CHAPTER 1: GENERAL PROVISIONS
law given legal rights and duties of human
ARTICLE 1767
By contract of partnership, TWO OR MORE
persons bind themselves to CONTRIBUTE
MONEY, PROPERTY OR INDUSTRY to a
common fund, with intention of DIVIDING
PROFITS among themselves
Two of more may also form partnership for
EXERCISE OF PROFESSION
PROFESSION- group of men pursuing learned
art as calling of PUBLIC SERVICE.
REQUISITES OF CONTRACT OF PARTNERSHIP
1. There must be a Valid Contract
2 There must be a Contribution of money,
property or industry to a common fund
3. Organized for profit or gain
4. Have lawful object or purpose and
established for common benefit of partners
TEST TO DETERMINE EXISTENCE OF
PARTNERSHIP / JURIDICAL PERSONALITY
1. Determine Whether or not there is
agreement to contribute MPI to common
fund
2. Determine Whether or not there is intent
to divide profits among themselves
CHARATERISTICS OF PARTNERSHIP
1. CONSENSUAL- Perfected by mere consent.
Oral contract is good as written.
2. COMMUTATIVE- Contribution of each
partner is considered equivalent to
contribution of other partner
3. PRINCIPAL- Contract that does not depend
on other contracts
4. BILATERAL- Two or more persons
5. ONEROUS- Each partner must contribute
MPI
6. NOMINATE- Contract which has name in
law
7. PREPARATORY- Contract in preparation for
another contracts.
Money- Medium of exchange
Property- External thing which rights of
possession, use, enjoyment are exercised
Industry- Diligence in the performance of task
Joint venture- governed by law on
partnership
DOCTRINE OF DELECTUS PERSONAE - very
foundation and essence of partnership
-Right to choose with whom a person wishes
to associate himself.
-“Choice of persons” delectus personarum
-Any one of the partner may dictate
dissolution of partnership at will. Unjustified
dissolution can subject to damages.
Allows partners to have power, not
necessarily the right to dissolve partnership.
PARTNERSHIP AT WILL
-Partnership that does not fix its term.
-Life of partnership depends on mutual desire
and consent of partners and absence of cause
for dissolution provided by law (withdrawal,
death, incapacity)
The purpose (to act for practice of profession)
is not the specific undertaking referred to in
law. The law contemplates as partnership for
particular undertaking is specific undertaking
or “project” which has definite period of
completion.
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 requirements of Article 1772, first
paragraph.
Article 1772- Partnership have capital of
3,000 or more must be recorder in SEC
Juridical/Artificial Person- persons created by
notary public
being.
It can:
1. Acquire and posses property
2. Incur obligations and
3. Bring civil or criminal actions
Bouncing Check: Partnership cannot be sued.
The partner who signed the check is criminally
liable and can be sued.
ARTICLE 1769
To determine whether partnership exists
these rules shall apply:
1. Persons who are not partners as to each
other are not partners as to third person.
Except partnership by estoppel.
PARTNERSHIP BY ESTOPPEL- partnership not
duly organized has been recognized as such in
dealings with certain persons. If X
misinterprets to Z that they are partners with
Y and Y did not object and introduce himself
as partner, then for Z, X and Y are partners.
2. Co-ownership or Co-possession does not
itself establish a partnership.
CO-OWNERSHIP- Created by contract and
law, no juridical personality, not for profit but
for common enjoyment, profit depend on
shares, not dissolved by death or incapacity,
no public instrument is needed.
3. Sharing of gross return does not itself
establish a partnership
4. Receipt by a person of a share of profits of
a business is Prima facie evidence that he is a
partner
PRIMA FACIE- sufficient to establish a fact or
raise a presumption unless disproved.
Exception:
A. As debt by installment or otherwise
B. Wages of employee or rent to landlord
C. As an annuity to a widow or representative
of deceased party.
D. As an interest on loan
E. As consideration for the sale of goodwill of
a business or other property.
ARTICLE 1770
A partnership must have a lawful object or
purpose, and must be established for the
common benefit or interest of the partners.
Lawful object or purpose- within commerce
of man, not impossible and not contrary to
law, morals, good customes and public order
Example of Unlawful Partnership-
forbidden/against the law
1. Gambling purposes- not all gambling is
contrary to the Law
2. Prostitution purposes
3. Illegal monopolies or combination in
restraint of trade.
Effects of dissolved unlawful partnership
1. Contract is VOID from very beginning (as if
never existed, no legal personality)
2. Profits shall be confiscated in favor of the
state
3. Instruments, tools or proceed shall be
forfeited in favor of government
4. Contributions shall NOT BE CONFISCATED
unless they fall no. 3
ARTICLE 1771
Partnership may be constituted in any form,
except where immovable property or real
rights are contributed, public instrument is
necessary.
General Rule: Contract may be oral or writing
Exception: If real properties are contributed,
public instrument is needed; otherwise
contract is Void.
Real Rights- ownership, use habitation,
usufruct, pledge and real mortgage.
Public Instrument- document prepared by
A universal partnership may refer to all the
ARTICLE 1772 (Not mandatory)
Partnership having capital of 3,000 or more
money or property, public instrument must
be recorded in SEC.
-Non compliance will still makes contract
valid and partnership retains its juridical
personality.
Partnership having capital of below 3,000, no
form is required, may be verbal.
ARTICLE 1773
If inventory of real property contributed is
not made, signed by parties and attached to
public instrument, contract is void.
Intention: To protect third persons. Public
instrument is useless if no inventory of
property contributed.
ARTICLE 1774
Any immovable property or interest there in
may be acquired in partnership name.
Partnership has judicial personality;
Immovable property to be acquired must be
in the name of partnership.
ARTICLE 1775
When articles of Associations and societies
are kept in secret among members, no
juridical personality exists.
Association- no juridical personality, not for
profit, no contribution and members are liable
for debts of association. Cannot be sued.
ARTICLE 1776
As to objects, partnership is either universal
or particular. As to liability of partners, may
be general or limited.
CLASSIFICATION OF PARTNERSHIP
UNIVERSAL PARTNERSHIP
Kinds of Universal Partnership
UNIVERSAL PARTNERSHIP OF ALL PROPERTY-
Partners contribute property belongs to them
to common fund, with intention of dividing
the same among themselves as well as profits
acquired in prop.
UNIVERSAL PARTNERSHIP OF ALL PROFITS-
All profits partners may acquire by their
industry during existence of partnership.
PARTICULAR - Has for its object determinate
things, their use or fruits, undertaking or
exercise of profession.
GENERAL- All partners are general partner
LIMITED -Atleast one general and one limited
partner.
PARTNERSHIP AT WILL- no fixed term not
formed for particular undertaking. Life of
partnership is predicated on mutual desire
and consent of partners. Can be dissolved
anytime.
PARTNERSHIP AT FIXED TERM- life or period
of existence has been agreed upon by the
partners.
PARTNERSHIP FOR PARTICULAR
UNDERTAKING- Will dissolved after
completion of purpose.
ORDINARY PARTNERSHIP- (refer to
partnership definition Art. 1767)
PARTNERSHIP BY ESTOPPEL- (refer to Art.
1769)
DE JURE PARTNERSHIP- complied with all
legal requirements for creation.
Ex. Capital of 3,000/Real Prop, in Public
instrument registered in SEC
DE FACTO PARTNERSHIP- not complied with
all legal requirements for creation
ARTICLE 1777
present property or to all the profits.
Kinds of Universal
1. Universal property of all present property
2. Universal property of all profits
*There is U.P of all present property and all
profits if you agree to share with all your
property and profit
ARTICLE 1778
UNIVERSAL PARTNERSHIP OF ALL PROPERTY-
Partners contribute property belongs to them
to common fund, with intention of dividing
the same among themselves as well as profits
acquired in prop.
Contributions are:
1. All properties belong to partners
2. Profits acquired from properties.
ARTICLE 1779
In Universal Partnership of all present
property, property belongs to each partner
becomes common property of all partners
including all profits acquired in that property.
Agreement for common use of any other
profits may also be made; Future property
acquired by legacy, inheritance or donation
are not included except fruits thereof.
Legacy- If a person gives you a property but
you are not an heir.
ARTICLE 1780
UNIVERSAL PARTNERSHIP OF ALL PROFITS-
Partners retain their ownership over their
present and future properties unlike UP of all
poperty. Only profits and use of property are
passed to partnership not ownership
UP of all profits- Only Profits of contributed
property become common property not from
other property of partners
UP of all Profits- All profits acquired through
“industry or work” become common
property.
ARTICLE 1781
Articles entered without specification of its
nature, only constitute Universal Property of
all profits.
Presumption: UP Of all profits impose less
obligation because ownership of properties
are retained
ARTICLE 1782
Persons prohibited from giving each other any
donation cannot enter into Universal
Partnership
Persons cannot enter into UP
1. Legally married spouse
2. Person living together as husband and wife
without valid marriage
3. Persons guilty of Adultery or concubinage
at time of donation.
4. Persons found guilty of same criminal
offense
5. Persons and public officer of his wife,
descendants or ascendants, by reason of his
office.
RATIONALE: UP is donation of properties to
each partner. If person are prohibited to
donate, they should not be allowed to enter
UP
VIOLATION: Partnership is Null and void
ARTICLE 1783
PARTICULAR PARTNERSHIP- Has for its object
determinate things, their use or fruits,
undertaking or exercise of profession.
Determinate things- specific or particular
Ex. Toyota Corolla plate number ABC123
Universal partnership- husband and wife
cannot enter into a contract
Particular partnership- husband and wife can
enter into a contract
CHAPTER 2: OBLIGATIONS OF THE
PARTNERS
KINDS OF PARTNERS
As to contrbution
a. Capitalist- contribute money and/or
property
b. Industrial- contribute only industry
c. Capitalist-industrial- contributes
money/property and industry.
As to liability
a. General- liable to extent of their separate
property.
b. Limited- cannot held liable to 3rd persons
As to management
a. Managing- manage business or affairs of
partnership
b. Silent- not take active part but share in
profits or losses
c. Liquidating- take charge of winding up or
liquidation after dissolution
As to 3rd persons
a. Ostensible- take aftige part and known to
public as partner
b. Secret- not known to the public
c. Dormant- not take active part and not
known to public as partner
As to membership
a. Real- partners in existing partnership
b. Partners by estoppel- not really partners
but represent themselves to anyone as
partners.
As to continuation of business after
dissolution
a. Continuing- who continue partnership
b. Discontinuing- who do not continue
partnership
As to nature of membership
a. Original- members from time of
constitution
b. Incoming- members after establishment
c. Retiring- who withdraw from partnership
As to survivorship
a. Surviving- who continue the partnership
after it’s dissolution by reason of death of
partner
b. Deceased- who died while being a member
As to the effect of expulsion
a. Expelled- who expelled from partnership by
the other partners for valid cause
b. Expelling- who caused expulsion of partner
for valid cause
As to value of contribution
a. Majority- whose contribution represents
majority or controlling interest
b. Nominal- contribution represents minority
interest
LEGAL RELATIONS CREATED BY CONTRACT
OF PARTNERSHIP
1. Relations between partner
2. Relations between partners on one hand
and the partnership on the other hand
3. Relations between partners on one hand
and 3rd persons on the other hand
4. Relations between partnership and third
persons
ARTICLE 1784
General Rule: Partnership life or juridical
personality begins from the moment of
execution of contract.
Exception: When partners agree on some
other date for start of partnership.
ARTICLE 1785
When partnership for a fixed term or
particular undertaking is continued after
termination of term or undertaking without
any express agreement, rights and duties of
partners remain the same.
Continuation of business by partners without
any settlement or liquidation of partnership
is PRIMA FACIE EVIDENCE of CONTINUATION
OF PARTNERSHIP
ARTICLE 1786
Every partner is a debtor of partnership for
whatever he have promised to contribute.
OBLIGATION OF EVERY PARTNER
1. Contribute what he had been promised-
Mutual contribution to common fund is must
to have partnership. Failure to contribute
makes partner a debtor of the partnership
even no demand.
Remedy: Specific performance with interest
and damages
2. To deliver the fruits thereof- If property
has been promised, fruits thereof should also
be given. If money has been promised, and
failed to do so, he become debtor for interest
and damages.
3. The obligation to warrant- warrant or give
an authority or permission to specific
determinate thing contributed.
ARTICLE 1787
When partner’s contribution consist of
GOODS, appraisal is made in manner
prescribed in contract. If no agreement, it
shall be made by the EXPERTS chosen by
partners.
Appraisal- estime the value
Manner of appraisal
1. By stipulation
2. Absence of stipulation, by experts chosen
by partners.
Rationale: Under the law, absence of
stipulation in share or profits and losses, share
of partners in profit and losses shall be in
propotioned to what they have contributed. It
is useful to know the value of contribution as
of date of contribution.
ARTICLE 1788
Essence of partnership
A partner who has undertaken to contribute a
sum of money and fails to do so, becomes
debtor for whatever he promised and for
interest and damages. It also applies to any
amount he may have taken from partnership
coffers. The liability begin from time he
converted the amount to his own use.
Coffers- small chest for valuables
Liability for damages and interest arises
when:
1. Money promised by partner is not given on
time
2. Money of partnership is converted to
partner’s own use
Demand is not necessary. Exception to
general principle on law “ there is no default
if there is no demand
ARTICLE 1789
PROHIBITION TO ENGAGE IN OTHER
BUSINESS
CAPITALIST PARTNER- Cannot engage in same
kind of business which partnership is engage.
Except, authorized in stipulation.
INDUSTRIAL PARTNER- Cannot engage in
business for himself unless partnership
permits him. (Absolute prohibition)
PROFITS:
Capitalist- according to agreement; if no
agreement, proportion to contribution.
Industrial- according to agreement; if no
agreement, receive just and equitable under
circumstances.
If industrial partner engaged in business for
himself, REMEDIES
1. capitalist partner may exclude him from
the partnership plus damages;
2. avail the benefits for violation of this
provision, with right to damages.
*Kapag yung capitalist partner nag engage sa
business not the same kind ng partnership,
valid
*Kapag yung capitalist partner nag engage sa
business with same industry, not valid.
ARTICLE 1790
Unless there is stipulation to the contrary,
partners shall contribute EQUAL shares to
capital of partnership.
ARTICLE 1791
In case of losses of partnership, any partner
who refuses to contribute additional share to
capital except industrial partner to save
venture shall be obliged to sell interest to
other partners.
General Rule: Capitalist partners are not
bound to contribute additional capital.
Exceptions:
1. Stipulation
2. Imminent Losses to save the venture.
Industrial Partner- not liable to any losses
because his entire labor was already
contributed.
ARTICLE 1792
If managing partner collects a demandable
sum owed to him in his own name from
person who also owed a demandable sum to
the partnership, the sum collected shall be
applied to two credits in proportion to their
amounts even receipt is given for his own
credit only. But if receipt is given to
partnership, entire amount is credited to
partnership.
*Not applicable to non managing partner
because there is no basis for the suspicion
that partner is in bad faith.
*Provision are to be without the prejudice to
right granted to debtor by Article 1252- the
debtor has the right to choose to what debt
he shall pay first.
Rational: prevents partner’s personal interest
detriment of partnership.
Requisites:
1. Existence of atleast 2 debts where one
creditor is managing partner and other is
partnership
2. Both sums are demandable
ARTICLE 1793
Partner who receive whole or part of his
share in partnership credit, when other
partner/s have not collected theirs, is obliged
to bring to partnership capital what he receive
if the debtor become insolvent.
Rationale: Equity demands proportionate
share in benefits and losses.
Insolvent- liability exceeds asset
ARTICLE 1792
Two distinct credit in favor of managing
partner and partnership, applies only to
managing partner, debtor is not insolvent
ARTICLE 1793
One credit in favor of partnership, applies to
any parter, debtor become insolvent.
ARTICLE 1794
Partner is responsible for damages sufferred
by the partnership through his fault of
negligence and cannot be compensated with
profits and benefits which he earned for
partnership by his industry. Court may lessen
the responsibility if through partner’s
extraordinary efforts, unusual profits
realized.
Rationale: It is obligation of partner to earn
benefits and profits for partnership and not to
cause damages through negligence.
ARTICLE 1795
Risk of Loss (Things Contributed to
partnership)
1. Specific and determinate things which are
not fungible- What contributed is only the
USE of object. PARTNER who owns them
bears the risk of loss because ownership is not
transferred to partnership
Specific thing- distinguished from its own
kind. Ex: my diamond ring
Generic thing- Ex. Diamonds
Fungible - easily replaceable by another
identical item, cannot be kept without
deteriorating
2. Fungible Things
3. Things contributed to be sold
4. Things brought and appraised in
inventory- claim shall be limited to value at
which they were appraised
Nos. 2-4 - PARTNERSHIP bears the risk of loss.
There was transfer of ownership.
ARTICLE 1796
Obligation of the partnership to every
partner
1. To refund (repay) amount a partner
dibursed (paid) on behalf of the partnership
plus interest from time the expenses were
made.
Ex. B purchase supplies out of his own money
on March. AB partnership must reimburse
the amount. If AB partnership reimbursed
only on May, Partnership is also liable for
interest of 2 months
2. To answer the obligation of each partner
made in good faith for the interest of
partnership, and for risks in consequence of
its management.
Ex. B purchase on credit car accessories from
X for their car repair shop. AB partnership is
answerable to X for the payable of acessories
because it is for the interest of partnership.
ARTICLE 1797
RULES FOR DISTRIBUTION OF PROFITS &
LOSSES
Distribution of Profits
A. According to agreement- profits shall be
distributed in conformity with the agreement.
B. If there is no agreement
1. Capitalist partners- in proportion to their
contribution
2. Industrial Partners- just and equitable
under circumstances agreed by partners.
3. Capitalist-industrial partners- just and
equitable share agreed by partners is not
disregarded. Partner is also included on the
computation of share based on contribution
on the remaining portion.
Distribution of Losses
A. According to agreement- shall be
distributed in conformity with the agreement.
If agreement only pertains to profit, share in
losses shall be in the same proportion as
profit.
*Industrial Partner may be liable for losses is
there is agreement.
B. If there is no agreement
1. Capitalist partners- in proportion to their
contribution
2. Industrial Partners- Not liable for losses.
3. Capitalist-industrial partners- losses is
computed in proportion of his contribution.
He is exempted in losses but not in liability.
He may recover what he have given to third
parties from other partners.
Liability- Obligation towards 3rd person
Losses- Obligation among the partners
ARTICLE 1798
If partners agreed to intrust (give custody) to
third person the designation of share in
profits and loss, designation may be
impugned (questioned) if manifestly
inequitable
Impugned- doubt, question the truth or
validity.
General rule: It is valid
Exception: Not valid and maybe questioned if
it is inequitable; unless
1. Partner began to execute the decision of
third person
2. Partner has not questioned the decision of
third parties within 3 months he had
knowledge.
ARTICLE 1799
General rule: Stipulation which excludes one
or more partners from share in profits or
losses is Void.
*It is the stipulation that is Void not the
contract of partnership
*Test in order to have partnership is the
intent to divide profits among themselves.
Exception: Industrial partner is not liable for
loss unless he waived the right
Rationale: Why industrial partner is not
liable for loss? IP cannot withdraw any labor
he already exerted while CP can withdraw
their capital. He also shared in losses when he
rendered labor but partnership shows no
profit.
ARTICLE 1800
Partner appointed manager in articles of
corporation may execute all acts of
administration even opposition of his
partners, unless he acts in bad faith; his
power is irrevocable without just or lawful
clause.
Who manage the partnership?
1. Partners designated as managing partners
in Articles of Partnership
2. No agreement, all partners are managers.
Two modes of appointment
1. Appointment in articles of partnership
2. Appointment made in instrument other
than Articles of partnership
APPOINTMENT IN ARTICLES OF PARTNERSHIP
General Rule: Power is irrevocable without
just and lawful clause
Exemption :
1. To remove him for Just cause, vote of
partners having controlling interest is
necessary.
2. To remove without just cause, there must
be unanimity including his own vote for
reason of changing will or terms of contract.
EXTENT OF POWER OF MANAGING PARTNER
1. If he acts in good faith, he may do all acts of
administration despite opposition of others
2. If he acts in bad faith, he cannot do any act
of administration
Appointment made in instrument other than
Articles of partnership
Rule: Power to act may be revoked at any
time with or without just cause by partners.
Extent of Power: manager can do all acts of
administration.
Article 1801
If two or more partners appointed as
managers, without specification of duties or
without stipulation that one of them shall act
without consent of all managers, each one
may separate execute all acts of
administration.
If one oppose the acts of other manager, the
decision of majority will prevail.
In case of tie, it shall be decided by partners
owning the controlling interest.
Requisites:
1. Two or more partners are managers
2. No stipulation of duties
3. No stipulation requiring unanimity that one
shall not act without consent of others
General rule: Each one may separately
execute all acts of administration.
Exceptions: If any of the managers oppose.
1. The decision of majority (per head) of
managers shall prevail.
2. In case of tie, decision of managing partners
owning controlling interest (more than 50%)
shall prevail.
*Non managers do not have right to oppose,
they have no power in all act of
administration
ARTICLE 1802
Stipulation requiring unanimity of action if it
is included in the agreement that none of
managing partner shall act without consent
of others.
General Rule: Unanimous consent of all
managing partners (even one partner is
absent or incapacitated) is necessary for
validity of decision or action. Absence or
disability of any managing partners cannot be
alleged.
Exception: When there is an imminent
danger of grave or irreparable injury to
partnership.
Not applicable to Third person
A third person may and has the right to
presume that partner he contracts has the
consent of his co-partner, if not, he would not
enter the partnership.
ARTICLE 1803
Rules when manner of management has not
be agreed upon:
1. All partners are considered manager, he
can do all acts of administration.
If opposed, majority will prevail
If tie, vote of partner representing controlling
interest.
2. For alterations in immovable property,
unanimity is required even useful to
partnership.
ARTICLE 1804
CONTRACT OF SUB-PARTNERSHIP
Every partner may associate another person
(sub-partner) with him in his share, but
consent of all partners is required, even
partner having associate is manager.
All partners can have associate in his share or
sub partner
REASONS WHY SUB PARTNERS SHALL NOT
ADMITTED TO PARTNERSHIP WITHOUT
CONSENT OF ALL OTHER PARTNERS
1. Mutual trust is the basis of partnership.
2. Change in membership is novation or
modification of contract.
ARTICLE 1805
Parthership books shall be kept at principal
place of partnershop. Partner have right to
have access to, inspect and copy partnership
books for partner to obtain true and full
information of partnership at any reasonable
hour.
Partnership books- partnership property and
every partner is co-owner or partnership
property.
Reasonable hour- business days throughout
the year not during arbitrary period of few
days chosen by directors or managers -
Supreme court
ARTICLE 1806
Partner shall render on demand true and full
information of all things affecting
partnership to:
Who can demand true and full information?
1. Any partner
2. Legal representative of deceased partner
3. Legal representative of any partner under
legal disability.
Concealment- violation of stated article.
ARTICLE 1807
Every partner must account (report) to the
partnership for any benefit, and hold as
trustee for it any profits derive by him without
consent of other partners from any
transaction connected with the formation,
conduct, or liquidation of the partnership or
from any use by him of its property.
Rationale: partners are governed by fiduciary
relationship - mutual trust and confidence.
*Refers only to any profits derived without
consent of other partners.
Right to demand an accounting accrues at
date of dissolution in the absence of any
agreement. When final accounting is done,
prescription of said right begins to run.
ARTICLE 1808
RELATIVE PROHIBITION
Capitalist partner cannot engage in same
kind of business in which partnership is
engaged, unless there is stipulation to
contrary.
Rationale: Capitalist partner already acquired
knowledge/secrets of partnership, it is unfair
to engage in same kind of business
EFFECTS OF VIOLATION:
1. Capitalist partner shall bring to the
common fund any profits accruing to him; and
2. Capitalist partner personally bear all the
losses
ARTICLE 1809
Any partner have the right to formal account
as to partnership affairs when:
1. He is wrongfully excluded from partnership
business or possession of its property by his
co-partners
2. If the right exists under terms of any
agreement
3. Provided by article 1807
4. Circumstances render it just and reasonable
General Rule: No formal accounting is
demandable until dissolution of partnership,
except mentioned above.
Article 1806, 1807, 1809- right to demand an
accounting exists as long as partnership exists.
ARTICLE 1810
Property rights of a partner are:
1. His right in specific partnership property-
become co owner of properties contributed.
2. His interest in partnership- share in profits
3 His right to participate in the management-
all partners are managers if there is no
agreement
ARTICLE 1811
Partner is co-owner with his partners to
specific partnership property.
Incidents of this co-ownership are such that:
1. Has an equal right with his partners to
possess specific partnership property for
partnership purposes
2. Partner’s right in specific partnership
property is not assignable
Assignment- transfer of rights or property.
3. Partner’s right in specific partnership
property is not subject to attachment or
execution
4. Partner’s right in specific partnership
property is not subject to legal support
ARTICLE 1812
Partner’s interest in partnership is his share of
the profits and surplus
Profit- excess of revenues over expenditures
Surplus- excess of receipts over
disbursements. Funds that remain after
partnership dissolve and paid all debts.
During operation, partner’s interest is profit
After operation/dissolution/liquidation,
partner’s interest is surplus
Partner’s interest in the partnership (share in
profit and surplus) can be assigned, attached
and subject to legal support.
ARTICLE 1813
CONVEYANCE OF INTEREST
Conveyance- voluntary transfer of a right or
property.
Consent of partners is NOT REQUIRED for
interest to be conveyed.
Effects of Conveyance by partner of his whole
interest in partnership.
1. If partner conveys (assign, sells and donate)
his whole interest, partnership will not
dissolve because the interest (profit/surplus)
is the one being sold not ownership.
Transfer by partner his interest does not
make the assignee a partner.
- Except if remaining partner do not want to
continue operation of business, partnership
dissolved.
2. Assignee (person whom right/prop is
tranferred) :
* Cannot Interfere in management of
partnership
* Cannot require information or accounting
of partnership transactions
* Cannot inspect partnership books.
Rights of Assignee
1. To receive profits to which assigning
partner is entitled.
2. In case of fraud in management of
partnership, assignee may avail the usual
remedies provided by law
3. In case of Dissolution, to receive assignor’s
interest and
4. In Dissolution, May require an account
from the date only of last account agreed to
by all partners.
ARTICLE 1814
“CHARGING ORDER”- remedy available to
creditor of debtor-partner to charge the
interest of debtor to partnership by means of
court order to satisfy the amount
.
Charging interest of partner-debtor: A
entered into partnership with loan from X. If A
fails to fulfill obligation, Creditor may ask the
interest of A in partnership.
Note: court will issue charging order after X
obtain final favorable judgment.
Appointment of receiver: Court may appoint
a receiver of debtor-partner’s share of profits
in respect of the partnership and make all
other orders, directions, account and inquiries
which debtor-partner might have made.
REDEMPTION- extinguishment of the charge
or attachment on partner’s interest in the
profits.
1. Before foreclosure- interest charged may
be redeemed at any time.
2. After disclosure- may still be purchased
without causing dissolution.
a. Separate personal property of partner
b. With partnership property with consent of
all partners whose interest not charged or
sold.
Right of a partner under exemption laws: not
deprived of his right under exemption laws, as
regards his interest in partnership but cannot
avail himself of exemption laws in so far as his
right in specific partnership property.
ARTICLE 1815
General Rule: Partners may use any firm
name desired, which may or may not include
name of partners, and will be the name of
that juridical person.
Exception: Cannot use an identical or
confusingly similar to any existing partnership
or corporation or other name already
protected by law or clearly against the law.
Note: Persons who is not a partner, include
their names in the firm name, shall be subject
to liability of a partner but has no right as a
partner.
ARTICLE 1816
LIABILITY FOR CONTRACTUAL OBLIGATIONS
All partners including industrial, shall be liable
pro rata with all their property for contracts
enter into in the name of partnership.
It refers to Liability and not a loss, even
industrial partner is also liable. But he can
demand reimbursement from other partners
because industrial partner is not liable for
loss.
Liability- as to third persons
Loss- as between partners
Pro-rata- equally or joint
Subsidiary- partner’s separate property may
be held liable only after creditor exhausted
asset of partnership.
SEPARATE OBLIGATION OF A PARTNER
If partner, in his own name, enters into a
contract with 3rd person, he is liable not
partnership.
Article 1817
Stipulation against liability
- A stipulation against liability of all partners
for the contracts entered into the name of the
partnership is void as to third persons. It is
only valid among the partners.
Even stipulated that partner A will not be
liable beyond his contribution, that
agreement is void to creditor and he can still
demand payment from A. A can reimburse
payment from other partner.
ARTICLE 1818
PARTNER AS AGENT OF THE PARTNERSHIP
- Nature of a contract of partnership that it is
fudiciary, governed the partners.
Every partner is an agent of the other
partners and the partnership.
I. Acts apparently for carrying on in the usual
way the business of the partnership
It binds the partnership unless:
A. The partner so acting has in fact no
authority to act for the partnership.
B. The person with whom he is dealing
know the fact that he has no authority.
II. Acts not apparently for the carrying on in a
usual way the business of the partnership
It does not bind the partnership, unless
authorized by the other partners. Requires
consent
III. Acts of ownership
Any partner may sell partnership property if
they have an authority and consent of other
partners. (Authority is unanimous)
IV. Acts in contravention of a restriction on
authority
The act is not binding to the partnership as
to persons having knowledge of the
restriction.
Except when authorized, Partners have no
authority to:
1. Assign partnership property in trust for
creditors or asignee’s promise to pay debts of
partnership
2. Dispose good-will of business
3. Do any act that would make it impossible to
carry on the ordinary business of partnership
4. Confess a judgement
5. Enter into compromise concerning
partnership claim or liability
6. Submit partnership claim or liability to
arbitration- resolution of disputes outside the
court
7. Renounce claim of partnership
Article 1819.
TITLE- Legal evidence of a person's ownership
rights in property; an instrument (deed).
EQUITABLE INTEREST- An interest held by
virtue of an equitable title or claimed on
equitable grounds ,such as the interest held
by a trust beneficiary.
REAL PROPERTY MAY BE REGISTERED OR
OWNED IN THE NAME OF:
1. The partnership
2. One or more but not all the partners
3. One or more but not all the partners; or in a
third person in trust for the partnership
4. All the partners
1. Real property registered in the partnership
name
The conveyance here was executed in the
partnership name. Any partner may convey
title to such property by conveyance executed
in partnership name, but partnership may
recover property unless partner’s act bind
the partnership.
2. Real property registered in the name of the
partnership
The conveyance here was executed in the
partners' name. If partner was authorized to
sell land registered in name of partnership in
ordinary operation, using his own name, sale
is valid because it binds partnership. Only
equitable interest is transferred.
Equitable interest will not be transferred if
not in ordinary operation or partner has no
authority and 3rd party knows partner’s lack
of authority.
3. Title to real property is in the name of one
or more but not all partners
The partners in whose name the title stands
convey the title to such property.
Sale is valid if it was registered in name of
partner who sells the property and sale made
in ordinary course of business. If partner do
not have authority, Partnership cannot
recover the land if buyer is in good faith- he
has no knowledge of lack of authority of C.
4. Real property is in the name of one or more
but not all partners or in a third person in
trust for the partnership
Conveyance was executed by a partner in
the partnership name or in his own name.
Partner authorized to sell land registered in
his name in trust for partnership in ordinary
course. Regardless whose name the seller is
(partnership or partner) what passes to buyer
is equitable interest.
Equitable interest not transferred if not in
ordeinary course and partner has no authority
and buyer has knowledge of partner’s lack of
authority.
5. Title to real property is in the name of all
partners
Conveyance executed by all the partners
passes all their rights in such property.
Article 1820
ADMISSION- A statement in which someone
admits that something is true or that he or
she has done something wrong.
An admission by any partner is evidence
against the partnership if:
1. The admission must concern partnership
affairs
2. The admission must be within the scope of
his authority.
NOTE: An admission by a former partner
made after he has retired from the
partnership, is not evidence against the firm.
Article 1821
General Rule: Notice to a partner is notice to
the partnership.
Instances where knowledge of a partner is
considered knowledge of the partnership
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.
Except: In the case of fraud on the
partnership, committed by or with the
consent of that partner.
Article 1822
Any wrongful act or omission of a partner in
ordinary course of business or with authority
of co-partners, loss or injury or penalty
incurred, the partnership is liable to the same
extent as the partner so acting or ommiting to
act.
“Partnership or other partner is solidary liable
to Partner and can reimburse or recover from
partner who committed an act”
Article 1823
LIABILITY OF PARTNERSHIP FOR
MISAPPROPRIATION
When the partner in course of business,
receives money or property of a third person
and he misapplied it, the other partner and
the partnership will solidarily liable to third
person even though it is not intentional and
only one partner did mistake. Partner and
partnership can recover from partner.
ARTICLE 1824
All partners are liable solidarily under the
partnership for everything chargeable to the
partnership under Art. 1822 and 1823.
General presumption:
Each individual partner is an authorized agent
for the firm and that he has authority to bind
the firm in carrying on the partnership
transactions.
All partners, whether innocent or guilty, as
well as the legal entity which is the
partnership, are solidarily liable.
ARTICLE 1825
Partnership by estoppel: all partners consent
the misrepresentation of 3rd person who is
not partner, it creates partnership obligation.
- if partnership obligation results, 3rd
person can go after net assets of partnership,
they are all partners by estoppel.
- Legitimate creditor of partnership has
preference over net asset of partnership
- Not apply when person is deceived.
Partner by estoppel: If he represents himself,
or consents to another or other representing
him as a partner, either in existing or fictitious
or apparent partnership.
*if one or more but not all partners consented
the representation, no partnership by
estoppel but partners by estopel
*If A, B, and C are not partners but D
represented to X that they are partner. All of
them are liable pro rata to X
*If the A, B, C (partners) did not consent D as a
partner, then there is no partners by estoppel
as only D is liable.
*If someone has made representation of
himself or consented, even 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 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, he is liable
pro rata with the other persons, if any, so
consenting to the contract or representation
as to incur liability, otherwise separately.
ARTICLE 1826
Partners admitted into an existing partnership
is liable to the obligations arised before his
admission. Except, this liability shall be
satisfied only out of the partnership property,
unless there is stipulation to the contrary
Creditor cannot go after separate property of
newly admitted partner if the obligation
incurred after his admission.
ARTICLE 1827
The creditors of the partnership has
preference over partner creditor with regards
to property of the partnership, while the
private creditor of each partner has
preference with regards to personal property
of partner.
Remedy: Private creditors may ask the
attachment and the public sale of the share of
the partners in the partnership assets.
Attach- to take by legal authority especially
under a writ
CHAPTER 3: DISSOLUTION AND
WINDING UP
Before the partners can be paid their shares,
the creditors of the partnership must first be
compensated
ARTICLE 1828
Dissolution - change in the relation of the
parties caused by any partner ceasing to be
associated in the carrying on as distunguished
from the winding up of the business
Upon its dissolution, the partnership
continues and its legal personality is retained
until complete winding up or termination of
its business.
Does not mean that juridical personality
immediately terminated. Only a change in
relationship among partners.
Winding up - net partnership assets are
partitioned and distributed to partners.
3 FINAL STAGES OF A PARTNERSHIP
1. Dissolution - (art 1828) Time parthers cease
to cary on business together.
2. Winding Up - process of settling business
affairs after dissolution
Ex: collecting receivable, paying obligation
3. Termination- point in time after all the
partnership affairs have been wound up.
Is agreement of partners affecting liquidation
is valid? Liquidation is governed by provision
of civil code but agreement is binding among
them and normally take precedence over Civil
Code.
Retirement - disassociation by a partner,
inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.
A withdrawing partner remains liable to a
third party creditor of the old partnership.
Creditor of old partnership is also creditor of
new partnership
ARTICLE 1829
The partnership is not terminated on
dissolution, but continues until the winding up
of partnership affairs is completed.
After dissolution, all the transactions of the
partnership should only pertain to liquidation
or winding up.
Upon dissolution, partnership continues until
winding up or liquidation is completed.
Example: the partnership will sell its non-cash
assets, collects its receivables, pay the
partnership creditors and thereafter
distribute the remainder to the partners.
ARTICLE 1830
Kinds of Dissolution
1. Extrajudicial dissolution - no. 1-7 without
intervention of court
2. Judicial Dissolution- no 8 intervention of
court
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.
Partnership with a fixed term - the life/period
of existence of the partnership has been
agreed upon by the partners.
Partnership for a particular undertaking - will
exist until the purpose is accomplished
b. By the express will of any partner, who
must act in good faith, when no definite term
or particular is specified.
Partnership at will -Does not fix its term. will
predicated by the mutual desire and consent
of the partners.
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.
Partners must be in good faith.
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
Expulsion must be in good faith.
2. In contravention (violation) 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.
Partner is liable for the damages because of
breach of contract.
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.
Insolvency - liabilites are greater than the
asset.7. By the civil interdiction of any
partner.
Civil interdiction - deprives the offender
during the time of his sentence the right to
manage property and dispose of such
property by any act or any conveyance inter
vivos
8. By decree of court under the following
article.
ARTICLE 1831
When can a partnership be dissolved
judicially?
1. When a partner is declared insane.
2. When a partner becomes incapable of
performing his part in the partnership.
3. Partner has been guilty of conduct that
affect prejudicially the carrying on the
business.
4. Partner Persistently commits breach of
partnership agreement.
5. The business can only be carried on at a
loss.
- Intention and essence of partnership is to
divide profits
6. Other circumstances render dissolution
equitable
a) Abandonment of the business
b) Fraud
c) Refusal to render an accounting.
7. On application of purchaser of partner’s
interest (Art. 1813, 1814)
- After termination of specified term or
undertaking
- Any time if it is partnership at will, when
interest was assigned or charging order issued
Who can sue for judicial dissolution?
1. Partner (any of 1-6 grounds for juridical
dissolution)
2. His assignee (Purchaser of partner’s
interest, Art. 1813, 1814after termination of
term or indertaking l.
ARTICLE 1832
Dissolution terminates all authority of partner
to act for partnership.
If the cause of dissolution is not by act,
insolvency or death of a partner, the authority
of the partners is terminated no longer enter
into contract except if the transaction is for
the purpose of liquidation or to complete
unfinished transactions during dissolution.
GENERAL RULE : When a partnership is
dissolved, any of the partners cannot bind
partnership transactions because their
authority terminates upon dissolution.
EXEMPTIONS: provided in ART. 1833 and 1834
ARTICLE 1833
If dissolution is caused by an act, insolvency or
death, each partner is liable for share in the
liability of the partnership created by any
partner, UNLESS when partner had knowledge
of an act, insolvency or death, or notice of
insolvency and death.
•If one of the partner had knowledge, he is
the only liable.
ARTICLE 1834
Partners can bind the partnership even after
dissolution if the transactions are with respect
to the completion of the unfinished business.
The transactions will be binding if :
I. Partnership is Liable
1. Act appropriate for winding up partnership
affairs.
2. Act for completing transactions unfinishised
at dissolution
3. Any transaction which would bind
partnership if dissolution had not taken place
provided other party to transaction
a) before the dissolution, credit was extended
without knowledge of dissolution.
Ex. (ABC Company) Prior to dissolution, B
entered into a contract of sale with X.
Partnership is liable because X has no
knowledge about the dissolution.
b) no credit was extended but there was
knowledge of the partnership's existence and
no knowledge of the dissolution. Dissolution
had not been advertised in news paper.
Ex. (ABC Company) After dissolution B
entered into a contract of sale with X.
Partnership is liable because X has no
knowledge about the dissolution but if the
dissolution had been advertised, then the
partnership is not liable.
* The partnership is required to annouced the
dissolution so it will be sufficient notice to all
3rd person (if the 3rd person don't read
broadsheets, it's their fault, not the
partnerships).
* Liabilities shall be satisfied out of
partnership asset alone if the partner is a
DORMANT PARTNER.
Dormant Partner - Contributor or investor
who is not active in managing a firm and may
not be known to the outsiders.
II. PARTHERSHIP IS NOT LIABLE
1) Partnership was dissolved because it
becomes unlawful to carry on the business.
2) insolvency of a partner
3) Partner had no authority to wind up
partnership affairs except transaction with 3rd
person who is in goodfaith.
a. there was no knowledge of the lack of
authority
b. there was no knowledge because there was
no advertisement.
ARTICLE 1835
GENERAL RULE : Dissolution of partnership
does not discharge existing liabilities of any
partner.
Partner’s liability is discharged:
In order for the liability to be discharged, the
following must agree:
1.) Partners;
2.) The other partners;
3.) The creditors.
Property of the deceased partner shall be
liable to all obligations of the partnership
made while he was a partner. In case that, the
deceased partner has a private creditor, it
must first be paid and the remaining will be
his share in the partnership liability.
ARTICLE 1836
Kinds of winding up or liquidation
1.) Extrajudicial- without intervention of the
court
Who will wind up?
1. Liquidating partner or partners agreed
upon by all partners (Designated in
agreement)
2. Partners who did not wrongfully cause the
dissolution (absence of agreement)
3. Legal representative of last surviving
partner who is not insolvent. (If all partners
died)
2.) Judicial - under the control and direction of
the court.
Who will din up? Person appointed by the
court.
ARTICLE 1837
RIGHTS OF PARTNERS IN DISSOLUTION
I. If dissolution is not caused by violation of
partnership agreement:
1. Have partnership property applied to
discharge liabilities of partnership
2. To have surplus, pay in cash the net amount
owing to partners.
Note: if dissolution is caused by expulsion of
partner, and expelled partner is discharged
from all liabilities, he receive in cash only net
amount due to him.
II. Caused by contravention of partnership
agreement
RIGHT OF PARTNERS WHO HAS NOT CAUSED
DISSOLUTION WRONGFULLY
1. To have the partnership property to
discharge the liabilities of the partnership
2. To have a surplus, pay in cash the net
amount owing to partners.
3. To be indemnified (compensate) for the
damages caused by the partner who caused
the dissolution wrongfully.
4. To continue the business up to the agreed
term and may possess partnership property.
RIGHT OF PARTNERS WHO WRONGFULLY
CAUSED THE DISSOLUTION
1.) If business is not continued
- Right to claim his share in the cash surplus
less damages caused by his wrongful
dissolution)
2.) If other partners continue the business.
- To have his interest in the partneship (less
any damage caused to his co-partners by the
dissolution)
- Released from all existing liabilities of the
partner.
-Damages will be deducted from his interest
and will be addition to interest of other
partners.
Note: To know value of partner’s interest who
wrongfully caused the dissolution, value of
goodwill is not considered.
Until partnership accounts are determined, it
cannot be ascertained how much any of
parties is entitled to.
ARTICLE 1838
When partnership contract is rescinded
(cancelled) due to fraud or mirepresentation
of one of parties,
Rights of partners who is entitle to rescind
1. Right of lien or right of retention
2. Right of subrogation
3. Right of indemnification
ARTICLE 1839
Assets of partnership
1. Partnership property
2. Contributions of the partners necessary for
payment of all liabilities
Liabilities of partnership - it is the partnership
that must refund the equity of retiring
partners
ORDER OF PAYMENT
1. Creditors other than partners (Partnership
creditors)
2. Partners other than for capital and profits
3. Partners in respect of capital
4. Partners in respect of profits (industrial
partneris entitled to participate in profits)
Required new contribution- if partnership
assets were exhausted, partners shall
contribute to satisfy liabilities.
Who can enforce?
1. Assignee for benefit of creditors or any
person appointed by the court
2. Any partner or legal representative to
extent of amount he paid in excess of his
share of liability.
Individual porperty of deceased partner shall
be liable for his share of partnership liability
incurred while he was a partner.
Partnership creditors- priority on partnership
property
Separate creditors- individual property
PREFERENCE OF CLAIMS AGAINST SEPARATE
PROPERTY OF INSOLVENT PARTNER
1. Separate creditors
2. Partnership creditors
3. Partners by way of contribution.
ARTICLE 1840
ARTICLE 1842
Who has an obligation to render an account
1. Winding up partners
2. Surviving partners
3. Person or partnership continuing business
CHAPTER 4: LIMITED PARTNERSHIP
ARTICLE 1843
LIMITED PARTNERSHIP
-have 1 or more general partner and 1 or
more limited partners.
Limited partner- not be bound by obligations
of partnership.
Characteristics of Limited Partnership
1. Formed by compliance in good faith with
statutory requirements
2. 1 or more general partner control the
business and personally liable to creditors
3. 1 or more limited partners(special partner)
contribute to capital and share in profits but
not participate in management
4. Limited partners- not personally liable for
partnership obligations beyond his
contribution
5. Limited partners may ask for return of their
capital contributions
6. Partnership debts are paid out of common
fund and separate property of general partner
ARTICLE 1844
Requirements of Limited Partnership
1. Sign and swear to certificate, state:
a. Name of partnership, adding “Limited”
b. Character of business
c. Location of place of business
d. Name and Residence of each member
(G&L)
e. Term of partnership
f. Amount of cash and discription and value of
property contributed by limited partner
g. Additional contributions, to be made by
each limited partner
h. Time when contribution of limited is to be
returned, if agreed.
i. Share of profits or other compensation by
way of income which each LP shall receive
j. Right of limited partner to substitue an
assignee as contributor in his place, if given
k. Right to admit additional limited partner, if
given
l. Right of limited partners to priority over
other limited partners, as to contribution,
income,if given
m. Right of remaining general partners to
continue business on death, retirement, civil
interdiction, insanity, insolvency of GP, if
given
n. Right of limited partner to demand and
receive property other than cash in return of
contribution, if given
2. Filed in office of SEC
Essential Requisites in formation of Limited
partnership
1. Certificate of limited partnership- must be
signed and sworn to
2. Certificate must be file in office of SEC
Limited partnership must always be in
WRITING
Non compliance with requirements=No
limited partnership but general partnership
Presumption in favor of partnership
Partnership transacting with 3rd person is
presumed to be general partnership.
ARTICLE 1845
Contribution of a limited partner:
-money, property or both, not services
An industrial partner can only become a
general partner.
ARTICLE 1846
The surname of a limited partner shall not
appear in the partnership name unless:
* It is also the surname of a general partner
* Business has been carried on under a name
in which his surname appeared (allowed
because partnership already have goodwill)
Limited partner whose surname appear in the
partnership name is also liable as a general
partners to partnership creditors who extend
credit to the partnership w/o actual
knowledge that he is not a general partner
but will not acquire the rights of a general
partner.
ARTICLE 1847
If the certificate contains a false statement,
one who suffers loss by reliance on statement
may hold liable any party to the certificate
who knew the statement to be false:
• at the time he signed the certificate
• within a sufficient time before the
statement was relied upon to enable him to
cancel the certificate or to file a petition for
cancellation or amendment as provided in
Article 1865.
“Anyone can be liable if there is a false
statement in certificate who knew the
statement to be false”
Liability for a false statement in the certificate
- one who suffers loss by reliance on false
statement hold liable any party in certificate
who is in bad faith
Example: if in certificate you are general but
you are actually a limited partner, you act as
general
You will not liable if you ask cancellation or
amendment in certificate.
ARTICLE 1848
Limited partner cannot takes part in control of
business
Liability of a limited partner who takes part in
the control of the business
- liable as a general partner however he
cannot acquire the rights of a general partner.
ARTICLE 1849
Additional limited partners may be admitted
after formation of limited partnership
Requirement: Amendment to the original
certificate signed and sworn by all partners,
original and newly admitted and filed with SEC
“General partner cannot admit GP after
formation”
ARTICLE 1850
General Partner have all the rughts and
powers and liabilities of partner in partnership
without limited partners.
Without written consent by all LP, GP have no
authority to:
1. Do any act in contravention to certificate
2. Do any act which would make it impossible
to carry on ordinary business of partnership
3. Confess judgement against partnership
4. Posses partnership property, assign rights
in specific partnership property other than
partnership purpose.
5. Admit person as general partner
6. Admit person as limited partner, unless
right given in certificate
7. Continue business with partnership
property on D,R,I,CI, or Insolvency of GP,
unless right given in certificate.
Note: General Partner in general or limited
partnership can do only acts of
administration.
ARTICLE 1851
Limited partner have the same rights as
general partner
Rights of limited partner
1. Right to have the partnership books kept at
principal place of business of partnership, and
at a reasonable hour to inspect and copy any
of them.
2. Right to have on Demand true and full
information of all things affecting partnership,
and a formal account of partnership affairs
whenever circumstances render it just and
reasonable. (Upon only Dissolution)
3. Right to have dissolution and winding up by
decree of court.
4. Right to receive a share of profits or other
compensation by way of income. (Dissolution)
5. Right to receive return of his contribution if
assets are in excess of partnership liabilities.
(During Winding up)
ARTICLE 1852
A person who contributed to capital of
partnership believing that he has become
limited partner in limited partnership is not
liable as general partner:
1. On ascertaining (realization) of the mistake,
he immediately renounces (do not claim) his
interest in the profits or other compensation
by way of income.
2. He does not take part in control of
business.
3. His surname is not used in partnership
name
ARTICLE 1853
General-Limited Partner
A person may be a general partner and
limited partner at the same time provided
that it is stated in certificate of limited
partnership.
Rights of general-limited partner: Rights are
those of a general partner
Liabilities of general-limited partner:
Liabilities are those of a general partner. In
respect to his contribution, his rights are
those of a limited partner as other partners
are concerned.
General partner as to liability with creditor or
3rd person, liable up to extent of his separate
property but limited partner with regards to
contribution.
ARTICLE 1854
Allowable business transactions of Limted
Partner with Partnership
1. To lend money to partnership
2. To transact business with partnership
3. To receive on account of resulting claims
against partnership, with general creditors, a
pro-rata share of asset.
Prohibited business transactions of limited
partner
1. Receive or hold as collateral security and
partnership property
2. Receive from a general partner or the
partnership any payment, conveyance, or
release from liability, if at the time the assets
of the partnership are not sufficient to
discharge partnership liabilities to outside
creditors.
(Liabilities to outside creditors must be settled
first before liability to limited partner)
Rationale: To prevent illegal competition
between limited partner and partnership
creditors for asset of partnership.
Note: Violation of the provisions is a fraud on
the creditors of the partnership.
ARTICLE 1855
If there are several limited partners, members
may agree that one or more of the limited
partners shall have a priority over other
limited partners as to:
1. Return of their contributions
2. Their compensation by way of income
3. Any other matter.
Agreement shall be stated in the certificate,
and in the absence of such a statement all the
limited partners shall stand upon equal
footing.
Equal footing- neither side having any
advantage over the other.
ARTICLE 1856
A limited partner may receive from the
partnership the share of profits or
compensation by way of income stipulated in
certificate; provided that partnership assets
are in excess of all liabilities of partnership to
third person after payment of profits or
compensation by way of income.
ARTICLE 1857
Requisites for the RETURN OF CONTRIBUTION
of LIMITED PARTNER
1. All liabilities of partnership except liability
to general and limited partners on account of
their contributions, have been paid or
remaining property of partnership sufficient
to pay them.
2. The consent of all members is had, unless
return of contribution may be rightfully
demanded under provisions of 2nd paragraph.
3. The certificate is cancelled or amended as
to set forth the withdrawal or reduction of
contribution.
When can contribution of limited partner be
returned
1. Dissolution of partnership
2. Date specified in certificate for its return
has arrived
3. After he has given 6 months notice in
writing to all other members, no time
specified in certificate, either for return of
contribution or dissolution of partnership
Limited partner has the right to demand and
receive CASH in return of his contribution
Exceptions:
1. When there is a stipulation to contrary in
certificate
2. When all partners consent to return his
contribution other than in form of cash
A limited partner may have partnership
dissolved and its affairs wound up when:
1. He rightfully but unsuccessfully demands
return of his contribution
2. Other liabilities of partnership have not
been paid or property is insufficient for their
payment and limited partner be entitled to
return of his contribution.
ARTICLE 1860
Retirement, death, insolvency, insanity, civil
interdiction of GENERAL partner dissolves the
partnership, unless continued by remaining
general partner:
1. Under right stated in certificate
2. With consent of all members
“Not include a limited partner”
ARTICLE 1861
When a limited partner died his
executor/administrator will have all the rights
of a limited partner for the purpose of setting
his estate, the deceased limited partner had
to appoint his assignee as a substituted
limited partner.
Note: The estate of the deceased will be liable
for all his liabilities as a limited partner.
ARTICLE 1862
If a 3rd person files a case against the limited
partner for non-payment/non-compliance
with the contract, he can ask for the limited
partner’s interest.
The court may also appoint a receiver (person
who’ll shoulder the existing obligation of a
debtor), and make all other orders, directions
and inquiries which circumstances of the case
require.
Note: The interest may be redeemed with the
separate property of any general partner, but
may not be redeemed with partnership
property
ARTICLE 1863
Order of Payment after dissolution
1. Creditors, as to order of priority provided
by the law except those to limited partners on
account of contributions, and to general
partners;
2. Limited Partners, share of the profits and
other compensation by the way of income on
their contributions;
3. Limited Partners, capital of their
contributions;
4. General Partners, other than for capital and
profits;
5. General Partners, in respect to profits;
6. General Partners, in respect to capital.
Note: Limited partners are given priority over
general partners. Moreover, profits are given
priority over capital. Limited partners share in
the partnership assets in respect to their
claims of capital, while in respect to their
claims for profit/compensation by way of
their income on contribution.
ARTICLE 1864
Certificate shall be amended when:
1. There is a change in the name of the
partnership or in the amount or character of
the contribution of any limited partner;
2. A person is substituted as a limited partner;
3. An addition limited partner is admitted;
4. A person is admitted as a general partner;
5. A general partner retires, dies, becomes
insolvent or insane, or is sentenced to civil
interdictions and the business is continued
under Article 1860;
6. There is a change in the character of the
business of the partnership;
7. There is a false or erroneous statement in
the certificate;
8. There is a change in the time as stated in
the certificate for the dissolution of the
partnership or for the return of the
contribution;
9. Time is fixed for the dissolution of the
partnership, return of the contribution, no
time having have been specified in the
certificate; or
10. The members desire to make a change in
any other statement in the certificate in order
that it shall accurately represent the
agreement among them.
The limited partner is only a mere contributor.
In case of a lawsuit, he will not be a proper
party meaning he will not be a part of lawsuit.
He also can’t meddle with the case because
he doesn’t have a control over the
partnership’s management.
General rule: A limited partner not a proper
party to proceedings by or against a
partnership because he does not take control
nor participate in the management of the
business of the partnership.
Exception: Where the object is to enforce a
limited partner’s right against or liability to
the partnership.
Article 1867
A limited partnership formed created before
the effectivity of this Code (from Code of
Commerce) is still considered a limited
partnership governed under Art. 1844.
Partnerships established after the creation of
Art. 1867 shall comply with this article
provided the certificate sets forth:
1. The amount of the original contribution of
each limited partner, and the time when the
contribution was made; and
2. That the property of the partnership
exceeds the amount sufficient to discharge its
liabilities to persons not claiming as general or
limited partners by an amount greater than
the sum of the contributions of its limited
partners.

Cancellation of certificate of limited

partnership
1. When partnership is dissolved
2. All limited partner cease to be limited
partners (limited aprtnership shoul consist of
LP)
Note: In all other cases, only amendment of
the certificate of the partnership is required.

ARTICLE 1865
Requirements for amendment of certificate
The writing to amend a certificate shall:
1. Conform to the requirements of article
1844
2. Be signed and sworn to by all members,
and an amendment substituting a limited
partner or adding a limited or general partner
shall be signed also by the member to be
substituted or added, and when a limited
partner is to be substituted, the amendment
shall also be signed by the assigning limited
partner. (Assignor and assignee must sign)
3. Amended certificate must be filed in office
of SEC.

The writing to cancel a certificate shall be

signed by all members.
Requirements for cancellation
1. Must be in writing
2. Signed and sworn by all members
3. Filed for record in office of SEC

When a partner wants a cancellation or

amendment of a certificate, as a person who
must execute the writing refuses to do so,
may petition the court to order a cancellation
or amendment.
A certificate is amended or cancelled when
there is filed for record in the Office of the
Securities and Exchange Commission, where
the certificate is recorded:
1. A writing in accordance with the provisions
of the first or second paragraph, or
2. A certified copy of the order of the court in
accordance with the provisions of the fourth
paragraph;
3. After the certificate is duly amended in
accordance with this article, the amended
certified shall thereafter be for all purposes
the certificate provided for in this Chapter.

ARTICLE 1866