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Reviewer - Partnership
PARTNERSHIP & CORPORATION (De La Salle University)
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Chapter 1: General Provisions
-
Article 1767
By a contract of partnership, two or more
persons bind themselves to contribute
money, property, or industry to a common
fund with the intention of diving the profits
among themselves.
-
Two or more persons may also form a
partnership for the exercise of a profession.
Concept of partnership:
1. an association of two or more
persons
2. a legal relation upon the expressed
or implied agreement of 2 or more
competent persons whereby they
unite their property, labor
3. a joint undertaking to share in
profit/loss
4. the status arising out of a contract
entered into by 2 or more persons
whereby agree to share as common
owners the profit
5. an organization for production of
income to which each partner
contributes
6. an entity, distinct and apart from
the members composing it
EXERCISE OF A PROFESSION
Profession
- calling in the preparation for or
practice of which academic learning
is required
- prime purpose: rendering public
service
is not a business or an enterprise for
profit
law does not allow individuals to
practice a profession as a corporate
entity -> personal qualifications for
such practice cannot be possessed
by corporation
CHARACTERISTICS
1. Consensual – perfected by mere consent
-> upon the express or implied agreement
(not have to be in writing)
2. Nominate – has a special name (ex:
contract of sale)
3. Bilateral – entered into by 2 or more
persons; rights and obligations are always
reciprocal
4. Onerous – benefit through the giving of
something (must contribute)
5. Commutative – undertaking of each
partner is considered as the equivalent of
others (all equal)
6. Principal – does not depend for its
existence upon some other contract
7. Preparatory – entered into as a means to
an end (ex: realization of profits)
FIDUCIARY IN NATURE
Partnership is a form of voluntary
association entered into by the associates
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It is a personal relation in which the
element of delectus personae exists (trust
and confidence)
1. Right to choose co-partners – No one can
become a member of the partnership
without the consent of all
2. Power to dissolve partnership – Mutual
agency arises and the doctrine of delectus
personae allows them to have the power to
dissolve; must act in good faith
ESSENTIAL FEATURES OF PARTNERSHIP
1. Valid contract
2. Parties must have legal capacity
3. Mutual contribution
4. Object must be lawful
5. Purpose: obtain profit and divide
1. Valid Contract
A form of voluntary and personal
association: delectus personae
Creation and proof of existence – may be
informally created, existence proved by the
conduct or acts or parties
a. articles of partnership – embody the
terms of association in a written
document
b. elements of contract: consent,
object, cause
Other forms of association excluded –
excludes from its concept all other
associations which do not have their origin
in a contact
General rule: Parties have the necessary
legal capacity to enter into a contract
Cannot give their consent:
1. Unemancipated minors
2. Insane/demented persons
3. Deaf mutes who do not know how
to write
4. Persons who are suffering from civil
interdiction
5. Incompetents who are under
guardianship
Exception: Persons who are prohibited from
giving each other any donation cannot
enter into a universal partnership
No prohibition against a partnership being a
partner in another partnership. A
corporation is without capacity to enter into
a contract of partnership
3. Mutual Contribution
Proprietary or financial interest: partners
must have a proprietary or financial interest
in the business. No mutual contribution, no
partnership
Form of contribution:
1. Money: currency which is legal
tender in the PH. No contribution of
money until they have been cashed
Legal tender – medium of payment
recognized by the law that can be used to
extinguish private or public debt
2. Legal Capacity
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2. Property: capable of being
appropriated
2 types of property:
1. Real (immovable) - land
2. Personal (movable)
Tangible – touchable
Intangible – ex: intellectual property
(patent, trademark, copyright, goodwill)
3. Industry: work/services
4. Legality of object
Effect of illegality – the object is unlawful
when it is contrary to law, morals, good
customs, public order or public policy
Business partnership not permitted to
engage in: may not engage in an enterprise
for which the law requires a specific form of
business
5. Intention to realize and divide profits
Very reason for existence of partnership:
obtain profits
Sufficient if obtaining profit principal
purpose: Profit need not be the exclusive
aim, sufficient that is it the principal
purpose
Sharing of profits
Not necessarily in equal shares: Necessary
that there be an intention of dividing profits
among the members, not necessarily in
equal shares; there must be a join interest
in the profits
Not conclusive evidence of partnership:
merely presumptive and not conclusive
Sharing of losses:
Necessary corollary of sharing in profits:
The right to share in the profits carries with
it the obligation to share also in the losses
Agreement not necessary: Not necessary
for the parties to agree upon a system of
sharing
Art 1768
Partnership has a juridical personality
separate and distinct from partners
Separate juridical personality (SJD)
- Recognized as a legal person
- May acquire and possess property of
all kinds, incur obligations
Art 1769
Determining whether a partnership exists,
these rules shall apply:
1. Persons who are not partners as to
each other are not partners as to
third persons (estoppel)
2. Co-ownership or co-possession does
not of itself establish a partnership
3. Sharing of gross returns does not of
itself establish a partnership
4. Receipt by a person of a share of the
profits is prima facie evidence but
no such inference shall be drawn if
profits were received as payment
a. Debt by installment
b. Wages of an employee
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c. Annuity to a widow
d. Interest on a loan
e. Sales of goodwill
Prima facie: first impression is what you
seem to be truth
1. Persons not partners as to each other
Estoppel
- Admission and misrepresentation
rendered conclusive
- Misled third persons or parties into
believing that the former are
partners in a non-existing
partnership
- Cannot take it back
2. Co-ownership
Co-ownership
- Ownership of an undivided thing or
right belongs to different persons
- Profits must be derived from the
operations of the business by the
members not merely from
ownership
Sharing of profits is not a prima facie
evidence that he is a partner in the business
under sub-paragraphs a b c d e
Co-ownership
The ownership of an undivided thing or
right belongs to different persons
Partnership
Co-ownership
Creation
Always with
contract
May exist without
contract
Juridical
personality
Yes
None
Purpose
Profit
Common enjoyment
Duration
No limitation
Not more than 10
years
Disposal of
interest
May not dispose
Can dispose
Power to act with
third person
May bind the
partnership
Cannot represent coowner
Effect of death
Dissolve
Not necessarily
dissolve
Conjugal Partnership of Gains
Partnership formed by the marriage of husband
and wife by virtue of which they place in a
common fund the fruits and income from their
separate properties and those acquired through
their efforts or chance
Co-possession
- Can be surrendered
3. Sharing of gross returns
- does not indicate a partnership, it should
be the profits
Net returns – creates an inference that
there is a partnership (sharing of profits and
loss)
4. Receipts of share in the profits
Partnership
Conjugal
Partnership
Parties
Any gender
Man and woman
Laws which govern
Stipulation of the
parties
Governed by law
Juridical
personality
Yes
None
Commencement
Execution of
contract
Marriage
Purpose
Profit
Regulate property
Distribution of
profits
According to
agreement
Divided equally
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Management
Equally
Husband decision
prevails
Disposition of
shares
May be disposed
Cannot be
disposed
Voluntary Association
Organized for social purposes (social clubs,
committee, fraternal societies)
Partnership
Voluntary
Association
Juridical
personality
Yes
None
Purpose
Pecuniary profit
Objective is
lacking
Contribution of
members
Capital
Fees
Liability of
members
Liable for debts
Depends
Art 1770
A partnership must have a lawful object and
must be established for the common
benefit of the partners
Effects of an unlawful partnership
1. The contract is void
2. The profits shall be confiscated in
favor of the government
3. The instruments or tools and
proceeds of the crime shall be
forfeited
4. The contributions of the partners
shall not be confiscated unless part
of the crime
Art 1771
A partnership may be constituted in any
form expect where immovable property or
real rights are contributed which a public
instrument shall be necessary
Art 1772
Capital of 3000 or more must be registered
in sec
Not an absolute rule
Only a general rule
Exception:
- immovable property contributed
- 3000php or more capital
Art 1773
Partnership is void if not
inventory must be signed and attached to
the public instrument (ISAP)
Public instrument
- written contract
- authorized by the public office
(notary)
Inventory
- list of items of immovable property
contributed
- signed by the partners attached to
the public instrument
- registered in SEC
Exceed 3k, no registration
- not prevent the formation of
partnership
- no effect on third person
- why is it there: to enable others to
register
Art 1774
Acquired in partnership name, conveyed
only in partnership name
Art 1775
Associations and societies, whose articles
are kept secret among the members, and
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wherein anyone of the members may
contract in his own name with third
persons, shall have no sjp
Articles of partnership kept secret is not
considered as a partnership
At 1776
Classification of partnership
Extend of its subject matter
Of all present property
- contribute all of their property
- profits they accrued
For profit
- subject of contribution: profit
- transfer: right of the property, use it
Particular partnership
- determinate things, profession
Liability of partners
General partner
- at least one
- liab extends to personal property
Limited partner
- partner in a limited partnership
- liab extends to capital contribution
Duration
Partnership at will – no time specified, can
terminated anything
Partnership with a fixed term – particular
undertaking
As to the legality of its existence
De jure – complied with all legal documents
De facto – failed to comply
Representation
Ordinary/real – existing among partners
Ostensible – estoppel
Publicity
Secret – not known to public, active
Open – made known to public
Purpose
Commercial (trading) – business
Professional (non-trading) – profession
Kinds of Partners
Capitalist partner – contributes money
Industrial partner – contributes industry
General partner – liability extends to capital
contribution
Limited partner – liability limited to capital
contribution
Managing partner – manages the affairs of
the partnership
Silent - not active, known as a partner
Secret - active, not known
Dormant - not active, not known
Art 1777
Universal partnership – to all present
property or to all the profits
Art 1778
All present property
Contribute property
Divide profits
Art 1779
All present property becomes the common
property of all the partners as well as profits
Future properties cannot be contributed
Inheritance, legacy, donation
No guarantee that property will go to you
Art 1780
Universal property of profits – comprises all
that the partners may acquire their industry
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or work during the existence of the
partnership
Ownership of present and future property:
partners retain their ownership
Pass: profits
Profits acquired by chance: lotter is not
included; must be from work
Art 1781
Not specified which universal
- Profit
- Why: less obligations
Art 1782
Persons who are prohibited from giving
each other any donation cannot enter into a
universal partnership
Ex:
Partnership
Husband lawyer
Wife engineer
- not allowed: they have different
undertakings/ethical considerations
involved that could make some
trouble
Husband and wife – particular partnership
Donation shall be void:
- Guilty of adultery
- Guilty of the same crime
- Public officer (virtue: position in
office)
Art 1783
Particular partnership – determinate thing,
profession
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Chapter 2: Obligations of the Partners
Art 1784
Partnership begins from the moment of the
execution of the contract, unless otherwise
stipulated
Commencement of partnership
Consensual contract
Necessary – essential requites
Executory agreement of partnership
1. Future partnership – may stipulate
some other date
2. Agreement to create partnership –
Agreement remains executory, no
partnership exists
3. Failure to agree on material terms –
may prevent any rights/obligations
Art 1785
Fix term/particular undertaking – continued
after the termination without express
agreement
Rights and duties of partners stay the same
promise to contribute 1m today
contributed 2 years from today
no demand is necessary
partner who fails to give contribution:
becomes a debtor
demand triggers delay (dito hindi)
the moment demand is not needed, delay
begins
liable for damages
Effect of failure to contribute property
promised
1. Liability as debtor to partnership –
mutual contribution to a common
fund is the essence of the contract
of partnership
Art 1787
Bound to contribute goods
Appraisal must be made in the manner
prescribed in the contract of partnership
In absence of stipulation, it shall be made
by experts
Continuation of the business by the
partners without settlement/liquidation is
prima evidence of continuation
Appraisal of the value of the good
contributed is necessary to determine how
much has been contributed by the partners
Expiration of the term – automatic
dissolution
Immovable property – appraisal is made in
the inventory
Fixed term/particular undertaking is
automatically dissolved and turns into a
partnership at will
Art 1788
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
Art 1786
Every partner is a debtor of the partnership
for whatever he may have promised to
contribute
Same rule applies when he may have taken
from the partnership
He shall be bound for warrant in case of
eviction of specific things
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2 distinct cases:
Money promised but not given
Personal use
If no agreement, in case on imminent loss,
any partner who refuses shall be obliged to
sell his interest to the other partners
Guilty partner is liable for both interest and
damages from the time he should have
complied with this obligation
 Indemnity for damages shall only be
the payment
 Without stipulation, legal interest of
6%
Because it reflects the lack of interest to
continue the partnership
Art 1789
Industrial partner (Contributes
industry/service) cannot engage in business
for himself
Unless the partnership expressly permits to
Capitalist partners may exclude him from
the firm or avail benefits
Industrial partner
- Cannot engage in the same business
in which the partnership is engaged
or in any kind of business
Capitalist partner
- Cannot engage to any operation
which of the same kind of business
If industrial partner engages
- Capitalist partner have the right to
exclude him from the business
- Avail themselves of the benefits
- Capitalist have a right to damages
Art 1790
Unless there is a stipulation, partners shall
contribute equal shares
Art 1792
Partner authorized to manage collects a
demandable sum
Owed to him in his name
From a person who owed the partnership
another sum
The sum collected shall be applied to the
two credits in proportion of the amounts
If given to the partnership, amount shall be
fully applied to the latter
Art 1793
A partner who has received his share in
partnership credit when others have not yet
collected, is obliged to bring to the
partnership capital when the debtor
becomes insolvent
receive from debtor of partnership, 90k
3 partners including you
instead bring money to partnership
you took 30k
allowed to do: no
general provision: everything that you
receive on behalf of the partnership, you
must return to the partnership (art 1807)
because it belongs to the partnership
gave 90k, get 30k
debtor is declared insolvent
insolvent - assets are less than liabilities
Partners can stipulate of unequal shares
Art 1791
if you already receive:
bring back to the partnership
share to the partners
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gave 90k, get 30, leave our share on table
nasunog building
require to surrender 30k: no
once you have split the profits,
it is there responsibility in case liable for
taxes
Art 1794
Every partner is responsible to the
partnership for damages
He cannot compensate them with the
profits and benefits which he may have
earned for the partnership
Courts may lessen responsibility through
the extraordinary efforts in OTHER
activities, unusual profits have been
realized
Art 1795
Risk of specific and determinate things
which are not fungible, contributed only the
use shall be borne by the partner
Fungible – risk shall be borne by the
partnership
Risk of things brought and appraised in the
inventory – shall be borne by partnership
fungible
- cannot be used w/out consuming it
- every unit of measure of that thing it
the equivalent of that other thing
- ex: rice, oil, sugar
perishable
- interchangeable
- deteriorate
contributed 1 sack of rice to the partnership
demand return of that sack of rice: no
ask: what is the purpose of the rice: to be
consumed
2 types
surrender partnership of the thing
the use - expected to be retuned (see if
perishable/fungible
exception
single sack to rice - sasambahin
you can demand it again: special
(irreplaceable)
in the absence of any specific agreement
you can demand the return of the co
equivalent
Art 1796
The partnership shall be responsible to
every partner for the amounts he may have
disbursed on behalf of the partnership
1. To refund amounts disbursed by him
in behalf of the partnership
2. To answer for the obligation
3. To answer for risks
Art 1797
Losses and profits shall be distributed in
conformity with the agreement
Profits only agreement, losses shall be in
same proportion
No stipulation, in proportion to contribution
Industrial partner
- not liable for losses
- receive such just and equitable
share
1st: agreement (stipulation how to profits
will be divided)
2nd: capital contribution
divided the losses at the same with the
profits
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possible to agree any % in share of profit:
can stipulate
A party did not intend to share in lossesmay be a factor in determining that no
partnership exists
industrial partner shall receive such share,
must be satisfied first before capitalist
partners
Industrial partner is not liable for losses
because he cannot withdraw the work
already done by him
Art 1798
Agree to in trust to a third person the
designation of profits, such designation may
be impugned only when it is manifestly
inequitable – can complain
Art 1800
Partner appointed as managing in the
articles of partnership may execute all acts
of administration, unless he should act in
bad faith
partners determine the hatiian, can be 3rd
person
His power is irrevocable without just and
lawful case.
Partner began to execute the decision of
the 3rd person
Can complain within 3 months
Vote – controlling interest for such
revocation
No agreement = all has equal voice
e can complain
manifestly inequitable
e got the 1000, wants to sue - not possible
you can’t attack a contract and benefit from
it
ill use you 1 year - no - must be 3 months
from the date mismo
can delegate the profit/loss to one of the
partners: no
protestative: only one will of the partner
Art 1799
Stipulation to exclude one or more partners
in the profits/loss - void
i will not share in the profits - no
any stipulation excluding the partners for
profit is void
stipulation: void
2 distinct cases:
Appointment as manager in the articles:
Execute all acts unless bad faith
Revocation – change in terms of contract
Need consent of all partners
Appoint as manager after the constitution:
Simple contract of agency – may be revoked
anytime
Vote – controlling interest
agency - a person appoints another person
to do something or to render service for
behalf with the effect that this person who
made the appointment empowers this
other person and as a result like the person
who appointed did it
appointed him as my agent
sign deed of sale (special power of attorney)
as if i was the one who signed
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agency
1. a person bind themselves to the
other in order to perform
2. removable at will (if no longer has
confidence)
Art 1802
Stipulated: none of the managing partners
shall act without the consent of others
(unanimous consent)
Exception: unless there is imminent danger
Scope of Power of a Managing Partner
1. Issue receipts
2. Buying and selling without the
approval of other partners
3. Authority to dismiss an employee
(with justifiable cause for dismissal)
Compensation for Services Rendered
1. No partner is entitled to
compensation without the consent
of all the partners
2. Each member of the partnership
assumes the duty to give his time,
attention, and skill → a share in the
profits is his only compensation
Art 1801
2 or more partners in trusted with the
management of the partnership without
specification
One of them shall not act without the
consent of all the others
Oppose acts = decision of majority will
prevail
Tie = decided by partners owning the
controlling interest
Decision:
3. managing partner stated: majority
managing partner
4. controlling interest (majority %)
5. no managing partner: majority
(assumed that all are managing
partner)
Art 1803
Manner of management has not been
agreed upon
1. All partners shall be considered
agents
2. None of the partners make any
alteration in the immovable
property without the consent of
others
a. refuse to give consent and
prejudicial - intervention of the
court may be sought
b. necessary for preservation,
consent of the other partners is
not required
why immovable property: hindi na pwede
mabalik, cant revert from its previous status
Art 1804
Every partner may associate another person
Associate shall not be admitted into
partnership without the consent of all other
partners (Sub partner)
Sub partner - not a partner, entitled to
receive the interest
Art 1805
The partnership books shall be kept, subject
to any agreement between the partners, at
the principal place of the business of the
partnership, and every partner shall at
reasonable hour have access to and may
at any inspect and copy any of them
partnership books
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1. contains: agreement between the
partners
2. where: principal place of business
3. when can view: reasonable hours
(business hours)
4. rule: they cannot take the books
outs
5. why: para di mawala/alteration
Art 1806
Partners shall render on demand true and
full information of all things affecting the
partnership to any partner or the legal
representative of any partner
Art 1807
Every partner must account to the
partnership for any benefit
duty of account:
general provision: everything that you
receive on behalf of the partnership, you
must return to the partnership
Art 1808
Capitalist partners cannot engage for their
own cannot in any operation which is of the
kind of business
Violate: must bring common fund and shall
personally bear the losses
Art 1809
Any partner shall have the right to a formal
account as to the partner affairs:
1. wrongfully excluded
2. right exists under the terms of any
agreement
3. 1807
4. Other circumstances
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Section 2: Property Rights of a Partner
Art 1810
Property Rights of a Partner
1. Rights in specific partnership
property
2. Interest in the partnership
3. Right to participate in management
attachment
- abscond (attach the property para di
na ma ibenta
execution
- court order
- issue a notice of garnishment from
widrawing from the account
Art 1811
property
a partner is a co owner along with the other
partners of partnership property - false
Art 1812
A partner’s interest: profits and surplus
co ownership
- right to use for the partnership
purposes
surplus – assets of the partnership after the
partnership debts and liabilities are paid
assignment - assignee steps into the shoes
of the assignor, all rights go to
can a partner assign partnership property:
no
it is the property of the partnership (sjp)
2
rights of the partners
exemption
who makes the assignment: all the partners
3
attachment
utang ng partnership: partnership
may ari partnership
utang na personal: partnership
kaninong properties yung properties:
partner
4
support that is indespensible to dwelling
sustenance and eduation of a dependent
use partnership property to satisify their
needs: no
profit - excess of returns over expenditure
Art 1813
Conveyance by a partner of his whole
interest does not dissolve partnership
Rights withheld from assignee
1. Interfere in the management
2. Require any information
3. Inspect partnership books
Rights of assignee of partner’s interest
1. Receive in accordance with his
contract
2. Avail himself of the usual remedies
3. Receive the assignor’s interest in
case of dissolution
4. Require an account of partnership
affairs in case of dissolution
Art 1814
Any judgement creditor of a partner, may
charge interest of the debtor partner with
payment of the unsatisfied amount of such
judgement debt with interest thereon
The interest charged may be redeemed at
any time before foreclosure, may be
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purchased without thereby causing a
dissolution
Every partnership shall operate under a firm
name
Remedies of separate judgement creditor of
a partner:
Not members but included their names in
the firm shall be subjected to the liability of
a partner
1. Application for a charging order:
A separate creditor cannot attach upon
specific partnership property for the
satisfaction of his credit
Right of partners to choose firm name
1. Use of misleading name
2. Use of names of deceased persons
Charging order
- Collection remedy that a creditor
uses to execute against judgement
debtor’s interest in a partnership
Art 1816
All partners are liable pro rata with all their
property and after all the assets have been
exhausted
Preferred rights of partnership creditors:
The claims of partnership creditors must be
satisfied first before the separate creditors
of the partners can be paid out
Any partner may enter into a separate
obligation to perform a partnership contract
Redemptioner:
The interest of the debtor partner so
charged may be redeemed with the
separate property of any one or more of the
partners, or with the partnership property
but with the consent of all the partners
whose interest are not so charged or sold
Redemption price:
Inadequacy of the price obtained
Right of redeeming non-debtor partner:
Redeeming non debtor partnership does
not acquire absolute ownership, but holds it
in trust for him (fiduciary)
Right of partner under exemption laws:
A partner cannot claim any right under the
exemption laws when specific partnership
property is attached for partnership debt
Partnership liability
- partners are principals to the other
partners and agents for them and
the partnership
- liable to third persons who have
dealt with one of them in t
Individual liability
- a partner may assume a separate
undertaking
- partner is personally bound even if
only the partnership is shown to
have derived benefits from it
Nature of individual liability of partners
1. Pro rata (jointly) – based on the
number of partners
2. Subsidiary – partners become
personally liable only after all the
partnership assets have been
exhausted
3. Industrial partner – not liable for
losses but liable for liability
Art 1815
Art 1817
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Any stipulation against the liability laid
down shall be void, except as among the
partners
Art 1818
Every partner is an agent of the partnership
Ordinary course of the business
Unless partner acting has no authority
Act of a partner
Not ordinary course of the business
Does not bind the partnership
Unless authorized by other partners
No act of a partner in contravention of a
restriction on authority shall bind the
partnership to persons having knowledge of
the restriction
Power of partner as agent of partnership
1. As among themselves
a. Acts within the scope of
his actual authority =
agent to the partnership
b. Agreement is silent as to
the authority = implied
authority → based on the
doctrine of estoppel
c. principal as to himself, and to
the partnership, and copartners
has unlimited authority → partnership
is not liable for the acts of an
unauthorized partner unless they
ratify
a. Founded on the doctrine
of mutual agency
b. Limitations upon the
authority of any one of
the partners are not
binding upon innocent
third persons → have the
right to assume that
every general partner has
power to bind the
partnership
c. Third persons
Liability of partnership for acts of partners
1. Every partner may execute acts with
binding effect on the partnership
even if he has no authority
unless the third person has
knowledge of such lack of
authority
2. Partnership is not bound for acts
which are not apparently for
carrying on in the usual way
3. Partnership is not liable to third
persons having actual or
presumptive knowledge of the
restrictions
2. As to third persons
No duty to make inquiries as to acting
partner’s authority
Presumption that acting partner has
authority to bind partnership →
presumption is sufficient to hold the
firm liable on transactions
No right to assume that acting partner
Liability of Partner Acting Without Authority
A partner to undertakes to bind his copartners by a contract without authority is
himself personally liable
Art 1819
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; but partnership may
recover such property unless the partner’s
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act binds the 1st paragraph of 1818 or unless
such property has been conveyed by the
grantee or a person claiming through such
guarantee to a holder for value without
knowledge that the partner exceeded his
authority
Title to real property – partnership
A conveyance executed by a partner in his
own name passes the equitable interest
Title to real property – name of one or more
partners but not all
Partnership may recover the property if the
partners’ act does not bind the partnership
Title to real property – name of one or more
or all partners
A conveyance executed by a partner in the
partnership name
Passes equitable interest
Where the title to real property is in the
names of all the partners, a conveyance
executed by all the partners passes all their
rights in such property
A purchaser without notice may
acquire a valid title, right to
presume possession
2. Legal title of property in
partnership name, conveyed
in partnership name
A conveyance by a partner of
partnership property in the
partnership name even though
without authority, cannot be
removed by the partnership
3. Ratification of conveyance
partnership name yung real
property, pero partner lang nag
benta under his own name
transfer: equitable interest, legal
title
legal title: siya may ari against
the whole world
equitable ownership: right mo
lang only with respect who sold
it to you
Conveyance or real property belonging to
partnership
1. Prima facie ownership of real
property
Indicate in the certificate of title
Art 1820
An admission or representation made by
any partner concerning partnership affairs
within the scope of his authority in
accordance with this title is evidence
against the partnership
Presumption that property purchased with
partnership funds belongs to the
partnership
Art 1821
Protection of innocent purchaser’s
for value
1. Legal title to partnership
property in partner making
the conveyance
Legal title: partner making
Equitable interest: partnership
Notice to or knowledge of any partner
of any matter relating to partnership
affairs operates as a notice to or
knowledge of the partnership (except
in case of fraud)
mutual agency
- the partners are considered
as agent of the partnership
and one another*
- agent: yung ginawa ng isa is
as good as the other
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-
notice to the partner is notice
to the partnership
may right kang mag demanda: bc
of damages
7 -> 15 days
u can refuse to pay:
made representation for the
partnership
ang sinabi ng isang tao cannot
prejudice another
dapat nanghingi ng letter of
authorization
unless the person is authorized
rule exception
one person can be prejudice of the
act of the partner
because mutual agency - notice to
the partner is notice to the
partnership, an act of the
partner is act to the
partnership
Art 1822
Any wrongful act/omission
Ordinary course of business
Loss/injury to any person not a partner
Partnership is liable, same extend to the
acting partner
Art 1823
The partnership is bound to make good the
loss:
1. When one partner acting within the
scoop of his apparent authority
receives money/property of a third
person and misapplies it
2. Where the partnership in the course
of its business receives
money/property of a third person
and the money/property so received
is misapplied by any partner while it
is in custody of the partnership
Art 1824
all partners are liable
because solidary liable
you can directly use (the liability is
direct)
industrial partner nabungo old lady
(accident)
but using airpods, but using for
delivery
situation: quasi delict
requisites of quasi delict:
- wrong act or omission
(omission - wala kang
ginawa, u didnt do it)
negligence: lack of foresight
(speed), lack of skill/imprudence
(lasing)
ex: reckless imprudence resulting
to homicide
murder - qualifying circumstances
(pinagplanuhan)
- damage
- through fault/negligence
- no agreement
who can sue: the partnership,
acting partner, all the partners
because: obligations of the
partnership = obligation of all
partners
requisite:
1. guilty of wrongful act/omission
2. acting in the ordinary course of
business
Art 1825
Estoppel – when a person represents
himself as a partner in an existing
partnership, he is liable to any such persons
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to whom such representation has been
made
1. Partnership liability – liable as
though he were an actual member
2. No partnership liability – liable pro
rata
When all members of the existing
partnership consent to the representation,
a partnership act/obligation results
Estoppel
- Precludes a person from denying to
that which has been established as
the truth by his own deed
- Misrepresentation
- Cannot be denied
Art 1826
Person admitted as a partner into an
existing partnership is liable for all the
obligations arising before his admission
Liability shall be satisfied only out of
partnership property
Art 1827
The creditors shall be preferred to those of
each partner as regards the partnership
property
Private creditors of each partner may ask
for the attachment and public sale
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Chapter 3: Dissolution and Winding Up
Art 1828
The dissolution of a partner is the change of
relations of the partners caused by any
partners ceasing to be associated in the
carrying on as distinguished from the
winding up of the business
Winding up – settling of the business affairs
after dissolution
Termination – end of partnership life
Art 1829
On dissolution, Partnership is not
terminated
Continues until the winding up is completed
Art 1830
Dissolution is caused:
Without violation of agreement
1. Termination of term
2. Express will of any partner, must act
in good faith
3. Express will of all partner
4. Expulsion
In contravention of agreement
Any event – unlawful
Promise to contribute perishes
Death
Insolvency
Civil interdiction
Decree of court
Without violation
1. Termination of term
2. Express will of any partner –
partnership at will
3. Express will of all partner –
particular partnership
4. Expulsion
Loss of specific thing
Loss before delivery – dissolved
Loss after delivery – not dissolved
Loss where use contributed – partners
bears loss
Art 1831
Court shall decree
1. Insane
2. Incapable
3. Guilty of such conduct
4. Willfully commits a breach
5. Carried at a loss
6. Other circumstances
Art 1832
Authority of partner ceases when not AID
Exception: purpose of winding up
Art 1833
AID + 3RD person to whom a partner
contracts with has no knowledge of AID =
contract entered into is binding to the
partnership
As if the partnership has not been dissolved
Unless
a. Acting partner has knowledge
b. Acting partner has knowledge or
notice
Knowledge – knowledge of other facts
Notice – delivers through mail, a written
statement of the fact
Art 1834*
After dissolution, a partner can bind the
partnership except
1. Act appropriate for winding up
partnership affairs
2. Any transaction which would bind
the partnership
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Notice of dissolution to creditors
As to persons who extended credit to
partnership prior to dissolution – customers
must have knowledge or notice to relieve
the partnership from liability
As to persons who had known of
partnership’s existence – published in the
newspaper is sufficient
Dormant partner need not give notice
Art 1835
Dissolution of the partnership does not
discharge the existing liability of any partner
Discharge by an agreement between
partnership creditor and partners
Individual property of a deceased partner
shall be liable for all obligations incurred
while he was a partner
Art 1836
Partners who have not wrongfully dissolved
the partnership, legal representative of last
surviving partner
Has the right to wind up the partnership
affairs
Manner of winding up
1. Judicially – court
2. Extrajudicially – partners
Persons authorized to wind up
1. Designated in agreement
2. All partners who have not
wrongfully dissolved the partnership
3. Legal representative of the last
surviving partner
Art 1837
Dissolution is cause in any way expect in
contravention
May have the partnership property applied
to discharge its liabilities and surplus
applied to pay in cash the net amount
owing the partner
Dissolution – expulsion
Expelled partner is discharged from all
partnership liabilities
Shall receive in cash only the net amount
due him from the partnership
Dissolution – in contravention
Partner who has not cause dissolution:
All rights in 1st paragraph
Damages
Desire to continue business may do so
Provided secure the payment by bond
approved by court
Pay to any partner who has caused the
dissolution wrongfully, value of interest less
any damages
Partner who has caused the dissolution
wrongfully shall have
a. Business not continued: All rights 1st
paragraph, subject to liability for
damages
b. Business continued: interest less
damages, released from all existing
liabilities
Art 1838
Partnership contract -> fraud
Party entitled to rescind
Lien – interest over a property to secure the
payment of debt
Partners are subsidiary liable
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1. To a lien on, right of retention of
surplus after satisfying the
partnership liabilities
2. To stand in the place of the creditors
of the partnership after all liabilities
to third persons has been satisfied
3. To be indemnified by the person
guilty
Art 1842
Liquidation is not necessary when there is
already a settlement or an agreement as to
what he shall receive
4.
Art 1839
Settling accounts between the partners
after dissolution
Assets:
1. Partnership property
2. Contributions
Liabilities:
1. Partnership creditor
2. Partners other than capital and
profits
3. Partners – capital
4. Partners – profit
Distribution of property of insolvent
partner:
1. Separate creditors
2. Partnership creditors
3. Partners by way of contribution
Art 1841
Legal representative may have the value of
his interest at the date of dissolution
Administrator: person appointed by the
court to be in charge of the estate when
someone dies without a Last Will and
Testament.
Executor: person appointed by the court to
be in charge of the estate when someone
dies with a Last Will and Testament.
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Chapter 4: Limited Partnership
The limited partnership is one formed by
two or more persons under the provisions
of the following article, having as members
one or more general partners and one or
more limited partners. The limited partners
as such shall not be bound by the
obligations of the partnership
Characteristics of a limited
1. Compliance with the requirements
2. One or more general partners:
personally liable
3. One or more limited partners:
contribute to capital, share in profit,
do not participate in management,
not personally liable
4. Limited partners may ask for the
return of capital contribution
5. Partnership debts: paid out of the
common fund of the individual
properties of general partners
2 classes of partners:
General partner
Limited partner – liability is limited to
the amount of money contributed
(expectation to the general rule – pro
rata)
Business reason and purpose of statutes
authorizing formation of limited partnership
1. Secure capital from others for one’s
business and still remain control
Men in business often desire to secure
capital from others
3 classes of contracts
1. The ordinary loan on interest
2. The lender takes a share in the
profits of the business
3. Person advancing the capital secures
General Partnership
Limited Partnership
Can be constituted in any
form of contract/conduct
of the parties
Created by members
after compliance with
the requirements
Composed only of general
partners
Governed by law
Must be followed by the
word “Limited”
Dissolution and winding up
are governed by different
rules
Art 1844
Two or more persons desiring to form a
limited partnership shall:
1. Sign and swear to a certificate
2. File for record the certificate in SEC
Limited partnership is not a mere voluntary
agreement
Requirements of the statute must be
followed
So that public notice may be given to all
who desire the essential features of the
partnership
Limited partnership formed: compliance in
good faith with the requirements set forth
Otherwise, the partnership becomes a
general partnership
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Requirements for formation of a limited
partnership
1. Certificate or articles of the limited
partnership, must be signed and
sworn to
2. Certificate must be filed in SEC
Purpose of certificate: to give actual notice
to potential creditors of limited liab
Presumption of general partnership:
Partnership transacting business – prima
facie a general partnership
Those who seek to avail themselves of the
protection accorded by law must conform
to the requirements
Failure to extend its term or register:
divesting privilege of limited liability
Art 1845
Contributions of limited partner: cash or
other property
Not services
A partner may be a general partner and a
limited partner at the same time (should be
stated in the certificate) but a limited
partner may not be an industrial partner
without being a general partner
Art 1846
Surname of limited partner shall not appear
in the partnership name unless:
1. Also the surname of the general
partner
2. Business had been carried on under
a name in which his surname
appeared
A limited partner whose surname appears
contrary is liable as a general partner
Liable to partnership creditors
Art 1847
Certificate contains 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 time he signed the certificate
2. Sufficient time before the statement
was relied upon to enable him to
cancel
Art 1848
Limited partner shall not become liable as a
general partner unless he takes part in the
control of the business
Art 1849
Additional limited partners may be
admitted upon filling an amendment to the
original certificate
Art 1850
A general partner shall have all rights and
powers and be subject to all restrictions and
liabilities. Without written consent or
ratification, a general partner has no
authority to
Art 1851
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Shall have the same rights as a general
partner
1. Have partnership books kept at the
principal place of business
2. Demand true and full information
3. Dissolution and winding up by
decree of court
Art 1852
A person who has contributed to the capital
of a business, believing that he has become
a limited is not reason by exercise of the
rights of the limited partner
Art 1853
A person may be a general partner and a
limited partner in the same partnership
Rights and powers: general partner (liable
with his separate property)
Contribution: limited partner
Art 1856
A limited partner may receive from the
partnership the share of profits or the
compensation stipulate in the certificate
The partnership assets are in excess of all
liabilities of the partnership except liabilities
to limited partners on account of their
contribution and to general partners
Third party creditors have priority over the
limited partner’s rights
Art 1857
A limited partner shall not receive from a
general partner/partnership property any
part of his contribution until
1. All liabilities have been paid
2. Consent of all members is had
3. Certificate is cancelled
Art 1854
A limited partner may loan money and
transact other business with the
partnership, unless he is a general partner
Limited partner may rightfully demand the
return of his contribution
1. On the dissolution
2. Date specified in the certificate
3. After he has given 6 months’ notice
in writing to all other members
No limited partner shall claim:
1. Collateral security
2. Receive payment from a general
partner/partnership
Absence of any agreement: right to demand
cash in return for his contribution
Art 1855
One or more of the limited partners shall
have priority to return of contributions,
compensation (must be stated in the
agreement)
Absence of agreement: equal footing
Limited partner may have the partnership
dissolved
1. He rightfully but unsuccessfully
demands the return of his
contribution
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2. Other liabilities have not been paid
or partnership property is
insufficient
Art 1858
A limited partner is liable to the partnership
1. Difference between his contribution
and stated in the certificate
2. For any unpaid contribution
A limited partner holds as trustee for the
partnership
1. Specific property stated in the
contribution was not contributed
2. Money or property wrongfully paid
The liabilities can be waived only by the
consent of all members
Contributor rightfully received the return of
contribution, he is still liable
Art 1859
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 assigned his
interest in a partnership
Assignee
- does not become a substituted
limited partner
- no right to require any information
- only entitled to receive the share of
the profits
- have the right to become a
substitute limited partner if all the
members consent (when the
certificate is appropriately
amended)
Art 1860
The retirement, death, insolvency, insanity,
civil interdiction of a general partner
dissolves the partnership, unless the
business is continued by remaining general
partners
1. stated in the certificate
2. consent of all members
Art 1861
On the death of a limited partner his
executor and administrator shall have the
right of a limited partner
Administrator: person appointed by the
court to be in charge of the estate when
someone dies without a Last Will and
Testament.
Executor: person appointed by the court to
be in charge of the estate when someone
dies with a Last Will and Testament.
Art 1862
Court may charge the interest of the
indebted limited partner
Interest may be redeemed with the
separate property of any general partner
But not be redeemed with the partnership
property
Art 1814*
two ways to
- separate property of any of the
partners
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partnership property (consent of all
partners) except the partner whose
interest is charged or sold
2nd option does not exist in the limited
partnership setting*
-
Art 1863
Who has priority over distribution of assets
in a limited partnership?
1. Creditors, including limited partners
who have a claim against the
partnership, except those on
account
2. Limited partners share in profits
3. Limited partners return of capital
contribution
4. General partners other than for
capital and profit
5. General partners share in profits
6. General partners return of capital
contribution
The difference of this with general
partnerships is that in a general
partnership:
capital contributions are returned BEFORE
profits from surplus are shared.
3. Recorded in Sec
Art 1866
A contributor, unless a general partner
Not a proper party to proceedings
Except where the object is to enforce a
limited partner
A limited partner
- Mere contributor
- Liability is limited to his interest in
the firm
- Without any right and power to
participate in the management
- Liability is to the partnership
Art 1867
A limited partnership may become a limited
partnership provided that the certificate
sets forth:
1. Amount of original contribution and
time when contribution was made
2. Excess assets over liability
Art 1864
Certificate shall be cancelled when the
partnership is dissolved
A certificate shall be amended (many stuff)
Art 1865
1. Conform to the requirements of
Articles of 1844 (registered in sec)
2. Signed and sworn by all partners
Requirements to amend/cancel certificate
1. In writing
2. Signed and sworn
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How do you distinguish Limited Partner
from a General Partner?
1. Limited to the amount of money he
has put into the partnership
2. No prohibition in engaging in
business for himself
3. No share in the management
4. May only contribute cash or property
5. Not a proper party to proceedings by
or against a partnership
6. Interest is freely assignable →
assignee acquires all the rights of a
limited partner
7. Name cannot appear in the firm
name
8. Retirement, etc. does not have the
same effect (dissolution)
6. Must have “Limited” in the firm name
Can an Industrial partner be a limited
partner?
What about a limited Partnership v.
General Partnership?
Art 1853
A person may be a general partner and a
limited partner in the same partnership
General Partnership
Limited Partnership
Can be constituted in any
form of contract/conduct of
the parties
Created by members after
compliance
with
the
requirements
Composed only of general
partners
Governed by law
Must be followed by the
word “Limited”
Dissolution and winding up
are governed by different
rules
1. Formed by compliance with the
requirements
2. One or more general partners →
control the business and are
personally liable to creditors
3. One or more limited partners →
contribute to the capital, have a
share in profits, do not participate in
the management, are not personally
liable for partnership obligations
beyond their capital contribution
4. The limited partners may ask for the
return of their capital contributions
5. The partnership debts are paid out
of the common fund and the
individual properties of the general
partner
A partner may be a general partner and a
limited partner at the same time (should be
stated in the certificate) but a limited
partner may not be an industrial partner
without being a general partner
Art 1845
Contributions of limited partner: cash or
other property, not services (because he
will be considered as an industrial and
general partner, he shall not be exempted
from personal liability)
Rights and powers: general partner (liable
with his separate property)
Contribution: limited partner
Art 1861
On the death of a limited partner his
executor and administrator shall have the
right of a limited partner
Administrator: person appointed by the
court to be in charge of the estate when
someone dies without a Last Will and
Testament.
Executor: person appointed by the court to
be in charge of the estate when someone
dies with a Last Will and Testament.
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General:
Dissolution
In settling accounts,
The liabilities of the partnership shall rank in
order of payment
1. Owing to the partnership creditor
2. Owing to the partners other than
capital and profits
3. Owing to the partners with respect to
capital
4. Owing to the partners with respect to
the profit
Art 1814
indebted partner
court may charge the interest
separate property of any general partner
and partnership property
Limited:
Art 1862
indebted limited partner
court may charge the interest
separate property of any general partner
not with partnership property
Art 1863
Limited:
Who has priority over distribution of assets
in a limited partnership?
1. Creditors, including limited partners
who have a claim against the
partnership, except those on
account
2. Limited partners share in profits
3. Limited partners return of capital
contribution
4. General partners other than for
capital and profit
5. General partners share in profits
6. General partners return of capital
contribution
The difference of this with general
partnerships is that in a general partnership:
capital contributions are returned before
profits from surplus are shared.
General:
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