BUSINESS LAW AND REGULATIONS – PRELIMS REVIEWER
What is Partnership?
ART. 1767. By the contract of partnership
two or more persons bind themselves to
contribute money, property, or industry
to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a
partnership for the exercise of a
profession. (1665a)
Characteristics of partnership
1. Consensual. It is perfected by mere
consent,
upon
express
or
implied
agreement of two(2) or more persons.
2. Nominate. It has a special name or
designation in our law.
3. Bilateral. It is entered into by 2 or more
persons and the rights and obligations
arising therefrom are always reciprocal.
4. Onerous. Each of the parties aspires to
procure for himself a benefit through the
giving of something.
5. Commutative. The undertaking of each
of the partner is considered as the
equivalent of that of the others.
6. Principal. It does not depend for its
existence or validity upon some other
contract.
7. Preparatory. It is entered into as a
means to an end i.e. to engage in business
for the realization of profits with the view of
dividing them among the contracting parties.
8. Agency. A partnership contract, in its
essence, is a contract of agency.
9. Fiduciary. It is a form of voluntary
association entered into by the associates.
10. Contractual. All the requisites of a valid
contract must be present.
Essential Requisites of Partnership
1. There must be a valid contract between
2 or more partners.
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. The object must be lawful.
5. Primary purpose must be to obtain
profits and to divide the same among the
parties.
Existence of a valid contract.
1. A form of voluntary and personal
association. – It is a personal relation in
which the element of delectus personae
(choice of the person or choice of the
persons) exists.
2. Creation and proof of existence. – It may
be informally created and its existence
proved by the conduct or acts of the parties.
3. Other forms of association excluded –
Partnership excludes from its concept all
other associations which do not have their
origin in a contract, express or implied.
A limited partnership, however, as
distinguished from a general partnership,
cannot be created by mere voluntary
agreement alone.
Legal capacity of parties to enter into the
contract.
1. General Rule – any person may be a
partner who is capable under the law of
entering into contractual relations. The
following cannot give their consent to a
contract of partnership:
a. Unemancipated minors
b. Insane or demented persons
c. Deaf-mutes who do not know how to
write
d. Persons
suffering
from
civil
interdiction
e. Incompetents
who
are
under
guardianship.
2. Exceptions – Under Art. 1782, persons
who are prohibited from giving each other
any donation or advantage cannot enter into
a universal partnership.
3. Capacity of partnership/corporation to be
a partner – The typical partnership is
composed of individual human beings. But
there is no prohibition against a partnership
being a partner in another partnership.
Mutual contribution to a common fund.
1. Proprietary or financial interest – The
partners must have a proprietary or financial
interest in the business.
2. Form 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 – work or services of the
party associated.
Legality of object.
- Not contrary to law, morals, good
customs, public order, or public
policy.
- Comply with specific form of
business organization.
- Effect of unlawful/illegal partnership:
no partnership can arise as the
contract is void ab initio (void or
without force and effect from the
beginning).
Intention to realize & divide profits.
1. The very reason for the existence of
partnership.
2. Sufficient if obtaining profit is the principal
purpose.
Sharing of profits.
1. Not necessarily in equal shares.
2. Not conclusive evidence of partnership.
Sharing of losses.
1. Necessary corally of sharing in profits.
2. Agreement not necessary.
Rules
to
Determine
Whether
a
Partnership Exists (Art. 1769)
1. Except as provided by Art. 1825,
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 whether such
co-owners or co-possessors do or do
not share any profits made by the use of
the property.
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 from which the returns are
derived.
4. The receipt by a person of a share of
the profits of a business is prima facie
evidence that he is a partner in the
business.
Exceptions to par. 4:
a. As a debt by installments or otherwise.
b. As wages of an employee or rent to a
landlord.
c. As an annuity to a widow or
representative of a deceased partner.
d. As interest on a loan, though the amount
of payment vary with the profits of the
business.
e. As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise.
Summary:
Legal Intention Test
Only those terms of a contract upon which
the parties have reached an actual
understanding, either expressly or impliedly,
may afford a test
Check the Incidents
a. Partners share in profits and losses
b. Equal rights in the management and
conduct of the partnership business
c. Partner is an agent of the partnership
who can bind other partners by his acts
d. All partners are personally liable for the
debts of the partnership with their separate
property, except that limited partners
e. Fiduciary relation exists between the
partners
f. On dissolution, the partnership is not
terminated, but continues until the winding
up of partnership is completed.
FORM OF PARTNERSHIP
General Rule: No required form
Exceptions:
1. Where immovable property or real rights
are contributed thereto, in which case a
public instrument shall be necessary. (Art
1771) Effect: Void
2. Every contract of partnership having a
capital of three thousand pesos or more, in
money or property, shall appear in a public
instrument, which must be recorded in the
Office of the Securities and Exchange
Commission. (Art.1772) Effect: Valid but
not enforceable to third persons
3. Whenever immovable property is
contributed thereto, an inventory of said
property must be made, signed by the
parties, and attached to the public
instrument. (Art. 1773) Effect: Void
COMMENCEMENT OF A PARTNERSHIP
Art. 1784. A partnership begins from the
moment of the execution of the contract,
unless it is otherwise stipulated.
KINDS OF PARTNERSHIP
A) As to object
1. Universal Partnership (Art. 1777)
2. Particular Partnership (Art. 1783)
OTHER MATTERS: UNIVERSAL
PARTNERSHIP
Articles of universal partnership, entered
into without specification of its nature, only
constitute a universal partnership of profits.
(Article 1781)
Prohibited donations:
1. Between the spouses during the marriage
except moderate gifts on the occasion of
any family rejoicing (Art. 87)
2. Between persons who were guilty of
adultery or concubinage at the time of the
donation (Art. 739)
3. Between persons found guilty of the
same criminal offense, in consideration
thereof (Art. 739)
4. Those made to a public officer or his wife,
descendants and ascendants, by reason of
his office (Art. 739)
OTHER KINDS OF PARTNERSHIP
As to liability (Art. 1776)
1. General Partnership. A partnership
where all the partners are general partners
who are liable to the extent of their separate
property after the partnership assets have
been exhausted.
2. 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. (Art. 1843.)
As to duration
1. Partnership for Fixed Term. One in
which the term for which the partnership is
to exist is fixed and upon the expiration of
the term, the partnership is dissolved,
unless continued by the partners.
2. Partnership for Particular Undertaking.
One formed for a particular undertaking,
and upon the completion of the particular
enterprise, the partnership is dissolved,
unless continued by the partners.
3. 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 at anytime by mutual
agreement of the partners, or by the will of
any one partner alone; or one for a fixed
term or particular undertaking which is
continued by the partners after the
termination of such term or particular
undertaking without express agreement.
As to representation to others:
1. Ordinary or Real Partnership. One
which actually exists among the partners
and also as to third persons.
2. Partnership by Estoppel or Ostensible
Partnership. One which in reality is not a
partnership, but is considered a partnership
only in relation to those who, by their
conduct or admission, are precluded to
deny or disprove its existence.
Partnership by estoppel may rise through
any of the following means:
a. When a person represents himself as a
partner in an existing partnership.
● If all the partners consent to such
misrepresentation
partnership
incurs liability.
● If not all partners consented to the
misrepresentation - partnership does
not incur any liability. Actual partners
who
consented
to
the
misrepresentation and the person
who made the misrepresentation
shall bear any liability jointly or pro
rata.
b. When a person represents himself as a
partner in a non-existent partnership.
As to legality of its existence
1. De jure partnership. One which has
complied with all the legal requirements for
its establishment.
2. De facto partnership. One which has
failed to comply with all the legal
requirements for its establishment.
As to publicity
1. 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.
2. Open or notorious partnership. One
whose existence is avowed or made
known to the public by the members of the
firm.
1. Commercial or trading partnership.
One formed for the transaction of business.
2.
Professional
or
non-trading
partnership. One formed for the exercise of
a profession.
KINDS OF PARTNERS
Under the Civil Code
1. Capitalist partner or one who
contributes money or property to the
common fund (Art. 1767)
2. Industrial partner or one who
contributes only his industry or personal
service (Arts. 1789, 1767)
3. General/real partner or one whose
liability to third persons extends to his
separate property (Arts. 1843, 1816)
4. Limited/special partner or one whose
liability to third persons is limited to his
capital contribution (Art. 1843)
5. General-limited partner or one who has
all the rights and powers and is subject to all
restrictions of general partner, except that,
in respect to his contribution, he shall have
the rights against other members which he
would have had if he were not also a
general partner. Ex: He is liable as general
partner but he may seek reimbursement
from the other partners.
6. Managing partner or one who manages
the affairs or business of the partnership
(Art. 1800)
7. Liquidating partner or one who takes
charge of the winding up of partnership
affairs upon dissolution (Art. 1836)
8. Partner by estoppel/ partner by
implication/nominal partner or 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 third
persons (Art. 1825)
9. Continuing partner or one who
continues the business of a partnership
after it has been dissolved by reason of the
admission of a new partner, or the
retirement, death, or expulsion of one or
more partners (Art. 1840)
10. Surviving partner or one who remains
after a partnership has been dissolved by
the death of any partner (Art. 1842)
11. Subpartner or one who, not being a
member of the partnership, contracts with a
partner with reference to the latter’s share in
the partnership (Art. 1804)
Other Classifications
1. Ostensible partner or 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.
2. Secret partner or one who takes active
part in the business but is not known to be a
partner by outside parties nor held out as a
partner by the other partners although he
participates in the profits and losses of the
partnership. Actual and active partner
3. Silent partner or one who does not take
any active part in the business although he
may be known to be a partner
4. Dormant/sleeping partner or one who
does not take active part in the business
and is not known or held out as a partner.
May retire from the partnership without
giving notice and cannot be held liable for
obligations of the firm subsequent to his
withdrawal
5. Original partner or one who is a member
of the partnership from the time of its
organization
6. Incoming partner or a person lately, or
about to be, taken into an existing
partnership as a member
7. Retiring partner or one withdrawn from
the partnership; a withdrawing partner.
— Week 3 —
RULES ON MANAGEMENT
When a partner has been appointed
manager in the articles of partnership
(Art. 1800)
Scope of authority
- He may execute all acts of administration
despite the opposition of his partners,
unless he should act in bad faith.
Revocation of appointment
- His power is irrevocable except for just or
lawful cause.
- The vote of the partners representing the
controlling interest shall be necessary for
such revocation of power.
When power is granted after the
partnership has been constituted (Art.
1800)
Scope of authority
- He may execute all acts of administration
but in case of opposition by the other
partners, the partners owning the controlling
interest may resort to voting for his removal
as manager.
Revocation of appointment
- His power is revocable with or without just
or lawful cause.
If two or more partners have been
entrusted with the management of the
partnership (Art. 1801)
When there is no specification of their
respective duties, or no stipulation that one
of them shall not act without the consent of
all the others
Scope of authority
- Each one may separately execute all acts
of administration, but if any of them should
oppose the acts of the others, the decision
of the majority shall prevail.
- In case of a tie, the matter shall be
decided by the partners owning the
controlling interest.
When there is a stipulation that none of
the managing partners shall act without
the consent of the others (Art. 1802)
Scope of authority
- The concurrence of all shall be necessary
for the validity of the acts
- The absence or disability of any one of
them cannot be alleged, unless there is
imminent danger of grave or irreparable
injury to the partnership.
When the manner of management has
not been agreed upon (Art. 1803)
Scope of authority
- All the partners shall be considered agents
- None of the partners may, without the
consent of the others, make any important
alteration in the immovable property of the
partnership, even if it may be useful to the
partnership.
- 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.
ACQUISITION AND CONVEYANCE OF
PROPERTY
Ownership: In the partnership name
Who Conveys
Effect of Conveyance
Partnership name
Title passes
Partnership name –
not made for
business or
transferred to
acquirer in good faith
Title passes but
recoverable
Partner’s name
Title does not pass,
only equitable interest
passes
Partner’s name –
without authority
Title does not pass,
equitable interest
does not pass
Ownership: In the name of one or more
but not all the partners
Who Conveys
Effect of Conveyance
Partner-Registered
owner
Title passes
Partner-Registered
owner - not made for
business or
transferred to
acquirer in good faith
Title passes but
recoverable
Partnership name, or
in name other than
registered owner
Title does not pass,
only equitable interest
passes
Partnership name, or
in name other than
registered owner –
without authority
Title does not pass,
equitable interest
does not pass
REPRESENTATION OF AND NOTICE
TO PARTNERS
When admission or representation made
by any partner may be taken as evidence
against the partnership
1. The admission or representation
concerns partnership affairs.
2. It must be made within the scope of the
partner’s authority.
3. It must be made during the existence of
the partnership.
4. The existence of the partnership must be
shown by evidence other than by such
admission or representation.
Effect of notice to and knowledge of a
partner (Art. 1821)
1. Notice to any partner of any matter
relating to partnership affairs is deemed
notice to the partnership.
2. Knowledge of the partner acting in the
particular matter, acquired while he is
already a partner or knowledge he acquired
prior his admission to the partnership
provided he still remembers it is knowledge
to the partnership and binding against it.
shares to the capital of the partnership. (Art.
1790)
- The capital must be delivered to the
partnership at the time it was constituted or
on the date stipulated/agreed upon.
Obligation with respect to contribution of
property:
- bound for warranty against eviction
- liable for the fruits from agreed
delivery date
- Appraisal of goods contributed
Obligation with respect to contribution of
money
- Liable as debtor for the interest and
damages
2. AS TO AMOUNT MISAPPROPRIATED
A partner who has taken any amount from
the partnership coffers becomes a debtor
for the interest and damages from the time
he converted the amount to his own use.
(Art. 1788)
3. AS TO ENGAGING IN OTHER
BUSINESS
3. The knowledge of any other partner who
reasonably could and should have
communicated it to the acting partner.
4. Notice to or knowledge of a partner does
not bind the partnership in the case of fraud
on the partnership, committed by or with the
consent of that partner
OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES
1. TO CONTRIBUTE CAPITAL
- Every partner is a debtor of the partnership
for whatever he may have promised to
contribute thereto. (Art. 1786)
- Unless there is a stipulation to the
contrary, the partners shall contribute equal
4. TO CONTRIBUTE ADDITIONAL
CAPITAL
- When agreed - Partner can refuse
- In case of an imminent loss of the
business of the partnership - can refuse.
● If contribution will save the venture partner obliged to sell his interest
provided there is no agreement to
the contrary
●
If contribution will not save the
venture - Not obliged to sell
5. WITH RESPECT TO RECEIPT OF
PARTNERSHIP CREDIT
Illustration 1: Partner authorized to collect
has given a receipt for his own credit only.
- 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 partner's
extraordinary efforts in other activities of the
partnership, unusual profits have been
realized.
7. TO BEAR RISK FOR PROPERTY
CONTRIBUTED
Contributed property – Partnership up to
the appraised value
Usufruct – Partner
Fungible Goods – Partnership
Illustration 2: Exception to Illustration 1
Illustration 3: Partner authorized to collect
has given a receipt for Partnership
8. 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. (Art.
1806)
- The partnership books shall be kept,
subject to any agreement between the
partners, at the principal place of business
of the partnership, and every partner shall at
any reasonable hour have access to and
may inspect and copy any of them. (Art.
1805)
9. TO ACCOUNT
6. TO PAY DAMAGES TO THE
PARTNERSHIP
- Every partner is responsible to the
partnership for damages suffered by it
through his fault.
- 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. (Art. 1807)
10. OBLIGATION OF NEWLY-ADMITTED
PARTNER
Obligations existing at the time of his
admission – liable as though he had been
a partner when such obligations were
incurred, except that this liability shall be
satisfied only out of partnership property,
unless there is a stipulation to the contrary.
Obligation incurred after admission – He
is liable like any other partners pro rata with
their separate property after the partnership
assets have been exhausted.
OBLIGATIONS OF THE PARTNERS
WITH REGARD TO THIRD PERSON
1. CONTRACTS UNDER PARTNERSHIP
- Partners are liable pro rata provided:
1. Those which may be entered into in
the name and for the account of the
partnership, under its signature
2. Those entered by a person
authorized to act for the partnership.
- Any stipulation exempting a partner to
share in partnership liability shall be void,
except as among the partners. (Art. 1817)
2. FOR WRONGFUL ACTS
- The partnership shall be solidarily liable
with all the partners who are parties to the
wrongful act, provided partners acted in the
ordinary course of business, or with actual
or apparent authority.
a. For loss or injury due to wrongful act
or omission of any partner. (Art.
1822)
b. Misapplication of money or property
of a third person
OBLIGATION OF THE PARTNERSHIP
1. OBLIGATION TO PARTNERS
a. To reimburse with interest expenses paid
by partners;
b. To answer to each partner for the
obligations he may have contracted in good
faith in the interest of the partnership
business.
c. To answer for risks in consequence of its
management.
2. CONTRACTS UNDER PARTNERSHIP
- When partnership is bound:
1. If a partner is authorized to act Partnership is bound whether or not the act
is for apparently carrying on in the usual
way the business of partnership.
2. If the partner is not authorized to act - a.
partnership is bound if:
a. The act is for apparently carrying on
in the usual way the business of the
partnership, and
b. The person with whom he is dealing
has no knowledge of the fact that he
has no such authority.
Not for apparently carrying on in the usual
way the business of the partnership:
1. Assign the partnership property in trust
for creditors or on the assignee's promise to
pay the debts of the partnership;
2. Dispose of the good-will of the business;
3. Do any other act which would make it
impossible to carry on the ordinary business
of a partnership;
4. Confess a judgment;
5. Enter into a compromise concerning a
partnership claim or liability;
6. Submit a partnership claim or liability to
arbitration;
7. Renounce a claim of the partnership.
3. FOR WRONGFUL ACTS
- The partnership shall be solidarily liable
with all the partners who are parties to the
wrongful act, provided partners acted in the
ordinary course of business, or with actual
or apparent authority.
a. For loss or injury due to wrongful act
or omission of any partner. (Art.
1822)
b. Misapplication of money or property
of a third person
PROPERTY RIGHTS OF A PARTNER
1. Rights in specific partnership property
(Art. 1811)
2. His interest in the partnership (Art. 1812)
3. Right to participate in management.
1. RIGHTS IN SPECIFIC PARTNERSHIP
PROPERTY
A partner is co-owner with his partners of
specific property.
1. Equal right to possess specific
partnership property for partnership
purposes;
2. Not assignable;
3. Not subject to attachment or
execution
4. Not subject to legal support under
Article 291.
2. INTEREST IN THE PARTNERSHIP
A partner's interest in the partnership is
his share of the profits and surplus.
1. Right convey his interest in the
partnership
- The assignee does not become a partner
hence no right to:
● To interfere in the management or
administration of the partnership
business or affairs,
● To require any information or
account of partnership transactions,
● To inspect the partnership books
2. May be attached for his separate debts
- Court may charge the interest of the
debtor partner with payment of the
unsatisfied amount of such judgment debt
- The interest charged may be redeemed
●
●
With separate property of any
partner
Partnership properties with the
consent of all the partners whose
interests are not so charged or sold.
3. RIGHT TO PARTICIPATE IN THE
MANAGEMENT
OTHER RIGHTS OF A PARTNER
1. To associate another person with him in
his share. (Art. 1804)
2. Right to access, inspect, and copy the
partnership books at reasonable hours. (Art.
1805)
3. To have a formal account of partnerships
affairs (Art. 1809) - subject to conditions
RIGHT TO A FORMAL ACCOUNT AS TO
PARTNERSHIP AFFAIRS
1. If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
2. If the right exists under the terms of any
agreement;
3. As provided by article 1807;
4. Whenever other circumstances render it
just and reasonable.
— Week 4 —
DISTRIBUTION OF PROFITS,
LOSSES, AND LIABILITIES
RULES ON DIVISION OF PROFITS AND
LOSS (ART. 1797)
If the partners have agreed to intrust to a
third person
- May be impugned only when it is
manifestly inequitable
- The designation may no longer be
impugned:
● By partner who has begun to
execute it
●
By any partner if within a period of
three months from the time he had
knowledge thereof, fails to complain
of such decision
Designation of losses and profits intrusted
to one of the partners = Void
Stipulation excluding any partner from any
share in the profits = Void
Stipulation excluding any partner from any
share in the losses = Valid only
to industrial partners.
1. WHEN ALL PARTNERS ARE
CAPITALIST PARTNERS
-
profits – distribute according to profit
sharing agreement.
No agreement both as to profits and
losses – according to capital
contribution.
2. WITH INDUSTRIAL PARTNERS
SHARING OF PROFITS
a. The profits shall be divided
according to their agreement.
b. No agreement – industrial partners
to first receive equitable share,
capitalist
according to capital
contribution.
SHARING OF PROFITS
a. According to their agreement.
b. No agreement both as to profits and
losses - according to capital
contribution.
SHARING OF LOSSES
- industrial partner shall not be liable
for the losses
- According to their agreement.
- No agreement as to sharing of
losses but with agreement as to
profits –
distribute according to
profit sharing agreement.
- No agreement both as to profits and
losses – according to capital
contribution.
SHARING OF LOSSES
- According to their agreement.
- No agreement as to sharing of
losses but with agreement as to
3. WITH CAPITALIST–INDUSTRIAL
PARTNERS
SHARING OF PROFITS
a. The profits shall be divided according to
their agreement.
b. If there is no agreement:
a. The industrial-capitalist partner shall
first receive such share as may be
just and equitable under the
circumstances as decided by the
partners.
b. The share in the profits of the
capitalist partners, including the
industrial-capitalist partner shall be
in proportion to their capital
contribution.
+ Industry. Loss - P12,000, Equitable share
- P3,000.
RULES ON SHARING OF
PARTNERSHIP LIABILITIES TO
THIRD PERSON
Nature of Liability (Art. 1816)
- Pro rata - All partners, including industrial
ones, shall be liable pro rata
- According to the agreed profit and
loss sharing agreement.
- If there is no profit and loss sharing
agreement, the sharing should be
pro rata because the liability is
imposed on all the partners,
including an industrial partner.
- Subsidiary - All partners, including
industrial ones, shall be liable with all their
property and after all the partnership assets
have been exhausted.
SHARING OF LOSSES
- industrial partner shall not be liable
for the losses
- according to their agreement.
- No agreement as to sharing of
losses but with agreement as to
profits – distribute according to profit
sharing agreement.
- No agreement both as to profits and
losses – according to capital
contribution.
Illustration: Ana, Bea, Cassy, and Diane
entered into partnership. Their capital
contributions are: Ana - P10,000; Bea P20,000; Cassy - P30,000; Diane - P40,000
- Exemption as to liability:
- Void as to third persons but shall be
valid among the partners. (Art. 1817)
- The exemption pertains only to the
share in partnership liability after the
exhaustion of partnership assets.
Total
exemption
is
prohibited
pursuant to Art. 1700.
The partnership liabilities shall be paid
as follows:
1. The assets of the partnership shall first
be used to pay the liabilities.
2. If the partnership assets are not
sufficient, the liabilities shall be paid pro rata
by the partners, including industrial
partners, from their separate assets.
3. Once the liabilities are fully paid, the
partners who are not exempted from pro
rata and subsidiary liability shall reimburse
according to profit and loss sharing
agreement or if no profit and loss sharing
agreement, in proportion of their capital
contribution to the following partners:
a. Industrial partners
b. Capitalist
partners
who
are
exempted as per agreement.
Causes of Dissolution (Art. 18730)
1. Without violation of the agreement
between the partners:
a. By the termination of the definite
term or particular undertaking
specified in the agreement;
b. By the express will of any partner,
who must act in good faith, when no
definite term or particular is
specified;
c. By the express will 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 particular
undertaking;
d. By the expulsion of any partner from
the
business
bona
fide
in
accordance with such a power
conferred by the agreement between
the partners;
2. In contravention of the agreement
between the partners, where the
circumstances do not permit a dissolution
under any other provision of this article, by
the express will of any partner at any time;
DISSOLUTION
Dissolution, Winding Up, & Termination
- Dissolution. The change in the relation of
the partners caused by any partner ceasing
to be associated in the carrying on as
distinguished from the winding up of the
business. (Art. 1828)
- Liquidation/Winding Up. The process of
settling the business or affairs of the
partnership after dissolution.
- Termination. The point when all the
businesses or affairs of the partnership are
completely would up.
3. By any event which makes it unlawful
for the business of the partnership to be
carried on or for the members to carry it on
in partnership;
4. In case of loss:
a. When a specific thing which a
partner had promised to contribute
to the partnership, perishes before
the delivery;
b. When the partner who contributed it
having reserved the ownership
thereof, has only transferred to the
partnership the use or enjoyment of
the same;
5. By the death of any partner;
6. By the insolvency of any partner or of
the partnership;
7. By the civil interdiction of any partner;
8. By decree of court under the following
instances: (Art. 1831)
a. On application by or for a partner the
court shall decree a dissolution whenever
1. A partner has been declared insane
in any judicial proceeding or is
shown to be of unsound mind;
2. A partner becomes in any other way
incapable of performing his part of
the partnership contract;
3. A partner has been guilty of such
conduct
as
tends
to
affect
prejudicially the carrying on of the
business;
4. A partner wilfully 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;
5. The business of the partnership can
only be carried on at a loss;
6. Other circumstances render a
dissolution equitable.
EFFECTS OF DISSOLUTION
On dissolution, the partnership is not
terminated. The partnership continues until
the winding up of partnership affairs is
completed. (Art. 1829)
Effect as to the authority of any partner
Dissolution does not terminate authority
when:
a. The act is necessary to wind up
partnership affairs; or
b. To complete transactions begun but not
then finished.
Dissolution terminates all authority of any
partner to act for the partnership:
a. When the dissolution is not by the act,
insolvency or death of a partner; or
b. When the dissolution is by such act,
insolvency or death of a partner, the partner
acting for the partnership had knowledge of:
b.1. Dissolution; or
b.2. Death or insolvency
Effect with respect to persons not
partners
Partnership is bound:
1. By any act appropriate for winding up
partnership affairs
2. Completing transactions unfinished at
dissolution;
3. By any transaction which would bind the
partnership if dissolution had not taken
place, provided the other party to the
transaction:
a. Had extended credit to the
partnership prior to dissolution
● had no knowledge or notice
of the dissolution; or
b. Had not extended credit prior
dissolution (all must be present)
● He knew the partnership
prior to dissolution
● No knowledge or notice of
dissolution
● The fact of dissolution had
not been advertised in a
newspaper
of
general
circulation in the place (or in
each place if more than one)
at which the partnership
business
was
regularly
carried on.
4. Where the partner has no authority to
wind up partnership affairs and the other
party to the transaction:
a. Had extended credit to the
partnership prior to dissolution
● had no knowledge or notice
of the dissolution; or
b. Had not extended credit prior
dissolution (all must be present)
● He knew the partnership
prior to dissolution
● No knowledge or notice of
dissolution
● The fact of dissolution had
not been advertised in a
newspaper
of
general
circulation in the place (or in
each place if more than one)
at which the partnership
business
was
regularly
carried on.
Partnership not bound by any act of a
partner after dissolution:
1. 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
2. Where the partner has become insolvent;
3. Where the partner has no authority to
wind up partnership affairs (be aware of the
exception)
The dissolution of the partnership does not
of itself discharge the existing liability of any
partner.
A partner is discharged from any existing
liability upon dissolution of the partnership
by an agreement to that effect between
himself, the partnership creditor and the
person or partnership continuing the
business.
The individual property of a deceased
partner shall be liable for all obligations of
the partnership incurred while he was a
partner, but subject to the prior payment of
his separate debts.
WINDING UP
Who has the right to wind up the partnership
affairs?
General Rule:
1. The partners who have not wrongfully
dissolved the partnership; or
2. The legal representative of the last
surviving partner who is not insolvent
Exception: There is an agreement
Requirement: There is court order for
winding up.