PARTNERSHIP

CHAPTER 1 Persons who cannot give their consent to a contract

of partnership:
General Provisions
1. Unemancipated minors;
Article 1767. By the contract of 2. Insane or demented persons;
partnership two or more persons bind 3. Deaf-mutes who do not know how to write;
4. Persons who are suffering from civil
themselves to contribute money, interdiction; and
property, or industry to a common fund, 5. Incompetents who are under guardianship.
with the intention of dividing the profits
There is no prohibition against a partnership
among themselves. (Definition of being a partner in another partnership.
partnership from the viewpoint of a contract)
When two or more partnerships combine with
Two or more persons may also form a each other (or with a natural person or persons)
creating a distinct partnership, all the members of
partnership for the exercise of a the constituent partnerships will be individually
profession. (General professional liable to the creditors of the distinct partnership.
partnership)
Unless authorized by statute or by its charter, a
corporation is without capacity or power to enter
In Philippine jurisdiction, partnerships, except
into a contract of partnership. (Mendiola v. CA,
general professional partnerships, are treated
497 SCRA 346) Reason: The corporation would
for income tax purposes as corporations and
be bound by the acts of persons who are not its
subject to a tax as such. (NIRC)
duly appointed and authorized agents and
officers, which would be entirely inconsistent with
Characteristic elements of partnership: the policy of the law that the corporation shall
manage its own affairs separately and
1. Consensual perfected by mere consent; exclusively.
2. Nominate has a special name or
designation in our law; A corporation may enter into joint venture
3. Bilateral the rights and obligations arising partnership with another where the nature of the
therefrom are always reciprocal; venture is in line with the business authorized by
4. Onerous the parties aspires to procure for
its charter. (J.M. Tuazon & Co., Inc. v. Bolanos,
himself a benefit through the giving of
95 Phil. 106)
something;
5. Commutative the undertaking of each of A foreign corporation may enter as a limited
the partners is considered as the equivalent
partner in a limited partnership.
of that of the others;
6. Principal does not depend for its existence A license to construct and operate a cockpit may
or validity upon some other contracts;
be given as a contribution to a partnership.
7. Preparatory entered into as a means to an
(Balon v. Pajarillo)
end.

Industry the active cooperation, the work of the

Essential features of partnership:
1. There must be a valid contract;
2. The parties must have legal capacity to enter
into the contract;
3. There must be a mutual contribution of
money, property or industry to a common
fund; (Art. 1767)
4. The object must be lawful (Art. 1770); and
5. The primary purpose must be to obtain
profits and to divide the same among the
parties. (see also Art. 1775)
The contract creating the partnership may be oral
or written, express or implied from the acts and
declarations of the parties, subject to the
provisions of Articles 1771 to 1773 and to the
Statute of Frauds. (Montgomery v. Busyrus
Machine Works, 92 U.S. 257)
party associated, which may be either personal
manual efforts or intellectual, and for which he
receives a share in the profits (not merely salary) of
the business
A partnership may exist even if it is shown that
the partners have not contributed any capital of
their own to a common fund for the contribution
may be in the form of credit or industry not
necessarily cash or fixed assets. (Lim Tong Lim
v. Phil. Fishing Gear Industries, 317 SCRA 728)
(But see Art. 1845)
Distinction between a partner contributing industry
and a lessor of services:
The former is independent of the other
partners, that is, he is not subject to the
supervision of the other partners, while the
lessor is under the supervision of the lessee
or employer.
 The realization of pecuniary profit by engaging in
some business activity through their joint
contributions and efforts need not be the
exclusive aim of a partnership. It is sufficient that
it is the principal purpose even if there are,
incidentally, moral, social, or spiritual ends.
(Manresa)
The right to share in the profits carries with it the
duty to contribute to the losses, if any.
Article 1768. The partnership has a
juridical personality separate and
distinct from that of each of the partners,
even in case of failure to comply with the
requirements of article 1772, first
paragraph. (n)
A partnership may be declared insolvent even if
the partners are not. (Campos Rueda & Co. v.
Pacific Commercial & Co., 44 Phil. 916)
A partnership may enter into contracts and may
sue and be sued, it being sufficient that service of
summons or other process be served on any
partner. (Vargas & Co. v. Chan, 29 Phil. 446)
The death of either partners is not a ground for
dismissal of a pending suit against the
partnership. (Ngo Tian Tek v. Phil. Ed. Co., 78
Phil 275)
The partners cannot be held liable for the
obligations of the partnership unless it is shown
that the legal fiction of a different juridical
personality is being used for a fraudulent, unfair,
or illegal purpose. (Aguila v. CA, 316 SCRA 246)
Article 1769. In determining whether a
partnership exists, these rules shall
apply:
(1) Except as provided by article
1825, persons who are not
partners as to each other are not
partners as to third persons;
Where persons by their acts, consent, or
representations have misled third persons or
parties into believing that the former are partners
in a non-existing partnership, such persons
become subject to liabilities of partners to all
who, in good faith, deal with them in their
apparent relations. (Doctrine of Estoppel
provided for in Art.1825)
(2) Co-ownership or co-
possession does not of itself
establish a partnership, whether
such co-owners or co-possessors
do or do not share any profits
made by the use of the property;
In a case, it was held that two isolated
transactions whereby two persons purchased two
parcels of land and then another three parcels of
land and sold the same a few years thereafter,
did not thereby make them partners. There must
be a clear intent to form a partnership. (Pascual
v. CIR, 166 SCRA 560)
If, after partition, an heir allows his shares to be
held in common with his co-heirs under a single
management to be used with the intent of making
profit thereby in proportion to his share, there can
be no doubt that, even if no document or
instrument were executed for the purpose, for tax
purposes, at least, an unregistered partnership is
formed. (Ona v. CIR, 45 SCRA 74)
(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; (Different from sharing
of profits)
As distinguished from the general rule
recognizing sharing of profits (no. 4) as
presumptive evidence of partnership, the sharing
of gross returns has been held not to constitute
even prima facie evidence of the relation. (68
C.J.S. 441)
Where, however, there is further evidence of
mutual management and control, a partnership
may result, even though the agreement call for a
portion of gross returns.
(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, but no
such inference shall be drawn if
such profits were received in
payment:
(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. (n)
 The sharing of profits and losses is prima facie
evidence of an intention to form a partnership but
not a conclusive evidence. The presumption of
partnership arising from such profit-sharing
agreement may be rebutted and outweighed by
other circumstances.
Where the compensation given to the manager
of a project who had put substantial sum in the
venture is pegged to profits, said compensation
actually constitutes his share in the net profits of
the partnership as partner and not as employee.
(Philex Mining v. CIR, 551 SCRA 428)
One is merely a contract employee and not a
partner if he had neither voice nor vote in the
management of the affairs of the company.
The legal intention is the crux of partnership.
Parties may call themselves partners in no
uncertain terms, yet their contract may be
adjudged something quite different. Conversely,
parties may expressly stipulate that their contract
is not a partnership yet the law may determine
otherwise on the basis of legal intent. It is true,
however, that courts will be influenced to some
extent by what the parties call their contract.
(Teller)
Some of the typical incidents of a partnership:
1. The partners shares in profits and losses;
2. They have equal rights in the management
and conduct of the partnership business;
3. Every partner is an agent of the partnership,
and entitled to bind the other partners by his
acts, for the purpose of its business;
4. All partners are personally liable for the
debts of the partnership with their separate
property except that limited partners are not
bound beyond the amount of their
investment;
5. A fiduciary relation exists between the
partners; and
6. On dissolution, the partnership is not
terminated, but continues until the winding
up of partnership is completed.
Distinctions between partnership and co-ownership:
1. Co-ownership is generally created by law
and may exist even without a contract, while
partnership is always created by contract,
either express or implied;
2. A partnership has a juridical personality
separate and distinct from that of each
partner, while a co-ownership has none;
3. The purpose of a partnership is the
realization of profits, while in co-ownership, it
is the common enjoyment of a thing or right
which does not necessarily involve the
sharing of profits;
4. Under the law, there is no limitation upon the
duration of a partnership, while in co-
ownership, an agreement to keep the thing
undivided for more than ten years is not
allowed;
5. A partner may dispose of his individual
interest in the partnership so as to make the
assignee a partner unless agreed upon by all
of the partners, while a co-owner may freely
do so;
6. In the absence of any stipulation to the
contrary, a partner may bind the partnership,
while a co-owner cannot represent the co-
ownership; and
7. The death of a partner results in the
dissolution of the partnership, but the death
of a co-owner does not necessarily dissolve
the co-ownership.
Partnership distinguished from a corporation:
1. A partnership is created by mere agreement
of the parties, while a corporation is created
by law or by operation of law;
2. A partnership may be organized by only two
persons, while a corporation requires at least
five incorporators;
3. A partnership commences to acquire juridical
personality from the moment of the
execution of the contract of partnership,
while a corporation begins to have juridical
personality only from the date of issuance of
the certificate of incorporation by the SEC;
4. A partnership may exercise any power
authorized by the partners provided it is not
contrary to law, morals, good customs, public
order, or public policy, while a corporation
can exercise only powers expressly granted
by law or implied from those granted or
incident to its existence;
5. In a partnership, when the management is
not agreed upon, every partner is an agent
of the partnership, while in a corporation, the
power to do business and manage its affairs
is vested in the board of directors or
trustees;
6. In a partnership, a partner as such can sue a
co-partner who mismanages, while in a
corporation, the suit against a member of the
board of directors or trustees who
mismanages must be in the name of the
corporation;
7. A partnership has no right of succession,
while a corporation has such right;
8. In a partnership, the partners are liable
personally and subsidiarily for partnership
debts to third persons, while in a corporation,
the stockholders are liable only to the extent
of the shares subscribed;
9. In a partnership, a partner cannot transfer
his interest in the partnership so as to make
the transferee a partner without the consent
of all the other existing partners because the
partnership is based on the principle of
delectus personarum, while in a corporation,
a stockholder has generally the right to
transfer his shares without the prior consent
of the other stockholders because a
corporation is not based on this principle;
10. A partnership may be established for any
period of time stipulated by the partners,
while a corporation may not be formed for a
term in excess of 50 years extendible to not
more than 50 years in any one instance;
11. A limited partnership is required by the law to
add the word Ltd. to its name, while a
corporation may adopt any firm name
provided it is not the same as or similar to
any registered firm name;
12. A partnership may be dissolved at any time
by the will of any or all of the partners, while
a corporation can only be dissolved with the
consent of the State; and
 13. A partnership is governed by the Civil Code,
while a corporation is governed by the
Corporation Code.
Similarities between a corporation and a partnership:
1. Both have juridical personality distinct from
their components;
2. Both are group of persons;
3. Capitals of both are derived from their
components;
4. There is distribution of profits in stock
corporations and in partnerships;
5. They both act only through their agents; and
6. They can be organized only where there is a
law authorizing their organization;
7. A partnership, except a general professional
partnership, is taxable as a corporation,
subject to income tax.
Article 1770. A partnership (1) must have
a lawful object or purpose, and (2) must
be established for the common benefit or
interest of the partners.
When an unlawful partnership is
dissolved by a judicial decree, the profits
shall be confiscated in favor of the State,
without prejudice to the provisions of the
Penal Code governing the confiscation
of the instruments and effects of a crime.
Consequences of a partnership formed for an
unlawful purpose:
1. The contract is void ab initio and the
partnership never existed in the eyes of the
law;
2. The profits shall be confiscated in favour of
the government;
3. The instrument or tools and proceeds of the
crime shall also be forfeited in favour of the
government; and
4. The contributions of the partners shall not be
confiscated unless they fall under No. 3.
Effects of partial illegality of partnership business:
1. Where part of the business of a partnership
is legal and a part illegal, an account of that
which is legal may be had.
2. Where, without the knowledge or
participation of the partners, the firms profits
in a lawful business have been increased by
wrongful acts, the innocent partners are not
precluded as against guilty partners from
recovering their share of the profits.
Where the business for which the partnership is
formed is legal when the partnership is entered
into, but afterwards becomes illegal, an
accounting may be had as to the business
transacted prior to such time. (68 C.J.S. 412)
Article 1771. GENERAL RULE: A
partnership may be constituted in any
form.
No special form is required for the validity or
existence of the contract of partnership.
A partnership may exist and often exists in the
absence of express agreement, written or verbal,
between the parties. Its existence may be implied
for the acts or conduct of the parties, as well as
from other declarations, and such implied
contract would be as binding as a written and
express contract.
EXCEPTION: Where immovable property
or real rights are contributed thereto, a
public instrument shall be necessary.
The above exception does not state that if there
is no execution of a public instrument, the
contract of partnership is void. However, under
Art. 1773, if immovable property is contributed,
an inventory of said property must be attached in
a public instrument; otherwise, the contract of
partnership is void. Thus, non-compliance of the
requirement makes the partnership void.
Article 1772. EXCEPTION: Every contract
of partnership having a capital of three
thousand (P3,000) pesos or more, in
money or property, shall (1) appear in a
public instrument, which (2) must be
recorded in the Office of the Securities
and Exchange Commission.
Failure to comply with the requirements
of the preceding paragraph shall not
affect the liability of the partnership and
the members thereof to third persons. (n)
Failure to comply with the above requirements
does not prevent the formation of the partnership.
(Art. 1768)
Any of the partners is granted the right by the law
to compel each other to execute the contract in a
public instrument.
Article 1773. A contract of partnership is
void, whenever immovable property is
contributed thereto, if an inventory of
said property is not made, signed by the
parties, and attached to the public
instrument. (1668a)
Therefore, if immovable property is contributed, two
requirements must be complied with in order for the
contract of partnership to be valid, to wit:
1. The contract of partnership must be in a
public instrument; and
 2. An inventory of the immovable property
contributed must be made, signed by the
parties, and attached to the public
instrument.
NOTE: In here, if the requirements stated are not
complied with, the partnership contract is void in so
far as the contracting parties are concerned.
However, as to third persons, the partnership will be
considered as valid if it is necessary to protect their
interest.
Article 1773 does not apply in the case of
immovable property which may be possessed or
even owned by the partnership but not
contributed by any of the partners.
It has been held that a partnership contract which
states that the partnership is established to
operate a fishpond is not rendered void because
no inventory of the fishpond was made where it
did not clearly and positively appear in the
articles of partnership that the real property had
been contributed by anyone of the partners.
(Agad v. Mabolo and Agad & Co., 23 SCRA
1223)
Article 1774. Any immovable property or
an interest therein may be acquired in
the partnership name. Title so acquired
can be conveyed only in the partnership
name. (n)
Article 1775. Associations and societies,
whose articles are kept secret among the
members (i.e., known to some members
only but withheld from the rest), and
wherein any one of the members may
contract in his own name with third
persons, shall have no juridical
personality, and shall be governed by the
provisions relating to co-ownership.
(Secret partnerships)
Article 1776. As to its object, a
partnership is either universal or
particular.
As regards the liability of the partners, a
partnership may be general or limited.
Classifications of partnership:
1. As to the extent of subject matter
a. Universal partnership one which
refers to all the present property or
to all profits (Art. 1777);
i. Universal partnership of all
present property (Art.
1778);
ii. Universal partnership of
profits (Art. 1780);
b. Particular partnership Art. 1783;
2. As to liability of partners
a. General partnership one
consisting of general partners who
are liable pro rata and subsidiarily
and sometimes solidarily with their
separate property for partnership
debts;
b. Limited partnership one formed
by two or more persons having as
members one or more general
partners and one or more limited
partners, the latter not being
personally liable for the obligations
of the partnership. (Art. 1843)
3. As to duration
a. Partnership at will one in which no
time is specified and is not formed
for a particular undertaking or
venture and which may be
terminated at anytime by mutual
agreement of the partners, or by the
will of any of one partner alone;
b. Partnership with a fixed term one
which the term for which the
partnership is to exist is fixed or
agreed upon or one formed for a
particular undertaking, and upon
the expiration of the term or
completion of the particular
enterprise, the partnership is
dissolved, unless continued by the
partners.
4. As to the legality of its existence
a. De jure partnership one which
has complied with all the legal
requirements for its establishment;
b. De facto partnership one which
has failed to comply with all the
legal requirements for its
establishment.
5. As to representation to others
a. Ordinary or real partnership one
which actually exists among the
partners and also as to third
persons;
b. Ostensible partnership or
partnership by estoppel 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.
6. As to publicity
a. Secret partnership one wherein
the existence of certain persons as
partners is not avowed or made
known to the public by any of the
partners;
b. Open or notorious partnership
one whose existence is avowed or
made known to the public by the
members of the firm.
7. As to purpose
a. Commercial or trading partnership
one formed for transaction of
business;
b. Professional or non-trading
partnership one formed for the
exercise of a profession.
Kinds of partners:
1. Capitalist partner one who contributes
money or property to the common fund;
2. Industrial partner one who contributes only
his industry or personal service;
 3. General partner one whose liability to third
persons extends to his separate property;
real partner;
4. Limited partner one whose liability to third
persons is limited to his capital contribution;
special partner;
5. Managing partner one who manages the
affairs or business of the partnership;
6. Liquidating partner one who takes charge
of the winding up of partnership affairs upon
dissolution;
7. Partner by estoppel one who is really not a
partner, not being a party to a partnership
agreement, but is liable as a partner for the
protection of innocent third persons;
8. Continuing partner 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;
9. Surviving partner one who remains after a
partnership has been dissolved by the death
of any partner;
10. Subpartner one who, not being a member
of the partnership, contracts with a partner
with reference to the latters share in the
partnership;
11. Ostensible partner one who takes active
part and know to the public as a partner in
the business, whether or not he has an
actual interest in the firm;
12. Secret partner 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;
13. Silent partner one who does not take any
active part in the business although he may
be known to be a partner;
14. Dormant partner one who does not take
active part on the business and is not know
or held out as a partner; sleeping partner;
15. Original partner one who is a member of
the partnership from the time of its
organization;
16. Incoming partner a person lately, or about
to be, taken into an existing partnership as a
member;
17. Retiring partner one withdrawing from the
partnership; withdrawing partner.
Article 1777. A universal partnership may
refer to all the present property or to all
the profits. (1672)
Article 1778. A partnership of all present
property is that in which the partners
contribute all the property which actually
belongs to them to a common fund, with
the intention of dividing the same among
themselves, as well as all the profits
which they may acquire therewith. (1673)
Article 1779. In a universal partnership of
all present property, the property which
belonged to each of the partners at the
time of the constitution of the
partnership, becomes the common
property of all the partners, as well as all
the profits which they may acquire
therewith (from the property contributed).
A stipulation for the common enjoyment
of any other profits may also be made;
but the property which the partners may
acquire subsequently by inheritance,
legacy, or donation cannot be included
in such stipulation, except the fruits
thereof. (1674a)
The following pertains to the partnership:
1. All property which belonged to each of the
partners at the time of the constitution of the
partnership;
2. Profits which they may acquire from the
property contributed;
3. Any other profits, if there is a stipulation.
Stipulation including property which the partners
may acquire subsequently by inheritance, legacy,
or donation is void.
Article 1780. A universal partnership of
profits comprises all that the partners
may acquire by their industry or work
during the existence of the partnership.
Movable or immovable property which
each of the partners may possess at the
time of the celebration of the contract
shall continue to pertain exclusively to
each, only the usufruct passing to the
partnership. (1675)
The following shall pertain to the partnership:
1. All that the partners may acquire by their
industry of work (not by chance);
2. The usufruct of movable or immovable
property which each of the partners may
possess at the time of the celebration of the
contract.
3. Fruits of property subsequently acquired by
the partners if there is an express stipulation.
Article 1781. Articles of universal
partnership, entered into without
specification of its nature, only
constitute a universal partnership of
profits. (1676)
It is to be noted that this article only applies when
a universal partnership has been organized.
Article 1782. Persons who are prohibited
from giving each other any donation or
advantage cannot enter into universal
partnership. (1677)
A husband and his wife may enter into a
particular partnership or be members thereof.
(CIR v. Suter, 27 SCRA 152)
Art. 87. Every donation or grant of gratuitous
advantage, direct or indirect, between the spouses
during the marriage shall be void, except moderate
gifts which the spouses may give each other on the
occasion of any family rejoicing.
The prohibition shall also apply to persons living
together as husband and wife without a valid
marriage. (Family Code)
Article 739. The following donations shall be void:
(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the
same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife,
descendants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence
in the same action. (Civil Code)
Conviction in a criminal of adultery
concubinage is not necessary.
Article 1783. A particular partnership has
for its object determinate things, their
use or fruits, or a specific undertaking,
or the exercise of a profession or
vocation. (1678)
Distinctions between universal partnership
particular partnership:
In universal partnership, the object is vague
and indefinite, contemplating a general business with
some degree of continuity; while in particular
partnership, it is limited and well defined, being
confined to an undertaking of a single, temporary, or
ad hoc nature.
While a joint venture is not a formal partnership in
the legal or technical sense, both are governed,
subject to certain qualifications, practically by the
same rules or principles of partnership.
PARTICULAR
JOINT ADVENTURE
PARTNERSHIP
No firm name and legal Required to have a name
personality and has a separate and
distinct legal personality
Usually limited to a single Generally relates to a
transaction continuing business of
various transactions of a
certain kind
Can be entered in to by a A corporation cannot
corporation if the nature enter into a contract of
of the venture is partnership
authorized by its charter
CHAPTER 2
Obligations of the Partners
SECTION 1
Obligations of the Partners Among
Themselves
Relations created by a contract of partnership:
1. Relations among the partners themselves;
2. Relations of the partners with the
partnership;
3. Relations of the partnership with third
persons; and
4. Relations of the partners with such third
persons.
The relationship among the partners and
between the partners and the partnership is
fiduciary in nature. Each partner is, in one sense,
a trustee and at the same time, a cestui que trust.
He is a trustee to the extent that his duties bind
him with respect to his co-partners and the
partnership, and a cestui que trust as far as the
duties that rest on his co-partners. (Allen v.
Steinberg, 223 A.d. 240)
or
Article 1784. A partnership begins from
the moment of the execution of the
contract, unless it is otherwise
stipulated. (1679)
A general partnership may result from oral
contract except those partnerships by the terms
of the agreement are to be formed by the parties
for more than one year from the making thereof,
and in which case the partnership agreement must be
in writing as required by the Statute of Frauds.
The Statute of Frauds provides that an
agreement that by its terms is not to be
performed within a year from the making thereof,
must be in writing and signed by the party
charged in order to be enforceable.
The death of either party to an executory
agreement of partnership prevents the formation
of a firm, since such agreement is based on the
continuance of the life of each. (68 C.J.S. 419)
Article 1785. Consequences when a
partnership for a (a) fixed term or (b)
particular undertaking is continued after
the termination of such term or particular
undertaking without any express
agreement:
1. The termination, of course, dissolves the
partnership;
2. A new partnership at will is created
(by implied agreement); but
3. The rights and duties of the partners
remain the same as they were at such
termination.
 A continuation of the business by the
partners or such of them as habitually
acted therein during the term, without
any settlement or liquidation of the
partnership affairs, is prima facie
evidence of a continuation of the
partnership. (n)
Article 1786. Obligations of every partner
with respect to contribution of property:
1. To contribute at the beginning of the
partnership or at the stipulated time
the money, property, or industry
which he may have promised to
contribute (the partner is a debtor of
the partnership for whatever he may
have promised to contribute thereto);
2. He shall also be bound for warranty
in case of eviction with regard to
specific and determinate things
which he may have contributed to the
partnership, in the same cases and in
the same manner as the vendor is
bound with respect to the vendee.
3. He shall also be liable for the fruits
thereof from the time they should
have been delivered, without the
need of any demand.
Additional obligations:
1. To preserve said property with the diligence
of a good father of a family pending delivery
to the partnership; and
2. To indemnify the partnership for any damage
caused to it by the retention of the same or
by the delay in its contribution.
The money or property contributed by a partner
becomes the property of the partnership. It
necessarily follows that the same cannot be
withdrawn or disposed of by the contributing
partner without the consent or approval of the
partnership or of the other partners. (Lozana v.
Depakakibo, 107 Phil. 728)
Under this Article, the remedy of the other partner
or the partnership is not rescission but an action
for specific performance with damages and
interest from the defaulting partner from the time
he should have complied with his obligation.
(Sancho v. Lizaraga, 55 Phil. 60)
Eviction takes place whenever by a final judgement
based on a right prior to the sale or an act imputable
to the vendor, the vendee is deprived of the whole or
a part of the thing purchased
GENERAL RULE: The partners are not entitled to
charge each other, or the partnership of which
they are members, for their services in the firm
business.
EXCEPTIONS: (1) If there is a special agreement
to that effect; or (2) where the reason for the
general rule fails.
If a partner neglects or refuses, without
reasonable cause, to render the service which he
agreed to perform by reason of which the
partnership suffered loss, no good reason can be
suggested why the erring partner should not be
just as responsible for the breach of his
agreement to render personal service to the
partnership as for the breach of any other
stipulation in the partnership contract. (Marshs
Appeal, 69 Pa. St. 30)
Article 1787. When the capital or a part
thereof which a partner is bound to
contribute consists of goods, their
appraisal must be made (1) in the
manner prescribed in the contract of
partnership, and (2) in the absence of
stipulation, it shall be made by experts
chosen by the partners, and according to
current prices, the subsequent changes
thereof being for account of the
partnership. (n)
In the case of immovable property, the appraisal
is made in the inventory of said property;
otherwise, it may be made as provided in Article
1878. There is no reason why the rule in Article
1878 should not also apply with respect to other
kinds of property.
Article 1788. A 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.
The same rule applies to any amount he
may have taken from the partnership
coffers, and his liability shall begin from
the time he converted the amount to his
own use.
A partner is guilty of estafa if he misappropriates
partnership money or property received by him
for a specific purpose of the partnership.
(Liwanag v. CA, 281 SCRA 1225)
When there is failure on the part of an industrial
partner to return to the capitalist partner the
capital brought by him into the partnership, the
money having received by the partnership and
the business commenced and profits accrued,
the action that lies with the partner who furnished
capital for the recovery of his money is a civil one
arising from the partnership contract for a
liquidation of the partnership and a levy on its
assets if there should be any. (U.S. v. Clarin, 17
Phil. 84)
Article 1789. GENERAL RULE: An
industrial partner cannot engage in
business for himself.
As regards an industrial partner, the prohibition is
absolute and applies whether the industrial
partner is to engage in the same business in
which the partnership is engaged or in any kind
of business.
EXCEPTION: If the partnership expressly
permits him to do so.
Mere toleration by the partnership will not exempt
the industrial partner from liability.
Remedies of the capitalist partners if the
industrial partner violates the prohibition
herein:
1. The capitalist partners may exclude
him from the firm, with a right to
damages; or
2. The capitalist partners may avail
themselves of the benefits which he
may have obtained in violation of this
provision, with a right to damages.
An action for specific performance to compel the
partner to perform the promised work or service
is not available as remedy because this will
amount to involuntary servitude which, as a rule,
is prohibited by the Constitution.
Although the law mentions only the capitalist
partners, it is believed that industrial partners are
also entitled to the remedy granted since they are
equally prejudiced by the act of their co-partner
engaging in business for himself.
Article 1790. GENERAL RULE: The
partners shall contribute equal shares to
the capital of the partnership.
EXCEPTION: If there is a stipulation to
the contrary.
Article 1791. If there is no agreement to
the contrary, in case of an imminent loss
of the business of the partnership, any
partner who refuses to contribute an
additional share to the capital, except an
industrial partner, to save the venture,
shall he obliged to sell his interest to the
other partners. (n)
Requisites for forced sale of interest:
1. There is an imminent loss of the business of
the partnership;
2. The majority of the capitalist partners are of
the opinion that an additional contribution to
the common fund would save the business;
3. The capitalist partner refuses deliberately
(not because of his inability to do so) to
contribute an additional share to the capital;
and
4. There is no agreement that even in case of
an imminent loss of the business the
partners are not obliged to contribute.
Article 1792. If a partner authorized to
manage collects a demandable sum
which was owed to him in his own name,
from a person who owed the partnership
another sum also demandable, the sum
thus collected shall be applied to the two
credits in proportion to their amounts,
even though he may have given a receipt
for his own credit only; but should he
have given it for the account of the
partnership credit, the amount shall be
fully applied to the latter.
Requisites for proportional application of collection:
1. There exist at least two debts, one where the
collecting partner is creditor, and the other,
where the partnership is the creditor;
2. Both debts are demandable; and
3. The partner who collects is authorized to
manage and actually manages the
partnership.
The article does not apply where the partner who
collects for his own credit only is not authorized
to manage, for there can be no ground for
suspicion that he may have acted improperly to
create an undue advantage to himself. However,
where the manner of management has not been
agreed upon and all the partners participate in
the management of the partnership, then every
partner shall be considered a managing partner
for purposes of Article 1792.
The provisions of this article are
understood to be without prejudice to
the right granted to the debtor by article
1252, but only if the personal credit of
the partner should be more onerous to
him.
This means that the debtor may choose to pay
the partner. But it is required that the personal
credit of the partner is more onerous.
Article 1793. A partner who has received,
in whole or in part, his share of a
partnership credit, when the other
partners have not collected theirs, shall
be obliged, if the debtor should
thereafter become insolvent, to bring to
the partnership capital what he received
even though he may have given receipt
for his share only.
The present article applies whether the partner
who receives his share of the partnership credit is
authorized to manage or not.
Requisites in order that a partner be obliged to bring
to the partnership capital what he may have received:
1. A partner has received, in whole or in part,
his share of the partnership credit;
2. The other partners have not collected their
shares; and
3. The partnership debtor has become
insolvent.
According to De Leon, some of the
commentators submit that this rule applies even if
the debt is collected after dissolution of the
partnership because of the community and
equality which ought to exist among all the
partners. However, Manresa and Ricci believed
otherwise. They reasoned that (1) it would be
unjust that he who has been diligent and
collected his quota should suffer the
consequence of the negligence of his associates,
and (2) upon dissolution of the partnership, the
tie that unites the partnership ceases.
Article 1794. Every partner is responsible
to the partnership for damages suffered
by it through his fault.
GENERAL RULE: The damages caused
by a partner to the partnership cannot be
offset by the profits and benefits which
he may have earned for the partnership
by his industry.
EXCEPTION: However, the courts may
equitably lessen the partners
responsibility for damages if through his
extraordinary efforts in other activities of
the partnership, unusual profits have
been realized.
The question as to when profits may be
considered unusual depends upon the
circumstances of the particular case.
Article 1795. Who bears the risk of loss
of things contributed to the partnership?
1. Upon the partner who owns the thing
if the thing is not fungible, and only its
use and fruits are contributed (thus, if
the ownership, not merely the use and
the fruits, is transferred to the
partnership, the latter bears the risk);
2. Upon the partnership if the things
contributed are fungible (WON only their
use and fruits are contributed);
3. Upon the partnership if the things
contributed cannot be kept without
deteriorating (WON only their use and
fruits are contributed);
4. Upon the partnership if the things
were contributed to be sold;
5. Upon the partnership if the things
were brought and appraised in the
inventory (General Rule). (In this case,
the value of the claim shall be limited
to the value at which they were
appraised.) (Exception: If there is a
stipulation to the contrary.)
(NOTE: Numbers 2 to 5 presuppose that the things
contributed have been delivered actually or
constructively to the partnership. Before delivery, the
risk of loss is borne by the partner since he remains
their owner.)
Article 1796. Responsibilities of the
partnership to the partners:
1. To refund the amounts the partner
may have disbursed on behalf of the
partnership and for the
corresponding interest, from the time
the expense are made (but if consent
is required, the partner should first
secure the consent of all the partners
otherwise he will not be reimbursed);
2. To answer to each partner for the
obligations he may have contracted
in good faith in the interest of the
partnership business; and
3. To answer for risks in consequence
of its management.
Unlike an ordinary agent, a partner is not given
the right of retention if he is not reimbursed or
indemnified.
Article 1797. Rules that govern the
distribution of losses and profits (in
order):
1. IF THERE IS AN AGREEMENT
Primarily, the distribution shall be in
conformity with the agreement.
a. If only the share of each
partner in the profits has been
agreed upon, the share of
each in the losses shall be in
the same proportion.
2. IN THE ABSENCE OF STIPULATION
The share of each partner in the
profits and losses shall be in
proportion to what he may have
contributed.
a. The industrial partner shall not
be liable for the losses.
b. As for the profits, the
industrial partner shall receive
such share as may be just and
equitable under the
circumstances.
c. If besides his services he has
contributed capital, he shall
also receive a share in the
profits in proportion to his
capital. (Thus, he will also be
 liable for losses in the same
proportion.)
The industrial partner shall receive such share,
which must be satisfied first before the capitalist
partners shall divide the profits, as may be just
and equitable under the circumstances.
Article 1798. If the partners have agreed
to intrust to a third person the
designation of the share of each one in
the profits and losses, such designation
may be impugned only when it is
manifestly inequitable.
In no case may a partner (1) who has
begun to execute the decision of the
third person, or (2) who has not
impugned the same within a period of
three months from the time he had
knowledge thereof, complain of such
decision.
The designation of losses and profits
cannot be intrusted to one of the
partners.
Article 1799. A stipulation which
excludes one or more partners from any
share in the profits or losses is void.
Where the parties expressly stipulate that there
shall be no liability for losses, or where from the
nature of the contract, it is clear that a party did
not intend to share in the losses, such fact may
be a factor in determining that no partnership
exists.
Where the one excluded from any share in the
profits or losses is not intended by the parties to
become a partner, the stipulation is valid.
With reference to the industrial partner, since the
law itself excludes him from losses, a stipulation
exempting him from losses is naturally valid as n
exception to the general rule in Article 1799.
According to De Leon, to declare an agreement
which exempts partners from sharing in the
losses void is without any foundation either on
reason or justice. He explains that it may be
necessary for such agreement in order to induce
a person to become a member of the firm to
guaranty him against his suffering any financial
losses thereby, without such guaranty such
person may not be willing to become a member
of the partnership. He also explains that if a
person can make a gift to another, there is no
reason why a person cannot also agree to bear
all the losses that a partnership may suffer.
Article 1800. The partner who has been
appointed manager in the articles of
partnership may execute all acts of
administration despite the opposition of
his partners, unless he should act in bad
faith; and his power is irrevocable
without just or lawful cause. The vote of
the partners representing the controlling
interest shall be necessary for such
revocation of power.
A power granted after the partnership
has been constituted may be revoked at
any time. (1692a)
Unless the partnership agreement provides
otherwise, each partner in a general partnership
has a right to an equal voice in the conduct and
management of the partnership business.
GENERAL RULE: A partner appointed as
manager may execute all acts of administration
as well as all the incidental powers necessary to
carry out the object of the partnership in the
transaction of its business.
EXCEPTION: When the powers of the manager
are specifically restricted.
Article 1801. When each managing
partner may separately execute all acts
of administration; REQUISITES:
1. Two or more partners have been
intrusted with the management of the
partnership; (see Art. 1803)
2. Without specification of their
respective duties; and
3. Without a stipulation that one of them
shall not act without the consent of
all the others.
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. (1693a)
Article 1802. In case it should have been
stipulated that none of the managing
partners shall act without the consent of
the others, the concurrence of all shall
be necessary for the validity of the acts,
and 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.
The rule which authorizes any of the managing
partners to proceed alone without the consent of
the other in case of imminent danger of grave or
irreparable injury to the partnership is not
applicable when one of the managers, in the
exercise of his right to oppose, objects to the
propose act.
A third person may, and has a right to, presume
that the managing partners with whom he
contracts has, in the ordinary and usual course of
 business, the consent of his co-partner for
otherwise he would not enter into the contract.
(Litton v. Hill & Ceron, 67 Phil. 509)
The consent of the other managing partners is
not necessary in routine transactions.
Article 1803. When the manner of
management has not been agreed upon,
the following rules shall be observed:
(1) All the partners shall be considered
agents and whatever any one of them
may do alone shall bind the partnership,
without prejudice to the provisions of
article 1801. (see Art. 1818)
(2) 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.
The consent need not be express. It may be
presumed from the fact of knowledge of the
alteration without interposing any objection.
Article 1804. Every partner may
associate another person with him in his
share, but the associate shall not be
admitted into the partnership without the
consent of all the other partners, even if
the partner having an associate should
be a manager. (1696)
Subpartnership the partnership formed between a
member of a partnership and a third person for a
division of the profits coming to him from the
partnership enterprise
A subpartnership is a partnership within a
partnership and is distinct and separate from the
main or principal partnership.
A subpartnership does not in any manner alter
the original contract of partnership.
A subpartner does not acquire the rights of a
partner nor is he liable for its debts.
Article 1805. 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. (n)
The phrase at any reasonable hour has been
interpreted to mean reasonable hours on
business days throughout the year and not
merely during some arbitrary period of a few days
chosen by the managing partners. (Pardo v.
Lumber Co. and Ferrer, 47 Phil. 964)
Article 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
deceased partner or of any partner under
legal disability. (n)
The duty to render information does not arise
with respect to matters appearing in the
partnership books since each partner has the
right to inspect the books.
Article 1807. 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. (n)
If a member of a partnership avails himself of
information obtained by him in the course of the
transaction of partnership business which is
within the scope of the firms business, and
thereafter applies it to his own account without
the consent or knowledge of his co-partners, he
is liable to account to the partnership for any
benefit he may obtain from the use of such
information.
Article 1808. The capitalist partners
cannot engage for their own account in
any operation which is of the kind of
business in which the partnership is
engaged, unless there is a stipulation to
the contrary.
Any capitalist partner violating this
prohibition shall bring to the common
funds any profits accruing to him from
his transactions, and shall personally
bear all the losses.
The capitalist partner is only prohibited from
engaging for his own account in any operation
which is the same as or similar to the business in
which the partnership is engaged and which is
competitive with said business.
The law is silent on whether a capitalist partner
can engage in the same line of business for the
account of another. It would seem that the
prohibition still applies.
Article 1809. Any partner shall have the
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. (n)
In general, during the existence of the
partnership, a partner is not entitled to a formal
account of partnership affairs because the rights
of the partner to know partnership affairs are
already amply protected in articles 1805 and
1806. (The exceptions are as provided in article
1809.)
Articles 1806, 1807, and 1809 show that the right
to demand accounting exists as long as the
partnership lasts. Prescription begins to run only
upon the dissolution of the partnership when the
final accounting is done. (Fue Leung v. IAC, 169
SCRA 746)
Nature of an action for accounting:
1. A personal action it does not affect title to,
or possession of, real property or any
interest
2. An action in personam it is an action
against a person for the performance of a
personal duty on his party
SECTION 2
Property Rights of a Partner
Article 1810. The property rights of a
partner are:
(1) His rights in specific
partnership property;
(2) His interest in the partnership;
and
(3) His right to participate in the
management (n)
Related rights:
1. The right to reimbursement for amounts
advanced to the partnership and to
indemnification for risks in consequence of
management;
2. The right of access and inspection of
partnership books;
3. The right to true and full information of all
things affecting the partnership;
4. The right to a formal account of partnership
affairs under certain circumstances; and
5. The right to have the partnership dissolved
under certain conditions.
Partnership property and partnership capital
distinguished:
1. Partnership property is variable, while
partnership capital is constant;
2. Partnership property includes not only the
original capital contributions of the partners,
but all property subsequently acquired on
account of the partnership, or in the
partnership name with partnership funds,
unless a contrary intention is shown,
including partnership name and the goodwill
of the partnership, while partnership capital
represents the aggregate of the individual
contributions made by the partners in
establishing or continuing the partnership.
Where there is no express agreement that
property used by a partnership constitutes
partnership property, such use does not make it
partnership property, and whether it is so or not
depends on the intention of the parties, which
may be shown by proving an express agreement
or acts of particular conduct.
Unless a contrary intention appears, property
acquired by a partner in his own name with
partnership funds is presumed to be partnership
property.
But if the property was acquired after dissolution
but before winding up of the partnership affairs, it
would be his separate property but he would be
liable to account to the partnership for the funds
used in its acquisition.
Article 1811. A partner is co-owner with
his partners of specific partnership
property.
According to De Leon, this provision is not
accurate because specific partnership property is
owned not by the partners in common but by the
partnership as a juridical person.
The incidents of this co-ownership are
such that:
(1) A partner, subject to the
provisions of this Title and to any
agreement between the partners,
has an equal right with his
partners to possess specific
partnership property for
partnership purposes; but he has
no right to possess such property
for any other purpose without the
consent of his partners;
(2) A partner's right in specific
partnership property is not
assignable except in connection
 with the assignment of rights of
all the partners in the same
property;
Rationale:
1. Non-assignability prevents interference by
outsiders in partnership affairs;
2. It protects the right of other partners and
partnership creditors to have partnership
assets applied to firm debts;
3. It is often impossible to measure or value a
partners beneficial interest in a particular
partnership asset.
An authorized assignment by a partner of his
right in specific partnership property is void, but it
may be regarded as a valid assignment of the
partners interest in the partnership.
(3) A partner's right in specific
partnership property is not
subject to attachment or
execution, except on a claim
against the partnership. When
partnership property is attached
for a partnership debt the
partners, or any of them, or the
representatives of a deceased
partner, cannot claim any right
under the homestead or
exemption laws;
A partners interest in the partnership itself may
be levied upon by a judgement creditor because
it is actually his property, by means of a charging
order. (see Art. 1814)
(4) A partner's right in specific
partnership property is not
subject to legal support under
article 195 of the Family Code.
Article 1811 contemplates tangible property, such
as a car, truck, or a piece of land, but not
intangible things.
Although separate creditors of an individual party
may reach the interest of a partner in the
partnership, they cannot go after any specific
partnership property.
Article 1812. A partner's interest in the
partnership is his share of the profits
and surplus. (n)
Profit the excess of returns over expenditure in a
transaction or series of transactions; or the net
income of the partnership for a given period of time
Surplus refers to the assets of the partnership after
partnership debts and liabilities are paid and settled
and the rights of the partners among themselves are
adjusted
A partner is not a creditor of the partnership for
the amount of his share. (The Leyte-Samar Sales
and K. Tomassi v. S. Cea and O. Castrilla, 93
Phil. 100)
Article 1813. GENERAL RULE: A
conveyance by a partner of his whole
interest in the partnership does not of
itself dissolve the partnership.
EXCEPTION: A partners conveyance of his
interest in the partnership operates as a
dissolution of the partnership only when it is clear
that the parties contemplated and intended the
entire withdrawal from the partnership of such
partner and the termination of the partnership as
between the partners. (Johnson v. Munsell, 104
N.W. 2d 314)
Rights withheld from assignee in case of
conveyance to him, during the
continuance of the partnership:
1. To interfere in the management or
administration of the partnership
business or affairs;
2. To require any information or account
of partnership transactions; and
3. To inspect the partnership books.
Rights of assignee of partners interest:
1. To receive in accordance with his
contract the profits to which the
assigning partner would otherwise be
entitled;
2. In case of fraud in the management
of the partnership, the assignee may
avail himself of the usual remedies;
3. In case of a dissolution of the
partnership, the assignee is entitled
to receive his assignor's interest and
may require an account from the date
only of the last account agreed to by
all the partners. (n)
Article 1814. Without prejudice to the
preferred rights of partnership creditors
under article 1827, on due application to
a competent court by any judgment
creditor of a partner, the court which
entered the judgment, or any other court,
may charge the interest of the debtor
partner with payment of the unsatisfied
amount of such judgment debt with
interest thereon; and may then or later
appoint a receiver of his share of the
profits, and of any other money due or to
fall due to him in respect of the
partnership, and make all other orders,
directions, accounts and inquiries which
the debtor partner might have made, or
which the circumstances of the case
may require.
The interest charged may be redeemed
at any time before foreclosure, or in case
of a sale being directed by the court,
may be purchased without thereby
causing a dissolution:
(1) With separate property, by any
one or more of the partners; or
(2) With partnership property, by
any one or more of the partners
with the consent of all the
partners whose interests are not
so charged or sold.
Nothing in this Title shall be held to
deprive a partner of his right, if any,
under the exemption laws, as regards his
interest in the partnership. (n)
SECTION 3
Obligations of the Partners with
Regard to Third Persons
Article 1815. Every partnership shall
operate under a firm name, which may or
may not include the name of one or more
of the partners.
As a general rule, the partners may adopt any
firm name desired.
The partners cannot use a name that is identical
or deceptively confusingly similar to that of any
existing partnership or corporation or to any other
name already protected by law or is patently
deceptive, confusing or contrary to existing laws,
as to mislead the public by passing itself off as
another partnership or corporation, or its goods
or services as those of such other company.
The continued use of the name of a deceased
partner is permissible provided that the firm
indicates in all its communications that said
partner is deceased. (Rule 3.02, Code of
Professional Responsibility)
Those who, not being members of the
partnership, include their names in the
firm name, shall be subject to the liability
of a partner. (Insofar as third persons
without notice are concerned.) (n) (Here,
the persons who include their names in the
firm do not acquire the rights of a partner.)
Article 1816. All partners, including
industrial ones (but they can recover the
amount they have paid from the capitalist
partners unless there is an agreement to
the contrary), shall be liable pro rata with
all their property and after all the
partnership assets have been exhausted
(subsidiary liability), for the contracts
which may be entered into in the name
and for the account of the partnership,
under its signature and by a person
authorized to act for the partnership.
However, any partner may enter into a
separate obligation to perform a
partnership contract. (n)
As used in the law, the term pro-rata must be
understood to mean equally or jointly, ant not
proportionately which is its literal meaning,
because the pro-rating is based on the number of
partners and not on the amount of their
contributions to the common fund, subject to
adjustment among the partners.
Article 1816 refers to the extent of the share of
the partners in the partnership liability for its
contractual debts. The share of the other partners
cannot be increased by the fact that a partner
has left the country and payment of his share of
the liability cannot be enforced, or his liability is is
condoned by the creditor.
The partners may be joined as party defendants
in the same action against the partnership
subject to their right to prior exhaustion of
partnership property. (Compania Maritima v.
Munoz, 9 Phil. 326)
So, the process would be:
1. The creditor of the partnership should first go
after the partnership and exhaust the
partnership assets;
a. The creditor may join the partners
as defendants, but he must first
exhaust the partnership assets;
2. If the partnership assets are insufficient, then
the creditor can go after the partners,
including the industrial partners;
a. The partners are liable equally or
jointly;
b. The industrial partners who paid the
creditor may ask for reimbursement
from the capitalist partners unless
there is an agreement to the
contrary.
LIABILITY LOSS
Incurred even without
loss
Industrial partners are Industrial partners are
not exempted exempted
Article 1817. Any stipulation against the (5) Enter into a compromise
liability laid down in the preceding article concerning a partnership claim or
shall be void, except as among the liability;
partners. (n)
(6) Submit a partnership claim or
This means that such stipulation is void insofar liability to arbitration;
as the partnership creditors are concerned, but
insofar as the partners are concerned, it is valid.
(7) Renounce a claim of the
partnership.
Article 1818. GENERAL RULE: Every
partner is an agent of the partnership for
EXCEPTION: No act of a partner in
the purpose of its business, and the act
contravention of a restriction on
of every partner, including the execution
authority shall bind the partnership to
in the partnership name of any
persons having knowledge of the
instrument, for apparently carrying on in
restriction. (n)
the usual way the business of the
partnership of which he is a member As a general rule, the particular partner who
binds the partnership. (BINDING) undertakes to bind his co-partners by a contract
without authority is himself personally liable on
EXCEPTION: (1) The partner so acting such contract. (This is kung dili ma bind ang
partnership.)
has in fact no authority to act for the
partnership in the particular matter, and
Article 1819. Where title to real property
(2) the person with whom he is dealing
is in the partnership name, any partner
has knowledge of the fact that he has no
may convey title to such property by a
such authority. (Requisites)
conveyance executed in the partnership
Third persons are not bound, in entering into a name; but the partnership may recover
contract with any of the partners, to ascertain such property unless the partner's act
whether or not the partner with whom the binds the partnership under the
transaction is made has the consent of the other provisions of the first paragraph of
partners.
article 1818, or unless such property has
been conveyed by the grantee or a
EXCEPTION: An act of a partner which is
person claiming through such grantee to
not apparently for the carrying on of
a holder for value without knowledge
business of the partnership in the usual
that the partner, in making the
way does not bind the partnership
conveyance, has exceeded his authority.
unless authorized by the other partners.
Where title to real property is in the
EXCEPTION: Except when authorized by
name of the partnership, a conveyance
the other partners or unless they have
executed by a partner, in his own name,
abandoned the business, one or more
passes the equitable interest of the
but less than all the partners have no
partnership, provided the act is one
authority to:
within the authority of the partner under
the provisions of the first paragraph of
(1) Assign the partnership
article 1818.
property in trust for creditors or
on the assignee's promise to pay
Where title to real property is in the
the debts of the partnership;
name of one or more but not all the
partners, and the record does not
(2) Dispose of the good-will of the
disclose the right of the partnership, the
business;
partners in whose name the title stands
may convey title to such property, but
(3) Do any other act which would
the partnership may recover such
make it impossible to carry on the
property if the partners' act does not
ordinary business of a
bind the partnership under the
partnership;
provisions of the first paragraph of
article 1818, unless the purchaser or his
(4) Confess a judgment;
assignee, is a holder for value, without
knowledge.
Where the title to real property is in the
name of one or more or all the partners,
or in a third person in trust for the
partnership, a conveyance executed by a
partner in the partnership name, or in his
own name, passes the equitable interest
of the partnership, provided the act is
one within the authority of the partner
under the provisions of the first
paragraph of article 1818.
Where the title to real property is in the
name of all the partners a conveyance
executed by all the partners passes all
their rights in such property. (n)
Article 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. (n)
Before the partnership can be charged with the
admission of a partner under Article 1820, the
partnership relation must be shown and proof of
that fact must be made by evidence other than
the admission itself.
An admission made by a partner who was no
longer a partner at the time of the declaration is
not admissible in evidence against the
partnership. (Congo v. Trilliana, 13 Phil. 194)
An admission by partner is admissible against the
partnership if the following concur:
1. That the act or declaration is made by a
partner or agent of the party;
2. That the act or declaration is made within the
scope of his authority;
3. That the act or declaration is made during
the existence of the partnership or agency;
4. That the existence of the partnership or
agency is proven by evidence other the act
or declaration of the partner or agent.
Article 1821. Notice to any partner of any
matter relating to partnership affairs, and
the knowledge of the partner acting in
the particular matter, acquired while a
partner or then present to his mind, and
the knowledge of any other partner who
reasonably could and should have
communicated it to the acting partner,
operate as notice to or knowledge of the
partnership, except in the case of fraud
on the partnership, committed by or with
the consent of that partner. (n) (Notice)
Article 1822. Where, by any wrongful act
or omission of any partner acting in the
ordinary course of the business of the
partnership or with the authority of his
co-partners, loss or injury is caused to
any person, not being a partner in the
partnership, or any penalty is incurred,
the partnership is liable therefor to the
same extent as the partner so acting or
omitting to act. (n)
Requisites for liability:
1. The partner must be guilty of a wrongful act
or omission; and
2. He must be acting in the ordinary course of
business, or with the authority of his co-
partners even if the act is unconnected with
the business.
Article 1823. The partnership is bound to
make good the loss:
(1) Where one partner acting
within the scope of his apparent
authority receives money or
property of a third person and
misapplies it; and
(2) Where the partnership in the
course of its business receives
money or property of a third
person and the money or property
so received is misapplied by any
partner while it is in the custody
of the partnership. (n)
Article 1824. All partners are liable
solidarily with the partnership for
everything chargeable to the partnership
under articles 1822 and 1823. (n) (This is
true even though the other partners did not
participate in, or ratify, or had no knowledge
of the act or omission, without prejudice to
their right to recover from the guilty partner.)
The liability here is different from the liability
under Article 1816. The liability here is solidary
while in Article 1816 is joint and subsidiary.
Article 1825. When a person, by words
spoken or written or by conduct,
represents himself, or consents to
another representing him to anyone, as a
partner in an existing partnership or with
one or more persons not actual partners,
he is liable to any such persons to whom
such representation has been made, who
has, on the faith of such representation,
given credit to the actual or apparent
partnership, and if he has made such
representation or consented to its being
made in a public manner he is liable to
such person, whether the representation
has or has not been made or
communicated to such person so giving
credit by or with the knowledge of the
apparent partner making the
representation or consenting to its being
made:
Article 1827. The creditors of the
partnership shall be preferred to those of
each partner as regards the partnership
property. Without prejudice to this right,
the private creditors of each partner may
ask the attachment and public sale of the
share of the latter in the partnership
assets.

(1) When a partnership liability

results, he is liable as though he
were an actual member of the
partnership;

(2) When no partnership liability

results, he is liable pro rata with
the other persons, if any, so
consenting to the contract or
representation as to incur liability,
otherwise separately.

When a person has been thus

represented to be a partner in an existing
partnership, or with one or more persons
not actual partners, he is an agent of the
persons consenting to such
representation to bind them to the same
extent and in the same manner as
though he were a partner in fact, with
respect to persons who rely upon the
representation. When all the members of
the existing partnership consent to the
representation, a partnership act or
obligation results; but in all other cases
it is the joint act or obligation of the
person acting and the persons
consenting to the representation. (n)

Here, there really is no actual or legal partnership

relation that has been created but merely a
partnership liability imposed by law in favor of
third persons. (40 Am. Jur. 137)

Article 1826. A person admitted as a

partner into an existing partnership is
liable for all the obligations of the
partnership arising before his admission
as though he 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. (n)
(Meaning, his liability is limited to his share in the
partnership property referring to creditors or
obligations of the partnership existing before his
admission; creditors subsequent to his admission to
the partnership have rights against his separate
estate.)
 CHAPTER 3
Dissolution and Winding Up
Article 1828. The dissolution of a
partnership is 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. (n)
Winding up the actual process of settling the
business or partnership affairs after dissolution,
involving the collection and distribution of partnership
assets, payment of debts, and determination of the
value of each partners interest in the partnership
Termination that point in time when all partnership
affairs are completely wound up and finally settled
Article 1829. On dissolution the
partnership is not terminated, but
continues until the winding up of
partnership affairs is completed. (n)
Article 1830. Dissolution is caused:
(1) Without violation of the agreement
between the partners:
(a) By the termination of the
definite term or particular
undertaking specified in the
agreement;
Neither the presence of a period for its specific
duration nor the statement of a particular purpose
for its creation will prevent the dissolution of any
partnership by an act or will of a partner. Among
partners, mutual agency arises and the doctrine
of delectus personae allows them to have the
power, although not necessarily the right, to
dissolve the partnership. Verily, any one of the
partners may, at his sole pleasure dictate a
dissolution of the partnership at will. He must,
however, act in good faith, not that the
attendance of bad faith can prevent the
dissolution of the partnership but that it can result
in a liability for damages. (Ortega v. CA, 245
SCRA 529)
See Article 1785 for effect of continuation without
making a new agreement.
(b) By the express will of any
partner, who must act in good
faith, when no definite term or
particular is specified;
While the attendance of bad faith cannot prevent
the dissolution of a partnership, it can result in
liability for damages.
(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;
When the power of expulsion is available:
1. When partner to be expelled is guilty
extreme or gross faults which would work a
forfeiture, especially where there was an
extreme emergency for him to perform his
duty, and to be prompt and faithful;
2. In case of an industrial partner who engages
in business for himself without the express
permission of the partnership;
3. When the power is expressly given by
agreement, provided that it is exercised
fairly.
(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;
Note that there is no such thing as an
indissoluble partnership only in the sense that
there always exists the power, as opposed to the
right, of dissolution. (Collins v. Lewis, 283 S.W.
2d 258 Tex.)
(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) When a specific thing which a partner
had promised to contribute to the
partnership, perishes before the
delivery; in any case by the loss of the
thing, when the partner who contributed
it having reserved the ownership thereof,
has only transferred to the partnership
the use or enjoyment of the same; but
the partnership shall not be dissolved by
the loss of the thing when it occurs after
the partnership has acquired the
ownership thereof;
(5) By the death of any partner;
The liquidation of its affairs is by law entrusted to
the surviving partners, or to liquidators appointed
by them and not to the administrator or executor
 of the deceased partner. (Guidote v. Borja, 53
Phil. 900)
A clause in the articles of co-partnership
providing for the continuation of the firm
notwithstanding the death of one of the partners
is legal. (Goquiolay v. Sycip, 108 Phil. 947)
If the business is continued even upon death of a
partner, there is dissolution of the partnership
without winding up, and a continuance of the
business of the dissolved partnership by a new
partnership, of which the surviving partners and
the heir of the deceased or executors are the
members becoming liable as the old to the
creditors of the firm.
(6) By the insolvency of any partner or of
the partnership;
The insolvency of the partner or of the
partnership must be adjudged by a court.
The reconveyance by the assignee of the
properties of the partnership pursuant to an order
of the court after the termination of insolvency
proceedings involving the partnership has the
effect of restoring the partnership to its status
quo. (Ng Cho Co v. Ng Diong, 1 SCRA 275)
(7) By the civil interdiction of any
partner;
(8) By decree of court under the
following article. (1700a and 1701a)
The sale or assignment (conveyance) by one
partner of his entire interest in the partnership to
a third person does not ipso facto bring about the
dissolution of the partnership. (Article 1813) That
it produces dissolution may be inferred, however,
from the definition of dissolution under Article
1828. But the dissolution created in such case is
only technical, and not actual, i.e., only in the
sense that his connection with the partnership is
terminated.
No person can be compelled either to become a
partner or to remain one against his will.
Article 1831. 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;
The incapacity contemplated by law is incapacity
which is lasting, from which the prospect of
recovery is remote.
(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 which
render a dissolution equitable.
On the application of the purchaser of a
partner's interest under article 1813 or
1814:
(1) After the termination of the
specified term or particular
undertaking;
(2) At any time if the partnership
was a partnership at will when the
interest was assigned or when the
charging order was issued. (n)
For the purpose of adjudicating damages to a
partner who alleges to have suffered losses as a
result of the fraudulent management of the
partnership, it is first necessary that a liquidation
of the business thereof be made to the end that
the profits and losses may be known, and the
causes of the latter and the responsibility of the
managing partner, as well as the damages which
each partner may have suffered, may be
determined. (Soncuya v. De Luna, 67 Phil. 646)
Article 1832. GENERAL RULE:
Dissolution terminates all authority of
any partner to act for the partnership.
EXCEPTION: The partners may still act
for the partnership insofar as may be
necessary to wind up partnership affairs
or to complete transactions begun but
not then finished.
Article 1833. EXCEPTION: Where the
dissolution is caused by the act of a
partner, each partner is liable to his co-
partners for his share of any liability
created by any partner acting for the
partnership as if the partnership had not
been dissolved.
Exception to the EXCEPTION: The
dissolution being by act of any partner,
the partner acting for the partnership
had knowledge of the dissolution
EXCEPTION: Where the dissolution is
caused by the death of a partner, each
partner is liable to his co-partners for his
share of any liability created by any
partner acting for the partnership as if
the partnership had not been dissolved.
EXCEPTION: Where the dissolution is
caused by the insolvency of a partner,
each partner is liable to his co-partners
for his share of any liability created by
any partner acting for the partnership as
if the partnership had not been
dissolved.
Exception to the EXCEPTION: The
dissolution being by the death or
insolvency of a partner, the partner
acting for the partnership had knowledge
or notice of the death or insolvency.
Article 1834. EXCEPTION: After
dissolution, a partner can bind the
partnership:
(1) By any act appropriate for
winding up partnership affairs or
completing transactions
unfinished at dissolution;
(2) 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 and had no
knowledge or notice of the
dissolution; or
(b) Though he had not so
extended credit, had
nevertheless known of the
partnership prior to
dissolution, and, having 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.
The liability of a partner under the first
paragraph, No. 2, shall be satisfied out of
partnership assets alone when such
partner had been prior to dissolution:
(1) Unknown as a partner to the
person with whom the contract is
made; and
(2) So far unknown and inactive in
partnership affairs that the
business reputation of the
partnership could not be said to
have been in any degree due to
his connection with it.
EXCEPTION TO THE EXCEPTION: The
partnership is in no case 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; or
(3) Where the partner has no
authority to wind up partnership
affairs; except by a transaction
with one who -
(a) Had extended credit to
the partnership prior to
dissolution and had no
knowledge or notice of his
want of authority; or
(b) Had not extended credit
to the partnership prior to
dissolution, and, having no
knowledge or notice of his
want of authority, the fact
of his want of authority has
not been advertised in the
manner provided for
advertising the fact of
dissolution in the first
paragraph, No. 2 (b).
Nothing in this article shall affect the
liability under article 1825 of any person
who after dissolution represents himself
or consents to another representing him
as a partner in a partnership engaged in
carrying on business. (n)
Article 1835. 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; and such
agreement may be inferred from the
course of dealing between the creditor
having knowledge of the dissolution and
the person or partnership continuing the
business.
net amount owing to the respective
partners. But if dissolution is caused by
expulsion of a partner, bona fide under
the partnership agreement and if the
expelled partner is discharged from all
partnership liabilities, either by payment
or agreement under the second
paragraph of article 1835, he shall
receive in cash only the net amount due
him from the partnership.
When dissolution is caused in
contravention of the partnership
agreement the rights of the partners
shall be as follows:
(1) Each partner who has not
caused dissolution wrongfully
shall have:

The individual property of a deceased (a) All the rights specified

partner shall be liable for all obligations in the first paragraph of
of the partnership incurred while he was this article, and
a partner, but subject to the prior
payment of his separate debts. (n) (b) The right, as against
each partner who has
Article 1836. Unless otherwise agreed, caused the dissolution
the partners who have not wrongfully wrongfully, to damages
dissolved the partnership or the legal breach of the agreement.
representative of the last surviving
partner, not insolvent, has the right to (2) The partners who have not
wind up the partnership affairs, caused the dissolution
provided, however, that any partner, his wrongfully, if they all desire to
legal representative or his assignee, continue the business in the same
upon cause shown, may obtain winding name either by themselves or
up by the court. (n) jointly with others, may do so,
during the agreed term for the
Persons authorized to wind up: partnership and for that purpose
may possess the partnership
1. The partners designated by the agreement;
2. In the absence of such agreement, all the
property, provided they secure
partners who have not wrongfully dissolved the payment by bond approved by
the partnership; or the court, or pay any partner who
3. The legal representative of the last surviving has caused the dissolution
partner, not insolvent.
wrongfully, the value of his
The legal representative has no right to interfere interest in the partnership at the
with the partnership business, so long as the dissolution, less any damages
surviving partner proceeds in good faith to settle recoverable under the second
its affairs, and it makes no difference how
qualified such representative may be to assist.
paragraph, No. 1 (b) of this article,
and in like manner indemnify him
Article 1837. When dissolution is caused against all present or future
in any way, except in contravention of partnership liabilities.
the partnership agreement, each partner,
as against his co-partners and all (3) A partner who has caused the
persons claiming through them in dissolution wrongfully shall have:
respect of their interests in the
partnership, unless otherwise agreed, (a) If the business is not
may have the partnership property continued under the
applied to discharge its liabilities, and provisions of the second
the surplus applied to pay in cash the paragraph, No. 2, all the
 rights of a partner under all debts and liabilities of the
the first paragraph, subject partnership. (n)
to liability for damages in
the second paragraph, No. Article 1839. In settling accounts
1 (b), of this article. between the partners after dissolution,
the following rules shall be observed,
(b) If the business is subject to any agreement to the
continued under the contrary:
second paragraph, No. 2,
of this article, the right as (1) The assets of the partnership
against his co-partners and are:
all claiming through them
in respect of their interests (a) The partnership
in the partnership, to have property,
the value of his interest in
the partnership, less any (b) The contributions of the
damage caused to his co- partners necessary for the
partners by the payment of all the liabilities
dissolution, ascertained specified in No. 2.
and paid to him in cash, or
the payment secured by a (2) The liabilities of the
bond approved by the partnership shall rank in order of
court, and to be released payment, as follows:
from all existing liabilities
of the partnership; but in (a) Those owing to
ascertaining the value of creditors other than
the partner's interest the partners,
value of the good-will of
the business shall not be (b) Those owing to
considered. (n) partners other than for
capital and profits,
Article 1838. Where a partnership
contract is rescinded on the ground of (c) Those owing to
the fraud or misrepresentation of one of partners in respect of
the parties thereto, the party entitled to capital,
rescind is, without prejudice to any other
right, entitled: (d) Those owing to
partners in respect of
(1) To a lien on, or right of profits.
retention of, the surplus of the
partnership property after (3) The assets shall be applied in
satisfying the partnership the order of their declaration in
liabilities to third persons for any No. 1 of this article to the
sum of money paid by him for the satisfaction of the liabilities.
purchase of an interest in the
partnership and for any capital or (4) The partners shall contribute,
advances contributed by him; as provided by article 1797, the
amount necessary to satisfy the
(2) To stand, after all liabilities to liabilities.
third persons have been satisfied,
in the place of the creditors of the (5) An assignee for the benefit of
partnership for any payments creditors or any person appointed
made by him in respect of the by the court shall have the right to
partnership liabilities; and enforce the contributions
specified in the preceding
(3) To be indemnified by the number.
person guilty of the fraud or
making the representation against (6) Any partner or his legal
representative shall have the right
to enforce the contributions
 specified in No. 4, to the extent of
the amount which he has paid in
excess of his share of the liability.
(7) The individual property of a
deceased partner shall be liable
for the contributions specified in
No. 4.
(8) When partnership property
and the individual properties of
the partners are in possession of
a court for distribution,
partnership creditors shall have
priority on partnership property
and separate creditors on
individual property, saving the
rights of lien or secured creditors.
(9) Where a partner has become
insolvent or his estate is
insolvent, the claims against his
separate property shall rank in the
following order:
(a) Those owing to
separate creditors;
(b) Those owing to
partnership creditors;
(c) Those owing to
partners by way of
contribution. (n)
Article 1840. In the following cases
creditors of the dissolved partnership
are also creditors of the person or
partnership continuing the business:
(1) When any new partner is
admitted into an existing
partnership, or when any partner
retires and assigns (or the
representative of the deceased
partner assigns) his rights in
partnership property to two or
more of the partners, or to one or
more of the partners and one or
more third persons, if the
business is continued without
liquidation of the partnership
affairs;
(2) When all but one partner retire
and assign (or the representative
of a deceased partner assigns)
their rights in partnership
property to the remaining partner,
who continues the business
without liquidation of partnership
affairs, either alone or with
others;
(3) When any partner retires or
dies and the business of the
dissolved partnership is
continued as set forth in Nos. 1
and 2 of this article, with the
consent of the retired partners or
the representative of the
deceased partner, but without any
assignment of his right in
partnership property;
(4) When all the partners or their
representatives assign their rights
in partnership property to one or
more third persons who promise
to pay the debts and who
continue the business of the
dissolved partnership;
(5) When any partner wrongfully
causes a dissolution and the
remaining partners continue the
business under the provisions of
article 1837, second paragraph,
No. 2, either alone or with others,
and without liquidation of the
partnership affairs;
(6) When a partner is expelled and
the remaining partners continue
the business either alone or with
others without liquidation of the
partnership affairs.
The liability of a third person becoming a
partner in the partnership continuing the
business, under this article, to the
creditors of the dissolved partnership
shall be satisfied out of the partnership
property only, unless there is a
stipulation to the contrary.
When the business of a partnership after
dissolution is continued under any
conditions set forth in this article the
creditors of the dissolved partnership, as
against the separate creditors of the
retiring or deceased partner or the
representative of the deceased partner,
have a prior right to any claim of the
retired partner or the representative of
the deceased partner against the person
or partnership continuing the business,
on account of the retired or deceased
partner's interest in the dissolved
partnership or on account of any
consideration promised for such interest
or for his right in partnership property.
Prescription begins to run only upon the
dissolution of the partnership when the final
accounting is done. (Gue Leung v. IAC, 169
SCRA 746)

Nothing in this article shall be held to

modify any right of creditors to set aside
any assignment on the ground of fraud.

The use by the person or partnership

continuing the business of the
partnership name, or the name of a
deceased partner as part thereof, shall
not of itself make the individual property
of the deceased partner liable for any
debts contracted by such person or
partnership. (n)

Article 1841. When any partner retires or

dies, and the business is continued
under any of the conditions set forth in
the preceding article, or in article 1837,
second paragraph, No. 2, without any
settlement of accounts as between him
or his estate and the person or
partnership continuing the business,
unless otherwise agreed, he or his legal
representative as against such person or
partnership may have the value of his
interest at the date of dissolution
ascertained, and shall receive as an
ordinary creditor an amount equal to the
value of his interest in the dissolved
partnership with interest, or, at his
option or at the option of his legal
representative, in lieu of interest, the
profits attributable to the use of his right
in the property of the dissolved
partnership; provided that the creditors
of the dissolved partnership as against
the separate creditors, or the
representative of the retired or deceased
partner, shall have priority on any claim
arising under this article, as provided
article 1840, third paragraph. (n)

Article 1842. The right to an account of

his interest shall accrue to any partner,
or his legal representative as against the
winding up partners or the surviving
partners or the person or partnership
continuing the business, at the date of
dissolution, in the absence of any
agreement to the contrary. (n)

Any partner, or his legal representative, who

approves the final accounting made by the
winding up partners does not have any right to a
further liquidation, unless the former can show CHAPTER 4
that there was fraud, deceit, error or mistake in Limited Partnership (n)
said approval. (Pastor v. Nicasio, 6 Phil. 152)
Article 1843. A limited partnership is one (b) The character of the
formed by two or more persons under business;
the provisions of the following article,
having as members one or more general (c) The location of the
partners and one or more limited principal place of
partners. The limited partners as such business;
shall not be bound by the obligations of
the partnership. (d) The name and place of
residence of each member,
Differences between a general partnership and a general and limited
limited partnership: partners being respectively
designated;
1. A general partner is personally liable for
partnership obligations, while a limited
partners liability extends only to his capital (e) The term for which the
contribution; partnership is to exist;
2. When the manner of management has not
been agreed upon, all of the general
( f ) The amount of cash
partners have equal right in the management
of the business, whether or not the general and a description of and
partner has made any capital contribution, the agreed value of the
while a limited partner has no share in the other property contributed
management of a limited partnership, his
by each limited partner;
rights being limited to those enumerated in
Article 1851, such that he renders himself
liable to creditors as a general partner if he (g) The additional
takes part in the control of the business; contributions, if any, to be
3. A general partner may contribute money, made by each limited
property, or industry to the partnership, while
a limited partner must contribute cash or
partner and the times at
property to the partnership but not services; which or events on the
4. The assignment of a general partners happening of which they
interest does not make the assignee a new shall be made;
partner without the consent of the other
partners, while the assignee of a limited
partners interest acquires all the rights of the (h) The time, if agreed
limited partner; upon, when the
5. The name of a general partner may appear contribution of each
in the firm name, while, as a general rule,
limited partner is to be
that of a limited partner must not;
6. A general partner is prohibited from returned;
engaging in a business which is of the kind
of business in which the partnership is (i) The share of the profits
engaged, if he is a capitalist partner, or in
or the other compensation
any business for himself if he is an industrial
partner, while there is no prohibition in the by way of income which
case of a limited partner who is considered each limited partner shall
as a mere contributor to the partnership; receive by reason of his
7. A general partnership, as a general rule, may
contribution;
be constituted in any form by contract or
conduct of the parties, while a limited
partnership is created by the members after (j) The right, if given, of a
compliance with the requirements set forth limited partner to
by law. substitute an assignee as
contributor in his place,
Article 1844. Two or more persons and the terms and
desiring to form a limited partnership conditions of the
shall: substitution;

(1) Sign and swear to a certificate, (k) The right, if given, of

which shall state -
(a) The name of the
partnership, adding thereto
the word "Limited"; (see
Hungman Yoc v. Kieng-Chiong-
Seng, 6 Phil. 498)
the partners to admit
additional limited partners;
(l) The right, if given, of
one or more of the limited
partners to priority over
other limited partners, as
to contributions or as to
 compensation by way of
income, and the nature of
such priority;
(m) The right, if given, of
the remaining general
partner or partners to
continue the business on
the death, retirement, civil
interdiction, insanity or
insolvency of a general
partner; and
(n) The right, if given, of a
limited partner to demand
and receive property other
than cash in return for his
contribution.
(2) File for record the certificate in
the Office of the Securities and
Exchange Commission.
A limited partnership is formed if
there has been substantial
compliance in good faith with the
foregoing requirements.
Article 1845. The contributions of a
limited partner may be cash or property,
but not services.
Article 1846. The surname of a limited
partner shall not appear in the
partnership name unless:
(1) It is also the surname of a
general partner, or
(2) Prior to the time when the
limited partner became such, the
business has been carried on
under a name in which his
surname appeared.
A limited partner whose surname
appears in a partnership name contrary
to the provisions of the first paragraph is
liable as a general partner to partnership
creditors who extend credit to the
partnership without actual knowledge
that he is not a general partner.
Article 1847. If the certificate contains a
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 the time he signed the
certificate, or
(2) Subsequently, but within a
sufficient time before the
statement was relied upon to
enable him to cancel or amend
the certificate, or to file a petition
for its cancellation or amendment
as provided in article 1865.
Article 1848. A limited partner shall not
become liable as a general partner
unless, in addition to the exercise of his
rights and powers as a limited partner,
he takes part in the control of the
business.
The interference contemplated by Article 1848 is
with respect to an existing limited partnership.
Accordingly, a limited partner is not subject to
general liability for taking part in the management
of the firm because he settles its affairs after
dissolution. (Silvola v. Reulett, 272 P.d. 287)
Article 1849. After the formation of a
lifted partnership, additional limited
partners may be admitted upon filing an
amendment to the original certificate in
accordance with the requirements of
article 1865.
Article 1850. A general partner shall have
all the rights and powers and be subject
to all the restrictions and liabilities of a
partner in a partnership without limited
partners. However, without the written
consent or ratification of the specific act
by all the limited partners, a general
partner or all of the general partners
have no authority to:
(1) Do any act in contravention of
the certificate;
(2) Do any act which would make
it impossible to carry on the
ordinary business of the
partnership;
(3) Confess a judgment against
the partnership;
(4) Possess partnership property,
or assign their rights in specific
partnership property, for other
than a partnership purpose;
(5) Admit a person as a general
partner;
 (6) Admit a person as a limited
partner, unless the right so to do
is given in the certificate;
(7) Continue the business with
partnership property on the death,
retirement, insanity, civil
interdiction or insolvency of a
general partner, unless the right
so to do is given in the certificate.
Article 1851. A limited partner shall have
the same rights as a general partner to:
(1) Have the partnership books
kept at the principal place of
business of the partnership, and
at a reasonable hour to inspect
and copy any of them;
(2) Have on demand true and full
information of all things affecting
the partnership, and a formal
account of partnership affairs
whenever circumstances render it
just and reasonable; and
(3) Have dissolution and winding
up by decree of court.
A limited partner shall have the
right to receive a share of the
profits or other compensation by
way of income, and to the return
of his contribution as provided in
articles 1856 and 1857.
Article 1852. Without prejudice to the
provisions of article 1848, a person who
has contributed to the capital of a
business conducted by a person or
partnership erroneously believing that
he has become a limited partner in a
limited partnership, is not, by reason of
his exercise of the rights of a limited
partner, a general partner with the
person or in the partnership carrying on
the business, or bound by the
obligations of such person or
partnership, provided that on
ascertaining the mistake he promptly
renounces his interest in the profits of
the business, or other compensation by
way of income.
Article 1853. A person may be a general
partner and a limited partner in the same
partnership at the same time, provided
that this fact shall be stated in the
certificate provided for in article 1844.
A person who is a general, and also at
the same time a limited partner, shall
have all the rights and powers and be
subject to all the restrictions of a general
partner; except that, in respect to his
contribution, he shall have the rights
against the other members which he
would have had if he were not also a
general partner.
Article 1854. A limited partner also may
loan money to and transact other
business with the partnership, and,
unless he is also a general partner,
receive on account of resulting claims
against the partnership, with general
creditors, a pro rata share of the assets.
No limited partner shall in respect to any
such claim:
(1) Receive or hold as collateral
security any partnership property,
or
(2) Receive from a general partner
or the partnership any payment,
conveyance, or release from
liability if at the time the assets of
the partnership are not sufficient
to discharge partnership liabilities
to persons not claiming as
general or limited partners.
The receiving of collateral security, or
payment, conveyance, or release in
violation of the foregoing provisions is a
fraud on the creditors of the partnership.
Article 1855. Where there are several
limited partners the members may agree
that one or more of the limited partners
shall have a priority over other limited
partners as to the return of their
contributions, as to their compensation
by way of income, or as to any other
matter. If such an agreement is made it
shall be stated in the certificate, and in
the absence of such a statement all the
limited partners shall stand upon equal
footing.
Article 1856. A limited partner may
receive from the partnership the share of
the profits or the compensation by way
of income stipulated for in the certificate;
provided, that after such payment is
made, whether from property of the A limited partner may have the
partnership or that of a general partner, partnership dissolved and its affairs
the partnership assets are in excess of wound up when:
all liabilities of the partnership except
liabilities to limited partners on account (1) He rightfully but
of their contributions and to general unsuccessfully demands the
partners. return of his contribution, or

Article 1857. A limited partner shall not
receive from a general partner or out of
partnership property any part of his
contributions until:
(1) All liabilities of the partnership,
except liabilities to general
partners and to limited partners
on account of their contributions,
have been paid or there remains
property of the partnership
sufficient to pay them;
(2) The consent of all members is
had, unless the return of the
contribution may be rightfully
demanded under the provisions
of the second paragraph; and
(3) The certificate is cancelled or
so amended as to set forth the
withdrawal or reduction.
(2) The other liabilities of the
partnership have not been paid,
or the partnership property is
insufficient for their payment as
required by the first paragraph,
No. 1, and the limited partner
would otherwise be entitled to the
return of his contribution.
Article 1858. A limited partner is liable to
the partnership:
(1) For the difference between his
contribution as actually made and
that stated in the certificate as
having been made, and
(2) For any unpaid contribution
which he agreed in the certificate
to make in the future at the time
and on the conditions stated in
the certificate.

Subject to the provisions of the A limited partner holds as trustee

first paragraph, a limited partner for the partnership:
may rightfully demand the return
of his contribution: (1) Specific property stated
in the certificate as
(1) On the dissolution of a contributed by him, but
partnership; or which was not contributed
or which has been
(2) When the date specified wrongfully returned, and
in the certificate for its
return has arrived, or (2) Money or other property
wrongfully paid or
(3) After he has six months' conveyed to him on
notice in writing to all other account of his
members, if no time is contribution.
specified in the certificate,
either for the return of the The liabilities of a limited
contribution or for the partner as set forth in this
dissolution of the article can be waived or
partnership. compromised only by the
consent of all members;
In the absence of any statement in the but a waiver or
certificate to the contrary or the consent compromise shall not
of all members, a limited partner, affect the right of a creditor
irrespective of the nature of his of a partnership who
contribution, has only the right to extended credit or whose
demand and receive cash in return for claim arose after the filing
his contribution. and before a cancellation
or amendment of the
 certificate, to enforce such
liabilities.
When a contributor has rightfully
received the return in whole or in part of
the capital of his contribution, he is
nevertheless liable to the partnership for
any sum, not in excess of such return
with interest, necessary to discharge its
liabilities to all creditors who extended
credit or whose claims arose before
such return.
Article 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 has assigned
his interest in a partnership.
An assignee, who does not become a
substituted limited partner, has no right
to require any information or account of
the partnership transactions or to
inspect the partnership books; he is only
entitled to receive the share of the profits
or other compensation by way of
income, or the return of his contribution,
to which his assignor would otherwise
be entitled.
An assignee shall have the right to
become a substituted limited partner if
all the members consent thereto or if the
assignor, being thereunto empowered by
the certificate, gives the assignee that
right.
An assignee becomes a substituted
limited partner when the certificate is
appropriately amended in accordance
with article 1865.
The substituted limited partner has all
the rights and powers, and is subject to
all the restrictions and liabilities of his
assignor, except those liabilities of
which he was ignorant at the time he
became a limited partner and which
could not be ascertained from the
certificate.
The substitution of the assignee as a
limited partner does not release the
assignor from liability to the partnership
under articles 1847 and 1858.
Article 1860. The retirement, death,
insolvency, insanity or civil interdiction
of a general partner dissolves the
partnership, unless the business is
continued by the remaining general
partners:
(1) Under a right so to do stated in
the certificate, or
(2) With the consent of all
members.
Article 1861. On the death of a limited
partner his executor or administrator
shall have all the rights of a limited
partner for the purpose of setting his
estate, and such power as the deceased
had to constitute his assignee a
substituted limited partner.
The estate of a deceased limited partner
shall be liable for all his liabilities as a
limited partner.
Article 1862. On due application to a
court of competent jurisdiction by any
creditor of a limited partner, the court
may charge the interest of the indebted
limited partner with payment of the
unsatisfied amount of such claim, and
may appoint a receiver, and make all
other orders, directions and inquiries
which the circumstances of the case
may require.
The interest may be redeemed with the
separate property of any general partner,
but may not be redeemed with
partnership property.
The remedies conferred by the first
paragraph shall not be deemed exclusive
of others which may exist.
Nothing in this Chapter shall be held to
deprive a limited partner of his statutory
exemption.
Article 1863. In settling accounts after
dissolution the liabilities of the
partnership shall be entitled to payment
in the following order:
(1) Those to creditors, in the order
of priority as provided by law,
except those to limited partners
on account of their contributions,
and to general partners;
(2) Those to limited partners in
respect to their share of the
 profits and other compensation
by way of income on their
contributions;
(3) Those to limited partners in
respect to the capital of their
contributions;
(4) Those to general partners
other than for capital and profits;
(5) Those to general partners in
respect to profits;
(6) Those to general partners in
respect to capital.
Subject to any statement in the
certificate or to subsequent agreement,
limited partners share in the partnership
assets in respect to their claims for
capital, and in respect to their claims for
profits or for compensation by way of
income on their contribution
respectively, in proportion to the
respective amounts of such claims.
Article 1864. The certificate shall be
cancelled when the partnership is
dissolved or all limited partners cease to
be such.
A certificate shall be amended when:
(1) There is a change in the name
of the partnership or in the
amount or character of the
contribution of any limited
partner;
(2) A person is substituted as a
limited partner;
(3) An additional limited partner is
admitted;
(4) A person is admitted as a
general partner;
(5) A general partner retires, dies,
becomes insolvent or insane, or
is sentenced to civil interdiction
and the business is continued
under article 1860;
(6) There is a change in the
character of the business of the
partnership;
(7) There is a false or erroneous
statement in the certificate;
(8) There is a change in the time
as stated in the certificate for the
dissolution of the partnership or
for the return of a contribution;
(9) A time is fixed for the
dissolution of the partnership, or
the return of a contribution, no
time having been specified in the
certificate, or
(10) The members desire to make
a change in any other statement
in the certificate in order that it
shall accurately represent the
agreement among them.
Article 1865. The writing to amend a
certificate shall:
(1) Conform to the requirements
of article 1844 as far as necessary
to set forth clearly the change in
the certificate which it is desired
to make; and
(2) Be signed and sworn to by all
members, and an amendment
substituting a limited partner or
adding a limited or general
partner shall be signed also by
the member to be substituted or
added, and when a limited partner
is to be substituted, the
amendment shall also be signed
by the assigning limited partner.
The writing to cancel a certificate
shall be signed by all members.
A person desiring the cancellation
or amendment of a certificate, if
any person designated in the first
and second paragraphs as a
person who must execute the
writing refuses to do so, may
petition the court to order a
cancellation or amendment
thereof.
If the court finds that the petitioner has a
right to have the writing executed by a
person who refuses to do so, it shall
order the Office of the Securities and
Exchange Commission where the
certificate is recorded, to record the
cancellation or amendment of the
certificate; and when the certificate is to
be amended, the court shall also cause
to be filed for record in said office a
certified copy of its decree setting forth
the amendment.
A certificate is amended or cancelled
when there is filed for record in the
Office of the Securities and Exchange
Commission, where the certificate is
recorded:
(1) A writing in accordance with
the provisions of the first or
second paragraph, or
(2) A certified copy of the order of
the court in accordance with the
provisions of the fourth
paragraph;
(3) After the certificate is duly
amended in accordance with this
article, the amended certified
shall thereafter be for all
purposes the certificate provided
for in this Chapter.
Article 1866. A contributor, unless he is a
general partner, is not a proper party to
proceedings by or against a partnership,
except where the object is to enforce a
limited partner's right against or liability
to the partnership.
Article 1867. A limited partnership
formed under the law prior to the
effectivity of this Code, may become a
limited partnership under this Chapter by
complying with the provisions of article
1844, provided the certificate sets forth:
(1) The amount of the original
contribution of each limited
partner, and the time when the
contribution was made; and
(2) That the property of the
partnership exceeds the amount
sufficient to discharge its
liabilities to persons not claiming
as general or limited partners by
an amount greater than the sum
of the contributions of its limited
partners.
A limited partnership formed
under the law prior to the
effectivity of this Code, until or
unless it becomes a limited
partnership under this Chapter,
shall continue to be governed by
the provisions of the old law.