General Review on

Partnership
RP JANET GRACE B. DALISAY-FABRERO
What is partnership?
A contract whereby two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among
themselves.
Note: Two or more persons may also form a partnership for the exercise of a profession.
(Art. 1767, NCC)
• B. ELEMENTS
What are the essential elements of a partnership?
1.Agreement to contribute money, property or industry to a common fund (mutual
contribution to a common stock); and
2.Intention to divide the profits among the contracting parties (joint interest in the
profits). (Evangelista v. Collector of Internal Revenue, G.R. No. L‐9996, Oct. 15, 1987).
What are the requisites of a partnership?
ICJ
3.Intention to create a partnership
4.Common fund obtained from contributions
5.Joint interest in dividing the profits (and losses)
What are the characteristics of a partnership?
BON‐CC‐PP
1.Bilateral – it is entered into by two or more persons and the rights and
obligations arising therefrom are reciprocal
2.Onerous – each of the parties aspires to procure for himself a benefit through
the giving of something
3.Nominate – it has a special name or designation in our law
Consensual – perfected by mere consent
5. Commutative – the undertaking of each of the partners is considered as the
equivalent of that of the others
6. Principal – its life does not depend on the existence of another contract
Preparatory – because it is entered into as a means to an end, i.e. to engage in
business
7. Fiduciary – it is based on trust and confidence
CASE: Jose entered into a verbal agreement with Francisco to form a partnership for the purchase of cascoes for a
proposed boat rental business. It was agreed that Francisco would buy the cascoes and each partner is to furnish
such amount of money as he could, and that the profits will be divided proportionately. After Francisco purchased a
casco with the money advanced by Jose, they undertook to draft the articles of partnership and embody the same
in an authentic document. However, they did not come to an agreement. So, Francisco returned the money
advanced by Jose, which the latter received with an express reservation of all his rights as a partner.
1. Was there a partnership formed between Jose and Francisco?
2. If such partnership existed, was it terminated by the receipt of Jose of the money he advanced?
Answers:
1. Yes. Both elements in a contract of partnership exist: a) mutual contribution to a common stock, and b)
a joint interest in the profits. If the contract contains these two elements, a partnership relation results,
and the law itself fixes the incidents of this relation if the parties fail to do so. In this case, there was
money furnished by Jose and received by Francisco for the purchase of the cascoes and there was also an
intention to divide the profits proportionately between them. Thus, there is a partnership by virtue of the
verbal agreement between Jose and Francisco.
2. No. There was no clear intent on the part of Jose, in accepting the money, to relinquish his rights as a
partner. (Fernandez v. Dela Rosa, G.R. No. 413, Feb. 2, 1903)
CASE: Chim was the owner and manager of a lumber yard. Vicente and Ting
participated in the profits and losses. A contract of sawing lumber was entered into by
Chim, acting in his own name, with Frank. At the time the contract was made, they were
the joint proprietors and operators of the said lumber yard engaged in the purchase and
sale of lumber under the name and style of Chim. In an action to recover the balance
under the contract filed by Frank against Chim, Vicente and Ting, the latter two alleged
that they are not Chim’s partners. Did Chim, Vicente and Ting form a partnership?
A: No. A simple business was formed by Chim exclusively in his own name and under his
personal management and he effected every transaction in his name and in the names of
other persons interested in the profits and losses of the business. What has been formed
is an accidental partnership of cuentas en participacion.
Note: Under the Code of Commerce, cuentas en participacion means a sort of an
accidental partnership constituted in such a manner that its existence was only known to
those who had an interest in the same, there being no mutual agreement between the
partners, and without a corporate name indicating to the public in some way that there
were other people besides the one who ostensibly managed and conducted the business,
governed under article 239 of the Code of Commerce. (Bourns v. Carman, G.R. No. L‐2880,
Dec. 4, 1906)
INTENT TO CREATE A PARTNERSHIP
CASE: Henry and Lyons are engaged in real estate business and are co‐owners of a parcel of land. Henry,
with the consent of Lyons, mortgaged the property to raise the funds sufficient to buy and develop the San
Juan Estate. Lyons expressed his desire not to be part of the development project, but Henry, nevertheless,
pursued the business alone. When the business prospered, Lyons demanded for a share in the business. Is
Lyons entitled to the shares in San Juan Estate?
A: No. Lyons himself manifested his desire not to be part of the development project. Thus, no partnership
was formed. The mortgage of the land was immaterial to the existence of the partnership. It is clear that
Henry, in buying the San Juan Estate, was not acting for any partnership composed of himself and Lyons, and
the law cannot be distorted into a proposition which would make Lyons a participant in this deal contrary to
his express determination. (Lyons v. Rosenstock, G.R. No. 35469, Mar. 17, 1932)
CASE: Catalino and Ceferino acquired a joint tenancy over a parcel of land under a verbal contract of
partnership. It was stipulated that each of the said purchasers should pay one‐half of the price and that an
equal division should be made between them of the land thus purchased. Despite Catalino’s demand for an
equal division between them, Ceferino refused to do so and even profited from the fruits of the land. Are
they partners or co‐owners?
A: They are co‐owners because it does not appear that they entered into any contract of partnership but only
for the sole transaction of acquiring jointly or by mutual agreement of the land under the condition that they
would pay 1⁄2 of the price of the land and that it be divided equally between them. (Gallemit v. Tabiliran, G.R.
No. 5837, Sept. 15, 1911)
COMMON FUND
Q: May a partnership be formed even if the common fund is comprised entirely of borrowed or loaned
money? What would be the liability of the partners in such a case?
A: Yes. A partnership may be deemed to exist among parties who agree to borrow money to pursue a business
and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed
any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the
partnership. (Lim Tong Lim v. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, Nov. 3, 1999)
SHARE IN PROFITS AND LOSSES
Q: Mariano and Isabelo entered into a partnership agreement wherein they are to contribute P15,000 each
for the purpose of printing 95,000 posters. Isabelo was unable to print enough posters pursuant to the
agreement, thus he executed in favor of Mariano a promissory note in an amount equivalent to the
unrealized profit due to insufficient printing. The whole amount became due but Isabelo defaulted payment.
Is Mariano entitled to file a case for the recovery of the unrealized profit of the partnership?
A: No. The essence of a partnership is to share in the profits and losses, thus, Mariano should shoulder the
losses with Isabelo. (Moran Jr., v. CA, G.R. No. L‐59956, Oct. 31, 1984)
CASE: To form a lending business, it was verbally agreed that Noynoy would act as financier while Cory and
Kris would take charge of solicitation of members and collection of loan payments. They agreed that Noynoy
would receive 70% of the profits while Cory and Kris would earn 15% each. The parties executed the 'Articles
of Agreement' which formalized their earlier verbal agreement. Later, Noynoy filed a complaint against Cory
and Kris for misappropriation of funds allegedly in their capacities as Noynoy’s employees. In their answer,
Cory and Kris asserted that they were partners and not mere employees of Noynoy. What kind of
relationship existed between the parties?
A: A partnership was formed among the parties. The "Articles of Agreement" stipulated that the signatories
shall share the profits of the business in a 70‐15‐15 manner, with Noynoy getting the lion's share. This
stipulation clearly proved the establishment of a partnership. (Santos v. Spouses Reyes, G.R. No.135813, Oct.
25, 2001)
CASE : Jose conveyed his lots in favor of his four sons in order for them to build their residences. His sons
sold the lots since they found the lots impractical for residential purposes because of high costs of
construction. They derived profits from the sale and paid income tax. The sons were required to pay
corporate income tax and income tax deficiency, on the theory that they formed an unregistered partnership
or joint venture taxable as a corporation. Did the siblings form a partnership?
A: No. The original purpose was to divide the lots for residential purposes. If later, they found out that it is not
feasible to build their residences on the lots, they can dissolve the co‐ownership by reselling said lots. The
division on the profit was merely incidental to the dissolution of the co‐ ownership which was in the nature of
things a temporary state. (Obillos, Jr. v. CIR, G.R. No. L‐ 68118, Oct. 29, 1985)
What are the rules to determine the existence of partnership?
1. Persons who are not partners as to each other are not partners as to third persons.
2. Co‐ownership/co‐possession does not of itself establish a partnership.
3. Sharing of gross returns does not of itself establish a partnership.
Receipt of a person of a share in the profits is a prima facie evidence that he is a partner, but not when received
as payment for :
a. Debt as installment
b. Wages
c. Annuity
d. Interest in a loan
e. Consideration for the sale of a goodwill
Note: in sub‐paragraphs a – e, the profits in the business are not shared as profits of a partner as a partner, but
in some other respects or for some other purpose.
CASE: A and B are co‐owners of an inherited properties. They
agreed to use the said common properties and the income derived
therefrom as a common fund with the intention to produce profits
for them in proportion to their respective shares in the inheritance
as determined in a project of partition. What is the effect of such
agreement on the existing co‐ownership?
A: The co‐ownership is automatically converted into a partnership.
From the moment of partition, A and B, as heirs, are entitled already
to their respective definite shares of the estate and the income
thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and,
accordingly, he becomes liable individually for all the taxes in
connection therewith.
If, after such 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. Commissioner of Internal revenue, 45
SCRA 74 [1972])
Q:What are the typical incidents of partnership?

1. The partners share in profits and losses.

2. (Arts. 1767,1797‐98)
3. They have equal rights in the management and conduct of the partnership business. (Art. 1803)
4. Every partner is an agent of partnership, and entitled to bind the other partners by his acts, for the purpose
of its business. (Art. 1818)
5. All partners are personally liable for the debts of the partnership with their separate property (Arts. 1816,
1822‐24) except limited partners.
6. A fiduciary relationship exists between the partners. (Art. 1807)
7. On dissolution, the partnership is not terminated, but continues until the winding up of partnership is
completed. (Art 1828)
What are the rules regarding distribution of profits and losses?
1.Distribution of profits
1.The partners share in the profits
2.according to their agreement
3.In the absence of such:
1.Capitalist partner – in proportion to his contribution
2.Industrial partner – what is just and equitable under the
circumstances
2.Distribution of losses
1.The partners share in the losses
a. according to their agreement
b. In the absence of such, according to their agreement as to profits
c. In the absence of profit agreement, in proportion to his capital
contribution
Q: What is the rule regarding a stipulation which excludes a partner in the sharing of profits and losses?
A: Genera Rule: Stipulation is void.
EXCEPTION: Industrial partner is not liable for losses [Art. 1797(2), NCC]. However, he is not exempted from
liability insofar as third persons are concerned.
Note: Loss is different from liability
If, besides his services the industrial partner has contributed capital, he shall also receive a share in the profits
in proportion to his capital.
• D. HOW PARTNERSHIP IS FORMED
Q: How are partnerships formed?
A: It is created by agreement of the parties (consensual).
Note: There is no such thing as a partnership created by law or by operation or implication of law alone. (De
Leon, Comments and cases on Partnership, Agency and Trust, p. 13, 2005 ed.
What are the formalities needed for the creation of a partnership?

GR: No special form is required for its validity or existence. (Art. 1771,
NCC)
XPN: If property or real rights have been contributed to the partnership:
1.Personal property
1.Less than P3,000 – may be oral
2.P 3,000 or more – must be:
1.in a public instrument; and
2.registered with SEC (Art.
3.1772, NCC)
4.Note: Even if the partnership is not registered with SEC, the
partnership is still valid and possesses a distinct personality (Paras,
Civil Code of the Philippines Annotated, Volume 5, p. 412, 1969 6th
ed)
Real property or real rights – must be:
1.
in a public instrument (Art. 1771, NCC)
2.
with an inventory of said property
•i. signed by the parties
•ii. attached to the public instrument (Art. 1773, NCC)
Note: Everything must be complied with; otherwise, partnership is void and
has no
juridical personality even as between the parties (Art. 1773, NCC)
•iii. registered in the Registry of Property of the province, where the real
property is found to bind third persons (Paras, p. 412)

3. Limited partnership – must be registered as such with SEC, otherwise, it is

not valid as a limited partnership but may still be considered a general
partnership with juridical personality (Paras, Civil Code of the Philippines
Annotated, Volume 5, p. 412, 1969 6th ed)
Q: If the requirements under Art. 1773, as regards contribution of real property to a partnership, has not been
complied with, what is the status of the partnership?
A: It is void. Nonetheless, a void partnership under Art. 1773, in relation to Art. 1771 NCC, may still be considered by
the courts as an ordinary contract as regards the parties thereto from which rights and obligations to each other may
be inferred and enforced. (Torres v. CA, G.R. No. 134559, Dec. 9 1999)
Note: Torres v. CA does not involve third persons.
Q: What must be done in order that the partnership may be effective as against third persons whenever immovable
property is contributed?
A: To be effective against 3rd parties, partnership must be registered in the Registry of Property of the province where
the real property contributed is located. (Art. 1771, NCC)
Q: Can there be a partnership based on a verbal agreement, and without such agreement being registered with SEC?
A: Yes. Article 1772 NCC requires that partnerships with a capital of P3,000 or more must register with SEC. However,
this registration requirement is not mandatory. Article 1768 NCC explicitly provides that the partnership retains its
juridical personality even if it fails to register. The failure to register the contract of partnership does not invalidate the
same as among the partners, so long as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the members themselves knew of the contents
of their contract. Non‐ compliance with this directory provision of the law will not invalidate the partnership.
A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto,
in which case a public instrument shall be necessary. Hence, based on the intention of the parties, a verbal contract of
partnership may arise. (Sunga‐Chan v. Chua, G.R. No. 143340, Aug. 15, 2001)
Note: Registration is merely for administration and licensing purposes; hence, it shall not affect the liability of the
partnership and the members thereof to third persons. [Art. 1772, (2), NCC]
Q: A partnership was entered into between Mauricio and Severino to operate a fishpond. Neither partner
contributed a fishpond or a real right over any fish pond. Their capital contributions were in cash in the
amount of P1,000 each. While the partnership contract was done in a public instrument, no inventory of the
fishpond to be operated was attached in the said instrument. Is there a valid contract of partnership?
A: Yes. There is a valid contract of partnership despite the lack of inventory. The purpose of the partnership was
not to engage in the fishpond business but to operate a fishpond. Neither said fishpond nor a real right to any
fish pond was contributed to the partnership or become part of the capital thereof. (Agad v. Mabato, G.R. No.
L‐ 24193, June 28, 1968)
Q: What is a partnership with a fixed term?
A: It is one in which the term of its existence has been agreed upon by the partners either:
1. Expressly – there is a definite period
2. Impliedly – a particular enterprise or
3. transaction is undertaken
Note: The mere expectation that the business would be successful and that the partners would be able to
recoup their investment is not sufficient to create a partnership for a term.
Q: Can the partners fix any term in the partnership contract?
A: Yes. The partners shall be bound to remain under such relation for the duration of the term.
Q: What is the effect when the fixed term has expired?
A: The expiration of the term fixed or the accomplishment of the particular undertaking specified will cause the automatic
dissolution of the partnership.
Q: When does a partnership commence to exist?
A: A partnership commences from the time of execution of the contract if there is no contrary stipulation as to the date of
effectivity of the same.
NOTE: Registration to SEC is not essential to give it juridical personality.
There is no time limit prescribed by law for the life of a partnership.
Q: What is a future partnership?
A: It is a kind of partnership where the partners may stipulate some other date for the commencement of the partnership.
Persons who enter into a future partnership do not become partners until or unless the agreed time has arrived or the
contingency has happened.
NOTE: It is a partnership created by implied agreement, the continued existence of which will depend upon the mutual
desire and consent of the partners.
Q: When is a partnership at will terminate?
A: It may be lawfully terminated at any time by the express will of all the
partners or any of them.
Q: How is a partnership at will dissolved?
A: Any one of the partners may dictate a dissolution of a partnership at
will.
Note: The partner who wants the partnership dissolved must do so in
good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership, but to avoid the liability for damages to
other partners.
Q: State the classifications of partnership. A:
As to:
1. Object
a. Universal partnership
i. of all present property (Art. 1778, NCC) – comprises the following:
property which belonged
• to each of the partners at the time of the constitution of the partnership
• profits which they may acquire from all property contributed
ii. of all profits (Art. 1780, NCC) – comprises all that the partners may acquire by their industry or work during the
existence of the partnership
b. Particular partnership – It is one which has for its object, determinate things, their use and fruits, or a specific
undertaking or the exercise of a profession or a vocation. (Art. 1783, NCC)
2. Liability of partners
General partnership – One where all partners are general partners who are liable
even with respect to their individual properties, after the assets of the partnership have
been exhausted (Paras,p. 411)
Limited partnership – One formed by 2 or more persons having as members one or
more general partners and one or more limited partners, the latter not being personally
liable for the obligations of the partnership.
3. Duration
Partnership at will – Partnership for a particular undertaking or venture which may be
terminated anytime by mutual agreement.
Partnership with a fixed period – The term for which the partnership is to exist is fixed
or agreed upon or one formed for a particular undertaking.
4. Legality of existence
De jure partnership
De facto partnership
5.Representation to others
Ordinary or real partnership
Ostensible or partnership by estoppel – When two or more persons attempt to create a
partnership but fail to comply with the legal personalities essential for juridical personality,
the law considers them as partners, and the association is a partnership insofar as it is
favorable to third persons, by reason of the equitable principle of estoppel (MacDonald et.
al. v. Nat’l. City Bank of New York, G.R. No. L‐7991, May 21, 1956)
6.Publicity
Secret partnership – Partnership hat is not known to many but only as to its partners.
Notorious or open partnership – It is known not only to the partners, but to the public as
well.
7.Purpose
Commercial or trading – One
formed for the transaction of business.
Professional or non‐trading – One formed for the exercise of a profession
Who may be partners?
General Rule: Any person capacitated to contract may enter into a contract of partnership.

exceptions:
1. Persons who are prohibited from giving each other any donation or advantage
cannot enter into a universal partnership. (Art. 1782, NCC)
2.
Persons suffering from civil interdiction
3.
Persons who cannot give consent to a contract:
a. Minors
2.
Insane persons
3.
Deaf‐mutes who do not know how
4.
to write
Q: What is the principle of delectus personae?
A: This refers to the rule that is inherent in every partnership, that no one can become a member of the
partnership association without the consent of all the partners.
Note: Even if a partner will associate another person in his share in the partnership, the associate shall
not be admitted into the partnership without the consent of all the partners, even if the partner having an
associate should be a manager (Art. 1804, NCC).
Q: May a corporation enter into a partnership with another corporation?
A: As a rule, it is illegal for two corporations to enter into a partnership. Nevertheless, a
corporation may enter into a joint venture with another if the nature of the venture is
in line with the business authorized by its charter. (Tuason v. Bolaños, G.R. No. L‐4935,
May 28, 1954)
Q: What are the different kinds of partners? A:
1.Capitalist – Contributes money or property to the common fund
2.Industrial – Contributes only his industry or personal service
3.General – One whose liability to 3rd persons extends to his separate or personal
property
4.Limited – One whose liability to 3rd persons is limited to his capital contribution
5.Managing – Manages the affairs or business of the partnership
6.Liquidating – Takes charge of the winding up of partnership affairs upon dissolution
7.Partner by estoppel – Is not really a partner but is liable as a partner for the
protection of innocent 3rd persons
8. Continuing partner – Continues the business of a partnership after it has been dissolved by reason
of the admission of a new partner, retirement, death or expulsion of one of the partners
9. Surviving partner – Remains after a partnership has been dissolved by death of any partner
10.Sub‐partner – Is not a member of the partnership; contracts with a partner with reference to the
latter's share in the partnership
11.Ostensible – Takes active part and known to the public as partner in the business
12.Secret – Takes active part in the business but is not known to be a partner by outside parties
13.Silent – Does not take any active part in the business although he may be known to be a partner
14.Dormant – Does not take active part in the business and is not known or held out as a partner
What are the relations created by a contract of partnership?
15.Partners‐Partners
16.Partners‐Partnership
17.Partnership‐3rd persons with whom it contracts
18.Partners‐3rd persons with whom partnership contracts.
PARTICULAR PARTNERSHIP Q: What is particular partnership?
A: It is one which has for its object, determinate things, their use and fruits, or a specific undertaking or the exercise of
a profession or a vocation. (Art. 1783, NCC)
Case: J, P and B formed a limited partnership called Suter Co., with P as the general partner and J and B as limited
partners. J and B contributed P18,000 and P20,000 respectively. Later, J and B got married and P sold his share of the
partnership to the spouses which was recorded in the SEC. Has the limited partnership been dissolved by reason of
the marriage between the limited partners?
A: No. The partnership is not a universal but a particular one. As provided by law, a universal partnership requires
either that the object of the association must be all present property of the partners as contributed by them to a
common fund, or all else that the partners may acquire by their industry or work. Here, the contributions were fixed
sums of money and neither one of them were industrial partners. Thus, the firm is not a partnership which the spouses
are forbidden to enter into. The subsequent marriage cannot operate to dissolve it because it is not one of the causes
provided by law. The capital contributions were owned separately by them before their marriage and shall remain to be
separate under the Spanish Civil Code. Their individual interest did not become common property after their marriage.
(Commissioner of Internal Revenue v. Suter, G.R. No. L‐25532, Feb. 28, 1969)
Q: When does a partner bind the partnership?

1. When he is expressly or impliedly authorized

2. When he acts in behalf and in the name of the partnership
GENERAL PARTNERSHIP Q: What is general partnership?
A: One where all partners are general partners who are liable even with respect to their individual properties, after the assets
of the partnership have been exhausted (Paras, Civil Code of the Philippines Annotated, Volume 5, p. 411, 1969 6th ed)
Who is a partner by estoppel?
A: One who, by words or conduct does any of the following:
1. Directly represents himself to anyone as a partner in an existing partnership or in a non‐existing partnership
2. Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or
in a non‐existing partnership
Q: What are the elements before a partner can be held liable on the ground of estoppel?
3. Defendant represented himself as partner or is represented by others as such, and did not deny/refute such
representation.
4. Plaintiff relied on such representation.
5. Statement of defendant is not refuted.
Q: What is a joint venture?
A: An association of persons or companies jointly undertaking some commercial enterprise; generally, all contributes
assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and
govern the policy in connection therewith, and a duty which may be altered by agreement to share both in profits and
losses.
What is a professional partnership?
A: It is a partnership formed by persons for the sole purpose of exercising their common profession, no part of the income
of which is derived from engaging in any trade or business.
Q: In a professional partnership, who is deemed engaged in the practice of profession?
A: It is the individual partners and not the partnership. Thus, they are responsible for their own acts.
Q: What is prohibited in the formation of a professional partnership?
A: Partnership between lawyers and members of other profession or non‐professional persons should not be formed or
permitted where any part of the partnership’s employment consists of the practice of law. (Canons of Professional Ethics)
What are the characteristics of a partnership for the practice of law?
1. A duty of public service, of which the emolument is a by‐product
2. A relation as an “officer of court” to the administration of justice
3. A relation to clients in the highest fiduciary degree
4. A relationship to colleagues at the bar characterized by candor, fairness, and unwillingness to resort to current business
methods of advertising and encroachment on their practice, or dealing with their clients. (In the Matter of Petition for
Authority to Continue Use of Firm Name “Sycip, Salazar, etc.” / “Ozeata Romulo, etc.,” 92 SCRA 1 [1979], citing H.S.
Drinker, Legal Ethics [1953], pp4‐5.)
Q: What is prohibited in the firm name of a partnership for the practice of law?
A: In the selection and use of firm name, no false, misleading, assumed, or trade names should be used. (Canons of
Professional Ethics)
What is the rule when the manner of management has not been agreed upon
All partners shall be considered managers and agents
Unanimous consent is required for alteration of immovable property
case: Azucena and Pedro acquired a parcel of land and a building. Azucena obtained a loan from Tai Tong Co.,
secured by a mortgage which was executed over the land and building. Arsenio, representative of Tai Tong,
insured it with Travellers Multi Indemnity Corporation. The building and the contents thereof were razed by fire.
Travellers failed to pay the insurance. Hence, Azucena and Pedro filed a case against Travellers wherein Tai Tong
intervened claiming entitlement to the proceeds from Travellers. Who is entitled to the proceeds of the policy?
A: Tai Toing is entitled to the insurance proceeds. Arsenio contracted the insurance policy on behalf of Tai Tong. As
the managing partner of the partnership, he may execute all acts of administration including the right to sue
debtors of the partnership in case of their failure to pay their obligations when it became due and demandable. Or
at the very least, Arsenio is an agent of the partnership. Being an agent, it is irm. (Tai Tong Chuache & Co. v.
Insurance Commissioner, G.R. No. L‐55397, Feb. 29, 1988)
Note: If refusal of partner is manifestly prejudicial to the interest of partnership, court’s intervention may be
sought.
What are the remedies available to the creditors of a partner?
1. Separate or individual creditors should first secure a judgment on their credit; and
2. Apply to the proper court for a charging order subjecting the interest of the debtor‐partner in the partnership for
the payment of the unsatisfied amount of the judgment debt with interest thereon.
Q: What are the responsibilities of a partnership to partners?
1. Refund the amounts disbursed by partner in behalf of the partnership plus corresponding interest from the time
the expenses are made (e.g. loans and advances made by a partner to the partnership aside from capital
contribution)
2. Answer for obligations a partner may have contracted in good faith in the interest of the partnership business
3. Answer for risks in consequence of its management (Art. 1796)
What are the obligations of partners among themselves?
• Contribution of property (Art. 1786)
• Contribution of money and money converted to personal use (Art. 1788)
• Prohibition in engaging in business for himself (Art. 1789)
• Contribute additional capital (Art. 1791)
• Managing partner who collects debt (Art. 1792)
Partner who receives share of partnership credit (Art. 1793)
• Damages to partnership (Art. 1794)
• Render information (Art. 1806)
• Accountable as fiduciary (Art. 1807)
CONTRIBUTION OF PROPERTY
What are the obligations of partners with respect to contribution of property?
1. Contribute at the beginning of the partnership, or at the stipulated time, the money, property or industry which
he may have promised to contribute
2. Answer for eviction in case the partnership is deprived of the determinate property contributed
3 Answer to the partnership for the Fruits of the property the contribution of which he delayed, from the date
they should have been contributed up to the time of actual delivery
4. Preserve said property with the diligence of a good father of a family, pending delivery to the partnership
5. Indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its
contribution
CONTRIBUTION OF MONEY AND MONEY CONVERTED TO PERSONAL USE
Q: What are the rules regarding contribution of money to the partnership?
A: CRIP
1. To Contribute on the date fixed the amount the partner has undertaken to contribute to the partnership
2. To Reimburse any amount the partner may have taken from the partnership coffers and converted to his own
use
3. To Indemnify the partnership for the damages caused to it by delay in the contribution or conversion of any
sum for the partner’s personal benefits
4. To Pay for the agreed or legal interest, if the partner fails to pay his contribution on time or in case he
takes any amount from the common fund and converts it to his own use
CONTRIBUTE ADDITIONAL CAPITAL
Q: What are the rules regarding obligations to contribute to partnership capital?
4. Partners must contribute equal shares to the capital of the partnership unless there is stipulation to contrary
5. Capitalist partners must contribute additional capital in case of imminent loss to the business of the
partnership when there is no stipulation to the contrary; Refusal to do so shall create an obligation on the
refusing partner to sell his interest to the other partners
What are the requisites before capitalist partners are compelled to contribute additional capital?
1. Imminent loss of the business of the partnership
2. Majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the
business
3. Capitalist partner refuses deliberately to contribute (not due to financial inability)
4. There is no agreement to the contrary
MANAGING PARTNER WHO COLLECTS DEBT
What are the obligations of managing partners who collect his personal receivable from a person who also owes the
partnership?
5. Apply sum collected to 2 credits in proportion to their amounts
6. If he received it for the account of partnership, the whole sum shall be applied to partnership credit
Note: Requisites:
7. At least 2 debts, one where the collecting
8. partner is creditor and the other, where
9. the partnership is the creditor
10.Both debts are demandable
11.Partner who collects is authorized to manage and actually manages the partnership
Bar Question: Joe and Rudy formed a partnership to operate a car repair shop in Quezon City. Joe provided the capital
while Rudy contributed his labor and industry. On one side of their shop, Joe opened and operated a coffee shop,
while on the other side, Rudy put up a car accessories store. May they engage in such separate businesses? Why?
Joe, the capitalist partner, may engage in the restaurant business because it is not the same kind of business the
partnership is engaged in. On the other hand, Rudy may not engage in any other business unless their partnership
expressly permits him to do so because as an industrial partner he has to devote his full time to the business of the
partnership (Art. 1789, NCC). (2001 Bar Question)
DAMAGES TO PARTNERSHIP
Q: What is the rule with regard to the obligation of a partner as to damages suffered by the partnership through his
fault?
General Rule: Every partner is responsible to the partnership for damages suffered by it through his own fault. These
damages cannot be offset by the profits or benefits which he may have earned for the partnership by his industry.
Exception: If unusual profits are realized through extraordinary efforts of the guilty partner, the courts may equitably
mitigate or lessen his liability for damages. (Art. 1794, NCC)
DUTY TO RENDER INFORMATION
Q: What is the duty of the partners with respect to information affecting the partnership?
A: They shall render on demand true and full information of all things affecting the partnership to: the partner; or
legal representative of any deceased or legally disabled partner. (Art. 1806, NCC)
ACCOUNTABLE AS FIDUCIARY
Q: How are partners accountable to each other as fiduciary?
A: Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him
without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of
the partnership or from any use by him of its property. (Art. 1807, NCC)
RIGHTS OF GENERAL PARTNERS
• Q: What are the property rights of a partner?
• A: SIM
• 1. Right in Specific partnership property
2. Interest in the partnership (share in the profits and surplus)
3. Right to participate in the Management
What is the nature of a partner's right in specific partnership property?
1. Equal right to possession for partnership purposes
2. Right is not assignable, except in connection with assignment of rights of all partners in the same property
3. Right is limited to his share of what remains after partnership debts have been paid
4. Right is not subject to attachment or execution except on a claim against the partnership
5. Right is not subject to legal support
What are the effects of assignment of partner’s whole interest in the partnership?
A. Rights withheld from the assignee:

Such assignment does not grant the assignee the right to:
1. To interfere in the management
2. To require any information or
3. account
4. To inspect partnership books
Rights of assignee on partner’s interest:
1. To receive in accordance with his contract the profits accruing to the
2. assigning partner
3. To avail himself of the usual
4. remedies provided by law in the
5. event of fraud in the management
6. To receive the assignor’s interest in
7. case of dissolution
8. To require an account of
9. partnership affairs, but only in case the partnership is dissolved, and such account shall cover the
period from the date only of the last account agreed to by all the partners
Q: What are the effects of conveyance of a partner of his interest in the partnership?
Conveyance of his whole interest – partnership may either remain or be dissolved
Assignee does not necessarily become a partner; he cannot:
1. interfere in the management or administration; or
2. demand information, accounting and inspection of the partnership books.
Note: But the assignee has the following rights:
1.receive in accordance with his contract the profits which the assigning partner would otherwise
be entitled
2.avail himself of the usual remedies provided by law in event of fraud in management
3.receive assignor’s interest in case of dissolution
4.require and account of partnership affairs but only in case the partnership is dissolved, and such
account shall cover the period from the date only of the last account agreed to by all the parties
CRIMINAL LIABILITY FOR MISAPPROPRIATION: ESTAFA
Q: Rosa received from Jois money, with the express obligation to act as Jois’ agent in purchasing
local cigarettes, to resell them to several stores, and to give Jois the commission corresponding
to the profits received. However, Rosa misappropriated and converted the said amount due to
Jois to her personal use and benefit. Jois filed a case of estafa against Rosa. Can Rosa deny
liability on the ground that a partnership was formed between her and Rosa?
A: No. Even assuming that a contract of partnership was indeed entered into by and between the
parties, when a partner receives any money or property for a specific purpose (such as that
obtaining in the instant case) and he later misappropriates the same, is guilty of estafa. (Liwanag
v. CA, G.R. No. 114398, Oct. 24, 1997)
Q: What are the obligations of partners with regard to 3rd persons?
1. Every partnership shall operate under a firm name. Persons who include their names in the partnership
name even if they are not members shall be liable as a partner
2. All partners shall be liable for contractual obligations of the partnership with their property, after all
partnership assets have been exhausted:
a. Pro rata
b. Subsidiary
3. Admission or representation made by
any partner concerning partnership affairs within the scope of his authority is evidence against the partnership
4. Notice to partner of any matter relating to partnership affairs operates as notice to partnership except in case
of fraud:
-Knowledge of partner acting in the particular matter acquired while a partner
-Knowledge of the partner acting in the particular matter then present To his mind
-Knowledge of any other partner who reasonably could and should have communicated it to the acting partner

Note: Partners and the partnership are solidarily liable to 3rd persons for the partner's tort or breach of trust
6. Liability of incomingpartner is limited to:
a. His share in the partnership property for existing obligations
b. His separate property for subsequent obligations
7. Creditors of partnership are preferred in partnership property & may attach partner's
share in partnership assets
Note: On solidary liability. Art. 1816 should be construed together with Art. 1824 (in
connection with Arts. 1822 and 1823). While the liability of the partners is merely joint in
transactions entered into by the partnership, a third person who transacted with said
partnership may hold the partners solidarily liable for the whole obligation if the case of
the third person falls under Articles 1822 and 1823. (Munasque v. CA, G.R. No. L‐39780,
Nov. 11, 1985)
What are the causes of dissolution?
1.Without violating the agreement:
1.Termination of the definite term or specific
undertaking
2.Express will of any partner in good faith, when there is
no definite term and no specified undertaking
3.Express will of all partners (except those who have
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
4.Expulsion of any partner in good faith of a member
2. Violating the agreement
3. Unlawfulness of the business
4. Loss
1. Specific thing promised as contribution is lost or perished before delivery
2. Loss of a specific thing contributed before or after delivery, if only the use of such is contributed
1.Note: The partnership shall not be dissolved by the loss of the thing when it occurs after the
partnership has acquired the ownership thereof.
5. Death of any of the partners
6. Insolvency of any partner or of the partnership
7. Civil interdiction of any partner
8. By decree of court under Art. 1831, NCC
A. a partner has been declared insane or of unsound mind
B. a partner becomes in any other way incapable of performing his part of the partnership contract
C. a partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business
D. a partner willfully or persistently commits a breach of the partnership agreement
E. the business of the partnership can only be carried on at a loss
F. other circumstances render a dissolution equitable
What are the effects of dissolution?
1.Partnership is not terminated
2.Partnership continues for a limited purpose
3.Transaction of new business is prohibited (De Leon, Comments and Cases on
Partnership, Agency, and Trust, p. 229, 2005 ed)
Note: The dissolution of a partnership must not be understood in the absolute
and strict sense so that at the termination of the object for which it was
created the partnership is extinguished, pending the winding up of some
incidents and obligations of the partnership, but in such case, the partnership
will be reputed as existing until the juridical relations arising out of the contract
are dissolved. (Testate of Motta v. Serra, G.R. No. L‐22825, Feb. 14, 1925)
Dissolution does not automatically result in the termination of the legal
personality of the partnership, nor the relations of the partners among
themselves who remain as co‐partners until the partnership is terminated. (De
Leon, Comments and Cases on Partnership, Agency, and Trust, p. 29, 2005 ed)
Q: What is the effect of dissolution on the authority of a partner?

General Rule: The partnership ceases to be a going concern

Exception: The partner’s power of representation is confined only to acts incident to winding up or completing
transactions begun but not then finished. (Art. 1832, NCC)
Note: Subject to the qualifications set forth in Articles 1833 and 1834 in relation to Article 1832, NCC:
1. In so far as the partners themselves are concerned – The authority of any partner to bind the partnership by a new
contract is immediately terminated when the dissolution is not by the Act, Insolvency, or Death of a partner (AID).
2. When the dissolution is by the act, insolvency, or death, the termination of authority depends upon whether or
not the partner had knowledge or notice of dissolution (Art. 1833, NCC).
Q: The articles of co‐partnership provide that in case of death of one partner, the partnership shall not be
dissolved but shall be continued by the deceased partner’s heirs. When H, a partner, died, his wife, W, took over
the management of some of the real properties with permission of the surviving partner, X, but her name was not
included in the partnership name. She eventually sold these real properties after a few years. X now claims that W
did not have the authority to manage and sell those properties as she was not a partner. Is the sale valid?
A: Yes. The widow was not a mere agent, because she had become a partner upon her husband's death, as expressly
provided by the articles of co‐ partnership, and by authorizing the widow to manage partnership property X
recognized her as a general partner with authority to administer and alienate partnership property. It is immaterial
that W's name was not included in the firm name, since no conversion of status is involved, and the articles of co‐
partnership expressly contemplated the admission of the partner's heirs into the partnership. (Goquiolay v. Sycip,
G.R. No. L‐11840, Dec. 16, 1963)
Q: What is the liability of a partner where the dissolution is caused by the act, death or insolvency of a partner?
General Rule: Each partner is liable to his co‐partners for his share, of any liability created by any partner for the
partnership, as if the partnership had not been dissolved.
Exceptions: Partners shall not be liable when:
1. the dissolution, being by act of any partner, the partner acting for the partnership had knowledge of the
dissolution; or
2. 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 (Art. 1833, NCC)
After the dissolution of a partnership, can a partner still bind the partnership?
General Rule: Yes. A partner continues to bind partnership even after dissolution in the following cases:
3. Transactions to wind up partnership affairs/complete transactions unfinished at dissolution;
4. Transactions which would bind partnership if not dissolved dissolution had not taken place, provided the other
party/obligee:

1. Had extended credit to partnership

2. prior to dissolution; and
3. Had no knowledge/notice of
4. dissolution; or
B.
1. Did not extend credit to partnership;
2. Had known partnership prior to
3. dissolution; and
4. Had no knowledge/notice of
5. dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on.
Exception : Partner cannot bind the partnership anymore after dissolution where dissolution is due to unlawfulness to carry on business
Exceptions to the Exception: Winding up of partnership affairs
1. Partner has become insolvent
2. Act is not appropriate for winding up or for completing unfinished transactions
3. Completely new transactions which would bind the partnership if dissolution had not taken place with third persons in bad faith.
4. Partner is unauthorized to wind up partnership affairs, except by transaction with one who:

A.
1. Had extended credit to partnership prior to dissolution;
2. Had no knowledge or notice of dissolution; or

B.
3. Did not extend credit to partnership
4. prior to dissolution;
5. Had known partnership prior to
6. dissolution; and
7. Had no knowledge/notice of
8. dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on.
Q: Does the dissolution of a partnership discharge existing liability of a partner?
General Rule: No.
Exception: Said liability is discharged when there is an agreement between:
1. Partner himself;
2. Person/s continuing the business; and
3. Partnership creditors
What is the order of priority in the distribution of assets during the dissolution of a limited partnership?
A: In setting accounts after dissolution, the liabilities of the partnership shall be entitled to payment in the following order:
4. 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
5. Those to limited partners in respect to their share of the profits and other compensation by way of income on their
contributions
6. Those to limited partners in respect to the capital of their contributions
7. Those to general partners other than for capital and profits
8. Those to general partners in respect to profits
9. Those to general partners in respect to capital (Art. 1863, NCC)
Note: 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.
WINDING UP
Q: What takes place during the winding up of the partnership?
A: It is during this time after dissolution that partnership business or affairs are being settled. (De Leon, Comments
and Cases on Partnership, Agency, and Trust, p. 229, 2005 ed)
Note: Examples of winding up:
1. Paying previous obligations
2. Collecting assets previously demandable
Engaging in new business necessary for winding up such as contracting with a demolition company for the
demolition of the garage used in a “used car” partnership (Paras, Civil Code of the Philippines Annotated, Volume 5,
p. 485, 1969 6th ed)
Who are the persons authorized to wind up?
3. Partners designated by the agreement
4. In the absence of such, all partners who have not wrongfully dissolved the partnership
5. Legal representative of last surviving partner who is not insolvent
What are partnership assets?
6. Partnership property
7. Contributions of the partners necessary for the payment of all liabilities [Art. 1839 (2), NCC]
What is the order of payment in winding up?
1. Those owing to creditors other than partners
2. Those owing to partners other than for capital or profits
3. Those owing to partners in respect of capital
4. Those owing to partners in respect to profits [Art. 1839 (2), NCC]
What is the doctrine of marshalling of assets?
5. Partnership creditors have preference in partnership assets
6. Separate or individual creditors have preference in separate or individual properties
7. Anything left from either goes to the other.
What are the rights of the partner when dissolution is not in contravention of the agreement?

Unless otherwise agreed, the rights of each partner are as follows:

8. To have the partnership property applied to discharge the liabilities of partnership; and
9. To have the surplus, if any, applied, to pay in cash the net amount owing to the respective partners.
What are the rights of a partner where dissolution is in contravention of the
agreement?
A: The rights of a partner vary depending upon whether he is the innocent or
guilty partner.
1.Rights of partner who has not caused the dissolution wrongfully:
1.To have partnership property
2.applied for the payment of its liabilities and to receive in cash his share of
the surplus
3.To be indemnified for the damages caused by the partner guilty of
wrongful dissolution
4.To continue the business in the same name during the agreed term of the
partnership, by themselves or jointly with others
5.To possess partnership property should they decide to continue the
business
1. Rights of partner who has wrongfully caused the dissolution:
1. If the business is not continued by
2. the other partners, to have the partnership property applied to discharge its liabilities and to receive in
cash his share of the surplus less damages caused by his wrongful dissolution
3. If the business is continued:
1. To have the value of his interest in the partnership at the time of the dissolution, less any damage
caused by the dissolution to his co‐ partners, ascertained and paid in cash, or secured by bond
2. approved by the court; and
3. To be released from all existing and future liabilities of the partnership
What are the rights of injured partner where partnership contract is rescinded?
a. Right of a lien on, or retention of, the surplus of partnership property after satisfying partnership liabilities for
any sum of money paid or contributed by him;
b. Right of subrogation in place of partnership creditors after payment of partnership liabilities; and
c. Right of indemnification by the guilty partner against all debts and liabilities of the partnership.
How are the accounts settled between partners?
1. Assets of the partnership include:
a. Partnership property (including goodwill)
b. Contributions of the partners
2. Order of application of the assets:
a, First, those owing to partnership creditors
b. Second, those owing to partners other than for capital and profits such as loans given by the partners or advances
for business expenses
c. Third, those owing for the return of the capital contributed by the partners
d. Fourth, the share of the profits, if any, due to each partner
Q: A partnership was formed with Magdusa as the manager. During the existence of the partnership, two partners
expressed their desire to withdraw from the firm. Magdusa determined the value of the partners share which
were embodied in the document drawn in the handwriting of Magdusa but was not signed by all of the partners.
Later, the withdrawing partners demanded for payment but were refused. Considering that not all partners
intervened in the distribution of all or part of the partnership assets, should the action prosper?
A: No. A partner’s share cannot be returned without first dissolving and liquidating the partnership, for the return is
dependent on the discharge of creditors, whose claims enjoy preference over those of the partner, and it is self‐
evident that all members of the partnership are interested in its assets and business, and are entitled to be heard in
the matter of the firm’s liquidation and distribution of its property. The liquidation prepared by Magdusa not signed
by the other partners is not binding on them. (Magdusa v. Albaran, G.R. No. L‐17526, June 30, 1962)
What is partner’s lien?
A: The right of every partner to have the partnership property applied, to discharge partnership liabilities and surplus assets, if any, distributed in
cash to the respective partners, after deducting what may be due to the partnership from them as partners.
Q: Can a partner demand for his share during the existence of a partnership?
A: No. A share in a partnership can be returned only after the completion of the latter's dissolution, liquidation and winding up of the business.
Since the capital was contributed to the partnership, not to partners, it is the partnership that must refund the equity of the retiring partners. Since
it is the partnership, as a separate and distinct entity that must refund the shares of the partners, the amount to be refunded is necessarily limited
to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. (Villareal v. Ramirez, G.R. No.
144214, July 14, 2003)
What are the effects when the business of a dissolved partnership is continued?
Creditors of old partnership are also creditors of the new partnership who continues the business of the old one without liquidation of the
partnership affairs.
Creditors have an equitable lien on the consideration paid to the retiring/deceased partner by the purchaser when retiring/deceased partner sold
his interest without final settlement with creditors.
Rights of retiring/estate of deceased partner:
1. To have the value of his interest
2. ascertained as of the date of
3. dissolution; and
4. To receive as ordinary creditor the
5. value of his share in the dissolved partnership with interest or profits attributable to use of his right, at his option.
Note: The right to demand on accounting of the value of his interest accrues to any partner or his legal representative after dissolution in the
absence of an agreement to the contrary.
Prescription begins to run only upon the dissolution of the partnership, when the final accounting is done.
Who are the persons required to render an account?
1. Winding up partner;
2. Surviving partner; and
3. Person or partnership continuing the business
Case: Emnace and Tabanao decided to dissolve their partnership in 1986. Emnace failed to submit the statement of assets and
liabilities of the partnership, and to render an accounting of the partnership's finances. Tabanao’s heirs filed against Emnace an
action for accounting, etc. Emnace counters, contending that prescription has set in. Decide.
A: Prescription has not yet set in. Prescription of the said right starts to run only upon the dissolution of the partnership when the
final accounting is done. Contrary to Emnace’s protestations, prescription had not even begun to run in the absence of a final
accounting. The right to demand an accounting accrues at the date of dissolution in the absence of any agreement to the
contrary. When a final accounting is made, it is only then that prescription begins to run. (Emnace v. CA, G.R. No. 126334, Nov. 23,
2001)
Q: Pauline, Patricia and Priscilla formed a business partnership for the purpose of engaging in neon advertising for a term of
five (5) years. Pauline subsequently assigned to Philip her interest in the partnership. When Patricia and Priscilla learned of the
assignment, they decided to dissolve the partnership before the expiration of its term as they had an unproductive business
relationship with Philip in the past. On the other hand, unaware of the move of Patricia and Priscilla but sensing their negative
reaction to his acquisition of Pauline’s interest, Philip simultaneously petitioned for the dissolution of the partnership.
Is the dissolution done by Patricia and Priscilla without the consent of Pauline or Philip valid? Explain.
A: Under Art 1830(1)(c), NCC, the dissolution by Patricia and Priscilla is valid and did not violate the contract of partnership even
though Pauline and Philip did not consent thereto. The consent of Pauline is not necessary because she had already assigned her
interest to Philip. The consent of Philip is also not necessary because the assignment to him of Pauline’s interest did not make
him a partner, under Art. 1813, NCC.
Does Philip have any right to petition for the dissolution of the partnership before the expiration of its specified term? Explain.
A: No, Philip has no right to petition for dissolution because he does not have the standing of a partner. (Art. 1813, NCC) (1995
Bar Question)
LIMITED PARTNERSHIP
Q: What is limited partnership?
• A: 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 partnership debts (Art. 1843)
• Q: What are the characteristics of limited partnership?
• It is formed by compliance with the statutory requirements
One or more general partners control the business and are personally liable to creditors
• One or more limited partners contribute to the capital and share in the profits but do not participate in the
management of the business and are not personally liable for partnership obligations beyond their capital
contributions
• The limited partners may ask for the return of their capital contributions under conditions prescribed by law
Partnership debts are paid out of common fund and the individual properties of general partners
What are the essential requirements for the formation of limited partnership?
• Certificate of articles of limited partnership which states the matters enumerated in Art. 1844, NCC, must be
signed and sworn; and
• Certificate must be filed for record in the office of the SEC.
Note: Strict compliance with legal requirements is not necessary. It is sufficient that there is substantial
compliance in good faith (Jo Chun v. Pacific Commercial Co., G.R. No. 19892, Sept. 6, 1923).
Q: Does a limited partnership have a personality separate and distinct from that of the partners? What are the
consequences of such?
A: Yes. The personality of a limited partnership being different from that of its members, it must, on general
principle, answer for, and suffer, the consequence of its acts as such an entity capable of being the subject of
rights and obligations. If the limited partnership failed to pay its obligations, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent. (Campos Rueda & Co. v. Pacific Commercial Co.,
et. al, G.R. No. L‐ 18703, Aug. 28, 1922)
Q: When is the certificate or articles of limited partnership cancelled?
1. When the partnership is dissolved
2. When all the limited partners ceased to be such
When may a certificate or articles of limited partnership be amended?
It must fall under the following changes and conditions:
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
j. 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 (Art. 1864, NCC)
2.Must be signed and sworn to by all of the members including the new members if some added; in case of
substitution, the assigning limited partner must also sign
The prohibition is not absolute because there is no
prohibition if the partnership assets are sufficient to
discharge partnership liabilities to persons not
claiming as general or limited partners.
When does a general partner need consent or ratification of all the limited partners?
A: When he:
1. does any act in contravention of the certificate;
2. does any act which would make it impossible to carry on the ordinary business of the partnership;
3. confesses judgment against partnership;
4. possesses partnership property / assigns rights in specific partnership property other than for partnership purposes;
5. admits person as general partner;
6. admits person as limited partner – unless authorized in certificate; or
7. continues business with partnership property on death, retirement, civil interdiction, insanity or insolvency of general
partner unless authorized in the certificate.
PARTNERSHIP TORT
Q: When is there a partnership tort?
A: Where:
1. by any wrongful act or omission of any
2. partner, acting in the ordinary course of business of the partnership or with authority of his co‐partners, loss or injury is caused
to any person, not being a partner in the partnership;
3. one partner, acting within the scope of his apparent authority, receives money or property from a third person, and misapplies
it; or
4. the partnership, in the course of its business, receives money or property, and it is misapplied by any partner while it is in the
custody of the partnership.
Note: Partners are solidarily liable with the partnership for any penalty or damage arising from a partnership tort.
Q: What are the specific rights of a limited partner?
A: To:
1. have partnership books kept at principal place of business;
2. inspect/copy hours;
3. have on demand true and full information of all things affecting partnership;
4. have formal account of partnership affairs whenever circumstances render it just and reasonable;
5. ask for dissolution and winding up by decree of court;
6. receive share of profits/other compensation by way of income; and
7. receive return of contributions, provided the partnership assets are in excess of all its liabilities.
Q: Who is a substituted limited partner?
A: A person admitted to all the rights of a limited partner who has died or assigned his interest in the partnership
Q: What are the rights and liabilities of a substituted limited partner?
GENERAL RULE: He has all the rights and powers and is subject to all the restrictions and liabilities of his assignor.
EXCEPTION: Those liabilities which he was ignorant of at the time that he became a limited partner and which could not be
ascertained from the certificate
Q: What are the requirements for the admission of a substituted limited partner?
1.All the members must consent to the assignee becoming a substituted limited partner
or the limited partner, being empowered by the certificate must give the assignee the
right to become a limited partner;
2.The certificate must be amended in accordance with Art. 1865, NCC; and
3.The certificate as amended must be registered in the SEC.
Q: What is the basis of preference given to limited partners over other limited
partners?
A: Priority or preference may be given to some limited partners over other limited
partners as to the:
4.return of their contributions;
5.their compensation by way of income; or
6.any other matter.
Note: In the absence of such statement in the certificate, even if there is an agreement,
all limited partners shall stand on equal footing in respect of these matters.
Q: What are the requisites for return of contribution of a limited partner?
A:
1. All liabilities of the partnership have been paid or if they have not yet been paid, the assets of the partnership are sufficient to pay such
liabilities;
2. The consent of all the members (general and limited partners) has been obtained except when the return may be rightfully demanded;
and
3. The certificate of limited partnership is cancelled or amended
Q: When is the return of contribution of a limited partner a matter of right?
A: When 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 and the certificate is cancelled or so amended as to
set forth the withdrawal or reduction:
4. on the dissolution of the partnership;
5. upon the arrival of the date specified in
6. the certificate for the return; or
7. after the expiration of 6 month notice in writing given by him to the other partners if no time is fixed in the certificate for the return of
the contribution or for the dissolution of
8. the partnership.
Note: Even if a limited partner has contributed property, he has only the right to demand and receive cash for his contribution. The
exceptions are:
9. When there is stipulation to the contrary in the certificate; or
10.When all the partners (general and limited partners) consent to the return other than in the form of cash
Q: What are the liabilities of a limited partner?
1. To the partnership
• A: Since limited partners are not principals in the transaction of a partnership, their liability as a rule, is to the
partnership, not to the creditors of the partnership. The general partners cannot, however waive any liability of
the limited partners to the prejudice of such creditors.
2. To the partnership creditors and other partners
2. A limited partner is liable for partnership obligations when he contributed services instead of only money
or property to the partnership
3. When he allows his surname to appear in the firm name
4. When he fails to have a false statement in the certificate corrected, knowing it to be false
5. When he takes part in the control of the business
6. When he receives partnership property as collateral security, payment, conveyance, or release in fraud of
partnership creditors
7. When there is failure to substantially comply with the legal requirements governing the formation of
limited partnerships
3. To separate creditors
• A: As in a general partnership, the creditor of a limited partner may, in addition to other remedies allowed under
existing laws, apply to the proper court for a charging order subjecting the interest in the partnership of the debtor
partner for the payment of his obligation. (De Leon, Comments and cases on Partnership, Agency and Trust, p. 13,
2005 ed)
Q: What are the requisites for waiver or compromise of liabilities?
• A: The waiver or compromise:
1. is made with the consent of all partners; and
2. does not prejudice partnership creditors who extended credit or whose claims arose before the cancellation
or amendment of the certificate.
Q: When may a limited partner have the partnership dissolved?
1. When his demand for the return of his contribution is denied although he has a right to such return; or
2. When his contribution is not paid although he is entitled to its return because the other liabilities of the
partnership have not been paid or the partnership property is insufficient for their payment.