REVIEWER IN BUSINESS LAWS AND Failure to register with SEC does not affect the

REGULATIONS validity of the partnership. Without registration

(Preliminary Term: Second Semester) however, the partnership is unofficial and does not
have the legitimate power to contract with other
Partnership business organizations.
A: By the Contract of Partnership, two or more ABC Partnership has a capital of P 50,000.00. It
persons bind themselves to contribute money, is reduced in a public instrument, but however is
property or industry to a common fund, with the not registered with SEC. ABC entered into a
intention of dividing the profits among themselves. transaction with X who later sued the
B: Two or more persons may also form a partnership for damages. ABC raised the
partnership for the exercise of a profession. defense that its partnership is not registered with
Essential Requisites of Partnership SEC so it has no legal personality. Will the suit
(A) There must be a valid contract. by X still prosper?
(B) The parties must have a legal capacity to enter A: Yes, because non-registration of the partnership
into the contract. will not affect its liability and of its members to
(C) There must be a mutual contribution of money, third persons.
property or industry to a common fund. NOTE: The non-registration of a partnership may
(D) The object must be lawful. not affect its general liability and of its partners to
(E) The primary purpose must be to obtain profits third persons. However, said registration with SEC
and to divide the same among the parties. is necessary so that the partnership will become
officially recognized by the government. Without
Relative to the foregoing, the following cannot give registration, the partnership is unofficial and does
consent to a Contract of Partnership: not have the legitimate power to contract with other
1. Unemancipated minors; business organizations. It is also a pre-requisite for
2. Insane or demented persons; other lawful compliances such as BIR registration
3. Deaf-mutes who do not know how to write; and application for business license.
4. Persons who are suffering from civil interdictions; NOTE: A partnership is void if it is not registered
and despite the fact that an immovable property is
5. Incompetent persons who are under guardianship. contributed thereto by its partner.
Characteristics of Partnership
Is a Contract of Partnership valid if all partners (A) It is CONSENSUAL.
are minors?  Just like any other simple contracts and except for
A: No, it is unenforceable and has no valid and those that are regulated by the statute of frauds, a
binding effect. Since partnership is fundamentally contract of partnership is perfected by mere consent.
contractual, all the essentials of a valid contract (B) It is NOMINATE.
must be present. Consent and capacity of the  The contract of partnership is a name that the law
contracting parties is an essential element of a itself assigns. It is given and discussed under the
contract. pertinent provisions of the New Civil Code of the
NOTE: If only one or not all partners are Philippines.
incapacitated to give consent, the contract is (C) It is BILATERAL.
voidable.  A contract of partnership requires the participation
Is it a requirement that Partnership be of at least two (2) persons to consummate. As a
registered with the Securities and Exchange rule, a partnership requires a minimum of two (2)
Commission (SEC)? What is the legal persons without maximum number to comprise. It
consequence in case the partnership is not will not operate as an undertaking if only one
registered? person in involved.
A: Qualify. Every contract of partnership having a (D) It is ONEROUS.
capital of P3,000.00 or more, in money or property,  The parties have obligations or commitments to be
shall appear in a public instrument, which must be complied with. It is burdensome in a sense that
recorded in the Securities and Exchange partners are obliged to contribute money, property
Commission (SEC). or industry to a common fund.
 (E) It is COMMUTATIVE. transferee becomes a stockholder of the corporation.
 The contract of partnership mandates that unless Moreover, with regard to liability to third persons,
otherwise agreed upon, every partner is entitled to partners may be held liable with their private and
receive benefits that are only commensurate to their personal property while in corporations, the
actual contribution. stockholders are generally liable only to the extent
(F) It is PRINCIPAL. of their subscribed capital stock. Lastly, a
 The contract of partnership is independent and can partnership may be dissolved due to the grounds of
stand on its own. It does not depend on other insolvency, civil interdiction, death, insanity or
contracts in order to exist. retirement of any of the partners while such grounds
(G) It is PREPARATORY. do not dissolve a corporation.
 The formation of partnership is not its end-all and
be-all. It is rather just the beginning of the ultimate Similar to a corporation, once registered with the
purpose which is to engage in business, to earn proper agency of the government, a partnership
profits and to divide the same among the partners. acquires a separate juridical personality. Hence, the
partnership, as a separate person can acquire its own
Partnership Distinguished from Sole property, bring actions in court in its own name and
Proprietorship incur its own liabilities and obligations. A
A partnership requires at least two (2) persons to partnership action is embodied in a Partners‟
constitute the business organization whereas a sole Resolution which is similar to a corporation‟s Board
proprietorship is constituted by only one (1) person. Resolution as its legal form counterpart.
A partnership has a life and juridical personality of
its own that is, as a general rule, separate and Partnership Distinguished from Co-Ownership
distinct from its partners whereas a sole Partnership and co-ownership are two different
proprietorship has no life and legal personality of its concepts. While you need to register a partnership
own. Consequently, while a partnership can sue and in the Securities and Exchange Commission (SEC)
be sued in its own name and can own a property to legitimize juridical personality, one does not need
under its own name, a sole proprietorship cannot, as to do that in the case of a co-ownership. If
such whoever is the individual proprietor which is a pertaining to a real property, its co-ownership as
natural person, possesses rather such power or right. reflected in the title is rather registered before the
Register of Deeds. The ownership of a property by
Partnership Distinguished from Corporation more than one person is called "co-ownership". For
A partnership is different from a corporation in instance, if A and B purchased a property
many ways. Inter alia, there is no time limit for the collectively, it will be a case of co-ownership. The
existence of the partnership as this depends on the property will be disposed of with the consent of
agreement of the parties. On the other hand, prior to both co-owners A and B. Consequently, any income
the advent of the Revised Corporation Code that arising out of co-ownership is shared by all co-
took effect in March 2019, a corporation can only owners.
exist for a period not exceeding fifty (50) years, but
it has now gained a perpetual existence upon the Likewise, while a partnership is always intended for
effectivity of the new law, the details of which will business profit, in co-ownership, the property is not
be discussed along the semester. Second, a purchased with the object of earning profits. Two
partnership has no right of succession and is persons may jointly buy a property for residential
susceptible of convenient dissolution while a purposes and they are therefore co-owners
corporation follows the principle of succession and thereof. On the other hand, if a building is
can only be dissolved upon government purchased to let it for commercial rent, then it will
concurrence with legal ground. Third, although a be a case rather of a partnership and not of a co-
partner may transfer his interest in a partnership to ownership. In the co-ownership, there is only a joint
another, the transferee does not automatically ownership without any business motive. In
become a partner unless all the other partners give partnership joint ownership and business are
their consent pursuant to the Doctrine of Delectus combined since a partnership within the legal
Personae. However, in corporations, when the context will never exist without intent to engage in
shares of stock are transferred to another, the business.
 Other Points of Distinction between Partnership Partnership Distinguished from Agency
and Co-Ownership 1. “Agency” may in one sense be considered the
Contract: broader term because: partnership” is only a form of
Partnership is based on contractual relationship “agency.”
among partners. Co-ownership may be by the 2. An agent never acts for himself but only for his
operation of law. On the death of father, sons principal; a partner is both a principal (for his own
become co-owners of his property. On the other interest) and an agent (for the firm and the others).
hand, partnership is the outcome of an agreement.
Object: Classifications of Partnership
The object of partnership is to enter into some As to its object, a partnership is
business and earn profits. Co-ownership is not either universal or particular.
meant for business purposes. As to the liability of the partners, a partnership
(iii) Transfer of Income: may be general or limited.
No partner can transfer his interest (share) without
the consent of all other partners. A co-owner can Universal Partnership
transfer his interest at any time and without asking A universal partnership may refer to all the present
from other co-owners. property or to all the profits. Hence, it is
Agency Relationship: either a) Universal Partnership of All Present
Partners can act as agents of the business. They Properties; or b) Universal Partnership of All the
have implied authority to bind the firm by their acts. Profits.
No agency relationship exists in co-ownership.
Every co-owner is responsible for his own deeds Universal Partnership of All Present Properties
only. A partnership of all present property is that in which
Division of Joint Property: the partners contribute all the properties which
A co-owner can demand the division of property. actually belongs to them to a common fund, with
Two co-owners may divide a plot of land by the intention of dividing the same among
erecting a wall on the land. In partnership, the themselves, as well as all the profits which they
division of property cannot be demanded. A partner may acquire therewith.
can demand the payment of his share in business by In a universal partnership of all present properties,
way of cash. the property which belongs to each of the partners
Right of Investment: at the time of the constitution of the partnership
If a partner spends some money for the business he becomes the common property of all the partners, as
can demand its reimbursement. On the other hand, well as all the profits which they may acquire
if a co-owner spends money for the improvement of therewith.
property he cannot claim it as a lien on property. A stipulation for the common enjoyment of any
other profits may also be made; but the property
Partnership Distinguished from Joint Venture which the partners may acquire subsequently by
Only natural persons can form a partnership inheritance (legacy or devise) and donation cannot
whereas juridical persons form joint venture. Joint be included in such stipulation, except the fruits
ventures are usually resorted to by corporations - thereof, civil, natural and industrial.
domestic or foreign-based - which are not allowed NOTE: Winnings on lottery and other games of
to form partnerships or become partners in a chance are not automatically included in the scope
partnership. Joint venture is organized or of universal partnership contribution, unless
established only for some transient or temporary expressly contributed by the concerned partner.
business objective. Nevertheless, joint venture is
often characterized as being similar to a partnership Universal Partnership of All the Profits
in the sense that there exists among the joint A universal partnership of all the profits comprises
venturers, commonality of interest and mutual right all that the partners may acquire by their industry or
of control, not to mention the mode by which profits work during the existence of the partnership.
or losses are shared.
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 of the partners may be held personally accountable
to each, only the usufruct passing to the partnership. to the creditors in case the business went bankrupt.
Articles of universal partnership, entered into In every partnership, the law requires that at least
without specification of its nature, only constitute a one partner is a general partner.
universal partnership of profits.
NOTE: Persons who are prohibited from giving Classifications of Partner
each other any donation or advantage cannot enter As to Contribution
into universal partnership. (Ex: husband and wife; (a) Capitalist partner or (b) Industrial partner.
persons guilty of the crime of concubinage or What kind of partner one creates in a partnership
adultery; persons guilty of bribery for may depend on the kind of contribution s/he gives
donations/gifts given in consideration of the donee‟s to the partnership's common fund? These
public office) contributions may be in any of the following forms:
Particular Partnership 1) Money – the partner who contributes money to
A Particular Partnership has only a single purpose, the partnership is called Capitalist Partner;
as in the case of Professional Partnership. A 2) Property - the partner who contributes property
Professional Partnership is intended to engage only to the partnership is also called Capitalist Partner;
in the practice of a particular profession, no more no 3) Industry - the partner who contributes industry
less. (Examples: law offices, auditing and or labor to the partnership is
accounting firms, engineering firms) Unlike called Industrial Partner;
particular partnership, a universal partnership has NOTE: A partner who contributes both money or
different purposes and may engage in all types of property and skills or labor at the same time is
legitimate business. called a capitalist-industrial partner and shall be
As to the liability of the partners, a partnership entitled to separate shares from the profits as such.
may be general or limited.
QUESTION: What are included in the term
General Partnership vs. Limited Partnership “property” that maybe contributed to the
A General Partnership is composed of all general partnership?
partners. On the other hand, a Limited 1. Real or Immovable Property
Partnership is composed of at least one general 2. Personal or Movable Property
partner while the rest may be limited partners. 3. Incorporeal or Intangible Property (Ex: credit,
copyright, shares of stocks etc.)
Example 1: Jilienne, Gino and Charlie own a 4. License (only the right to use the same in the
partnership. If they are all general partners, what business during the effectivity of the partnership.
kind of partnership did they form? Ex: Pharmacy license; license to construct and
Answer: General Partnership operate cockpit may also be given as a contribution
Example 2: Jilienne, Gino and Charlie own a to the partnership).
partnership. If Jilienne and Gino are limited
partners, while Charlie is general partner, what kind NOTE: An industrial partner cannot engage in
of partnership did they form? business for himself, unless the partnership
Answer: Limited Partnership expressly permits him to do so; and if he should do
Example 3: Jilienne, Gino and Charlie own a so, the capitalist partner may either exclude him
partnership. If Jilienne and Gino are general from the firm or avail themselves of the benefits
partners, while Charlie is limited partner, what kind which he may have obtained in violation of the law,
of partnership did they form? with a right to damages in either case.
Answer: Limited Partnership
Likewise, if there is no agreement to the contrary, in
Example 4: Jilienne, Gino and Charlie formed a
case of an imminent loss of the business of the
partnership. If Jilienne, Charlie and Gino are all
partnership, any partner who refuses to contribute
limited partners, what kind of partnership did they
an additional share to the capital, except an
form?
industrial partner, to save the venture, shall be
Answer: None. The law does not allow a
obliged to sell his interests to the other partners.
partnership whereby all partners are limited,
otherwise; the said partnership is invalid since none
On the matter of profits; a capitalist partner shares NOTE: If a Limited Partner actively participates in
in the profits according to agreement thereon; If the management of the business affairs of the
none, he shall receive the benefits pro rata to his partnership, then he shall be treated as a general
contribution. On the other hand, an industrial partner and may be held liable as such.
partner receives a just and equitable share.
CASE EXAMPLE: Barbie is a limited partner in a
On the matter of losses; a capitalist partner shares partnership of buy-and-sell business. Despite
thereon based on the partners' stipulation or if none, express prohibition in the Articles of Partnership,
then the agreement as to the profits shall prevail and Barbie insists to participate in the management of
if there is still none, capitalist partner's share to the the partnership business. In 2009, the business
losses shall be pro rata to his contribution. On the incurred substantial financial losses. To save the
other hand, an industrial partner is exempted as to business from bankruptcy, Barbie is being required
losses (as between partners); but is still liable to by her fellow partners to contribute additional
third persons, without prejudice to reimbursement capital from her personal funds. Barbie refused and
from the capitalist partners. argued that since she is a limited partner, she cannot
be compelled to do so. QUESTION: Is Barbie
As to Liability correct in her contention?
(a) General partner – one whose liability to third ANSWER: No, because a limited partner who
persons extends to his separate property, he may participates in the management of the partnership
either be a capitalist or industrial partner. business may be considered liable as a general
(b) Limited partner – one whose liability to third partner. Thus, he can be compelled to contribute
person is limited to his capital contribution. further to save the business from bankruptcy.
NOTE: The name of a Limited Partner cannot also
General Partners vs. Limited Partners appear in the partnership name. Only the names of
General Partners can be obliged to contribute the General Partner may appear in the partnership
further if the assets of the partnership are not name. If the name of a Limited Partner appears in
sufficient to answer for its debts or liabilities. They the partnership name, he shall be treated as a
are liable beyond their actual contribution to the General Partner and may be held liable as such.
common fund. In case of business bankruptcy, they
may be held accountable to the creditors. CASE EXAMPLE: Barbie is a limited partner in a
Limited Partners cannot be obliged to contribute partnership of 6 friends. Despite express prohibition
further if the assets of the partnership are not in the Articles of Partnership, Barbie insists to
sufficient to answer for its debts or liabilities. include her name in their partnership name, thus it
Their liability is limited only up to the extent of becomes Barbie, Dolly, Kenny & Friends Ltd.
their actual capital contribution or share to the Co. In 2009, the business suffered financial losses.
common fund. Just like industrial partners, the To save the business from bankruptcy, Barbie is
limited partners who are capitalist by contribution being required by her fellow partners to contribute
also do not share to losses after assets have been additional capital from her personal funds. Barbie
exhausted unless there is an agreement to the refused and argued that since she is a limited
contrary. If there is agreement that tells a limited- partner, she cannot be compelled to do
capitalist partner shares in the losses, then it shall be so. QUESTION: Is Barbie correct in her
respected even if assets have already been fully contention?
exhausted. ANSWER: No, because a limited partner whose
name appears in the partnership name may be
NOTE: Only General Partner can be appointed as considered liable as a general partner. Thus, he can
Manager of the Partnership. Likewise, only general be compelled to contribute further if need arises to
partners can participate in the management of its save the business from bankruptcy.
business. A Limited Partner can neither be a
managing partner nor can he participate in As to Management:
the management of the business affairs of the (a) Managing partner – one who manages the
partnership. business or affairs of the partnership; he may be
appointed in the articles of partnership or after  A partner is bound to act within the scope of his
constitution of the partnership. authority.
(b) Silent partner – one who does not take any  No partner can make a secret profit of the
active part in the business although he may be partnership business by way of commission, etc.
known to be a partner. If he does so, he must return the money to the
(c) Liquidating partner - one who takes charge of firm.
the winding up of the partnership affairs upon Obligations of Partner to the Partnership
dissolution. Art. 1786. Every partner is a debtor of the
(d) Ostensible partner – one who takes active part partnership for whatever he may have promised to
and known of the public as a partner in the business, contribute thereto. He shall also be bound for
whether or not he has actual interest in the firm. warranty in case of eviction with regard to specific
(e) Secret partner - one who takes active part in and determinate things which he may have
the business but is not known to be a partner by contributed to the partnership, in the same cases and
outside parties nor held out as a partner by the other in the same manner as the vendor is bound with
partners. respect to the vendee. He shall also be liable for the
(f) Dormant partner – one who does not take fruits thereof from the time they should have been
active part in the business and is not known or held delivered, without the need of any demand.
out as partner.
Art. 1788. A partner who has undertaken to
Obligations of a Partner contribute a sum of money and fails to do so,
 To give his contribution; becomes a debtor of the partnership for the interest
 To contribute additional capital in case of and damages from the time he should have
imminent loss; complied with his obligation. The same rule applies
 To reimburse amount appropriated plus interest to any amount he may have taken from the
and damages; partnership coffers, and his liability shall begin
 To credit to the firm payment made by a debtor from the time he converted the amount to his own
who owes him and the firm; use.
 To bring to the partnership capital his share of
the partnership credit which he has received; Art. 1791. If there is no agreement to the contrary,
 To pay the partnership for damages suffered by in case of an imminent loss of the business of the
it through his fault; partnership, any partner who refuses to contribute
 To render on demand true and full information an additional share to the capital, except an
of all things affecting the partnership; industrial partner, to save the venture, shall he
 To account for and hold as trustee for any obliged to sell his interest to the other partners.
unauthorized personal profits; and
 Not to engage in unfair competition with the Art. 1792. If a partner authorized to manage
firm. collects a demandable sum which was owed to him
 Every partner should carry on the business to in his own name, from a person who owed the
the greatest common advantage. He must partnership another sum also demandable, the sum
perform his duties honestly and diligently. thus collected shall be applied to the two credits in
 A partner is not entitled to get remuneration for proportion to their amounts, even though he may
the conduct of business, unless otherwise it is have given a receipt for his own credit only; but
specially mentioned in the partnership deed. should he have given it for the account of the
 A partner must indemnify the firm for loss partnership credit, the amount shall be fully applied
suffered because of his fraudulent conduct or to the latter.
willful neglect.
 A partner is bound to keep and render true and Art. 1793. A partner who has received, in whole or
correct accounts of the business. in part, his share of a partnership credit, when the
 A partner cannot carry on a competing business. other partners have not collected theirs, shall be
If he carries on such business he shall account obliged, if the debtor should thereafter become
for and pay to the firm all profits made by him insolvent, to bring to the partnership capital what he
in that business.
received even though he may have given receipt for (1) If he is wrongfully excluded from the
his share only. (1685a) partnership business or possession of its property by
his co-partners;
Art. 1794. Every partner is responsible to the (2) If the right exists under the terms of any
partnership for damages suffered by it through his agreement;
fault, and he cannot compensate them with the (3) As provided by article 1807;
profits and benefits which he may have earned for (4) Whenever other circumstances render it just and
the partnership by his industry. However, the courts reasonable.
may equitably lessen this responsibility if through Property Rights of a Partner
the partner‟s extraordinary efforts in other activities Art. 1810. The property rights of a partner are:
of the partnership, unusual profits have been (1) His rights in specific partnership property;
realized. (2) His interest in the partnership; and
(3) His right to participate in the management. (n)
Art. 1800. The partner who has been appointed
manager in the articles of partnership may execute Obligations of the Partners with Regard to Third
all acts of administration despite the opposition of Persons
his partners, unless he should act in bad faith; and Art. 1815. Every partnership shall operate under a
his power is irrevocable without just or lawful firm name, which may or may not include the name
cause. The vote of the partners representing the of one or more of the partners. Those who, not
controlling interest shall be necessary for such being members of the partnership, include their
revocation of power. A power granted after the names in the firm name, shall be subject to the
partnership has been constituted may be revoked at liability of a partner.
any time.
Art. 1816. All partners, including industrial ones,
Art. 1801. If two or more partners have been in shall be liable pro rata with all their property and
trusted with the management of the partnership after all the partnership assets have been exhausted,
without specification of their respective duties, or for the contracts which may be entered into in the
without a stipulation that one of them shall not act name and for the account of the partnership, under
without the consent of all the others, each one may its signature and by a person authorized to act for
separately execute all acts of administration, but if the partnership. However, any partner may enter
any of them should oppose the acts of the others, into a separate obligation to perform a partnership
the decision of the majority shall prevail. In case of contract. (n)
a tie, the matter shall be decided by the partners
owning the controlling interest. None of the partners Art. 1817. Any stipulation against the liability laid
may, without the consent of the others, make any down in the preceding article shall be void, except
important alteration in the immovable property of as among the partners. (n)
the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the Art. 1818. Every partner is an agent of the
other partners is manifestly prejudicial to the partnership for the purpose of its business, and the
interest of the partnership, the court‟s intervention act of every partner, including the execution in the
may be sought. (1695a) partnership name of any instrument, for apparently
carrying on in the usual way the business of the
Art. 1804. Every partner may associate another partnership of which he is a member binds the
person with him in his share, but the associate shall partnership, unless the partner so acting has in fact
not be admitted into the partnership without the no authority to act for the partnership in the
consent of all the other partners, even if the partner particular matter, and the person with whom he is
having an associate should be a manager. dealing has knowledge of the fact that he has no
such authority. An act of a partner which is not
Art. 1809. Any partner shall have the right to a apparently for the carrying on of business of the
formal account as to partnership affairs: partnership in the usual way does not bind the
partnership unless authorized by the other partners.
Except when authorized by the other partners or Where the title to real property is in the name of one
unless they have abandoned the business, one or or more or all the partners, or in a third person in
more but less than all the partners have no authority trust for the partnership, a conveyance executed by
to: a partner in the partnership name, or in his own
 Assign the partnership property in trust for name, passes the equitable interest of the
creditors or on the assignee‟s promise to pay the partnership, provided the act is one within the
debts of the partnership; authority of the partner under the provisions of the
 Dispose of the good-will of the business; first paragraph of Article 1818.
 Do any other act which would make it
impossible to carry on the ordinary business of a Where the title to real property is in the name of all
partnership; the partners a conveyance executed by all the
 Confess a judgment; partners passes all their rights in such property.
 Enter into a compromise concerning a
partnership claim or liability; Art. 1820. An admission or representation made by
 Submit a partnership claim or liability to any partner concerning partnership affairs within
arbitration; the scope of his authority in accordance with this
 Renounce a claim of the partnership. Title is evidence against the partnership.

No act of a partner in contravention of a restriction Art. 1821. Notice to any partner of any matter
on authority shall bind the partnership to persons relating to partnership affairs, and the knowledge of
having knowledge of the restriction. the partner acting in the particular matter, acquired
while a partner or then present to his mind, and the
Art. 1819. Where title to real property is in the knowledge of any other partner who reasonably
partnership name, any partner may convey title to could and should have communicated it to the
such property by a conveyance executed in the acting partner, operate as notice to or knowledge of
partnership name; but the partnership may recover the partnership, except in the case of fraud on the
such property unless the partner‟s act binds the partnership, committed by or with the consent of
partnership under the provisions of the first that partner.
paragraph of article 1818, or unless such property
has been conveyed by the grantee or a person Art. 1822. Where, by any wrongful act or omission
claiming through such grantee to a holder for value of any partner acting in the ordinary course of the
without knowledge that the partner, in making the business of the partnership or with the authority of
conveyance, has exceeded his authority. co-partners, loss or injury is caused to any person,
not being a partner in the partnership, or any penalty
Where title to real property is in the name of the is incurred, the partnership is liable therefor to the
partnership, a conveyance executed by a partner, in same extent as the partner so acting or omitting to
his own name, passes the equitable interest of the act.
partnership, provided the act is one within the
authority of the partner under the provisions of the Art. 1823. The partnership is bound to make good
first paragraph of Article 1818. the loss:
(1) Where one partner acting within the scope of his
Where title to real property is in the name of one or apparent authority receives money or property of a
more but not all the partners, and the record does third person and misapplies it; and
not disclose the right of the partnership, the partners (2) Where the partnership in the course of its
in whose name the title stands may convey title to business receives money or property of a third
such property, but the partnership may recover such person and the money or property so received is
property if the partners‟ act does not bind the misapplied by any partner while it is in the custody
partnership under the provisions of the first of the partnership.
paragraph of Article 1818, unless the purchaser or
his assignee, is a holder for value, without Art. 1824. All partners are liable solidarily with the
knowledge. partnership for everything chargeable to the
partnership under Articles 1822 and 1823.
Art. 1825. When a person, by words spoken or  Partner By Estoppel - One who is not a partner
written or by conduct, represents himself, or but liable as a partner of a partnership for the
consents to another representing him to anyone, as a protection of innocent third persons.
partner in an existing partnership or with one or  Partnership By Estoppel - In reality, it is not a
more persons not actual partners, he is liable to any partnership but is considered a partnership only
such persons to whom such representation has been with respect to persons who are precluded to
made, who has, on the faith of such representation, deny its existence.
given credit to the actual or apparent partnership,  Limited Partnership - A partnership where
and if he has made such representation or consented there is at least one general partner and at least
to its being made in a public manner he is liable to one limited partner.
such person, whether the representation has or has  General Partnership - A partnership where all
not been made or communicated to such person so the partners are general partners who are liable to
giving credit by or with the knowledge of the the extent of their separate property after the
apparent partner making the representation or partnership assets.
consenting to its being made:  General Partner - One who is liable for
 When a partnership liability results, he is liable as partnership debts to the extent of his separate
though he were an actual member of the property after all the assets of the partnership has
partnership; been exhausted.
 When no partnership liability results, he is liable  Limited Partner - One whose liability to third
pro rata with the other persons, if any, so persons is limited only to his capital
consenting to the contract or representation as to contributions.
incur liability, otherwise separately.  Particular Partnership - A partnership has for
its object determinate things, their use or fruits,
When a person has been thus represented to be a or a specific undertaking, or the exercise of a
partner in an existing partnership, or with one or profession.
more persons not actual partners, he is an agent of  Universal Partnership Of All Present
the persons consenting to such representation to Property - A partnership where all partners
bind them to the same extent and in the same contribute ALL their properties to the
manner as though he were a partner in fact, with common fund, including the profits which they
respect to persons who rely upon the representation. may acquire therewith.
When all the members of the existing partnership  Universal Partnership Of All Profits - A
consent to the representation, a partnership act or partnership that comprises all that the partners
obligation results; but in all other cases it is the joint may acquire by their work or industry during the
act or obligation of the person acting and the existence of the partnership.
persons consenting to the representation.  Liquidating Partner - One who takes charge of
the winding up of the affairs of the partnership
Art. 1826. A person admitted as a partner into an after it is dissolved.
existing partnership is liable for all the obligations  Continuing Partner - One who continues the
of the partnership arising before his admission as business of a partnership after it has been
though he had been a partner when such obligations dissolved by reason of the admission of a new
were incurred, except that this liability shall be partner or retirement, death or expulsion of 2 or
satisfied only out of partnership property, unless more partners.
there is a stipulation to the contrary.  Secret Partner - One who takes an active part in
the business but not known to be a partner to
Legal Terminologies in Partnership others.
 De Facto Partnership - A partnership which  Ostensible Partner - One who takes an active
failed to comply with all the requirements part in the business and known to the public as a
provided by law for its establishment. partner.
 De Jure Partnership - A partnership which  Dormant Partner - One who does not take an
complied with all the requirements provided by active part in the business and not known to the
law for its establishment. public as a partner.
 Silent Partner - One who does not take an active (4) A partner's right in specific partnership property
part in the business although he may be known to is not subject to legal support under article 291.
the public as a partner.
 Open Partnership - A partnership whose NOTE: A partner's interest in the partnership is his
existence is made known to the public by the share of the profits and surplus. A conveyance by a
members of the firm. This admits possible new partner of his whole interest in the partnership does
partners from the outside circle upon the not of itself dissolve the partnership, or, as against
concurrence of all the existing partners. the other partners in the absence of agreement,
 Real Partnership - A partnership that actually entitle the assignee, during the continuance of the
exists among the partners and also to third partnership, to interfere in the management or
persons. But this is usually restricted to the administration of the partnership business or affairs,
family members. or to require any information or account of
 Commercial Partnership - A partnership partnership transactions, or to inspect the
formed for business transactions. partnership books; but it merely entitles the
 Professional Partnership - A partnership assignee to receive in accordance with his contract
formed for the exercise of a profession. the profits to which the assigning partner would
 Industrial Partner - One who contributes only otherwise be entitled. However, in case of fraud in
his industry or services. the management of the partnership, the assignee
 Capitalist Partner - One who contributes may avail him of the usual remedies. In case of
money or property to the common fund. dissolution of the partnership, the assignee is
 Partnership At Will - A partnership where no entitled to receive his assignor's interest and may
time for existence was specified. require an account from the date only of the last
 Managing Partner - One who manages the account agreed to by all the partners.
business or the affairs of the partnership.
In summary, here are the rights of a Partner:
Rights of All Partners in General  As a general rule, every partner has a right to
The PROPERTY RIGHTS of a partner are the take part in the conduct and management of the
following: business.
(1) His rights in specific partnership property;  Every partner has a right to be consulted upon
(2) His interest in the partnership; and before the Managing Partner takes important
(3) His right to participate in the management. decisions on the fate of the partnership and the
conduct of its business. The decisions should be
A partner is co-owner with his partners of specific taken by mutual consent. If the decisions are
partnership property. unimportant, then they can be enforced by
The incidents of this co-ownership are such that: majority, but consensus of all partners is
(1) A partner, subject to the provisions of this Title necessary for taking important decisions.
and to any agreement between the partners, has an  The partners have a right of access to the books
equal right with his partners to possess specific of accounts.
partnership property for partnership purposes; but  Pursuant to the characteristic of partnership that
he has no right to possess such property for any it is commutative, every partner will have a
other purpose without the consent of his partners; proportionate share in profits based on their
(2) A partner's right in specific partnership property capital contribution, unless otherwise mentioned,
is not assignable except in connection with the in partnership deed.
assignment of rights of all the partners in the same  Pursuant to the doctrine of Delectus personae, no
property; new partner can be admitted into partnership
(3) A partner's right in specific partnership property without the consent of all partners.
is not subject to attachment or execution, except on  A partner has a right to get the firm dissolved
a claim against the partnership. When partnership under appropriate circumstances.
property is attached for a partnership debt the  Since the property of the firm shall be held and
partners, or any of them, or the representatives of a used exclusively for the purpose of the business,
deceased partner, cannot claim any right under the partners are expected to be loyal and in good
homestead or exemption laws; faith in the conduct of its affairs. Consequently,
partners have the right to demand share in the capitalist partner, shall share in the profits in
profits of a competing business undertaken by a proportion to his capital contribution.
disloyal partner and to assent on his expulsion B – Losses
thereto. a. Losses shall be divided among the partners,
including the capitalist-industrial partner in his
Rules on Division of Profits and Losses capacity as capitalist partner, according to their
1. If all are capitalist partners agreement.
a. Profits and losses shall be divided according to b. In the absence of any agreement thereon, losses
their agreement. shall be divided among the partners including the
b.If only the sharing of the partners in the profits capitalist-industrial partner, according to the ratio
has been agreed upon, the share of each partner in of their capital contribution.
the losses shall be in the same proportion as the c. In both of the above cases, the capitalist-
share of each in the profits. industrial partner shall not share in the losses in
c. In the absence of any agreement, the share of each his capacity as industrial partner.
partner in the profits and losses shall be in NOTE: Any stipulation which excludes one or
proportion to his capital contribution. more partners from any share in the profits and
2. If aside from the capitalist partners, there is losses is void (Art. 1799) except one which exempts
also an industrial partner (or there are industrial an industrial partner from losses because the law
partners). provides that he shall not be liable therefor (Art.
A – Profits 1797).
a. the profits shall be divided according to their (But if there is agreement that an industrial
agreement. partner may voluntarily share in the losses, then
b. In the absence of any agreement thereon, the it shall be respected).
industrial partner shall first receive a just and
equitable share of the profits, and thereafter, each CASE: A, B, C and D are capitalist partners in a
capitalist partner shall share in the profits in Limited Partnership with P1M capital whereby only
proportion to his capital contribution. D is the limited partner. To constitute the capital, A
B – Losses contributed P500T, B contributed P300T, C is
(a) The industrial partner shall not share in the P100T and D is also P100T. QUESTION: If the
losses unless there is agreement. partnership earned a clean profit of P600T, how
(NOTE: The agreement as to losses must be much will be the share of each partner in the said
express, clear and categorical.) profit?
(b)The capitalist partners shall share in the losses as ANSWER: A gets P300T (50% of P600T)
follows: B gets P180T (30% of P600T)
According to their agreement. C gets P60T (10% of P600T)
In the absence of any agreement thereon, each D gets P60T (10% of P600T)
capitalist partner shall share in the losses in COMPUTATION:
proportion to his capital contribution. CAPITAL: P1M (No Agreement)
NET PROFIT: P600T
3. If aside from capitalist partners, there is also a A = (500T / 1M = 50%) (600T x .50 = 300T)
capitalist–industrial partner (or there are B = (300T / 1M = 30%) (600T x .30 = 180T)
capitalist-industrial partners) C = (100T / 1M = 10%) (600T x .10 = 60T)
A – Profits D = (100T / 1M = 10%) (600T x .10 = 60T)
The profits shall be divided according to their Therefore:
agreement. A gets P300T (50% of P600T)
In the absence of any agreement, profits shall be B gets P180T (30% of P600T)
divided as follows: C gets P60T (10% of P600T)
(a) The capitalist-industrial partner shall first D gets P60T (10% of P600T)
receive a just and equitable share of the profits in CASE: A, B, C and D are capitalist partners in a
his capacity as industrial partner; Limited Partnership with P1M capital whereby only
(b) Thereafter, each capitalist partner, including the D is the limited partner. To constitute the capital, A
capitalist-industrial partner in his capacity as contributed P500T, B contributed P300T, C is
P100T and D is also P100T. QUESTION: Contents of Articles of Partnership
Assuming that the partnership has incurred net a) Name of the Partnership
losses of P800T, how much will be the share of b) Nature and purpose
each partner in the said loss after all assets have c) Location of the firm
been exhausted? d) Defining powers, rights, duties and liabilities of
ANSWER: the partners among themselves;
A shares P 444,480.00 (55.56% of P800T) e) Contribution
B shares P 266,640.00 (33.33% of P800T) f) The manner in which the profits and losses are to
C shares P 88,880.00 (11.11% of P800T) be shared
D shares 0 because he is a limited partner. g) Procedure for dissolving the partnership
COMPUTATION:
Capital: P1M (No Agreement) CASE: A discovered a valuable mine on the land
Net Loss: P800T (-100T) (share of D) owned by his partnership with B. B does not know
A = (500T / 900T = 55.56%) about the mine. A eventually formed an idea to
(800T x .5556 = 444,480) purchase the interests of B who then really sold it to
B = (300T / 900T = 33.33%) him. Subsequently, A sold the land to a group of
(800T x .3333 = 266,640) miners for 3x its original price. Upon discovering
C = (100T / 900T = 11.11%) this, B is now claiming from A his share of the
(800T x .1111 = 88,880) profits. QUESTION: Is B‟s claim valid?
D = Exclude (limited) ANSWER: Yes, because A failed to render the true
Therefore: and full information of all things affecting the
A shares P 444,480.00 (55.56% of P800T) partnership to his partner B. When A discovered the
B shares P 266,640.00 (33.33% of P800T) valuable mine on the land owned by the partnership,
C shares P 88,880.00 (11.11% of P800T) he is under a duty to disclose such information
D shares 0 because he is a limited partner. before purchasing the interest of B.

Instances of Void Partnership QUESTION: ABC & Co. owns a parcel of land in
A. If immovable property is contributed thereto, Ayala. Mr. X is a personal creditor of A. Can A use
and then no inventory of said property is made, the said parcel of land as a collateral to secure his
signed by the parties and attached to the obligation with Mr. X?
public instrument. If immovable property is ANSWER: No, because the land is rather owned by
contributed, an Articles of Partnership is required. the partnership which has a separate and distinct
B. If Articles of Partnership are kept secret among legal personality.
the members and where one member may contract
in his own name with third persons; it shall have no QUESTION: Assuming the debt of A becomes due
juridical personality and shall be governed by the and demandable, can Mr. X attach said parcel of
provisions in relation to co-ownership. land to satisfy the obligation of A to him?
C. If the purpose is unlawful. ANSWER: Not even, because the debt is a personal
NOTE: No.2 also applies to associations and obligation of A and the partnership has nothing to
societies. do with it.
Doctrine Of Delectus Personae – It literally means
choice of the person or persons. In partnership
business, the law requires that each partner be
granted the right to choose with whom he will be Salient Features and Rights of Limited Partners
associated in the firm. A limited partnership is one formed by two or more
For this reason, NO ONE can become member of persons under the provisions of the following
the partnership without the consent of all other article, having as members one or more general
members, associates or partners, although every partners and one or more limited partners. The
partner may associate another person with him in limited partners as such shall not be bound by the
his share. Partnership is based on trust and obligations of the partnership.
confidence or fiduciary relationship.
To summarize, the following are the salient (5) A general partner retires, dies, becomes
features of a limited partnership and the rights insolvent or insane, or is sentenced to civil
of limited partners: interdiction and the business is continued under
(A) The contributions of a limited partner may be Article 1860;
cash or property, but not services. (6) There is a change in the character of the
(B) The surname of a limited partner shall not business of the partnership;
appear in the partnership name unless: (7) There is a false or erroneous statement in the
(1) It is also the surname of a general partner, or certificate;
(2) Prior to the time when the limited partner (8) There is a change in the time as stated in the
became such, the business has been carried on certificate for the dissolution of the partnership or
under a name in which his surname appeared. for the return of a contribution;
A limited partner whose surname appears in a (9) A time is fixed for the dissolution of the
partnership name contrary to the provisions of the partnership, or the return of a contribution, no time
first paragraph is liable as a general partner to having been specified in the certificate, or
partnership creditors who extend credit to the (10) The members desire to make a change in any
partnership without actual knowledge that he is not other statement in the certificate in order that it shall
a general partner. accurately represent the agreement among them.
(C) A limited partner shall not become liable as a (F) A limited partner shall have the same rights as a
general partner unless, in addition to the exercise of general partner to:
his rights and powers as a limited partner, he takes (1) Have the partnership books kept at the principal
part in the control of the business. place of business of the partnership, and at a
(D) After the formation of a limited partnership, reasonable hour to inspect and copy any of them;
additional limited partners may be admitted upon (2) Have on demand true and full information of all
filing an amendment to the original certificate things affecting the partnership, and a formal
following these procedures: account of partnership affairs whenever
(1) Write an amendment to the partners‟ certificate circumstances render it just and reasonable; and
to set forth clearly the change which it is desired to (3) Have dissolution and winding up by decree of
make; court.
(2) Have it signed and sworn to by all members, and (G) A limited partner shall have the right to receive
an amendment substituting a limited partner or a share of the profits or other compensation by way
adding a limited or general partner shall be signed of income, and to the return of the net of his
also by the member to be substituted or added, and contribution in case of stoppage of its business
when a limited partner is to be substituted, the and/or dissolution of the partnership.
amendment shall also be signed by the assigning (H) A person may be a general partner and a limited
limited partner. partner in the same partnership at the same time,
(3) The writing to cancel a certificate shall be provided that this fact shall be stated in the
signed by all members; certificate provided for in Article 1844.
(4) File the same to the Office of the Securities and A person who is a general, and also at the same time
Exchange Commission where the certificate is a limited partner, shall have all the rights and
recorded, to record the cancellation or amendment powers and be subject to all the restrictions of a
of the certificate; general partner; except that, in respect to his
contribution, he shall have the rights against the
(E) The certificate shall be cancelled when the other members which he would have had if he were
partnership is dissolved or all limited partners cease not also a general partner.
to be such. (I) Where there are several limited partners the
A certificate shall be amended when: members may agree that one or more of the limited
(1) There is a change in the name of the partnership partners shall have a priority over other limited
or in the amount or character of the contribution of partners as to the return of their contributions, as to
any limited partner; their compensation by way of income, or as to any
(2) A person is substituted as a limited partner; other matter. If such an agreement is made it shall
(3) An additional limited partner is admitted; be stated in the certificate, and in the absence of
(4) A person is admitted as a general partner;
 such a statement all the limited partners shall stand In what instances may the Court decree the
upon equal footing. dissolution of the partnership UPON
(J) The retirement, death, insolvency, insanity or APPLICATION for or by the partner?
civil interdiction of a general partner dissolves the (a) When any partner has been judicially declared
partnership, unless the business is continued by the insane;
remaining general partners: (b) When any partner becomes incapacitated;
(1) Under a right so to do stated in the certificate, or (c) When any partner has been guilty of conduct
(2) With the consent of all members. prejudicial to the business of the partnership;
(K) On the death of a limited partner his executor or (d) When a partner commits willfully a breach of
administrator shall have all the rights of a limited the partnership agreement;
partner for the purpose of setting his estate, and (e) When the business can only be carried on at a
such power as the deceased had to constitute his loss;
assignee a substituted limited partner. (f) Other circumstances rendering dissolution as
The estate of a deceased limited partner shall be equitable.
liable for all his liabilities as a limited partner.
NOTE: In setting accounts after dissolution, the
Grounds for Dissolution of the Partnership liabilities of the partnership shall be entitled to
1. Without violation of the agreement: payment in the following order:
(a) By the expiration of term or accomplishment of (1) Those to creditors, in the order of priority as
specified purpose; provided by law, except those to limited partners on
(b) In the absence of letter a, by the express will of account of their contributions, and to general
the partner; partners;
(c) By the express will of all active partners even (2) Those to limited partners in respect to their
before happening of letter a; share of the profits and other compensation by way
(d) By the bona fide expulsion of any partner; of income on their contributions;
2. With violation of the agreement, by the express will (3) Those to limited partners in respect to the capital
of any partner at anytime; of their contributions;
3. By any event making the operation of the business (4) Those to general partners other than for capital
as unlawful; and profits;
4. When a specific thing promised to be contributed to (5) Those to general partners in respect to profits;
the partnership perishes BEFORE its delivery or (6) Those to general partners in respect to capital.
loss of such thing BEFORE the partnership had Subject to any statement in the certificate or to
acquired ownership thereof; subsequent agreement, limited partners share in the
5. By the death of any partner; partnership assets in respect to their claims for
6. By the insolvency of any partner or of the capital, and in respect to their claims for profits or
partnership; for compensation by way of income on their
7. By the civil interdiction of any partner; and contribution respectively, in proportion to the
8. By the decree of court. respective amounts of such claims. (1863)

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Recitation at Exam! Nawa‟y manalaytay
ang brain cells ni Atty. sa „tin! Padayon!
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