100127520 partnership-midterm-reviewer-cc

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PARTNERSHIP MIDTERM REVIEWER
GENERAL PROVISIONS
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. (1665a)
Partnership has a juridical personality of its own, distinct and separate from that of each of the partners
Characteristic Elements of Partnership:
Consensual: perfected by mere consent, upon express or implied agreement
Nominate: it has a special name or designation in our law
Bilateral: entered into by two or more persons
Onerous: each of the parties aspires to procure for himself a benefit through the giving of something
Commutative: undertaking of each of the partners is considered as the equivalent of that of the others
Principal: does not depend for its existence or validity upon some other contracts
Preparatory: entered into as a means to an end
Essential Features of Partnership:
Valid Contract
Legal Capacity
Mutual Contribution (money, property, industry)
Lawful Object
Purpose must be to obtain Profits and divide the same among parties
Requisites:
Consent and capacity of the contracting parties
Object: contributions of the parties and the business or undertaking which the parties have agreed to pursue
Cause: obtain profits and dividing the same
No one can become a member of the partnership association without the consent of all the other associates.
Doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership.
Art. 1768. The partnership has a judicial personality separate and distinct from that of each of the partners, even in case of failure
to comply with the requirements of Article 1772, first paragraph. (n)
As independent juridical person, partnership may:
Enter into contracts
Acquire and possess property of all kinds in its name
Incur obligations

Bring civil or criminal actions in conformity with the laws and regulations
May sue and be sued
Even in case of failure to comply with execution of a public instrument and registration of the same with SEC in case partnership
capital exceeds P3,000, partnership acquires juridical personality.
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third
persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do
or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
(n)
General Rule: to establish the existence of partnership, all of its essential features or characteristics must be shown as being present
In case of doubt, Rules:
Persons who are not partners as to themselves are not partners to third persons
-persons who are partners as between themselves are partners as to third persons
-general rule: partnership can never exist as to third persons if no contract of partnership, express or implied, has been
entered into between the parties themselves
-exception: partnership by estoppel; where persons by their acts, consent, or representations have misled third persons or
parties into believing that the former are partners in a non-existing partnership, such persons become subject to liabilities
of partners to all who, in good faith, deal with them in their apparent relations
Co-ownership or co-possession does not of itself establish partnership
Sharing of gross returns does not of itself establish partnership
Receipt of share of the profits is prima facie evidence that he is a partner
-exceptions: profits are received in payment as:
Debt by instalments
Wages or Rent
Annuity to a widow or representative of deceased partner
Interest on a loan
Consideration for the sale of goodwill or other property
Burden of Proof:
Proving existence of partnership rests on the party having affirmative of that issue
Law presumes that persons who are acting as partners have entered into contract of partnership; burden of proof on the party
denying such existence
When partnership is shown to exist, presumption is that it continues in the absence of evidence to the contrary
Distinctions:
Partnership Co-ownership
Creation Always created by contract, express or implied Generally created by law
Juridical Personality Has juridical personality Has none
Purpose Realization of profits Common enjoyment of thing or right
Duration No limitation An agreement to keep thing undivided for more than
10 years is not allowed
Disposal of interests May not dispose interest so as to make assignee a
partner unless agreed upon by all partners
May do so

Power to act with
third persons
Partner may bind partnership Co-owner cannot represent co-ownership
Effect of death Results in dissolution of partnership Co-ownership not necessarily dissolved
Partnership Corporation
Manner of creation Mere agreement of parties By operation of law
Number of
incorporators
May be organized by only 2 persons Requires at least 5 incorporators
Commencement of
juridical personality
From the moment of execution of the contract of
partnership
From the date of issuance of the certificate of
incorporation by the SEC
Powers May exercise any power authorized by the partners
provided it is not contrary to law, morals, good
customs, public policy
Can exercise only powers expressly granted by law
Management If not agreed upon, every partner is an agent Vested in board of directors or trustees
Effect of
Mismanagement
Partner can sue a co-partner who mismanages Suit against member of board of directors or
trustees who mismanages must be in the name of
the corporation
Right of Succession No right of succession Has right of succession
Extent of liability to
third persons
Liable personally and subsidiarily (sometimes
solidarily), except limited partners
Stockholders liable only to the extent of the shares
Transferability of
interest
To make transferee a partner, needs consent of all
other partners
Stockholder has right to transfer shares without
prior consent of other stockholders
Term of existence For any period of time May not be formed in excess of 50 years, extendible
to not more than 50 years in any one instance
Firm name Limited partnership required to add the word ”Ltd.” Any firm name provided it is not same or similar to
any registered firm name
Dissolution At any time by will of any or all partners With the consent of the State
Governing law Civil Code Corporation Code
Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the
partners.
When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without
prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a)
Two essential elements of contract of partnership:
Legality of object
Community of benefit or interest of the partners
Effects of Unlawful Partnership:
Contract is void ab initio, partnership never existed in the eyes of law
Profits confiscated in favor of the government
Instruments and proceeds of the crime shall be forfeited in favor of the government
Contributions of partners shall not be confiscated, unless they are instruments or proceeds of crime
Partnership is dissolved by operation of law.
Partners must be reimbursed the amount of their respective contributions.
Partners cannot receive profits as a result of unlawful partnership business.
Effect of Partial Illegality of Partnership Business:
An account of that which is legal may be had.
Effect of Subsequent Illegality of Partnership Business:
Contract is not nullified.
An accounting may be had as to the legal business transacted prior to the happening of the illegality.

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary. (1667a)
General Rule: no special form required for validity or existence of the contract of partnership
Exception: Whenever immovable property or real rights are contributed, the execution of public instrument is required
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the
members thereof to third persons. (n)
Partnership with capital of P3,000 or more, Requirements:
Public Instrument
Recorded or registered with SEC
Purpose of registration: necessary as condition for issuance of licenses to engage in business or trade
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property
is not made, signed by the parties, and attached to the public instrument. (1668a)
Partnership with contribution of Immovable Property, Requirements:
Public Instrument
Inventory of property contributed
Effect: absence of either formality renders the contract void.
Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be
conveyed only in the partnership name. (n)
Immovable property may be acquired in the partnership name.
Art. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members
may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions
relating to co-ownership. (1669)
Art. 1776. As to its object, a partnership is either universal or particular. As regards the liability of the partners, a partnership may
be general or limited. (1671a)
Classifications of Partnership:
As to extent of its Subject Matter
Universal Partnership
-2 kinds:
Universal Partnership of All Present Property
Universal Partnership of Profits
Particular Partnership
As to Liability of Partners
General Partnership
-consisting of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate
property for partnership debts
Limited Partnership
-formed by two or more persons having as members one or more general partners and one or more limited
partners (not personally liable for the obligations of the partnership)
As to its Duration
Partnership at Will
-no time is specified and not formed for a particular undertaking and may be terminated at anytime by mutual
agreement or by will of any one partner alone
-fixed term or particular undertaking which is continued by partners after termination of such term or particular
undertaking without express agreement
Partnership with a Fixed Term

-term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking, and
upon expiration of the term or completion of the particular undertaking, partnership is dissolved
As to Legality of its Existence
De Jure Partnership
-complied with all legal requirements for establishment
De facto Partnership
-failed to comply with all legal requirements for establishment
As to Representation to others
Ordinary or Real Partnership
-actually exists among partners and third persons
Ostensible Partnership
-in reality is not a partnership, but considered as such only in relation to those who, by their conduct or admission,
are precluded to deny its existence
As to Publicity
Secret Partnership
-existence of certain person as partners is not avowed or made known to the public
Open or Notorious Partnership
-existence is avowed or made known to the public by members of the firm
As to Purpose
Commercial or Trading Partnership
-formed for transaction of business
Professional or Non-Trading Partnership
-formed for exercise of profession
Kinds of Partners:
Under the Civil Code
Capitalist Partner
-contributes money or property to common fund
Industrial Partner
-contributes only his industry or personal service
General Partner
-liability to third persons extends to his separate property
Limited Partner
-liability to third persons is limited to his capital contribution
Managing Partner
-manages the affairs or business of partnership
-may be appointed by: articles of partnership, or after constitution of partnership
Liquidating Partner
-takes charge of winding up of partnership affairs after dissolution
Partner by estoppel
-not really a partner, but is liable as a partner for the protection of third persons
Continuing Partner
-continues business of partnership after it has been dissolved by reason of admission of new partner, retirement,
death or expulsion of one or more partners
Surviving Partner
-remains after a partnership has been dissolved by death of a partner
Subpartner
-not being a member of the partnership, contracts with a partner with reference to the latter’s share in the
partnership
Other Classifications
Ostensible Partner
-takes active part and known to the public as partner
Secret Partner
-take active part but not known to be a partner
Silent Partner
-does not take active part although known to be partner
Dormant Partner
-does not take active part and is not known as partner
Original Partner

-member of partnership from the time of its organization
Incoming Partner
-lately, or about to be, taken into an existing partnership as member
Retiring Partner
-withdrawn from the partnership
Art. 1777. A universal partnership may refer to all the present property or to all the profits. (1672)
Two kinds of Universal Partnership:
Universal Partnership of All Present Property
Universal Partnership of Profits
Art. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to
them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may
acquire therewith. (1673)
Art. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the time of the
constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may
acquire therewith.
A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire
subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. (1674a)
Universal Partnership of All Present Property:
-partners contribute all property which actually belongs to them to a common fund, as well as the profits they may acquire
Included:
Property which belonged to each of them at the time of constitution of partnership
Profits which they may acquire from the property contributed
Other profits stipulated
Fruits of property acquired subsequently by inheritance, legacy or donation
Not Included:
Properties acquired subsequently by inheritance, legacy, or donation
Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the
existence of the partnership.
Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall
continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675)
Universal Partnership of Profits:
-all that the partners may acquire by their industry or work during the existence of the partnership and the usufruct of
movable or immovable property which each of the partners may possess at the time of the celebration of the contract
Included:
Profits or income
Usufruct
Acquired through industry or hard work during existence of partnership
Not Included:
Property acquired through chance
Fruits of property subsequently acquired by partners, except by express stipulation
Upon dissolution, property is returned to the partner who owns it.
Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal
partnership of profits. (1676)
If articles of partnership do not specify nature of partnership, it is presumed to be universal partnership of profits.

Reason: it imposes less obligations on the partners
Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership.
(1677)
Reason: each of the partners virtually makes a donation
Effect: partnership formed in violation of this article is null and void; no legal personality is acquired
Art. 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise
of a profession or vocation. (1678)
Particular Partnership:
-object is limited and well-defined, being confined to an undertaking of a single, temporary, or ad hoc nature
Corporation as a partner:
-a corporation cannot enter into a partnership contract, but it may engage in a joint venture with others
-joint venture: a form of partnership with a legal personality separate and distinct from the parties composing it, and
governed by the law of partnership
CHAPTER 2
OBLIGATIONS OF THE PARTNERS
SECTION 1. - Obligations of the Partners Among Themselves
Four Distinct Juridical Relations of a contract of partnership:
Relations among partners themselves
Relations of the partners with the partnership
Relations of the partnership with third persons with whom it contracts
Relations of the partners with such third persons
Partnership relation is essentially one of mutual trust and confidence.
Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679)
Partnership is a consensual contract:
-exists from the moment of the celebration of the contract by the partners
-commences from the time of execution of the contract if there is no contrary stipulation
Future Partnership:
-partners may stipulate some other date for the commencement of the partnership
-an agreement that by its terms is not to be performed within a year from the making thereof, must be in writing and
signed by the party charged in order to be enforceable (Statute of Frauds)
So long as the agreement remains executor, the partnership is inchoate.
Art. 1785. When a partnership for a fixed term or particular undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at
such termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted therein during the term, without any
settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. (n)
Partnership with a Fixed Term:
-term of its existence has been agreed upon expressly (as when there is a definite period) or impliedly (as when a particular
enterprise or transaction is undertaken)
-expiration of the term thus fixed or accomplishment of the undertaking will result in dissolution of the partnership
Partnership with a Fixed Term becomes Partnership at Will:

-if the partnership with a fixed term is continued, expressly or impliedly, after the termination of such term or undertaking,
the rights and duties of the partners remain the same as they were at such termination but only insofar as is consistent with
a partnership at will
-with such continuation, the partnership for a fixed term or particular undertaking is dissolved and a new one, a partnership
at will, is created by implied agreement the continued existence of which will depend upon the mutual desire and consent
of the parties
-thus, any one of the partners may dictate dissolution at will, but must act in good faith to avoid liability for damages
Mere expectation that the business would be successful and that he partners would be able to recoup their investment is not
sufficient to create a partnership for a term.
Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have
contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He
shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a)
Obligations of Partners among Themselves and to the Partnership with respect to contribution of property:
(Contibute Eviction Fruits Preserve Indemnify – CEFPI)
Contribute money, property, or industry which he may have promised to contribute
Answer for eviction in case partnership is deprived of determinate property contributed
-eviction: whenever by final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is
deprived of the whole or a part of the thing purchased
Answer for fruits of the property in case of delay, from the date they should have been contributed until actual delivery
-no demand is necessary
Preserve property with diligence of good father of a family
Indemnify partnership for any damage caused by retention or delay
Failure to contribute is to make the partner ipso jure a debtor of the partnership even in the absence of any demand.
Liability of partner for failure to perform service stipulated:
General Rule: Not liable; every partner is bound to work to the extent of his ability for the benefit of the whole, without regard to
the services of his co-partners, however unequal in value or amount
Exception: Neglects or refuses without reasonable cause by reason of which the partnership suffered loss
Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be
made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts
chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n)
Appraisal of the value of goods: necessary to determine how much has been contributed by the partners
Appraisal made by:
a) manner prescribed by the contract of partnership
b) in absence of stipulation, experts chosen by partners and according to current prices
After contribution of goods, partnership bears the risk or gets the benefit of subsequent changes in their value
Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time
he converted the amount to his own use. (1682)
Two Cases:
Money promised but not given on time
Partnership money converted to personal use of the partner
Obligations of the Partners with respect to the Partnership Capital:
(Contribute Reimburse Interest Damages - CRID)
Contribute on the date due the amount he has undertaken to contribute to the partnership
Reimburse any amount he may have taken from the partnership and converted to his own use

Pay the interest if he fails to pay contribution on time or if he takes any amount from the common fund and converts it to his own
use
Indemnify the partnership for damages caused by delay or conversion for his own benefit
Liability of guilty partner for interest and damages: from the time he should have complied with his obligation or from the time he
converted the amount to his own use, NOT from the time demand was made
Art. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and
if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right to damages in either case. (n)
Industrial Partner:
-contributes his industry, labor, or services to the partnership
-becomes debtor of partnership for his work or services from the moment the partnership relation begins
-if he engages in business for himself, such act is considered prejudicial to the interest of the other partners
-cannot be compelled to perform the promised work or service because it will amount to involuntary servitude
Prohibition Against Engaging in Business:
Industrial Partner:
-Absolute Prohibition: industrial partner cannot engage in any other business, whether of the same kind or not to the
partnership business
-reason: prevent conflict of interest
Capital Partner:
-Relative Prohibition: extends only to any operation which is of the same kind of business in which the partnership is
engaged
Remedies where Industrial Partner Engages in Business:
Exclude him from the firm
Avail themselves (other partners) of the benefits which he (industrial partner) may have obtained
Damages
Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership.
(n)
General Rule: partners can stipulate the contribution of unequal shares to the common fund
Exception: absence of such stipulation, presumption is that their contribution shall be in equal shares
Rule not applicable to industrial partner (he contributes all of his work or services), unless he has contributed capital.
Art. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner
who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he obliged to
sell his interest to the other partners. (n)
General Rule: capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute
Exception: in case of imminent loss of the business and no agreement to the contrary, he is under obligation to contribute an
additional share to save the venture
Effect of Refusal: obliged to sell his interest to the other partners
Requisites:
Imminent loss of business
Majority of capitalist partners are of the opinion that additional contribution would save the business
Capitalist partner refuses deliberately
No agreement that even in case of an imminent loss the partners are not obliged to contribute
Industrial Partner exempted from the requirement to contribute additional share.
Reason for sanction: refusal to contribute additional share reflects his lack of interest in the continuance of the partnership

Art. 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person
who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion
to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of
the partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to the other debtor by Article 1252, but
only if the personal credit of the partner should be more onerous to him. (1684)
Obligation of managing partner who collects debt:
General Rule: where a person is separately indebted to the partnership and to the managing partner at the same time, any sum
received by the managing partner shall be applied to the two credits in proportion to their amounts
Exception: he received it for the account of the partnership, whole sum shall be applied to the partnership credity only
Requisites:
At least two debts, one where the collecting partner is creditor and the other where the partnership is the creditor
Both debts are demandable
Partner who collects is managing partner
Note: where the manner of management has not been agreed upon and all partners participate in the management of the
partnership, every partner shall be considered a managing partner
Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not
collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he
received even though he may have given receipt for his share only. (1685a)
Rule: when partner received his share of partnership credit but other partners have not, the partner who received his share shall be
obliged to bring to the partnership capital what he received if the debtor should thereafter become insolvent
Requisites:
Partner received his share of partnership credit
Other partners have not collected theirs
Partnership debtor is insolvent
Credit collected After dissolution of the Partnership: rule will no longer apply and the partner who received his share of the credit
will not be obliged to bring such credit to the partnership fund because upon the dissolution of the partnership, the tie that unites
the partnership ceases thus the reason for the obligation disappears
Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate
them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may
equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual
profits have been realized. (1686a)
General Rule: damages caused by a partner to the partnership cannot be offset by the profits or benefits which he may have earned
for the partnership by his industry
Exception: if unusual profits are realized through the extraordinary efforts of the partner at fault, court may equitably mitigate or
lessen his liability for damages
Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use
and fruits may be for the common benefit, shall be borne by the partner who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall
be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also
be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised. (1687)
Risk of Loss of Thing Contributed:
Specific thing before delivery, the owner will bear the loss.
Specific thing, before delivery, if only the use will be contributed, partner bears the loss.
Specific thing, before delivery, even if ownership is transferred, partner bears the loss.
Specific thing, after delivery, if only the use will be contributed, partner bears the loss.
Specific thing, after delivery, ownership is transferred, partnership or firm bears the loss.
For fungible things, partnership bears the loss.

If the thing contributed is to be sold, if the partnership will accept it, then partnership bears the loss.
If the thing is appraised in the inventory, partnership bears the loss.
Art. 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the
partnership and for the corresponding interest, from the time the expense are made; it shall also answer to each partner for the
obligations he may have contracted in good faith in the interest of the partnership business, and for risks in consequence of its
management. (1688a)
Every partner is an agent of the partnership for the purpose of its business.
Obligation of Partnership to the Partners:
Refund amounts disbursed by the partner in behalf o the partnership plus interest
Answer for obligations the partner may have contracted in good faith in the interest of the partnership business
Answer for risks in consequence of its management
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the
profits has been agreed upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital. (1689a)
Rules for Distribution of Profits and Losses:
Distribution of Profits:
a) agreement
b) no agreement
-capitalist partner: in proportion to capital contribution
-industrial partner: such share as may be just and equitable
Distribution of Losses:
a) agreement
b) no agreement but contract provides for share of profits
-capitalist partner: in accordance with profit-sharing ratio
-industrial partner: not liable for losses
c) no agreement and no profit-sharing stipulated
-capitalist partner: in proportion to capital contribution
-industrial partner: not liable for losses
Art. 1798. If the partners have agreed to intrust to a third person the designation of the share of each one in the profits and
losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to
execute the decision of the third person, or who has not impugned the same within a period of three months from the time he
had knowledge thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of the partners. (1690)
Designation of the share in the profits and losses may be delegated to a third person by common consent
General Rule: designation by third person would generally be binding
Exception:
Manifestly equitable
Partner has begun to execute decision of third person
Fails to impugn decision within 3 months from the time he had knowledge of it
Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. (1691)
Although the stipulation is void, partnership is valid. Profits and losses will be apportioned as if there were no stipulation.
View adopted by Sir E: there is no sound reason why a person cannot also agree to bear all the losses that a partnership may suffer,
in order to exempt his co-partners from sharing in the said losses,
But agreement excluding one or more partners from satisfying partnership liability is void as to third persons.

Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration
despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause.
The vote of the partners representing the controlling interest shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time. (1692a)
One Managing Partner:
Two cases of Appointments:
Articles of Partnership
-may execute all acts of administration notwithstanding opposition of the other partners, unless he acts in bad faith
-revocation:
a) just and lawful cause
b) vote of partners representing controlling interest
After the Constitution of Partnership
-revocation:
a) any time for any cause
b) vote of partners representing controlling interest
Art. 1801. If two or more partners have been intrusted with the management of the partnership without specification of their
respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may
separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority
shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. (1693a)
Two or More Managing Partners:
Each one may separately perform acts of administration
In case of conflict:
a) majority of the managing partners
b) in case of tie, vote of partners owning controlling interest
Requisites for application:
Two or more managing partners
No specification of their respective duties
No stipulation that one of them shall not act without the consent of all the others
Art. 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others,
the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be
alleged, unless there is imminent danger of grave or irreparable injury to the partnership. (1694)
When Unanimity is Required:
If it is stipulated that none of the managing partners shall act without the consent of the others
Exception: when there is imminent danger of grave or irreparable injury to the partnership, partner may act alone without the
consent of the partner who is absent or under disability
Exception to the Exception: not applicable when one of the managers, in the exercise of his right to oppose, objects to the proposed
act.
Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership,
without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important alteration in the immovable
property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. (1695a)
Rules when Manner of Management Not Agreed upon:
All partners considered managers and agents
Unanimous consent required for alteration of immovable property

Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the
partnership without the consent of all the other partners, even if the partner having an associate should be a manager. (1696)
Subpartner:
-person with whom a partner may associate with in his share without the consent of the other partners
-in the absence of mutual assent of all the parties, a subpartner does not become a member of the partnership thus, he
does not acquire the rights of a partner nor is he liable for its debts
Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business
of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. (n)
Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the
legal representative of any deceased partner or of any partner under legal disability. (n)
Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him
without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property. (n)
Art. 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which
the partnership is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions,
and shall personally bear all the losses. (n)
Relative Prohibition: capitalist partner is prohibited from engaging for his own account in any operation which is the same or similar
to the business in which the partnership is engaged and which is competitive with said business
Effect of Violation:
Bring to the common fund any profits derived by him
In case of losses, he shall bear them alone
Art. 1809. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable. (n)
SECTION 2. - Property Rights of a Partner
Art. 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
Principal Rights:
(Specific property Interest Management - SpIM)
Rights in Specific Partnership Property
Interest in Partnership
Right to Participate in Management
Related Rights:
Reimbursement for amounts advanced to partnership and Indemnification for risks in consequence of management
Access and Inspection of partnership books
True and Full Information
Formal Account of partnership affairs
Dissolution
Art. 1811. A partner is co-owner with his partners of specific partnership property.
The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with
his partners to possess specific partnership property for partnership purposes; but he has no right to possess such
property for any other purpose without the consent of his partners;
(2) A partner's right in specific partnership property is not assignable except in connection with the assignment of rights
of all the partners in the same property;
(3) A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against
the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right under the homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject to legal support under Article 291. (n)
Rights in Specific Partnership Property:
Partner is co-owner with his partners of specific partnership property.
Legal Incidents of this right:
Equal right to possess specific partnership property for Partnership Purposes
-if property is used for his own profit or benefit, must account to the others for the profits or the value of wrongful
possession or occupation
-on death of partner, right in specific partnership property vests in the surviving partners, not legal representatives
Generally, Not Assignable
-partner cannot separately assign his right to specific partnership property because it is impossible to determine the extent
of his beneficial interest
-But all of them can assign their rights in the same property
Not subject to Attachment or execution, except on claim against partnership
-partners cannot claim any right under homestead or exemption laws when it is attached for partnership debts
Not subject to legal support
Art. 1812. A partner's interest in the partnership is his share of the profits and surplus. (n)
Interest in Partnership, consists of share of:
Profits
-excess of returns over expenditure in a transaction or series of transactions (connotes shorter period of time)
Surplus
-excess of assets over liabilities
-assets of the partnership after partnership debts and liabilities are paid and settled (connotes longer period of time)
Legal Incidents of this right:
Not subject to attachment or execution
Assignable
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his
contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of
the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account
from the date only of the last account agreed to by all the partners. (n)
Partner is permitted to convey his whole interest in the partnership without causing dissolution.
Assignee has No Right to:
Interfere in the management
Require information or account
Inspect any partnership books
Rights of Assignee or Transferee:
Receive profits accruing to assigning partner
Avail of usual remedies in the event of fraud in management

Receive assignor’s interest in case of dissolution
Require account of partnership affairs, but only in case partnership is dissolved
Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a
competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge
the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may
then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the
partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which
the circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be
purchased without thereby causing a dissolution:
(1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests
are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the
partnership. (n)
Interest in Partnership of a debtor partner may be charged by creditor with payment of debt through a “charging order”.
Charging Order: issued by competent court which entered judgment, by virtue of which any amount or portion thereof which the
partnership would otherwise pay to the debtor-partner should instead be given to judgment creditor
Charging order is without prejudice to the preferred rights of partnership creditors (who are satisfied first).
Remedy of other partners:
Redemption (before foreclosing) or Repurchase (in case of sale directed by court) of the interest charged:
a) with separate property, by any one or more of the partners
b) with partnership property, by any one or more of the partners with the consent of all the partners whose interests are
not so charged
Effect of Redemption: redeeming non-debtor partner does not acquire absolute ownership over the debtor-partner’s interest but
holds it in trust for him
SECTION 3. - Obligations of the Partners
With Regard to Third Persons
Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the
partners.
Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a
partner. (n)
Firm Name: necessary to distinguish partnership, which has a distinct and separate juridical personality
General Rule: may adopt any firm name desired
Except: cannot use a name that is identical or deceptively similar to any existing partnership or corporation
Liability for inclusion of name in firm name: persons who, not being partners, include their names in the firm name do not acquire
rights of partner, But they shall be subject to the liability of partner insofar as third persons without notice are concerned
Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets
have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to
perform a partnership contract. (n)
General Rule: partner has right to make all partners liable for contract he makes for the partnership but only if the partner was
authorized (either expressly granted under partnership agreement, or implied authority in transactions that are for the purpose of
carrying on in the usual way the business of the partnership)
Exception: partner may assume a separate undertaking in his name, partner is personally bound by his contract
Rule: partners, including industrial partners, are liable to creditors of the partnership for the obligations contracted by a partner in
the name and for the account of the partnership

Individual liability to creditors is pro rata and subsidiary
Pro rata: means proportionately (view adopted by Sir E)
Subsidiary: partners become personally liable only after all the partnership assets have been exhausted
Liability of industrial partner:
Not liable for losses, but must pay liability to third persons subject to reimbursement from the capitalist partners
Losses vs Liabilities:
Exemption of industrial partner to pay losses relates exclusively to the settlement of partnership affairs among partners themselves.
It has nothing to do with liabilities of the partners to third persons.
Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners. (n)
Effect of stipulation among partners contrary to pro rata and subsidiary liability:
No effect insofar as third persons
Valid and enforceable only as among the partners
Art. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the
execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership
of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in
the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners.
Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the
partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the
restriction. (n)
Absence of agreement, all partners have equal rights in the management and conduct of partnership business.
General Rule: every partner is an agent of the partnership, and act of every partner binds the partnership
Exception: act of partner does not bind the partnership if:
Not for carrying on the business of the partnership
Lack of Authority
Third Person has Knowledge of lack of authority
Unanimity is Required:
Assign partnership property in trust for creditors
Dispose of goodwill
Any other act which would make it impossible to carry on the ordinary business of partnership
Confess a judgment
Enter into compromise
Submit to arbitration
Renounce claim of partnership
Common Element: Acts of strict dominion or ownership
Art. 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance
executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership
under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person
claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded
his authority.

Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the
equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first
paragraph of Article 1818.
Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of
the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover
such property if the partners' act does not bind the partnership under the provisions of the first paragraph of Article 1818, unless
the purchaser or his assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership,
a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the
partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.
Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights
in such property. (n)
Title to real property or interest therein belonging to the partnership is registered in the partnership name.
Real property may be registered or owned in the name of:
Partnership
One or more but not all the partners
One or more or all the partners, or in a third person in trust for the partnership
All the partners
Legal Effect of Conveyance:
Title is in name of partnership, transferred in partnership name, by one partner
-equitable interest is transferred, BUT
-title is transferred if conveyance is for carrying on the business of partnership, or the partner has authority, or if the third
person has no knowledge of lack of authority, otherwise the partnership may recover title
Title is in the name of partnership, transferred in the name of one partner, by that one partner
-equitable interest in transferred, provided the act is within the authority of the partner
Title is in the name of one or more but not all partners, transferred in the name of any one of the partners whose name is in the
title, by that partner
-title is transferred
-partnership may recover title if: the act is not for carrying on the business of partnership, or the partner has no authority,
or the third person has knowledge of lack of authority
Title is in the name of one or more or all the partners or in a third person in trust for the partnership, transferred in partnership
name or in the name of one partner, by a partner
-equitable interest is transferred, provided the act is within the authority of the partner
Art. 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in
accordance with this Title is evidence against the partnership. (n)
General Rule: person is not bound by act, admission, or statement of another of which he has no knowledge or to which he has not
given his consent
Exception: admission of a partner is evidence against the partnership if:
Made during existence of partnership
Refer to a matter concerning partnership affairs
Within the scope of his authority
Art. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the
particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably
could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the
case of fraud on the partnership, committed by or with the consent of that partner. (n)
Notice to the partner is notice to the partnership.
Three cases of knowledge:
Knowledge of the partner acting in the particular matter acquired while a partner
Knowledge of the partner acting in the particular matter then present to his mind
Knowledge of any other partner who reasonably could and should have communicated it to the acting partner

Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership
or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty
is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. (n)
Art. 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person
and misapplies it; and
(2) Where the partnership in the course of its business receives money or property of a third person and the money or
property so received is misapplied by any partner while it is in the custody of the partnership. (n)
Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822
and 1823. (n)
Liability for obligations:
Joint and Pro rata:
Contractual obligations
Solidary:
Quasi-delict: by any wrongful act or omission of any partner acting in the ordinary course of business or with authority, loss
or injury is caused to any person or any penalty is incurred
Breach of trust:
One partner acting within the scope of his authority, receives money or property from third person, misapplies it
Partnership in the course of its business, receives money or property of third person, misapplied by partner while
in the custody of partnership
Art. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him
to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons
to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent
partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge
of the apparent partner making the representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract
or representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual
partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same
manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of
the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint
act or obligation of the person acting and the persons consenting to the representation. (n)
Estoppel: bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth
by his own deed or representation, either express or implied
Partnership by Estoppel:
-existing partnership, a person misrepresents himself to be a partner and other partners consented to the
misrepresentation
-non-existing partnership, group of persons misrepresent themselves to be partners
Partner by Estoppel
-existing partnership, a person misrepresent himself to be a partner and other partners do not consent
Estoppel does not create partnership as between alleged partners
Art. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising
before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be
satisfied only out of partnership property, unless there is a stipulation to the contrary. (n)
Liability of incoming partner for partnership obligations:
Obligations existing at the time of his admission
-only limited to his share in partnership property

Obligations incurred subsequent to admission
-liable up to separate property
Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property.
Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the
latter in the partnership assets. (n)
Preference of Creditors:
Partnership Property
-partnership creditors are preferred
-first, satisfy claim of partnership creditors; if any property are left, partner’s separate creditors may ask for attachment and
public sale of the share of the partner in partnership property
Separate Property
-partner’s separate creditors are preferred
-first, satisfy claim of partner’s separate creditors; if any property are left, may be taken by partnership creditors if
partnership property is not enough to satisfy partnership debts/liabilities
CHAPTER 3
DISSOLUTION AND WINDING UP
Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up of the business. (n)
Three Separate Stages:
Dissolution
-change in relation of partners caused by any partner ceasing to be associated in the carrying on of the business
-partners cease to carry on business together
Winding Up
-actual process of settling the business or partnership affairs after dissolution, involving the collection and distribution of
partnership assets, payment of debts, and determination of value of each partner’s interest in partnership
Termination
-all partnership affairs are completely wound up and finally settled
-signifies end of partnership life
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is
completed. (n)
Effect of Dissolution:
Does not automatically result in termination of legal personality of partnership or cessation of his business
Partnership continues but only for limited purpose of winding up its affairs
Art. 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good faith, when no definite term or particular is
specified;
(c) By the express will of all the partners who have not assigned their interests or suffered them to be charged
for their separate debts, either before or after the termination of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by
the agreement between the partners;
(2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under
any other provision of this article, by the express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry
it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in
any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only
transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership has acquired the ownership thereof;

(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
Causes of Dissolution:
Act of Parties Not in Violation of their Agreement
Termination of the definite term or particular undertaking
-automatically dissolved without the partners extending the said term or continuing the undertaking
-if after said expiration, partners continue the partnership without making a new agreement, firm becomes
partnership at will
By express will of any partner
-partnership at will may be dissolved at any time by any partner without consent of co-partners as long as it is
done in good faith
-if done in bad faith, dissolution is not prevented but withdrawing partner is liable for damages
By express will of all partners
-agreement to dissolve partnership before termination of specified term or particular undertaking must be
unanimous
By expulsion of any partner
-must be made in good faith and strictly in accordance with the power conferred by the agreement between the
partners
Act of Parties in Violation of their Agreement
Legal Effect: withdrawing partner is liable for damages
Operation of Law
Business becomes Unlawful
-caused when a supervening event makes the business itself unlawful or makes it unlawful for the partners to carry
it on together
Loss of Specific Thing
Ownership
Before delivery – dissolution
After delivery – no dissolution (partnership becomes owner of thing and thus bears the loss)
Use
Before delivery – dissolution
After delivery – dissolution
**Loss of generic thing, whether ownership or use is transferred and whether before or after delivery, does not
result in dissolution because generic things can be replaced
Death of any partner
-surviving partners have no authority to continue the business except for winding up
Insolvency of any partner or partnership
-insolvency must be adjudged by the court
-by insolvency, the credit is impaired
Civil Interdiction of any partner
-a person under civil interdiction cannot validly give consent and is without capacity to manage his own property
Court Decree
-as discussed in the next article (art 1831)
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership
with him;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under Article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order
was issued. (n)

Grounds for Dissolution by Court Decree:
On application by a partner
Insanity
-must be duly proved in court
-insanity must materially affect capacity of partner to perform contractual duties as partner
Incapacity
-materially affects his ability to discharge the duties imposed by his partnership contract
-incapacity which is lasting, from which the prospect of recovery is remote
Misconduct
-prejudicial to carrying on of partnership business
Persistent Breach of partnership agreement
-defeat and materially affect and obstruct the purpose of partnership
Business can be Carried on Only at a Loss
-becomes apparent that it is unprofitable with no reasonable prospects of success
Other Circumstances
-i.e. abandonment of business, fraud in management, refusal without justifiable cause to render accounting of
partnership affairs
On application of purchaser of partner’s interest
After termination of specified term or particular undertaking
Any time if partnership was a partnership at will when interest was assigned or charging order issued
Art. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then
finished, dissolution terminates all authority of any partner to act for the partnership:
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
Effect of Dissolution on Authority of Partner:
Partnership ceases and partner’s power of representation is confined only to acts incident to winding up or completing of
transactions begun but not then finished
Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for
his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution;
or
(2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or
notice of the death or insolvency.
Rule:
When a partner enters into new contract with third person after dissolution, new contract will bind partners.
Each is liable for his share of liability created by acting partner as if the partnership has not been dissolved.
Exception:
Cause of dissolution is the act of partner and acting partner has knowledge of such dissolution
Cause of dissolution is death or insolvency of a partner and acting partner has knowledge or notice of death or insolvency
Knowledge: not only actual knowledge but also knowledge of such other facts as in circumstances that would show bad faith
Notice: person who claims benefit of notice states the fact to such person or delivers through mail or other means, a written
statement of the fact to such person or proper person at his place of business or residence
Article applies only if contract binds the partnership. If not, only acting partner is personally liable.
Art. 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to
the transaction:

(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the
dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and,
having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more than one) at which the partnership business was
regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had
been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to
have been in any degree due to his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for
winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one who:
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of
authority; or
(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his
want of authority, the fact of his want of authority has not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under Article 1825 of any person who, after dissolution, represents himself or
consents to another representing him as a partner in a partnership engaged in carrying business. (n)
General Rule: upon dissolution of partnership, authority of partner is deemed terminated; act of partner (such as entering into new
contracts) after dissolution, partnership is no longer bound
Exceptions: partnership is still bound (with respect to new transaction):
As to Partners
1. winding up
2. completion of business transactions
3. if dissolution is by act, death, or insolvency of a partner
-provided that acting partner had NO knowledge of act, or had NO knowledge or notice of death or insolvency
As to Third Persons
1. winding up
2. completion of business transactions
3. third persons who extended credit prior to dissolution and had no knowledge or notice of the dissolution
4. third persons who had not extended credit prior to dissolution, knew of partnership, but had no knowledge or notice because no
publication or advertisement
Art. 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between
himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred
from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing
the business.
The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner,
but subject to the prior payment of his separate debts. (n)
Effect of Dissolution on Partner’s Existing Liability:
Existing liability of partner is not of itself discharged, UNLESS by an agreement to that effect between himself, partnership creditor,
and other partners
Liability of Estate of Deceased Partner:
Individual property of deceased partner shall be liable for all obligations of the partnership incurred while he was still partner
Individual creditors of deceased partner are preferred over partnership creditors with respect to separate property
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of
the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his
legal representative or his assignee, upon cause shown, may obtain winding up by the court. (n)

Winding Up, may be done either:
Judicially: under control and direction of proper court upon cause shown by any partner, his legal representative, or assignee
Extrajudicially: partners themselves without intervention of court
Action for liquidation of partnership: personal action; may be brought in the place of residence of either plaintiff or defendant
Persons Authorized to Wind Up:
Partners designated by agreement
Absence of agreement, partners who have not wrongfully dissolved partnership
Legal representative (executor or administrator) of last surviving partner (when all partners are dead), not insolvent
*court may appoint a receiver where such step is shown to be in the best interests of all persons concerned
*insolvent partner does not have right to wind up
When member of partnership dies, duty of liquidation devolves upon surviving members and not upon legal representative of
deceased partner
Powers of Liquidating Partner:
Make new contracts
-only for purpose of winding up the partnership
Raise money to pay partnership debts
Incur obligations to complete existing contracts or preserve partnership assets
Incur expenses necessary in the conduct of litigation
*in short, surviving partner has full authority to do every thing that may be necessary to wind up partnership affairs, but power is
limited to performance of act which are indispensable to that end
*estate of deceased partner is not liable for subsequent debts incurred by surviving partners without consent of the estate
Art. 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against
his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed,
may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount
owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership
agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the
second paragraph of Article 1835, he shall receive in cash only the net amount due him from the partnership.
When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the
agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same
name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that
purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay
any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less
any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against
all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a
partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this
article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-
partners and all claiming through them in respect of their interests in the partnership, to have the value of his
interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to
him in cash, or the payment secured by a bond approved by the court, and to be released from all existing
liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of
the business shall not be considered. (n)
Partner’s Lien: right of every partner, on a dissolution, against the other partners and persons claiming through them in respect of
their interest as partners, to have partnership property applied to discharge partnership liabilities and surplus assets, if any,
distributed in cash to the respective partners, after deducting what may be due to the firm from them as partners
Rights of Partner where Dissolution Not in Violation of Agreement:

Have partnership property applied to discharge liabilities of partnership
Have surplus, if any, applied to pay in cash the net amount owing to respective partners
*if dissolution caused by expulsion of partner, expelled partner may be discharged from partnership liabilities either by payment or
by agreement between him, partnership creditors, and other partners; his right is only to receive in cash the net amount due him
from the partnership
*if dissolution is proper or rightful, no partner is liable for any loss sustained as result of dissolution
Rights of Partner where Dissolution in Violation of Agreement:
Rights of Innocent Partner (has not caused dissolution wrongfully):
Have partnership property applied for payment of its liabilities and receive in cash his share in surplus
Indemnified for damages
Continue business in the same name during agreed term of partnership, by themselves or jointly with others
Possess partnership property, if they decide to continue business
Rights of Guilty Partner (wrongfully caused dissolution):
If business is not continued by other partners, have partnership property applied to discharge its liabilities and receive in cash his
share in surplus less damages
If business is continued, have value of his interest in partnership property less any damage ascertained and paid in cash or secured
by bond approved by court, and be released from all existing and future liabilities of partnership
Art. 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities
to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital
or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for
any payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of
the partnership. (n)
If one is induced by fraud or misrepresentation to become a partner, the contract is voidable or annullable.
If contract is annulled, injured partner is entitled to restitution.
But, until partnership contract is annulled by proper action in court, partnership relations exist
Rights of Injured Partner where Partnership Contract is Rescinded (Annulled):
Right of lien or retention of surplus of partnership property after satisfying partnership liabilities
Right of subrogation in place of partnership creditors
Right of indemnification by guilty partner
Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the
extent of the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership property and separate creditors on individual property, saving
the rights of lien or secured creditors.

(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in
the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
Equitable Lien or Quasi-Lien: partner has right to have debts owing to the partnership from his co-partners deducted from their
respective shares
Partner’s Lien: each partner is entitled to a share in the surplus property of the partnership, if any, in proportion to his interest in the
partnership
Rules in Settling Accounts between partners After Dissolution:
Assets of Partnership, include:
Partnership property, including goodwill
Contributions of partners necessary for payment of all liabilities
Order of Application of Assets
Owing to partnership creditors
Owing to partners other than for capital and profits
Owing for return of capital
If any partnership assets remain, distributed as profits to the partners in the proportion in which profits are to be shared
**End of Discussion (Atty E: topic for midterm will be up to what we discussed) (study codal of art 1842-1842 nonetheless)
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing
the business:
(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to
one or more of the partners and one or more third persons, if the business is continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues the business without liquidation of partnership affairs,
either alone or with others;
(3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and
2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any
assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons
who promise to pay the debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the
provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either alone or with others without
liquidation of the partnership affairs.
The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of
the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the
dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or
partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or
partnership. (n)
Art. 1841. When any partner retires or dies, and the business is continued under any of the conditions set forth in the preceding
article, or in Article 1837, second paragraph, No. 2, without any settlement of accounts as between him or his estate and the
person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or
partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an
amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal

representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under this article, as provided Article 1840, third paragraph. (n)
Art. 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up
partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence
of any agreement to the contrary. (n)
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