Partnership (1767)

● By the contract of partnership two or more persons bind themselves to

contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession.
(1665a).
● Min: 2 max: none
● What’s the best way to determine the existence of the partnership?
- Intention of dividing profits among themselves
- P---> P (yes)
- p--->Corp (yes)
- Corp ---> P( no)
- General rule: no
- Delectus personarum/personae
- Choice of a person
- Nobody can become a member of the partnership without the
consent of all the partners.
- Exception: Joint venture
- Corp ---> Corp (yes)
● No actual delivery;partnership is consensual ( created by mere concept)
● Mere promise would be enough

Questions
● The partner did not contribute what he had promised. Is the partnership still valid?
- Yes
- Remedy: Compel specific performance
● Is demand required to create a partnership?
- Not required

Classes of Partnership
● Consensual
- Created by mere concept
- Exception: real contract
- Requires consent and delivery
- Kinds: Deposit, Loan, Pledge
● Nominate
- Name
- Opposite: Innominate
 ● Bilateral/ Multilateral
- Bilateral: 2
- Multilateral: 2 above
● Onerous
- There’s a contribution/payment
- Opposite: gratuitous
- no payment
Ex. donation, deposit, commutatum,guarantee
● Commutative
- Equivalent consideration must be given
- Opposite: aleatory (unequivalent)
● Principal
- Can stand alone
- Opposite: accessory (depends on existence of principal)
- latin : accesiosomething, accessory follows the principal
● Preparatory
- Preparation for another contract
- Opposite: principal

Form of Contribution
● money, property, industry (not required to contribute everything)
- Money & property (capitalist party)
- Industry (industrial party)
- General rule: money or property
● Makes the contract onerous since this is MUTUAL and ALL must give either one of
the above
- Examples:
1. A and B create a partnership with a promise of contributing P10,000 each in cash.
A gave his share while B gave a check worth P10,000. Is the issuance a contribution of
money?
- No, unless the check is encashed.
2. Considering the same information above but with B contributing P10,000 in
equivalent dollars.
- No, the contribution must be made using the legal tender, in this case,
Philippine pesos.
● Property contributed may be movable, immovable or intangible property. (Ex:
equipment, land,patents, etc.)
● If the partnership did not contribute money or property, then industry was contributed.
● Note: Contributions may differ for each of the partners.
Elements of Partnership
● Valid Contract
- Consent, object,cause
- Major advantage of partnership (delectus personae)
- Fiduciary relationship
- Trust and confidence
- Purpose of agency and partnership
● Legal Capacity
● Mutual Contribution
- All partners are required to give contribution
- Principle: one partner cannot be excepted from giving contribution
- Delivery is not required, only required if delivery of ownership
● Object must be Lawful
● Primary purpose - Profit
Cooperative
● Min: 15, max: none

Kinds of persons(1768)
● Natural person

○ Created by birth
○ Juridical Capacity
- Fitness to be subject of legal relations
- Cannot enter a contract
○ Capacity to Act
- Power to do act with legal effects

● Juridical person
- Private juridical person
- partnership,corporation
- Public juridical person
- Provinces, municipalities,city

Concept of juridical personality

● separate and distinct/ Doctrine of Corporation Fiction(Corporation)
● advantages
- Can enter contract
 - Sue
- Acquire properties

Juridical Capacity
● Fitness to be subject of legal relations
● Cannot enter a contract

Capacity to Act
● Power to do act with legal effects

(1769)In determining whether a person is a partner

● General rule: 3 basic test ( if all present, partner)
- Required contribution
- Share in a management
- Share in the losses
● Exception: doubt -1769

4 Provisions
● third persons are not partner
- Exception: art 1825
● Co-ownership/Co-possession is not a partner
- Not a partnership
- Common enjoyment of thing
● Sharing of Gross Returns
- No partnership; no TP
- Partnership shares in NET Returns not Gross Returns
● Receipts of a person in share of profits (GR, only prima facie evidence)
- Exceptions: 5 Instances
- as debt by installment
- as wages of an employee or rent to a landlord
- as annuity to a widow
- as interest on a loan
- as the consideration for the sale of a goodwill of a business

Lawful Object(1770)
● Capital

Lawful Purpose
● Business itself

4 Effects of Unlawful Partnership

● Void ab initio
- Void from the start
- No juridical declaration
● Profits shall be confiscated in favor of the government
 ● Instruments or tools and proceeds of the crime shall also be forfeited
● Contributions of the partners shall not be confiscated unless...

Form of partnership(1771/1773)
● General rule: no form is required by law, consensual in nature
● Exceptions:
- (1771/1773) Immovable property/Real was contributed
- Ex.
- Money, Car (Oral: yes)
- land/bldg (Oral & Writing: VOID)
- Requirements:
- Public instrument (notarized)
- Inventory
- ABC contributed a money of 9,000 and later on after the partnership was
formed, bought a fish pond. Does it need a public instrument? No,
because it is a subsequent acquisition, not a contribution.
- (1403)Statute of Fraud
- If promise is more than one year, must be in writing
- If not in writing it is unenforceable
- (1844) Limited Partnership
- Public Instrument + Requirement
- If not complied General partnership

Partnership with capital of 3,000 or more(1772)

● Requirements(optional)
- Public Instrument and registered(BIR monitoring)

Inventory(1773)
● Made, signed, or attached to the Public instrument
● Transferring of ownership because physical inventory cannot be made

Acquisition or Conveyance of property by partnership name(1774)

● Must acquired partnership name

Secret Partnership have no juridical personality(1775)

● Governed by co-ownership
Kinds of Partnership(1776)
● Universal vs. Particular
○ Universal
- Broad, doesn’t have specific purpose
○ Particular
- Mention specific purpose
● General vs. Limited
○ General
- Both liable
○ Limited
- Contributed property
● At Will vs. Fixed
○ At will
○ Fixed
● De jure vs. De Facto
○ De jure/ in lawukkx
- All requirements complied
○ De facto/ in fact
- Not complied
● Ordinary/Real vs. Ostensible/estoppel
● Secret vs. Open/notorious
● Commercial/trading vs. Professional/ non trading
○ Commercial
- Formed for transaction of business
○ Professional
- Exercise of profession

Kinds of Partners
● Capitalist vs. Industrial
○ Capitalist
- Contribute money & property
○ Industrial
- Services & industry
● General vs. Limited
○ General
- Liable
○ Limited
- Not liable
 ● Subpartner vs. SLP
○ Subpartner
- Not partner
○ Substituted Limited Partner(SLP)
- Partner
● Managing vs. Liquidating
○ Managing
- Not managing(silent)
○ liquidating
- Managing at the time of dissolution

Public Needs managing

Ostensible YES YES

Secret NO YES

Silent YES NO

Dormant NO NO

Universal Partnership(1777)

2 Kinds of UP
● All present Property(1778/1779)
○ Transferred ownership
○ a.) All the properties owned by the time of creation
○ b.) The profits from the property contributed
○ c.) Stipulation for the common enjoyment of other profits, but the properties
may be subsequently acquired by inheritance,legacy, or donation(cannot be
contributed)
■ Exception: the fruits thereof

● UP All Profits(1780)
○ Profit
○ Industry or work during the existence of partnership
○ Usufruct
Presumption in all Profit(1781)
● Doubt if UP of property or UP of profits
● The partner will remain to be the owner of property

Persons who are prohibited in a Universal Partnership(1782)

● If 1 is capacitated(voidable)
● If both are capacitated(unenforceable)
● 1 or both are prohibited(void)
● Ex.
○ Husband & Wife sell (no)
○ Husband & Wife donate(no)
○ Husband & Wife universal(no)
○ Husband & Wife partnership & limited( yes)

Article 739
● Provisions
○ Persons who are guilty of adultery or concubinage
■ Ex. if husbands cheat
○ Found guilty, cannot enter UP
■ If wife cheat
○ Those made to a public officer or his wife, descendants and ascendants by
reason of his office(1782)
■ Cannot bribe a public officer

Particular Partnership(1783)
● Well defined & specific
● Instances:
○ Determinate things - land
○ Use or fruits - car rental
○ Specific Undertaking
○ Exercise of a profession

● Cases:
○ Ona vs. CIR - co-owners
○ Gatchalian vs CIR - sweepstick
○ CIR vs Suter - Marriage
● Distinction:
 ○ Co-ownership(enjoyment; everyone decides)
○ Conjugal partnership(regulate property regulation; either H/W)
○ Voluntary Association(the purpose varies;officer decides)
○ Partnership(profit, everyone decides)
○ Corporation(profit; )

Commencement of Partnership(1784)
● General Rule: Consensual
● Exception: Future Partnership
○ Period
○ Condition
● Example:
○ ABC Corporation
■ Agree- Oct 1(partnership starts)
■ Delivery- Oct 3
■ Public Instrument- Oct 5
■ Registration- Oct.8
● If more than 1 year, must be in writing
● If not in writing, the partnership is unenforceable

Continuation beyond Fixed(1785)

● Effect of Liquidation
○ Continues at will
● Right of parties
○ Same rules

Obligation of respect to Contribution(1786)

● Contribute out the beginning or stipulated time
● Answer for evictions
● Answer for the fruits
○ Instances
■ (1164) A promise specific pig to B on monday to be delivered on friday,
suddenly the pig gave birth on wednesday, the babies will be with A
because he/she is the owner
■ (1537)A promise specific pig to B on monday to be delivered on friday,
suddenly the pig gave birth on Monday, the babies will be given to B
because of perfection
 ■ (1786)A promise specific pig to B on monday to be delivered on friday,
suddenly the pig gave birth on wednesday, the babies will be given to A
because ownership doesn’t pass to partnership
● Preserve/DGFF
● Liable for Damages
Remedy for failure of to contribute:
● Action for specific performance

Appraisal(1787) vs. Inventory (1773)

● Appraisal
a. Evaluation of the party

Appraisal Inventory

Movable Valid Valid

Immovable Valid Void

● Inventory
a. Ownership
● General Rule:Stipulation of Partners
● Exception: Experts chosen by the current price

2 Instances(1788)
● Partners
○ Failed to contribute
■ Ex. A gave B 9,000 pesos today but he/she failed to give what was
promised. Is he/she liable to pay for damages? Yes. Oct 3
● Promised(Oct 1)
● Failed(Oct 3)- liable for damages
● Demand( Oct 5)
● Filed(Oct 8)
○ Converted for his own use
■ Ex. A gets 9,000 to ABC to use for personal purposes but it is not
covered by law. When is the partner liable to pay for damages? Oct. 1
● Took(Oct 1)
● Discovered(Oct 3)
● Demanded(OCt 5)
● Filed(Oct 8)
 ● Effects:
○ 1st par: liable from the time it should have been contributed
○ 2nd par: from the time he took I misappropriated it

(1789)

Same Business Different Business

Industrial Partner no no

Capitalist Partner no yes

Limited Partner yes yes

● General Rule: Industrial Partner is not allowed. Why?

○ No because he owes his loyalty to its partnership
● Exception: Expressly allowed
● Effect of Violation:
○ Exclusion - remove
○ Availment of Profit - all profit will be getting by the partnership

Presumption or to Contribute(1790)
● General Rule: Equal contribution
● Exception: Stipulation

Obligation to give Additional Capital(1791)

● General Rule: The law covers only one instance, imminent loss
● Obligation to give additional capital
● Exception: not obliged to give
○ Stipulation
○ Industrial Partner
○ Partner in Insolvent

(1794)
● General Rule: damages not subject to set off
● Exception: Unusual profits have been
● Effect: Equitably lessened
Obligation of Managing a Partner(1792)
● 2 Obliges
○ Pedro owes A(personal debt) 80,000 pesos and another debt to ABC 50,000
pesos belongs to partnership. In both cases who will receive the payment? A
will receive the payment because he/she is a managing partner and Pedro has a
debt to A personally. But if Pedro pays the both of them there is not a problem.
If pedro only pays 50,000 pesos where in fact he needs to pay both, where do
we apply the payment?
○ Rules: look at the receipt
● If in the name of MP
○ Proportionate application
● If in the name of partnership
○ Solely to the partnership
● Exception: Not applicable
○ Not the Mp
○ Not yet due
○ More onerous

Obligation of partner who receive a share of partnership credit(1793)

● 1 obliges
● Bring to the partnership

Risk of Loss(1795)
● Res perit domino means the thing perishes with the owner in this case.
● If ownership is transferred
○ Universal partnership of all present property
○ Partnership bears the law
● If use/usufruct
○ Universal partnership of profits
○ Partners bear the law
● Effect: Dissolution

Responsibility of partnership to the partner(1796)

● Instances:
○ To refund the amounts disbursed by him( has existing debt)
○ Answer for obligations contracted in good faith
 ○ Answer for risk in consequence of management

Distribution of Profits and Losses(1797)

● Liability
○ Responsibility to the third person
● Losses
○ Responsibility among partners
● Is the industrial partner liable?
○ For contractual liability-yes
○ For losses - no
● Distribution of profits
○ General Rule: stipulation (profit sharing)
○ Example:
■ A contributed 30, B contributed 20, C contributed 40, D contributed 5, E
contributed 5. Stipulation of A and C is 30% while B,D,E, is equal
○ Exception: Capital Contribution
● Distribution of losses
○ General Rule: stipulation(loss sharing)
○ Exception: no loss sharing - profit sharing
○ Exception of exception: No LS/ No PS - Capital Contribution
● Industrial Partner
○ General Rule: stipulation
○ Exception: no stipulation - just and equitable
○ What if IP is also CP?
■ General Rule: stipulation
■ Exception: no stipulation -Capital contribution + just and equitable

Designation of shares in profits and losses by the third person(1798)

● General Rule: partners will decide
● Exception: Third party was authorized
● Effect: the decision is valid
● Exception to the exception: If decision of TP is manifestly inequitable (unfair)
○ Effect: not valid
○ It can be questioned within 3 months from knowledge of decision of the
affected partner

Pactum Ueonina(1799)
● Stipulation excluding one of the partners from profit and loss sharing
● If made from the start - partnership is void
 ● If made after the creation of partnership - stipulation is void

(1800)
● Acts of administration vs. Acts of Ownership
● Usual course of business/acts of administration
○ Day to day transaction
○ Managing partner
● Acts of ownership/alteration/ Act of dominion
○ All partners
● Controlling vs. majority partners
○ Controlling partners
■ Capital contribution
○ Majority partners
■ No. of partners
● Can we remove the managing partner?
○ It depends on the case
○ If Mp has appointed at the start - irrevocable
○ Exception: yes, it can be remove if
■ Just and lawful cause
○ If Mp was appointed after the creation of partnership - revocable

2 or more managing partner whose duties are unspecified(1801)

● Similarity of 1801 & 1802
○ 2 or more managing partner
○ No specification of duties
● Unanimity is not required(difference)
● General rule: each one may perform acts of administration
● Exception: If one MP opposes, decision of majority of MP’s shall prevail
● Exceptio to the Exception: In case of tie, vote of controlling interest of the partners

Unanimity is required, 2 or more MPs (1802)

● General Rule: Unanimous consent of all MPs
● Exception: Imminent danger or xxx (effect - one can decide)

No MP was appointed(1803)
● All are MPs
● Rules in 1801 will apply in 1803
 ● 2nd par. Talks about acts of ownership
● General Rule: Consent of all arties
● Exception: Manifestly principal to the interest
● Effect: court intervention

Sub-Partnership(1804)
● Is there a partnership in sub-partnership? (no)

Partnership books shall be kept(1805)

● General Rule: stipulation to where we keep the partnership books
● Exception: principal place of business of the partnership
● Why is he place of the book important?(right of inspection)
○ Unreasonable hour/day
● In corporation?
○ Principal place of office?

Duty of Voluntary disclosure of material facts / duty to render information(1806)

● Fiduciary relationship
○ Means trust and confidence
● Ex.
○ Buyer buying partnership lands
○ Gold mine

Partner accountable fiduciary(1807)

● Secret profit/ secret commission
○ Not allowed
● Effect if violated
○ Must account to the partnership
○ Holds as trustee
○ Case: catalan vs Gatchalian
■ ABC (partnership) borrowed money to X 1 million. Collateral- land. On
duty to the obligation, X ay nanginil kay ABC but didn’t pay. So X
foreclosed the land and sold to TP. 1 year to redeem the property.C
bought the property (land) and used partnership fraud. It now belongs to
the partnership because it is sill in a 1 year period and property purchase
of partnership funds belong to the partnership.
■ Second scenario: what if C bought the land within 1 year using a
personal fund. It still belongs to the partnership because of fiduciary.
 ■ Third scenario : the 1 year period lapse while C used his own money
because the 1 year period already lapse and the money belongs to C.

Capitalist Partner(1808)

Same business Different business

Industrial partner no(loyalty) no(loyalty)

Capitalist partner no yes

Limited Partner Yes (mere contributor) yes(mere contributor)

● General Rule: same but not allowed
● Exception: consent of other partners
● Effect if violated:
○ Bring to the common fund any profit
○ Personally bear all the losses

Right to Formal Accounting(1809)

● General Rule:
○ Can the partner demand formal accounting?
○ not allowed
● Exception: 4 Instances
○ Wrongful excluded
○ Stipulation
○ 1807 - secret profits
○ Just and reasonable

Property rights of the partner

Right of partner vs. Property Rights
● Right of partner
○ Broad, right to demand etc.
● Property rights(1810)

Property Right(1810)
● Rights in specific partnership property
● interest(181)
○ Profit
■ During the existence of partnership
○ Surplus
 ■ At the time of the dissolution of partnership
● Management
● Which is assignable? - only interest is assignable

Nature of Partners right in Specific Partnership Partners(1811)

● Possess for partnership purpose - yes
○ Personal - no
○ Exception: consent of all
● Assignment of right
○ General Rule: no
○ Exception: consent of all
● Attachment / Execution
○ Attachment
■ Done at the start
○ Execution
■ Done at the end
● Ex.
○ ABC- partnership. A has a separate creditor(x) and separate property(land).
(ABC)Partnership has partnership property(land), ABC, has partnership
creditor(y).
■ Can a partnership creditor attach or execute on the partnership property?
Yes.
■ Can a partnership creditor execute on the separate property? Yes because
they’re liable up to the extent of separate property.
■ Can a separate creditor attach on the separate property? Yes.
■ Can a separate creditor attach on the partnership property? no.

○ General rule: Not allowed because separate creditors cannot attach to the
partnership property.
○ Exception: consent of all
● Legal support - No (no obligation)

Effect of Assignment of partners whole interest(1813)

● Issues
○ Selling it to the Third Person
○ Donating it to TP
○ Using it as a security for loan.
● Rights not given:
○ Manage, inspect, ask infos(not a partner)
 ● Rights given:
○ profits/ surplus

Attach of Interest (1814)

● Charging Order
○ Order by the court attaching the interest of a partner
○ Can we remove the charging order? Yes
■ Partnership Property - consent of all
■ Separate property of others
● Example:
○ ABC- partnership. A has a separate creditor(x) and separate property(land).
ABC has partnership creditor(y).
■ Can a separate creditor attach on the separate property? Yes.
■ Can a separate creditor attach on the partnership property? No.
■ Can A attach in the interest? Yes

Obligations of partners with TPs

Firm Name(1815)
● Registers partnership (SEC)
○ Unique business name
● Registers business name (DTI)
● 4 Instances
○ Liability of TP’s name included
○ Death of partner
○ Inclusion of Limited Partnerships name
■ Effect: becomes liable as a general partner
○ Should not be similar to another name
Liability for contractual obligation(1816)
● Nature of liability
○ Pro rata
■ equally/ jointly, based on no. of partners
■ Separate property of partners
○ Subsidiary
■ Only after partnership assets have been exhausted
■ Partnership property is the first one who will pay

Stipulation against liability(1817)

● Pactum Ueonina
 ● As to partners(VALID)
● As to TP’s(VOID)
● Case - island sales vs. united pioneers
○ There are partners of 5 who are charged , in the middle of the case, one person
filed a dismissal and got dismissed, and now there are 4 left. How will you
divide the debt, is it divided by 5 or divided by 4?
■ 5 because the Supreme Court should be equally divided into partners and
cannot increase the liability of the partners.
○ ABC owes debt to X 200,000 pesos, ABC pays 90,000 and a balance of
110,000. ABC said that the 200,000 debt is liable only to B&C.
○ What is the effect of the stipulation except A? What is the division of 110,000 is
it by 2 or by 3?
○ Divided by 3, A is still liable to X

(1818)
● 1st par. Every partner is an agent of the partnership (act of administration)
○ ABC are partners, A is managing partner. The TP is concerned, who is the
managing partner?
○ All of them
○ Example: There’s a contract between C and TP, is the partnership liable? Yes
○ Exception:
○ if TP knows who the MP is.
○ Partner is not authorized
● 2nd par. Acts of ownership
○ Consent of all partners
○ 7 instances
■ Assign the partnership property(consent of all)
■ Dispose of the good will
■ Do any other act(ex. mortgage)
■ Confess a judgement
■ Entering a compromise
■ Submit a claim or a liability
■ Renounce a claim

Admission by a partner(1820)
● ABC owes a debt to D 10,000 in oral contract. D demands payment to ABC, A&B
denies while C admits. Is the admission of C binding to the partnership? Yes.
● 2 Kinds of Admission
○ During the existence of the partnership
 ■ Requisites:( if all present, they bind together with the partnership)
● Must concern the partnership affair
● Scope of authority
● Must be proven at other than the admission itself
○ After dissolution
■ Must pertain to the winding up

Notice to one, Notice to all(1821)

● ABC owes debt to X 100,000. A is the managing partner, supposedly X gives a demand
letter to A but gives it to C as he/she thought that he/she is a managing partner. Is the
demand for C, valid? Yes
● 3 Kinds of Knowledge( APA)
○ Knowledge of a partner Acting in the course of business
■ Ex.
● X gives a demand letter to A but didn’t give to B & . is that
binding to the partnership? yes
○ Present ot his mind
○ Knowledge to Any other partner

Effect of Conveyance of Real Property(1819)

● General Rule: Property purchased of partnership funds belongs to the partnership

Ownership vs. equitable interest

● TP is the owner(ownership)
● TP is not the owner( equitable interest)
● ABC (partners) ---> DML(name of partnership) ---> land ---> DML(registered) --->
ABC(authorized,all)
● 5 Scenarios
○ Par. 1 partnership name + partnership name + no authorize to sell
■ DML(land) ---> DML(sell) ---> A( sell)
■ What is transferred to the TP? Ownership
■ Violation: A is not allowed to sell
■ General rule: recovery
■ Exceptions:
● 1818
● Buyer in good faith
○ Par. 2 partnership name + own name + sold by one partner
 ■ DML ---> A ---> A
■ Transfer to TP is equitable interest
■ Violation: didn’t use the partnership name and ABC should sell
○ Par 3. One or more partners + one or more partners + sold by them
■ AB ---> AB ---> AB
■ Transfer to Tp is ownership
■ Violation: should use partnership name and it can only be sell by ABC
■ General rule: recovery
■ Exception:
● 1818
● Buyer in good faith
○ Par 4. One or more in trust + one or more in trust + sold by them
■ A in trust ---> Pedro or A
■ Transfer equitable interest
○ Par 5. Name of all + name of all + all
■ ABC ---> ABC ---> ABC
■ Violation: didn't use firm name

Solidary Liability of Partnership and Partners(1822/1823/1824)

Wrongful act/omission/ Torts/ Quasi-delict(1822)
● Example
○ ABC(partners), DML (partnership), C(IP) collided TP and died without an
existing contract and was caused by negligence, it is called torts/ quasi-delict.
The damage is 1million, who is liable?
■ Liable: ABC or DML(all of them)

Breach of Trust - Misapplied(1823)

● 2 instances
○ ABC are partners, C is the managing partner and Pedro pawned/pledged his ring
to C. The one who received the property misappropriated it. Liability of A & B
is solidary
○ ABC are partners, C is the managing partner and Pedro pawned/pledged his ring
to C. But A, misappropriated it. Liable are partners and partnership.

Nature of liability- Solidary (1824)

Partnership by Estoppel vs Partner by Estoppel(1825)

● Partnership by Estoppel
○ Ex.
 ○ ABCDE is a legitimate partnership. X asked Y to be his partner and made a
contract where X borrowed 1 Million to Y and said that X declares that ABCDE
is his partner and they all agree.
○ Who is liable? ABCDE, X, and the partnership name
● Partner by Estoppel
○ Ex.
○ ABCDE is a legitimate partnership. X asked Y to be his partner and made a
contract where X borrowed 1 Million to Y and said that X declares that A & B
are his partners while CDE didn’t agree.
○ Those who agree are liable.

Liability of Incoming Partners(1826)

● Liable with existing creditors up to the extent of his separate property? NO.
● When D entered ABC there’s already an existing debt to XYZ(existing creditors) where
in there’s a subsequent creditor which is MNO(subsequent creditor)
●
Liable XYZ MNO

ABC Contributed YES YES

ABC separated YES YES

D contributed YES YES

D separate NO YES
● D separate property is not liable to the existing creditor.
Preference Partnership Creditors in Partnership Property(1827)
● Separate creditor has separate preference
● Partnership creditor has separate preference

DISSOLUTION AND WINDING UP

● 3 stages
○ Dissolution(1828)
■ Change in relation
○ Winding Up
■ Settling of partnership affairs
○ Termination
■ Completing wing up/ finally settled
 ●

Partnership not terminated by dissolution(1829)

● If the partnership is dissolved that does mean that it is terminated?
○ No, it needs to undergo winding up

Types of Dissolution(1830)
● Extrajudicial
○ Does not file case in the court
○ Does not need court order
○ Divided into two:
■ Voluntary
● At will; wants to be dissolve
● Divided into two:
○ Without violation(TAWE)
■ Example
● If ABCDE didn’t violate a partnership
contract they’re innocent partner
■ Term
● Partnership is good for 5 years. If they
reach 5 years the partnership will dissolve.
But If they didn’t liquidate, the period is
extended.
■ At Will
● No period,it can dissolve any point in time
provided it is done in good faith
■ Will at All
● Let us say it's 5 years. ABCDE agreed to
be 2 years, there’s an novation.
■ Expulsion
● E is an industrial partner he engages in the
same of different businesses without the
consent. What happens to E? He will be
excluded.
○ With violation
■ Example
 ● If E violates a contract he is a guilty
partner
■ Involuntary(ULDIC)
● They doesn’t want to be dissolve, it is way beyond their control
● ISTANCES
○ Business becomes Unlawful
■ Example:
● The business of ABC is a beer house.They
passed the ordinance but they bounced and
closed. They didn’t want to dissolve but
there’s a law, an ordinance passed
dissolving them.
○ Loss
■ Specific
● Cannot be change
■ Generic
● Can change
■ Use
■ Example:

Before After
Delivery(destr delivery(destro
oyed) yed)

Specific dissolve Not dissolve

Generic Not dissolve Not dissolve

use dissolve dissolve

○ Death of Partner
■ Example:
● ABC is a partner, C died. The partnership
will dissolve.
○ Insolvency of Partner or partnership
■ What happens if it becomes insolvent? It will
dissolve because article 1818 states that every
partner is an agent of the partnership.
 ■ If you are insolvent, all partnerships that you will
enter will be void.
○ Civil interdiction
■ Can the partners still enter a contract with any
other person? No because it will violate the
principle of article 1818
● Judicial(BIMPO)
○ Need to file a case in court
○ Needs court order
○ Example:
■ ABCDE, E is insane. Is the partnership dissolved? No because we need
to file a case in court declaring E as insane.
○ Insanity
○ Incapacity
■ Alzheimer's, vegetarian state(stroke,coma)
○ Misconduct
■ Related to the business of partnership
○ Persistent breach
■ Repeated violation
○ Business can be carried at a loss
■ Needs to file a case in court and need to prove that it could only be
carried at a loss
○ Other Instances
■ Example
● Abandonment of partnership business, fraud committed in the
management of partnership.
○

(1831)
● Last paragraph
○ Generally can a third person ask for the dissolution of the partnership? No
○ Exception:
■ The separate creditor that attached an interest can ask for dissolution
under two instances:
● If the partnership reach the fixed term
● At Will

(1832)
● General Rule: Dissolution terminates the actual authority of partners to undertake new
business.
○ If there's a dissolution, it can no longer undertake new business of partnership
● Exemption:
○ For purposes of winding up
○ Complete transaction began but not yet finished
■ Example:
● A partnership enters a contract to a person good for 3 years. In
the first year the partner died. What happens to the partnership?
It will dissolve. Does that mean that the contract to the person
dissolves? No, they need to finish the transaction until the 3 year
contract.
● 1.)Can the partners have a liability even though the partnership is dissolved? Yes under
1833
○ With respect to partners(1833)
■ AID
● Act, insolvency, death
■ NOT AID
● Immaterial: notice or knowledge
● 2.) Can the partners have a liability to the third person?
○ With respect to PERSONS not partners(1834)
■ Right of contribution from co-partners(1833)
● General Rule: If AID- Each partner is liable to his co-partners for
his share of any liability created by any partner acting for the
partnership
● Exemption:
○ 1.) if ACT- had knowledge of the dissolution
○ Example:
■ A resigned and withdrew and told B. B had
knowledge. C made a contract with D but C
cannot make a business with D but the problem is
C doesn’t know.
■ Exception: is that they created a liability
partnership.
■ Exception to the exception: is what if C had
knowledge? If A told C his resignation, they don't
have a liability. C will only be liable.
○ 2.) If DEATH/INSOLVENCY - had knowledge or notice
○ Example:
 ■ General rule: don’t have a liability.
■ ABC are partners, C is managing partner and
made a transaction to D today unexpectedly A
died at 9:00 am so the partnership dissolves.
■ Exception: Does the partner have a liability? Yes
■ Exception to the exception: Either C was given a
text message or an email or C had knowledge that
A died.
■ If C knew that A died under the exemption to the
exemption, who is liable? C

Power of partner to bind the dissolved partnership to third persons (1834)

● Who will be liable? Partnership
● 3 Instances
○ 1st paragraph: Partnership is Liable
■ Instances when the partnership is liable
● 1.) Winding up
● 2.) Business transactions began but not yet finished
● 3.) Existing creditors - Actual knowledge or notice
● Third person- news paper publication
○ 2nd paragraph: Dormant partner is not liable
■ The liability will be taking out of partnership assets alone
■ Not known, does not participate in the management
○ 3rd paragraph: Partnership not BOUND
■ 3 instances that there’s no liability of partners
● If the business is unlawful to carry on the business.
○ Why does the business of the partnership become
unlawful and there’s no liability?
■ ignorantia legis neminem excusat/ ignorance of
the law excuses no one from compliance
therewith
○ The partner has become insolvent
■ All contracts that an insolvent person will enter
will be void. The partnership doesn;y have a
liability
○ Partner had no authority to wind up
■ Partnership creditor
 ● Actual knowledge or personal notice
■ Third person
● Publications

Effect of dissolution on partners existing liability(1835)

● General rule: Dissolution does not of itself discharge the existing liability of any partner
● Exception: Agreement between ALL
● Example:
○ 1.) ABCDE owes a debt of 1 million to the creditor but E wants to discharge
from the liability. The partner, creditor, and the partner himself(E) needs to
agree.
○ 2.) Deceased partner - separate creditor

Manner of Winding - Up(1836)

● Two ways
○ Extrajudicial
○ Judicial
● Persons authority to wind up
○ Stipulation
■ If there’s a stipulation it is either winding up partner or liquidating
partner
○ Not wrongfully dissolved
■ At the time of dissolution there are two kinds of partners
■ Example:
● There are 5 partners, one person withdraws. The principle is, can
you force a person to remain a partner? No. The person who
withdrew is a guilty person whilst the person who didn’t
withdraw is called an innocent partner.
○ Legal representative of the last surviving partner is not insolvent
■ Is it possible that all partners died at the same time? Yes, it is possible

Rights were Dissolution not in contravention of agreement(1837)

 ● Scenario 1:
○ If none was dissolved they are all innocent partners
○ 1.) Partnership property will be applied to settle all the obligation
○ 2.) Surplus distribution
○ All paid
● Scenario 2:
○ Rights were dissolution in contravention of agreement
○ Example:
■ ABCDE are partners for 5 years, E withdrew(guilty person), ABCD who
didn’t withdraw(Innocent people).The innocent partners have the most
rights.
● Rights of innocent partners:
○ The partnership property will be applied for payment of
liabilities
○ To be indemnified for damages
○ To continue the business
○ To possess the partnership property
● Rights of Guilty partners varies:
○ If the business continued- the business is ascertained and
paid cash and will be released from all liabilities.
○ If not continued - pays the debt,surplus but with damage

Rights of injured partner where partnership contract rescinded(1838)

● Ground: fraud or misrepresentation
● Remedy should be annulment but according to the law it is rescission
● Example:
○ ABCD are partners, one of them or all of them scammed E(injured partner) to
join the partnership.
○ Rights of E(injured partner)
■ Right to demand Lien or Retention on the partnership property
■ Right to subrogation in place of partnership creditors(priority)
■ Right of indemnification by guilty partners

Liquidation and Distribution of Assets (1839)

 ● Four provisions
○ Assets of Partnership
■ Remaining Partnership property at the time of dissolution
■ Additional contribution which is necessary to pay the debts of the
partnership
○ Order of Payment( in order)
■ General Partnership (1839) vs. Limited Partnership(1863)
● General Partnership
○ Partnership creditor( unang binabayaran)
○ Partner-creditor(2nd)
○ GP - Capital(3rd)
○ GP - Profits(4th)
● Limited Partnership
○ Partnership creditor( unang binabayaran)
○ LP - Profits(2nd)
○ LP - Capital(3rd)
○ Partner - Creditor(4th)
○ GP - Capital(5th)
○ GP - Profits(6th)
○ If partner is Insolvent - separate creditor
○ Right to enforce contribution - in case of loss

Dissolution of Partnership in change of membership(1840)

● Six instances
○ Existing creditors vs subsequent creditors
■ Without liquidation of assets
○ Liability of persons continuing the business of the dissolved partnership
○ Paragraph 2- becoming partner
○ Deceased partner

Rights of legal representative of deceased partner or retiring partner(1841)

● Interest is ascertained
● It will be receive
Persons liable to render accounting(1842)
 ● Winding up partner
● Surviving partner
● Person or partnership continuing the business
Review- Dissolution
● Grounds(1830/1831)
● 1839

LIMITED PARTNERSHIP(1843)

Characteristics
● Statutory requirements/ formal requirements
● General rule: personally liable
● LP- No acts of administration
● LP - Can ask for return of contribution(3 conditions)
● Partnership debts paid out of partnership property and separate property of general
partners
● No prohibition to engage in business
● Contributions(money or property)
● Party to suit(cannot file a case)
● Assignability of interest(SLP/ ordinary assigning)
● Name in firm name(cannot put in the firm name the name of the partner. Effect liable as
GP)
● Effect of DRICI( death, retirement, insanity, civil interdiction, insolvency)
○ DRICI in GP( dissolve)
○ DRICI in SLP( will not dissolve)

Formal Requirements(1844)
● Public instrument/certificate must be signed/worn to
● Registered in SEC
● If not complied - its a general partnership
○ Effect: all partners will be liable up to the extent of their separate property
● Provisions
○ Mandatory:
■ “Limited”
 ● The word limited should be put in the partnership name
● If not - it is general partnership
■ Contribution
■ additional contribution
● If it was not placed - GP
■ SLP
● Should also be put in a firm name
○ A lot of requirements that should indicate in a certificate. What if not all of
them were placed?
■ Substantial compliance(last paragraph)
● Which means it’s not required to put all requirements but there’s
a negative effect

Limited Partner’s Contribution(1845)

● Money and property
● Cannot contribute industry/ services
○ If services was contributed - becomes liable as general partner

(1846)
● General rule: name of Limited Partner in firm name should not be put as it will create a
liability
● Effect if violated - liable as general partner
● Exceptions:
○ Surname of general partner
○ Prior to his entry

Liability for False Statement(1847)

● Example:
○ Contributions were not placed/ additional contribution
○ Remedy: Cancel or Amend the certificate of Limited Partnership

Liability for participating in Management(1848)

● Acts of Administration - cannot be
○ Managing partner decides
 ● Acts of Ownership - can be
○ All partners decides

Admission of additional Limited Partners(1849)

● Example:
○ ABC(GP), DEF(LP), H(LP)
● Requirements:
○ Amendments must be in writing
○ Certificate must be signed/ sworn to
○ Certificate must be filed in SEC
Acts of Administration/ Acts of Ownership(1850)
● Acts of Alteration - Yes
○ Requirements:
■ Limited Partner consent must be obtained
● 7 Instances of Acts of Ownership

Rights of Limited Partner(1851)

● (6) Receives share in profits or other compensation by way of income
● (7) receive return of contribution without dissolving

Limited Partner “erroneously believing promptly renounce his interest(1852)

● 1847 vs. 1852
○ 1847
■ Broad
■ Remedy A/C
○ 1852
■ Specific
■ Renounce

One person can be both LP/ GP(1853)

● LP can be CP and GP but cannot be IP
● Disadvantage
○ becomes liable up to the extent of separate party
● Advantages
 ○ Ask for return of contribution
○ Liable to pay partnership creditors but can ask for reimbursements

Allowable Transactions(1854)
● Granting loans from partnership
● Transacting business with partnership
● Receive pro rata share
● Partnership assets with creditors
● Example:
○ ABC(GP), DEF(LP), can F lend some money to a partnership? Yes.
Prohibited Transactions
● Receiving or holding a collateral security any partnership property
● Receiving payment or release from liability if it will prejudice the rights of TP

Preferred Limited Partnership(1855)

● General rule: equal footing
● Exception: stipulation
● Preference: return of contribution, income, surplus, profits

Compensation of Limited Partnership(1856)

● Requirement:
○ In access of all liabilities of partnership
● Liabilities owed to General Partners are not considered part of partnership total
liabilities.

Effect of DRICI(1860)
● Death
● Retirement
● Insanity
● Civil Interdiction
● Insolvency
○ DRICI in GP will dissolve
○ DRICI in LP will not dissolve
Right of executor on death on LP(1861)
● If the partner died the substitution limited partner will be the executor

Rights of creditor of Lp vs. 1814(1862)

● 1814
○ Can it attach in the interest? Yes, it is called charging order
○ What will be the property to remove the attached interest in GP?
■ Partnership property with a consent of all
■ Separate property of other partners
● Interest of limited partner was charged
○ Only separate property
○ Cannot use the partnership property

Requisites for return of contributions(1857)

● All liabilities are paid
● Consent of all partners
● The certificate is cancel/amended
○ If all requisites were present we can demand a return of contribution.
● Instances for return of contribution
○ Dissolution of partnership
○ Date specified in certificate has arrived
○ If no date was simplified, after 6 months notice in writing
● General rule: cash
● Exception:
○ Stipulation
○ No stipulation - consent of all in certificates
● Instance of right to demand dissolution
○ rightfully but unsuccessfully demands the return of contribution
○ Only liabilities of partnership is not yet paid

Liability of Limited Partner(1858)

● Difference
○ What if the contribution of a limited partner is not enough? If 100k is needed for
contribution but only 60k was given. Is LP liable in the balance of 40k? Yes
 ● Unpaid contribution
○ Is LP liable? Yes.

Liability as trustee
● Wrongfully returned
● Wrongfully paid

Waiver of compromise
● Is it liable for limited partners liability to be compromised?yes
● Consent of all
● Does not prejudice the creditor

Liability for return of contribution lawfully received - still liable

Assignee vs. SLP(1859)

● Assignee is not a partner
● 2 conditions to be SLP
○ All members should give consent
○ Empowered by the certificate of partnership
● Assignee becomes SLP after amendment of certificate and SEc registration
● Liability of Assignee and SLP

Priority of distribution of Assets(1863)

● Partnership creditor
● Limited partner with respect to profit
● Limited partner with respect to capital
● Partner creditor
● GP with respect to profit
● GP with respect to capital

Instances of cancellation(1864)
● Dissolution
● All LP ceased to be as such
● Amendment of cert- 10 instances
Requirements for amendment and cancellation of certificates(1865)
● Writing
● signed/ sworn to
● Registered in SEC

Limited Partner(1866)
● Can the Lp engage in the same or different business? Yes because he is mere
contributor
● Is he liable to the extent of a separate creditor? No
● General rule: party to a suit - no
● Exception: nforce his rights against he partnership

Provisions for existing LP’s(1867)