BUSINESS ORGANIZATION
- It cannot be likened to partnerships formed by other professionals
CHAPTER 1
GENERAL PROVISIONS
Article 1767
By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
- This article gives the legal definition of partnership from the
viewpoint of a contract
- Other definition of partnership:
o It is a contract of two or more competent persons to
place their money, effects, labor and skill, or some or
all of them , in lawful commerce of business and to
divide the profits and bear the losses in certain
proportions
o It is an association of two or more persons
o It is a legal relation based upon the express or implied
agreement of two or more competent persons
o It is the status arising out of a contract entered into by
two or more persons
o A partnership is an organization for the production of
income to which each partner contributes one or both
of the ingredients of income, which are capital or
service
o A partnership is an entity, distinct and apart from the
members composing it, and for the purpose of which it
was created, it is a person having its own assets and
liabilities and any benefit or liability attaching to a
member of the partnership, results from the
partnership relation.
o It is a joint undertaking to share the profit and loss
- Partnership is a legal concept
- It falls between two extremes of organizational form the single
proprietorship and the corporation
Civil Law Concept vs. American Concept of Partnership
Basis of Concept
CIVIL LAW AMERICAN CONCEPT
It speaks of partnership as a It speaks of partnership as that of
contract a relation
Considers the term as the The idea of partnership is based
agreement itself out of which a on the result of the contract or
partnership is created expressed or implied agreement
of the parties creating the
partnership
Possession of Separate Personality
CIVIL LAW AMERICAN CONCEPT
Partnership has a juridical Does not recognize such separate
personality of its own, distinct juridical personality; it considers
and separate form that of each of partnership as a mere extension
the partners of its members, although some
states of the Union classify the
partnership as a legal entity
Note: Unlike a corporation, a partnership is generally regarded as a
conglomerate of individuals, an association of two or more persons and as
such DOES NOT pay federal or state income taxes (only partnership tax
return). The individual members of the partnership severally pay their
income taxes, the partnership business being regarded merely as a source of
their income.
Two or more persons may also form a partnership for the exercise of a
profession. (art. 1767 par 2)
- Second paragraph relates to the exercise of profession
- Strictly speaking, the practice of a profession is not a business or
an enterprise for profit
- It is therefore the individual partners, and not the partnership,
who engage in the practice of the profession and are responsible
for their own acts as such
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Partnership for the Practice of Law
or for business
- Thus, the use of a nom de plume, assumed, or trade name in law
practice is improper
- The primary characteristics which distinguish the legal profession
from business are the following:
o A duty of public service, or which the emolument is a
by-product, and in which one may attain the highest
eminence without making much money
o A relation as an officer of court to the administration
of justice involving thorough sincerity, integrity and
reliability
o A relation of clients in the highest fiduciary degree
o A relation to colleagues at the bar characterized by
candor, fairness, and unwillingness to resort to current
business methods of advertising and encroachment on
their practice, or dealing directly with their clients
Characteristic Elements of Partnership
1. Consensual perfected by mere consent (expressed or implied)
2. Nominate it has a special name or designation
3. Bilateral entered into by two or more persons and the rights and
obligations arising therefrom are always reciprocal
4. Onerous each of the parties aspires to procure for himself a
benefit through the giving of something
5. Commutative the undertaking of each of the partner is
considered as the equivalent of that of the others
6. Principal it does not depend for its existence of validity upon
some other contracts
7. Preparatory it is entered into as a means to an end
Note: a partnership contract, in its essence, is a contract of agency.
Essential features of Partnership
1. There must be a valid contract
- There is no such thing as a partnership created by law or by
operation or implication of law alone. It is voluntary.
- The partnership relation is not the contract itself, but the result of
the contract
- Form: the relation is evidenced by the terms of the contract which
may be ORAL or WRITTEN, express or implied from the acts and
declaration of the parties, subject to the provision of articles 1771
to 1773 and to the statue of frauds.
- Articles of Partnership: it is customary to embody the terms of
the association in a written document known as the articles of
partnership stating the:
o Name
o Nature or purpose and location of the firm
o Defining the powers, rights, duties and liabilities of the
partners among themselves
o Their contributions
o The manner by which the profits and losses are to be
shared
o Procedure for dissolving the partnership
- Requisites: all the essentials of a valid contract must be present
consent, object, cause
- Partnership relation is fiduciary in nature: it involves trust and
confidence between the partners. Thus:
o Right to choose co-partners: Unless otherwise
provided in the partnership agreement, no one can
become a member of the partnership association
without the consent of all the other associates
o Power to dissolve partnership: such power is not
necessarily a right. Verily, any one of the partners may,
at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good
faith. (attendance of bad faith will merely result to
liability for damages)
o Application of principles of estoppel: a partnership
liability may be imposed upon a person under the said
principle
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 Note: in case there is no written agreement between the parties, the
existence or non-existence of a partnership must be determined from
the conduct of the parties, any documentary evidence bearing thereon,
and the testimony of the parties.
2. The parties must have legal capacity to enter into the contract
- Individuals: Any person who cannot give consent to a contract
CANNOT be a partner (emancipated minors, insane or demented,
deaf mutes who do not know how to write, persons suffering
from civil interdiction and incompetents who are under
guardianship)
- Partnerships: There is no prohibition against a partnership being a
partner in another partnership. In such case, all the constituent
partnerships will be individually liable to the creditors of the new
partnership.
- Corporations: Unless authorized by statute or by its charter, a
corporation is without capacity or power to enter into a contract
of partner.
Note however: corporation may enter into joint venture
partnership with another where the nature of the venture is in
line with the business authorized by its charter. It may also enter
in a partnership where the management of corporate interest is
not surrendered.
Where the entry of the foreign corporation as a limited partner in
a limited partnership is MERELY FOR INVESTMENT PURPOSES ---
license to do business in the Philippines is not required.
Q: why cant corporations enter into a partnership?
A: it is based on public policy since in a partnership the corporation would be
bound by the acts of persons who are not its duly appointed and authorized
agents and officers which would be entirely inconsistent with the policy of
the law that the corporation shall manage its own affairs separately and
exclusively.
3. There must be a mutual contribution of money, property, or industry to
a common fund
- the partners must have a proprietary interest in the business or
undertaking
- Without the element of mutual contribution to a common fund,
there can be no partnership, although its presence is not
necessarily a conclusive evidence of the existence of partnership
o Money: refers to a currency which is legal tender
o Property: may be real or personal, corporeal or
incorporeal
o Industry: in the absence of money or property, or in
concurrence with these two, the law permits the
contribution of industry; industry is the active
cooperation, the work of the party associated, which
may be either personal manual efforts or intellectual,
and for which he receives a share in the profits (not
merely salary) of the business
Note: the law does not specify the kind of industry that a partner may
contribute. A limited partner in a limited partnership, however, cannot
contribute mere industry or services.
- Proof is necessary that there be contribution to a common fund
with the intention of dividing the income or profits obtained
therefrom.
4. The object must be lawful
- the object is unlawful when it is contrary to law, morals, good
customs, public order, or public policy
- If unlawful: no partnership can arise as the contract is inexistent
and void ab initio.
Note: a partnership may be organized for any purpose except that it
may not engage in an enterprise for which the law requires a specific
form of business organization (ex. Banking: only stock corporations may
undertake)
2 angels notes
5. The primary purpose must be to obtain profits and to divide the same
among the parties
- a partnership is formed to carry on a business
- This is what distinguishes the contract of partnership from
voluntary religious or social organizations
- Even an unprofitable business can be a partnership provided the
goal of the business is to generate profits
- This purpose need not be the exclusive aim. It is sufficient that its
the principal purpose even if there are, incidentally, moral, social
or spiritual ends.
Note: the articles of partnership must not be kept secret among the
members otherwise it will be considered as co-ownership (article 1775)
Sharing of Profits
- It is not necessarily in equal shares
- A stipulation in the contract which excludes one or more partners
from any participation in the profits or losses is void
- The sharing in profits is merely presumptive, even if cogent,
evidence of partnership
Sharing of Losses
- A community in losses is a necessary corollary of a participation in
profits
- It is not necessary for the parties to agree upon a system of
sharing losses, for such obligation is IMPLIED
- If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same
proportion
Article 1768
The partnership has a judicial personality separate and distinct from
that of each of the partners, even in case of failure to comply with the
requirements of Article 1772, first paragraph.
- Partnership is sometimes referred to as firm or a company
- Partnership is a JURIDICAL person
- A partnership may enter into contracts acquire and possess
property of all kinds in its name, as well as incur obligations and
bring civil or criminal actions in conformity with the laws and
regulations of its organization
- Partners cannot be held liable for the obligations of the
partnership UNLESS it is shown that the legal fiction of a different
juridical personality is being used for a fraudulent, unfair, or illegal
purpose
Note: to organize a corporation or a partnership that could claim a juridical
personality of its own and transact business as such, is not a matter of
absolute right but a privilege which may be enjoyed only under such terms as
the State may deem necessary to impose.
Article 1769
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such-co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;
(4) 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 no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
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 - this article lays down the rules for determining whether or not an
association is one of partnership
Q: what happens if the contract is uncertain of whether there exists a
partnership?
A: in case of doubt, Article 1769 should apply.
- The law presumes that persons who are acting as partners have
entered into a contract of partnership. Where the law presumes
such, the burden of proof is on the p arty denying its existence
- When partnership is shown to exist, the presumption is that it
continues --- burden of proof is on the person asserting its
termination

- The issue as to whether a partnership exists is a FACTUAL matter Rule: legal intention is the crux of partnership.
to be decided on the basis of all circumstances.
(1) Tests and Incidents of Partnership
- Persons who are partners as between themselves are partners as - Only those terms of a contract upon which the parties have
to third persons. Generally, the converse is true. reached an actual understanding, either expressly or impliedly,
- Partnership is a matter of unmistakable intention, each party may afford a test by which to ascertain the legal nature of the
giving his consent to become a partner contract. Once the legal nature of the contract is established,
- Where the parties expressly declare they are not partners, this, as certain consequences or incidents follow as a matter of law
a rule, settles the question as between themselves - Some typical indents of a partnership:
- EXCEPTION: Partnership by estoppel --- where persons by their - Partners share in profits and losses
acts, consent, or representations have misled third persons or - They have equal rights in the management and
parties into believing that the former are partners in a non- conduct of the partnership business
existing partnership, such persons become subject to liabilities of - Every partner is an agent of the partnership, and
partners to all who, in good faith, deal with them in their entitled to bind the other partners by his acts, for the
apparent relations. purpose of its business
- A fiduciary relation exists between the partners
(2) - On dissolution, the partnership is not terminated, but
- Co-ownership (ownership of a n undivided thing or right belongs continues until the winding up of partnership is
to different persons) of property DOES NOT of itself establish the completed
existence of a partnership, although co-ownership is an
essential element of partnership. Note: incidents may be modified by stipulation of the partners subject to the
rights of third persons dealing with the partnership
Remember: under article 147, the property acquired by a man and a woman
who live together as husband and wife shall be governed by the rules on co- Partnership vs. Labor Union
ownership and not partnership - Partnerships and labor unions have some characteristics in
common, but the purpose of partnership is essentially to enable
(3) its members, as principals, to conduct a lawful business, trade, or
- As distinguished from the general rule recognizing sharing of profession for pecuniary gain of partners, and no one may
profits as presumptive evidence of partnership, the sharing of become a partner without consent of all partners
gross returns has been held NOT to constitute even prima facie
evidence of the relation Partnership vs. Business Trust
- Reason: when a business is carried on in behalf of a given person - An outstanding distinction between partnership and trust
as partner, he is conceived as being interested in its failures as relations is that in partnership, all of the members are principals
well as its successes; where the contract requires a given portion and are agents for each other, while the trustee is only a principal
of gross returns to be paid over, the portion is paid over as and is not an agent. Only the trustee and not the beneficiaries is
commission, wages, rent, interest on loan, etc. empowered to make contracts to carry on the business affairs and
- However: where there is further evidence of mutual management the only one who has legal title ot the property
and control, a partnership may result, even though the agreement
calls for a portion of gross returns. Partnership vs. Co-Ownership
PARTNERSHIP CO-OWNERSHIP
(4) Creation Always created by a Created by law; may exist
- Receipt of share in the profits is a strong presumptive evidence of contract, either express or even without a contract
partnership (share both profits and losses) implied
- The sharing of profits and losses is PRIMA FACIE evidence of an Juridical Has juridical personality Has none
intention to form a partnership but NOT a conclusive evidence. Personality
- (a), (b), (c), (d), and (e) --- in these cases, sharing of profits is NOT Purpose Realization of profits Common enjoyment of a
a prima facie evidence. In these instances, the profits in the thing or right which does
business are not shared as profits of a partner as a partner but in not necessarily involve the
some other respects or for some other purposes (ex. Wage, to pay sharing of profits
debts, rent) Duration No limitation upon the An agreement to keep the
duration thing undivided for more
Note: the basic test of partnership, whether inter se or as to third persons, is than 10 years is not
whether the business is carried on in behalf of the person sough to be held allowed
liable. Disposal of A partner may dispose of May freely do so
Interest his individual interest in
It is not merely the sharing of profits, but the sharing of them as co-owner of the partnership so as to
the business or undertaking, that makes one a partner. If one takes a share make the assignee a
of the profits as payment of a debt, he is NOT a partner. partner unless agreed
upon by all of the partners
Remember: to be a partner, one must have an interest with another in the Power to act In the absence of contrary Co-owner cannot
profits of a business as profits. With third stipulation, a partner may represent the co-
persons bind the partnership ownership (judgment
Burden of Proof and Presumption against 1 co-owner does
- The burden of proving the existence of a partnership rests on the not bind the other co-
party having the affirmative of that issue owners)
Effect of death Results in the dissolution Does not necessarily
o the partnership dissolve the co-ownership

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 Succession
Partnership vs. Conjugal Partnership of Gains Extent of liability The partners (except Stockholders are liable
PARTNERSHIP CONJUGAL PARTNESHIP to third persons limited partners) are liable only to the extent of the
Parties Created by voluntary Arises in case the future personally and subsidiarily shares subscribed by them
agreement of two or more spouses a man and a (sometimes solidarily) for
partners belonging to woman agree that it partnership debts
either sex shall govern their Transferability A partner cannot transfer A stockholder has
property relation of interest his interest in the generally the right to
Laws which Governed by stipulation of Governed by law partnership so as to make transfer his shares
govern the parties the transferee a partner without the prior consent
Juridical Has juridical personality Has non without the consent of all of others
Personality the other existing partners
Commencement Begins from the moment Commences precisely on Term of May be established for May not be formed for a
of the execution of the the date of the existence any period of time term in excess of 50 yrs
contract, unless otherwise celebration of the stipulated by partners extendible to not more
stipulated marriage and any than 50yrs in one instance
stipulation to the contrary Firm name A limited partnership is May adopt any firm name
is void required by law to add the provided it is not the
Purpose Obtain profit To regulate the property word Ltd. To its name same or similar to any
relations of husband and registered firm name
wife during the marriage Dissolution May be dissolved at any Can only be dissolved with
Distribution of Profits are divided The shares of the spouses time by the will of any or the consent of the state
Profits according to the in the profits are divided all of the partners
agreement of the partners equally Governing law Civil Code Corporation Code
or in proportion
Management Shared equally by all the The husbands decision Similarities between a Partnership and a Corporation
partners unless one of shall prevail in case of 1. It has a Juridical Personality
them are appointed disagreement 2. It can act only through agents
managers 3. It is an organization composed of an aggregate of individuals
Disposition of The whole interest of a The share of each spouse 4. It distributes its profits to those who contribute capital
shares partner may be disposed cannot be disposed of 5. It can be organized only where there is a law authorizing its
of without the consent of during the marriage even organization
the other partners with the consent of the 6. It is taxable
other
Article 1770
Partnership vs. Voluntary Association A partnership must have a lawful object or purpose, and must be
PARTNERSHIP VOLUTNARY ASSO. established for the common benefit or interest of the partners.
Juridical Has juridical personality Has none
Personality - The first paragraph reiterates two essential elements of a contract
Purpose Pecuniary profit This objective is lacking of partnership:
Contribution There is contribution of Although fees are usually - Legality of the object
of members capital collected from the - Community of benefit or interest of the partners
members to maintain the
organization, there is no Note: illegality of the object will not be presumed; it must appear to be of
contribution of capital the essence of the relationship
Liability of The partnership, as a rule, The members are
members is the one liable individually liable for the Q: What are the effects of an unlawful partnership?
debts of the association A:
1. The contract is void ab ignition
Partnership vs. Corporation 2. The profits shall be confiscated in favor of the government
3. The instruments or tools and proceeds of the crime shall also be
PARTNERSHIP CORPORATION
forfeited in favor of the government
Manner of Mere agreement of Created by law or by
4. The contributions of the partners shall NOT be confiscated unless
Creation parties operation of law
they fall under no. 3
Number of May be organized by only Requires at least 5
Incorporators 2 persons incorporators
Note: a partnership is dissolved by operation of law upon the happening of
Commencement From the moment of Only from the date of
an event which makes it unlawful for the business of the partnership to be
of Juridical execution of the contract issuance of the certificate
carried on, or for the members to carry it on in partnership
Personality of partnership of incorporation by SEC
Powers Any power authorized by Can exercise only the
Q: is a judicial decree necessary to dissolve an unlawful partnership?
the partners provided it is powers expressly granted
A: no. However, it is advisable to do so for the convenience and peace o f
not contrary to law, etc by law or implied from
mind of the parties
those granted or incident
to its existence
When an unlawful partnership is dissolved by a judicial decree, the
Management Shared equally by all the Vested in the board of
profits shall be confiscated in favor of the State, without prejudice to the
partners unless one of directors or trustees
provisions of the Penal Code governing the confiscation of the instruments
them are appointed
and effects of a crime (art. 1770 par 2).
managers
Effect of A partner can sue a co- The suit against a member - This article does not state whether upon the dissolution of the
Mismanagement partner who mismanages of the BOD who unlawful partnership, the amounts contributed are to be returned
mismanages must be in to the parties, because it only deals with the disposition of profits
the name of the - GR: the partners must be reimbursed the amount of their
corporation respective contributions
Rights of No right of succession Has such right

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Note: the right to receive profits where partnership is unlawful shall be based
upon the partnership contract, which is null and without legal existence by
reason of its unlawful object; and it is self-evident that what does not exist
cannot be a cause of action
Effect of Partial Illegality of Partnership
- An account of that which is legal may be had
- Where, without the knowledge or participation of the partners,
the firms profits in a lawful business have been increased by
wrongful acts, the innocent partners are not precluded as against
the guilty partners from recovering their share of the profits
Effect of Subsequent Illegality of Partnership business
- It will not nullify the contract
- Instead, an accounting may be had as to the business trasacted
prior to such time
Salient Features of an Ordinary Partnership
1. Community of interest in profits and losses
2. Community of interest in the capital employed
3. Community of power in administration
Note: Community of interest is the basis of the partnership relation.
However, not every community of interest constitutes partnership (ex.
Tenants in common of land)
Out of the three, only profit-sharing seems to be absolutely essential.
Article 1771
A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.
- GR: no special form is required for the validity or existence of the
contract of partnership
- if read with article 1773, the execution of a public instrument if
necessary for the validity of a contract of partnership whenever
immovable property is contributed thereto
- To affect third person, the transfer of real property to the
partnership must be duly registered in the Registry of Property of
the province or city where the property contributed is located
Note: an agreement to enter in a partnership at a future time, which by its
terms is not to be performed within a year from the making thereof is
covered by the statute of frauds.
Partnership Implied from Conduct
- The existence of partnership may be implied from the acts or
conduct of the parties, as well as from other declarations, and
such implied contract would be as binding as a written and
express contract
- What is important is the intention as disclosed by the entire
transaction, and as gathered from the facts and from the
language employed by the parties as well as their conduct, should
be ascertained
- A partnership may even be created without any definite intention;
the intention of the parties being inferred from their conduct and
dealings which each other
Article 1772
Every contract of partnership having a capital of three thousand pesos
or more, in money or property, shall appear in a public instrument, which
must be recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph
shall not affect the liability of the partnership and the members thereof to
third persons.
- There are 2 requirements where the capital of the partnership is
3,000 or more, in money or property:
- The contract must appear in a public instrument
- It must be recorded or registered with the Securities
and Exchange Commission
5 angels notes
- However, failure to comply with the above requirement does not
prevent the formation of the partnership or affect its liability and
that of the partners to third persons
Q: what is the purpose of registration?
A: the requirement of public instrument is imposed as prerequisite to
registration, and registration is necessary as a condition for the issuance of
licenses to engage in business or trade --- in this way, the tax liabilities of big
partnerships cannot be evaded and the public can also determine more
accurately their membership and capital before dealing with them
Note: the only objective of the law is to make the recorded instrument open
to all and to give notice thereof to interested parties.
Remember: the date the partnership papers are presented to and left for the
record in the Commission is considered the effective date of registration of
the articles of partnership.
Article 1773
A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by
the parties, and attached to the public instrument.
- Requirements where immovable property, regardless of value, is
contributed:
- It must be in a PUBLIC INSTRUMENT (art. 1771)
- An inventory of the property contributed must be
made, signed by the parties, and attached to the public
instrument
- Failure to comply with these requirements will render the
partnership contract VOID in so far as the contracting parties are
concerned
Q: what is the effect of non compliance as to third persons?
A: Article 1773 is intended primarily to protect third persons. With regard to
them, a de facto partnership or partnership by estoppels may exist (Art.
1825)
When Inventory NOT required
- An inventory is required only whenever immovable property is
CONTRIBUTED
- Hence, Article 1773 does NOT apply in the case of immovable
property which may be possessed or even owned by the
partnership but not contributed by any of the partners
Note: if personal property, aside from real property (meaning mixed), is
contributed, the inventory need not include the former
Q: what is the importance of making inventory of real property?
A: It is to show how much is due from each partner to complete his share in
the common fund and how much is due to each of them in case of
liquidation. It would be useless if there is no inventory of immovable
property contributed because without its description and designation, the
instrument cannot be subject to inscription in the Registry of Property, and
the contribution cannot prejudice third persons.
Article 1774
Any immovable property or an interest therein may be acquired in the
partnership name. Title so acquired can be conveyed only in the partnership
name.
- Immovable property may be acquired in the partnership name
- The legal effects of conveyance of property standing in the name
of the partnership executed by a partner in the partnership name
or in his own name are governed by Article 1819 (1) (2).
- The right of a partnership to deal in real as well as personal
property is subject to LIMITATIONS and RESTRICTIONS prescribed
by the CONSTITUTION (Art. XIV, Secs. 3, 5, 8, 9, 11)
Article 1775
Associations and societies, whose articles are kept secret among the
members, and wherein any one of the members may contract in his own
name with third persons, shall have no juridical personality, and shall be
governed by the provisions relating to co-ownership.
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- This type of association is not given juridical personality as they
are not considered a partnership.
- As among themselves, they shall be governed by the provision
relation to co-ownership
- Read the following articles to understand why such association is
not given juridical personality: Art. 1767, 1806, 1803, 1815, 1768,
1819, 1770 (1) --- or read page 68 of de leon
Q: what is the importance of giving publicity to articles of partnership?
A: it is for the protection of not only of the members themselves but also
third persons from fraud and deceit to which otherwise they would be easy
victims.
Note: A member who transacts business for the secret partnership in his own
name becomes personally bound to third persons unaware of the existence
of such association.
Article 1776
As to its object, a partnership is either universal or particular. As
regards the liability of the partners, a partnership may be general or
limited.
Classification of Partnership
1. As to the extent of its subject matter
a. Universal partnership or one which refers to all the
present property or to all profits (art. 1777); has two
kinds:
i. Universal partnership of all present
property (art. 1778)
ii. Universal partnership of profits (art. 1780)
b. Particular partnership (art. 1783)
2. As to liability of the partners
a. General partnership or one consisting of general
partners who are liable pro rata and subsidiarily (art.
1816) and sometimes solidariliy (art. 1822-24) with
their separate property for partnership or debts ;
extends or is responsible for the liabilities which the
partnership cant pay, even those beyond their
contribution; all are general partners
b. Limited partnership or one formed by two or more
persons having as members one or more general
partners and one or more limited partners, the latter
not being personally liable for the obligations of the
partnership (art. 1843); is responsible only up to the
extent of his contribution in the partnership; at least
one is a general partner
3. As to its duration
a. Partnership at will or one in which no time is specified
and is not formed for a particular undertaking or
venture and which may be terminated at anytime by
mutual agreement of the partners, or by the will of
any one partner alone; or one for a fixed terms or
particular undertaking which is continued by the
partners after the termination of such term or
particular undertaking without express agreement (art.
1785)
b. Partnership with a fixed term or one in which the term
for which the partnership is to exist is fixed or agreed
upon or one formed for a particular undertaking, and
upon the expiration of the term or completion of the
particular enterprise, the partnership is dissolved,
unless continued by the partners
4. As to the legality of its existence
a. De jure partnership or one which has complied with all
the legal requirements for its establishment (art. 1772
(2); 1773)
b. De facto partnership or own which has failed to comply
with all the legal requirements for its establishment
5. As to representation to others
a. Ordinary or real partnership or one which actually
exists among the partners and also as to third persons
b. Ostensible partnership or partnership by estoppel or
one which in reality is not a partnership, but is
6 angels notes
considered a partnership only in relation to those who,
by their conduct or admission, are precluded to deny
or disprove its existence (art. 1825)
6. As to publicity
a. Secret partnership or one wherein the existence of
certain persons as partners is not avowed or made
known to the public by any of the partners
b. Open or notorious partnership or one whose existence
is avowed or made known to the public by the
members of the firm
7. As to purpose
a. Commercial or Trading partnership or one formed for
the transaction of business (art. 1767)
b. Professional or non-trading partnership or one formed
for the exercise of profession
Kinds of Partners (under the Civil Code)
1. Capitalist partner contributes money or property to the
common fund (art. 1767)
2. Industrial partner contributes only his industry or personal
service (art. 1789; 1767)
3. General partner liability to third persons extends to his separate
property; also known as a real partner
4. Limited partner liability to third persons is limited to his capital
contribution; also known as a special partner
5. Managing partner one who manages the affairs or business of
the partnership
6. Liquidating partner one who takes charge of the winding up of
partnership affairs upon dissolution
7. Partners by estoppels one who is not really a partner, not being
a party to a partnership agreement, but is liable as a partner for
the protection of innocent third persons (art. 1825); also known
as partner by implication or nominal partner
8. Continuing partner who continues the business of a partnership
after it has been dissolved by reason of the admission of a new
partner, or the retirement, death, or expulsion of one or more
partners (art. 1840)
9. Surviving partner one who remains after partnership has been
dissolved by the death of the partner
10. Subpartner not being a member of the partnership, contracts
with a partner with reference to the latters share in the
partnership (art. 1804)
Note: see other classification of partners in page 73-74 of book.
Article 1777
A universal partnership may refer to all the present property or to all
the profits.
Article 1778
A partnership of all present property is that in which the partners
contribute all the property which actually belongs to them to a common
fund, with the intention of dividing the same among themselves, as well as
all the profits which they may acquire therewith.
Article 1779
In a universal partnership of all present property, the property which
belongs to each of the partners at the time of the constitution of the
partnership, becomes the common property of all the partners, as well as
all the profits which they may acquire therewith.
A stipulation for the common enjoyment of any other profits may also
be made; but the property which the partners may acquire subsequently by
inheritance, legacy, or donation cannot be included in such stipulation,
except the fruits thereof.
Universal Partnership of all Present property
- A universal partnership of all present property is one which
comprises all that the partners may acquired by their industry or
work during the existence of the partnership and the usufruct of
movable or immovable property which each of the partners may
possess at the time of the celebration of the contract
- In this kind of partnership, the following become the COMMON
PROPERTY of the partners:
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 - Property which belonged to each of them at the time
of the constitution of the partnership
- Profits which they may acquire from the property
contributed
Note: as a general rule, FUTURE PROPERTIES CANNOT be contributed. Thus,
property subsequently acquired by inheritance, legacy, or donation cannot
be included by stipulation EXCEPT the FRUITS thereof. --- any stipulation
including property so acquired is VOID.
Remember: profits from other sources (not from the properties contributed)
will become common property only if there is a stipulation.
Article 1780
A universal partnership of profits comprises all that the partners may
acquire by their industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may
possess at the time of the celebration of the contract shall continue to
pertain exclusively to each, only the usufruct passing to the partnership.
Q: what is the fundamental difference between a universal partnership and
a particular partnership?
A: The difference lies in the scope of their subject matter or object. In the
former, the object is vague and indefinite, contemplating a general business
with some degree of continuity, while in the latter, it is limited and well-
defined, being confined to an undertaking of a single, temporary, or ad hoc
nature (ex. All lots, all of my cars, etc.)
- Example of a particular partnership: the acquisition of an
immovable property for the purpose of reselling it at a profit
Note: an agreement to undertake a particular piece of work or a single
transaction or a limited number of transactions and immediately divide the
resulting profit would seem to fall within the meaning of the term
partnership as used in the law.
CHAPTER 2
OBLIGATIONS OF THE PARTNERS
Section 1 Obligations of Partners among Themselves

- In this class of partnership, the partners retain their ownership

over their present and future property
A contract of partnership gives rise to at least four (4) distinct juridical
- What passes to the partnership are the profits or income and the
relations, namely:
use or usufruct of the same
1. Relations among the partners themselves
2. Relations of the partners with the partnership
Q: what happens upon the dissolution of the partnership?
3. Relations of the partnership with third persons with whom it
A: such property is returned to the partners who own it
contracts
4. Relations of the partners with such third persons
Note: profits acquired by the partners through chance, such as lottery or by
lucrative title without the employment of any physical or intellectual efforts,
Rights and Obligations, in general, of partners inter se
are not included
1. Partnership relationship essentially is one of mutual trust and
confidence
Remember: FRUITS of property SUBSEQUENTLY acquired by the partners DO
- This relationship is as much the same as the one
NOT BELONG to the partnership. Such profits may, however, be included by
existing between the principal and agent because,
express stipulation.
technically, the partnership is the principal and each
partner is an agent of the partnership and every other
Article 1781
partners with respect to partnership affairs.
Articles of universal partnership, entered into without specification of
- The many particular rights and duties to each other
its nature, only constitute a universal partnership of profits.
are, in reality, but aspects of the broad FIDUCIARY
RELATION
- This article applies only when a UNIVERSAL PARTNERSHIP has
2. Fiduciary relationship remains until partnership is terminated
been organized
- When a partnership is dissolved, the assets of the
- Where the articles of partnership do not specify the nature of the
partnership must still be managed in accordance with
partnership, whether it is one of present property or profits
this fiduciary principle
only, it will be PRESUMED that the parties intended merely a
partnership of PROFITS.
Note: The relationship between a limited partner and the other partners in a
limited partnership DOES NOT involve the element of trust and confidence,
Q: why is the presumption of profits only?
as in the case of a general partnership
A: because such imposes lesser obligation on the partners. Least
transmission of rights will apply (they retain ownership)
Article 1784
A partnership begins from the moment of the execution of the
Article 1782
contract, unless it is otherwise stipulated.
Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership.
- Read this article in relation to articles 1771 and 1773
- A partnership is a consensual contract; hence, it exists from the
Q: what is the rationale of this provision?
moment of the celebration of the contract by the partners
A: The reason is that each of the partners in a universal partnership virtually
- Note: the registration in the Securities and Exchange Commission
makes a donation
is not essential to give it juridical personality
- Unlike a corporation, no time limit is prescribed by law for the life
Q: what is the consequence in violating this article?
of partnership
A: the article is null and void. No legal personality is acquired.

Note: the above rule on the commencement of a partnership is NOT

Note: a husband and his wife, however, may enter into a particular
ABSOLUTE. The partners may stipulate some other date for the
partnership or be members thereof.
commencement of the partnership. Hence, there can be a future partnership
which at the moment has no juridical existence yet.
Article 1783
A particular partnership has for its object determinate things, their
Remember: There is a marked distinction between a partnership actually
use or fruits, or specific undertaking, or the exercise of a profession or
CONSUMATED and an AGREEMENT to enter into a contract of partnership at
vocation.
a future time. So long as the agreement remains executor the partnership is
inchoate, not having called into being by the concerted action necessary
- Particular partnership is neither a universal partnership of present
under the partnership agreement.
property nor a universal partnership of profits

7 angels notes
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Article 1785
When a partnership for a fixed term or particular undertaking is
continued after the termination of such term or particular undertaking
without any express agreement, the rights and duties of the partners
remain the same as they were at such termination, so far as is consistent
with a partnership at will.
A continuation of the business by the partners or such of them as
habitually acted therein during the term, without any settlement or
liquidation of the partnership affairs, is prima facie evidence of a
continuation of the partnership.
- The expiration of the term thus fixed or the accomplishment of
the particular undertaking specified (or the demonstration of the
impossibility of its accomplishment) will cause the automatic
dissolution of the partnership
Q: after such expiration, can the partnership be extended or renewed? How?
A: Yes, by express agreement, written or oral, or impliedly, by the mere
continuation of the business after the termination of such term or particular
undertaking without any settlement or liquidation.
With such continuation, the partnership for a fixed term or particular
undertaking is dissolved and a new one, a partnership at will, is created by
implied agreement the continued existence of which will depend upon the
mutual desire and consent of the partners.
Article 1786
Every partner is a debtor of the partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to
specific and determinate things which he may have contributed to the
partnership, in the same cases and in the same manner as the 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, without the need of
any demand.
- This article speaks of obligations with respect to contribution of
property. The obligations are as follows:
o 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
o To answer for eviction in case the partnership is deprived
of the determinate property contributed
o To answer to the partnership for the fruits of the property
the contribution of which he delayed, from the date they
should have been contributed up to the time of actual
delivery
o To preserve the property with diligence of a good father
of a family pending delivery to the partnership
o To indemnify the partnership for any damage caused to it
by the retention of the same or by the delay in its
contribution
Q: what is the effect of failure to contribute property promised?
A: the failure to contribute is to make the partner ipso jure a debtor of the
partnership even in the absence of any demand.
Q: what is the remedy of the other partners or partnership?
A: Their remedy is NOT rescission BUT an action for SPECIFIC PERFORMANCE
(to collect what is owing) with damages and interest from the defaulting
partner from the time he should have complied with his obligation.
Note: the liability of a partner in case of eviction is governed by the law on
sales.
Remember: No demand is necessary to impose liability on a partner for
fruits of property in case of delay. Such partner is automatically placed in
default
Q: Is a partner who fails to perform the personal services which he has
stipulated to render to the partnership, liable to the other partners for the
value of the services?
A:
GR: unless there is a special agreement to that effect, the partners are NOT
entitled to charge each other, or the partnership of which they are members,
for their services in the firm business. (Partners are not entitled to
compensation for their services)
EXC: if the GR is inapplicable where the reason of it fails. (see compensation
for services rendered under article 1800)
8 angels notes
Article 1787
When the capital or a part thereof which a partner is bound to
contribute consists of goods, their appraisal must be made in the manner
prescribed in the contract of partnership, and in the absence of stipulation,
it shall be made by experts chosen by the partners, and according to
current prices, the subsequent changes thereof being for account of the
partnership.
Q; what is the purpose of an appraisal?
A: it is necessary to determine how much has been contributed by the
partners
- In the absence of a stipulation, the share of each partner in the
profits and losses is in proportion to what he may have
contributed.
Q: How is the appraisal made?
A: First in the manner prescribed by the contract of partnership
Second in the absence of stipulation, by experts chosen by the partners
and according to current prices
In case of immovable property, the appraisal is made in the inventory of said
property, otherwise, it may be made as provided in article 1787.
Article 1788
A partner who has undertaken to contribute a sum of money and fails
to do so becomes a debtor for the interest and damages from the time he
should have complied with his obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he converted
the amount to his own use.
- This article contemplates 2 distinct cases:
First paragraph refers to money promised but not
given on time
Second paragraph refers to partnership money
converted to the personal use of the partner
- The following are the obligations of the partner under this article:
To contribute on the date due the amount he has
undertaken to contribute to the partnership
To reimburse any amount he may have taken from the
partnership coffers and converted to his own use
To pay the agreed or legal interest, if he fails to pay
his contribution on time or takes and converts any
amount for his own use
To indemnify the partnership for the damages caused
to it by the delay in the contribution or the conversion
of any sum for his personal benefit
Q: When is the partner liable for interest and damages?
A: he is liable NOT from the time judicial or extrajudicial demand is made
BUT from the time he should have complied with his obligation or from the
time he converted the amount to his own use. Note that unless there is a
stipulation fixing a different time, this obligation of a partner to give his
promised contribution arises from the commencement of the partnership,
that is upon perfection of the contract.
Liability of Partner for Failure to Return Partnership Money Received
1. Guilty of Estafa if partner misappropriates partnership money or
property received by him for a specific purpose of the partnership
2. Civil Liability the mere failure on the part of an industrial
partner to return to the capitalist partner the capital brought by
him into the partnership; the mere failure on the part of the
industrial partner to liquidate partnership affairs and to account
to persons interested the amounts respectively due them
Article 1789
An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail themselves
of the benefits which he may have obtained in violation of this provision,
with a right to damages in either case.
Industrial Partner one who contributes his industry, labor, or services to the
partnership
- The partnership acquires an EXCLUSIVE RIGHT to avail itself of
and industrial partners industry
- Consequently, if he engages in business for himself, such act is
considered PREJUDICIAL to the interest of the other partners.
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Prohibition against Engaging in Business
1. As regards and industrial partner the prohibition is ABSOLUTE
and applies whether the industrial partner is t engage in the same
business in which the partnership is engaged or in any kind of
business
2. As regards capitalist partners the prohibition extends only to
any operation which is of the same kind of business in which the
partnership is engaged unless there is a stipulation to the contrary
Remedies where Industrial Partner engages in Business
- The CAPITALIST partners have the right either to EXCLUDE him
from the firm or to avail themselves of the benefits which he
may have obtained
- In either case, the capitalist partners have a RIGHT TO DAMAGES
Note: The permission given must be EXPRESS; hence, mere toleration by the
partnership will not exempt the industrial partner from liability.
Note as well: this article is also applicable to INDUSTRIAL PARTNERS as they
are likewise prejudiced by the act of their co-partner engaging in business for
himself.
Article 1790
Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership.
- This rule is NOT applicable to an INDUSTRIAL partner unless,
besides his services, he has contributed capital pursuant to an
agreement to that effect.
Article 1791
If there is no agreement to the contrary, in case of an imminent loss of
the business of the partnership, any partner who refuses to contribute an
additional share to the capital, except an industrial partner, to save the
venture, shall be obliged to sell his interest to the other partners.
- GR: a capitalist partner is not bound to contribute to the
partnership more than what he agreed to contribute
- EXC: in case of imminent loss of the business, and when there is
no agreement to the contrary --- this is to save the venture
- Result of Refusing to comply: he shall be obliged to sell his
interest to the other partners
- Requisites for application of the rule:
There is an imminent loss of the business
The majority of the capitalist partners are of the
opinion that an additional contribution to the common
fund would save the business
The capitalist partner refuses deliberately (not
because of financial inability) to contribute an
additional share to the capital
There is no agreement to the contrary
Note: Industrial partner is EXEMPTED from the requirement to contribute an
additional share. Having contributed his entire industry, he can do nothing
further.
Q: what is the reason for the sanction?
A: the refusal of the partner to contribute his additional share reflects his
lack of interest in the continuance of the partnership.
Article 1792
If a partner authorized to manage collects a demandable sum which
was owed to him in his own name, from a person who owed the
partnership another sum also demandable, the sum thus collected shall be
applied to the two credits in proportion to their amounts, even though he
may have given a receipt for his own credit only; but should he have given it
for the account of the partnership credit, the amount shall be fully applied
to the latter.
The provisions of this article are understood to be without prejudice to
the right granted to the other debtor by Article 1252, but only if the
personal credit of the partner should be more onerous to him.
- Requisites for the application of the rule:
There exist at least two debts, one where the
collecting partner creditor, and the other, where the
partnership is creditor
Both debts are demandable
The partner who collects is authorized to manage and
actually manages the partnership
Q: what is the reason for applying payment to partnership credit?
9 angels notes
A: the law safeguards the interests of the partnership by preventing the
possibility of their being subordinated by the managing partner to his own
interest to the prejudice of the other partners.
Note: where the manner of management has not been agreed upon and all
the partners participate in the management of the partnership, then every
partner shall be considered a managing partner for purposes of article 1792.
Remember: Under the second paragraph, the DEBTOR is given the RIGHT TO
PREFER payment of the credit of the partner if it should be MORE ONEROUS
to him in accordance with his right to application of payment.
Article 1793
A partner who has received, in whole or in part, his share of a
partnership credit, when the other partners have not collected theirs, shall
be obliged, if the debtor should thereafter become insolvent, to bring to the
partnership capital what he received even though he may have given
receipt for his share only.
- In this article there is only ONE CREDIT credit in favor of the
partnership
- This article applies whether the partner who receives his share of
the partnership credit is authorize to manage or not
- Requisites for application of rule
a partner has received, in whole or in part, his share of
the partnership credit
the other partners have not collected their shares
the partnership debtor has become insolvent
Note: The above provision is based on the COMMUNITY OF INTEREST among
the partners, which is one of the underlying principles of the contract of
partnership.
Q: does this article apply after the dissolution of the partnership?
A: some commentators answer in the affirmative basing their answer in the
community and equality. However there are contrary views--- Manresa and
Ricci: for them, it would be unjust that he who has been diligent and
collected his quota should suffer the consequence of the negligence of his
associates, thus making him responsible for the default of the latter.
Article 1794
Every partner is responsible to the partnership for damages suffered
by it through his fault, and he cannot compensate them with the profits and
benefits which he may have earned for the partnership by his industry.
However, the courts may equitably lessen this responsibility if through the
partner's extraordinary efforts in other activities of the partnership,
unusual profits have been realized.
- GR: the damages caused by a partner to the partnership CANNOT
be offset by the profits or benefits which he may have earned for
the partnership by his industry
- EXC: If unusual profits are realized through extraordinary efforts
of the partner at fault, the courts may equitably mitigate or lessen
his liability for damages
Article 1795
The risk of specific and determinate things, which are not fungible,
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.
If the things contribute are fungible, or cannot be kept without
deteriorating, or if they were contributed to be sold, the risk shall be borne
by the partnership. In the absence of stipulation, the risk of the things
brought and appraised in the inventory, shall also be borne by the
partnership, and in such case the claim shall be limited to the value at
which they were appraised.
- 5 cases contemplated by this article:
1. Specific and Determinate things which are NOT
fungible where only the use is contributed
- The risk of loss is borne by the PARTNER
because he remains the owner of the things
2. Specific and Determinate things the ownership of
which is transferred to the partnership
- The risk of loss is for the account of the
PARTNERSHIP, being the owner
3. Fungible things or things which cannot be kept without
deteriorating even if they are contributed only for the
use of the partnership
- Risk of loss is borne by the PARTNERSHIP
for evidently the ownership was being
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 transferred since use is impossible without
the thing being consumed or impaired
4. Things contributed to be sold
- The PARTNERSHIP bears the risk of loss for
there cannot be any doubt that the
partnership was intended to be the owner
5. Things brought and appraised in the inventory
- The PARTNERSHIP bears the risk of loss
because the intention of the parties was to
contribute to the partnership the price of
the things contributed with an appraisal in
the inventory (implied sale)
Note: the above presuppose that the things contributed have been delivered
ACTUALLY or CONSTRUCTIVELY to the partnership. Before delivery, the risk
of loss is borne by the partner since he remains their owner.
Article 1796
The partnership shall be responsible to every partner for the amounts
he may have disbursed on behalf of the partnership and for the
corresponding interest, from the time the expense are made; it shall also
answer to each partner for the obligations he may have contracted in good
faith in the interest of the partnership business, and for risks in
consequence of its management.
- Responsibility of the Partnership to the Partners:
o Refund amounts disbursed by the partner in behalf of
the partnership plus the corresponding interest from
the time the expenses are made
o Answer for the obligations the partner may have
contracted n good faith in the interest of the
partnership business
o Answer for risks in consequence of its management
Article 1797
The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits
and losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital.
- Rule on Distribution of Profits:
o According to their agreement subject to article 1799
o If no agreement, the share of each capitalist partner
shall be in proportion to his capital contribution (based
on the presumed will of the partners)
o The industrial partner shall receive such share, which
must be satisfied first before the capitalist partners
shall divide the profits, as may be just and equitable
under the circumstances
o Equal distribution
Note: a partner is entitled to receive only his share of the profits actually
realized by the venture.
- Rule on Distribution of Losses
o It shall be distributed according to their agreement
subject to article 1799
o If no agreement, but the contract provides for the
share of the share of the partners in the profits, the
share of each in the losses shall be in accordance with
the profit-sharing ration, but the industrial partner
shall not be liable for losses
o If there is no profit sharing stipulation, the losses shall
be borne by the partners in proportion to their capital
contribution, but the purely industrial partner shall not
be l for losses
o Equal Distribution
Article 1798
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 designation may be
impugned only when it is manifestly inequitable. 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 of three months from the time he had
knowledge thereof, complain of such decision.
10
The designation of losses and profits cannot be intrusted to one of the
partners.
- The designation of the share in the profits and losses may be
delegated to a third person by common consent
- The prohibition in the second paragraph is necessary to guarantee
the utmost impartiality in the distribution of shares in the profits
and losses
Binding Force of Designation by third Person
- The designation would generally be binding unless MANIFESTLY
INEQUITABLE
- Even then, a partner who has begun to execute the decision of
the third person or who fails to impugn the same within THREE
MONTHS from the time he had knowledge of it can no longer
complain --- ESTOPPEL/CONSENT OR RATIFICATION
Article 1799
A stipulation which excludes one or more partners from any share in
the profits or losses is void.
- Although the stipulation is void, the partnership ,if otherwise
valid, subsists and the profits or losses shall be apportioned as if
there were no stipulation on the same
Note however: where the one excluded from any share in the profits or
losses is not intended by the parties to become a partner, the stipulation is,
of course, valid.
- Excluding an industrial partner from losses is naturally valid as an
exception to the general rule. This is without prejudice, however,
to the rights of third persons.
Where Stipulation provides for unequal shares
- It only becomes void if the inequality is so gross that it is, in effect,
a simulated form or attempt to exclude a partner from any share
in the profits or losses
Article 1800
The partner who has been appointed manager in the articles of
partnership may execute all acts of administration despite the opposition of
his partners, unless he should act in bad faith; and his power is irrevocable
without just or lawful cause. The vote of the partners representing the
controlling interest shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be
revoked at any time.
- GR: each partner in a general partnership has a right to an equal
voice in the conduct and management of the partnership business
- However, partners may select a managing partner
- This article speaks of TWO DISTINCT cases of appointment:
o Appointment as manager in the articles of partnership
He may execute all acts of administration
notwithstanding the opposition of the other
partners, UNLESS he should act in bad faith
His power is REVOCABLE ONLY upon just
and lawful cause and upon the vote of the
partners representing the controlling
interest
Reason: the law presumes that the
appointment was one of the conditions of
the contract thus it cannot be revoked
without the consent of all the partners,
including the partner thus appointed
o Appointment as manager after the constitution of the
partnership
This kind of power may be revoked at ANY
TIME for ANY CAUSE whatsoever
The controlling interest only is what is
required for the vote of revocation
Reason: it is a mere contract of agency,
which may be revoked at any time
Scope of Power of a Managing Partner
- GR: a managing partner has all the powers of a GENERAL AGENT
as well as all the incidental powers necessary to carry out the
object of the partnership in the transaction of its business
- EXC: when the powers of the manager are SPECIFICALLY
RESTRICTED
angels notes
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Note however: the power of a managing partner, unlike ownership, cannot
dispose of immovable properties of the partnership.
Compensation for services rendered
- GR: partners are NOT entitled to compensation
- EXC: the law may imply a contract for compensation.
- The following are instances when a partner can receive
compensation:
o A partner engaged by his co-partners to perform
services not required of him in fulfillment of the duties
which the partnership relation imposes and in a
capacity other than that of a partner
o When there is extraordinary neglect on the part of one
partner to perform his duties, thereby imposing the
entire burden on the remaining partner
o One partner may employ his co-partner to do work for
him outside of the independent of the co-partnership,
and become personally liable thereof
o Partners exempted by the terms of partnership from
rendering services to the firm may demand pay for
services rendered
o Where one partner is entrusted with the management
of the partnership business and devotes his whole time
and attention thereto, at the instance of the other
partners who are attending to their individual business
and giving no time or attention to the business of the
firm
Article 1801
If two or more partners have been intrusted with the management of
the partnership without specification of their respective duties, or 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 administration, but if
any of them should oppose the acts of the others, the decision of the
majority shall prevail. In case of a tie, the matter shall be decided by the
partners owning the controlling interest.
- Where respective duties of two or more managing partners are
not specified, each one may separately perform acts of
administration
- Rules:
o If one or more of the managing partners oppose
decision of the majority of the managing partners shall
prevail (only by those entrusted with the management)
o In case of a tie it shall be decided by the vote of the
partners owning the controlling interest (more than
50% of the capital investment)
- Requisites for application of rule:
o Two or more partners have been appointed as
managers
o There is no specification of their respective duties
o There is no stipulation that one of them shall not act
without the consent of all the others
Article 1802
In case it should have been stipulated that none of the managing
partners shall act without the consent of the others, the concurrence of all
shall be necessary for the validity of the acts, and the absence or disability
of any one of them cannot be alleged, unless there is imminent danger of
grave or irreparable injury to the partnership.
- GR: the partners may stipulate that none of the managing
partners shall act without the consent of the others. In such a
case, the UNANIMOUS CONSENT of all the managing partners
shall be necessary for the validity of their acts
- EXC: when there is an IMMINENT DANGER of grave or irreparable
injury to the partnership, in which case, a partner may act alone
without the consent of the partner who is absent or under
disability, without prejudice to his liability for damages under
Article 1794
Important: The EXCEPTION is not applicable when one of the managers, in
the exercise of his right to oppose, objects to the proposed act.
Note: the consent of managing partners is not necessary in routine
transactions. The requirement of written authority refers evidently to formal
and unusual written contracts.
Article 1803
When the manner of management has not been agreed upon, the
following rules shall be observed:
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(1) All the partners shall be considered agents and whatever any
one of them may do alone shall bind the partnership, without
prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others,
make any important alteration in the immovable property of the
partnership, even if it may be useful to the partnership. But if the
refusal of consent by the other partners is manifestly prejudicial
to the interest of the partnership, the court's intervention may
be sought.
- Rules when manner of management has not been agreed upon:
o All partners shall have equal rights in the management
and conduct of partnership affairs
o Article 1803 (1) should be read with Article 1818 par. 3
- Under the second paragraph, the unanimous consent (need not
be expressed) of ALL the partners is necessary for any important
alteration in the IMMOVABLE PROPERTY of the partnership
o Second paragraph speaks of alteration even if it may
be useful to the partnership
o IF the alteration is necessary for the PRESERVATION of
the property, it would seem that the consent of the
other partners is not required
Article 1804
Every partner may associate another person with him in his share, but
the associate shall not be admitted into the partnership without the
consent of all the other partners, even if the partner having an associate
should be a manager.
- Such associate is sometimes referred to as a subpartner
- Subpartnership is the partnership formed between a member of
partnership and a third person for a division of profits coming to
him from the partnership enterprise --- how profits between the
members of a subpartnership is immaterial
- A subpartner, not being a member of the partnership, DOES NOT
acquire the rights of a partner nor is he liable for its debts
Article 1805
The partnership books shall be kept, subject to any agreement
between the partners, at the principal place of business of the partnership,
and every partner shall at any reasonable hour have access to and may
inspect and copy any of them.
- the duty to keep true and correct books showing the firms
accounts, such books being at all times, open to inspection of all
members of the firm, primarily rests on the managing or active
partner or the particular partner given record-keeping duties
- GR: such book should be kept at the principal place of business
Note: the partners inspection rights are NOT absolute
Article 1806
Partners shall render on demand true and full information of all things
affecting the partnership to any partner or the legal representative of any
deceased partner or of any partner under legal disability.
- This is under the same principle of mutual trust and confidence
among partners
- The information, to be sure, must be used ONLY for a partnership
purpose
- Not only is a partner bound to give information on demand but in
certain circumstances, he is under the duty of VOLUNTARY
disclosure of material facts
Article 1807
Every partner must account to the partnership for any benefit, and
hold as trustee for it any profits derived by him without the consent of the
other partners from any transaction connected with the formation,
conduct, or liquidation of the partnership or from any use by him of its
property.
- The duties of a partner are analogous to those of a trustee
- The duties include:
o duty of partner to act for the common benefit relating
to the partnership
o The duty of accounting for earnings accruing even
after the termination of the partnership
o Duty NOT to acquire interest or right adverse to the
partnership
- Such duty BEGINS during the FORMATION of the partnership
- Such duty CONTINUES even after the DISSOLUTION of the
partnership until the relationship is terminated
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 - The violation of the duty to account all profits of the partnership
may be a ground for a petition for judicial dissolution of the
partnership
Article 1808
The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is
engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions, and shall
personally bear all the losses.
- The prohibition against the CAPITALIST partner to engage in
business is RELATIVE
- The prohibition is only for engaging for his own account in any
operation which is the same as or similar to the business in which
the partnership is engaged and which is competitive with said
business
Q: what is the effect of the violation?
A: such capitalist partner shall be under obligation to bring to the common
fund any profits derived by him from his transactions and, in case of losses,
he shall bear them alone.
Note: the partners, however, by stipulation may permit the capitalist partner
to engage in the same kind of business.
- The law is silent on whether a capitalist partner can engage in the
same line of business for the account of another. It would seem
that the prohibition still applies
Article 1809
Any partner shall have the right to a formal account as to partnership
affairs:
(1) If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable.
- GR: during the existence of the partnership, a partner is NOT
ENTITLED to a formal account of partnership affairs
- Reason: rights of the partner to know partnership affairs are
amply protected in articles 1805 and 1806. Further it will cause
much inconvenience and unnecessary waste of time
- EXC: those enumerated under this article. Example of (4) is when
a partner has been assigned abroad for a long period of time in
connection with the partnership business
- Prescriptive period: prescription begins to run upon the
dissolution of the partnership when the final accounting is done
- Nature of action for accounting: personal action; commenced
and tried where the defendant resides or may be found or where
the plaintiff resides, at the election of the latter
Section 2 Property Rights of a Partner
Article 1810
The property rights of a partner are:
(1) His rights in specific partnership property (Art. 1811);
(2) His interest in the partnership (Art. 1812); and
(3) His right to participate in the management (Art. 1803).
- Other related rights:
o The right to reimbursement for amounts advanced to
the partnership and to indemnification for risks in
consequence of management
o The right of access and inspection of partnership books
o The right to true and full information of all things
affecting the partnership
o The right to a formal account of partnership affairs
under certain circumstances
o Right to have the partnership dissolved also under
certain conditions
Partnership Property vs. Partnership Capital
PARTNERSHIP PROPERTY PARTNERSHIP CAPITAL
Changes in value Variable; value may vary Constant; remains
from day to day with unchanged as the amount
changes in the market fixed by agreement of the
value of the partnership partners; although it may
assets be increased or
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diminished by unanimous
consent of the partners
Assets included Includes original capital Represents aggregate of
contributions and all the individual
property subsequently contributions made by the
acquired on account of partners in establishing or
the partnership continuing the
partnership
Note: where there is NO EXPRESS AGREEMENT that the property used by a
partnership constitutes partnership property, such use DOES NOT make it
partnership property, and whether it is so or not depends on the intention of
the parties.
- Unless a contrary intention appears, property acquired by a
partner in his own name with partnership funds is presumed to
be partnership property
- Property carried in partnership books is considered as partnership
asset
- The fact that the income generated by the property is received by
the partnership or the taxes thereon are paid by the partnership is
evidence that the partnership is the owner
Article 1811
A partner is co-owner with his partners of specific partnership
property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his
partners to possess specific partnership property for partnership
purposes; but he has no right to possess such property for any
other purpose without the consent of his partners;
(2) A partner's right in specific partnership property is not
assignable except in connection with the assignment of rights of
all the partners in the same property;
(3) A partner's right in specific partnership property is not subject
to attachment or execution, except on a claim against the
partnership. When partnership property is attached for a
partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right
under the homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject
to legal support under Article 291.
- A partner, as such, DOES NOT actually own any part of
partnership property or property owned by the partnership as a
separate business entity, although he DOES have rights in specific
PARTNERHIP ASSETS
- This article contemplates tangible property
- Ordinarily, a partner has an equal right to possess specific
partnership property for partnership purposes
Note: the possession of partnership property by one partner is the
possession of all partners until his possession becomes adverse
- A partner CANNOT separately assign his right to specific
partnership property but all of them can assign their rights in the
same property
Q: why cant the property be assigned?
A: because it is impossible to determine the extent of his beneficial interest
in the property until after the liquidation of partnership affairs. Further such
limitation is to prevent interference by outsiders in partnership affairs
- A partners right is limited to share of what remains after
partnership debts have been paid
Note: Specific partnership property is not subject to attachment, execution,
garnishment, or injunction, without the consent of all partners except on a
claim against the partnership.
Article 1812
A partner's interest in the partnership is his share of the profits and
surplus.
- a partners interest can be subjected to attachment
- the partners interest in the partnership consists of:
o his proportionate share in the undistributed profits
during the life of the partnership as a going concern
o share in the undistributed surplus after its dissolution
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Profit the excess of returns over expenditure in a transaction or series of
transactions; the net income of the partnership for a given period of time
Surplus assets of the partnership after partnership debts and liabilities are
paid and settled and the rights of the partners among themselves are
adjusted; it is the excess of assets over liabilities
Note: if the liabilities are more than the assets, the difference represents the
extent of the loss
Remember: a partner is not a creditor of the partnership for the amount of
his share. Thus the interest of a partner is not subject to attachment or
execution of a judgment recovered against the individual partner. --- ONLY IF
THERE IS NO SETTLEMENT OF HIS ACCOUNT
Article 1813
A conveyance by a partner of his whole interest in the partnership
does not of itself dissolve the partnership, or, as against the other partners
in the absence of agreement, entitle the assignee, during the continuance
of the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books; but it merely
entitles the assignee to receive in accordance with his contract the profits
to which the assigning partner would otherwise be entitled. However, in
case of fraud in the management of the partnership, the assignee may avail
himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to
receive his assignor's interest and may require an account from the date
only of the last account agreed to by all the partners.
- A partner may assign his interest in the partnership to any of his
co-partners or to a third person without the consent of the other
partners, in the absence of agreement to the contrary
- This article permits the conveyance by a partner of hi whole
interest in the partnership without causing dissolution
- However, such assignment does not grant the assignee the right:
o to interfere in the management
o to require any information or account
o to inspect any of the partnership books
Q: what is the legal effect of such conveyance?
A: it is the same as that of a partner associating another in his share or
interest.
Q: what is the REMEDY of the other partners?
A: the other partners may dissolve the partnership under article 1830
Q: what are the RIGHTS OF THE ASSIGNEE?
A: the rights of the assignee are as follows:
1. to receive in accordance with his contract the profits accruing to
the assigning partner
2. to avail himself of the usual remedies provided by law in the event
of fraud in the management
3. to receive the assignors interest in case of dissolution
4. to require an account of partnership affairs, but only in case the
partnership is dissolved
Article 1814
Without prejudice to the preferred rights of partnership creditors
under Article 1827, on due application to a competent court by any
judgment creditor of a partner, the court which entered the judgment, or
any other court, may charge the interest of the debtor partner with
payment of the unsatisfied amount of such judgment debt with interest
thereon; and may then or later appoint a receiver of his share of the profits,
and of any other money due or to fall due to him in respect of the
partnership, and make all other orders, directions, accounts and inquiries
which the debtor partner might have made, or which the circumstances of
the case may require.
The interest charged may be redeemed at any time before foreclosure,
or in case of a sale being directed by the court, may be purchased without
thereby causing a dissolution:
(1) With separate property, by any one or more of the partners;
or
(2) With partnership property, by any one or more of the
partners with the consent of all the partners whose interests are
not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if
any, under the exemption laws, as regards his interest in the partnership.
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- A separate creditor of a partner can secure a judgment on his
credit and then apply to the proper court for a CHARGING ORDER,
subjecting the interest of the debtor partner in the partnership
with the payment of the unsatisfied amount of such judgment
with interest thereon with the least interference with the
partnership business and the rights of the other partners
Note: such remedy is without prejudice to the preferred rights of the
partnership creditors under Article 1827
Remember: this is an EXCLUSIVE REMEDY SO THAT A WRIT OF EXECUTION
WILL NOT BE PROPER
Redemption or Purchase of Interest Charged
- The interest of the debtor-partner so charged may be redeemed
or purchased with the separate property of any one or more of
the partner, or with partnership property but with the CONSENT
of all the partners whose interests are not so charged or sold
Q: what is the redemption price?
A: the value of the partners interest in the partnership has no bearing on the
redemption price which is likely to be lower since it will be dependent on the
amount of the unsatisfied judgment debt
Note: the redeeming non-debtor partner does not acquire absolute
ownership over the debtor-partners interest but holds it in trust for him
consistent with principles of fiduciary relationship ---Right of Redeeming non-
debtor partner
Section 3 Obligations of the Partners with Regard to Third Persons
Article 1815
Every partnership shall operate under a firm name, which may or may
not include the name of one or more of the partners.
Those who, not being members of the partnership, include their
names in the firm name, shall be subject to the liability of a partner.
Firm defined as the name, title or style under which a company transacts
business; the term implies a partnership
Q: what is the importance of having a firm name?
A: A partnership must have a firm name under which it will operate. It is
necessary to distinguish the partnership which has a distinct and judicial
personality from the individuals composing the partnership and from other
partnerships and entities.
Note: such name must be registered with the Bureau of Commerce
GR: partners may adopt any firm name desired. The signature of the firm
name is, in law, the signature of the several partners name
EXC:
Partners CANNOT use a name that is IDENTICAL OR DECEPTIVELY
CONFUSINGLY SIMILAR TO that of any existing partnership or
corporation or to any other name already protected by law or is
patently deceptive
Partnership MAY continue to use the name of DECEASED
PARTNER provided that the firm indicates in all its
communications that said partner is deceased. (Rule 3.02 of the
Code of Professional Responsibility)
Remember: Persons who, not being partners, include their names in the firm
name do not acquire the rights of a partner, but under Article 1815, they
shall be subject to the liability of a partner insofar as third persons without
notice are concerned.
Note: This article does not cover the case of a limited partner who allows his
name to be included in the firm name.
Article 1816
All partners, including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been exhausted, for
the contracts which may be entered into in the name and for the account of
the partnership, under its signature and by a person authorized to act for
the partnership. However, any partner may enter into a separate obligation
to perform a partnership contract.
Liability for Contractual Obligations of the Partnership
- Partners are principals to the other partners and agents for them
and the partnership
angels notes
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 - GR: a partner has the right to make al partners liable for contracts
he makes for the partnership in the name and for the account of
the partnership but only if the partner was authorized; A partner
has implied authority to bind the partnership in transactions that
are for the purpose of carrying on in the usual way the business
of the partnership
- EXC: a partner may assume a separate undertaking in his name
with a third party to perform a partnership contract or make
himself solidarily liable on a partnership contract (this is
regardless of the fact that only the partnership is show to have
derived benefits from it)
Nature of Individual Liability of Partners
- The debts and obligations of the partnership are, in substance,
also the debts and obligations of each individual member of the
firm
- Their individual liability to creditors is:
o Pro rata equally or joint, and NOT
PROPORTIONATELY (note however, that in sirs
discussion, pro rata means proportionate)
o Subsidiary or Secondary this is because the partners
become personally liable only after all the partnership
assets have been exhausted. Thus, the partners are
liable as GUARANTORS
Liability of Industrial Partner
- They would have to pay but, of course, he can recover the amount
he has paid from the capitalist partner unless there is an
agreement to the contrary
Note: the capitalist partner, who contributed less, can also ask
reimbursement based on profit sharing basis
Distinction between a Liability and a Loss
Liability inability of a partnership to pay debt to a third party at
a particular time; but the partnership may have outstanding
credits which for the moment may be unavailable for the
payment of debts
The exemption of the industrial partner to pay losses relates
exclusively to the settlement of the partnership affairs among the
partners themselves and has nothing to do with the liabilities of
the partners to third persons
An industrial partner is NOT EXEMPTED from liability to third
persons for the debts of the partnership
Note: Article 1816 refers to liabilities while Article 1797 speaks of losses
Article 1817
Any stipulation against the liability laid down in the preceding article
shall be void, except as among the partners.
- A stipulation among the partners contrary to the pro rata and
subsidiary liability expressly imposed by Article 1816 is VOID and
of no effect insofar as it affects the rights of third persons
- However such stipulation is VALID and ENFORCEABLE among the
partners
Article 1818
Every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the
partnership name of any instrument, for apparently carrying on in the usual
way the business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for
the partnership in the particular matter, and the person with whom he is
dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of
business of the partnership in the usual way does not bind the partnership
unless authorized by the other partners.
Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the partners have no
authority to:
(1) Assign the partnership property in trust for creditors or on the
assignee's promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on
the ordinary business of a partnership;
(4) Confess a judgment;
14
(5) Enter into a compromise concerning a partnership claim or
liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall
bind the partnership to persons having knowledge of the restriction.
- As among themselves: When a partner performs an act within the
scope of his actual, implied, or apparent authority, he is not only a
principal as to himself, but is also for all purposes, an agent as to
his co-partners or to the partnership, considered as a group
GR: the gen. rules of law applicable to agents likewise apply to partners
- As to third persons: Limitations upon the authority of any one of
the partners are NOT binding upon INNOCENT third person
dealing with the partnership
Note: the regular course of a business procedure does not require that each
time a third person contracts with one of the managing partners, he should
inquire as to the latters authority to do so. His knowledge is enough that he
is contracting with a partner
General Presumption: each individual partner is an agent of the firm and
that he has authority to bind the firm in carrying on the partnership
transactions
Note However: third parties should not assume that a partner has unlimited
authority. Generally, a partner has NO AUTHORITY to do the acts
enumerated in the third paragraph of this article.
Liability of Partnership for Acts of Partners (grouped into three)
1. Acts for apparently carrying on in the usual way the business of
the partnership (par. 1)
- There are two requisites in order that the partnership will
not be liable for acts of partners:
o The partner so acting has in fact no authority; and
o The third person know that the acting partner has no
authority
- Note: the acts mentioned in No. 1 refer only to acts of
administration as distinguished from acts of strict dominion
or ownership
- GR: a single partner has NO implied power to sell
partnership property not held for sale
2. Acts of strict dominion or ownership (pars.. 2 and 3)
- GR: powers not specifically delegated in a partnership
agreement are presumed to be WITHHELD (unless
authorized by ALL the other partners or unless they have
abandoned the business)
- the third paragraph constitute limitations to the authority
granted to the partners to bind the partnership
- In the application of the second paragraph, where a
partnership is limited to a particular trade or business, one
partner cannot bind his co-partner by any contract not
relating to such trade or business, or by any contract made
after such business is concluded
3. Acts in contravention of a restriction on authority (par 4)
- The partnership is not liable to third persons having actual
or presumptive knowledge of the restrictions, whether or
not the acts are for apparently carrying on in the usual way
the business of the partnership
Q: what is the liability of a partner acting without authority?
A: As a general rule, the particular partner who undertakes to bind his co-
partners by a contract without authority is himself PERSONALLY liable on
such contract
Article 1819
Where title to real property is in the partnership name, any partner
may convey title to such property by a conveyance executed in the
partnership name; but the partnership may recover such property unless
the partner's act binds the partnership under the provisions of the first
paragraph of article 1818, or unless such property has been conveyed by
the grantee or a person claiming through such grantee to a holder for value
without knowledge that the partner, in making the conveyance, has
exceeded his authority.
Where title to real property is in the name of the partnership, a
conveyance executed by a partner, in his own name, passes the equitable
angels notes
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interest of the partnership, provided the act is one within the authority of
the partner under the provisions of the first paragraph of Article 1818.
Where title to real property is in the name of one or more but not all
the partners, and the record does not disclose the right of the partnership,
the partners in whose name the title stands may convey title to such
property, but the partnership may recover such property if the partners' act
does not bind the partnership under the provisions of the first paragraph of
Article 1818, unless the purchaser or his assignee, is a holder for value,
without knowledge.
Where the title to real property is in the name of one or more or all
the partners, or in a third person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or in his own name, passes
the equitable interest of the partnership, provided the act is one within the
authority of the partner under the provisions of the first paragraph of
Article 1818.
Where the title to real property is in the name of all the partners a
conveyance executed by all the partners passes all their rights in such
property.
- The ownership of real estate is PRIMA FACIE that indicated by the
muniment of title
- The presumption is that, property purchased with partnership
funds belongs to the partnership unless a contrary intent is shown
- Real property may be registered or owned in the name of:
o The partnership (pars. 1, 2)
o One or more but not all the partners (par. 3)
o One or more or all the partners, or in a third person in
trust for the partnership (par. 4)
o All the partners (par. 5)
Note: Under pars. 1, 3 and 5, what is conveyed is title or ownership, while
under pars. 2 and 4, what is conveyed is merely the equitable interest.
The term conveyance has been interpreted to include a MORTGAGE
--- see examples in book page 182-183
Note However: Regardless of the fact that one partner cannot convey
partnership realty without the concurrence of his co-partners, it is
fundamental that innocent purchasers without notice may be protected.
Authorization or Ratification of Conveyance
- A conveyance of partnership realty by one partner may be
authorized by his co-partners, or when made without authority,
may be ratified by them.
- Such authority or ratification must affirmatively appear, for the
authority of one partner to make and acknowledge a deed for the
partnership will not be presumed
- See page 184-185 of book
Article 1820
An admission or representation made by any partner concerning
partnership affairs within the scope of his authority in accordance with this
Title is evidence against the partnership.
- GR: a person is not bound by the act, admission, statement, or
agreement of another of which he has no knowledge or to which
he has not given his consent except by virtue of a particular
relation between them
- see page 185-186 of book for examples
- Remember: before the partnership can be charged with the
admission of a partner under article 1820, the partnership
relation must be shown and proof of that fact must be made by
evidence other than the admission itself
Note: admissions by a party as testified to by a third person are admissible in
evidence against him in litigation
Article 1821
Notice to any partner of any matter relating to partnership affairs,
and the knowledge of the partner acting in the particular matter, acquired
while a partner or then present to his mind, and the knowledge of any
other partner who reasonably could and should have communicated it to
the acting partner, operate as notice to or knowledge of the partnership,
except in the case of fraud on the partnership, committed by or with the
consent of that partner.
- Like the law of agency, the law of partnership imputes notice to,
or knowledge of, any partner of any matter relating to the
15
partnership affairs to the partnership EXCEPT in case of fraud
(Reason behind: fiduciary relationship)
- If notice is delivered to a partner, that is an effective
communication to the partnership notwithstanding the failure of
the partner to communicate such notice or knowledge to his co-
partners
Cases of Knowledge of a partner
1. Knowledge of the partner acting in the particular matter acquired
while a partner
2. Knowledge of the partner acting in the particular matter then
present to his mind
3. Knowledge of any other partner who reasonably could and should
have communicated it to the acting partner
Article 1822
Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of
co-partners, loss or injury is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or omitting to act.
Art. 1823
The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property
so received is misapplied by any partner while it is in the custody
of the partnership. (n)
Art. 1824
All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823. (n)
- These articles speaks of the liability arising from partners
wrongful act or omission or breach of trust
- What is the type of liability incurred under this article? SOLIDARY
(partnership and partner) provided that the partner was acting
within the scope of the firms business or with the authority of his
co-partners.
Note: partners who did not participate nor ratify the said wrongful act has
the right to recover from the guilt partner.
Remember: this liability is different from contractual obligations as defined in
article 1816.
- The act or omission in this case is called quasi-delict or tort
when it does not constitute a crime or felony punishable by law.
Q: why does the law impose greater liability with respect to torts and breach
of trust?
A: this is based on Public Policy. The rule of respondeat superior (rule of
vicarious liability) applies to the law of partnership in the same manner as
other rules governing the agency relationship.
- The party aggrieved has his election to sue the firm or to sue one
or more of its members.
Requisites for Liability Under Article 1822
1. The partner must be guilty of a wrongful act or omission
2. He must be acting in the ordinary course of business or without
the authority of his co-partners even if the act is unconnected
with the business
Note: but if he is driving a partnership-owned vehicle for the purposes of his
own, although with the permission of the other partners the acting partner
alone is liable.
Neither is the partnership liable if the wrongful act or omission was
committed after its dissolution and the same was not connected with the
winding up of partnership affairs
Criminal Liability for Criminal Acts
- A non-acting partner in a partnership engaged in a lawful business
is not criminally liable for the criminal acts of another partner but
he is criminally liable if the partnership is involved in an unlawful
enterprise with his knowledge or consent
angels notes
P A R T N E R S H I P, A G E N C Y and T R U S T
de leon
Note: Partnership liability under Article 1822 does not extend to criminal
liability, such as embezzlement, where the wrongdoing is regarded as
individual character.
Misapplication of Money or property of a Third Person (Article 1823)
- The partnership is liable for any losses suffered by a third person
whose money or property is misappropriated by a partner who
received it within the scope of his authority or by any other
partner after it was received by the partnership in the ordinary
course of business while in its custody
Note: even the innocent partners are personally liable without prejudice, of
course, to their right to recover from the guilty partner.
Art. 1825
When a person, by words spoken or written or by conduct, represents
himself, or consents to another representing him to anyone, as a partner in
an existing partnership or with one or more persons not actual partners, he
is liable to any such persons to whom such representation has been made,
who has, on the faith of such representation, given credit to the actual or
apparent partnership, and if he has made such representation or consented
to its being made in a public manner he is liable to such person, whether
the representation has or has not been made or communicated to such
person so giving credit by or with the knowledge of the apparent partner
making the representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata
with the other persons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an
existing partnership, or with one or more persons not actual partners, he is
an agent of the persons consenting to such representation to bind them to
the same extent and in the same manner as though he were a partner in
fact, with respect to persons who rely upon the representation. When all
the members of the existing partnership consent to the representation, a
partnership act or obligation results; but in all other cases it is the joint act
or obligation of the person acting and the persons consenting to the
representation. (n)
- This article speaks of Partner by Estoppel or Partnership by
Estoppel
- However, strictly speaking, this is not a partnership
Note: through estoppels, an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disapproved
as against the person relying thereon.
Partner by Estoppel
- A person not a partner may become a partner by estoppels and
thus be held liable to third persons as if he were a partner when
by words or by conduct he:
o Directly represent himself to anyone as a partner in an
existing partnership or in a non-existing partnership
(with one or more persons not actual partners); or
o Indirectly represents himself by consenting to another
representing him as a partner in an existing
partnership or in a non-existing partnership.
- In other words, the holding out as a partner may be done by:
o The person himself; or
o By his consent; or
o With his knowledge
Partnership by Estoppel
- Happens when all the actual partners consented to the
representation, then the liability of the person who represented
himself to be a partner or who consented to such representation
and the actual partner is considered a partnership liability ---- the
person becomes an agent of the partnership and his act or
obligation that of the partnership
When Liability Pro Rata
- When there is no existing partnership and
o all those represented as partners consented to the
representation,
o or not all of the partners of an existing partnership
consented to the representation,
then, the liability of the person who
o represented himself to be a partner
16
o or who consented to his being represented as partner,
o and all those who made and consented to such
representation,
is joint or pro rata .
When Liability Separate
- When there is no existing partnership and
o Not all but only some of those represented as partners
consented to the representation;
o Or none of the partners in an existing partnership
consented to such representation
Then the liability will be separate ---- that of the
o Person who represented himself as a partner or who
consented to his being represented as a partner
o And those who made and consented to the
representation, or that only of the person who
represented himself as partner
REMEMBER: liability is created only in favor of persons who, on the faith of
the representation, gave credit to the actual or apparent partnership
Note: One who has received profits from an apparent partnership
transaction is estopped from denying the relationship on the ground that the
partnership agreement was void
- One who is deemed to be liable as a partner by reason of
estoppels does NOT thereby obtain full rights as a partner
Application of Estoppel As Between Parties
- Estoppel has NO APPLICATION as between actual partners
- Misrepresentation or actions resulting to estoppels may only be
the BASIS for a DISSOLUTION of the partnership but it would apply
primarily to third person who had acted on the representation to
their detriment
Note: Article 1825 is different from Article 1834, wherein the latter speaks of
a partnership liability which continues for lack of proper termination
Applicability of General Provisions on Partnership
- For purposes of the de facto existence of a partnership as far as
third persons are concerned, it should have such attribute of a
partnership as domicile
- The General Provisions of the Civil Code applicable to all
partnerships apply to it
- The domicile of such partnership is at the place where it conducts
its business
Elements to Establish Liability as a Partner on Ground of Estoppel
1. Proof by plaintiff that he was individually aware of the
defendants representations as to his being a partner or that such
representations were made by others and not denied or refuted
by the defendant;
2. Reliance on such representation by the plaintiff; and
3. Lack of any denial or refutation o the statements by the
defendant
Article 1826
A person admitted as a partner into an existing partnership is liable
for all the obligations of the partnership arising before his admission as
though he had been a partner when such obligations were incurred, except
that this liability shall be satisfied only out of partnership property, unless
there is a stipulation to the contrary.
- This article deals with the liability of incoming partner for
partnership obligations
Liability for Existing Obligations
- Liability is LIMITED to his share in the partnership property,
unless there is stipulation to the contrary
Liability for Subsequent Obligations
- For all the obligations accruing subsequent to the admission of
the new partner, all the partners are liable with their separate
properties
- Note: such obligation may have been incurred by virtue of a
contract made before his admission
Rights of Existing and Subsequent Creditors
- Existing and Subsequent creditors have equal rights as against
partnership property and separate property of the previously
existing members of the partnership
- Only subsequent creditors have rights against the separate estate
of the newly admitted partner
angels notes
P A R T N E R S H I P, A G E N C Y and T R U S T
de leon
Q: Suppose, an incoming partner has assumed the obligation of the retiring
partner as one of the terms of the contract by which he is admitted into the
firm, is he liable directly to the old partnership creditors such that the latter
has a right of action against the incoming partner?
A: YES he is liable directly to the old partnership creditors if the assumption
was made primarily to benefit the firm creditors --- NOTE: the contracting
parties must have clearly and deliberately conferred a favor upon a third
person
Liability of Outgoing Partner
- Where a partner gives notice of his retirement or withdrawal from
the partnership, he is FREED from any liability on contracts
ENTERED INTO THEREAFTER, but his liability on EXISTING
INCOMPLETE CONTRACTS CONTINUES
Liability of Incoming Partner
- He is not personally liable for the existing partnership obligation
unless there is a stipulation to the contrary
- But he is liable for goods delivered to the Partnership after his
admission to it, where the goods so delivered are in the
performance of a contract made before his admission
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.
- With respect to partnership assets, the partnership creditors are
entitled to priority of payment
- Private property of the partners cannot be taken in payment of
partnership debts until the common property of the concern is
exhausted
- The last sentence of the article speaks of the remedy of private
creditors of a partner.
Note: the purchaser at the public sale does not become a partner.
CHAPTER 3
DISSOLUTION AND WINDING UP
Article 1828
The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on
as distinguished from the winding up of the business.
- Any change in the membership of a partnership, either by
retirement or death of partner, or by the admission of new
members into the partnership, produces, technically, an
immediate dissolution of the existing partnership relation
Note: all persons forming the new partnership upon the admission of the
new person into the business are incoming partners, even though the same
business had theretofore been conducted by the others through the medium
of partnership
Definition of Terms
1. Dissolution as defined in article 1828; it is that point in time
when the partners cease to carry on the business together
o Thus, any time a partner leaves the business, the
partnership is dissolved
2. Winding Up is the ACTUAL PROCESS of settling the business of
partnership affairs after dissolution;
o involves the following:
i. collection and distribution of partnership
assets
ii. payment of debts
iii. determination of the value of each
partners interest in the partnership
o It is the final step after dissolution in the termination
of the partnership
3. Termination point in time when all partnership affairs are
completely wound up and finally settled
o Signifies the end of the partnership life
o Takes place after both dissolution and winding up have
occurred
Article 1829
On dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed.
- Dissolution does not automatically result in :
17
o the termination of the legal personality of the
partnership,
o or the cessation of his business,
o nor the relations of the partners among themselves
who remain as co-partners until the partnership is
terminated
Q: what is the purpose why partnership continues?
A: Partnership is considered as maintaining a limited existence for the
purpose of
a. making good all outstanding engagements
b. taking and settling all accounts
c. collecting al the property, means and assets of the partnership
existing at the time of its dissolution for the benefit of all
interested
Art. 1830.
Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good
faith, when no definite term or particular is specified;
(c) By the express will of all the partners who have not assigned
their interests or suffered them to be charged for their separate
debts, either before or after the termination of any specified
term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide
in accordance with such a power conferred by the agreement
between the partners;
(2) In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of
this article, by the express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in
partnership;
(4) When a specific thing which a partner had promised to contribute to
the partnership, perishes before the delivery; in any case by the loss of
the thing, when the partner who contributed it having reserved the
ownership thereof, has only transferred to the partnership the use or
enjoyment of the same; but the partnership shall not be dissolved by the
loss of the thing when it occurs after the partnership has acquired the
ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
- articles 1830 and 1831 provide for the causes of dissolution
- the events that cause dissolution of a partnership may be divided
into four categories:
o act of the parties not in violation of their agreement
o act of the parties in violation of their agreement
o operation of law
o court decree
- Under this article, EXTRAJUDICIAL DISSOLUTION may be caused:
o WITHOUT VIOLATION of the agreement between the
partners (no. 1)
o In contravention of said agreement (no. 2)
o It may be VOLUNTARY when caused by the will of one
or more or all of the partners (nos. 1 and 2)
o INVOLUTNTARY when brought about independently of
the will of the partners or by operation of law (nos. 3-
8)
- The voluntary dissolution of partnership may be effected
extrajudicially (nos. 1-7), or judicially, that is, by decree of court
(no. 8)
Note: causes provided in Article 1830 result in the AUTOMATIC DISSOLUTION
of the partnership.
Note further: once a partnership is dissolved, the same partners may form a
new partnership to continue the business under the same terms.
angels notes
P A R T N E R S H I P, A G E N C Y and T R U S T
de leon
Q: what is the effect of sale or assignment by one partner of his entire
interest in the partnership t a third person?
A: it does NOT ipso facto bring about the dissolution of the partnership. The
dissolution created in such case is only TECHNICAL, not actual
Dissolution effected without Violation of Partnership Agreement
- Happens in four ways
o Termination of the definite term or particular undertaking the
partnership is AUTOMATICALLY dissolved without the partners
extending the said term or continuing the undertaking
o By the express will of any partner a partnership at will,
regardless of whether the business is profitable or not may be
dissolved at any time by any partner without the consent of his
co-partner without breach of contract, provided, the said partner
acts in GOOD FAITH
While the attendance of bad faith cannot prevent the
dissolution of a partnership, it can result in LIABILITY FOR
DAMAGES
o By Express will of ALL the partners no particular form of such
agreement is necessary to dissolve a partnership by consent
(either EXPRESS or IMPLIED)
A partnership for a fixed term or particular undertaking
cannot be dissolved by the majority vote for dissolution
without breach of contract --- unanimity is required
o By expulsion of any partner has the effect of decreasing the
number of partners, hence, the dissolution
It must be done in GOOD FAITH, and strictly in
accordance with the power conferred by the agreement
between the partners
This partner may be vested in one partner exclusively
Dissolution effected in Contravention of Partnership Agreement
- Dissolution may be for any cause or reason
- The withdrawing partner is liable for damages for UNJUSTIFIED
dissolution but in no case can he be compelled to remain in the
partnership
- Since the relation of partners is one of mutual agency, the power
of dissolution always exists and no person can be compelled
either to become a partner or to remain one
Business becomes Unlawful
- Dissolution may be caused involuntarily when a supervening
event makes the business itself of the partnership unlawful
- The partner, however, can change the nature of their business
and continue with the partnership with the new business
Loss of Specific thing
- Refers only to SPECIFIC THING
- If lost before deliver: the partnership is dissolved because there is
no contribution
- If lost after delivery: no dissolution
- If what is contributed is the use of the property (both
delivered/undelivered) and it was lost due his voyage, then there
is no liability
Death of Partnership
- the surviving partner have no authority to continue the business
except so far as necessary to wind except as provided in the
Article 1833
- The subsequent legal status of a partnership dissolved by the
death of a partner is that of a PARTNERSHIP IN LIQUIDATION
Insolvency of any partner or of partnership
- The insolvency of the partner or of the partnership must be
adjudged by a court if it cannot be simply proven by documentary
evidence
- An insolvent partner has no authority to act for the partnership
nor the other partners to act for him
- The insolvency of the partnership renders its property in the
hands of the partner liable for the satisfaction of partnership
obligations resulting in their inability to continue the business,
which practically amounts to a dissolution
Civil Interdiction of any partner
- A person under civil interdiction cannot validly give consent, as his
capacity to act is limited thereby
- One who is without capacity to manage his own property should
not be allowed to manage partnership property
Right to Expel a Partner
- In the absence of an express agreement to that effect, there exists
no right power of any member, or even a majority of the
members, to expel all other members of the firm at will
18
- However, there may be extreme and gross faults which would
work a forfeiture, especially where there was an extreme
emergency for him to perform his duty, and to be prompt and
faithful
- Such power must be understood to exist NOT for the benefit of
any particular parties holding control of firm membership, but for
the benefit of the whole partnership
Article 1831
On application by or for a partner the court shall decree a dissolution
whenever:
(1) A partner has been declared insane in any judicial proceeding
or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing
his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
(5) The business of the partnership can only be carried on at a
loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under Article
1813 or 1814:
(1) After the termination of the specified term or particular
undertaking;
(2) At any time if the partnership was a partnership at will when
the interest was assigned or when the charging order was
issued. (n)
- Judicial determination is necessary for events which make it
impossible to carry on the business intended and such event is a
matter of dispute or doubt
- Dissolution of a partnership may be decreed judicially on
application either by:
o A partner in the cases mention in par. 1
o The purchaser or assignee of a partners interest under
par. 2
On Application by a Partner
1. Insanity the fact of being of unsound mind must be duly proved;
the insanity must materially affect the capacity of the partner to
perform his contractual duties as a partner
2. Incapacity/Incapability partner is no longer able to devote to the
partnership his time, effort and ability; the incapacity
contemplated by law is incapacity which is LASTIN, from which the
prospect of recovery is remote
3. Misconduct and Persistent breach of partnership agreement
example are keeping and rendering false accounts, misuse or
misappropriation of funds --- for they defeat and materially affect
and obstruct the purpose of the partnership; must result to
PERMANENT MISCHIEF OR INJURY to the partnership
4. Business can be carried on only at a loss may be done when it
becomes APPARENT that it is unprofitable with no reasonable
prospects of success; note that actual loss in not necessary
5. Other circumstances example: abandonment of the business,
fraud in the management of the business, refusal without
justifiable cause to render accounting of partnership affairs
Article 1832
Except so far as may be necessary to wind up partnership affairs or to
complete transactions begun but not then finished, dissolution terminates
all authority of any partner to act for the partnership:
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency
or death of a partner; or
(b) When the dissolution is by such act, insolvency or
death of a partner, in cases where article 1833 so
requires;
(2) With respect to persons not partners, as declared in article
1834. (n)
- GR: the event of dissolution terminates the ACTUAL AUTHORTY
OF A PARTNER TO UNDERTAKE NEW BUSINESS for the business
for the partnership
angels notes
P A R T N E R S H I P, A G E N C Y and T R U S T
de leon
 - EXCEPTIONS: the partnership has authority to enter into new
contracts if ----
o It is for winding up purposes
o It is for the completion of transactions already existing
prior to the dissolution
o In so far as the partner themselves are concerned, ---
the termination of authority depends upon whether or
not the partner had knowledge or notice of the
dissolution caused by an act, insolvency or death
o With Respect to Third persons --- innocent partner can
always recover from the acting partner
Article 1833
Where the dissolution is caused by the act, death or insolvency of a partner,
each partner is liable to his co-partners for his share of any liability created
by any partner acting for the partnership as if the partnership had not been
dissolved unless:
(1) The dissolution being by act of any partner, the partner
acting for the partnership had knowledge of the dissolution; or
Nothing in this article shall affect the liability under Article 1825 of any
person who, after dissolution, represents himself or consents to another
representing him as a partner in a partnership engaged in carrying
business. (n)
- This article enumerates the cases when:
o A partner continues to bind the partnership even after
dissolution (par. 1, nos. 1 and 2), and
o The case when he cannot bind the partnership after
dissolution (par. 3, nos 1, 2, and 3)
- Basically provides for the continuous liability of the partnership to
third persons --- authority of a partner may apparently continue
as regards third persons on the assumption that the partnership is
still existing
Note: the measure of the right of third person who continue to deal with a
dissolved partnership DEPENDS UPON the question of whether they knew or
should have known of the fact of dissolution. If they did, the validity of their
transaction is governed by the question whether those transactions were
necessary to liquidate the partnership affairs

(2) The dissolution being by the death or insolvency of a partner, Q: when is the partnership RELIEVED FROM ITS LIABILITY TO THIRD PERSONS
the partner acting for the partnership had knowledge or notice UPON DISSOLUTION?
of the death or insolvency. A:
1. As to person who extended credit to partnership prior to
dissolution partnership is relieved from liability if such third
- Deals specifically with the liability of partners in so far as the
person have knowledge or notice of the dissolution
partners themselves are concerned
2. As to persons who had not so extended credit prior to its
- This article speaks of dissolution caused by the ACT, INSOLVENCY
dissolution partnership is relieved from liability if the person had
or DEATH OF PARTNER
known of the partnerships existence and that the fact of
- The authority of a partner as it affects his co-partners is NOT
dissolution had been published in the newspaper of general
DEEMED TERMINATED except in two instances:
circulation, even if they did not actually read the advertisement
o the cause of the dissolution is the act of a partner and
the acting partner had KNOWLEDGE of such
Note: under the third paragraph, notice of dissolution is UNNECESSARY
dissolution (actual knowledge or has knowledge of
except in case No. 3, where the partner has no authority to wind up
such other facts as in the circumstances show bad
partnership affairs. Third persons dealing with the partner without such
faith)
authority are protected under the same circumstances mentioned in
o The cause of the dissolution is the death or insolvency
paragraph 1, no. 2(a) and (b)
of a partner and the acting partner had KNOWLEDGE
OR NOTICE of the death or insolvency
Q: what is the consequence if third party transacts with a partner who has
become insolvent?
Article 1834
A: NO protection is extended to a third party who innocently makes a
After dissolution, a partner can bind the partnership, except as provided in
contract with an insolvent partner because it is incumbent upon him to know
the third paragraph of this article:
the status of the insolvent partner
(1) By any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution;
This is distinguished from the right of a partner who has no knowledge or
(2) By any transaction which would bind the partnership if
notice of the other partners insolvency to bind the partnership. In this case,
dissolution had not taken place, provided the other party to the
the innocent partner is protected in his continued right to make binding
transaction:
partnership agreements.
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of the
Character of Notice required to relieve a Retiring Partner or the
dissolution; or
Representatives of a deceased partner
(b) Though he had not so extended credit, had
1. As to prior dealers (one who has extended credit on the fiath of
nevertheless known of the partnership prior to
the partnership) notice must be actual. Mere mailing of a letter
dissolution, and, having no knowledge or notice of
in insufficient where notice was never received
dissolution, the fact of dissolution had not been
2. As to all others notice is accomplished by an advertisement in a
advertised in a newspaper of general circulation in
local newspaper. It should be noted however, that the
the place (or in each place if more than one) at which
requirement of newspaper notice appears to exist only where the
the partnership business was regularly carried on.
third party knew of the partnership prior to dissolution. If he did
The liability of a partner under the first paragraph, No. 2, shall be satisfied
not, he is entitled to no notice whatsoever
out of partnership assets alone when such partner had been prior to
dissolution:
Note: read page 243-244 of book as regards Dormant Partner need not
(1) Unknown as a partner to the person with whom the contract
give notice and Partnership by Estoppel after dissolution
is made; and
(2) So far unknown and inactive in partnership affairs that the
Article 1835
business reputation of the partnership could not be said to have
been in any degree due to his connection with it. The dissolution of the partnership does not of itself discharge the
The partnership is in no case bound by any act of a partner after existing liability of any partner.
dissolution:
(1) Where the partnership is dissolved because it is unlawful to A partner is discharged from any existing liability upon dissolution of
carry on the business, unless the act is appropriate for winding the partnership by an agreement to that effect between himself, the
up partnership affairs; or partnership creditor and the person or partnership continuing the business;
(2) Where the partner has become insolvent; or and such agreement may be inferred from the course of dealing between
(3) Where the partner has no authority to wind up partnership
the creditor having knowledge of the dissolution and the person or
affairs; except by a transaction with one who:
(a) Had extended credit to the partnership prior to partnership continuing the business.
dissolution and had no knowledge or notice of his
The individual property of a deceased partner shall be liable for all
want of authority; or
obligations of the partnership incurred while he was a partner, but subject
(b) Had not extended credit to the partnership prior to
to the prior payment of his separate debts.
dissolution, and, having no knowledge or notice of his
want of authority, the fact of his want of authority
Note: the consent of the creditor and the other partners to the NOVATION
has not been advertised in the manner provided for
may be IMPLIED from their conduct
advertising the fact of dissolution in the first
paragraph, No. 2 (b).

19 angels notes
P A R T N E R S H I P, A G E N C Y and T R U S T
de leon
Liability of Estate of Deceased Partner
- Individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner
- NOTE: individual creditors of deceased partner are to be
PREFERRED over partnership creditors with respect to the
SEPARATE PROPERTY of said deceased partner
Article 1836
Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the partnership affairs,
provided, however, that any partner, his legal representative or his
assignee, upon cause shown, may obtain winding up by the court.
- The winding up of the dissolved partnership may be done either:
o JUDICIALLY, under the control and direction of the
proper court upon cause shown by:
Any partner
His legal representative
His assignee
o EXTRAJUDICIALLY, by the partner themselves without
intervention of the court
Q: who are the PERSONS AUTHORIZED to wind up the affairs of the
partnership?
A:
1. The partner DESIGNATED BY THE AGREEMENT
2. In the absence of such agreement, ALL THE PARTNERS WHO HAVE
NOT WRONGFULLY DISSOLVED the partnership; or
3. The LEGAL REPRESETNATIVE (executor or administrator) of the
LAST SURVIVING PARTER (when all the partners are already dead),
NOT INSOLVENT
4. The COURT, in its discretion, appoint a receiver to wind up the
partnership affairs where such step is shown to be to the best
interest of all partners concerned
Note: if what is stipulated in your agreement cannot take place, you go to
court and let it decide on how you are to go about with your winding up.
Q: what is the nature of an action for liquidation?
A: It is a personal action hence it may be brought in the place of residence of
either the plaintiff or the defendant
Survivors Right and Duty to Liquidate
- GR: When a member of a partnership dies, the duty of liquidating
its affairs devolves upon the SURVIVING MEMBER OR MEMBERS
OF THE FIRM, not upon the legal representative of the deceased
partner
- EXC: when such partner was the last surviving partner
Note: the executor or administrator of a deceased partner CANNOT INSIST
on continuing the business in the absence of some controlling agreement to
that effect.
Powers of Liquidating Partner
1. Make new contracts for the purpose of winding up the
partnership
2. Raise money to pay partnership debts he may bind the
partnership by borrowing money to meet its accruing liabilities,
and may sell its real estate to raise money to pay its debts
3. Incur obligations to complete existing contracts or preserve
partnership assets
4. Incur expenses necessary in the conduct of litigation in order to
perform his duty in winding up the affairs of the partnership
Article 1837
When dissolution is caused in any way, except in contravention of the
partnership agreement, each partner, as against his co-partners and all
persons claiming through them in respect of their interests in the
partnership, unless otherwise agreed, may have the partnership property
applied to discharge its liabilities, and the surplus applied to pay in cash the
net amount owing to the respective partners. But if dissolution is caused by
expulsion of a partner, bona fide under the partnership agreement and if
the expelled partner is discharged from all partnership liabilities, either by
payment or agreement under the second paragraph of Article 1835, he shall
receive in cash only the net amount due him from the partnership.
When dissolution is caused in contravention of the partnership
agreement the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall
have:
(a) All the rights specified in the first paragraph of this
article, and
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(b) The right, as against each partner who has caused
the dissolution wrongfully, to damages breach of the
agreement.
(2) The partners who have not caused the dissolution wrongfully,
if they all desire to continue the business in the same name
either by themselves or jointly with others, may do so, during the
agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the
payment by bond approved by the court, or pay any partner who
has caused the dissolution wrongfully, the value of his interest in
the partnership at the dissolution, less any damages recoverable
under the second paragraph, No. 1 (b) of this article, and in like
manner indemnify him against all present or future partnership
liabilities.
(3) A partner who has caused the dissolution wrongfully shall
have:
(a) If the business is not continued under the
provisions of the second paragraph, No. 2, all the
rights of a partner under the first paragraph, subject
to liability for damages in the second paragraph, No.
1 (b), of this article.
(b) If the business is continued under the second
paragraph, No. 2, of this article, the right as against
his co-partners and all claiming through them in
respect of their interests in the partnership, to have
the value of his interest in the partnership, less any
damage caused to his co-partners by the dissolution,
ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be
released from all existing liabilities of the partnership;
but in ascertaining the value of the partner's interest
the value of the good-will of the business shall not be
considered.
Q: what are the objectives of this article?
A: the objectives are to (1) provide for the payment of the partner who
leaves the firm, and (2) to indemnify him against existing or possible future
liability
Partners Lien the right of every partner, on a dissolution, against the other
partners and person claiming through them in respect of their interests as
partner, to have the partnerhip property applied to discharge partnership
liabilities and the surplus assets, if any, distributed in cash to the respective
partners, after deducting what may be due to the firm from them as partners
Rights Where Dissolution is Not in Contravention of Agreement
1. To have the partnership property applied to discharge the
liabilities of the partnership
2. To have the surplus, if any, applied to pay in cash the net amount
owing the respective partner
Note: When dissolution is caused by a bon fide expulsion, such expelled
partner may be discharged from all partnership liabilities either by PAYMENT
or by an AGREEMENT between him, the partnership creditors, and the other
partners
Rights Where Dissolution is in Contravention of Agreement --- depends if
you are the innocent party or not
1. Rights of partner who has not caused the dissolution wrongfully:
a. to have partnership property applied for the payment
of its liabilities and to receive in cash his share of the
surplus
b. to be indemnified for damages caused by the partner
guilty of wrongful dissolution
c. to continue the business in the same name during the
agreed term of the partnership, by themselves or
jointly with others
d. to possess partnership property should they decide to
continue the business
2. Rights of a partner who has wrongfully caused the dissolution:
a. If the business is NOT CONTINUED --- to have the
partnership property applied to discharge its liabilities
and to receive in cash his share of the surplus less
damages caused by his wrongful dissolution
b. If the business is CONTINUED
i. To have the value of his interest in the
partnership at the time of the dissolution,
less any damage caused by the dissolution
to his co-partners, ascertained and paid in
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 cash or secured by bond approved by the
court
ii. To be released from all existing and future
liabilities of the partnership
Note: Guilty partners, in ascertaining the value of their interest, the value of
the GOODWILL of the business is not considered (as penalty for their bad
faith)
Goodwill of a Business it is the advantage which it has from its
establishment or from the patronage of its customers, over and above the
mere value of its property and capital
- It is usually considered part of the property and assets of the firm,
in the absence of a contract, express or implied, to the contrary
- The name of a firm is an important part of the goodwill and its se
may be protected accordingly
- A saleable goodwill can exist only in a commercial partnership. It
cannot arise in a professional partnership.
Article 1838
Where a partnership contract is rescinded on the ground of the fraud
or misrepresentation of one of the parties thereto, the party entitled to
rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase
of an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand, after all liabilities to third persons have been
satisfied, in the place of the creditors of the partnership for any
payments made by him in respect of the partnership liabilities;
and
(3) To be indemnified by the person guilty of the fraud or making
the representation against all debts and liabilities of the
partnership. (n)
Note: if one is induced by fraud or misrepresentation to become a partner,
the contract is voidable or annullable
- Once annulled, the injured partner is entitled to restitution
- However, until the partnership contract is annulled by a proper
action in court, the partnership relations exist (art. 1390) and the
defrauded partner is liable for all obligations to third persons
- Rights of the injured partner where the partnership contact is
rescinded on the ground of fraud and misrepresentation:
o Right of a lien on, or retention of, the surplus of
partnership property after satisfying partnership
liabilities for any sum of money paid or contributed by
him
o Right of subrogation in place of partnership creditors
after payment of partnership liabilities
o Right of indemnification by the guilty partner against
all debts and liabilities of the partnership
Article 1839
In settling accounts between the partners after dissolution, the
following rules shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the
payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of
payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and
profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in
No. 1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the
amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable
for the contributions specified in No. 4.
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(8) When partnership property and the individual properties of
the partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership property
and separate creditors on individual property, saving the rights
of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall rank in
the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
- The process of winding up includes:
o Liquidating partnership property (turning it into cash)
o Distributing the proceeds
o Any other actions required to bring partnership
business to a close
Note however: the law does not require a partnership to convert all its assets
into cash before making a distribution to the partners. It is within the power
of the court to order a distribution of its assets in cash, property, or
combination of both
Equitable Lien or Quasi Lien a partners right to have debts owing to the
partnership from his co-partners deducted from their respective shares. It
exists only when the affairs of the partnership are rounded up and the shares
of the partners are computed after dissolution
Partners Lien Law each partner is entitled to a share in the surplus
property of the partnership, if any, in proportion to his interest in the
partnership
Rules in Settling Accounts Between Partners After Dissolution
(1) Assets of the Partnership They are:
a. Partnership property (including goodwill)
b. Contributions of the partners necessary for the
payment of all liabilities in accordance with Article
1797
(2) Order of application of the Assets
a. First, those owing to partnership creditors
b. Second, those owing to partner other than for capital
and profits such as loans given by the partners or
advances for business expenses
- Loans and advances are not capital; nor are
undivided profits, unless otherwise agreed
c. Third, those owing for the return of the capital
contributed by the partners
- Capital represents a debt of the firm to the
contributing partners
- The return of the amount equivalent to the
capital contribution of each partner shall be
increased by his share of undistributed
profits or decreased by his share of net
losses
d. Finally, if any partnership assets remain, they are
distributed as profits to the partners in proportion in
which profits are to be shared
Q: who has the right to enforce the contribution of the partners (to enforce a
partners share of the loss)?
A: 1. Any partner or his legal representative
2. Any assignee for the benefit of creditors
3. Any person appointed by the court
Note: if any of the partners does not pay his share of the loss, the remaining
partners have to pay but they can sue the non-paying partner for
indemnification
GR: Partnership assets to partnership creditors, individual assets to individual
creditors; anything left from either goes to the other
(3) Distribution of Property of Insolvent Partner his individual
property shall be distributed as follows:
a. First, to those owing to separate creditors
b. Then, to those owing to partnership creditors
c. Lastly, to hose owing to partners by way of
contribution
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Article 1840
In the following cases creditors of the dissolved partnership are also
creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one or
more of the partners and one or more third persons, if the
business is continued without liquidation of the partnership
affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues
the business without liquidation of partnership affairs, either
alone or with others;
(3) When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of
this article, with the consent of the retired partners or the
representative of the deceased partner, but without any
assignment of his right in partnership property;
(4) When all the partners or their representatives assign their
rights in partnership property to one or more third persons who
promise to pay the debts and who continue the business of the
dissolved partnership;
- Note that there should be a promise to pay the debts
- Otherwise, creditors of the dissolved partnership
have no claim on the person or partnership continuing
the business or its property UNLESS the assignment
can be set aside as FRAUD ON CREDITORS under par. 4
(5) When any partner wrongfully causes a dissolution and the
remaining partners continue the business under the provisions of
article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners
continue the business either alone or with others without
liquidation of the partnership affairs.
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the dissolved
partnership shall be satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the dissolved
partnership, as against the separate creditors of the retiring or deceased
partner or the representative of the deceased partner, have a prior right to
any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business, on
account of the retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for such interest
or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to
set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of the
partnership name, or the name of a deceased partner as part thereof, shall
not of itself make the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
- This article deals with the rights of creditors when the partnership
is dissolved by a change of membership and its business
continued
- This article treats more of a COMMERCIAL PARTNERSHIP WITH A
GOODWILL to protect rather than a professional partnership
Note: any change in membership dissolves a partnership and creates a new
one
The remaining partners (and/or new partners) may elect to continue the
business of the old partnership without interruption by simply taking over
the business enterprise owned by the preceding partner and continuing the
use of the old name
- Both classes of creditors, the old and the new, are TREATED ALIKE,
being given EQUAL RIGHTS in the partnership property
22
- Purpose of the law: to MAINTAIN THE PREFERENTIAL RIGHTS of
the old creditors to the partnership property as against the
separate creditors of the partners
- GR: creditors of the old partnership are also the creditors of the
new partnership which continues the business of the old one
WITHOUT liquidation of the partnership affairs.
Article 1841
When any partner retires or dies, and the business is continued under
any of the conditions set forth in the preceding article, or in Article 1837,
second paragraph, No. 2, without any settlement of accounts as between
him or his estate and the person or partnership continuing the business,
unless otherwise agreed, he or his legal representative as against such
person or partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor an amount
equal to the value of his interest in the dissolved partnership with interest,
or, at his option or at the option of his legal representative, in lieu of
interest, the profits attributable to the use of his right in the property of the
dissolved partnership; provided that the creditors of the dissolved
partnership as against the separate creditors, or the representative of the
retired or deceased partner, shall have priority on any claim arising under
this article, as provided Article 1840, third paragraph.
- Rights of Retiring or of Estate of Deceased partner when business
is continued:
o To have the value of the interest of the retiring partner
or deceased partner in the partnership ascertained as
of the date of dissolution
o To receive thereafter, as an ORDINARY CREDITOR, an
amount equal to the value of his share in the dissolved
partnership with interest, or, at his option, in lieu of
interest, the profits attributable to the use of his right -
--- (meaning, it is ok if the estate do not withdraw the
share of their predecessor right away; result is similar
to that of a relationship between a depositor and a
bank)
REMEMBER: creditors of a dissolved partnership have a PRIOR RIGHT as
against the separate creditors of the retired or deceased partner
- If the estate consents that the business is continued, in effect, it
becomes a new partner and would be answerable for all debts
and losses after the death BUT ONLY to the extent of the
DECEDENTS SHARE IN THE PARTNERSHIP ASSETS
Article 1842
The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date
of dissolution, in the absence of any agreement to the contrary.
- The right to demand an accounting of the value of a partners
interest accrues to any partner or his legal representative AFTER
DISSOLUTION in the absence of an agreement to the contrary
- Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done
Q: Who are the persons liable to render an account?
A:
(1) The winding up partner
(2) The surviving partner
(3) The person or partnership continuing the business
Note: there is a need for a GENERAL LIQUIDATION before a member of a
partnership may claim a specific sum as his share of the profits. A partners
share cannot be returned without first dissolving and liquidating the
partnership, for the return is dependent on the discharge of creditors, whose
claims enjoy preference over those of the partners
Additional Info: When in liquidating a partnership the profits for a given
period of time cannot be exactly determined for lack of evidence, but the
profits for certain periods prior and subsequent thereto are known, the
profits corresponding to the said given time may be determined by finding
the AVERAGE OF THOSE PROFITS already known and multiplying it by the
length of time included between said periods (see page 271 for example)
Q: can liquidation be dispensed with?
A: yes, when there is already a settlement or an agreement as to what a
partner shall receive
angels notes
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