LAW ON PARTNERSHIP
 
Partnership-it is a contract whereby two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits
among themselves. Two or more persons may also form a partnership for the exercise of a
profession.
 
 A partnership has a juridical personality separate and distinct from that of each of the partners,
even in case of failure to comply with the requirements of the law.
 
Characteristics
1. Principal- does not depend for its existence on other contracts.
2. Nominate- has a designation in law.
3. Bilateral- entered by two or more persons and the rights and obligations arising therefrom are
always reciprocal.
4. Onerous- certain contributions must be made.
5. Consensual- perfected by consent.
6. Commutative- an undertaking of each one is considered equal with the others.
7. Preparatory- entered as a means to an end.
 
Essential Features
1. There must be a valid contract.
2. The parties must have legal capacity to enter into the contract.
3. There must be a mutual contribution of money, property, or industry to a common fund.
4. Object must be lawful
o When an unlawful partnership is dissolved by a judicial decree, the profits shall be
confiscated in favor of the State.
5. The primary purpose must be to obtain profits and to divide the same among the parties
6. There must be at least one general partner.
 
Rules in determining the existence of a partnership:
1. Persons who are not partners as to each other are not partners as to third persons.
2. Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners
or co- possessors do or do not share any profits made by the use of the property.
o Co-ownership can be converted into a partnership in case the heirs, who are engaged in a
joint venture, agreed that the income from the common properties be contributed to a
common fund.
3. The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property for which the returns are
divided.
4. The receipt of a share of the profits of a business is prima facie evidence that he is a partner in
business, but no such shall be drawn if such profits were received in payment:
o As a debt by installments or otherwise;
o As wages of an employee or rent to a landlord;
o As an annuity to a widow or representative of a deceased partners;

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 o As interest on a loan, though the amount of payment vary with the profits of the business;
o As the consideration for the sale of a goodwill of a business or other property by
installments.
 
Tests of partnership existence:
1. Whether or not there is an agreement to contribute money, property, or industry to a common
fund; and
2. Whether or not the contracting parties intend to divide the profits among themselves.
 
Formation of Partnership
General rule: A partnership may be constituted in any form.
Exceptions:
1. In the case of personal property:
i. If capital is less than P3, OOO, no special form is required for its validity or existence.
ii. If capital is P3, OOO, or more, in money or personal property, the same shall appear in a
public instrument and must be recorded in the office Of the SEC.
 A partnership has a juridical personality and is valid (de facto partnership) even in case of failure to
comply with the above requirement.
 
2. In the case of real property, it must appear in a public instrument and an inventory of said real
property should be made, signed by the parties, and attached to the public instrument, and the same
must be recorded in the office of the SEC, otherwise, the contract of partnership is void.
o The partnership does not acquire juridical personality because it is void. However, with regards to
third persons, a de facto partnership or partnership by estoppel may exist.
 
 The purpose of registration is to set a condition for the issuance of licenses to engage in business
or trade and to give notice to parties and not for the purpose of giving the partnership juridical
personality.
 A partnership begins from the moment of the execution of the contract unless it is otherwise
stipulated.
Classifications Of partnership

1. As to the extent of its subject matter

A. Universal partnership
i. Universal partnership of all present property-the partners contribute all the property which
actually belongs to them to a common fund, with the intention of dividing the same among
themselves, as well as the profits which they may acquire therewith, except those
properties acquire subsequently by inheritance, legacy, or donation except their use and
fruits thereof.
ii. Universal partnership of all profits- comprises all that the partners may acquire by their
industry or work during the existence of the partnership and the usufruct of movable or
immovable property which each of the partners may possess at the time of the celebration
of the contract. Partners retain their ownership over their present and future property. What
passes to the partnership are the profits and the use of the same.
 
 The following persons are prohibited from entering into a universal partnership:
 Husband and wife
 Those guilty of adultery or concubinage
 Those guilty of the same criminal offense, if the partnership was entered in consideration of the
same.

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 o Articles of universal partnership, into without specification of its nature, only constitute a universal
partnership of profits.
 
B. Particular partnership-has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession.
 
2. As to the liability of the partners
A. General partnership-one consisting of general partners who are liable pro rata and subsidiary
liable, sometimes solidarily, with their separate property.
B. Limited partnership-one formed by two or more persons having as members one or more
general partners and one or more limited partners, the latter not being personally liable for the
obligations of the partnership.
 
3. As to its duration
A. Partnership at will-one in which no time is specified and is not formed for a particular
undertaking or venture and which may be terminated anytime by mutual agreement of the
partners.
B. Partnership With a fixed term-one in which the term for which the partnership is to exist is fixed
or agreed upon or one formed for a particular undertaking, and upon expiration of the term.
 
4. As to the legality of its existence
A. De jure partnership-one which has complied with all the legal requirements for its
establishment.
B. De factor partnership-one which has failed to comply with all the legal requirements for its
establishment.
 
5. As to representation to others
A. Ordinary or partnership-one which actually exists among the partners and also to third
persons.
B. Ostensible partnership or partnership by estoppel-one which in reality is not a partnership, but
is a partnership only in relation to those who, by their conduct or admission, are precluded to
deny or disproved its existence.
 
6. As to publicity
A. Secret partnership-one wherein the existence of certain persons as partners is not avowed or
made known to the public by any of the partners.
B. Open or notorious partnership-one whose existence is avowed or made known to the public by
the members of the firm.
 
7. As to purpose
A. Commercial or trading partnership-one formed for the transaction of business.
B. Professional or non-trading partnership-one formed for the exercise of a profession.
 
Kinds of Partners
1. As to liability
A. General partner-one whose liability to third persons extends to his separate property; he may
either be a capitalist or industrial partner.
B. Limited partner-one whose liability to third persons is limited to his capital contribution; he can
only be a capitalist and can never be an industrial partner.
 

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 2. As to contribution
A. Capitalist partner-one who contributes money and/or property to the common fund.
B. Industrialist partner-one who contributes only his industry or personal service.
C. Capitalist-industrialist partner-one who contributes money and/or property, and industry.
 

3. Other classification
A. Managing partner-one who manages the affairs or business of the partnership.
B. Liquidating partner-one who takes charge of the winding up of partnership affairs upon
dissolution.
C. Partner by estoppel or nominal partner or partner by implication-one who is not really a
partner, not being a party to a partnership agreement, but is liable as a partner for the
protection of innocent persons.
D. Sub partner-one who, not being a member of the partnership, contracts with a partner with
reference to the latter's share in the partnership.
E. Ostensible partner-one who takes active part and known to the public as a partner in the
business, whether or not he has an actual interest in the firm.
F. Secret partner-one who takes active part in the business but is not known to be a partner by
outside parties.
G. Silent partner-one who does not take any active part in the business although he may be
known to be a partner.
H. Dormant partner-one who dies not take active part in the business and is not known or held out
as partner.
I. Incoming partner-a person lately, or about to be, taken into a partnership as a member.
J. Retiring partner-one withdrawn from the partnership.
 
Relations created by a contract of partnership:
1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with third persons
4. Relations of the partners with third persons
 
Management of the Partnership Affairs
 If there is no agreement, the management of the partnership affairs is vested in all of the partners.
 
Two modes of appointing a manager:
1. Appointment as manager in the articles of partnership
a. The power of the manager is irrevocable without just and lawful cause
b. To remove him for just cause, the controlling partners should vote to oust him.
c. To remove him without cause, or for an unjust cause, there must be unanimity (including
his own vote).
d. He may execute all acts of administration despite the opposition of his partners, unless he
should act in bad faith.
 
2. Appointment as manager made in an instrument other than the articles of partnership or made
orally
a. appointment can be revoked any time for any cause whatsoever.
 
Rules when two or more managers are appointed:

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 1. When the appointment is without specification of their respective duties and without stipulation
that one of them shall not act without the consent of the other, each one may execute all act of
administration, except if any such partner should oppose:
a. Decision of the majority of the managing partner shall prevail.
b. In case of a tie, decision of all the partners having the controlling interest.
2. With stipulation requiring unanimity of action, unanimous consent of all the managing partners
shall be necessary for the validity of the acts and absence or disability of any managing partner
cannot be alleged, except when there is an imminent danger of grave or irreparable injury to the
partnership.
 
o When the manner of management has not been agreed upon, the following rules shall be
observed:
i. All the partners shall be considered agents and whatever any one of them may do alone
shall bind the partnership.
ii. one of the partners may, without the consent of the others, make any important alteration
in the immovable property of the partnership, even if it may be useful to the partnership.
But if the refusal of consent by the other partners is manifestly prejudicial to the interest of
the partnership, the court's intervention may be sought.
 
Distribution of profits and losses
1. Profits
a. Agreement
b. In the absence of any agreement, the industrial partner shall first receive a just and equitable
share of the profits and thereafter, each capitalist partner shall share in the profits in
proportion to his capital contribution.
2. Losses
a. Agreement
b. In the absence of any agreement, the industrial partner will not share in the losses and each
capitalist partner shall share in the losses in the same proportion as the share in the profits and in
the absence thereof, in proportion to his capital contribution.
o If besides his services, the industrial partner has contributed capital, he shall also receive a
share in the profits in proportion to his capital.
o If the partners have agreed to entrust 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 who has not impugned the same within a period of three (3) months from the
time he had knowledge thereof, complain of such decision.
o The designation of losses and profits cannot be entrusted to one of the partners.
o A stipulation which excludes one or more partners from any share in the profits or losses is
void, except in the case of an industrial partner in which they can agree to exclude him from
share in the losses.
 
Obligations of the partners among themselves
1. Obligations with respect to contribution of property
a. To contribute at the beginning Of the partnership or at the stipulated time the money,
property, or industry he had promised;
 Unless there is a stipulation to the contrary, the partners shall contribute equal
shares to the capital of the partnership.
b. To answer for eviction in case the partnership is deprived of the determinate property
contributed;
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 c. To answer to the partnership for the fruits of the property the contribution of which he
delayed, from the date they should have been contributed up to the time of actual delivery;
 No demand is necessary to put the partner in default/delay.
d. To preserve said property with the diligence of a good father of a family pending delivery;
e. To indemnify the partnership for any damage caused to it.
 When the contribution of the partner consists of goods, their appraisal must be made
in the manner prescribed in the contract of partnership, and in the absence of
stipulation, it shall be made by experts chosen by the partners, and according to
current prices, the subsequent changes thereof being for account of the partnership.
 The failure to contribute is to make the partner ipso jure [operation of law] a debtor
of the partnership even in the absence of demand. In case of failure, the remedy is
not rescission but an action for specific performance with damages and interest.
 
Three important duties of every partner
1.
The duty to contribute what had been promised;
2.The duty to deliver the fruits of what should have been delivered; and
3.
The duty to warrant.
 
Risk of loss of the things contributed:
i. Specific and determinate things, fungible or non-fungible, the ownership of which is transferred
to the partnership- the risk of loss is for the account of the partnership, being the owner.
ii. Specific and determinate things which are not fungible, only the usufruct is contributed-the risk
of loss is borne by the partner because he remains the owner of the things.
iii. Fungible things-the risk of loss is borne by the partnership since use is impossible without the
things being consumed or impaired.
iv. Things contributed to be sold-the partnership bears the risk of loss for there cannot be any
doubt that the partnership was intended to be the owner.
v. Things brought and appraised in the inventory-the partnership bears the risk of loss because
the intention of the parties was to contribute to the partnership the price of the things
contributed with appraisal in the inventory .
 
2. Obligation respect to contribution of money and money converted to personal use
a. To contribute on the date due the amount promised to be given;
b. To reimburse any amount he may have taken from the partnership coffers and converted to
his own personal
c. To indemnify the partnership for the damages caused to it by the delay in the contribution;
and
d. To pay the agreed or legal interest, if he fails to pay in due time.
 
3. Obligation not to engage in another business for himself
1. Industrial partner cannot engage in business for himself, unless the partnership expressly
permits him to do so
2. Capitalist partner cannot engage for their own account in any operation which is of the kind
of business in which the partnership is engaged, unless is a stipulation to the contrary.
Remedies:
i. Industrial partner- the capitalist partners may either exclude him from the firm with damages or
avail themselves of the benefits which he may have obtained there from plus damages.
ii. Capitalist partner- the capitalist shall bring to the common funds any profits accruing to him from
his transactions, and shall personally bear all the losses.
 

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 4. Obligation to contribute additional capital
 If there is no agreement to the contrary, in case of an imminent loss of the business of the
partnership, any partner who refuses to contribute an additional share to the capital, except
an industrial partner, to save the venture, shall he obliged to sell his interest to the other
partners.
 
5. Obligation of the managing partner who collects debt
 If a partner authorized to manage collects a demandable sum which was owed to him in his
own name, from a person who owed the partnership another sum also demandable, the
sum thus collected shall be applied to the two credits in proportion to their amounts, even
though he may have given a receipt for his own credit only; but should he have given it for
the account of the partnership credit, the amount shall be fully applied to the latter.
 The rule is not applicable if the collecting partner is not a managing partner.
 The rule is subject to the right of the debtor to prefer payment of the credit (application of
payment), but only if the personal credit of the partner should be more onerous to him.
6. Obligation of partner who receives share in partnership credit
 A partner who has received, in whole or in part, his share of a partnership credit, when the
other partners have not collected theirs, shall be obliged, if the debtor should thereafter
become insolvent, to bring to the partnership capital what he received even though he may
have given receipt for his share only.
7. Obligation of partner for damages to partnership
 Every partner is responsible to the partnership for damages suffered by it through his fault,
and he cannot compensate them with the profits and benefits which he may have earned for
the partnership by his industry. However, the courts may equitably lessen this responsibility
if through the partners extraordinary efforts in other activities of the partnership, unusual
profits have been realized.
8. Duty to render information
 Partners shall render on demand true and full information of all things affecting the
partnership to any partner or the legal representative of any deceased partner or of any
partner under legal disability.
 Obligation to account for any benefit and hold as trustee unauthorized personal profits
9. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits
derived by him without the consent of the other partners from any transaction connected with the
formation, conduct, or liquidation of the partnership or from any use by him of its property.
 
 
Responsibilities of the partnership to the partners:
1. To refund amounts disbursed on behalf of the firm plus interest from the time expenses
where made;
2. To answer to each partner for obligations, he may have entered into in good faith in the
interest of the partnership; and
3. To answer for risks because of its management.

Rights of a partner in a partnership:

1. Property rights of a partner (principal rights)
a. his rights in specific partnership property
b. his interest in the partnership
i. share in the profit
ii. share in the surplus

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  He may assign his interest in the partnership to any of his co-partners or to third persons
without the consent of the other partners, in the absence of agreement to the contrary.
 The assignee does not become a partner in the partnership. He is only entitled to the profits
which the assigning partner would otherwise be entitled to his right to participate in the
management
 
6. Right to reimbursement for amounts advanced to the partnership and to indemnification for
risks in consequences of management
7. Right to associate with another person in his share
 Every partner may associate another person with him in his share, but the associate shall
not be admitted into the partnership without the consent of all the other partners, even if
the partner having an associate should be a manager.
 Right of access and inspection of partnership books
 Right to true and full information of all things affecting the partnership
 Right to a formal account of partnership affairs under certain circumstances
a. If he is wrongfully excluded from the partnership business or possession of its
property by his co-partners;
b. If the right exists under the terms of any agreement;
c. If a partner derived profits from any transaction conduct partnership or any use by
him of its property; and with the formation, conduct, or liquidation of the
partnership or from any use by him of its property; and
d. Whenever other circumstances render it just and reasonable.
 Right to have partnership dissolved under certain conditions.
 
A solidary obligation, or an obligation in solidum, is a type of obligation in the civil
law jurisprudence that allows either obligors to be bound together, each liable for
the whole performance, or obligees to be bound together, all owed just a single
performance and each entitled to the entirety of it.
Obligations of Partnership/Partners to third persons:
1. Solidary liability of the partnership for the wrongful act of the partner/s
a. for loss or injury' caused to a third person or any penalty is incurred by reason of the
wrongful act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of his co- partners.
b. Where one partner acting within the scope of his apparent authority money or
property of a third person and misapplies it.
c. Were the partnership in the course of the business receives money or property of a
third person and such is misapplied by any partner while it is in the custody of the
partnership.
 
2. Those who, not being members of the partnership, include their names in the firm name, shall
be subject to the liability of a partner.
 The continued use of the name of a deceased partner is permissible provided that
the firm indicates in all its communications that said partner is deceased.
3. All partners, including industrial ones, shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contract which may be entered into in the
name and for the account of the partnership (liability for contractual obligations). Any
stipulation to the contrary shall be void, except as among the partners.
 Pro rata must be understood to mean equally or jointly and not its literal
meaning.
4. Liability of partnership to third persons for acts of partners

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 a. When the partnership is bound
i. if the partner is authorized to act for the partnership, the partnership is bound
whether or not the act is for carrying on in the usual way the business of the
partnership.
ii. The partnership is not authorized to act for the partnership is bound if:
o The act is apparently carrying on in the usual way of business of the partnership;
and
o The third person has no knowledge of the partner's lack of authority.
b. When the partnership is not bound
i. when although the act is for apparently carrying on in the usual way the
business of the partnership, the partner is not authorized to act for the
partnership and the third person has knowledge of the partners lack of
authority.
ii. when the partner is not authorized to act for the partnership and the act is
not for apparently for the carrying on in the usual way the business of the
partnership whether or not the third person has knowledge of the partner's
lack of authority.
o Act of strict dominion or ownership does not bind the partnership except if the act is
authorized by all the partners or they have abandoned the business. Whether or not
the third party knows the lack of authority is not important as long as there is no
authority, the firm is not bound.
o one or more but less than all the partners have no authority to (acts of strict
dominion):
i. Assign the partnership property in trust for creditors or on the assignee's
promise to pay the debts of the partnership;
ii. Dispose of the good-will of the business;
iii. Do any other act which would make it impossible to carry on the ordinary
business of a partnership;
iv. Confess a judgment;
v. Enter into a compromise concerning a partnership claim or liability;
vi. Submit a partnership claim or liability to arbitration; and
vii. Renounce a claim of the partnership.
 
5. Effect of conveyance of real property of the partnership

a. Where title to real property is in the partnership name, any partner may convey title to such
property by a conveyance executed in the partnership name.
b. Where title to property is in the name of one or more but not all the partners, and the record
does not disclose the right of the partnership, the partners in whose name the title stands
may convey title to such property.
 
In (a) and (b), the partnership may recover such property if the partner/ partners is/are not
authorized to act for the partnership and the act is not for apparently for the carrying on in
the usual way the business of the partnership or even if for apparently for the carrying on in
the usual way the business of the partnership provided that the third person is in bad faith.

c. Where title to real property is in the name of the partnership, a conveyance executed by a
partner, in his own name, passes the equitable interest of the partnership, provided the act is
one within the authority of the partner.

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 d. Where the title to real property is in the name of one or more or all the partners, or in a third
person in trust for the partnership, a conveyance executed by a partner in the partnership
name, or in his own name, passes the equitable interest of the partnership, provided the act is
one within the authority of the partner.

In (c) and (d), the third person has no equitable interest/title if the partner is not authorized to act for the
partnership and the act is not for apparently for the carrying on in the usual way the business of the
partnership or even if for apparently for the carrying on in the usual way the business of the partnership
provided that the third person is in bad faith.
Equitable interest/title is one not duly recognized by law but in equity alone; it is a right or interest in
property which is imperfect and unenforceable at law which under well-recognized equitable principles
should and is convertible into a legal right or title.
Where the title to real property is in the name of all the partners a conveyance executed
by all the partners passes all their rights in such property.

 
6. Effect of admission of a partner
h. Admission or representation made by any partner concerning partnership affairs
within the scope of his authority is evidence against the partnership.
7. Effect of notice or knowledge of a partner
a. notice to any partner of any matter relating to partnership affairs operates as notice to
the partnership
b. knowledge of the partner acting in the particular matter acquired while a partner is
knowledge to the partnership
c. knowledge of the partner acting in the particular matter then present to his mind is
knowledge to the partnership
d. knowledge of any other partner who reasonably could or should have communicated it
to the acting partner is knowledge to the partnership
8. A person admitted as a partner into an existing partnership is liable for all the obligations of the
partnership arising before his admission as though he has been a partner when such obligations
were incurred, unless there is a stipulation to the contrary.
9. Liabilities of partners by estoppel
 Estoppel arises when a person by any means represents himself or consents to
another representing him to anyone, as partner in an existing partnership, or
with one or more persons not actual partners; he is liable to any such person to
whom such has been made, who has, on the faith of such representation given
credit to the actual or apparent partnership.
 Partner by estoppel-a person not a partner may become a partner by estoppel
and thus liable to third persons as if he was a partner When by his words or
conduct he:
1. Directly represents himself to anyone as a partner in an existing
partnership or in a non-existing partnership (with one or more persons not
actual partners); or
2. Indirectly represents himself by consenting to another representing him as
a partnership in an existing partnership or in a non-existing partnership.
o Liabilities of partners by estoppel:
i. When partnership liability results-if all actual partners consented to the
representation, it is considered a partnership liability. This is a case of
partnership by estoppel.

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 ii. Liability is pro rata-when there is no existing partnership and all or some of
those represented as partners consented to the representation, or none or
only some of the partners of an existing partnership consented to the
representation, the liability of all those who made and consented to the
representation is joint or pro rata.
10. The creditors of the partnership shall be preferred to those of each partner's personal creditors
as regards the partnership property.
 

Dissolution and Winding Up

Dissolution- is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the business.
 The change in the relation of the partners will dissolve the partnership but will not disturb
the continuance by the remaining partners or by the existing and new partners of the
business as before.
 Dissolution does not automatically result in the termination of the legal personality of the
partnership, nor the relations of the partners among themselves who remain as co-partners
until the partnership is terminated.
 
Winding up-is the process of settling the business partnership affairs after dissolution.
 
Termination- is that point in time when all partnership affairs are completely wound up and finally
settled. It signifies the end of the partnership life.
 
Kinds of Dissolution
Extrajudicial dissolution (automatic dissolution)
a. without violation of the agreement between the partners
i. by the termination of the definite term or particular undertaking specified in
the agreement.
ii. by the express will of any partner, who must act in good faith, when no
definite term or particular undertaking is specified.
iii. by express will of all the partners who have not assigned their interests or
suffered them to be charged for their separate debts, either bef01V or after
the termination of any specified term or particular undertaking.
by the expulsion of any partner from the business bona fide in accordance with
such a power conferred by the agreement between the partners.
 in contravention of the agreement between the partners, where the circumstances do not
permit a dissolution under any other provision of this article, the express will of any partner
at any time.
 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.
 a specific thing which a partner had promised to contribute to the partnership, perishes
before the delivery.
 by death of any partner
 by the insolvency of any partner or of the partnership
 by the civil interdiction of any partner
1. Civil interdiction deprives the offender during the time of his sentence of the right to manage
his property dispose of such property by any act or any conveyance inter vivos.
2. A and B are voluntary causes of dissolution while c to g are involuntary.

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 3. Judicial dissolution (requires order of the court)
a. a partner has been declared insane or is shown to be of unsound mind
b. a partner becomes in any other way incapable of performing his part of the
partnership contract
c. a partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business
d. a partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it
is not reasonably practicable to carry on the business in partnership with him
e. the business of the partnership can only be carried on at a loss
f. other circumstances render dissolution equitable
g. on the application of the purchaser of a partners interest:
i. after the termination of the specified term or particular undertaking; or
ii. at any time if the partnership was a partnership at will when he was assigned
or when the charging order was issued.
 
4. A to F-on the application by a partner;
5. G-on the application of the purchaser of a partner's interest
 The general rule is dissolution terminates all authority of any partner to act for the
partnership, except:
1. acts necessary to wind up partnership affairs
2. acts necessary to complete transactions begun but unfinished.
 When dissolution is not by act, insolvency or death of a partner, dissolution terminates the
actual authority of a partner to undertake new business for the partnership
 When dissolution is by act, insolvency or death of partner, authority of partners to act for
the partnership is not deemed terminated, except:
9. the cause of dissolution is the act of a partner and the acting partner had knowledge of such
dissolution.
10. the cause of dissolution is the death or insolvency of a partner and the acting partner had
knowledge or notice of such dissolution.
 The partnership is in no case bound by any act of a partner after dissolution
:
Where the partnership is dissolved because it is unlawful to carry on the business,
unless the act is appropriate for winding up partnership affairs; or where the partner
has become insolvent; or where the partner has no authority to wind up partnership
affairs provided that a notice has been given to third persons, except by a
transaction with one who:
i. had extended credit to the partnership prior to dissolution and had no
knowledge or notice of his want of authority, or
ii. had not extended credit to the partnership prior to dissolution, and, having
no knowledge or notice 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.
 
Manner Of winding up
12. Extrajudicial-by the partners themselves without the intervention of the court.
13. Judicial-under the control and dilution of the court upon proper cause shown by any partner, his
legal representative or his assignee.
 
Persons authorized to wind up

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 14. Partners designated by the agreement;
15. In the absence of such agreement, all partners who have not wrongfully dissolved the
partnership; or
16. Legal representative of las surviving partner not insolvent.
 
The Liabilities of the partnership shall rank in order of payment, as follows:
17. those owing to creditors other than partners
18. those owing to partners other than for capital and profits
19. those owing to partners in respect of capital
20. those owing to partners in respect of profits
 
 If the assets are insufficient, the deficit is a capital loss which requires contribution like any
other loss. •Ille partners are required to contribute to cover the loss based on their P/L ratio
agreement, and in the absence thereof, based on their capital contribution. In here, the
provision of Article 1797 of the New Civil Code applies.
Limited Partnership
 is one formed by two or more persons having as members one or more general partners
and one or more limited partners.
 it must be in writing and registered with the SEC for its validity.
 must contain the word limited or Ltd.

Characteristics:
25. A limited partnership is formed by compliance with the statutory requirements
26. One or more general partners control the business and are personally liable to creditors
27. One or more limited partners contribute money or property, but not services, to the capital
and shar in the profits but do not participate in the management of the business and are not
personally liable for partnership obligations beyond their capital contributions
28. The limited partners may ask for the return of their capital contributions under the conditions
prescribed by law.
29. The partnership debts ate paid out of the common fund and the individual properties of the
general partners.
 
 A limited partner is not liable as a general partner. His liability is limited to the extent of his
contribution.
 The contributions of a limited partner may be cash or other property, but not services. If he
takes part in the control of the business, he becomes a general and limited partner at the
same time. In such case, he will be liable to third persons as general partner.
 The surname of a limited partner shall not appear in the partnership name, otherwise he will
be liable as a general partner, unless:
It is also the surname of a general partner, or prior to the time when the limited partner
became such, the business had been carried on under a name in which his surname
appeared.
 Additional limited partners may be admitted upon filing an amendment to the original
certificate of limited partnership.
 A limited partner may loan money to and transact other business with the partnership,
except:
Receive or hold as collateral security any partnership property, or receive from a general
partner or the partnership any payment, conveyance, or release from liability if at

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 the time the assets of the partnership are not sufficient to discharge partnership
liabilities to third persons.
 

Rights of a limited partner:

35. to require that the partnership books be kept at the principal place of business of the
partnership;
36. to inspect and copy at a reasonable hour partnership books or any of them;
37. to demand true and full information of all things affecting the partnership;
38. to demand a formal account of partnership affairs whenever circumstances render it just and
reasonable;
39. to ask for dissolution and winding up by decree of court;
40. to receive a share of the profits or other compensation by way of income; and
41. to receive the return of his contribution provided the partnership assets are in excess of all its
liabilities
 
 Where there several limited partners the members may agree that one or more of the
limited partners shall have a priority over Other limited partners as to the return Of their
contributions, as to their compensation by way Of income, or as to any other matter. If such
an agreement is made it shall be stated in the certificate, and in the absence of such a
statement all the limited partners shall stand upon equal footing.

Substituted limited partner

 a limited partner's interest is assignable. A substituted limited partner is a person admitted
to all the rights of a limited partner who has died or has assigned his interest in a
partnership.
 an assignee shall have the right to become a substituted limited partner if all the members
consent thereto or if the assignor, being thereunto empowered by the certificate, gives the
assignee that right.
 an assignee becomes a substituted limited partner when the certificate is appropriately
amended.  
 An assignee, who does not become a substituted limited partner, has no right to require any
information or account of the partnership transactions or to inspect the partnership books;
he is only entitled to receive the share of the profits or other compensation by way of
income, or the return of his contribution, to which his assignor would otherwise be entitled.
 A limited partner shall not receive from a general partner or out of partnership property any
part of his contributions until:
1. all liabilities of the partnership, except liabilities to general partners
and to limited partners on account of their contributions, have been
paid or there remains property of the partnership sufficient to pay
them;
2. the consent of all members is had, unless the return of the
contribution may be rightfully demanded under the provisions of the
second paragraph; and
3. the certificate is cancelled or so amended as to set forth the
withdrawal or reduction.
 A limited partner may rightfully demand the return of his contribution:
1. on the dissolution of a partnership; or
2. when the date specified in the certificate for its return has arrived, or

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 3. after he has six months' notice in writing to all other members, if no time is
specified in the certificate, either for the return of the contribution or for the
dissolution of the partnership.
 

In the following cases, a certificate of limited partnership shall be amended:

49. there is change in the name or the partnership or in the amount or character of the contribution
of any limited partner;
50. a person is substituted as limited partner;
51. an additional limited partner is admitted or a person is admitted as general partner;
52. a general partner retires, dies, becomes insolvent, insane, is sentenced to civil interdiction;
53. there is a change in the character of the business of the partnership;
54. there is false or erroneous statement in the certificate;
55. there is change in the time stated in the certificate for dissolution or for return of contribution;
and
56. the members desire to make a change in any other statement in the certificate in order that it
shall accurately represent the agreement among them.
 
Causes of dissolution of a limited partnership:
57. retirement, insolvency, death, insanity, or civil interdiction of a general partner;
58. when all the limited partners ceased to be such;
59. expiration of the term or period of existence of the partnership;
60. by agreement of all partners before the lapse of the period of existence;
61. misconduct of a general partner or fraud committed by a general partner against the limited
partner/s; or
62. when the limited partner demanded the return of his contribution but same was unjustifiably
denied.

Effect Of retirement, death, civil interdiction, insanity, or insolvency of a partner

1. General partner- partnership is dissolved.
2. Limited partner- partnership is not dissolved except if there is no more limited partner
 
Order Of payment of liabilities
63. those to creditors, including limited partners
64. those to limited partners by way of their share of the profits and other compensation by way of
income on their contributions
65. those to limited partners in respect to the capital of their contributions
66. those to general partners other than for capital and profits
67. those to general partners in respect to profits
68. those to general partners in respect to capital

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