PARTNERSHIP

Partnership
6. Principal – It does not depend for its existence

VII. PARTNERSHIP or validity upon some other contracts;
7. Preparatory – Because it is entered into as a

means to an end, i.e., to engage in business or
specific venture for the realization of profits
A. GENERAL PROVISIONS with the view of dividing them among the
contracting parties; (De Leon, 2019) and
Partnership 8. Profit-oriented. (Art. 1770, NCC)
It is a contract whereby two or more persons bind Typical incidents of partnership

themselves to contribute money, property, or
industry to a common fund, with the intention of 1. The partners share in profits and losses; (Arts.
dividing the profits among themselves. (Art. 1767, 1767, 1797 and 1798, NCC)
NCC) 2. The partnership has a juridical personality
separate and distinct from that of each of the
NOTE: Two or more persons may also form a partners. Such juridical personality shall be
partnership for the exercise of a profession. (Art. automatically acquired despite the failure to
1767, NCC) register in the SEC; (Art. 1768, NCC)
3. Partners have equal rights in the management
Essential Elements of Partnership and conduct of the partnership business; (NCC,
Art. 1803)
1. Agreement to contribute money, property or 4. Every partner is an agent of the partnership
industry to a common fund; and and entitled to bind the other partners by his
2. Intention to divide the profits among the acts, for the purpose of its business. (Art. 1818,
contracting parties. (Jarantilla Jr. v. Jarantilla, NCC) He may also be liable for the entire
G.R. No. 154486, 01 Dec. 2010) partnership obligations;
5. All partners are personally liable for the debts
Characteristics of Partnership of the partnership with their separate property
(Arts. 1816, 1822-24, NCC) except limited
1. Bilateral – It is entered into by two or more partners are not bound beyond the amount of
persons and the rights and obligations arising their investment; (Art. 1843, NCC)
therefrom are always reciprocal; 6. A fiduciary relation exists between the
partners; (Art. 1807, NCC) and
2. Onerous – Each of the parties aspires to 7. On dissolution, the partnership is not
procure for himself a benefit through the terminated, but continues until the winding up
giving of something; of partnership is completed. (Art. 1829, NCC)
3. Nominate – It has a special name or NOTE: These incidents may be modified by

designation in our law; stipulation of the partners subject to the rights of
third persons dealing with the partnership.
4. Consensual – Perfected by mere consent, upon
the express or implied agreement of two or Q: TRUE or FALSE. An oral partnership is valid.
more persons; (2009 BAR)
5. Commutative – The undertaking of each of the A: TRUE. An oral contract of partnership is valid
partners is considered as the equivalent of that even though not in writing. However, if it involves
of the others; contribution of an immovable property or a real
451 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
Civil Law
right, an oral contract of partnership is void. In such

a case, the contract of partnership to be valid, must
be in a public instrument (Art. 1771, NCC), and the
inventory of said property signed by the parties
must be attached to said public instrument. (Art.
1773, NCC; Litonjua, Jr. v. Litonjua, Sr., G.R. Nos.
166299-300, 13 Dec. 2005)
Partnership, Co-ownership, and Corporation
PARTNERSHIP CO-OWNERSHIP CORPORATION
As to Basis
Generally created by law and can

By contract or by mere agreement of
exist without a contract. (Albano, By law.
the parties.
2013)
As to Juridical Personality
Has separate and distinct juridical Has separate and distinct

No separate and distinct juridical
personality from that of each juridical personality from
personality.
partner. that of each corporator.
As to Purpose
Common enjoyment of a thing or Depends on the Articles of

Realization of profits.
right. Incorporation (AOI).
As to Duration/Term of Existence
A corporation shall have

perpetual existence unless
10 years maximum (May be its articles of incorporation
No limitation. extended by new agreement). (Art. provide otherwise. (Section
494, NCC) 11 of R.A. No. 11232 or the
Revised Corporation Code of
the Philippines)
As to Number of Incorporators
GR: Minimum of one person

(Section 10 of R.A. No. 11232
Minimum of two persons. Minimum of two persons.
or the Revised Corporation
Code of the Philippines)
UNIVERSITY OF SANTO TOMAS 452

2022 GOLDEN NOTES
Partnership
As to Commencement of Juridical Personality
From the date of issuance of

From the moment of execution of the Not applicable; no juridical
the certificate of
contract of partnership. personality.
incorporation.
As to Disposal/Transferability of Interest
Stockholder has a right to
Partner may not dispose of his
Co-owner may freely do so. (NCC, transfer shares without prior
individual interest unless agreed
Art. 495) (Art. 495, NCC) consent of other
upon by all partners.
stockholders.
As to Power to Act with 3rd Persons
In the absence of stipulation to
contrary, a partner may bind
partnership. Each partner is agent of
partnership.
Co-owner cannot represent the
Management is vested with
co- ownership. (NCC, Art. 491-492)
NOTE: Except as provided by Art. the BOD.
(Art. 491-492, NCC)
1825, persons who are not partners
as to each other are not partners as
to third persons. [NCC, Art. 1769(1),
NCC; Albano, 2013]
As to Effect of Death
Death of a partner results in Death of co-owner does not Death of stockholder does
dissolution of partnership. necessarily dissolve co-ownership. not dissolve the corporation.
As to Dissolution
May be dissolved at any time by the

will of any or all of the partners.
May be dissolved
Can only be dissolved with
NOTE: If an unlawful partnership is anytime by the will of any or all of
the consent of the State.
dissolved by a judicial decree, the the co-owners.
profits shall be confiscated in favor of
the State.
As to Liability
GR: The obligation to third

In case of a general partner, his
persons is limited to the
separate and personal property shall
assets of the corporation.
also be liable if the assets of the
partnership is not sufficient to satisfy
XPN: Partner binds himself
the obligation to third persons.
solidarily liable

Civil Law
Partnership v. Joint Venture (2015 BAR)
PARTNERSHIP JOINT VENTURE

As to Coverage
Contemplates the undertaking of a general and Ordinarily limited to a single transaction and not
continuous business of a particular kind intended to pursue a continuous business
As to Firm Name
Required to operate under a firm name. Has no firm name.
As to Transfer of Property
The property used becomes the property of the The property used remains undivided property of
business entity and hence of all the partners. its contributor.
As to Power
A partner acting in pursuance of the firm business,

None of the co-venturers can bind the joint
binds not only himself as a principal, but as their agent
venture or his co-venturers.
as well, also the partnership and the partners.
As to Liabilities
A partnership acquires personality after following the

requisites required by law.
A joint venture has no legal personality.
NOTE: SEC registration is not required before a
partnership acquires legal personality. (Art. 1768, NCC)

2022 GOLDEN NOTES
Partnership
Joint venture Persons Qualified to be a Partner
It is an association of persons or companies jointly GR: Any person, whether natural or juridical,
undertaking some commercial enterprise. capacitated to contract may enter into a contract of
Generally, all contribute assets and share risks. It partnership. (Ibid.)
requires a community of interest in the
performance of the subject matter, a right to direct XPNs:
and govern the policy in connection therewith, and 1. Persons who are prohibited from giving each
a duty which may be altered by agreement to share other any donation or advantage cannot enter
both in profits and losses. (Aurbach v. Sanitary into a universal partnership; (Art. 1782, NCC;
Wares Manufacturing Corp., G.R. Nos. 75875, 75951 1994 BAR)
and 75975-76, 15 Dec. 1989)
NOTE: A husband and wife, however, may
NOTE: Section 36(h) of R.A. No. 11232 or the enter into a particular partnership or be
Revised Corporation Code of the Philippines members thereof. (De Leon, 2019)
provides for the powers of a corporation “to enter
into a partnership, joint venture, merger, A married woman may enter into a contract of
consolidation or other commercial agreement with partnership even without the consent of her
natural or juridical persons.” husband but the latter may object under
certain conditions. (Ibid.)
Essential Features of Partnership
2. Persons suffering from civil interdiction; and
1. There must be a valid contract;
2. The parties (two or more persons) must have 3. Persons who cannot give consent to a contract:
legal capacity to enter into the contract; a. Unemancipated Minors
3. There must be a mutual contribution of money, b. Insane persons or demented persons
property, or industry to a common fund; c. Deaf-mutes who do not know how to
4. The object must be lawful; and write
5. The primary purpose must be to obtain profits d. Incompetents who are under
and to divide the same among the parties. (De guardianship (Ibid.)
Leon, 2019)
Kinds of partners
Valid contract
1. As to the extent of liability
Partnership is a voluntary relation created by a. Capitalist – contributes either money
agreement of the parties. It excludes from its or property to the common fund; he
concept all other associations which do not have can also contribute an intangible like
their origin in a contract, express or implied. (Ibid.) credit, such as promissory note or
other evidence of obligation, or even a
Legal Capacity of the Parties to Contract goodwill (Rabuya, 2017); and
b. Industrial – contributes only his
Before there can be a valid contract of partnership, industry
it is essential that the contracting parties have the 2. As to the time of entry
necessary legal capacity to enter into the contract. a. Original – one who became a partner
Consequently, any person who cannot give consent at the time of the constitution of the
to a contract cannot be a partner. (Ibid.) partnership
b. Incoming – one who became a partner
as a new member of an existing
partnership.

Civil Law
3. Other kinds NOTE: Even if a partner will associate another

a. Managing – one entrusted with the person in his share in the partnership, the associate
management of the partnership. (Arts. shall not be admitted into the partnership without
1800 & 1801, NCC) the consent of all the partners, even if the partner
b. Liquidating – one who takes charge of having an associate should be a manager. (Art.
the liquidation and winding up of the 1804, NCC) This element of delectus personae,
partnership affairs. (NCC, Art. 1836) however, is true only in the case of a general
c. Retiring – those who cease to be part partner, but not as regards a limited partner.
of the partnership
d. Continuing – one who continues the A partnership may be formed even if the
business of a partnership after it has common fund is comprised entirely of
been dissolved by reason of the borrowed or loaned money
admission of a new partner, or the
retirement, death, or expulsion of one A partnership may be deemed to exist among
or more partners parties who agree to borrow money to pursue a
e. Dormant, Silent, Secret – one whose business and to divide the profits or losses that may
connection to the partnership is arise therefrom, even if it is shown that they have
concealed and who does not take any not contributed any capital of their own to a
active part in it “common fund.” Their contribution may be in the
f. Partner by Estoppel – although not an form of credit or industry, not necessarily cash or
actual partner, he has made himself fixed assets. Being partners, they are all liable for
liable as such by holding himself out as debts incurred by or on behalf of the partnership.
a partner of allowing himself to be so (Lim Tong Lim v. Philippine Fishing Gear Industries,
held out. (Art. 1815, NCC) Inc., G.R. No. 136448, 03 Nov. 1999)
NOTE: A corporation cannot become a member of Consequences of a partnership formed for an

a partnership in the absence of express Unlawful Purpose
authorization by statute or charter. This doctrine is
based on the following considerations: (1) Mutual 1. The contract is void ab initio and the
agency between the partners and, (2) Such partnership never existed in the eyes of the
arrangement would improperly allow corporate law; (Art.1409(1), NCC)
property to become subject to risks not 2. The profits shall be confiscated in favor of the
contemplated by the stockholders when they government; (Art. 1771, NCC)
originally invested in the corporation. (Mendiola v. 3. The instruments or tools and proceeds of the
CA, GR. No. 159333, 31 July 2006) crime shall also be forfeited in favor of the
government; (Art. 45, NCC) and
Principle of Delectus Personae 4. The contributions of the partners shall not be
confiscated unless they fall under No. 3. (Art.
No one can become a member of the partnership 1411, NCC) (De Leon, 2019)
association without the consent of all the partners.
This rule is inherent in every partnership. NOTE: A partnership is dissolved by operation of
law upon the happening of an event which makes it
Reason: This is because of the mutual trust among unlawful for the business of the partnership to be
the partners and that this is a case of subjective carried on, or for the members to carry it on in
novation. There is subjective novation when there partnership. (Art. 1830(3), NCC)
is a change in the parties to a contract. Their consent
thereto is necessary in order to bind them. (Albano,
2013)

2022 GOLDEN NOTES
Partnership
Necessity of Judicial Decree to Dissolve an share of each in the losses shall be in the same
Unlawful Partnership proportion.
Judicial decree is not necessary to dissolve an The definition of partnership under Art. 1767
unlawful partnership; however, it may sometimes refers to “profits” only and is silent as to “losses.”
be advisable that a judicial decree of dissolution be
secured for the convenience and peace of mind of Reason: The object of partnership is primarily the
the parties. (De Leon, 2019) sharing of profits, while the distribution of losses is
but a “consequence of the same.” The right to share
Intention to Divide the Profits in the profits carries with it the duty to contribute
to the losses, of any.
The sharing in profits is merely presumptive and
not conclusive evidence of partnership. There are NOTE: The partnership relation is not the contract
numerous instances of parties who have a common itself, but the result of the contract. The relation is
interest in the profits and losses of an enterprise evidenced by the terms of the contract which may
but who are not partners. Thus, if the division of be oral or written, express or implied from the acts
profits is merely used as a guide to determine the and declarations of the parties, subject to the
compensation due to one of the parties, such is not provisions of Articles 1771-1773 and to the Statute
a partner. (Ibid.) of Frauds. (De Leon, 2019)
Q: To form a lending business, it was verbally FORMATION OF PARTNERSHIP

agreed that Noynoy would act as financier while
Cory and Kris would take charge of solicitation It is created by agreement of the parties
of members and collection of loan payments. (consensual). There is no such thing as a
The parties executed the “Articles of partnership created by law or by operation or
Agreement” where Noynoy would receive 70% implication of law alone. (Ibid.)
of the profits while Cory and Kris would earn
15% each. Later, Noynoy filed a complaint Articles of Partnership
against Cory and Kris for misappropriation of
funds allegedly in their capacities as Noynoy’s While partnership relation may be informally
employees. In their answer, Cory and Kris created and its existence proved by manifestations
asserted that they were partners and not mere of the parties, it is customary to embody the terms
employees of Noynoy. What kind of of the association in a written document known as
relationship existed between the parties? “Articles of Partnership” stating the name, nature or
purpose and location of the firm, and defining,
A: A partnership was formed among the parties. among others, the powers, rights, duties, and
The “Articles of Agreement” stipulated that the liabilities of the partners among themselves, their
signatories shall share in the profits of the business contributions, the manner by which the profits and
in a 70-15-15 manner, with Noynoy getting the losses are to be shared, and the procedure for
lion's share. This stipulation clearly proved the dissolving the partnership. (Ibid.)
establishment of a partnership. (Santos v. Spouses
Reyes, G.R. No. 135813, 25 Oct. 2001) Commencement of Contract of Partnership
Distribution of Losses A partnership begins from the moment of the

execution of the contract, unless it is otherwise
Agreeing upon a system of sharing losses is not stipulated. (Art. 1784, NCC) If there is no contrary
necessary for the obligation is implied in the stipulation as to the date of effectivity of the same,
partnership relation. If only the share of each its registration in the Securities and Exchange
partner in the profits has been agreed upon, the

Civil Law
Commission is not essential to give it juridical Where Capital of the Partnership consists of
personality. (De Leon, 2019) Money or Personal Property amounting to Php
3,000 or more
Formalities needed for the creation of a
partnership The failure to register the contract of partnership
does not invalidate the same as among the
GR: No special form is required for its validity or partners, so long as the contract has the essential
existence. (Art. 1771, NCC). The contract may be requisites, because the main purpose of
made orally or in writing regardless of the value of registration is to give notice to third parties, and it
the contributions. (2009 BAR) can be assumed that the members themselves knew
of the contents of their contract. Non-compliance
NOTE: An agreement to enter in a partnership at a with this directory provision of the law will not
future time, which “by its terms is not performed invalidate the partnership.
within a year from the making thereof” is covered
by the Statute of Frauds. (Art. 1403(2)(a), NCC) Registration is merely for administration and
Such agreement is unenforceable unless the same licensing purposes; hence, it shall not affect the
be in writing or at least evidenced by some note or liability of the partnership and the members
memorandum thereof subscribed by the parties. thereof to third persons. (Art. 1772(2), NCC)
(De Leon, 2019)
A void partnership under Art. 1773, in relation to
XPNs: If property or real rights have been Art. 1771, may still be considered by the courts as
contributed to the partnership: an ordinary contract as regards the parties thereto
from which rights and obligations to each other
1. Personal property may be inferred and enforced. (Torres v. CA, G.R. No.
a. Less than P3,000 – may be oral 134559, 09 Dec. 1999)
b. P 3,000 or more – must be:
i. In a public instrument; and Q: A and B are co-owners of an inherited
ii. Registered with Securities property. They agreed to use the said common
and Exchange Commission properties and the income derived therefrom
(Art. 1772, NCC) as a common fund with the intention to produce
profits for them in proportion to their
2. Real property or real rights – must be: respective shares in the inheritance as
a. In a public instrument (Art. 1771, NCC; determined in a project of partition. What is the
(2009 BAR) effect of such agreement on the existing co-
b. With an inventory of said property ownership?
i. Signed by the parties;
ii. Attached to the public A: The co-ownership is automatically converted
instrument; (Art. 1773, NCC) into a partnership. From the moment of partition,
iii. Registered in the Registry of A and B, as heirs, are entitled already to their
Property of the province, respective definite shares of the estate and the
where the real property is income thereof, for each of them to manage and
found to bind third persons. dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly, he
3. Limited partnership – Must be registered with becomes liable individually for all the taxes in
the SEC, otherwise, the liability of the limited connection therewith.
partners becomes the same as of that of that
general partners. (De Leon, 2019) If, after such partition, an heir allows his shares to
be held in common with his co-heirs under a single
management to be used with the intent of making

2022 GOLDEN NOTES
Partnership
profit thereby in proportion to his share, there can d. As interest on a loan, though the
be no doubt that, even if no document or amount of payment varies with the
instrument were executed for the purpose, for tax profits of the business;
purposes, at least, an unregistered partnership is e. As the consideration for the sale for
formed. (Oña v. CIR, G.R. No. L-19342, 25 May 1972) the sale of a goodwill of a business or
other property by installments or
Future Partnership otherwise. (Art. 1769, NCC)
It is a kind of partnership where the partners may NOTE: In sub-paragraphs a–e, the profits in the
stipulate some other date for the commencement business are not shared as profits of a partner as a
of the partnership. Persons who have entered into partner, but in some other respects or for some
a contract to become partners at some future time other purpose.
or future contingency do not become partners until
or unless the agreed time has arrived, or the Burden of Proving the Existence of a
contingency has happened. Partnership
As long as the agreement for a partnership remains Whoever alleges the existence of a partner or
inchoate or unperformed, the partnership is not partnership by estoppel has the burden of proof.
consummated. (De Leon, 2019) The existence of a partnership must be proved and
will not be presumed. However, when a
Rules to determine Existence of Partnership partnership is shown to exist, the presumption is
that it continues in the absence of evidence to the
1. Except as provided by Art. 1825 of the NCC contrary, and the burden of proof is on the person
(partnership by estoppel), persons who are not asserting its termination. (De Leon, 2019)
partners as to each other are not partners as to
third persons; Classifications of Partnership
2. Co-ownership or co-possession does not of 1. Object

itself establish a partnership, whether such co-
owners or co-possessors do or do not share any a. Universal partnership
profits made by the use of the property;
i. Of all present property (Art. 1778, NCC) –
3. The sharing of gross returns does not of itself The partners contribute all the property
establish a partnership, whether or not the which actually belongs to them to a
persons sharing them have a joint or common common fund, with the intention of
right or interest in any property from which dividing the same among themselves, as
the returns are derived; well as all profits they may acquire
therewith. The following become the
4. The receipt by a person of a share of the profits common fund of all the partners:
of a business is prima facie evidence that he is 1. Property which belonged to each of
a partner in the business, but no such inference the partners at the time of the
shall be drawn if such profits were received in constitution of the partnership
payment: 2. Profits which they may acquire from
a. As a debt by installments or all property contributed
otherwise;
b. As wages of an employee or rent to a ii. Of all profits (Art. 1780, NCC) –
landlord; Comprises all that the partners may
c. As an annuity to a widow or acquire by their industry or work during
representative of a deceased partner; the existence of the partnership as well

Civil Law
as the usufruct of all movable or 4. Legality of existence

immovable property which each of the
partner may possess at the time of the a. De jure partnership – One which has
celebration of the contract of complied with all the requirements for its
partnership. establishment.
b. Particular partnership – It is one which has b. De facto partnership – One which has failed
for its object, determinate things, their use to comply with all the legal requirements
and fruits, or a specific undertaking or the for its establishment. (De Leon, 2019).
exercise of a profession or a vocation. (Art.
1783, NCC) 5. Representation to others
2. Liability of partners a. Ordinary or real partnership – One which

actually exists among the partners and also
a. General partnership – One where all as to third person. (Ibid.)
partners are general partners who are
liable even with respect to their individual b. Ostensible or partnership by estoppel –
properties, after the assets of the When two or more persons attempt to
partnership have been exhausted. (Pineda, create a partnership but fail to comply
2006) with the legal personalities essential for
juridical personality, the law considers
b. Limited partnership – One formed by two them as partners, and the association is a
or more persons having as members one partnership insofar as it is favorable to
or more general partners and one or more third persons, by reason of the equitable
limited partners, the latter not being principle of estoppel. (Atwel v. Concepcion
personally liable for the obligations of the Progressive Assoc., G.R. No. 169370, 14 Apr.
partnership. (Art. 1843, NCC) 2008)
3. Duration 6. Publicity
a. Partnership at will – the partnership has an
indefinite term and it would be dissolved a. Secret partnership – Partnership that is not
only when an act or cause of dissolution known to many but only as to its partners.
happens or arises.
b. Notorious or open partnership – It is known
b. Partnership with a fixed period or not only to the partners, but to the public
Partnership for a Particular Undertaking – as well. (De Leon, 2019)
the partnerships are automatically
dissolved upon the expiration of the 7. Purpose
stipulated term or the achievement of the
particular undertaking stipulated in the a. Commercial or trading – One formed for
contract of partnership. (Art. 1830(1)(a), the transaction of business.
NCC) b. Professional or non-trading – One formed
for the exercise of a profession. (De Leon,
NOTE: When a partnership for a fixed term or 2019)
particular undertaking is continued after it has
terminated without any express agreement,
partnership then become one at will (Art. 1785,
NCC), and the rights and duties of the partners
remain the same as they were at such termination.

2022 GOLDEN NOTES
Partnership
Classes of Universal Partnership Persons Disqualified from Entering into

Universal Partnership
ALL PRESENT
ALL PROFITS 1. Legally married spouses. (Art. 87, Family Code,)
PROPERTY
However, they can enter into particular
What constitutes common property partnership.
Art. 1780, NCC 2. Common law spouses.
3. Parties guilty of adultery or concubinage.
All properties actually
4. Criminals convicted for the same offense in
belonging to the partners
Only usufruct of the consideration of the same. (Art. 739 (2), NCC)
are contributed – they
properties of the 5. A person and a public officer (or his wife,
become common property
partners become ascendant or descendants) by reason of his
(owned by all of the
common property. office. (Art. 739 (3), NCC)
partners and the
partnership).
Contribution of future properties
As to profits as common property
All profits acquired GR: Aside from the As a general rule, future properties cannot be
by the industry of the contributed properties, the contributed. The very essence of the contract of
partners become profits of said property partnership that the properties contributed be
common property become common property. included in the partnership requires the
(whether or not they contribution of things determinate. (De Leon, 2019)
were obtained XPN: Profits from other
through the usufruct sources may become Particular partnership
contributed) (Art. common if there is a
1780, NCC) stipulation to such effect. It is one which has for its object determinate things,
As to properties subsequently acquired their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation. (Art. 1783,
GR: Properties
NCC)
subsequently acquired by
inheritance, legacy or
The fundamental difference between a universal
donation, cannot be
partnership and a particular partnership lies in the
N/A included in the stipulation
scope of their subject matter or object. In the
former, the object is vague and indefinite,
XPN: Only fruits thereof
contemplating a general business with some
can be included in the
degree of continuity, while in the latter, it is limited
stipulation. (NCC, Art. 1779)
and well-defined, being confined to an undertaking
of a single, temporary, or ad hoc nature. (De Leon,
Presumption of Universal Partnership of Profits
2019)
When the Articles of Universal Partnership fail to

Q: J, P and B formed a limited partnership called
specify whether it is one of all present property or
Suter Co., with P as the general partner and J
of profits, it only constitutes a universal partnership
and B as limited partners. J and B contributed
of profits (Art. 1781, NCC), because it imposes lesser
Php 18,000 and Php 20,000 respectively. Later,
obligations on the partners since they preserve the
J and B got married and P sold his share of the
ownership of their separate property. (De Leon,
partnership to the spouses which was recorded
2019)
in the SEC. Has the limited partnership been
dissolved by reason of the marriage between
the limited partners?

Civil Law
A: NO. The partnership is not a universal but a L-25532, 28 Feb. 1969; Heirs of Tang Eng Kee v. CA,
particular one. A universal partnership requires G.R. No. 126881, 03 Oct. 2000)
either that the object of the association must be all
present property of the partners as contributed by GENERAL V. LIMITED PARTNERSHIP
them to a common fund, or all else that the partners
may acquire by their industry or work. Here, the General Partnership
contributions were fixed sums of money and
neither one of them were industrial partners. Thus, It is a partnership where all partners are general
the firm is not a partnership which the spouses are partners who are liable even with respect to their
forbidden to enter into. The subsequent marriage individual properties, after the assets of the
cannot operate to dissolve it because it is not one of partnership have been exhausted. (Paras, 2016)
the causes provided by law. The capital
contributions were owned separately by them General or Real Partner
before their marriage and shall remain to be He is a partner whose liability to third persons
separate under the Spanish Civil Code. Their extends to his separate property; he may be either
individual interest did not become common a capitalist or an industrial partner. (De Leon, 2019)
property after their marriage. (CIR v. Suter, G.R. No.
General v. Limited Partner/Partnership
GENERAL LIMITED
As to Liability
Personally liable for partnership obligations. (Art. Liability extends only to his capital contributions.
1816, NCC) (Arts. 1845, 1848, 1856)
As to Right in Management
GR: No participation in management. His rights are

When manner of management has not been agreed limited to those enumerated in Art. 1851 of NCC.
upon, all general partners have an equal right in the
management of the business. (Arts. 1803, 1810(3), XPN: When he renders himself liable to creditors as
NCC) a general partner if he takes part in the control of
the business. (Art. 1848, NCC)
As to Contribution
Money, property or industry. (Art. 1767, NCC) Cash or property only, not services. (Art. 1845, NCC)
As to If Proper Party to Proceedings By or Against Partnership
Not proper party to proceedings by/against

partnership, unless:
(1) He is also a general partner (Art. 1853, NCC); or
Proper party to proceedings by/against partnership.
(2) Where the object of the proceeding is to enforce
a limited partner’s right or liability to the
partnership. (Art. 1866, NCC)

2022 GOLDEN NOTES
Partnership
As to Assignment of Interest
Interest is not assignable without consent of other

Interest is freely assignable. (Art. 1859, NCC)
partners. (Art. 1813, NCC)
As to Firm Name
It must also operate under a firm name, followed by

the word “Limited.”
GR: The surname of a limited partner shall not

appear in the partnership name.
It must operate under a firm name, which may or may
not include the name of one or more of the partners. XPNs:
(1) It is also the surname of a general partner; or
NOTE: Those, who, not being members of the (2) Prior to the time when the limited partner
partnership, include their names in the firm name, became such, the business had been carried on
shall be subject to the liability of a partner. (Art. 1815, under a name in which his surname appeared.
NCC)
NOTE: A limited partner whose surname appears in
a partnership name is liable as a general partner to
partnership creditors who extend credit to the
partnership without actual knowledge that he is not
a general partner. (Art. 1846, NCC)
As to Prohibition to Engage in Other Business
The capitalist partner cannot engage for their own

account in any operation which is of the kind of
business in which the partnership is engaged, unless
No prohibition against engaging in business. (Art.
there is a stipulation to the contrary. (Art. 1808, NCC)
1866, NCC)
If he is an industrial partner - in any business for

himself. (Art. 1789, NCC)
As to Effect of Death, Insolvency, Retirement, Insanity
Retirement, death, insolvency, insanity of general

Does not have same effect; rights are transferred to
partner dissolves partnership. (Arts. 1860, 1830,
legal representative. (Art. 1861, NCC)
1831, NCC)
As to Creation
Created by the members after substantial

As a rule, it maybe constituted in any form, by
compliance in good faith of the requirements set
contract or conduct of the parties. (Art. 1771, NCC)
forth by law. (Art. 1844, NCC)
As to Composition/Membership
Composed of at least one general partner and one
Composed only of general partners.
limited partner. (Art. 1843, NCC)

Civil Law
PARTNERSHIP WITH A FIXED TERM attendance of bad faith can prevent the dissolution
V. PARTNERSHIP AT WILL of the partnership, but to avoid the liability for
damages to other partners. (De Leon, 2010)
Partnership with a Fixed Term
Q: A, B, and C entered into a partnership to
It is one in which the term of its existence has been operate a restaurant business. When the
agreed upon by the partners either: restaurant had gone past break-even stage and
1. Expressly – There is a definite period. started to garner considerable profits, C died. A
2. Impliedly – A particular enterprise or and B continued the business without
transaction is undertaken. dissolving the partnership. They in fact opened
a branch of the restaurant, incurring
NOTE: The mere expectation that the business obligations in the process. Creditors started
would be successful and that the partners would be demanding for the payment of their
able to recoup their investment is not sufficient to obligations.
create a partnership for a term. a. Who are liable for the settlement of the
partnership’s obligations? Explain.
Fixing the Term of the Partnership Contract b. What are the creditors’ recourse/s?
The partners may fix in their contract any term and Explain. (2010 BAR)
they shall be bound to remain under such a relation
for the duration of the term. (De Leon, 2019) A:
Expiration of the partnership contract a. The two remaining partners, A and B, are
liable. When any partner dies and the business
The expiration of the term fixed, or the is continued without any settlement of
accomplishment of the particular undertaking accounts as between him or his estate, the
specified will cause the automatic dissolution of the surviving partners are held liable for
partnership. (Art. 1830 (1)(a), NCC) continuing the business despite the death of C.
(Arts. 1841, 1785(2) & 1833, NCC)
Partnership at Will b. Creditors can file the appropriate actions, for
instance, an action for the collection of sum of
One in which no fixed term is specified and is not money against the “partnership at will” and if
formed for a particular undertaking or venture there are no sufficient funds, the creditors may
which may be terminated anytime by mutual go after the private properties of A and B. (Art.
agreement of the partners, or by the will of any one 816, NCC) Creditors may also sue the estate of
partner alone; or one for a fixed term or particular C. The estate is not excused from the liabilities
undertaking which is continued by the partners of the partnership even if C is dead already but
after the termination of such term or particular only up to the time that he remained a partner
undertaking without express agreement. (De Leon, (Arts. 1829 & 1835(2) NCC). However, the
2019) liability of C’s individual property shall be
subject first to the payment of his separate
Termination or Dissolution of partnership at debts. (Art. 1835, NCC)
will
PARTNERSHIP BY ESTOPPEL
A partnership at will may be lawfully terminated or
dissolved at any time by the express will of all or It is one who, by words or conduct does any of the
any of the partners. (Art. 1830(1)(b), NCC) following:
1. Directly represents himself to anyone as a
NOTE: The partner who wants the partnership partner in an existing partnership or in a non-
dissolved must do so in good faith, not that the existing partnership.

2022 GOLDEN NOTES
Partnership
2. Indirectly represents himself by consenting to Partnership Tort

another representing him as a partner in an
existing partnership or in a non-existing There is a partnership tort where:
partnership. (Art. 1825, NCC) 1. By any wrongful act or omission of any partner,
acting in the ordinary course of business of the
Elements before a partner can be held liable partnership or with authority of his co-
on the ground of estoppel partners, loss or injury is caused to any person,
not being a partner in the partnership; (Art.
1. Defendant represented himself as partner 1822, NCC)
or is represented by others as such and did 2. One partner, acting within the scope of his
not deny/refute such representation. apparent authority, receives money or
2. Plaintiff relied on such representation. property from a third person, and misapplies it;
3. Statement of defendant is not refuted. (De (Art. 1823(1), NCC) or
Leon, 2019) 3. The partnership, in the course of its business,
receives money or property, and it is
Liabilities in case of estoppel misapplied by any partner while it is in the
custody of the partnership. (Art. 1823(2), NCC)
If all actual partners consented
to the representation, then the NOTE: Partners are solidarily liable with the
liability of the person who partnership for any penalty or damage arising from
When
represented himself to be a a partnership tort. (Art. 1824, NCC)
Partnership
partner or who consented to
is Liable
such representation and the PROFESSIONAL PARTNERSHIP
actual partner is considered a
partnership liability. It is a partnership formed by persons for the sole
When there is no existing purpose of exercising their common profession, no
partnership and all those part of the income of which is derived from
represented as partners engaging in any trade or business.
consented to the
When representation, then the In a professional partnership, it is the individual
Liability is liability of the person who partners who are deemed engaged in the practice of
PRO RATA represented himself to be a profession and not the partnership. Thus, they are
partner, and all who made and responsible for their own acts. (De Leon, 2019)
consented to such
representation, is joint or pro- Prohibition in the formation of a professional
rata. partnership
When there is no existing
partnership and not all but Partnership between lawyers and members of
only some of those other profession or non-professional persons
represented - as partners should not be formed or permitted where any part
When consented to the of the partnership’s employment consists of the
Liability is representation, or none of the practice of law. (Canon 9, CPR)
SEPARATE partnership in an existing
partnership consented to such Prohibition in the firm name of a partnership
representation, then the for the practice of law
liability will be separate. (De
Leon, 2019) In the selection and use of firm name, no false,
misleading, assumed, or trade names should be
used. (Canon 3, CPR)

Civil Law
MANAGEMENT OF THE PARTNERSHIP Rule where there are two or more managers
Modes of appointment of a manager GR: Each may separately

execute all acts of
Without
administration (unlimited
Appointment through specification
Appointment other than power to administer).
the Articles of of their
in the Articles
Partnership respective
XPN: If any of the managers
duties and
Power is irrevocable opposes, decision of the
without
without just or lawful majority prevails.
stipulation
cause. (Art. 1800, requiring
NCC) NOTE: In case of tie – Decision
unanimity of
of the controlling interest
action
NOTE: Vote required (who are also managers) shall
for removal of Power to act is prevail.
manager: revocable anytime, GR: Unanimous consent of all
With
1. For just cause – with or without cause the managing partners shall be
stipulation
Vote of the (should be done by necessary for the validity of
that none of
controlling the controlling the acts and absence or
the
partners interest). (Art. 1920, inability of any managing
managing
(controlling NCC) partner cannot be alleged.
partners
financial
shall act
interest). XPN: Where there is an
without the
2. Without cause or imminent danger of grave or
consent of
for unjust cause irreparable injury to the
the others
– Unanimous partnership.
vote.
Extent of Power Rule when the manner of management has NOT
been agreed upon
1. If he acts in good
faith, he may do all
1. All partners shall be considered agents and
acts of As long as he is a
whatever any one of them may do alone shall
administration manager, he can
bind the partnership, without prejudice to the
(despite perform all acts of
provisions of Art. 1801 of the NCC. This right is
opposition of his administration (if
not dependent on the amount or size of the
partners); others oppose, he can
partner’s capital contribution or services to the
2. If he acts in bad be removed).
business.
faith, he cannot.
(Art. 1800, NCC)
NOTE: If two or more partners have been
entrusted with the management of the
Scope of the Power of a Managing Partner
partnership without specification of their
respective duties, or without a stipulation that
As a rule, a partner appointed as manager has all
one of them shall not act without the consent
the powers of a general agent as well as all the
of all the others, each one may separately
incidental powers necessary to carry out the object
execute all acts of administration, but if any of
of the partnership in the transaction of its business.
them should oppose the acts of the others, the
The exception is when the powers of the manager
decision of the majority shall prevail. In case of
are specifically restricted. (De Leon, 2019)
a tie, the matter shall be decided by the
partners owning the controlling interest. (Art.

2022 GOLDEN NOTES
Partnership
1801 Art. 1801, NCC; 1992 BAR) Rights and Obligations of the Partnership
2. None of the partners may, without the consent 1. Refund the amounts disbursed by partner in
of the others, make any important alteration in behalf of the partnership plus corresponding
the immovable property even if it may be interest from the time the expenses are made,
useful to the partnership. (Arts. 1802-1803, not from the date of demand (e.g., loans and
NCC) advances made by a partner to the partnership
aside from capital contribution);
Rule in case where Unanimity of Action is 2. Answer for obligations the partner may have
Stipulated contracted in good faith in the interest of the
partnership business; and
If refusal of partner is manifestly prejudicial to the 3. Answer for risks in consequence of its
interest of partnership, the court’s intervention management. (Art. 1796, NCC)
may be sought. (Art. 1803(2), NCC)
Compensation
GR: In the absence of an agreement to the contrary,

each member of the partnership assumes the duty
to give his time, attention, and skill to the
management of its affairs, so far, at least, as may be
reasonably necessary to the success of the common
enterprise; and for this service a share of the profits
is his only compensation.
XPNs:
1. A partner engaged by his co-partners to
perform services not required of him in
fulfillment of the duties which the partnership
relation imposes and, in a capacity, other than
that of a partner;
2. A contract for compensation may be implied if
there is extraordinary neglect on the part of
one partner to perform his duties toward the
firm’s business, thereby imposing the entire
burden on the remaining partner;
3. One partner may employ his co-partner to do
work for him outside of and independent of the
co-partnership, and become personally liable
therefor;
4. Where the services rendered are extra-
ordinary; and
5. Where one partner is entrusted with the
management of the partnership business and
devotes his whole time and attention thereto,
at the instance of the other partners who are
attending to their individual business and
giving no time or attention to the business of
the firm. (De Leon, 2019)

Civil Law
Fungible things (Consumable)

B. OBLIGATIONS OF THE PARTNERS
Things brought and appraised

in the inventory
Obligations of partners among themselves
1. Contribution of property; (Art. 1786, NCC) Effects if a partner fails to contribute the
2. Contribution of money and money converted property which he promised to deliver to the
to personal use; (Art. 1788, NCC) partnership
3. Prohibition in engaging in business for himself;
(Art. 1789, NCC) 1. Partner becomes ipso jure a debtor of the
4. Contribute additional capital; (Art. 1791, NCC) partnership even in the absence of any
5. Managing partner who collects debt; (Art. demand. (Art. 1786, NCC)
1792, NCC) 2. Remedy of the other partner is not rescission
6. Partner who receives share of partnership but specific performance with damages and
credit; (Art. 1793, NCC) interest from defaulting partner from the time
7. Damages to partnership; (Art. 1794, NCC) he should have complied with his obligation.
8. Keep the partnership books; (Art. 1805, NCC)
9. Render information; (Art. 1806, NCC) and When the capital or a part hereof which a partner is
10. Accountable as fiduciary. (Art. 1807, NCC) bound to contribute consists of goods, their
appraisal must be made in the manner prescribed
Withdrawal or disposal of money or property in the contract of partnership, and in the absence
by a contributing partner of stipulation, it shall be current prices, the
subsequent changes thereof being for the account
Money or property contributed by a partner cannot of the partnership. (Art. 1787, NCC)
be withdrawn or disposed of by the contributing
partner without the consent or approval of the Rules regarding contribution of money to the
partnership or of the other partners because the partnership
money or property contributed by a partner
becomes the property of the partnership. (De Leon, 1. To contribute on the date fixed the amount the
2019) partner has undertaken to contribute to the
partnership;
Q: Who bears the risk of loss of things 2. To reimburse any amount the partner may
contributed? have taken from the partnership coffers and
converted to his own use;
A: 3. To indemnify the partnership for the damages
caused to it by delay in the contribution or
WHO BEARS
KIND OF PROPERTY / THING conversion of any sum for the partner’s
THE RISK?
personal benefit;
4. To pay the agreed or legal interest, if the
Specific and determinate things partner fails to pay his contribution on time or
which are not fungible where Partners in case he takes any amount from the common
only the use is contributed fund and converts it to his own use. (De Leon,
2019)
Specific and determinate things

the ownership of which is
Partnership
transferred to the partnership

2022 GOLDEN NOTES
Partnership
Rule regarding obligation to contribute to Industrial Partner v. Capitalist Partner

partnership capital
INDUSTRIAL CAPITALIST
Unless there is a stipulation to the contrary, the PARTNER PARTNER
partners shall contribute equal shares to the capital Prohibition
of the partnership. (Art. 1790, NCC) It is not Relative: Cannot
applicable to an industrial partner unless, besides engage in business
Absolute: Cannot
his services, he has contributed capital pursuant to (with same kind of
engage in business for
an agreement. business with the
himself unless the
partnership) for his
partnership expressly
Liability of a capitalist partner to contribute own account, unless
permits him to do so.
additional capital there is a stipulation
(NCC, Art. 1789)
to the contrary. (Art.
GR: A capitalist partner is not bound to contribute 1808, NCC)
to the partnership more than what he agreed to Remedy
contribute. Capitalist partners
Capitalist partner,
may:
XPNs: who violated shall:
1. Exclude him from
1. In case of imminent loss of the business; and 1. Bring to the
the firm; or
2. There is no agreement to the contrary. common fund any
2. Avail themselves
profits accruing to
of the benefits
He is under obligation to contribute an additional him from said
which he may
share to save the venture. If he refuses to transaction; and
have obtained;
contribute, he shall be obliged to sell his interest to 2. Personally bears
Damages, in
the other partners. (De Leon, 2019) all losses. (Art.
either case. (Art.
1808, NCC; 2001
1789, NCC; 2001
Requisites before capitalist partners are BAR)
BAR)
compelled to contribute additional capital
Obligations of Managing Partners Who Collect
1. Imminent loss of the business of the his Personal Receivable from a Person who also
partnership; Owes the Partnership
2. Majority of the capitalist partners are of the
opinion that an additional contribution to the 1. Apply sum collected to 2 credits in proportion
common fund would save the business; to their amounts
3. Capitalist partner refuses deliberately to 2. If he received it for the account of partnership,
contribute (not due to financial inability); and the whole sum shall be applied to partnership
4. There is no agreement to the contrary. (Ibid.) credit (Art. 1792, NCC)
NOTE: The refusal of the partner to contribute his Requisites: At least 2 debts, one where the
additional share reflects his lack of interest in the collecting partner is creditor and the other, where
continuance of the partnership. (Ibid.) It shall be the partnership is the creditor:
obliged to sell his interest to the other partners 1. Both debts are demandable; and
except if there is an agreement to the contrary. (Art. 2. Partner who collects is authorized to manage
1791, NCC) and actually manages the partnership. (Art.
1792, NCC)
It is to be noted that the industrial partner is
exempted from the requirement to contribute an NOTE: The debtor is given the right to prefer
additional share. Having contributed his entire payment of the credit of the partner if it should be
industry, he can do nothing further. (De Leon, 2019) more onerous to him in accordance with his right to

Civil Law
application of payment. (Art. 1252, NCC; De Leon, A: Joe, the capitalist partner, may engage in the
2019) restaurant business because it is not the same kind
of business the partnership is engaged in. On the
Reason for applying payment to partnership other hand, Rudy may not engage in any other
credit business unless their partnership expressly
permits him to do so because as an industrial
The law safeguards the interests of the partnership partner, he has to devote his full time to the
by preventing the possibility of their being business of the partnership. (Art. 1789, NCC)
subordinated by the managing partner to his own
interest to the prejudice of the other partners. (De Rule with regard to the obligation of a partner
Leon, 2019) as to damages suffered by the partnership
through his fault
Obligation of a Partner Who Receives Share of
Partnership Credit GR: Every partner is responsible to the partnership
for damages suffered by it through his fault and he
To bring to the partnership capital what he has cannot compensate them with the profits and
received even though he may have given receipt for benefits which he may have earned for the
his share only. (Art. 1793, NCC) partnership by his industry.
Requisites: XPN: The courts may equitably lessen this

1. A partner has received in whole or in part, his responsibility if through the partner’s
share of the partnership credit; extraordinary efforts in other activities of the
2. Other partners have not collected their shares; partnership, unusual profit has been realized. (Art.
and 1794, NCC)
3. Partnership debtor has become insolvent. (Art.
1793, NCC) Set-off of damages caused by a partner
Liability of a person entered into a contract on GR: The damages caused by a partner to the
behalf of an ostensible corporation partnership cannot be offset by the profits of
benefits which he may have earned for the
The liability for a contract entered into on behalf of partnership by his industry. (Art. 1794, NCC)
an unincorporated association or ostensible
corporation may lie in a person who may not have Reason: The partner has the obligation to secure
directly transacted on its behalf, but reaped benefits for the partnership. Hence, the profits
benefits from that contract. (Lim Tong Lim v. which he may have earned pertain as a matter of
Philippine Fishing Gear Industries Inc., G.R. No. law or right, to the partnership
136448, 03 Nov. 1999) XPN: If unusual profits are realized through the
extraordinary efforts of the partner at fault, the
Rules regarding the prohibition to engage in courts may equitably mitigate or lessen his liability
another business for damages. This rule rests on equity. (Art. 1794,
NCC)
Q: Joe and Rudy formed a partnership to operate
a car repair shop in Quezon City. Joe provided NOTE: Even in this case, the partner at fault is not
the capital while Rudy contributed his labor allowed to compensate such damages with the
and industry. On one side of their shop, Joe profits earned. The law does not specify as to when
opened and operated a coffee shop, while on the profits may be considered “unusual.” The question
other side, Rudy put up a car accessories store. depends upon the circumstances of the particular
May they engage in such separate businesses? case.
Why? (2001 BAR)

2022 GOLDEN NOTES
Partnership
Duty of the partners with respect to keeping the Duty of a partner to act with utmost good faith
partnership books towards co-partners continues even after
dissolution
The partnership books shall be kept, subject to any
agreement between partners, at the principal place The duty of a partner to act with utmost good faith
of business of the partnership. (Art. 1805, NCC) towards his co-partners continues throughout the
entire life of the partnership even after dissolution
Duty to keep partnership book belongs to for whatever reason or whatever means, until the
managing or active partner relationship is terminated, i.e., the winding up of
partnership affairs is completed. (De Leon, 2019)
The duty to keep true and correct books showing
the firm’s accounts, such books being at all times Failure to disclose facts, when there is a duty to
open to inspection of all members of the firm, reveal them, as when parties are bound by
primarily rests on the managing or active partner confidential relations, constitutes fraud. (Art. 1339,
or the particular partner given record-keeping NCC)
duties. (Art. 1805, NCC; De Leon, 2019)
RIGHTS OF PARTNERS
Duty of the partners with respect to
information affecting the partnership 1. Right to reimbursement for amounts advanced
to the partnership and to indemnification for
Partners shall render on demand true and full risks in consequence of management; (Art.
information of all things affecting the partnership 1796, NCC)
to: 2. Right on the distribution of profits and losses;
1. Any partner; or (Art. 1797, NCC)
2. Legal representative of any deceased or any 3. Right to associate another person with him in
partner under legal disability. (Art. 1806, NCC) his share without the consent of the other
partners; (Art. 1804, NCC)
NOTE: Under the same principle of mutual trust
and confidence among partners, there must be no NOTE: Such partnership formed between a
concealment between them in all matters affecting member of a partnership and a third person for
the partnership. The information, to be sure, must a division of the profits coming to him from the
be used only for a partnership purpose. (De Leon, partnership enterprise is termed sub-
2019) partnership. (De Leon, 2019)
Accountability of partners to each other as 4. Right to free access and to inspect and copy at
fiduciary any reasonable hour the partnership books;
(Art. 1805, NCC)
Every partner must account to the partnership for 5. Right to formal account as to partnership
any benefit, and hold as trustee for it any profits affairs:
derived by him without the consent of the other a. If he is wrongfully excluded from the
partners from any transaction connected with the partnership business or possession of
formation, conduct, or liquidation of the its property by his co-partners;
partnership or from any use by him of its property. b. If the right exist under the terms of
(Art. 1807, NCC) any agreement;
c. Duty to account as provided by Art.
1807;
d. Whenever there are circumstances
render it just and reasonable; (Art.
1809, NCC)

Civil Law
6. Right to have the partnership dissolved; (Art. NOTE: For as long as the partnership exists, any of
1830 – 1831, NCC) and the partners may demand an accounting of the
7. Property rights of a partner. (Art. 1810, NCC) partnership's business. Prescription of the said
right starts to run only upon the dissolution of the
Rule as to formal accounting during the partnership when the final accounting is done. The
existence of the partnership right to an account of his interest shall accrue to
any partner, or his legal representative as against
GR: During the existence of the partnership, a the winding up partners or the surviving partners
partner is not entitled to a formal account of or the person or partnership continuing the
partnership affairs. business, at the date of dissolution, in the absence
of any agreement to the contrary. (Emnace v. CA,
XPN: However, in special and unusual situations G.R. No. 126334, 23 Dec. 2001)
enumerated under Art. 1809, the justification for a
formal accounting even before dissolution of the Rules regarding distribution of profits and
partnership cannot be doubted. An example under losses
No. (4) of Art. 1809 is where a partner has been
assigned abroad for a long period of time in a. Distribution of Profits
connection with the partnership business and the i. The partners share in the profits
partnership books during such period being in the according to their agreement.
possession of the other partners. (De Leon, 2019) ii. In the absence of such:
a. Capitalist partner – in proportion
Partners’ inspection rights to his contribution;
b. Industrial partner – what is just
The partners’ inspection rights are not absolute. He and equitable under the
can be restrained from using the information circumstances. (Arts. 1797, NCC)
gathered for other than partnership purpose.
(Ibid.) NOTE: If the industrial partner has contributed
capital other than his services, he shall also receive
“Any reasonable hour” a share in the profits in proportion to his capital.
(Art. 1797, NCC)
The rights of the partners with respect to The share of industrial partner must be satisfied
partnership books can be exercised at “any first before the capitalist partners, as it is very
reasonable hour.” (Art. 1805, NCC) difficult to ascertain the value of the services of a
person. (De Leon, 2019)
NOTE: This phrase has been interpreted to mean
reasonable hours on business days throughout the b. Distribution of Losses
year and not merely during some arbitrary period i. The partners share in the losses
of a few days chosen by the managing partners. (De according to their agreement.
Leon, 2019) ii. In the absence of such, according to
their agreement as to profits.
Action for accounting iii. In the absence of profit agreement, in
proportion to his capital contribution.
An action for accounting, asking that the assets of (Art. 1797, NCC)
the partnership be accounted for, sold and
distributed according to the agreement of the Q: “X” used his savings from his salaries
partners is a personal action which under the Rules amounting to a little more than P2,000 as
of Court, may be commenced and tried where the capital in establishing a restaurant. “Y” gave the
defendant resides or may be found or where the amount of P4,000 to “X” as “financial
plaintiffs reside, at the election of the latter. (Ibid.) assistance” with the understanding that “Y”

2022 GOLDEN NOTES
Partnership
would be entitled to 22% of the annual profits affairs under certain circumstances; (Art. 1809,
derived from the operation of the restaurant. NCC) and
After the lapse of 22 years, “Y” filed a case 5. The right to have the partnership dissolved
demanding his share in the said profits. “X” also under certain conditions. (Arts. 1830-
denied that there was a partnership and raised 1831, NCC; De Leon, 2019)
the issue of prescription as “Y” did not assert his
rights anytime within ten (10) years from the Effects of assignment of partner’s whole
start of the operation of the restaurant. Is “Y” a interest in the partnership
partner of “X” in the business? Why? What is the
nature of the right to demand one’s share in the 1. Rights withheld from the assignee: Such
profits of a partnership? Does this right assignment does not grant the assignee the
prescribe? (1989 BAR) right to:
a. To interfere in the management;
A: YES, because there is an agreement to contribute b. To require any information or account;
to a common fund and intent to divide profits. It is and
founded upon an express trust. It is imprescriptible c. To inspect partnership books. (Art.
unless repudiated. 1813, NCC)
2. Rights of assignee on partner’s interest:
Rule regarding a stipulation excluding a a. To receive in accordance with his
partner in the sharing of profits and losses contract the profits accruing to the
assigning partner;
GR: Such stipulation is void. (Art. 1799, NCC) b. To avail himself of the usual remedies
provided by law in the event of fraud
XPN: Industrial partner is not liable for losses. (Art. in the management;
1797 (2), NCC) However, he is not exempted from c. To receive the assignor’s interest in
liability insofar as third persons are concerned. case of dissolution; and
d. To require an account of partnership
NOTE: Loss is different from liability. affairs, but only in case the
partnership is dissolved, and such
Property rights of a partner account shall cover the period from
the date only of the last account
1. Right in specific partnership property; agreed to by all the partners. (Art.
2. Interest in the partnership (share in the profits 1813, NCC)
and surplus); and
3. Right to participate in the management. (Art. Q: Rosa received money from Jois, with the
1803, NCC) express obligation to act as Jois’ agent in
purchasing local cigarettes, to resell them to
Related rights to the property rights of a several stores, and to give Jois the commission
partner corresponding to the profits received.
However, Rosa misappropriated and converted
1. Right to the partnership and to the said amount due to Jois to her personal use
indemnification for risks in consequence of and benefit. Jois filed a case of estafa against
management; (Art. 1796, NCC) Rosa. Can Rosa deny liability on the ground that
2. The right of access and inspection of a partnership was formed between her and
partnership books; (Art. 1805, NCC) Rosa?
3. The right to true and full information of all
things affecting the partnership; (Art. 1806, A: NO. Even assuming that a contract of
NCC) partnership was indeed entered into by and
4. The right to a formal account of partnership between the parties, when a partner receives any

Civil Law
money or property for a specific purpose (such as c. Knowledge of any other partner who
that obtaining in the instant case) and he later reasonably could and should have
misappropriates the same, he is guilty of estafa. communicated it to the acting partner.
(Liwanag v. CA, G.R. No. 114398, 14 Oct. 1997) (Art. 1821, NCC)
OBLIGATIONS OF 7. Partners and the partnership are solidarily

THE PARTNERSHIP/PARTNERS liable to third persons for the partner's tort or
TO THIRD PERSONS breach of trus.t (NCC, Art. 1822-24)
1. Every partnership shall operate under a firm 8. Liability of incoming partner is limited to:
name. (Art. 1815, NCC) a. His share in the partnership property
for existing obligations
2. All partners shall be liable for contractual b. Extends to his separate property for
obligations of the partnership with their subsequent obligations. (NCC, Art.
property, after all partnership assets have 1826)
been exhausted: 9. Creditors of partnership are preferred in
a. Pro rata partnership property. Private creditors of each
b. Subsidiary (Art. 1816, NCC; 1993, partner may attach the partner's share in
2010 BAR) partnership assets. (NCC, Art. 1827)
XPN: All partners shall be liable solidarily NOTE: On solidary liability, Art. 1816 should be
with the partnership for everything construed together with Art. 1824 in relation to
chargeable to the partnership under Art. Arts. 1822& 1823. While the liability of the
1822 and 1823. (Art. 1824, NCC) partners is merely joint in transactions entered into
by the partnership, a third person who transacted
NOTE: Any stipulation against the liability with said partnership may hold the partners
laid down in Art. 1816 shall be void except solidarily liable for the whole obligation if the case
as among the partners. (Art. 1817, NCC) of the third person falls under Articles 1822 and
1823. (Guy v. Gacott, G.R. No. 206147, 13 Jan. 2016)
3. Partner as an agent of the partnership. (Art.
1818, NCC; 1994 BAR) Q: A, B and C formed a partnership for the
purpose of contracting with the Government in
4. Conveyance of real property belonging to the the construction of one of its bridges. On June
partnership. (Art. 1819, NCC) 30, 1992, after completion of the project, the
bridge was turned over by the partners to the
5. Admission or representation made by any Government. On August 30, 1992, D, a supplier
partner concerning partnership affairs within of materials used in the project sued A for
the scope of his authority is evidence against collection of the indebtedness to him. A moved
the partnership. (Art. 1820, NCC) to dismiss the complaint against him on the
ground that it was the ABC partnership that is
6. Notice to partner of any matter relating to liable for the debt. D replied that ABC
partnership affairs operates as notice to partnership was dissolved upon completion of
partnership except in case of fraud: the project for which purpose the partnership
a. Knowledge of partner acting in the was formed. Will you dismiss the complaint
particular matter acquired while a against B if you were the judge? (1993 BAR)
partner
b. Knowledge of the partner acting in the A: NO. As Judge, I would not dismiss the complaint
particular matter then present to his against A because A is still liable as a general partner
mind for his pro rata share of 1/3. (Art. 1816, NCC)

2022 GOLDEN NOTES
Partnership
Dissolution of a partnership caused by the Remedies available to the Creditors of a Partner

termination of the particular undertaking specified
in the agreement does not extinguish obligations, 1. Separate or individual creditors should first
which must be liquidated during the winding up of secure a judgment on their credit; and
the partnership affairs. (Arts. 1829-1830 (1)(a), 2. Apply to the proper court for a charging an
NCC) order subjecting the interest of the debtor-
partner in the partnership for the payment of
Importance of having a Firm Name the unsatisfied amount of the judgment debt
with interest thereon. (De Leon, 2014) (Art.
A partnership must have a firm name under which 1814, NCC)
it will operate. It is necessary to distinguish the
partnership which has a distinct and separate NOTE: The court may resort to other courses of
juridical personality from the individuals action provided in Art. 1814 of the NCC, (i.e.,
composing the partnership and from other appointment of receiver, sale of the interest, etc.) if
partnerships and entities. (De Leon, 2019) the judgment debt remains unsatisfied,
notwithstanding the issuance of charging order. (De
Liability for the inclusion of name in the firm Leon, 2019)
name
Remedies available to Private Creditors of a
Persons who, not being partners, include their Partner
names in the firm name do not acquire the rights of The creditors of each partner may ask for the
a partner but under Art. 1815, they shall be subject attachment and public sale of the share of the latter
to the liability of a partner (Art. 1815, NCC) insofar in the partnership assets.
as third persons without notice are concerned. (De
Leon, 2019) NOTE: Purchaser at the public sale does not become
a partner. (Ibid.)
Effects of the acts of partners acting as an agent of the partnership
ACTS OF A PARTNER EFFECT
With binding effect except:
1. When the partner so acting has in fact no authority to

Acts for apparently carrying on in the usual way
act for the partnership in the particular matter, and
the business of the partnership
2. The person with whom he is dealing has knowledge of
the fact that he has no such authority. (Art. 1818(1),
NCC)
Do not bind partnership unless authorized by other

Acts not in the ordinary course of business
partners. (Art. 1818(2), NCC)

Civil Law
Acts of strict dominion or ownership:
1. Assigning partnership property in trust for

creditors; GR: One or more but less than all the partners have no
2. Disposing of goodwill of business; authority.
3. Doing an act which would make it impossible
to carry on the ordinary business of XPNs:
partnership; 1. Authorized by the other partners; or
4. Confessing a judgment; 2. Partners have abandoned the business. (Art. 1818(3),
5. Entering into a compromise concerning a NCC)
partnership claim or liability;
6. Submitting partnership claim or liability to
arbitration;
7. Renouncing claim of partnership.
Partnership is not liable to 3rd persons having actual or

Acts in contravention of a restriction on
presumptive knowledge of the restriction. (Art. 1818(4),
authority
NCC)
Effect of conveyance of a real property
TYPE OF CONVEYANCE EFFECT
Conveyance passes title but partnership can recover

unless:
1. Conveyance was done in the usual way of business, and

the partner so acting has the authority to act for the
Title in the partnership’s name; Conveyance
partnership; or
in partnership name
2. The property which has been conveyed by the grantee
or a person claiming through such grantee to a holder
for value without knowledge that the partner, in making
the conveyance, has exceeded his authority. (De Leon,
2014)
Conveyance does not pass title but only equitable interest,

provided:
Title in the partnership’s name; Conveyance

a. Conveyance was done in the usual way of business, or
in partner’s name
b. The partner so acting has the authority to act for the
partnership. (De Leon, 2014)

2022 GOLDEN NOTES
Partnership
Conveyance passes title but the partnership may recover

such property if the partners’ act does not bind the
Title in the name of one (1) or more partnership:
partners, and the record does not disclose
the right of the partnership; Conveyance in 1. The partner so acting has no authority to act for the
name of partner/s in whose name title partnership, and
stands 2. The person with whom he is dealing has knowledge of
the fact unless the purchaser of his assignee, is a
holder for value, without knowledge. (De Leon, 2014)
Conveyance will only pass equitable interest, provided:

Title in name of one (1) or more or all
partners or 3rd person in trust for
1. The act is one within the authority of the partner, and
partnership; Conveyance executed in
2. Conveyance was done in the usual way of the business.
partnership name or in name of partners
(De Leon, 2014)
Title in the names of all the partners; Conveyance will pass all the rights in such property. (De
Conveyance executed by all the partners Leon, 2014)

Civil Law
2. Violating the agreement;

C. DISSOLUTION AND WINDING UP 3. Business becomes unlawful
4. Loss of;
a. Specific thing promised as

Final stages of partnership
contribution is lost or perished before
delivery
1. Dissolution - A change in the relation of
b. specific thing contributed before or
the partners caused by any partner
after delivery, if only the use of such is
ceasing to be associated in carrying on the
contributed
business. (Art. 1828, NCC)
NOTE: The partnership shall not be

Partners cease to carry on the business
dissolved by the loss of the thing when it
together. It represents the demise of a
occurs after the partnership has acquired
partnership. Thus, any time a partner
the ownership thereof. (De Leon, 2019)
leaves the business, the partnership is
dissolved. (De Leon, 2019)
5. Death of any of the partners;
6. Insolvency of any partner or of partnership;
2. Winding up – Actual process of liquidating
7. Civil interdiction of any partner; and
and settling the partnership business or
8. By decree of court under Art. 1831
affairs after dissolution.
A court shall decree a dissolution whenever:

It is the final step after dissolution in the
(Art. 1831, NCC)
termination of the partnership. (De Leon,
a. A partner has been declared insane or
2019)
of unsound mind
b. A partner becomes in any other way
3. Termination - Point in time when all
incapable of performing his part of the
partnership affairs are completely wind-
partnership contract
up and finally settled; signifies the end of
c. A partner has been guilty of such
the partnership life.
conduct as tends to affect prejudicially
the carrying on of the business
It takes place after both dissolution and
d. A partner willfully or persistently
winding up have occurred. (De Leon, 2019)
commits a breach of the partnership
agreement
Causes of dissolution (Art. 1830, NCC)
e. The business of the partnership can
only be carried on at a loss
1. Without violating the agreement between the
f. Other circumstances render a
partners:
dissolution equitable.
a. Termination of the definite term or
specific undertaking
Effects of dissolution (2010 BAR)
b. Express will of any partner in good
faith, when there is no definite term or
1. Partnership is not terminated;
particular undertaking specified
2. Partnership continues for a limited purpose;
c. Express will of all partners who have
3. Transaction of new business is prohibited.
not assigned their interested or
4. Existence of partnership terminated (De Leon,
suffered them to be charged for their
2019)
separate debts, either before or after
the termination of any specified term
As to previous obligations, the dissolution of
or particular undertaking
partnership does not mean that the partners can
d. Expulsion in good faith of any partner

2022 GOLDEN NOTES
Partnership
evade previous obligations entered into. (Realubit completing transactions begun but not then
v. Jaso, G.R. No. 178782, 21 Sept. 2011) finished. (Art. 1832, NCC)
As to new obligations, the dissolution spares the NOTE: The general rule is subject to the
former partners from new obligations entered into qualifications set forth in Articles 1833 and 1834 in
by the partnership without their consent, implied relation to Article 1832:
or express, unless the obligation are essential for 1. In so far as the partners themselves are
the winding up of partnership affairs. (Ibid.) concerned – The authority of any partner to
bind the partnership by a new contract is
NOTE: The dissolution of a partnership must not be immediately terminated when the dissolution
understood in the absolute and strict sense so that is not by the act, insolvency, or death of a
at the termination of the object for which it was partner; (Art. 1832, NCC)
created the partnership is extinguished, pending 2. When the dissolution is by the act, insolvency,
the winding up of some incidents and obligations of or death, the termination of authority depends
the partnership, but in such case, the partnership upon whether or not the partner had
will be reputed as existing until the juridical knowledge or notice of dissolution. (Art. 1833,
relations arising out of the contract are dissolved. NCC; 2010 BAR)
(Ibid.)
Q: Tomas, Rene and Jose entered into a
Dissolution does not automatically result in the partnership under the firm name “Manila
termination of the legal personality of the Lumber.” Subsequently, upon mutual
partnership, nor the relations of the partners agreement, Tomas withdrew from the
among themselves who remain as co-partners until partnership and the partnership was dissolved.
the partnership is terminated. (De Leon, 2019) However, the remaining partners, Rene and
Jose, did not terminate the business of “Manila
A partner cannot be expelled from the Lumber.” Instead of winding up the business of
partnership without agreement thereto. the partnership and liquidating its assets, Rene
and Jose continued the business in the name of
In the absence of an express agreement to that “Manila Lumber” apparently without objection
effect, there exists no right or power of any from Tomas. The withdrawal of Tomas from the
member, or even a majority of the members, to partnership was not published in the
expel all other members of the firm at will. Nor can newspapers. Could Tomas be held liable for any
they at will forfeit the share or interest of a member obligation or indebtedness Rene and Jose might
or members and compel him or them to quit the incur while doing business in the name of
firm, even paying what is due him. “Manila Lumber” after his withdrawal from the
partnership? Explain. (1987 BAR)
The expulsion has the effect of decreasing the
number of the partners, hence, the dissolution. The A: YES. Tomas can be held liable under the doctrine
expulsion must be made in good faith. The partner of estoppel. But as regards the parties among
expelled in bad faith can claim damages. (Ibid.) themselves, only Rene and Jose are liable. Tomas
cannot be held liable since there was no proper
Effect of dissolution on the authority of a notification or publication. In the event that Tomas
partner is made to pay the liability to third person, he has
the right to seek reimbursement from Rene and
GR: The partnership ceases to be a going concern. Jose.
XPN: The partner’s power of representation is Q: The articles of co-partnership provide that in
confined only to acts incident to winding up or case of death of one partner, the partnership
shall not be dissolved but shall be continued by

Civil Law
the deceased partner’s heirs. When H, a GR: A partner continues to bind partnership even
partner, died, his wife, W, took over the after dissolution EXCEPT in the following cases:
management of some of the real properties
with permission of the surviving partner, X, but 1. Transactions to wind up partnership affairs or
her name was not included in the partnership to complete transactions unfinished at
name. She eventually sold these real properties dissolution;
after a few years. X now claims that W did not 2. Transactions which would bind partnership if
have the authority to manage and sell those dissolution had not taken place, provided the
properties as she was not a partner. Is the sale other party/obligee:
valid? a. Had extended credit to partnership
prior to dissolution; and had no
A: YES. The widow was not a mere agent, because knowledge/notice of dissolution; or
she had become a partner upon her husband's b. Did not extend credit to partnership;
death, as expressly provided by the articles of co- had nevertheless known of the
partnership, and by authorizing the widow to partnership prior to dissolution; and
manage partnership property, X recognized her as had no knowledge/ notice of
a general partner with authority to administer and dissolution/fact of dissolution not
alienate partnership property. It is immaterial that advertised in a newspaper of general
W's name was not included in the firm name, since circulation in the place where
no conversion of status is involved, and the articles partnership is regularly carried on.
of co-partnership expressly contemplated the (Art. 1834(1) & (2), NCC)
admission of the partner's heirs into the
partnership. (Goquiolay v. Sycip, G.R. No. L-11840, XPNs: Partner cannot bind the partnership
16 Dec. 1963) anymore after dissolution:
Liability of a partner where the Dissolution is 1. Where dissolution is due to unlawfulness to

Caused by the Act, Death or Insolvency of a carry on the business; or
Partner 2. Where the partner has become insolvent; or
3. Act is not appropriate for winding up or for
GR: Each partner is liable to his co-partners for his completing unfinished transactions; or
share of any liability created by any partner for the 4. Partner is unauthorized to wind up
partnership, as if the partnership had not been partnership affairs, except by transaction with
dissolved. (Art. 1833, NCC) one who:
a. Had extended credit to partnership
XPNs: Partners shall not be liable when: prior to dissolution; and had no
1. The dissolution, being by act of any partner, the knowledge or notice of dissolution; or
partner acting for the partnership had b. Did not extend credit to partnership
knowledge of the dissolution; or prior to dissolution; Had known
2. The dissolution, being by the death or partnership prior to dissolution; and
insolvency of a partner, the partner acting for had no knowledge/notice of
the partnership had knowledge or notice of the dissolution/fact of dissolution not
death or insolvency. (Art. 1833, NCC; 2010 advertised in a newspaper of general
BAR) circulation in the place where
partnership is regularly carried on
Q: After the dissolution of a partnership, can a (Art. 1834(3), NCC); or
partner still bind the partnership? 5. Completely new transactions which would
bind the partnership if dissolution had not
A: taken place with third persons in bad faith.

2022 GOLDEN NOTES
Partnership
Q: Does the dissolution of a partnership for compensation by way of income on their

discharge existing liability of a partner? contribution respectively, in proportion to the
respective amounts of such claims. (Art. 1863, NCC)
A:
GR: Dissolution does not discharge the existing WINDING UP OF THE PARTNERSHIP
liability of a partner. (Art. 1835, NCC)
It is during this time after dissolution that
XPN: Said liability is discharged when there is an partnership business or affairs are being settled.
agreement between: (De Leon, 2019)
1. Partner himself;
2. Person/s continuing the business; and Ways of winding up
3. Partnership creditors. (Art. 1835(2), NCC)
The winding up of the dissolved partnership may
Liability of the estate of a deceased partner be done either:
1. Judicially, under the control and direction of
In accordance with Article 1816, the individual the proper court upon cause shown by any
property of a deceased partner shall be liable for all partner, his legal representative, or his
obligations of the partnership incurred while he assignee; or
was a partner. Note that the individual creditors of 2. Extrajudicially, by the partners themselves
the deceased partner are to be preferred over without intervention of the court. (Ibid.)
partnership creditors with respect to the separate
property of said deceased partner. (Art. 1839(8), Action for liquidation
NCC)
An action for the liquidation of a partnership is a
Order of priority in the distribution of assets personal one; hence, it may be brought in the place
during the dissolution of a limited partnership of residence of either the plaintiff or the defendant.
(Ibid.)
In setting accounts after dissolution, the liabilities
of the partnership shall be entitled to payment in Persons authorized to wind up
the following order:
1. Those to creditors, in the order of priority as 1. Partners designated by the agreement;
provided by law, except those to limited 2. In the absence of such, all partners who have
partners on account of their contributions, and not wrongfully dissolved the partnership; and
to general partners; 3. Legal representative of last surviving partner
2. Those to limited partners in respect to their who is not insolvent. (Ibid.)
share of the profits and other compensation by
way of income on their contributions; NOTE: The court may, in its discretion, after
3. Those to limited partners in respect to the considering all the facts and circumstances of the
capital of their contributions; particular case, appoint a receiver to wind up the
4. Those to general partners other than for partnership affairs where such step is shown to be
capital and profits; to the best interests of all persons concerned.
5. Those to general partners in respect to profits; (Ibid.)
6. Those to general partners in respect to capital.
(Art. 1863, NCC) An insolvent partner does not have the right to
wind up partnership affairs. (Art. 1833, NCC)
NOTE: Subject to any statement in the certificate or
to subsequent agreement, limited partners share in
the partnership assets in respect to their claims for
capital, and in respect to their claims for profits or

Civil Law
Powers of liquidating partner NOTE: The Doctrine of Marshalling of Assets

involves the ranking of assets in a certain order
1. Make new contracts; toward the payment of outstanding debts. (De Leon,
2. Raise money to pay partnership debts; 2019)
3. Incur obligations to complete existing
contracts or preserve partnership assets; and Rights of a partner where dissolution is not in
4. Incur expenses necessary in the conduct of contravention of the agreement
litigation. (De Leon, 2019)
Unless otherwise agreed, the rights of each partner
Order of payment in winding up are as follows:
a. In a general partnership: 1. To have the partnership property applied to

1. Those owing to creditors other than discharge the liabilities of partnership; and
partners 2. To have the surplus, if any, applied, to pay in
2. Those owing to partners other than for cash the net amount owing to the respective
capital or profits partners. (Ibid.)
3. Those owing to partners in respect of
capital Rights of a partner where dissolution is in
4. Those owing to partners in respect to contravention of the agreement
profits. (Art. 1839(2), NCC)
The rights of a partner vary depending upon
b. In a limited partnership: whether he is the innocent or guilty partner.
1. Those to creditors, in the order of priority
as provided by law, except those to limited 1. Rights of partner who has not caused the
partners on account of their contributions, dissolution wrongfully:
and to general partners. a. To have partnership property applied for
2. Those to limited partners in respect to the payment of its liabilities and to receive
their share of the profits and other in cash his share of the surplus;
compensation by way of income on their b. To be indemnified for the damages caused
contributions. by the partner guilty of wrongful
3. Those to limited partners in respect to the dissolution;
capital of their contributions. c. To continue the business in the same name
4. Those to general partners other than for during the agreed term of the partnership,
capital and profits. by themselves or jointly with others; and
5. Those to general partners in respect to d. To possess partnership property should
profits. they decide to continue the business.
6. Those to general partners in respect to
capital. (Art. 1863, NCC) 2. Rights of partner who has wrongfully caused
the dissolution:
“Doctrine of marshalling of assets” a. If the business is not continued by the
other partners, to have the partnership
The Doctrine of Marshalling of Assets provides property applied to discharge its liabilities
that: and to receive in cash his share of the
1. Partnership creditors have preference in surplus less damages caused by his
partnership assets. wrongful dissolution
2. Separate or individual creditors have b. If the business is continued:
preference in separate or individual i. To have the value of his interest in the
properties. partnership at the time of the
3. Anything left from either goes to the other. dissolution, less any damage caused

2022 GOLDEN NOTES
Partnership
by the dissolution to his co-partners, signed by all of the partners. Later, the
ascertained and paid in cash, or withdrawing partners demanded for payment
secured by bond approved by the but were refused. Considering that not all
court; and partners intervened in the distribution of all or
ii. To be released from all existing and part of the partnership assets, should the action
future liabilities of the partnership. prosper?
(Ibid.)
A: NO. A partner’s share cannot be returned
Rights of injured partner where partnership without first dissolving and liquidating the
contract is rescinded partnership, for the return is dependent on the
discharge of creditors, whose claims enjoy
1. Right of a lien on, or retention, the surplus of preference over those of the partner, and it is self-
partnership property after satisfying evident that all members of the partnership are
partnership liabilities for any sum of money interested in its assets and business, and are
paid or contributed by him; entitled to be heard in the matter of the firm’s
2. Right of subrogation in place of partnership liquidation and distribution of its property. The
creditors after payment of partnership liquidation prepared by Magdusa not signed by the
liabilities; and other partners is not binding on them. (Magdusa v.
3. Right of indemnification by the guilty partner Albaran, G.R. No. L-17526, 30 June 1962)
against all debts and liabilities of the
partnership. (Ibid.) Since the capital was contributed to the
partnership, not to partners, it is the partnership
Settlement of accounts between partners that must refund the equity of the retiring partners.
Since it is the partnership, as a separate and
1. Assets of the partnership include: distinct entity that must refund the shares of the
a. Partnership property (including partners, the amount to be refunded is necessarily
goodwill) limited to its total resources. In other words, it can
b. Contributions of the partners only pay out what it has in its coffers, which consists
2. Order of application of the assets: of all its assets. (Villareal v. Ramirez, G.R. No.
a. First, those owing to partnership 144214, 14 July 2003)
creditors
b. Second, those owing to partners other Partner’s lien
than for capital and profits such as
loans given by the partners or It is the right of every partner to have the
advances for business expenses partnership property applied, to discharge
c. Third, those owing for the return of partnership liabilities and surplus assets, if any,
the capital contributed by the distributed in cash to the respective partners, after
partners deducting what may be due to the partnership from
d. Fourth, the share of the profits, if any, them as partners.
due to each partner. (Art. 1839; De
Leon, 2019) Effects when the business of a dissolved
partnership is continued
Q: A partnership was formed with Magdusa as
the manager. During the existence of the 1. Creditors of old partnership are also creditors
partnership, two partners expressed their of the new partnership who continues the
desire to withdraw from the firm. Magdusa business of the old one without liquidation of
determined the value of the partners share the partnership affairs.
which were embodied in the document drawn 2. Creditors have an equitable lien on the
in the handwriting of Magdusa but was not consideration paid to the retiring/deceased

Civil Law
partner by the purchaser when etc. Emnace counters, contending that

retiring/deceased partner sold his interest prescription has set in. Decide.
without final settlement with creditors.
3. Rights of retiring/estate of deceased partner: A: Prescription has not yet set in. Prescription of
a. To have the value of his interest the said right starts to run only upon the
ascertained as of the date of dissolution of the partnership when the final
dissolution; and accounting is done. Contrary to Emnace’s
b. To receive as ordinary creditor the protestations, prescription had not even begun to
value of his share in the dissolved run in the absence of a final accounting. The right to
partnership with interest or profits demand an accounting accrues at the date of
attributable to use of his right, at his dissolution in the absence of any agreement to the
option. (Art. 1841; De Leon, 2019) contrary. When a final accounting is made, it is only
then that prescription begins to run. (Emnace v. CA,
NOTE: The right to demand on accounting of the G.R. No. 126334, 23 Nov. 2001)
value of his interest accrues to any partner or his
legal representative after dissolution in the
absence of an agreement to the contrary. (De Leon,
2019)
Continuation of partnership by a corporation
where a corporation was formed by, and consisted

of members of a partnership whose business and
property was conveyed and transferred to the
corporation for the purpose of continuing its
business, in payment for which corporate capital
stock was issued, such corporation is presumed to
have assumed partnership debts, and is prima facie
liable therefor. The reason for the rule is that the
members of the partnership may be said to have
simply put on a new coat, or taken on a corporate
cloak, and the corporation is a mere continuation of
the partnership. (Laguna Transportation Co., Inc. v.
SSS, G.R. No. L-14606, 28 Apr. 1960)
Persons required to render an account
1. Winding up partner;
2. Surviving partner; and
3. Person or partnership continuing the business.
(Art. 1842, NCC)
Q: Emnace and Tabanao decided to dissolve

their partnership in 1986. Emnace failed to
submit the statement of assets and liabilities of
the partnership, and to render an accounting of
the partnership's finances. Tabanao’s heirs
filed against Emnace an action for accounting,

2022 GOLDEN NOTES
Partnership
FORMATION AND AMENDMENT

D. LIMITED PARTNERSHIP OF LIMITED PARTNERSHIP
Essential requirements for the formation of

limited partnership
It is one formed by two or more persons having as
members one or more general partners and one or
1. Certificate or articles of limited partnership
more limited partners, the latter not being
which states the matters enumerated in Art.
personally liable for partnership debts. (Art. 1843,
1844, must be signed and sworn; and
NCC)
NOTE: Among the contents of the Certificate of

Characteristics of limited partnership
Articles of Partnership should be the name of
the partnership, adding thereto the word
1. It is formed by compliance with the statutory
“limited.”
requirements. (Art. 1844)
2. One or more general partners control the
2. Certificate must be filed for record in the office
business and are personally liable to creditors.
of the SEC. (De Leon, 2019)
(Arts. 1848 & 1850)
3. One or more limited partners contribute to the
NOTE: Strict compliance with legal requirements is
capital and share in the profits but do not
not necessary. It is sufficient that there is
participate in the management of the business
substantial compliance in good faith. If there is no
and are not personally liable for partnership
substantial compliance, the partnership becomes a
obligations beyond their capital contributions.
general partnership as far as third persons are
(Arts. 1845, 1848, & 1856)
concerned, in which the members are liable as
4. The limited partners may ask for the return of
general partners. (Ibid.)
their capital contributions under conditions
prescribed by law. (Arts. 1844(h) & 1857)
Cancellation of certificate or articles of limited
5. Partnership debts are paid out of common fund
partnership
and the individual properties of general
partners. (De Leon, 2019)
1. When the partnership is dissolved
2. When all the limited partners ceased to be such.
Consequences of separate personality of
(Art. 1864, NCC)
limited partnership
Instances when a certificate of a limited

The personality of a limited partnership being
partnership shall be amended
different from that of its members, it must, on
general principle, answer for, and suffer, the
1. It must fall under the following changes and
consequence of its acts as such an entity capable of
conditions:
being the subject of rights and obligations. If the
a. There is a change in the name of the
limited partnership failed to pay its obligations,
partnership or in the amount or character
this partnership must suffer the consequences of
of the contribution of any limited partner;
such a failure, and must be adjudged insolvent.
b. A person is substituted as a limited
(Saludo Jr. v. PNB, G.R. No. 193138, 20 Aug. 2018)
partner;
c. An additional limited partner is admitted;
d. A person is admitted as a general partner;
e. A general partner retires, dies, becomes
insolvent or insane, or is sentenced to civil
interdiction and the business is continued
under Article 1860;

Civil Law
f. There is a change in the character of the Effective date of amendment or cancellation

business of the partnership;
g. There is a false or erroneous statement in As a general rule, a certificate is deemed amended
the certificate; or cancelled when the amended certificate or the
h. There is a change in the time as stated in certified copy of the court order in case of judicial
the certificate for the dissolution of the cancellation or amendment is filed for record in the
partnership or for the return of a SEC. (De Leon, 2019)
contribution;
i. A time is fixed for the dissolution of the Contribution of a limited partner
partnership, or the return of a
contribution, no time having been The contribution of a limited partner may be cash
specified in the certificate; or other property, but not services. (Art. 1845, NCC)
j. The members desire to make a change in
any other statement in the certificate in Otherwise, he shall be considered an industrial and
order that it shall accurately represent the general partner, in which case, he shall not be
agreement among them. (Art. 1864, NCC) exempted from personal liability. (De Leon, 2014)
2. Must be signed and sworn to by all of the NOTE: A partner may be a general partner and a
members including the new members if some limited partner in the same partnership at the same
added; in case of substitution, the assigning time, provided that it shall be stated in the
limited partner must also sign. (Art. 1865(2), certificate provided for in Article 1844. (Art. 1853,
NCC) NCC)
3. Must be recorded in the SEC. (Art. 1865, NCC) Time contribution shall be made
Instances when a general partner needs The contribution of each limited partner must be
consent or ratification of all the limited paid before the formation of the limited
partners partnership in relation to Art. 1822(f) of the NCC,
although with respect to the additional
When he: contributions, they may be paid after the limited
1. Does any act in contravention of the certificate; partnership has been formed. (De Leon, 2019)
2. Does any act which would make it impossible
to carry on the ordinary business of the Firm name
partnership;
3. Confesses judgment against partnership; GR: The surname of a limited partnership shall not
4. Possesses partnership property/ assigns appear in the partnership name.
rights in specific partnership property other
than for partnership purpose; XPNs:
5. Admits person as general partner; 1. Limited partner and general partner have
6. Admits person as limited partner, unless similar surnames; or
authorized in certificate; or 2. Prior to the time when the limited partner
7. Continues business with partnership property became such, the business had been carried on
on death, retirement, civil interdiction, under a name in which his surname appeared.
insanity or insolvency of general partner unless (Art. 1846, NCC)
authorized in the certificate. (Art. 1850, NCC)
NOTE: A limited partner whose surname appears
in a partnership name is liable as a general partner
to partnership creditors who extend credit to the

2022 GOLDEN NOTES
Partnership
partnership without actual knowledge that he is c. Receiving pro rata share of

not a general partner. (Art. 1846, NCC) partnership assets with general
creditors if he is not also a general
Admission of additional limited partners (Art. partner (De Leon, 2019)
1849, NCC)
2. Prohibited
After a limited partnership had been formed, a. Receiving/ Holding partnership
additional limited partners may be admitted, property as collateral security
provided: b. Receiving any payment, conveyance,
1. There is proper amendment to the certificate release from liability if it will prejudice
which must be signed and sworn to by all of the right of 3rd. persons (De Leon, 2019)
partners, including the new limited partners;
and NOTE: The prohibition is not absolute because
2. It is filed with the Securities and Exchange there is no prohibition if the partnership assets are
Commission. (De Leon, 2019) sufficient to discharge partnership liabilities to
persons not claiming as general or limited
RIGHTS AND OBLIGATIONS partners. (De Leon, 2019)
OF A LIMITED PARTNER
Substituted limited partner
Rights of a limited partner (Art. 1851, NCC)
It is a person admitted to all the rights of a limited
The specific rights of the limited partner in the partner who has died or assigned his interest in the
partnership are as follows: partnership. (De Leon, 2019)
1. To require partnership books kept at principal Rights and liabilities of a substituted limited
place of business; partner
2. To inspect or copy books at reasonable hours;
(Art. 1805, NCC) GR: He has all the rights and powers and is subject
3. To demand true and full information of all to all the restrictions and liabilities of his assignor.
things affecting partnership; Art. 1806, NCC)
4. To demand formal account of partnership XPN: Those liabilities which he was ignorant of at
affairs whenever circumstances render it just the time that he became a limited partner and
and reasonable; (Art. 1809, NCC) which could not be ascertained from the certificate.
5. To ask for dissolution and winding up by (Art. 1859(5), NCC)
decree of court; (Arts/ 1831, 1857(4), NCC)
6. To receive share of profits or other Requirements for the admission of a
compensation by way of income; (Art. 1856, substituted limited partner
NCC) and
7. To receive return of contributions provided 1. All the members must consent to the assignee
the partnership assets are in excess of all its becoming a substituted limited partner or the
liabilities. (Art. 1857, NCC) (De Leon, 2019) limited partner, being empowered by the
certificate must give the assignee the right to
Transactions allowed or prohibited in a limited become a limited partner;
partnership 2. The certificate must be amended in accordance
with Art. 1865 of the NCC; and
1. Allowed 3. The certificate as amended must be registered
a. Granting loans to partnership in the SEC. (De Leon, 2019)
b. Transacting business with
partnership

Civil Law
Basis of preference given to limited partners NOTE: Even if a limited partner has contributed
over other limited partners property, he has only the right to demand and
receive cash for his contribution. The exceptions
Priority or preference may be given to some limited are:
partners over other limited partners as to the: 1. When there is stipulation to the contrary
1. Return of their contributions; in the certificate; or
2. Their compensation by way of income; or 2. When all the partners (general and limited
3. Any other matter. partners) consent to the return other than
in the form of cash. (De Leon 2019)
NOTE: In the absence of such statement in the
certificate, even if there is an agreement, all limited Liabilities of a limited partner
partners shall stand on equal footing in respect of
these matters. 1. To the partnership
Since limited partners are not principals in the
Requisites for return of contribution of a transaction of a partnership, their liability as a
limited partner rule, is to the partnership, not to the creditors
of the partnership. The general partners
1. All liabilities of the partnership have been paid cannot however waive any liability of the
or if they have not yet been paid, the assets of limited partners to the prejudice of such
the partnership are sufficient to pay such creditors.
liabilities;
2. The consent of all the members (general and 2. To the partnership creditors and other
limited partners) has been obtained except partners
when the return may be rightfully demanded; a. A limited partner is liable for partnership
and obligations when he contributed services
3. The certificate of limited partnership is instead of only money or property to the
cancelled or amended as to set forth the partnership; (Art. 1845, NCC)
withdrawal or reduction of the contribution. b. When he allows his surname to appear in
(Art. 1857, NCC) (De Leon, 2019) the firm name; (Art. 1846, NCC)
c. When he fails to have a false statement in
When return of contribution is a matter of right the certificate corrected, knowing it to be
false; (Art. 1847, NCC)
When all liabilities of the partnership, except d. When he takes part in the control of the
liabilities to general partners and to limited business; (Art. 1848, NCC)
partners on account of their contributions, have e. When he receives partnership property as
been paid or there remains property of the collateral security, payment, conveyance,
partnership sufficient to pay them and the or release in fraud of partnership
certificate is cancelled or so amended as to set forth creditors; (Art. 1854, NCC)
the withdrawal or reduction: f. When there is failure to substantially
1. On the dissolution of the partnership; comply with the legal requirements
2. Upon the arrival of the date specified in the governing the formation of limited
certificate for the return; or partnerships. (Art. 1844(2), NCC)
3. After the expiration of six (6)-month
notice in writing given by him to the other 3. To separate creditors
partners if no time is fixed in the certificate As in a general partnership, the creditor of a
for the return of the contribution or for the limited partner may, in addition to other
dissolution of the partnership. (De Leon, remedies allowed under existing laws, apply
2019) to the proper court for a charging order
subjecting the interest in the partnership of

2022 GOLDEN NOTES
Partnership
the debtor partner for the payment of his constitute his assignee as substituted limited
obligation. (De Leon, 2019) partner. (De Leon, 2019)
Requisites for Waiver or Compromise of NOTE: The executor or administrator may

Liabilities constitute the assignee as a substituted limited
partner only if the deceased limited partner was
The waiver or compromise shall: empowered to do so in the certificate. (De Leon,
1. Be made with the consent of all partners; and 2019)
2. Not prejudice partnership creditors who
extended credit or whose claims arose before Estate of the deceased limited partner is liable for
the cancellation or amendment of the all his liabilities as a limited partner. (Art. 1861(2),
certificate. (De Leon, 2019) NCC)
When may a limited partner have the In setting accounts after dissolution, the
partnership dissolved liabilities of the partnership shall be entitled to
payment in the following order
1. When his demand for the return of his
contribution is denied although he has a right 1. Those to creditors, in the order of priority as
to such return; or provided by law, except those to limited
2. When his contribution is not paid although he partners on account of their contributions, and
is entitled to its return because the other to general partners
liabilities of the partnership have not been paid 2. Those to limited partners in respect to their
or the partnership property is insufficient for share of the profits and other compensation by
their payment. way of income on their contributions
3. Those to limited partners in respect to the
NOTE: The limited partner must first ask the other capital of their contributions
partners to have the partnership dissolved; if they 4. Those to general partners other than for
refuse, then he can seek the dissolution of the capital and profits
partnership by judicial decree. (De Leon, 2019) 5. Those to general partners in respect to profits
6. Those to general partners in respect to capital.
Effect of retirement, death, civil interdiction, (Art. 1863, NCC)
insanity or insolvency of a partner
NOTE: Subject to any statement in the certificate or
1. General partner – The partnership is dissolved to subsequent agreement, limited partners share in
(Art. 1860, NCC) unless the business is the partnership assets in respect to their claims for
continued by the remaining general partners: capital, and in respect to their claims for profits or
a. Under the right stated in the certificate; for compensation by way of income on their
or contribution respectively, in proportion to the
b. With the consent of all the partners. respective amounts of such claims. (Art. 1863, NCC)
2. Limited partner – The partnership is not
dissolved except all limited partners cease to GR: A limited partner is not a proper party to
be such. proceedings:
1. By a partnership; or
Rights of the executor/administrator on the 2. Against a partnership.
death of the limited partner
XPNs:
1. All the rights of a limited partner for purposes 1. If he is also a general partner.
of settling the affairs of the limited partner 2. Where the object is to enforce a limited
2. To have the same power as the deceased had to partner’s right against or liability to the

Civil Law
partnership. Art. 1866, NCC) Obligations of partners to third persons
SUMMARY OF RIGHTS AND OBLIGATIONS 1. Every partnership shall operate under a firm
OF PARTNERS name. Persons who include their names in
the partnership name even if they are not
GENERAL PARTNER members shall be liable as a partner.
Rights
2. All partners shall be liable for contractual
obligations of the partnership with their
1. Right in specific partnership property. property, after all partnership assets have
2. Interest in the partnership (share in the been exhausted:
profits and surplus).
3. Right to participate in the management. a. Pro rata
4. Right to associate another person with him in b. Subsidiary
his share without the consent of other
partners (sub- partnership). 3. Admission or representation made by any
partner concerning partnership affairs within
5. Right to inspect and copy partnership books
at any reasonable hour. the scope of his authority is evidence against
6. Right to a formal account as to partnership the partnership.
affairs (even during existence of
partnership): 4. Notice to partner of any matter relating to
a. If he is wrongfully excluded from partnership affairs operates as notice to
partnership business or possession partnership except in case of fraud:
of its property by his co-partners.
b. If right exists under the terms of any a. Knowledge of partner acting in the
agreement. particular matter acquired while a
c. As provided in Art. 1807 of the NCC. partner.
d. Whenever the circumstances render b. Knowledge of the partner acting in
it just and reasonable. the particular matter then present to
his mind.
c. Knowledge of any other partner who
Obligations reasonably could and should have
Obligations of partners among themselves communicated it to the acting
partner.
1. Contribution of property.
2. Contribution of money and money converted 5. Partners and the partnership are solidarily
to personal use. liable to third persons for the partner's tort or
3. Prohibition in engaging in business for breach of trust.
himself.
4. Contribute additional capital. 6. Liability of incoming partner is limited to:
5. Managing partner who collects debt.
6. Partner who receives share of partnership a. His share in the partnership
credit. property for existing obligations.
7. Damages to partnership. b. His separate property for
8. Render information. subsequent obligations.
9. Accountable as fiduciary.
Creditors of partnership are preferred in
partnership property & may attach partner's share
in partnership assets.

2022 GOLDEN NOTES
Partnership
Other obligations
To the partnership creditors and other
1. Duty to render on demand true and full
partners
information affecting partnership to any
partner or legal representative of any
1. A limited partner is liable for partnership
deceased partner or of any partner under
obligations when he contributed services
legal disability.
instead of only money or property to the
partnership.
2. Duty to account to the partnership as
2. When he allows his surname to appear in the
fiduciary.
firm name.
LIMITED PARTNER 3. When he fails to have a false statement in the
certificate corrected, knowing it to be false.
Rights 4. When he takes part in the control of the
business
5. When he receives partnership property as
1. To have partnership books kept at principal collateral security, payment, conveyance, or
place of business. release in fraud of partnership creditors.
2. To inspect/copy books at reasonable hours. 6. When there is failure to substantially comply
3. To have on demand true and full information with the legal requirements governing the
of all things affecting partnership. formation of limited partnerships.
4. To have formal account of partnership affairs
whenever circumstances render it just and
reasonable.
5. To ask for dissolution and winding up by To separate creditors
decree of court.
6. To receive share of profits/other As in a general partnership, the creditor of a
compensation by way of income. limited partner may, in addition to other
7. To receive return of contributions, provided remedies allowed under existing laws, apply to
the partnership assets are in excess of all its the proper court for a charging order subjecting
liabilities. the interest in the partnership of the debtor
partner for the payment of his obligation.
Obligations
To the partnership
Since limited partners are not principals in the

transaction of a partnership, their liability as a
rule, is to the partnership, not to the creditors of
the partnership. The general partners cannot,
however waive any liability of the limited
partners to the prejudice of such creditors.


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Partnership

6. Principal – It does not depend for its existence

7. Preparatory – Because it is entered into as a

Partnership 8. Profit-oriented. (Art. 1770, NCC)

It is a contract whereby two or more persons bind Typical incidents of partnership

3. Nominate – It has a special name or NOTE: These incidents may be modified by

451 UNIVERSITY OF SANTO TOMAS

right, an oral contract of partnership is void. In such

Partnership, Co-ownership, and Corporation

PARTNERSHIP CO-OWNERSHIP CORPORATION

Generally created by law and can

Has separate and distinct juridical Has separate and distinct

Common enjoyment of a thing or Depends on the Articles of

A corporation shall have

GR: Minimum of one person

UNIVERSITY OF SANTO TOMAS 452

As to Commencement of Juridical Personality

From the date of issuance of

May be dissolved at any time by the

GR: The obligation to third

453 UNIVERSITY OF SANTO TOMAS

Partnership v. Joint Venture (2015 BAR)

PARTNERSHIP JOINT VENTURE

Required to operate under a firm name. Has no firm name.

A partner acting in pursuance of the firm business,

A partnership acquires personality after following the

UNIVERSITY OF SANTO TOMAS 454

Joint venture Persons Qualified to be a Partner

455 UNIVERSITY OF SANTO TOMAS

3. Other kinds NOTE: Even if a partner will associate another

NOTE: A corporation cannot become a member of Consequences of a partnership formed for an

UNIVERSITY OF SANTO TOMAS 456

Q: To form a lending business, it was verbally FORMATION OF PARTNERSHIP

Distribution of Losses A partnership begins from the moment of the

457 UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS 458

2. Co-ownership or co-possession does not of 1. Object

459 UNIVERSITY OF SANTO TOMAS

as the usufruct of all movable or 4. Legality of existence

2. Liability of partners a. Ordinary or real partnership – One which

UNIVERSITY OF SANTO TOMAS 460

Classes of Universal Partnership Persons Disqualified from Entering into

When the Articles of Universal Partnership fail to

461 UNIVERSITY OF SANTO TOMAS

General v. Limited Partner/Partnership

GR: No participation in management. His rights are

As to If Proper Party to Proceedings By or Against Partnership

Not proper party to proceedings by/against

UNIVERSITY OF SANTO TOMAS 462

Interest is not assignable without consent of other

It must also operate under a firm name, followed by

GR: The surname of a limited partner shall not

As to Prohibition to Engage in Other Business

The capitalist partner cannot engage for their own

If he is an industrial partner - in any business for

As to Effect of Death, Insolvency, Retirement, Insanity

Retirement, death, insolvency, insanity of general

Created by the members after substantial

463 UNIVERSITY OF SANTO TOMAS