Gchan Partnership

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ChanRobles Internet Bar Review : ChanRobles Professional Review, Inc.
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References: DE LEON, COMMENTS AND CASES ON PARTNERSHIP, AGENCY AND TRUSTS
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BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW
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OUTLINE:
I. GENERAL PROVISIONS
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II. OBLIGATIONS OF THE PARTNERS
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III. DISSOLUTION AND WINDING UP
IV. LIMITED PARTNERSHIP
I.
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General Provisions
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1. Contract
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Article 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
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Two or more persons may also form a partnership for the exercise of a profession. (1665a)
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x A partnership is a contract and must therefore comply with the essential requisites of contracts:
(1) Consent – the parties to a contract of partnership must agree to contribute money, property,
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or industry to a common fund with the intention of dividing the profits among themselves;
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(2) Object – the business undertaking of the partnership;
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(3) Cause – the profits to be derived therefrom.
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x A contract of partnership is:
(1) Consensual – perfected by mere consent (note: not entirely accurate because the law
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requires certain formalities under certain cases);
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(2) Bilateral – entered into by two or more persons;
(3) Preparatory – means of entering into other contracts.
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Elements of a Partnership
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Based on Article 1767, the elements of a contract of partnership are the following:
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(1) Two or more persons bind themselves to contribute money, property, or industry to a
common fund; and
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(2) With the intention of dividing the profits among themselves.
3. Attributes of a Partnership
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a. Lawful Purpose
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www.chanroblesbar.com : www.chanroblesbar.com.ph
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Article 1770. A partnership must have a lawful object or purpose, and must be established for the
common benefit or interest of the partners. xxx
R oArticle 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy; xxx
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The business undertaking of the partnership must be legal. A partnership will not exist, even if there
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is an agreement to contribute to a common fund and an intention to divide profits if the purpose of
the partnership is unlawful. Such a partnership agreement will generally be void ab initio.
b. Common Benefit
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Article 1799. A stipulation which excludes one or more partners from any share in the profits or losses
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is void. (1691)
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x An agreement, which creates a common fund for the purpose of obtaining profit for some, but not all,
of the contributors is not a partnership. In the alternative, the law will only consider a partnership to
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be formed among those receiving profit.
x Furthermore, the Civil Code explicitly provides that a stipulation in the partners to agreement, which
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excludes one or more partners from any share in the profits, is void.
c.
aJuridical Personality
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C h i. When Personality Exists
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Article 1768. The partnership has a juridical personality separate and distinct from that of each of the
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partners, even in case of failure to comply with the requirements of article 1772, first paragraph. (n)
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Article 1772. Every contract of partnership having a capital of three thousand pesos or more, in money
or property, shall appear in a public instrument, which must be recorded in the Office of the Securities
and Exchange Commission.
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Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the
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partnership and the members thereof to third persons. (n)
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x The juridical personality of a partnership exists even if it fails to register with the Securities and
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Exchange Commission. Philippine Partnership Law has always followed this entity theory of
partnerships (a partnership has an existence separate from the partners) as opposed to the
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aggregate theory in common law (a partnership is an aggregate of individuals and does not
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constitute a separate legal entity).
Article 1775. Associations and societies, whose articles are kept secret among the members, and
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wherein any one of the members may contract in his own name with third persons, shall have no
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juridical personality, and shall be governed by the provisions relating to co-ownership. (1669)
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x Manresa opines that the phrase “kept secret among the members” means that the articles “allow any
one of the members to contract in his own name with third persons” and “are known to some
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members only and kept secret from the rest.” Thus, “the secrecy is not directed to third persons but
to some of the partners.”
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ii. Effects of Juridical Personality
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A partnership may sue or be sued in its name or by its duly authorized representative.
A partner may not be sued in his personal capacity for the obligations of the partnership unless it is
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shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair or
illegal purposes.
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x A partnership has a domicile, has the power to contract, the ability to acquire and possess property,
obtain rights and incur obligations.
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x The insolvency of the partnership is not based on the insolvency of the partners.
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Article 1829. On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed. (n)
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x The separate legal personality of a partnership subsists even after dissolution and until termination
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of the partnership.
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x In the ordinary course of events, the legal personality of the expiring partnership persists for the
limited purpose of winding up and closing of the affairs of the partnership.
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Rules to Determine Existence
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Article 1769. In determining whether a partnership exists, these rules shall apply:
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(1) Except as provided by article 1825, persons who are not partners as to each other are not partners as
to third persons;
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(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or
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co-possessors do or do not share any profits made by the use of the property;
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(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
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sharing them have a joint or common right or interest in any property from which the returns are
derived;
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(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
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partner in the business, but no such inference shall be drawn if such profits were received in payment:
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(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
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(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;
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(e) As the consideration for the sale of a goodwill of a business or other property by installments
or otherwise. (n)
1. In General
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a. No One Factor Determinative
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x No one factor or circumstance is a conclusive test of partnership. There are no hard and fast rules in
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determining the existence of a partnership. Each case must be decided under its peculiar facts,
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considering the totality of all relevant facts and circumstances.
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b. Intent of the Parties
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x The intent of the parties is one of the most important factors in determining whether a partnership
exists between purported partners, where third parties’ rights are not involved, since a partnership
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rests on mutual voluntary consent manifested by the terms of the parties’ agreement or their
conduct under it.
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The parties must intend to create the relationship of partnership. Where there is no express
agreement to form a partnership, the question of whether such relation exists must be gathered from
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the conduct, surrounding circumstances and the transactions between the parties.
x A written agreement, designating the parties as partners and providing for a sharing of the profits is
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only evidential and not conclusive of the existence of a partnership. Even a written agreement may
not override intent. But the nature of the intent is crucial.
a 2. Specific Rules
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a. Person not partners to each other not partners to third persons – Article 1769(1)
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Article 1825. When a person, by words spoken or written or by conduct, represents himself, or consents
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to another representing him to anyone, as a partner in an existing partnership or with one or more
persons not actual partners, he is liable to any such persons to whom such representation has been
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made, who has, on the faith of such representation, given credit to the actual or apparent partnership,
and if he has made such representation or consented to its being made in a public manner he is liable to
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such person, whether the representation has or has not been made or communicated to such person so
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giving credit by or with the knowledge of the apparent partner making the representation or consenting
to its being made:
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(1) When a partnership liability results, he is liable as though he were an actual member of the
partnership;
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(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so
consenting to the contractor representation as to incur liability, otherwise separately.
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When a person has been thus represented to be a partner in an existing partnership, or with one or more
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persons not actual partners, he is an agent of the persons consenting to such representation to bind them
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to the same extent and in the same manner as though he were a partner in fact, with respect to persons
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who rely upon the representation. When all the members of the existing partnership consent to the
representation, a partnership act or obligation results; but in all other cases it is the joint act or
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obligation of the person acting and the persons consenting to the representation. (n)
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x General rule: Persons who are not partners as to each other are not partners as to third persons. This
means that if two or more persons have not formed a partnership, they are not partners as far as
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third persons are concerned.
x Exception: Partnership by estoppel.
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Co-ownership does not of itself establish a partnership – Article 1769(2)
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x The mere fact that two or more persons own or possess in common a thing, which earns profits in
exchange for use, does not create a partnership.
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Sharing of gross return does not establish a partnership – Article 1769(3)
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x The sharing of gross returns does not of itself establish a partnership, whether or not the persons
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sharing them have a joint or common right or interest in any property from which the returns are
derived.
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x Partners are supposed to share the fortunes of the business. They should be interested in its failure
as well as successes.
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x Bautista: An agreement to share gross returns is inconsistent with the idea of community of interest
in the business, joint ownership of the profits, and joint sharing of the losses. Consequently, if no
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profits have been made, no partner is entitled to any share as against the others, for there is nothing
to share. But where the agreement is to share gross returns, the share is independent of the
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existence of profits, and may be taken when there is loss.
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d. Receipt of profits prima facie evidence of being a partner – Article 1769(4)
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x General Rule: 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.
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o This presumption can be rebutted by a showing that there was no intent to create a
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partnership, since intent of the parties is controlling. Thus, although the sharing of profits is a
prima facie indication of a partnership it does not conclusively establish the same. If other
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elements of a partnership are absent, the existence of a partnership is rebutted.
o Benefit: Shifts the burden of proving the existence of a partnership to the opposing party,
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requiring him to go forward with rebuttal evidence to negate the presumption, failing which
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proof of partnership is deemed conclusive
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x Exception: When the profits are received:
(1) As a debt by installments or otherwise;
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(2) As wages of an employee or rent to a landlord;
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(3) As an annuity to a widow or representative of a deceased partner;
(4) As interest on a loan, though the amount of payment vary with the profits of the business;
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(5) As the consideration for the sale of a goodwill of a business or other property by installments
or otherwise. (n)
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Bautista: This presumption is based on the theory that persons who take part of the profits take part
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of that fund on which creditors of the business rely for their payments, and for this reason ought to
be considered presumptively, as the principals upon whom liability for obligations incurred on
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carrying on the business is to be placed.
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The fact that the profit received is less than what the other has received does not prevent the
presumption from arising because the sharing of profits between partners need not be in equal
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proportions since they may agree on any proportion or formula and an unequal sharing or
distribution does not disprove partnership.
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II. Obligations of the Partners
A. Obligations of Partners
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1. Partners in General
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a. Contribution
Art. 1786 (1). Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.
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He shall also be bound for warranty in case of eviction with regard to specific and determinate
things which he may have contributed to the partnership, in the same cases and in the same
manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits
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thereof from the time they should have been delivered, without the need of any demand.
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Obligations.
1. To contribute at the beginning of the partnership or at the stipulated time money, property, or
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industry he promised to contribute.
2. To answer for eviction.
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3. To answer to the partnership for the fruits of the property the contribution of which he delayed,
from date contributed to date of actual delivery.
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4. To preserve the property with the diligence of a good father of a family pending delivery to the
partnership.
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5. To indemnify partnership for any damage caused to it by the retention of the same or by delay in
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its contribution.
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Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal
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shares to the capital of the partnership.
i. Sum of Money
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Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes
a debtor for the interest and damages from the time he should have complied with his obligation.
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The same rule applies to any amount he may have taken from the partnership coffers, and his
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liability shall begin from the time he converted the amount to his own use.
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Two cases contemplated.
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1. Par. 1: money promised but not given on time.
2. Par. 2: money converted to personal use of the partner.
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Obligations:
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1. To contribute on the date due the amount he has undertaken to contribute to the partnership.
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2. To reimburse any amount he may have taken from the partnership coffers and converted to his
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own use.
3. To pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes
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any amount from the common fund and converts it to his own use.
4. To indemnify the partnership for the damages caused to it by the delay in the contribution or the
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conversion of any sum for his personal benefit.
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ii. Specific and Determinate Things
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Art. 1786 (2). He shall also be bound for warranty in case of eviction with regard to specific
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and determinate things which he may have contributed to the partnership, in the same cases
and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable
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for the fruits thereof from the time they should have been delivered, without the need of any
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demand.
iii. Goods
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Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of
goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in
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the absence of stipulation, it shall be made by experts chosen by the partners, and according to
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current prices, the subsequent changes thereof being for account of the partnership.
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Manner of appraisal.
1. General rule: in the manner prescribed.
2. In the absence of stipulation: by experts chosen by the partners and according to current prices.
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3. For immovable property: in the inventory of said property.
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b. Additional Capital
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Art. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of
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the partnership, any partner who refuses to contribute an additional share to the capital, except an
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industrial partner, to save the venture, shall he obliged to sell his interest to the other partners.
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x Exception: Article 1791.
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General rule: Capitalist partner is not bound to contribute more than what he agreed to contribute.
c. Alteration in Immovable Property
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Art. 1803(2). None of the partners may, without the consent of the others, make any important
alteration in the immovable property of the partnership, even if it may be useful to the partnership.
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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.
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Unanimous consent required for important alteration of immovable property
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x Consent need not be express. It may be presumed from the fact of knowledge of the alteration
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without interposing any objection.
x Since this number refers to an act of strict dominion, the consent of all the partners is necessary.
property
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x The consent of all the partners is not required for alterations necessary for the preservation of the
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d. Bring to Partnership Capital Credit Received
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Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when
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the other partners have not collected theirs, shall be obliged, if the debtor should thereafter
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become insolvent, to bring to the partnership capital what he received even though he may
have given receipt for his share only.
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Responsible for Damage Suffered by the Partnership
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Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his
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fault, and he cannot compensate them with the profits and benefits which he may have earned for
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the partnership by his industry. However, the courts may equitably lessen this responsibility if
through the partner's extraordinary efforts in other activities of the partnership, unusual profits
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have been realized.
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x General rule: Damages caused by a partner to the partnership cannot be offset by the profits or
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benefits he earned for the partnership by his industry.
x Exception: If unusual profits are realized through the extraordinary efforts of the partner at fault,
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the court may equitably mitigate or lessen his liability for damages.
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x Nature of the obligation.
x Circumstances of the person, the time, and the place.
a f. Bear Risk of Loss of Specific and Determinate Things
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Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to
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the partnership so that only their use and fruits may be for the common benefit, shall be
borne by the partner who owns them.
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If the things contributed are fungible, or cannot be kept without deteriorating, or if they
were contributed to be sold, the risk shall be borne by the partnership. In the absence of
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stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by
the partnership, and in such case the claim shall be limited to the value at which they were
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appraised.
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g. Share in Losses
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Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
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share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
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the same proportion.
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In the absence of stipulation, the share of each partner in the profits and losses shall be in
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proportion to what he may have contributed, but the industrial partner shall not be liable for the
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losses. As for the profits, the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has contributed capital, he shall also
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receive a share in the profits in proportion to his capital.
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Distribution of losses.
1. According to the agreement of the parties subject to Art. 1799.
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2. If there is no agreement, but profit-sharing is stipulated: share in the losses shall be in accordance
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with the profit-sharing ratio.
- The industrial partner is not liable for losses.
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- Computation is based not just on a particular transaction but on all transactions.
3. If profit-sharing is also not stipulated: losses will be borne by partners is proportion to their
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capital contributions.
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- A purely industrial partner is not liable for losses.
Art. 1798. If the partners have agreed to intrust to a third person the designation of the share of
each one in the profits and losses, such designation may be impugned only when it is manifestly
inequitable. In no case may a partner who has begun to execute the decision of the third person, or
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who has not impugned the same within a period of three months from the time he had knowledge
thereof, complain of such decision.
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The designation of losses and profits cannot be intrusted to one of the partners.
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Art. 1799. A stipulation which excludes one or more partners from any share in the profits or
losses is void.
R h. Account for Benefits
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Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it
any profits derived by him without the consent of the other partners from any transaction
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connected with the formation, conduct, or liquidation of the partnership or from any use by him of
its property.
Duties:
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1. Duty to act for common benefit.
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2. Duty begins during formation of partnership.
3. Duty continues even after dissolution of partnership.
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4. Duty to account for secret and similar profits.
5. Duty to account for earnings accruing even after termination of partnership.
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6. Duty to make full disclosure of information belonging to partnership.
7. Duty not to acquire interest or right adverse to partnership.
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Liable for Partnership Contracts
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Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property
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and after all the partnership assets have been exhausted, for the contracts which may be entered
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into in the name and for the account of the partnership, under its signature and by a person
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authorized to act for the partnership. However, any partner may enter into a separate obligation to
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perform a partnership contract.
Liability for contractual obligations in partnership.

1. Partnership liability under Article 1818.
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2. Individual liability: separate undertaking of a partner with a third party to perform a partnership
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contract or make himself solidarily liable on a partnership contract. Individual liability is pro
rata, and subsidiary or secondary.
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Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void,
except as among the partners.
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Solidarily Liable with the Partnership for Wrongful Acts or Omissions
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Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the partnership or with the authority of co-partners, loss or injury
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is caused to any person, not being a partner in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good the loss:
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(1) Where one partner acting within the scope of his apparent authority receives money or
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property of a third person and misapplies it; and
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(2) Where the partnership in the course of its business receives money or property of a third
person and the money or property so received is misapplied by any partner while it is in the
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custody of the partnership.
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Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to
the partnership under Articles 1822 and 1823.
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- Respondeat superior applies to the law of partnership.
- Rationale for solidary liability: Breach of trust is against on public policy.
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III. Dissolution and winding up
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A. Dissolution
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1. Meaning and Effect
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Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
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partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
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Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
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Dissolution is not in itself a termination or winding up of the partnership or the rights and
powers of partners but merely an act that changes the legal relationship of the partnership,
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which may culminate in its termination
o Thus, “dissolution” designates the point in time when the partners cease to carry on the
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business together; “termination” is the point in time when all the partnership affairs are
wound up; and “winding-up or “liquidation” is the process of settling partnership affairs
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after dissolution.
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o The partnership, although dissolved, continues to exist until its termination, at which
time the winding up of its affairs should have been completed and the net partnership
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assets are partitioned and distributed to the partners.
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2. Causes
The causes of dissolution may generally be divided into four categories:

(a) Dissolution without violating partnership agreement;
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(b) Dissolution violation partnership agreement;
(c) Dissolution by operation of law; and
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(d) Dissolution by judicial decree.
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a. Without Violating the Partnership Agreement
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Art. 1830. Dissolution is caused:
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(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in the agreement;
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(b) By the express will of any partner, who must act in good faith, when no definite term or particular is
specified;
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(c) By the express will of all the partners who have not assigned their interests or suffered them to be
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charged for their separate debts, either before or after the termination of any specified term or
particular undertaking;
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(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;
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Termination of Term or Undertaking [Art. 1830(1)(a)]
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x If the partnership agreement provides that the partnership term will be for a certain number of
years, the partnership is dissolved upon the expiration of the term.
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x If the partnership is created for a specific project, the partnership is dissolved upon completion
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of the project.
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ii. Termination of Partnership at Will [Art. 1830(1)(b)]
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x A partnership that does not fix its term is a partnership at will which may be dissolved by a
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partner at any time.
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x The provision requires the dissolving partner to act in good faith. However, the absence of good
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faith will not prevent dissolution, but will make the dissolving partner liable for damages.
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x Unless otherwise prescribed by the partnership agreement, there is no prescribed mode for a
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partner to terminate a partnership at will.
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o All that is required to express the will to dissolve a partnership is that the notice of
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dissolution be communicated forthwith to the other members of the firm. By such notice
the partnership is dissolved. No particular form or notice is required, and notice may be
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implied from circumstance inconsistent with the continuation of the partnership.
x But the fact that the dissolution was voluntary must be proved by evidence showing not only that
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the parties mutually agreed to dissolve it but that they performed acts in accordance with their
mutual agreement for dissolution.
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Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve
the partnership, or, as against the other partners in the absence of agreement, entitle the assignee,
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during the continuance of the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of partnership transactions, or
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to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his
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contract the profits to which the assigning partner would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail himself of the usual remedies.
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In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and
may require an account from the date only of the last account agreed to by all the partners. (n)
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The conveyance by a partner of his whole interest does not of itself dissolve the partnership.
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Thus, such conveyance is not a withdrawal by the partner which dissolves the partnership.
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But dissolution may result from an assignment of partnership interests when it is clear that the
parties contemplate and intend the assignor’s entire withdrawal from the partnership and the
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termination of the partnership between them. Thus, the conveyance may coincide with other
conduct constituting a withdrawal of the partner whose interest is assigned.
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x Furthermore, an assignment of partnership interests which effectively reduce the membership to
a single partner may cause dissolution at the time of the assignment in the absence of agreement
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to the contrary. This is because a partners conveyance to of all his interest in the partnership to
his copartner in a two partner firm is a vote to dissolve the partnership to which the copartner
a a
may accede by accepting the conveyance.
B
iii. Termination by All Partners with Retained Interest [Art. 1830(1)(c)]
s
This is dissolution by the partners who have retained their interest in the partnership.
e
iv. Expulsion of a Partner [Art. 1830(1)(d)]
b l
Expulsion by a partner contrary to the provisions of a partnership agreement that does not
confer a power to expel does not amount to dissolution, but since dissolution may be caused by
the will of any one partner, the act o one or more partners expelling a copartner can cause
o
dissolution.
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b. In Contravention of the Partnership Agreement
n
a a r
B
xxx
C h
(2) In contravention of the agreement between the partners, where the circumstances do not permit a
s
dissolution under any other provision of this article, by the express will of any partner at any time;
xxx
l e
b
x Any partnership may be dissolved by the act of any one partner alone in accordance with his own
will and pleasure, whether the articles of partnership provide for a definite term of for the
o
accomplishment of a particular purpose, or whether its articles contain an express or implied
R
agreement on its duration. In short, no one can be forced to continue a partnership against his
will.
x
n
Any partner may have the power to dissolve a partnership at any time and for any reason, even
though the dissolution is contrary to the specific provisions of the partnership agreement.
a
However, if a partner exercises his power to dissolve a partnership, without the corresponding
right to do so, he must be prepared to suffer the penalties provided under the partnership
h
agreement.
C s
c. By Operation of Law
l e
b
xxx
o
(3) By any event which makes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership;
R
n
12
a
B
s
l e
b
(4) When a specific thing which a partner had promised to contribute to the partnership, perishes before
the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved
o
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
R
acquired the ownership thereof;
n r
(5) By the death of any partner;
a a
(6) By the insolvency of any partner or of the partnership;
B
(7) By the civil interdiction of any partner;
s
xxx
l e
The effective date of dissolution by operation of law is the date of occurrence of the event causing
it.
As to the death of any partner:
o b
x An agreement for continuing a partnership by surviving partners after the death of a partner may
R
be enforced as a type of winding up of the partnership without the necessity of discontinuing the
day-to-day business. Thus, the death of a partner works as a dissolution of the partnership as to
n r
him, but the partnership continues to exist as to the remaining partners.
a a
As to the insolvency of any partner or of the partnership:
x Because of the separate juridical personality of the partnership, the insolvency of any partner or
h B
all of the partners foes not necessarily make the partnership insolvent. So the reason for the
dissolution cannot be the insolvency of the partnership.
C s
x The reason may be in the inability of the insolvent partner to perform his obligations to the
e
partnership and share in the liability to creditors. Effectively, this is a withdrawal by the partner.
d. By Decree of Court
b l
o
xxx
R
(8) By decree of court under the following article.
n
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
a
(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;
h
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business;
C s
(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so
e
conducts himself in matters relating to the partnership business that it is not reasonably practicable to
l
carry on the business in partnership with him;
(5) The business of the partnership can only be carried on at a loss;
b
(6) Other circumstances render a dissolution equitable.
o
On the application of the purchaser of a partner's interest under Article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
R
(2) At any time if the partnership was a partnership at will when the interest was assigned or when the
charging order was issued. (n)
n
13
a
B
s
l e
b
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve
the partnership, or, as against the other partners in the absence of agreement, entitle the assignee,
o
during the continuance of the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of partnership transactions, or
R
to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his
contract the profits to which the assigning partner would otherwise be entitled. However, in case of
n r
fraud in the management of the partnership, the assignee may avail himself of the usual remedies.
a a
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and
B
may require an account from the date only of the last account agreed to by all the partners. (n)
s
Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due
e
application to a competent court by any judgment creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest of the debtor partner with payment of the
l
unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a
b
receiver of his share of the profits, and of any other money due or to fall due to him in respect of the
partnership, and make all other orders, directions, accounts and inquiries which the debtor partner
o
might have made, or which the circumstances of the case may require.
R
The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed
by the court, may be purchased without thereby causing a dissolution:
n r
(1) With separate property, by any one or more of the partners; or
a a
(2) With partnership property, by any one or more of the partners with the consent of all the partners
whose interests are not so charged or sold.
h B
Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as
C s
regards his interest in the partnership. (n)
contract:
l e
As to a partner who becomes in any other way incapable of performing his part of the partnership
b
x Incapacity may result from a change in personal or professional status, or from an illness which
is lasting rather than merely temporary and which materially affects his ability to discharge the
o
duties imposed by his partnership relation and contract, including, perhaps, the effects of alcohol
or drug addiction.
R
x But if the incapacity is caused by insolvency or civil interdiction, a decree of court would not be
necessary as this would be a dissolution by operation of law
As to a partner who commits a breach:
a n
x A partner’s failure or refusal to comply with the terms of the partnership agreement as to
h
contributing capital or services required for the successful prosecution of the business sis a
ground for dissolution.
C s
o Failure to contribute constitutes a constructive fraud under the partner’s fiduciary duty.
e
x The dissolution of a partnership may be granted by a court of equity in favor of an innocent
l
partner who has been excluded by his copartner from participation in the conduct of the
business, or where such copartner has refused an accounting, repeatedly breached the
b
partnership agreement, appropriated partnership property to his own use, been guilty of other
fraud if the partnership affairs, or committed other gross misconduct.
o
x The fraudulent retention or disposition of funds collected for the partnership, such as the
application of partnership funds to the payment of an individual debt, the failure to divide the
R
n
14
a
B
s
l e
b
profits, or the wrongful withholding of partnership assets, warrants judicial dissolution of the
partnership.
x
o
A partner who breaches his implicit agreement to refrain from undermining the partnership
interests by engaging in another business which gives him an interest adverse to that of the firm
R
and prevents his giving full attention to firm business commits an act which gives the other
partners ground for judicial dissolution.
a n a r
As to the business of the partnership that can only be carried on at a loss:
x If the partnership no longer earns profits, the reason for its establishment in the first place no
B
longer exists and therefore, should be dissolved. Thus, it is a sufficient cause for the dissolution of
a partnership that it clearly appears the partnership business is impracticable or cannot be
s
carried on except with loss or injury to all partners.
o Loss of entire capital of the partnership or destruction of over one-half of its total assets
l e
As to other circumstances that render a dissolution equitable:
x Other circumstances may include dissensions and disagreements among the partners. However,
b
such dissension and disagreements must be of a serious and permanent character as to prevent
profitable continuance of the partnership business.
o
o Of such a nature and to such extent that all confidence and cooperation between the
R
parties has been destroyed
3. Consequences of Dissolution
n r
a. Continuation Until Winding Up
a
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
B a
h
C s
x The dissolution of a partnership operates to terminate the partnership only with respect to
e
future transactions.
l
x The partnership continues as to past matters until they are concluded or terminated. Thus, the
partnership continues only until the winding up of the partnership affairs is completed, unless
b
the partners exercise a right of election to continue the partnership business after dissolution, or
o
the parties provide otherwise by their express agreement.
x The causes of dissolution do not preclude the remaining partners from carrying on the
R
partnership business pursuant to a prior agreement with or without the addition of new
partners. Agreements for the continuation of a partnership business after dissolution are
n
generally valid and enforceable.
o Note however that the partnership is still dissolved and the only thing prevented is
a
winding-up
h
b. Termination of Authority to Act for Partnership
C s
Art. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions
e
begun but not then finished, dissolution terminates all authority of any partner to act for the
l
partnership:
(1) With respect to the partners:
b
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so
o
requires;
R
(2) With respect to persons not partners, as declared in article 1834. (n)
n
15
a
B
s
l e
b
Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is
liable to his co-partners for his share of any liability created by any partner acting for the partnership as
o
if the partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of
R
the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership
n r
had knowledge or notice of the death or insolvency.
a paragraph of this article:
B a
Art. 1834. After dissolution, a partner can bind the partnership, except as provided in the third
(1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at
s
dissolution;
e
(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the
other party to the transaction:
b l
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the
dissolution; or
o
(b) Though he had not so extended credit, had nevertheless known of the partnership prior to
dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been
R
advertised in a newspaper of general circulation in the place (or in each place if more than one) at which
the partnership business was regularly carried on.
a n a
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets
alone when such partner had been prior to dissolution:
r
h B
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership
C s
could not be said to have been in any degree due to his connection with it.
e
The partnership is in no case bound by any act of a partner after dissolution:
l
(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is
b
appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
o
(3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one
who:
R
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his
want of authority; or
n
(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice
a
of his want of authority, the fact of his want of authority has not been advertised in the manner provided
for advertising the fact of dissolution in the first paragraph, No. 2 (b).
h
Nothing in this article shall affect the liability under Article 1825 of any person who, after dissolution,
C s
represents himself or consents to another representing him as a partner in a partnership engaged in
e
carrying business. (n)
c. Discharge of Liabilities
b l
o
Art. 1835. A partner is discharged from any existing liability upon dissolution of the partnership by an
agreement to that effect between himself, the partnership creditor and the person or partnership
R
continuing the business; and such agreement may be inferred from the course of dealing between the
creditor having knowledge of the dissolution and the person or partnership continuing the business.
n
16
a
B
s
l e
b
The individual property of a deceased partner shall be liable for all obligations of the partnership
o
incurred while he was a partner, but subject to the prior payment of his separate debts. (n)
R
d. Election to Continue the Business
n r
a. Dissolution Due to Wrongful Causes (see Article 1837)
a a
e. Liability of Person/Partnership Continuing the Business (see Article 1840)
B
4. Rights of Partners Upon Dissolution
s
a. Right to Wind Up (see Article 1836)
e
b. Right to Damages for/Continue Business on Wrongful Dissolution (see Article 1837)
l
c. Right to Lien or Retention, Stand in Place of Creditor, to be Indemnified (see Article
1838)
b
d. Right of Retiring/Deceased Partner (see Article 1841)
e. Right to Account (see Article 1842)
B.
R o
Winding-Up and Liquidation
n r
Winding up is the actual process of settling the business or partnership affairs after dissolution,
involving the collection and distribution of partnership assets, payment of debts, and determination of
a a
the value of each partner’s interest in the partnership. It is the fi nal step after dissolution in the
B
termination of the partnership. (De Leon)
1.
C h The Right to Wind-up
s
e
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or
l
the legal representative of the last surviving partner, not insolvent, has the right to wind up the
b
partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon
cause shown, may obtain winding up by the court. (n)
2.
3.
Rules on Settling Accounts (see Article 1839)
Right of Creditors
R o
a n
Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the
partnership property. Without prejudice to this right, the private creditors of each partner may ask the
h
attachment and public sale of the share of the latter in the partnership assets. (n)
C s
4. Right of Expelled Partner (see Article 1837)
IV. Limited partnership
l e
A. Source of Limited Partnership Law
o
Chapter 4 of Title IX of Book IV of the Civil Code was based on the Uniform Limited Partnership Act of b
R
1916 (ULPA) of the United States. Thus, US jurisprudence is highly persuasive.
n
17
a
B
s
l e
b
B. Purpose of Limited Partnerships
o
To permit a form of business enterprise, other than a corporation, in which persons can invest money
without becoming liable for the debts of the firm. The role of a limited partner (a.k.a. contributor) is
R
analogous to that of a corporate shareholder, in that neither participates actively in the business.
n r
C. Definition and Formation
a a
DEFINITION AND COMPOSITION:
B
Article 1843. A 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
s
partners. The limited partners as such shall not be bound by the obligations of the partnership.
FORMAL REQUIREMENTS:
l e
b
Articles 1844. Two or more persons desiring to form a limited partnership shall:
o
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
R
(b) The character of the business;
(c) The location of the principal place of business;
n r
(d) The name and place of residence of each member, general and limited partners being
respectively designated;
a a
(e) The term for which the partnership is to exist;
B
(f) The amount of cash and a description of and the agreed value of the other property
h
contributed by each limited partner;
s
(g) The additional contributions, if any, to be made by each limited partner and the times at
C
which or events on the happening of which they shall be made;
e
(h) The time, if agreed upon, when the contribution of each limited partner is to be returned;
l
(i) The share of the profits or the other compensation by way of income which each limited
partner shall receive by reason of his contribution;
b
(j) The right, if given, of a limited partner to substitute an assignee as contributor in his place,
and the terms and conditions of the substitution;
o
(k) The right, if given, of the partners to admit additional limited partners;
R
(l) The right, if given, of one or more of the limited partners to priority over other limited
partners, as to contributions or as to compensation by way of income, and the nature of
n
such priority;
(m) The right, if given, of the remaining general partner or partners to continue the business
a
on the death, retirement, civil interdiction, insanity or insolvency of a general partner; and
(n) The right, if given, of a limited partner to demand and receive property other than cash in
h
return for his contribution.
C s
(2) File for record the certificate in the Office of the Securities and Exchange Commission.
A limited partnership is formed if there has been substantial compliance in good faith with the
foregoing requirements.
l e
x There is no such thing as implied limited partnership or limited partnership by estoppel.
o
x There is NO substantial compliance (1) if the certificate is not signed, sworn, or filed, or (2) if b
R
limited partners are not named. All partners will be personally liable to creditors for the failure to file a
n
18
a
B
s
l e
b
certificate of limited partnership. Note that not only substantial compliance, but also good faith, is
required.
x As to third parties: If there is no substantial compliance for a limited partnership, a general
o
partnership may be formed with respect to third persons as long as the minimum requirements for a
R
partnership are present. However, among the partners, limited liability is in force.
n r
D. Corporation as Partner
a a
A corporation can be a general or limited partner provided that it is allowed under its articles of
B
incorporation and by-laws.
s
E. The Certificate
e
DEFINITION: a document which is filed as a public record and which may not embody the complete
l
agreement among the partners as it is distinguished from the limited partnership agreement itself.
b
1. Liability for False Statements
R o
Article 1847. If the certificate contains a false statement, one who suffers loss by reliance on such
statement may hold liable any party to the certificate who knew the statement to be false:
(1) At the time he signed the certificate, or
n r
(2) Subsequently, but within a sufficient time before the statement was relied upon to
enable him to cancel or amend the certificate, or to file a petition for its cancellation or
a a
amendment as provided in Article 1865.
h B
ELEMENTS:
1. False statement in the certificate
C s
2. Partner knew about such false statement
e
3. Third party relied on such false statement
4. Third party suffered loss on account of such reliance
2. Cancellation and Amendment
b l
o
Article 1864. The certificate shall be cancelled when the partnership is dissolved or all limited
R
partners cease to be such.
n
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in the amount or character of the
a
contribution of any limited partner;
(2) A person is substituted as a limited partner;
h
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
C s
(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil
e
interdiction and the business is continued under Article 1860;
l
(6) There is a change in the character of the business of the partnership;
(7) There is a false or erroneous statement in the certificate;
b
(8) There is a change in the time as stated in the certificate for the dissolution of the partnership
or for the return of a contribution;
o
(9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time
having been specified in the certificate, or
R
(10) The members desire to make a change in any other statement in the certificate in order
n
19
a
B
s
l e
that it shall accurately represent the agreement among them.
o b
Article 1865. The writing to amend a certificate shall:
(1) Conform to the requirements of Article 1844 as far as necessary to set forth clearly the
R
change in the certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an amendment substituting a limited partner or
n r
adding a limited or general partner shall be signed also by the member to be substituted or
added, and when a limited partner is to be substituted, the amendment shall also be signed
a a
by the assigning limited partner.
B
The writing to cancel a certificate shall be signed by all members.
s
A person desiring the cancellation or amendment of a certificate, if any person designated in the
e
first and second paragraphs as a person who must execute the writing refuses to do so, may
l
petition the court to order a cancellation or amendment thereof.
b
If the court finds that the petitioner has a right to have the writing executed by a person who
refuses to do so, it shall order the Office of the Securities and Exchange Commission where the
o
certificate is recorded, to record the cancellation or amendment of the certificate; and when the
R
certificate is to be amended, the court shall also cause to be filed for record in said office a certified
copy of its decree setting forth the amendment.
a n
A certificate is amended or cancelled when there is filed for record in the Office of the Securities
and Exchange Commission, where the certificate is recorded:
a r
B
(1) A writing in accordance with the provisions of the first or second paragraph, or
h
(2) A certified copy of the order of the court in accordance with the provisions of the fourth
s
paragraph;
C
(3) After the certificate is duly amended in accordance with this article, the amended certified
e
shall thereafter be for all purposes the certificate provided for in this Chapter.
b l
EFFECTIVE DATE: Generally, when the amended certificate or the certified copy of the court order in
case of judicial cancellation or amendment is filed for record in the SEC.
F. The Partnership Name
R o
n
Article 1846. The surname of a limited partner shall not appear in the partnership name unless:
(1) It is also the surname of a general partner, or
a
(2) Prior to the time when the limited partner became such, the business has been carried on
under a name in which his surname appeared.
h
A limited partner whose surname appears in a partnership name contrary to the provisions of the
C
first paragraph is liable as a general partner to partnership creditors who extend credit to the
s
e
partnership without actual knowledge that he is not a general partner.
G. The Limited Partner

x His relationship to the firm is impersonal and detached.
b l
o
x He has no right to participate in the management and operation of the business, or to
interfere in any manner with its conduct or control.
R
n
20
a
B
s
x
l e
b
He places only his capital contribution at risk, that contribution being substituted for
his liability.
o
1. Contribution
R Article 1845. The contributions of a limited partner may be cash or property, but not services.
a n 2. Liability
a r
B
a. In General
e s
Article 1848. A limited partner shall not become liable as a general partner unless, in addition to
the exercise of his rights and powers as a limited partner, he takes part in the control of the
l
business.
b. To the Partnership
o b
R
Article 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that stated in the certificate
n r
as having been made; and
(2) For any unpaid contribution which he agreed in the certificate to make in the future at the
a a
time and on the conditions stated in the certificate.
h B
A limited partner holds as trustee for the partnership:
s
(1) Specific property stated in the certificate as contributed by him, but which was not
C
contributed or which has been wrongfully returned, and
e
(2) Money or other property wrongfully paid or conveyed to him on account of his contribution.
b l
The liabilities of a limited partner as set forth in this article can be waived or compromised only by
the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a
partnership who extended credit or whose claim arose after the filing and before a cancellation or
o
amendment of the certificate, to enforce such liabilities.
R
When a contributor has rightfully received the return in whole or in part of the capital of his
n
contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return
with interest, necessary to discharge its liabilities to all creditors who extended credit or whose
a
claims arose before such return.
h
c. Additional Limited Partners
C
Article 1849. After the formation of a lifted partnership, additional limited partners may be
admitted upon filing an amendment to the original certificate in accordance with the requirements
e s
l
of Article 1865.
o b
R
n
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B

c. Alteration in Immovable Property

R Factors to determine partner’s fault.

a f. Bear Risk of Loss of Specific and Determinate Things

R h. Account for Benefits

Liability for contractual obligations in partnership.

Art. 1823. The partnership is bound to make good the loss:

The causes of dissolution may generally be divided into four categories:

Art. 1830. Dissolution is caused:

As to the death of any partner:

As to a partner who commits a breach:

a paragraph of this article:

C h The Right to Wind-up

IV. Limited partnership

2. Cancellation and Amendment

F. The Partnership Name

G. The Limited Partner

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