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PARTNERSHIP REVIEWER
University of The Philippines

PARTNERSHIP
it is a CONTRACT whereby two or more persons (1) bind
themselves to CONTRIBUTE money, property, or industry to a COMMON
FUND (2) with the intention of dividing the PROFITS among themselves
or in order to EXERCISE a PROFESSION
a STATUS and a FIDUCIARY RELATION subsisting between
persons carrying on a business in common with a view on profit
CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP
[C, C, L, I, AS, NP]
1. CONSENSUAL
perfected by mere consent
2. CONTRIBUTION of money, property or industry to a COMMON FUND
3. object must be a LAWFUL one
4. INTENTION of DIVIDING the PROFIT among the PARTNERS
5. AFFECTIO SOCIETATIS
the desire to formulate an ACTIVE UNION, with people among
whom there
exist a mutual CONFIDENCE and TRUSTS
6. NEW PERSONALITY
the object must be for profit and not merely for the common
enjoyment otherwise only a co-ownership has been formed.
HOWEVER, pecuniary profit need not be the only aim, it is
enough that it is the principal purpose
BUSINESS TRUSTS
when certain persons entrust their property or money to others
who will manage the same for the former
RULES ON CAPACITY TO BECOME A PARTNER
1. a person capacitated to enter into contractual relations may
become a partner
2. an UNEMANCIPATED MINOR CANNOT
UNLESS his parent or guardian consents

become

partner

3. a MARRIED WOMAN, cannot contribute conjugal funds as her


contribution to the partnership UNLESS she is permitted to do so
by her husband OR UNLESS she is the administrator of the
conjugal partnership, in which the COURT must give its consent
authority
4. a PARTNERSHIP being a juridical person by itself can form
another partnership
5. a CORPORATION cannot become a partner on grounds of public
policy
a partner shares not only in profits but also in the losses of the
firm
RULE:
the partnership has a PERSONALITY SEPARATE and DISTINCT
from that of each partner
CONSEQUENCES OF THE PARTNERSHIP BEING A JURIDICAL
ENTITY
1. its juridical personality is SEPARATE and DISTINCT from that of
each partner
2. the partnership CAN in GENERAL:
A) acquire and possess property of all kinds
B) incur obligations
C) bring civil and criminal actions
D) can be adjudged insolvent even if the individual members
be each financially solvent
3. unless he is generally sued, a partner has no right to make a
separate appearance in court, if the partnership being sued is
already represented
LIMITATIONS ON ALIEN PARTNERSHIP
1) if 60% capital is not owned by Filipinos

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the firm cannot acquire by purchase or otherwise
AGRICULTURAL Philippine lands
2) foreign partnership may lease lands provided the period does not
exceed 99 years
3) foreign partnership may be MORTGAGEES of land
period of 5 years, renewable for another 5 years
they cannot purchase it in a foreclosure sale
RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY ORGANIZED AS
PARTNERSHIP
1. it possesses NO LEGAL PERSONALITY
it cannot sue as such HOWEVER, the partners in their
individual capacity CAN
2. one who enters into a contract with a partnership as such cannot
when sued later on for recovery of the debt, allege the lack of
legal personality on the part of the firm, even if indeed it had no
personality
ESTOPPEL
whether a partnership has a juridical personality or not
depends on its PERSONAL LAW of the partnership or the law of the place
where the partnership was organized
REQUISITES FOR EXISTENCE OF PARTNERSHIP [I, CF, JI]
1. INTENTION to create a partnership
2. COMMON FUND obtained from contributions
3. JOINT INTERESTS in the PROFITS
WHAT DO NOT ESTABLISH A PARTNERSHIP
1. mere co-ownership or co-possession
even with profit sharing
2. mere sharing of GROSS returns
even with joint ownership of the properties involved
RULES TO DETERMINE THE EXISTENCE OF A PARTNERSHIP
1.

persons who are not partners to each other are not partners as to
third persons
EXCEPTION:

PARTNERSHIP BY ESTOPPEL
2.

CO-OWNERSHIP of a property does not itself establish a


partnership, even though the co-owners share in the profits
derived from the incident of joint ownership

3.

SHARING OF GROSS RETURNS ALONE does not indicate 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 of the share in the profits is a strong presumptive


evidence of partnership HOWEVER, no such inference will be
drawn if such profits were received in payment
A) as a DEBT by installments or otherwise
B) as WAGES of an employee
C) as RENT to a landlord
D) as an ANNUITY to a widow or representative of a
deceased partner
E) as INTEREST on a LOAN, though the amount of payment
vary with the profits of the business
F) as the CONSIDERATION for the sale of a GOOD WILL of a
business or other property or otherwise
creditors are not partners, for their only interest in the
sharing of profits is the receipt or payment of their credits
in a partnership, the partners are supposed to trust and
have confidence in all the partners

PARTNERSHIP BY ESTOPPEL
IF 2 persons not partners represent themselves as partners to
strangers, a partnership by estoppel results
WHEN 2 persons, who are partners, in connivance with a
friend who is not a partner inform a stranger that said friend is their
partner, a partnership by estoppel also result to the end that the stranger
should not be prejudiced
RULE: LAWFUL OBJECT or PURPOSE

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a partnership must have LAWFUL OBJECT or PURPOSE, and
must be established for the common benefit or interest of the partners
it must be within the commence of man, possible and not
contrary to law, morals, good customs, public order or public policy
IF a partnership has SEVERAL PURPOSES, one of which is
UNLAWFUL, the partnership can still validly exist so long as the illegal
purpose can be separated from the legal purposes
NO need for JUDICIAL DECREE to dissolve an unlawful
partnership
VOID AB INITIO

when there are conditions to be fulfilled or when a certain


period is to lapse, the partnership is not created till after the fulfillment
of the conditions or the arrival of the term and this is true even if one of
the parties has already advanced his agreed share of the capital
RULE: if CAPITAL is P3,000 or more
REQUIRED:
1. PUBLIC INSTRUMENT
2. RECORDED S.E.C.
* FAILURE TO COMPLY shall not effect the liability of the partnership
and its members to third persons

one of the causes for the dissolution of a partnership is any


event which makes it unlawful for the business of the partnership to be
carried on

** IF REAL PROPERTIES have been contributed, REGARDLESS of the


VALUE, a public instrument is needed for the attainment of legal
personality

RULE:
when an UNLAWFUL PARTNERSHIP is dissolved by a judicial decree,
the PROFITS shall be CONFISCATED in FAVOR of the STATE

REQUIREMENTS WHERE IMMOVABLE / REAL PROPERTY IS


CONTRIBUTED
1. PUBLIC INSTRUMENT
2. INVENTORY signed and attached to the P.I.
* applies regardless of the value of the real property
* applies even if only real rights over the real property are
contributed
* applies if aside from real property, cash or personal property
is
contributed

G. R.
a partnership may be constituted in any form
EXCEPTION: PUBLIC INSTRUMENT
1. IMMOVABLE PROPERTY is contributed
2. REAL RIGHTS are contributed
*

need for INVENTORY of IMMOVABLES

** for EFFECTIVITY of the partnership contract insofar as


innocent third persons are concerned the same must be
REGISTERED if REAL PROPERTIES are INVOLVED
a partnership contract is NOT CONVERED by the STATUTE of
FRAUDS
an AGREEMENT TO FORM a partnership does not itself create
a partnership

TRANSFER of land to the partnership must be duly recorded in the


ROD to make the transfer effective insofar as third persons are
concerned
RULE:
any immovable property or an interest therein maybe acquired in the
partnership
name
title so acquired can be conveyed only in the partnership name

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IF the partnership has ALIENS, it CANNOT OWN LANDS, whether
public or private or whether agricultural or commercial EXCEPT through
HEREDITARY SUCCESSION

LIMITATIONS ON ACQUISITION
1. AGRICULTURAL LANDS 1024 HECTARES
2. lease of public lands (GRAZING) 2000 HAS.
RULES

1.
2.
3.
4.
5.

IF

A) articles are kept secret among the members


B) any one of the members may contract in his own
name with third persons
NOT a partnership NOT a LEGAL PERSON
it may be sued by third person under the common name it uses
it cannot sue as such and cannot be ordinarily be a party to a
civil action
insofar as innocent third parties are concerned
the parities can be considered as members of a partnership
as between themselves or insofar as third persons are prejudiced
only the rules of co-ownership must apply

EFFECT OF CERTAIN TRANSACTIONS


1. contracts entered into by a partner in his own name may be
sued upon still by him in his individual capacity, not
withstanding the absence of a partnership
2. when two or more individuals, having a common interests in a
business bring a court action, it should be presumed that they
prosecute the same in their individual capacity as co-owners and
not in behalf of a partnership which does not exist in legal
contemplation
CLASSIFICATION OF PARTNERSHIPS
A) ACCORDING TO MANNER OF CREATION
1. ORALLY constituted
2. constituted in a PRIVATE INSTRUMENT
3. constituted in a PUBLIC INSTRUMENT
4. REGISTERED S.E.C.
B) ACCORDING TO OBJECT

1. UNIVERSAL
2. PARTICULAR
C) ACCORDING TO LIABILITY
1. LIMITED PARTNERSHIP
2. GENERAL PARTNERSHIP
D) ACCORDING TO LEGALITY
1. LAWFUL OR LEGAL
2. UNLAWFUL OR ILLEGAL
E) ACCORDING TO DURATION
1. for a SPECIFIC PEIOD or FIXED PERIOD
2. PARTNERSHIP AT WILL
F) ACCORDING TO REPRESENTATION TO OTHERS
1. ORDINARY PARTNERSHIP
2. PARTNERSHIP BY ETOPPEL
G) AS TO LEGALITY OF EXISTENCE
1. DE JURE PARTNERSHIP
2. DE FACTO PARTNERSHIP
H) AS TO PUBLICITY
1. SECRET PARTNERSHIP
2. NOTORIOUS / OPEN PARTNERSHIP
I) AS TO PURPSE
1. COMMERCIAL / TRADING
2. PROFESSIONAL / NON-TRADING

GENERAL PARTNERSHIP
one where all the partners are general partners
they are LIABLE even with respect to their individual properties, after
the assets of the partnership has been exhausted
LIMITED PATNERSHIP
one where at least one partner is a general partner and the others are
limited partners
one whose liability is limited only up to the extent of his contribution
a partnership where all the partners are limited partners cannot exist as
a limited partnership
REFUSED REGISTRATION

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IF it continuous as such, it will be considered as a general
partnership and all the
partners will be general partners
KINDS OF UNIVERSAL PARTNERSHIP
1. PARTNERSHIP OF ALL PRESENT PROPERTY
2. PARTNERSHIP OF ALL PROFITS

*UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY


CONTRIBUTION of
1. ALL the properties actually belonging to the partners
2. the PROFITS acquired with said property
BECOMES COMMON PROPERTY
EXCEPT all FUTURE PROPERTY
FRUITS of FUTURE PROPERTY INCLUDED
STIPULATED UPON

a universal partnership is virtually a donation to each other of the


partners properties or at least their usufruct

PARTICULAR PARTNERSHIP
a particular partnership has for its OBJECT:
1. DETERNMINATE THINGS their use or fruits
2. SPECIFIC UNDERTAKING
3. EXERCISE of a PROFESSION or VOCATION

IF

*UNIVERSAL PARTNERSHIP OF PROFITS


comprises all that the partners may acquire by the INDUSTRY or
WORK of the partners become common property regardless of within said
profits were obtained through the usufruct contributed
EXCEPT PRIZES and GIFTS
RULE:
articles of universal partnership, entered without specification of its
nature, only constitute a universal partnership of PROFITS
RULE:
persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership
WHO:
1. HUSBAND and WIFE
2. those guilty of ADULTERY or CONCUBINAGE
3. those guilty of the same criminal offense if the partnership was
entered into in consideration of the same
while spouses cannot enter into a universal partnership, they can enter
into a particular partnership or be members thereof

OBLIGATIONS OF THE PARTNERS


RULE:
a PARTNERSHIP BEGINS from the moment of the EXECUTION of the
CONTRACT
* even if contributions have not yet been made the firm already exists,
for partnership is a consensual contract
DURATION OF PARTNERSHIP
UNLIMITED
* MAY BE AGREED UPON
1. EXPRESSLY definite period
2. IMPLIEDLY upon achievement of its purpose
PARTNERSHIP AT WILL
a partnership wherein its continued existence really depends upon the
will of the partners or even on the will of any of them
2 KINDS:
1. when there is no term, express or implied
2. when it is continued by the habitual managers although the
period has ended or the purpose has been accomplished
3 IMPORTANT DUTIES OF EVERY PARTNER [C, D-F, W]
1. duty to CONTRIBUTE what had been promised
2. duty to DELIVER the FRUITS of what should have been delivered
3. duty to WARRANT

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RIULES ON THE DUTY TO CONTRIBUTE
1. the contribution must be made at the time the partnership is
entered into UNLESS a different period is stipulated
2. no demand is needed to put the partner in default
3. the partner must exercise due diligence in preserving the
property to be contributed before he actually contributes the
same
4. a partner who promises to contribute to the partnership becomes
a promissory debtor of the partnership
RULES ON THE DUTY TO DELIVER THE FRUITS
1. IF property has been promised, the fruits thereof should also be
given

RULE WHEN CONTRIBUTION CONSISTS OF GOODS


APPRAISAL of VALUE is needed to determine how much was
contributed
HOW APPRAISAL MADE
1. as PRESCRIBED in the CONTRACT
2. in default, by EXPERTS chosen by the partners, and at
CURRENT PRICES
* necessity of the INVENTORY APPRAISAL
RULE on RISK of LOSS
after goods have been contributed, the partnership bears the risk of
subsequent changes in the value

2. the fruits referred to are those arising from the time they should
have been delivered, without a need of any demand

RULE:
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

3. IF the partner is in BAD FAITH, he is liable not only for the fruits
actually produced, BUT also for those that could have been
produced
4. IF MONEY HAS BEEN PROMISED, INTEREST and DAMAGES
from the time he should have complied with his obligation should
be given

CAPITALIST PARTNER
one who FURNISHES CAPITAL
* NOT EXEMPTED from LOSSES
* he can engage in other business PROVIDED there is no
competition between the partnership and his business
* share in the profits according to agreements

5. NO DEMAND is needed to put the partner in default

INDUSTRIAL PARTNER
one who FURNISHES INDUSTRY or LABOR
* he is EXEMPTED from LOSSES as between the partner BUT
liable to strangers without prejudice to reimbursement from the
capitalist partner
* he CANNOT engage in any other BUSINESS WITHOUT the
express CONSENT of the other partners, OTHERWISE
1. he can be EXCLUDED from the firm
- plus damages
OR
2. the BENEFITS he obtains from the other businesses CAN BE
AVAILED of by the other partners
plus damages

6. it is DELIVERY,
OWNERSHIP

actual

or

constructive

that

TRANSFERS

RULES ON THE DUTY TO WARRANT


1. the warranty in case of eviction refers to specific and determinate
things already contributed
2.

there is EVICTION whenever by a final judgment based on a right


prior to the sale or an act imputable to the partner, the
partnership is deprived of the whole or a part of the thing
purchased

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whether or not there is COMPETITION
* in computing always look for ----- NET PROFITS
----- NET LOSSES
CAPITALIST INDUSTRIALIST PARTNER
one who contributes BOTH CAPITAL and INDUSTRY
GENERAL PARTNER
one who is liable beyond the extent of his contribution
LIMITED PARTNER
one who is liable only to the extent of his contribution
*** an industrial partner can only be a general partner, never a limited
partner
MANAGING PARTNER
one who manages actively the firms affairs
SILENT PARTNER
one who does not participate in the management, though he shares in
the PROFITS or LOSSES
LIQUIDATING PARTNER
one who winds up or liquidates the affairs of the firm after it has been
dissolved
OSTENSIBLE PARTNER
one whose connection with the firm is public and open
SECRET PARTNER
one whose connection with the firm is concealed or kept secret
DORMANT PARTNER
one who is both a secret (hidden) and silent (not managing) partner
NOMINAL PARTNER
one who is not really a partner BUT who may become liable as such
insofar as third persons are concerned

RULE:
partners shall CONTRIBUTE EQUAL SHARES to the capital of the
partnership
* it is permissible to contribute UNEQUAL SHARES IF there is a
stipulation to this effect
* in the absence of proof, the shares are presumed to be equal
CONDITIONS before a capitalist partner is obliged to sell his
shares / interest to the other partners [IL, RC, NA]
1. if there is IMMINENT LOSS of the BUSINESS of the partnership
2. he REFUSES to
CAPITAL

CONTRIBUTE an ADDITIONAL SHARE to the

3. there is no agreement to the contrary


* INDUSTRIAL PARTNER IS EXEMPTED

*RULE if MANAGING PARTNER COLLECTS A CREDIT


REQUISITES:
1. existence of at least 2 debts ---- PARTNERSHIP
---- PARTNER
2. both sums are demandable
3. the collecting partner is the managing partner
* the sum thus collected shall be applied to the two credits in
proportion to their amounts
RULE:
* where a partner receives his share in the partnership credit
CONDITIONS:
1. a partner has received his share in the partnership credit in
whole or in part

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2.
3.

the other partners have not collected their part of the credit
the debtor subsequently becomes INSOLVENT

RULE: - the partner shall be obliged to bring to the partnership


capital what he received even though he may have given receipt for
his share only

RULE on RESPONSIBILITY of the FIRM

* DOES NOT APPLY when debt was collected after dissolution of the
partnership

1. to REFUND amounts disbursed on behalf of the firm plus legal


interest from the time expenses where made

RULE:
* every partner is responsible to the partnership for damages suffered
by it through his fault

2. to ANSWER to each partner for OBLIGATIONS he may have


entered into in good faith in the interest of the partnership, as
well as the risks in consequence of its management

* he cannot compensate them with the profits and benefits, which


he may have earned for the partnership by his industry

* REFUND must be made even in case of failure of the enterprise


entered into, provided the partner is not at fault
* AMOUNT DISBURSED does not refer to the ORIGINAL CAPITAL

* the courts may equitably lessen his responsibility

RES PERIT DOMINO


*RULES ON WHO BEARS THE RISK OF LOSS
1.

if SPECIFIC and DETERMINATE THINGS NOT FUNGIBLE whose


USUFRUCT is enjoyed by a firm
the PARTNER who OWNS it bears the loss for ownership was
never transferred to the firm
2.

FUNGIBLE or DETERIORABLE
FIRM bears the loss for it is evident ownership was transferred

*HOW PROFITS ARE DISTRIBUTED


1. according to AGREEMENT
2. IF NONE, according to amount of CONTRIBUTION
*HOW
1.
2.
3.

LOSSES are DISTRIBUTED


according to AGREEMENT as to losses
IF NONE, according to agreement as to PROFITS
IF NONE, according to amount of CONTRIBUTION

* an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE


share in the profits

3.

*RULE on INDUSTRIAL PARTNERS LIABILITIES


- may be held liable by third persons BUT he may recover what he has
paid from the other capitalist partners

4.

*RULE on DESIGNATION by THIRD PERSON of SHARES in PROFITS


and LOSSES
* third person is NOT a PARTNER -- appointed to only distribute shares

THINGS CONTRIBUTED to be SOLD


FIRM bears the loss for evidently the firm was intended to be
the owner

sale

CONTRIBUTED under APPRAISAL


FIRM bears the loss because this has the effect of an implied

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* the designation of shares by third persons may be IMPUGNED, IF it is
MANIFESTLY INEQUITABLE
* the designation of shares by third persons CANNOT be IMPUGNED
EVEN IF MANIFESTLY INEQUITABLE IF:
1. the aggrieved partner has already BEGUN to EXECUTE the
decision
2. the aggrieved partner has not IMPUGNED the distribution within
3 months he had knowledge
*RULE IF APPOINTMENT OTHER THAN in the ARTICLES of
PARTNERSHIP
1. power to act may be REVOKED at ANY TIME with or without just
cause
REMOVAL should be done by the controlling interest
2. EXTENT of POWER
as long as he remains manager, he can perform all acts of
administration
BUT if others oppose and he persists, he can be removed
*RULE WHEN there are 2 or MORE MANAGERS
CONDITIONS:
1. 2 or more partners are managers
2. there is no specification of respective duties
3. there is no stipulation requiring UNANIMITY
SPECIFIC RULES:
1. each may separately execute all acts of administration
UNLIMITED POWER to ADMINISTER
2. IF any of the managers OPPOSE
MAJORITY RULE
IN CASE OF A TIE
- persons owning controlling interest prevail provided they are
also managers
* right to oppose is not given to NON-MANAGERS
* OPPOSITION should be done BEFORE the acts produce legal effects
insofar as third persons are concerned

RULE WHEN UNANIMITY is REQUIRED


1. the CONCURRENCE of all shall be necessary for the validity of
the acts
2. the ABSENCE or DISABILITY of ANYONE of them CANNOT BE
ALLEGED UNLESS there is imminent danger of grave or
irreparable injury to the partnership
RULE ON DUTY of THIRD PERSONS
third persons are not required to inquire as to whether or not a partner
with whom he transacts has the consent of all the managers
*RULES to be observed when the manner of management has not
been agreed upon:
1. all the partners are considered AGENTS
whatever any one of them may do alone shall not bind the
partnership
2. IF the acts of one are opposed by the rest, the majority shall
prevail
3. when a partner acts in his OWN NAME, he does not bind the
partnership
4. authority to bind the firm does not apply if somebody else has
been given authority to manage in the articles of organization or
through some other means
5. ALTERATIONS REQUIRE UNANIMITY
- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is prejudicial to the
interest of the partnership
- COURTS INTERVENTION may be sought
RULES on ASSOCIATE of PARTNER
1. every partner may associate another person with him in his
share

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2. for a partner to have an associate in his share
consent of all the other partners is NOT REQUIRED
3. for the associate to become a partner
ALL MUST CONSENT

RULES on PARTNERSHIP BOOKS


1. kept at the principal place of business of the partnership
2. at any reasonable hour, every partner shall have access to and
may inspect and copy any of them
DUTY of PARTNERS TO GIVE INFORMATION
good faith not only requires that a partner should not make any FALSE
CONCEALMENT, BUT he should abstain from all concealment
DUTY to ACCOUNT [B, P, U-P]
every partner must account to the partnership
1. any benefit acquired
2. any profits received
3. any use of partnership property
RIGHT TO DEMAND a FORMAL ACCOUNT
any partner shall have the right to a formal account as to partnership
affairs
1. if wrongfully excluded from partnership BUSINESS
2. if wrongfully excluded from partnership PROPERTY by his copartners
3. if the right exists under the terms of agreement
4. if the other partner receives other benefits, profits or uses
partnership property
5. whenever other circumstances render it just and reasonable
* the right to demand an accounting exists as long as the partnership
exists
* prescription begins to run only upon the dissolution of the
partnership when the final accounting is done

PROPERTY RIGHTS OF PARTNERS [P, I, M]


1. rights in specific PARTNERSHIP PROPERTIES
2. INTERESTS in the PARTNERSHIP
3. right to PARTICIPATE in the MANAGEMENT
RULE:
* a partner is CO-OWNER with his partners of SPECIFIC PARTNERSHIP
PROPERTY
* RIGHTS of a PARTNER in SPECIFIC PARTNERSHIP PROPERTY
1. he has equal rights with his partners to POSSESS the property
BUT only for PARTNERSHIP PURPOSES
he may possess such property for other purposes PROVIDED
the other partners expressly or impliedly gives their CONSENT
2. he CANNOT ASSIGN his right to the property EXCEPT if all the
other partners assign their rights in the same property
3. his right to the property is NOT SUBJECT to ATTACHMENT or
EXECUTION, EXCEPT on a claim against partnership
4. his right to the property is NOT SUBJECT to LEGAL SUPPORT
* if there is PARTNERSHIP DEBT, the specific property can be attached

RULE:
* a PARTNERS INTEREST in the partnership is his SHARE of the
PROFITS and SURPLUS
IT CAN BE: [A, A, LS]
1. ASSIGNED
2. ATTACHED
3. be subject to LEGAL SUPPORT
*EFFECTS of CONVEYANCE by PARTNER of his INTEREST in the
PARTNERSHIP
1. IF he conveys his WHOLE INTEREST

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A) partnership may still remain
B) partnership may be dissolved
* mere conveyance does not dissolve the partnership
2. the ASSIGNEE does not necessarily become a partner
the ASSIGNOR is still the partner, with a right to demand
accounting and settlement
3. the ASSIGNEE CANNOT interfere in the MANAGEMENT or
ADMINISTRATION of the firm
the ASSIGNEE CANNOT also DEMAND [I, A, I]
A) INFORMATION
B) ACCOUNTING
C) INSPECTION of partnership books
*** while a partners INTEREST in the firm may be CHARGED or
LEVIED upon, his INTEREST in a specific firm PROPERTY CANNOT be
attached.
RIGHTS of the ASSIGNEE
1. to get whatever profits the assignor-partner would have obtained
2. to avail himself of the usual remedies in case of fraud in the
management
3. to ask for ANNULMENT of the contract of assignment IF:
A) he was induced to enter into it through any of the vices of
consent
OR
B) he himself was incapacitated to give consent
4. to demand an accounting BUT only if the partnership is dissolved

PREFERENTIAL RIGHTS of PARTNERSHIP CREDITORS


* partnership creditors are entitled to PRIORITY over partnership
assets, including the partners interest in the profits
** SEPARATE or INDIVIDUAL creditors have PREFERENCE in separate
or individual properties

* when the CHARGING ORDER is applied for and granted, the court
may appoint a receiver of the partners share in the profits
the receiver appointed is entitled to any relief necessary to conserve
the partnership assets for partnership purposes
* interest charged may be redeemed at any time before foreclosure
* AFTER FORECLOSURE the interest may still be redeemed by (without
causing dissolution)
1. with separate property, by any one or more of the partners
OR
2. with partnership property, by any one or more partners with the
consent of all the partners whose interests are not so charged or sold
* consent of the delinquent partner not needed
RULE:
every partnership shall operate under a FIRM NAME
* the firm name may or may not include the name of one or more of
the partners
** STRANGERS who include their names in the firm are liable as
partners because of ESTOPPEL, BUT do NOT have the RIGHTS of
partners
** IF a LIMITED PARTNER includes his name in the firm name, he has
obligations BUT not the rights of a general partner
RULE on LIABILITY for CONTRACTUAL OBLIGATIONS
* all partners, including industrial ones, shall be liable pro-rata with all
their property and after all the partnership assets have been exhausted
* NOT APPLICABLE for TORTS or CRIMES ----- LOSS
----- INJURY
----- MISAPPROPRIATION
** while an INDUSTRIAL PARTNER is exempted by law from LOSSES as
between the partners, he is NOT EXEMPTED from liability insofar as
third persons are concerned
he may recover what he has paid from the CAPITALIST partners

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* under the law the liability of the partners is subsidiary and joint NOT
principal and solidary
*RULE on LIABILITY of a PARTNER who has WITHDRAWN
1. a partner who withdraws is not liable for liabilities contracted
after he has withdrawn
2. if his interest has not yet been paid him
his right to the same is that of a mere creditor
** a stipulation exempting liability to third persons is VOID
* any partner may enter into a separate obligation to perform a
partnership contract
RULE:
* every partner is an agent of the partnership for the purpose of its
business
G.R.- the act of every partner for apparently carrying on in the USUAL
WAY the business of the partnership of which he is member binds the
partnership
EXCEPT:
1. if he has NO AUTHORITY
and
2. the person with whom he was dealing with HAS KNOWLEDGE of the
fact that he has no such authority
RULE:
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
* a partnership is a CONTARCT of MUTUAL AGENCY, each partner
acting as a principal on his own behalf and as an agent for his copartners or the firm
REQUISITES on WHEN can a partner BIND the partnership
1. expressly or impliedly AUTHORIZED

2. when he acts in BEHALF AND IN THE NAME of the partnership


INSTANCES of IMPLIED AUTHORIZATION
1. when the other partners DO NOT OBJECT, although they have
knowledge of the act
2. when the act is for apparently carrying on in the usual way the
business of the partnership
* this is binding on the firm even if the partner was not really
authorized PROVIDED that the third party is in GOOD FAITH
RULE on UNUSUAL ACTS
one or more but less than all the partners HAVE NO AUTHORITY TO:
[AP, DG, AI, CJ, EC, SA, RC]
1. ASSIGN the PARTNERS PROPERTY
2. DISPOSE of GOODWILL
3. do any other act which would make it impossible to carry on the
ordinary business of the partnership
4. CONFESS a judgment
5. ENTER into a COMPROMISE
6. SUBMIT to ARBITRATION
7. RENOUNCE to CLAIM
*RULES on CONVEYANCE of REAL PROPERTY
1. 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
* PARTNERSHIP MAY RECOVER SUCH PROPERTY
EXCEPT:
1. if the firm is engaged in the buying and selling of land
(USUAL BUSINESS)
2. if property was conveyed to a HOLDER for VALUE and
who had NO KNOWLEDGE of the partners LACK of
AUTHORITY
2. where title is in the name of the partnership and partner sold in his
OWN NAME

13
IF DONE IN USUAL BUSINESS
buyer does not become owner BUT ACQUIRES EQUITABLE
INTEREST
IF NOT DONE IN USUAL BUSINESS
buyer does not become owner and is not even entitled to
equitable interest

3. where title is in the name of one or more BUT not all the partners
partners in whose name the title is named MAY CONVEY BUT
the PARTNERSHIP may RECOVER such property IF done not in its
USUAL BUSINESS EXCEPT if he had transferred it to a Holder for
value
4. when property held in trust by partner
a sale only conveys EQUITABLE INTEREST
5. when title is in the name of all partners
conveyance executed by all partners possess all rights of such
property
EQUITABLE INTEREST
-BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP
*RULE on ADMISSION or REPRESENTATION MADE by a PARTNER
an admission by a partner is an admission against the partnersip,under
the following conditions:
1. the admissions must concern partnership affairs
2. must be within the scope of his authority
RESTRICTIONS ON THE RULE:
1. admissions made BEFORE DISSOLUTION are binding only when
the partner has authority to act on the particular matter

2. admissions made AFTER DISSOLUTION are binding only if the


admissions were necessary to WIND UP the business
3. an admission made by a former partner made after he has
RETIRED from the partnership is not evidence against the firm
EFFECT of NOTICE to a PARTNER
notice to a partner is notice to the partnership
*notice to a partner, given while already a partner is a notice to the
partnership PROVIDED it relates to partnership affairs
EFFECT of KNOWLEDGE ALTHOUGH NO NOTICE WAS GIVEN:
* knowledge of the partner is also knowledge of the firm PROVIDED
THAT:
1. the knowledge was acquired by a partner who is acting in the
particular matter involved;and
2. the partner having knowledge, had reason to believe that the fact
related to a matter which had some possibility of being the
subject of the partnership business AND he was so situated that
he could communicate it to the partner acting on that particular
matter
* SERVICE of PLEADINGS on the partner in a law firm is also service
on the whole firm and the other partners

LOSS OR INJURY
RULE on WRONGFUL ACT or OMISSION of a PARTNER (SOLIDARY
LIABILITY)
* the partnership is solidarily liable with the partner if the wrongful act
or omission
1. the partner is acting in the ordinary course of business of the
partnership
OR
2. with authority of his co-partners

14
partnership liability results

* innocent partners have right to recover from the guilty partner

3. if the firm had not consented


no partnership liability results BUT the deceiver is considered
still as a partner by estoppel with all the obligations but not the
rights of a partner

* When the firm and other partners not liable:


1. if the wrongful act or omission was NOT DONE
A) within scope of partnership business
B) with authority of the other co-partners
2. if the act or omission is NOT WRONGFUL
3. if the act or omission, although wrongful did not make the
partner concern liable
- DAMNUN ABSQUE INSURIA
4. if the wrongful act or omission was committed after the firm had
been dissolved and the same was not in connection with the
process of winding up.
LIABILITY of PARTNERSHIP for MISAPPROPRIATION (SOLIDARY
LIABILITY)
1. RECEIVING PARTY MISAPPROPRIATES
2. ANY PARTNER MISAPPPROPRIATES
money or property in custody of partnership
PARTNER BY ESTOPPEL
a person who represents himself or consents to another / others
representing him to anyone as a partner either in an existing partnership
or in one that is fictitious or apparent
PARTNERSHIP BY ESTOPPEL
when all the members of the existing partnership consent to such
representation of a partner by estoppel
RULES AND SITUATIONS:
1. if a third person is misled and acts
misrepresentation
the deceiver is a partner by estoppel

because

2. if the partnership consented to such misrepresentation

of

such

4. when a person represents himself as a partner of a NONEXISTENT partnership


NO partnership liability results BUT the deceiver and all
persons who may have aided him in the misrepresentation are
still liable
liability would be JOINT or PRO-RATA
* when although there is misrepresentation, if the third party is not
deceived, the doctrine of estoppel does not apply
BURDEN of PROOF
the creditor or whoever alleges the existence of a partner or
partnership by estoppel has the burden of proving the existence of the
MISREPRESENTATION AND INNOCENT RELIANCE on it
ENTRY OF A NEW PARTNER into an EXISTING PARTNERSHIP
RULE:
* he shall be liable for all the obligations of the partnership BUT his
liability will extend only to his share in the partnership property
* his own individual property shall be excluded
* same liability of a limited partner
PREFERENCE of PARTNERSHIP CREDITORS
RULE:
* the creditors of the partnership shall be preferred to those of such
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

15
**IF a partner sells his share to a third party, BUT the firm itself still
remains SOLVENT, partnership creditors CANNOT assail the validity of
the sale by alleging that it is made in fraud of them, since they have not
really been prejudiced
DISSOLUTION AND WINDING UP
the change in the relation of the partners caused by any partner
causing to be associated in the carrying on of the business
it is the point of time the partners cease to carry on the business
together
WINDING UP
the process settling business affairs after dissolution
TERMINATION
the point in time after all the partnership affairs have been wound up
RULE ON DISSOLUTION
* on dissolution the partnership is not terminated BUT continues until
the winding up of partnership affairs is completed
*EFFECT on OBLIGATIONS
1. just because a partnership is dissolved this does not necessarily
mean that a partner can evade previous obligations entered into
by the partnership
2. dissolution saves the former partners from new obligations to
which they have not expressly or impliedly consented UNLESS
the same be essential for winding up
*CAUSES OF DISSOLUTION
1. without VIOLATION of the AGREEMENT between the partners
A) TERMINATION of the DEFINITE TERM or PARTICULAR
UNDERTAKING
B) EXPRESS WILL or ANY PARTY in GOOD FAITH
(PARTNERSHIP by WILL)

2.
3.
4.

5.
6.
7.
8.

C) EXPRESS WILL of ALL of the PARTNERS except those


who have (interests) ASSIGNED or whose interests have
been (separate debts) CHARGED
D) EXPULSION in good faith of a member
in CONTRAVENTION of the agreement between the partners
by the EXPRESS WILL of ANY PARTNER at any time
UNLAWFULNESS of the BUSINESS
LOSS thing promised
A) SPECIFIC THING PERISHES before delivery
B) USUFRUCT is lost EXCEPT if ownership had been
transferred to the partnership
DEATH of ANY partner
INSOLVENCY of any partner or of the partnership
CIVIL INTERDICTION of any partner
DECREE of COURT

*** if the cause is not justified or no cause was given, the withdrawing
partner is liable for DAMAGES BUT in no case can he be compelled to
remain in the firm
* the insolvency need not be judicially declared, it is enough that the
assets be less than the liabilities
DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:
(I, UM, I-PP, C, PB, BL, OC)
1. partner declared insane in any judicial proceeding or is shown
to be of UNSOUND MIND
2. partner becomes INCAPABLE of performing his part of the
partnership contract
3. partner has been guilty of such CONDUCT as tends to affect
prejudicially the business
4. partners PERSISTENT BREACH of agreement
5. the business of the partnership can only be denied on at a loss
6. other circumstances which render dissolution equitable
IN CASE OF PURCHASER of PARTNERS INTEREST
1. after the termination of the specified term or particular
undertaking

16
2. AT ANY TIME, if the partnership was a partnership at will when
the interest was assigned or when the charging ordered was
issued
* proof as to the existence of the firm must first be given
* even if a partner has not yet been previously declared insane by the
court, dissolution may be asked, as long as the insanity is duly proved in
court
* in a suit for dissolution, the court may appoint a RECEIVER at its
discretion

EFFECTS OF DISSOLUTION
RULE:
* when the firm is dissolved, a partner can no longer bind the
partnership
* a dissolved partnership still has the personality for the winding up of
its affairs
the firm is still allowed to collect previously acquired credits
the firm is still bound to pay of its debts
DISSOLUTION CAUSED by A-I-D
RULE: (STILL BOUND) as to each partners
G.R. where the dissolution is caused by the ACT, INSOLVENCY or
DEATH 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
EXCEPTION: - individual liabilities
1. if dissolution by ACT
the partner acting for the partnership HAD KNOWLEDGE of the
dissolution
OR
2. if dissolution by DEATH or INSOLVENCY
the partner acting for the partnership HAD knowledge or notice
of the death or insolvency

* only the partner acting assumes liability


*AFTER DISSOLUTION, a partner can still bind the PARTNERSHIP
(WU, UT, TB)
1. By any ACT appropriate for WINDING UP partnership affairs
2. By COMPLETING transactions UNFINISHED at dissolution
3. By any TRANSACTION which could bind the partnership
dissolution had not taken place PROVIDED the other party is:
A) PREVIOUS CREDITOR and had NO KNOWLEDGE
NOTICE of the dissolution
OR
B) NOT a PREVIOUS CREDITOR, had NO KNOWLEDGE
NOTICE and dissolution was NOT PUBLISHED
* if there was publication of the dissolution it is presumed
already knows, regardless of actual knowledge on non knowledge
WHEN
1.
2.
3.
4.

IF
or
or
he

is the PARTNERSHIP NOT BOUND


new business with third parties who are in bad faith
firm dissolved because UNLAWFUL except for acts of winding up
partner who acted became INSOLVENT
partner not authorized to wind up EXCEPT if customer in good
faith

* if after dissolution, if a stranger will represent himself as a partner


although he is not one he will be a partner by estoppel
RULE:
* the dissolution of the partnership does not itself discharge the
existing liability of any partner
NEED for an AGREEMENT BETWEEN
1. partner concerned
2. other partners
3. creditors

RULE:

17
* 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 prior payments of his separate debts
* IF there be a NOVATION of the OLD PARTNERSHIP DEBTS and such
novation is done after one of the partners has retired and without the
consent of such partner
said partner cannot be held liable by creditors who made the
novation with knowledge of the firms dissolution
EXTRAJUDUCIAL AND JUDICIAL WINDING-UP
EXTRAJUDICIAL:
1. by the partners who have not wrongfully dissolved
partnership
2. by the legal representative of the last surviving partners

the

JUDICIAL:
under the control and direction of the court, upon proper cause that is
shown to the court
* profits that will actually enter the firm after dissolution as a
consequence of transactions already made before dissolution are
included because they are considered as profits existing at the time of
dissolution
* any other income earned after the time, like interest or dividends on
stock owned by the partners or partnership at the time of dissolution
should not be distributed as profits BUT as merely additional income to
the capital
BETTER RIGHTS of INNOCENT PARTNERS
innocent partners have better rights than guilty partners and that the
guilty partners are required to indemnify for the damages caused

* RIGHT of INOCENT PARTNERS TO CONTINUE the BUSINESS


in essence this is a new partnership
can use the same firm name

can ask new members to join


BUT shall: for protection of guilty partners
1. give a BOND approved by the court
2. to PAY guilty partners his interests at the time of dissolution
MINUS DAMAGES
* a guilty partner who is EXCLUDED will be indemnified against all
present or future partnership liabilities
RIGHT TO GET CASH
in case on non-continuance of the business, the interest of the partner
should if he desires be given in cash
assets may be sold
a guilty partner, in ascertaining the value of his interest is not entitled
to a proportional share of the value of GOOD WIL

RIGHTS OF INNOCENT PARTNERS IN CASE of RESCISSION based on


FRAUD AND MISREPRESENTATION
1. Right to LIEN or RETENTION SURPLUS
CAPITAL
ADVANCES
2. Right of SUBROGATION as creditor
3. Right of INDEMNIFICATION
*ORDER of PAYMENT in WINDING-UP of PARTNERSHIP LIABILITIES
GENERAL PARTNERSHIP: [C, R, C, P]
1. those owing to creditors other than partners
2. those owing to partners other than for capital or profits
REIMBURSEMENTS
3. those owing to partners in respect to CAPITAL
4. those owing to partners in respect to PROFITS
* IF the partnership assets are insufficient, the other partners must
contribute more money or property
PREFERENCE with RESPECT to the ASSETS
1. regarding partnership property

18
partnership creditors have preference
2. regarding individual properties of partners
individual creditors are preferred

RULE if PARTNER is INSOLVENT


- How INDIVIDUAL PROPERTY is DISTRIBUTED
ORDER OF PREFERENCE:
1. INDIVIDUAL or SEPARATE CREDITORS
2. PARTNERSHIP CREDITORS
3. those owing to other partners by way of contribution

* articles of association by which 2 or more persons obligate


themselves to place in a common fund any property, industry, or any of
these things, in order to obtain profit, shall be COMMERCIAL
BORJA vs. ADDISON
* a surviving husband may form a partnership with the heirs of the
deceased wife for the management and control of the community
property
BUT in the absence of the formalities prescribed by the Civil Code,
knowledge of the existence of the new partnership or community of
property must at least be brought home to third persons dealing with the
surviving husband in regard to the community real property in order to
bind them by the community agreement

*When creditors of the dissolved partnership are also creditors of


the partnership continuing business:
1. new partner is admitted without liquidation
2. a partner retires and assigns his rights IF the business is
continued without liquidation of the partnership affairs
3. all but one partner retire without liquidation
4. when all partner assign their right to a person who will assume
their debt
5. after wrongful dissolution, remaining partners continue the
business without liquidation
6. when partner expelled and remaining partners continue the
business without liquidation

KIEL vs. SABERT


* the declarations of one partner, not made in the presence of his copartner, are not competent to prove the existence of a partnership
between them as against such partner

* liability of third person becoming a partner in the partnership


continuing the business to the creditors of the dissolved partnership
shall be satisfied out of the partnership property ONLY

ESSENTIAL ELEMENTS of a PARTNERSHIP


1. an agreement to CONTRIBUTE money, property, or industry to a
COMMON FUND
2. intent to divide the profits among the contracting parties

G.R. when a partner retires, he is entitled what is due him after


liquidation BUT no liquidation is needed if there is already a settlement
at the date of dissolution

JURISPRUDENCE
BASTIDA vs. MENZI

* the existence of a partnership cannot be established by general


reputation, rumor or hearsay
EVENGELISTA vs. C.I.R.
* By the contract of partnership 2 or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves

* when our internal Revenue Code includes partnerships among the


entities subject to the tax on corporations, said code which are not
necessarily partnerships in the technical sense of the term
* PARTNERSHIPS includes a SYNDICATE, GROUP, POOL, JOINT
VENTURE, or other unincorporated organization, through or by the

19
means of which any business, financial operation, or venture is carried
on
* a joint venture need not be undertaken in any of the standard forms,
or in conformity with the usual requirements of the law on partnerships,
in order that one could be deemed constituted for purposes of the TAX on
corporations
PASCUAL vs. C.I.R.
* co-ownership or co-possession does not 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
* the sharing of gross returns does not itself establish a partnership,
within the persons sharing them have a joint or common right or interest
in any property from which the returns are derived
* aside from the circumstances of profit, the presence of other elements
constituting partnership is necessary, such as:
1. the clear intent to form a partnership
2. the existence of a juridical personality different from that of the
individual partners
AND
3. the freedom to transfer or assign any interest in the property by
one with the consent of the others
* an isolated transaction whereby 2 or more persons contribute funds
to buy certain real estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a partnership
* persons who contribute property or funds for a common enterprise
and agree to share the gross returns of that enterprise in proportion to
their contribution, BUT who severally retain the title to their respective
contribution, are not thereby rendered partners
they have no common stock or capital and no community of
interest as principal proprietors in the business itself which the proceeds
derived
* a joint purchase of land, by two does not constitute a co-partnership
in respect thereto, NOR does an agreement to share the profits and
losses on the sale of land create a partnership

* in order to constitute a PARTNERSHIP INTER SESE there must


be:
A) an intent to form the same
B) generally participating in both profits and losses
AND
C) such a community of interest, as far as third persons are
concerned as enables each party to make a contract,
manage the business, and dispose of the whole property
* the common ownership of property does not itself create a
partnership between the owners, though they may use it for the purpose
of making gains AND they may without becoming partners, agree among
themselves as to the management and use of such property and the
application of the proceeds therefrom
* the sharing of returns does not in itself establish a partnership
within the persons sharing therein have a joint or common right or
interest in the property
there must be:
1. clear intent to form a partnership
2. the existence of a juridical personality different from the
individual partners
AND
3. the freedom of each party to transfer or assign the whole property

DUTERTE vs. RALLOS


* an agreement between 2 persons to operate a cockpit, by which one is
to contribute his services and the other to provide the capital, the profits
to be divided between them, constitutes a partnership
DELUAO vs. CASTEEL
* a contract of partnership to exploit a fishpond pending its award to
any qualified party or applicant is VALID BUT a contract of partnership
to divide the fishpond after such award is ILLEGAL

20
* one of the causes of dissolution is any event which make it unlawful
for the business of the partnership to be carried on or for the members to
carry it on in partnership
C.I.R. vs. SUTER
* a UNIVERSAL PARTNERSHIP requires either that the object of the
association be:
1. all the present property of the partners as contributed by them to
the common fund
OR
2. all that the partners may acquire by their industry or work
during the existence of the partnership
* the subsequent marriage of the partners could not operate to dissolve
the partnership because it is not one of the causes provided for
dissolution by law with regards to limited partnerships
* partnership has distinct and separate personality from that of its
partners
* a husband and wife may not enter into a contract of general copartnership/ UNIVERSAL partnership
ACOAD vs. MABATO
* 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
* A CONTRACT of PARTNERSHIP is VOID
whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties and
attached to the public instrument
EVANGELISTA vs. ABAD SANTOS
* an INDUSTRIAL PARTNER cannot engage in BUSINESS FOR
HIMSELF, UNLESS the partnership expressly permits him to do so
IF HE SHOULD DO SO, the capitalist partners may either:
1. EXCLUDE him from the firm
OR
2. AVAIL themselves of the benefits which he may have obtained in
violation of this provision

with a right to DAMAGES in either case


* the prohibition against an industrial partner engaging in business for
himself seeks to prevent any conflict of interest between the industrial
partner and the partnership and to ensure faithful compliance by said
partner with his prostation