concepts

Question 1

ARTICLE 1767.

Answer 1

By the contract of partnership two
or more persons bind themselves to contribute money,

property, or industry to a common fund, with the inten-
tion of dividing the profi ts among themselves.

Two or more persons may also form a partnership
for the exercise of a profession.

Question 2

ELEMENTS of partnership: (3)

Answer 2

1. There must be meeting of the minds
2. To form a common fund
3. With intention that profits (and losses) will be divided
   among the contracting parties.

Question 3

EFFECTS OF UNLAWFUL PARTNERSHIP: (4)

Answer 3

1. Contract is void ab initio and the partnership never
   existed before the law
2. Profits shall be confiscated in favor of the gov’t
3. Instruments or tools and proceeds of the crime shall
   also be forfeited in favor of the gov’t
4. Contributions of the partners shall not be confiscated
   unless they fall under no. 3.
    Juridical decree is not necessary to dissolve an unlawful
   partnership

Question 4

1775:
Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. (1669)

Answer 4

it is essential that the partners are fully informed not only of
the agreement but of all matters affecting the partnership.
 For the protection of members and 3rd persons from
fraud and deceit
 A member wo transacts for a secret partnership in his
own name becomes personally bound to 3rd persons
unaware of the existence of such association
 A person may be held liable as a partner or partnership
liability may result of 3rd persons by estoppel

Question 5

Art. 1769. In determining whether a partnership exists, these rules shall apply:

Answer 5

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (n)

Question 6

PARTNERSHIP – a contract wherein 2 or more persons bind
themselves to contribute money, property, or industry to
common fund, with the intention of dividing the profits
among themselves.
CHARACTERISTICS: (8)

Answer 6

1. Consensual – perfected by mere consent upon express
   / implied agreement of 2 or more persons
2. Nominate – has a special name / designation in our law
3. Bilateral – entered into by 2 or more persons and the
   rights and obligations arising therefrom are always
   reciprocal
4. Onerous – each of the parties aspires to procure for
   himself a benefit through the giving of something
5. Commutative – undertaking of each of the partners is
   considered as the equivalent of that of the others
6. Principal – doesn’t depend for its existence or validity
   upon other contracts
7. Preparatory – entered into as a means to an end
8. Contract of agency

Question 7

The following are the essential features of a partnership
contract: 5

Answer 7

(1) There must be a valid contract;
(2) The parties (two or more persons) must have legal
capacity to enter into the contract;
(3) There must be a mutual contribution of money, property,
or industry to a common fund;
(4) The object must be lawful; and
(5) The primary purpose must be to obtain profi ts and to
divide the same among the parties.

Question 8

EFFECTS OF PARTIAL ILLEGALITY OF PARTNERSHIP:

Answer 8

1. Where the part of the business is legal and part illegal,
   legal part may be had
2. Innocent partners are not precluded as against the guilty
   partners from recovering their share of profits

Question 9

1771:
FORM OF PARTNERSHIP CONTRACT:
exp:immovable property

Answer 9

GR: no special form is required for the validity or existence of
the contract; contract may be made orally or in writing
XPN: where contribution is immovable property or real
rights, PUBLIC INSTRUMENT is necessary, otherwise VOID.
 Transfer of real property to the partnership must be duly
registered in the Registry of property of the province or
city where property is located to affect 3rd persons

Question 10

REGISTRATION OF PARTNERSHIP:
 Partnership with capital of 3,000 or more: (2)

Answer 10

1. Contract must appear in a public instrument
2. Must be recorded or registered with SEC
    Failure to do so will not prevent formation of
   partnership or affect liability

Question 11

1784:
COMMENCEMENT AND TERM OF PARTNERSHIP:

Answer 11

GR: commences from the time of execution of the contract
XPN: when there is contrary stipulation
 Registration in the SEC is not essential to give it juridical
personality
 Necessary that all essential requisites are present
 Partners may stipulate some other date for the
commencement – makes the partnership inchoate or
unperformed, thus not yet consummated, haven’t
started yet

Question 12

1773:
CONTRIBUTION OF IMMOVABLE PROPERTY:
REQUIREMENTS: (2)

Answer 12

1. Contract must be in a public instrument
2. Inventory of property contributed must be made, signed
   by the parties, and attached to the public instrument
    Absence of these will render contract VOID
    Intended primarily for 3rd persons, a de facto partnership
   o estoppel may exist

Question 13

WHEN INVENTORY IS NOT REQUIRED: (2)

Answer 13

1. When immovable property is possessed or owned by the
   partnership but not contributed by any of the partners
2. Personal property

Question 14

MPORTANCE OF INVENTORY: (2)

Answer 14

1. To show how much is due from each partner to
   complete his share in the common fund
2. How much is due to each of them in case of liquidation

Question 15

Application of principles of estoppel.

Answer 15

where he holds himself out, or permits himself to be
held out, as a partner in an enterprise.
-there is no actual or legal partnership relation but merely
a partnership liability imposed by law in favor of third persons.

Question 16

1774:
ACQUISITION / CONVEYANCE OR PROPERTY – i

Answer 16

– immovable
property may only be acquired and conveyed in the
partnership name

Question 17

In case there is no

written agreement between the parties,

Answer 17

the existence or non-existence of a partnership must be determined from the conduct of the parties, any documentary evidence bearing thereon, and the
testimony of the parties.

Question 18

the following
cannot give their consent to a contract of partnership:5

Answer 18

(a) Unemancipated minors;9
(b) Insane or demented persons;
(c) Deaf-mutes who do not know how to write;
(d) Persons who are suffering from civil interdiction; and
(e) Incompetents who are under guardianship.

Question 19

Under Article 1782, donation

Answer 19

persons who are prohibited from giving
each other any donation or advantage cannot enter into a
universal partnership.

In case of disagreement, the court shall decide whether or not:
(a) The objection is proper, and

(b) Benefi t has accrued to the family prior to the objection or thereafter. If the ben-
efi t accrued prior to the objection, the resulting obligation shall be enforced against the

separate property of the spouse who has not obtained consent.

Question 20

prohibition against a partner-
ship being a partner in another partnership.

Answer 20

There is no prohibition against a partner-
ship being a partner in another partnership.

Question 21

When two or more

partnerships combine with each other (or with a natural person
or persons) creating a distinct partnership,

Answer 21

all
the members of the constituent partnerships will be individually
liable to the creditors of partnership X.

Question 22

enter into a
contract of partnership. Corporations.

Answer 22

unless authorized by statute or by its charter,
a corporation is without capacity or power to enter into a
contract of partnership.12

Question 23

corporation as partnership

Answer 23

a) A corporation, however, may enter into joint venture13
partnership with another where the nature of the venture
is in line with the business authorized by its charter.

(b) Where the partnership agreement provides that the

two partners will manage the partnership so that the man-
agement of corporate interest is not surrendered, the partner-
ship may be allowed.

Question 24

Foreign In-
vestment Act.

Answer 24

Where the entry of the foreign corporation as a lim-
ited partner in a limited partnership (Chap. 4.) is merely for

investment purposes and it shall not take part in the manage-
ment and control of the business operation of the partner-
ship, it shall not be deemed “doing business’’ in the Philip-
pines, and hence, it is not required to obtain a license to do

business in the Philippines as required by Sections 123-126
of the Corporation Code.

Question 25

Money - common fund

Answer 25

The term is to be understood as referring
to currency which is legal tender in the Philippines. It must
be pointed out that checks, drafts, promissory notes payable
to order, and other mercantile documents are not money
but only representatives of money. Consequently, there is
no contribution of money until they have been cashed.

Question 26

Property - common fund

Answer 26

The property contributed may be real
or personal, corporeal or incorporeal. Hence, credit such as
promissory note or other evidence of obligation or even a
mere goodwill may be contributed, as they are considered
property.

Question 27

Industry - as common fund

Answer 27

active cooperation, the work of the party associated,
which may be either personal manual efforts or intellectual,
and for which he receives a share in the profi ts (not merely
salary) of the business.

Question 28

Proof of contribution.

Answer 28

if no contribution no enforceable contract exists. unless takes part in carrying on the enterprise and acquires all the rights
of a co-partner.

Question 29

LIM TONG LIM v. PHILIPPINE FISHING GEAR INDUSTRIES

Answer 29

The contribution to such fund need
not be cash or fi xed assets; it could be an intangible like credit
or industry. That the parties agreed that any loss or profi t
from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a
partnership.

Question 30

Legality of the object.

Answer 30

The object is unlawful when it is contrary to law, morals, good
customs, public order, or public policy.
no partnership can arise as the contract is
inexistent and void ab initio.
- illegal monopolies
- in restraint of trade
-to carry on gambling
-smuggling;

Question 31

law requires a specifi c form
of business organization,

Answer 31

Subject to this general limitation on contracts, a partnership
may be organized for any purpose except that it may not engage
in an enterprise for which the law requires a specifi c form
of business organization, such as banking which, under the
General Banking Law of 2000 (R.A. No. 8791, Sec. 8.), only stock
corporations may undertake.

Question 32

The very reason for existence of partnership.

Answer 32

A partnership
is formed to carry on a business. The idea of obtaining pecuniary profi t or gain directly through or as a result of the business to be
carried on is the very reason for the existence of a partnership.
- All that is needed is a profi t motive. Hence, even an unprofi table
business can be a partnership provided the goal of the business
is to generate profi ts.

Question 33

Need only be the principal, not exclusive aim.

Answer 33

pecuniary profit - It is suffi cient that it is the
principal purpose even if there are, incidentally, moral, social, or
spiritual ends.

Question 34

LIMITATIONS IN FORMING A PARTNERSHIP:
Persons who are prohibited from giving each other donation
or advantage cannot enter into a UNIVERSAL partnership,
otherwise VOID:

Husband and wife may enter into a…

Answer 34

1. Between persons guilty of adultery or concubinage at
   the time of donation
2. Made between persons found guilty of the same
   criminal offense, in consideration thereof
3. Made to a public officer or his wife, descendants and
   ascendants, by reason of his office

Husband and wife may enter into a PARTICULAR
PARTNERSHIP:
 Where partners retained their separate interests –
capital contributions were separately owned and
contributed before marriage

Question 35

1783:
A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation.

PARTICULAR PARTNERSHIP:
Scope of subject matter – limited and well-defined, being
confined to an undertaking of a single, temporary or ad hoc
nature.
 Examples:

Answer 35

o Acquisition of an immovable property for the
purpose of reselling it at a profit
o Professional partnership
o Joint venture – created for a temporary or limited
purpose

Question 36

proportion of losses

Answer 36

if there’s stipulation in proportion of share of profit, then the same proportion is the loss.
if no stipulation on the profit, share of losses is eq

Question 37

ART. 1768.

Answer 37

The partnership has a juridical personal-
ity separate and distinct from that of each of the part-
ners even in case of failure to comply with the require-
ments of Article 1772, fi rst paragraph.

Question 38

A and B are the
partners, - death, pending suit
can A sue B?

Answer 38

the death of either A or B is not a ground for the
dismissal of a pending suit against X & Co.
Neither A nor B may sue on a cause of action belonging to X &
Co., in his own name and for his own benefi t. X & Co. may sue and
be sued in its fi rm name or by its duly authorized representative.

Question 39

1772:
REGISTRATION OF PARTNERSHIP:
 Partnership with capital of 3,000 or more: (2)

Answer 39

1. Contract must appear in a public instrument
2. Must be recorded or registered with SEC
    Failure to do so will not prevent formation of
   partnership or affect liability

Question 40

effect of Article 1772. REGISTRATION OF PARTNERSHIP:

Answer 40

partnership acquires juridical personality.

Question 41

Art. 1773

A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument

Answer 41

 Absence of these will render contract VOID
 Intended primarily for 3rd persons, a de facto partnership
or estoppel may exist

Question 42

effect of Article 1773on juridical personality
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

Answer 42

the partnership shall not acquire
any juridical personality because the contract itself is void.

Question 43

Article 1775 -

it is essential that the partners are fully informed not only of the agreement but of all matters affecting the partnership.

Answer 43

it is essential that the partners are fully informed not only of the agreement but of all matters affecting the partnership.
∙ For the protection of members and 3rd persons from fraud and deceit
∙ A member who transacts for a secret partnership in his own name becomes personally bound to 3rd persons unaware of the existence of such association
∙ A person may be held liable as a partner or partnership liability may result of 3rd persons by estoppel

Question 44

1776:
CLASSIFICATIONS OF PARTNERSHIP:
1. AS TO EXTENT: (2)
2. AS TO LIABILITY: (2)
3. AS TO DURATION: (3)
4. AS TO LEGALITY: (2)
5. AS TO REPRESENTATION TO OTHERS: (2)
6. AS TO PUBLICITY: (2)
7. AS TO PURPOSE: (2)

Answer 44

1. AS TO EXTENT: (2)
   a. UNIVERSAL PARTNERSHIP: (2)
   i. Universal partnership of all present property
   ii. Universal partnership of profits
   b. PARTICULAR PARTNERSHIP
2. AS TO LIABILITY: (2)
   a. GENERAL PARTNERSHIP – consists of general
   partners who are liable PRO RATA and subsidiarily,
   sometimes solidarily with their separate property for
   partnership debts (equally liable)
   b. LIMITED PARTNERSHIP – formed by 2 or more
   general partners + one or more limited partners,
   latter not being personally liable for the obligations
   of the partnership
3. AS TO DURATION: (3)
   a. PARTNERSHIP AT WILL – no time is specified and
   is not formed for a particular undertaking or venture
   b. PARTNERSHIP WITH A FIXED TERM – existence is
   fixed or agreed upon or formed for a particular
   undertaking
4. AS TO LEGALITY: (2)
   a. DE JURE PARTNERSHIP – complied with all legal
   requirements for its establishment
   b. DE FACTO PARTNERSHIP – failed to comply
5. AS TO REPRESENTATION TO OTHERS: (2)
   a. ORDINARY / REAL PARTNERSHIP – one which
   actually exist among the partners and also to 3rd
   persons
   b. OSTENSIBLE / BY ESTOPPEL – in reality is not a
   partnership, but has partnership liability
6. AS TO PUBLICITY: (2)
   a. SECRET PARTNERSHIP – existence to certain
   persons as partners is unknown to public / any of
   the partners
   b. OPEN / NOTORIOUS – existence is known to public
7. AS TO PURPOSE: (2)
   a. COMMERCIAL / TRADING – for transaction of
   business
   b. PROFESSIONAL / NON-TRADING – exercise of
   profession

Question 45

ART. 1769. In determining whether a partnership
exists, these rules shall apply:

Answer 45

(1) Except as provided by article 1825, persons who
are not partners as to each other are not partners as to
third persons;
(2) Co-ownership or co-possession does not of itself

establish a partnership, whether such co-owners or co-
possessors do or do not share any profi ts made by the

use of the property;

(3) The sharing of gross returns does not of itself es-
tablish a partnership, whether or not the persons shar-
ing them have a joint or common right or interest in any

property from which the returns are derived;
(4) The receipt by a person of a share of the profi ts
of a business is prima facie evidence that he is a partner
in the business, but no such inference shall be drawn if
such profi ts were received in payment:
(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a land-
lord;

(c) As an annuity to a widow or representative
of a deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profi ts of the business;

(e) As the consideration for the sale of a good-
will of a business or other property by installments

or otherwise. (n)

Question 46

Rules to determine existence
of partnership. -
1.Where terms of contract not clear.
2. Where existence disputed.

Answer 46

1. PERSONS WHO ARE NOT PARTNERS AS TO EACH
   OTHER ARE NOT PARTNERS AS TO 3RD
   PERSONS:
2. CO-OWNERSHIP / CO-POSSESSION:
3. 3. SHARING OF GROSS RETURNS:
4. 4. RECEIPT OF SHARE IN THE PROFITS:

Question 47

Persons partners as to each other.

Answer 47

Persons who are partners as between themselves are partners
as to third persons.
Whether or not the parties call their relationship or believe their
relationship a partnership is immaterial.
Where
the parties expressly declare they are not partners, this, as a rule,
settles the question as between themselves.16

Question 48

A partnership can never exist as
to third persons if no contract of partnership, express or implied,
has been entered into between the parties themselves.
exception:

Answer 48

partnership by estoppel.
Thus, where persons by their acts, consent, or representations
have misled third persons or parties into believing that the former
are partners in a non-existing partnership, such persons become
subject to liabilities of partners to all who, in good faith, deal
with them in their apparent relations. This

Question 49

co-ownership

Answer 49

whenever the owner-
ship (or co-possession) of an undivided/pro indiviso thing or right belongs to

different persons.

Question 50

(1) A and B inherited from their father an apartment
which is leased to third persons. Are they partners?
(2) A, B, and C, joint owners of merchandise, consigned
it for sale abroad to the same consignee. Each gave separate
instructions for his own share.

Answer 50

no, they share in the profi ts made by the lease of the property, and not
of the lease business itself.
(2) In this case, the interests are
“several”

Question 51

3. Children sold lots given by their father and divided the
   proceeds.

Answer 51

Held: No. (1) Division of profi ts was merely incidental. — They
were co-owners pure and simple. To consider them as partners
would obliterate the distinction between a co-ownership and a
partnership. C, etc. were not engaged in any joint venture by
reason of that isolated transaction.18

Question 52

5 persons contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would divide
the prize. The ticket won the third prize of P50,000.

Answer 52

The 15
persons were held liable for income tax as an unregistered
partnership.

Question 53

two Persons living together without benefit of marriage.
before August 30, 1950?
current?
requisites?
kind of relationship?

Answer 53

before August 30, 1950, - partneship
current: Family code - capacitated
to marry each other, live exclusively, void marriage - wages and salaries shall be owned by
them in equal shares thus, coownnership

Question 54

Sharing of gross returns.

Answer 54

(1) Not even presumptive evidence of partnership. Evangelista vs. Collector of Internal Revenue,
sharing of gross returns not prima facie evidence of the relation.
sharing of Profit is prima facie evidence of the relation.

Question 55

gross return + mutual management and
control =

Answer 55

a partnership may result,

Question 56

Receipt of share in the profi ts.

Answer 56

is a Strong presumptive evidence of partnership, prima facie evidence

Question 57

Receipt of share in the profi ts. - When no such inference will be drawn.

Answer 57

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a land-
lord;

(c) As an annuity to a widow or representative
of a deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profi ts of the business;

(e) As the consideration for the sale of a good-
will of a business or other property by installments

Question 58

1777 – 1779:
UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY:
The following may become the common property of all
partners: (2)
GR: acquired by inheritance, legacy or donation?
XPN: fruits thereof ?

Answer 58

1. Property which belonged to each of them at the time of
   constitution of partnership
2. Profits which they may acquire from the property
   contributed
    Future properties cannot be contributed

GR: property acquired by inheritance, legacy or donation
cannot be included by stipulation
XPN: fruits thereof - common property
 Profits from other sources will become common
property only if there is a stipulation

Question 59

distinguish partnership and co-owership
(1) Creation.
(2) Juridical personality.
(3) Purpose
(4) Duration.
(5) Disposal of interests.
(6) Power to act with third persons.
(7) Effect of death. —

Answer 59

(1) Creation. — Co-ownership is generally created by law.
It may exist even without a contract, but partnership is always
created by a contract (Art. 1767.), either express or implied;
(2) Juridical personality. — A partnership has a juridical
personality separate and distinct from that of each partner (Art.
1768.), while a co-ownership has none;
(3) Purpose. — The purpose of a partnership is the realization
of profi ts (Art. 1767.), while in co-ownership, it is the common enjoyment of a thing or right (see Art. 486.) which does not
necessarily involve the sharing of profi ts;
(4) Duration. — Under the law, there is no limitation upon

the duration of a partnership (see Arts. 1767, 1785.) while in co-
ownership, an agreement to keep the thing undivided for more

than ten years is not allowed (see Art. 494.);
(5) Disposal of interests. — A partner may not dispose of his
individual interest in the partnership (Art. 1812.) so as to make
the assignee a partner unless agreed upon by all of the partners
(see comments under Art. 1814.), while a co-owner may freely do
so (see Art. 495.);
(6) Power to act with third persons. — In the absence of any
stipulation to the contrary (Art. 1803.), a partner may bind the
partnership, while a co-owner cannot represent the co-ownership
(see Arts. 491, 492.); hence, a judgment secured against only one
of the co-owners will not bind the other co-owners (Smith vs.
Lopez, 5 Phil. 78 [1905].); and
(7) Effect of death. — The death of a partner results in the
dissolution of the partnership (Art. 1830[5].), but the death of
a co-owner does not necessarily dissolve the co-ownership.
(Rodriguez vs. Ravalan, 17 Phil. 63 [1910].)

Question 60

PRESUMPTION IN FAVOR OF UNIVERSAL PARTNERSHIP
OF PROFITS – when articles of partnership do not specify
whether partnership is of “present property” or “of profits”
only,

Answer 60

presumption is that partnership was intended merely
for a partnership OF PROFITS

Only applicable to universal partnerships

Question 61

The ordinary or business partnership may be distinguished
from a conjugal partnership as follows:

(1) Parties. —
(2) Laws which govern.
(3) Juridical personality. —
(4) Commencement. —
(5) Purpose. —
(6) Distribution of profi ts. —
(7) Management. —
(8) Disposition of shares. —

Answer 61

(1) Parties. — A business partnership is created by the volun-
tary agreement of two or more partners (Art. 1767.) belonging to

either sex, while a conjugal partnership arises in case the future
spouses — a man and a woman — agree that it shall govern their
property relations during the marriage (Art. 105, Family Code.);
(2) Laws which govern. — The ordinary partnerships are, as
a rule, governed by the stipulation of the parties (see Arts. 1159,
1308.), whereas a conjugal partnership is governed by law (Arts.
105-133, Ibid.);
(3) Juridical personality. — A partnership has a juridical
personality (Art. 1768.), while a conjugal partnership of gains has
none;
(4) Commencement. — A partnership begins from the moment
of the execution of the contract, unless it is otherwise stipulated
(Art. 1784.), while a conjugal partnership of gains commences
precisely on the date of the celebration of the marriage and any
stipulation to the contrary is void (Arts. 88, 107, Ibid.);
(5) Purpose. — The primary purpose of the ordinary
partnership is to obtain profi ts (Art. 1767.), while that of a conjugal
partnership is to regulate the property relations of husband and
wife during the marriage (Art. 74, Ibid.);
(6) Distribution of profi ts. — In the ordinary partnership, the
profi ts are divided according to the agreement of the partners
or in proportion to their respective capital contributions (Art.
1797.), while in a conjugal partnership, the shares of the spouses
in the profi ts are divided equally (Art. 106, Ibid.);

(7) Management. — In the ordinary partnership, the manage-
ment is shared equally by all the partners unless one or more of them are appointed managers in the articles of partnership
(Arts. 1801-1803.), while in a conjugal partnership, although the administration belongs to both spouses jointly, the husband’s decision shall prevail in case of disagreement (Art. 124, Ibid.); and

(8) Disposition of shares. — In the ordinary partnership, the
whole interest of a partner may be disposed of without the
consent of the other partners (see comments under Art. 1813.),
while in a conjugal partnership, the share of each spouse cannot
be disposed of during the marriage even with the consent of the
other. (see Arts. 89, 107, 121, 127, Ibid.)

Question 62

A partnership is distinguished from voluntary associations
organized for social purposes (such as social clubs, committees,
lodges, fraternal societies, etc.) as follows:
(1) Juridical personality.
(2) Purpose. —
(3) Contributions of members. —
(4) Liability of members. —

Answer 62

(1) Juridical personality. — A partnership has a juridical
personality, while a voluntary association has none;

(2) Purpose. — A partnership is always organized for pecuni-
ary profi t, while in a voluntary association, this objective is lack-
ing;

(3) Contributions of members. — In a partnership, there is a
contribution of capital, either in the form of money, property, or
services, while in a voluntary association for social purposes,
although fees are usually collected from the members to maintain
the organization, there is no contribution of capital; and
(4) Liability of members. — The partnership, as a rule, is the
one liable in the fi rst place for the debts of the fi rm, while in a
voluntary association, the members are individually liable for
the debts of the association, authorized by them either expressly
or impliedly, or subsequently ratifi ed by them. (Mechem, op. cit.,
p. 115.)

Question 63

ILLUSTRATIVE CASE:
Pursuant to “reinsurance treaties,’’ a number of local insurance
fi rms formed themselves into a “pool’’ in order to facilitate the
handling of business contracted with a non-resident foreign insurance
company.

Answer 63

(a) The pool has a common fund, consisting of
money and other valuables that are deposited in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool.
(b) The pool functions through an executive board,
which resembles the board of directors of a corporation,
composed of one representative for each of the ceding
companies.
(c) True, the pool itself is not a reinsurer and does
not issue any insurance policy; however, its work is
indispensable, benefi cial and economically useful to the
business of the ceding companies and Munich, because
without it they would not have received their premiums.
The ceding companies share ‘in the business ceded to
the pool’ and in the ‘expenses’ according to a ‘Rules of
Distribution’ annexed to the Pool Agreement. Profi t motive
or business is, therefore, the primordial reason for the
pool’s formation.’’
(d) Insurers become partners not mere co-owners. — “The
petitioner’s reliance on Pascual vs. Commissioner (166 SCRA

560 [1988].) is misplaced, because the facts obtaining there-
in are not on all fours with the present case. In Pascual,

there was no unregistered partnership, but merely a co-
ownership which took up only two isolated transactions.

The Court of Appeals did not err in applying Evangelista,
which involved a partnership that engaged in a series of
transactions spanning more than ten years, as in the case
at bar.’’ (AFISCO Insurance Corporation vs. Court of Appeals,
302 SCRA 1 [1999].)

Question 64

Partnership distinguished from
a corporation.

(1) Manner of creation.
(2) Number of incorporators.
(3) Commencement of juridical personality.
(4) Powers. —
(5) Management. —
(6) Effect of mismanagement. —
(7) Right of succession. —
(8) Extent of liability to third persons. —
(9) Transferability of interest. —

Answer 64

(1) Manner of creation. — A partnership is created by mere
agreement of the parties (Art. 1787.), while a corporation is
created by law or by operation of law (Sec. 2, B.P. Blg. 68.);
(2) Number of incorporators. — A partnership may be
organized by only two persons (Art. 1767.), while a corporation
(except a corporation sole) requires at least fi ve incorporators
(Sec. 10, Ibid.);
(3) Commencement of juridical personality. — A partnership
commences to acquire juridical personality from the moment of the execution of the contract of partnership (Art. 1784.), while
a corporation begins to have juridical personality only from
the date of issuance of the certifi cate of incorporation by the
Securities and Exchange Commission (Sec. 19, Ibid.);
(4) Powers. — A partnership may exercise any power
authorized by the partners provided it is not contrary to law,
morals, good customs, public order, or public policy (Art. 1306.),
while a corporation can exercise only the powers expressly
granted by law or implied from those granted or incident to its
existence (Secs. 2, 36, Ibid.);
(5) Management. — In a partnership, when the management
is not agreed upon, every partner is an agent of the partnership
(Art. 1803.), while in a corporation, the power to do business and
manage its affairs is vested in the board of directors or trustees
(Sec. 23, Ibid.);
(6) Effect of mismanagement. — In a partnership, a partner as
such can sue a co-partner who mismanages (see Arts. 1794, 1806,
1809.), while in a corporation, the suit against a member of the
board of directors or trustees who mismanages must be in the
name of the corporation (see Sec. 23, Ibid.);
(7) Right of succession. — A partnership has no right of
succession (see Arts. 1828-1831, 1860.), while a corporation has
such right (Sec. 2, Ibid.);
(8) Extent of liability to third persons. — In a partnership,
the partners (except limited partners) are liable personally and
subsidiarily (sometimes solidarily) for partnership debts to third
persons (see Arts. 1816, 1822-1824.), while in a corporation, the
stockholders are liable only to the extent of the shares subscribed
by them (see Secs. 64, 37, Ibid.);
(9) Transferability of interest. — In a partnership, a partner
cannot transfer his interest in the partnership so as to make the
transferee a partner without the consent of all the other existing
partners because the partnership is based on the principle of
delectus personarum (see Arts. 1767, 1804.), while in a corporation,
a stockholder has generally the right to transfer his shares without the prior consent of the other stockholders because a corporation
is not based on this principle

Question 65

EFFECTS OF UNLAWFUL PARTNERSHIP: (4)
Art. 1770:
isJ uridical decree necessary?

Answer 65

EFFECTS OF UNLAWFUL PARTNERSHIP: (4)
1. Contract is void ab initio and the partnership never
existed before the law
2. Profits shall be confiscated in favor of the gov’t
3. Instruments or tools and proceeds of the crime shall
also be forfeited in favor of the gov’t
4. Contributions of the partners shall not be confiscated
unless they fall under no. 3.
 Juridical decree is not necessary to dissolve an unlawful
partnership

Question 66

EFFECTS OF PARTIAL ILLEGALITY OF PARTNERSHIP:

Answer 66

1. Where the part of the business is legal and part illegal,
   legal part may be had
2. Innocent partners are not precluded as against the guilty
   partners from recovering their share of profits

Question 67

ILLUSTRATIVE CASE:
A party to a contract of partnership providing for the division of a fi shpond between the parties which stipulation is illegal, seeks the transfer of 1/2 of the fi shpond.
Facts: A fi led a fi shpond application for a big tract of swampy land. B also fi led his own application for the area covered by A’s application. A introduced improvements on portions of the area applied for him in the form of dikes, fi shpond gates, clearings, etc. Subsequently, A and C (B’s wife) entered into a contract of partnership, with A as industrial partner and C, as capitalist partner, which contract may be divided into two parts, namely, a contract to exploit the fi shpond pending its award to either A or B, and a contract to divide the fi shpond between A and C after such award.
The Secretary of [Agriculture and] Natural Resources awarded to A the possession of the area in question. Thereafter, A forbade C from further administering the fi shpond.
B and C brought action for specifi c performance and damages resulting from breach of contract. Under the law (Sec. 63, Act No. 4003 [Fisheries Act] and Fisheries Administrative Order 14, Sec. 7.), the transfer or subletting of fi shponds covered by permits or lease agreements without prior approval of the DENR Secretary is prohibited.
Issue: Is the contract of partnership valid?

Answer 67

Held: (1) The fi rst part is valid. — Although the fi shpond was then in possession of A, neither he nor B was the holder of a fi shpond permit over the area. Be that as it may, they were not, however, precluded from exploiting the fi shpond pending approval of A’s application over the same area. No law, rule, or regulation prohibited them from doing so. Thus, rather than let the fi shpond remain idle, they cultivated it.
(2) The second part is illegal. — Under the law, only a holder of a permit or lease and no one else may enjoy the benefi ts allowed by the law. Since the partnership had for its object the division into two equal parts of the fi shpond between A and C after it shall have been awarded to the former, and therefore, it envisaged the unauthorized transfer of one-half thereof to C other than A, it was dissolved by the approval of the application and the award of the fi shpond. The approval was an event which made it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership and, therefore, caused its ipso facto dissolution.
And since the contract is null and void, A cannot be made to execute a formal transfer of one-half of the fi shpond and to secure offi cial approval of the same as agreed upon. (Ibid., 29 SCRA 350 [1969].)

Question 68

RIGHT TO RETURN CONTRIBUTION WHERE PARTNERSHIP
IS UNLAWFUL:

Answer 68

Partners must be reimbursed of the amount of their
respective contributions

Question 69

OBLIGATIONS OF
PARTNERS:
RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP:

Answer 69

1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with 3rd persons with whom
   it contracts
4. Relations of the partners with such 3rd persons

Question 70

FORM OF PARTNERSHIP CONTRACT:
where contribution is immovable property or real
rights,?
Transfer of real property to the partnership ?

Answer 70

GR: no special form is required for the validity or existence of
the contract; contract may be made orally or in writing
XPN: where contribution is immovable property or real
rights, PUBLIC INSTRUMENT is necessary, otherwise VOID.

 Transfer of real property to the partnership must be duly
registered in the Registry of property of the province or
city where property is located to affect 3rd persons

Question 71

When partnership agreement covered by Statute of Frauds.

Answer 71

An agreement to enter in a partnership at a future time, which “by its terms is not to be performed within a year from the making
thereof” is covered by the Statute of Frauds. Such agreement is unenforceable unless the same be in writing or at least evidenced by some note or memorandum thereof subscribed by the parties.

Question 71

partnership with capital of 3,000 or more: (2)
Art. 1772

Answer 71

1. Contract must appear in a public instrument
2. Must be recorded or registered with SEC
    Failure to do so will not prevent formation of
   partnership or affect liability

Question 72

ART. 1773. Partnership with contribution
of immovable property.(2)

Answer 72

1. Contract must be in a public instrument
2. Inventory of property contributed must be made, signed
   by the parties, and attached to the public instrument
    Absence of these will render contract VOID
    Intended primarily for 3rd persons, a de facto partnership
   o estoppel may exist

Question 73

WHEN INVENTORY IS NOT REQUIRED: (2)

Answer 73

1. When immovable property is possessed or owned by the
   partnership but not contributed by any of the partners
2. Personal property

Question 74

IMPORTANCE OF INVENTORY: (2)

Answer 74

1. To show how much is due from each partner to
   complete his share in the common fund
2. How much is due to each of them in case of liquidation

Question 75

Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. (n)

Answer 75

– immovable
property may only be acquired and conveyed in the
partnership name

Question 76

1775:
SECRET PARTNERSHIPS W/O JURIDICAL PERSONALITY –
protection of whom?
3rd persons
unaware of the existence of such association
estoppel?

Answer 76

 For the protection of members and 3rd persons from
fraud and deceit
 A member who transacts for a secret partnership in his
own name becomes personally bound to 3rd persons
unaware of the existence of such association
 A person may be held liable as a partner or partnership
liability may result of 3rd persons by estoppel

Question 77

1785:
CONTINUATION OF PARTNERSHIP BEYOND FIXED TERM:

Answer 77

 Term of existence has been agreed upon expressly
(when there is a definite period) or impliedly ( when a
particular enterprise of transaction is undertaken)
 Automatic dissolution upon expiration of term or
accomplishment of undertaking
 Can be extended expressly (written or oral agreement)
or impliedly (by mere continuation of business after
termination of such term or undertaking without any
settlement / liquidation) – rights and duties remain the
same
 With such continuation, partnership for a fixed term or
particular undertaking is dissolved, and a new one is
created by implied agreement
 Particular partnership is dissolved, partnership at will is
created
 Any one of the partners can dissolve the partnership but
IN GOOD FAITH
 Mere hope / expectation is not equal to partnership

Question 78

KINDS OF PARTNERS: (10)

Answer 78

1. Capitalist partner – contributes money / property to
   common fund
2. Industrial partner – contributes only industry / service
3. General partner (real partner) – liability to 3rd persons
   extends to his separate property; can be either capitalist
   or industrial
4. Limited partner (special partner) – limited to his capital
   contribution
5. Managing partner – manages affairs or business;
   appointed
6. Liquidating partner – takes charge of the winding up of
   partnership affairs upon dissolution
7. Partner by Estoppel (nominal partner) – not really a
   partner, not being a party to a partnership agreement,
   but is liable as a partner for protection of 3rd persons
8. Continuing partner – continues business after it has
   been dissolved by reason of admission of new partner,
   retirement, death expulsion of one or more partners
9. Surviving partner – remains after a partnership has
   been dissolved by death of any partner
10. Subpartner – not being a member of a partnership,
    contracts with a partner with reference to a latter’s share
    in the partnership

Question 79

1777 – 1779:
UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY:
The following may become the common property of all
partners: (2)

Answer 79

1. Property which belonged to each of them at the time of
   constitution of partnership
2. Profits which they may acquire from the property
   contributed

Question 80

Future properties
gr and xpn

Answer 80

Future properties cannot be contributed
GR: property acquired by inheritance, legacy or donation
cannot be included by stipulation
XPN: fruits thereof
 Profits from other sources will become common
property only if there is a stipulation

Question 81

(2) Profi ts acquired through chance. — universal property

Answer 81

Since the law speaks
only of profi ts which the partners may acquire by their industry
or work, it follows that profi ts acquired by the partners through
chance, such as lottery or by lucrative title without employment
of any physical or intellectual efforts, are not included.

Question 82

Ownership of present and future property. - universal partnership

Answer 82

It is to be
noted that in this class of partnership, the partners retain their
ownership over their present and future property. What passes
to the partnership are the profi ts or income and the use or
usufruct of the same. Consequently, upon the dissolution of the
partnership, such property is returned to the partners who own
it.

Question 83

Fruits of property subsequently acquired. universal - acquired by a partner

Answer 83

fruits of property subsequently acquired by the
partners do not belong to the partnership. Such profi ts may,
however, be included by express stipulation. But profi ts which
the partners may acquire by their industry or work during
the existence of the partnership as well as the usufruct of their
present properties belong to the partnership as a matter of right.
An express stipulation is necessary to exclude any of them.

Question 84

1781:
PRESUMPTION IN FAVOR OF UNIVERSAL PARTNERSHIP
OF PROFITS –Only applicable to universal partnerships

Answer 84

when articles of partnership do not specify
whether partnership is of “present property” or “of profits”
only, presumption is that partnership was intended merely
for a partnership OF PROFITS

Question 85

1782:
LIMITATIONS IN FORMING A PARTNERSHIP:
Persons who are prohibited from giving each other donation
or advantage cannot enter into a UNIVERSAL partnership,
otherwise VOID:

Answer 85

1. Between persons guilty of adultery or concubinage at
   the time of donation
2. Made between persons found guilty of the same
   criminal offense, in consideration thereof
3. Made to a public officer or his wife, descendants and
   ascendants, by reason of his office

Question 86

Husband and wife may enter into a PARTICULAR
PARTNERSHIP:

Answer 86

Where partners retained their separate interests –
capital contributions were separately owned and
contributed before marriage

Question 87

ILLUSTRATIVE CASE: In a particular partnership composed of three members, two of the partners got married and the third partner subsequently sold, for a nominal amount, his share to them.
Facts: A, B, and C formed a limited partnership to engage, among other activities, in the importation, marketing and operation of automatic phonographs, radios, television sets and amusement machines, their parts and accessories, with B and C as limited partners. Subsequently, A and B got married and, thereafter, C sold his share to A and B. For a taxable year, A and B fi led a separate income return for the limited partnership and a consolidated return for them as spouses.
The Commissioner of Internal Revenue consolidated the income of the fi rm and the individual income of the partners resulting in the determination of a defi ciency income tax. A and B protested the assessment. The issues are:
Issues: (1) Whether or not the separate personality of the partnership should be disregarded for income tax purposes considering that A and B actually formed a single taxable unit; and
(2) Whether or not the partnership was dissolved after the marriage of A and B and the subsequent sale to them by C of the latter’s participation for the amount of P1.00.

Answer 87

Held: (1) Partners retained their separate interests. — The view that by the marriage of A and B the company became a single proprietorship is erroneous. Their capital contributions were separately owned and contributed by them before their marriage; and after they were joined in wedlock, such contributions remained their respective separate property. (see Art. 148[1], Civil Code.31) Thus, the individual interest of A and B did not become common property of both after their marriage. The change in the membership of the fi rm is no ground for withdrawing the partnership from the coverage of Section 24 of the National Internal Revenue Code requiring it to pay income tax. A and B did not enter into matrimony and thereafter buy the interests of C with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws.
(2) Partnership, a particular one. — The fi rm was not a universal partnership, but a particular one. It follows that the partnership was not one that A and B were forbidden to enter under Article 1677. (now Art. 1782.) Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose by law. (Commissioner of Internal Revenue vs. Suter, supra.)

Question 88

1783:
PARTICULAR PARTNERSHIP:
Scope of subject matter –
limited and well-defined, being
confined to an undertaking of a single, temporary or ad hoc
nature.
not question

Answer 88

limited and well-defined, being
confined to an undertaking of a single, temporary or ad hoc
nature.

Question 89

1783:
PARTICULAR PARTNERSHIP:  Examples:

Answer 89

o Acquisition of an immovable property for the
purpose of reselling it at a profit
o Professional partnership
o Joint venture – created for a temporary or limited
purpose

Question 90

OBLIGATIONS OF
PARTNERS:

Answer 90

1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with 3rd persons with whom
   it contracts
4. Relations of the partners with such 3rd persons

Question 91

1784:
COMMENCEMENT AND TERM OF PARTNERSHIP:

Answer 91

GR: commences from the time of execution of the contract
XPN: when there is contrary stipulation
 Registration in the SEC is not essential to give it juridical
personality
 Necessary that all essential requisites are present
 Partners may stipulate some other date for the
commencement – makes the partnership inchoate or
unperformed, thus not yet consummated, haven’t
started yet

Question 92

Executory agreement of partnership. (1) Future partnership.

Answer 92

— The partners may stipulate some
other date for the commencement of the partnership. Persons
who have entered into a contract to become partners at some
future time or on the happening of some future contingency do
not become partners until or unless the agreed time has arrived
or the contingency has happened. As long as the agreement for a partnership remains inchoate or unperformed, the partnership is not consummated.

Question 93

1785:
CONTINUATION OF PARTNERSHIP BEYOND FIXED TERM:

Answer 93

 Term of existence has been agreed upon expressly
(when there is a definite period) or impliedly ( when a
particular enterprise of transaction is undertaken)
 Automatic dissolution upon expiration of term or
accomplishment of undertaking
 Can be extended expressly (written or oral agreement)
or impliedly (by mere continuation of business after
termination of such term or undertaking without any
settlement / liquidation) – rights and duties remain the
same
 With such continuation, partnership for a fixed term or
particular undertaking is dissolved, and a new one is
created by implied agreement
 Particular partnership is dissolved, partnership at will is
created
 Any one of the partners can dissolve the partnership but
IN GOOD FAITH
 Mere hope / expectation is not equal to partnership

Question 94

ART. 1786. Every partner is a debtor of the partner-
ship for whatever he may have promised to contribute

thereto.

He shall also be bound for warranty in case of evic-
tion with regard to specifi c and determinate things

which he may have contributed to the partnership, in
the same cases and in the same manner as the vendor
is bound with respect to the vendee. He shall also be
liable for the fruits thereof from the time they should
have been delivered, without the need of any demand.
(1681a)

EFFECT OF FAILURE TO CONTRIBUTE PROPERTY
PROMISED – makes the partner ipso jure a debtor of the
partnership even in the absence of any demand
REMEDIES:

Answer 94

1. ACTION for specific performance with damages and
   interests from the defaulting partner from the time he
   should have complied with his obligation
2. RESCISSION or annulment of partnership contract on
   the ground of fraud or misinterpretation committed by
   one of the parties

Question 95

1786:
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF
PROPERTY:

Answer 95

1. CONTRIBUTE at the beginning of the partnership /
   stipulated time the money, property or industry he
   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 the
   actual delivery
4. PRESERVE property with diligence of a good father of a
   family pending delivery to the partnership
5. INDEMNIFY partnership for any damage caused to it by delay of contribution

Question 96

Liability of partner for fruits of property
in case of delay.

Answer 96

the remedy of the other partner or the
partnership is not rescission but an action for specifi c performance
(to collect what is owing) with damages and interest from the
defaulting partner from the time he should have complied with
his obligation. From the mere fact that the property which a partner ought
to deliver does not pass to the common fund on time, the
partnership fails to receive the fruits or benefi ts which the said
contribution produced as well as those it ought to produce, thus
prejudicing the common purpose of obtaining from them the
greatest possible profi ts through some means of speculation or
investment. The injury, therefore, to the partnership is constant.

Question 97

LIABILITY OF PARTNER FOR FAILURE TO PERFORM
SERVICE:
GR: partner is generally not liable
XPNS: (3)

Answer 97

1. If a partner neglects or refuses without reasonable
   cause and the partnership suffered loss
2. If partner is compelled to make good the loss, each
   member of the firm, including himself, will receive his
   proportion of the amount in the distribution of the
   partnership assets and in no just sense can this be
   regarded as compensation for the service individually
   rendered.
3. If under the circumstances of the case the proper
   measure of the damages or loss is the value of the
   services wrongfully withheld, then defendant should be
   charged this value

Question 98

EFFECT OF FAILURE TO CONTRIBUTE PROPERTY
PROMISED

Answer 98

– makes the partner ipso jure a debtor of the
partnership even in the absence of any demand

Question 99

EFFECT OF FAILURE TO CONTRIBUTE PROPERTY
PROMISED REMEDIES:

Answer 99

1. ACTION for specific performance with damages and
   interests from the defaulting partner from the time he
   should have complied with his obligation
2. RESCISSION or annulment of partnership contract on
   the ground of fraud or misinterpretation committed by
   one of the parties

Question 100

LIABILITY OF PARTNER FOR FRUITS OF THE PROPERTY IN
CASE OF DELAY –

Answer 100

– no demand is necessary to put partner in
default

Question 101

LIABILITY OF PARTNER FOR FAILURE TO PERFORM
SERVICE:
GR: partner is generally not liable
XPNS: (3)

Answer 101

1. If a partner neglects or refuses without reasonable
   cause and the partnership suffered loss
2. If partner is compelled to make good the loss, each
   member of the firm, including himself, will receive his
   proportion of the amount in the distribution of the
   partnership assets and in no just sense can this be
   regarded as compensation for the service individually
   rendered.
3. If under the circumstances of the case the proper
   measure of the damages or loss is the value of the
   services wrongfully withheld, then defendant should be
   charged this value

Question 102

ART. 1787. When the capital or a part thereof which
a partner is bound to contribute consists of goods, their
appraisal must be made in the manner prescribed in the

contract of partnership, and in the absence of stipula-
tion, it shall be made by experts chosen by the partners,

and according to current prices, the subsequent changes
thereof being for the account of the partnership.

Answer 102

1. If there is no stipulation – share of each partner in
   the profits and losses is in proportion to contribution
2. Appraisal is made:
   a. First, in the manner prescribed by the
   contract of partnership
   b. Second, in the absence of stipulation, by
   experts chosen by the partners
   c. According to prices

 In case of immovable property – appraisal is made in
the inventory of said property

Question 103

ART. 1788. A partner who has undertaken to con-
tribute a sum of money and fails to do so becomes a

debtor for the interest and damages from the time he
should have complied with his obligation.
The same rule applies to any amount he may have
taken from the partnership coffers, and his liability
shall begin from the time he converted the amount to
his own use. (1682)

IN CASES WHERE: (2)

Answer 103

1. Delayed contribution of money
2. Partnership money converted to the personal use of the
   partner

Question 104

1788:
IN CASES WHERE: (2)
1. Delayed contribution of money
2. Partnership money converted to the personal use of the
partner

1788: OBLIGATIONS OF PARTNERS UNDER THESE CASES: (4)

Answer 104

1. CONTRIBUTE on the date due the amount he has
   undertaken to contribute
2. REIMBURSE any amount he may have taken and
   converted for own use
3. PAY the agreed / legal interest, if he fails to pay
   contribution on time or when he uses common fund for
   personal use
4. INDEMNIFY the partnership for the damages caused by
   the delay or conversion

Question 105

LIABILITY OF GUILTY PARTNER FOR INTEREST &
DAMAGES due to non contribution.
when is he liable for interest and damages? GR and XPN

Answer 105

GR: He is liable for interest and damages from the time
contribution was due or from the time he converted amount
for his own use
XPN: unless there is a stipulation fixing a different time

Question 106

LIABILITY FOR FAILURE TO RETURN MONEY RECEIVED:
 REMEDY:

Answer 106

1. Where fraudulent misappropriation committed –
   partner is guilty of ESTAFA
2. Where there was mere failure to return – no ESTAFA
    REMEDY: civil case arising from the partnership
   contract for a liquidation of partnership and levy on
   its assets if there should be any

Question 107

ART. 1789. An industrial partner cannot engage in
business for himself unless the partnership expressly

permits him to do so; and if he should do so, the capi-
talist partners may either exclude him from the fi rm

or avail themselves of the benefi ts which he may have
obtained in violation of this provision, with a right to
damages in either case. (n)

GR and XPN?

Answer 107

GR: He cannot engage in business for himself
XPN: unless he is expressly permitted to do so

Question 108

REMEDIES OF PARTNERS FOR INDUSTRIAL PARTNER’S VIOLATION: (2)

Answer 108

1. EXCLUDE him from firm (with right to damages)
2. AVAIL themselves of the benefits which he may have
   obtained in violation (with right to damages)

Question 109

PROHIBITIONS AGAINST ENGAGING IN BUSINESS: PARTNERS

Answer 109

1. As regards an industrial partner – prohibition is
   absolute and applies whether to engage in same
   business or any kind of business
2. As regards capitalist partner – prohibition extends only
   to any operation which is of the SAME KIND of business
   which partnership is engaged in
    XPN: stipulation to the contrary

 Partnership acquires an EXCLUSIVE RIGHT to avail of
the industrial partner’s services; engaging in business
for himself is prejudicial to the interest of the other
partners
 Action for specific performance to compel partner to
performed promised work or service is not applicable –
will amount to involuntary servitude
 Mere toleration by partnership will not exempt the
industrial partner from liability

Question 109

1789:
1. to avail of
the industrial partner’s services?
2. Action for specific performance?
3. toleration by partnership?

Answer 109

1. Partnership acquires an EXCLUSIVE RIGHT to avail of
   the industrial partner’s services; engaging in business
   for himself is prejudicial to the interest of the other
   partners
2.  Action for specific performance to compel partner to
   performed promised work or service is not applicable –
   will amount to involuntary servitude
3. Mere toleration by partnership will not exempt the
   industrial partner from liability

Question 110

ART. 1790. Unless there is a stipulation to the con-
trary, the partners shall contribute equal shares to the

capital of the partnership.

Answer 110

GR: Partners shall contribute equal shared to the capital of
partnership
XPN: Unless there is a stipulation to the contrary
 Not applicable to I.P. unless he also contributed capital
aside from services

Question 111

ART. 1791. If there is no agreement to the contrary,

in case of an imminent loss of the business of the part-
nership, any partner who refuses to contribute an addi-
tional share to the capital, except an industrial partner,

to save the venture, shall be obliged to sell his interest
to the other partners.

N: If there is no agreement to the contrary and there is
imminent loss, he is under obligation to: (2)

Answer 111

1. CONTRIBUTE additional share
2. If he refuses to contribute, SELL his interest to other
   partners

Question 112

REQUISITES: (4) OBLIGATION OF CAPITALIST PARTNER TO CONTRIBUTE
ADDITIONAL CAPITAL:

Answer 112

1. There is imminent loss in the business
2. Majority of the capitalist partners think that additional
   contribution would save the business
3. A capitalist partner refuses deliberately to contribute
   additional share (dahil kupal lang talaga siya)
4. There is no agreement that even in case of imminent
   loss, they are not obliged to contribute

Question 113

1792:
OBLIGATION OF MANAGING PARTNER WHO COLLECTS
DEBT (WHEN THERE ARE TWO CREDITS):
REQUISITES: (3)

Answer 113

REQUISITES: (3)
1. There exists at least 2 debts:
a. One from partnership
b. Another from a particular partner
2. Both debts are demandable
3. Partner who collects is authorized to manage and
actually manages the partnership

EXAMPLE:
A and B are partners in X and Co., with A as the managing
partner. C is indebted to A in the sum of P2,000.00. C is also
indebted to the partnership in the sum of P4,000.00. Both debts
are demandable. A collects the amount of P1,500.00 from C.
If A issues a receipt to the effect that it is in payment of
his (A’s) credit, P500.00 will be applied only to his credit,
the partnership being entitled to a proportionate amount of
P1,000.00 in the payment made by C. But if A gives a receipt
for the account only of the partnership credit, the amount of
P1,500.00 will be fully applied to the latter.

Question 114

OBLIGATION OF MANAGING PARTNER WHO COLLECTS
DEBT (WHEN THERE ARE TWO CREDITS):

GR:
XPN:

Answer 114

 The sum received but the managing partner shall be
APPLIED to both credits in proportion to their amounts
XPN: where he received it specifically for the
partnership only, the whole sum should be applied
to partnership credit
Where the manner of management has not been agreed
upon and all the partners participate in the management of partnership, then every partner shall be considered a
managing partner
 Does not apply where collecting partner for his own
credit only is NOT authorized to manage
 Where the manner of management has not been agreed
upon and all the partners participate in the management

GR: Partnership credit should always be prioritized
XPN: debtor is given the right to prefer payment of the debt
to partner if it should be more onerous to him (has higher
interest rate)

Question 115

ART. 1793. A partner who has received, in whole or

in part, his share of a partnership, when the other part-
ners have not collected theirs, shall be obliged, if the

debtor should thereafter become insolvent, to bring to
the partnership capital what he received even though
he may have given receipt for his share only. (1685a)
OBLIGATION OF PARTNER WHO RECEIVES SHARE OF
PARTNERSHIP CREDIT (ONLY ONE CREDIT): REQUISITES: (3)

Answer 115

1. A partner has received his share of partnership credit (in
   whole or in part)
2. Other partners have not collected their shares
3. Partnership debtor has become insolvent

D owes partnership X and Co. P4,500.00. A, a partner,
received a share of P1,500.00 ahead of B and C, the two other
partners. When B and C were collecting from D, the latter was
already insolvent.
In this case, even if A had given a receipt for his share only,
he can be required to share the P1,500.00 with B and C.

Question 116

1792:
OBLIGATION OF MANAGING PARTNER WHO COLLECTS
DEBT (WHEN THERE ARE TWO CREDITS):
GR:
XPN:

Answer 116

GR: Partnership credit should always be prioritized
XPN: debtor is given the right to prefer payment of the debt
to partner if it should be more onerous to him (has higher
interest rate)

Question 117

OBLIGATION OF PARTNER WHO RECEIVES SHARE OF
PARTNERSHIP CREDIT (ONLY ONE CREDIT): CREDIT COLLECTED AFTER DISSOLUTION:
Is this rule still applicable?

Answer 117

1. Yes – based on the principle of community and
   equality which ought to exist among all the partners
2. No – it would not be just for the person who was
   diligent in collecting the money to suffer in the
   negligence of the other partners; and dissolution
   also dissolves obligation of each partner to one
   another

Question 117

ART. 1794. Every partner is responsible to the part-
nership for damages suffered by it through his fault,

and he cannot compensate them with the profi ts and
benefi ts which he may have earned for the partnership
by his industry. However, the courts may equitably

lessen this responsibility if through the partner’s ex-
traordinary efforts in other activities of the partnership,

unusual profi ts have been realized.

OBLIGATION OF PARTNER FOR DAMAGES TO
PARTNERSHIP:
 Any person guilty of negligence or fault in the fulfillment
of his obligation shall be liable for damages
 Partner’s fault must be determined in accordance with
the nature of obligation and circumstances of the
person, time and place

COMPENSATION OF DAMAGES W/ PROFITS EARNED BY
GUILTY PARTNER: GR AND EXPN

Answer 117

GR: Damages caused by a partner to the partnership cannot
be offset by the profits or benefits which he may have earned
for the partnership by his industry
1. Partner has the obligation to secure benefits for
partnership
2. Has the obligation to exercise diligence in the
performance of his obligation as a partner
3. Obligation to repair the injury

XPN: If unusual profits are realized through the extraordinary
efforts of the partner at fault, the courts may equitably
mitigate or lessen his liability for damages

Question 118

ART. 1795. The risk of specifi c and determinate

things, which are not fungible, contributed to the part-
nership so that only their use and fruits may be for the common benefi t, shall be borne by the partner who
owns them.
If the things contributed are fungible, or cannot be
kept without deteriorating, or if they were contributed
to be sold, the risk shall be borne by the partnership. In
the absence of stipulation, the risks of things brought
and appraised in the inventory, shall also be borne by

the partnership, and in such case the claim shall be lim-
ited to the value at which they were appraised.
RISK OF LOSS OF THINGS CONTRIBUTED: (5)

Answer 118

1. BORNE BY PARTNER – Specific and determinate things
   which are NOT FUNGIBLE where only use is contributed
2. BORNE BY PARTNERSHIP – Specific and determinate
   things the ownership of which is transferred to the
   partnership
3. BORNE BY PARTNERSHIP – Fungible things or thing
   which cannot be kept without deteriorating even if they
   are contributed only for the use of the partnership
4. BORNE BY PARTNERSHIP – Things contributed to be
   sold
5. BORNE BY PARTNERSHIP – Things brought and
   appraised in the inventory

Question 119

ART. 1796. The partnership shall be responsible to
every partner for the amounts he may have disbursed
on behalf of the partnership and for the corresponding
interest, from the time the expenses are made; it shall
also answer to each partner for the obligations he may

have contracted in good faith in the interest of the part-
nership business, and for risks in consequence of its

management. (1688a)

In the absence of any stipulation to the contrary, every partner
is an agent of the partnership for the purpose of its business. (Art.
1818.) Hence, the partnership has the obligation to:

Answer 119

1. REFUND amounts disbursed by the partner in behalf of
   the partnership (loans / advances) plus interest from the
   time the expenses are made (not from the date of
   demand)
2. ANSWER for the obligations the partner may have
   contracted in good faith in the interest of the business
3. ANSWER for the risks in consequence of its
   management
    XPN: unless there is a stipulation to the contrary: In the absence of an aggreement to the contrary, no partner
   is entitled to compensation for his services to the partnership
   without the consent of all the partners unless it can be implied
   from the circumstances that the parties intended a partner to
   receive additional compensation where the partner’s work was
   beyond normal partnership functions.

Question 120

EXAMPLE:
The articles of a trading partnership composed of A, B, and
C provides that any purchase in excess of P5,000.00 must fi rst be
approved by all the partners. This rule was strictly observed in
all transactions of the partnership. C made a purchase of goods
out of his personal funds for P7,000 without the knowledge of
A and B. The partnership incurred a loss.
C is not entitled to be reimbursed for the purchase.
ILLUSTRATIVE CASE:
A partner seeks an accounting from the other partners who
received from him money to be invested by them in a business.
Facts: A delivered P1,500.00 to B and C who, in a private
document, acknowledged the receipt of the money with the
agreement that “we are to invest the amount in a store, the
profi ts and losses of which we are to divide with the former in
equal shares.” A fi led a complaint to compel B and C to render
an accounting of the partnership as agreed to.
Issue: From what date should the payment ofinterest be
counted?

Answer 120

Held: Inasmuch as in this case nothing appears other than
the failure to fulfi ll an obligation on the part of a partner who
acted as agent in receiving money for a given purpose, for
which he has rendered no accounting, such agent is responsible
only for the losses which, by a violation of the law, he incurred.
This being an obligation to pay in cash, there are no other losses
than the legal interest which interest is not due except from the time of the judicial demand (see Art. 2212.) or, in the present
case, from the fi ling of the complaint.

Article 1796 is not applicable insofar as it provides that
“the partnership shall be responsible to every partner for the
amounts he may have disbursed on behalf of the partnership
and for the corresponding interest from the time the expenses
are made,” for the reason that no other money than that
contributed as capital is involved. (Martinez vs. Ong Pong Co.,
14 Phil. 726 [1909].)

Question 121

ART. 1797. The losses and profi ts shall be distribut-
ed in conformity with the agreement. If only the share

of each partner in the profi ts has been agreed upon, the

share of each in the losses shall be in the same propor-
tion.

In the absence of stipulation, the share of each part-
ner in the profi ts and losses shall be in proportion to

what he may have contributed, but the industrial part-
ner shall not be liable for the losses. As for the profi ts,

the industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides

his services he has contributed capital, he shall also re-
ceive a share in the profi ts in proportion to his capital.

RULES FOR DISTRIBUTION OF PROFITS & LOSSES
(AMONG PARTNERS):
DISTRIBUTION OF PROFITS:

Answer 121

1. Partners share the profits according to their agreement
2. If there is no agreement:
   a. Proportionate to capital contribution
   b. Industrial partner will first receive his share before
   the capitalist partners; amount is not fixed as long
   as it is just and equitable under the circumstances

Question 122

RULES FOR DISTRIBUTION OF PROFITS & LOSSES
(AMONG PARTNERS):
DISTRIBUTION OF LOSSES:

Answer 122

1. Distributed according to agreement
2. If there is no agreement:
   a. Proportionate to profit-sharing ratio
   b. Industrial shall not be liable for losses
3. If no profit-sharing is stipulated:
   a. Losses shall be borne by the partners in proportion
   to their capital contributions
   b. Purely industrial partners will not be liable for losses

Question 123

ART. 1798. If the partners have agreed to intrust to
a third person the designation of the share of each one

in the profi ts and losses, such designation may be im-
pugned only when it is manifestly inequitable. In no

case may a partner who has begun to execute the deci-
sion of the third person, or who has not impugned the

same within a period of three months from the time he
had knowledge thereof, complain of such decision.
The designation of losses and profi ts cannot be
intrusted to one of the partners. (1690)

DELEGATION TO A 3RD
PERSON – delegation is made
through common consent

Answer 123

 3
rd person is not a partner
 To guarantee utmost impartiality in the distribution of
shares of profits and losses
 His designation is generally binding unless manifestly
inequitable (lantarang pandaraya?)
 A partner who has begun to execute the decision of the
3
rd person / fails to impugn the same W/IN 3 MONTHS
from the time he had knowledge of it can no longer
complain

Question 124

ART. 1799. A stipulation which excludes one or
more partners from any share in the profi ts or losses is
void.

Answer 124

 Even if stipulation is void, partnership is still valid
 Profits and losses shall be apportioned as if stipulation
did not exist
 Stipulation expressly stipulating that there shall be no
liability for losses / party does not intend to share in the
losses – factor in determining that no partnership exists
 Where the one excluded from profit / loss-sharing is not
intended to become a partner, stipulation is valid
 Industrial partner is excluded from loss-sharing
 Unequal sharing is valid unless it is so gross as to
exclude partners from shares

Question 125

ART. 1800. The partner who has been appointed
manager in the articles of partnership may execute all

acts of administration despite the opposition of his part-
ners, unless he should act in bad faith; and his power

is irrevocable without just or lawful cause. The vote of
the partners representing the controlling interest shall
be necessary for such revocation of power.

A power granted after the partnership has been con-
stituted may be revoked at any time.

SCOPE OF POWER OF A MANAGING PARTNER:
GR: XPN

Answer 125

GR: a partner appointed as manager has all the powers of a
general agent as well as all incidental powers necessary to
carry out the object of the partnership in the transactions of
its business XPN: when the powers of the manager are specifically
restricted

Question 126

1800:
RIGHTS & OBLIGATIONS W/ RESPECT TO MANAGEMENT:

Answer 126

Each partner in a general partnership has equal voice in
management of business.

Question 127

1800: Appointment as manager in the articles of partnership –
appointed by common agreement:

Answer 127

Can execute all acts of administration
notwithstanding the opposition of the other
partners, unless he acts in bad faith
 His power is revocable:
a. Only upon just and lawful cause
b. Upon the vote of the partners representing the
controlling interest

Question 128

1800: Appointment as manager after the constitution of the
partnership:

Answer 128

 Can be revoked at any time for any cause
 Merely a simple contract of agency

Question 129

1800:
RIGHTS & OBLIGATIONS W/ RESPECT TO MANAGEMENT:COMPENSATION FOR SERVICES RENDERED: GR and XPN

Answer 129

GR: Partner is not entitled to compensation other than his
share of profits
XPN: Where law provides a contract for compensation:
1. A partner engaged by his co-partners to perform
services not required of him in fulfillment of duties
2. Where there is extraordinary neglect on the part of
one partner to perform his duties toward the firm’s
business, imposing entire burden on the remaining
partner
3. One partner may employ his co-partner to do work
for him outside and independent of co-partnership
and become personally liable therefor

Question 130

Facts: A and B entered into a partnership under the name
of “New England Neon Sign Company” for the purpose of
manufacturing and selling neon signs. B agreed to furnish all
the necessary fi nancial backing, and A was to receive $60 a
week, which was termed as a “drawing account.” A, who had
received over $15,000 instituted action for an accounting of the
partnership affairs. He claims that the money was received
as compensation for services. B contends that the money was
received as a partial distribution of profi ts.
It appears that the parties agreed “to go 50-50,” and,
in answer to the question to A as to whether it was his
understanding of the agreement that he was to be paid and
B was not to be paid for services, he replied: “We were to go
50-50.” When he answered this question, he knew that he had
received over $15,000 by way of a drawing account, and B had
never received anything by way of distribution of earnings.

Issue: Should the money received by A be considered as
compensation for his services, or as partial distribution of
profi ts?

Answer 130

As a partial distribution of profi ts. A was a glass
blower and was recommended to B as one who was familiar
with, and had the ability to build, neon signs. B was “to furnish
the necessary fi nancial backing” and it is a reasonable inference
that A, in turn, was to devote himself to the manufacture, at
least, of the signs.
Under such arrangement and the specifi c agreement “to
go 50-50,” neither partner was entitled to compensation for
services in the absence of an express or implied agreement.
There was no specifi c agreement that A should receive any
salary, as such. A’s drawing account is a well-recognized
modern business method of furnishing the employee with
means of maintenance while engaged in a service from which
wages and commissions are to accrue. In any event, he did
not stipulate, in any terms, for the payment of any salary. He
was merely to receive a weekly amount, termed a “drawing
account,” from a partnership that was upon a “50-50” basis.
Upon all the fi ndings, A’s drawing account was against
possible profi ts, and not by way of payment for his services.
(Boyer vs. Bowles, 37 N.E. 2d 489 [Mass. 1941].)

Question 131

ART. 1801. If two or more partners have been
intrusted with the management of the partnership
without specifi cation of their respective duties, or
without stipulation that one of them shall not act
without the consent of all the others, each one may
separately execute all acts of administration, but if
any of them should oppose the acts of the others, the
decision of the majority shall prevail. In case of tie,
the matter shall be decided by the partners owning the
controlling interest. (1693a)

RESPECTIVE DUTIES OF 2 / MORE MANAGING PARTNERS
NOT SPECIFIED:
Each one may separately perform acts of administration:

Answer 131

Each one may separately perform acts of administration:
 If one / more managing partners shall oppose the acts
of others, the decision of majority will prevail
 Right to oppose can be exercised only by those
entrusted with the management of the partnership and
not just by any partner
 In case of tie: decided by the vote of the partners owning
the controlling interest, that is, more than 50% of the
capital investment
 When partnership DO NOT SPECIFY respective duties:
one partner has no more powers than the others in the
conduct and management of the firm’s business
 If partnership SPECIFIES: decision of the partner
concerned shall prevail, but should act in GOOD FAITH

Question 132

RESPECTIVE DUTIES OF 2 / MORE MANAGING PARTNERS
NOT SPECIFIED:
Each one may separately perform acts of administration:
REQUISITES: (3)

Answer 132

1. 2 / more partners have been appointed as managers
2. No specification of their respective duties
3. No stipulation that one of them shall not act without the
   consent of all the others

Question 133

The respective interests of the partners in a partnership are
as follows: A — 5%; B — 10%; C — 15%; D — 15%; E — 20%;
and F — 35%.

Answer 133

(1) A, B, and E were appointed as managing partners
without specifi cation of their respective duties. A contract
entered into by A, if with the conformity of B although against
the objection of E, is valid.
(2) If the managing partners are A, B, C, and E, and C sided
with E so that there was a tie and when the matter was put to
a vote of all the partners, A, B, and D were in favor, with C, E,
and F against, the contract is not valid; if A and E were the ones
who originally voted in favor of the contract and subsequently, F sided with them, the transaction is deemed ratifi ed by the
controlling interest in the partnership.
(3) Suppose after a tie, the voting is as follows: A, B, and F
— in favor, and C, D, and E — against, both sides representing
50% of the interest, with neither side willing to give way to the
other, what shall be the rule? The law is silent on this point. It
is believed that in such case the contract should be considered
as having been entered into without authority. In other words,
when the partners are equally divided, those who vote against
the contract or who resist change must prevail.
The best solution is for the partners to dissolve the
partnership. A shall be responsible for damages if it is found
that he was at fault. (see Art. 1794.)
If the contract is merely proposed, it may or may not be
entered into depending upon the decision of the majority of
the managing partners or of the controlling interest, as the case
may be.

Question 134

ART. 1802. In case it should have been stipulated
that none of the managing partners shall act without
the consent of the others, the concurrence of all shall
be necessary for validity of the acts, and the absence or
disability of any one of them cannot be alleged, unless
there is imminent danger of grave or irreparable injury
to the partnership. (1694)

STIPULATION OF UNANIMITY IN ACTION: GR: XPN:

Answer 134

GR: If it is stipulated that none of the managing partners shall
act without the consent of others, CONCURRENCE OF ALL
shall be necessary for validity of the acts, absence or
disability of any one of them cannot be alleged

XPN: there is imminent danger of grave or irreparable injury
to the partnership
XPN to the XPN: When one of the managers opposes
to the proposed act
 Consent of managing partners is not necessary in
routine transactions
 Written authority refers to formal and unusual written
contracts

Question 135

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 the im-
movable property of the partnership, even if it may be

useful to the partnership. But if the refusal of consent

by the other partners is manifestly prejudicial to the in-
terest of the partnership, the court’s intervention may

be sought. (1695a)

RULES WHEN MANNER OF MANAGEMENT HAS NOT BEEN
AGREED UPON:

Answer 135

All partners have equal rights in the management of
partnership affairs
 Whatever any one of them may do alone shall bind
partnership
 In case of timely opposition of the partner, the matter
shall first be decided by the majority vote
 In case of a tie: matter will be decided by the vote of the
partners representing the controlling interest

Question 136

1803: UNANIMOUS CONSENT IS REQUIRED FOR ALTERATION OF
IMMOVABLE PROPERTY:

Answer 136

Consent need not be express
 It may be presumed from the fact of knowledge of the
alteration without interposing any objection
 If refusal to give consent is MANIFESTLY PREJUDICIAL:
o REMEDY: court intervention

Question 137

ART. 1804. Every partner may associate another per-
son with him in his share, but the associate shall not be

admitted into the partnership without the consent of all

the other partners, even if the partner having an associ-
ate should be a manager. (1696)

CONTRACT OF SUBPARTNERSHIP: SUBPARTNER

Answer 137

SUBPARTNER – is 3rd person that a partner may have with
him in his share without the consent of the other partners.

Question 138

SUBPARTNERSHIP –

Answer 138

SUBPARTNERSHIP – partnership formed BETWEEN a
member of the partnership and a 3rd person for division of
profits

 Distinct and separate from the main or principal
partnership
 Does not affect the composition, existence, or
operations of the firm
 Subpartner does not become a member of the
partnership, even though the agreement is known to the
other members of the firm
 Subpartner does not acquire rights of the partner, nor is
he liable for its debts

Question 139

EXAMPLE:
A, B, and C are partners. A may contract with D, whereby
the latter will participate in his (A’s) share in the profi ts of the
partnership. This A can do independently of the partnership
and in accordance with the principle of freedom to contract.

Answer 139

The original contract of partnership between A, B, and C is
not in any manner altered. D is considered merely a creditor of
A who associated him in his share. Consequently, D has no right
to intervene in the partnership to which he is a mere stranger.
Like an assignee, D cannot interfere in the management or
administration of the partnership business, require information
or account, or inspect partnership books.

Question 140

ART. 1805. The partnership books shall be kept,
subject to any agreement between the partners, at the

principal place of business of the partnership, and ev-
ery partner shall at any reasonable hour have access to

and may inspect and copy any of them.

Answer 140

 Shall be kept, subject to any agreement, between the
partners
o Primarily rests on managing / active partner
o Or particular partner given record-keeping duties
 Kept at the principal place of business
 Every partner shall have access at any reasonable hour
o Business days throughout the year
o Even after dissolution
 To inspect and copy any of them
o To enable the partners to have true and full
information of all things affecting partnership

Question 141

ART. 1806. Partners shall render on demand true

and full information of all things affecting the partner-
ship to any partner or the legal representative of any de-
ceased partner or of any partner under legal disability.

Answer 141

 True and full information to every partner /
representative of deceased partner / partner under legal
disability upon request or demand
 Also under the duty of voluntary disclosure of material
facts relating to or affecting partnership affairs
 No concealment, just GOOD FAITH
 Does not arise with respect to information in the
partnership books

Question 142

EXAMPLES:
(1) A and B are partners engaged in the real estate business.
A learned that C was interested in buying a certain parcel of
land owned by the partnership, even for a high price. Without
informing B, A was able to make B sell to him (A) his (B’s) share
in the partnership. Then, A sold the land at a big profi t.

Answer 142

In this case, A is liable to B for the latter’s share in the
profi ts. When A purchased B’s interests, A was under the duty
to make disclosure of facts having a bearing on the value of
such interests which were not known to B.
(2) If A discovered a valuable mine on a land of the
partnership, he is under a duty to disclose such information
before purchasing the interest of B.

Question 143

ART. 1807. Every partner must account to the part-
nership for any benefi t, and hold as trustee for it any

profi ts derived by him without the consent of the other

partners from any transaction connected with the for-
mation, conduct, or liquidation of the partnership or

from any use by him of its property.

PARTNER ACCOUNTABLE AS FIDUCIARY:
DUTIES: (7)

Answer 143

1. Act for common benefit
2. Begins during formation of partnership, continues even
   after dissolution, until termination
3. Account for commissions and discounts received in
   acquiring property for future partnership
4. Account for secret & similar profits
    REMEDY: Petition for judicial dissolution of
   partnership
5. Make full disclosure of information belonging to the
   partnership
6. Not acquire interest / right adverse to the partnership
7. Account for earnings accruing even after termination

Question 144

A and B are partners engaged in the real estate business.
A bought a parcel of land with partnership funds in his own
name and subsequently sold the same at a profi t.

Answer 144

B has a right to share in the profi t and A holds as trustee the
profi ts derived by him from the transaction.

Question 145

Facts: A and B were partners in the operation of a cinema
business. The theatre was mortgaged to C who foreclosed the mortgaged debt. A, in his own behalf, redeemed the property
with his own private funds.
Subsequently, A fi led a petition for the cancellation of the
old title of the partnership and the issuance of another title in
his name alone.
Issue: Did A become the absolute owner of the property?

Answer 145

Held: No. In this case, when A redeemed the property in
question he became a trustee for the benefi t of his co-partner, B,
subject to his right to demand from the latter his contribution
to the price of redemption plus legal interest. (Catalan vs.
Gatchalian, 105 Phil. 1270 [1959].)

Question 146

Facts: A and B were partners under the fi rm name of Lo
Seng & Co. in the business of running a distillery. Upon the
expiration of the original contract of lease of the land on
which said distillery was located as well as the buildings and
improvements thereon which were then the property of X,
a new contract was executed on behalf of the partnership as
lessee by the partners themselves.
Later, A sold all his interest in the distillery plant to B.
Thereafter, X sold all his interest in the distillery including the
land to A.
Upon the refusal of B to yield the property, A brought
action (under Art. 1676 of the Civil Code), the lease not having
been recorded in the Registry of Property.
Issue: Has A the right to terminate the lease?

Answer 146

Held: No. A occupied a double role in the transactions
which gave rise to the litigation: fi rst, as lessee, and secondly, as
a purchaser seeking to terminate the lease. While yet a partner,
A participated in the creation of the lease to the partnership;
and when he sold out his interest in the fi rm to B, this operated
as transfer to B of his interest in the fi rm assets, including
the lease; and A cannot now be permitted, in the guise of a
purchaser, to destroy an interest derived from himself and for
which he has received full value.

A acted in bad faith. He had been in relation of confi dence
with B and in that position had acquired knowledge of the
possibilities of the property. On account of his status as partner,
A knew that the original lease had been extended and the extent
of the valuable improvements that had been made thereon.
It would be shocking to the moral sense if the condition of
the law were found to be such that A, after profi ting from the
sale of his interest in a business, worthless without the lease,
could intervene as purchaser of the property, and confi scate for
his own benefi t the property which he had sold for a valuable
consideration to B. Above all other persons in business relations,
partners are required to exhibit towards each other the highest
degree of good faith.

Question 147

Facts: A, B, C, and D entered into a contract to promote
the rehabilitation of a mining company. The parties agreed to
raise money on the said plan within six months by obtaining
subscriptions to shares of the mining company. It was
expressly stipulated that the failure of one to perform within
the stipulated period would discharge the others. A defaulted
in his part.

Under the contract, B and C were discharged from their ob-
ligations. Thereafter, B and C considered themselves released

from the said contract, and presented a new plan for the reha-
bilitation of the company. The new plan was adopted and B

and C succeeded in raising the price of the stock of the com-
pany and made large profi ts.

A brought action to compel B and C to account for his share
in the profi ts which he claimed B and C obtained by virtue of
their contract.
Issue: Are B and C accountable to A as a fi duciary for the
profi ts?

Answer 147

Held: No. After the termination of an agency, partnership,
or joint adventure, the party who stood in a fi duciary relation
to another is free to act in his own interest with respect to the same subject matter provided he has done nothing during the
continuance of the relation to lay a foundation for an undue
advantage to himself.

To act as fi duciary of another does not
necessarily imply the creation of a permanent disability in the
fi duciary to act for himself in regard to the same subject matter.

Question 148

Facts: A, widow of B, a deceased partner, fi led an action for
accounting against C and D, surviving partners, alleging that
during the lifetime of B, C and D managed to use huge amounts
of the funds and assets of the partnership for personal purposes
and, after the death of B, they, without liquidation continued
the partnership by purportedly organizing a corporation and
acquired lands using the money and assets of the partnership.
It appears that B was in control of the affairs and the running
of the partnership and the lands in question were acquired by
C and D long after the partnership had been automatically
dissolved as a result of the death of B.
Issue: Is A entitled to an accounting?

Answer 148

Held: No. Article 1807 is not applicable. Since B was in
control of the affairs of the partnership, it is hard to believe
that C and D could have defrauded B of the amounts A claims.
The more logical inference is that if C and D had obtained any
portion of the funds of the partnership for themselves, it must
have been with the knowledge and consent of B, for which
reason no accounting could be demanded from them therefor,
considering that Article 1807 refers only to what is taken by a
partner without the consent of the other partner or partners.
Since the properties supposed to have been acquired by C
and D with partnership funds appear to have been transferred
to their names long after the dissolution of the partnership,
C and D have no obligation to account to anyone for such
acquisitions in the absence of clear proof that they had violated
the trust of B, the deceased partner, during the existence of the
partnership.

Question 149

5. Plaintiff seeks his share of option money paid to partnership
   and forfeited for failure of optioner to exercise privilege to buy shares
   in the corporation which substituted the partnership.
   Facts: A, B, C, D, E, and F were partners operating a bus
   line under the name of “Western Kentucky Stages.” B and C,
   after negotiations, entered into an agreement with Greyhound,
   Inc., by the terms of which Greyhound, Inc., agreed to pay
   $27,500.00 for an option to buy 60% of Western’s stock in the
   event Western would alter its status from a partnership to that
   of a corporation. The reason offered for this change, among
   other things, was that they desired to be relieved of the personal
   liability imposed by the partnership set-up.
   F opposed substituting the partnership for a corporation
   for some time but he fi nally yielded to the plan.
   After the partnership became a corporation, the option
   money was forfeited by the refusal of Greyhound, Inc. to
   complete its deal. The $37,500.00 was divided among A, B, C,
   D, and E. F, then, instituted action, claiming his share of the
   $37,500.00.

Issue: Are A, B, C, D, and E duty-bound to account to, and
share the $37,500.00 with F?

Answer 149

Held: Yes. There is no relation of trust or confi dence known
to the law that requires of the parties a higher degree of good
faith than that of partnership. Nothing less than absolute
fairness will suffi ce. Each partner is the confi dential agent
of all the other and each has the right to know all that the
others know. Nor will one partner be permitted to benefi t at
the expense of the fi rm. A, B, C, D, and E were under a legal
obligation as partners to share proportionately with F the
option money which was obtained by the optioners by virtue
of the partnership relationship.
The important factor is that they received money which
should have gone into the partnership treasury and then
should be divided proportionately among all of the partners.
When they received the money under the conditions recited,
they became, in effect, trustees of this fund for the benefi t of F
for his share in the proceeds.

Question 150

ART. 1808. The capitalist partners cannot engage for
their own account in any operation which is of the kind
of business in which the partnership is engaged, unless
there is a stipulation to the contrary.
Any capitalist partner violating this prohibition
shall bring to the common funds any profi ts accruing to
him from his transactions, and shall personally bear all
the losses. (n)
PROHIBITION AGAINST PARTNER ENGAGING IN
BUSINESS:
 Capitalist and industrial

Answer 150

 Capitalist – RELATIVELY prohibited to engage in the
same / similar line of business
(stipulation to the contrary)
 Industrial – ABSOLUTELY prohibited to engage in the
same / similar line of business

Question 151

PROHIBITION AGAINST PARTNER ENGAGING IN
BUSINESS: REMEDIES: (3)

Answer 151

1. Bring to common fund all profits accrued during his own
   transactions
2. Bear for all the losses
3. Be evicted

Question 152

ART. 1809. Any partner shall have the right to a for-
mal account as to partnership affairs:

(1) If he is wrongfully excluded from the partner-
ship business or possession of its property by his co-
partners;

(2) If the right exists under the terms of any agree-
ment;

(3) As provided by Article 1807; (full disclosure of information belonging to the
partnership)
(4) Whenever other circumstances render it just and
reasonable. (n)
RIGHT OF PARTNER TO A FORMAL ACCOUNT: af and XPNS: (4)

Answer 152

1. Wrongfully excluded in the partnership / right to
   possession to property
2. Right exist in the terms of agreement
3. Provided in 1807
4. Just and reasonable circumstances

Question 153

RIGHT OF PARTNER TO A FORMAL ACCOUNT- PRESCRIPTION
only upon dissolution of partnership when
final accounting is done

Answer 153

 Commenced and tried where defendant resides / where
plaintiff resides at the election of latter

Personal action / action in personam
 Nature – performance of a personal duty on his part

Question 154

A partner seeks to recover 1/2 of the proceeds of a partnership
transaction without liquidation of the business.
Facts: A seeks to recover from B 1/2 of the purchase price of
lumber sold by the partnership to the United States Army. A’s
complaint does not show why he should be entitled to the sum
he claims. It does not allege that there has been a liquidation of
the partnership business and the said sum has been found to be
due him as his share of the profi ts.
Issue: Should the proceeds from the sale of the lumber be
considered profi ts?

Answer 154

Held: They cannot be considered profi ts until costs and
expenses have been deducted. Moreover, the profi ts of a
business cannot be determined by taking into account the result
of one particular transaction instead of all the transactions had.
Hence, the need for a general liquidation before a member of a
partnership may claim a specifi c sum as his share of the profi ts.
(Sison vs. H. McQuaid, 94 Phil. 201 [1953].)

Question 155

2. Right of a partner who received his capital contribution to
   demand accounting from managing partners.
   Facts: A and B entered into a verbal contract of partnership.
   In view of their failure to agree upon the partnership articles, A
   returned to B the money contributed by the latter to the capital
   of the partnership.
   Issue: Did the return to B of the money effect a waiver by
   him of his right to an accounting of the profi ts already realized
   by the partnership as well as a termination of the partnership?

Answer 155

Held: No. There was no intention on the part of B to
relinquish his rights as a partner nor did he give any ground
whatever to make A believe that he intended to relinquish them.
On the contrary, B notifi ed A when he accepted the money that
he waived none of his rights in the partnership.

Furthermore, the money fell short of the capital contrib-
uted by B and it was possible that profi ts might have been

realized from the business during the period in which A was
administering it and if so, still retained in A’s hands. For these

reasons, the acceptance of the money was not in itself incon-
sistent with the continuance of the partnership relations, as would have been the case had B withdrawn his entire interest
in the partnership.
There was, therefore, nothing upon which a waiver, express
or implied, could be predicated.

Question 156

3. In questioning the accuracy of the account made, a partner
   merely made a general allegation of the probability of mistake.
   Facts: By mutual agreement, A and B dissolved their
   partnership. A brought action to recover from B who had been
   left in charge of the books and the funds of the fi rm, the amount
   of the capital he had contributed. While B was more especially
   burdened with the care of the books of the partnership, they
   were at all times opened to the inspection of A.
   B claimed losses in the conduct of the business. A contended
   himself with a general allegation to the effect that there must be
   some mistake as to accuracy of the account, as he did not and
   could not believe that the business had been conducted at a
   loss.
   Issue: What is the effect of A’s failure to point out specifi cally
   any fraudulent or erroneous items appearing in the account?

Answer 156

Held: Such failure should be construed as a strong
circumstance indicating the accuracy of the account.

Question 157

4. Without objecting to a statement of accounts, a partner
   promised to sign the same after receiving his shares, and after he has
   been paid, refused to sign and instead demanded a liquidation.

Facts: A submitted a statement of accounts to B, his co-
partner. Instead of objecting to said statement, B promised

to sign the same as soon as he received his shares as shown
in said statement. After said shares had been paid by A and
accepted by B without reservation, the latter refused to sign
the statement. B demanded a new liquidation, claiming that
he was entitled to more than what the statement of account
shows.
Issue: Is B entitled to a further liquidation?

Answer 157

Held: No. After accepting his shares without any reservation,
B virtually confi rmed his approval of the statement of accounts, and its signing thereby became a mere formality to be complied
with by B exclusively. His refusal to sign, after receiving the
shares, amounted to a waiver of that formality in favor of A who
had already performed his obligation. This approval precludes
any right on the part of B to a further liquidation, unless he can
show there was fraud or mistake in said approval.

Question 158

5. Plaintiff was excluded as industrial partner after she fi led
   a complaint for formal accounting, the defendants having always
   known her government position and other work when she joined the
   partnership.
   Facts: The articles of a partnership were amended to include
   A, as an industrial partner, with B, C, and D, the original
   capitalist partners. The amended articles provided that “the
   contribution of A consists of her industry being an industrial
   partner” and that she shall be entitled to 30% of the net profi ts
   that may be realized by the partnership from June 7, 1955 until
   the mortgage loan obtained from the Rehabilitation Finance
   Corporation shall have been fully paid.
   After nine (9) years, B, C, and D reached an agreement
   whereby A has been excluded from the partnership, and
   deprived of her alleged share as an alleged industrial partner
   on the ground that she had never contributed her industry to
   the partnership and instead she has been and still is a judge of
   the City Court of Manila devoting her time to the performance
   of her duties as such judge and enjoying the privileges and
   emoluments appertaining to said offi ce, aside from teaching in
   law schools in Manila, without the express consent of the other
   partners.
   Issue: Has A the right to demand for a formal accounting?

Answer 158

Held: Yes. A has faithfully complied with her prestation
with respect to the other partners. This is clearly shown by the
fact that it was only after the fi ling of the complaint by A and
the answer thereto that appellants (B, C, and D) exercised their
right to exclusion by alleging in their supplemental answer
dated July 29, 1964 — or after around nine (9) years from June
7, 1955 — the agreement aforementioned.
Having always known A as a City Judge even before
she joined the appellant company as an industrial partner, it took the appellants so many years before excluding her from
said company. There was no pretense even on the part of the
appellants that A engaged in any business antagonistic to that
of appellant company. Furthermore, the theory that A has
never been an industrial partner cannot be reconciled with the
agreement evidenced by the amended articles of partnership.
As an industrial partner, A has the right under Article 1809
for a formal accounting and to receive her share in the net profi t
that may result from such an accounting.

Question 159

ART. 1810. The property rights of a partner are:
(1) His rights in specifi c partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)

EXTENT OF PROPERTY RIGHTS OF A PARTNER:
PRINCIPAL RIGHTS: (3)
RELATED RIGHTS: (5)

Answer 159

1. Reimbursement of advanced amounts and
   indemnification of risks as consequences of
   management
2. Access and inspection of partnership books
3. True and full information affecting partnership affairs
4. Formal accounting
5. Dissolution under certain conditions

Question 160

Property used, when there is no express agreement: GR and XPN and XPN to the XPN:

Answer 160

GR: Property used, when there is no express agreement, will
not be partnership property
XPN: Implied (intent of the partners):
1. Property is listed as asset in partnership books
2. Income generated by property is RECEIVED by
partnership
3. Taxes are also paid by partnership

XPN to the XPN: repair & maintenance of property only

Question 161

property acquired in own name using partnership funds: GR and XPNS: (2)

Answer 161

GR: Property acquired in own name using partnership funds
is presumed partnership property
XPNS: (2)
1. Stipulation to the contrary
2. If after dissolution but before termination, it will be a
SEPARATE property, but said partner will be liable for the
funds used

Question 162

ART. 1811. A partner is co-owner with his partners
of specifi c partnership property.
The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Ti-
tle and to any agreement between the partners, has an

equal right with his partners to possess specifi c part-
nership property for partnership purposes; but he has

no right to possess such property for any other purpose
without the consent of his partners;
(2) A partner’s right in specifi c partnership property

is not assignable except in connection with the assign-
ment of rights of all the partners in the same property;

(3) A partner’s right in specifi c partnership property
is not subject to attachment or execution, except on
a claim against the partnership. When partnership
property is attached for a partnership debt the partners,
or any of them, or the representatives of a deceased
partner, cannot claim any right under the homestead or
exemption laws;

(4) A partner’s right in specifi c partnership prop-
erty is not subject to legal support under article 291. (n)

NATURE OF PARTNER’S RIGHT IN SPECIFIC
PARTNERSHIP PROPERTY:
INCIDENTS OF CO-OWNERSHIP (TANGIBLE PROPERTY):

Answer 162

1. Equal rights to possess specific partnership property for
   partnership purposes
2. No right to possess if for other purpose w/o consent of
   partners
3. Not assignable - A partner cannot separately assign
   his right to specifi c partnership property but all of them can
   assign their rights in the same property.
4. Not subject to attachment / execution
   XPN: claims against partnership; representatives of
   deceased partner cannot claim under homestead /
   exemption laws
5. Not subject to legal support

Question 163

ART. 1812. A partner’s interest in the partnership is
his share of the profi ts and surplus. (n)
NATURE OF PARTNER’S INTEREST BY: (2)

Answer 163

1. Agreement
2. Proportion to contribution
   Industrial partner – just & equitable under the circumstances

Question 164

ART. 1813. A conveyance by a partner of his whole
interest in the partnership does not of itself dissolve
the partnership, or, against the other partners in the
absence of agreement, entitle the assignee, during the

continuance of the partnership, to interfere in the man-
agement or administration of the partnership business

or affairs, 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 profi ts to which the as-
signing partner would otherwise be entitled. However,

in case of fraud in the management of the partnership,
the assignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the as-
signee is entitled to receive his assignor’s interest and

may require an account from the date only of the last
account agreed to by all the partners. (n)

EFFECT OF ASSIGNMENT OF PARTNER’S WHOLE
INTEREST:
Conveyance by a partner of his whole interest w/o
dissolution is permitted, but Assignee CANNOT: (3)

Answer 164

1. INTERFERE in management
2. REQUIRE information / account
3. INSPECT partnership books

Question 165

1813:
EFFECT OF ASSIGNMENT OF PARTNER’S WHOLE
INTEREST: REMEDIES: (2)

Answer 165

(1) Dissolution of partnership not intended. — The new rule is
preferable for many partnership assignments are made merely
as security for loans, the assigning partner never intending to
destroy the partnership relation. Moreover, if the assigning
partner neglects his partnership duties after assignment, the
other partners may dissolve the partnership under Article 1830(1,
c) which provides that “Dissolution is caused . . . by the express
will of all the partners who have not assigned their interests,
or suffered them to be charged for their separate debts, either
before or after the termination of any specifi ed term or particular
undertaking.” (Teller, op. cit., p. 53.)

(2) Dissolution of partnership intended. — A partner’s convey-
ance of his interest in the partnership operates as a dissolution of

the partnership only when it is clear that the parties contemplat-
ed and intended the entire withdrawal from the partnership of

such partner and the termination of the partnership as between
the partners.

Question 166

RIGHTS OF ASSIGNEE OF PARTNERSHIP INTEREST: (4)

Answer 166

1. RECEIVE in accordance w/ his contract of profits
   accruing to assigning partner
2. AVAIL of usual remedy in the event of fraud
3. RECEIVE the assignor’s interest in case of fraud
4. REQUIRE account of partnership affairs, but only when
   partnership is dissolved

Question 167

RIGHTS OF ASSIGNEE OF PARTNERSHIP INTEREST: Art 1813
A, a partner, mortgaged his interest in partnership X then
worth P500,000.00 to B, a bank, for P300,000.00. Subsequently,
the partnership suffered losses, wiping out A’s interest.

Answer 167

In this case, B has no legal claim against the partnership
to the extent of P300,000.00. Under Article 1813, the mortgage
merely entitles it to receive in accordance with its contract the
profi ts to which A would otherwise be entitled.

Question 168

ART. 1814. Without prejudice to the preferred
rights of partnership creditors under article 1827, on
due application to a competent court by any judgment
creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest
of the debtor partner with payment of the unsatisfi ed
amount of such judgment debt with interest thereon;
and may then or later appoint a receiver of his share
of the profi ts, and of any other money due or to fall
due to him in respect of the partnership, and make
all other orders, directions, accounts and inquiries
which the debtor partner might have made, or which
circumstances of the case may require.
The interest charged may be redeemed at any time
before foreclosure, or in case of a sale being directed by
the court, may be purchased without thereby causing a
dissolution:
(1) With separate property, by any one or more of
the partners; or
(2) With partnership property, by any one or more
of the partners with the consent of all the partners
whose interests are not so charged or sold.

Nothing in this Title shall be held to deprive a part-
ner of his right, if any, under the exemption laws, as

regards his interest in the partnership. (n)

REMEDIES OF SEPARATE JUDGMENT CREDITOR OF A
PARTNER: (2)

Answer 168

1. CHARGING ORDER:
    Condition: claims of partnership creditors must be
   satisfied first
    Then secure judgment on his credit and then apply
   to proper court for a C.O. subjecting the interest of
   debtor w/ payment of the unsatisfied amount of
   such judgment + interest
2. Other remedies in Art. 1814 of judgment if debt remains
   unsatisfied, notwithstanding issuance of C.O.
    Appointment of receiver
    Sale of interest
    Etc.

Question 169

T recovers a judgment against A, a member of partnership
X composed of A and B, on A’s individual liability.
May T attach any portion of the partnership property or
execute against the same?

Answer 169

No. T’s remedy is to apply for a charging order against the
partnership. No specifi c property is attached. The partnership
continues and T’s judgment is satisfi ed out of partnership
assets. The partnership need not be necessarily dissolved.

Question 170

EXAMPLE:
A, B, and C are partners. A is personally indebted to X in
the sum of P5,000.00. X fi led a complaint against A and obtained
from the court a fi nal judgment in his favor. If A is insolvent, X
can ask the same court or any competent court for a “charging
order” so that A’s interest in the partnership be attached or
levied upon for the payment of his debt.

Answer 170

With respect, however, to the partner’s interest in the part-
nership as distinguished from his interest in specifi c partnership

property, the partner may avail himself of the exemption laws
after partnership debts have been paid. A partner’s interest or
share in the partnership is really his property.

Question 171

Judgment creditor and the receiver of interest of judgment debtor-
partners seek to annul mortgages of property executed by the latter,

individually, in favor of a third party.
Facts: C, a bank, has unsatisfi ed judgment against A and
B, partners in Partnership X. C procured the appointment of
D as receiver of all rights and interests of A and B in and to
the partnership, and also got an order sharing their interest in
the fi rm with payment of the judgment debt. C and D brought
action to annul certain mortgages encumbering livestock, farm
equipment, and other specifi c chattels executed in favor of E
not by or for the fi rm but by A and B, individually.
It is claimed for plaintiffs that the mortgages in question are
void. The principal argument for defendants is that, whatever
the status of the mortgages, neither plaintiff can question them.
Issue: Is the argument of the defendants tenable?

Answer 171

Held: No. (1) Partner’s interest, not in specifi c partnership
property, but in partnership itself. — Tenancy in partnership is a
restricted adaptation of the common-law joint tenancy to the
particular needs of the partnership relation. One of those needs

arose from the formerly confl icting claims to specifi c partner-
ship property of (1) separate creditors of a partner, and (2) as-
signees of a partner’s share in an aliquot part of the fi rm assets.

To meet that need, two simple “incidents” have been at-
tached to the tenancy of the partnership: (1) expressly, the inter-
est of each tenant or partner in specifi c partnership property is

put beyond reach of his separate creditors; and (2) it has been

made non-assignable. This means simply that the partner-own-
er is deprived of all power of separate disposition even by will.

All a partner has now, subject to his power of individual
disposition, and all that is subject to the claims of his separate
creditors, is his interest, not in specifi c partnership property,

but in the partnership itself. Plain is the purpose that all part-
nership property is to be kept intact for partnership purposes

and creditors.
(2) Receiver of partner’s “share in profi ts” entitled to relief. —
It follows that a receiver of a partner’s “share of profi ts,” acting
under a charging order and Section 28 (Art. 1814.) has the right in
a proper action to have adjudicated the nullity of any mortgage
Art. 1814

Art. 1814 OBLIGATIONS OF THE PARTNERS 165

Property Rights of a Partner

or any other assignment by some but not all of the partners of
their interest in specifi c property of the partnership less than
the whole. Such a receiver is entitled to any relief under the
language of the statute “which the circumstances of the case
may require” to accomplish justice under the law. Obviously, a
part of such relief is the avoidance of any unauthorized attempt
to dispose of the partnership property.
Such a receiver is entitled to the “share of the profi ts and
surplus” of the partner who happens to be the judgment
debtor. While he is not entitled to the management of the fi rm
as a partner, the receiver would be of little use if he could not
protect “profi ts and surplus” by preventing such unauthorized
and illegal dissipations of fi rm assets. (Windom National Bank
vs. Klein, 254 N.W. 602 [Minn. 1934].)

Question 172

ART. 1815. Every partnership shall operate under a
fi rm 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 fi rm name, shall be subject to
the liability of a partner. (n)

RIGHT TO CHOOSE NAME – can choose any name
XPNS: (2)

Answer 172

1. Use of misleading name
2. Use of names of deceased partners - unless the firm
   indicates in all its communications that said partner is
   deceased

Question 173

1815
EXAMPLE:
A, who retired as a member of partnership X, executed a
legacy to the partnership then composed of B, C, and D. A few
years later, A died. At the time of his death, the partnership was composed of E, F, and G, the former members having
predeceased A. The partnership was continued by agreement
of the parties whenever there was a change in membership.

Answer 173

The legacy vests in partnership X, notwithstanding that
E, F, and G were unknown to A during his lifetime. It may be
argued, however, that the intention of A was to give the legacy
to the old partnership which no longer exists.

Question 174

1815 Facts: “A, B, C, D, and E” (which are family names) is the
fi rm name of a law partnership. A passed away. B, C, and D, the
surviving partners, fi led a petition for authority to continue use
of the fi rm name “A, B, C, D, and E.”
Issue: May the partnership continue the use of the name of
the deceased partner?

Answer 174

Held: No. The use of the name of A will run counter to Article
1815. In fact Article 1830(5) clearly ordains that a partnership
is dissolved by the death of any partner. Unlike in the United
States, in our jurisdiction there is no local custom that sanctions
the practice of allowing the continued use of a deceased or
former partner’s name in the fi rm name of law partnerships,
and even if such a custom exists, the same cannot be applied
as it is contrary to law. Firm names, under our custom, identify
the more active and/or more senior members or partners of the
law fi rm.

Question 175

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 the account of the partnership, under its signature
and by a person authorized to act for the partnership.

However, any partner may enter into a separate obliga-
tion to perform a partnership contract. (n)

Answer 175

 Partners become personally liable only after all the
partnership assets have been exhausted
 Industrial partner – will have to pay but can recover
amount from capitalist partners
o XPN: unless there is an agreement to the contrary
o He cannot be relieved from liability to 3rd persons

Question 176

1816
ILLUSTRATIVE CASE:
In a complaint against a partnership and fi ve partners, the
complaint as to one of the partners was dismissed, and the four
claimed that the liability of each of them should not exceed 1/5 of the
entire obligation.
Facts: X company, a general partnership, purchased from
A a motor vehicle on installment basis. Upon failure of the
partnership to pay an installment, A sued it and the fi ve partners,
B, C, D, E, and F. B failed to fi le an answer and was declared
in default. Subsequently on motion of A, the complaint was
dismissed insofar as F was concerned. The rest of defendants
failed to appear at the hearing and were declared in default.
Judgment was rendered against the partnership and the
four partners, B, C, D, and E. B and C moved to reconsider,
saying that since there were fi ve general partners, the joint and
subsidiary liability of each partner should not exceed one-fi fth
of the obligations of the company. The lower court denied the
motion, hence the appeal.
Issue: Should B, C, D, and E alone be held liable for the
obligation of the company in view of the dismissal of the
complaint with respect to F?

Answer 176

Held: No. In the instant case, there were fi ve general partners
when the promissory note in question was executed for and in
behalf of the partnership. Since the liability of the partners are

pro rata, the liability of each partner shall be limited to only one-
fi fth of the obligations of X company. The fact that the complaint

against F was dismissed, upon motion of A, does not unmake
F as a general partner in the defendant company. (Island Sales,
Inc. vs. United Pioneers General Construction Company, 65 SCRA

554 [1975]; see Dietrich vs. Freeman, 18 Phil. 341

Question 177

1816 EXAMPLE:
A and B are capitalist partners, with C as an industrial
partner. A and B contributed P10,000.00 each to the capital
of the partnership. A contractual liability of P26,000.00 was
incurred by the partnership in favor of D.

Answer 177

Under Article 1816, D can sue the fi rm and all the part-
ners including C, the industrial partner. The capital assets of

P20,000.00 shall fi rst be exhausted thereby leaving an unsatis-
fi ed liability of P6,000.00. D can recover the amount from A, B,

and C jointly or pro rata at P2,000.00 each. After paying D, C
can recover for reimbursement of P1,000.00 each from A and B.
Under Article 1797, he is exempted from the loss of P6,000.00 as
among themselves, unless there is a stipulation to the contrary.
If, in the same example, the capital contributions of A and
B are P15,000.00 and P5,000.00, respectively, in the absence of
stipulation, they share in the loss of P6,000.00 in proportion to
their contributions, to wit: A — 3/4 or P4,500.00, and B — 1/4
or P1,500.00. Hence, B can recover P500.00 and C, P2,000.00
from A.

Question 178

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

Answer 178

EXAMPLE:
A, B, and C are partners in a business. Each of them
contributed P10,000.00 each. They stipulated that the liability
of A shall not exceed his capital contribution.
Thus, if the partnership assets have been exhausted and
there still remains an unpaid balance of P9,000.00 in favor
of creditor D, the latter can still recover P3,000.00 each from
the partners as their stipulation cannot adversely affect him.
However, since the agreement is binding among the partners, A is entitled to credit from B and C for the amount of P3,000.00
paid by him to D. A, however, cannot recover his contribution
of P10,000.00. (see Art. 1799.)

Question 179

ART. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of every
partner, including the execution in the partnership
name of any instrument, for apparently carrying on
in the usual way the business of the partnership of
which he is a member binds the partnership, unless
the partner so acting has in fact no authority to act for
the partnership in the particular matter, and the person
with whom he is dealing has knowledge of the fact that
he has no such authority.
An act of a partner which is not apparently for the
carrying on of the business of the partnership in the

usual way does not bind the partnership unless autho-
rized by the other partners.

Except when authorized by the other partners or un-
less they have abandoned the business, one or more but

less than all the partners have no authority to:
(1) Assign the partnership property in trust for
creditors or on the assignee’s promise to pay the debts
of the partnership;
(2) Dispose of the goodwill of the business;

(3) Do any other act which would make it impos-
sible to carry on the ordinary business of a partnership;

(4) Confess a judgment;

(5) Enter into a compromise concerning a partner-
ship claim or liability;

(6) Submit a partnership claim or liability to arbi-
tration;

(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction
on authority shall bind the partnership to persons
having knowledge of the restriction. (n)

1818:
POWER OF PARTNER AS AGENT OF PARTNERSHIP:
Paragraph 1:
GR: Every partner is an agent of the partnership for
apparently carrying the usual way of business = BINDS
PARTNERSHIP
XPNS: (2)

Answer 179

1. Partner had no authority to act such
2. 3
   rd person had knowledge of lack of authority (bad faith)

Question 180

1818 Paragraph 2:
POWER OF PARTNER AS AGENT OF PARTNERSHIP:
GR: Act of partner, not apparently carrying usual way of
business = DOESN’T BIND PARTNERSHIP
XPN:

Answer 180

XPN: when authorized by other partners

Question 181

1818
POWER OF PARTNER AS AGENT OF PARTNERSHIP:
Paragraph 3:
GR: 1 / more partners have no authority to:
(7)
XPNS: (2)

Answer 181

GR: 1 / more partners have no authority to:
1. Assign the property in trust for creditors / assignee’s
promise to pay the debts of partnership
2. Dispose of the goodwill of the business
3. Do any act which would make it impossible to carry on
the ordinary business
4. Confess a judgment
5. Enter into a compromise concerning a partnership claim
/ liability
6. Submit a partnership claim / liability to arbitration
7. Renounce claim of partnership
XPNS: (2)
1. When authorized by other partners
2. Unless they’ve abandoned the business

Question 182

1818
POWER OF PARTNER AS AGENT OF PARTNERSHIP:
Paragraph 4:
Partner is not liable to 3rd persons

Answer 182

Partner is not liable to 3rd persons having actual /
presumptive knowledge of restrictions (BF), W/N apparently
carrying usual way of business

Question 183

EXAMPLES: 1818

Answer 183

(1) A, B, and C are partners in the buying and selling of
home appliances. The sale of a refrigerator by C to D is binding
upon the partnership because it is apparently for carrying on
in the usual way the business of the partnership even if C had,
in fact, no authority.
But if D had knowledge of such lack of authority, then the
partnership would not be bound by the act of C.

(2) Where the partnership business is to deal in merchan-
dise and goods, i.e., movable property, the sale of its real prop-
erty (immovables) is not within the ordinary powers of a part-
ner, because it is not in line with the normal business of the

fi rm.

But where the express and avowed purpose of the part-
nership is to buy and sell real estate, the immovables thus ac-
quired by the fi rm form part of its stock-in-trade (not merely as

business site), and the sale thereof is in pursuance of partner-
ship purposes, hence, within the ordinary powers of the part-
ner. (Goquiolay vs. Sycip, 9 SCRA 663 [1963].)

Question 184

Art 1818
P, partner, makes an agreement with T to sell the furnishings
of an offi ce maintained by the partnership in connection with
its business.
May T enforce the agreement against the partnership?

Answer 184

No. The general rule is that a single partner has no implied
power to sell partnership property not held for sale. (Teller, op.
cit., p. 185.)

Question 185

ART. 1819. Where title to real property is in the
partnership name, any partner may convey title to such
property by a conveyance executed in the partnership
name; but the partnership may recover such property
unless the partner’s act binds the partnership under the

provisions of the fi rst paragraph of article 1818, or un-
less such property has been conveyed by the grantee or

a person claiming through such grantee to a holder for

value without the knowledge that the partner, in mak-
ing 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 partner-
ship, provided the act is one within the authority of the partner under the provisions of the fi rst 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
not disclose the right of the partnership, the partners
in whose name the title stands may convey title to such

property, but the partnership may recover such prop-
erty if the partners’ act does not bind the partnership

under the provisions of the fi rst 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 trust
for the partnership, a conveyance executed by a partner

in the partnership name, or in his name, passes the eq-
uitable interest of the partnership, provided the act is

one within the authority of the partner under the provi-
sions of the fi rst paragraph of article 1818.

Where the title to real property is in the names of all
the partners a conveyance executed by all the partners
passes all their rights in such property. (n)

CONVEYANCE OF REAL PROPERTY BELONGING TO THE
PARTNERSHIP:
Paragraph 1:
 Title – in partnership name
 Conveyance – in partnership name
EXAMPLE:
A, B, C = X & Co.
A sold land to D w/o express authority:
X & Co. can recover if:

Answer 185

1. Conveyance was not in the usual way of business
2. D had knowledge of lack of authority (BF)

Question 186

1819 Paragraph 2:
 Title – in partnership name
 Conveyance – in partner’s name
A sold land to D in his own name:
D only gets the EQUITABLE INTEREST IF selling land is their
business

EQUITABLE INTEREST – right / interest in property which is
imperfect & unenforceable at law but which, under equitable
principles, is convertible to a legal right / title

D will not be entitled to E.I. if: (2)

Answer 186

1. Selling land is not their usual course of business
2. D had knowledge of A’s lack of authority (BF)

Question 187

1819 Paragraph 3:
 Title – in 1 / more partners
 Conveyance – in the name of partner/s in whose name
title stands
If land belongs to X & Co., but registered A’s and record
doesn’t disclose X & Co.’s right, title is conveyed to…

Answer 187

D

Question 188

1819 Paragraph 4:
 Title – in 1 / more / all partners / 3rd
persons
 Conveyance – executed in partnership name /
partner’s name
If A is trustee of partnership, sells land to D:

Answer 188

D will only get E.I.

Question 189

1819 Paragraph 5:
 Title – in the name of ALL partners
 Conveyance – in all partners

Answer 189

Passes all the rights in such property

Question 190

1819
INNOCENT PURCHASERS W/O NOTICE:

Answer 190

1. May acquire a valid title – has the right to presume that
   possession / interest of the partnership is consistent w/
   record title
2. No need for actual / constructive notice of any trust

Question 191

ART. 1820. An admission or representation made by
any partner concerning partnership affairs within the
scope of his authority in accordance with this Title is
evidence against the partnership.

Answer 191

EXAMPLES:
(1) A borrowed P1,000 from B in whose favor he executed
a promissory note. A made the statement that he was acting for
C and that the money was intended for C. C never authorized
A to borrow money from B. The declaration of A that he was
acting for C and that the money was intended for C is not
admissible against C as to make him liable to B.
(2) Suppose C said on one occasion in the presence of D
that he received the money or that the contract was entered
into by A with his (C’s) consent, this statement can be testifi ed
to by D in a litigation by B against C.
(3) If A was really an agent of C in the transaction, then,
whatever is said or done by A while acting within the scope of
his authority is admissible against C, his principal, the same as
if C personally entered into the contract with B.
(4) Assuming that A is a partner and C is the partnership,
it is clear, on the same legal principle, that the statement of A
while transacting the business of the partnership within the
scope of his authority is evidence against the partnership.
(5) Where, however, A acted in his own name and B
extended the loan on the personal credit of A, any admission
made by A is not binding on C, the partnership.

Question 192

A partner made an admission to victim of accident caused by
son of another partner that son was on business for the fi rm when
accident occurred.
Facts: T sued partnership X composed of A, B, and C for
injuries he suffered as a result of an accident caused by the
son of A, who was driving a car owned by the partnership. B
admitted to T that the son was on business for the partnership
when the accident occurred. Subsequently, A and C denied B’s
statement.
Issue: Does the admission of B make the partnership liable?

Answer 192

Held: No. (1) Admission made not connected with partnership
business. — Whether the admission of liability made by a
partner binds the partnership depends on whether the partner
was acting within the scope of express, implied, or apparent authority at the time of making the statements or declarations.
One partner is not the agent of the firm for the purposes of admitting
either the existence of the partnership or that a transaction was
a part of the partnership’s business. A partner cannot by his
declaration alone bring a transaction within the scope of the
business when the facts show that it has no connection with the
partnership business.

Question 193

1820:
ADMISSION BY A PARTNER:
GR: Person is not bound by the act, admission, statement /
agreement of another which he has no knowledge / consent
XPN: virtue of particular relation between them

Answer 193

1. A borrowed 50K from B, said that he was acting for C
   and money was for C, but in fact C never authorized A:
    NOT admissible against C
2. C admitted to D (a 3rd person) of an act made by A with
   his consent:
    Statement by D in a litigation by B against C is
   ADMISSIBLE
3. A, agent of C, acting within scope of authority:
    Any act / statement is ADMISSIBLE against C, who
   is the principal
4. A acted in his own name, B loaned on a personal credit
   of A
    A’s admission is NOT BINDING on the partnership

Question 194

ART. 1821. Notice to any partner of any matter re-
lating to partnership affairs, and the knowledge of the

partner acting in the particular matter, acquired while a
partner or then present to his mind, and the knowledge
of any other partner who reasonably could and should
have communicated it to the acting partner, operate as
notice to or knowledge of the partnership except in the
case of a fraud on the partnership, committed by or with
the consent of that partner. (n)

Article 1821 speaks of three cases of knowledge, namely:

Answer 194

1Article 1821 speaks of three cases of knowledge, namely:
(1) Knowledge of the partner acting in the particular matter
acquired while a partner;
(2) Knowledge of the partner acting in the particular matter
then present to his mind; and
(3) Knowledge of any other partner who reasonably could
and should have communicated it to the acting partner.
EXAMPLES:
(1) A, B, and C are partners in partnership X and Co. D
fi led an action against X and Co. on a contract. The service of
notice of the complaint made on A only, operates as service to
the partnership or to all the partners.
(2) A, acting for the partnership, bought a parcel of land
from D. Before the sale, A acquired some knowledge that
the land is involved in litigation in which E claims to be the
owner. Nevertheless, A did not convey the information to the
partnership. Later on, E was able to recover the land. In this
case, A’s knowledge is knowledge of the partnership.
The knowledge by A may have been acquired before he
became a partner provided the same was then present to his
mind. This proviso involves a question of fact and it may be
diffi cult to prove that such knowledge was present to A’s
mind. It is believed, however, that once prior knowledge by the
acting partner is shown, such knowledge must be presumed to
be “then present to his mind,” unless the partnership proves
otherwise.
(3) If B (he is not the acting partner) had received the
information and it is reasonable to believe that he could and
should have communicated it to A (the acting partner), B’s
knowledge also operates as knowledge of the partnership.
However, if B acquired knowledge or notice before he became a partner, then, there is neither notice to nor knowledge of the
partnership.
(4) If A, in the second example, deliberately did not inform
the partnership regarding the claim of E for a consideration
paid or promised by D, the notice to or knowledge of A cannot
be imputed to the partnership, because the law says “except in
the case of a fraud on the partnership committed by or with the
consent of that partner.”

Question 195

ART. 1822. Where, by any wrongful act or omis-
sion of any partner acting in the ordinary course of the

business of the partnership or with the authority of his
co-partners, loss or injury is caused to any person, not

being a partner in the partnership, or any penalty is in-
curred, the partnership is liable therefor to the same ex-
tent as the partner so acting 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 busi-
ness receives money or property of a third person and

the money or property so received is misapplied by any
partner while it is in the custody of the partnership. (n)
ART. 1824. All partners are liable solidarily with the

partnership for everything chargeable to the partner-
ship under articles 1822 and 1823. (n

1822 – 1824:
LIABILITY ARISING FROM PARTNER’S WRONGFUL ACT OR
OMISSION: (2)

Answer 195

1. A partner is guilty of a wrongful act or omission in the
   ordinary course of business
2. With the authority of co-partners, loss or injury is caused
   to any person, or penalty is incurred
    Partnership is LIABLE to the same extent as the partner
   so acting or omitting to act

Question 196

1822 – 1824:
PARTNERSHIP IS BOUND TO MAKE GOOD THE LOSS
(BREACH OF TRUST): (2)

Answer 196

1. Where a partner acts within the scope of his apparent
   authority receives money or property of a 3rd person and
   misapplies it
2. Where the partnership receives money / property of a 3rd
   person and these are misapplied by any partner while in
   custody of the partnership
   All partners are LIABLE SOLIDARILY with the partnership for
   everything chargeable to the partnership

Question 197

ILLUSTRATIVE CASES:
1. Partner of a law fi rm engaged in the practice of labor law
misappropriated money received from a client for investment in the
stock market.
Facts: T hired X, a law fi rm, to represent Y, T’s company,
in labor negotiation and to advise it on labor matters. P, a
senior partner of X, was responsible for advising Y. T gave P money to invest in the common stock of another company. P
misappropriated the money.
Issue: Is X responsible for the loss?

Answer 197

Held: No. A partner cannot bind the partnership beyond
the normal scope of his authority. In this case, the investment
of money in the stock market was not a function of the practice
of law, and counselling about investments was not a part of X’s
business, which was limited to the practice of labor law. The
criminal conduct of P was not a part of his anticipated services
and T had no right to rely on the fi rm for the acts of a partner in
excess of the partner’s authority.

Question 198

A partner misappropriated payments to partnership with
the result that creditors who supplied materials on credit were not
paid.
Facts: M entered into a contract with T for the renovation
of the latter’s building on behalf of the partnership of “G and
M.” M received the fi rst payment of T with a check made out in
his (M’s) name. M indorsed the check in favor of G so that the
latter could pay for the materials and labor used in the project.
G was able to encash the second check after T changed the
name of the payee from “M” to “G and M,” the duly registered
name of the partnership under which name a mayor’s permit
to do construction business was issued. G misappropriated the
proceeds.
C and D supplied materials on credit to the partnership. M
denied that he and G were partners.
Issues:
(1) Is the payment by T to G valid?
(2) Is the liability of the partners to C and D joint or
solidary?

Answer 198

Held: (1) Yes. M indorsed the fi rst check in favor of G. T,
therefore, had every right to presume that G and M were true
partners. If they were not, then M had only himself to blame for
making the relationship appear otherwise, not only to T but to
their other creditors as well.
(2) It is solidary. Article 1816 should be construed together
with Article 1824 While the liability of the partners is merely joint in transactions
entered into by the partnership, a third person who transacted
with said partnership can hold the partners solidarily liable for
the whole obligation if the case of the third person falls under
Articles 1822 and 1823.
As between the partners G and M, justice dictates that M be
reimbursed by G for the payments made by M representing the
liability of their partnership to C and D as it was satisfactorily
established that G acted in bad faith in his dealings with M as
partner. (Muñasque vs. Court of Appeals, 139 SCRA 533 [1985].)
Note: The Court of Appeals correctly ruled that the liability
of the partners is joint or pro rata under Article 1816. The money
was received by G from T, not from C or D. (See Art. 1823.)

Question 199

ART. 1825. When a person, by words spoken or writ-
ten or by conduct, represents himself, or consents to

another representing him to anyone, as a partner in an

existing partnership or with one or more persons not ac-
tual partners, he is liable to any such persons to whom

such representation has been made, who has, on the
faith of such representation given credit to the actual

or apparent partnership, and if he has made such rep-
resentation or consented to its being made in a public

manner he is liable to such person, whether the repre-
sentation has or has not been made or communicated to

such person so giving credit by or with the knowledge
of the apparent partner making the representation or
consenting to its being made:
(1) When a partnership liability results, he is liable
as though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable
pro rata with the other persons, if any, so consenting
to the contract or representation as to incur liability,
otherwise separately.
When a person has been thus represented to be a
partner in an existing partnership, or with one or more

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

GR: Persons who are not partners as to each other are not
partners to 3rd persons
XPN: one may be liable as a partner even though he is not a
partner in fact
CIRCUMSTANCES: (2)

Answer 199

CIRCUMSTANCES: (2)
1. DIRECTLY represents himself to anyone as a partner in
an existing / non-existing partnership
2. INDIRECTLY represents himself by consenting to
another representing him as a partner in an existing /
non-existing partnership

Question 200

1825:
PARTNER/SHIP BY ESTOPPEL:
LIABILITIES: (3)
A. PARTNERSHIP LIABILITY RESULTS:
B. LIABILITY PRO RATA:
C. LIABILITY SEPARATE:

Answer 200

A.  If all actual partners consented to the representation,
then the liability of the person who represented himself
to be a partner / who consented to such is considered a
partnership liability
B.  When there is no existing partnership and all those
represented as partners consent to the representation /
not all of the partners of an existing partnership
consented
 Person who represented himself to be a partner /
consented + all those who made and consented to the
representation
C. LIABILITY SEPARATE:
 When there is no existing partnership and not all of those
represented as partners consented to the
representation / none of the partners in an existing
partnership consented to such
 Liability is only to the person who represented himself

Question 201

ELEMENTS OF ESTOPPEL: (3)

Answer 201

1. Proof by plaintiff that he was individually aware of
   the defendant’s representations as to his being
   partner / that representations were made by others
   and not denied / refuted by defendant
2. Reliance on such representation by plaintiff
3. Lack of any denial / refutation of the statements by
   the defendant

Question 202

CORPORATION BY ESTOPPEL –

Answer 202

– all persons who assume to
act as a corporation knowing it to be w/o authority to do so
shall be liable as general partners for all debts, liabilities and
damages incurred
 PROVIDED: transaction entered into a corporation

Question 203

Art. 1825 EXAMPLES:

Answer 203

(1) A, B, and C are partners in X & Co. D represented
himself as a partner in X & Co. to E who, on the faith of such
representation, extended credit to X & Co.
D is a partner by estoppel. He is liable to E as though he is
an actual member of X & Co.
If all the partners A, B, and C consented to the representation,
then a partnership liability results. This is a case of partnership
by estoppel. All the partners and D are liable. (par. 1[1].) Note
that in this case there is an existing partnership and all the
partners consented to the representation.
(2) If only A and B consented to the representation, there
is no partnership liability. Only A, B, and D are partners by
estoppel. They are liable pro rata to E. (par. 1[2].)
(3) But if D acted alone without the consent of A, B, and C,
then he alone is liable to E. He is liable separately. (Ibid.)
(4) Suppose A, B, and C are not really partners, and D
represented himself as a partner of A, B, and C to E.
If the representation was made without the consent of A,
B, and C, D alone shall be liable separately to E. If it was made
with the consent of A, B, and C, then all of them (A, B, C, and
D) shall be liable pro rata to E. They are partners by estoppel.
If only A consented to the representation, separate liability
is created only against A and D. Of course, if D is represented
as a partner in an existing or non-existing partnership without
his consent, he is not liable to E.
In all the cases when there is no existing partnership
(Example No. 4), or there is no consent by all the members of
an existing partnership (Example No. 2), it is the joint act or
obligation of the person acting and the persons consenting to
the representation. (par. 2.)
(5) A is held out with his consent as a partner of B who is
in business by himself. E relied on the representation of B.
Has E a priority on the property in the business of B over
F, a creditor of B, who trusted only B and not the supposed
partnership of A and B?
No. A and B would be liable jointly, but, as there was, in fact,
no partnership fund, E, who thought there was a partnership
of A and B, would have no priority on the assets which B had
in his business as distinguished from his other assets. (see
Commissioners’ Note to Sec. 16, U.P.A., from which Art. 1825
was taken.)

Question 204

1825
The misrepresentation that one is a partner was made after the
contract in question was entered into.
Facts: A entered into a sub-lease contract with B. After the
contract was entered into, B represented to A that he (B) was a
partner of C.
Issue: Can B be held liable as a partner by estoppel of C?

Answer 204

Held: No. A did not enter into the sub-lease contract on the
basis of representation on the part of B that he was a partner
of C. In other words, for partnership by estoppel to exist, the
holding out of a person who is charged as being a partner by
estoppel must have been made before the contract with the third person was entered into and the third person must have
been induced into entering into said contract by reason of such
“holding out” of the partner by estoppel.

Question 205

ART. 1825 ILLUSTRATIVE CASE:
Investors in a proposed corporation which was never incorporated
are being held liable for losses incurred by the person who induced
them to make contributions to the corporation the said person would
form.
Facts: Petitioner L, engaged in the airline business, as sole
proprietor, executed a contract with JDA for the purchase
of two (2) aircraft, with P, insurance company, as surety for
the balance of the purchase price. Respondents B, C, and M
contributed some funds used in the purchase, supposed to
be their contributions to a new corporation proposed by L to
expand his airline business. They executed two (2) indemnity
agreements in favor of P. L defaulted.
P, after paying JDA, fi led a petition for the extrajudicial
foreclosure of the aircraft subject of a chattel mortgage executed
in its favor by L. Respondents fi led a third party claim alleging
that they are co-owners of the aircraft. Subsequently, P fi led anaction for judicial foreclosure with an application for a writ of
preliminary attachment against respondents.
Issues:

(1) What legal rules govern the relationship among co-
investors whose agreement was to do business through the

corporate vehicle but who failed to incorporate the entity in
which they had chosen to invest?
(2) How are the losses to be treated in situations where
their contributions to the intended “corporation” were invested
not through the corporate form?
It is the theory of petitioner that as a result of the failure of
petitioner and respondents to incorporate, a de facto partnership
among them was created and that as a consequence of such a
relationship all must share in the losses and/or gains of the
venture in proportion to their contributions.

Answer 205

Held: (1) Where intention of parties was to form a corporation. —
“While it has been held that as between themselves the rights
of the stockholders in a defectively incorporated association
should be governed by the supposed charter and the laws
of the state relating thereto and not by the rules governing
partners, it is ordinarily held that persons who attempt, but
fail, to form a corporation and who carry on business under
the corporate name occupy the position of partners inter se.
Thus, where persons associate themselves together under
articles to purchase property to carry on a business, and
their organization is so defective as to come short of creating
a corporation within the statute, they become, in legal effect,
partners inter se, and their rights as members of the company
to the property acquired by the company will be recognized.
(Smith vs. Schoodoc Pond Packing Co., 84 A. 268, 109 Me. 555;
Whipple vs. Parker, 29 Mich. 369.)
So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes,
and each conveyed land to the corporation, and two of them
contracted to pay a third the difference in the proportionate
value of the land conveyed by him, and no stock was ever
issued in the corporation, it was treated as a trustee for the
associates in an action between them for an accounting, and
its capital stock was treated as partnership assets, sold, and the
proceeds distributed among them in proportion to the value of the property contributed by each. (Shorb vs. Beaudry, 56 Ca.
446.)’’
(2) Where participation of a party was limited to subscribing
to proposed corporation. — “However, such a relation does not
necessarily exist, for ordinarily, persons cannot be made to
assume the relation of partners, as among themselves, when
their purpose is that no partnership shall exist, and it should be
implied only when necessary to do justice between the parties;
thus, one who takes no part except to subscribe for stock in
a proposed corporation which is never legally formed does
not become a partner with other subscribers who engage in
business under the name of the pretended corporation, so as
to be liable as such in an action for settlement of the alleged
partnership and contribution.
It has been held that a partnership relation between certain
stockholders and other stockholders, who were also directors,
will not be implied in the absence of an agreement, so as to
make the former liable to contribute for payment of debts
illegally contracted by the latter. (Heald vs. Owen, 44 N.W. 210,
79 Iowa 23.)”
(3) Where party was fraudulently induced to subscribe to
proposed corporation. — “The record showed that L never had
any intention to form a corporation with the respondents
despite his representations to them, giving credence to the
cross-claims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to
a proposed corporation which was never formed because the
petitioner reneged on their agreement.
Applying the principles of law cited to the facts of the
case, necessarily, no de facto partnership was created among
the parties which would entitle L to a reimbursement of the
supposed losses of the proposed corporation. L acted on his
own and not in behalf of his other would-be incorporators in
the transaction.” (Pioneer Insurance & Security Corporation vs.
Court of Appeals, 175 SCRA 668 [1989].)

Question 206

ART. 1826. A person admitted as a partner into an
existing partnership is liable for all the obligations of
the partnership arising before his admission as though

he had been a partner when such obligations were incurred, except that this liability shall be satisfi ed only
out of partnership property, unless there is a stipulation
to the contrary. (n)

LIABILITY OF INCOMING PARTNER FOR PARTNERSHIP
OBLIGATIONS:
INCOMING PARTNER – admitted to an existing partnership

Answer 206

 Liable for all obligations existing at the time of his
admission
GR: Liability is limited to his share in the partnership property
XPN: Stipulation to the contrary

Question 207

1829: LIABILITY OF INCOMING PARTNER FOR PARTNERSHIP
OBLIGATIONS: CREDITORS:

Answer 207

CREDITORS:
1. Existing and subsequent creditors have equal rights
against partnership property + separate property of
previously existing partners
2. Only subsequent creditors have rights against separate
property of incoming / newly admitted partners
 If incoming partner assumed obligation of retiring
partner = he is liable directly to the old partnership
creditors such that these creditors have the right of
action against incoming partner

Question 208

1826:
LIABILITY OF OUTGOING / INCOMING PARTNERS:

Answer 208

1. OUTGOING:
    Liability on existing incomplete contracts continues
    Liable for goods sold and delivered after retirement
2. INCOMING:
    Not personally liable for existing partnership obligations
    XPN: Stipulation to the contrary
    Liable for goods delivered to the partnership after his
   admission

Question 209

Art. 1826 EXAMPLE: LIABILITY OF INCOMING PARTNER FOR PARTNERSHIP
OBLIGATIONS:

Answer 209

EXAMPLE:
A, B, and C are partners engaged in a drug store business.
Their contribution is P10,000.00 each. D is admitted as a new
partner with a contribution of P4,000.00. At the time of his
admission, the partnership has an outstanding obligation to E
in the amount of P40,000.00.
In this case, D is also liable to E for this obligation of
P40,000.00. Thus, if the assets of the partnership amount to
P34,000.00, the same will be exhausted thereby leaving a balance
of P6,000.00 for which only A, B, and C shall be liable jointly or
pro rata, out of their separate property. D is not personally liable
in the absence of an agreement.
However, if the obligation was incurred by the partnership
subsequent to the admission of D, there would be no difference
between old and new partners, as all of them shall be personally
liable pro rata or P1,500.00 each. (Art. 1816.) D is entitled to a
proportional reimbursement from A, B, and C the amount he
has paid in excess of his share of the liability as follows:
Shares of A, B, and C (10/34 of P6,000) = P1,764.70 each
Shares of D (4/34 of P6,000) = P705.88
So A, B and C are liable for P264.70 each to D for the excess
of P794.12, the difference between P1,500.00 and P705.88.

Question 210

The contract of lease was executed by the partnership before the
admission of the new partner who claims that by reason thereof he is
not liable out of his separate property for rents accruing subsequently.
Facts: B, a bank, leased real property to a partnership.
Subsequently, on April 28, 1931, C was taken in as a partner
and the new partnership paid the rent up to March, 1932. An
action was brought by B to recover the rent claimed to be due
for the period commencing March 1, 1932, and ending January
25, 1933.
C claims that, as an incoming partner, his personal assets
cannot be reached in satisfaction of the judgment.
Issue: May C’s liability as an incoming partner be satisfi ed
by resort to his personal assets?

Answer 210

Held: Yes. (1) New partnership liable for other obligations.
— C contends that since the lease was executed before he became a partner, the obligation of the lease arose before his
admission and, therefore, his liability can only be satisfi ed out
of partnership property. The contention of C would be sound
if the only obligation of the partnership in this transaction was
one which arose prior to his admission to the fi rm.

Question 211

ART. 1827. The creditors of the partnership shall be

preferred to those of each partner as regards the part-
nership property. Without prejudice to this right, the

private creditors of each partner may ask the attach-
ment and public sale of the share of the latter in the

partnership assets. (n)

PREFERENCE OF PARTNERSHIP CREDITORS:
On partnership assets, partnership creditors are entitled to
priority of payment
REMEDY OF PRIVATE CREDITORS:

Answer 211

Ask for the attachment and public sale of the share of
the partner in the partnership assets

Question 212

1827
EXAMPLE:
A, B, and C are partners in a partnership known as X & Co.
They contributed equally to the partnership. As they have no
stipulation regarding the share of each partner in the profi ts,
they share equally in the partnership assets, namely: 1/3. After
a year of operation, the assets of the partnership amounted to
P40,000.00. It is indebted to D in the amount of P28,000.00. E is
a separate creditor of A for P6,000.00.
The different claims shall be settled as follows:

Answer 212

As partnership creditor is preferred, D shall be paid fi rst
the amount of P28,000.00, thereby leaving the partnership
assets to only P12,000.00. Each partner shall, therefore, get only
P4,000.00 as his share in the assets. Hence, E can collect only
P4,000.00 from the assets of the partnership. His remedy is to
recover the balance of P2,000.00 from the private property of A.
(see Art. 1839[9].)

Question 213

ART. 1828. The dissolution of a partnership is the
change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business.

END OF PARTNERSHIP, 3 STAGES:

Answer 213

1. DISSOLUTION – change in the relation of partners
   caused by any partner ceasing to be associated in the
   carrying on of a business; doesn’t mean business must
   cease to exist for the partners
2. WINDING UP – actual process of settling the
   partnership affairs after dissolution; involves collection
   & distribution of partnership assets, payment of debts
   and determination of the value of each partner’s interest
   in the partnership
3. TERMINATION – all partnership affairs are completely
   wound up and finally settled; signifies end of partnership

Question 214

ART. 1829. On dissolution the partnership is not ter-
minated, but continues until the winding up of partner-
ship affairs is completed. (n)
EFFECTS OF DISSOLUTION:

Answer 214

1. Partnership not terminated
2. Partnership continues for a limited purpose
    Make good all outstanding engagements, settling all
   accounts, collecting all property, means and assets
3. Transaction of new business is prohibited
    No new partnership should be undertaken but
   affairs should be liquidated and distribution made to
   those entitled to the partner’s interest

Question 215

ART. 1830. Dissolution is caused:
(1) Without violation of the agreement between the
partners:
(a) By the termination of the defi nite term or
particular undertaking specifi ed in the agreement;
(b) By the express will of any partner, who must
act in good faith, when no defi nite term or particular
undertaking is specifi ed;
(c) By the express will of all the partners who
have not assigned their interests or suffered them
to be charged for their separate debts, either before

or after the termination of any specifi ed term or par-
ticular undertaking;

(d) By the expulsion of any partner from the
business bona fi de in accordance with such a power
conferred by the agreement between the partners;
(2) In contravention of the agreement between the

partners, where the circumstances do not permit a dis-
solution under any other provision of this article, by

the express will of any partner at any time;
(3) By any event which makes it unlawful for the
business of the partnership to be carried on or for the
members to carry it on in partnership;
(4) When a specifi c thing, a partner had promised to

contribute to the partnership, perishes before the deliv-
ery; in any case by the loss of the thing, when the part-
ner who contributed it having reserved the ownership

thereof, has only transferred to the partnership the use
or enjoyment of the same; but the partnership shall not

be dissolved by the loss of the thing when it occurs af-
ter the partnership has acquired the ownership thereof;

(5) By the death of any partner;

(6) By the insolvency of any partner or of the part-
nership;

(7) By the civil interdiction of any partner;
(8) By decree of court under the following article.
(1700a and 1701a)

1830:
CAUSES OF DISSOLUTION: (EXTRAJUDICIAL)

Answer 215

1. Dissolution effected without violation of partnership
   agreement (GF):
2. Dissolution effected in contravention of partnership
   agreement:
3. Business becomes unlawful
4. Loss of a (specific) thing:
5. Death of any partner –

Question 216

1. Dissolution effected without violation of partnership
   agreement (GF):
2. Dissolution effected in contravention of partnership
   agreement:
3. Business becomes unlawful
4. Loss of a (specific) thing:
5. Death of any partner
6. Insolvency of any partner/ship:
7. Civil Interdiction of any partner:
8. Decree of Court:

Answer 216

1. Dissolution effected without violation of partnership
   agreement (GF):
    TERMINATION of definite term / particular
   undertaking
    EXPRESS WILL of ANY partner (act in GF)
    EXPRESS WILL of ALL partners (express / implied;
   unanimous)
    EXPULSION of any partner
    Should be in good faith
    If done in bad faith, partner can claim damages
    May be vested in 1 partner exclusively
2. Dissolution effected in contravention of partnership
   agreement:
    Partner can withdraw any time without consent of
   others if there is sufficient reason; expressly
   withdrawing
    Delectus Personae – allows the partners to have
   power, although not necessarily the right, to dissolve
   partnership
3. Business becomes unlawful – involuntarily; i.e.
   appointment of a position; conflict of interest; contrary
   to law to continue business
4. Loss of a (specific) thing:
   a. Loss BEFORE delivery:
    Partnership is dissolved; no contribution as to
   the thing to be contributed cannot be substituted
   with another
   b. Loss AFTER delivery:
    Partnership is not dissolved; but it assumes the
   loss of thing having acquired ownership; may
   contribute additional capital to save venture
   c. Where only use / enjoyment contributed:
    Partner who reserved ownership cannot fulfill his
   undertaking to make available the use of the
   specific thing contributed
    Partner bears loss; considered in default w/
   respect to his contribution
5. Death of any partner – deceased partner ceases to
   be associated in the carrying of business
   GR: ipso facto dissolution of partnership
   XPN: clause in the articles of partnership providing for the
   continuation of the firm even after death of one the partners
6. Insolvency of any partner/ship:
    Adjudged by the court: LIQUIDATION ORDER
    Insolvency renders property in the hands of the
   partners liable for the satisfaction of the partnership
   obligation resulting in their inability to continue the
   business
    REMEDY: reconveyance by assignee / liquidator of
   properties pursuant to order of court after
   termination of insolvency proceedings = has the
   effect of restoring partnership to its status quo
7. Civil Interdiction of any partner:
    Capacity is limited; cannot validly give consent no
   right to manage his property and dispose of such by
   any act / conveyance inter vivos
8. Decree of Court:
    Right to Expel:
    GR: a partner cannot be expelled due to mere
   derelictions
    XPNS:
9. Partner guilty of extreme / gross faults
10. Industrial partner engaging in business for
    himself
11. Power expressly given by agreement –
    expel in good faith

Question 218

ILLUSTRATIVE CASES:
1. A partner questions the right of another to withdraw from
the partnership.
Facts: A brought an action for withdrawal of his capital
contribution from the partnership formed by him and B, which
would mean its dissolution because the partnership was for a
defi nite term.
Issue: In impugning A’s right to maintain the suit, B cited
Articles 1808 and 1830 and A’s alleged bad faith.

Answer 218

Held: Article 1808 only requires the capitalist partner (who
violates the prohibition against engaging for his own account
in any operation which is of the kind of business in which the
partnership is engaged) to bring to the common fund of the
partnership, profi ts he might have realized. (2nd par.) It does
not prevent him from withdrawing from the partnership. (Lee
Tee vs. Ching Chiong,

Question 219

2. The intention to dissolve the partnership is shown by acts
   and words of the partners.
   Facts: A and B formed a partnership to exploit a fi shpond
   and thereafter to divide it between them into two equal parts.
   Succeeding events reveal the intent of both parties to terminate
   the partnership by refusing to share the fi shpond with the
   other — in direct violation of the undertaking for which they
   have established their partnership — which resolution they
   articulated in letters to each other.
   Issue: Should the partnership be considered dissolved?

Answer 219

Held: Yes. Both A and B must be deemed to have expressly
withdrawn from the partnership, thereby causing its dissolution
pursuant to Article 1830(2) which provides, inter alia, that
dissolution is caused “by the express will of any partner” at
any time. (Deluao vs. Casteel, 26 SCRA 475 [1968].)

Question 220

EXAMPLE:
J is a partner in a law fi rm. Later on, J is appointed Judge of
the Regional Trial Court. Under the law, a Judge of the Regional
Trial Court is prohibited from engaging in the practice of law.
In this case, it would be unlawful for J to continue as a partner
in the law fi rm. His appointment dissolves the partnership of
which he is a member.

Answer 220

Contracts of partnership are necessarily dissolved by a
state of war between the countries where the respective parties
are citizens or where they become alien enemies, or by a civil
war, since in both cases commercial intercourse is rendered
unlawful between the partners belonging to opposing sides.
This rule is based upon consideration of public policy, and is
not affected by the intention of the parties. (see 40 Am. Jur. 307.)

Question 221

ILLUSTRATIVE CASE:
The widow of a deceased, who became the new partner in
accordance with the articles of partnership, sold partnership property
after she was authorized by the surviving partner to manage the affairs
of the partnership which was engaged in the real estate business.
Facts: A, a partner in a partnership engaged in the real
estate business, died. The articles of partnership expressly
stipulates that in the event of the death of any of the partners,
the fi rm shall not be dissolved but will have to be continued
and the deceased partner shall be represented by his heirs or
assignee in said partnership.
B, the widow of A, sought authority, and was authorized by
C, the surviving partner, to manage the partnership property.
Subsequently, B sold lands belonging to the partnership.
Now, C questions the validity of the sale, claiming that B
never became more than a limited partner, thus, incapacitated
by law to manage the affairs of the partnership.
Issues:
(1) Is B a general or a limited partner?
(2) Is the sale valid?

Answer 221

Held: (1) B is a general partner. — By seeking authority to
manage partnership property, B showed that she desired to
be considered a general partner. By authorizing B to manage
partnership property (which a limited partner could not
be authorized to do), C recognized her as such partner, and
is in estoppel to deny her position as a general partner with
authority to administer and alienate partnership property.
While the heir ordinarily becomes a limited partner for his own
protection, he may disregard it and instead elect to become a
general partner as B in this case did.
Furthermore, the contractual stipulation in the articles of
partnership contemplates that the heirs would become general
partners rather than limited partners. The partnership certainly
could not be continued if it were to be converted into a limited
partnership, since the difference between the two kinds of
association is fundamental (see Art. 1843, Chapter 4.); and
especially because the conversion into a limited association
would leave the heirs of the deceased partner without a share
in the management.
The stipulation, however, would not bind the heirs of the
deceased partner should they refuse to assume personal and
unlimited responsibility for the obligations of the fi rm.
(2) B had authority to sell the real estate of the fi rm. — When
the partnership business is to deal in real estate, i.e., to buy and sell real estate, as in the present case, one partner has ample
authority as a general agent of the fi rm to enter into a contract
for the sale of real estate. It must also be remembered that
a third person has a right to presume that a general partner
dealing with partnership property in pursuance of partnership
purpose has the requisite authority from his co-partners.
(Goquiolay vs. Sycip, 9 SCRA 663 [1963], Resolution of Motion for
Reconsideration.)

Question 224

ART. 1831. On application by or for a partner, the
court shall decree a dissolution whenever:

(1) A partner has been declared insane in any judi-
cial proceeding or is shown to be of unsound mind;

(2) A partner becomes in any other way incapable
of performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as

tends to affect prejudicially the carrying on of the busi-
ness;

(4) A partner willfully or persistently commits a
breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership
business that it is not reasonably practicable to carry on
the business in partnership with him;

(5) The business of the partnership can only be car-
ried on at a loss;

(6) Other circumstances render a dissolution equi-
table.

On the application of the purchaser of a partner’s
interest under Article 1813 or 1814:
(1) After the termination of the specifi ed term or
particular undertaking;

(2) At any time if the partnership was a partner-
ship at will when the interest was assigned or when the

charging order was issued. (n)

GROUNDS BY COURT: (JUDICIAL DISSOLUTION)

Answer 224

1. Application by a partner:
   a. Insanity
   b. Incapacity (permanent)
   c. Misconduct and persistent breach of partnership
   agreement (permanent mischief)
   d. Business can be carried out only at a loss
   e. Other circumstances:
    Abandonment of business
    Fraud in the management of business
    Refusal w/o justifiable cause to render
   accounting of partnership affairs
2. Application by a purchaser of a partner’s interest:
   a. After the termination of a specified term / particular
   undertaking
   b. Any time if Partnership was at will when the interest
   was assigned / when the charging order was issued

Question 225

(2) On application by a purchaser of a partner’s interest. — In
either of the two cases mentioned in the last paragraph, a
purchaser of a partner’s interest under Article 1813 or 1814 may
apply for judicial dissolution of a partnership.
EXAMPLES:
(1) A, B, and C formed a partnership to continue for a term
of fi ve (5) years. On the third year, C sold his entire interest
to D. Under Article 1813, such conveyance does not dissolve
the partnership, and D does not become a partner, his only
right being to receive the profi ts to which C would otherwise
be entitled. Hence, D cannot ask for judicial dissolution of the
partnership.
However, if after the fi fth year, the partnership is continued,
D is entitled to ask for judicial dissolution. The partnership as
continued may or may not be a partnership at will.
(2) Suppose now, after the fi fth year, the partnership was
continued by the partners without any express agreement,
becoming a partnership at will. (see Art. 1785.) If C’s interest

Answer 225

was purchased by D or a charging order was issued against
C in favor of D, his judgment creditor, as provided in Article
1814, when the partnership was already a partnership at will,
D, at any time, may ask for judicial dissolution.
Note that the rule in Article 1831 (par. 2[2].) applies only if
in continuing the business, a partnership at will is created, or
the partnership is a partnership at will from the beginning.

Question 225

ILLUSTRATIVE CASE:
In an action for damages against the managing partner by reason
of fraudulent administration, liquidation is not prayed for.
Facts: A fi led a complaint against B for damages allegedly
suffered by him by reason of the fraudulent administration by
B of a partnership of which A, B, and C are members. It is not
alleged in the complaint that a liquidation of the partnership
has been effected nor is it prayed that it be made.
Issue: Is there reason or cause for A to institute the action
which he claims from the managing partner B?

Answer 225

Held: None. The complaint of A does not contain suffi cient
facts to constitute a cause of action. For the purpose of
adjudicating to A damages which he alleges to have suffered
as a partner as a result of the fraudulent management of the
partnership, it is fi rst necessary that a liquidation of the business
thereof be made to the end that the profi ts and losses may be
known, and the causes of the latter and the responsibility of the
managing partner, as well as the damages which each partner
may have suffered, may be determined. (Soncuya vs. De Luna,
67 Phil. 646 [1939].)

Question 226

ART. 1832. Except so far as may be necessary to
wind up partnership affairs or to complete transactions
begun but not then fi nished, dissolution terminates all
authority of any partner to act for the partnership.
(1) With respect to the partners:

(a) When the dissolution is not by the act, insol-
vency or death of a partner; or

(b) When the dissolution is by such act, insol-
vency or death of a partner, in cases where Article

1833 so requires;
(2) With respect to persons not partners, as declared
in article 1834. (n)

EFFECT OF DISSOLUTION ON AUTHORITY OF PARTNER:
GR: XPN:

Answer 226

GR: Dissolution terminates all authority of any partner to act
for the partnership
1. With respect to the partners:
a. When the dissolution is NOT by the act, insolvency /
death of a partner
b. When dissolution is BY ACT (1833), insolvency /
death of a partner
2. With respect to persons not partners in 1834
XPN: if necessary to wind up partnership affairs / complete
unfinished transactions / acts which would bind the
partnership if dissolution has not taken place

Question 227

EXAMPLE:
A, B, and C were partners in X & Co. The term of existence
of the partnership as fi xed in the articles of partnership expired
yesterday. Therefore, it was dissolved. Here, the dissolution
was caused not by the act, insolvency, or death of a partner.

Answer 227

If today A enters into a new transaction (not necessarily
for winding up or to complete a transaction begun but not
yet fi nished) with D, he (A) alone assumes whatever liability
may arise under the contract because his authority to act
for the partnership X & Co. as to bind B and C terminated
as of yesterday, when the partnership was dissolved. If the
partnership is liable to D under Article 1834, B and C are
entitled to indemnity from A.

Question 228

ART. 1833. Where the dissolution is caused by the

act, death or insolvency of a partner, each partner is li-
able to his co-partners for his share of any liability cre-
ated by any partner acting for the partnership as if the

partnership had not been dissolved unless:
(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 insolven-
cy of a partner, the partner acting for the partnership

had knowledge or notice of the death or insolvency.

RIGHT OF PARTNER TO CONTRIBUTION FROM COPARTNERS:
GR: XPNS:

Answer 228

GR: If dissolution is caused by act, death / insolvency of a
partner, each partner is liable to his co-partners for his share
of any liability created by any partner acting for the
partnership as if it has not been dissolved
XPNS:
1. Dissolution being BY ACT of any partner, the acting
partner for the partnership had knowledge of the
dissolution
2. Dissolution being BY THE DEATH / INSOLVENCY of a
partner, the acting partner for the partnership had
knowledge of the death / insolvency

Question 229

1883: UNIFORM PARTNERSHIP ACT:

Answer 229

 Actual knowledge of the fact
o Knowledge of such other facts as in the
circumstances that show bad faith
 Notice of fact:
o When person who claims the benefit of notice:
 States the fact to such person
 Delivers thru mail / other means of
communication a written statement of the fact tosuch person / to a proper person to his place of business / residence
 Applies only if partner binds partnership; if not;
only the acting partner is personally liable

Question 230

1883: EXAMPLES:
(1) A, B, and C were partners. A informed B that the
former was resigning or withdrawing from the partnership.
The partnership was thus dissolved by the act of A.
C had no knowledge of the dissolution. If partnership
liability is incurred by a contract entered into by C, A and B
are bound to contribute their share of the liability as if the
partnership had not been dissolved. To avoid being liable for
his share of partnership liability arising after the dissolution, A
should prove knowledge on the part of C that A had already
dissolved the partnership at the time the contract was made.
If the contract was entered into by B despite his knowledge
of the dissolution, A and C can recover from B. In the end,
only B will assume the entire liability. Suppose B learned of
the resignation of A only from C. In this case, B had merely
notice (as distinguished from knowledge) of the dissolution.
Hence, A and C can be called upon to contribute their share in
the liability.

Answer 230

(2) If A had died or had become insolvent, knowledge or
notice on the part of B will justify non-liability on the part of
the other partners.

Question 231

ART. 1834. After dissolution, a partner can bind the
partnership, except as provided in the third paragraph
of this article:

(1) By an act appropriate for winding up partner-
ship affairs or completing transactions unfi nished at

dissolution;

(2) By any transaction which would bind the part-
nership if dissolution had not taken place, provided the

other party to the transaction:
(a) Had extended credit to the partnership prior to

dissolution and had no knowledge or notice of the dis-
solution; or

(b) Though he had not so extended credit, had nev-
ertheless known of the partnership prior to dissolution,

and having no knowledge or notice of dissolution, the

fact of dissolution had not been advertised in a newspa-
per of general circulation in the place (or in each place if

more than one) at which the partnership was regularly
carried on.
The liability of a partner under the fi rst paragraph,
No. 2, shall be satisfi ed out of partnership assets alone
when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom
the contract is made; and

(2) So far unknown and inactive in partnership af-
fairs that the business reputation of the partnership

could not be said to have been in any degree due to his
connection with it.
The partnership is in no case bound by any act of a
partner after dissolution:
(1) Where the partnership is dissolved because it is

unlawful to carry on the business, unless the act is ap-
propriate for winding up partnership affairs; or

(2) Where the partner has become insolvent; or

(3) Where the partner had no authority to wind up
partnership affairs, except by a transaction with one
who —
(a) Had extended credit to the partnership prior
to dissolution and had no knowledge or notice of
his want of authority; or
(b) Had not extended credit to the partnership
prior to dissolution, and, having no knowledge or
notice of his want of authority, the fact of his want
of authority has not been advertised in the manner
provided for advertising the fact of dissolution in
the fi rst paragraph, No. 2(b).

Nothing in this article shall affect the liability un-
der article 1825 of any person who after dissolution

represents himself or consents to another representing
him as a partner in a partnership engaged in carrying
on business. (n)

1834:
POWER TO BIND DISSOLVED PARTNERSHIP TO 3RD

PERSONS:

Answer 231

1. By an act appropriate for winding up affairs / completing
   unfinished transaction at dissolution
2. By any transaction which would bind the partnership if
   dissolution had not taken place, provided the other party:
   a. Extended credit to partnership prior dissolution and
   had no knowledge / notice of such
   b. Though didn’t extend credit, had known partnership
   prior to dissolution and had no knowledge of such
   because it wasn’t advertised in the newspaper of
   general circulation

Question 232

1834:
POWER TO BIND DISSOLVED PARTNERSHIP TO 3RD

PERSONS:
Will be satisfied out of partnership assets alone if: (2)

Answer 232

1. Partner is unknown to the person with whom contract is
   made
2. Dormant partner – so far unknown and inactive

Question 233

1834:
POWER TO BIND DISSOLVED PARTNERSHIP TO 3RD

PERSONS:

Answer 233

1. Where partnership is dissolved because it was unlawful
   to carry on business
2. Partner becomes insolvent
3. Partner had no authority to wind up affairs
    XPN: transaction with: (3)
    One who extended credit prior to dissolution
   and had no knowledge / notice of his want of
   authority
    Didn’t extend credit / had no knowledge of his
   lack of authority – not advertised
   Character of notice required – actual notice and thru
   advertisement in a newspaper

Question 234

1885 Where A, B, and C are active and ostensible partners,
A’s retirement terminates the actual authority of A, B, or C
to impose new obligations on the partnership, except such
as may be necessary to wind up the business or to complete
transactions begun but not then fi nished.
Assume that D has extended credit to the partnership prior
to A’s retirement, and has no knowledge of A’s retirement, and
that no notice thereof has been communicated to X, by mail or
otherwise, then on the ground of estoppel:

Answer 234

(1) If B or C, purporting to act on behalf of the partnership,
contracts with D (e.g., orders goods), the partnership (A, B, and
C, jointly) is liable to D.
(2) If A, purporting to act on behalf of the partnership,
contracts with D, the partnership (A, B, and C, jointly) is liable
to D. (Babb & Martin, op. cit., pp. 262-263.)

Question 235

EXAMPLE:
T purchased goods from a partnership. Thereafter, the
partnership was dissolved. Notice of the dissolution was
advertised in the local newspaper. Without knowledge of
the dissolution, T thereafter extended credit to the supposed
partnership at the request of one of its members in connection
with a transaction not necessary for the liquidation of the
business.
May T hold the partnership liable on the transaction?

Answer 235

No. Prior dealers must be given actual notice of the
dissolution of a partnership in order to prevent the continuance
of partnership liability. T, however, is not a prior dealer. Hence,
he is considered to have received notice as a matter of law when the fact of dissolution was advertised in the local newspaper.
(Ibid., pp. 179-180, 187.)

Question 236

A third person, without notice, extended credit to a partnership
after withdrawal of a partner and its continuation by the other
partners.
Facts: A withdrew from the partnership “Isabela Sawmill”
composed of A, B, and C. It does not appear that the withdrawal
of A from the partnership was published in the newspapers.
There was no liquidation of the partnership assets. On the

contrary, it was expressly stipulated in a memorandum-
agreement among A, B, and C that the remaining partners, B

and C, had constituted themselves as the partnership entity,
the “Isabela Sawmill.” B and C continued the business, using
the properties of the partnership.
To secure the obligations of B and C to A, B and C executed
a chattel mortgage over certain properties of the partnership
in favor of A who was issued a certifi cate of sale over the same
as a result of the judicial foreclosure of the mortgage. In the
meantime, X, etc. extended credit to the partnership.
Issue: Is A liable to X, etc. for the properties of the partnership
which were mortgaged to her and which she purchased at
public auction?

Answer 236

Held: Yes. The judicial foreclosure of the chattel mortgage
executed in favor of A did not relieve her from liability to the
creditors of the partnership. X, etc. and the public in general
had a right to expect that whatever credit they extended to B
and C doing the business in the name of the partnership could
be enforced against the properties of the partnership.
Although A acted in good faith, X, etc. also acted in good
faith in extending credit to the fi rm. Where one of two innocent
persons must suffer, the person who gave occasion for the
damages to be caused must bear the consequences. (Singson vs.
Isabela Sawmill, 88 SCRA 623 [1979].)

Question 237

ART. 1835. The dissolution of the partnership does

not of itself discharge the existing liability of any part-
ner.

A partner is discharged from any existing liability

upon the dissolution of the partnership by an agree-
ment to that effect between himself, the partnership

creditor and the person or partnership continuing the
business; and such agreement may be inferred from the

course of dealing between the creditor having knowl-
edge of the dissolution and the person or partnership

continuing the business.
The individual property of a deceased partner shall
be liable for all obligations of the partnership incurred
while he was a partner, but subject to the prior payment
of his separate debts. (n)

EFFECT OF DISSOLUTION ON PARTNER’S EXISTING
LIABILITY:

XPN:

Deceased Partner’s estate:

Answer 237

Dissolution of partnership is not equal to discharge of
existing liability of partner

XPN: when there is said agreement between:
1. Himself
2. Partnership creditors
3. Other partners
 Consent is implied from their conduct

Deceased Partner’s estate:
 Individual property of deceased partner is liable for all
obligation of partnership incurred while he was still a
partner
 With respect to his separate property – priority is given
to individual creditors over partnership creditors

Question 238

EXAMPLE:
If A, B, and C are partners and A retires, all three (A, as well
as B and C) continue to be personally liable for partnership
debts existing at the time of A’s retirement.

Answer 238

Similarly, if A dies, his individual estate is available to
partnership creditors, subject, however, to the claims of A’s
personal creditors. Even an agreement among A, B, and
C whereby B and C promised to assume the partnership
debts does not release A, unless the creditors assent to such
substitution of debtors, either by express agreement (novation)
or by agreement inferable from course of dealing. (Babb and
Martin, op. cit., p. 262.)

Question 239

ART. 1836. Unless otherwise agreed, the partners
who have not wrongfully dissolved the partnership or
the legal representative 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
obtain winding up by the court.

1836:
MANNER OF WINDING UP:

Answer 239

1. JUDICIAL – through the court upon cause shown by any
   partner, his legal rep / assignee
2. EXTRAJUDICIAL – partners themselves w/o court
   intervention
   Nature of action for liquidation – personal; could either be at
   the place of residence of P/D

Question 239

MANNER OF WINDING UP:
PERSONS AUTHORIZED: (4)

Answer 239

1. Persons designated by agreement
2. If none, all partners who have not wrongfully dissolved
   the partnership
3. Legal representative (executor / admin) of last surviving
   partner (if all others are dead), not insolvent
4. Receiver appointed by court
   Duty of liquidating – surviving member/s of firm;
   Legal representative of the deceased partner has no right to
   interfere with the business

Question 240

POWER FOR LIQUIDATING PARTNER (PURPOSE OF
WINDING UP): (4)

Answer 240

2. RAISE money to pay partnership debts
3. INCUR obligations to complete existing contracts /
   preserve assets
4. INCUR expenses necessary in the conduct of litigation

Question 241

ART. 1837. When dissolution is caused in any way,
except in contravention of the partnership agreement,
each partner, as against his co-partners and all persons
claiming through them in respect of their interests in
the partnership, unless otherwise agreed, may have the
partnership property applied to discharge its liabilities,
and the surplus applied to pay in cash the net amount
owing to the respective partners. But if dissolution is
caused by expulsion of a partner, bona fi de under the
partnership agreement and if the expelled partner is
discharged from all partnership liabilities, either by
payment or agreement under the second paragraph of
article 1835, he shall receive in cash only the net amount
due him from the partnership.
When dissolution is caused in contravention of the
partnership agreement, the rights of the partners shall
be as follows:
(1) Each partner who has not caused dissolution
wrongfully shall have:
(a) All the rights specifi ed in the fi rst paragraph
of this article, and
(b) The right, as against each partner who has
caused the dissolution wrongfully, to damages for
breach of the agreement.

(2) The partners who have not caused the dissolu-
tion wrongfully, if they all desire to continue the busi-
ness in the same name either by themselves or jointly

with others, may do so, during the agreed term for the

partnership and for that purpose may possess the partnership property, provided they secure the payment by
bond approved by the court, or pay to any partner who
has caused the dissolution wrongfully, the value of his
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 wrong-
fully 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 fi rst paragraph, subject
to liability for damages in the second paragraph,
No. 1(b), of this article.
(b) If the business is continued under the
second paragraph, No. 2, of this article, the right
as against his co-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 be released from all existing liabilities
of the partnership; but in ascertaining the value of
the partner’s interest, the value of the good will of
the business shall not be considered. (n)

RIGHT OF PARTNER TO APPLICATION OF PARTNERSHIP
PROPERTY ON DISSOLUTION:
GR: Rights of each partner in dissolution w/o violation (not
in contravention) to the partnership: (2)

XPN

Answer 241

GR: Rights of each partner in dissolution w/o violation (not
in contravention) to the partnership: (2)
1. To have partnership property applied to discharge the
liabilities of the partnership
2. To have surplus, if any, applied to pay in cash the net
amount owing to the respective partners

XPN: unless otherwise agreed
If dissolution is caused by expulsion bona fide:
1. Expelled partner may be discharged from all liabilities
either by payment / agreement with him, the creditors
and other partners
2. Can only receive in cash the net amount due him
If dissolution is proper, no partner is liable for any loss

Question 242

1837:
RIGHT OF PARTNER TO APPLICATION OF PARTNERSHIP
PROPERTY ON DISSOLUTION:
RIGHTS WHEN DISSOLUTION IS IN CONTRAVENTION:

Answer 242

1. PARTNER WHO IS INNOCENT: (4)
   a. Have the partnership property applied as payment
   of its liabilities and to receive in cash his share of the
   surplus
   b. Be indemnified for the damages caused by the guilty
   partner
   c. Continue business in the same name during the
   agreed term of partnership, by themselves / jointly
   w/ others
   d. Possess property should they decide to continue
   business
2. PARTNER WHO IS GUILTY: (2)
   a. If business is NOT CONTINUED:
   i. Have the partnership property applied to
   discharge liabilities and receive in cash his share
   of the surplus less damages caused by his
   wrongful dissolution
   b. If business is CONTINUED:
   i. Have value of interest in the partnership at the
   time of dissolution, less damages
   ii. Be released from all existing and future liabilities
   GOOD WILL:
    Advantage w/c it has from the establishment / from
   patronage of its customers, over and above the mere
   value of its property and capital
    Includes advantages derived from partners holding
   themselves out as carrying on the business identified w/
   the name of a particular firm
   GOOD WILL AS PART OF ASSETS – includes all assets
   applicable to the payment of debts
   FIRM NAME AS PART OF GOOD WILL – firm name is an
   element of the partnership enterprise, substantial asset,
   passes w/ sale of partnership property and good will
   EXISTENCE OF SALEABLE GOOD WILL – good will is proper
   subject of sale if in commercial partnership; not applicable
   to professional partnership

Question 243

ART. 1838. Where a partnership contract is rescind-
ed on the ground of the fraud or misrepresentation of

one of the parties thereto, the party entitled to rescind
is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus

of the partnership property after satisfying the partner-
ship liabilities to third persons for any sum of money

paid by him for the purchase of an interest in the part-
nership and for any capital or advances contributed by

him;
(2) To stand on, after all liabilities to third persons
have been satisfi ed, in the place of the creditors of the
partnership for any payments made by him in respect
of the partnership liabilities; and
(3) To be indemnifi ed by the person guilty of the
fraud of making the representation against all debts
and liabilities of the partnership. (n)
PRIORITY SYSTEM FOR DISTRIBUTION OF PARTNERSHIP
PROPERTY / SETTLING ACCOUNTS:

Answer 243

1. Assets of partnership:
    Partnership property (including good will)
    Contributions of partners for payment of all
   liabilities
2. Order of application of assets:
    Owing to partnership creditors
    Owing to partners other than for capitals and profits
   such as loans / advances
    Owing for the return of capital contributed by the
   partners
    If any asset is left, shall be contributed as profits to
   partners proportionally
3. Loans and advances by partners:
    Capital contributions are returnable only on
   dissolution
    Loans are payable at maturity
    Accumulated profits may be withdrawn at any time
   by majority’s consent
   L & A = amounts paid into the partnership in excess of a
   partner’s capital contribution
4. Capital contributed by partners:
    If assets are insufficient to repay capital
   investments, the deficit is a capital loss w/c requires
   contribution
    Return of amount equivalent to capital contribution
   of each partner shall be increased by his share of
   undistributed profits / decreased by his share of net
   losses
    Industrial:
    GR: not entitled to any of firm capital on
   dissolution
    XPN: if there is an agreement
    Total capital contribution is not equal to gross
   assets to be distributed to the partners during
   dissolution
5. Rights of partner where assets are insufficient:
    A partner / his legal rep (to the extent of amount w/c
   he has paid in excess of his share of liability)
    Assignee, for the creditor’s benefit
    Any person appointed by court
    Will have the right to enforce the contributions
   of the partners
    If any partner does not pay, others will have to
   pay
    REMEDY: can sue non-paying partner for
   indemnification
6. Liability of deceased partner’s individual property
    Liable for his share of contribution necessary to
   satisfy the liabilities of the partnership incurred
   while he was a partner
7. Priority of payments:
   DOCTRINE OF MARSHALLING ASSETS:
   a. Partnership property – pay first the partnership
   creditors
   b. Individual property – pay first separate creditors
8. Distribution of insolvent partner’s property:
   PRINCIPLE OF EQUITY:
   a. Owing to separate creditors
   b. Owing to partnership creditors
   c. Owing to partners thru contribution
    REMEDY OF SEPARATE CREDITOR: Can execute
   against asset of the firm only to the extent of the
   interest of the partner in firm assets

Question 244

ART. 1839. In settling accounts between the partners
after dissolution, the following rules shall be observed,
subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary
for the payment of all the liabilities specifi ed in
No. 2.
(2) The liabilities of the partnership shall rank in
order of payment, as follows:
(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capi-
tal and profi ts,

(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profi ts.
(3) The assets shall be applied in the order of their
declaration in No. 1 of this article to the satisfaction of
the liabilities.
(4) The partners shall contribute, as provided by

article 1797, the amount necessary to satisfy the liabili-
ties.

(5) An assignee for the benefi t of creditors or any
person appointed by the court shall have the right to
enforce the contributions specifi ed in the preceding
number.
(6) Any partner or his legal representative shall
have the right to enforce the contributions specifi ed in
No. 4, to the extent of the amount which he has paid in
excess of his share of the liability.
(7) The individual property of a deceased partner
shall be liable for the contributions specifi ed in No. 4.
(8) When partnership property and the individual
properties of the partners are in possession of a court

for distribution, partnership creditors shall have prior-
ity on partnership property and separate creditors on

individual property, saving the rights of lien or secured
creditors.

(9) Where a partner has become insolvent or his es-
tate is insolvent, the claims against his separate prop-
erty shall rank in the following order:

(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribu-
tions. (n)

PRIORITY SYSTEM FOR DISTRIBUTION OF PARTNERSHIP
PROPERTY / SETTLING ACCOUNTS:

Answer 244

1. Assets of partnership:
    Partnership property (including good will)
    Contributions of partners for payment of all
   liabilities
2. Order of application of assets:
    Owing to partnership creditors
    Owing to partners other than for capitals and profits
   such as loans / advances
    Owing for the return of capital contributed by the
   partners
    If any asset is left, shall be contributed as profits to
   partners proportionally
3. Loans and advances by partners:
    Capital contributions are returnable only on
   dissolution
    Loans are payable at maturity
    Accumulated profits may be withdrawn at any time
   by majority’s consent
   L & A = amounts paid into the partnership in excess of a
   partner’s capital contribution
4. Capital contributed by partners:
    If assets are insufficient to repay capital
   investments, the deficit is a capital loss w/c requires
   contribution
    Return of amount equivalent to capital contribution
   of each partner shall be increased by his share of
   undistributed profits / decreased by his share of net
   losses
    Industrial:
    GR: not entitled to any of firm capital on
   dissolution
    XPN: if there is an agreement
    Total capital contribution is not equal to gross
   assets to be distributed to the partners during
   dissolution
5. Rights of partner where assets are insufficient:
    A partner / his legal rep (to the extent of amount w/c
   he has paid in excess of his share of liability)
    Assignee, for the creditor’s benefit
    Any person appointed by court
    Will have the right to enforce the contributions
   of the partners
    If any partner does not pay, others will have to
   pay
    REMEDY: can sue non-paying partner for
   indemnification
6. Liability of deceased partner’s individual property
    Liable for his share of contribution necessary to
   satisfy the liabilities of the partnership incurred
   while he was a partner
7. Priority of payments:
   DOCTRINE OF MARSHALLING ASSETS:
   a. Partnership property – pay first the partnership
   creditors
   b. Individual property – pay first separate creditors
8. Distribution of insolvent partner’s property:
   PRINCIPLE OF EQUITY:
   a. Owing to separate creditors
   b. Owing to partnership creditors
   c. Owing to partners thru contribution
    REMEDY OF SEPARATE CREDITOR: Can execute
   against asset of the firm only to the extent of the
   interest of the partner in firm assets

Question 245

1839: EXAMPLES:
(1) A, B, and C, are partners. A contributed P150,000.00, B
P100,000.00, and C, P50,000.00. On dissolution, the assets of the
partnership amounted to P500,000.00. The partnership owes D
the amount of P70,000.00, E, P50,000.00, and A, P20,000.00.
(2) The accounts of the partnership shall be settled as
follows:

Answer 245

(a) D and E, who are partnership creditors, shall be
paid fi rst the total sum of P120,000.00, leaving a balance of
P380,000.00;
(b) Then, A, who is also a creditor, will be paid his
credit of P20,000.00, leaving a balance of P360,000.00;
(c) Afterwards, the contributions of A, B, and C to the
partnership capital shall be returned to them in the total
sum of P300,000.00, thereby leaving a balance of P60,000.00;
(d) The balance of P60,000.00 constitutes the profi t
which shall be divided among A, B, and C (unless there
is an agreement to the contrary [Art. 1839, 1st par.] which,
however, cannot prejudice the rights of third persons) in
proportion to their capital contributions. Therefore, A is
entitled to 3/6 or P30,000.00, B, 2/6 or P20,000.00 and C,
1/6 or P10,000.00.
(3) Suppose, in the same example, the liabilities of the
partnership amount to P560,000.00. The partnership assets,
then shall be exhausted to satisfy these liabilities thereby
leaving an unpaid balance of P60,000.00. The partners shall
then contribute to the loss, in the absence of an agreement to
the contrary, in accordance with their capital contributions.
Consequently, A is liable out of his separate property in the
amount of P30,000.00, B, P20,000.00, and C, P10,000.00.
These contributions which are necessary to pay the
liabilities of the partnership are considered partnership assets
(No. 1[b].) and any assignee for the benefi t of creditors and any
person appointed by the court may enforce the contributions.
In case C paid the whole amount of P60,000.00, then, he has
a right to recover the amount which he has paid in excess of his
share of the liability from A, P30,000.00 and from B, P20,000.00.
(4) If B is already dead, his estate is still liable for the
contributions needed to pay off the partnership obligations
provided they were incurred while he was still a partner.
Art. 1839 DISSOLUTION AND WINDING UP

262 PARTNERSHIP

(5) Suppose now that under Nos. 1 and 2 above, C owes F
P40,000.00. Following the rule that partnership creditors have
preference regarding partnership property, only the share of C
in the amount of P10,000.00 can be used to pay his debt to F
and the unpaid balance of P30,000.00 must be taken from the
individual property, if any, of C.
(6) Suppose again, that the partnership debts amount to
P560,000.00 as in No. 3. So, C is still liable out of his separate
property to partnership creditors in the amount of P10,000.00.
His separate property amounts to P45,000.00. In this case, his
assets shall fi rst be applied to pay his debt of P40,000.00 to F
and the balance of P5,000.00 to pay part of his debt of P10,000.00
still owing to partnership creditors in accordance with the rule
that regarding individual properties, individual creditors are
preferred.

Question 246

ART. 1840. In the following cases, creditors of the
dissolved partnership are also creditors of the person or
partnership continuing the business:

(1) When any new partner is admitted into an ex-
isting partnership, or when any partner retires and as-
signs (or the representative of the deceased partner as-
signs) his rights in partnership property to two or more

of the partners, or to one or more of the partners and
one or more third persons, if the business is continued
without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or
the representative of a deceased partner assigns) their

rights in partnership property to the remaining part-
ner, who continues the business without liquidation of

partnership affairs, either alone or with others;

(3) When any partner retires or dies and the busi-
ness of the dissolved partnership is continued as set

forth in Nos. 1 and 2 of this article, with the consent

of the retired partners or the representative of the de-
ceased partner, but without any assignment of his right

in partnership property;

(4) When all the partners or their representatives as-
sign their rights in partnership property to one or more

Art. 1840

263

third persons who promise to pay the debts and who
continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolu-
tion and the remaining partners continue the business

under the provisions of article 1837, second paragraph,

No. 2, either alone or with others, and without liquida-
tion of the partnership affairs;

(6) When a partner is expelled and the remaining

partners continue the business either alone or with oth-
ers without liquidation of the partnership affairs.

The liability of a third person becoming a partner in

the partnership continuing the business, under this ar-
ticle, to the creditors of the dissolved partnership shall

be satisfi ed out of the partnership property only, unless
there is a stipulation to the contrary.

When the business of a partnership after dissolu-
tion is continued under any conditions set forth in this

article the creditors of the dissolved partnership, as
against the separate creditors of the retiring partner or
deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner

against the person or partnership continuing the busi-
ness, on account of the retired or deceased partner’s in-
terest in the dissolved partnership or 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 any
right of creditors to set aside any assignment on the
ground of fraud.
The use by the person or partnership continuing
the business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable
for any debts contracted by such person or partnership.

GR: liability of new / incoming partner is satisfied out of
partnership property only
XPN: stipulation to the contrary
 When retiring / deceased partner sold interest to
partnership without final settlement with creditors, such
have equitable lien on the consideration paid to the
retiring / deceased partner by purchaser

CAUSES OF DISSOLUTION BY CHANGE IN PARTNERSHIP:
(7)

Answer 246

1. New partner is admitted
2. A partner retires
3. A partner dies
4. A partner withdraws
5. A partner is expelled
6. Other partners assign their rights to a sole remaining
   partner
7. All partners assign their rights in partnership property to
   a 3rd person

Question 247

1840: CONTINUATION OF DISSOLUTION OF PARTNERSHIP BY
ANOTHER COMPANY:

Answer 247

1. Deemed mere continuation prior partnership
2. Obligation of company bought out considered assumed
   by vendee

Question 248

1840: EXEMPTIONS FROM LIABILITY OF INDIVIDUAL PROPERTY
OF DECEASED PARTNER: (2)

Answer 248

1. Debts contracted by the person / partnership w/c
   continues the business using the partnership name /
   deceased partner’s name as part thereof
2. Commercial partnership w/ good will – proper subject
   of sale

Question 249

EXAMPLE:
Assume that C is admitted as a new partner into the
existing partnership of A and B.
Technically, the old fi rm of A and B is dissolved and a
new fi rm composed of A, B, and C is formed. C will not be
individually liable for the debts of the old fi rm. His investment,
however, constituting a part of the fi rm assets, will be equally
available to both creditors of the old and creditors of the new
fi rm. (par. 2; Art. 1826.)
Various other changes in membership effect a technical
dissolution, yet justice dictates that the two sets of creditors
involved, those of the old and those of the new fi rm, be treated
on an equal basis.

Answer 249

A note to Uniform Partnership Act provides: “Where there
is a continuous business carried on fi rst by A, B, and C, and
then by A, B, C, and D, or by B and C, or by B and D, or by
C and D, or by B, C, and D, without liquidation of the affairs
of the dissolved partnership of A, B, and C, both justice and
business convenience require that all creditors of the business,
irrespective of the exact groupings of the owners at the time
their respective claims had their origin, should be treated alike,
all being given an equal claim on the property embarked in the
business.” (Babb & Martin, op. cit., p. 265.)
(2) Liability of persons continuing business. — Note that under
paragraph 2, the liability of the new or incoming partners shall
be satisfi ed out of partnership property only unless there is a
stipulation to the contrary. (Art. 1826.)
Note that paragraph 1, No. 4, applies only when the third
person continuing the business of the dissolved partnership
promises to pay the debts of the partnership. Otherwise,
creditors of the dissolved partnership have no claim on the
person or partnership continuing the business or its property
unless the assignment can be set aside as a fraud on creditors
under paragraph 4.

EXAMPLE:
If A, B, and C, partners, sell the partnership business to D,
and if D promises to pay the debts and to continue the business,
the creditors of the dissolved partnership of A, B, and C are
also the creditors of D.

Question 250

ART. 1841. When any partner retires or dies, and the
business is continued under any of the conditions set
forth in the preceding article, or in article 1837, second
paragraph, No. 2, without any settlement of accounts as

between him or his estate and the person or partner-
ship continuing the business, unless otherwise agreed,

he or his legal representative as against such person or
partnership may have the value of his interest at the
date of dissolution ascertained, and shall receive as an
ordinary creditor an amount equal to the value of his
interest in the dissolved partnership with interest, or at
his option or at the option of his legal representative,
in lieu of interest, the profi ts attributable to the use of
his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership
as against the separate creditors, or the representative
of the retired or deceased partner, shall have priority
on any claim arising under this article, as provided by
article 1840, third paragraph.
RIGHTS OF RETIRING PARTNER / ESTATE OF DECEASED
WHEN BUSINESS IS CONTINUED: (2)

Answer 250

1. To have value of the interest of the retiring partner /
   deceased partner in the partnership ascertained as the
   date of dissolution
2. Receive as an ordinary creditor, amount equal to value
   of his share in the dissolved partnership with interest /
   at his option, in lieu of interest, the profits attributable to
   the use of his right

 Partnership creditors have PRIOR RIGHT vs. separate
creditor of the retired / deceased partner
 If surviving partners continue w/o consent of the
deceased partner’s estate, they do so w/o any risk to the
estate
 If estate consents it, becomes new partner and be liable
for all debts and losses after death, but only to the extent
of the decedent’s share in the assets

Question 251

1841: EXAMPLE:
A, B, and C are partners in X & Co. which is indebted to D
in the amount of P50,000.00. Later on, X & Co. was dissolved
by reason of the withdrawal of C. The business was continued
by A and B without any settlement of account between A and
B, on the one hand, and C, on the other.

Answer 251

C or his legal representative has the right to have the
value of his interest in the partnership ascertained and paid
to him. Assuming that the interest of C has been ascertained to be P30,000.00, D has priority over the claim of C, his legal
representative, or his separate creditor.

Question 252

ART. 1842. The right to an account of his interest
shall accrue to any partner, or his legal representative as

against the winding up partners or the surviving part-
ners or the person or partnership continuing the busi-
ness, at the date of dissolution, in the absence of any

agreement to the contrary.

ACCRUAL & PRESCRIPTION OF PARTNER’S RIGHT TO
ACCOUNT HIS INTEREST: (2)

Answer 252

1. Right to demand accounting of value of interest accrues
   to any partner / legal rep after dissolution
    XPN: when there is agreement to the contrary
2. Prescription starts upon dissolution of partnership when
   final accounting is done

Question 253

PERSON LIABLE TO RENDER ACCOUNT:
Right of partner may be exercised against: (3)

Answer 253

1. Winding up partner
2. Surviving partner
3. Person / partnership continuing business

Question 254

1842: LIQUIDATION NEEDED FOR DETERMINATION OF
PARTNER’S SHARE: (2)

Answer 254

1. SHARE OF PROFITS – general liquidation before a
   member may claim a specific sum as share of profits
2. SHARE IN THE PARTNERSHIP – partner’s share cannot
   be returned w/o first dissolving and liquidating
   partnership, for the firm’s outside creditors have
   preference over the assets of the enterprise and firm’s
   property cannot be diminished to their prejudice

WHEN NOT NEEDED:
GR: when partnership is dissolved, the partner / his legal rep
is entitled to payment of what may be due after a liquidation
XPN: when there is already a settlement / agreement as to
what he shall receive

Question 255

Action is brought by two retiring partners for the return of their
shares against the managing partner who made a computation of their
value which computation was not approved by the other partners,
there being no proper liquidation made yet of partnership affairs.
Facts: A, B, C, D, and E formed a partnership for the sale
of general merchandise with A as the manager. During the
existence of the partnership, B and C expressed a desire to
withdraw from the fi rm. A thereupon made a computation
to determine the value of the partners’ shares. The results of
the computation were embodied in a document drawn in the
handwriting of A. Thereafter, B and C made demands upon
A for payment. A having refused, B and C fi led a complaint
against A.
The Court of Appeals ruled in favor of B and C, holding that
the action is not one for dissolution and liquidation but one for
recovery of a sum of money with A as principal defendant and
the partnership as an alternative defendant only, as it is based
on the allegation that A, having taken delivery of the shares of
B and C, failed to pay their claims and, therefore, the liability is
personal to A.
Issue: A’s argument is that the action cannot be entertained
because in the distribution of all or part of the partnership
assets, all the partners have an interest and are indispensable
parties without whose intervention no decree of distribution
can be validly entered. Is this argument correct?

Answer 255

cannot be returned without fi rst dissolving and liquidating
the partnership, for the return is dependent on the discharge
of creditors, whose claims enjoy preference over those of
the partners; 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 fi rm’s liquidation and
the distribution of its property.
The liquidation prepared by A is not signed by D and E,
the other partners; it does not appear that they have approved,
authorized, or ratifi ed the same and, therefore, it is not binding
upon them. At the very least, they are entitled to be heard as to
its correctness.

Question 256

ILLUSTRATIVE CASES:
1. Withdrawing partner agreed to relinquish all rights and
interests in the partnership upon the return of his investment.
Facts: A withdrew as partner from partnership X. It was
the intention and understanding of the parties that A was
relinquishing all his rights and interests in the partnership
upon the return of all his investment, subject to the condition
that A was to be repaid within three (3) days from the date the
settlement was agreed upon.
This condition was fulfi lled when on the following day, A
was reimbursed the amount due him under the agreement.
Issue: Is A entitled to profi ts of the partnership at the time
of dissolution?

Answer 256

Held: No liquidation was called for because there was
already a settlement as to what A should receive. It appeared that
the settlement was agreed upon the very day the partnership
was dissolved. The acceptance by A of his investment was understood and intended as a fi nal settlement of whatever
right or claim A might have in the dissolved partnership. A was
precluded from claiming any share in the profi ts should there
be any, at the time of dissolution. (Bonnevie vs. Hernandez, 95
Phil. 175 [1954].)

Question 257

2. Plaintiff, in violation of his promise, refused to sign the fi nal
   statement of accounts after receiving, without reservation, his share
   in the partnership.
   Facts: Partnership X was dissolved. A promised to sign
   the last and fi nal statement of accounts as soon as he receives
   his shares as shown in said statement. A accepted such share
   without any reservation but he refused to sign the statement.
   Issue: Is A still entitled to liquidation?

Answer 257

Held: No. The statement was deemed approved when A
received his share without any reservation. The signing became
a mere formality to be complied with by A exclusively and his
refusal to sign, after receiving his shares, amounted to a waiver
of that formality. This approval precludes any right on the part
of A to a further liquidation unless he can show that there was
fraud, deceit, error, or mistake in said approval.

Question 258

ART. 1843. A limited partnership is one formed by

two or more persons under the provisions of the fol-
lowing article, having as members one or more general partners and one or more limited partners. The limited
partners as such shall not be bound by the obligations
of the partnership.

LIMITED PARTNERSHIP:

Answer 258

 Formed by 2 / more persons, 1 / more are general
partners, and 1 / more are limited partners.
 The limited partners shall NOT BE BOUND by the
obligations of the partnership.
 Liability to 3rd persons of 1 / more members are limited
to a fixed amount, capital contribution / amount they
have invested are limited
 Investors
 This is the XPN to the GR that all partners are liable pro
rata w/ all property for partnership debts

Question 259

CHARACTERISTICS of a limited partner: (5)

Answer 259

1. Formed by compliance w/ statutory requirements
2. 1 / more general partners control the business and are
   personally liable to creditors
3. 1 / 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 the obligation beyond the amount contributed
4. Limited partners may ask for return of their capital
   contribution
5. The debts are paid out of common fund and of the
   individual properties of general partners

Question 260

PURPOSE OF LTD. PARTNERSHIP: (3)

Answer 260

1. Secure capital from others for one’s business but still
   retain control
2. Share in profits of a business w/o risk of personal
   liability
3. Associated as partners with those having business skill

Question 261

ART. 1844. Two or more persons desiring to form a
limited partnership shall:
(1) Sign and swear to a certifi cate, which shall state:
(a) The name of the partnership, adding thereto
the word “Limited”;
(b) The character of the business;

(c) The location of the principal place of busi-
ness;

(d) The name and place of residence of each

member, general and limited partners being respec-
tively designated;

(e) The term for which the partnership is to ex-
ist;

(f) The amount of cash and description of and
the agreed value of the other property contributed
by each limited partner;
(g) The additional contributions, if any, to be
made by each limited partner and the times at which
or events on the happening of which they shall be
made;

(h) The time, if agreed upon, when the contribu-
tion of each limited partner is to be returned;

(i) The share of the profi ts or the other compen-
sation by way of income which each limited partner

shall receive by reason of his contribution;
(j) The right, if given, of a limited partner to
substitute an assignee as contributor in his place,
and the terms and conditions of the substitution;
(k) The right, if given, of the partners to admit
additional limited partners;

(l) The right, if given, of one or more of the lim-
ited partners to priority over other limited partners,

as to contributions or as to compensation by way of
income, and the nature of such priority;
(m) The right, if given, of the remaining general
partner or partners to continue the business on the

death, retirement, civil interdiction, insanity or in-
solvency of a general partner; and

(n) The right, if given, of a limited partner to de-
mand and receive property other than cash in return

of his contribution.
(2) File for record the certifi cate in the Offi ce of the
Securities and Exchange Commission.
A limited partnership is formed if there has been
substantial compliance in good faith with the foregoing
requirements.

REQUIREMENTS OF A LIMITED PARTNERSHIP: (2)

Answer 261

1. Sign and swear to a certificate / articles of limited
   partnership: (14)
   a. Name of partnership with the word “limited”
   b. Character of business
   c. Location of principal place of business
   d. Name & place of residence of each member, both
   gen & ltd. Partners
   e. Term of partnership’s existence
   f. Amount of cash and description of and agreed value
   of the other property contributed by each ltd partner
   g. Additional contribution if any, to be made by each
   ltd partner and when they shall be made
   h. Time, if agreed, when contributions are to be
   returned
   i. Share of the profits / other compensation by way
   of income w/c each ltd partner will receive because
   of contribution
2. File for record the certificate in the office of SEC
    Ltd partnership is formed if substantial compliance
   with requirements + good faith
    If not: liability becomes that of general partners as to
   3
   rd persons only
    If certificate is defective: ltd partner is not formed
   o XPN: when creditors recognize them as ltd
   partnership, they are estopped from insisting that
   ltd partnership did not exist
    Failure to extend term / renew: becomes general
   partners

Question 262

WHO MAY BECOME A LTD PARTNER?

Answer 262

 A partnership cannot be a ltd partner
 General partner/ship can become a ltd partner/ship

Question 263

EXAMPLE:
In a limited partnership composed of A, B, and C, the
contributions may be as follows: A — cash (limited partner);
B — cash (general partner); and C — services (general partner).

Answer 263

Any of the partners may be a general partner and a
limited partner at the same time. The contribution may be
cash or property only, or both capital and services. Thus, if
A, in addition to cash, also contributes services, he becomes
a general partner and a limited partner at the same time; if he
contributes services only, he is a general partner.
If a partner contributes capital only, he is either a general
partner or a limited partner, or both, depending upon the
agreement as stated in the certifi cate.

Question 264

ART. 1845. The contributions of a limited partner
may be cash or other property, but not services.

LIMITED PARTNER’S CONTRIBUTION:
ONLY MONEY OR PROPERTY, NOT INDUSTRY:

GR and XPN

Answer 264

GR: promissory notes, post-dated checks, bonds are not
considered ltd partner’s contribution
XPN: certified check / manager’s check
 Contribution should be paid BEFORE formation of
partnership
o XPN: additional contribution

Question 265

ART. 1846. The surname of a limited partner shall
not appear in the partnership name unless:
(1) It is also the surname of a general partner, or

(2) Prior to the time when the limited partner be-
came such, the business had been carried on under a

name in which his surname appeared.

A limited partner whose surname appears in a part-
nership name contrary to the provisions of the fi rst

paragraph is liable as a general partner to partnership
creditors who extend credit to the partnership without
actual knowledge that he is not a general partner.

WHEN SURNAME OF LTD PARTNER APPEARS IN
PARTNERSHIP NAME:
GR: Surname of ltd partner shall not appear in the firm name
XPNS: (2)

Answer 265

1. Also a surname of a general partner
2. Prior to the time when the ltd partner became such, the
   business had been carried on under a name wherein his
   surname appeared
    If name appears in contrary: he will be liable as ltd
   partner to 3rd persons IF they had no knowledge that he
   was not a general partner

Question 266

ART. 1847. If the certifi cate contains a false state-
ment, one who suffers loss by reliance on such state-
ment may hold liable any party to the certifi cate who

knew the statement to be false:
(1) At the time he signed the certifi cate, or

(2) Subsequently, but within a suffi cient time be-
fore the statement was relied upon to enable him to

cancel or amend the certifi cate, or to fi le a petition for its
cancellation or amendment as provided in Article 1865.

LIABILITIES FOR FALSE STATEMENT IN CERTIFICATE:
REQUISITES: (3)
Remedy

Answer 266

1. Partner KNEW of the false statement when he signed the
   contract or subsequently, but having sufficient time to
   cancel / amend it / file petition for cancellation /
   amendment but did not do so
2. Person aggrieved RELIED UPON false statement in
   transacting with the partnership
3. Person aggrieved SUFFERED LOSS for reliance
    Loss – if capital contribution was LESS than
   specified (and not the other way around)

 REMEDY: Does not make ltd partner a general partner
even to 3rd persons (can only be sued for damages)

Question 267

1847:
EXAMPLES:
(1) A, a limited partner, appeared as a general partner in
the certifi cate. If Article 1847 is applicable, he cannot raise the
defense that he is merely a limited partner to escape personal
liability to innocent third persons in case the other general
partners are insolvent.
(2) The contribution of A, limited partner, is erroneously
stated in the certifi cate as P15,000.00 instead of P10,000.00. If
Article 1847 is applicable, he may be made liable to innocent
third persons for the difference of P5,000.00.
In the above examples, A is not liable and is a limited
partner with respect to his co-partners with knowledge of the
falsity.

Answer 267

Article 1847 is applicable, he may be made liable to innocent
third persons for the difference of P5,000.00.
In the above examples, A is not liable and is a limited
partner with respect to his co-partners with knowledge of the
falsity.

Question 268

ART. 1848. A limited partner shall not become liable
as a general partner unless, in addition to the exercise of
his rights and powers as a limited partner, he takes part
in the control of the business.

GR: Ltd partner is not liable to become a general partner
XPN: if he takes part in the control of business: (4)

Answer 268

1. Business is carried on by a board of directors
   chosen by ltd partners
2. Term of the contract between parties, an appointee
   of the ltd partner becomes the directing manager of
   the firm
3. Ltd partner purchases entire property of the
   partnership taking title for himself and carries
   business in his own name
4. Makes / is a party to a contract w/ creditors of an
   insolvent firm w/ respect to disposal of firm’s assets
   in payment of firm’s debts
    XPN to the XPN: taking part in the management
   because he settles its affairs after dissolution

Question 269

ART. 1849. After the formation of a limited partner-
ship, additional limited partners may be admitted upon

fi ling an amendment to the original certifi cate in accor-
dance with the requirements of article 1865.

ADMISSION OF ADD’L LTD PARTNERS:
REQUISITES TO ADMISSION: (3)

Answer 269

1. Proper amendment to the certificate
2. Signed and sworn by ALL partners including the new ltd
   partners
3. Filed in SEC

Question 270

ART. 1850. A general partner shall have the rights
and powers and be subject to all the restrictions and
liabilities of a partner in a partnership without limited

partners. However, without the written consent or rati-
fi cation of the specifi c act by all the limited partners, a

general partner or all of the general partners have no
authority to:
(1) Do any act in contravention of the certifi cate;
(2) Do any act which would make it impossible to
carry on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their
rights in specifi c partnership property, for other than a
partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the
right to do so is given in the certifi cate;

(7) Continue the business with partnership prop-
erty on the death, retirement, insanity, civil interdiction

or insolvency of a general partner, unless the right so to
do is given in the certifi cate.

RIGHTS, POWERS & LIABILITIES OF A GENERAL PARTNER:
GR: general partner has the rights and powers & be subject
to ALL restrictions and liabilities of a partnership w/o ltd
partners
XPN: when there is NO COSENT / ratification by ALL ltd
partners, general partners cannot: (7)

Answer 270

1. DO ANY ACT in contravention of the certificate
2. DO ANY ACT w/c would make it impossible to carry on
   the ordinary business of partnership
3. CONFESS a judgment against the partnership
4. POSSESS partnership property / assign rights in specific
   partnership property for other than partnership purpose
5. ADMIT a person as general partner
6. ADMIT a person as ltd partner
    XPN: right to do so is in the certificate
7. CONTINUE the business w/ property on the death,
   retirement, insanity, civil interdiction / insolvency of a
   general partner
    XPN: right to do so is in the certificate

Question 271

ART. 1851. A limited partner shall have the same
rights as a general partner to:

(1) Have the partnership books kept at the princi-
pal place of business of the partnership, and at a rea-
sonable hour to inspect and copy any of them;

(2) Have on demand true and full information of all
things affecting the partnership, and a formal account
of partnership affairs whenever circumstances render it
just and reasonable; and
(3) Have dissolution and winding up by decree of
court.
A limited partner shall have the right to receive a

share of the profi ts or other compensation by way of in-
come, and to the return of his contribution as provided

in articles 1856 and 1857.

1851:
RIGHTS OF A LTD PARTNER: (7)

Answer 271

1. REQUIRE partnership books be kept at a principal place
   of business
2. INSPECT and copy at a reasonable hour
3. DEMAND true & full information of all things affecting
   the partnership
4. ASK for dissolution and winding up by decree of court
5. RECEIVE a share of profits / other compensation thru
   income
6. RECEIVE the return of his contribution
    PROVIDED: partnership assets are in excess of all its
   liabilities

Question 272

ART. 1852. Without prejudice to the provisions of
article 1848, a person who has contributed to the capital

of a business conducted by a person or partnership erro-
neously believing that he has become a limited partner

in a limited partnership, is not, by reason of his exer-
cise of the rights of a limited partner, a general partner

with the person or in the partnership carrying on the
business, or bound by the obligations of such person or
partnership; provided that on ascertaining the mistake
he promptly renounces his interest in the profi ts of the
business or other compensation by way of income.

STATUS OF PARTNER WHERE THERE IS FAILURE TO
CREATE LTD PARTNERSHIP:
 A person who contributed capital ERRONEOUSLY
believing that he has become a ltd partner, when his
name appears as a gen partner / is not designated as ltd
partner IS NOT LIABLE AS GENERAL PARTNER
o PROVIDED: (3)

Answer 272

1. On ascertaining mistake, he promptly
   renounces his interest in the profits of the
   business / other compensation by way of
   income:
    before partnership becomes liable to 3rd
   persons who has considered him a general
   partner
    not necessary when no creditor is
   prejudiced
    only profits / compensation not yet paid
   over, no obligation to return profits already
   received
2. Surname does not appear in partnership name
3. Doesn’t participate in the management of the
   business
   GR: an heir of a gen. partner admitted as partner,
   ORDINARILY becomes a ltd partner to avoid liability in
   excess of value of inheritance (personal assets)
   XPN: if he choose to elect to become a gen. partner
   WAIVED: “in the event of the death of a partner “the
   partnership shall be continued and the deceased partner
   shall be represented by his heirs and assignees in said
   partnership” as general partners

Question 273

ILLUSTRATIVE CASE:
A limited partnership was organized under a law that had been
repealed, and subsequently, bankruptcy proceedings were instituted
against the fi rm and the members.

Facts: A and B, both stockbrokers, formed a limited part-
nership for the purpose of engaging in the stock brokerage

business in the state of Illinois (U.S.A.). It turned out that the
statute under which the fi rm was organized had been repealed
with the adoption of the Uniform Limited Partnership Act by
the State of Illinois. A and B had no knowledge of the repeal.
Subsequently, bankruptcy proceedings were instituted
against the fi rm and all the members, including the limited
partners.
Issue: Are the limited partners entitled to the benefi ts of
Section 11 (Art. 1852.) of the Act?

Answer 273

Held: Yes. Only the general partners could be adjudicated
bankrupt. (Giles vs. Vette, 263 U.S. 553 [1924].)

Question 274

ART. 1853. A person may be a general partner and
a limited partner in the same partnership at the same
time, provided that this fact shall be stated in the certifi -
cate provided for in article 1844.
A person who is a general, and also at the same time
a limited partner shall have all the rights and powers

and be subject to all the restrictions of a general part-
ner; except that, in respect to his contribution, he shall

have the rights against the other members which he
would have had if he were not also a general partner.

GENERAL + LTD PARTNER:
Gen + ltd partner in the same partnership, at the same time
is allowed:

Answer 274

PROVIDED: stated in the certificate
1. Rights and powers are those of a general partner – still
liable to 3rd persons
2. With respect to his contribution as a ltd partner, he has
a right of a ltd partner – entitled to recover from the gen
partners what he has paid to 3rd persons and in settling
accounts after dissolution, he shall have priority over
gen. partners in the return of their respective
contributions

Question 275

ART. 1854. A limited partner also may loan money to
and transact other business with the partnership, and,
unless he is also a general partner, receive on account of
resulting claims against the partnership, with general

creditors, a pro rata share of the assets. No limited part-
ner shall in respect to any such claim:

(1) Receive or hold as collateral security any part-
nership property, or

(2) Receive from a general partner or the partner-
ship any payment, conveyance, or release from liability,

if at the time the assets of the partnership are not suffi -
cient to discharge partnership liabilities to persons not
claiming as general or limited partners.
The receiving of collateral security, or a payment,

conveyance, or release in violation of the foregoing pro-
visions is a fraud on the creditors of the partnership.

LOAN & OTHER BUSINESS TRANSACTIONS W/ LTD
PARTNERSHIP:
ALLOWABLE TRANSACTIONS: (3)

Answer 275

1. Granting loans to the partnership
2. Transacting other business with it
3. Receiving pro rata share of partnership assets w/ gen.
   creditors if he is also not a gen. partner

Question 276

LOAN & OTHER BUSINESS TRANSACTIONS W/ LTD
PARTNERSHIP: PROHIBITED: (2)

Answer 276

1. Receiving / holding as collateral security any partnership
   property
2. Receiving any payment, conveyance / release from
   liability if it will prejudice the right of 3rd persons
    Violation of prohibition = presumption of FRAUD
    Doesn’t prohibit absolutely the taking of collateral
   security by a ltd partner of any partnership property

PREFERENTIAL RIGHTS:
 Ltd partner is considered non-partner creditor
 3
rd persons are preferred insofar as partnership assets
are concerned

Question 277

1855: EXAMPLE:
A, B, and C are general partners with D as limited partner.
The total assets of the partnership amount to P200,000.00. The
partnership owes D P50,000.00 and E, a third party creditor,
P250,000.00.
Since the assets of the partnership are not suffi cient to
discharge its liabilities to E, D cannot receive his claim of
P50,000.00 and payment to him will be presumed to have been
made to defraud E. It will likewise raise the same presumption
if D is the one indebted to the partnership and he is released
from liability.

Answer 277

D, however, is not prohibited from purchasing any
partnership property if the purpose is to generate cash with
which to pay off partnership obligations to third persons.

Question 278

ART. 1855. Where there are several limited partners,
the members may agree that one or more of the limited

partners shall have a priority over other limited part-
ners as to the return of their contributions, as to their

compensation by way of income, or as to any other mat-
ter. If such an agreement is made, it shall be stated in

the certifi cate, and in the absence of such a statement all
the limited partners shall stand upon equal footing.

PREFERRED LTD PARTNERS:
All gen + ltd partners may agree, as stated in the cert, that
priority / preference be given to some ltd partners over
others as to:

Answer 278

1. Return of their contributions
2. Compensation by way of income
3. Any other matter
   If not in the cert = all ltd partners shall stand on equal footing

Question 279

ART. 1856. A limited partner may receive from the
partnership the share of the profi ts or the compensation

by way of income stipulated for in the certifi cate; pro-
vided, that after such payment is made, whether from

the property of the partnership or that of a general part-
ner, the partnership assets are in excess of all liabilities

of the partnership except liabilities to limited partners

on account of their contributions and to general part-
ners.

COMPENSATION OF LTD PARTNER:

Answer 279

 Creditors have priority over ltd partner’s rights
(partnership assets – partnership liabilities = excess)
 In determining partnership liabilities, exclude: (2)
o Liabilities to ltd partners for contribution
o Gen partners W/N for contribution

Question 280

ART. 1857. A limited partner shall not receive from a
general partner or out of partnership property any part
of his contributions until:
(1) All liabilities of the partnership, except liabilities
to general partners and to limited partners on account
of their contributions, have been paid or there remains
property of the partnership suffi cient to pay them;
(2) The consent of all members is had, unless the
return of the contribution may be rightfully demanded
under the provisions of the second paragraph; and
(3) The certifi cate is cancelled or so amended as to
set forth the withdrawal or reduction.
Subject to the provisions of the fi rst paragraph, a
limited partner may rightfully demand the return of his
contributions:
(1) On the dissolution of a partnership, or
(2) When the date specifi ed in the certifi cate for its
return has arrived, or
(3) After he has given six months notice in writing

to all other members, if no time is specifi ed in the cer-
tifi cate, either for the return of the contribution or for

the dissolution of the partnership.
In the absence of any statement in the certifi cate to
the contrary or the consent of all members, a limited
partner, irrespective of the nature of his contribution,
has only the right to demand and receive cash in return
for his contribution.

A limited partner may have the partnership dis-
solved and its affairs wound up when:

(1) He rightfully but unsuccessfully demands the
return of his contribution, or
(2) The other liabilities of the partnership have not
been paid, or the partnership property is insuffi cient for
their payment as required by the fi rst paragraph, No. 1,
and the limited partner would otherwise be entitled to
the return of his contribution.

CONDITIONS BEFORE A CONTRIBUTION OF A LTD
PARTNER CAN BE RETURNED: (3)

Answer 280

1. All partnership liabilities have been paid / if not paid,
   partnership assets are still sufficient to pay such
   liabilities
2. Consent of all members has been obtained except when
   return may be rightfully demanded
3. Certificate is cancelled / amended to set forth the
   withdrawal / reduction of contribution

Question 281

CONDITIONS BEFORE A CONTRIBUTION OF A LTD
PARTNER CAN BE RETURNED:
WHEN RETURN IS A MATTER OF RIGHT:

Answer 281

1. On the dissolution of partnership
2. Upon the arrival of the date specified in the
   certificate for return
3. After expiration of the 6 months’ notice in writing
   given to other partners If no time is fixed in the
   certificate for the return of contribution / dissolution
   of partnership

Question 282

RIGHT OF LTD PARTNER TO CASH IN RETURN FOR
CONTRIBUTION:
GR: even if ltd partner has contributed property, he has only
the right to demand and receive CASH for his contribution
XPNS: (2)

Answer 282

1. When there is stipulation to the contrary in the cert
2. When all partners consent to the return other than cash

Question 283

WHEN LTD PARTNER MAY HAVE PARTNERSHIP
DISSOLVED: (2)

Answer 283

1. Dissolution by partners – ltd partner must ask the other
   partners to have the partnership dissolved, if they refuse,
   remedy is no. 2
2. Dissolution by judicial decree – additional grounds upon
   petition of ltd partner (2)
   a. When demand for return of his contribution is
   denied although has a right to such return
   b. Contribution is not paid although he is entitled to its
   return because the other liabilities of the partnership
   have not been paid / the partnership property is
   insufficient for payment

Question 284

EXAMPLE:
After operating for some time as a limited partnership,
X & Co., composed of A, B, and C, as general partners,
who contributed P30,000.00 each, and D and E, as limited
partners, who contributed P20,000.00 each, has a total assets of
P150,000.00 and the following liabilities:
(1) For return of contributions of limited
partners (D and E) …………. P40,000.00
(2) Due to third party credits ……. 50,000.00
(3) For loan extended by C ……….. 25,000.00
(4) For loan extended by D ………. 35,000.00
(5) For taxes ……………………… 15,000.00
(6) For indemnity to B for damages
suffered in consequence of
management …………… 5,000.00
Total ……………….. P170,000.00
May E legally demand the return of his contribution,
assuming that all the partners have given their consent and
are willing to have the certifi cate amended as to set forth the
withdrawal?

Answer 284

Yes. The total assets of P150,000.00 are well over the amount
of P100,000.00, the total of the liabilities mentioned in Nos. (2),

(4), and (5). The other liabilities are not considered in determin-
ing whether the contribution of E can be returned to him.

Question 285

ART. 1858. A limited partner is liable to the partner-
ship:

(1) For the difference between his contribution as
actually made and that stated in the certifi cate as having
been made, and
(2) For any unpaid contribution which he agreed in
the certifi cate to make in the future at the time and on
the conditions stated in the certifi cate.

A limited partner holds as trustee for the partner-
ship:

(1) Specifi c property stated in the certifi cate as
contributed by him, but which was not contributed or
which has been wrongfully returned, and
(2) Money or other property wrongfully paid or
conveyed to him on account of his contribution.
The liabilities of a limited partner as set forth in this

article can be waived or compromised only by the con-
sent of all members; but a waiver or compromise shall

not affect the right of a creditor of a partnership who
extended credit or whose claim arose after the fi ling and
before a cancellation or amendment of the certifi cate, to
enforce such liabilities.

When a contributor has rightfully received the re-
turn in whole or in part of the capital of his contribu-
tion, he is nevertheless liable to the partnership for any

sum, not in excess of such return with interest, neces-
sary to discharge its liabilities to all creditors who ex-
tended credit or whose claims arose before such return.

1858:
LIABILITIES FOR UNPAID CONTRIBUTION OF A LTD
PARTNER: (2)
LIABILITY AS TRUSTEE: (4)

Answer 285

1. For the difference between his actual contribution & that
   stated in the certificate he made
2. Unpaid contribution w/c he agreed in the certificate to
   make in the future at the time and on the conditions
   stated in the certificate

LIABILITY AS TRUSTEE: (4)
1. Specific property stated in the certificate as contributed
by him but which he had not contributed
2. Specific property of partnership w/c had been
wrongfully returned to him
3. Money wrongfully paid / conveyed to him on account of
his contribution
4. Other property wrongfully paid / conveyed to him

Question 286

ABILITIES FOR UNPAID CONTRIBUTION OF A LTD
PARTNER:
REQUISITES FOR WAIVER / COMPROMISE OF LIABILITIES:
(2)

Answer 286

1. With compensation made w/ consent of all partners
2. w/c does not prejudice partnership creditors who
   extended credit / whose claims arose before
   cancellation / amendment of
    ltd partner is liable for the return of contribution
   lawfully received by him to pay creditors who
   extended credit
    such liability cannot exceed sum received by him w/
   interest

Question 287

1958: EXAMPLE:

A and B are limited partners in a partnership. In the cer-
tifi cate of partnership, it appears that A contributed P10,000.00.

Actually, he contributed only P8,000.00. In the certifi cate too, B
promised to give an additional contribution of P4,000.00 at a
specifi ed date.

Answer 287

So, A should pay the difference of P2,000.00 and B, the
amount of P4,000.00 on the date specifi ed or now, if the date
has arrived.

Question 288

1858: EXAMPLE:
In the preceding illustration, suppose after the liabilities of
A and B were waived or compromised with the consent of all
the partners, X extended credit to the partnership. Later on, the
certifi cate was amended to set forth the necessary change.

Answer 288

Here, the credit was extended after the fi ling but before
the amendment of the certifi cate. If the remaining assets are
insuffi cient, X can still enforce the liabilities of A and B.

Question 289

1858: EXAMPLE:

Suppose that A lawfully received the return of his contri-
bution in the amount of P10,000.00 on the date specifi ed in the

certifi cate. Subsequently, the partnership became liable to X.

Answer 289

In this case, if the assets of the partnership are insuffi cient,
the claim of X should be directed against the general partners.
But if X extended credit or his claim arose before A received the
return of his contribution, then, A is liable to the partnership.
Thus, if the partnership needs P7,000.00 to discharge the
liabilities to X, then A is liable for the said amount plus interest.
But in no case is A liable beyond P10,000.00 plus interest
because he is only a limited partner.

Question 290

ART. 1859. A limited partner’s interest is assignable.
A substituted limited partner is a person admitted
to all the rights of a limited partner who has died or has
assigned his interest in a partnership.
An assignee, who does not become a substituted
limited partner, has no right to require any information
or account of the partnership transactions or to inspect
the partnership books; he is only entitled to receive the
share of the profi ts or other compensation by way of

income, or return of his contribution, to which his as-
signor would otherwise be entitled.

An assignee shall have the right to become a substi-
tuted limited partner if all the members consent thereto

or if the assignor, being thereunto empowered by the
certifi cate, gives the assignee that right.
An assignee becomes a substituted limited partner

when the certifi cate is appropriately amended in accor-
dance with article 1865.

The substituted limited partner has all the rights

and powers, and is subject to all the restrictions and lia-
bilities of his assignor, except those liabilities of which

he was ignorant at the time he became a limited partner
and which could not be ascertained from the certifi cate.
The substitution of the assignee as a limited partner

does not release the assignor from liability to the part-
nership under articles 1847 and 1858.

EFFECT OF CHANGE IN THE RELATION OF LTD PARTNERS:
SUBSTITUTED LTD PARTNER – person admitted to all the
rights of a ltd partner who has died / assigned his interest in
the partnership
REQUISITES: (3)

Answer 290

1. All members must consent to the assignee becoming a
   SLP / ltd partner being empowered by that cert, must
   give the assignee the right to become a ltd partner
2. Certificate must be amended
3. Amended certificate must be registered with SEC

ASSIGNEE WHO ISN’T A SLP (LIMITATIONS): (2)
1. Has no right to require information / account of the
partnership transactions or inspect books
2. Only entitled to receive share of profits / other
compensation by way of income / return of his
contribution
LIABILITY OF SLP / ASSIGNOR: (3)
1. Liable for all liabilities of his assignor
a. XPN: only those of w/c he was ignorant at that time
he became a ltd partner and w/c couldn’t be
ascertained from the certificate
2. Liable to persons who suffered damage by reliance on
false statement in the certificate
3. Liable to creditors who extended credit / whose claims
arose BEFORE substitution

Question 291

ART. 1860. The retirement, death, insolvency, insan-
ity, or civil interdiction of a general partner dissolves

the partnership, unless the business is continued by the
remaining general partners:
(1) Under the right so to do stated in the certifi cate,
or
(2) With the consent of all the members.

EFFECT OF RETIREMENT, DEATH, ETC. OF A GEN
PARTNER:

Answer 291

GR: retirement, death, insolvency, insanity / civil interdiction
of a gen. partner DISSOLVES partnership
XPN: when continued by remaining gen partners: (2)
1. Under the right to do so as stated in the certificate
2. w/ consent of all members

Question 292

ART. 1861. On the death of a limited partner, his
executor or administrator shall have all the rights of a
limited partner for the purpose of settling his estate,
and such power as the deceased had to constitute his
assignee as substituted limited partner.

The estate of a deceased limited partner shall be li-
able for all his liabilities as a limited partner.

RIGHT OF EXECUTOR ON DEATH OF LTD PARTNER: (2)

Answer 292

1. Executor / administrator shall ACQUIRE ALL RIGHTS for
   the purpose of settling affairs of the ltd partner
2. Right to CONSTITUTE the deceased’s assignee as SLP
   a. Only if deceased partner is empowered to do so in
   the certificate
   b. Estate of the deceased ltd partner is liable for all his
   liabilities contracted while he was still a ltd partner

Question 293

ART. 1862. On due application to a court of compe-
tent jurisdiction by any creditor of a limited partner, the

court may charge the interest of the indebted limited
partner with payment of the unsatisfi ed amount of such
claim, and may appoint a receiver, and make all other

orders, directions, and inquiries which the circumstanc-
es of the case may require.

The interest may be redeemed with the separate

property of any general partner, but may not be re-
deemed with partnership property.

The remedies conferred by the fi rst paragraph shall
not be deemed exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a
limited partner of his statutory exemption.

RIGHTS OF CREDITORS OF LTD PARTNERS: (2)

Answer 293

Creditors may apply to the proper court for an order charging
the ltd partner’s interest in the partnership for payment of
any unsatisfied amount: (CHARGING ORDER)
1. Interest so charged can be redeemed w/ separate
property of any general partner but not with partnership
property
2. Interest of debtor partner charged w/ payment of
unsatisfied amount of the judgment debt can be
redeemed w/ partnership property w/ consent of all the
partners whose interest are not charged

Question 294

ART. 1863. In settling accounts after dissolution the

liabilities of the partnership shall be entitled to pay-
ment in the following order:

(1) Those to creditors, in the order of priority as
provided by law, except those to limited partners on
account of their contributions, and to general partners;
(2) Those to limited partners in respect to their
share of the profi ts and other compensation by way of
income on their contributions;

(3) Those to limited partners in respect to the capi-
tal of their contributions;

(4) Those to general partners other than for capital
and profi ts;
(5) Those to general partners in respect to profi ts;
(6) Those to general partners in respect to capital.

Subject to any statement in the certifi cate or to sub-
sequent agreement, limited partners share in the part-
nership assets in respect to their claims for capital, and in respect to their claims for profi ts or for compensation
by way of income on their contribution respectively, in
proportion to the respective amounts of such claims.

1863:
DISSOLUTION OF A LTD PARTNERSHIP:
PRIORITY IN THE DISTRIBUTION OF ASSETS: (6)

Answer 294

1. Due to CREDITORS, including ltd partners, except those
   on account of their contributions, in the order of priority
2. Due to LIMITED PARTNERS in respect to their SHARE
   OF PROFITS and other compensation through income
   on their contribution
3. Due to LIMITED PARTNERS for RETURN OF CAPITAL
   contribution
4. LOANS due to GENERAL PARTNERS other than for
   capital and profits
5. Due to GENERAL PARTNERS in respect to PROFITS
6. Due to GENERAL PARTNERS for RETURN OF CAPITAL
   contribution

Question 295

CAUSES OF DISSOLUTION OF LTD PARTNERSHIP: (6)

Answer 295

1. Misconduct of gen. partner
2. Fraud by gen. partner to the ltd partner
3. Retirement, death, etc. of gen. partner
4. All ltd partners ceased to be such
5. Expiration of term
6. Mutual consent of partners before expiration of firm’s
   original term

Question 296

SUIT FOR DISSOLUTION: Limited partneship

Answer 296

1. When there is MISCONDUCT of gen partner / there is
   INSOLVENCY:
   a. REMEDY of ltd partner – bring SUIT FOR
   DISSOLUTION of firm, an accounting, appointment
   of receiver (misconduct)
   b. REMEDY of creditors – same (insolvency)
2. When ltd partner rightfully but unsuccessfully demands
   the return of his contribution:
   a. REMEDY: he can have partnership DISSOLVED and
   affairs wound up
   b. XPN: liabilities to gen partners and to ltd partners on
   account of their contributions
   NOTICE OF DISSOLUTION: (2)
3. When NOT needed – when firm is dissolved by the
   EXPIRATION of term fixed in the certificate
4. When NEEDED – when by express will of the partners,
   certificate shall be cancelled before expiration
    When ltd partnership has been dissolved, gen
   partners have the power to wound up affairs
    It is not the ltd partner / representative of deceased
   partner’s obligation to collect firm’s assets
    Representatives of gen partners succeed gen
   partners, not ltd partners
   PROPORTIONAL SHARING:
    When assets are insufficient to pay claims
    In absence of any statement as to share of profits w/c
   each partner shall receive by reason of contribution
   (pro-rata)
   PRIORITY CLAIMS OF LTD PARTNERS:
    Ltd partners may have an agreement in the certificate as
   to priority, otherwise equal footing

Question 297

ART. 1864. The certifi cate shall be cancelled when
the partnership is dissolved or all limited partners cease
to be such.
A certifi cate shall be amended when:
(1) There is a change in the name of the partnership or in the amount or character of the contribution of any
limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;

(5) A general partner retires, dies, becomes insol-
vent or insane, or is sentenced to civil interdiction and

the business is continued under article 1860;
(6) There is change in the character of the business
of the partnership;
(7) There is a false or erroneous statement in the
certifi cate;

(8) There is a change in the time as stated in the cer-
tifi cate for the dissolution of the partnership or for the

return of a contribution;

(9) A time is fi xed for the dissolution of the part-
nership, or the return of a contribution, no time having

been specifi ed in the certifi cate; or
(10) The members desire to make a change in any
other statement in the certifi cate in order that it shall
accurately represent the agreement among them.

1864:
WHEN CERTIFICATE IS CANCELLED: (2)

1. When partnership is dissolved other than by reason of
   expiration of term
2. All ltd partners ceases to be such

Answer 297

1. When partnership is dissolved other than by reason of
   expiration of term
2. All ltd partners ceases to be such

Question 298

Limited partnership: WHEN CERTIFICATE IS AMENDED: (10)

Answer 298

1. Change in the name of partnership / amount / character
   of contribution of any ltd partner
2. A person is substituted as ltd partner
3. Additional ltd partner is admitted
4. A person is admitted as gen partner
5. Change in the character of business
6. False/erroneous statement in the certificate
7. Gen partner retires, dies, becomes insolvent or insane,
   or sentenced to civil interdiction and business is still
   continued
8. Change in the time as stated in the certificate for
   dissolution or for return of contribution
9. A time is fixed for dissolution or return of contribution,
   no time having been specified in the certificate
10. Members desire to make a change in any other
    statement in the certificate in order that it shall
    accurately represent the agreement among them

Question 299

ART. 1865. The writing to amend a certifi cate shall:
(1) Conform to the requirements of article 1844 as
far as necessary to set forth clearly the change in the
certifi cate which it is desired to make; and
(2) Be signed and sworn to by all members, and an
amendment substituting a limited partner or adding a
limited or general partner shall be signed also by the
member to be substituted or added, and when a limited
partner is to be substituted, the amendment shall also
be signed by the assigning limited partner.
The writing to cancel a certifi cate shall be signed by
all members.
A person desiring the cancellation or amendment of
a certifi cate, if any person designated in the fi rst and
second paragraphs as a person who must execute the
writing refuses to do so, may petition the court to order
a cancellation or amendment thereof.
If the court fi nds that the petitioner has a right to have
the writing executed by a person who refuses to do so,
it shall order the Offi ce of the Securities and Exchange
Commission where the certifi cate is recorded, to record
the cancellation or amendment of the certifi cate; and
when the certifi cate is to be amended, the court shall
also cause to be fi led for record in the said offi ce a
certifi ed copy of its decree setting forth the amendment.
A certifi cate is amended or cancelled when there
is fi led for record in the Offi ce of the Securities and
Exchange Commission, where the certifi cate is recorded:
(1) A writing in accordance with the provisions of
the fi rst or second paragraph; or
(2) A certifi ed copy of the order in accordance with
the provisions of the fourth paragraph;

(3) After the certifi cate is duly amended in accor-
dance with this article, the amended certifi cate shall

thereafter be for all purposes the certifi cate provided
for in this Chapter.

REQUIREMENTS FOR AMENDMENT OF CERTIFICATE: (3)

Answer 299

1. In writing
2. Signed & sworn to by all members (old & new), assigning
   ltd partner in case of substitution / addition of ltd / gen
   partner
3. Amended certificate – filed for record with SEC
    Effectively amended UPON filing with SEC

Question 300

REQUIREMENTS FOR CANCELLATION OF CERTIFICATE: (3) limited partnership

Answer 300

1. In writing
2. Signed & sworn to by all members
3. Filed for record with SEC

 If cancellation is ORDERED BY COURT – certified copy
of such order shall be filed with SEC
 Approval by commission of amendment / cancellation
NOT REQUIRED

Question 300

ART. 1866. A contributor, unless he is a general part-
ner, is not a proper party to proceedings by or against

a partnership, except where the object is to enforce a

limited partner’s right against or liability to the part-
nership.

CONTRIBUTOR (STANGER):
 A ltd partner whose liability is ltd to his interest in the
firm w/o any right & power to participate in the
management and control of the business
 There is no fiduciary relationship w/ other partners
o Not prohibited from engaging in business for
himself / similar business
o Can transact w/ partnership for ordinary purposes
 He is liable to partnership, not to creditors of the
partnership

GR: XPNS: (2)

Answer 300

1. If he is also a general partner
2. Where the object is to enforce a ltd partner’s right vs.
   liability of partnership

Question 301

NATURE OF LTD PARTNER’S INTEREST: (5)

Answer 301

1. His contributions to the firm is NOT A LOAN, he is not a
   creditor
2. It is NOT a mere investment
3. He is an owner, but has NO PROPERTY RIGHT in firm’s
   assets; just a co-owner w/ his partners of the
   partnership property; tenancy in partnership
4. Ltd partner’s interest is in PERSONAL PROPERTY, thus
   immaterial whether firm’s assets consist of realty /
   tangible / intangible personalty
5. The nature amounts to a share in the assets after
   liabilities have been deducted and a balance struck;
   interest is a CHOSE IN ACTION therefore intangible
   personal property

Question 302

ART. 1867. A limited partnership formed under the
law prior to the effectivity of this Code, may become a
limited partnership under this Chapter by complying
with the provisions of Article 1844, provided the certifi -
cate sets forth:
(1) The amount of the original contribution of each
limited partner, and the time when the contribution
was made; and
(2) That the property of the partnership exceeds

the amount suffi cient to discharge its liabilities to per-
sons not claiming as general or limited partners by an amount greater than the sum of the contributions of its
limited partners.
A limited partnership formed under the law prior to
the effectivity of this Code, until or unless it becomes a
limited partnership under this Chapter, shall continue
to be governed by the provisions of the old law.

PROVISIONS FOR EXISTING LTD PARTNERSHIPS:
A ltd partnership formed PRIOR TO EFFECTIVITY of this
code shall continue to be governed by the old law unless:

Answer 302

1. Complies w/ Art. 1844 (REQUIREMENTS OF A LIMITED PARTNERSHIP)
2. Provided in the certificate:
   a. Amount of original contribution of each member at
   the time when it was made
   b. Partnership property exceeds the amount sufficient
   to discharge its liabilities to persons not claiming as
   gen / ltd partners by an amount greater than the
   sum of the contribution of its ltd partners

Question 303

joint ventures in relation to corporations

Answer 303

though a corporation has no power to enter into a partnership, it may enter into a joint venture where the nature of the venture is in line with the business authorized bu its charter.

Question 304

joint ventures vs. partnership

Answer 304

partnership - not definite term of existence
joint venture - organised for for a specific project or undertaking