Articles 1847
and 1848. • Creditor of a limited partner may apply
to the proper court for an order
Art. 1847. If the certificate contains a false charging the limited partner’s interest
statement, one who suffers loss by reliance on in the partnership for the payment of
such statement may hold liable any party to the his claim.
certificate who knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time J. Person erroneously believing he
before the statement was relied upon to enable is a limited partner
him to cancel or amend the certificate, or to file
a petition for its cancellation or amendment as Art. 1852. Without prejudice to the provisions
provided in Article 1865. of Article 1848, a person who has contributed to
the capital of a business conducted by a person
Art. 1848. A limited partner shall not become or partnership erroneously believing that he has
liable as a general partner unless, in addition to become a limited partner in a limited
the exercise of his rights and powers as a partnership, is not, by reason of his exercise of
limited partner, he takes part in the control of the rights of a limited partner, a general partner
the business. with the person or in the partnership carrying
on the business, or bound by the obligations of
• Requisites in order that the assignee such person or partnership, provided that on
may become a substituted limited ascertaining the mistake he promptly renounces
partner: his interest in the profits of the business, or
1. All the members must consent other compensation by way of income.
to the assignee becoming a
substituted limited partner OR • This article provides exemption from
the limited partner, being general liability of a person who
empowered by the certificate, contributed capital with an erroneous
must give the assignee the belief that he has become a limited
right to become a limited partner in a limited partnership, or in
partner general partnership thinking that it is a
2. The certificate must be limited one.
amended in accordance with
Art. 1865 Conditions for exemption:
 • On ascertaining the mistake, he
promptly renounces his interest in the
profits of the business or other
compensation by way of income
(interest must be renounced before
partnership has become liable to 3rd
persons in good faith)
• His surname does not appear in the
partnership name
• He does not participate in the
management of the business

K. Dissolution
• Any of such causes in 1860 affecting a
limited partner does not result in its
dissolution, unless there is only one
limited partner.

• A limited partnership may be dissolved

for:
⁃ the misconduct of a general
partner
⁃ for fraud practiced on the
limited partner by the general
partner
⁃ Art. 1860
⁃ when all the limited partners
ceased to be such – Art. 1864
(1)
⁃ expiration of the term for
which it was to exist – Art.
1844 (1e)
⁃ by mutual consent of the
partners before the expiration
of the firm’s original term

• When the firm is dissolved by the

expiration of the term fixed in the
certificate, notice of the dissolution
need not be given since the papers filed
and recorded in the SEC are notice to
all the world. Where, however, the
dissolution is by the express will of the
partners, the certificate shall be
cancelled, and a dissolution is not
effected until there has been
compliance with this requirement.

L. Settling accounts after

dissolution

Order of Payment: Limited Partnership

(1863)
• Those owing to creditors, except those
to limited partners on account of their
contribution, and to general partners;
• Those to limited partners in respect to
their share of the profits and other
compensation by way of income in their
contributions;
• Those to limited partners in respect of
their capital contributions;
• Those to general partners other than
for capital and profits;
• Those to general partners in respect to
profits;
• Those to general partners in respect to
capital.