1.

Contract of Partnership

is a contract of two or more persons who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves. It may
also be formed by two or more persons for the exercise of a common profession.

2. Characteristics of a contract of partnership

a. Consensual – It is generally perfected by mere consent except if real property is contributed

wherein it becomes a formal or solemn contract that requires the contract of partnership to be
notarized and inventory of real property must be attached to the said public instrument.

b. Principal – It does not depend upon any other contract for its validity or existence.

C. Bilateral or Multilateral – It is entered into by two or more persons whose rights and
obligations are reciprocal.

d. Nominate – It has a special name given to it by law.

e. Preparatory – It is a means by which other contracts will be entered into as the partnership
pursues its business.

f. Onerous – The partners contribute money, property or industry to a common fund with the
intention of dividing the profits among themselves except in case of universal partnership which
is actually considered an indirect donation classified as gratuitous contract.

3. Essential requisites of partnership as a form of business organization

a. It must have a valid partnership contract either oral or written or in a private or public
instrument.

b. It must have a lawful object or purpose. The profits of unlawful partnership will be forfeited
in favor of the state.

c. It must have a mutual contribution of money, property or industry to a common fund.

d. It must be established for the common benefit or interest of the partners which is to obtain
profits and then to divide the profits among the partners.

4. Delectus Personae

means that a partner has a right to choose those whom he wants to be associated with the
partnership because it is based on trust and confidence. Admission of a third person as a
partner requires unanimous consent of all the partners because being a partner is purely
personal. Thus, a purchaser or assignee of an interest of an existing partner does not
automatically become a partner in an existing partnership without the unanimous consent of all
the partners. As a consequence, partnership as a form of business organization has no right of
succession.

5. Formality of contract of partnership

a. As a general rule, it may be in any form whether oral or written or private instrument or
public instrument because it is perfected by mere consent.

b. If immovable or real property is contributed, the contract of partnership must be notarized

and inventory of the said real property must be attached to the notarized contract of
partnership for the contract to be valid. It must also be registered to SEC in order to affect and
bind third persons.

c. If the contributed capital is at least P3,000 in money or personal property, the contract of
partnership must be notarized and registered with SEC in order to prejudice and affect third
persons but not for validity of the contract. Noncompliance with this formality will not affect the
liability of the partners to third persons as to the obligations of the partnership.

d. If the partnership is a limited partnership, a certificate of limited co-partnership must be

signed under oath by the partners and must be recorded with the SEC, otherwise the
partnership will be considered as a general partnership to creditors. Noncompliance with this
formality will make the limited partners as general partners to partnership creditors but they
will remain to be limited partners as to the partners themselves.

6. Cases that do not establish a partnership

a. Persons who are not partners to each other.

b. Co-ownership whether such co-owners do or do not share any profits made by the use of the
property.

c. Co-possession whether co-possessors do or do not share any profits made by the use of the
property.

d. Sharing of gross returns, whether or not the persons sharing them have a joint or common
right or interest in any property from which the returns are derived.

7. Generally, receipt by a person of share of the profits of a business is a prima facie

evidence that he is a partner. However, these are the exceptional instances when the
receipt by a person of a share of the profits of a business shall not be considered a prima
facie evidence that he is a partner in a business:

a. As a debt by installment or otherwise (lender)

b. As wages of an employee (employee)

c. As rent to a landlord (lessor)

d. As an annuity to a widow or representative of a deceased partner (widow or widower of a

deceased partner)

e. As interest on a loan, though the amounts of payment vary with the profits of the business
(lender)

f. As the consideration for the sale of a goodwill of a business or other property by installment
or otherwise (supplier)

i. Note: In order to be considered a partner in the business, the receipt by a person of share of
the profits of a business must be a return on investment.

8. Universal partnership of all present property

is a type of universal partnership wherein all the partners contribute all the property which
actually belonged to them to the common fund, with the intention of dividing the same among
themselves, as well as the profits which they acquire therewith.

9. Properties that shall belong to the common fund in a universal partnership of all
present property

a. Property belonging to the partners at the time of the constitution or perfection of the
partnership.

b.Profits that may be acquired from the present property.

c. Property acquired by each partner after the formation of the partnership if stipulated.

d. Profits and fruits from property acquired by each partner, even those from property acquired
by inheritance, legacy or donation after the formation of the partnership if stipulated.

i. Note: Property acquired by each partner from inheritance, legacy or donation after the
formation of the partnership will always be exclusive properties of the respective partners
despite stipulation that they will form part of common fund of universal partnership of all
present property.

10. Universal partnership of profits is a type of universal partnership whereby the common
fund comprises all that the partners may acquire by their work or industry during the
existence of the partnership.
11. Properties that shall belong to the common fund in a universal partnership of profits

a. Profits obtained by the partners by their work or industry during the existence of the
partnership.
b. The usufruct or use of the property belonging to each partner at the time of the constitution
of the partnership.

c. The profits and fruits from the properties mentioned in letter a and b.

d. The profits and fruits of the property acquired by each partner after the constitution of the
partnership but only if stipulated.

i. Note: Profits acquired by each partner by virtue of chance or lucrative title during the
existence of partnership is always exclusive property of respective partners despite stipulation
that they will form part of common fund of universal partnership of profits.

12. Persons who cannot enter into a universal partnership but can enter into a particular
partnership (Those persons prohibited to make donation to each other)

a. Husband and wife

b.Persons who were guilty of adultery or concubinage at the time of formation

c. Persons who were guilty of the same criminal offense

d. Public officer or his wife, descendants or ascendants and another person by reason of the
public officer’s position

13. In case Universal Partnership is entered into without specification as to the type of
Universal Partnership, it shall be disputably presumed to be a Universal Partnership of
Profits. Since Universal Partnership is a gratuitous contract of donation, the ambiguity
shall be interpreted in favor of least transmission of rights because Universal Partnership
of Profits involves lesser transmission of rights as compared to Universal Partnership of
All Present Property.
14. Particular partnership

is a partnership which has for its object determinate things, their use or fruits, or a specified
undertaking, or the exercise of a profession. Example of particular partnership is General
Professional Partnership like law firms and auditing firms.

15. Kinds of partnership

a. General partnership is a partnership where all the partners are liable up to the extent of their
separate property after the partnership assets have been exhausted.

b. Limited partnership is a partnership where there is at least one general partner who is liable
for partnership debts up to the extent of his separate property and at least one limited partner
who is liable for partnership debts up to the extent of his contribution in the partnership only.
c. Ordinary partnership is a partnership which actually exists among the partners as well as to
third persons.

d. Partnership by estoppel or nominal partnership is a partnership which in reality is not

partnership but is considered one with respect to those who, by reason of their conduct or
admission, are precluded from denying its existence.

e. Partnership by prescription is a partnership which is established by the lapsing of time.

f. De jure partnership is a partnership that exists both in fact and in law.

g. De facto partnership is a partnership that exists in fact but not in law.

h. Partnership with a fixed term is one for which a period for its duration is fixed by the
partners. Once the resolutory period or term arrives, the partnership is extinguished but the
partners may agree to convert it to a partnership at will instead of terminating it.

i. Partnership for a particular undertaking is one which is organized for a certain undertaking
which, when attained, will cause the termination of the partnership. However, the partners may
agree to convert it to a partnership at will instead of terminating it.

j. Partnership at will is one where no period is fixed by the parties for its duration.

k. Commercial Partnership or Business Partnership is a partnership formed by two or more

persons who bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves. It is subject to corporate income
tax.

l. General Professional Partnership is a partnership formed for the exercise of a common

profession such as law firms or auditing firms. It is a tax exempt entity in so far as Income Tax is
concern because it will be the practitioner partners themselves who will be liable to pay income
tax in their separate income tax returns for their share in net income of the general professional
partnership.

16. Kinds of partners

a. General partner is one who is liable for partnership debts up to the extent of his separate
property after all the assets of the partnership have been exhausted. He is present in every type
of partnership.

b. Limited partner is one who is liable for partnership debts but up to the extent only of his
capital contribution to the partnership. He may only contribute money and property but not
industry or service or labor. A limited part is always a capitalist partner.
c. General-limited partner is one who has all the rights and powers and is subject to all the
restrictions of a general partner, except that, in respect to his contribution, he shall have the
rights against the other members which he would have had if he were not also a general
partner.

i. Examples

1. Limited partner whose name is included in limited partnership’s name

2. Limited partner who was appointed as a managing partner

3. General partner exempted by the partners from liability to third persons for partnership
debts

d. Capitalist partner is one who contributes money or property to the common fund.

e. Industrial partner is one who contributes his services or industry or labor to the partnership.
He is classified as a general partner. He is liable for partnership debts up to the extent of his
separate property after the partnership assets have been exhausted but he can ask for
reimbursement from the general-capitalist partner because he is generally exempted from
partnership loss.

f. Capitalist industrial partner is one who contributes not only money or property but also his
industry or service or labor to the partnership.

g. Managing partner manages the business or affairs of the partnership.

i. Managing partner appointed in the articles of co-partnership

ii. Managing partner appointed in a separate document other than the articles of co-
partnership

h. Liquidating partner takes charge of the winding up of the affairs of the partnership after it is
dissolved.

i. Nominal partner or partner by estoppel is not actually a partner but who may

become liable as such to third persons because of his admission or silence or negligence

or misrepresentation.

j. Ostensible partner is one who is active in management of partnership business and known to
the public as a partner, such as by allowing his name to be included in the firm name. Ostensible
partner is both a managing partner and a named partner.

k. Secret partner is one whose connection with the partnership is kept from the public.
l. Silent partner is one who has no voice in the management of the business.

m. Dormant partner is who does not participate in the management of the business and not
known to the public as a partner. Dormant partner is both a secret partner and a silent partner.

n. Quasi-partner is one who is no longer a partner of business but has left his capital in the
business as loan. He receives interest on such as long as the loan is not paid off. He is a former
partner who becomes a creditor of the partnership.

o. Retiring partner is one who decided to leave the partnership after reaching the age of
retirement.

p. Withdrawing partner is one who decided to leave the partnership before reaching the age of
retirement for whatever reason.

q. Newly admitted partner refers to a partner accepted by the present partners in an existing
partnership. He is a liable like a limited partner for liabilities of the existing partnership prior to
his admission but he is liable like a general partner for liabilities of the existing partnership after
his admission.

r. Substituted limited partner is a person admitted to all the rights of a limited partner who has
died or has assigned his interest in a partnership.

17. Commencement of Juridical Personality of Partnership

a. From the date stipulated by the partners for the commencement of juridical personality of
partnership

b. In the absence of agreed date by the partners for the commencement of juridical personality
of partnership, from the moment of the execution of the contract or articles of co-partnership

18. Rules on Division of partnership profits

a. It should be divided based on a valid profit agreement.

b. In the absence of a valid profit agreement, the partnership profit will be divided as

follows:

i. The industrial partner shall first receive a just and equitable share in the profits before
distribution to capitalist partners. (Old Civil Code: The share of industrial partner is equivalent to
the share of the least capitalist partner.)

ii. The remaining profits after distribution to industrial partners of their just and reasonable
share in profits shall be distributed to the capitalist partners based on the following by order of
priority:
1. Capital contribution ratio of capitalist partners

2. In the absence of capital contribution ration, equally on the presumption that the capital
contribution of capitalist partners is equal

iii. In case of capitalist-industrial partner, he shall receive a just and equitable share in the profit
for being an industrial partner and then he shall also share in the remaining profits as a
capitalist partner on the basis of (1) capital contribution ratio of capitalist partners or (2) equally
with the capitalist partners.

19. Rules on Division of partnership losses

a. It should be divided based on a valid loss agreement.

b. In the absence of a valid loss agreement, the partnership losses will be divided as

follows:

i. The industrial partner shall be exempted from sharing in losses because his industry or labor
or service in the partnership is already his share in the losses. However, the industrial partner
may agree to share in the distribution of partnership losses based on a clear agreement because
he is a general partner.

ii. The losses shall be distributed to the capitalist partners only based on the

following by order of priority:

1. Profit agreement of capitalist partners

2. Capital contribution ratio of capitalist partners

3. Equally on the presumption that the contribution of capitalist partners is equal

iii. In case of capitalist-industrial partner, for being an industrial partner, he shall not share in the
losses but for being a capitalist partner he shall share in the losses on the basis of (1) profit ratio
of capitalist partners; (2) capital contribution ratio of capitalist partners; or (3) equally with the
capitalist partners.

20. Rules on Designation of Profits or Losses of Partnership by the Partners

a. The agreement as to the division of profits or losses must be mutually agreed upon by all
partners because of mutuality of contract.

b. The unilateral designation of profits or losses by a single partner without the consent or
approval by all the partners is void because it is violative of the concept of mutuality of

contract.
 21. Status of Stipulation excluding a partner from share in partnership profit or
partnership loss

a. Stipulation excluding any partner from share in partnership profit is void.

b. Stipulation excluding a capitalist partner from share in partnership loss is void.

c. Stipulation excluding an industrial partner from share in partnership loss is valid.

i. Pactum Leonina is a stipulation which excludes one or more of the partners from share in the
profits or losses.

22. Rules in case of designation of profits or losses by a third person as agreed by the
partners

a. If entrusted by the partners to a third person, it is binding upon the partners and may be
impugned only when it is manifestly inequitable.

b. If the designation by a third person is manifestly inequitable, it can no longer be impugned by

a partner who has begun to execute it.

c. If the designation by a third person is manifestly inequitable, it can no longer be impugned by

any partner if three months had already lapsed from the time he obtained knowledge thereof.

23. Prescriptive period to file an action to impugn or question the manifestly inequitable
sharing of partnership profits or losses designated by a third person

a. Within 3 months from the knowledge of such designation but it must be made before the
said partner executes it.

24. Rules on partnership management when a partner has been appointed manager in the
articles of co-partnership or at the time of execution of articles of co-partnership

a. The managing partner may execute all acts of administration despite the opposition of his
partners unless he acts in bad faith.

b. With just or lawful cause, the revocation of the power of the managing partner can be made
by the vote of the partners representing the controlling interest.

c. Without just or lawful cause, the revocation of the power of the managing partner can be
made only with the consent of all the partners including the managing partner.

i. Conclusion: The managing partner appointed in the articles of co-partnership may be

removed only by the controlling partner if there is a just or lawful cause. Thus, the agency is not
revocable at will by the principals.
25. Rules on partnership management when a partner has been appointed manager after the
partnership has been constituted or when the managing partners has been appointed in a
separate document other than articles of co-partnership

a. The managing partner may execute all acts of administration.

b. In case of opposition to the decision of the managing partner on acts of administration, the
partners representing the controlling interest may resort to voting for his removal as manager.

c. He may be removed with or without just cause by the vote of the partners representing the
controlling interest.

i. Conclusion: The managing partner appointed in a separate document other than the articles
of co-partnership may be removed by the controlling partner with or without just or valid cause.
Thus, the agency is revocable at will by the principals.

26. Rules of management when two or more partners have been appointed as managers

a. When there is a specification of their respective duties, each managing partner shall perform
only the duties specified in his appointment.

b. When there is no specification of their respective duties and there is no stipulation tha one
shall not act without the consent of the others, each one may separately execute all acts of
administration.

c. When there is no specification of their respective duties and there is no stipulation that one
shall not act without the consent of the others, the decision of the majority of the managing
partners shall prevail in case of opposition.

d. When there is no specification of their respective duties and there is no stipulation that one
shall not act without the consent of the others, the decision of the partner owning the
controlling interest (managing or nonmanaging) shall prevail in case of tie in voting.

e. When there is a stipulation that none of the managing partners shall act without the consent
of the others, the unanimous vote of all managing partners shall be necessary for the validity of
the acts. However, if there is imminent danger to the partnership involving an act of
administration, the absence of any of the managing partners may be alleged by the present
managing partners to justify the approval of act of administration despite the absence of one of
the managing partners.

27. Rules of management when the manner of management has not been agreed upon

a. All the partners shall be considered agents of the partnership or all of them are considered
mmanagers.
b. Whatever any of the partners may do alone shall bind the partnership.

c. In case of opposition of the other partners, the decision of the majority shall prevail and the
decision of the partners owning the controlling interest shall prevail in case of tie.

28. Sale or alteration of real or immovable property not classified as inventory of the
partnership

a. As a general rule the sale of real or immovable property not classified as inventory of the
partnership cannot be validly done by the managing partner alone even if it is favorable to the
partnership unless such transaction created estoppel against the partnership.

29. Acts of the partner that bind the partnership

a. Any act of a partner (managing or nonmanaging) for the purpose of the partnership business
provided the other person acted in good faith.

b. Any act of a partner (managing or nonmanaging) including the execution in the partnership
name of any instrument, for apparently carrying on in the usual way thebusiness of the
partnership of which he is a member provided the other person acted in good faith.

c. Any act of a partner (managing or nonmanaging) which is not apparently for the carrying on
of business of the partnership in the usual way but authorized by the other partners.

30. Acts of the partner that do not bind the partnership

a. Any act of partner (managing or nonmanaging) which is in the ordinary course of business of
the partnership wherein the partner exceeded his authority or acted in bad faith and the third
person acted in bad faith because he has knowledge that the partner exceeded his authority.

b. Any act of a partner (managing or nonmanaging) which is not in the ordinary course of
business of the partnership whether or not the third person has knowledge of lack of authority
of the partner.

31. Acts that are not considered for apparently carrying on in the usual way of business of the
partnership and may not be performed by a partner unless he is authorized by all the other
partners or these are acts which require unanimous vote of the partners because they are
considered acts of strict ownership or acts of strict dominion

a. Assignment of partnership property in trust for creditors or on the assignee’s promise to pay
the debts of the partnership.

b. Disposition of the goodwill of the business.

c. Acts which would make it impossible to carry on the ordinary business of the partnership.
d. Confession of judgment.

e. Entering into a compromise concerning a partnership’s claim or liability.

f. Submission of a partnership claim or liability to arbitration.

g. Renunciation of a claim of the partnership.

32. Right of industrial partner to engage in another business

a. An industrial partner cannot engage in any business for himself, unless the partnership
expressly permits him to do so.

b. Alternative remedies of the capitalist partner if the industrial partner engages in business
for himself without the express permission of the partnership

i. Exclude the industrial partner from the partnership with a right to damages; or

ii. Avail themselves of the benefits obtained from the business he engaged in with a right to
damages

33. Right of capitalist partner to engage in another business

a. The capitalist partner can engage in a business of different kind of that of the partnership
even without stipulation allowing him to do so and in a business of the same kind of that of the
partnership if there is a stipulation allowing him to do so.

b. Remedies available to injured partners when a capitalist partner engages in the same kind
of business of the partnership without stipulation allowing him to engage in that business

i. To ask the guilty capitalist partner to bring to the common fund any profits accruing to him
from the said transaction; and

ii. To ask the guilty capitalist partner to bear all the losses from the said transaction.

34. Nature of liability of a general partner, whether capitalist or industrial, for the partnership
debts

a. They shall be liable pro rata and subsidiarily with all their separate property and after all the
partnership assets have been exhausted.

35. Nature of liabilities of newly admitted partner for partnership debts

a. He 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 tothe contrary. (He is a
Limited Partner for Partnership Obligations arising before his admission)
b. He is liable pro-rata and subsidiarily for all obligations incurred after his admission as a
partner. (He is a General Partners for Partnership Obligations arising after his admission)

i. Note: A newly-admitted partner may become a pure general partner if he voluntarily assumes
the existing obligations of the partnership.

36. Exceptional cases wherein the partnership shall be liable directly and solidarily with all
the partners and wherein all partners are liable directly and solidarily with the partnership for
everything chargeable to the partnership

a. For loss or injury caused to a third person or any penalty incurred by reason of the wrongful
act or omission of any partner acting in the ordinary course of business of the partnership or
with the authority of his co-partners.

b. Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it.

c. Where the partnership in the course of business receives money or property of a third person
and such money or property is misapplied by any partner while it is in custody of the
partnership.

37. Effects of assignment or conveyance of partner’s interest to a third person

a. The associate or assignee or purchaser of partner's interest does not become anautomatic
partner of the partnership without the consent of the other partners because partnership
follows the principle of delectus personae meaning it is based on trust and confidence.

b. The partnership is not dissolved by the assignment of the said interest.

c. The associate or assignee or purchase of partner’s interest is entitled only to the share of the
assigning partner or assignor in the partnership profits and share of the assigning partner or
assignor in the net assets of the partnership at the date of liquidation.

38. General Obligations of a partner

a. In the absence of contrary agreement, to make equal capital contribution to the partnership.

b. Every partner 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. This obligation is mandatory and cannot be waived by stipulation to the
contrary.

c. 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.

d. To reimburse to the partnership the amount that he has taken from the partnership coffers
with interest from the time of conversion plus damages suffered by partnership by reason of the
conversion.

e. In case of imminent loss of the business of partnership, a partner has the obligation: (1) to
contribute additional share of capital to the partnership to save the venture unless (a) he is an
industrial partner or (b) he is a capitalist partner exempted by stipulation of partners or (2) to
sell his interest to the other partners if he refuses to contribute such additional capital.

f. To bring to the partnership capital his share of a partnership credit which he has received in
whole or in part even if he may have given his receipt if the other partners have not collected
their shares and the debtor becomes insolvent after the partner has received the payment.

g. To pay to the partnership for damages suffered by it through his fault but he cannot
compensate them with the profits and benefits which he may have earned for the partnership
by his industry. The court may equitably reduce or offset the liability for damages of the said
partner to the partnership if unusual profit has been realized by the partnership from his
extraordinary effort.

39. Obligations of a partner involving delivery of specific property he promises to contribute

a. To take care of the specific property before its delivery to the partnership with the diligence
of a good father of a family.

b. To deliver to the partnership specific property at the time it was constituted or to deliver to
the partnership on the date stipulated for delivery the said specific property he has promised to
contribute.

c. To be liable for the fruits of the specific thing from the time they should have been delivered
without the need of any demand.

d. To be liable for damages in case of default or delay in the delivery of specific property.

e. To answer for eviction in case the partnership is deprived of the specific or determinate thing
he has contributed to the partnership in the same manner as the vendor is bound with respect
to the vendee. Meanings, there is implied warranty against eviction by a partner with regard to
specific property he contributed to the partnership.

40. Obligations of a partner involving delivery of money he promises to contribute

a. To deliver to the partnership at the time it was constituted or on the date stipulated for
delivery the money he has promised to contribute.

b. To pay interest on the amount he had promised to contribute from the time he should have
complied with his obligation without need of any demand.

c. To pay damages suffered by the partnership by reason of the default or delay in the
contribution of money.

41. Rights of a general partner

a. Right to have the partnership books kept at the principal place of business of the partnership

b. Right at a reasonable hour to inspect and copy any of the partnership books

c. Right to have on demand true and full information of all things affecting the partnership

d. Right to a formal account (audit) of partnership affairs whenever circumstances render it just
and reasonable

e. Right to have dissolution and winding up by decree of court in cases provided by law.

f. Right to convert the partnership into a corporation.

g. Right to receive his share in net income of the partnership.

h. Right to receive his share in net assets of the partnership after the liquidation.

42. Instances wherein any partner shall have the right to a formal account (audit) of the
partnership affairs

a. If the partner is wrongfully excluded from the partnership business or possession of its
property by his co-partners.

b. If the right for formal accounting (audit) is provided under the terms of articles of co-
partnership.

c. If the other partner derived profits without the consent of other partners from any
transaction connected with the formation, conduct, or liquidation of the partnership or from
any use by him of its property.

d. Whenever the circumstances render formal accounting (audit) just and reasonable.

43. The partnership shall bear the risk of loss for the following contributions of partners

a. Fungible things or those that cannot be kept without deteriorating such as ink, alcohol or
gasoline or fuel.
b. Things contributed to be sold such as raw materials, work-in-process, finished goods or
merchandise inventory.

c. Things brought and appraised in the inventory such as property, plant and equipment or
investment property unless there is a stipulation to the contrary but the liability of the
partnership for the loss of the said property is limited only to the value of the property at which
they were appraised.

44. Liabilities or obligations of the partnership to the partners

a. 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 expenses are
made.

b. The partnership shall answer to each partner for the obligations he may have contracted in
good faith in the interest of the partnership business.

c. The partnership shall answer to each partner the risks as a consequence of its management.

45. Distinctions between partner’s right to specific partnership property and partner’s interest
in the partnership

As to nature of right, a partner’s right to specific partnership property pertains to his right to a
limited co-ownership over partnership property but a partner’s interest in the partnership
pertains to his share in the net income and net asset of the partnership

b. As to assignment of right, a partner cannot assign his partner’s right to specific partnership
property without the consent of all the partners but he can assign his partner’s interest in the
partnership despite the absence of consent by the other partners.

c. As to being subject to attachment, a partner’s personal creditor cannot attach a partner’s

right to specific partnership property but such personal creditor of the partner can attach the
partner’s interest in the partnership. Only the creditors of the partnership can attach the
properties of the partnership.

46. Rules for application of payment when a person owes separate demandable debts to the
partnership and to the partner authorized to receive payment also known as managing partner

a. If the claim of the partnership is not yet due but the claim of the managing partner is already
due, the payment shall be applied to the managing partner’s credit in its entirety.

b. If the debt owed to the managing partner is more onerous than the claim of the partnership,
the selection by the debtor of the more onerous debt as to the application of payment shall be
followed.
c. If both debts are due and demandable and the managing partner issues the receipt for the
partnership claim, payment shall be applied to the partnership credit in its entirety.

d. If both debts are due and demandable and the managing partner issues his own personal
receipt, payment shall be applied to the partnership credit and partner’s credit proportionately.

Note: The provisions of this article are understood to be without prejudice to the right granted
to the other debtor by article 1252 as regards to application of payment, but only if the personal
credit of the partner should be more onerous to him.

47. Rules for application of payment when a person owes separate demandable debts to the
partnership and to a partner not authorized to receive payment also known as non-managing
partner

a. If both debts are due and demandable and the nonmanaging partner issues his own personal
receipt, payment shall be applied to the nonmanaging partner's claim in its entirety.

b. If both debts are due and demandable and the nonmanaging partner issues the receipt for
the partnership claim, payment shall be applied to the partnership credit in its entirety.

48. An admission or representation made by any partner concerning partnership affairs within
the scope of his authority is evidence against the partnership. The following are the requisites
in order for an admission or representation of a partner to be used as evidence against the
partnership

a. The admission or representation must concern partnership affairs.

b. The admission or representation must be made within the scope of the authority of the
partner making the admission or representation.

c. The admission or representation must be made during the existence of the partnership.

49. As a general rule, notice to any partner of any matter relating to partnership affairs binds
the partnership. The following knowledge of a partner binds the partnership

a. The knowledge of a partner acting in the particular matter if he acquires the same while
already a partner.

b. The knowledge of a partner acting on a particular matter if he acquires it before his

admission to the partnership provided the same was still present on his mind.

c. The knowledge of any other partner not acting on a particular matter if he acquired the same
while already a partner and he could and should have reasonably communicated the same to
the partner acting on a particular matter.

50. Effect of misrepresenting as a partner but not in public

a. The nominal partner or partner by estoppel is liable pro-rata and subsidiarily like a general
partner only to the persons to whom such representation has been made, who has, on the faith
of such representation, given credit to the actual or apparent partnership.

51. Effect of misrepresenting as a partner in public

a. The nominal partner or partner by estoppel is liable pro-rata and subsidiarily like a general
partner to persons giving credit to the actual or apparent partnership whether the
representation has or has not been communicated to the latter.

52. Effects of Estoppel to the Partners and Partnership

a. 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.

b. 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.

53. Preference of credits of partnership creditors and partner’s personal creditors

a. The partner’s personal creditors have preference over the partner’s personal assets.
Partner’s separate creditors shall be paid out of the share of the partner owing him if there is an
excess in the partnership’s assets over partnership’s liabilities.

b. The partnership’s creditors have preference over the partnership’s assets. Partnership’s
creditors shall be paid out of separate assets of the partners if there is an excess in the partner’s
separate assets over partner’s separate liabilities.

54. Partnership Dissolution vs. Partnership Liquidation vs. Partnership Termination

a. Partnership Dissolution is the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the business. It does not automatically result to
the partnership liquidation and partnership termination.

b. Partnership Liquidation is the process of settling the disputes or affairs of the partnership
after the dissolution or the winding up of the partnership business.

c. Partnership Termination refers to the point when all the business or affairs of the partnership
are completely wound up.

55. Causes of dissolution of a partnership without violation of the agreement of the partners
a. By the termination of the definite term of the partnership in case of partnership with a fixed
term.

b. By the attainment of the particular undertaking specified in the agreement in case of a

partnership for a particular undertaking.

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 undertaking.

d. By the expulsion of any partner bona fide or in good faith from the business in accordance
with such power conferred by the agreement of the parties.

56. Automatic causes of dissolution of general partnership without need of court order

a. In contravention of the agreement between the partners, by the express will of any partner at
anytime such as withdrawing from the partnership.

b. When any event makes it unlawful for the business of the partnership to be carried on or for
the members to carry on partnership.

c. By the death of any partner.

d. By the insolvency of any partner.

e. By the insolvency of the partnership.

f. By the civil interdiction of any partner.

g. Loss before delivery of property where the partner contributed only its use or enjoyment or
in case of universal partnership of profits.

h. Loss after delivery of property where the partner contributed only its use or enjoyment or

i. Loss before delivery of specific thing, which a partner has promised to contribute to the
partnership or in case of universal partnership of all present property.

i. Note: Loss after delivery of specific thing, which a partner has promised to contribute to the
partnership or in case of universal partnership of all present property will not automatically
dissolve the partnership because in that case the partnership will suffer the risk of loss.

57. Grounds for court-ordered dissolution of general partnership also known as non-
automatic causes of dissolution of general partnership

a. A partner has been declared insane in any judicial proceeding or is shown to be of unsound
mind.
b. A partner becomes in any way incapable of performing his part in the partnership contract.

c. A partner has been guilty of such conduct as tend to affect prejudicially the carrying on of the
business.

d. A partner willfully or persistently commits a breach of the partnership contracts.

e. The business of the partnership can be carried only at a loss.

f. Other circumstances that render dissolution equitable.

58. Grounds for dissolution that will terminate all authority of any partner to act for the
partnership in so far as the partners themselves are concern but not as to third person

a. When the cause of dissolution is not by the act, insolvency or death of a partner.

b. When the cause of dissolution is by the act, insolvency or death of a partner, the person
acting had knowledge of dissolution, death or insolvency of a partner.

59. Ground for dissolution that will not terminate the authority of any partner to act for the
partnership

a. When the cause of dissolution is by the act, insolvency or death of a partner, the person
acting had no knowledge of dissolution, death or insolvency of a partner.

60. Proper order of payment of partnership liabilities and equity in General Partnership at the
time Liquidation

I. Those owing to the creditors other than partners. (Liabilities to Third Persons)

II. Those owing to partners other than for capital and profits. (Loans Payable to Partners)

III. Those owing to partners in respect of capital. (Capital Contribution of Partners)

IV. Those owing to partners in respect of profits. (Profit Share of Partners)

61. Proper order of payment of liabilities and equity of Limited Partnership in Liquidation.

I. Those owing to creditors, including limited partners for advances made to partnership.
(Liabilities to Third Persons and Loan Payable to Limited Partners)

II. Those owing to limited partners by way of their share of the profits and other compensation
by way of income on their contribution. (Profit Share of Limited Partners)

III. Those owing to limited partners in respect to the capital or their contributions.
(CapitalContribution of Limited Partners)
IV. Those owing to general partners other than for capital and profits. (Loans Payable toGeneral
Partners)

V. Those owing to general partners in respect to profits. (Profit Share of General Partners)

VI. Those owing to general partners in respect to capital. (Capital Contribution of General
Partners)

62. Form of Return of capital to limited partner in case of universal partnership of profits.

a. In the absence of agreement to the contrary, the limited partner has the right to demand and
receive cash in return for his contribution irrespective of the property he contributed.

63. Period for limited partner to demand from the limited partnership the return of his capital
contribution

a. On the dissolution of limited partnership

b. When the date specified in the certificate for the return of limited partner's capital
contribution has arrived

c. After the limited partner has six months' notice in writing to all other members, if no time is
specified

64. Order of priority of claims against the separate property of a partner who is insolvent or
whose estate is insolvent.

I. Those owing to separate creditors of the partner.

II. Those owing to partnership creditors.

III. Those owing to partners by way of contribution.

65. Order of Priority as to the Persons who have right or authority to liquidate or wind up the
partnership affairs

a. The liquidating partner agreed upon by the partners.

b. The partners who have not wrongfully dissolved the partnership.

c. The legal representative of the last surviving partner, not insolvent

66. Limited Partnership

is a partnership where there is at least one general partner, who is liable for partnership debts
up to the extent of his separate assets after the exhaustion of partnership assets, and there is at
least one limited partner, who is liable only for partnership debts up to the extent of his capital
contribution to the partnership only.
67. Formality of Limited Partnership

A certificate of limited co-partnership must be signed under oath by the partners and must be
recorded with the SEC for it to be considered a limited partnership.

68. Effect if there is no substantial compliance with the registration of certificate of limited co-
partnership with the SEC

a. The partnership will be considered a general partnership as to third persons. However, the
actual limited partners may ask for reimbursement from the actual general partners after
payment of liabilities of partnership to third persons.

69. Allowed contribution to be made by a pure limited partner

a. Cash

b. Personal property

c. Real property

Note: A limited partner is not allowed to contribute an industry or labor or service because an
industrial partner is always a general partner in so far as the creditors of the partnership are
concern.

70. As a general rule, the surname of a limited partner shall not appear in the limited
partnership name. The following are instances when the limited partner’s name may appear
in the partnership name without increasing the liability of such limited partner to a general
partner:

a. If the name of limited partner is also the surname of a general partner.

b. If prior to the time when the limited partner became such, the business has been carried on
under a name in which his surname appeared.

71. Effect if a limited partner’s name appears in the limited partnership name contrary to
allowed instances provided by law

a. The limited partner is liable pro-rata and subsidiarily like a general partner to partnership
creditors who extend credit to the partnership without actual knowledge that he is not a
general partner but he can ask for reimbursement from actual general partners.

72. Instances when a limited partner is liable pro-rata and subsidiarily like a general partner
to the partnership creditors althoughhe may ask for reimbursements from the actual general
partners after payment to the partnership creditors.
a. If he allows his name to be included in the partnership name contrary to allowed instances of
law.

b. If he takes part in the control or management of the business.

73. A general partner shall have all the rights and powers and be subject to all the restrictions
and liabilities of a partner in a partnership without limited partners. However, the following
acts can only be made by a general partner if there is writtenconsent or ratification by all the
limited partners

a. Do any act in contravention of the certificate of limited co-partnership

b. Do any act which would make it impossible to carry on the ordinary business of the
partnership

c. Confess a judgment against the partnership

d. Possess partnership property, or assign their rights in specific partnership property, for other
than a partnership purpose

e. Admit a person as a general partner

f. Admit a person as a limited partner, unless the right so to do is given in the certificate of
limited co-partnership

g. Continue the business with partnership property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner, unless the right so to do is given in the certificate

74. Rights enjoyed by a limited partner which are also enjoyed by a general partner

a. Right to have the partnership books kept at the principal place of business of the partnership

b. Right at a reasonable hour to inspect and copy any of them any partnership book

c. Right to have on demand true and full information of all things affecting the partnership

d. Right to a formal account of partnership affairs whenever circumstances render it just and
reasonable

e. Right to have dissolution and winding up by decree of court.

f. Right to receive his share in net income.

g. Right to receive his share in net assets after the liquidation.

75. Nature of Limited Partner's Interest - Limited partner's interest is assignable.

76. Substituted Limited Partner

refers to the person admitted to all the rights of a limited partner who has died or has assigned
his interest in a partnership.

77. As a general rule, assignee of a limited partner is not a substituted limited partner. The
following are the instances when an assignee of a limited partner may become a substituted
limited partner

a. If all the members of the partnership consent thereto.

b. If the assigning limited partner or assignor is empowered to admit the assignee as substituted
limited partner as provided in the certificate of limited co-partnership and gives the assignee
that right.

c. When the articles of certificate of co-partnership is appropriately amended in accordance

with law.

78. Principles in Limited Partnership

a. A person may be a general partner and a limited partner in the same partnership at the same
time, provided that this fact shall be stated in the certificate of limited co-partnership.

b. A person who is a general, and also at the same time a limited partner, shall have all the
rights and powers and be subject to all the restrictions of a general partner; except that, in
respect to his contribution, he shall have the rights against the other members which he would
have had if he were not also a general partner.

c. A limited partner may also loan money to and transact other business with the partnership,
and, unless he is also a general partner, receive on account of resulting claims against the
partnership, with general creditors, a pro rata share of the assets.

d. A limited partner who has made a loan to the partnership may not receive or hold as
collateral security any partnership property for his claim to the partnership

e. A limited partner may not receive from a general partner or the partnership any payment,
conveyance, or release from liability if at the time the assets of the partnership are not
sufficient to discharge partnership liabilities to persons not claiming as general or limited
partners.

79. Instances when a certificate of articles of limited co-partnership must be cancelled

a. When the limited partnership is dissolved.

b. When all limited partners cease to be such.

80. Instances when certificate of limited co-partnership may be amended only but not
cancelled
a. There is a change in the name of the partnership or in the amount or character of the
contribution of any limited partner

b. A person is substituted as a limited 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 despite the death, retirement, insanity, civil
interdiction or insolvency of a general partner based on the authority given in the articles of
limited co-partnership

f. There is a change in the character of the business of the partnership

g. There is a false or erroneous statement in the certificate

h. There is a change in the time as stated in the certificate for the dissolution of the partnership
or for the return of a contribution

i. A time is fixed for the dissolution of the partnership, or the return of a contribution, notime
having been specified in the certificate

j. The members desire to make a change in any other statement in the certificate in order that it
shall accurately represent the agreement among them

81. Liquidation of a Limited Partnership

a. Limited partners are liable to the limited partnership’s liabilities but only up to the extent of
their capital contribution to the partnership only.

b. The general limited partners are liable pro-rata and subsidiarily to limited partnership’s
liabilities up to the extent of their separate assets after the exhaustion of partnership’s assets
but they may ask for reimbursements from the pure general partners after payment to the
partnership creditors.

c. General partners are liable pro-rata and subsidiarily to limited partnership’s liabilities up to
the extent of their separate assets after the exhaustion of partnership’s assets.

82. Distinctions between general partnership and private corporation

a. As to mode of creation, general partnership is created by mere consent while a private

corporation is created by operation of law.
b. As to liability of the owners, general partners are generally liable up to the extent of their
separate properties while stockholders are generally liable only up to the extent of their capital
contribution.

c. As to management, general partnership is generally managed by the partners themselves

while private corporation is managed by the Board of Directors.

d. As to concept of dissolution, dissolution of a general partnership is a change in the

relationship among the partners while dissolution of a private corporation is the end of the life
of a corporation.

e. As to impact of dissolution to liquidation, dissolution of a general partnership does not

automatically result to partnership liquidation while dissolution of a private corporation
generally results to corporate liquidation.

f.As to right of succession, general partnership has no right of succession while private
corporation has right of succession.

g. As to the number of organizers, a general partnership requires at least two (2) organizers
while a corporation may be organized by a single (1) incorporator.

h. As to powers, a general partnership’s power is subject only to what may be agreed upon by
the partners while a corporation is more restricted in its powers because of its
limitedpersonality.

i. As to authority of those who compose, there is mutual agency in general partnership and
each general partner can represent and bind the general partnership while stockholders in a
corporation are not agents of the corporation in the absence of express authority.

j. As to transfer of interest, interest in the general partnership cannot be transferred without

the consent of the other partners while corporate shares in a corporation are freely transferable
without the consent of other stockholders unless there is right of refusal.

k. As to capacity to be a partner/stockholder (incorporator), A general partnership can be a

stockholder/incorporator and a corporation can also now be a partner in a partnership.