CHAPTER 1: GENERAL PROVISIONS
Art. 1767-1783
1. Nature and Definition of a Partnership (Art. 17671769)
 A partnership is an agreement where two or
more people contribute money, property, or
industry to a common fund to share profits.
 It may also be formed for the practice of a
profession.
 A partnership has a separate legal personality
from its members.
o Kung di siya legal, void na siya.
 Guidelines to determine the existence of a
partnership:
o Co-ownership or shared gross returns
does not necessarily mean a partnership.
o Sharing of profits is prima facie
evidence of a partnership unless the
profits are received as debt payments,
wages, rent, annuities, interest, or sale of
goodwill.
 Requirements: there must be a valid contract;
parties must have the legal capacity to enter a
contract; have a mutual contribution of money,
property, or common fund; prestation or object
must be legal; and the primary purpose is to earn
a profit
o Industry – services may also be
contributed
 Rules that apply
o People who are partners to each other
are partners to the people they engage
with (this is in alignment with the right
and power of each partner to represent
the business and conduct business with
third persons on behalf of the
partnership)
o Co-ownership (or co-possession) of an
item does not signal a partnership
instantly, even if it does generate profits.
 2 people can be co-owners of
the same property but are not in
a partnership. They just reap the
benefits.
o Sharing profits does not signal a
partnership instantly.
2. Legality and Formalities of a Partnership (Art.
1770-1775)
 The partnership must have a lawful purpose;
otherwise, profits are confiscated by the State.
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All property, capital, and/or profits that
were reaped or used in the illegal
operation will be confiscated by the
state. However, if it wasn’t, it would not
be confiscated, rather ibabalik siya to
the partners.
It can generally be constituted in any form,
except when involving immovable property,
which requires a public instrument.
Partnerships with a capital of ₱3,000 or more
must be in a public instrument and registered
with the SEC.
o If the partners do not register their
business, they can still be held liable to
third persons (sometimes people use
their unregistered status to escape
responsibilities tied to being in a
partnership ex. Paying taxes)
If immovable property is contributed, a signed
inventory must be attached, or the partnership
is void.
The partnership can acquire and hold immovable
property in its name.
o However, remember: yes, there are
cases wherein the partnership owns the
property, but there can also be cases
wherein the partnership only has the
right to use it and no absolute
ownership.
Secret associations, whose articles are kept
secret from its members and wherein any one of
its members contracts to third parties in their
own name, lack juridical personality and are
governed by co-ownership laws.
o Typically, partners should only work
exclusively for the partnership (lalo na
kung industrial partner ka) because you
should be working for the benefit and
growth of the partnership.
o Being in a partnership connotes that
partners TRUST one another. In the
event that there are documents being
kept secret from other members, this
implies that there is a lack of trust
amongst the members.
3. Classification of Partnerships (Art. 1776-1783)
 By Scope:
Universal Partnership – Covers either
all present property or all profits
acquired during the partnership’s
existence.
 Magkaiba ang “of all present
property” sa “all profits”
 These are sub-types of universal
partnership
 Kung walang specifications on
what type of partnership, it is
assumed that it is a universal
partnership of profits
o Particular Partnership – Limited to
specific property, a particular business
activity, or a profession.
 Partners come together not to be
partners for so long but only
until their common goal is
fulfilled.
 They may choose to continue
their partnership after the
completion of the undertaking,
however.
By Liability of Partners:
o General Partnership – All partners
share liability.
o Limited Partnership – Some partners
have limited liability.
 There are general partners in a
limited partnership, but for
those limited partners, their
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liability extends to the point of
their contribution
Universal Partnerships:
o Of Present Property (Art. 1778-1779):
Partners contribute all current assets
and share profits, but future
inheritances and gifts are excluded.
 Emphasis on the word “ALL”
kasi literal na ALL dapat
ibibigay sa partnership
 All succeeding properties,
though, acquired outside of the
partnership is personal unless
stipulated otherwise.
o Of Profits (Art. 1780-1781): Partners
share only profits acquired from work
or industry, while personal property
remains theirs.
 While properties remain
exclusively theirs, the use of the
property passes onto the
partnership (technical term: the
usufruct)
 Future property remains as their
own.
 Any
Legal Restrictions:
o People prohibited from donating to
each other cannot form a universal
partnership.
CHAPTER 2: OBLIGATIONS OF THE PARTNERS
Section 1 (Art 1784-1809): Obligations of Partners Among Themselves
o If a partner fails to contribute money,
they owe interest and damages (Art.
1. Formation and Continuation of the Partnership
 A partnership begins upon the execution of the
1788).
contract unless stated otherwise (Art. 1784).
o Demand is not needed in such cases. It
 If a fixed-term partnership continues without
goes without saying.
a new agreement, it operates as a partnership at
 Capitalist partners contribute equally, unless
will (Art. 1785).
agreed otherwise (Art. 1790).
o If the partner wants to dissolve the
o When no stipulation is made regarding
partnership, they may do so on their
capital division, ASSUMING equal
own, BUT they must do it in good faith
sharing is the last resort.
 Industrial partners (who contribute labor)
cannot engage in similar businesses unless
2. Contributions and Responsibilities of Partners
 Each partner is responsible for their promised
permitted (Art. 1789).
contributions (money, property, or industry)
 Capitalist partners are not allowed to also
(Art. 1786).
engage in the same line of business with another
business, unless stipulated otherwise.
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3. Risk, Liability, and Financial Duties
 In cases of imminent loss, partners are
compelled to contribute more shares to save the
venture. In cases wherein they
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If a partner contributes goods, the value and/or
quality will be assessed as stated in the contract.
In the absence of such details, it will be assessed
by an experts
don’t want to contribute more, they shall be
obliged to sell their share.
o This does not apply to industrial
partners.
o Refusal must be deliberate (not due to
other reasons)
o All partners collectively believe that
additional funding will save the
business.
Liability for partnership debts: A partner
collecting money owed to both them and the
partnership must apply it proportionally (Art.
1792).
o If the sum was only applied to the
partnership (even if may debt yun debtor
sa partner), the whole sum will be given
to the partnership.
 Kunwari, the debtor gave the
money to the partner first but
the partner instead forwarded
that money to the partnership.
The money may not be revoked
by then. The payment goes to
the partnership not the partner
despite it being given to the
partner first.
o REQUISITE: debts should both be
demandable (past the due date). If not,
mauuna muna yung demandable debt.
If a partner receives payment before others
and the debtor later becomes insolvent, they
must return the amount (Art. 1793).
o The amount received must be divided
amongst the partners, depending on how
much is due to them.
Partners are liable for damages caused by
their fault but courts may reduce liability if
extraordinary efforts benefit the partnership
(Art. 1794).
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Partner cannot compensate it with
profits or benefits he has earned the
partnership in the past through his
service (di niya pwede sabihin na dahil
nakalikom siya nang gantong amount,
he should be excused from his liability.
This is part of his responsibility as a
partner)
Risk of contributed property:
o If only the use and fruits of an asset are
contributed, the partner bears the risk
(Art. 1795).
o If fungible goods or assets intended for
sale are contributed, the partnership
bears the risk (Art. 1795).
 Or if the item deteriorates, risks
shall be borne by the partnership
The partnership is obliged to carry the expenses,
obligations, and risks associated with any
business dealing done by the partner in behalf of
the partnership.
o Therefore, if a partner spends personal
money on the business dealing, it must
be reimbursed.
4. Sharing of Profits and Losses
 Profit and loss sharing follows the partnership
agreement (Art. 1797).
o If only profit shares are specified, losses
follow the same ratio (Art. 1797).
 If no agreement exists, profit/losses are shared
based on contributions, except industrial
partners do not share in losses (Art. 1797).
o If contribution isn’t specified, the next
assumption is equal sharing of profits
and losses.
o Industrial partners no longer share in the
losses because 1 – work done cannot be
reversed; 2 – partnership failure equals
the labor done in vain, kaya parang nagloss na rin siya in a way.
 A stipulation excluding a partner from all
profits or losses is void (Art. 1799).
o RECALL: a legal reason for opening a
partnership is to pursue profit; therefore,
withholding such goes against this.
o Only an industrial partner is exempted
from losses.
o This doesn’t mean the partnership stops.
The partnership continues, but only the
stipulation does not.
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If partners made a third person decide on each
partner's profit and loss designation, it can only
be challenged when it is unfair.
o They should challenge the designation
within 3 months of execution
o No argument done is as good as saying
the division is good amongst the
partners.
7. Right to a Formal Accounting
A partner may request an official accounting in cases
of:
1. Wrongful exclusion from the business.
2. A contractual right to an accounting.
3. Misuse of partnership assets by another
partner.
4. Other reasonable circumstances (Art. 1809).
5. Management and Decision-Making
 A designated managing partner’s authority is
irrevocable without just cause (Art. 1800).
 If multiple partners are managers:
o If duties aren’t specified, any may act
unless another objects, in which case the
majority decision prevails (Art. 1801).
o If unanimous consent is required, all
must agree unless urgent action is
needed (Art. 1802).
 Without a management agreement, all
partners can act as agents, but major property
changes require consent (Art. 1803).
6. Rights of Partners
 A partner may associate another person with
their share, but the associate does not become a
partner without everyone’s consent (Art. 1804).
 Partners have the right to inspect partnership
books at reasonable times (Art. 1805).
 Partners must disclose all relevant information
and account for any benefits gained from
partnership transactions (Arts. 1806–1807).
 Capitalist partners cannot compete with the
partnership’s business unless permitted (Art.
1808).
CHAPTER 2: OBLIGATIONS OF THE PARTNERS
Section 2 (Art 1810-1814): Property Rights of A Partner
1. Fundamental Property Rights of a Partner (Art.
1810)
A partner has three primary property rights:
1. Rights in specific partnership property – Coownership with other partners.
1. Partner may still own the property but
give the partnership the right to use it
2. The partnership shall own property
acquired by partnership funds
2. Interest in the partnership – The partner’s
share of profits and surplus.
3. Right to participate in management –
Involvement in decision-making.
2. Co-Ownership of Specific Partnership Property
(Art. 1811)
 Equal right to use partnership property for
business purposes, but personal use requires
consent.
o If ginamit yun property for personal
purposes, the fruits gained from the
property must be shares witht the other
partners.
 Cannot assign ownership of specific
partnership property unless all partners agree.
 Not subject to personal attachment or
execution unless the debt is against the
partnership.
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Not liable for legal support claims (e.g., family
support obligations).
3. Interest in the Partnership (Art. 1812)
 A partner’s interest is limited to their share
of profits and surplus—not specific partnership
assets.
o Surplus refers to the assets after debts
and liabilities are paid
4. Assignment of a Partner’s Interest (Art. 1813)
 A partner can transfer their interest, but this
does not dissolve the partnership or give the
assignee management rights.
 The assignee is only entitled to receive profits
that the assigning partner would have received.
o In short, the assignee is not entitled to
the rights a partner would usually have;
instead, he/she is only a representative
to receive profits (he/she does not have
the fundamental rights of a partner)
o They can only step in in cases of fraud.
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If the partnership dissolves, the assignee can
claim the assignor’s share and request an
account of assets.
5. Rights of Creditors Over a Partner’s Interest (Art.
1814)
 Creditors can charge a partner’s interest to
satisfy debts with court intervention.
o Interest refers to the share in profits and
surplus
 A receiver may be appointed to collect the
debtor partner’s profits.
 The interest can be redeemed before
foreclosure or purchased by:
o Another partner using personal assets
o The partnership, with unanimous
consent
 This does not automatically dissolve the
partnership.
CHAPTER 2: OBLIGATIONS OF THE PARTNERS
Section 3 (Art 1815-1823): Obligations in Regards to third persons
o In cases wherein there is debt to third
persons, ALL partners are responsible,
1. Firm Name & Liability (Art. 1815-1817)
UNLESS stipulated otherwise.
 A partnership must operate under a firm name.
 Anyone who falsely includes their name in the
2. Authority of Partners (Art. 1818-1819)
firm name assumes liability as a partner.
 Each partner is an agent of the partnership and
o This does not mean that the partner’s
their actions bind the business, unless
name included in the firm name is a
unauthorized.
partner; they don’t get a share in the
o Kung unauthorized siya, it does not bind
profits nor have a stake in the decisionthe partnership.
making BUT meron silang share sa
liability
 Certain major decisions require unanimous
consent, like selling assets or confessing a
o In short, don’t put your name in a
judgment (check the book for more).
partnership you are not part of!!!
o Unless the partners are ABANDONING
Habulin ka pa ng creditor.
the business, they cannot decide shit on
 All partners are personally liable for
their own.
partnership debts after assets are exhausted.
o Included dito ang industrial partner
 A partner can transfer real property, but the
o Pwede habulin na personal property ng
partnership may reclaim it if the transfer
my partners after exhausting partnership
exceeded authority.
assets.
o Pro-rata ang sharing (means equal not
3. Legal Implications of Partner Actions (Art. 1820proportional in this case)
1821)
o Partners may agree to carry certain debts
 Statements or admissions by a partner
to avoid touching partnership assets.
regarding partnership affairs serve as evidence
That means, sila muna hahabulin ni
against the firm.
creditor.
 Notice to one partner is considered notice to
 Agreements limiting partner liability only apply
the entire partnership, except in cases of fraud.
among partners, not to thirdn parties.
o “WHAT’S URS IS MINE!” vibes
4. Liability for Wrongful Acts (Art. 1822-1824)
 The partnership is liable for any wrongful acts
by a partner in business dealings.
o Kung may kasalanan ang isang partner
sa isang third person, the whole
partnership will be at fault as well.
 If a partner misuses money or property of a
third party, the partnership must compensate
for the loss.
 All partners share solidary liability, meaning
creditors can go after any partner for full
repayment.
o Ang responsabilidad ng isa,
responsabilidad ng lahat!
5. Misrepresentation & Partner Admission (Art.
1825-1826)
 If someone falsely claims to be a partner, they
can be held liable as if they were one.
 New partners are responsible for past
partnership debts, but only using partnership
property (unless agreed otherwise).
 In short, a new partner is not only part
of the present-future but also part of
the present-past. They are obligated to
address debts incurred in the past as if
they were there when it happened.
6. Creditors’ Rights (Art. 1827)
 Partnership creditors have priority over
personal creditors when claiming partnership
assets.
 Personal creditors of a partner can sell that
partner’s share in the partnership to recover
debts.