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Obligations of Partners
PARTNERSHIP RFBT
General Provisions
PARTNERSHIP - 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.
Features of a Partnership:
There shall be a partnership whenever:
1. There is a meeting of the minds;
2. To form a common fund;
3. With intention that profits (and losses) will be
divided among the contracting partiesAdd your notes
here.
Essential Requisites of Partnership:
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. There must be a LAWFUL OBJECT or PURPOSE.
5. The purpose or primary purpose must be to obtain
PROFITS and DIVIDE the same among the parties.
Elements of a contract of Partnership:
1) Consensual – perfected by mere consent.
2) Nominate – it has a special name or designation.
3) Bilateral – both parties are bound reciprocally.
4) Onerous – both expects to benefit through the
giving of something.
5) Principal – does not depend on another contract
for its validity.
6) Preparatory – it is entered as a means to an end,
the realization of profits.
❗ General Rule: Any person may be a partner
who is capable under the law of entering into
contractual relations.
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Cannot Give Consent to a Contract:
1. Minors
2. Insane or demented persons
3. Deaf-mutes who do not know how to write
4. Persons suffering from civil interdiction
5. Incompetents who are under guardianship
Exceptions:
Under Article 1782, persons who are prohibited
from giving each other any donation or advantage
cannot enter into a universal partnership because
such contribution is considered a donation.
A married woman may enter into a contract of
partnership even without her husband’s consent,
but the husband may object under certain
conditions. - Both spouses may enter into a
particular partnership
Forms of Contribution:
a) Money – there is no contribution of money until
they have been cashed.
b) Property – may be real or personal, tangible or
intangible.
c) Industry – a limited partner in a limited
partnership cannot contribute mere industry or
service.
Characteristics:
1. Essentially contractual in nature (Art. 1767, 1784)
2. Separate juridical personality (Art. 1768)
3. Delectus personae
4. Mutual Agency (Art. 1803)
5. Personal liability of partners for partnership
debts.
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A partnership begins from the moment of the
execution of the contract, unless it is otherwise
stipulated.
1) To contribute at the beginning of the partnership
or at a stipulated time the money, property or
industry which he may have promised to contribute.
2) To answer for eviction in case the partnership is
deprived of the determinate property contributed.
3) To answer to the partnership for the fruits of the
property the contribution of which he delayed, from
the date they should be contributed up to the time of
actual delivery.
4) To preserve such property with diligence of a good
father of a family pending delivery to the partnership.
5) To indemnify the partnership for any damage
caused to it by the retention of the same or by the
delay in its contribution.
Remedy and Liability of Partner
Failure to contribute - action for specific
performance with damages from the defaulting
partner.
In case of eviction - Is bound in the manner a vendor
is bound to the vendee.
Delay in fruits - no demand is necessary.
Forms of a Partnership Contract:
❗ General Rule: No special form is required for the
validity of a contract of partnership.
Exceptions:
1. Where the immovable property or real rights are
contributed to the partnership
a. Public instrument is necessary
b. An inventory of the said property must be made,
signed by the parties and attached to the public
instrument.
Effect if above requirements are not complied with
a. The partnership contract is void.
b. The partnership will not have any juridical
personality.
2. Where the capital is P3, 000.00 or more, in money
or property.
a. The partnership contract must be in a public
instrument, and
b. Registered with the Securities and Exchange
Commission.
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Effect if above requirements are not complied with
a. The partnership contract is still valid.
Accordingly, the partnership still acquires juridical
personality.
b. The liability if the partnership and the members
thereof to third persons are not affected.
❗ Note: SEC Opinion, 1 June 1960: For purposes
of convenience in dealing with government
offices and financial institutions, registration of
partnership having a capital of less than Php
3,000 is recommended.
As a Juridical Person
A partnership may acquire and possess property
of all kinds, as well as incur obligations and bring
civil or criminal actions in conformity with the laws,
and regulations of its organization.
Principle of Delectus Personarium
DELECTUS PERSONAE – The selection or choice of
the person
Doctrine of Delectus Personae:
The birth and life of a partnership at will is
predicated on the mutual desire and consent of
the partners. The right to choose with whom a
person wishes to associate himself is the very
foundation and essence of that partnership.
Incidents of Partnership:
1) Partners share in profit and losses.
2) Equal rights in the management and conduct of
partnership business.
3) Every partner is an agent of the partnership and
entitled to bind the other partners by his acts, for
the purpose of its business.
4) All partners are personally liable for the debts
of the partnership with their separate property
except that limited partners are not liable beyond
their capital investment.
5) A fiduciary relation exists between the partners.
6) On dissolution, the partnership is not terminated,
but continues until the winding up of the
partnership is completed.
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UNLIMITED LIABILITY
• All partners are liable pro rata with all their
properties and after partnership assets have been
exhausted, for all partnership debts.
• Any stipulation against personal liability of partners
for partnership debts is void, except as among them.
• All partners are liable solidarily with the
partnership for everything chargeable to the
partnership when caused by the wrongful act or
omission of any partner acting in the ordinary course
of business of the partnership or with authority from
the other partners and for partner's act or
misapplication of properties.
• A newly admitted partner into an existing
partnership is liable for all the obligations of the
partnership arising before his admission but out of
partnership property shares.
• Partnership creditors are preferred to those of
each of the partners as regards the partnership
property.
• Upon dissolution of the partnership, the partners
shall contribute the amounts necessary to satisfy
the partnership liabilities.
WEAKNESSES OF A PARTNERSHIP
• Partners are co-owners of the partnership
properties and enjoy personal possession
• Partners may individually dispose of real property
of the partnership even when in partnership name
• Dissolution of the partnership can come about by
the change in the relationship of the partners, such
as when a partner chooses to cease being part of the
partnership
• Expulsion of partner dissolves the partnership (Art.
• Dissolved by the loss of the thing promised to be
contributed to the partnership.
• Death, insolvency, or civil interdiction of a partner
dissolves the partnership.
• Petition by partner will dissolve the partnership
when a partner has been declared insane; or the
partner has become incapable of performing his part
of the partnership contract; a partner has been found
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guilty of such conduct as tends to affect
prejudicially the partnership business; partner
willfully or persistently commits a breach of
partnership agreement; the partnership business
can only be carried at a loss; other equitable
reasons.
❗ Note:
• SEC Opinion, 28 April 1995: The death of a
partner, as a general rule, dissolves the
partnership by operation of law, except if the
articles of partnership stipulate for the
continuance of the partnership relations upon
the death of any of the partners.
• SEC Opinion, 5 August 1997: If the remaining
partners of the dissolved partnership intended
for all legal intents and purposes, to continue the
partnership business even after the death of a
partner, there is continuity of personality of the
partnership as there exists a “partnership will.”
EFFECT OF PARTIAL ILLEGALITY:
1. Where a part of the business of a partnership is
legal and a part illegal, an account of that which is
legal may be had.
2. Where, without the knowledge or participation
of the partners, the firm's profits in a lawful
business have been increased by wrongful acts,
the innocent partners are not precluded as against
the guilty partners from recovering their share of
the profits.
Effects of an Unlawful Partnership
1) The contract is void ab initio.
2) The profits shall be confiscated in favour of the
government.
3) The instruments or tools and proceeds of the
crime shall be forfeited in favor of the government.
4) The contribution of the partners shall not be
confiscated unless they fall under no. 3.
- A judicial decree is not necessary to dissolve an
unlawful partnership, except for the convenience
and peace of mind of the parties.
Classification of Partnership
1) Universal Partnership - refers to all the present
property or to all the profits.
a) all present property – partners contribute all their
present property to the partnership with the
intention of dividing the profits among themselves.
b) all profits – the partners retain their ownership
over their present and future property, what passes
to the partnership are the profits and or income and
the usufruct or use of the same.
2) General Partnership - partners liable pro rata
and subsidiarily, sometime solidarily with their
separate property for partnership debts.
3) Limited Partnership - has one or more general
partners and one or more limited partners, the
limited partner not being personally liable for the
obligations of the partnership.
4) Partnership At Will - has no time specified and
not formed for a specific undertaking and may be
terminated anytime by mutual agreement or by will
of one partner alone.
5) Partnership With A Fixed Term - has for its term
a fixed period and is formed for a specific
undertaking. - expires upon accomplishment of the
particular undertaking.
- expires upon end of its term.
6) De Jure Partnership or one which has complied
with the legal requirements for its establishment.
7) De Facto partnership or one which has failed to
comply with the legal requirements for
establishment.
8) Ordinary or Real Partnership or one which
actually exists among the partners and also as to
third persons.
9) Ostensible or by Estoppel or not a real partnership
but is considered one only for to those who, by their
conduct or admission, are precluded to deny or
disprove its existence.
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Kinds of Partners
a) Capitalist Partner – one who contributes
money or property to a common fund.
- can engage in other business but not the same as
the partnership.
- unless there is a stipulation to the contrary.
General Rule: a capitalist partner is not bound to
contribute more than what he agreed to contribute.
b) Industrial Partner – one who contributes only
his industry or personal service.
- cannot engage in other business, rule is absolute.
- to prevent conflict between industrial partner and
partnership.
- to ensure faithful compliance by said partner with
his obligation.
c) General Partner - consists of general partners
who are liable pro rata and subsidiarily and
sometimes solidarily with their separate property
for partnership debts.
– one whose liability to third persons to third
persons extends to his separate property.
d) Limited Partner – one formed by 2 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
- one whose liability to third persons is limited to
his capital contribution, also known as a special
partner, does not participate in the management of
the business.
its e) Managing Partner - one who manages the
affairs of the partnership.
f) Liquidating Partner – one who takes charge of
the winding up of partnership affairs upon
dissolution.
g) Partner by Estoppel – one who is not really a
partner, but is liable as a partner for the protection
on innocent third persons.
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RELATIONS CREATED BY THE CONTRACT OF

PARTNERSHIP: Distribution of Profit & Loss
Obligations of the partnership to the partners
4 distinct juridical relations are created: 2. If entrusted to one of the partners
a. To pay to the partner any amounts he may have
1) Among the partners themselves →The designation is void.
disbursed for the partnership with interest from the 1. Distribution of Profits
2) Partners with the partnership time the expenses were made.
Remedies Against Industrial Partner Who Engages - The partners share the profits according to
3) Partnership with third persons with whom it
in Another Business b. To pay for the obligations which a partner may their agreement without violating Article 1799.
contracts
4) Partners with such third persons have contracted in good faith in the interest of the
- capitalist partners have a right either to exclude - Absent such agreement, the share shall be in
partnership business.
him from the partnership or to avail themselves of proportion to its capital contribution.
RULES ON DIVISION OF PROFIT AND LOSS the benefits which he may have obtained. c. To answer for risks in consequence of its
management. - Share of industrial partner shall be satisfied
1. If all are capitalist partner Obligation of Capitalist Partner to Contribute
first before the capitalist partners divides the
a. agreement. Additional Capital Obligations of partnership for wrongful act of profits.
b. If only the sharing of the partners in the profits has
- in case of imminent loss of business, and no partner/ s
been agreed upon, the share of each partner is the 2. Distribution of Losses
agreement to the contrary, he is under obligation to
losses shall be in the same proportion as the share The partnership shall be solidarily liable with all the
contribute additional share to save the venture. - Losses shall be shared according to 1799.
of each in the profits. partners in the following cases:
c. In the absence of both, in proportion to his capital - if he refuses to contribute, he shall be obliged to - Absent such agreement, the share of each in
contribution. sell his interest to the other partners. a. For loss or injury caused to a third person or any
losses shall be in accordance of profit-sharing
penalty is incurred by reason of the wrongful act or ratio, but industrial partners shall not be liable.
Requisites omission of any partner acting in the ordinary course
2. If aside from the capitalist partners, there is also
an industrial partner (or there are industrial 1) imminent loss of business. of the business of the partnership or with the - Absent a no profit-sharing stipulation in the
partners) authority of his copartners. contract, then losses shall be borne by partners
2) majority of partners agree that additional in proportion to their capital contributions, but
contribution will save the business. b. Where one partner acting within the scope of his industrial partners shall not be liable.
a. Profits apparent authority receives money or property of a
1) agreement. 3) capitalist partner refuses to contribute. third person and misapplies it. - Industrial partners are exempt from the share
2) In the absence of any agreement thereon, the in loss because he cannot withdraw the work or
industrial partner shall first receive a just and 4) no agreement among partners that they will not c. Where the partnership in the course of the labor already done by him, unlike the capitalist
equitable share of the profits and thereafter, each contribute. business receives money or property of a third partner who can withdraw their capital.
capitalist partner shall share in the profits in - refusal to contribute shows lack of interest in the person and such money or property is misapplied by
proportion to his capital contribution. continuance of the partnership. any partner while it is in the custody of the
partnership. Distribution of Share in Profits and Loss by
b. Losses Obligation of Managing Partner Who Collects Debt
Responsibility of Partnership Partners Third Persons:
1) The industrial partner shall not share in the - if person is indebted to both the partner and the
losses. - Can be delegated to third persons by common
partnership. - Absence of stipulation to the contrary, every
2) The capitalist partners shall share in the consent.
partner is an agent of the partnership for the
losses as follows. - any sum received by the managing partner shall be
purpose of its business, hence the ff obligation: - Binding to partners unless manifestly
a) agreement. applied to the two credits in proportion to their
inequitable.
b) In the absence of any agreement thereon, amounts. 1) To refund amounts disbursed by him in behalf of
each capitalist partner shall share in the losses in the partnership plus the corresponding interest from - Failure to impugn it within 3 months (to prevent
- except if the amount is received for the
the same proportion as the share of each in the the time the expenses are made. paralysation in operation of business) becomes
partnership, in which case the whole amount shall
profits. binding, partner is deemed guilty of estoppels or
be applied to the partnership. 2) To answer for the obligation, he may have
c) In the absence of both, capital contribution. have given his consent to it.
contracted in good faith in the interest of the
- the article does not apply where the partner who
collects. partnership business. Stipulation on Exclusion from Profits
Designation in the share in the profits and losses by
a third person or by a partner. 3) To answer for risk in consequence of its - Is void.
- based on community of interest among partners.
1. If entrusted by the partners to a third person management
→The same shall be binding upon the - The partnership must exist for the common
partners benefit and interest of the partners.

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• DISSOLUTION is the change in the relation or the
partners caused by any partner ceasing to be
associated in the carrying on of the business.
• WINDING UP is the process of settling the business
or affairs of the partnership after dissolution.
• TERMINATION refers to the point when all the
business or affairs of the partnership are completely
wound up.
CAUSES OF DISSOLUTION
1. Without violation of the agreement of the partners.
a. termination of the definite term or particular
undertaking
b. By the express will:
i. Of any partner who must act in good faith, when
no definite term or particular undertaking is
specified.
ii. Of all the partners who have not assigned their
interests or suffered them to be charged for their
separate debts, either before or after the termination
of any specified term or undertaking. Northern
c. By the expulsion of any partner from the business
bona fide in accordance with such a power conferred
by the agreement between the partners.
2. In contravention of the agreement between the
partners
3. When any event makes it unlawful for the business
of the partnership to be carried on or for the
members to carry it on in partnership.
4. In the following cases of loss:
a. Loss before or after delivery of property where the
partner contributed only its use or enjoyment, he
having reserved the ownership thereof.
b. Loss before delivery of specific thing, which a
partner had promised to contribute to the
partnership.
5. By the death of any partner
6. By the insolvency of any partner or of the
partnership.
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7. By the civil interdiction of any partner.
8. By decree of court under art 1831
GROUNDS FOR DISSOLUTION BY DECREE OF COURT
1. Partner declared insane in any judicial
proceeding or shown to be of unsound mind
2. Incapacity of partner to perform his part of the
partnership contract
3. Partner guilty of conduct prejudicial to business
of partnership
4. Willful or persistent breach of partnership
agreement or conduct which makes it reasonably
impracticable to carry on partnership with him
5. Business can only be carried on at a loss
6. Other circumstances which render dissolution
equitable
Upon application by purchaser of partner's interest:
• After termination of specified term/particular
undertaking
• Anytime if partnership at will when interest was
assigned/charging order issued
EFFECTS OF DISSOLUTION
❗ General Rule: - Dissolution terminates all
authority of any partner to act for the
partnership.
Exceptions:
(a) When necessary to wind up partnership affairs;
and
(b) When necessary to complete transactions
begun but not then finished.
When the act of a partner after dissolution
binds the partnership
1. When the act is necessary for winding up of
partnership affairs.
2. When the act is necessary to complete
transactions begun before dissolution.
3. In the case of a new transaction or business in
the following cases:
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a. If the other party to the transaction had extended
credit to the partnership before dissolution and he
had no knowledge or notice of the dissolution.
Limited Partnership
b. If the other party to the transaction had not so
A partnership which has one or more general
extended credit but had nevertheless known of the
partners and one or more limited partners.
partnership before dissolution, and the fact of
dissolution had not been advertised in a newspaper Characteristics:
of general circulation in the place at which the
business is regularly carried on. 1. Formed by compliance with statutory
requirements.
Rules on existing liability of a partner upon 2. One or more general partners control the
business.
dissolution
3. One or more general partners contribute to the
1. The dissolution does not itself discharge the capital and share in the profits but do not
partner’s liability. participate in the management of the business
and are not personally liable for partnership
2. A partner is discharged from any existing liability
obligations beyond their capital contributions.
upon dissolution by the agreement of the following:
4. May ask for the return of their capital
a. The partner himself;
contributions under conditions prescribed by
b. The partnership creditor; and
law.
c. The person continuing the business
5. Partnership debts are paid out of common fund
and the individual properties of general
3. The individual property of a deceased partner shall
be liable for obligations of the partnership while he partners.
was a partner, but subject to the prior payment of his
separate debts.
PERSONS AUTHORIZED TO WIND UP
1. Partners designated by the agreement
2. In absence of agreement, all partners who have
not wrongfully dissolved the partnership
3. Legal representative of last surviving partner
Rescission of partnership contract
• Grounds for rescission
1. Fraud; or
2. Misrepresentation to enter into the partnership
contract.
Right to accounting
Any partner or the legal representative of a
deceased partner has a right to an accounting of his
interest against the following:
1. Winding up partners
2. The surviving partners
3. The person or partnership continuing the business
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REQUIREMENTS FOR FORMATION OF LIMITED
PARTNERSHIP:
1. Certificate of articles of the limited partnership
must state the ff. matters:
a. Name of partnership + word "ltd."
b. Character of business
c. Location of principal place of business
d. Name/place of residence of members
e. Term for partnership is to exist
f. Amount of cash/value of property contributed
g. Additional contributions
h. Time agreed upon to return contribution of limited
partner.
i. Sharing of profits/other compensation.
j. Right of limited partner (if given) to substitute an
assignee.
k. Right to admit additional partners .
l. Right of limited partners (if given) to priority for
contributions
m. Right of remaining gen partners (if given) or
continue business in case of death, insanity,
retirement, civil interdiction, insolvency..
n. Right of limited partner (if given) to
demand/receive property/cash in return for
contribution.
2. Certificate must be filed with the SEC.
WHEN GENERAL PARTNER NEEDS CONSENT/
RATIFICATION OF ALL LIMITED PARTNERS:
1. Do any act in contravention of the certificate
2. Do any act which would make it impossible to
carry on the ordinary business of the partnership
3. Confess judgment against partnership
4. Possess partnership property/assign rights in
specific partnership property other than for
partnership purposes
5. Admit person as general partner
6. Admit person as limited partner - unless
authorized in certificate
7. Continue business with partnership property on
death, retirement, civil interdiction, insanity or
insolvency of gen partner unless authorized in
certificate
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SPECIFIC RIGHTS OF LIMITED PARTNERS:
1. Right to have partnership books kept at principal DISSOLUTION OF LIMITED PARTNERSHIP
place of business. (Priority in Distribution of Assets):
2. Right to inspect/copy books at reasonable hour
3. Right to have on demand true and full info of all 1. Those due to creditors, including limited partners
things affecting partnership.
2. Those due to limited partners in respect of their
4. Right to have formal account of partnership
share in profits/compensation
affairs whenever circumstances render it just and
reasonable. 3. Those due to limited partners of return of capital
5. Right to ask for dissolution and winding up by contributed
decree of court.
4. Those due to general partner other than capital &
6. Right to receive share of profits/other
profits
compensation by way of income.
7. Right to receive return of contributions provided 5. Those due to general partner in respect to profits
the partnership assets are in excess of all its
6. Those due to general partner for return of capital
liabilities.
contributed.
REQUISITES FOR RETURN OF CONTRIBUTION OF Retirement, death, civil interdiction, insanity,
or insolvency of a partner
LIMITED PARTNER:
1. All liabilities of partnership have been paid/if not 1) Effect
yet paid, at least sufficient to cover them a) Partner is a general partner – partnership is
2. Consent of all members has been obtained dissolved.
3. Certificate is cancelled/amended as to set forth b) Partner is a limited partner – partnership is not
dissolved except if there is no more limited partner
withdrawal /reduction of contribution.
because in such a case, the requirement that there
LIABILITIES OF A LIMITED PARTNER must be at least one limited partner in a limited
partnership is no longer complied with.
1. for the difference between his contribution as
actually made and that stated in the certificate as 2) Continuation of business →The business may be
having been made, and continued by the remaining general partners if:
2. for any unpaid contribution which he agreed in 1. The right to do so is stated in the certificate; or
the certificate to make in the future time. 2. All members consent.
As a trustee for the partnership
1. for the specific property stated in the certificate
as contributed by him but which he had not
contributed;
2. for the specific property of the partnership which
had been wrongfully returned to him; and
3. Money or other property wrongfully paid or
conveyed to him on account of his contribution
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