B U S I N E S S LAW A N D R E G U LAT I O 1

N S 2. Nominate – has a special name/designation in the law.

(partnership name given by the law)
Chapter 1 – General Provisions
3. Bilateral – entered by two or more humans.
CONCEPT OF PARTNERSHIP (there are at least two or more person in a
 New Civil Code of the Philippines was created in 1950. partnership)
Article 1767 of the New Civil Code of the Philippines provides 4. Onerous – give something to procure another thing.
that: (opposite: gratuitous – give without
expecting any return)
“By the contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common 5. Commutative -undertaking of each partner is the same as
fund, with the intention of dividing the profits among themselves.” others.
(both partners are the agents)
Two or more persons may also form a partnership for the exercise of
a profession. 6. Principal – does not depend on another for its validity.
(opposite: accessory -depends on another contract for its
Some other definitions: legal existence)
 Association of two or more persons to carry on as co-owners 7. Preparatory – entered into as a means to an end.
a business for profit. (partners entered to a contract for their goal
 A joint undertaking to share in the profit or loss. to earn profit)

 A profession is a calling in the preparation for or practice of ESSENTIAL REQUISITES OF PARTNERSHIP

while academic learning is required and which has for its 1. Existence of valid contract
prime purpose the rendering of public servant a. A form of voluntary and personal association (delectus
personae – you choose the person or group of people that
you want to be associated)

b. Creation and proof existence

 Its not a business for profit. c. Other forms of association excluded (limited partnership)
 Cannot incorporate practice of profession. (partnership is created by the agreement of the party)

CHARACTERISTC ELEMENT OF A PARTNERSHIP

1. Consensual - perfected by mere consent. 2. Legal Capacity of Parties to Enter into the Contract
(partners give consent)
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a. General Rule – any person may be a partner who is capable  The object is considered to be unlawful when it is
under the law of entering into contractual relations. (can contrary to law, morals, goods customs, public order,
legally give consent) and public policy (LaMoCPup)
 People who cannot give consent:  Purpose must be lawful, otherwise void ab initio (no
 Unemancipated minors validity at the very beginning)
 Insane and demented persons
 Deaf-mutes who do not know how to write b. Business partnership not permitted to engage in
 Persons who are suffering from civil interdiction  Partnership may be organized for any purpose except
 Incompetents who are under guardianship that it may not engage in an enterprise for which the
law requires a specific form of business combination
b. Exceptions – people who are prohibited from giving each (ex. General Banking Law)
other any donation or advantage cannot enter into a
universal partnership (Art. 1782) 5. Intention to Realize and Divide Profit
a. Very reason for existence of a partnership
c. Capacity of partnership/corporation to a partner  obtain pecuniary profit or gain directly as a result of the
 Can a partnership be a partner in another partnership? business to be carried.
Yes
 Can a corporation be a partner? Yes, but there is a b. Sufficient if obtaining profit principal purpose
limitation. Unless, it’s authorized by law a  Obtaining profit not necessarily exclusive (other
corporation cannot be a partner in a partnership. purpose)

3. Mutual Contribution to a Common Fund  Sharing of Profits

a. Proprietary or Financial Interest  Not necessarily in equal shares – Necessary intention to
b. Form of Contribution earn profits and divide it amongst partners, but not
 Money – Legal Tender in the Philippines (monetary required equal shares. (no right to participate in profits,
instruments must be encashed not deemed as a partner)
first)  Not conclusive evidence of partnership – Sharing of
 Property – Real or personal; Tangible or intangible profits is only presumptive, not conclusive, that a
 Industry – “work or services of the party associated, partnership. Some instances where the sharing of profits
which may be either personal manual efforts or and losses was not partnership. (ex. Co-ownership)
intellectual, and for which he receives a share in the
profits (not merely salary) of the business.  Sharing of Losses
 Necessarily corollary of sharing in profits – Art. 1767 is
4. Legality of Object (what was agreed upon by the parties in the contract) silent in losses, but such is a consequence of the same
a. Effect of illegality
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 Agreement not necessary – if subsequent stipulation partners are generally protected from the partnership’s
excludes one or more partners from the share of P/L, debts and obligations.
only the stipulation is void.
PERPETUAL EXISTENCE
Article 1768  Can continue to exist even if there are changes in the
“ The partnership has a juridical personality separate and distinct composition of its partners. The death, withdrawal, or
from that of each of the partners, even in case of failure to comply addition of partners does not necessarily result in the
with the requirements of article 1772, first paragraph. “ dissolution of the partnership.
 Partnership has own/separate identity
 He can enter contracts and do business in its name. TAXATION
 He can file cases against person who injured partnership  May have its own tax identification number and be subject
to specific tax regulations
CONSEQUENCES OF BEING A JURIDICAL PERSON
LEGAL CAPACITY
 Can sue and be sued
 Can engage in various legal transactions, including buying
 Acquire any kind of property
and selling assets, leasing property, and borrowing money,
 Insolvency of a partnership does not mean that the partners
without requiring individual partners to act on its behalf.
themselves are insolvent.

PARTNERSHIP AS A JURIDICAL PERSON AND ITS Article 1769

IMPLICATIONS “In determining whether a partnership exists, these rules shall
 A partnership has a juridical personality which is separate and apply:
distinct from that of the partners
 A partnership may sue and can be sued in its name or by its I. Except as provided by article 1825, persons who are not
duly authorized representatives. partners as to each other are not partners as to third persons;

LEGAL ENTITY II. Co-ownership or co-possession does not of itself establish a

partnership, whether such co-owners or co-possessions do or
 Can enter into contracts, own property, and engage in legal
do not share any profits made by the use of the property;
activities. It has the capacity to sue and be sued in its own
name. This allows the partnership to conduct business,
hold assets, and incur liabilities independently of its III. The sharing of gross returns does not itself establish a
individual partners partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which
LIMITED LIABILITY the returns are derived;
 It can provide limited liability protection to its individual
partners. This means that the personal assets of the IV. The receipt by a person of a share of the profits of a business is
prima facie evidence that he is a partner in the business, but
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no such inference shall be drawn if such profits were received into believing that the former are partners in a non-existing
in payment: partnership, such persons become subject to liabilities of
partners to all who, in good faith, deal with them in their
apparent relations.
o Ex. If A and B are not partners, but B enter to a business
with another person (C), C is not sure to be partner with
a. As a debt by installments or otherwise; B. But, B persuade C to be his partner, he says that A is
b. As wages of an employee or rent to a landlord; his partner in a partnership. But, in reality A and B are not
c. As an annuity to a widow or representative of a deceased partners. When A knows about it, he didn’t do anything.
partner; He just give a consent.
d. As interest on a loan, though the amount of payment vary
with the profits of the business; Even if A and B are not partners, as long as they
e. As the consideration for the sale of goodwill of a business represented themselves as partners to C, they are liable
or other property by installments or otherwise. to C.
RULES TO DETERMINE EXISTENCE OF PARTNERSHIP Co-ownership or Co-possession
 Where term of contract not clear  Art. 484 provides that co-ownership (or co-possession)
 Generally, all essential features and characteristics must be whenever the ownership (or possession) of undivided thing or
shown as being present right belongs to different persons
 Remember the difference
 Where existence disputed o Co-ownership of property does not itself establish
 May be disputed or questioned by an affected party existence of a partnership
 Factual matter (court decision) o But, “co-ownership” is an essential element of
partnership. Why? Because the property or assets you
Persons is not partner as to each other contributed to partnership, basically the partners are
 Partners who are partners as between themselves, are partners co-owners.
to 3rd persons  Profits must be derived from business operation or
undertaking to consider as a partnership. Such right P/L
The opposite, GENERALLY, is the same. must be shared as CO-OWNER of the business that makes
one a partner.
 Partnership, a matter of intention – persons who are partners o In co-ownership, even if there is a share of profits (ex. rent
in fact may not avoid the consequences of such relations.
of house, rent of rights, rent of land), you cannot consider
(cannot avoid responsibilities, liabilities, and so on
it as a partnership. Because, in partnership there is an
to the 3rd person from that relation)
business operation, where the profits came from.
 Partnership by estoppel – where persons by their acts,
Partnership distinguished from Co-ownership
consent, or representations have misled third persons or parties
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1. Creation - Co-ownership is generally created by operation of

law. Partnership, created by contract (expressed or implied)  The only property of the husband and wife before they married
is exclusive property, it’s a separate properties. But, the fruits
of that property will be part of the community property, they
2. Juridical personality – Partners has a juridical personality become both owners of the fruits of property.
separate and distinct from that of each partner. In CO, none.
1. Parties
3. Purpose – partnership, realization of profit through conducting
a business operation. CO, common enjoyment of undivided
thing or right. 2. Laws which govern
 Partnership governs by article of partnership with the
4. Duration – partnership has no limitation. Co, no agreement for limitations provided by the law. CPG is an incidence of
more than 10 years. marriage, and under of Family Code.

5. Disposal interest – in partnership, partners can only dispose to 3. Juridical personality

an assignee to make him a partner with the agreement from  Partnership have juridical personality.
other partners. In CO, freely.
4. Commencement
6. Power to act with third person – in partnership, unless to the  A partnership can commence upon the execution of a contract,
contrary, a partner may bind the partnership. In CO, it only unless otherwise stipulated. In CPG, when they married.
binds the co-owner, not the other co-owners.

7. Effect of death – in partnership, the death of a partner/s will 5. Purpose

dissolve the partnership. In CO, not necessarily dissolve.  Purpose of partnership is to conduct a business operation to
gain profits and divide the profits among themselves. CPG to
govern the property between the husband and wife.

Partnership distinguished from conjugal partnership of gains 6. Distributions of profits

 In Art. 106, Family Code, “Conjugal partnership of gains is a  Any agreement of partnership or anything that the law said. In
partnership formed by marriage of husband and wife by virtue CPG, husband and wife needs to share equally.
of which, they place in a common fund the fruits and income
from their separate properties and those acquired through their 7. Management
efforts or by chance, and unless otherwise agreed in the  In partnership the partners can manage the partnership, unless
marriage settlements, divide equally, upon the dissolution of the there is assigned managing partner. In CPG, equally governing
marriage or the partnership, the net gains or benefits obtained the husband and wife. When there is a dispute between the
by either or both of them during marriage.”
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husband and wife in management, the decision of husband will

followed. Effects of an unlawful partnership
1. The contract is void ab initio (no legal existence at the very
8. Disposition of shares beginning) and the partnership never existed in the eyes of
 In CPG, when the marriage is dissolved, the husband and wife the law.
will divided equally the shares.
Partnership distinguished from voluntary associations 2. The profits shall be confiscated in favor of the government.
(organized for social purposes)
1. Juridical personality 3. The instrument or tools and proceeds of the crime shall also
 partnership has juridical personality be forfeited in favor of the government.

2. Purpose 4. The contributions of the partners shall not be confiscated

 Voluntary associations anything they want to do unless they fall under No. 3.

3. Contributions of member
 In partnership, the contribution is common fund (money, Article 1771
property or industry). In VA, has no contribution. “A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which
4. Liability case a public instrument shall be necessary.”
 Generally, in partnership, the first one that is charge for Article 1772
liability is the partnership. When the partnership has no “Every contract of partnership having capital of three thousand
property, partners are the one who is liable. In VA, the pesos or more, in money or property, shall appear in a public
members of VA are the one who is liable. instrument, which must be recorded in the Office of Securities and
Exchange Commission.
Article 1770
“A partnership must have a lawful object or purpose, and must be Failure to comply with the requirements of the preceding paragraph
established for a common benefit or interest of the partners. shall not affect the liability of the partnership and the member
thereof to third persons.”
When an unlawful partnership is dissolved by a juridical decree, the
profits shall be confiscated in favor of the State, without prejudice to Two requirements where the capital is P3,000 or more (money or
provisions of the Penal Code governing the confiscations of the property:
instruments and effects of a crime.” 1. Contract must be appear in public instruments
2. Must be recorded or registered with the SEC.
Two points from the first paragraph
1. Legality of the objects Take note, noncompliance of such does not prevent partnership
2. Community of benefit or interest of the partner formation or affect the liabilities to 3rd person parties. (Partner can
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compel, as long as it’s not void, to execute the contract in public Article 1775
instrument) “Associations and societies, whose articles are kept secret among the
What’s the point of registering? members, and wherein any one of the members may contract in his
 To make the recorded instrument open to all and to give notice own name with third persons, shall have no juridical personality, and
thereof to interested parties. (And also, Tax compliance) shall be governed by the provisions relating to co-ownership.”
 To announce to the public about the existence of the contract
of partnership. Article 1776
“As to its object, a partnership is either universal or particular.

Article 1773 As regards the liability of the partners, a partnership may be general
“A contract of partnership is void, whenever immovable property is or limited.”
contributed, if an inventory of said property is not made, signed by
the parties, and attached to the public instruments.”

If there is an immovable property that contributed, follow the

requirements if you don’t want the partnership contract to be CLASSIFICATION OF PARTNERSHIP
void: 1. As to extent of its subject matter
1. The contract must be in a public instrument a. Universal Partnership (or which refers to all the present
2. An inventory of the property contributed must be made, property or to all profits)
signed by the parties, and attached to the public instrument. i. Universal partnership of all present property
(defined in Art. 1778); and
What is the purpose of these requirements? ii. Universal partnership of profits (defined in Art.
 Intended primarily to protect third persons. 1780)

b. Particular Partnership (Art. 1783)

Article 1774
“Any immovable property or an interest therein may be acquired in 2. As to liability of the partner:
the partnership name. Title so acquired can be conveyed only in the a. General Partnership (pro rata and subsidiarily, sometimes
partnership name.” solidarity etc.
b. Limited Partnership (one or more general partners and one
 Partners has an own identity. They have the right to own the or more limited partners)
property. 3. As to its duration
a. Partnership at will
b. Partnership with a fixed term
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4. As to the legality of its existence 3. General partner – either capitalist and or industrial, liability to
a. De jure partnership (complied with all legal requirements) 3rd persons extend to his/her separate property (when the assets
b. De facto (failed to comply with all the legal requirements, of a partnership is insufficient to pay for the liabilities, general
but it’s still performing its activities as if it’s a legit partners are the one who is liable)
partnership.)
4. Limited partner – liability to 3rd persons is limited to capital
5. As to representation to other contribution
a. Ordinary or real partnership – actually exists among the PROS: limited liability to the 3rd persons
partners and to3td person CONS: have no right to manage/control or give his insight the
business operation of the partnership
b. Ostensible partnership or partnership by estoppel – in
reality not a partnership, but considered a partnership only 5. Managing partner – manages the business affairs
in relation to those who by their own conduct or
admission, are precluded to deny or disprove its 6. Liquidating partner – take charge of winding affairs (if the
experience. partnership dissolve)

7. Partners by estopped -not really a partner but liable as a

6. As to publicity partner for the protection of 3rd person.
a. Secret partnership – existence of some partners not known to
the public 8. Continuing partner – continues the business after dissolution
b. Open or notorious partnership – known to the public (take note, just because the partnership is dissolved, that’s not
mean the partnership is liquidated or the business operation
7. As to purpose will end)
a. Commercial or trading partnership – formed for business
transaction 9. Surviving partner – remaining partner after partnership
b. Professional or non-trading partnership – formed for the dissolved due to death of one
exercise of the profession.
10. Sub-partner – not member of the partnership, contracts with a
KINDS OF PARTNERS legit partner with reference to the latter’s share in the
Under the Civil Code: relationship.
1. Capitalist partner – contributes money or property

2. Industrial partner – contributes only his industry or personal OTHER CLASSIFICATIOS:

service 1. Ostensible partner – takes active part and known to the
public (does not matter if an actual partner. If not actual
partner, liable by doctrine estoppel.)
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A stipulation for the common enjoyment of any other profits may also
2. Secret partner – takes active part but not publicly known be made; but the property which the partners may acquire
subsequently by inheritance, legacy, or donation cannot be included
3. Silent partner – does not take active part, known to be a in such stipulation, except the fruits thereof.”
partner
Article 1777, 1778, 1779 (explanation)
4. Dormant partner – does not take active part, unknown to the Universal partnership of all present property
public  One in which the partners contribute all the properties which
actually belong to each of them at the time of the constitution
5. Original partner – member from the formation of the partnership to a common fund, with the intention of
avoiding the same among themselves as well as the profits
6. Incoming partner – about to be taken to the partnership which they may acquire therewith.

7. Retiring partner – withdrawing partner The ff. become the common property of the partners:
1. Property which belonged to each of them at the time of the
constitution of the partnership, and
Article 1777 2. Profits which they may acquire from the property contributed
“A universal partnership may refer to all the present property or to
all the profits.” Contribution of Future Property
 General rule, future properties cannot be contributed:
i. Inheritance
ii. Legacy
Article 1778 iii. Donation
“A partnership of all present property is that in which the partners
contribute all the property which actually belongs to them to a
 Their fruits are exception
common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire  Reason: determinate thing
therewith.”
Article 1780
“A universal partnership of profits comprises all the partners may
Article 1779 acquire by their industry or work during the existence of the
“In a universal partnership of all present property, the property partnership.
which belonged to each of the partners at the time of constitution of
the partnership, becomes the common property of all the partners, as Movable or immovable property which each of the partners may
well as all the profits which they may acquire therewith. possess at the time of the celebration of the contract shall continue to
pertain exclusively to each, only the usufruct (right to use/enjoy)
passing to the partnership.”
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“A particular partnership has for its object determinate things, their

Universal partnership of profits use of fruits, or specific undertaking, or the exercise of a profession
It comprises all that the partners may acquire by their industry or or vocation. (1678)”
work during the existence of the partnership and the usufruct of
movable or immovable property which each of the partners may What is a Particular Partnership?
possess at the time of the celebration of the contract.  Basically, a partnership which is neither a universal partnership
1. Ownership of present and future property of present property nor a universal partnership of profits
2. Profits acquired through chance  Sample, General Professional Partnership
3. Fruits of property subsequently acquired
Chapter 2 : Section 1 - Obligations of the
Article 1781
“Articles of universal partnership, entered into without specification Partners among Themselves
of its nature, only constitute a universal partnership of profits.
(1678)” less liabilities, less responsibilities Article 1784
“A partnership begins from the moment of the execution of the
Article 1782 contract unless it is otherwise stipulated. (1679)”
“Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership. (1677)” Executory contract – not yet fulfilled or partially fulfilled
Executed contract – already executed, fulfillment of obligations
Why is it prohibited?
 Contribution that happens in partnership is like DONATION Future Partnership – partners agreed that they will create a
TN: only in Universal Partnership is not allowed, hence in Particular partnership that will form in the future. (Art. 1782)
Partnership is allowed Article 1785
“When a partnership for a fixed term or particular undertaking is
Addition TN: continued after the termination of such term or particular
 Art. 87 provides prohibition of donation between spouses, undertaking without any express agreement, the rights and duties of
except moderate gifts the partners remain the same as they were at such termination, so far
 Art. 739 provides the following donations that is void as is consistent with a partnership at will.
 Between persons guilty of adultery (husband) or
concubinage (wife) when the donation was made A continuation of the business by the partners or such of them as
 Between persons found guilty of the same criminal offense habitually acted therein during the term, without any settlement or
 Made to a public officer or his wife, descendants and liquidation of the partnership affairs, is prima facie evidence ( upon
initial examination, a legal claim has sufficient evidence to proceed to trial
ascendants by reason of his office (bribery or extortion)
or judgment) of continuation of the partnership.”

Article 1783 Fixed Term – expressed agreement when the partnership will end
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Particular Undertaking – implied agreement when the partnership

will end if the project is done. e. To indemnify partnership for any damage caused to it by the
retention of the same or by the day in its contribution (Art.
Article 1786 1788, 1170)
“Every partner is a debtor (owes the money) of the partnership for
whatever he may have promised to contribute thereto.
Summary: The partner should properly contribute or comply with the
He shall also be bound for warranty in case of eviction with regard contribution to the common fund so that he does not get caught up
to specific and determinate things which he may have contributed to with his liabilities.
the partnership, in the same cases and in the same manner as the Effects of failure to contribute property promised:
vendor is bound with respect to the vendee. He shall also be liable
for the fruits thereof from the time they should have been delivered, 1. Partners becomes ipso jure (by the law itself) a debtor of the
without the need of any demand. (1681)” partnership even in the absence of any demand (Art. 1169)

Eviction – a judicial process where there is a final judgment from 2. Remedy of the other is not rescission but specific performance
that judicial/court with damages from defaulting partner (Art. 1788)
Ex. The vendor did not fulfill his obligation properly under their
agreement on onerous contract (give something to procure another thing)
with the vendee.

Obligations with respect to the contribution of property:

a. To contribute at the beginning of the partnership or at the
stipulated time the money, property, or industry which he may
have promised to contribute (Art. 1786) Article 1787
“When the capital or a part thereof which a partner is bound to
b. To answer for eviction in case the partnership is deprived of the
determinate property contributed (Art. 1786) contribute consists of goods, their appraisal must be made in the
manner prescribed in the contract of partnership and in the absence
c. To answer to the partnership for the fruits of the property the of stipulation, it shall be made by experts chosen by the partners, and
contribution of which he delayed, from the date they should according to current prices, the subsequent changes therof being for
have been contributed up to the time of actual delivery (Art. account of the partnership.”
1786)

d. To preserve said property with the diligence of a good father of Appraisal of goods and or property contributed:
a family (a care that an average person would do in taking care of his
property) pending delivery to partnership (Art. 1163)
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1. The appraisal of the value of the goods contributed is necessary 1. To contribute on the date fixed the amount he has undertaken to
to determinate how much has been contributed by the partner. contribute to the partnership
a. Absence of stipulation, share is P/L is in proportion to what
he may have contributed (Orig. Beginning Capital) 2. To reimburse any amount he may have taken from the
partnership coffers and converted to his own use
b. Appraisal first as to what was agreed by the partners; second,
experts chosen by the partners and according to current 3. To pay for the agreed or legal interest, if he fails to pay his
prices (fair value of their contributed assets) contribution on time or in case he takes any amount from the
common fund and converts it to his own use
c. After the goods have been contributed, the partnership bears
the risk of benefit of subsequent changes in value. 4. To indemnify the partnership for the damages cause to it by
delay in the contribution or conversion of any sum for his
2. In case of immovable property, appraisal is made in the personal benefits.
inventory of said property (partner’s agreement). If none, then-
current prices again as determined by an expert (a.k.a. FAIR  Accrual Liability – at the time he should have contributed and he
VALUE) did not pay from that moment his liability will accrue

 Justification for Double Responsibility – is it excepted because

Article 1788
“A partner who has undertaken to contribute a sum of money and Article 1789
fails to do so becomes a debtor for the interest and damages from the
“An industrial partner cannot engage in business for himself, unless
time he should have complied with his obligation (he became a
the partnership expressly permits him to do so; and if he should do
debtor because he must contribute)
so, the capitalist partners may either exclude him from the firm or
The same rule applies to any amount he may have taken from the avail themselves of the benefits which may have obtained in violation
partnership coffers, and his liability shall begin from the time he of this provision, with a right to damages in either case.”
converted the amount to his own use (he became a debtor because he
Prohibition against engaging in competitive business
borrowed from the partnership). (1682)
Industrial Partner

 Cannot engage in business (w/n same line of business with the

partnership) unless partnership expressly permits him to do so.
Obligations with respect to contribution of money and money
converted to personal use: Capitalist Partner
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 Cannot engage in business (with same kind of business with the b. The majority of the capitalist partners are of the opinion that an
partnership) for his own account, unless there is a stipulation to additional contribution to the common fund would save the
the contrary (Art. 1808) business

CONSEQUENCES IF AN INDUSTRIAL PARTNER ENGAGES c. The capitalist partner refuses deliberately to contribute (not due
IN ANY BUSINESS: (Art. 1789) to financial inability)
1. He can be excluded from the partnership; or
2. The capitalist partners can avail of the benefits they obtained d. There is no agreement to the contrary
from the business
Article 1792
In either case, the capitalist partners have the right to file an action
“If a partner authorized to manage (managing partner) collects a
for damages against the industrial partner.
demandable sum which was owed him in his own name, from person
who owed the partnership another sum also demandable, the sum
Article 1790 thus collected shall be applied to the two credits in proportion to
“Unless there is a stipulation to the contrary, the partners shall their amounts, even though he may have given a receipt for his own
contribute equal shares to the capital of the partnership.” credit only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to the latter.
Article 1791
“If there is no agreement to the contrary, in case of an imminent loss The provisions of this article are understood to be without prejudice
of the partnership, any partner who refuses to contribute an to the right granted to the other debtor by article 1252, but only if
additional share to the capital, except an industrial partner, to save the personal credit of the partner should be more onerous to him.
the venture, shall be obliged to sell his interest to the other (1684)”
partners.”
Obligation of managing partners who collect debts from a person
Partners (capitalist) must contribute additional capital in case of who also owed the partnership (Art. 1792)
imminent loss to the business of the partnership and there is no a. Apply the sum collected to 2 credits in proportion to their
stipulation otherwise; refusal to do so shall create an obligation on amounts
his part to sell his interest to the other partners.
b. If he received it for the account of the partnership, the whole sum
shall be applied to partnership credit
Requisites for the rule to apply:
a. There is an imminent loss of the business of the partnership
Requisites:
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a. There exists at least 2 debts, one where the collecting partner

is the creditor and the other; where the partnership is the Article 1794
creditor “Every partner is responsible to the partnership for damages
suffered by it through his fault, and he cannot compensate them with
b. Both debts are demandable the profits and benefits which he may have earned for the
partnership by his industry. However, the courts may equitably lessen
c. The partner who collects is authorized to manage and this responsibility if through the partner’s extraordinary efforts in
actually manages the partnership other activities of the partnership, unusual profits have been realized.
(1686a)”

General Rule: Any person guilty of negligence or fault in the

fulfillment of his obligations (partner), shall be liable for damages
(Art. 1170)
Article 1793
“A partner who has received, in whole or in part, his share of a
Compensation of damages with profits earned for partnership by
partnership credit, when the other partners have not collected theirs,
guilty partner.
shall be obliged, if the debtor should thereafter become insolvent, to
1. Damages not generally subject to set-off
bring to the partnership capital what he received even though he may
 Obligation to secure benefits to the partnership
have given receipt for his shar only. (1685a)”
 Should have exercise due diligence
Obligation of partner who receives share of partnership credit
2. Exception – if unusual profits are realized through the
 Obliged to bring to the partnership capital what he has received
extraordinary efforts of the partner at fault, the courts are
even though he may have given for his share only (Art. 1793)
authorized by law to mitigate or lessen his liability (rule on
equity)
Requisites for application rule:
a. A partner has received in whole or in part, his share of the
partnership credit Article 1795
“The risk of specific and determinate things, which are not fungible,
b. The other partners have not collected their shares contributed to the partnership so that only their use and fruits may
be for the common benefit, shall be borne by the partner who owns
them.
c. The partnership debtor has become insolvent

If the things contributed are fungible, or cannot be kept without

deteriorating, or if they were contributed to be sold, the risk shall be
 15

borne by the partnership. In the absence of stipulation, the risk of contracted in good faith in the interest of the partnership business,
things brought and appraised in the inventory, shall also be borne by and for risks in consequence of its management. (1688a)
the partnership, and in such case the claim shall be limited to the
value at which they were appraised. (1687)” In the absence of any stipulation, every partner is an agent of the
partnership for the purpose of its business.

BEARING THE RISK OF LOSS OF THINGS CONTRIBUTED RESPONSIBILITY OF PARTNERSHIP TO PARTNERS

1. To refund the amounts disbursed by partner in behalf of the
Specific and determinate things Risk is borne by partner partnership + corresponding interest from the time the expenses
which are not fungible where are made (loans and advances made by a partner to the
only the use is contributed partnership aside from capital contribution)

2. To answer for obligations partner may have contracted in good

faith in the interest of the partnership business
Specific and determinate things Risk is borne by partnership
the ownership of which is 3. To answer for risks in consequences of its management
transferred to the partnership

Fungible Things (consumable) Risk is borne by a partnership Article 1797

“The losses and profits shall be distributed in conformity with the
Things contributed to be sold Risk is borne by a partnership agreement. If only the share of each partner in the profits as been
agreed upon, the share of each in the losses shall be in the same
Things brought and appraised Risk is borne by a partnership proportion.
in the inventory
In the absence of stipulation, the share of each partner in the profits
Specific and determinate things Risk is borne by a partner and losses shall be in proportion to what he may have contributed,
which are not fungible where but the industrial partner shall not be liable for the losses. As for the
only the use is contributed profits, the industrial partner shall receive such share as may be just
and equitable under circumstances. If besides his service he has
contributed capital, he shall also receive a share in the profits in
proportion to his capital. (1689a)
Article 1796
“The partnership shall be responsible to every partner for the RULES FOR DISTRIBUTION OF PROFITS AND LOSSES
amounts he may have disbursed on behalf of the partnership and for PROFITS LOSSES
the corresponding interest, from the time the expense are made; it WITH ACCORDING TO ACCORDING TO
shall also answer to each partner for the obligations he may have AGREEMEN AGREEMENT AGREEMENT
T
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WITHOUT 1. Share of 1. If sharing of

AGREEMEN capitalist profits is
T partner is in stipulated- apply Article 1800
proportion to to sharing of “The partner who has been appointed manager in the articles of
his capital losses partnership may execute all acts of administration despite the
contribution opposition of his partners, unless he should act in bad faith; and his
2. If no profit power is irrevocable without just or lawful cause. The vote of the
2. Share of sharing is partners representing the controlling interest shall be necessary for
industrial stipulated – such revocation of power.
partner is not losses shall be
fixed – as may borne according A power granted after the partnership has been constituted may be
be just and to capital revoked at any time. (1692a)”
equitable under contribution
the Two types of Managing Partner
circumstances 3. Purely industrial 1. Partner is appointed manager in the articles of partnership
partner liable for  power of managing partner is irrevocable without just/lawful
losses cause: Revocable only when in bad faith.

 Vote of partners representing controlling interest necessary to

Article 1798 revoke power
“If the partners have agreed to intrust to a third person the
designation of the share of each one in the profits and losses, such 2. Partner is appointed manager after constitution of partnership
designation may be impugned only when it is manifestly inequitable.  Power is revocable any time for any cause
In no case may a partner who has begun to execute the decision of
the third person, or who has not impugned the same within a period  Vote of partners representing controlling interest necessary to
of three months from the time he had knowledge thereof, complain of revoke power
such decision.
Article 1801
“If two or more partners have been intrusted with the management of
The designation of losses and profits cannot be intrusted to one of
the partnership without specification of their respective duties, or
the partners. (1690)
without a stipulation that one of them shall not act without the
consent of all the others, each one may separately execute all acts of
Article 1799 administration, but If any of them should oppose the acts of the
“A stipulation which includes one or more partners from any share others, the decision of the majority shall prevail. In case of a tie, the
in the profits or losses s void. (1691)” matter shall be decided by
The partners owning the controlling interest. (1639a)”
 17

2 or more persons entrusted with management of partnership prejudicial to the interest of the partnership, the court’s
without specification of duties/stipulation that each shall not act intervention may be sought. (1695a)
w/o the other’s consent Manner of management not agreed upon
 Each may execute all acts of administration 1. All partners are agents of the partnership
 In case of oppositions, decision of majority shall prevail (per 2. Unanimous consent required for alteration of immovable
managing head): In case of tie, decision of partners owning property
controlling interest shall prevail (all partners)
 If refusal of partner is manifestly prejudicial to interest of
Article 1802 partnership, court’s intervention may be sought.
“In case it should have been stipulated that none of the managing
partners shall act without the consent of the others, the concurrence Article 1804
of all shall be necessary for the validity of the acts, and the absence “Every partner may associate another person with him in his share,
or disability of any one of them cannot be alleged, unless there is but the associate shall not be admitted into the partnership without
imminent danger of grave or irreparable injury to the partnership. the consent of all the partner, even if the partner having an associate
(1694)” should be a manager. (1696)”

Stipulated that none of the managing partners shall act w/o the Subpartner
consent of others
 Concurrence of all necessary for the validity of acts Article 1805
 Absence or disability of any one cannot be alleged unless there is “The partnership books shall be kept, subject to any agreement
imminent danger of grave or irreparable injury to partnership between the partners, at the principal place of business of the
(unanimous decision/agreement) partnership, and every partner shall at any reasonable hour have
access to and may inspect and copy any of them.”
Article 1803
“When the manner of management has not been agreed upon, the Partners can inspect the books for partnership purposes.
following rules shall be observed: Article 1806
“Partners shall render on demand true and full information of all
(1) All the partners shall be considered agents and whatever any things affecting the partnership to any partner or the legal
one of them may do alone shall bind the partnership, without representative of any deceased partner of any partner under legal
prejudice to the provisions of article 1801 disability.”

(2) None of the partners may, without consent of the others, Article 1807
make any important alteration in the immovable property of “Every partner must account to the partnership for any benefit, and
the partnership, even if may be useful to the partnership. But hold as trustee for it any profits derived by without the consent of the
if the refusal of consent by the other partners is manifestly other partners from any transaction connected with the formation,
 18

conduct, or liquidation of the partnership or from any use by him of

its property.” (3) As provided by Article 1807
(4) Whenever other circumstances render it just and
Partners accountable as fiduciary (relationship based on trust) reasonable.”
1. Duty to act for common benefit
2. Duty to account for secret and similar profits
3. Duty to make full disclosure of information affecting A formal account is a necessary incident to the dissolution of a
partnership partnership.

Right of partner to formal account

Article 1808
1. General Rule: During the existence of the partnership, a
“The capitalist partner cannot engage for their own account in any
partner is not entitled to formal account of partnership affair.
operation which is of the kind of business in which partnership is
Reasons, Art 1805 and 1806, plus it is inconvenient and
engaged, unless there is stipulation to the contrary.
waste of time
Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions, and
2. Exception na pwedeng magformal accounting kahit hindi pa
shall personally bear all the losses.”
dissolution is Art 1809
CONSEQUENCES IF THE CAPITALIST PARTNER
ENGAGES IN A BUSINESS (which competes with the business of
the partnership): SECTION 2 – PROPERTY RIGHTS OF A
1. He may be required to bring the common fund the profits he PARTNER
derived from the other business;
Article 1810
2. He shall personally bear the losses; “The property rights of a partner are:
(1) His rights in specific partnership property;
3. He may ousted form the partnership, especially if there is a (2) His interest in the partnership; and
warning (3) His right to participate in the management”

Article 1809 Extent of property rights of a partner

“Any partner shall have the right to a formal account as to
partnership affairs: 1. Principal rights
(1) If he is wrongfully excluded from the partnership business a. His rights in specific partnership property
or possession of its property by his co-partners; b. His interest in the partnership
c. His right to participate in the management
(2) If the right exists under the terms of any agreement;
 19

VALUE INCLUDED
PARTNERSHIP Value may vary Orig capital
2. Related rights PROPERTY contributions and
a. Right to reimbursement for amounts advanced to the subsequent
partnership and to indemnification for risks in acquisition
consequence of management
PARTNERSHIP Fixed by agreement Aggregate of the
CAPITAL (owner’s individual
b. Right of access and inspection of partnership books equity) contributions

c. Right to true and full information of all things affecting

the partnership Article 1811
“A partner is co-owner with his partners of specific partnership
d. Right to a formal account of partnership affair under property. The incidents of this co-ownership are such that:
certain circumstances (1) A partner, subject to the provisions of this Title and
agreement between the partners, has an equal right with
e. The right to have the partnership dissolved also under his partners to possess specific partnership property for
certain conditions partnership purposes; but he has no right to possess such
property for any other purposes without the consent of his
partners;
Ownership of Certain Property
1. Property used by the partnership – intent of the parties is (2) A partner’s right in specific partnership property is not
controlling factor assignable except in connection with the assignment of
rights of all partners in the same property;
2. Property acquired by a partner with partnership fund – unless a
(3) A partner’s right in specific partnership property is not
contrary intention appears, it is partnership property
subject to attachment or execution, except on a claim
against the partnership. When partnership property is
3. Property carried in partnership asset – to partnership
attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner, cannot
4. Other factors tending to indicate property ownership – it
claim any right under the homestead or exemption laws;
depends
(4) A partner’s right in specific partnership property is not
CHANGES IN ASSETS subject to legal support under article 291.”
 20

Article 1813
Nature of Partner’s Right in Specific Partnership Property
“A conveyance by a partner of his whole interest in the partnership
 A partner is a co-owner with his partners of specific does not of itself dissolve the partnership, or, as against the other
partnership property (Partnership is not a co-ownership) partners in the absence of agreement, entitle the assignee, during the
 The rules on co-ownership do not necessarily apply (co- continuance of the partnership, to interfere in the management or
ownership is an essential characteristic of partnership) administration of the partnership business or affairs, or to require
any information or account of partnership transactions, or to inspect
1. Equal right of possession of the property for partnership the partnership books; but it merely entitles the assignee to receive in
purposes accordance with his contract the profits which the assigning partner
would otherwise be entitled. However, in case of fraud in the
2. Assignment of right to the property – individual co-ownership management of the partnership, the assignee may avail himself of the
right bawal, if lahat sila pwede usual remedies.

3. Attachment or Execution – claim on partnership, bawal. Claim In case of dissolution of the partnership, the assignee is entitled to
on partnership, pwede. receive his assignor’s interest and may require an account from the
date only of the last account agree to by all the partner.”
4. Legal support – Art. 195 of family code
Effect of Assignment of Partner’s Whole Interest in Partnership
 Partnership interest of partner can be assign
1. Rights withheld from assignee
Article 1812 a. To interfere in the management
“A partner’s interest in the partnership is his share of the profits and b. To acquire any information or account
surplus.” c. To inspect any of the partnership books
(DELECTUS PERSONAE) consent of a person to be
Nature of Partner’s Interest in the Partnership
associated with someone
1. Share of the profits and surplus
 Profits – net income 2. Status and rights of assignor in partnership unaffected
 Surplus – excess of assets over liabilities  SUBPARTNERSHIP is the legal effect (Art. 1804)

2. Extent of partner’s interest

 Account muna sa debts and credits bago malaman ang extent
of share
 Sa liquidation rin malalaman natin
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Rights of Assignee of Partner’s Interest (2) With partnership property, by any one or more of the
partners with the consent of all the partners who interest
1. To receive in accordance with his contract the profits
are not so charged or sold.
accruing to the assigning partner

2. To avail himself of the usual remedies provided by law in the Nothing in this title shall be held to deprive a partner of his right, if
event of fraud in the management any, under the exemption laws, as regards his interest in the
partnership.”
3. To receive the assignor’s interest in case of dissolution

4. To require an account of partnership affair (but only in cases

the partnership is dissolved)
SECTION 3 – OBLIGATIONS OF THE
Article 1814 PARTNERS WITH REGARD TO THIRD
“Without prejudice to preferred rights of partnership creditors under PERSON
article 1827, on due application to a competent court by any
judgement creditor of a partner, the court which entered the Article 1815
judgement, or any other court, may charge interest of the debtor
“Every partnership shall operate under a firm name, which may or
partner with payment of the unsatisfied amount of such judgement
may not include the name of one or more of the partners.
debt with interest thereon; and may then later appoint a receiver of
his share of the profits, and of any other money due or to fall due to
Thos who, not being members of the partnership, include their names
him in respect of the partnership, and make all orders, directions,
in the firm name, shall be subject to the liability of a partner.”
accounts and inquiries which debtor partner might have made, or
which the circumstances of the case may require.
FIRM
 Defined as the name, title, or style under which company
The interest charged may be redeemed at any time before
transacts business; a partnership of two or more persons; a
foreclosure, or in case of a sale being directed by the court, may be
commercial house
purchased without thereby causing dissolution:
(1) With separate property, by any one or more of the partners;
Why?
or
 To distinguish the partnership which has a distinct and
separate juridical personality
 22

 A partner may assume a separate undertaking in his name to

Rights of Partners to Choose a Firm Name perform a partnership contract with a third person
1. Use of misleading name
 May adopt any name it wishes as long as it is not identical  Make himself solidarily liable to a partnership contract
with or deceptively similar to a name which was previously
adopted by any other entity, or interfere with the rights of Name of Individual Liability of Partners
others, or is contrary to law.  Liability of partnership, in substance, also the liability of the
partner.
2. Use of names of deceased partner 1. Pro rata – equally or jointly (not proportionately)
 Bawal, when you form a new partnership
2. Subsidiary or secondary – partners become liable only if the
Liability for Inclusion of Name in Firm Name partnership assets exhaust (unless a partner makes himself
 Does not acquire the rights of a partner solidarily liable to a partnership contract)
 But shall be subject to liability of a partner insofar as third
persons without notice
3. Liability of industrial partner – TN, it’s only on losses not
Article 1816 liable, not in the partnership liability. Unless otherwise
“All partner, including industrial ones, shall be liable pro rata with stipulated, it can reimburse by other capitalist partners
all their property and after all the partnership assets have been
exhausted, for the contracts which may be entered into the name and Article 1817
for the account of the partnership, under its signature and by a “Any stipulation against liability laid down in the preceding article
person authorized to act for the partnership. However, any partner shall be void, except as among the partners.”
may enter into separate obligation to perform a partnership
contract.”

Liability for Contractual Obligations of the Partnership

1. Partnership Liability
 General rule, a partner has the right to make all partners liable
for contracts he makes for the partnership in the name and for
the account of the partnership

2. Individual Liability
 23

Article 1820

Article 1821
 24

(2) Where the partnership in the course of its business receives

money or property of a third person and the money or
property so received is misapplied by any partner while it is
in the custody of the partnership.

Article 1824
All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823.

GR: The partners are merely PERSONALLY AND SUBSIDIARILY

liable

In the following cases, obligation is not pro-rata or equal, but a

solidary obligation. Any partner MAY pay for the obligation:
1. When by an unlawful act or omission, loss or injury is
caused to 3rd person.
Article 1822
2. A partner, within the scope of his authority, receives money
Where, by any wrongful act or omission of any partner acting in the or property from a third person and misapplies it. The
ordinary course of the business of the partnership or with the partnership, in its ordinary course of business, receives
authority of his co-partner, loss or injury is caused to any person, money or property from a 3rd person and a partner
not being a partner in the partnership, or any penalty is incurred, the misapplies it while in the custody of the partnership.
partnership is liable therefore to the same extent as the partner so
acting or omitting to act.
Article 1822 3 4 (explanation)
Liability Arising from Partner’s Wrongful Act or Omission, or
Breach of Trust
1. Solidarily Liability
 Whether innocent or guilty, all the partners are solidarily
Article 1823 liable with the partnership itself
The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent 2. Different from liability under Art. 1816
authority receives money or property of a third person and Article 1822 3 4 Article 1816
misapplies it; and Solidarily Liable Joint and Subsidiary Liable
 25

Civil liability of the partnership Liability from partnership

that arises from the wrongful liability (contractual obligation)
acts or omissions of any
partners

Article 1825

Article 1826

Article 1827
The creditors of the partnership shall be preferred to those of each
partner as regards the partnership property. Without prejudice to
this right, the private creditors of each partner may ask the
attachment and public sale of the share of the latter in the
partnership assets. (n)
26