Partnership

It is a contract whereby 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 (NCC, Art. 1767).
NOTE: Two or more persons may also form a partnership for the exercise of a profession (NCC, Art. 1767).
Essential elements of partnership
1. Agreement to contribute money, property or industry to a common fund (mutual contribution to a common stock); and
2. Intention to divide the profits among the contracting parties (joint interest in the profits) (Evangelista v. Collector of
Internal Revenue, G.R. No. L-9996, October 15, 1987). 1957

Characteristics of partnership
1. Bilateral – It is entered into by two or more persons and the rights and obligations arising therefrom are always
reciprocal;
2. Onerous – Each of the parties aspires to procure for himself a benefit through the giving of something;
3. Nominate – It has a special name or designation in our law;
4. Consensual – Perfected by mere consent, upon the express or implied agreement of two or more persons;
5. Commutative – The undertaking of each of the partners is considered as the equivalent of that of the others;
6. Principal – It does not depend for its existence or validity upon some other contracts;
7. Preparatory – Because it is entered into as a means to an end, i.e. to engage in business or specific venture for the
realization of profits with the view of dividing them among the contracting parties; and
8. Profit-oriented (NCC, Art. 1770).

Typical incidents of partnership

1. The partners share in profits and losses (NCC,
Arts. 1767, 1797-98);
2. The partnership has a juridical personality separate and distinct from that of each of the partners. Such juridical
personality shall be automatically acquired despite the failure to register in the SEC (NCC, Art. 1768);
3. Partners have equal rights in the management and conduct of the partnership business (NCC, Art. 1803);
4. Every partner is an agent of the partnership, and entitled to bind the other partners by his acts, for the purpose of its
business (NCC, Art. 1818). He may also be liable for the entire partnership obligations;
5. All partners are personally liable for the debts of the partnership with their separate property (NCC, Arts. 1816, 1822-24)
except limited partners are not bound beyond the amount of their investment (NCC, Art. 1843);
6. A fiduciary relation exists between the partners

(NCC, Art. 1807); and

7. On dissolution, the partnership is not terminated, but continues until the winding up of partnership is completed (NCC,
Art. 1829).

NOTE: These incidents may be modified by stipulation of the partners subject to the rights of third persons dealing with
the partnership.
Q: TRUE or FALSE. An oral partnership is valid (2009 BAR).
A: TRUE. An oral contract of partnership is valid even though not in writing. However, if it involves contribution of an immovable
property or a real right, an oral contract of partnership is void. In such a case, the contract of partnership to be valid, must be in a
public instrument (NCC, Art. 1771), and the inventory of said property signed by the parties must be attached to said public
instrument (NCC, Art. 1773; Litonjua, Jr. v. Litonjua, Sr., G.R. Nos. 166299-300, December 13, 2005)

Partnership, Co- PARTNERSHIP CO-OWNERSHIP CORPORATION

ownership and
Corporation BASIS
Creation By contract or by mere
agreement of the parties.
Juridical Personality Has separate and
distinct juridical
personality from that of
each partner.
Purpose Realization of profits.
Generally created by law
and can exist without a
contract (Albano, 2013).
No separate and distinct
juridical personality.
Common enjoyment of a
thing or right.
By law.
Has separate and
distinct juridical
personality from that of
each corporator.
Depends in the Articles
of Incorporation (AOI).
Duration/ Term of No limitation. 10 years maximum (May A corporation shall have
Existence be extended by new perpetual existence
agreement) (NCC, Art. unless its articles of
494). incorporation provides
otherwise.
(Section 11 of RA 11232
or the Revised
Corporation Code of the
Philippines)
Number of Minimum of two Minimum of two GR: Minimum of one
incorporators persons. persons. person
(Section 10 of RA 11232
or the Revised
Corporation Code of the
Philippines)
Commencement of From the moment of Not applicable; no From the date of
Juridical Personality execution of the contract juridical personality. issuance of
of partnership. the certificate of
incorporation.
Disposal/ Partner may not dispose Co-owner may freely do Stockholder has a right
Transferability of of his individual interest so (NCC, Art. 495). to transfer shares
Interest unless agreed upon by without prior consent of
all partners. other stockholders.
Power to Act with 3rd In the absence of Co-owner cannot Management is vested
Persons stipulation to contrary, a represent the co- with the BOD.
partner may bind ownership (NCC, Art.
partnership. Each 491-492).
partner is agent of
partnership.
NOTE: Except as
provided by Art. 1825,
persons who are not
partners as to each other
are not partners as to
third persons [NCC, Art.
1769(1); Albano, 201].
Effect of Death Death of a partner Death of co-owner does Death of stockholder
results in dissolution of not necessarily dissolve does not dissolve the
partnership. co-ownership. corporation.
Dissolution May be dissolved at any May be dissolved Can only be dissolved
time by the will anytime by the will of with
of any or all of the any or all of the co- the consent of the State.
partners. owners.

Partnership v. Joint Venture Partnership Joint Venture

(2015 BAR) BASIS
Coverage Contemplates the undertaking of
a general and continuous
business of a particular kind.
Firm name Required to operate under a firm
name.
Transfer of property The property used becomes the
property of the business entity
and hence of all the
Partners.
Power A partner acting in pursuance of
the firm business, binds not only
himself as a principal, but as
their agent as well, also the
partnership and the partners.
Firm Name and Liabilities A partnership acquires
personality after following the
requisites required by law.
Ordinarily limited to a single
transaction and not intended to
pursue a continuous business.
Has no firm name.
The property used remains
undivided property of its
contributor.
None of the co-venturers can
bind the joint venture or his co-
venturers.
A joint venture has no legal
personality.
 NOTE: SEC registration is not
required before a partnership
acquires legal personality (NCC,
Art. 1768).

Joint venture
It is an association of persons or companies jointly undertaking some commercial enterprise. Generally, all contribute
assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and
govern the policy in connection therewith, and a duty which may be altered by agreement to share both in profits and
losses.
NOTE: Section 36(h) of RA 11232 or the Revised Corporation Code of the Philippines provides for the power of a corporation, “to
enter into a partnership, joint venture, merger, consolidation or other commercial agreement with natural or juridical
persons.”

ESSENTIAL FEATURES OF PARTNERSHIP

1. There must be a valid contract;

2. The parties (two or more persons) must have legal capacity to enter into the contract;
3. There must be a mutual contribution of money, property, or industry to a common fund;
4. The object must be lawful; and
5. The primary purpose must be to obtain profits and to divide the same among the parties (De Leon, 2010).
Valid contract
Partnership is a voluntary relation created by agreement of the parties. It excludes from its concept all other associations
which do not have their origin in a contract, express or implied (De Leon, 2010).
Legal capacity of the parties to contract
Before there can be a valid contract of partnership, it is essential that the contracting parties have the necessary legal
capacity to enter into the contract. Consequently, any person who cannot give consent to a contract cannot be a partner.
Persons qualified to be a partner
GR: Any person capacitated to contract may enter into a contract of partnership.
XPNs:
1. Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership
(NCC, Art. 1782, 1994 BAR);

NOTE: A husband and wife, however, may enter into a particular partnership or be members thereof (De Leon, 2010).
2. Persons suffering from civil interdiction; and
3. Persons who cannot give consent to a contract:
a. Minors
b. Insane persons
c. Deaf-mutes who do not know how to write

Kinds of partners
1. As to the extent of liability
a. Capitalist- contributes either money or property to the common fund; he can also contribute an intangible like credit,
such as promissory note or other evidence of obligation, or even a goodwill (Rabuya, 2017); and
b. Industrial- contributes only his industry

2. As to the time of entry

a. Original- one who became a partner at the time of the constitution of the partnership
b. Incoming- one who became a partner as a new member of an existing partnership.

3. Other kinds:
a. Managing- one entrusted with the management of the partnership. (Arts. 1800 and 1801, NCC)
b. Liquidating- one who takes charge of the liquidation and winding up of the partnership affairs (Art. 1836, NCC)
c. Retiring- those who cease to be part of the partnership
d. Continuing- one 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
e. Dormant, Silent, Secret- one whose connection to the partnership is concealed and who does not take any active part in it
f. Partner by Estoppel- although not an actual partner, he has made himself liable as such by holding himself out as a partner
of allowing himself to be so held out (Art. 1815, NCC)

NOTE: A corporation cannot become a member of a partnership in the absence of express authorization by statute or
charter. This doctrine is based on the following considerations: (1) Mutual agency between the partners and, (2) Such
arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders
when they originally invested in the corporation (Mendiola vs CA, GR.No.159333, July 31, 2006).
Principle of delectus personae
No one can become a member of the partnership association without the consent of all the partners. This rule is inherent in
every partnership.
RATIO: This is because of the mutual trust among the partners and that this is a case of subjective novation. There is
subjective novation when there is a change in the parties to a contract. Their consent thereto is necessary in order to bind
them (Albano, 2013).
NOTE: Even if a partner will associate another person in his share in the partnership, the associate shall not be admitted
into the partnership without the consent of all the partners, even if the partner having an associate should be a manager
(NCC, Art. 1804). This element of delectus personae, however, is true only in the case of a general partner, but not as regards
a limited partner.
A partnership may be formed even if the common fund is comprised entirely of borrowed or loaned money
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being
partners, they are all liable for debts incurred by or on behalf of the partnership. (Lim Tong Lim v. Philippine Fishing Gear
Industries, Inc., G.R. No. 136448, November 3, 1999)
Consequences of a partnership formed for an unlawful purpose
1. The contract is void ab initio and the partnership never existed in the eyes of the law;
2. The profits shall be confiscated in favor of the government;
3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government; and
4. The contributions of the partners shall not be confiscated unless they fall under No. 3 (De Leon, 2010).

Necessity of judicial decree to dissolve an unlawful partnership

Judicial decree is not necessary to dissolve an unlawful partnership; however, it may sometimes be advisable that a judicial
decree of dissolution be secured for the convenience and peace of mind of the parties (De Leon, 2010).
Intention to divide the profits
The sharing in profits is merely presumptive and not conclusive evidence of partnership. There are numerous instances of
parties who have a common interest in the profits and losses of an enterprise but who are not partners. Thus, if the
division of profits is merely used as guide to determine the compensation due to one of the parties, such is not a partner
(De Leon, 2010).
Q: To form a lending business, it was verbally agreed that Noynoy would act as financier while Cory and Kris would
take charge of solicitation of members and collection of loan payments. The parties executed the 'Articles of
Agreement' where Noynoy would receive 70% of the profits while Cory and Kris would earn 15% each. Later,
Noynoy filed a complaint against Cory and Kris for misappropriation of funds allegedly in their capacities as
Noynoy’s employees. In their answer, Cory and Kris asserted that they were partners and not mere employees of
Noynoy. What kind of relationship existed between the parties?
A: A partnership was formed among the parties. The "Articles of Agreement" stipulated that the signatories shall share in
the profits of the business in a 70-15-15 manner, with Noynoy getting the lion's share. This stipulation clearly proved the
establishment of a partnership (Santos v. Spouses Reyes, G.R. No.135813, October 25, 2001).
Q: Jose conveyed his lots in favor of his four sons in order for them to build their residences. His sons sold the lots
since they found the respective lots impractical for residential purposes because of high costs of construction.
They derived profits from the sale and paid income tax. The sons were required to pay corporate income tax and
income tax deficiency, on the theory that they formed an unregistered partnership or joint venture taxable as a
corporation. Did the siblings form a partnership?
A: NO. The original purpose was to divide the lots for residential purposes. If later, they found out that it is not feasible to
build their residences on the lots, they can dissolve the co-ownership by reselling said lots. The division on the profit was
merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state (Obillos, Jr. v.
CIR, G.R. No. L- 68118, October 29, 1985).
Distribution of losses
Agreeing upon a system of sharing losses is not necessary for the obligation is implied in the partnership relation. 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.
The definition of partnership under Art. 1767 refers to “profits” only and is silent as to “losses.” The reason is that the
object of partnership is primarily the sharing of profits, while the distribution of losses is but a “consequence of the same.”
The right to share in the profits carries with it the duty to contribute to the losses, of any.
NOTE: The partnership relation is not the contract itself, but the result of the contract. The relation is evidenced by the terms of
the contract which may be oral or written, express or implied from the acts and declarations of the parties, subject to the
provisions of Articles 1771-1773 and to the Statute of Frauds (De Leon, 2010).

FORMATION OF PARTNERSHIP
It is created by agreement of the parties (consensual). There is no such thing as a partnership created by law or by
operation or implication of law alone (De Leon, 2010).
Articles of partnership
While partnership relation may be informally created and its existence proved by manifestations of the parties, it is
customary to embody the terms of the association in a written document known as “Articles of Partnership” stating the
name, nature or purpose and location of the firm, and defining, among others, the powers, rights, duties, and liabilities of
the partners among themselves, their contributions, the manner by which the profits and losses are to be shared, and the
procedure for dissolving the partnership (De Leon, 2010).
Effect of the“Articles of Partnership”
Ordinarily, the best evidence of the existence is the contract of partnership or the articles of partnership itself. However,
the execution of such contract is not a guarantee that a partnership indeed exists. (Rabuya, 2017)
Commencement of contract of partnership
A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated (NCC, Art 1784). If
there is no contrary stipulation as to the date of effectivity of the same, its registration in the Securities and Exchange
Commission is not essential to give it juridical personality (De Leon, 2010).
Formalities needed for the creation of a partnership
GR: No special form is required for its validity or existence. (NCC, Art. 1771) The contract may be made orally or in writing
regardless of the value of the contributions. (2009 Bar)
NOTE: An agreement to enter in a partnership at a future time, which “by its terms is not performed within a year from the
making thereof” is covered by the Statute of Frauds [NCC, Art. 1403(2)(a)]. Such agreement is unenforceable unless the
same be in writing or at least evidenced by some note or memorandum thereof subscribed by the parties. (De Leon, 2010)
XPN: If property or real rights have been contributed to the partnership:
1. Personal property
a. Less than P3,000 – may be oral
b. P 3,000 or more – must be:
i. In a public instrument; and
ii. Registered with Securities and Exchange Commission (NCC, Art. 1772).

2. Real property or real rights – must be:

a. In a public instrument (NCC. Art. 1771) (2009 Bar)
b. With an inventory of said property
i. Signed by the parties
ii. Attached to the public instrument (NCC, Art. 1773)
iii. Registered in the Registry of Property of the province, where the real property is found to bind third persons (Paras,
1969).

3. Limited partnership – Must be registered as such with the SEC, otherwise, it is not valid as a limited partnership but may
still be considered a general partnership with juridical personality (Paras, 1969).
Where capital of the partnership consists of money or personal property amounting to Php 3000 or more
The failure to register the contract of partnership does not invalidate the same as among the partners, so long as the
contract has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can
be assumed that the members themselves knew of the contents of their contract. Non-compliance with this directory
provision of the law will not invalidate the
partnership.
Registration is merely for administration and licensing purposes; hence, it shall not affect the liability of the partnership
and the members thereof to third persons [NCC, Art. 1772(2)].
A void partnership under Art.1773, in relation to Art. 1771, may still be considered by the courts as an ordinary contract as
regards the parties thereto from which rights and obligations to each other may be inferred and enforced (Torres v. CA, G.R.
No. 134559, December 9, 1999).
Q: A and B are co-owners of an inherited property. They agreed to use the said common properties and the income
derived therefrom as a common fund with the intention to produce profits for them in proportion to their
respective shares in the inheritance as determined in a project of partition. What is the effect of such agreement
on the existing co-ownership?
A: The co-ownership is automatically converted into a partnership. From the moment of partition, A and B, as heirs, are
entitled already to their respective definite shares of the estate and the income thereof, for each of them to manage and
dispose of as exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable
individually for all the taxes in connection therewith.
If, after such partition, an heir allows his shares to be held in common with his co-heirs under a single management to be
used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed (Oña v.
Commissioner of Internal Revenue, G.R. No. L-19342, May 25, 1972).
Meaning of “cuentas en participacion”
Under the Code of Commerce, “cuentas en participacion” means a sort of an accidental partnership constituted in such a
manner that its existence was only known to those who had an interest in the same, there being no mutual agreement
between the partners, and without a corporate name indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the business, governed under Art. 239 of the Code of Commerce
(Bourns v. Carman, G.R. No. L- 2880, December 4, 1906).
Q: Henry and Lyons are engaged in real estate business and are co-owners of a parcel of land. Henry, with the
consent of Lyons, mortgaged the property to raise the funds sufficient to buy and develop the San Juan Estate.
Lyons expressed his desire not to be part of the development project, but Henry, pursued the business alone.
When the business prospered, Lyons demanded for a share in the business. Is Lyons entitled to the shares in San
Juan Estate?
A: NO. Lyons himself manifested his desire not to be part of the development project. Thus, no partnership was formed.
The mortgage of the land was immaterial to the existence of the partnership. It is clear that Henry, in buying the San Juan
Estate, was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into a
proposition which would make Lyons a participant in this deal contrary to his express determination (Lyons v. Rosenstock,
G.R. No. 35469, March 17, 1932).
Q: Catalino and Ceferino acquired a joint tenancy over a parcel of land under a verbal contract of partnership. It
was stipulated that each of the said purchasers should pay one-half of the price and that an equal division should
be made between them of the land thus purchased. Despite Catalino’s demand for an equal division between them,
Ceferino refused to do so and even profited from the fruits of the land. Are they partners or co-owners?
A: They are co-owners because it does not appear that they entered into any contract of partnership but only for the sole
purpose of acquiring jointly or by mutual agreement of the land under the condition that they would pay ½ of the price of
the land and that it be divided equally between them (Gallemit v. Tabiliran, G.R. No. 5837, September 15, 1911).

Future partnership
It is a kind of partnership where the partners may stipulate some other date for the commencement of the partnership.
Persons who enter into a future partnership do not become partners until or unless the agreed time has arrived or the
contingency has happened (De Leon, 2010).
As long as the agreement for a partnership remains inchoate or unperformed, the partnership is not consummated (De
Leon, 2010).

RULES TO DETERMINE EXISTENCE OF PARTNERSHIP

1. Except as provided by Art. 1825 of the NCC (partnership by estoppel), 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 varies with the profits of the business;
e. As the consideration for the sale for the sale of a goodwill of a business or other property by instalments or otherwise
(NCC, Art. 1769).
NOTE: In sub-paragraphs a–e, the profits in the business are not shared as profits of a partner as a partner, but in some
other respects or for some other purpose.
Burden of proving the existence of a partnership
It rests on the party having the affirmative of that issue. The existence of a partnership must be proved and will not be
presumed.
However, when a partnership is shown to exist, the presumption is that it continues in the absence of evidence to the
contrary, and the burden of proof is on the person asserting its termination (De Leon, 2014).
NOTE: The use of the term “partner” in popular sense, or as a matter of business convenience, will not necessarily import
an intention that a legal partnership should result. But while the use of “partnership” or “partners” in an alleged oral
agreement claimed to have constituted partnership is not conclusive that partnership did not exist, non-use of such terms
is entitled to weight. Legal intention is the crux of partnership. (De Leon, 2014).

CLASSIFICATIONS OF PARTNERSHIP

1. Object
a. Universal partnership
i. Of all present property (NCC, Art. 1778) – 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 profits they may acquire therewith.
The following become the common fund of all the partners:
Property which belonged to each of the partners at the time of the constitution of the partnership
Profits which they may acquire from all property contributed
ii. Of all profits (NCC, Art. 1780) – Comprises all that the partners may acquire by their industry or work during the
existence of the partnership as well as the usufruct of all movable or immovable property which each of the partner may
possess at the time of the celebration of the contract of partnership.

b. Particular partnership – It is one which has for its object, determinate things, their use and fruits, or a specific
undertaking or the exercise of a profession or a vocation (NCC, Art. 1783).

2. Liability of partners

a. General partnership – One where all partners are general partners who are liable even with respect to their individual
properties, after the assets of the partnership have been exhausted (Paras, 1969).
b. Limited partnership – 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 (NCC, Art. 1843).

3. Duration
a. Partnership at will – the partnership has an indefinite term and it would dissolved only when an act or cause of
dissolution happens or arises.
b. Partnership with a fixed period or Partnership for a Particular Undertaking – the partnerships are automatically dissolved
upon the expiration of the stipulated term or the achievement of the particular undertaking stipulated in the contract of
partnership.
NOTE: When a partnership for a fixed term or particular undertaking is continued after it has terminated without any
express agreement, partnership then become one at will (Art. 1785, NCC), and the rights and duties of the partners remain
the same as they were at such termination.
NOTE: The presence of a period, duration or statement of a particular purpose for its creation may not prevent the
dissolution of any partnership by an act or will of a partner. The “mutual agency” and the “doctrine of delectus personae”
allows them to dissolve the partnership. However, an unjustified dissolution by a partner can subject him to a possible
action for damages. (Ortega v. Court of Appeals, 245 SCRA 529 (1995))
4. Legality of existence
a. De jure partnership – One which has complied with all the requirements for its establishment.
b. De facto partnership – One which has failed to comply with all the legal requirements for its establishment.

5. Representation to others
a. Ordinary or real partnership – One which actually exists among the partners and also as to third person.
b. Ostensible or partnership by estoppel –
When two or more persons attempt to create a partnership but fail to comply with the legal personalities essential for
juridical personality, the law considers them as partners, and the association is a partnership insofar as it is favorable to
third persons, by reason of the equitable principle of estoppel (MacDonald et. al. v. Nat’l. City Bank of New York, G.R. No. L-
7991, May 21, 1956).

6. Publicity
a. Secret partnership – Partnership that is not known to many but only as to its partners.
b. Notorious or open partnership – It is known not only to the partners, but to the public as well.

7. Purpose
a. Commercial or trading – One formed for the transaction of business.
b. Professional or non-trading – One formed for the exercise of a profession (De Leon, 2014).

UNIVERSAL v. PARTICULAR
Classes of universal ALL PRESENT
partnership ALL PROPERTY
PROFITS
What constitutes common property
Only usufruct of All properties actually
the properties of belonging
the partners become to the partners are
common contributed –
Property. they become common
property
(owned by all of the
partners
and the partnership).
As to profits as common property
All profits acquired by As to profits from
the industry of the other sources:
partners become
common property GR: Aside from the
(whether or not they contributed
were obtained properties, the profits
through the usufruct of said property
contributed) become common
property.
XPN: Profits from
other sources may
become common if
there is a stipulation
to such effect
As to properties
subsequently
acquired:
GR: Properties
subsequently acquired
by inheritance, legacy
or donation, cannot be
included in the
stipulation
XPN: Only fruits
thereof can be
included in the
stipulation (NCC, Art.
1779).

Presumption of universal partnership of profits

When the Articles of Universal Partnership fail to specify whether it is one of all present property or of profits, it only
constitutes a universal partnership of profits (NCC, Art. 1781), because it imposes lesser obligations on the partners since
they preserve the ownership of their separate property.
Persons disqualified from entering into universal partnership
a. Legally married spouses (Family Code, Art. 87). However they can enter into particular partnership. (Commissioner of
Internal Revenue vs. Suter, 27 SCRA 152)
b. Common law spouses.
c. Parties guilty of adultery or concubinage.
d. Criminals convicted for the same offense in consideration of the same [NCC, Art. 739 (2)].
e. A person and a public officer (or his wife, ascendant or descendants) by reason of his office [NCC, Art. 739 (3)].

Contribution of future properties

As a general rule, future properties cannot be contributed. The very essence of the contract of partnership that the
properties contributed be included in the partnership requires the contribution of things determinate (De Leon, 2010).
Particular partnership
It is one which has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation (NCC, Art. 1783).
The fundamental difference between a universal partnership and a particular partnership 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 (De Leon, 2010).
Q: J, P and B formed a limited partnership called Suter Co., with P as the general partner and J and B as limited
partners. J and B contributed Php 18,000 and Php 20,000 respectively. Later, J and B got married and P sold his
share of the partnership to the spouses which was recorded in the SEC. Has the limited partnership been dissolved
by reason of the marriage between the limited partners?
A: NO. The partnership is not a universal but a particular one. A universal partnership requires either that the object of the
association must be all present property of the partners as contributed by them to a common fund, or all else that the
partners may acquire by their industry or work. Here, the contributions were fixed sums of money and neither one of them
were industrial partners. Thus, the firm is not a partnership which the spouses are forbidden to enter into. The subsequent
marriage cannot operate to dissolve it because it is not one of the causes provided by law. The capital contributions were
owned separately by them before their marriage and shall remain to be separate under the Spanish Civil Code. Their
individual interest did not become common property after their marriage (Commissioner of Internal Revenue v. Suter, G.R.
No. L-25532, February 28, 1969).

GENERAL v. LIMITED
General partnership
It is a partnership where all partners are general partners who are liable even with respect to their individual properties,
after the assets of the partnership have been exhausted (Paras, 1969).
General or real partner
He is a partner whose liability to third persons extends to his separate property; he may be either a capitalist or an
industrial partner (De Leon, 2014).
General v. Limited partner/Partnership
BASIS GENERAL LIMITED
Liability Personally Liability
liable for extends only
partnership to his capital
obligations. contribution
s.
Right in When No
Managemen manner of participation
t management in
has not management
agreed upon, .
all general
partners
have an
equal right
in the
management
of the
business.
Contributio Money, Cash or
n property or property
industry. only, not
services.
If Proper Proper party Not proper
Party to to party to
Proceedings proceedings proceedings
By or by/against by/against
Against partnership. partnership,
Partnership unless:
1. He is also
a general
partner; or
2. Where the
object of the
proceeding
is to enforce
a limited

partner’s
right or
liability to
the
partnership.
Assignment Interest is Interest is
of interest not freely
assignable assignable.
without
consent of
other
partners.
Firm Name It must It must also
operate operate
under a firm under a firm
name, which name,
may or may followed by
not include the word
the name of “Limited.”
one or more
 of the GR: The
partners. surname of a
NOTE: Those, limited
who, not partner shall
being not appear
members of in the
the partnership
partnership, name.
include their XPNs:
names in the 1. It is also
firm name, the surname
shall be of a general
subject to partner;
the liability 2. Prior to
of a partner the time
(NCC, Art. when the
1815). limited
partner
became
such, the
business
had been
carried on
under a
name in
which his
surname
appeared.
NOTE: A
limited
partner
whose
surname
appears in a
partnership
name is
liable as a
general
partner to
partnership
creditors
who extend
credit to the
partnership
without
actual
knowledge
that he is not
a general
partner
(NCC, Art.
1846).

Prohibition a. The No
to Engage capitalist prohibition
in Other partner against
Business cannot engaging in
engage for business.
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.
b. If he is an
industrial
partner- in
any
business for
himself.

Effect of Retirement, Does not

Death, death, have same
Insolvency, insolvency, effect;
Retirement, insanity of Rights are
Insanity general Transferred
partner to legal
dissolves representati
partnership. ve.
Creation As a rule, it Created by
Maybe the members
constituted after
in any form, substantial
by contract compliance
or in
conduct of good faith of
the parties. the
requirements
set forth by
law.
Compositio/ Composed Composed of
Membershi only of at least one
p general general
partners. partner and
one limited
partner.

PARTNERSHIP WITH A FIXED TERM v. PARTNERSHIP AT WILL

Partnership with a fixed term
It is one in which the term of its existence has been agreed upon by the partners either:
1. Expressly – There is a definite period
2. Impliedly – A particular enterprise or transaction is undertaken
The mere expectation that the business would be successful and that the partners would be able to recoup
their investment is not sufficient to create a partnership for a term.
Fixing the term of the partnership contract
The partners may fix in their contract any term and they shall be bound to remain under such a relation for
the duration of the term.
Expiration of the partnership contract
The expiration of the term fixed or the accomplishment of the particular undertaking specified will cause the
automatic dissolution of the partnership.
Partnership at will
One in which no fixed term is specified and is not formed for a particular undertaking or venture which may
be terminated anytime by mutual agreement of the partners, or by the will of any one partner alone; or one
for a fixed term or particular undertaking which is continued by the partners after the termination of such
term or particular undertaking without express agreement (De Leon, 2014).
Termination or dissolution of partnership at will
A partnership at will may be lawfully terminated or dissolved at any time by the express will of all or any of
the partners.
The partner who wants the partnership dissolved must do so in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership, but to avoid the liability for damages to other partners.
Q: A, B, and C entered into a partnership to operate a restaurant business. When the restaurant had
gone past break-even stage and started to garner considerable profits, C died. A and B continued the
business without dissolving the partnership. They in fact opened a branch of the restaurant, incurring
obligations in the process. Creditors started demanding for the payment of their obligations.
a. Who are liable for the settlement of the partnership’s obligations? Explain.
b. What are the creditors’ recourse/s?

Explain. (2010 Bar)

A:
a. The two remaining partners, A and B, are liable. When any partner dies and the business is continued
without any settlement of accounts as between him or his estate, the surviving partners are held liable for
continuing the business despite the death of C. (Arts. 1841, 1785(2) & 1833)

b. Creditors can file the appropriate actions, for instance, an action for the collection of sum of money against
the “partnership at will” and if there are no sufficient funds, the creditors may go after the private properties
of A and B. (NCC, Art. 816) Creditors may also sue the estate of C. The estate is not excused from the liabilities
of the partnership even if C is dead already but only up to the time that he remained a partner. (NCC, Arts.
1829, 1835(2), Testate Estate of Mota v. Serra, G.R. No. L-22825, February 14, 1925) However, the liability of C’s
individual property shall be subject first to the payment of his separate debts. (NCC, Article 1835)

PARTNERSHIP BY ESTOPPEL
It is one who, by words or conduct does any of the following:
1. Directly represents himself to anyone as a partner in an existing partnership or in a non-existing
partnership.
2. Indirectly represents himself by consenting to another representing him as a partner in an existing
partnership or in a non-existing partnership.

Elements before a partner can be held liable on the ground of estoppel

1. Defendant represented himself as partner or is represented by others as such, and did not deny/refute such
representation.
2. Plaintiff relied on such representation.
3. Statement of defendant is not refuted.
Liabilities in case of estoppel When
Partnership is Liable
If all 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 (De
Leon, 2014).
When Liability is PRO RATA
When there is no existing partnership and all
those represented as partners consented to the
representation, then the liability of the person
who represented himself to be a partner, and all
who made and consented to such
representation, is joint or pro- rata (De Leon,
2014).
When Liability is SEPARATE
When there is no existing partnership and not
all but only some of those represented as
partners consented to the representation, or
none of the partnership in an existing
partnership consented to such representation,
then the liability will be separate. (De Leon,
2014)

Partnership Tort
There is a partnership tort where:
1. By any wrongful act or omission of any partner, acting in the ordinary course of business of the partnership
or with authority of his co-partners, loss or injury is caused to any person, not being a partner in the
partnership;
2. One partner, acting within the scope of his apparent authority, receives money or property from a third
person, and misapplies it; or
3. The partnership, in the course of its business, receives money or property, and it is misapplied by any
partner while it is in the custody of the partnership.

NOTE: Partners are solidarily liable with the partnership for any penalty or damage arising from a
partnership tort.

PROFESSIONAL PARTNERSHIP
It is a partnership formed by persons for the sole purpose of exercising their common profession, no part of
the income of which is derived from engaging in any trade or business.
In a professional partnership, it is the individual partners who are deemed engaged in the practice of
profession and not the partnership. Thus, they are responsible for their own acts.
Prohibition in the formation of a professional partnership
Partnership between lawyers and members of other profession or non-professional persons should not be
formed or permitted where any part of the partnership’s employment consists of the practice of law (Canon 9
of the Code of Professional Responsibility).
Prohibition in the firm name of a partnership for the practice of law
In the selection and use of firm name, no false, misleading, assumed, or trade names should be used (Canon 3
of the Code of Professional Responsibility Professional Ethics).

MANAGEMENT OF THE PARTNERSHIP

Modes of appointment of a manager
Appointment Appointment other
through than in the articles
the Articles of
Partnership
Power is irrevocable Power to act is
without just or lawful revocable anytime,
cause. with or without cause
(should be done by
NOTE: Vote required the controlling
for removal of interest).
manager:
1. For just cause – Vote
of the controlling
partners (controlling
financial interest).
2. Without cause or for
unjust cause –

Unanimous vote.
Extent of Power

If he acts in good faith, As long as he is a

he may do all acts of manager, he can
administration perform all acts of
(despite opposition of administration (if
his partners); others oppose, he can
be removed).
If he acts in bad faith,
he cannot

Scope of the power of a managing partner

As a general rule, a partner appointed as manager 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. The
exception is when the powers of the manager are specifically restricted (De Leon, 2010).
Rule where there are two or more managers
Without specification of their respective
duties and without stipulation requiring
unanimity of
action
GR: Each may separately execute all acts of
administration (unlimited power to
administer).
XPN: If any of the managers opposes, decision
of the majority prevails.
NOTE: In case of tie– Decision of the controlling
interest (who are also managers) shall prevail.
With stipulation that none of the managing
partners shall act without the consent of the
others

GR: Unanimous consent of all the managing

partners shall be necessary for the validity of
the acts and absence or inability of any
managing partner cannot be alleged.
XPN: Where there is an imminent danger of
grave or irreparable injury to the partnership.

Rule when the manner of management has not been agreed upon
1. All partners shall be considered agents and whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of Art. 1801 of the NCC. This right is not dependent on the
amount or size of the partner’s capital contribution or services to the business.

NOTE: If two or more partners have been entrusted 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 (NCC, Art. 1801). (1992 Bar)
2. None of the partners may, without the consent of the others, make any important alteration in the
immovable property even if it may be useful to the partnership (NCC, Art. 1802-Art. 1803).

Rule in case where unanimity of action is stipulated

Q: Azucena and Pedro acquired a parcel of land and a building. Azucena obtained a loan from Tai Tong
Co., secured by a mortgage which was executed over the land and building. Arsenio, representative of
Tai Tong, insured it with Travellers Multi Indemnity Corporation. The building and the contents
thereof were razed by fire. Travellers failed to pay the insurance. Hence, Azucena and Pedro filed a
case against Travellers wherein Tai Tong intervened claiming entitlement to the proceeds from
Travellers. Who is entitled to the proceeds of the policy?
A: Tai Tong is entitled to the insurance proceeds. Arsenio contracted the insurance policy on behalf of Tai
Tong. As the managing partner of the partnership, he may execute all acts of administration including the
right to sue debtors of the partnership in case of their failure to pay their obligations when it became due and
demandable. Or at the very least, Arsenio is an agent of the partnership. Being an agent, it is understood that
he acted for and in behalf of the firm (Tai Tong Chuache & Co. v. Insurance Commissioner, G.R. No. L-55397,
February 29, 1988).
NOTE: If refusal of partner is manifestly prejudicial to the interest of partnership, the court’s intervention
may be sought.

COMPENSATION
GR: In the absence of an agreement to the contrary, each member of the partnership assumes the duty to give
his time, attention, and skill to the management of its affairs, so far, at least, as may be reasonably necessary
to the success of the common enterprise; and for this service a share of the profits is his only compensation.
XPN:
1. 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;
2. A contract for compensation may be implied if there is extraordinary neglect on the part of one partner to
perform his duties toward the firm’s business, thereby imposing the entire burden on the remaining partner;
3. One partner may employ his co-partner to do work for him outside of and independent of the co-
partnership, and become personally liable therefor;
4. Where the services rendered are extra-ordinary;
5. 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 (De Leon, 2010).

RIGHTS AND OBLIGATIONS OF PARTNERSHIP

1. Refund the amounts disbursed by partner in behalf of the partnership plus corresponding interest from the
time the expenses are made, not from the date of demand (e.g. loans and advances made by a partner to the
partnership aside from capital contribution);
2. Answer for obligations the partner may have contracted in good faith in the interest of the partnership
business;
3. Answer for risks in consequence of its management (NCC, Art. 1796).

RIGHTS AND OBLIGATIONS OF PARTNERS AMONG THEMSELVES

Obligations of partners among themselves
1. Contribution of property (NCC, Art. 1786)
2. Contribution of money and money converted to personal use (NCC, Art. 1788)
3. Prohibition in engaging in business for himself (NCC, Art. 1789)
4. Contribute additional capital (NCC, Art. 1791)
5. Managing partner who collects debt (NCC, Art. 1792)
6. Partner who receives share of partnership credit

(NCC, Art. 1793)

7. Damages to partnership (NCC, Art. 1794)
8. Keep the partnership books (NCC, Art. 1805)
9. Render information (NCC, Art. 1806)
10. Accountable as fiduciary (NCC, Art. 1807)

Withdrawal or disposal of money or property by a contributing partner

Money or property contributed by a partner cannot be withdrawn or disposed of by the contributing partner
without the consent or approval of the partnership or of the other partners because the money or property
contributed by a partner becomes the property of the partnership (De Leon, 2010).
Q: Who bears the risk of loss of things contributed?
KIND OF PROPERTY / WHO BEARS THE RISK?
THING
Specific and determinate Partners
things which are not
fungible where only the use
is contributed
Specific and determinate Partnership
things the ownership of
which is transferred to the
partnership
Fungible things
(Consumable)
Things brought and
appraised in the inventory

Effect if a partner fails to contribute the property which he promised to deliver to the partnership

1. Partner becomes ipso jure a debtor of the partnership even in the absence of any demand (NCC, Art. 1786);
2. Remedy of the other partner is not rescission but specific performance with damages and interest from
defaulting partner from the time he should have complied with his obligation.
When the capital or a part hereof 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 current prices, the subsequent changes thereof being for the account of the partnership (NCC, Art.
1787).
Rules regarding contribution of money to the partnership
1. To contribute on the date fixed the amount the partner has undertaken to contribute to the partnership;
2. To reimburse any amount the partner may have taken from the partnership coffers and converted to his
own use;
3. To indemnify the partnership for the damages caused to it by delay in the contribution or conversion of any
sum for the partner’s personal benefit;
4. To pay the agreed or legal interest, if the partner fails to pay his contribution on time or in case he takes any
amount from the common fund and converts it to his own use.

Rule regarding obligation to

contribute to partnership capital
Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the
partnership (NCC, Art. 1790). It is not applicable to an industrial partner unless, besides his services, he has
contributed capital pursuant to an agreement.
Liability of a capitalist partner to contribute additional capital
GR: A capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute.
XPNs:
1. In case of imminent loss of the business; and
2. There is no agreement to the contrary.

He is under obligation to contribute an additional share to save the venture. If he refuses to contribute, he
shall be obliged to sell his interest to the other partners.
Requisites before capitalist partners are compelled to contribute additional capital
1. Imminent loss of the business of the partnership;
2. Majority of the capitalist partners are of the opinion that an additional contribution to the common fund
would save the business;
3. Capitalist partner refuses deliberately to contribute (not due to financial inability);
4. There is no agreement to the contrary.

NOTE: The refusal of the partner to contribute his additional share reflects his lack of interest in the
continuance of the partnership (De Leon, 2010). It shall be obliged to sell his interest to the other partners
except if there is an agreement to the contrary (NCC, Art. 1791).
It is to be noted that the industrial partner is exempted from the requirement to contribute an additional
share. Having contributed his entire industry, he can do nothing further (De Leon, 2010).
Obligations of managing partners who collect his personal receivable from a person who also owes
the partnership
1. Apply sum collected to 2 credits in proportion to their amounts
2. If he received it for the account of partnership, the whole sum shall be applied to partnership credit

Requisites:
At least 2 debts, one where the collecting partner is creditor and the other, where the partnership is the
creditor;
1. Both debts are demandable;
2. Partner who collects is authorized to manage and actually manages the partnership.

NOTE: 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 (NCC, Art. 1252; De Leon, 2014).
Reason for applying payment to partnership credit

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 (De Leon, 2010).
Obligation of a partner who receives share of partnership credit
To bring to the partnership capital what he has received even though he may have given receipt for his share
only.
Requisites:
1. A partner has received in whole or in part, his share of the partnership credit;
2. Other partners have not collected their shares;
3. Partnership debtor has become insolvent.

Liability of a person who has not directly transacted in behalf of an unincorporated association for a
contract entered into by such association
The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation
may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract
(Lim Tong Lim v. Philippine Fishing Gear Industries Inc., G.R. No. 136448, November 3, 1999).
Rules regarding the prohibition to engage in another business
INDUSTRIAL CAPITALIST
PARTNER PARTNER
Prohibition
Absolute: Cannot Relative: Cannot
engage in business for engage in business
himself unless the (with same kind of
partnership expressly business with the
permits him to do so. partnership) for his
own account, unless
there is a stipulation
to the contrary.
Remedy
Capitalist partners Capitalist partner,
may: who violated shall:
1. Exclude him from 1. Bring to the
the firm, or common fund any
2. Avail themselves of profits accruing to
the benefits which he him from said
may have obtained; transaction; and
Damages, in either
case (NCC, Art. 1789). Personally bears all
(2001 Bar) losses (NCC, Art.
1808). (2001 Bar)

Q: Joe and Rudy formed a partnership to operate a car repair shop in Quezon City. Joe provided the
capital while Rudy contributed his labor and industry. On one side of their shop, Joe opened and
operated a coffee shop, while on the other side, Rudy put up a car accessories store. May they engage
in such separate businesses? Why? (2001 Bar)
A: Joe, the capitalist partner, may engage in the restaurant business because it is not the same kind of
business the partnership is engaged in. On the other hand, Rudy may not engage in any other business unless
their partnership expressly permits him to do so because as an industrial partner, he has to devote his full
time to the business of the partnership (NCC, Art. 1789).
Rule with regard to the obligation of a partner as to damages suffered by the partnership through his
fault
GR: 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.
XPN: The courts may equitably lessen this responsibility if through the partner’s extraordinary efforts in
other activities of the partnership, unusual profit has been realized (NCC, Art. 1794).
Set-off of damages caused by a partner
GR: The damages caused by a partner to the partnership cannot be offset by the profits of benefits which he
may have earned for the partnership by his industry.
Ratio: The partner has the obligation to secure benefits for the partnership. Hence, the profits which he may
have earned pertain as a matter of law or right, to the partnership
XPN: If unusual profits are realized through the
extraordinary efforts of the partner at fault, the courts may equitably mitigate or lessen his liability for
damages. This rule rests on equity.
Note that even in this case, the partner at fault is not allowed to compensate such damages with the profits
earned. The law does not specify as to when profits may be considered “unusual.” The question depends upon
the circumstances of the particular case.
Duty of the partners with respect to keeping the partnership books
The partnership books shall be kept, subject to any agreement between partners, at the principal place of
business of the partnership (NCC, Art. 1805).
Duty to keep partnership book belongs to managing or active partner
The duty to keep true and correct books showing the firm’s 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 (Art. 1805 NCC, De Leon, 2014).
Duty of the partners with respect to information affecting the partnership
Partners shall render on demand true and full information of all things affecting the partnership to:
1. Any partner; or
2. Legal representative of any deceased or any partner under legal disability (NCC, Art. 1806).

NOTE: Under the same principle of mutual trust and confidence among partners, there must be no
concealment between them in all matters affecting the partnership. The information, to be sure, must be used
only for a partnership purpose (De Leon, 2014).
Q: P and G are partners engaged in real estate business. P received information that someone is
interested to buy a parcel of land owned by the partnership. P did not disclose this material fact to G.
Instead, he induced G to sell to him his share in nominal price. Thereafter, P sold the entire property
to the buyer and made huge profit. G sued P seeking damages alleging deceit by P. The latter, as
defense, countered that G did not ask him about any interested purchaser of the lot. Is P liable for
damages? Decide.
A: YES. P should not have concealed the fact that there was a buyer interested to purchase the firm’s
property. Good faith not only requires that a partner should not make any false concealment to his partner,
but also abstain from concealment (Poss v. Gottlieb, 193 NYS 418, 421).
Accountability of partners to each other as fiduciary
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 (NCC, Art. 1807).
Duty of a partner to act with utmost good faith towards co-partners continues even after dissolution
The duty of a partner to act with utmost good faith towards his co-partners continues throughout the entire
life of the partnership even after dissolution for whatever reason or whatever means, until the relationship is
terminated, i.e., the winding up of partnership affairs is completed (De Leon, 2014).
Failure to disclose facts, when there is a duty to reveal them, as when parties are bound by confidential
relations, constitutes fraud (Art. 1339).
RIGHTS OF PARTNERS

1. Right to reimbursement for amounts advanced to the partnership and to indemnification for risks in
consequence of management (NCC, Art. 1796);
2. Right on the distribution of profits and losses (NCC, Art. 1797);
3. Right to associate another person with him in his share without the consent of the other partners (NCC, Art.
1804);
NOTE: Such partnership formed between a member of a partnership and a third person for a division of the
profits coming to him from the partnership enterprise is termed subpartnership (De Leon, 2010).
4. Right to free access and to inspect and copy at any reasonable hour the partnership books (NCC, Art. 1805);
5. Right to formal account as to partnership affairs:
a. If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
b. If the right exist under the terms of any agreement;
c. Duty to account as provided by Art. 1807;
d. Whenever there are circumstances render it just and reasonable;

6. Right to have the partnership dissolved; and

7. Property rights of a partner (NCC, Art. 1810).
Rule as to formal accounting during the existence of the partnership
GR: During the existence of the partnership, a partner is not entitled to a formal account of partnership
affairs.
XPN: However, in special and unusual situations enumerated under Art. 1809, the justification for a formal
accounting even before dissolution of the partnership cannot be doubted. An example under No. (4) of Art.
1809 is where a partner has been assigned abroad for a long period of time in connection with the
partnership business and the partnership books during such period being in the possession of the other
partners.
Partners’ inspection rights
The partners’ inspection rights are not absolute. He can be restrained from using the information gathered for
other than partnership purpose.
“Any reasonable hour”
The rights of the partners with respect to partnership books can be exercised at “any reasonable hour” (Art.
1805). This phrase has been interpreted to mean reasonable hours on business days throughout the year and
not merely during some arbitrary period of a few days chosen by the managing partners (Pardo v. The
Hercules Lumber Co. Inc., G.R. No. L-22442, August 1, 1924).
Action for accounting
An action for accounting, asking that the assets of the partnership be accounted for, sold and distributed
according to the agreement of the partners is a personal action which under the Rules of Court, may be
commenced and tried where the defendant resides or may be found or where the plaintiffs reside, at the
election of the latter.
NOTE: The fact that some of the assets of the partnership are real property does not materially change the
nature of the action. It is an action in personam because it is an action against a person for the performance of
a personal duty on his part, and not an action in rem where the action is against the thing itself. It is only
incidental that part of the assets of the partnership subject to accounting or under liquidation happen to be
real property (Emnace v. CA, G.R. No. 126334, November 23, 2001).
Rules regarding distribution of profits and
losses
a. Distribution of profits
The partners share in the profits according to their agreement.
In the absence of such:
• Capitalist partner – in proportion to his contribution
• Industrial partner – what is just and equitable under the circumstances

NOTE: If the industrial partner has contributed capital other than his services, he shall also receive a share in
the profits in proportion to his capital.
b. Distribution of losses
The partners share in the losses according to their agreement.
In the absence of such, according to their agreement as to profits.
In the absence of profit agreement, in proportion to his capital contribution.

Q: “X” used his savings from his salaries amounting to a little more than P2,000 as capital in
establishing a restaurant. “Y” gave the amount of P4,000 to “X” as “financial assistance” with the
understanding that “Y” would be entitled to 22% of the annual profits derived from the operation of
the restaurant. After the lapse of 22 years, “Y” filed a case demanding his share in the said profits. “X”
denied that there was a partnership and raised the issue of prescription as “Y” did not assert his rights
anytime within ten (10) years from the start of the operation of the restaurant. Is “Y” a partner of “X”
in the business? Why? What is the nature of the right to demand one’s share in the profits of a
partnership? Does this right prescribe? (1989 Bar)
A: YES, because there is an agreement to contribute to a common fund and intent to divide profits. It is
founded upon an express trust. It is imprescriptible unless repudiated.
Rule regarding a stipulation excluding a partner in the sharing of profits and losses
GR: Such stipulation is void (NCC, Art. 1799).
XPN: Industrial partner is not liable for losses (NCC, Art. 1797(2)). However, he is not exempted from liability
insofar as third persons are concerned.
NOTE: Loss is different from liability.
Property rights of a partner
1. Right in specific partnership property;
2. Interest in the partnership (share in the profits and surplus);
3. Right to participate in the management (NCC, Art. 1803).
Related rights to the property rights of a partner
1. Right to the partnership and to indemnification for risks in consequence of management (NCC, Art. 1796);
2. The right of access and inspection of partnership books (NCC, Art. 1805);
3. The right to true and full information of all things affecting the partnership (NCC, Art. 1806);
4. The right to a formal account of partnership affairs under certain circumstances (NCC, Art. 1809); and
5. The right to have the partnership dissolved also under certain conditions (NCC Arts. 1830-1831; De Leon,
2010).

Nature of a partner's right in specific partnership property

1. Equal right to possession for partnership purposes;
2. Right is not assignable, except in connection with assignment of rights of all partners in the same property;
3. Right is limited to his share of what remains after partnership debts have been paid;
4. Right is not subject to attachment or execution except on a claim against the partnership;
5. Right is not subject to legal support

Effects of assignment of partner’s whole interest in the partnership

1. Rights withheld from the assignee:

Such assignment does not grant the assignee the right to:
a. To interfere in the management
b. To require any information or account
c. To inspect partnership books

2. Rights of assignee on partner’s interest:

a. To receive in accordance with his contract the profits accruing to the assigning partner
b. To avail himself of the usual remedies provided by law in the event of fraud in the management
c. To receive the assignor’s interest in case of dissolution
d. To require an account of partnership affairs, but only in case the partnership is dissolved, and such account
shall cover the period from the date only of the last account agreed to by all the partners

Q: Rosa received from Jois money, with the express obligation to act as Jois’ agent in purchasing local
cigarettes, to resell them to several stores, and to give Jois the commission corresponding to the
profits received. However, Rosa misappropriated and converted the said amount due to Jois to her
personal use and benefit. Jois filed a case of estafa against Rosa. Can Rosa deny liability on the ground
that a partnership was formed between her and Rosa?
A: NO. Even assuming that a contract of partnership was indeed entered into by and between the parties,
when a partner receives any money or property for a specific purpose (such as that obtaining in the instant
case) and he later misappropriates the same, he is guilty of estafa (Liwanag v. CA, G.R. No. 114398, October 24,
1997).
OBLIGATIONS OF PARTNERSHIP/ PARTNERS TO THIRD PERSONS
1. Every partnership shall operate under a firm name (NCC, Art. 1815).
2. All partners shall be liable for contractual obligations of the partnership with their property, after all
partnership assets have been exhausted:
a. Pro rata
b. Subsidiary (NCC, Art. 1816) (1993, 2010 Bar)

XPN: All partners shall be liable solidarily with the partnership for everything chargeable to the partnership
under Art. 1822 and 1823 (NCC, Art. 1824).
NOTE: Any stipulation against the liability laid down in Art. 1816 shall be void except as among the partners
(NCC, Art. 1817).
3. Partner as an agent of the partnership (NCC, Art. 1818) (1994 Bar)
4. Conveyance of real property belonging to the partnership (NCC, Art. 1819)
5. Admission or representation made by any partner concerning partnership affairs within the scope of his
authority is evidence against the partnership (NCC, Art. 1820)
6. Notice to partner of any matter relating to partnership affairs operates as notice to partnership except in
case of fraud:
a. Knowledge of partner acting in the particular matter acquired while a partner
b. Knowledge of the partner acting in the particular matter then present to his mind
c. Knowledge of any other partner who reasonably could and should have communicated it to the acting
partner (NCC, Art. 1821)

7. Partners and the partnership are solidarily liable to 3rd persons for the partner's tort or breach of trust
(NCC, Art. 1822-24)
8. Liability of incoming partner is limited to:
a. His share in the partnership property for existing obligations
b. His separate property for subsequent obligations (NCC, Art. 1826)

9. Creditors of partnership are preferred in partnership property & may attach partner's share in partnership
assets (NCC, Art. 1827)
NOTE: On solidary liability, Art. 1816 should be construed together with Art. 1824 (in connection with Arts.
1822 & 1823). While the liability of the partners is merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership may hold the partners solidarily liable for
the whole obligation if the case of the third person falls under Articles 1822 and 1823 (Munasque v. CA, G.R.
No. L-39780, November 11, 1985).
Q: A, B and C formed a partnership for the purpose of contracting with the Government in the
construction of one of its bridges. On June 30, 1992, after completion of the project, the bridge was
turned over by the partners to the Government. On August 30, 1992, D, a supplier of materials used in
the project sued A for collection of the indebtedness to him. A moved to dismiss the complaint against
him on the ground that it was the ABC partnership that is liable for the debt. D replied that ABC
partnership was dissolved upon completion of the project for which purpose the partnership was
formed. Will you dismiss the complaint against B if you were the judge? (1993 Bar)
A: NO. As Judge, I would not dismiss the complaint against A because A is still liable as a general partner for
his pro rata share of 1/3 (Art. 1816). Dissolution of a partnership caused by the termination of the particular
undertaking specified in the agreement does not extinguish obligations, which must be liquidated during the
“winding up" of the partnership affairs (Art. 1829 & 1830, par. 1-a).
Importance of having a firm name
A partnership must have a firm name under which it will operate. It is necessary to distinguish the
partnership which has a distinct and separate juridical personality from the individuals composing the
partnership and from other partnerships and entities (De Leon, 2010).
Liability for the inclusion of name in the firm name
Persons who, not being partners, include their names in the firm name do not acquire the rights of a partner
but under Art. 1815, they shall be subject to the liability of a partner (Art. 1816) insofar as third persons
without notice are concerned (De Leon, 2010).
Remedies available to the creditors of a partner
1. Separate or individual creditors should first secure a judgment on their credit; and
2. Apply to the proper court for a charging order subjecting the interest of the debtor-partner in the
partnership for the payment of the unsatisfied amount of the judgment debt with interest thereon (De Leon,
2014).

NOTE: The court may resort to other courses of action provided in Art. 1814 of the NCC, (i.e., appointment of
receiver, sale of the interest, etc.) if the judgment debt remains unsatisfied, notwithstanding the issuance of
charging order (De Leon, 2014).
Effects of the acts of partners acting as an agent of the partnership
ACTS OF A PARTNER EFFECT
Acts for apparently With binding effect
except:
1. When the partner so
acting has in fact no
authority to act for the
partnership in the
particular matter, and
2. The person with
whom he is dealing has
knowledge of the fact
that he has no such
authority

[NCC, Art. 1818(1)].

carrying on in the
usual way the business
of the partnership
Do not bind partnership
Acts not in the unless authorized by
ordinary course of other partners (NCC, Art.
business 1818).
Acts of strict dominion GR: One or more but
or ownership: less
than all the partners
have no authority
XPNs:
1. Assigning partnership 1. Authorized by the
property in trust for other partners; or
creditors ; 2. Partners have
2. Disposing of goodwill abandoned the business
of business; [Art. 1818(3)].
3. Doing an act which
would make it
impossible to carry on
the ordinary business of

partnership;
4. Confessing a
judgment;
5. Entering into a
compromise concerning
a partnership claim or
liability;
6. Submitting
partnership claim or
liability to

arbitration;
7. Renouncing claim of
partnership
Acts in contravention Partnership is not liable
of a restriction on to 3rd persons having
authority actual or presumptive
knowledge of the
restriction [NCC, Art.
1818(4)].

Effect of conveyance of a real property

TYPE OF EFFECT
CONVEYANCE
Title in the Conveyance passes
partnership’s name; title but partnership
Conveyance in can recover unless:
partnership name 1.
a. Conveyance was
done in the usual way
of business, and
b. The partner so
acting has the
authority to act for the
partnership; or

2. The property which

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
(De Leon, 2014).
Title in the Conveyance does not
partnership’s name; pass title but only
Conveyance in equitable interest,
partner's name provided:
1. Conveyance was
done in the usual way
of business, or
2. The partner so
acting has the
authority to act for the
partnership (De Leon,
2014).
Title in the name of 1 Conveyance passes
or more partners, title but the
and the record does partnership may
not disclose the right recover such property
of the partnership; if the partners’ act
Conveyance in name does not bind the
of partner/s in partnership:
whose name title 1. The partner so
stands acting has no
authority to act for the
partnership, and
2. The person with
whom he is dealing
has knowledge of the
fact unless the
purchaser of his
assignee, is a holder
for value, without
knowledge (De Leon,
2014).

Title in name of 1 Conveyance will only

or more or all pass
partners or 3rd equitable interest,
person in trust for provided:
partnership; 1. The act is one
Conveyance within the authority of
executed in the partner, and
partnership name or 2. Conveyance was
in name of partners done in the usual way
of the business (De
Leon, 2014).

Title in the names Conveyance will pass

of all the partners; all the
Conveyance rights in such
executed by all the property (De
partners Leon, 2014).

DISSOLUTION AND WINDING UP

DISSOLUTION (2010 Bar)

Final stages of partnership

1. Dissolution;
2. Winding up; and
3. Termination

Dissolution, winding-up, and termination

Dissolution Winding Termination
up
A change in Settling the Point in time
the partnership When all
relation of business or partnership
the affairs after affairs are
partners dissolution. wound up or
caused by completed;
any partner the end of the
ceasing partnership
to be life.
associated in
carrying on
the
business.
It is that It is the final It signifies
point in time step after the
when the dissolution end of the
partners in the partnership
cease to carry termination life.
on the of the It takes place
business partnership. After both
together. It dissolution
represents and winding
the demise of up have
a occurred.
partnership.
Thus, any
time a
partner
leaves the
business, the
partnership
is dissolved.

Causes of dissolution (NCC, Art. 1830)

1. Without violating the agreement:
a. Termination of the definite term or specific undertaking
b. Express will of any partner in good faith, when there is no definite term and no specified undertaking
c. Express will of all partners (except those who have 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. Expulsion of any partner in good faith of a member

2. Violating the agreement

3. Unlawfulness of the business
4. Loss
a. Specific thing promised as contribution is lost or perished before delivery
b. Loss of a specific thing contributed before or after delivery, if only the use of such is contributed

NOTE: The partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has
acquired the ownership thereof.
5. Death of any of the partners
6. Insolvency of any partner or of the partnership
7. Civil interdiction of any partner
8. By decree of court under Art. 1831
a. . A partner has been declared insane or of unsound mind
b. A partner becomes in any other way incapable of performing his part of the partnership contract
c. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business
d. A partner wilfully or persistently commits a breach of the partnership agreement
e. . The business of the partnership can only be carried on at a loss
f. Other circumstances render a dissolution equitable

Effects of dissolution (2010 BAR)

1. Partnership is not terminated;
2. Partnership continues for a limited purpose;
3. Transaction of new business is prohibited (De Leon, 2005).
As to previous obligations, the dissolution of partnership does not mean that the partners can evade previous
obligations entered into (Testate of Motta v. Serra, G.R. No. L-22825, February 14, 1925).
As to new obligations, the dissolution spares the former partners from new obligations entered into by the
partnership without their consent, implied or express, unless the obligation are essential for the winding up
of partnership affairs (Ibid.).
NOTE: The dissolution of a partnership must not be understood in the absolute and strict sense so that at the
termination of the object for which it was created the partnership is extinguished, pending the winding up of
some incidents and obligations of the partnership, but in such case, the partnership will be reputed as
existing until the juridical relations arising out of the contract are dissolved (Testate of Motta v. Serra, G.R. No.
L-22825, February 14, 1925).
Dissolution does not automatically result in the termination of the legal personality of the partnership, nor
the relations of the partners among themselves who remain as co-partners until the partnership is
terminated (De Leon, 2005).
A partner cannot be expelled from the partnership without agreement thereto.
In the absence of an express agreement to that effect, there exists no right or power of any member, or even a
majority of the members, to expel all other members of the firm at will. Nor can they at will forfeit the share
or interest of a member or members and compel him or them to quit the firm, even paying what is due him.
The expulsion has the effect of decreasing the number of the partners, hence, the dissolution. The expulsion
must be made in good faith. The partner expelled in bad faith can claim damages. (De Leon, 2010).
Effect of dissolution on the authority of a partner
GR: The partnership ceases to be a going concern.
XPN: The partner’s power of representation is confined only to acts incident to winding up or completing
transactions begun but not then finished (NCC, Art. 1832).
NOTE: Subject to the qualifications set forth in Articles 1833 and 1834 in relation to Article 1832:
1. In so far as the partners themselves are concerned– The authority of any partner to bind the partnership by a
new contract is immediately terminated when the dissolution is not by the act, insolvency, or death of a
partner.
2. When the dissolution is by the act, insolvency, or death, the termination of authority depends upon whether
or not the partner had knowledge or notice of dissolution (NCC, Art. 1833) (2010 Bar).

Q: Tomas, Rene and Jose entered into a partnership under the firm name “Manila Lumber.”
Subsequently, upon mutual agreement, Tomas withdrew from the partnership and the partnership
was dissolved. However, the remaining partners, Rene and Jose, did not terminate the business of
“Manila Lumber.” Instead of winding up the business of the partnership and liquidating its assets,
Rene and Jose continued the business in the name of “Manila Lumber” apparently without objection
from Tomas. The withdrawal of Tomas from the partnership was not published in the newspapers.
Could Tomas be held liable for any obligation or indebtedness Rene and Jose might incur while doing
business in the name of “Manila Lumber” after his withdrawal from the partnership? Explain. (1987
Bar)
A: YES. Tomas can be held liable under the doctrine of estoppel. But as regards the parties among themselves,
only Rene and Jose are liable. Tomas cannot be held liable since there was no proper notification or
publication. In the event that Tomas is made to pay the liability to third person, he has the right to seek
reimbursement from Rene and Jose.
Q: The articles of co-partnership provide that in case of death of one partner, the partnership shall not
be dissolved but shall be continued by the deceased partner’s heirs. When H, a partner, died, his wife,
W, took over the management of some of the real properties with permission of the surviving partner,
X, but her name was not included in the partnership name. She eventually sold these real properties
after a few years. X now claims that W did not have the authority to manage and sell those properties
as she was not a partner. Is the sale valid?
A: YES. The widow was not a mere agent, because she had become a partner upon her husband's death, as
expressly provided by the articles of co-partnership, and by authorizing the widow to manage partnership
property, X recognized her as a general partner with authority to administer and alienate partnership
property. It is immaterial that W's name was not included in the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly contemplated the admission of the partner's heirs into
the partnership (Goquiolay v. Sycip, G.R. No. L-11840, December 16, 1963).
Liability of a partner where the dissolution is caused by the act, death or insolvency of a partner
GR: Each partner is liable to his co-partners for his share of any liability created by any partner for the
partnership, as if the partnership had not been dissolved.
XPNs: Partners shall not be liable when:
1. The dissolution, being by act of any partner, the partner acting for the partnership had knowledge of the
dissolution; or
2. The dissolution, being by the death or insolvency of a partner, the partner acting for the partnership had
knowledge or notice of the death or insolvency (NCC, Art. 1833). (2010 Bar)

Q: After the dissolution of a partnership, can a partner still bind the partnership?
A:
GR: A partner continues to bind partnership even after dissolution in the following cases:
1. Transactions to wind up partnership affairs or to complete transactions unfinished at dissolution;
2. Transactions which would bind partnership if dissolution had not taken place, provided the other
party/obligee:
a. Had extended credit to partnership prior to dissolution; and had no knowledge/notice of dissolution; or
b. Did not extend credit to partnership; Had known partnership prior to dissolution; AND Had no
knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the
place where partnership is
regularly carried on (Art. 1834, par 1 nos. 1-2).

XPNs: Partner cannot bind the partnership anymore after dissolution:

1. Where dissolution is due to unlawfulness to carry on business; or
2. Where partner has become insolvent; or
3. Act is not appropriate for winding up or for completing unfinished transactions; or
4. Partner is unauthorized to wind up partnership affairs, except by transaction with one who:
a. Had extended credit to partnership prior to dissolution; AND Had no knowledge or notice of dissolution; or
b. Did not extend credit to partnership prior to dissolution; Had known partnership prior to dissolution; AND
Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general
circulation in the place where partnership is regularly carried on (Art. 1834(3)); or

5. Completely new transactions which would bind the partnership if dissolution had not taken place with
third persons in bad faith.

Q: Does the dissolution of a partnership discharge existing liability of a partner?

A:
GR: Dissolution does not discharge the existing liability of a partner (Art. 1835(1)).
XPN: Said liability is discharged when there is an agreement between:
1. Partner himself;
2. Person/s continuing the business; and
3. Partnership creditors [NCC, Art. 1835(2)].

Liability of the estate of a deceased partner.

In accordance with Article 1816, the individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner. Note that the individual creditors of the
deceased partner are to be preferred over partnership creditors with respect to the separate property of said
deceased partner (De Leon, 2010).
Order of priority in the distribution of assets during the dissolution of a limited partnership
In setting accounts after dissolution, the liabilities, of the partnership shall be entitled to payment in the
following order:
1. Those to creditors, in the order of priority as provided by law, except those to limited partners on account
of their contributions, and to general partners;
2. Those to limited partners in respect to their share of the profits and other compensation by way of income
on their contributions;
3. Those to limited partners in respect to the capital of their contributions;
4. Those to general partners other than for capital and profits;
5. Those to general partners in respect to profits;
6. Those to general partners in respect to capital (NCC, Art. 1863).

NOTE: Subject to any statement in the certificate or to subsequent agreement, limited partners share in the
partnership assets in respect to their claims for capital, and in respect to their claims for profits or for
compensation by way of income on their contribution respectively, in proportion to the respective amounts
of such claims (NCC, Art. 1863).

WINDING UP OF THE PARTNERSHIP

It is during this time after dissolution that partnership business or affairs are being settled (De Leon, 2005).
Ways of winding up
The winding up of the dissolved partnership may be done either:
1. Judicially, under the control and direction of the proper court upon cause shown by any partner, his legal
representative, or his assignee; or
2. Extrajudicially, by the partners themselves without intervention of the court (De Leon, 2014).

Action for liquidation

An action for the liquidation of a partnership is a personal one; hence, it may be brought in the place of
residence of either the plaintiff or the defendant (De Leon, 2014).
Persons authorized to wind up
1. Partners designated by the agreement;
2. In the absence of such, all partners who have not wrongfully dissolved the partnership; and,
3. Legal representative of last surviving partner who is not insolvent (De Leon, 2014).

NOTE: The court may, in its discretion, after considering all the facts and circumstances of the particular case,
appoint a receiver to wind up the partnership affairs where such step is shown to be to the best interests of
all persons concerned.
An insolvent partner does not have the right to wind up partnership affairs (De Leon, 2014).
Powers of liquidating partner
1. Make new contracts;
2. Raise money to pay partnership debts;
3. Incur obligations to complete existing contracts or preserve partnership assets; and,
4. Incur expenses necessary in the conduct of litigation (De Leon, 2014).

Order of payment in winding up

a. In a general partnership:
1. Those owing to creditors other than partners
2. Those owing to partners other than for capital or profits
3. Those owing to partners in respect of capital
4. Those owing to partners in respect to profits [NCC, Art. 1839(2)].

b. In a limited partnership
1. Those to creditors, in the order of priority as provided by law, except those to limited partners on account
of their contributions, and to general partners.
2. Those to limited partners in respect to their share of the profits and other compensation by way of income
on their contributions.
3. Those to limited partners in respect to the capital of their contributions.
4. Those to general partners other than for capital and profits.
5. Those to general partners in respect to profits.
6. Those to general partners in respect to capital. (Art. 1863, NCC)

“Doctrine of marshalling of assets”

The doctrine of marshalling of assets provides that:
1. Partnership creditors have preference in partnership assets.
2. Separate or individual creditors have preference in separate or individual properties.
3. Anything left from either goes to the other.

NOTE: The doctrine of marshalling of assets involves the ranking of assets in a certain order toward the
payment of outstanding debts (De Leon, 2010).
Rights of a partner where dissolution is not in contravention of the agreement
Unless otherwise agreed, the rights of each partner are as follows:
1. To have the partnership property applied to discharge the liabilities of partnership; and
2. To have the surplus, if any, applied, to pay in cash the net amount owing to the respective partners (De
Leon, 2014).

Rights of a partner where dissolution is in contravention of the agreement

The rights of a partner vary depending upon whether he is the innocent or guilty partner.
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 the 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 partner who has wrongfully caused the dissolution:

a. If the business is not continued by the other partners, 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:
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 cash, or secured by
bond approved by the court; and
To be released from all existing and future liabilities of the partnership (De Leon, 2014).

Rights of injured partner where partnership contract is rescinded

1. 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;
2. Right of subrogation in place of partnership creditors after payment of partnership liabilities; and
3. Right of indemnification by the guilty partner against all debts and liabilities of the partnership (De Leon,
2014).

Settlement of accounts between partners

1. Assets of the partnership include:
a. Partnership property (including goodwill)
b. Contributions of the partners

2. Order of application of the assets:

a. First, those owing to partnership creditors
b. Second, those owing to partners other than for capital and profits such as loans given by the partners or
advances for business expenses
c. Third, those owing for the return of the capital contributed by the partners
d. Fourth, the share of the profits, if any, due to each partner (De Leon, 2014).

Q: A partnership was formed with Magdusa as the manager. During the existence of the partnership,
two partners expressed their desire to withdraw from the firm. Magdusa determined the value of the
partners share which were embodied in the document drawn in the handwriting of Magdusa but was
not signed by all of the partners. Later, the withdrawing partners demanded for payment but were
refused. Considering that not all partners intervened in the distribution of all or part of the
partnership assets, should the action prosper?

A: NO. A partner’s 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 partner,
and it is self- evident that all members of the partnership are interested in its assets and business, and are
entitled to be heard in the matter of the firm’s liquidation and distribution of its property. The liquidation
prepared by Magdusa not signed by the other partners is not binding on them (Magdusa v. Albaran, G.R. No. L-
17526, June 30, 1962).
Since the capital was contributed to the partnership, not to partners, it is the partnership that must refund the
equity of the retiring partners. Since it is the partnership, as a separate and distinct entity that must refund
the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other
words, it can only pay out what it has in its coffers, which consists of all its assets (Villareal v. Ramirez, G.R. No.
144214, July 14, 2003).
Partner’s lien
It is the right of every partner to have the partnership property applied, to discharge partnership liabilities
and surplus assets, if any, distributed in cash to the respective partners, after deducting what may be due to
the partnership from them as partners.
Effects when the business of a dissolved partnership is continued
1. Creditors of old partnership are also creditors of the new partnership who continues the business of the old
one without liquidation of the partnership affairs.
2. Creditors have an equitable lien on the consideration paid to the retiring/deceased partner by the
purchaser when retiring/deceased partner sold his interest without final settlement with creditors.
3. Rights of retiring/estate of deceased partner:
a. To have the value of his interest ascertained as of the date of dissolution; and
b. To receive as ordinary creditor the value of his share in the dissolved partnership with interest or profits
attributable to use of his right, at his option.

NOTE: The right to demand on accounting of the value of his interest accrues to any partner or his legal
representative after dissolution in the absence of an agreement to the contrary.
Continuation of partnership by a corporation
If a corporation is formed consisted of the members of the partnership, whose business and properties are
transferred to the corporation for continuing its business, in payment of which corporate capital stock was
issued, such corporation is presumed to have assumed the partnership debts and is prima facie liable
therefor. The rationale of the rule is that members of the partnership may be said to have simply put on new
coat or taken a corporate cloak and the corporation is a mere continuation of the partnership (Laguna
Transportation Co., Inc. v. SSS, G.R. No. L-14606, April 28, 1960).
Persons that are required to render an account
1. Winding up partner;
2. Surviving partner; and
3. Person or partnership continuing the business.

Q: Emnace and Tabanao decided to dissolve their partnership in 1986. Emnace failed to submit the
statement of assets and liabilities of the partnership, and to render an accounting of the partnership's
finances. Tabanao’s heirs filed against Emnace an action for accounting, etc. Emnace counters,
contending that prescription has set in. Decide.
A: Prescription has not yet set in. Prescription of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done. Contrary to Emnace’s protestations, prescription had not even
begun to run in the absence of a final accounting. The right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the contrary. When a final accounting is made, it is only then
that prescription begins to run (Emnace v. CA, G.R. No. 126334, November 23, 2001).