Partnership
Partnership is a contract whereby two or more 4. Principal - it does not depend on the life of
persons bind themselves to contribute money, another contract
property, or industry to a common fund with
the intention of dividing the profits among
themselves, or in order to exercise a 5. Onerous - certain contributions have to be
profession. made
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General Stockholders
partners may may be liable
be liable with only for
The The Liability to their private payment of
transferee of transferee of Third Persons property their
a partners a beyond their subscribed
Transfer of interest does stockholders contribution capital stock.
Interest not interest
necessarily becomes a
become a stockholder,
partner, even without
except when the consent of
all other the other
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A partnership A corporation
is a national is a national
of the country of the country
Nationality it was under whose
created. laws it was
incorporated.
Corporate
identity is
pierced and
we go to the
nationality of 2. Conjugal Partnership of Gains
the
controlling
stockholders
Factor Partnership Conjugal
in some cases.
Partnership
The firm The firm of Gains
becomes a becomes a
It is created It is created
juridical juridical
by the will or by operation
Attainment of person from person from Manner of
consent of the of law upon
Legal the time the the time it is Creation
parties. the
Personality contract registered in
celebration of
begins. the Securities
marriage.
and Exchange
Commission, It is generally The law
and all the will of the generally
requisites parties that govern this
have been Governing govern kind of
complied Law matters like relationship.
with. object and
length of
Death, Such causes
existence.
retirement, do not
insolvency, or dissolve a
Dissolution insanity of a corporation.
partner The law is
only
subsidiary.
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Management Administratio
is conferred -n and
Management
upon the enjoyment of
partners so the conjugal
appointed by partnership
the others. property
belong to
both spouses
jointly.
A contrary
stipulation is No contrary
allowed. stipulation is
allowed. Liquidation of There may be There will be
division of no liquidation
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3. Co-Ownership
It is created It may be
by contract, created by Factor Partnership Co-Ownershi
Creation -p
whether contract, law,
express or or other No term limit It must not be
implied. things. is set by law. for more than
Length of
Juridical It has legal or It has no ten (10)
Existence if
Personality juridical juridical years.
Created by
personality. personality. Contract
Purpose It is created It is created The years in
mainly for for collective excess upon
profit. enjoyment, renewal is
and not void.
necessarily
for profit. It may be Profits must
stipulated always
Representatio There is no There is no upon. depend on
-n mutual mutual Profits the
representatio representatio proportionate
-n. n, although a shares.
co-owner
may bring an
action for Any
ejectment stipulation to
against a the contrary
stranger. is void.
One cannot A co-owner It is dissolved It is not
substitute can dispose by death or dissolved by
Transfer of Dissolution
another as his share incapacity of the death or
Interest
partner in his without the a partner. incapacity of
place without consent of the a partner.
unanimous others.
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4. Joint-Stock Company
Composition It is an It is an
association of association of
persons. capital.
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5. Social Organization
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10. Syndicate - a particular partnership with another, provided the nature of that
organized to carry out a particular undertaking venture must be in line with the business
or for some temporary objective. authorized in its charter.
Article 1768
The partnership has a juridical personality
separate and distinct from that of each of the
partners, even in case of failure to comply with
the requirements of Article 1772, first
paragraph.
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(1) Except as provided by article 1825, persons (d) As interest on a loan, though the amount
who are not partners as to each other are not of payment vary with the profits of the
partners as to third persons; business;
(2) Co-ownership or co-possession does not of (e) As the consideration for the sale of a
itself establish a partnership, whether goodwill of a business or other property by
such-co-owners or co-possessors do or do not installments or otherwise.
share any profits made by the use of the
property;
Requisites for Existence of Partnership
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Partnership by Estoppel
Consequences of Unlawful Partnership
Article 1770
A partnership must have a lawful object or
purpose, and must be established for the
common benefit or interest of the partners.
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Article 1773
A contract of partnership is void, whenever
immovable property is contributed thereto, if
an inventory of said property is not made,
signed by the parties, and attached to the
public instrument.
Failure to comply with the requirements of the
preceding paragraph shall not affect the
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1. Public instrument
If the partnership has aliens, it cannot own
2. Inventory of realty - signed by the parties lands, whether public or private, or whether
and attached to the public instrument agricultural or commercial, except through
hereditary succession or when 60% of the
capital is owned by Filipinos.
Limitations on Acquisition
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1. As to Object
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2. As to Liability Unlawful
6. As to Representation
3. As to the Manner of Creation
Ordinary Partnership
Orally constituted
Partnership by Estoppel
Constituted in a private instrument
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Article 1779
In a universal partnership of all present
property, the property which belonged to each
of the partners at the time of the constitution
Article 1777 of the partnership, becomes the common
A universal partnership may refer to all the property of all the partners, as well as all the
present property or to all the profits. profits which they may acquire therewith.
Article 1778
A partnership of all present property is that in
which the partners contribute all the property
which actually belongs to them to a common
fund, with the intention of dividing the same
among themselves, as well as all the profits
which they may acquire therewith.
Article 1780
A universal partnership of profits comprises all
that the partners may acquire by their industry
Universal Partnership of All Present or work during the existence of the
Property partnership.
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Article 1783
A particular partnership has for its object
determinate things, their use or fruits, or a
specific undertaking, or the exercise of a
profession or vocation.
Rationale
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No demand is needed to put the partner in When the capital or a part thereof which a
default. partner is bound to contribute consists of
goods, their appraisal must be made in the
manner prescribed in the contract of
In the case of money or property, it is the partnership, and in the absence of stipulation,
partner who still owns the same before it shall be made by experts chosen by the
delivery. Actual or constructive delivery partners, and according to current prices, the
transfers the ownership. subsequent changes thereof being for account
of the partnership.
3. Duty to Warrant
As prescribed by the contract
Risk of Loss
Article 1787
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Article 1788
No demand is needed in case of contribution
A partner who has undertaken to contribute a because in the contract of partnership, time is
sum of money and fails to do so becomes a of the essence. A partnership is formed
debtor for the interest and damages from the precisely to make use of the contributions, and
time he should have complied with his this use should start from its formation, unless
obligation. a different period has been set.
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If none, the
shares will be
divided pro
rata to his
contribution.
Contributes Contributes
money or industry,
Contribution
property whether
mental or
physical
He cannot He cannot
generally engage in any
engage in the business for
Prohibition to same or himself.
Engage in similar
Other expertise as
Business that of his All his
firm. industry is
supposed to Factor Capitalist Industrial
be
Determining contributed It is based on He is
test is the to the firm. stipulation as exempted as
possibility of to losses. to losses as
unfair Losses between
competition. partners.
If there is no
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Article 1790
Unless there is a stipulation to the contrary, A capitalist partner is obliged to sell his
the partners shall contribute equal shares to interest to others if there is imminent loss of
the capital of the partnership. the busness of the partnership and he refuses
deliberately to contribute an additional share
to the capital, provided that there is no
Amount of Contribution agreement to the contrary.
The rule applies to capitalist partners. Industrial partners are exempted because they
However, the share of the industrial partner is are already giving their entire industry to the
undoubtledly also available. His industry may firm.
be worth even more than the entire capital
contributed.
Article 1792
If a partner authorized to manage collects a
Article 1791 demandable sum which was owed to him in his
If there is no agreement to the contrary, in case own name, from a person who owed the
of an imminent loss of the business of the partnership another sum also demandable, the
partnership, any partner who refuses to sum thus collected shall be applied to the two
contribute an additional share to the capital, credits in proportion to their amounts, even
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Article 1793
Requisites Before a Managing Partner
May Collect a Credit A partner who has received, in whole or in part,
his share of a partnership credit, when the
other partners have not collected theirs, shall
be obliged, if the debtor should thereafter
1. There must be at least two (2) debts - one
become insolvent, to bring to the partnership
where the firm is the creditor and the other,
capital what he received even though he may
where the partner is the creditor.
have given receipt for his share only.
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Rationale
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Risk of Loss
Article 1795
The risk of specific and determinate things, 2. Fungible/Deteriorable - the firm bears the
which are not fungible, contributed to the loss becauseOwnership was being transferred
partnership so that only their use and fruits thereto, otherwise the use thereof is
may be for the common benefit, shall be borne impossible.
by the partner who owns them.
1. Refund
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The firm is responsible for refunding the agreed upon, the share of each in the losses
amounts disbursed on behalf of the firm. It shall be in the same proportion.
includes legal interest from the time the
expenses were made and not from demand. A
partner is an agent, therefore the rules of In the absence of stipulation, the share of each
agency apply to him. partner in the profits and losses shall be in
proportion to what he may have contributed,
but the industrial partner shall not be liable for
the losses. As for the profits, the industrial
partner shall receive such share as may be just
and equitable under the circumstances. If
besides his services he has contributed capital,
he shall also receive a share in the profits in
proportion to his capital.
Distribution of Profits
The refund must be made even in case of
failure of the enterprise enetered into,
provided that the partner is not at fault. Being 1. Agreement - not inequitously to defeat the
a mere agent, the partner should not assume terms of the agreement
personal liability. Moreover, conversion by the
partner results in liability from the moment of
conversion. 2. Amount of Contribution - if there was no
agreement as to the distribution of profits.
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If the partners have agreed to intrust to a third A stipulation which excludes one or more
person the designation of the share of each one partners from any share in the profits or losses
in the profits and losses, such designation may is void.
be impugned only when it is manifestly
inequitable. In no case may a partner who has
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Stipulation Excluding a Partner from If the partnership shows no profit, this means
Profits or Losses that he has labored in vain.
Appointment of Manager
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required, and if so, if such unanimity is present, Generally, each partner is an agent. Although
for his own protection. each is an agent, still if the acts of one are
opposed by the restm the majority should
prevail for the presumed intent is for all the
partners to manage.
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Partnership Books
Consent of the others may be express or
implied, as when the partners had knowledge
of the alteration and they made no opposition. The right in this Article is granted to enable the
partner to obtain true and full information of
the partnership affairs. He is the co-owner of
Article 1804 the properties, including the books.
Every partner may associate another person
with him in his share, but the associate shall
not be admitted into the partnership without The Article presupposes an existing
the consent of all the other partners, even if the partnership. It does not include those
partner having an associate should be a partnerships with pending dissolution (the
manager. right in this case depends on the courts
discretion) nor the ones already dissolved (in
this case, although the books belong to all the
partners, in absence of a contrary agreement,
Associate
still no single partner is bound to continue the
place of business for the benefit of others.
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introduced as evidence against the keeper or If the partnership books contain errors, but
maker thereof. This is true even if the books said errors have not been alleged, the books
are kept strictly in accordance with the must be considered entirely correct insofar as
provision of law. the keeper of said books of account is
concerned.
Partners
Article 1806
Partners shall render on demand true and full
information of all things affecting the Legal representative of a deceased partner
partnership to any partner or the legal
representative of any deceased partner or of
any partner under legal disability. Legal representative of a partner under
legal disability
Article 1807
Every partner must account to the partnership
Rationale 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
There must be no concealment between
liquidation of the partnership or from any use
partners in all matters affecting the firms
by him of its property.
interest. This is required by good faith. Thus,
this duty to give on demand true and full
information. Even without the demand,
honesty demands the giving of vital
information, the refraining from all kinds of
concealment.
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The words and hold as trustee for the When it is expressly stipulated that the
partnership any profits indicate clearly that capitalist partner can so engage himself.
the partnership can claim as their own
(specific property) any property or money that
can be traced. When the other partners expressly allow
him to do so.
Article 1808
When the other partners impliedly allow
The capitalist partners cannot engage for their him to do so. - e.g. when all of them are
own account in any operation which is of the violating the business prohibition as to
kind of business in which the partnership is capitalist partners
engaged, unless there is a stipulation to the
contrary.
When the company ceases to be engaged
in business - during the period of
Any capitalist partner violating this prohibition liquidation and winding up, the Article no
shall bring to the common funds any profits longer applies, even if the engaging
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Continuing Share
(1) A partner, subject to the provisions of this
Title and to any agreement between the
partners, has an equal right with his partners
A stipulation that should one of the partners to possess specific partnership property for
stopped practicing (in the case of a general partnership purposes; but he has no right to
professional partnership), the remaining possess such property for any other purpose
partner continuing to practice would give the without the consent of his partners;
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Partners are co-owners insofar as among The right over specific partnership property is
themselves, with proportional and sometimes not subject to legal support (See Article 291,
equal right over the specific partnership Civil Code for persons obliged to support each
property. However, the rules on co-ownership other).
do not necessarily apply. The rules on
co-ownership in partnership are applicable.
Said rules are detailed in the Articles
subsequent paragraphs.
Article 1812
Rights of a Partner in Specific
Partnership Property A partner's interest in the partnership is his
share of the profits and surplus.
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profits to which the assigning partner would Mere conveyance does not of itself
otherwise be entitled. However, in case of dissolve the firm, therefore in general the
fraud in the management of the partnership, partnership remains.
the assignee may avail himself of the usual
remedies.
The assignee (conveyee) does not
necessarily become a partner - the
In case of a dissolution of the partnership, the assignor is still the partner, with a right to
assignee is entitled to receive his assignor's demand accounting and settlement.
interest and may require an account from the
date only of the last account agreed to by all
the partners. The assignee cannot even interfere in the
management or administration of the
partnership business or affairs.
Conveyance of Interest
2. To avail of himself of the usual remedies in
case of fraud in the management.
If a partner conveys his whole interest in the
partnership, either of these two instances may
happen:
3. To ask for annulment of the contract of
assignment if he was induced to enter into it
through any of the vices of consent (fraud,
The partnership may still remain. error, intimidation, force, undue influence) or
if he himself was incapacitated to give consent.
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Rules as to Mortgages
Article 1814
Nothing in this Title shall be held to deprive a
Without prejudice to the preferred rights of partner of his right, if any, under the
partnership creditors under Article 1827, on
exemption laws, as regards his interest in the
due application to a competent court by any partnership.
judgment creditor of a partner, the court which
entered the judgment, or any other court, may
charge the interest of the debtor partner with
payment of the unsatisfied amount of such Charging the Interest of a Partner
judgment debt with interest thereon; and may
then or later appoint a receiver of his share of
the profits, and of any other money due or to A partner may go to the court and ask that his
fall due to him in respect of the partnership, co-partners interest in the partnership may be
and make all other orders, directions, accounts charged (attached or levied) in case of
and inquiries which the debtor partner might non-payment of the latters debt to the former,
have made, or which the circumstances of the with interest thereon. While a partners
case may require. interest in the partnership may be charged or
levied upon, his interest in a specific firm
property cannot be attached.
The interest charged may be redeemed at any
time before foreclosure, or in case of a sale
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Article 1815
Every partnership shall operate under a firm
name, which may or may not include the name
of one or more of the partners.
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Article 1816
All partners, including industrial ones, shall be
liable pro rata with all their property and after
If the firm name is changed in good faith but all the partnership assets have been exhausted,
the members remain the same, the partnership for the contracts which may be entered into in
under the new name retain all the rights it had the name and for the account of the
under the old name. partnership, under its signature and by a
person authorized to act for the partnership.
However, any partner may enter into a
Liability of Strangers Who Include Their separate obligation to perform a partnership
contract.
Names
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permissible to stipulate that a capitalist An act of a partner which is not apparently for
partner will be exempted from liability in the carrying on of business of the partnership
excess of the original capital contributed, but in the usual way does not bind the partnership
will not be exempted insofar as his capital is unless authorized by the other partners.
concerned.
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Agency of a Partner
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In general, notice to a partner is notice to the involved. But it is essential that the partner
partnership, that is, a partnership cannot claim having knowledge had reason to believe that
ignorance if a partner knew. But this rule has the fact related to a matter which had some
restrictions and qualifications. possibility of being the subject of the
partnership business, and then only if he was
so situated that he could communicate it to the
Notice to a partner, given while already a partner acting in the particular matter before
partner, is a notice to the partnership, such partner gives binding effect to his act. The
provided it relates to partnership affairs. words who reasonably could and should have
communicated it to the acting partner
accomplish this result.
Effect of Knowledge Although No Notice
Was Given
Here, the knowledge must have been obtained
while already a partner, because the phrase
then present to his mind applies only to the
It may be that no notice has been given, but
partner acting in the particular matter
knowledge has been somehow acquired. Thus,
involved.
while nobody made any notification, still the
partner perhaps because of analysis or
deduction came to know of something.
Article 1822
Where, by any wrongful act or omission of any
partner acting in the ordinary course of the
business of the partnership or with the
authority of his co-partners, loss or injury is
caused to any person, not being a partner in
the partnership, or any penalty is incurred, the
partnership is liable therefor to the same
extent as the partner so acting or omitting to
act.
This knowledge of a partner is also knowledge
of the firm provided that the knowledge was
acquired by a partner who is acting in the
particular matter involved.
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Injury to an Employee
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While in torts and crimes, the liability of the Torts and crimes result from individual acts of
partners is solidary, in contractual obligations, the partners; while contractual liabilities arise
it is generally merely joint. (See Article 1816) from partnership obligations.
While Art. 1816 speaks of pro rata liability of
the partners, and while the Code Commission
says that pro rata in this article means in It is not only the partners that are liable in
proportion to their contribution , still the solidum but the partnership as well.
Supreme Court has ruled that pro rata here
means joint, such that if 5 partners are liable,
Article 1825
When a person, by words spoken or written or
by conduct, represents himself, or consents to
another representing him to anyone, as a
partner in an existing partnership or with one
or more persons not actual partners, he is
liable to any such persons to whom such
representation has been made, who has, on the
faith of such representation, given credit to the
actual or apparent partnership, and if he has
made such representation or consented to its
each would be responsible for 1/5 of the debt being made in a public manner he is liable to
(regardless of amount of contribution) and if such person, whether the representation has
or has not been made or communicated to such
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Burden of Proof
The newly admitted partner would be liable as
an ordinary original parner for all partnership
The creditor, or whoever alleges the existence obligations incurred after his admission to the
of a partner or partnership by estoppel has the firm.
burden of proving the existence of the
misrepresentation and the innocent reliance
on it. Creation of a New Partnership in View
of the Entry
Article 1826
The admission of a new partner may dissolve
A person admitted as a partner into an existing
the old firm and create a new one. In effect, the
partnership is liable for all the obligations of
original creditors would not be creditors of the
the partnership arising before his admission as
new firm, but only of the original partners.
though he had been a partner when such
Hence, they may lose their preference.
obligations were incurred, except that this
liability shall be satisfied only out of
partnership property, unless there is a
stipulation to the contrary. To avoid this injustice, under the New Civil
Code, they will be considered as creditors of t
he new firm together with the firms new
creditors. (See also Art. 1840, which among
Entry of a New Partner Into an Existing other things provide that generally creditors of
Partnership the dissolved partnership are also creditors of
the person or partnership continuing the
business.)
A newly admitted partner may be liable for
partnership obligations contracted prior to his
admission to the partnership. It is therefore essential that the partnership
assets of the new firm (with the capital of the
new partner) be available even to the old
creditors.
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Article 1826 should be read together with The partnership is a juridical person with
Article 1840. Both are based on the principle whom the creditors have contracted. Moreover,
that there has been one continuous business. the assets of the partnership must fi rst be
exhausted.
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Chapter 3 - Dissolution and Winding Up Termination is the point in time after all the
partnership affairs have been wound up.
Article 1828
The dissolution of a partnership is the change
in the relation of the partners caused by any
partner ceasing to be associated in the carrying
on as distinguished from the winding up of the
business.
Winding Up
(1) Without violation of the agreement
between the partners:
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Causes of Dissolution
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The firm is dissolved because the partner has The status of the firm would be that of a
NOT given his contribution. If lost after partnership in liquidation. The dissolution is
delivery, the firm bears the loss, and the without prejudice to Article 1833.
partner remains, since after all, he had given
his contribution. The rules just given do not
apply to generic things, for genus does not (6) Insolvency of any Partner or of the
perish. Partnership
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This Article speaks of a dissolution by decree The partner will be incapacitated to contract.
of the court.
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Effects of Dissolution
Article 1832
Effect on Previous Contracts
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Article 1833
Where the dissolution is caused by the act,
death or insolvency of a partner, each partner
is liable to his co-partners for his share of any
liability created by any partner acting for the
partnership as if the partnership had not been
Dissolution Caused by Act, Insolvency,
dissolved unless:
or Death
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Article 1833 speaks of dissolution caused by an In cases of death or insolvency, being more
act, insolvency, or death, and the effects on the ordinary than an act, mere notice is enough.
partners as among themselves, if a partnership Hence, the law provides knowledge or notice.
liability is incurred; that is, if the firm is still
bound.
Effect
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Article 1834
After dissolution, a partner can bind the (2) So far unknown and inactive in partnership
partnership, except as provided in the third affairs that the business reputation of the
paragraph of this Article: partnership could not be said to have been in
any degree due to his connection with it.
(2) By any transaction which would bind the (1) Where the partnership is dissolved because
partnership if dissolution had not taken place, it is unlawful to carry on the business, unless
provided the other party to the transaction: the act is appropriate for winding up
partnership affairs; or
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Agency, Trust, and Partnership Notes
(b) Had not extended credit to the partnership Business is to complete unfinished
prior to dissolution, and, having no knowledge transactions
or notice of his want of authority, the fact of his
want of authority has not been advertised in
the manner provided for advertising the fact of Completely new business with third
dissolution in the first paragraph, No. 2 (b). parties considered innocent.
When the partnership is not bound to The firm is not bound in the following cases:
strangers.
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(2) Where the partner that acted in the Dissolution Ordinarily Does Not
transaction has become insolvent; where the Discharge Existing Liability of Partners
partner is unauthorized to wind up;
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An action for accounting against a managing It is made by the partners who have not
partner should be discontinued if he dies wrongfully dissolved the partnership; or
during the pendency of the action. The suit
By the legal representative of the last
must be conducted in the settlement
surviving partner (when all the partners
proceedings of the deceaseds estate,
are already dead), provided the last
particularly if this is the desire of his
survivor was not insolvent.
administrator.
2. Judicial Winding Up
1. Extrajudicial Winding Up
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Profits
Article 1837
Profits are supposed to accrue only during the
When dissolution is caused in any way, except
existence of the partnership before dissolution.
in contravention of the partnership agreement,
each partner, as against his co-partners and all
persons claiming through them in respect of
Profits that will actually enter the firm after their interests in the partnership, unless
dissolution as a consequence of transactions
otherwise agreed, may have the partnership
already made before dissolution are included property applied to discharge its liabilities, and
because they are considered as profits existing
the surplus applied to pay in cash the net
at the time of the dissolution. amount owing to the respective partners. But if
dissolution is caused by expulsion of a partner,
bona fide under the partnership agreement
Any other income earned after the time, like and if the expelled partner is discharged from
interest or dividends on stock owned by the all partnership liabilities, either by payment or
partners or partnership at the time of agreement under the second paragraph of
dissolution should not be distributed as profits article 1835, he shall receive in cash only the
(hence, the agreement here as to the net amount due him from the partnership.
distribution of profits will not govern), but as
merely additional income to the capital (to be
distributed under the rules on co-ownership, When dissolution is caused in contravention of
that is, to be divided in proportion to the the partnership agreement the rights of the
amount of capital given). partners shall be as follows:
Said capital given is computed as to the time (1) Each partner who has not caused
of dissolution, that is, after profits and losses dissolution wrongfully shall have:
have already been computed.
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Bond approved by the court; A guilty partner, in ascertaining the value of his
interest is not entitled to a proportionate share
of the value of the goodwill. (This is a
Payment of his interest at the time of necessary consequence of his bad faith.)
dissolution minus damages. (the guilty
partner who is excluded will be
indemnified against all present or future The deprivation of his share in the goodwill is
partnership liabilities because he is no not unconstitutional, and cannot be considered
longer a partner.) as unlawful taking of property without due
process of law.
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Indeed, he has a pecuniary interest in every (2) To stand, after all liabilities to third
existing contract that was incomplete and in persons have been satisfied, in the place of the
the trade name of the co-partnership and creditors of the partnership for any payments
assets at the time he was wrongfully expelled. made by him in respect of the partnership
liabilities; and
Division of Losses
(3) To be indemnified by the person guilty of
the fraud or making the representation against
Although such things as depreciation, all debts and liabilities of the partnership.
obsolescence, or diminished market value of
capital assets are not strictly speaking to be
considered losses because they merely Rescission or Annulment of Partnership
constitute a decrease in capital assets (and not Contract
the result of business transactions), still they
should, in fairness be considered as losses, and
the rules on losses must apply, provided that Although the law here uses the term rescind,
their real market values at the time of the proper technical term that should have
liquidation are the values considered. been used is annulled, in view of the fraud or
misrepresentation.
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Right of indemnification
Article 1839
In settling accounts between the partners after
dissolution, the following rules shall be
observed, subject to any agreement to the
contrary:
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Likewise, the Article can apply only if there is a stipulation, not entitled to participate in the
contrary agreement. But such agreement capital. He shares in the profits, however.
cannot prejudice innocent third parties.
Distribution of profits
Partnership Assets
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Agency, Trust, and Partnership Notes
Partnership creditors have the preference particularly in the approval of the executors or
regarding partnership property when both the administrators account for after all it may be
partnership property and the individual that he (the alleged partner) was indeed a
properties of the partners are in the possession partner to whom the deceased partner owed
of the court for distribution. something. Administrators and executors,
instead of opposing the intervention of
interested parties, should welcome the
participation of the same for their own
protection. Mere intruders should not be
allowed.
Moreover, individual creditors are preferred
regarding individual properties of the partners
in such case.
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Article 1841
As a general rule when a partner retires from
When any partner retires or dies, and the the firm, he is entitled to the payment of what
business is continued under any of the may be due him after a liquidation. But no
conditions set forth in the preceding article, or liquidation is needed when there already is a
in Article 1837, second paragraph, No. 2, settlement as to what the retiring partner shall
without any settlement of accounts as between receive.
him or his estate and the person or partnership
continuing the business, unless otherwise
agreed, he or his legal representative as against Article 1842
such person or partnership may have the value
of his interest at the date of dissolution The right to an account of his interest shall
ascertained, and shall receive as an ordinary accrue to any partner, or his legal
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Article 1843
Under the Article, the legal representative of a
A limited partnership is one formed by two or
partner is also entitled to the accounting.
more persons under the provisions of the
following article, having as members one or
more general partners and one or more limited
See Articles 1807 and 1809, dealing with the partners. The limited partners as such shall not
duty to account. be bound by the obligations of the partnership.
Surviving partners
(a) The name of the partnership, adding
thereto the word "Limited";
Person/s or partnership continuing the
business
(b) The character of the business;
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(d) The name and place of residence of each (k) The right, if given, of the partners to admit
member, general and limited partners being additional limited partners;
respectively designated;
(i) The share of the profits or the other Requisites in the Formation of a Limited
compensation by way of income which each Partnership
limited partner shall receive by reason of his
contribution;
Signing under oath of the required
certificate (with all the enumerated items)
(j) The right, if given, of a limited partner to
substitute an assignee as contributor in his
place, and the terms and conditions of the Filing for record of the certificate in the
substitution; Office of the Securities and Exchange
Commission
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Agency, Trust, and Partnership Notes
Article 1845
The contributions of a limited partner may be
cash or property, but not services.
This is because a firm transacting business as a An industrial partner can become a general
partnership is presumed to be a general partner in a limited partnership, for the Article
partnership. speaks only of a limited partner.
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Agency, Trust, and Partnership Notes
Article 1847
If the certificate contains a false statement, one The following acts do not constitute taking
who suffers loss by reliance on such statement part in the control of the business:
may hold liable any party to the certificate who
knew the statement to be false:
1. Dealing with a customer
The Article speaks of liability for a false 2. Supervision over a superintendent of the
statement. The person who suffers loss can sue business of the firm.
for damages.
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Article 1850
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, without
the written consent or ratification of the
specific act by all the limited partners, a
general partner or all of the general partners
have no authority to:
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Agency, Trust, and Partnership Notes
Article 1852
(2) Have on demand true and full information
Without prejudice to the provisions of Article
of all things affecting the partnership, and a
formal account of partnership affairs whenever 1848, a person who has contributed to the
circumstances render it just and reasonable; capital of a business conducted by a person or
and partnership erroneously believing that he has
become a limited partner in a limited
partnership, is not, by reason of his exercise of
the rights of a limited partner, a general
(3) Have dissolution and winding up by decree
partner with the person or in the partnership
of court.
carrying on the business, or bound by the
obligations of such person or partnership,
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Agency, Trust, and Partnership Notes
provided that on ascertaining the mistake he The person referred to under Article 1848
promptly renounces his interest in the profits cannot take advantage, naturally, of Article
of the business, or other compensation by way 1852.
of income.
Article 1853
Contributor Who Erroneously Believes
A person may be a general partner and a
He Has Become a Limited Partner
limited partner in the same partnership at the
same time, provided that this fact shall be
stated in the certificate provided for in article
When a partner erroneously believes that 1844.
he has become a limited partner and
thereupon exercises the rights of a limited
partner, he should not generally be considered A person who is a general, and also at the same
as liable as a general partner (general because time a limited partner, shall have all the rights
the public cannot be blamed for not and powers and be subject to all the
considering him a limited partner). restrictions of a general partner; except that, in
respect to his contribution, he shall have the
rights against the other members which he
However, he can still be liable as a general would have had if he were not also a general
partner unless partner.
Rights
Even if no such renouncing is made,
partnership creditors are not prejudiced.
Generally, his rights are those of a general
partner (hence, third parties can go against his
Limited Partner Who Participates in the individual properties).
Control Cannot Take Advantage of the
Article
EXCEPTION: Regarding his contribution (like
the right to have it returned on the proper
occasions) he would be considered a limited
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Agency, Trust, and Partnership Notes
partner, with the rights of a limited partner, Third parties are always given preferential
insofar as the other partners are concerned. rights insofar as the firms assets are
concerned.
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Agency, Trust, and Partnership Notes
Return of contributions
For Article 1856 to apply, partnership assets
must be in excess of partnership liabilities to
Compensation 3rd persons, not liabilities to partners.
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Agency, Trust, and Partnership Notes
(1) On the dissolution of a partnership; or The first paragraph of the Article deals with
the conditions that must exist before
contributions (or part thereof) by a limited
(2) When the date specified in the certificate partner can be returned to him.
for its return has arrived, or
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All the other partners must agree. An assignee becomes a substituted limited
partner when the certificate is appropriately
amended in accordance with article 1865.
Innocent third party creditors must not be
prejudiced.
The substituted limited partner has all the
rights and powers, and is subject to all the
They are innocent when their claim for restrictions and liabilities of his assignor,
extension of credit was before the cancellation except those liabilities of which he was
or amendment of the certificate. ignorant at the time he became a limited
partner and which could not be ascertained
from the certificate.
Article 1859
A limited partner's interest is assignable. A The substitution of the assignee as a limited
substituted limited partner is a person partner does not release the assignor from
admitted to all the rights of a limited partner liability to the partnership under articles 1847
who has died or has assigned his interest in a and 1858.
partnership.
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Civil interdiction
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Agency, Trust, and Partnership Notes
Article 1864
(1) Those to creditors, in the order of priority
The certificate shall be cancelled when the
as provided by law, except those to limited
partnership is dissolved or all limited partners
partners on account of their contributions, and
cease to be such.
to general partners;
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Agency, Trust, and Partnership Notes
(4) A person is admitted as a general partner; merely amended. This is obvious for if there be
no more limited partners, the limited
partnership cannot exist as such. The writing
(5) A general partner retires, dies, becomes to cancel a certificate shall be signed by all
insolvent or insane, or is sentenced to civil members.
interdiction and the business is continued
under Article 1860;
Article 1865
The writing to amend a certificate shall:
(6) There is a change in the character of the
business of the partnership;
Cancellation
A person desiring the cancellation or
amendment of a certificate, if any person
When the partnership is dissolved, or when all designated in the first and second paragraphs
the limited partners cease to be limited as a person who must execute the writing
partners, the certificate shall be cancelled, not
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Agency, Trust, and Partnership Notes
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