(5) Commutative – because the

CHAPTER 1: GENERAL PROVISIONS undertaking of each of the partner is

PARTNERSHIP considered as the equivalent of that of
the others, depends on how the parties
➢ Definition: By the contract of partnership, agreed.
two or more persons bind themselves to (6) Principal – because it does not depend
contribute money, property, or industry to for its existence or validity upon some
a common fund, with the intention of other contract, and
dividing the profits among themselves (7) Preparatory – because it is entered into
as a means to an end, i.e., to engage in
➢ Explanation: business for the realization of profits with
- It is a type of business structure. the view of dividing them among the
- An association of two or more person contracting parties.
to carry on as co-owners as business
for profit. ELEMENTS OF DELECTUS PERSONAE
- It is a legal relation based upon the
(1) Right to choose co-partners
expressed or implied agreement of
two or more competent persons - No one ca become a partner without
whereby they unite their property, the consent of all the other
associates.
labor, or skill in carrying on some
(2) Power to dissolve partnership
lawful business as principals for their
- Mutual agency arises and the
joint profits.
doctrine of delectus personae allows
- It is an entity, distinct, and apart from
them to have the power, although not
the members composing it. It is duly
necessarily the rights, to dissolve the
performed under the law, it is a
partnership but he must act in good
juridical person to which the law
faith.
grants a juridical personality separate
and distinct from that of each of the
ESSENTIAL FEATURES OF
partners. It may acquire and possess
PARTNERSHIP
property of all kinds, as well as incur
obligations and bring civil or criminal (1) There must be valid contract
actions in conformity with the laws - There must be at least two (2)
and regulations of its organization. competent parties to embody the
terms of association in a written
CHARACTERISTIC ELEMENTS OF document known as Articles of
PARTNERSHIP Partnership. Since it is contractual, all
(1) Consensual – because it is perfected by the requisites of valid contract must
mere consent, that is, upon the express be present, Consent, Object, Cause.
- Partnership is a form of voluntary
or implied agreement of two or more
association entered into by the
persons.
associates. It is a personal relation in
(2) Nominate – because it has a special
which the element of delectus
name or designation in our law. It has a
personae exists. No one can become
name itself
a member of the partnership
(3) Bilateral – because it is entered into by
association without the consent of all
two or more persons and the rights and
the other associates.
obligations arising therefrom are always
reciprocal. Parties has likewise duties
(2) The parties must have legal capacity
and obligations
to enter into the contract
(4) Onerous – because each of the parties
- Before there can be a valid contract of
aspires to procure for himself a benefit
partnership, it is essential that the
through the giving of something
contracting parties have the

1
 necessary legal capacity to enter into RULES TO DETERMINE EXISTENCE OF
the contract. Hence, PARTNERSHIP (ART.1769)

a) unemancipated minors, (1) Except as provided by Article 1825,

b) insane or demented persons, persons who are not partners as to
c) deaf-mutes who do not know each other are not partners as to third
how to write persons.
d) persons suffering civil - If they are not partners as between
interdiction themselves, they cannot be partners
e) incompetents who are under as to third persons.
guardianship. - Exception: PARNERSHIP BY
ESTOPPEL, where persons by their
- cannot give their consent to a contract acts, consent, or representations
of partnership have misled third persons or parties
into believing that the former are
(3) There must be a mutual contribution partners in a non-existing partnership,
of money, property, or industry to a such persons become subject to
common fund. liabilities of partners to all who, in
- The partners must contribute money, good faith, deal with them in their
property, and/or industry or services apparent relations.
to the common business. It may be in
the form of money, referring to (2) Co-ownership or co-possession does
currency which is legal tender in the not of itself establish a partnership,
Philippines. Property, all kinds of whether such co-owners or co-
property, either real or personal, possessors do or do not share any
tangible or intangible. And in the profits made by the use of the
absence of money or property, the property.
law permits the contribution of - Co-ownership does not itself
industry which means service or establish the partnership, although it
work. is an essential element., the profit
must be derived from the joint
(4) The object must be lawful ownership of the property and not
- It must not be contrary to law, morals, merely property ownership.
good customs, public order, or public
policy. The purpose of the partnership (3) The sharing of gross returns does not
must be lawful, otherwise no of itself establish a partnership,
partnership can arise. whether or not the persons sharing
them have a joint or common right or
(5) The purpose or primary purpose must interest in any property from which
be to obtain profits and to divide the the returns are derived.
same among the parties. - In partnership, it is not merely the
- There must be an intention to realize sharing of profits but also sharing of
and divide profits which is the very them as a co-owner of the business
reason for existence of partnership. that makes one a partner.
This element distinguishes the
contract of partnership from voluntary (4) The receipt by a person of a share of
religious or social organizations. the profits of a business is prima facie
evidence that he is a partner in the
business, but no such inference shall
be drawn if such profits were received
in payment: (a) as a debt by
installment (b) as wages of an

2
 employee or rent to a landlord (c) as CONJUGAL PARTNERSHIP OF GAINS
an annuity to a widow or
representative of a deceased partner ➢ Definition: A partnership formed by the
(d) as interest on a loan € as the marriage of husband and wife by virtue of
consideration for the sale of a which, they place a common fund the
goodwill of a business or other fruits and income form their separate
property by installment. properties and those acquired through
- The presumption that partnership their efforts or by chance, unless
arises from profit-sharing agreement. otherwise agreed in the marriage
An agreement to share both profit and settlement.
losses establish the existence of
Partnership Conjugal
partnership and lack of such
gains
agreement disprove its existence.
However, sharing of profits by a Parties Voluntary Future
person is not prima facie evidence agreement of spouses- A
that he is a partner in the business in two or more man and
the cases where profits were received partners woman
in payment: Law which stipulation By law
governs
Partnership Co-ownership Juridical Separate none
creation Created by Created by law personality personality
contract and exist without commence Begins from the On the date of
contract ment moment of the celebration of
Juridical Separate No juridical execution of the the marriage
personality juridical personality contract
personality Purpose Obtain profit Regulate the
purpose Realization of Common property
profits enjoyment of a relations of
thing or right husband and
duration No limit Keep the thing wife during
undivided for marriage
more than 10 Distributio Based on equally
years is not n of profits stipulation
allowed. Managem Manage equally The husband’s
Disposal Partner may May freely do so ent by all partners decisions
of interest not dispose of prevail
his individual Disposition Whole interest of Share of
interest unless of share a partner may be spouse cannot
agreed by other disposed be disposed of
partners without the during the
Power to A partner may Cannot consent of the marriage even
act with bind the represent the others with the
third partnership co-ownership consent of the
persons other
Effect of dissolution Does not
death dissolve the co-
ownership

3
TWO (2) ESSENTIAL ELEMENTS OF A illegal activity. If a partner's property was
CONTRACT OF PARTNERSHIP instrumental in committing the crime, it
may be forfeited.
(1) Legality of the object
- The partnership must be formed for a TWO (2) REQUIREMENTS WHERE THE
lawful purpose. If the business or CAPITAL OF THE PARTNERSHIP IS
activity it engages in is illegal (e.g., 3,000 OR MORE
smuggling, drug trade), the
partnership is void and has no legal (1) The contract must appear in a public
standing. instrument
(2) Community of benefit or interest of - The partnership agreement must be
the partners in writing and notarized to be legally
- The partners must agree to share in valid and enforceable. This ensures
the profits and losses of the transparency and provides legal proof
business. This mutual interest of the partnership’s existence.
ensures that all partners contribute (2) It must be recorded or registered with
toward and benefit from the success the Securities and Exchange
of the partnership, aligning their Commissions.
efforts toward a common goal. - The partnership must be formally
registered with the SEC to acquire
EFFECTS OF AN UNLAWFUL juridical personality, allowing it to
PARTNERSHIP transact business, enter into
contracts, and be recognized as a
(1) The contract is void ab initio, and the legal entity separate from its partners.
partnership never existed in the eyes
of the law. REQUIREMENTS WHERE IMMOVABLE
- The contract is considered null and PROPERTY IS CONTRIBUTED
void, meaning the partnership never
legally existed. It has no legal (1) The contract must be in a public
recognition or protection under the instrument
law. - The partnership agreement must be
(2) The profit shall be confiscated in favor in writing and notarized to ensure
of the government validity, provide public notice, and
- Any profits gained from the illegal protect the interests of all parties
activities of the partnership will be involved.
seized by the government, as they (2) An inventory of the property
are considered proceeds of an contributed must be made, signed by
unlawful enterprise. the parties, and attached to the public
(3) The instruments or tools and instrument.
proceeds of the crime shall also be - A detailed inventory of the
forfeited in favor of the government immovable property contributed
- Any tools, equipment, or assets used must be prepared, signed by all
to commit the illegal act, along with partners, and attached to the
any direct earnings from the crime, public instrument. This serves as
will also be confiscated by the proof of the property's inclusion in the
government. partnership and helps prevent
(4) The contributions of the partners shall disputes over ownership and
not be confiscated unless they fall valuation.
under No. 3
- The personal contributions of the
partners will not be confiscated unless
they were directly used in or linked to the

4
IMPORTANCE OF GIVING PUBLICITY (6) As to publicity
TO ARTICLES OF PARTNERHSIP a. Secret partnership – not known
b. Open or notorious partnership
- To give protection not only of the – existence is known to the public
members themselves but also third (7) As to purpose
persons. a. Commercial or trading partners
– one formed for the transaction of
CLASSIFICATIONS OF PARTNERSHIP business
(1) As to the extent of its subject matter b. Professional or non-trading
a. Universal Partnership – all partnership – to exercise of a
present property or to all profits profession.
b. Particular partnership – only
certain property is being KINDS OF PARTNERS
contributed (a) Capitalist partner – one who contributes
(2) As to liability of the partners money or property to the common fund
a. General partnership – partners (b) Industrial partner – one who contributes
are liable pro rata and subsidiarily only his industry or personal service
b. Limited partnership – a partner (c) General partner – whose liability to third
is not personally liable for the persons extends to his separate
obligations of the partnership, at property; he may either be a capitalist or
least one general partner is liable industrial partner
up to the extent of his personal (d) Limited partner – liability to third
property. persons is limited to his capital
(3) As to its duration contribution
a. Partnership at will – no time is (e) Managing partner – one who manages
specified and is not formed for a the affairs or business of the partnership,
particular undertaking or venture. real or general partner
b. Partnership with a fixed term – (f) Liquidating partner – one who takes
which the term for which the charge of the winding up of partnership
partnership is to exist is fixed or affairs upon dissolution
agreed upon or one formed for a (g) Partner by estoppel – who is not really
particular undertaking. a partner, not being a party to a
(4) As to legality of its existence partnership agreement, but is liable as a
a. De jure partnership – complied partner for the protection of innocent third
with all the legal requirements persons. He is one who represented as
b. De factor partnership – failed to being, in fact, a partner, but who is not so
comply as between the partners themselves.
(5) As to representation to others (h) Continuing partner – one who
a. Ordinary or real partnership – continues the business of a partnership
one which actually exists among after it has been dissolved by reason of
the partners and as to third the admission of a new partner, or the
persons retirement, death or expulsion of one or
b. Ostensible or partnership by more partner.
estoppel – one which in reality is (i) Surviving partner – one who remains
not a partnership, but is after a partnership has been dissolved by
considered a partnership only in the death of any partner.
relation to those who,, by their (j) Sub partner – one who, not being a
conduct, or admission, are member of the partnership, contracts
precluded to deny or disprove its with a partner with reference to the
existence. latter’s share in the partnership.

5
(k) Ostensible partner – one who takes according to the terms of their
active part and known to the public as a agreement. This type of partnership is
partner in the business, whether or not he typically formed when there is a high level
has an actual interest in the firm. Subject of trust among the partners, such as
to doctrine of estoppel between family members or long-term
(l) Secret partner – one who takes active business associates, since it involves
part in the business but is not known to complete sharing of all current assets.
be a partner by outside parties nor held
out as a partner by the other partners. UNIVERSAL PARTNERSHIP OF
(m) Silent Partner – one who does PROFITS
not take any active part in the business
although he may be known to be a ❖ Definition: One which comprises all that
partner. the partners may acquire by their industry
(n) Dormant partner – one who does not or work during the existence of the
take active part in the business and is not partnership and the usufruct of movable
known or held out as a partner. He is a or immovable property which each of the
silent and secret partner. partners may possess at the time of the
(o) Original partner – one who is a member celebration of the contract.
of the partnership from the time of its ➢ Explanation: The partners retain their
organization. ownership over their present and future
(p) Incoming partner – a person lately, or property. What pass to the partnership
about to be, taken into a partnership as a are the profits or income and the usufruct
member or use of the same. Profits acquired by
(q) Retiring partner – one withdrawn from chance such as lottery or lucrative title
the partnership. are not included. Fruits or property
subsequently acquired by the partners do
UNIVERSAL PARTNERSHIP OF ALL not belong to the partnership
PRESENT PROPERTY
PARTICULAR PARTNERSHIP
➢ Definition: One in which the partners
contribute all the properties which belong ❖ Definition: has for its object determinate
to each of them at the time of the things, their use or fruits, or a specific
constitution of the partnership to a undertaking, or the exercise of a
common fund, with the intention of profession or vacation.
dividing the same among themselves as ➢ Explanation: It is a partnership which is
well as the profits which they may acquire neither a universal partnership or present
therewith. property nor a universal partnership of
profits. These are formed for the
➢ Explanation: It is a legal arrangement in acquisition of an immovable property for
which all partners agree to contribute all the purpose of reselling it at a profit or for
the property they own at the time of the common enjoyment of its use and the
forming the partnership into a common benefits derived from them or those
fund. This includes assets such as established for the purpose of carrying
money, real estate, equipment, or any out a specific enterprise. Hence, two or
other valuable possessions. The primary more persons as accountant associating
goal of this partnership is to share not themselves in the practice of
only the contributed property but also any accountancy form a particular
profits or benefits that arise from those partnership.
assets. Once the partnership is
established, the combined assets are
managed collectively, and any income
generated is divided among the partners

6
 ➢ Explanation: is a partnership established
for a specific duration or purpose, either
CHAPTER 2: OBLIGATIONS OF THE expressly agreed upon (e.g., a five-year
PARTNERS term) or impliedly determined by a
particular project or transaction. Once the
RELATIONS CREATED BY A CONTRACT OF agreed period ends or the purpose is
PARTNERSHIP fulfilled, the partnership dissolves
automatically unless the partners choose
(4 DISTINCT JURIDICAL RELATIONS)
to extend or renew it. This type of
(1) Relations among the partners partnership provides clarity on the
themselves commitment period and helps partners
- This governs the internal dynamics plan for dissolution or continuation
between partners, including their accordingly.
rights, duties, profit-and-loss sharing,
management roles, and decision- OBLIGATIONS OF A PARTNER WITH
making authority as defined by the RESPECT TO PROPERTY HE PROMISED TO
partnership agreement or law. CONTRIBUTE
(2) Relations of the partners with the
(1) To contribute at the beginning of the
partnership
partnership or at the stipulated time
- Each partner has obligations to
the money, property, or industry,
contribute capital, property, or
which he may have promised to
industry and must act in good faith for
contribute
the benefit of the partnership.
- A partner must contribute the agreed-
Partners are also liable for losses
upon money, property, or industry
according to their agreed or
(skills/labor) at the beginning of the
proportional share.
partnership or at the stipulated time.
(3) Relations of the partnership with third
Failure to do so can lead to liability.
persons with whom it contracts
(2) To answer for eviction in case the
- The partnership, as a separate legal
partnership is deprived of the
entity in some jurisdictions, can enter
determinate property contributed
into contracts, own property, sue, and
- If the partnership is deprived of a
be sued. It is responsible for
specific property contributed due to a
obligations incurred through its
legal claim by a third party, the
business dealings.
contributing partner must
(4) Relations of the partners with such
compensate the partnership for the
third persons.
loss.
- Partners, especially in general
(3) To answer to the partnership for the
partnerships, may be personally liable
fruits of the property the contribution
for partnership obligations. They may
of which he delayed, from the date
also act as agents of the partnership,
they should have been contributed up
meaning their actions can legally bind
to the time of actual delivery
the partnership in transactions with
- If a partner delays contributing
third parties.
property that was promised, they
PARTNERSHIP WITH A FIXED TERM must account for any benefits (such
as income or fruits) that the
➢ Definition: One in which the term of its partnership would have received from
existence has been agreed upon the time it was due until actual
expressly (as when there is a definite delivery.
period) or impliedly (as when a particular (4) To preserve said property with the
enterprise or transaction is undertaken. diligence of a good father of a family
pending delivery of the partnership

7
 - Until the property is delivered, the the partners and according to current
partner must take care of it as a prices.
“good father of a family” (a legal - The valuation is done first according
standard requiring reasonable care
to the terms set in the partnership
and diligence).
(5) To indemnify the partnership for any contract. If no method is stipulated,
damage caused to it by the retention experts selected by the partners will
of the same or by the delay in its assess the value based on current
contribution. market prices.
- If the delay or wrongful retention of (c) After the goods have been
the contribution causes harm to the contributed, the partnership bears the
partnership, the responsible partner
risk or gets the benefit of subsequent
must compensate the partnership for
the damage suffered. changes in their value.
- Once the contribution is made, any
EVICTION increase or decrease in value benefits
or affects the partnership, not the
❖ Definition: Under the law on sales,
eviction shall take place whenever by a individual partner who contributed the
final judgement based on a right prior to asset.
the sale or an act imputable to the
vendor, the vendee is deprived of the OBLIGATIONS WITH RESPECT TO THE
whole or part of the thing purchased. This CONTRIBUTION OF MONEY AND MONEY
obligation of warranty in case of eviction CONVERTED TO PERSONAL USE
is an consequence of the character of the
contract of partnership which is an (a) To contribute on the date due the amount
onerous contract. he has undertaken to contribute to the
partnership
APPRAISAL OF GOODS OR PROPERTY - A partner must contribute the agreed
CONTRIBUTED amount on the due date. Delays in
» The appraisal of the value of the goods contribution may affect business
contributed is necessary to determine operations and financial stability.
how much has been contributed by the (b) To reimburse any amount he may have
partners taken from the partnership coffers and
converted to his own use.
How shall it have made? - If a partner takes money from the
partnership for personal use, they are
(a) In the absence of stipulation, the
obligated to return the full amount.
share of each partner in the profits
(c) To pay the agreed or legal interest, if he
and losses is in proportion to what he
fails to pay his contribution on time or in
may have contributed.
case he takes any amount from the
- Unless otherwise agreed, each
common fund and converts it to his own
partner’s share in profits and losses is
use
based on the value of their
- If a partner fails to contribute on time
contribution.
or misuses partnership funds, they
(b) The appraisal is made firstly, in the
must pay the agreed or legal interest
manner prescribed by the contract of
on the amount until it is reimbursed.
partnership; secondly, in the absence
This compensates the partnership for
of stipulation, by experts chosen by
the financial impact of the delay.

8
(d) To indemnify the partnership for the (1) There is an imminent loss of the
damages caused to it by the delay in the business of the partnership
contribution or the conversion of any - The partnership is at serious financial
risk, and without additional capital,
sum for his personal benefit.
the business is likely to fail.
- If the delay in contribution or misuse (2) The majority of the capitalist partners
of funds causes losses or harm to the are of the opinion that an additional
partnership, the responsible partner contribution to the common fund
must compensate the partnership for would save the business
the damages suffered. - The majority of capitalist partners
believe that injecting more capital into
INDUSTRIAL PARTNER the business will help save it from
collapse.
❖ Definition: One who contributes his (3) The capitalist partner refuses
industry, labor, or services to the (deliberately not because of his
partnership. He is considered the owner financial inability to do so) to
of his services, which are his contribution contribute an additional share to the
to the common fund. capital and
➢ Explanation: An industrial partner is a - The capitalist partner refuses to
partner who contributes their labor, provide additional funds deliberately,
skills, knowledge, or expertise instead not because they are financially
of money or property to a partnership. incapable but because they choose
Unlike a capitalist partner, who invests not to.
financial capital or assets, an industrial (4) There is no agreement that even in
partner provides services as their case of an imminent loss of the
primary contribution to the business. business the partners are not obliged
to contribute.
REMEDIES WHERE INDUSTRIAL PARTNER - If there is a prior agreement stating
ENGAGES IN BUSINESS that partners are not required to
contribute additional capital, then
(1) Exclude him from the firm the partner cannot be forced to sell
- The partnership may choose to expel their interest, even if the business is
the industrial partner for violating in danger.
their obligation of loyalty. This
effectively removes them from the REQUISITES OF WHERE MANAGING
partnership and terminates their PARTNER COLLECTS DEBT SHALL
rights to share in profits.
APPLIED TO TWO CREDITS IN
(2) The capitalist partner avails
PROPORTION TO THER AMOUNTS
themselves of the benefits which
industrial partner may have obtained. (1) There exist at least two (2) debts, one
- Instead of expelling the industrial where the collecting partner is
partner, the capitalist partners can creditor, and the other, where the
claim the earnings or benefits that partnership is the creditor
the industrial partner gained from the - One where the collecting partner is a
competing business. This prevents creditor (the partnership owes them
the industrial partner from unfairly money).
profiting at the partnership’s expense. - Another where the partnership is the
creditor (the partner owes money to
REQUISITES BEFORE A CAPITALIST the partnership).
PARTNER MAY BE OBLIGED TO SELL HIS (2) Both debts are demandable
INTEREST TO THE OTHERS - The debts must be legally due and
enforceable, meaning they are not

9
 subject to conditions or future • This prevents unjust enrichment,
obligations. where one partner benefits while others
(3) The partner who collects is authorized are left unpaid due to the debtor's
to manage and actually manages the insolvency.
partnership.
- The partner seeking to apply FIVE (5) CASES CONTEMPLATED FOR THE
compensation must: DETERMINATION OF THE RISK OF THE
- Have explicit authority to manage the THINGS CONTRIBUTED TO THE
partnership’s affairs, OR PARTNERSHIP
- Actually, manage the partnership,
even without formal designation. The risk of loss, damage, or deterioration of
property contributed to a partnership depends
✓ If these conditions are met, the on the type of property and the conditions of its
partner can offset their personal contribution. The following five cases apply:
debt with the amount the
partnership owes them, instead of (1) Specific and determinate things which
making separate payments. are not fungible where only the use is
However, if any of these requisites contributed
are missing, the offset may not be - If a partner contributes a specific item
legally permitted. (e.g., a car or machine) only for use,
the partner retains ownership, and the
REQUISITES OF THE APPLICATION OF risk of loss remains with them.
RULES WHERE A PARTNER RECEIVED, IN - If the item is lost or damaged without
WHOLE OR IN PART, HIS SHARE OF A the partnership’s fault, the
PARTNERSHIP CREDIT, WHEN THE contributing partner bears the loss.
OTHER PARTNERS HAVE NOT COLLECTED (2) Specific and determinate things the
ownership of which is transferred to
THEIRS
the partnership
(1) A partner has received, in whole or in - If a partner transfers ownership of a
part, his share of the partnership specific item (e.g., a building or land),
credit the partnership bears the risk of loss
- One partner has received full or once the contribution is completed.
partial payment from a debtor who - If the property is lost without fault, the
owes the partnership money. loss belongs to the partnership, not
(2) The other partners have not collected the original owner.
their shares (3) Fungible things or things which
- The remaining partners have not yet cannot be kept without deteriorating
received their portion of the even if they are contributed only for
partnership’s receivable. the use of the partnership.
(3) The partnership debtor has become - If a partner contributes fungible
insolvent. (replaceable) or perishable goods
- The debtor, who owes money to the (e.g., grains, oil, or food) only for use,
partnership, is no longer able to pay the risk remains with the partner since
the remaining amount due. the ownership does not transfer.
- However, if the goods deteriorate
EFFECT OF THESE CONDITIONS: naturally, the loss is borne by the
partnership.
• The partner who already collected their (4) Things contributed to be sold
share must return what they received - If property is contributed for the
to the partnership to ensure fairness. purpose of being sold, the partnership
bears the risk of loss after receiving
the goods.

10
 - If the goods are lost or damaged ▪ The industrial partner
before sale, the partnership takes the (who contributes labor
loss unless a different agreement or services instead of
exists. money) is entitled to a
(5) Things brought and appraised in the fair and equitable share
inventory of the profits.
- If assets are valued and listed in the ▪ This must be satisfied
partnership’s inventory, ownership is first before the capitalist
presumed to have been transferred. partners divide their
- The partnership bears the risk of any share.
loss unless otherwise agreed. ▪ The exact amount
depends on the nature
RULES FOR DISTRIBUTION OF PROFITS of the business and the
value of the industrial
(1) The partners share the profits partner’s contribution.
according to their agreement subject
to article 1799 RULES OF DISTRIBUTION OF LOSSES
- If the partners have a specific
agreement on profit-sharing, that (1) The losses shall be distributed
agreement governs how profits are according to their agreement subject
divided. to Article 1799 - Losses are distributed
- However, this is subject to Article according to what the partners agreed
1799, which states that a stipulation upon in the partnership contract. This
excluding one partner from any share agreement takes priority over default
in the profits is void. legal rules.
(2) If there is no such agreement (2) If there is no such agreement, but the
a. The share of each capitalist contract provides for the share of the
partner shall be in proportion to partners in the profits, the share of
his capital contribution. This each in the losses shall be in
rule is based on the presumed accordance with the profit-sharing
will of the partners ratio, but the industrial partner shall
▪ Each capitalist partner not be liable for losses. The profit or
(who contributes money losses of the partnership cannot be
or property) gets a determined by taking into account
share based on their the result of one particular
contribution to the transaction but of all the
partnership. transactions had. - If no agreement,
▪ This rule is based on follow profit-sharing ratio. If the contract
the presumed intention does not specify how to share losses
of the partners, as it is but does define profit-sharing, losses
fair that those who will be divided in the same proportion as
invest more should profits. An industrial partner (who
receive a larger share of contributes labor/skills instead of
the profits. capital) is not liable for losses.
b. The industrial partner shall (3) If there is also no profit-sharing
receive such share, which must stipulated in the contract, then
be satisfied first before the losses shall be borne by the partners
capitalist partners shall divide in proportion to their capital
the profits, as may be just and contribution, but the purely
equitable under the industrial partner shall not be liable
circumstances. for the losses. - If the contract does not
mention profit-sharing, losses are

11
 divided based on each partner’s capital responsibilities to each managing
investment. Industrial partners remain partner.
exempt from loss-sharing since they did - If duties are clearly assigned, then
not invest capital. each manager must act within their
designated function, and this rule will
TWO (2) DISTINCT CASES OF not apply.
APPOINTMENTS (3) There is no stipulation that one of
them shall not act without the consent
(1) Appointment as manager in the of all the others.
articles of partnership - If the partnership agreement explicitly
- If a partner is appointed as a manager states that one manager cannot act
in the partnership agreement (articles without the approval of the others,
of partnership), their appointment then this rule does not apply.
cannot be revoked without just or - In that case, the partners must follow
lawful cause unless all partners the agreed-upon decision-making
unanimously agree to remove them. process.
- Since this appointment is part of the
original contract, it has greater RULES WHEN MANNER OF MANAGEMENT
stability, and the manager has HAS NOT BEEN AGREED UPON
stronger rights.
(2) Appointment as manager after (1) All partners considered managers
constitution of the partnership - Every partner has equal rights to
- If the appointment is made after the participate in the management and
partnership has already been decision-making of the partnership.
established (i.e., not mentioned in the - Any partner can act on behalf of the
original articles of partnership), the business as long as their actions are
manager can be removed at any time in the ordinary course of business.
by a majority decision of the partners. (2) Unanimous consent required for any
- This type of appointment is less important alteration in immovable
secure since it is based on a later property of partnership
decision rather than the original - If a decision involves a major change
contract. in partnership-owned real estate
(e.g., selling land, constructing a
REQUISITES FOR APPLICATION OF RULE building, or making significant
WHERE THERE ARE TWO OR MORE renovations), all partners must agree.
PARTNES AND ONE OF THEM OPPOSE - This ensures that no single partner
THE ACTS OF THE OTHER, THE DECISION can unilaterally dispose of or alter
OF THE MAJORITY SHALL PREVAIL. AND valuable assets.
IN CASE OF TIE, THE MATTER SHALL BE
DECIDED BY THE PARTNERS OWNING SUBPARTNERSHIP
THE CONTROLLING INTEREST ❖ Definition: The partnership formed
(1) Two (2) or more partners have been between a member of a partnership and
appointed as managers a third person for a division of the profits
- The partnership must have multiple coming to him from the partnership
enterprise.
managing partners who are
➢ Explanation: is a separate agreement
authorized to make decisions on
between a partner in an existing
behalf of the business.
partnership and a third party, where the
(2) There is no specification of their
third-party shares in the original partner's
respective duties
profits without becoming a direct partner
- The partnership agreement does not
in the main firm. This arrangement does
assign specific roles or

12
 not affect the rights, duties, or liabilities of
the main partnership, as the sub-partner
has no legal relationship with the other
partners or control over the business.
The original partner remains solely
responsible for all obligations within the
main partnership, while the sub-partner is
entitled only to a portion of the profits as
agreed.

ANY PARTNER SHALL HAVE THE RIGHT

TO A FORMAL ACCOUNT AS TO
PARTNERSHIP AFFAIRS
(1) If he is wrongfully excluded form the
partnership business or possession
of its property by his co-partners
- If a partner is unjustly denied access
to the business operations or is
prevented from using partnership
assets by their co-partners, they can
demand an accounting.
(2) If the right exists under the terms of
any agreement
- If the partnership contract specifies
that accounting will be done at certain
times (e.g., quarterly or annually),
then partners can enforce this right as
per the agreement.
(3) As provided by Article 1807
- Article 1807 states that every partner
must act in good faith and must
account for any profits or benefits
received from the partnership’s
transactions or from the use of its
property.
- If a partner earns personal gains from
partnership resources without
informing the others, the affected
partners can demand an accounting.
(4) Whenever other circumstances render
it just and reasonable
- If there is suspicion of fraud,
mismanagement, or financial
irregularities, any partner may
request an accounting.
- Example: If a partner is making secret
deals or hiding profits, another
partner can demand an accounting to
uncover any wrongdoing.

13
SECTION 2: PROPERTY RIGHTS OF A - No partner can withhold or hide
PARTNER important information that could
impact decision-making.
THE PROPERTY RIGHTS OF A (4) The right to a formal account of
PARTNER ARE (PRINCIPAL RIGHTS) partnership affairs under certain
circumstances
(1) His rights in specific partnership - Partners can demand an official
property financial report under certain
- A partner has a right to use circumstances, such as exclusion
partnership property exclusively for from management, suspicion of
the benefit of the partnership but fraud, or business dissolution.
does not own the property (5) the right to have the partnership
individually. dissolved also under certain
(2) His interest in the partnership conditions.
- A partner’s share of profits and losses - A partner can request dissolution if
represents their financial interest in legal or financial conditions justify
the business. ending the business.
- This interest can usually be - Common reasons include fraud,
transferred, but the transferee does breach of agreement, or the inability
not automatically become a partner or to continue operations profitably.
gain management rights.
(3) His right to participate in the THE LEGAL INCIDENTS OF COMMON
management RIGHT IN PARTNERSHIP / INCIDENT
- Every partner has a right to take part OF CO-OWNERSHIP ARE SUCH THAT
in decision-making and business
operations, unless the partnership (1) Equal right of possession of the
agreement states otherwise. property for partnership purposes - All
- However, in a limited partnership, partners have an equal right to use and
only general partners have this right, possess partnership property, but only
while limited partners do not. for partnership purposes, not for personal
use without consent.
RELATED RIGHTS (2) Assignment of right to the property - A
partner cannot unilaterally assign or
(1) The right to reimbursement for transfer their rights to specific partnership
amounts advanced to the partnership property, as it belongs to the partnership
and to indemnification for risk in as a whole, not individual partners.
consequences of management (3) Attachment of execution - Partnership
- A partner who advances money for property cannot be seized for the
partnership expenses or takes on personal debts of an individual partner;
personal risk for the business has the only the partner’s share in the
right to be reimbursed. partnership’s net assets can be subject to
(2) The right to access and inspection of claims.
partnership books (4) Legal support - The partnership, as a
- Every partner has the right to review legal entity, can take legal action to
financial records and business protect its property and enforce rights
transactions. related to its assets.
- This ensures transparency and (5) Partner’s interest not a debt due from
prevents fraud or mismanagement. partnership - A partner’s interest in the
(3) The right to true and full information partnership is an equity stake, not a debt
of all things affecting the partnership owed by the partnership, meaning it
- Partners must provide each other with cannot be treated as an individual claim
honest and complete details about all against the partnership’s assets.
matters affecting the business.
14
 satisfaction of the separate debts of
the partners.
PROFIT - On the dissolution of the partnership,
the value of the partner’s share
❖ Definition: The excess of returns over
usually cannot be accurately
expenditure in a transaction or series of
determined until liquidation of the
transactions; or the net income of the
business has taken place and
partnership for a given period
partnership accounts have been
➢ Explanation: Profits are typically shared
settled.
among the partners according to the
terms of their partnership agreement. If EFFECT OF ASSIGNEMENT OF
no specific agreement exists, profits are PARTNER’S WHOLE INTEREST IN
divided in proportion to each partner’s PARNETSHIP
capital contribution. However, an
industrial partner (one who contributes (1) Rights withheld from assignee –
labor or services instead of capital) is however, such assignment does not
entitled to a just and equitable share of grant the assignee the right
the profits before the remaining amount a. To interfere in the management
is distributed among the capitalist b. To require any information or
partners. account
c. To inspect any of the partnership
SURPLUS books
(2) Status and rights of assignor in the
❖ Definition: refers to the assets of the
partnership unaffected – the legal effect
partnership after partnership debts and
of the conveyance is that same as that of
liabilities are paid and settled and the
a partner association another in his share
rights of the partners among themselves
or interest.
are adjusted. It is the excess of assets
over liabilities. RIGHTS OF THE ASSIGNEE OF THE
➢ Explanation: net assets represent the PARTNERS’ INTEREST
true value of the business that belongs to
the partners. It is determined by (1) To receive in accordance with his
subtracting total liabilities (such as loans, contract the profits accruing to the
accounts payable, and expenses) from assigning partner - The assignee is
total assets (such as cash, inventory, and entitled to the assigning partner’s share
property). The net assets are then of profits as specified in their agreement
distributed among the partners based on but does not gain any management rights
their respective ownership interests. in the partnership.
(2) To avail himself of the usual remedies
CONSIDERED AS THE EXTENT OF THE provided by law in the event of fraud
PARTNER’S INTEREST in the management - If there is
fraudulent management of the
- Nothing is to be considered as the
partnership, the assignee can seek legal
share of a partner but his proportion
remedies to protect their financial
of the residue or balance after an
interest.
account has been taken of the debts
(3) To receive the assignor’s interest in
and credits, including the amount paid
case of dissolution - If the partnership
by the several partners in liquidating
dissolves, the assignee is entitled to
firm debts or in making advances to
receive whatever share the assignor
the partnership, and until that occurs,
would have received in the liquidation
it is impossible to determine the
process.
extent of his interest. This interest in
(4) To require an account of partnership
the surplus alone is available for the
affairs, but only in case the

15
partnership is dissolved, and such
account shall cover the period form
the date only of the last account
agreed to by all the partners. - The
assignee can request an accounting of
partnership affairs, but only if the
partnership is dissolved, and such
accounting will cover only the period from
the last account agreed upon by all
partners.

16
SECTION 3 OBLIGATIONS OF THE ➢ Explanation: In a general partnership,
PARTNERS WITH REGARD TO THIRD creditors must first go after the
PERSONS partnership’s assets to settle debts. If
the assets are insufficient, the partners
then become personally liable for the
FIRM remaining balance. However, their
liability remains subsidiary, meaning it
❖ Definition: Name, title, or style under only applies when the partnership itself
which a company transacts business. It is cannot fully pay its obligations.
synonymous with “company”
ART. 1818. ONE OR MORE BUT LESS THAN
➢ Explanation: A business name, title, or ALL PARTNERS HAVE NO AUTHORITY TO:
style is the official name that a company
uses when conducting its operations. It (1) Assign the partnership property in
represents the company's identity. This trust for creditors or on the assignee’s
name appears on legal documents, promise to pay the debts of the
contracts, advertisements, and any partnership
formal communications. In many cases, - A partner cannot transfer partnership
it is synonymous with the company itself, assets to a trustee for the benefit of
meaning that the business is legally and creditors or assign them based on an
publicly identified by this name. assignee’s promise to pay
➢ A name is necessary to distinguish the partnership debts without the consent
partnership which has a distinct and of all partners.
separate juridical personality from the - This protects the partnership from
individuals composing the partnership unauthorized liquidation of assets.
and from other partnership, and thus, (2) Dispose of the goodwill of the
helps to facilitate business transactions partnership
by the partnership. It must be registered - Goodwill represents the reputation
with the DTI. and customer relationships of the
business.
PRO-RATA - Selling or transferring goodwill
without all partners' approval could
❖ Definition: equally or jointly and not
devalue the partnership.
proportionately which its literal meaning
(3) Do any other act which would make it
because the pro-rating is based on the
impossible to carry on the ordinary
number of partners and not the amount
business of a partnership
of their contributions to the common fund.
- Any action that renders the
➢ Explanation: In a partnership, unless
partnership unable to operate, such
otherwise agreed, partners are generally
as selling all assets or dissolving key
equally responsible for obligations,
agreements, requires unanimous
even if their contributions to the capital
approval.
differ. This applies to profit-sharing,
(4) Confess a judgement
losses, and liabilities.
- A partner cannot admit liability or
SUBSIDIARY OR SECONDARY accept a legal judgment against the
partnership without consulting other
❖ Definition: The partners become partners.
personally liable only after all the - This protects the partnership from
partnership assets have been exhausted, unfair or premature legal claims.
unless a particular partner assumes a (5) Enter into a compromise concerning a
separate obligation to perform a partnership claim or liability
partnership contract or make himself
solidarity liable on a partnership contract.

17
 - A partner cannot settle a legal dispute (5) Title in name of all partners,
or modify the partnership’s conveyance in name of all partners.
obligations unilaterally. - If the property is registered under all
- This ensures fairness and prevents partners’ names, then any transfer or
losses due to poor judgment. conveyance must also be executed
(6) Submit a partnership claim or liability by all partners.
to arbitration
- Arbitration agreements waive the EQUITABLE INTEREST OR TITLE
right to go to court, so a partner
❖ Definition: One not duly recognized by
cannot commit the partnership to
law but in equity alone; it is a right or
arbitration without mutual consent.
interest in property which is imperfect
(7) Renounce a claim of the partnership
and unenforceable at law but which
- A partner cannot unilaterally give up a
under well-recognized equitable
legal right or claim that belongs to the
principles should and is convertible into a
partnership.
legal right or title.
- Doing so could harm the interests of
➢ Explanation: An equitable interest or title
the other partners.
refers to a right or interest in property that
ART. 1819. THE REAL PROPERTY MAY BE is not formally recognized by legal
ownership but is still acknowledged by
REGISTERED OR OWN IN THE NAME OF
principles of fairness (equity). It arises in
(1) Title in partnership name, conveyance situations where, although a person does
in partnership name not hold the legal title, they have a rightful
- If the real property is registered in the claim to the property based on fairness
name of the partnership, any sale, and good conscience.
mortgage, or conveyance must also
be made in the partnership's name. THREE (3) CASES OF KNOWLEDGE OF A
(2) Title in partnership name. conveyance PARTNER ART. 1321
in partner’s name
(1) Knowledge of the partner acting in the
- If the property is registered in the
particular matter acquired while a
partnership’s name but is sold by an
partner
individual partner, it is only valid if the
- If a partner learns something relevant
partner has authority.
to the partnership’s business while
(3) Title in one or more of partners,
being a partner, that knowledge is
conveyance in name of partner or
imputed to the partnership.
partners in whose name title stands
(2) Knowledge of the partner in the
- If the property is registered under one
particular matter then present to his
or more partners' names (instead of
mind
the partnership), they can legally
- If a partner is already aware of
transfer it, as they are the registered
something at the moment they act on
owners.
behalf of the partnership, that
(4) Title in name of one or more or all
knowledge applies to the partnership
partners or a third person in trust for
as well.
partnership, conveyance executed in
(3) Knowledge of any other partner who
partnership name or in name of
reasonably could and should have
partner
communicated it to the acting partner
- If a partner or a third person holds
- If another partner reasonably could
property on behalf of the partnership,
and should have shared information
they must convey it either in the name
with the acting partner, then the
of the partnership or in their name as
partnership is also considered to have
trustee.
that knowledge.

18
CASES A PARTNERS SOLIDARILY LIABLE - The wrongful act must occur while
WITH THE PARTNERS TO THIRD PERSONS conducting partnership business
or when the partner has been given
(1) Any wrongful act or omission of any authority by co-partners (even if the
partner acting in the ordinary course act is unrelated to the business itself).
of the business of the partnership or
with the authority of his co-partners, ESTOPPEL
loss or injury is caused to any person,
not being a partner in the partnership, ➢ Definition: a bar which precludes a
or any penalty is incurred. person from denying or asserting
- If a partner, while acting in the anything contrary to that which has been
ordinary course of business or with established as the truth by his own deed
the authority of co-partners, commits or representation, either express or
a wrongful act or omission that implied.
causes loss, injury, or penalty to a ➢ Explanation: Estoppel is a legal
third party, all partners are solidarily principle that prevents a person from
liable. denying or asserting anything that
(2) Where one partner acting within the contradicts what has already been
scope of his apparent authority established as the truth through their own
receives money or property of a third actions, statements, or conduct, whether
person and misapplies it expressed explicitly or implied. This
- If a partner, while acting within his doctrine is used to ensure fairness and
apparent authority, receives money or consistency, preventing individuals from
property from a third party and going back on their word if others have
misuses or misapplies it, the relied on their previous representations
partnership and the responsible to their detriment.
partner are solitarily liable.
PARTNERSHIP BY ESTOPPEL
(3) Where the partnership in the course of
its business receives money or ➢ Definition: A person not a partner held
property of a third person and the liable to third persons as if he were a
money or property so received is partner
misapplied by any partner while it is in ➢ Explanation: he is partner by estoppel
the custody of the partnership when by words or by conduct he (a)
- If the partnership itself receives directly represents himself to anyone as
money or property from a third party a partner in an existing partnership or in
during the course of business, and a non-existing partnership (b) indirectly
any partner misapplies it while in the represents himself by consenting to
custody of the partnership, the entire another representing him as partner in an
partnership is responsible. existing partnership or in a non-existing
partnership
REQUISITES FOR LIABILITY
(1) The partner must be guilty of a LIABILITY OF INCOMING PARTNER
wrongful act or omission FOR EXISTING OBLIGATIONS
- The partner must have committed a (1) Limited to his share in partnership
negligent, fraudulent, or wrongful property for existing obligations
act that results in harm, financial loss,
- An incoming partner is not personally
or penalties.
(2) He must be acting in the ordinary liable for debts and obligations
course of business or with the incurred before joining the
authority of his co-partners even if the partnership.
act is not connected with the business

19
 - However, his share in the partnership
property may be used to satisfy these
obligations.
(2) Extends to his separate property for
subsequent obligations
- After becoming a partner, he is fully
liable, just like any other partner, for
obligations incurred after his
admission.
- This liability extends to his personal
assets, meaning creditors can go
after his separate property if the
partnership assets are insufficient.

20
CHAPTER 3: DISSOLUTION AND CAUSES OF DISSOLUTION
WINDING UP
(1) Without violation of the agreement
DISSOLUTION between the partners.

➢ Definition: It is the change in the relation a. By the termination of the

of the partners caused by any partner definite term or particular
ceasing to be associated in the carrying undertaking specified in the
on of the business. agreement. – after the expiration
➢ Explanation: It is the point in time when of the term or fulfilling an
the partners cease to carry on the undertaking, the partnership is
business together. It is not meant to dissolved.
extinguish the business; the affairs
should be liquidated and distribution b. By the express will of any
made to those entitled to the partners’ partner, who must act in good
interest. The partnership continues until faith, when no definite term or
the winding up is completed. Dissolution particular undertaking is
refers to the changed in partnership specified. – partners have power
relations and structure and not the actual to terminate the partnership at any
cessation of the partnership business. time but he must act in good faith.
c. By the express will of all the
WINDING-UP partners who have not assigned
➢ Definition: Process of settling the their interests or suffered them
business or partnership affairs after to be charged for their separate
dissolution debts, either before or after the
termination of any specified
➢ Explanation: This involves concluding term or particular undertaking -
all financial and legal matters, such as A partnership may be dissolved by
selling assets, paying off debts, and the express will of all partners,
distributing any remaining assets among provided they have not transferred
the partners or shareholders according to their interests or had them
the agreement or legal requirements. charged for personal debts. This
The goal of winding-up is to ensure that decision can be made at any time,
all obligations are fulfilled, and the whether before or after the
business is properly closed, bringing its completion of a specified term or
operations to a formal end. particular business venture.
However, partners who have
assigned their shares or whose
interests are encumbered by
TERMINATION
personal debts may not have a
➢ Definition: Point in time when all say in the dissolution. This rule
partnership affairs are completely wound ensures that only active,
up and finally settled. It signifies the end financially unencumbered
of the partnership life. partners can collectively decide to
end the partnership.
➢ Explanation: It marks the official end of
the partnership’s existence, meaning all d. By the expulsion of any partner
debts have been paid, assets have been from the business bona fide in
distributed, and all legal and financial accordance with such a power
obligations have been fulfilled. Once conferred by the agreement
termination occurs, the partnership between the partners - A
ceases to exist as a legal entity. partnership may be dissolved by

21
 the bona fide expulsion of a (4) When a specific thing, which a partner
partner, provided the expulsion is and promised to contribute to the
carried out in accordance with the partnership, perishes before the
terms of the partnership delivery; in any case by the loss of the
agreement. This means that if the thing, when the partner who
agreement grants the partners the contributed it having reserved the
power to remove a member under ownership thereof, has only
specific conditions, the expulsion transferred to the partnership the use
must be done in good faith and or enjoyment of the same; but the
follow the agreed-upon partnership shall not be dissolved by
procedures. The removal of a the loss of the thing when it occurs
partner under these after the partnership has acquired the
circumstances does not ownership thereof; - If a partner's
automatically dissolve the promised contribution perishes before
partnership unless the agreement delivery, the obligation is nullified. If the
or the remaining partners decide partner retained ownership and only
otherwise. This provision helps transferred its use, they bear the loss, and
maintain the stability of the the partnership remains unaffected.
partnership while allowing the However, if the partnership had already
removal of a disruptive or non- acquired ownership, it absorbs the loss
compliant partner. without dissolving. This ensures that only
assets formally owned by the partnership
(2) In contravention of the agreement impact its continuity, while losses of
between the partners, where the retained assets remain the partner’s
circumstances do not permit a responsibility.
dissolution under any other provision
of this article, by the express will of any (5) By the death of any partner – the
partner at any time - A partnership may deceased partner ceases to be
be dissolved by the express will of any associated in the carrying of the business.
partner, even if it goes against the Hence, the dissolution of the partnership
partnership agreement, provided no other by his death.
provision justifies dissolution. This means
that a partner can unilaterally withdraw (6) By the insolvency of any partner or of
and force dissolution, regardless of prior the partnership - If a partner, after the
commitments, if no other grounds for exhaustion of partnership asset, can no
dissolution exist. However, this action longer operate financially. He will have no
may result in liability for damages if it authority to act for the partnership. The
violates the agreement. This provision insolvency of the partnership renders
ensures that no partner is indefinitely them unable to continue the business,
bound to the partnership but also protects which amounts to dissolution.
the interests of the remaining partners.
(7) By the civil interdiction of any partner -
(3) By any event which makes it unlawful A convicted person renders him
for the business of the partnership to incapacitated. During, civil interdiction,
be carried on or for the members to the offender during the time of his
carry it on in partnership – dissolution sentence deprives him the right to
may be caused involuntarily when a manage his property
supervening event makes the business
(8) By decree of court under the following
itself of the partnership unlawful. A
article (1700a and 1701a) - When the
partnership must have a lawful object or
court orders dissolution
purpose.
LOSS OF A SPECIFIC THING

22
 (a) Before delivery – the partnership is reasonably practicable to carry on the
dissolved because there is no business in partnership with him –
contribution in as much as the thing to be
contributed cannot be substituted with
another. There is, here a failure of the e) The business of the partnership can
partner to fulfill his part of the obligation. only be carried on at a loss - since the
business goal is to make profit, if it is not
(b) After delivery – the partnership is not making profit anymore, the operation
dissolved but it assumes the loss of the shall be dissolved.
thing having acquired ownership thereof. f) Other circumstances render a
The partners may contribute additional dissolution equitable - such as
capital to save venture unresolved dispute, or other serious
issues
(c) Loss where only use of enjoyment
contributed – the partner having (2) On application by a purchaser of
reserved the ownership thereof, the lass partner’s interest
of the same before or after delivery,
dissolves the partnership. The partner a. After the specific term ends: A third party
bears the loss, and therefore, he is who buys a partner’s interest can request
considered in default with rest to this dissolution after the contract ends.
contribution.
b. At any time if there is no specific term or
GROUNDS FOR DISSOLUTION BY when the partnership is partnership at will: a
DECREE OF COURT buyer of a partner’s share can dissolve the
partnership anytime.
(1) On application by a partner
1832.
a) A partner has been declared insane in
any judicial proceeding or is shown to Except so far as maybe necessary to wind up
be of unsound mind- The partner is partnership affairs or to complete transactions
legally declared mentally incapable, begun but not then finished,
making business operations impossible
Dissolution terminates all authority of any
b) A partner becomes in any other way partner to act for the partnership:
incapable of performing his part of the
partnership contract - partner is unable (1) With respect to the partners,
to contribute due to injury or illness, or
a. When the dissolution is not by the
insolvent
act, insolvency or death of the
partner,
c) A partner has been guilty of such
conduct as tends to affect b. When the dissolution is by such
prejudicially the carrying on of the act, insolvency or death of a
business- when a partner negatively partner, in cases where Article
impacts the business and constantly 1833 so requires.
violates the terms of the partnership,
making cooperation impossible. (2) With respect to persons not partners, as
declared in Article 1834
d) A partner willfully or persistently
commits a breach of the partnership 1833.
agreement, or otherwise so conducts Where the dissolution is caused by the act,
himself in matters relating to the death, or insolvency of a partner, each partner
partnership business that it is not is liable to his co-partners for his share of any
liability created by any partners acting for the

23
partnership as if the partnership had not been (2) By any transaction which would bind
dissolved unless the partnership if dissolution had not
taken place, provided the other party
(1) The dissolution being by act of any to the transaction
partner, the partner acting for the
partnership had knowledge of the a. Had extended credit to the
dissolution; or partnership prior to dissolution
and had no knowledge or notice
(2) The dissolution being by the death or of the dissolution; or
insolvency of a partner, the partner acting
for the partnership ha knowledge or b. Though he had not so extent
notice of the death or insolvency. credit, had nevertheless known
of the partnership prior to
General Rule: If the cause of dissolution is not dissolution and having no
by act, death, or insolvency of a partner, knowledge or notice of
the authority ceases immediately. dissolution, the fact dissolution
had not been advertised in the
Exception: For the purposes of winding-up
newspaper of general
partnership affairs. When the dissolution is not
circulation in the place (or in
by the act, insolvency, or death of the partner,
each place if more than one) at
the contract made after dissolution is
which the partnership was
terminated. When the dissolution is by the act,
regularly carried on
insolvency, or death, the termination of authority
depends upon whether or not the partner had - After dissolution, a partner may still
knowledge or notice of the dissolution as bind the partnership through
provided in Article 1833. transactions that would have been
valid if the dissolution had not
1834 occurred, but only under specific
After dissolution, a partner can bind the conditions regarding the other party:
partnership, except as provided in the third
o If the other party had extended
paragraph of this article
credit to the partnership before
(1) By an act appropriate for winding up dissolution and had no
partnership affairs or completing knowledge or notice of the
transactions unfinished at dissolution dissolution, the transaction
- After dissolution, a partner can still bind remains binding. This protects
the partnership by performing acts creditors who reasonably
necessary to wind up its affairs or assume the partnership is still
complete transactions that were already active.
in progress before dissolution. This
o If the other party had known
includes settling debts, collecting
about the partnership before
receivables, liquidating assets, and
dissolution but had not
fulfilling contractual obligations that the
previously extended credit, the
partnership had entered into before
transaction is binding if they
dissolving. Such actions ensure a
had no knowledge or notice of
smooth closure of the business and
the dissolution and the
protect the interests of creditors and
dissolution was not publicly
stakeholders. However, partners cannot
advertised in a newspaper of
initiate new business activities that go
general circulation where the
beyond the winding-up process, as the
partnership operated. This
partnership’s primary function ceases
ensures fairness by holding
upon dissolution.
the partnership accountable if

24
 it failed to properly notify the The partnership is in no case bound by any
public of its dissolution. act of a partner after dissolution
The liability of a partner under the first (1) Where the partnership is dissolved
paragraph, No.2, shall be satisfied out of because it is unlawful to carry on
partnership assets alone when such partner the business, unless the act is
had been prior to dissolution appropriate for winding up
partnership affairs; or - If a
(4) Unknown as a partner to the person partnership is dissolved because
with whom the contract is made; continuing the business has become
and - If a partner was unknown to the unlawful, no partner can bind the
person with whom a contract was partnership except for actions
made before dissolution, their actions necessary to wind up its affairs. This
after dissolution will not bind the means that any new business
partnership, provided they were also transactions beyond liquidation,
inactive in partnership affairs. This settling debts, or completing existing
means that if a partner had no public obligations will not be legally binding
role or influence in the business, and on the partnership. This rule ensures
the contracting party was unaware of that the partnership does not engage
their existence as a partner, any in illegal activities after dissolution and
obligations they attempt to create post- limits its operations strictly to closing
dissolution will not be enforceable its affairs in a lawful manner.
against the partnership. This rule
protects partnerships from liability (2) Where the partner has become
arising from hidden or silent partners insolvent or - If a partner becomes
who were not instrumental in insolvent after the dissolution of the
establishing the business’s reputation partnership, they can no longer bind
or creditworthiness. the partnership in any transactions.
Insolvency affects a partner’s legal
(5) So far unknown and inactive in capacity to act on behalf of the
partnership affairs that the business, as they may no longer have
business reputation of the the financial standing to fulfill
partnership could not be said to obligations. This restriction helps
have been in any degree due to this protect the partnership and its
connection with it - If a partner was remaining assets from potential
both unknown and inactive in the financial risks or unauthorized
partnership’s affairs, meaning they commitments made by an insolvent
had no visible role in management or partner. However, the insolvent
decision-making, and their association partner may still participate in winding
did not contribute to the business’s up the partnership if they had prior
reputation, their actions after authority to do so.
dissolution will not bind the
partnership. This provision ensures (3) Where the partner had no authority
that only partners who were publicly to wind up partnership affairs;
involved in the business and except by a transaction with one
contributed to its credibility can create who
post-dissolution obligations. It protects
the partnership from liability arising a. Had extended credit tot eh
from silent or passive partners who partnership prior to dissolution,
had no influence on its operations or and had no knowledge or notice of
standing in the business community. his want of authority or

25
 b. Had not extended credit to the MANNER OF WINDING UP
partnership prior to dissolution,
and having no knowledge or notice (1) Judicially – under the control and
of his want of authority, the fact of direction of the proper court upon cause
his want of authority has not been shown by any partner, his legal
advertised in the manner provided representative, or his assignee
for advertising the fact of
(2) Extrajudicially – by the partners
dissolution in the first paragraph,
themselves without intervention of the
NO. 2(b)
court.
- If a partner lacks authority to wind up
the partnership’s affairs, they PERSONS AUTHORIZED TO WIND UP
generally cannot bind the partnership (1) The partners designated by the
after dissolution. However, there are agreement - If the partnership
exceptions to this rule in cases where agreement specifies which partners will
third parties reasonably believe the handle the winding-up process, those
partner still has authority: designated individuals have the authority
- If the third party had extended credit to settle debts, liquidate assets, and
to the partnership before dissolution complete pending transactions.
and was unaware that the partner (2) All the partners who have not
lacked authority, the transaction wrongfully dissolved the partnership -
remains binding. This protects If no specific partners were designated,
creditors who previously engaged all remaining partners, except those
with the partnership in good faith. responsible for an improper dissolution,
have the right to wind up the business. A
- If the third party had not extended partner who wrongfully dissolves the
credit before dissolution but was partnership loses this authority.
aware of the partnership’s existence (3) The legal representative of the last
and had no knowledge of the surviving partner (when all the
partner’s lack of authority, the partners are already dead), not
transaction is binding unless the insolvent. - If all partners have died and
dissolution and the partner’s lack of the partnership is still in the winding-up
authority were properly advertised in process, the legal representative (such
a newspaper of general circulation. as an executor or administrator) of the
This ensures that parties who last surviving partner will handle the
reasonably assumed the business winding-up, provided that the partner was
was still active are not unfairly misled. not insolvent at the time of death.

Nothing in this article shall affect the liability RIGHT OF THE PARTNERS TO HAVE
under Article 1825 of any person who after THE PARTNERSHIP PROPERTY
dissolution represents himself or consents APPLIED TO DISCHARGE
to another representing him as a partner in a PARTNERSHIP LIABILITIES AND THE
partnership engaged in carrying on SURPLUS, DISTRIBUTED IN CASH TO
business. THE RESPECTIVE PARTNERS,
DEPENDS ON WHETHER THE
DISSOLUTION IS CAUSED:
(1) Without violation of the partnership
agreement
(2) In violation of the partnership
agreement

26
RIGHTS WHERE DISSOLUTION NOT IN have the option to continue the
CONTRAVENTION OF AGREEMENT. business under the same
WITHOUT VIOLATION OF THE partnership name, either alone or
PARTNERSHIP AGREEMENT with new partners. This protects
business continuity and prevents
(1) To have the partnership property unfair loss due to one partner’s
applied to discharge the liabilities of misconduct.
the partnership - Before any partner d. To possess partnership
receives a share, all partnership liabilities property should they decide to
must be settled using partnership continue the business. - If the
property. innocent partners choose to
(2) To have the surplus, if any, applied to continue the business, they have
pay in cash the net amount owing to the right to retain partnership
the respective partners. - After debts property for its continued
are cleared, any remaining assets operation. This ensures that the
(surplus) are distributed among partners. wrongful partner cannot claim
Each partner is entitled to receive their assets to the detriment of the
net share in cash, ensuring a fair and remaining partners.
orderly exit from the partnership. (2) Rights of partner who wrongfully
caused the dissolution
RIGHTS WHERE DISSOLUTION I N a. If the business is not continued
CONTRAVENTION OF AGREEMENT/ IN by the other partners, to have
VIOLATION OF THE PARTNERSHIP the partnership property
AGREEMENT applied to discharge its
(1) Rights of partner who has not caused liabilities and to receive in cash
the dissolution wrongfully his share of the surplus less
a. To have partnership property damages caused by his
applied for the payment of its wrongful dissolution. - The
liabilities and to receive in cash partnership property must still be
his share of the surplus - The used to pay off all liabilities first.
innocent partner can demand that The wrongful partner is entitled to
partnership property is first used receive their share of the
to pay off all liabilities before remaining surplus but with
distributing any remaining assets. deductions for any damages their
Their rightful share of the surplus wrongful dissolution caused.
must be paid in cash after settling b. If the business is continued:
debts. i. To have the value of his
b. To be indemnified for damages interest in the
caused by the partner guilty of partnership at the time of
wrongful dissolution - The the dissolution
partner who wrongfully dissolved ascertained and paid in
the partnership is liable for cash or secured by bond
damages caused by their actions. approved by court; and
The innocent partner can demand ii. To be released from all
compensation for any financial existing and future
losses suffered. liabilities of the
c. To continue the business in the partnership
same name during the agreed - The guilty partner has the right to
term of the partnership, by receive the value of their interest at
themselves or jointly with the time of dissolution. This amount
others - The remaining partners must be paid in cash or secured by a
court-approved bond to ensure

27
 fairness. They must also be released compensate the injured partner for all
from all existing and future liabilities, debts and liabilities the partnership owed.
meaning they will no longer be This protects the innocent partner from
responsible for the partnership’s bearing financial losses due to the
debts moving forward. wrongful actions of the guilty partner.

RIGHT OF THE PARTNER TO RESCIND RULES IN SETTLING ACCOUNTS

CONTRACT OF PARTNERSHIP BETWEEN PARTNERS AFTER
DISSOLUTION
- If one is induced by fraud or
misrepresentation to become a (1) The assets of the partnership are: The
partner, the contract is void or assets available for distribution include
annullable. a. Partnership property (including
- If the contract is annulled, the injured goodwill) - which consists of all
partner is entitled to restitution. Here, business assets, including
the fraud, or misrepresentation goodwill.
vitiates consent. However, until the b. Contributions of the partners
partnership contract is nulled by a necessary for the payment of all
proper action in court, the partnership liabilities specified in no.2 -
relations exists and the defraud Additional Contributions made by
partner is liable for all obligations to partners if the partnership’s assets
third persons. are insufficient to cover liabilities.
(2) The liabilities of the partnership shall
RIGHTS OF INJURED PARTNER rank in order of payment, as follows
WHERE PARTNERSHIP CONTRACT a. Those owing to creditors other
RESCINDED than partners - Debts to external
creditors (those who are not
(1) Right of a lien on, or retention of, the
partners)
surplus of partnership property after
b. Those owing to partners other
satisfying partnership liabilities for
than for capital and profits -
any sum of money paid or contributed
Debts owed to partners, excluding
by him - After the partnership’s debts are
capital and profit claims.
settled, the injured partner has a right to
c. Those owing to partners in
retain any surplus assets to recover the
respect of capital - Repayment of
money they contributed or paid into the
capital contributions to partners
business. This ensures they are
d. Those owing to partners in
reimbursed before the guilty partner
respect of profits. - Distribution
benefits from any remaining assets.
of remaining profits to partners.
(2) Right to subrogation in place of
(3) The assets shall be applied in the
partnership creditors after payment of
order of their declaration in No. 1 of
partnership liabilities - Once all
this article to the satisfaction of the
partnership debts are paid, the injured
liabilities - The available assets are
partner can step into the shoes of the
used in the order listed above to satisfy
creditors and claim any outstanding
outstanding obligations.
amounts owed to them, just as an
(4) The partners shall contribute, as
external creditor would. This allows them
provided by Article 1897, the amount
to recover losses by claiming what the
necessary to satisfy the liabilities - If
partnership would have owed to external
the partnership assets are not enough to
creditors.
cover all debts, the partners must
(3) Right of indemnification by the guilty
contribute additional funds
partner against all debts and liabilities
proportionally, as required under Article
of the partnership. - The guilty partner
1897.
(who caused the rescission) must

28
(5) An assignee for the benefit of respective partner’s personal
creditors or any person appointed by assets.
the court shall have the right to c. Secured creditors retain their
enforce the contributions specified in priority rights.
the preceding number.
Right to Enforce Contributions – (9) Where the partner has become
a. A court-appointed representative insolvent or his estate is insolvent, the
or an assignee for the benefit of claims against his separate property
creditors can compel partners to shall rank in the following order: If a
make the necessary contributions. partner is bankrupt, their personal assets
b. Any partner or their legal are used to pay debts in this order:
representative who has paid more a. Those owing to separate
than their share of the liabilities creditors - Separate personal
can demand reimbursement from creditors are paid first.
the other partners. b. Those owing to partnership
(6) Any partner or his legal representative creditors - Partnership creditors
shall have the right to enforce the are paid next.
contributions specified in No.4, to the c. Those owing to partners by way
extent of the amount which he has of contribution. - Other partners’
paid in excess of his share of the claims for contribution are paid
liability - If a partner has passed away, last.
their personal estate remains liable for
the necessary contributions to cover CASES CREDITORS OF THE
partnership debts. DISSOLVED PARTNERSHIP ARE ALSO
(7) The individual property of a deceased CREDITORS OF THE PERSON OR
partner shall be liable for the PARTNERSHIP CONTINUING THE
contributions specified in No.4 - If a BUSINESS
partner dies before the partnership’s
(1) When any new partners is admitted into
liabilities are fully settled, their individual
an existing partnership, or when any
property remains responsible for
partner retires and assigns (or the
covering their share of the partnership’s
representative of the deceased partner
debts, as required in Rule No. 4 (which
assigns) his rights in partnership
states that partners must contribute if
property to two or more of the partners,
assets are insufficient). This means that
or to one or more of the partners and one
creditors or surviving partners can claim
or more third persons, if the business is
payment from the deceased partner’s
continued without liquidation of the
estate to satisfy outstanding obligations.
partnership affairs. - If a new partner joins
(8) When partnership property and the
or a partner retires and assigns their interest
individual properties of the partners
to others, but the business continues
are in possession of a court for
without settling previous debts, the new
distribution, partnership creditors
business remains liable to the old creditors.
shall have priority on partnership
(2) When all but one partner retires and
property and separate creditors on
assign (or the representative od a
individual property, saving the rights
deceased partner assigns) their rights in
of lien or secured creditors. - If both
partnership property to the remaining
partnership property and individual
partner, who continues the business
partners’ assets are under court control
without liquidation of partnership affairs,
for debt settlement:
either alone or with others. - If all but one
a. Partnership creditors are paid first
partner retires (or their representatives
from partnership assets.
assign their rights) and the remaining
b. Personal creditors of individual
partner continues the business, creditors
partners are paid from the

29
 can still demand payment from the be determined as of the date of
continuing business. dissolution, ensuring fairness and
(3) When any partner retires or dies and the accuracy in their compensation.
business of the dissolved partnership is (2) To receive thereafter, as an ordinary
continued as set forth in Nos. 1 and 2 of creditor, an amount equal to the value
this article, with the consent of the of his share in the dissolved
retired partners or the representative of partnership with interest, or, at his
the deceased partner, but without any option, in lieu of interest, the profits
assignment of his right in partnership attributable to the use of his right -
property. - If a retired or deceased partner's They are entitled to receive their share
rights are not assigned, but the business either with interest (as an ordinary
continues with their consent (or that of their creditor) or, instead of interest, a share of
representative), creditors retain their claims. the profits generated by the continued
(4) When all the partners are their use of their interest in the business. This
representatives assign their rights in allows flexibility in how they are
partnership property to one or more third compensated, depending on what
persons who promise to pay the debts benefits them more.
and who continue the business of the
dissolved partnership - If all partners PARTNER’S RIGHT TO ACCOUNT OF
transfer their rights to outsiders who agree HIS INTEREST
to pay the debts, creditors can still enforce
(1) Accrual of right – the right to demand an
claims against the new business owners.
accounting of the value of his interest
(5) When any partner wrongfully causes a
accrues to any partner or his legal
dissolution and the remaining partners
representative after dissolution in the
continue the business under the
absence of an agreement to the contrary
provisions of Article 1837, second
(2) Person liable to render an account –
paragraph, No. 2, either along or with
the right of a partner or the one who
others, and without liquidation of the
represent him as owner of his interest to
partnership affairs. - If a partner wrongfully
an account, i.e., to a statement of the
dissolves the partnership, and the
partnership affairs, and, in due course of
remaining partners continue the business
liquidation, to a payment of the amount of
without liquidating affairs, creditors maintain
his interest may be exercised as against.
their claims.
a. The winding up partner
(6) When a partner is expelled and the
b. The surviving partner
remaining partners continue the
c. The person or partnership
business either along, or with others
continuing the business
liquidation of the partnership affairs. - If
a partner is expelled, and the remaining
partners carry on without settling debts, the
new business is still responsible for old
obligations.

RIGHTS OF THE RETIRING OR OF

LEGAL REPRESENTATIVE OF
DECEASED PARTNER WHEN
BUSINESS IS CONTINUED
(1) To have the value of the interest of the
retiring partner or deceased partner in
the partnership ascertained as of the
date of dissolution - The value of the
retiring or deceased partner’s share must

30