TSN Busorg 2ND Exam

From the lectures of Atty.
Cayetano and notes elsewhere (2nd Exam) By: Angit, Christine All Rights Reserved |STM LAW 2015
as those contracts are for the carrying on in the
TOPICS HEREUNDER DISCUSSED:
usual way of business. As embodied in:
A. Obligation of Partners as to 3rd Persons (Articles
1815-1827) ARTICLE 1818. Every partner is an agent of the
B. Dissolution and Winding up (Articles 1828-1842) partnership for the purpose of its business, and the
C. Limited Partnership (Articles 1843-1867) 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
July 29, 2015-OBLIGATION OF PARTNERS AS TO 3RD
partnership of which he is a member binds the
PERSONS partnership, unless the partner so acting has in fact
no authority to act for the partnership in the
In partnership, there are four kinds of relationships particular matter, and the person with whom he is
related. dealing has knowledge of the fact that he has no
such authority.
1. Between the partners (Obligations of
partners to one another) An act of a partner which is not apparently for the
2. Relationship of the partners with the carrying on of business of the partnership in the
partnership (Property rights of a partner) usual way does not bind the partnership unless
authorized by the other partners.
3. Relationship of the partners and the
partnership with respect to 3rd persons
Except when authorized by the other partners or
This is the requirement of firm name or business unless they have abandoned the business, one or
more but less than all the partners have no
name. The New Civil Code requires specifically that
authority to:
Every partnership must have a partnership name,
(1) Assign the partnership property in trust for
whether it is a commercial partnership or a
creditors or on the assignee's promise to pay the
professional partnership. The law is not particular as debts of the partnership;
to the concept of the firm name. Should the
partners decide to use their own surnames, they (2) Dispose of the good-will of the business;
may do so. The requirement using the surname of
the partners is not required when it comes to (3) Do any other act which would make it
commercial partnership. And additional impossible to carry on the ordinary business of a
requirement, not in according to the NCC but in partnership;
accordance with the rule on DTI to establish a
business, you must register the name with the DTI. (4) Confess a judgment;
You have to register to monitor the names,
(5) Enter into a compromise concerning a
because names should not be similar with others for
partnership claim or liability;
identity purposes. You can use any name as long as
it is not deceptively similar with other business (6) Submit a partnership claim or liability to
names. arbitration;
The essence in discussing the relationship of the (7) Renounce a claim of the partnership.
partner to the partnership with respect to 3 rd
persons is to determine liability. Who is liable for No act of a partner in contravention of a restriction
what? Is the partnership liable by reason of a on authority shall bind the partnership to persons
contract entered into by a partner? having knowledge of the restriction. (n)
Every partner is an agent of the partnership and the The contractual obligation only attaches if the act
agent of all the other partners. As a general rule, he or contract is within the scope of the business of the
can bind the partnership and the other partners partnership. Contracts entered into and acts
with respect to the contract he entered into as long done/performed in the usual way of the business for
which the partnership is conducted is considered
I can do all things through Christ who strengthens me Philippians 4:13 | Page 1 of 21
From the lectures of Atty. Cayetano and notes elsewhere (2nd Exam) By: Angit, Christine All Rights Reserved |STM LAW 2015
within the scope of business. You have to without knowledge that the partner, in making the
determine the nature or usual way of doing conveyance, has exceeded his authority.
business of this particular partnership. Let us survey
some acts or contracts that may fall within a scope Where title to real property is in the name of the
partnership, a conveyance executed by a partner,
of a business of a partnership.
in his own name, passes the equitable interest of
the partnership, provided the act is one within the
1. Contracts of employment
authority of the partner under the provisions of the
If one partner hires or employs people to first paragraph of article 1818.
become employees, is the act of the hiring
Where title to real property is in the name of one or
considered as an act in the usual ordinary way of
more but not all the partners, and the record does
business? It is an act within the scope of the not disclose the right of the partnership, the partners
business? Yes. Hiring employees is an essential or in whose name the title stands may convey title to
reasonably necessary for the furtherance of the such property, but the partnership may recover
business therefore within the scope of the usual such property if the partners' act does not bind the
ordinary wat of business. Even giving bonuses to the partnership under the provisions of the first
paragraph of article 1818, unless the purchaser or
employees, even with the opposition of the partners
his assignee, is a holder for value, without
it is still within the scope of ones authority as a knowledge.
partner.
Where the title to real property is in the name of
2. Purchase of property
one or more or all the partners, or in a third person
in trust for the partnership, a conveyance executed
It would depend on the nature of the
by a partner in the partnership name, or in his own
business. Purchase of property of a partner made name, passes the equitable interest of the
within the scope of the partnership business such as partnership, provided the act is one within the
property used in that is usually customary sought for authority of the partner under the provisions of the
such an undertaking. This kind of purchase of first paragraph of article 1818.
property can come within the apparent authority
and therefore binding on the partnership. It is Where the title to real property is in the name of all
the partners a conveyance executed by all the
essential.
partners passes all their rights in such property. (n)
3. Conveyance or disposal of property
In your Property, who can dispose or sell property?
If you are in the retail industry, then yes. If The owner. Therefore when you dispose partnership
you are in the professional partnership like an property, the manner of disposal will depend of
accounting office or law office, can you dispose who is the owner. If it is indicated in the title that it is
property? What about real property? The same rule registered in the name of the partnership, the
applicable is if it is your usual business to acquire conveyance must be made in the name of the
and dispose property, then it is ok. In real estate, partnership. If it is indicated in the title that the
there is a specific method of conveyance in property is registered in the name of a partner, and
respect to disposal of real property as stated in you want to convey the property, you can in the
Article 1819: name of the partnership. If all the partners are the
registered owners, everybody must convey. It
ARTICLE 1819. Where title to real property is in the means all of them have to sign the document of
partnership name, any partner may convey title to conveyance. The manner of conveyance would
such property by a conveyance executed in the depend on who is the owner. Article 1819 is the rule
partnership name; but the partnership may recover on conveyance of real property.
such property unless the partner's act binds the
partnership under the provisions of the first 4. Contract of Lease
paragraph of article 1818, or unless such property
has been conveyed by the grantee or a person
claiming through such grantee to a holder for value
Asa man mo mag opisina kung dili mo 2. Investing in the stock market
magrenta ug opisina? It is necessary in the usual
ordinary of business. Unless you are in the business of buying and selling
stock then yes it is within the scope. Otherwise, if
5. Borrowing of money or loan not, this is not in the ordinary course of business
By jurisprudence, if you are a trading Now, Article 1818 (3), enumerates the transactions
partnership, then yes, you can borrow. If you are which needs the consent of all partners. These are
not in the trading business, no. Professional acts requiring unanimous consent:
partnerships are not trading business. Borrowing
money or loan can be considered within the scope Except when authorized by the other partners or
of business. unless they have abandoned the business, one or
more but less than all the partners have no
6. Execution of Negotiable Instruments authority to:
Issuing a check, is it within the scope of the

(1) Assign the partnership property in trust for
ordinary course of business? Every partner has an
creditors or on the assignee's promise to pay the
implied authority to bind his co-partners by making
debts of the partnership;
notes or drawing and accepting bills for
(2) Dispose of the good-will of the business;
commercial purposes consistent with the object of
(3) Do any other act which would make it
the partnership.
impossible to carry on the ordinary business of a
7. Pledge, Mortgage partnership;
(4) Confess a judgment;
Pagsangla is an example of pledge. (5) Enter into a compromise concerning a
Entering into a contract of pledge and mortgage is partnership claim or liability;
generally recognized in order to secure the debt of (6) Submit a partnership claim or liability to
a partnership but only with respect to partnership arbitration;
assets. A mortgage or pledge made to secure a (7) Renounce a claim of the partnership.
partners personal obligation is not allowed.
What does one or more but less than all means? If
8. Collection and enforcement
there are 5 partners, four of them has no authority
Of course that is within the partners but all of them have the authority.
authority and that is essential to the business.
(2) Dispose of the good-will of the business. What is
These acts are within the scope of the usual good will? The good will of the business is defined as
ordinary way of business of a partnership. What the reasonable expectation of its continued
about acts done outside of this scope? profitable operation. It involves the name of the
firm, the prestation of doing business, the location
1. Guarantyship and suretyship and the number and character of customers, and
other elements which would be advantageous in
Is it usual for a partnership to secure the operation of the business. That is essentially the
somebody elses obligation? If you are in the good will of a business.
insurance business, yes. But if not, is it usual to be a
surety or guarantor? This is not a violation but it is (3) Do any other act which would make it
contrary to the purpose why a partnership is impossible to carry on the ordinary business of a
established. A business is established for profit so partnership. Example an act of bankruptcy or
why would a partnership secure someone elses insolvency or the cancellation of a contract which
obligation? Of course, you cannot pay the constitutes the entire business of the partnership.
separate debt of your partner. Kung personal debt
of a partner, the partnership is not obliged to pay (4) Confess a judgment. When you confess a
for it. judgment, you are actually waving any defense in
your favor. You are actually saying that I am to pay for the hospitalization expenses? At the time
liable. Based on your confession, the court will of the incident A was performing something in
render what we call a cognovit judgment. It is a furtherance of the business. Our rule is that whether
judgment entered after a written confession by the A is innocent or guilty of the tortious act, the liability
debtor or the obligor without the expense of an is solidary and principal. Every partner and the
ordinary legal proceeding. partnership will be liable. Relate this to Article 1822
and 1824.
(5) Enter into a compromise concerning a Now, as to criminal liability. Criminal liability arising
partnership claim or liability. All partners must all from murder and homicide are not applicable.
agree to compromise. Only those arising from the ordinary course of
business like fraud and misrepresentation.
(6) Submit a partnership claim or liability to Conversion and misappropriation is actually Article
arbitration. Again all partners must agree to submit 1823.
a partnership claim or liability to arbitration.
The partnership is liable for fraud committed by a
(7) Renounce a claim of the partnership. This is a partner on behalf of the partnership and by the
waiver of a claim. same token each partner is liable also for the
misrepresentation or concealment of the others,
Take note it is very clear in Art. 1818, paragraph 3,
committed while they are engaged in promoting
there must be a unanimous consent, every partner
the enterprise.
must give their consent for these acts to be valid.
In every crime that we commit there is a criminal
Is there a restriction on the authority of the partner?
aspect and civil aspect. In the criminal aspect, who
Yes by agreement. The agreement may be
will be liable? The absence of participation in the
conveyed in the Articles of Partnership or it may be
criminal act, a partner cannot be held liable for the
made subsequent of the constitution of the
criminal act of his co-partner. Dapat walang
partnership. The restriction can also be verbal. A
participation, unless the partnership engages in in
restriction limits the authority of a partner on what
unlawful acts and the act was made in the
contracts can be entered into or what a partner
knowledge and consent of all the members.
must not do.
Generally, partners are not liable for criminal acts of
conspiracy
Liability for Wrongful Acts (especially torts and a partner unless they participated in the criminal
criminal acts) act and unless the partnership is engaged in
unlawful act and it is known by all the parties. With
Is a partner or partnership responsible for a tort or respect to the civil aspect, both the partnership
crime committed by a partner? and the partner are solidarily liable.
A tort is an unlawful violation of a private right, not Notice and knowledge under Article 1821:
created by contract, and which gives rise to an
action for damages; and act or omission producing GENERAL RULE: notice to the partners is notice to all
an injury to another, without any previous existing partners and partnership; knowledge of one
lawful relation of which said act or omission may be partner is knowledge of all the partners and the
said to be a natural outgrowth or incident. A tort is partnership.
a quasi-delict. If in a crime there is an element of an
EXCEPTION: Fraud on the partnership, committed
intention to commit a crime, in torts, the intention of
by or with the consent of that partner.
element is not present. It is replaced by the element
of negligence. There was one case, a partnership were engaged
in selling sheep. One of the partners who facilitated
A was driving the company vehicle to deliver
the sale knew that the sheep were sick. Now the
merchandise sold by his partnership. A bumped a
buyer complained based on fraud. The court held
person, the person sustained injuries. Who is going
that even of the other partners did not have any
knowledge that the sheep sold were unhealthy, compute it if there is no capital contributed by the
they are presumed to have been knowledgeable industrial partner? The basis of the computation is
about it. The partners are equally liable. the value of the services extended by the industrial
partner. principle of unlimited liability
Lets go back to 1815, 2nd paragraph:
In the case of Island Sales vs. United Pioneer, the
Those who, not being members of the partnership, liability is based on a contract, the case involves a
include their names in the firm name, shall be sale by installments. The SC ruled that the liability
subject to the liability of a partner. (n) must be divided. Itong pro rata, does not mean
equal. It means based on the capital contribution,
This is an example of a partner by estoppel under
proportionately not equal.
Article 1825.
PARTNER BY ESTOPPEL Island Sales vs. United Pioneer
A person, not a partner, may become a partner by

Facts: On April 22, 1961, the defendant company, a general partnership
estoppel, and be liable as a partner, when, by
duly registered under the laws of the Philippines, purchased from the
words, spoken or written, or conduct, he:
plaintiff a motor vehicle on the installment basis and for this purpose
(1) Directly represents himself to anyone as a executed a promissory note for P9,440.00, payable in twelve (12) equal
partner in an existing or non-existing monthly installments of P786.63, the first installment payable on or
partnership; or before May 22, 1961 and the subsequent installments on the 22nd day of
every month thereafter, until fully paid, with the condition that failure to
(2) Indirectly represents himself by consenting
pay any of said installments as they fall due would render the whole
to another representing him as such partner.
unpaid balance immediately due and demandable.
LIABILITY OF PARTNER BY ESTOPPEL
Having failed to receive the installment due on July 22, 1961, the plaintiff
A partner by estoppel is liable:
sued the defendant company for the unpaid balance amounting to
(1) To any person who extended credit to the P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
partnership, actual or apparent, relying on Lumauig, and Augusto Palisoc were included as co-defendants in their
his representation; and capacity as general partners of the defendant company.
(2) In case the representation was made

Subsequently, on motion of the plaintiff, the complaint was dismissed
publicly, to any person, who extended such
insofar as the defendant Romulo B. Lumauig is concerned.
credit, whether or not the communication
to said creditor was made with the
When the case was called for hearing, the defendants and their counsels
knowledge of the partner.
failed to appear notwithstanding the notices sent to them. Consequently,
Take note, why is it that a partner of estoppel is the trial court authorized the plaintiff to present its evidence ex-parte ,
liable just like an ordinary partner? For the after which the trial court rendered the decision appealed from.
protection of the public. The public should not be
burdened from always inquiring from the The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider
partnership every time they transact with a partner. the decision claiming that since there are five (5) general partners, the
As to liability, for torts, culpa aquilana and culpa
joint and subsidiary liability of each partner should not exceed one-fifth
criminal, the liability is solidary and principal. In (1/5 ) of the obligations of the defendant company. But the trial court
culpa contractual, the liability is pro-rata. The denied the said motion notwithstanding the conformity of the plaintiff to
liability includes that of industrial partners. We limit the liability of the defendants Daco and Sim to only one-fifth (1/5 )
already discussed that industrial partners shall not of the obligations of the defendant company. Hence, this appeal.
participate in losses but for contractual obligations,
ALL partners (without distinction) are liable. To what Issue: Whether or not the dismissal of the complaint to favor one of the
extent is their liability? Pro rata. But how will you general partners of a partnership increases the joint and subsidiary
liability of each of the remaining partners for the obligations of the prudent for the counsel of the plaintiff to include
partnership the partners. The partners are necessary parties, not
indispensable.
Held: no
August 3, 2015: DISSOLUTION PART 1
Article 1816 of the Civil Code provides:
You already know how to establish a partnership.
You know what the obligations of a partner are.
Art. 1816. All partners including industrial ones, shall be liable pro
What are the rights, how they should act towards
rata with all their property and after all the partnership assets have
the public, their liability etc. Now we are going to
been exhausted, for the contracts which may be entered into in the
dissolve the partnership.
name and for the account of the partnership, under its signature and by
a person authorized to act for the partnership. However, any partner What is dissolution?
may enter into a separate obligation to perform a partnership contract.
Dissolution- is defined as the condition or situation in
In the instant case, there were five (5) general partners when the which the partner ceases to become a partner. It is
promissory note in question was executed for and in behalf of the the change in the relationship of the partners
partnership. Since the liability of the partners is pro rata, the liability of caused by any partners ceasing to be associated in
the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5) of the carrying on of the business as distinguish to the
the obligations of the defendant company. The fact that the complaint winding up of the business.
against the defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general partner in So they stop becoming partners because they stop
the defendant company. In so moving to dismiss the complaint, the with their going on concern because not all
plaintiff merely condoned Lumauig's individual liability to the plaintiff. changes are considered dissolution. The change
that we are referring here is the change which will
In 1991, A, B, C and D formed a partnership. Along stop all activities with respect to the partnership as
the way they incurred obligations and liabilities. E is a going on concern.
an incoming partner. Until now the obligations are
still existing. Is the incoming partner liable? Yes, but Dissolution designates the point in time when the
is limited to his capital contribution as stated in partners ceased or end to carry on the business
Article 1826. together. But dissolution is not the end in itself. It is
only the first step towards the realization of the
ARTICLE 1826. A person admitted as a partner into purpose of the partnership. And what is that
an existing partnership is liable for all the obligations realization? The distribution of profits and surplus if
of the partnership arising before his admission as merong pang natira.
though he had been a partner when such
obligations were incurred, except that this liability So the first stage would be Dissolution, the second is
shall be satisfied only out of partnership property, Winding Up or Liquidation and the last stage would
unless there is a stipulation to the contrary. (n) be Termination.
The final issue that is needed to be resolved under Winding up- is the process of settling business or
this provision is the suit by or against the partnership. partnership affairs after dissolution. You pay
A partnership being a juridical person has capacity liabilities, pursue those accounts receivables or if
to sue and be sued in his own name. If a case is necessary to file a case in court in order to protect
filed against the partnership, do we include the your right or demand payment from the debtors of
partners? You have to make joinder of parties. Are the partnership. These are the things that you do
they indispensable parties? The problem comes in during the liquidation. You sell partnerships assets
during execution. What if wala ng pera ang and convert them into cash in order to pay the
partnership or nadissolve na. Pwede gud na dili iapil debts and obligations of the partnerships and also
pero it is much better to include everyone. It is more
to give to the partners their rightful share, if may and then we have in Contravention with the
matira. Partnership Agreement. These are our main
classification.
When everything else is settled, then that is called
Termination. As defined- Can you think of any ground or cause for dissolution
that does not violate the partnership agreement?
Termination - is the point when all partnership affairs Based on Articles 1830 &1831? Death of a
are completely would up and finally settled. It Salesman? NO. So whats the answer? Termination
signifies the end of the life of the partnership. of the period or undertaking. Thats one right there.
I think that is very clear in the case of Idos vs Court
of Appeals1. There was a partnership business. One At the start of the constitution of the partnership the
partner was indicted and prosecuted for the crime partners thereof are already aware because they
of Estafa by the trial court. Napakawalang hiyang have actually agreed beforehand that theyre
partner. Mao pa gani pagkahuman sa dissolution going to exist only for a certain number of years
filan na dayon ug iyang co-partner. So what did SC and when the period comes, the partnership is
said? automatically dissolved.
HELD: The partners agreement to terminate the partnership did Voluntary na extra-judicial pa. Why is that extra-
judicial? Because it is outside the ambit of the court.
not automatically dissolve the partnership. They were in the
Well, judicial kasi nga we have the intervention of
process of winding-up when the check in question was issued.
the court.
The best evidence of the existence of the partnership, which was
not yet terminated were the unsold goods and uncollected
You do not violate the partnership agreement
receivables which were presented to the trial court. Article 1829 because it was agreed upon in the first place. That
of the Civil Code provides that on dissolution the partnership is upon the arrival of the particular date or after the
not terminated but continues until the winding-up of partnership happening of that particular undertaking, the
affairs is completed. Since the partnership has not been partnership is already dissolve. The fixing of the
terminated, Idos and Alarilla remained co-partners. The check term in the articles of partnership is the
was issued by petitioner to respondent as would a partner to manifestation in advance of their desire to remain
another and not as a payment by debtor to creditor. Thus, absent under the relationship only up to the expiration of
the first element of the complained offense, the act is not that term.
punishable by the statute.
Now question, lets say for example that there was
So what are the grounds for dissolution? an agreement that we are going to have this
partnership for 20 years. Now, after the 10th year, 2
The grounds for dissolution are actually enumerated of the partners desire or notify the others that they
in Articles 1830 and 1831. To simplify those grounds are dissolving the partnership. Sabi nila, we dont
want to be part of the partnership anymore. So can
we will make our own outline2.
they do that notwithstanding the period has not yet
expired? Lets see later.
What are the causes for dissolution? We have to
classify them into Voluntary and By Operation of
What else if it is a partnership at will, meaning by
Law or Involuntary.
the express will of the partner walang period.
Theres no time fixed here kasi nga at will. Pano
Now, what are voluntary causes? We have Judicial
kung sabihin ng partner, ayoko na Im notifying
and Extra-judicial. Under extra-judicial causes we
everybody that Im no longer interested in
have Without Violating the Partnership Agreement
continuing the business, lets dissolve na lang. Take
note that the right to dissolve in partnership at will is
1
Refer to 3rd year Compiled Case Digests No. 18 (Idos vs. CA) implied. Hindi mo na kelangan sabihin na wala
2
See Annex A for the complete illustration of the grounds for dissolution
man na sa atong agreement nga kinahanglan
(2) A partner becomes in any other way
ana. No you cant do that. That right is IMPLIED.
incapable of performing his part of the
partnership contract;
So every partner has an implied right to dissolve the
partnership especially if it is partnership at will. Not (3) A partner has been guilty of such conduct
any partner but mutual assent of all. Of course kung as tends to affect prejudicially the carrying on
kayo lahat ayaw nyo na, preno na. eh ayaw na of the business;
ninyong magpartner eh, what can you do?
(4) A partner wilfully or persistently commits a
And lastly by expulsion. But take note that this breach of the partnership agreement, or
particular ground, to expel a partner, is not otherwise so conducts himself in matters relating
statutory. Hindi binibigay ng batas. This is only by to the partnership business that it is not
agreement and because it is by agreement it must reasonably practicable to carry on the business
follow the minimum requirements of due process. in partnership with him;
What is that minimum requirement? As to the
(5) The business of the partnership can only be
manner, as to the reason why such partner was
carried on at a loss;
expelled, it must be expressly contained in the
articles of partnership. Because it is only by such (6) Other circumstances render a dissolution
document, the articles of partnership that give the equitable.
partners the right to expel the other partners. The
law does not grant such right. Okay lets take them one by one.
So again, under this cause, (voluntary extrajudicial The first one is insanity. But take note that this
without violating the partnership agreement) the insanity must be medically determined and
following are the grounds, viz: judicially approved. The insanity can only be a
ground for dissolution if it MATERIALLY affects the
(a) By the termination of the definite term or capacity of the partners to discharge the duty
particular undertaking; imposes their contractual relation. Sabi kasi ng
jurisprudence material lang eh. Kung ang insanity
(b) By the express will of any partner, who must
na yan is of such nature that affects the persons
act in good faith, when no definite term or
capacity to discharge his function then it is material
particular is specified;
and can be a ground for dissolution.
(c) By the express will of all the partners
(Partnership at will); Atty Cayetano: Im just wondering naa diay insanity
na dili maka-apekto sa capacity to think, to do or
(d) By the expulsion.
not to do anything? Very curious statement but
thats what the Supreme Court said.
What about in contravention with partnership
agreement? Anything that you can think of basta it
Second is the other incapacity. What is meant by
is contrary to your articles of partnership. Any
this? For example industrial partner ka, your
reason or ground basta contrary sa agreement.
contribution is your services. However you figured in
an accident which necessitates the cutting of your
What about judicial? Judicial at the same time
upper and lower limbs. (Pungkol ka? ) Can you still
voluntary. Nganung voluntary man? Because the
perform your duty as Industrial Partner? It is very
partners themselves initiated the dissolution. Ano ito
difficult. Manager ka unya pungkol ka? Lols! How
sila?
can you sign checks? How can you supervise well
kung di ka kalakaw. However, this incapacity does
(1) A partner has been declared insane in any
in itself work as a tool for the dissolution of the
judicial proceeding or is shown to be of
unsound mind;
partnership. It only provides for a ground upon Atty. Cayetano: Wala ba kayong ganyan na
which the other partner may apply for dissolution. feeling kung minsan sa isang tao? Ako kay Binay.
From 0 degrees to 100 degrees. (Char uy! LOLS )
What else? Misconduct or breach of partnership
agreement. The misconduct or breach must be of The fraud contemplated here is causal fraud. The
gross and serious in character, something that goes fraud that you use in order to secure the consent of
to the substance of the contract. So it must be a person to enter into a contract or any
GROSS, SERIOUS and WILLFUL or so PERSISTENT in agreement, meaning, giilad ka para maka create
character as to show lack of good faith. And it must of partnership. The discovery of the fraud constitute
caused serious injury to the partnership as to render a circumstance which renders dissolution equitable
it impracticable to carry on the business. It must because it reveals to the person defrauded. It
show lack of good faith which caused permanent reveals to him a serious breach of trust he has
injury to the partnership. repose into the partnership.
For example, a partners refusal to comply with his Now we go to the second main classification, By
obligation, continues refusal especially with the Operation of Law/Involuntary:
capital contribution specified in the agreement.
Another is that failure or refusal to divide profits 1. Supervening illegality [Article 1830 (3)]
based of course in the agreement. Fraud of a
partner, misappropriation of partnerships money , Theres this case I asked you to read. Deluao vs.
misuse of partnerships property, etc. this causes Casteel. The fishpond. What was the agreement in
falls under the 3rd ground. the first place? That one partner will apply for a
permit and then the other partner also be
Another is operation on a loss. A partnership contributing money. The problem is that it is illegal
cannot continue unless it is losing. What is the to share your permit/franchise. So by reason of that
purpose of the partnership? It is for purposes of illegality, they have no choice but to dissolve the
realizing profits. If this purpose cannot be attained partnership.
and instead of profits there is only prospect of
incurring losses, it is therefore inequitable to compel DELUAO VS CASTEEL
a partner to continue or remain in the partnership.
Imagine, you cannot exist unless you are losing. FACTS: In 1940 Nicanor Casteel unsuccessfully registered a fishpond in
What kind of business is that? So if there is continued a big tract of swampy land, 178.76 hectares, in the then sitio of Malalag,
operation on a loss, you can rightfully ask for municipality of Padada, Davao for 3 consecutive times because the
dissolution. Bureau of Fisheries did not act upon his previous applications.
What else? The catch-all phrase, other Despite the said rejection, Casteel did not lose interest. Because of the
threat poised upon his position by the other applicants who entered
circumstances that would render it inequitable,
upon and spread themselves within the area, Casteel realized the urgent
what are these? Fraud, dissention,
necessity of expanding his occupation thereof by constructing dikes and
misrepresentation, etc. Unsa maning dissention? This cultivating marketable fishes. But lacking financial resources at that
dissention take note, lahat ng partnership nag time, he sought financial aid from his uncle Felipe Deluao.
aaway diba? Especially when it comes to money. Moreover, upon learning that portions of the area applied for by him
The quarrels, dissentions, disagreement must be of were already occupied by rival applicants, Casteel immediately filed a
such nature and to such extent that all confidence protest. Consequently, two administrative cases ensued involving the
and cooperation of the partnership have been area in question.
destroyed. The feeling is so bitter and antagonistic
between the partners to the point that they can no However, despite the finding made in the investigation of the above
longer contribute to their mutual advantage. administrative cases, the Director of Fisheries nevertheless rejected
Casteel's application on October 25, 1949, required him to remove all the
improvements which he had introduced on the land, and ordered that
the land be leased through public auction.
2. Loss of a specific thing to be contributed before
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party delivery [Article 1830 (4)]
of the first part, and Nicanor Casteel as party of the second part,
executed a contract denominated a "contract of service". On the We have to ask, who is the owner of the thing to be
same date the above contract was entered into, Inocencia Deluao contributed? Should it be the partnership or the
executed a special power of attorney in favor of Jesus Donesa. partner? Because this actually contemplates a
scenario that the object has not been given to the
On November 29, 1949 the Director of Fisheries rejected the application partnership. Why? Kung naideliver na naay transfer
filed by Felipe Deluao on November 17, 1948. Unfazed by this rejection,
of ownership. the consequence of delivery is
Deluao reiterated his claim over the same area in the two administrative
ownership diba? You have learned that in sales. So
cases and asked for reinvestigation of the application of Nicanor Casteel
over the subject fishpond. if it is now owned by the partnership, can you still
ask or dissolution? No. Its already there. So that is
The Secretary of Agriculture and Natural Resources rendered a decision no longer a reason for dissolution. And take note it
ordering Casteel to be reinstated in the area and that he shall pay for involves Specific Object, okay?
the improvement made thereupon.
Nganu man diay kung ma-lost ang specific object
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao before delivery as a promised contribution of a
from further administering the fishpond, and ejected the latter's partner? Can the partner continue his obligation to
representative (encargado), Jesus Donesa, from the premises. deliver his promised contribution? Not anymore. So
because the partner can longer fulfill his obligation
ISSUE: Whether the reinstatement of Casteel over the subject land
under the agreement, there is yet no partnership,
constitute a dissolution of the partnership between him and Deluao.
might as well dissolve it.
HELD: Yes, the reinstatement of Casteel dissolved his partnership with
Deluao. Now if ang pinahiram is only the use of the object.
The ownership is still with the partner who
The Supreme Court ruled that the arrangement under the so-called contributed it, what is given to the partnership is
"contract of service" continued until the decision both dated Sept. 15, only the right to use the object. What is the rule?
1950 were issued by the Secretary of Agriculture and Natural Resources The same rule applies. If it is lost, then it is a ground
in DANR Cases 353 and 353-B. for dissolution.
This development, by itself, brought about the dissolution of the 3. Death of a Partner
partnership. Since the partnership had for its object the division into
two equal parts of the fishpond between the appellees and the appellant
4. Insolvency
after it shall have been awarded to the latter, and therefore it envisaged
the unauthorized transfer of one half thereof to parties other than the
Whose insolvency? The partnership and the partner.
applicant Casteel, it was dissolved by the approval of his application and
the award to him of the fishpond. Why? Bakit kasali partner? Mainly because if a
partner cannot take good care of his finances
The approval was an event which made it unlawful for the members to would you allow him to take charge of the
carry it on in partnership. Moreover, subsequent events likewise reveal partnership business? Would you trust him? No
the intent of both parties to terminate the partnership because each diba? Dili man gani nila maatiman iyang sariling
refused to share the fishpond with the other. finances paano nalang ang partnership.
5. And lastly, civil interdiction

Another example of supervening event is a war
between 2 countries. If the partners are not of the You know what this means right? Your civil rights are
same country or nationality. Their respective suspended so you cannot manage your property or
countries are antagonists in a war. Hence, they business etc.
have no choice but to dissolve the partnership.
Because it is by operation of law. August 5, 2015: DISSOLUTION PART 2
partnership will depend on the KNOWLEDGE AND
(LATE KO SO YAH) NOTICE.
and when you wind up it means that the Example. A, B and C are partners. B notified his
performance of the existing contracts, example, other partners that he is dissolving the partnership.
collection of all assets, debts or claims due to the Now, even if there is already this declaration, C
partnership, payment of liability, and finally subsequently entered into a contract of loan with a
distribution of partners respective share in case certain bank. Take note nauna si B na
there is something left. nagpadissolved sa partnership kesa sa loan
entered into between C and the bank. The
So it doesnt mean that when the partnership is question now is, are A, B and C and the partnership
dissolve, everything stops. The partnership still exists bound by this transaction? Meaning, the bank now
to finish everything. But transaction which will give demands payment, is the partnership and the
rise to new obligation cannot be entered into partners bound to contribute for the payment?
during the winding up. The existence of a
partnership after dissolution does not entitle the Kasi sabi natin, the partnership upon dissolution, the
partners to enter into contracts. But they to finish authority ceases. Now, this is an act of a partner
those existing contracts until its termination. The notify them to the dissolution. Whether the
partnership ceases to exist for purposes of new dissolution is in contravention of the agreement or
transaction. Therefore, what is the effect of not, it doesnt matter. It is an act made by a
dissolution to the authority of the partner to bind the partner.
partnership? Well, actually, this is the contract of
agency. When the partnership is dissolve it does So this is now the answer to the question, it
not mean to say that the authority of the partner to depends. It depends on whether C has knowledge
bind the other partners and the partnership also of the dissolution. It could be na pinaldalhan siya ng
ceases. notice again and again kaya lang hindi nya
natanggap. So if C has no knowledge of the
General rule: When the partnership is dissolved the dissolution made by B, as far as C is concerned, at
authority of a partner to bind the other partners the time that he transacted with the bank for the
and the partnership also ceases. loan, the partnership is not yet dissolved and
Exception: except for acts necessary for winding up therefore A and B and the partnership are bound
or liquidation. by the contract of loan.
This particular rule is true only if the reason for But if C already knew of this act of B in dissolving the
dissolution is everything else except: an Act of a partnership, but still he contracted a loan, C alone
partner, Insolvency of a partner and Death of a is liable for this transaction. So mainly, it depends
partner. (AID) upon the knowledge.
Example, supervening illegality, gross misconduct, If it is an act an of a partners dapat my knowledge.

breach, fraud, misrepresentation, by termination of Same rule is applicable if the reason for the
period or happening of the undertaking etc. The dissolution is insolvency and death of a partner. But
above-mentioned rule is applicable in the herein here instead of knowledge, notice is sufficient. This is
grounds except AID. actually 1832, NCC.
There is this special rule, if the cause of the Article 1832. Except so far as may be necessary to
dissolution is (AID) an act of the partner, the wind up partnership affairs or to complete
transactions begun but not then finished, dissolution
insolvency of one partner or the death of one
terminates all authority of any partner to act for the
partner, the authority to bind the partner and the
partnership:
(1) With respect to the partners, So in the aforesaid, the rule you should follow is the
special rule contained in 1833. Alam ba nya na
(a) When the dissolution is not by the act, insolvency
namatay? (Case in point: Rallos vs. Felix Go Chan)
or death of a partner; or
(b) When the dissolution is by such act, insolvency or Atty. Cayetano: 2 sisters A and B (co-owners of the
death of a partner, in cases where article 1833 so land) appointed their brother, C, to look for a
requires; buyer. Now, the brother sold the property to X. But
he sold it after the death of A. Question, is C still
(2) With respect to persons not partners, as declared
authorize to sell the property after the death of his
in article 1834. (n)
sister A? You know what is the defense of C? Hindi
ko alam na namatay si A. Sister nmu wala ka ka
The general rule is that the authority ends upon kabalo? Very bad defense. (LOLJK) What did the
dissolution as long as the reason is not AID. Because SC say? The SC invalidated the sale involving the
if the reason for the dissolution the AID, the authority portion owned by the sisters.
will depend on knowledge or notice for it to bind
the partners and the partnership. So applying that ruling in ourpresent discussion, kasi
that case is sa agency law yan eh, it is still the same.
Take a look at 1833. Are they bound for this transaction? It depends. So
take note of this. This is with respect to partners.
Art. 1833- Where the dissolution is caused by the act,
death or insolvency of a partner, each partner is liable to Now, recap with the general rule that the authority
his co-partners for his share of any liability created by any of a partner to bind the partners and the
partner acting for the partnership as if the partnership partnership ceases upon dissolution, are there
had not been dissolved unless: situations in which partner one can still bind the
partnership? Meaning to say, a partner will enter
(1) The dissolution being by act of any partner, the
into transactions during the liquidation which will
partner acting for the partnership had knowledge of the
bind the partnership. Yes! ONE - acts necessary for
dissolution; or
winding up or liquidation. TWO yung special rule
(2) The dissolution being by the death or insolvency of a about AID provided with knowledge or notice.
partner, the partner acting for the partnership had
knowledge or notice of the death or insolvency. THIRD situation is enshrined in Article 1834:
So if it is an act of a partner= Knowledge Article 1834. After dissolution, a partner can bind the
If it is insolvency or death= Knowledge or Notice partnership, except as provided in the third paragraph of
this article:
Do not be confuse okay? basta tandaan nnyo ang

(1) By any act appropriate for winding up partnership
general rule and the special rule (yung AID) and its
affairs or completing transactions unfinished at
requirements the knowledge or notice. dissolution;
But it the problem says that the dissolution is (2) By any transaction which would bind the partnership if
grounded on the death of partner X and then the dissolution had not taken place, provided the other party
partnership is dissolved. Subsequently however, to the transaction:
partner Y entered into a new contract involving so
and so. Are the other partners and the partnership (a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of the
liable in that new contract despite the dissolution of
dissolution; or
the partnership on the ground of Xs death?
(b) Though he had not so extended credit, had
nevertheless known of the partnership prior to dissolution,
and, having no knowledge or notice of dissolution, the
fact of dissolution had not been advertised in a 2) Transaction which would generally bind the
newspaper of general circulation in the place (or in each partnership if dissolution has not taken
place if more than one) at which the partnership business place.
was regularly carried on.
And what are these transactions?

The liability of a partner under the first paragraph, No. 2,
shall be satisfied out of partnership assets alone when A. extending credit to the partnership; or
such partner had been prior to dissolution: B. a 3rd person did not extend credit but he
knows of the existence of the partnership.
(1) Unknown as a partner to the person with whom the
contract is made; and So kung nag-extend ng credit yung nagpautang
na ibang tao sa partnership, that is still binding to
(2) So far unknown and inactive in partnership affairs that them to the business, to the other partnerships in
the business reputation of the partnership could not be
accordance with 1834.
said to have been in any degree due to his connection
with it.
Now in the 3rd paragraph it says there that the
The partnership is in no case bound by any act of a partnership is in no case bound by any act of the
partner after dissolution: partnership after dissolution if the partnership is
dissolve because it is unlawful to carry on the
(1) Where the partnership is dissolved because it is business, unless it is for liquidation.
unlawful to carry on the business, unless the act is
appropriate for winding up partnership affairs; or What else? Where the partner has become
insolvent or where the partner has no authority to
(2) Where the partner has become insolvent; or liquidate the affairs except by transaction. What
kind of transaction? Extending credit again to the
(3) Where the partner has no authority to wind up partnership as like in the 1st paragraph of 1834.
partnership affairs; except by a transaction with one who
- Just take note that there are some situation in
which the partnership is till bound even after
(a) Had extended credit to the partnership prior to
dissolution. One situation is contracts entered into
dissolution and had no knowledge or notice of his want
that are appropriate for winding up.
of authority; or
(b) Had not extended credit to the partnership prior to For example, you are trying to demand payment
dissolution, and, having no knowledge or notice of his from one of your debtor of the partnership. Now the
want of authority, the fact of his want of authority has not debtor is gahig ulo. Bungol2x lang. so what do you
been advertised in the manner provided for advertising do? You re constrained to take action by for
the fact of dissolution in the first paragraph, No. 2 (b). example hiring the services of a lawyer, e.i
Nothing in this article shall affect the liability under article preparing demand letters etc., The hiring of the
1825 of any person who after dissolution represents
new lawyer is a new transaction diba? And the
himself or consents to another representing him as a
partnership is liable. Is the hiring of a lawyer in
partner in a partnership engaged in carrying on business.
(n)
demanding from the debtor an appropriate act
during liquidation? Jurisprudence say, yes, it is. You
are actually incurring a new obligation. What is the
After dissolution, the partners can still bind the
new obligation? The obligation to the lawyer in
partnership except in the 3rd paragraph of 1934.
order to protect the interests and that is proper
Yung 3rd paragraph yun ang exception. So what
according to jurisprudence. Kung dili diay maningil
are the instances in which partners can still the
unsan nalang? Charge to experience. Eh di yan
partnership?
pwede. So thats an example.
1) By act appropriate for winding up;
What else? What is the effect of dissolution with
respect to existing liabilities of the partners? If the
partnership is dissolve the liabilities of the case however, the partner ask for an accounting
partnership and the partners are also extinguish? after 20 years. Sabi ng kalaban, hoy! Prescribe nay
NO. an you have no right anymore. Eh 20 years wala ka
nabuang? Sabi naman ng SC tama unta ka kung
But you can agree for example, A,B,C and D. what nadissolve na but the partnership is still existing.
kind of liability are we talking here again? Hindi sana prescription but laches ang ground.
Remember the principle of unlimited liability, that
upon dissolution and during liquidation, the
DAN FEU LEUNG VS. IAC
partnership is bound to pay liabilitites, his obligations
and debts. Now, in case the partnership assets is
insufficient, the partners themselves will become FACTS: This case originated from a complaint filed by respondent Leung
personally liable. Yiu with the then CFI of Manila, Branch II to recover the sum equivalent
to 22% of the annual profits from petitioner Dan Fue Leung derived from
If the partnership is dissolve is the personal liability of the operation of Sun Wah Panciteria since October, 1955.
the partner to pay the debts also extinguish? The
answer is NO. Unless there is an agreement The Sun Wah Panciteria, a restaurant, located at Florentino Torres
between whom? For example between A and B,C Street, Sta. Cruz, Manila, was established sometime in October, 1955. It
&D and the partnership and the creditors. This is the was registered as a single proprietorship and its licenses and permits
only time that one partner is discharge of his were issued to and in favor of petitioner Dan Fue Leung as the sole
personal liability nga dili na siya mukuha sa iyang proprietor. Respondent Leung Yiu adduced evidence during the trial of
kwarta para pantapal sa utang sa negosyo. That is the case to show that Sun Wah Panciteria was actually a partnership
the only time. and that he was one of the partners having contributed P4,000.00 to its
initial establishment. The private respondents evidence is summarized
Creditors must also agree. That is 1835. The
as follows: bout the time the Sun Wah Panciteria started to become
dissolution of the partnership does not of itself
operational, the private respondent gave P4,000.00 as his contribution
discharge the existing liability of any partner. He
to the partnership. This is evidenced by a receipt wherein the petitioner
can only be discharge if there is an agreement to
that effect between him, the partnership creditor, acknowledged his acceptance of theP4,000.00 by affixing his signature
and the partners continuing the business. thereto.
What else? Now, if you are a partner, do you have Furthermore, the private respondent received from the petitioner the
any rights during liquidation? What are your rights? amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check from the profits of the operation of the restaurant
1. The right to manage the liquidation- you are the for the year 1974.
liquidating partner, unless of course you are the
very reason why the partnership was dissolve in the The petitioner denied having received from the private respondent the
first place. If you are guilty of wrongful dissolution, amount of P4,000.00. He contested and impugned the genuineness of
then you do not have that right. All partners have the receipt. The petitioner did not receive any contribution at the time
the right to wind-up and liquidate. Except in the he started the Sun Wah Panciteria. He used his savings from his salaries
afore-mentioned example.
as an employee at Camp Stotsenberg in Clark Field and later as waiter
at the Toho Restaurant amounting to a little more than P2,000.00 as
2. The right to ask for an accounting- question, does
capital in establishing Sun Wah Panciteria. Petitioner presented various
this right prescribe? Well, the SC ruled on that
government licenses and a permit showing the Sun Wah Panciteria was
matter in the case of FEU LEUNG vs. IAC.
and still is a single proprietorship solely owned and operated by himself
What did the SC say? If the partnership is dissolve alone.
you can ask for an accounting. YES! But this right is
subject to laches. If the partnership is still existing, ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah
the right to ask for an accounting is imprescriptible, Panciteria?
as long as the partnership continues to exist. In thi
HELD: The private respondent is a partner of the petitioner in Sun Wah new partnership. That is very clear under Article
Panciteria. The requisites of a partnership which are 1)two or more 1840.
persons bind themselves to contribute money, property, or industry to a
common fund; and 2) intention on the part of the partners to divide the Medyo mahaba ang article but the essence of the
article is that if there is no liquidation the creditors of
profits among themselves have been established. As stated by the
the dissolved partnership are also the creditors of
respondent, a partner shares not only in profits but also in the losses of
the partnership continuing the business. Bottom line,
the firm. If excellent relations exist among the partners at the start of
if there is no liquidation lalong dadami ang iyong
business and all the partners are more interested in seeing the firm
utang so might as well liquidate.
grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible. It would be incorrect to state that if a Now, ito ang pinakamagandang portion ng
partner does not assert his rights anytime within ten years from the liquidation. Sino ang unang babayaran? Article
start of operations, such rights are irretrievably lost. The private 1839 answers the question. Who is entitled to the
respondent's cause of action is premised upon the failure of the assets of the partnership? 1839 No. 2 answers the
petitioner to give him the agreed profits in the operation of Sun Wah question. The liabilities of the partnership shall rank
Panciteria. In effect the private respondent was asking for an in the order of payment.
accounting of his interests in the partnership
1839 No. 2, the liabilities of a partnership shall rank in
the order of payment, as follows:
3. If the partnership was wrongfully dissolved, if you
are an innocent partner you can ask for damages a.) Those owing to creditors other than
as against the guilty partner. And aside from partners,
damages, you can also continue he business. b.) Those owing to partners other than for
capital and profits,
c.) Those owing to partners in respect of
4. If the partnership is dissolved by way of fraud or
capital- anong ibig sabihin nito? Meaning
misrepresentation, then the innocent partner can that the partner is also a creditor of the
always ask for rescission and he is entitled for firm.
damages and reimbursement of his contribution. d.) Those owing to partners in respect of
profits.
5. If you are a retiring partner, what right do you
have? You can ask for the value or interest of your But as between a creditor and the government,
contribution. who is preferred. The government of course. So
those are the essential things that we need to be
6. If you were expelled and said expulsion was in reminded of with respect to dissolution.
accordance with the partnership agreement, do
you have any right? Yes, you will receive IN CASH August 10, 2015- LIMITED PARTNERSHIP PART I
only the net amount due to you (expelled partner)
from the partnership. This particular arrangement, the limited partnership,
commenced even during the medieval times. This
Now as Ive said earlier that in every dissolution arrangement is afforded to the nobles and
there must be liquidation you know why? Because if clergyman in particular.
you will not liquidate for example, A,B and C
dissolve their partnership. After the dissolution they The essence of limited partnership is that we have a
decided again to continue the business but they limited partner, in this particular arrangement we
did not liquidate. What is the consequence of this? have general partner and we also have a limited
The creditors of the old partnership will also be the partner. What is that limit? The limitation is in the
creditors of the new partnership. The creditors of the liability.
old partnership will become the creditors of the
Concept of limited partnership
1844. Substantial compliance is sufficient. Example,
The form of business association composed of one hindi napirmahan ang articles is that substantial
or more general partners and one or more special compliance? No its not. Or the names of the
partners, the latter not being liable for the partners hindi nakasulat ang nakalagay lang is A, B,
partnership debts. C &D. Is that substantial compliance? No. Or non-
filing with the SEC? of course it is not substantial
The liability of limited partners is limited to a fixed compliance because of the requirement posed by
amount their capital contributions or the amount 1844. The articles and the things included in the
they have invested in the partnership. articles and the SEC registration.
Before, we said that a general partner is liable Question, papano kung hindi na comply? Pano
personally with respect to the partnerships debts kung walang substantial compliance? Ibig bang
and obligation especially upon liquidation and sabihin wala tayong partnership? If theres no
during winding up. That is why we have the substantial compliance, can we say that theres no
principle of unlimited liability. But this particular partnership? Is that correct? What is the
generally does not apply to a limited partner consequence if no compliance, even substantial
precisely because of the word LIMITED. compliance? There is still partnership that is created
but NOT limited partnership. What is created is
The limited partner is liable. Yes! But the liability is general partner with respect to the public but
limited only to his capital contribution, unlike that of respect to the partners themselves then the prior
a general partner whose liability include capital agreement of limited partnership will still remain. So
contribution and his own personal money especially kahit walang substantial compliance,
the assets if the partnerships assets is not sufficient consequently, the partnership created is a general
to pay the debts and the liabilities of the partnership but only with respect to public/3 rd
partnership during liquidation that is the essence of persons. But with respect to the partners, sila mismo,
a limited partnership. as far as they are concerned, without substantial
compliance, still, a limited partnership is created.
So lets take a look and compare this 2, the general This is only and always for the protection of the
and the limited partnership. public or 3rd persons.
FIRST is the manner of creation. How is a general THIRD. As to liability, as Ive said before unlimited
partner created? By contract diba in 1732. It is by ang kanilang liability. General rule is that a limited
mere consent. Meaning it is informal. Is there a form partner is liable but only to the extent of his capital
required? Generally no, because it follows the contribution. Are there any exceptions? Instances
general rule of contracts that contracts are valid in where a limited partner becomes liable like that of
whatever form they may have been entered into as a general partner (unli liability), viz:
long as the essential elements are present.
What about a limited partnership? A limited a. He takes part in the management of
partnership must substantially follow Article 1844 the partnership and if he does that
because it is a formal agreement. A limited he becomes a general partner as far
partnership cannot be created by mere consent as third persons are concerned. He
and there are only 2 requirements. renders himself liable to the same
extent as a general partner(Article
1. There must be Articles of Limited Partnership; and 1843);
2. This articles of limited partnership must be b. If he allows his name to be indicated
registered with the SEC. also in the firm name(Article 1848);
c. If there is a false statement or false
SECOND as to contents, it is enumerated in 1844. information in the articles of limited
Take note limited partnership is always formal, partnership and he knowS of the
cannot be created by mere consent. It must follow
falsity even at the time the limited another business? Because he is treated merely as
partnership was constituted. CONTRIBUTOR. In the partnership.
NINTH. As to grounds for dissolution. Remember the

FOURTH. As to participation in the management. grounds that we have discussed last time. In
General partners of course they basically manage general partnership, the death, insolvency, civil
the business. What about limited partners? No they interdiction, insanity of a general partner dissolves
cannot manage the partnerships business. What if the partnership. In limited partnership, the D,I,C and
he participates in the management? If he does he I of the limited partner will not dissolve the
becomes a general partner. partnership. That is 1861.
FIFTH. As to contribution. As a rule a general partner TENTH. Before we said in general partnership that
contributes money, property and industry and a each partner is an agent of one another and the
limited partner, on the other hand, contributes agent of the firm. That is why we have the principle
money and property ONLY. No services. of mutual agency and as an agent, a general
partner has a legal standing to file a suit for or
SIXTH. Assignability of interest. General partners against the partnership. What about in limited
cannot generally assign their rights. Although a partnership? Generally speaking, a limited partner
general partner may assign to a 3rd person his rights, has no legal personality to represent the partnership
(known as sub-partnership). With respect to limited as far as the partnership affairs is concerned. He
partner, his interest is FREELY assignable and the exception is under 1853 when the limited partner is
assignee acquires his rights of the limited partner also a general partner or the suit or the case was
subject of course to the certain qualifications under filed to enforce the limited partners liability. Thats
Article 1859. 1866.
SEVENTH. As to firm name. Anent general In addition to dissolution, the order or the rank with
partnership, any name kahit surname of the respect to the liability is found in Article 1839. Here in
partners pwede. In the limited partnership you must limited partnership it is in 1863. There is a big
indicate that you are a limited. So the word must be difference because between a limited partner and
indicated in the business name. It becomes a a general partner including liquidation the limited
general partner. The surname of the limited partner partner is always preferred than general partner. So
must also NOT appear in the business as a general ang ranking in general partnership is first creditors
rule. Except, if his surname and the surname of that and then partners who are creditors and then
of a general partner are the same or before you general partners with respect to their capital
become a limited partner, its already indicated contribution and then last is ang profits. In limited
there. That is 1846. partnership baliktad, first outside creditors and then
we have limited partners who are also creditors,
EIGHT. Engaging in separate business. In general and then limited partners with respect to their
partnership we have to distinguish if it is a capitalist capital contribution and then general partnership
partner or an industrialist partner. A capitalist etc. that is the difference, the order of preference
cannot generally engage in another business with respect to the payment of liabilities.
especially if it is the same nature as that of the first
business. An industrial partner? Absolute prohibition. General partner Limited partner
What about in limited partnership? Just take note Personally liable for Liability extends only to his
that a limited partner can never be an industrial partnership obligations. capital contribution.
partner. Why? Because he does not contribute When the manner of mgt No share in the mgt of a
has not been agreed limited partnership. He
industry. So a limited partner is ALWAYS a capitalists
upon, all of the general becomes liable as a
partner and is FREE to engage in another business.
partners have an equal general partner if he takes
This is Article 1866. Why is that he can engage in right in the mgt of the part in control of business.
business. Between a general partner and a limited partner
exists a fiduciary relationship just like weve
May contribute money, Must contribute cash or discussed before. Only that in Article 1850 there was
property, or industry. property. Not services. a reiteration on the restriction of authority with
Proper party to NOT a proper party in such respect to general partners. The general partners,
proceedings by or against proceedings.
even if they have all the powers, even if they act in
partnership.
behalf of the partnership, the general partners are
His interest cannot be His interest is freely
not authorize to do those things enumerated in
assigned as to make the assignable, with the
assignee a new partner assignee acquiring all the 1850. There must be consent from all the general
w/o the consent of the rights of a limited partner partners and what are these?
other partners. subject to certain
qualifications. 1.) Do any act in contravention of the
His name may appear in Generally, his name must certificate;
the firm name. not. 2.) Do any act which would make it impossible to
Prohibited from engaging No such prohibition. carry on the ordinary business of the
in a business which is of the partnership;
kind of business in which 3.) Confess a judgment against the partnership;
the partnership is engaged 4.) Possess partnership property, or assign their
(if capitalist) or any rights in specific partnership property, for
business for himself (if other than a partnership purpose;
industrial).
5.) Admit a person as a general partner;
His retirement, death, His retirement, death,
6.) Admit a person as a limited partner, unless
insanity, or insolvency insanity, insolvency does
dissolves the partnership. not.
the right so to do is given in the certificate;
May be constituted in any Created by the members 7.) Continue the business with partnership
form by contract or after compliance with the property on the death, retirement, insanity,
conduct of the parties. requirements set forth by civil interdiction or insolvency of a general
law. partner, unless the right so to do is given in
Composed only of general Composed both of the certificate.
partners. general and limited
partners. Now, with respect to limited partnership, what are
Any firm name desired as Must operate under a firm
the rights of the limited partners?
long as not same, name followed by the
confusingly similar. word Limited.
1. A limited partner is exempt from partnership
obligation this is our general rule. This is the
So more or less, that is how a general partnership
essence of a limited partnership. Why is he
and limited partnership differ to each other.
called a limited partner? Because he is
exempt from partnership obligation.
August 12, 2015-LIMITED PARTNERSHIP 2
Remember that the liability of a limited
partner is only up to the extent of his or her
With respect to the rights of general partners in a capital contribution. The principle of
limited partnership, essentially they are the same unlimited liability does not apply to the
with respect to the rights of general partners in a limited partner as a general rule. However,
general partnership, liabilities are the same specially there are instances when a limited partner is
those which the general partners cannot do. As a liable just like a general partner. And what
general rule, the general partners exercise again are these instances?
acts of administration and they possess all the rights
and powers and subject to the limitations and d. He takes part in the management of
restrictions as we have discussed before. the partnership and if he does that
he becomes a general partner as far
as third persons are concerned. He
renders himself liable to the same 6. Share in the profits- he is entitled to receive
extent as a general partner(Article a share in profits subject of course to the
1843); condition that after payment the
e. If he allows his name to be indicated partnership assets are still sufficient to pay
also in the firm name(Article 1848); the creditors. differ in effect of death
Exception to this rule:
i. if his surname is the same with 7. He is entitled to the return of his contribution-
general partner; or subject to certain conditions, what are this
ii. if his surname is already indicated conditions? He can withdraw any time from
in the firm name before he becomes the partnership. Pag mag-withdraw (safe?
a limited partner. LOL) syempre sisingilin mo ang inyong
f. If there is a false statement or false contribution but there are conditions again,
information in the articles of limited what are these?
partnership and he know of the
falsity even at the time the limited i.He can only ask for the return of his
partnership was constituted. contribution if all partnership creditors have
been paid;
So in the afore-mentioned instances the ii. The consent of all the partners to him
limited partner becomes a general partner receiving his contribution; and
with respect to liabilities. iii. Articles of partnership is amended
because it is as if you are dissolving the
2. Access to partnerships books-this is Article partnership.
1851 par. 1 he has the same right.
3. The right to true and full information This is under Article 1857 paragraph 1.
affecting the partnership affairs - this is
based on Art. 1851 (2) 8. A limited partner also has the right to assign
4. The right to ask formal accounting hi interest to 3rd persons- what is now the
5. He can transact business with the right of the assignee? Does the assignee
partnership-remember that a limited partner automatically becomes a limited partner
is allowed to engage in another business. also? The answer is NO. If the assignment is
And when we say transact business with the very clear that the assignee becomes a
partnership, he can lend money to the substituted limited partner because all the
partnership. Therefore je becomes a general partner agree then the assignee
creditor. Kung meron siyang ibang business becomes a substituted limited partner. But if
limited partnerhe can contract with the partnership with the assignment id not very clear, then he is
have been
his other business. This is Article 1854. merely an assignee and as an assignee his
dissolve,.., not
discharge the interlaping director rights are limited. He cannot ask for
lp. ipso jure However, take note that a limited partner dissolution. He cannot inspect the books. All
fraud on the cannot receive or hold as a collateral he has to do, the assignee, is to receive the
creditor .. security any partnership property or cannot share. That is under Article 1853.
there in
receive any payment or conveyance from
insuffecient
fund to pay c. 3 persons. Meaning hindi niya pwedeng 9. A limited partner can also ask for or petition
rd
remeber the ihold ang partnership property. Bakit? for judicial dissolution- On what grounds?
preffered Because he will be in competition with the The same grounds as in the general
creditors/applicreditors of the limited partnership if he partnership, but take note that the death,
cation holds partnerships property or any insolvency, civil interdiction, insanity (DICI)
conveyance by virtue of being limited will not dissolve a limited partnership.
partner then it is considered ipso jure a fraud
against the creditors. Thats article 1854. Now as to liabilities? What are the liabilities of a
limited partner?
no right of retention
a general partner. With respect to his
i. The contribution of money or property if contribution, he shall have the rights against
kulang ang kanyang contribution then he is the other members which he would have
also liable for the balance and becomes a had if he were not also a general partner.
debtor of the partnership for non-
contribution. However in this case, no need In other words, he can enforce against the
for demand, same as what we discussed in other partners all the rights which under the
our earlier topics in general partnership. law he has as a limited partner. Therefore,
There is no need for a demand in order to even if the third person/public can demand
declare the non-contributing partner in payment from him based on the principle of
delay; unlimited liability, in the end, he can ask for
lp is a formal association
reimbursement from his partners because he
ii. If there was money or property wrongfully is also a limited partner. Okay? Bilang
conveyed to a limited partner, such partner general partner he is liable and the principle
is under obligation to return it to the of unlimited liability is applicable to him but
partnership; once this person already paid and
recipt of the approval of sec contributed, o sige I am liable to 3rd person,
iii. If his capital contribution has been in this case he can ask for reimbursement
returned to him and after such return the from his co-partners by reason of his being a
partnership is still indebted to 3rd persons, he limited partner.
may be told/order upon to return the said
capital back to the partnership. Nganung The problem lies in the practicality. Where
pacontributon naman pod siya? Diba dili do you draw the line? As a general partner
man applicable ang unlimited liability sa you can manage the business diba? As a
limited partner? Yun man yong contribution limited partner you cannot? O papano yan
na nabalik na sa kanya tapos isosoli na dalawang persona sa isang tao. Well the
naman niya? Kasi hindi pa enough ang law allows it but in reality it is impractical.
partnership assets. Very queer.
So more or less those are the rights and So that how we end our discussion in limited
liabilities of a limited partner. Now, there is a partnership.
very queer condition here. The first
paragraph of 1853 says that: A person may -the end-
be a general partner and a limited partner CRINGYKITY NOTES
in the same partnership at the same time, Scroll # 551
provided that this fact shall be stated in the
certificate provided for in Art. 1844.
Dont you find it queer? That one person

is both a limited partner and a general
partner at the same time in the same
partnership. Can you be a girl and a
boy at the same time? (Yes maam katawang
lalaki pero pusong babae LOL). What happens preffered ang limited partner when it comes to.. than the
now to your rights and obligations? general partner
Now, one author says that: In such a
case he shall have all the rights and
powers and be subject to restrictions of
ANNEX A
CAUSES OF
DISSOLUTION
VOLUNTARY BY OPERATION OF
LAW/INVOLUNTARY
JUDICIAL EXTRA-JUDICIAL
1. Supervening
illegality [Article
W/O VIOLATING IN CONTRAVENTION
1830 (3)]
PARTNERSHIP WITH PARTNERSHIP 2. Loss of a specific
AGREEMENT AGREEMENT thing to be
contributed
before delivery
[Article 1830 (4)]
3. Death of a
1. BY THE TERMINATION Partner
OF A DEFINITE TERM 4. Insolvency
2. BY THE HAPPENING OF A 5. civil interdiction
PARTICULAR 6.
UNDERTAKING
3. PARTNERSHIP AT WILL
4. BY EXPULSION
(1) A partner has been declared insane in any judicial

proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends
to affect prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business
that it is not reasonably practicable to carry on the
business in partnership with him;
(5) The business of the partnership can only be carried
on at a loss;
(6) Other circumstances render a dissolution equitable.

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From the lectures of Atty.

Issuing a check, is it within the scope of the

PARTNER BY ESTOPPEL Island Sales vs. United Pioneer

A person, not a partner, may become a partner by

(2) In case the representation was made

5. And lastly, civil interdiction

Example, supervening illegality, gross misconduct, If it is an act an of a partners dapat my knowledge.

Do not be confuse okay? basta tandaan nnyo ang

And what are these transactions?

NINTH. As to grounds for dissolution. Remember the

Dont you find it queer? That one person

(1) A partner has been declared insane in any judicial

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