PARTNERSHIP

DEFINITION
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, or in
order to exercise a profession.
CHARACTERISTICS
1. Consensual – it is perfected by mere consent or the meeting
of minds between parties.
2. Bilateral or Multilateral – it is entered into between two or
more persons;
3. Nominate – it is designated by a specific name;
4. Principal – its existence does not depend on the existence of
another contract;
5. Onerous – certain contributions have to be made;
6. Preparatory – in the sense that after it has been entered
into, other contracts essential in the carrying out of its
purposes can be entered into.
QUESTION
The following are characteristics of a contract of partnership,
except:
A. Consensual C. Onerous
B. Unilateral D. Preparatory
QUESTION
The following are characteristics of a contract of partnership,
except:
A. Consensual C. Onerous
B. Unilateral D. Preparatory
REQUISITES
1. Consent
2. Lawful Object or Purpose - if the business is carried for
an unlawful purpose, the contract is void ab initio.
3. Cause or consideration – which comprises the contribution
of the partners
FORMAL REQUIREMENTS
A partnership may be constituted in any form, except:
1. Where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.

A contract of partnership is void, whenever immovable

property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to
the public instrument.

2. Capital is more than P3,000 – the contract of partnership

must appear in a public instrument, which must be recorded
in the SEC.
QUESTION
Which of the following is false?
A. A partnership is generally perfected by mere consent.
B. When immovable property is contributed thereto a public
instrument shall be necessary.
C. If the capital is more than P3,000, the contract of partnership
must be in a public instrument and registered with the SEC.
D. If immovable property is contributed into the partnership but
no inventory was made the partnership remains valid among
the partners but not against third parties.
QUESTION
Which of the following is false?
A. A partnership is generally perfected by mere consent.
B. When immovable property is contributed thereto a public
instrument shall be necessary.
C. If the capital is more than P3,000, the contract of partnership
must be in a public instrument and registered with the SEC.
D. If immovable property is contributed into the
partnership but no inventory was made the
partnership remains valid among the partners but not
against third parties.
SEPARATE JURIDICAL PERSONALITY
The partnership has a judicial personality separate and distinct
from that of each of the partners. The partnership can, in general:
1. Acquire and possess property of all kinds;
2. Incur obligations;
3. Bring civil or criminal actions;
4. Adjudged insolvent even if the individual members be each
financially solvent.
RULES TO APPLY IN DETERMINING
EXISTENCE OF PARTNERSHIP:
1. Except for partnerships 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;
RULES TO APPLY IN DETERMINING
EXISTENCE OF PARTNERSHIP:
4. The receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the business,
but no such inference shall be drawn if such profits were
received in payment:
a. As a debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
c. As an annuity to a widow or representative of a deceased
partner;
d. As interest on a loan, though the amount of payment vary
with the profits of the business;
e. As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
QUESTION
Which of the following is false?
A. Except for silent partnerships, persons who are not partners
as to each other are not partners as to third persons.
B. 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.
C. 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.
D. All of the above are true statements.
QUESTION
Which of the following is false?
A. Except for silent partnerships, persons who are not
partners as to each other are not partners as to third
persons.
B. 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.
C. 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.
D. All of the above are true statements.
KINDS OF PARTNERSHIPS;
AS TO OBJECT
1. UNIVERSAL PARTNERSHIP
a. With all present property in which the partners contribute all the
property which actually belongs to them to a common fund, with the
intention of dividing the same among themselves, as well as all the
profits which they may acquire therewith.

The property which belongs to each of the partners at the time of

the constitution of the partnership, becomes the common property of
all the partners, as well as all the profits which they may acquire
therewith.

This does not, however, cover properties subsequently acquired by

the partners through inheritance, legacy or donation, except the
fruits thereof which may be included by stipulation.
KINDS OF PARTNERSHIPS;
AS TO OBJECT
b. With all profits where all the properties are continued to be
owned by the partners, but the usufruct thereof passes to the
firm.

It comprises all that the partners may acquire by their

industry or work during the existence of the partnership.
QUESTION
In a universal partnership of all present property, all of the
following becomes common property, except:
A. Properties which belong to the partners at the time of the
constitution of the partnership.
B. Any profits derive from properties belonging to each partner
at the time of the constitution of the partnership.
C. Any after-acquired property from a donation, legacy,
inheritance including the profits thereof.
D. All of the above are included in the partnership.
QUESTION
In a universal partnership of all present property, all of the
following becomes common property, except:
A. Properties which belong to the partners at the time of the
constitution of the partnership.
B. Any profits derive from properties belonging to each partner
at the time of the constitution of the partnership.
C. Any after-acquired property from a donation, legacy,
inheritance including the profits thereof.
D. All of the above are included in the partnership.
QUESTION
In a universal partnership of all profits, the usufruct of the
properties and the naked title of the properties is with the:

Usufruct Naked Title

A Partner Partner
B Partnership Partnership
C Partner Partnership
D Partnership Partner
QUESTION
In a universal partnership of all profits, the usufruct of the
properties and the naked title of the properties is with the:

Usufruct Naked Title

A Partner Partner
B Partnership Partnership
C Partner Partnership
D Partnership Partner
KINDS OF PARTNERSHIPS;
AS TO OBJECT
In case of ambiguity: If the Articles of Universal Partnership
does not specify the nature of the Universal Partnership, it is
deemed that what is constituted is only a universal partnership of
profits.
KINDS OF PARTNERSHIPS;
AS TO OBJECT
Persons not allowed to form a universal partnership: are
those who cannot donate to each other, namely:
1. Husband and Wife (Art. 133, Family Code)
2. Those guilty of adultery and concubinage (Art. 739, Civil
Code);
3. Those guilty of the same criminal offense, if the partnership
was entered into in consideration of the same (Art. 739, Civil
Code)

A universal partnership is virtually a donation to each other of

the partner’s properties (or at least their usufruct). Therefore, if
persons are prohibited by law to donate to each other, they
should not be allowed to do indirectly what the law forbids
directly.
KINDS OF PARTNERSHIPS;
AS TO OBJECT
2. PARTICULAR PARTNERSHIP: where the object is/are:
a. Determinate things, their use or fruits;
b. A specific undertaking, or
c. The exercise of a profession or occupation.
QUESTION
First statement: A husband and wife can enter into a general
professional partnership.
Second statement: A husband and his concubine can enter into a
partnership for a specific undertaking.
A. Both statements are correct
B. Both statements are incorrect
C. Only the first statement is correct
D. Only the second statement is incorrect
QUESTION
First statement: A husband and wife can enter into a general
professional partnership.
Second statement: A husband and his concubine can enter into a
partnership for a specific undertaking.
A. Both statements are correct
B. Both statements are incorrect
C. Only the first statement is correct
D. Only the second statement is incorrect
KINDS OF PARTNERSHIPS;
AS TO LIABILITY
1. General Partnership where all the partners are general
partners whose liability extends to their individual properties,
after the assets of the partnership have been exhausted;

2. Limited Partnership where at least one of the partners are

liable only up to the extent of his contribution.
KINDS OF PARTNERSHIPS;
AS TO TERM
1. Partnership with a fixed term or particular
undertaking - upon arrival of the fixed term or fulfilment of
a particular undertaking, the partnership is dissolved, and if
continued, it will constitute a partnership at will and the rights
and duties of the partners remain the same, so far as is
consistent with a partnership at will.

2. Partnership at will – when there is no fixed term or

particular undertaking.
KINDS OF PARTNERSHIPS;
AS TO REPRESENTATION TO OTHERS
1. Ordinary or Real Partnership – one which actually exists
among the partners and also as to third persons.
2. Ostensible or Partnership by Estoppel – one which in
reality is not a partnership but is considered a partnership
only in relation to those who, by their conduct or omission,
are precluded to deny or disprove its existence
KINDS OF PARTNERSHIPS;
AS TO LEGALITY OF EXISTENCE
1. De Jure Partnership – one which complied with all the
requirements of the law for its formation.
2. De Facto Partnership – one which did not comply with all
the requirements of the law for its formation.
KINDS OF PARTNERSHIPS;
AS TO PUBLICITY
1. Secret Partnership – one wherein the existence of certain
persons as partners is not avowed or made known to the
public by any of the partners.
2. Open or Notorious Partnership – one where all the
partners are made known or avowed to the public as
members of the firm.
KINDS OF PARTNERSHIPS;
AS TO PURPOSE
1. Commercial or Trading Partnership – one formed for the
purpose of transaction of business.
2. Professional or non-trading Partnership – one formed
for the exercise of profession.
OBLIGATIONS OF A PARTNER
1. To give his contribution (Arts. 1786, 1788)
a. No demand is necessary to incur delay because the
obligation is one where time is of the essence and the
partner may be liable for damages.
b. A partner must exercise due diligence in preserving the
thing promised to be contributed; otherwise, he shall be
liable for loss or deterioration.
c. Deliver the fruits of what has been delivered:
i. Fruits referred herein are of the thing/s contributed at
the time that the latter should have been delivered.
ii. If partner is in bad faith, he is liable for (1) The fruits
actually produced and (2) The fruits that could have
been produced.
OBLIGATIONS OF A PARTNER
iii. If what has been promised is money, the partner is
liable for the interest and damages from the time that
he should have contributed the money (Art. 1788).

d. Before delivery of such promised things, ownership

remains with the partner since actual or constructive
delivery transfers ownership.
e. Warrant the thing delivered against eviction
QUESTION
On June 15, 2018, A, B and C agreed to form a partnership
where C promised to contribute machinery to be delivered on
June 30, 2018. C failed to deliver the said machinery and B made
a demand therefor on July 15, 2018. C was only able to make the
delivery on July 31, 2018. C would:
A. Not be liable for damages since he is not yet in delay.
B. Be liable for damages from June 30, 2018
C. Be liable for damages from July 15, 2018
D. Not be liable for damages since there was no judicial demand
made
QUESTION
On June 15, 2018, A, B and C agreed to form a partnership
where C promised to contribute machinery to be delivered on
June 30, 2018. C failed to deliver the said machinery and B made
a demand therefor on July 15, 2018. C was only able to make the
delivery on July 31, 2018. C would:
A. Not be liable for damages since he is not yet in delay.
B. Be liable for damages from June 30, 2018
C. Be liable for damages from July 15, 2018
D. Not be liable for damages since there was no judicial demand
made
OBLIGATIONS OF A PARTNER
Risk of Loss:
LOSS BORNE BY THE PARTNER:
1. Thing contributed is specific and determinate which is NOT
fungible and only their use and fruits may be for the common
benefit; and
2. There is stipulation that he shall bear the loss of the thing
brought and appraised in the inventory.

LOSS BORNE BY THE PARTNERSHIP:

1. Thing contributed are
a. Fungible;
b. Cannot be kept without deteriorating; or
c. They were contributed to be sold; and
2. There was appraisal in the inventory and no stipulation that
partner will bear the loss
OBLIGATIONS OF A PARTNER
2. Not to convert partnership funds/ property for his own use
(Art. 1788)
3. Not to engage in unfair competition (applicable to capitalist
partner); not to engage in any other industry at all without
the consent of the partnership (applicable to industrial
partner) (Art. 1808)
4. To account for and hold as trustee, unauthorized personal
profits (Art. 1807)
5. Pay for damages caused by his fault (Art. 1794)
6. Credit to the firm the payment made by a debtor who owes
both the partnership and the partner (Art. 1792)
7. Share with other partners the share of the partnership credit
which he has received from an insolvent firm debtor (Art.
1743)
RIGHTS OF A PARTNER
1. Property rights (Art. 1810)
2. To associate with another person in his share (Art. 1804)
3. To inspect and copy partnership books (Art. 1805)
4. To demand a formal account (Art. 1809)
5. To ask for a dissolution of the firm at the proper time (Art.
1830-31)
KINDS OF PARTNERS
1. Silent Partner – one who does not participate in the
management of the firm.
2. Secret Partner – one who is not made known to third
parties as a partner
3. Ostensible Partner - one who participates in the
management and made known to third parties
4. Dormant Partner – one who is both a silent and a secret
partner.
5. Incoming Partner – one who is admitted to the partnership
6. Managing Partner – one who undertakes the management
of the partnership
7. Retiring Partner – one who retires from the partnership
8. Liquidating Partner – one who undertakes the winding up
of the partnership affairs
KINDS OF PARTNERS
9. Continuing Partner – one who continues the business of a
partnership after it has been dissolved by reason of the
admission of a new partner, retirement, death or expulsion of
one of the partners.
10. Surviving Partner – one who remains after the partnership
has been dissolved by death of any partner.
11. Sub-Partner – one who is not a member of the partnership
and contracts with a partner with reference to the latter’s
share in the partnership
KINDS OF PARTNERS; ACCORDING TO
CONTRIBUTION
1. Capitalist Partners – contributes capital; and
2. Industrial Partners – furnishes industry or labor.
3. Capitalist-Industrial Partners – furnishes both.
PROHIBITION TO ENGAGE IN OTHER
BUSINESS/ES
Industrial partners - cannot engage in business for himself
except when the capitalist partners permit him to do so.

Effect of non-compliance: The capitalist partners may either:

1. Exclude him from the firm or
2. Avail themselves of the benefits which he may have obtained
in violation of this provision.
PROHIBITION TO ENGAGE IN OTHER
BUSINESS/ES
Capitalist partners – the prohibition is limited to businesses in
the same industry as that of the partnership which may result in
competition. Exceptions:
1. When it is expressly stipulated that the capitalist partner can
so engage himself;
2. When the other partners expressly allow him to do so;
3. When the other partners impliedly allow him to do so, as
when all are violation the article.
4. During the period of liquidation and winding up, when the
partnership is already non-existent.
5. When the general-capitalist partner becomes a limited partner
in a competitive enterprise.
PROHIBITION TO ENGAGE IN OTHER
BUSINESS/ES
Effect of non-compliance:
1. He shall bring to the partnership all the profits illegally
obtained;
2. He is liable, personally, for all the losses;
3. He may be ousted for loss of trust and confidence.
FORCED SALE OF PARTNER’S
INTEREST
In case of an imminent loss of the business of the partnership,
any partner who refuses to contribute an additional share to the
capital to save the venture, shall he obliged to sell his interest to
the other partners. Except:
1. Industrial partners unless there is stipulation that he will
likewise contribute
2. If there is stipulation to the contrary.
MANAGING PARTNER COLLECTING
FROM A COMMON DEBTOR
To prevent the managing partner from furthering his personal
interest to the detriment of the firm, if such managing partner
collects a sum from a common debtor who owes money both to
said partner and to the partnership:
1. If the managing partner issued a receipt in the name of the
partnership: the payment shall be applied to the partnership
credit;
2. If the managing partner issued a receipt in his name: the
payment shall be applied proportionate to the amounts of the
two debts. EXCEPT: When the debt owed by the debtor to
the managing partner is more onerous, the debtor may
choose to apply the payment exclusively to such
MANAGING PARTNER COLLECTING
FROM A COMMON DEBTOR
ILLUSTRATION: D owed ABC partnership and A, the managing
partner, P7,000 and P3,000, respectively. A was able to collect
P5,000 from D.
▪ If A issued a receipt in the name of the partnership, the whole
amount of P5,000 will be applied to the partnership credit.
▪ If A issued a receipt in his own name, the P5,000 shall be
applied as follows:
➢ P3,500 (P5,000 * P7,000/P10,000) to the partnership
credit;
➢ P1,500 (P5,000 * P3,000/P10,000) to A’s credit.
DISTRIBUTION OF PROFITS AND
LOSSES
DISTRIBUTION OF PROFITS:
1. In accordance with the agreement;
2. In proportion to contribution and the industrial partner shall
receive such share as may be just and equitable.

DISTRIBUTION OF LOSSES:
1. In accordance with agreement; If there was agreement as to
profits but not losses, same proportion;
2. In proportion to contribution but the industrial partner shall not
be liable for losses.

An industrial may be made liable for losses only if there was

stipulation to that effect.

Pactum Leonina: A stipulation which excludes one or more

partners from any share in the profits or losses – void.
QUESTION
A, B, C and D contributed P25,000 each to the partnership. They
agreed to divide profits 1:1:2:2 and losses 2:2:1:1 The company
earned P30,000 profit for the year. How much would be the
share of A?
A. P7,500 C. P10,000
B. P5,000 D. A share which is equitable
QUESTION
A, B, C and D contributed P25,000 each to the partnership. They
agreed to divide profits 1:1:2:2 and losses 2:2:1:1 The company
earned P30,000 profit for the year. How much would be the
share of A?
A. P7,500 C. P10,000
B. P5,000 D. A share which is equitable
QUESTION
In relation to the preceding question, if the partnership suffered
a loss of (P30,000), how much is the share of B?
A. (P7,500) C. (P10,000)
B. (P5,000) D. A share which is equitable
QUESTION
In relation to the preceding question, if the partnership suffered
a loss of (P30,000), how much is the share of B?
A. (P7,500) C. (P10,000)
B. (P5,000) D. A share which is equitable
QUESTION
Assuming there was no profit agreement, how much is the share
of C?
A. P7,500 C. P10,000
B. P5,000 D. A share which is equitable
QUESTION
Assuming there was no profit agreement, how much is the share
of C?
A. P7,500 C. P10,000
B. P5,000 D. A share which is equitable
QUESTION
if the partnership suffered a loss of (P30,000) and there was no
agreement as to sharing of losses, how much is the share of D?
A. (P7,500) C. (P10,000)
B. (P5,000) D. A share which is equitable
QUESTION
if the partnership suffered a loss of (P30,000) and there was no
agreement as to sharing of losses, how much is the share of D?
A. (P7,500) C. (P10,000)
B. (P5,000) D. A share which is equitable
QUESTION
A, B, C and D contributed P25,000 each to the partnership and E
was admitted as an industrial partner, it was agreed that 20% is
the reasonable share of E in the profits. For the year, the
partnership earned P30,000. How much is the share of A?
A. P7,500 C. P6,000
B. P5,000 D. P10,000
QUESTION
A, B, C and D contributed P25,000 each to the partnership and E
was admitted as an industrial partner, it was agreed that 20% is
the reasonable share of E in the profits. For the year, the
partnership earned P30,000. How much is the share of A?
A. P7,500 C. P6,000
B. P5,000 D. P10,000
QUESTION
In relation to the preceding question, if the partnership instead,
suffered a loss of (P30,000). How much would be the share of B?
A. (P7,500) D. (P6,000)
B. (P5,000) E. (P10,000)
QUESTION
In relation to the preceding question, if the partnership instead,
suffered a loss of (P30,000). How much would be the share of B?
A. (P7,500) D. (P6,000)
B. (P5,000) E. (P10,000)
PROPERTY RIGHTS OF A PARTNER
1. His rights in specific partnership property – a partner is
a co-owner with his partners of specific partnership property.
The incidents of such co-ownership are:
a. A partner, subject to any agreement between the partners,
has an equal right with his partners to possess specific
partnership property for partnership purposes; but he has
no right to possess such property for any other purpose
without the consent of his partners;
b. A partner's right in specific partnership property is not
assignable except in connection with the assignment of
rights of all the partners in the same property;
PROPERTY RIGHTS OF A PARTNER
c. A partner's right in specific partnership property is not
subject to attachment or execution, except on a
claim against the partnership. When partnership property
is attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner,
cannot claim any right under the homestead or exemption
laws;
d. A partner's right in specific partnership property is not
subject to legal support
QUESTION
First statement: a partner is deemed to be a co-owner of his co-
partners of specific partnership property.
Second statement: A partner’s right in specific partnership
property is assignable provided there is consent from the other
partners.
A. Both statements are correct
B. Both statements are incorrect
C. Only the first statement is correct
D. Only the second statement is correct
QUESTION
First statement: a partner is deemed to be a co-owner of his co-
partners of specific partnership property.
Second statement: A partner’s right in specific partnership
property is assignable provided there is consent from the other
partners.
A. Both statements are correct
B. Both statements are incorrect
C. Only the first statement is correct
D. Only the second statement is correct
QUESTION
First statement: A partner’s right in specific partnership property
is not subject to attachment or execution except on a claim
against the partnership.
Second statement: A partner’s right to specific partnership
property can be subject to legal support.
A. Both statements are correct
B. Both statements are incorrect
C. Only the first statement is correct
D. Only the second statement is correct
QUESTION
First statement: A partner’s right in specific partnership property
is not subject to attachment or execution except on a claim
against the partnership.
Second statement: A partner’s right to specific partnership
property can be subject to legal support.
A. Both statements are correct
B. Both statements are incorrect
C. Only the first statement is correct
D. Only the second statement is correct
PROPERTY RIGHTS OF A PARTNER
2. His interest in the partnership - A partner's interest in the
partnership is his share of the profits and surplus.

Effect of conveyance of a partner’s whole interest:

a. Does not, in itself, dissolve the partnership. The
partnership is deemed dissolved only if there is stipulation
to that effect.
b. The conveyee does not necessarily become a partner and
such has no right to
i. Demand accounting and settlement;
ii. Interfere in the management or administration of the
partnership business; or
iii. Demand information, accounting and inspection of the
partnership books.
PROPERTY RIGHTS OF A PARTNER
Rights of the assignee/conveyee:
a. To get profits the assignor-partner would have obtained;
b. To avail of the usual remedies in case of fraud in the
management;
c. Receive assignor’s interest in the event of a dissolution.

Partner’s Interest may be subject to a charge or attachment by the

court:
a. Only the profits and surplus of the partner and not his share in
the specific properties of the partnership but priority is still given
to creditors of the partnership
b. Such interest may be redeemed prior to foreclosure with:
i. The separate property of any one or more of the partners; or
ii. partnership property with the consent of ALL the other
partners
QUESTION
A partner’s share in the profits and surplus of the partnership is
called:
A. Profit-share C. Bonus
B. Interest D. Dividend
QUESTION
A partner’s share in the profits and surplus of the partnership is
called:
A. Profit-share C. Bonus
B. Interest D. Dividend
QUESTION
A, B and C are partners of ABC Partnership, A conveyed his whole
“interest” in the partnership to X. As a result,
A. The partnership is deemed dissolved unless there is stipulation
to the contrary.
B. X becomes a partner
C. X is entitled to receive A’s share in the profits
D. There is no effect since the conveyance is void
QUESTION
A, B and C are partners of ABC Partnership, A conveyed his whole
“interest” in the partnership to X. As a result,
A. The partnership is deemed dissolved unless there is stipulation
to the contrary.
B. X becomes a partner
C. X is entitled to receive A’s share in the profits
D. There is no effect since the conveyance is void
PROPERTY RIGHTS OF A PARTNER
3. His right to participate in the management.
RULES ON MANAGEMENT
MANAGING PARTNER in the ARTICLES OF PARTNERSHIP:
May execute all acts of administration, in good faith, even with
opposition from the other partners;

The power to execute all acts of administration can only be

revoked if (1) with just or lawful cause; and (2) by a vote of the
partners representing the controlling interest.

MANAGING PARTNER AFTER PARTNERSHIP HAS BEEN

CONSTITUTED: The power as manager may be revoked by a
vote of the partners representing the controlling interest EVEN
WITHOUT just or lawful cause.
QUESTION
X, Y and Z are partners of XYZ partnership where X is the
managing partner. Which of the following is correct?
A. If X was appointed in the Articles of Partnership, he can be
removed for any cause with the vote of the partners
representing the controlling interest.
B. If X was appointed in the Articles of Partnership, he can be
removed only with just cause with a vote of the majority of
the partners.
C. If X was appointed after the partnership has been constituted,
he can be removed only for just cause with the vote of the
majority of the partners.
D. If X was appointed after the partnership has been constituted,
he can be removed even without just cause with a vote of the
controlling interest.
QUESTION
X, Y and Z are partners of XYZ partnership where X is the
managing partner. Which of the following is correct?
A. If X was appointed in the Articles of Partnership, he can be
removed for any cause with the vote of the partners
representing the controlling interest.
B. If X was appointed in the Articles of Partnership, he can be
removed only with just cause with a vote of the majority of
the partners.
C. If X was appointed after the partnership has been constituted,
he can be removed only for just cause with the vote of the
majority of the partners.
D. If X was appointed after the partnership has been
constituted, he can be removed even without just
cause with a vote of the controlling interest.
RULES ON MANAGEMENT
MULTIPLE MANAGING PARTNERS: If two or more partners
have been entrusted with the management of the partnership
(1) without specification of their respective duties, or (2)
without a stipulation that one of them shall not act
without the consent of all the others:
1. Each partner may separately execute all acts of
administration;
2. Should one of the managing partners oppose the act of
another, the matter shall be decided by a majority of the
managing partners per head count;
3. Should there be a tie in the votes of the managing partners,
the controlling interest of ALL the partners shall prevail.
QUESTION
The partners of the firm (and their respective interests in the
capital) are: V (5%), W (10%), X (15%), Y (30%), Z (40%).

V, W and Y were appointed as managing partners without

specification as to their duties. V wanted to purchase from a
particular supplier to which Y opposed. Which of the following is
correct?
A. Y’s opposition would prevail since he has more interest than that
of V.
B. Y’s opposition would prevail even if W agrees with V, since their
combined interest is still smaller than that of Y.
C. If W agrees with V, V’s decision would prevail, notwithstanding the
fact that the interest of Y is higher than that of theirs.
D.X and Z would have to intervene and vote also, to determine
whose decision will prevail.
QUESTION
The partners of the firm (and their respective interests in the
capital) are: V (5%), W (10%), X (15%), Y (30%), Z (40%).
V, W and Y were appointed as managing partners without
specification as to their duties. V wanted to purchase from a
particular supplier to which Y opposed. Which of the following is
correct?
A. Y’s opposition would prevail since he has more interest than that
of V.
B. Y’s opposition would prevail even if W agrees with V, since their
combined interest is still smaller than that of Y.
C.If W agrees with V, V’s decision would prevail,
notwithstanding the fact that the interest of Y is higher
than that of theirs.
D.X and Z would have to intervene and vote also, to determine
whose decision will prevail.
QUESTION
Assuming, in number 43, that it was only V and W that were
appointed as managing partners without specification of their
duties, and V wanted to purchase from a particular supplier to
which W opposed. Which of the following is correct?
A. W’s opposition would prevail since he has a larger interest
compared to V.
B. If X and Y agrees with V, the decision of V would prevail
because they represent the majority of the number of
partners.
C. If X and Y agree with W, the decision of W would prevail
because they represent the vote of the controlling interest.
D. The decision of whomever Z agrees with would prevail since Z
has the highest interest in the partnership.
QUESTION
Assuming, in number 43, that it was only V and W that were
appointed as managing partners without specification of their
duties, and V wanted to purchase from a particular supplier to
which W opposed. Which of the following is correct?
A. W’s opposition would prevail since he has a larger interest
compared to V.
B. If X and Y agrees with V, the decision of V would prevail
because they represent the majority of the number of
partners.
C. If X and Y agree with W, the decision of W would
prevail because they represent the vote of the
controlling interest.
D. The decision of whomever Z agrees with would prevail since Z
has the highest interest in the partnership.
RULES ON MANAGEMENT
STIPULATION THAT NO PARTNER CAN ACT WITHOUT
THE SUPPORT OF PARTNERS: the concurrence of all shall be
necessary for the validity of the acts, and the absence or
disability of any one of them cannot be alleged, unless there is
imminent danger of grave or irreparable injury to the
partnership.
RULES ON MANAGEMENT
NO AGREEMENT AS TO MANAGEMENT OF PARTNERSHIP:
All the partners shall be considered agents and whatever
any one of them may do alone shall bind the partnership, without
prejudice to the provisions of Article 1801 (on Multiple Managing
Partners)

None of the partners may, without the consent of the others,

make any important alteration in the immovable property
of the partnership, even if it may be useful to the partnership.
But if the refusal of consent by the other partners is manifestly
prejudicial to the interest of the partnership, the court's
intervention may be sought.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
1. FIRM NAME: Every partnership shall operate under a firm
name, which may or may not include the name of one or
more of the partners.

Strangers who include their name in the firm are liable as

partners because of estoppel but do not have the rights of
partners. – this is to protect customers from being misled.

Under Art. 1846, if a limited partner included his name in the

firm name, he shall be liable as a general partner.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
2. LIABILITY AFTER EXHAUSTION OF PARTNERSHIP
ASSETS: All partners, including industrial ones, shall be liable
pro rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may be
entered into in the name and for the account of the
partnership, under its signature and by a person authorized to
act for the partnership. However, any partner may enter into
a separate obligation to perform a partnership contract.

Any stipulation to the contrary shall be void, except as to the

partners.
QUESTION
A, B, C and D are partners of ABCD Partnership. They have
agreed to exempt C, an industrial partner from sharing on any
losses including that from creditors after exhaustion of
partnership assets.

Total Assets of the partnership eventually dwindled to P200,000

while the liabilities ballooned to P800,000. In this case, which of
the following is correct?
A. The P800,000 liabilities can be directly charged by the
creditors to the partners, including C.
B. The stipulation exempting C from liability is void.
C. If C is made to pay, he can seek reimbursement of whatever
he paid from the partners.
D. The creditors can only go after A, B and D.
QUESTION
A, B, C and D are partners of ABCD Partnership. They have
agreed to exempt C, an industrial partner from sharing on any
losses including that from creditors after exhaustion of
partnership assets.

Total Assets of the partnership eventually dwindled to P200,000

while the liabilities ballooned to P800,000. In this case, which of
the following is correct?
A. The P800,000 liabilities can be directly charged by the
creditors to the partners, including C.
B. The stipulation exempting C from liability is void.
C. If C is made to pay, he can seek reimbursement of
whatever he paid from the partners.
D. The creditors can only go after A, B and D.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
3. AUTHORITY TO ACT FOR AND IN BEHALF OF THE
PARTNERSHIP: Every partner is an agent of the partnership
for the purpose of its business.

The authority of the partner to act in behalf of the partnership

may be (a) express; or (b) implied when he apparently carries
on the usual business of the partnership. In the latter, the act
of the partner would bind the partnership, unless (i) he has in
fact no authority to act in behalf of the partnership; and (ii)
the person to whom he is dealing has knowledge of the fact
that he has no such authority.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
If the partner is not carrying on the usual business of the
partnership, the act will not bind the partnership unless it is
authorized by the other partners.
Except when authorized by the other partners or unless they
have abandoned the business, one or more but less than all the
partners have no authority to:
a. Assign the partnership property in trust for creditors or on the
assignee's promise to pay the debts of the partnership;
b. Dispose of the good-will of the business;
c. Do any other act which would make it impossible to carry on the
ordinary business of a partnership;
d. Confess a judgment;
e. Enter into a compromise concerning a partnership claim or liability;
f. Submit a partnership claim or liability to arbitration;
g. Renounce a claim of the partnership.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
4. CONVEYANCE OF REAL PROPERTY
CONVEYED TITLE IS EXECUTED EFFECT
BY IN THE IN THE
NAME OF NAME OF
Any partner Partnership Partnership Title passes to the buyer but
the Partnership may recover.
Except:
1. If in the usual way of
business, except when
the buyer has knowledge
of partner/s’ lack of
authority;
2. Real property was
transferred to a innocent
buyer.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
CONVEY TITLE IS EXECUTED EFFECT
ED BY IN THE IN THE
NAME OF NAME OF
Any Partnership Partner Passes the equitable interest
Partner of the partnership provided the
conveyance was in the usual
way of business
By One or One or Title passes to the buyer but the
partners more but more but Partnership may recover. Except:
in whose not all not all 1. If in the usual way of business,
except when the buyer has
name the partner partners
knowledge of partner/s’ lack of
title authority;
stands 2. Real property was transferred
to a innocent buyer.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
CONVEY TITLE IS EXECUTED EFFECT
ED BY IN THE IN THE
NAME OF NAME OF
Partner One or Partnership/ Passes the equitable interest
more or all Partner’s of the partnership, provided
the own name the act is one within the
partners, or authority of the partner or in
in a third the usual way of business.
person in
trust for the
partnership
All All partners All partners Passes all the rights in such
partners property
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
5. SOLIDARY LIABILITY OF THE PARTNERSHIP WITH
THE PARTNER:
a. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the
partnership or with the authority of co-partners, loss or
injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting
or omitting to act.
b. Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
c. Where the partnership in the course of its business
receives money or property of a third person and the
money or property so received is misapplied by any
partner while it is in the custody of the partnership.

In the above, all partners are solidarily liable with the

partnership.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
6. PARTNER BY ESTOPPEL:
a. One who represents himself as a partner of an existing
partnership with or without consent of the partnership:
i. When the partnership consented – a partnership by
estoppel is created between the original members and
the deceiver. A partnership liability results.
ii. When the partnership did NOT consent – deceiver
becomes a partner by estoppel where he is liable as a
partner but does not acquire the rights thereof. No
partnership liability exists.
b. One who represents himself as a partner of a NON-
existent partnership. Liability of parties is pro rata, since
there is no partnership liability.
OBLIGATIONS OF PARTNERS AS TO
THIRD PARTIES
7. LIABILITY OF NEW PARTNER AS TO PREVIOUS
OBLIGATIONS
a. He is liable for the obligations already contracted before
his admission but only to the extent of his contribution.
b. He is liable to the extent of his personal property for
subsequent obligations like an original partner.
DISSOLUTION
Dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business.

On dissolution the partnership is not terminated, but continues

until the winding up of partnership affairs is completed.

Winding up: on the other hand, is the process of settling

business affairs after dissolution.

Termination: is the point where all the partnership affairs have

been wound up.
DISSOLUTION: EXTRA-JUDICIAL
CAUSES
1. Without violation of the agreement between the partners:
a. By the termination of the definite term or particular
undertaking specified in the agreement;
b. By the express will of any partner, who must act in good
faith, when no definite term or particular is specified;
c. By the express will of all the partners who have not
assigned their interests or suffered them to be charged for
their separate debts, either before or after the termination
of any specified term or particular undertaking;
d. By the expulsion of any partner from the business bona
fide in accordance with such a power conferred by the
agreement between the partners;
DISSOLUTION: EXTRA-JUDICIAL
CAUSES
2. In contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under
any other provision of this article, by the express will of
any partner at any time;
DISSOLUTION: EXTRA-JUDICIAL
CAUSES
2. By operation of law:
a. By any event which makes it unlawful for the business
of the partnership to be carried on or for the members to
carry it on in partnership;
b. When a specific thing which a partner had promised to
contribute to the partnership, perishes before the
delivery; in any case by the loss of the thing, when the
partner who contributed it having reserved the ownership
thereof, has only transferred to the partnership the use or
enjoyment of the same; but the partnership shall not be
dissolved by the loss of the thing when it occurs after the
partnership has acquired the ownership thereof;
c. By the death of any partner;
d. By the insolvency of any partner or of the partnership;
e. By the civil interdiction of any partner;
DISSOLUTION: JUDICIAL CAUSES
1. A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
2. A partner becomes in any other way incapable of
performing his part of the partnership contract;
3. A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
4. A partner wilfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts himself
in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
5. The business of the partnership can only be carried on at a
loss;
6. Other circumstances render a dissolution equitable.
DISSOLUTION: EFFECTS
1. AS TO AUTHORITY OF THE PARTNERS TO ACT:
a. Dissolution terminates all authority of any part to act for
the partnership.
b. Except in the following cases:
i. Winding up activities and completing of unfinished
transactions.
ii. By any transaction which would bind the partnership if
dissolution had not taken place, provided the other
party to the transaction had no notice thereof.
2. AS TO OTHER PARTNERS:
A partner’s act after the dissolution is not binding upon the
other partners if the dissolution is by act, insolvency or death
(AID), with notice to such partners, or not by AID, even
without notice, where the mutual agency is terminated
WINDING UP OR LIQUIDATION
Distribution of Assets: will be done in the following order:
1. Those owing to creditors other than partners;
2. Those owing to partners other than for capital and profits;
3. Those owing to partners in respect of capital;
4. Those owing to partners in respect of profits.
WINDING UP OR LIQUIDATION
Partner’s Liability: in case the assets of the partnership are
not sufficient to cover the liabilities, the remaining claims may be
satisfied against the separate assets of the partners.

However, where a partner has become insolvent, the claims

against his separate property shall be satisfied in the following
order:
1. Those owing to separate creditors;
2. Those owing to partnership creditors;
3. Those owing to partners by way of contribution.
LIMITED PARTNERSHIP
Limited Partnership: is one formed by two or more persons
under the provisions of the following article, having as members
one or more general partners and one or more limited partners.

Limited liability: a limited partners’ liability is limited only to his

capital contribution. Such that, after exhaustion of partnership
assets, he cannot be made to contribute to answer the remaining
liabilities to third parties.
GENERAL VS. LIMITED PARTNER
GENERAL PARTNER LIMITED PARTNER
Liable even beyond his personal Only upto his capital contribution
contribution
Generally has the right to No right to participate in the
participate in the management of management of the partnership
the partnership
May contribute money, property or May contribute only money and/or
industry property but not industry
May be the proper party in a Not the property party
proceeding by or against the
partnership
Name may appear in the Name cannot appear in the
partnership name partnership name
GENERAL VS. LIMITED PARTNER
GENERAL PARTNER
As a capital partner, cannot
engage in a business in the same
industry as that of the partnership
Retirement, death, insanity or
insolvency dissolves the
partnership
LIMITED PARTNER
No such prohibition
No same effect, the executor or
administrator of his estate, in case
of death, shall have all the rights
of a limited partner
GENERAL VS. LIMITED PARTNERSHIP
GENERAL PARTNERSHIP LIMITED PARTNERSHIP
Can be constituted in whatever Must follow all the requirements of
form the law for limited partnership,
including filing of a certificate
All partners are general partners With at least one limited partner
and one general partner
No requirement to include “LTD” in Must include “LTD” or “LIMITED”
its name in the partnership name.
When interest of general partner is The interest may be redeemed
charged, such may be redeemed with the separate property of any
by one or more partners with their general partner, but may not be
own property or with partnership redeemed with partnership
property property
LIMITED PARTNER’S LIABILITY
GENERAL RULE: the limited partners as such shall not be
bound by the obligations of the partnership.

EXCEPTIONS:
1. The name of the partnership failed to include the word
“Limited” or “LTD”
2. Failure to file Articles of Partnership to the SEC
3. If the limited partner contributed services
4. The surname of the limited partner appears in the firm name,
except: if it is also the surname of a general partner, or the
partnership has been carried on in such name prior to the
admission of the limited partner.
5. If the limited partner takes part in the management of the
business.
RIGHTS OF A LIMITED PARTNER
1. Have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to
inspect and copy any of them;
2. Have on demand true and full information of all things
affecting the partnership, and a formal account of partnership
affairs whenever circumstances render it just and reasonable;
and
3. Have dissolution and winding up by decree of court.
RIGHTS OF A LIMITED PARTNER
4. Receive a share of the profits or other compensation by way
of income, and to the return of his contribution. However, a
limited partner shall not receive any part of his contribution
until:
a. All liabilities of the partnership, except liabilities to
general partners and to limited partners on account of
their contributions, have been paid or there remains
property of the partnership sufficient to pay them;
b. The consent of all members is had, unless the return of
the contribution may be rightfully demanded as provided
in number 5; and
c. The certificate is cancelled or so amended as to set forth
the withdrawal or reduction.
RIGHTS OF A LIMITED PARTNER
5. Rightfully demand for his contribution:
a. On the dissolution of a partnership; or
b. When the date specified in the certificate for its return
has arrived, or
c. After he has six months' notice in writing to all other
members, if no time is specified in the certificate, either
for the return of the contribution or for the dissolution of
the partnership.
RIGHTS OF A LIMITED PARTNER
6. Have his written consent or ratification be sought by the
general partner/s in order to:
a. Do any act in contravention of the certificate;
b. Do any act which would make it impossible to carry on the
ordinary business of the partnership;
c. Confess a judgment against the partnership;
d. Possess partnership property, or assign their rights in specific
partnership property, for other than a partnership purpose;
e. Admit a person as a general partner;
f. Admit a person as a limited partner, unless the right so to do
is given in the certificate;
g. Continue the business with partnership property on the
death, retirement, insanity, civil interdiction or insolvency of
a general partner, unless the right so to do is given in the
certificate.
RIGHTS OF A LIMITED PARTNER
7. A limited partner may loan money and to transact other
business with the partnership, subject to the following
restrictions:
a. He cannot receive or hold as collateral security any
partnership property;
b. He cannot receive any payment, conveyance or release
from liability if at the time the assets of the partnership are
not sufficient to discharge partnership liabilities to persons
not claiming as general or limited partners
RIGHTS OF A LIMITED PARTNER
8. Assign his rights. However, the assignee does not necessarily
become a substitute limited partner.
a. A Substituted Limited Partner is a person admitted to all the
rights of a limited partner who has died or has assigned his
interest in a partnership: Provided:
i. All the partners consent;
ii. The assignor (Limited Partner), being thereunto
empowered by the certificate, gives the assignee that
right.
RIGHTS OF A LIMITED PARTNER
b. The substitute has all the rights and powers and is subject to
all the restrictions and liabilities of his assignor except those
liabilities of which he was ignorant at the time he became a
limited partner and which could not be ascertained from the
certificate.
i. The substitution does not release the original limited
partner from liability to the partnership.
ii. If the assignee does not become an substitute, he has no
right to require any information or account of the
partnership books; he is only entitled to receive the share
of the profits or other compensation by way of income or
the return of his contribution to which his assignor would
otherwise be entitled; The assignee is still an OUTSIDER
to the Partnership.
LIMITED PARTNER’S SHARE IN THE
PROFITS AND ASSETS
1. A limited partner may receive from the partnership the share
of the profits or the compensation by way of income
stipulated for in the certificate.
2. Where there are several limited partners the members may
agree that one or more of the limited partners shall have
priority over other limited partners as to:
a. The return of their contribution
b. Their compensation by way of income
c. Any other matter
GENERAL-LIMITED PARTNER
A person may be a general partner and a limited partner in the
same partnership, provided that this fact is stated in the
certificate.

He shall have the rights and powers and be subject to all the
restrictions of a general partner. Except that, in respect of his
contribution, he shall have the rights against the other partners
which he would have had if he were not also a general partner.
LIABILITY OF THE LIMITED PARTNER
TO THE PARTNERSHIP
1. As to contributions:
a. The limited partner is liable for the difference between his
contribution as actually made and that stated in the
certificate as having been made; and
b. For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the
conditions stated in the certificate.
2. A limited partner is considered a trustee for the partnership
with regards:
a. Specific property stated in the certificate as contributed
by him, but which was not contributed or which has been
wrongfully returned; and
b. Money or property wrongfully paid or conveyed to him on
account of his contribution.
DISSOLUTION OF A LIMITED
PARTNERSHIP
1. The retirement, death, insolvency or insanity or civil
interdiction of a general partner dissolves the partnership.
2. The business may be continued by the remaining general
partners under a right to do so as stated in the Certificate of
Limited Partnership OR with the consent of all the partners.
3. If the limited partner dies, his executor or administrator shall
have all the rights of a limited partner for the purpose of
settling his estate and such power as the deceased had to
constitute his assignee a substitute limited partner
LIQUIDATION OF A LIMITED
PARTNERSHIP
The distribution of the partnership assets shall be as follows:
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
END