2007 partnership up barops

7/27/2019 2007 Partnership UP Barops

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PARTNERSHIP

I. NATURE; CREATION OF A PARTNERSHIP

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, orindustry to a common fund, with the intention of dividing the profits among themselves.Two or more persons may also form a partnership for the exercise of a profession.

A. Essential Features:1. There must be a valid contract2. The parties must have legal capacity to enter into the contract3. There must be a mutual contribution of money, property, or industry to a common fund4. The object must be lawful5. The purpose or primary purpose must be to obtain profits and divide the same among the parties

B. Form of ContractGeneral Rule: No special form is required for its validity or existence.Exceptions:1. Where immovable property or real rights are contributed.

must be in writing in a public instrument with an inventory of the property contributed, signed by the parties

2. Where the contract of partnership has a capital of P3,000 or more, in money or property. it shall appear in apublic instrument and must be recorded in the Office of the Securities and Exchange Commission. However, apartnership has a juridical personality even in case of failure to comply with this requirement.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or morepersons bind themselves to contribute money, property or industry to a common fund; and (2) intentionon the part of the partners to divide the profits among themselves. It may be constituted in any form; apublic instrument is necessary only where immovable property or real rights are contributed thereto. Thisimplies that since a contract of partnership is consensual, an oral contract of partnership is as good as awritten one. Where no immovable property or real rights are involved, what matters is that the partieshave complied with the requisites of a partnership. (Tocao v CA)

There is no need to attach an inventory for what has been contributed in the partnership by the parties

werent immovable property or real rights. None of the partners contributed either a fishpond or a realright to any fishpond. Art. 1773 of the Civil Code is not in point. (Agad v Mabato)

When there are no third parties involved who may be prejudiced Art. 1773 does not apply. Art. 1773 ismeant to protect third persons. (Torres v CA)

Art.1666 provides that "A partnership must have a lawful object, and must be established for thecommon benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profitsshall be given to the charitable institutions of the domicile of the partnership, or in default of such, tothose of the province." A charitable institution is not a necessary party in the present case for thedetermination of the rights of the parties. The action which may arise from said article, in the case of anunlawful partnership, is that for the recovery of the amounts paid in by the members from those incharge of the administration of said partnership, and it isnt necessary for the said partners to base theiraction on the existence of the partnership, but on the fact of having contributed some money to thepartnership capital. (Arbes v Polistico)

Rules to determine the existence of a partnership:General Rule: Persons who are not partners to each other are not partners as to third persons.exception: partnership by estoppel.

Co-ownership of a property does not itself establish a partnership, even though the co-owners share inthe profits derived from the incident of joint ownership.

Sharing of gross returns alone does not indicate a partnership, whether or not the persons sharing themhave a joint or common right or interest in any property from which the returns are derived;

The receipt of the share in the profits is a strong presumptive evidence of partnership. However, no


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such inference will be drawn if such profits were received in payment: As a debt by installments or otherwise; As wages of an employee or rent to a landlord; As an annuity to a widow or representative of a deceased partner; As interest on a loan, though the amount of payment vary with the profits of the business; As the consideration for the sale of a goodwill of a business or other property by installments or

otherwise. (art. 1769)

All of essential features or characteristics of partnership must be shown as being present. Art. 1769seeks to exclude from the category of partnership certain features enumerated therein which, bythemselves, are not indicative of the existence of a partnershipIssue as to whether a partnership exists is a factual matter. Where circumstances taken singly may beinadequate to prove the intent to form a partnership, nevertheless the collective effect of thesecircumstances may be such as to support a finding of the existence of the parties intent. (Heirs of TanEng Kee v CA)

DISTINCTIONS:

Partnership Corporation

Created by mere agreement of the parties;

May be organized by only two persons

Created by operation of law

Requires at least 5 incorporators;

Juridical personality commences from themoment of execution of the contract ofpartnership

May exercise any power authorized by thepartners as long as it is not contrary to law, etc.

If no agreement as to mgt. - every partner is an

agent of the partnership

A partner as such may sue a co-partner whomismanages;

Has no right of succession;The partners are liable personally andsubsidiarily for partnership debts;

Based on delectus personam;

May be established for any period of timestipulated by the partners;

May be dissolved at anytime by the will of any orall partners;

Governed by the civil code

Personality commences from the date ofissuance of the certificate of incorporation by thesec

Can exercise such powers expressly granted bylaw or incident to its existence

Power to do business is vested in the board of

directors/ trustees;

Suit against the board of director whomismanages must be brought in the corp.sname;

Has right of succession;

The stockholders are liable to the extent of theshares subscribed by them;

Not based on delectus personam;

May not be formed for a period exceeding 50years;

May be dissolved only with the consent of thestate;

Governed by the corp. Code (jas baka distortedtong tables na to. di ko mapagtapat tapatyung characteristics with the program i'm


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using. sorry di kasi to ms word)

Partnership Co-ownership

Creation Always created by a contractether express or implied

Generally created by law, butmay exist even without acontract

Juridical Personality Has a juridical personalityseparate and distinct from thatof each partner

Has no juridical personality

Purpose Realization of Profits Common enjoyment of a thingor right

Duration No limitation upon the durationis set by law

An agreement to keep the thingundivided for more than 10years is not allowed

Transfer of Interests A partner may not dispose of hisindividual interest in thepartnership so as to make theassignee a partner withoutunanimous consent

A co-owner can dispose of hisshare without the consent of theothers

Power to act with Third Persons Generally a partner may bindthe partnership A co-ower cannot represent theco-ownership

Dissolution Death or incapacity of a partner dissolves the partnership

Death or incapacity of a co-owner does not necessarilydissolve the co-ownership

Representation there is mutual agency there is no mutualrepresentation (jas dapat yung"representation" asa firstcolumn. mutual agency sa 2ndthen no mutual rep sa 3rd. wheni copy paste this table tamanaman pero sa file na to it looksdistorted. )

Profits must be stipulated upon must always depend uponproportionate shares and anystipulation to the contrary isvoid.

Under Art. 1768, a partnership "has a juridical personality separate and distinct from that of each of thepartners." The partners cannot be held liable for the obligations of the partnership unless it is shown thatthe legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes.(Aguila v CA)

ISSUE: WON 2 or more medium-sized corporations (contractors) may enter into a partnership or jointventure/consortiumHELD: The general rule is that a corporation cannot enter into a contract of partnership with anothercorporation or individual. This limitation is based on public policy, since in a partnership the corporationwould be bound by the acts of persons who are not duly appointed and authorized agents and officers,which would be entirely inconsistent with the policy of the law that the corporation shall manage its ownaffairs, separately and exclusively. Exceptions may be allowed as long as the following are met:1. The articles of incorporation of the corporations involved must expressly authorized the corporation toenter into contracts of partnership with others in the pursuit of its business;2. The agreement of articles of partnership must provide that all the partners will manage thepartnership; and3. The articles of partnership must stipulate that all the partners are and shall be jointly and severallyliable for all the obligations of the partnership.Moreover, two or more corporations may enter into a joint venture/consortium if the nature of the venture


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is in line with business authorized by its charter through a contract or voluntary agreement between thesaid parties. Please note that no independent legal entity is borne out of it and the same need not beregistered with the Commission. Moreover when the joint venture/consortium would result in theformation of a corporation or partnership, the same has to be registered with the Commission and theconditions and requirements abovementioned should be complied with. (SEC OPINION to AntonioLibrea dated Feb. 29, 1980)

In deciding as to whether or not Gatchalian, et al. formed a partnership, the Court held that they

organized a partnership of a civil nature because each of them put up money to buy a sweepstakesticket for the sole purpose of dividing equally the prize which they may win. The partnership was not onlyformed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personallyappeared in the office of the Philippine Charity Sweepstakes, in his capacity as co-partner, as suchcollected the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and Company,and the said partner, in the same capacity, collected the said check. These circumstances prove theexistence of a partnership. (Gatchalian v Collector of Internal Revenue)

There is co-ownership and not unregistered partnership when no evidence that petitioners entered intoan agreement to contribute money, property or industry to a common fund, and that they intended todivide the profits among themselves. Other indications (as presented in the case):

Petitioners bought parcels of land but they did not sell the same nor make any improvementsthereon.

It was only after several years when, they sold the land.

The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not

present. (Pascual and Dragon v Commissioner of Internal Revenue)

Since petitioners were not engaged in any joint venture by reason of that isolated transaction and thedivision of the profit was merely incidental to the dissolution of the co-ownership, which was in factmerely a temporary state, they cannot be considered partners. CC Art. 1769 provides that "the sharingof gross returns does not of itself establish a partnership, whether or not the persons sharing them havea joint or common right or interest in any property from which the returns are derived". There must be anunmistakable intention to form a partnership or joint venture. (Obillos v CIR)

Particular partnership distinguished from a joint adventure: A joint adventure presupposes generally a

parity of standing between the joint co-ventures or partners, in which each party has an equal proprietaryinterest in the capital or property contributed, and where each party exercises equal rights in the conductof the business. In Aurbach v. Sanitary Wares, it was held that a joint adventure may be likened to aparticular partnership. The legal concept of a joint adventure is hardly distinguishable from thepartnership. The main distinction is that the partnership contemplates a general business with somedegree of continuity, while the joint adventure is formed for the execution of a single transaction, and isthus of a temporary nature. In the Philippines this is not entirely accurate, since under the CC, apartnership may be particular or universal, and a particular partnership may have for its object a specificundertaking. Thus, under Philippine law, a joint adventure is a form of partnership. The Supreme Courthas however recognized a distinction between these two business forms, and has held that although acorporation cannot enter into a partnership contract, it may however engage in a joint adventure withothers. (Heirs of Tan Eng Kee v CA)

A partnership constituted in such a manner, the existence of which was only known to those who had an

interest in the same, there being no mutual agreements between the partners, and without a corporatename indicating to the public in some way that there were other people besides the one who ostensiblymanaged and conducted the business, is exactly the accidental partnership of cuentas on participaciondefined in article 239 of the Code of Commerce.Those who contract with the person under whose name the business of such partnership of cuentas enparticipacion is conducted, shall have only a right of action against such person and not against theother persons interested, and the latter, on the other hand, shall have no right of action against the thirdperson who contracted with the manager unless such manager formally transfers his right to them.(Bourns v Camran)


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A partnership generally presupposes a parity of standing between the partners, in which each party hasan equal proprietary interest in the capital or property contributed and where each party exercises equalrights in the conduct of the business. (Sevila v CA)

II. CLASSIFICATION OS PARTNERSHIPS AND PARTNERS

Art. 1776. As to its object, a partnership is either universal or particular. As regards the liability of the partners, apartnership may be general or limited. (1671a)

A. Kinds of partnerships1) as to the extent of its subject matter

a. universal (1777)i. as to all present property (1778)ii. as to profits (1780)

b. particular (1783)2) as to liability of the partners

a. general - liable pro rata (1816) or solidarily (1822-1824)b. limited (1843)

3) as to its durationa. at will (1785)b. with a fixed term

4) as to legality of its existencea. de jure - one w/c has complied with all the legal requirements for its establishment (1772par2, 1773)b. de facto one w/c has failed to comply with all the legal requirements for its establishment

5) as to representation to othersa. ordinary or real one w/c actually exists among the partners and also as to third personsb. ostensible or by estoppel one w/c in reality is not a partnership, but is considered one in relation to

those who, by their conduct or admission, are precluded to deny or disprove its existence (1825)6) as to publicity

a. secretb. open or notorious

7) as to purposea. commercial or trading (1767)b. professional or non-trading

A partnership that does not fix its term is a partnership at will. The 'purpose' of the partnership is not thespecific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have apurpose, would all be considered as partnerships for a definite undertaking. There would therefore be noneed to provide for articles on partnership at will as none would so exist. Apparently what the lawcontemplates, is a specific undertaking or 'project' which has a definite or definable period ofcompletion."The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.The right to choose with whom a person wishes to associate himself is the very foundation and essenceof that partnership. Its continued existence is, in turn, dependent on the constancy of that mutualresolve, along with each partner's capability to give it, and the absence of a cause for dissolutionprovided by the law itself. (Ortega v CA)

A partnership for the practice of law cannot be likened to partnerships formed by other professionals or

for business. It is not a legal entity; it is a mere relationship or association for a particular purpose it isnot a partnership formed for the purpose of carrying on trade or business or of holding property. Thus, ithas been stated that the use of a nom de plume, assumed or trade name in law practice is improper.(In re Sycip)

A general professional partnership, unlike an ordinary business partnership (which is treated as acorporation for income tax purposes and so subject to the corporate income tax), is not itself an incometaxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on thepartners themselves in their individual capacity computed on their distributive shares of partnershipprofits. Under the Tax Code on income taxation, the general professional partnership is deemed to be nomore than a mere mechanism or a flow-through entity in the generation of income by, and the ultimate


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distribution of such income to, respectively, each of the individual partners. (Tan v del Rosario)

B.Kinds of partners (under the CC)a. capitalist contributes money or propertyb. industrial contributes industry or personal servicec. general liability extends to separate property

- may be capitalist or industrial- aka real

d. limited liability to 3rd persons limited to capital contribution- aka special

e. managing manages the affairs or business of the partnership- may be appointed either in the articles of partnership or after the constitution of the

partnership- aka general or real

f. liquidating takes charge of the winding upg. by estoppel liable as if he is a partner for the protection of 3rd persons

- aka by implication or nominal or quasi-partnerh continuing continues the business after partnership has been dissolvedi. surviving remains after dissolution due to death

j. subpartner not a partner, but contracts w/ a partner re the latters share in the partnership

Industrialist Partner Capitalist Partner

contribution contributes his industry contributes money or property

prohibition to engage in otherbusiness

cannot engage in any businessfor himself

cannot generally enage in thesame or similar enterprise asthat of his firm

profits receives a just and equitableshare

shares in profits according toagreement thereonif none, pro rata to hiscontribution

losses exempted as to losses asbetween partners but it is liableto 3rd persons without prejudice

to reimbursement from thecapitalist partners

1. the stipulation as to losses2. if none, the agreement as toprofits

3. if none, pro rata tocontribution

The ff become common property of all partners: property w/c belonged to each of them at the time of the constitution of the partnership profits w/c thay may acquire from the property contributed

General rule: future properties cannot be contributed profits from other sources (not from the properties contributed) will become common property only if

there is a stipulation

Please note: Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannotenter into universal partnership. (1677)

Art. 739. The following donations shall be void:(1) Those made between persons who were guilty of adultery or concubinage at the time of 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.

C. Partnership and Partner by EstoppelArt. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to anotherrepresenting him to anyone, as a partner in an existing partnership or with one or more persons not actual


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partners, he is liable to any such persons to whom such representation has been made, who has, on the faith ofsuch representation, given credit to the actual or apparent partnership, and if he has made such representationor consented to its being made in a public manner he is liable to such person, whether the representation has orhas not been made or communicated to such person so giving credit by or with the knowledge of the apparentpartner making the representation or consenting to its being made:

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

When is a person a partner by estoppel? When by words or by conduct he:1. Directly represents himself to anyone as a partner in an existing partnership or in a non-existing

partnership (w/ one or more persons not actual partners);2. Indirectly represents himself by consenting to another representing him as a partner in an

existing partnership or in a non-existing partnership. To hold the party liable, the 3rd person must prove such misrepresentation and that a bona fide reliance

by him upon it caused him injury.

When partnership liability results When all actual partners consented to the representation, then the liability of the person who

represented himself to be a partner or who consented to such representation and the actualpartners is considered a partnership liability.

Case of partnership by estoppel.

When liability pro rata When there is no existing partnership and all those represented as partners consented to the

representation, or not all of the partners of an existing partnership consented to therepresentation, then, the liability of the person who represented himself to be a partner or whoconsented to his being represented as partner, and all those who made and consented to such

representation, is joint or pro rata.

When liability separate When there is no existing partnership and not all but only some of those represented as partners

consented to the representation, or none of the partners in an existing partnership consented tosuch representation, then the liability will be separate that of the person who representedhimself as a partner or who consented to his being represented as partner, and those who madeand consented to the representation, or that only of the person who represented himself aspartner.

Art. 1825 does not create a partnership as between the alleged partners. The law considers them aspartners and the association as a partnership only insofar as favorable to 3rd persons by reason ofestoppel.

The law will not permit a denial or such representation where 3rd parties have in the exercise ofreasonable diligence relied thereon to their detriment.

Difference w/ Art. 1834 (last par), w/c is not a partnership by estoppel, but rather, a partnership liabilityw/c continues for lack of proper termination.

Applicability of general provisions of partnership If the law recognizes a defectively organized partnership as de facto as far as 3rd persons are

concerned, it should have such attribute of partnership as domicile. Although it has no legal standing or juridical personality, it is a partnership de facto and the


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general provisions of the Civil Code applicable to all partnerships apply to it. Domicile place where partnership conducts business; registration of a chattel mortgage therein is valid.

Elements to establish liability as a partner on ground of estoppel1. Proof by plaintiff that he was individually aware of defendants representations as to his being a

partner or that such representations were made by others and not denied or refuted by thedefendant;

2. Reliance on such representations by the plaintiff;

3. Lack of any denial or refutation of the statements by the defendant; such denial need notprecede plaintiffs acting thereon if the denial was forthcoming promptly upon hearing of therepresentations, and if, by prudence and diligence the plaintiff might have learned of the truth oruntruth of the representations.

The Corporation Code (Sec. 21) makes liable as general partners all persons who assume to act as acorporation and may include persons who attempt, but fail to form a corporation and who carry onbusiness under the corporate name. A de facto partnership among them is created.

While an unregistered commercial partnership has no juridical personality, nevertheless, where two ormore persons attempt to create a partnership, failing to comply with all the legal formalities, the lawconsiders them as partners. The association then is a partnership in so far as it is a favorable to thirdpersons, by reason of the equitable principle of estoppe. If the law recognizes a defectively organized

partnership as de facto as far as third persons are concerned, for purposes of its de facto existence itshould have such attribute of a regular partnership as a domicile. (MacDonald v. National City Bank)

While it is ordinarily held that persons who attempt but fail to form a corporation and who carry onbusiness under the corporate name occupy the position of partners inter se, persons cannot be made toassume the relation of partners, as between themselves, when their purpose is that no partnership shallexist. (Pioneer Insurance v. CA)

D. Relations created by a contract of partnership

Relations among the partners themselves Relations of the partners with the partnership Relations of the partnership with 3rd persons with whom it contracts

Relations of the partners with such 3rd persons

III. OBLIGATIONS OF PARTNERS

A.Contribute

1. Obligation with respect to contribution of propertyArt. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.He shall also be bound for warranty in case of eviction with regard to specific and determinate things which hemay have contributed to the partnership, in the same cases and in the same manner as the vendor is bound withrespect to the vendee. He shall also be liable for the fruits thereof from the time they should have beendelivered, without the need of any demand. (1681a)

To contribute at the beginning of the partnership or the stipulated time the money, property, or industry

which he may have promised to contribute To answer for eviction in case the partnership is deprived of the determinate property contributed To 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. To preserve said property with the diligence of a good father of a family pending delivery to the

partnership To indemnify the partnership for any damage caused to it by the retention of the same or by the delay in

its contribution

Effect of failure to contribute property promised: makes the partner ipso jure a debtor of the partnership even inthe absence of any demand.


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Remedy of other partner or partnership: not rescission but an action for specific performance with damages andinterest

2. Appraisal of goods or property contributedArt. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, theirappraisal must be made in the manner prescribed in the contract of partnership, and in the absence ofstipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequentchanges thereof being for account of the partnership.

3. Obligation with respect to contribution of money and money converted to personal useArt. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor forthe 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 shallbegin from the time he converted the amount to his own use. (1682)

To contribute on the date due the amount he has undertaken to contribute To reimburse any amount he may have taken from the partnership coffers and converted to his own use To pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any

amount from the common fund and converts it into his own use. To indemnify the partnership for he damages caused to it by the delay in the contribution or the

conversion of any sum for his personal benefit.

An action for rescission under art.1191 cannot be applied to a case where a partner failed to contributewhat he promised to the partnership, because it refers to the resolution of obligations in general,whereas Arts. 1681 and 1682, OCC now Arts. 1786 and 1788 specifically refer to the contract ofpartnership in particular.(Sancho v Lizarraga)

Equipment which was contributed by one of the partners to the partnership becomes the property of theproperty and as such cannot be disposed of by the party contributing the same without the consent orapproval of the partnership or of the other partner. (Lozana v Depakakibo)

When money or property have been received by a partner for a specific purpose and he latermisappropriated it, such partner is guilty of estafa. (Liwanag v CA)

The capital having been received by the partnership, and with the business commenced and profitsaccrued, the action that lies with the partner who furnished the capital for the recovery of his money isnot a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of thepartnership and a levy on its assets if there should be any.(US v Clarin)

4. Bring to partnership capital credit receivedArt. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital ofthe partnership.

Above rule not applicable to industrial partner unless in addition to his services, he contributed capital.

5. Obligation of capitalist partner to contribute additional capitalArt. 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.

Requisites: There is an imminent loss of the business The majority of the capitalist partners are of the opinion that an additional contribution to the common

fund would save the business The capitalist partner refuses deliberately to contribute an additional share There is no agreement to the contrary An industrial partner is exempted from the requirement to contribute


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6. Obligation of partner who receives share of partnership creditArt. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the otherpartners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring tothe partnership capital what he received even though he may have given receipt for his share only.

Different from 1792 which treats 2 distinct credits, one in favor of the partnership and another in favor of

the managing partner.

Requisites: A partner has received, in whole or in part, his share of the partnership credit The other partners have not collected their shares The partnership debtor has become insolvent

B. Pay damages

Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and hecannot compensate them with the profits and benefits which he may have earned for the partnership by hisindustry. However, the courts may equitably lessen this responsibility if through the partner's extraordinaryefforts in other activities of the partnership, unusual profits have been realized. (1686a)

General Rule: The damages caused by a partner to the partnership cannot be offset by the profits or benefitswhich he may have earned for the partnership by his industry.Exception: If unusual profits are realized through extraordinary efforts of the partner at fault, the courts mayequitably mitigate or lessen his liability for damages. Rule rests on equity.

C. Bear risk of loss

Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership sothat only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.

If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to besold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and

appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited tothe value at which they were appraised. (1687)

Risk of loss of things contributed

Specific and determinate things which are notfungible where only the use is contributed

Risk is borne by partner

Specific and determinate things the ownership ofwhich is transferred to the partnership

Risk is borne by partnership

Fungible things (consumable) Risk is borne by partnership

Things contributed to be sold Risk is borne by partnership

Things brought and appraised in the inventory Risk is borne by partnership

D. Mutual agency

Art. 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.(2) None of the partners may, without the consent of the others, make any important alteration in theimmovable property of the partnership, even if it may be useful to the partnership. But if the refusal ofconsent by the other partners is manifestly prejudicial to the interest of the partnership, the court'sintervention may be sought. (1695a)


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Rules when manner of management has not been agreed upon: All partners considered managers and agents. All partners have equal rights in the management and conduct of partnership affairs and whatever any

one of them may do alone shall bind the partnership (subject to Art 1801 that in case of timely oppositionof any partner, the matter shall first be decided by the majority vote. In case of a tie, the matter shall bedecided by the vote of the partners representing the controlling interest.).

Note: Art. 1803(1) should be read in relation to Article 1818. Unanimous consent required for alteration of immovable property.

Consent need not be express, but may be presumed from the fact of knowledge of the alteration withoutinterposing any objection.

Art. 1818. Powers of partner as agent of partnership

Acts for carrying on in the usual way thebusiness of the partnership

Every partner is an agent and may execute actswith binding effect even if he has no authorityExcept: when 3rd person has knowledge of lackof authority

Act w/c is not apparently for the carrying ofbusiness in the usual way

Acts of strict dominion or ownership:

Assign partnership property in trust for creditors

Dispose of good-will of business

Do an act w/c would make it impossible to carryon ordinary business of partnership

Confess a judgement

Enter into compromise concerning a partnershipclaim or liability

Submit partnership claim or liability to arbitration

Renounce claim of partnership

Does not bind partnership unless authorized byother partners

Acts in contravention of a restriction on authority Partnership not liable to 3rd persons havingactual or presumptive knowledge of therestrictions

Liability of partner acting without authority:generally, personal liability.

Art. 1698 declares that a member of a civil partnership is not liable solidarily (solidariamente) with his co-partners for its entire indebtedness; but read in connection with art. 1137, each is liable with the others(mancomunadamente) for his part of such indebtedness (Co-Pitco vs. Yulo/Bachrach v. LaProtectora).

Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses inthe co-partnership agreement, that every general partner has power to bind the partnership, speciallythose partners acting with ostensible authority. Though Art. 129, Code of Commerce provides that if themanagement of the general partnership has not been limited by special agreement to any of themembers, all shall have the power to take part in the direction and management of the commonbusiness, and the members present shall come to an agreement for all contracts or obligations whichmay concern the association, this obligation is one imposed by law on the partners among themselves,and doesnt necessarily affect the validity of the acts of a partner, while acting within the scope of theordinary course of business of the partnership, as regards third persons without notice. (Goquiolay et alv Sycip)


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Note: This case creates a presumption which 1818 does not provide.

The stipulation in the articles of partnership that any of the two managing partners may contract and signin the name of the partnership with the consent of the other, creates an obligation between the twopartners, which consists in asking the other's consent before contracting for the partnership. This is notimposed upon a third person who contracts with the partnership. A third person may and has a right topresume that the partner with whom he contracts has, in the ordinary and natural course of business,

the consent of his copartnert. (Litton v Hill)

E. Render full information

Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to anypartner or the legal representative of any deceased partner or of any partner under legal disability. (n)

A partner is not only bound to give information on demand in certain circumstances, but he is under theduty of voluntary disclosure of material facts within his knowledge relating to or affecting partnershipaffairs (see Art. 1821)

F. Account for benefits

Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profitsderived 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)

Relationship between partners is essentially fiduciary involving trust and confidence. Duties of a partnerare analogous to those of a trustee.

A partner cannot, at the expense or to the detriment of the other partners, sue or apply exclusively to hisown individual benefit partnership assets or the results of the knowledge and information gained in thecharacter of partner(Pang Lim v. Lo Seng)

G. Liable for Partnership contracts

Art. 1816.All partners, including industrial ones, shall be liable pro rata with all their property and after all the

partnership assets have been exhausted, for the contracts which may be entered into in the name and for theaccount 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)

Partnership liability- All partners, including the industrial partner, are liable to creditors of the partnershipfor its contractual obligations.

Individual liability- a partner may assume a separate undertaking in his name with a3rd party to performa partnership contract or make himself solidarily liable ob a partnership contract. In such case, partner ispersonally bound.

There is a marked distinction between a liability and a loss, and the inability of a partnership to pay adebt to a third party at a particular time does not necessarily mean that the partnership business, as awhole, has been operated at a loss. The partnership may have outstanding credits which for the momentmay be unavailable for the payment of debts, but which eventually may be realized upon and yield

profits more than sufficient to cover all losses. Bearing this in mind it will be found that there in reality isno conflict between the two articles quoted; one speaks of liabilities, the other of losses. (PacificCommercial vs. Aboitiz)

The exemption of the industrial partner to pay for losses relates exclusively to the settlement of thepartnership affairs among the partners themselves and has nothing to do with the liabilities of thepartners to third persons. (La Compania Maritima v Munoz)

Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as amongthe partners. (n)

The dismissal of the complaint to favor one of the general partners of a partnership does not increase


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the liability of each of the remaining partners. In the instant case, there were 5 general partners whenthe promissory note in question was executed for and in behalf of the partnership. Since the liability ofthe partners is pro rata, the liability of each partner shall be limited to only 1/5 of the obligations ofUnited. The fact that the complaint against Lumauig was dismissed, upon motion of Island Sales, doesnot unmake Lumauig as a general partner in United. In so moving to dismiss the complaint, Island Salesmerely condoned Lumauigs individual liability.(Island Sales v. United Pioneers)

It is but fair that the consequences of any wrongful act committed by any of the partners therein should

be answered solidarily by all the partners and the partnership as a whole. While the liability of thepartners are merely joint in transactions entered into by the partnership, a third person who transactedwith said partnership can hold the partners solidarily liable for the whole obligation if the case of the thirdperson falls under Articles 1822 or 1823. The obligation is solidary because the law protects him who ingood faith relied upon the authority of a partner, whether such authority is real or apparent. (Muasquev. CA)

Art. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of thepartnership 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 thecontrary. (n)

Liability of incoming partner for partnership obligations:

Limited to his share in partnership property for existing obligations. Extends to his separate property for subsequent obligations Incoming partner personally not liable for existing partnership obligations unless there is a stipulation to

the contrary.

Liability of outgoing / incoming partner: Where a partner gives notice of his retirement or withdrawal, he is freed from any liability on contracts

entered into thereafter, but his liability on existing incomplete contracts continues. He is liable for goods sold and delivered after his retirement or withdrawal and notice thereof, if the sale

was pursuant to a contract made before such retirement or withdrawal.

H. Solidarily liable with partnership

Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership underArticles 1822 and 1823. (n)

Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business ofthe partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner inthe partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner soacting or omitting to act. (n)

Art. 1823. The partnership is bound to make good the loss: (1) Where one partner acting within the scope of hisapparent 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 themoney or property so received is misapplied by any partner while it is in the custody of the partnership. (n)

IV. OBLIGATION OF PARTNERSHIP

A. Bear risk of loss

Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership sothat only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.

If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to besold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought andappraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited tothe value at which they were appraised. (1687)

B. Reimburse


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Art. 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed onbehalf of the partnership and for the corresponding interest, from the time the expense are made; it shall alsoanswer to each partner for the obligations he may have contracted in good faith in the interest of the partnershipbusiness, and for risks in consequence of its management. (1688a)

1796 speaks of the 3 obligations of the partnership to the partners:1. Refund amounts disbursed on behalf of the partnership plus corresponding interest from the time expenses

are made (not from date of demand). Here, the law refers to loans or advances made by a partner to thepartnership other than capital contributed by him.2. Answer for obligations the partner may have contracted in good faith in the interest of the partnershipbusiness, and3. Answer for risks in consequence of its management.

Being a mere agent, the partner is NOT personally liable, provided, however, that he is free from all fault(Art. 1912), and acted within the scope of his authority (1897, 1898, 1910 par. 2). But unlike an ordinaryagent, he is not given the right of retention if he is not reimbursed or indemnified (1914).

C. Operate under firm name

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or

more of the partners.Those who, not being members of the partnership, include their names in the firm name, shall be subject to

the liability of a partner. (n)

Liability for inclusion of name in the firm name: Persons who, not being partners include their name in the firmname do not acquire the rights of a partner BUT they shall be subject to liabilities of a partner.

Art. 1815 does NOT cover a limited partner who allows his name to be included in the firm name (Art. 1815) a person continuing the business of a partnership after a dissolution who uses the name of the dissolved

partnership or the name of a deceased partner as part thereof (Art. 1840, last par.)

The corporate name should contain the word Corporation or Incorporated, while the partnership name

should contain the word Company. The only instance when a domestic partnership name may berecorded in this Commission without the use of the word Company is when the primary purpose forwhich the partnership is organized is to engage in the practice of profession of a particular discipline.(SEC Opinion dated Oct 19, 1984 addressed to Atty. Renato J. Santiago)

Note that the ruling in In re Sycip here has been abandoned in view of Rule 3.02 of the Code ofProfessional Responsibility, which permits the surviving partners of a law firm the continued use of thename of a deceased partner provided there is an indication that the partner is already dead.

D. Bound by admission of partner

Art. 1820. An admission or representation made by any partner concerning partnership affairs within the scopeof his authority in accordance with this Title is evidence against the partnership. (n)

General Rule: Person is not bound by the act, admission, statement, or agreement of another of w/c he has noknowledge or to w/c he has not given his consent except by virtue of a particular relation between them.Exception: Admissions by a party as testified to by a 3 rd person are admissible in evidence against him inlitigation. Admissions by another are received against a party if the former is acting in the capacity of agent ofthe latter. Under Art. 1820, the admission of a partner made during the existence of the partnership are bindingagainst the partnership and co-partners when such admissions refer to a matter concerning partnership affairsand made w/in the scope of his authority.Exception to exception: When a partner makes admissions for himself only w/o purporting to act for thepartnership, he alone shall be chargeable w/ his admissions.


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An admission by a partner who was no longer a partner at the time is not admissible in evidence againstthe partnership. (Congco vs. Trillana)

E. Bound by notice to partner

Art. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partneracting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of anyother 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 consentof that partner. (n)

F. Liable for wrongful act of partner

Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business ofthe partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner inthe partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner soacting or omitting to act. (n)

Art. 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 themoney or property so received is misapplied by any partner while it is in the custody of the partnership. (n)

V. RIGHTS OF PARTNERS

A. Share in losses and profits

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of eachpartner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to whathe may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, theindustrial partner shall receive such share as may be just and equitable under the circumstances. If besides hisservices he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

(1689a)

Rules for distribution of profits and losses

DISTRIBUTION OF PROFITS DISTRIBUTION OF LOSSES

With agreement According to agreement According to agreement

Without agreement Share of capitalist partner is inproportion to his capitalcontributionShare of industrial partner is notfixed - as may be just andequitable under the

circumstances

If sharing of profits is stipulated -apply to sharing of lossesIf no profit sharing stipulated -losses shall be borne accordingto capital contributionPurely industrial partner not

liable for losses

Art. 1798. If the partners have agreed to intrust to a third person the designation of the share of each one in theprofits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may apartner who has begun to execute the decision of the third person, or who has not impugned the same within aperiod 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. (1690)

Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void.(1691)


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Although this stipulation is void, the partnership is valid, subsists and the profits or losses shall beapportioned as if there were no stipulation on the same.

The industrial partner is not liable for losses because he cannot withdraw the work or labor already doneby him. His laboring in vain is his contribution to the loss.

B. Associate another person

Art. 1804. Every partner may associate another person with him in his share, but the associate shall not beadmitted into the partnership without the consent of all the other partners, even if the partner having an associateshould be a manager. (1696)

Contract of subpartnership: The partnership formed between a member of a partnership and a third person for adivision of the profits coming to him from the partnership enterprise. Subpartner does not acquire the rights of apartner, nor is he liable for partnership debts

C. Access partnership books

Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principalplace of business of the partnership, and every partner shall at any reasonable hour have access to and mayinspect and copy any of them. (n)

Access to partnership books at any reasonable hour: reasonable hours on business days throughoutthe year and not merely during some arbitrary period of a few days chosen by the managing partners(Pardo v. Lumber Co.)

D. Obtain formal account

Art. 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)

Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profitsderived 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)

GEN RULE: During the existence of the partnership, a partner is not entitled to a formal account of thepartnership affairs.EXCEPTIONS: the special and unusual situations enumerated under Article 1809.

The right to an account of his interest shall accrue to any partner, or his legal representative as againstthe winding up partners or the surviving partners or the person or partnership continuing the business, atthe date of dissolution, in the absence of any agreement to the contrary. Articles 1806, 1807, and 1809show that the right to demand an accounting exists as long as the partnership exists. Prescription beginsto run only upon the dissolution of the partnership when the final accounting is done. (Fue Leung v.IAC)

E. Property rights

Art. 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)

Property used by the partnership. A partner may: contribute to the partnership only the use of property


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allow the partnership to use his separate propert hold the title to partnership property in his own name without having it belong to him.

Property acquired by a partners with partnership funds.General rule: Property acquired by a partner in his own name with partnership fundsis partnership property.Exceptions:

Contrary intention appears Property was acquired after dissolution but before the winding up [but he would be liable to account to

the partnership]

Art. 1811. A partner is co-owner with his partners of specific partnership property.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 rightto 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 ofrights of all the partners in the same property;

(3) A partner's right in specific partnership property is not subject to attachment or execution except on a claimagainst the partnership. When partnership property is attached for a partnership debt the partners, or any ofthem, or the representatives of a deceased partner, cannot claim any right under the homestead orexemption laws;

(4) A partner's right in specific partnership property is not subject to legal support under Article 291. (n)

Art. 291,CC is now Art. 195,FCArt. 195. Subject to the provisions of the succeeding articles, the following are obliged to support each other tothe whole extent set forth in the preceding article:

(1) The spouses;(2) Legitimate ascendants and descendants;

(3) Parents and their legitimate children and the legitimate and illegitimate children of the latter;(4) Parents and their illegitimate children and the legitimate and illegitimate children of the latter; and(5) Legitimate brothers and sisters, whether of full or half-blood (291a)

A partner cannot separately assign his right to specific partnership property. A partners right is limited to his share of what remains after all partnership debts have been paid.

Thus,specific partnership property is not subject to attachment, execution, garnishment, or injunction,without the consent of all partners, except on a claim against the partnership

Art. 1812. A partner's interest in the partnership is his share of the profits and surplus. (n) Profit net income during the carrying out of the business of the partnership Surplus the excess of assets over liabilities (after accounting/dissolution)

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve thepartnership, or, as against the other partners in the absence of agreement, entitle the assignee, during thecontinuance of the partnership, to interfere in the management or administration of the partnership business oraffairs, or to require any information or account of partnership transactions, or to inspect the partnership books;but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigningpartner would otherwise be entitled. However, in case of fraud in the management of the partnership, theassignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and mayrequire an account from the date only of the last account agreed to by all the partners. (n)

Rights of the transferee or assignee What assignees cannot do

To receive in accordance with his contract theprofits accruing to the assigning partner

interfere in the management;

To avail of the usual remedies provided by lawin the event of fraud in the management

require any information or account;

inspect any of the partnership books. (jas,


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To receive the assignors interest in case ofdissolution (jas, please add another row to thistable and insert this last phrase)

please add another row to this table and insertthis last phrase)

ndi ko maformat dito sa textedit/notepad ko.walang table. inimport ko lang tong table na tosomewhere. hehe. basta dapat tig-3 eachcolumn. 2 lang nagappear sakin. hehe.

Partnership is a relation in which delectus personae is an important element. No one may be introducedinto the firm as a partner without the unanimous consent of the other partners.

Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on dueapplication to a competent court by any judgment creditor of a partner, the court which entered the judgment, orany 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 ofany 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 mayrequire.

The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed bythe 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 whoseinterests 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 regardshis interest in the partnership. (n)

F. Convey real property

Art. 1819. Where title to real property is in the partnership name, any partner may convey title to such propertyby a conveyance executed in the partnership name; but the partnership may recover such property unless thepartner's act binds the partnership under the provisions of the first paragraph of article 1818, or unless suchproperty has been conveyed by the grantee or a person claiming through such grantee to a holder for valuewithout knowledge that the partner, in making the conveyance, has exceeded his authority.

Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own

name, passes the equitable interest of the partnership, provided the act is one within the authority of the partnerunder the provisions of the first paragraph of Article 1818.Where title to real property is in the name of one or more but not all the partners, and the record does notdisclose the right of the partnership, the partners in whose name the title stands may convey title to suchproperty, but the partnership may recover such property if the partners' act does not bind the partnership underthe provisions of the first paragraph of Article 1818, unless the purchaser or his 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 trustfor the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passesthe equitable interest of the partnership, provided the act is one within the authority of the partner under theprovisions 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 partnerspasses all their rights in such property. (n)

Effects of Conveyance of Real Property

Title in partnership nameAny partner may convey under partnershipname

Conveyance passes title but partnership canrecover unless: 1)The partner who sold it wascarrying on in the usual way the business of thepartnership (1818) hence binding thepartnership; or 2) Buyer had no knowledge of thelack of authority of the seller

Title in partnership name,Conveyance in partner's name

Conveyance does not pass title but onlyequitable interest. Provided that: The partnerwho sold it was carrying on in the usual way the


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business of the partnership (1818) hence bindingthe partnership

Title in name of 1/ more partners, Conveyancein name if partner/partners in whose name titlestands

Conveyance passes title but partnership canrecover unless: 1)The partner who sold it wascarrying on in the usual way the business of thepartnership (1818) hence binding thepartnership; or 2) Buyer had no knowledge of thelack of authority of the seller

Title in name of 1/more/all partners or 3 rd personin trust for partnership, Conveyance executed inpartnership name of in name of partners

Conveyance will only pass equitable interest.Provided that: The partner who sold it wascarrying on in the usual way the business of thepartnership (1818) hence binding the partnership

Art. 1819 provides that: Where the title to real property is in the names of all the partners a conveyanceexecuted by all the partners passes all their rights in such property. The term conveyance used in thisprovision includes a mortgage. (Syjuco v Castro)

NOTE: This is different from the provisions on agency, which provide that a special power to sell excludes thepower to mortgage [Art. 1879].

VI. RIGHTS OF PARTNERSHIP

A. Acquire immovables

Art. 1774. Any IMMOVABLE property OR an INTEREST therein may be acquired in the partnership name. Titleso acquired can be conveyed ONLY in the partnership name. (n)

*cf. Art. 1819

B. Preference of creditors

Art. 1827. The creditors of the partnership shall be preferred to those of each partner AS REGARDSPARTNERSHIP PROPERTY. Without prejudice to this right, the private creditors of each partnermay ask theattachment and public sale of the share of the latter in the partnership assets. (n)

VI. DISSOLUTION AND WINDING UP

Art. 1828. The dissolution of a partnership is the CHANGE IN RELATION of the partners caused by ANYPARTNER CEASING TO BE ASSOCIATED in the carrying on as distinguished from the winding up of thebusiness. (n)

Any change in the membership of a partnership produces an immediate dissolution of the existingpartnership relation and the formation of a new one.

Strictly and technically speaking, there is no such thing as an incoming partner or admission of aperson into an existing firm. All persons forming the new partnership upon the admission of the new

person into the business are incoming partners, even though the same business has theretofore beenconducted by the others.

Art. 1829. On dissolution the partnership is NOT TERMINATED, but continues until the winding up ofpartnership affairs is COMPLETED. (n)

Effects of Dissolution: Dissolution does not automatically result in the termination of the legal personality of the partnership, nor

of the relations of the partners among themselves. Partnership continues for the limited purpose ofwinding up its affairs.


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The dissolution of a partnership must not be understood in the absolute and strict sense so that at thetermination of the object for which it was created the partnership is extinguished, pending the winding upof some incidents and obligations of the partnership, but in such case, the partnership will be reputed asexisting until the juridical relations arising out of the contract are dissolved. The dissolution of a firm doesnot relieve any of its members from liability for existing obligations, although it does save them from newobligations to which they have not expressly or impliedly assented, and any of them may be dischargedfrom old obligations by novation or other form of release. (Testate of Mota v Serra)

The three final stages of a partnership are:(1) Dissolution- the change in the relation of the partners caused by any partner ceasing to beassociated in the carrying on of the business (Art. 1828). It is that point of time the time the partnerscease to carry on the business together.(2) Winding Up - the process of settling business affairs of dissolution. (Ex: paying of previousobligations; collecting of assets previously demandable; even new business if needed to wind up, as thecontracting with a demolition company for the demolition of the garage used in a "used car" partnership.)(3) Termination Defined- the point in time after all the partnership affairs have been wound up. (Idos vCA)

The provision prohibiting the dissolution of the association under review, except by the consent andagreement of two-thirds of its partners, in no wise limited or restricted the rights of the individual partnersin the event the dissolution of the association was effected, not by any act of theirs, but by the express

mandate of statutory law. It would be unreasonable to hold that such an association could never bedissolved and liquidated without the consent and agreement of two-thirds of its partners, notwithstandingthat it had lost all its capital, or had become bankrupt, or that the enterprise for which it had beenorganized had been concluded or abandoned. (Lichauco v Lichauco)

Not being a mercantile partnership (hence, not governed by the Code of Commerce, but the CC), it wasdissolved by the death of Perpetua. It cannot be maintained that the partnership continued to exist afterthe death of Perpetua for it does not appear that any stipulation to that effect has ever been made by herand Dequilla, pursuant to the provisions of art. 1704. The partnership having been dissolved, itssubsequent legal status was that of a partnership in liquidation, and the only rights inherited byPerpetuas heir, were those resulting from the liquidation in favor of the Perperua, and nothing more.Before this liquidation is made, it is impossible to determine what rights or interests, if any, Perpetuahad, the partnership bond having been dissolved. (Bearneza v Dequilla)

The dissolution of the partnership did not mean that the juridical entity was immediately terminated andthat the distribution of the assets to its partners should perfunctorily follow. The dissolution simplyeffected a change in the relationship among the partners. The partnership, although dissolved, continuesto exist until its termination, at which time the winding up of its affairs should have been completed andthe net partnership assets are partitioned and distributed to the partners. (Sy v CA)

A. Causes of Dissolution

The statutory enumeration of causes of dissolution is exclusive. Art. 1830 (extrajudicial) and 1831(judicial)provide for causes of dissolution. Other causes are provided in Art. 1840.

Causes: Without violation of the agreement between the partners:

termination of the definite term or particular undertaking specified in the agreement;

express will of any partner, who must act in good faith, when no definite term or particular isspecified;

express will of all the partners who have not assigned their interests or suffered them to becharged for their separate debts, before or after the termination of any specified term orparticular undertaking;

expulsion of any partner in accordance with such a power conferred by the agreement; when business becomes unlawful when a specific thing promised to be contributed to the partnership perishes before delivery loss of a specific thing when the partner reserved ownership over it


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death insolvency of a partner/ partnership civil interdiction

In contravention of the agreement between the partners: where the circumstances do not permit a dissolution under 1830 by the express will of any

partner at any time; 1830

Upon application of a partner: partner has been declared insane or is shown to be of unsound mind; partner becomes incapable of performing his part of the contract; partner has been guilty of such conduct that prejudices the business; partner wilfully or persistently commits a breach of the partnership agreement business of the partnership can only be carried on at a loss; equitable grounds

On the application of the purchaser of a partner's interest under Article 1813 or 1814: TERMINATION of the term or undertaking

when partnership is at will and the INTEREST of one partner is ASSIGNED

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve thepartnership, or, as against the other partners in the absence of agreement, entitle the assignee, during thecontinuance of the partnership, to interfere in the management or administration of the partnership business oraffairs, or to require any information or account of partnership transactions, or to inspect the partnership books;but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigningpartner would otherwise be entitled. However, in case of fraud in the management of the partnership, theassignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and mayrequire an account from the date only of the last account agreed to by all the partners.

Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on dueapplication to a competent court by any judgment creditor of a partner, the court which entered the judgment, orany 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 ofany 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 mayrequire.

The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed bythe 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)

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.The right to choose with whom a person wishes to associate himself is the very foundation and essenceof that partnership. Its continued existence is, in turn, dependent on the constancy of that mutualresolve, along with each partner's capability to give it, and the absence of a cause for dissolutionprovided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolutionof the partnership at will. He must, however, act in good faith, not that the attendance of bad faith canprevent the dissolution of the partnership but that it can result in a liability for damages. (Ortega v CA)

Under art. 1830, a partner may cause the dissolution of the partnership, even if there is specified term in


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1. partner concerned2. person/partnership continuing the business3. partnership creditors

3. Liability of person/partnership continuing the business

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person orpartnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (orthe representative of the deceased partner assigns) his rights in partnership property to two or more of thepartners, or to one or more of the partners and one or more third persons, if the business is continued withoutliquidation of the partnership affairs;(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rightsin partnership property to the remaining partner, who continues the business without liquidation of partnershipaffairs, either alone or with others;(3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth inNos. 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 thirdpersons 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 thepartnership affairs;(6) When a partner is expelled and the remaining partners continue the business either alone or with otherswithout liquidation of the partnership affairs.

The liability of a third person becoming a partner in the partnership continuing the business, under thisarticle, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only,unless there is a stipulation to the contrary.

This article treats more of a commercial partnership, with a goodwill to protect rather than a professionalpartnership with no saleable goodwill but whose reputation depends on the personal qualifications of itsindividual members.

Creditors of the old partnership can go after the partnership continuing the business except: (1) whenthere is a stipulation to the contrary; and, (2) when there has been a liquidation of partnership affairs

Not only the retiring partners but also the new partnership itself which continued the business of the old,dissolved, one, are liable for the debts of the preceding partnership. A withdrawing partner remainsliable, to a third party creditor of the old partnership. (Singsong vs. Isabela Sawmill)

The liability of a third person becoming a partnership continuing the business, under 1840, to thecreditors of the dissolved partnership shall be satisfied out of the partnership property only, unless thereis a stipulation to the contrary. When the business of a partneship after dissolution is continued underany conditions set forth in 1840 the creditors of the retiring or deceased partner or the representative ofthe deceased partner, have a prior right to any claim of the retired partner or the representative of thedeceased partner against the person or partnership continuing the business on account of the retired ordeceased partner's interest in the dissolved partnership on account of any consideration promised for

such interest or for his right in partnership property. Nothing in this article shall be held to modify anyright of creditors to set wide any assignment on the ground of fraud. (Yu v NLRC)

C.Rights of Partners upon dissolution

1. Right to wind up

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legalrepresentative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs,provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtainwinding up by the court. (n)


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Winding up may be done either: judicially or extrajudicially The ff. are authorized to wind up the affairs of the partnership:

1. partners designated by the agreement2. in the absence of such agreement, all the partners who have not wrongfully dissolved the

partnership, or3. the legal representative (executor/ administrator) of the last surviving partner (when all the

partners are already dead), not insolvent

The court may appoint a receiver to wind up the partnership affairs.

Powers of a liquidating partner: Make new contracts Raise money to pay partnership debts Incur obligations to complete existing contracts or preserve partnership assets Incur expenses necessary in the conduct of litigation

wrongfully dissolved -done in contravention of the agreement

When a member of a mercantile partnership dies, the duty of liquidating its affairs devolves upon thesurviving member/s of the firm, not upon the legal representatives of the deceased partner. Upon thedeath of a partner, it is the duty of the surviving associates to take the proper steps to settle the affairs of

the firm,and any claim against him or his estate should be prosecuted against his estate inadministration. (Lota v Tolentino)

2. Right to damages for wrongful dissolution

Art. 1837. When dissolution is caused in contravention of the partnership agreement the rights of the partnersshall be as follows:

(1) Each partner who has not caused dissolution wrongfully shall have:(b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach ofthe agreement.

3. Right to continue business on wrongful dissolution

Art. 1837.xxx When dissolution is caused in contravention of the partnership agreement the rights of thepartners shall be as follows:

(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business inthe same name either by themselves or jointly with others, may do so, during the agreed term for thepartnership and for that purpose may possess the partnership property, provided they secure the paymentby bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value ofhis interest in the partnership at the dissolution, less any damages recoverable under the second paragraph,No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities.

(3) A partner who has caused the dissolution wrongfully shall have:(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a

partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), ofthis article.

(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against hisco-partners and all claiming through them in respect of their interests in the partnership, to have the

value of his interest in the partnership, less any damage caused to his co-partners by the dissolution,ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to bereleased from all existing liabilities of the partnership; but in ascertaining the value of the partner'sinterest the value of the good-will of the business shall not be considered. (n)

4. Rights where dissolution not in contravention of agreement (unless otherwise agreed),which constitute the partners lien:

to have the partnership property applied to discharge partnership liabilities and the surplus assets, if any, distributed in cash to the respective partners, after deducting what may be due

to the firm from them as partners


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5. Rights of innocent party: (dissolution in contravention of agreement) Apply partnership property to discharge liabilities of partnership Apply surplus, if any to pay in cash the net amount owed to partners Indemnity for damages caused by partner guilty of wrongful dissolution Continue business in same name during agreed term Posses partnership property if business is continued

6.Rights of guilty party: one who wrongly caused dissolution

If business not continued by others - apply partnership property to discharge liabilities of partnership &receive in cash his share of surplus less damages caused by his wrongful dissolution

If business continued by others - have the value of his interest at time of dissolution ascertained andpaid in cash/secured by bond & be released from all existing/future partnership liabilities

7. Rights of injured partner where partnership contract is rescinded on ground offraud/misrepresentation by 1 party: (1838)

Right to lien on surplus of partnership property after satisfying partnership liabilities Right to subrogation in place of creditors after payment of partnership liabilities Right of indemnification by guilty partner against all partnership debts & liabilities

8. Right of retiring/ deceased partner

Art. 1841. When any partner retires or dies, and the business is continued under any of the conditions set forthin the preceding article, or in Article 1837, second paragraph, No. 2, without any settlement of accounts asbetween him or his estate and the person or partnership continuing the business, unless otherwise agreed, he orhis legal representative as against such person or partnership may have the value of his interest at the date ofdissolution ascertained, AND shall receive as an ordinary creditor an amount equal to the value of his interest inthe dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu ofinterest, the profits attributable to the use of his right in the property of the dissolved partnership; provided thatthe creditors of the dissolved partnership as against the separate creditors, or the representative of the retired ordeceased partner, shall have priority on any claim arising under this article, as provided Article 1840, thirdparagraph. (n)

9. Right to account

Art. 1842. The right to an account of his interest shall accrue to any partner, or his legal representative asagainst the winding up partners or the surviving partners or the person or partnership continuing the business, atthe date of dissolution, in the absence of any agreement to the contrary. (n)

The profits of a business cannot be determined by taking into account the result of one particulartransaction instead of all the transactions had, hence the need for a general liquidation before a partnermay claim a specific sum as his share of the profits [Sison vs. McQuaid].

A partners shar

2007 partnership up barops

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