Partnership It is a contract whereby two or more persons

bind themselves to contribute money, property, or industry

to a common fund, with the intention of dividing the profits
among themselves, or in order to exercise a profession.

The partnership becomes a juridical person form the time

the contract begins.

The majority view is that a corporation cannot become a

partner on grounds of public policy because a corporation
may not be bound by persons who are neither directors nor
officers of the corporation. A corporation may for a general
partnership with another corporation or an individual
provide the following conditions are met:
1.

2.

The Articles of Incorporation of the corporation

expressly allows the corporation to enter into
partnerships.
The Articles of Partnership must provide that all
partners will manage the partnership, and they shall
be jointly and severally liable.

Art. 1768 explicitly provides that the partnership retains its

juridical personality even if it fails to register. Failure to
register the contract of partnership does not invalidate the
same as among partners, so long as the contract has the
essential requisites.

Art. 1772 (registration with SEC of partnership with capital

of P3,000 or more) is not intended as a prerequisite for the
acquisition of juridical personality by the partnership, but
Art. 1768 merely as a condition for the issuance of licenses.

Even if not registered, the partnership having a capital of

P3,000 or more is still a valid one, and therefore has legal
personality.

A partnership of all present property (UPAPP) is that in

which the partners contribute all the property which actually
belongs to them to a common fund, with the intention of
dividing the same among themselves, as well as all the
prots which they may acquire therewith.

In a UPAPP, the property which the partners may acquire

subsequently by inheritance, legacy, or donation cannot be
included in such stipulation, except the fruits thereof
(because as a rule, contracts regarding successional rights
cannot be made and the partnership demands that the
contributed things be determinate).

In a UPAPP, profits from other sources may become

common, but only if there is a stipulation to the effect.

A universal partnership of prots (UPAP) comprises all that

the partners may acquire by their industry or work during
the existence of the partnership. Movable or immovable
property which each of the partners may possess at the
time of the celebration of the contract shall continue to
pertain exclusively to each, only the usufruct passing to the
partnership.

If silent, universal partnership is one of profits only as it is

less onerous.

Persons who are prohibited from giving each other any

donation or advantage cannot enter into a universal
partnership, otherwise, contract is void.

If an association is not lawfully organized as a partnership

(though it apparently carries on the business as a
partnership), it possesses no legal personality. Therefore, it
cannot sue as such. However, the partners, in their
individual capacity, can.

1.
2.
3.

Husband and wife

Those guilty of adultery or concubinage
Those guilty of the same criminal offense, if the
partnership was entered into in consideration of the
same.

Is a Judicial Decree Needed to Dissolve an Unlawful

Partnership? No, for the contract is void from the very
beginning.

The partners forfeit the proceeds or profits, but NOT their

contributions, provided no criminal prosecution has been
instituted.

A particular partnership has for its object determinate

things, their use or fruits, or specic undertaking, or the
exercise of a profession or vocation.

Obligations of a partner:
1. To give his contribution
2. Not to convert firm money or property for his own use
3. Not to engage in unfair competition with his own firm
4. To account for and hold as trustee, unauthorized
personal profits
5. Pay for damages caused by his fault
6. Duty to credit to the firm, payment made by a debtor
who owes him and the firm
7. To share with the other partners the share of the
partnership credit which he has received from an
insolvent firm debtor

Rights of a partner:
1. Property rights
a. Right to specific partnership property
b. Interest in the partnership
c. Right to participate in the management
2. Right to associate another person in his share
3. Right to inspect and copy partnership books
4. Right to demand a formal account
5. Right to ask for the dissolution of the firm at the proper
time

An unlawful partnership has no legal personality.

Whenever real properties or real rights in real properties

are contributed regardless of the value a PUBLIC
INSTRUMENT is needed. (The contract itself must be in
the public instrument; moreover, there must be an
INVENTORY of the immovables. This INVENTORY must
be signed by the parties and attached to the public
instrument.)

Without the public instrument, the partnership is VOID.

Without such inventory, the contract is void.

An agreement to form a partnership does not of itself create

a partnership. When there are conditions to be fulfilled or
when a certain period is to elapse, first, the partnership is
not created till after the fulfillment of the conditions or the
arrival of the term, and this is true even if one of the parties
has already advanced his agreed share of the capital.

A partnership begins from the moment of the execution of

the contract.

Rule when the manner of management has not been

agreed upon:
1. All partners are considered agents of the partnership.
2. Important alterations to immovable property shall
require consent of all partners.

The agreement for a future partnership does not of itself

result in a partnership.

Even if contributions have not yet been made, the firm

already exists, for partnership is a consensual contract.

For the associate to become a partner, all partners must

consent to the same.

Every partner is a debtor of the partnership for whatever he

may have promised to contribute thereto.

Important duties of every partner:

Who can demand true and full information on partnership

accounts:
1. Any partner
2. Legal representative of a dead partner
3. Legal representative of any partner under legal
disability

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.
Exception: When there is a stipulation to the contrary
Effect of violation: Violator shall bring to the partnership all
profits from such business.

Right to demand a formal account (generally available only

upon dissolution):
1. When one is wrongfully excluded from the partnership
business or possession of its property by his copartners
2. If the right exists under the agreement
3. When there are transactions without the consent of
other partners
4. Whenever it is just and reasonable

Property rights of a partner:

1. Right to specific partnership property
2. Interest in the partnership
3. Right to participate in the management

Partner cannot assign his right to a specific property.

Otherwise, assignment is void.
Exception: When all partners assign their right in the same
property

1.

2.

3.

To contribute
a. No demand is needed to put partner in default,
b. Remedy for non-contribution should be to collect
what is owing, as well as damages
c. Failure to contribute sum of money interest (is
not stipulated, at 6% legal interest) plus damages
To deliver the fruits of what should have been
delivered (those from the time they should have been
delivered)
To warrant

An industrial partner cannot engage in business for himself

EXCEPT: Partnership expressly permits him to do so
Remedy of the partnership:
1. Exclude him from the firm plus damages
2. Avail of the benefits he obtained from violation of
provision plus damages

An industrial partner can never be a limited partner

Share of partners in the capital:

1. As stipulated
2. Equal share

How profits are distributed:

1. As agreed upon
2. According to the amount of contribution

How losses are distributed:

1. According to agreement
2. According to agreement as to profits
3. According to amount of contribution

Partners interest share in the profits and surplus

Industrial partner shall not be liable for losses, but only as

to between the partners and not to third party. Thus he
may be made liable by third persons, but he can recover
the same from other partners.

Partners interest may be assigned, attached and subject to

legal support.

Rights of the assignee:

A stipulation which excludes one or more partners from any

share in the profits or losses is void, except for industrial
partners.

2.

Revocation of power of manager:

4.

1.
2.

1.

If appointed in the articles of partnership:

a. With just cause, vote of the controlling partners
b. Without cause, unanimity (including his vote)
Appointment other than articles of partnership:
a. May be revoked anytime by the controlling
partners

Rule when there are two or more managers:

1. If any of them should oppose the acts of the others,
the decision of the majority shall prevail. In case of a
tie, the controlling partners shall decide.

3.

To get whatever profits the assignor-partner would

have obtained.
To avail of the usual remedies in case of fraud in the
management
To ask for annulment of the contract of assignment if
he was induced to enter it thru any vices of consent
To demand an accounting but only if the partnership
is dissolved

Partnership creditors are entitled to priority over partnership

assets.

The firm name may or may not include the name of one or
more of the partners.

All partnerships, industrial partners included, are liable pro

rata with all their personal property after all the partnership
assets have been exhausted as to liability to third persons.

The liability of the partners to third persons is subsidiary

and joint.

A stipulation exempting liability to third persons is null and

void, except as among partners.

Less than all the partners have no authority to:

1.

Causes of dissolution:
1.

Assign the partnership property in trust for creditors or

on the assignees promise to pay the debts of the
partnership
Dispose of the goodwill of the business
Do any act which would make it impossible to carry on
the ordinary business of the partnership
Confess a judgment
Enter into a compromise agreement concerning a
partnership claim or liability
Submit a partnership claim or liability to arbitration
Renounce a claim of the partnership

2.

Partners are solidarily liable (together with the firm) for any
wrongful act or omission of any partner (tort) acting in the
ordinary course of the business of the partnership to a third
person.

5.
6.
7.
8.

Partners are also solidarily liable with the partnership when:

2.
3.
4.
5.
6.
7.

1.

2.

3.
4.

One partner acting within his apparent authority

receives money or property of a third person and
misapplies it
The partnership in the course of its business receives
money or property of a third person and the same is
misapplied by any partner.

When a partnership by estoppel arises:

1. When a person represents himself as a partner of an
existing partnership with or without the consent of the
partnership; or
2. When a person represents himself as a partner of a
non-existing partnership.

Without violation of the agreement between the

partners
a. Termination of the definite term or particular
undertaking
b. Express will of any partner in good faith when no
definite term or particular undertaking is specified
c. Express will of all partners who have not
assigned their interest
d. Expulsion of any partner from business in
accordance with the power given in the
agreement between the partners
In contravention to the agreement between the
partners
By any event which makes it unlawful for the business
to be carried on
When a specific thing perishes before delivery or when
the use of specific thing is contributed has been lost
before or after delivery to the firm
Death
Insolvency
Civil Interdiction
Decree of court
a. Insanity (with judicial declaration)
b. Incapability to perform his part in the partnership
contract
c. Guilty of conduct which affects prejudicially the
carrying on of the business
d. Will or persistent breach of partnership
agreement or conducts himself in matters relating
to the partnership business that it is not
practicable to carry on the business with him
e. Partnership can only be carried on at a loss
f. Other circumstances which would render
dissolution equitable

A purchaser of a partners interest may ask for dissolution

after the period has expired (in case of partnership at will,
at the time the interest was assigned or charged).

and on the basis of such representation, one gave credit to

the fictitious partnership.

Insolvency of any partner need not be judicially declared to

dissolve the partnership.

When all members of the partnership consent to the

representation of another person, a partnership act or
obligation results. Otherwise, it is a joint act of persons
consenting to the representation.

Partners cannot limit the causes of dissolution in their

contract when the firm had lost its capital, become bankrupt
or abandoned the enterprise.

In dissolution caused by act of a partner, insolvency or

death (AID), all partners are still bound to each other
except when acting partner had knowledge of the
dissolution if caused by the act of any partner or knowledge
or notice if caused by insolvency or death.

When partnership is bound to third parties even after

dissolution:

No preference is given to creditors who relied on the

existence of the fictitious firm.

A newly admitted partner is liable for partnership obligations

contracted prior to his admission but only to the extent of
his share in the partnership property.

Dissolution is the change in the relation of the partners

caused by any partner ceasing to be associated in the
carrying on of the business.

Winding up is the process of settling business affairs after

dissolution.

Termination is the point in time after all the partnership

affairs have been wound up.

Dissolution does not terminate the partnership. It only

terminates after winding up.

1.
2.
3.

Business is for winding up

Business is to complete unfinished transactions
Completely new business with innocent third parties
a. If third party has extended credit before
dissolution, he must have no actual knowledge of
the fact in order for the firm to be held liable
b. If third party has not extended credit before
dissolution, firm will only be liable if there was no
notice of dissolution circulated.

Dissolution does not automatically mean that the existing

liability of any partner is discharged. There must be an
agreement of the discharge between:
1. The partner concerned
2. The other partners
3. The creditors

In case of death of a partner, his individual creditors are to

be preferred over partnership creditors in the distribution of
his separate/individual property.

Who may wind up partnership affair? (extra-judicial)

1.
2.

Limited partners are only liable to the extent of their

contribution.

Contents of a Certificate of Limited Partnership:

1.
2.
3.
4.
5.
6.

Partners who have not wrongfully dissolved the

partnership
Legal representatives of the last surviving partner who
was not insolvent

7.

8.

When partnership is dissolved because of violation of

partnership contract:
1. Innocent partners are entitled to damages from guilty
partners
2. Innocent partners may continue the business (under a
new partnership which can even use the same firm
name) provided rights of the guilty partner are secured
by:
a. Bond posted as approved by court
b. Payment of his interest at the time of dissolution
minus damages.

9.
10.

11.
12.

In ascertaining the value of the guilty partners interest,

goodwill shall be excluded.

13.

Rights of innocent partners where partnership contract is

rescinded on the ground of fraud or misrepresentation:

14.

1.

Right of lien or retention (of the surplus of partnership

property)
2. Right of subrogation (as creditor of partnership after
liability to third persons have been satisfied)
3. Right of indemnification (from guilty partner for debts
and liabilities of the partnership)
Preference of credit (partnership):
1. Creditors
2. Partners as creditors
3. Capital
4. Profits
If partnership property and individual properties of the
partners are in the possession of the court for distribution,
the following are given preference:
1. Over partnership property, partnership creditors
2. Over individual property, individual creditors
Preference of credit over individual property of insolvent
partner:
1. Individual creditors
2. Partnership creditors
3. Those owing to the other partners by way of
contribution
Possible defendants in an action for accounting of interest
of a partner:
1. Winding up partners
2. Surviving partners
3. Person or partnership continuing the business
A limited partnership is one formed by two or more persons
having as members one or more general partners and one
or more limited partners.

Name of the partnership, adding the word LIMITED

Character of the business
Location of principal place of business
Name and place of residence of each member,
general and limited partners designated
Term of existence
Amount of cash and description of and agreed value of
other property contributed by each limited partner
Additional contributions, if any, to be made by each
limited partner and the times at which the same shall
be made
The time, if agreed upon, when the contributions of
each limited partners is to be returned
The share of the profits or compensation by way of
income to be received by the limited partner
The right, if given, of a limited partner to substitute an
assignee as contributor in his place and terms and
conditions of substitution
The right, if given, of the partners to admit additional
limited partners
The right, if given, of one or more of the limited parties
to priority over other limited partners, as to
contributions or as compensation by way of income
and nature of such priority
The right, if given, of the remaining general partner/s
to continue the business on the death, retirement, civil
interdiction, insanity of insolvency of a general partner
The right, if given, of a limited partner to demand and
receive property other than cash in return for his
contribution

Certificate of limited partnership must be signed under oath

and filed with the SEC.

When limited partnership is not formed in substantial

compliance to requirements, i.e. when the general partners
do not appear in the firm name, it is considered a general
partnership.

Firm is a general partnership if the term LIMITED is omitted

from partnership name.

Limited partner cannot contribute services/industry.

A limited partner whose surname appears in the

partnership name is liable as a general partner.

A limited partner becomes a general partner when he takes

part in the control of the business.

Additional limited partners may be admitted after the

formation of the partnership upon amendment of Certificate
of Limited Partnership.

Written consent or ratification of limited partners are

required if the general partners:
1.
2.
3.

Do any act in contravention of the certificate

Do any act which would make it impossible to carry on
the ordinary business of the partnership
Confess a judgment against a partnership

4.

5.
6.
7.

Possess partnership property, or assign their right in

specific partnership property, for other than a
partnership purpose
Admit a person as general partner
Admit a person as limited partners, unless given the
right in the certificate
Continue the business with partnership property on the
death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless other
stipulated.

A limited partner holds as TRUSTEE for the partnership:

1. Specific property stated in the certificate to be
contributed by him which was not contributed or has
been wrongfully returned
2. Money or other property wrongfully paid or conveyed
to him on account of his contribution.
This may be waived if:
1.
2.

All partners agree

Innocent third parties must not be prejudiced

An assignee shall have the right to become a substituted

limited partner if all the members consent thereto.

Interest of a limited partner when charged by a third party

thru an application in court can only be redeemed by the
separate property of a general partner.

Preference of Credit for Limited Partnerships:

1.
2.
3.
4.
5.
6.

Creditors
Limited partners share in the profits and other
compensation by way of income on their contributions
Limited partners share in capital
General partners claim other than capital and profits
General partners share in the profits
General partners share in capital

A limited partner cannot be party to a proceeding by and

against the partnership.