PARNTERSHIP REVIEWER

Contract of partnership: two or more person bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among themselves.

Key points:
1. Two or more person binding themselves to contribute
2. Money, property, or industry
3. To a common fund
4. Intention of dividing the profits among themselves

Characterstics:
1. Consensual
2. Nominate
3. Preparatory
4. Onerous
5. Bilateral or multilateral
6. Principal
7. Relationship between partners is fiduciary in character

Essential Elements of a Partnership (memorize)

1. Valid contract
a. Consent
b. Object
c. cause
2. Mutual contribution of money, property, industry to a common fund
a. More specifically
i. Money
1. The obligations are:
a. To deliver the money on the date of the perfection of the K or on the
date fixed by the partners
b. In case of default, to pay interest from the time he should have given
his contribution, plus damages.
2. Misappropriation of partnership money:
a. Return the amount misappropriated
b. Pay interest from time of misappropriation
c. Pay damages
3. No right of rescission: the failure of a partner to contribute the amount
provided will not entitle the other partners to ask for rescission of the K of
partnership. The remedy is to collect.
ii. Real property
iii. Personal property
iv. Tangible or intangible property
v. Physical or intellectual industry
b. Note: limited partners can ONLY contribute money or property, never industry
c. Obligations of a partner who is bound to deliver a SPECIFIC PROPERTY
i. Deliver the property on the date of the perfection of the K or on the date fixed by
the partners
ii. Warrant the object against possible eviction
1. Eviction in partnership: whenever by a final judgment based on a right prior to
the contribution of an act imputable to the contributing partners, the
partnership derived of the whole or a part of the thing delivered to the
partnership
iii. In case of default, to deliver the fruits of the thing from the time they should have
been delivered, without the need of any demand
1. If money, the interest and damages from the time he should have complied
with his obligation must be given to the partnership, also without the need for
a demand
2. Example: A, B, C formed a partnership with the following contributions to be
delivered on January 10, 2007: A- 10k, B- specific land, C- specific building.
a. If A gave his 10k only on January 10, 2009, he as the additional
obligation of paying the legal interest and damages from the time of
delay.

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 b. If B delivers the land on time, but the partnership was evicted by the
real owner O, B will answer for his warranty against eviction, in the
same way a vendor is liable to the vendee in a contract of sale.
c. If C fails to deliver the building on time because it is possessed by L
as a lessee, he is liable to deliver the building and also the fruits
(rentals of L) from the time the building should have been delivered.
This liability arises without need of a demand.
d. The partners are presumed to have contributed equal share in the partnership capital.
Except: there is a contrary stipulation.
e. In case of imminent loss
i. General rule: partners are obliged to give additional contribution
ii. Except:
1. Partner is insolvent
2. Partner is exempted by stipulation
3. He is an industrial partner
iii. Refusal to contribute: he will be obliged to sell his interest to the other partners
f. The risk of loss shall be borne by the partnership:
i. When things contributed are to be sold
ii. When the things contributed are consumable or cannot be kept without deteriorating
iii. When the things were contributed under appraisal in the inventory
g. The risk of loss shall be borne by a partner:
i. When the things contributed are non-consumable and only their use and fruits
are for the benefit of the partnership, the risk of loss shall be borne by the partner
contributing.
h. Receipt or collection of partnership credit must be before dissolution
i. Example: A and B are partners. X is indebted to the partnership for 10k. A and B
agreed to divide the credit of 10k equally. A was able to collect his share of 5k. Later,
B demanded payment from X but the latter became insolvent. The amount paid must
be divided equally between A and B. Be it noted that had the credit been divided after
the dissolution of the partnership, A is no longer obliged to give B a share of the
amount collected because after dissolution of the partnership the community of
interest between the partners disappears.
3. Intent to engage in lawful business, trade, or profession
4. Purpose is to obtain profits and to divide the same among the partners
a. Distribution of profits and losses
i. Agreement
1. With stipulation- in conformity
2. Agreement is only with respect to the profits- the share of the partners in the
losses shall be in the same proportion as their share in the profits.
ii. No agreement
1. Profits
a. Capitalist partners- in proportion to what he may have contributed to
the common fund
b. Industrial partners- that which is just and equitable under the
circumstances
2. Losses
a. Capitalist partners- in proportion to what he may have contributed to
the common
b. Industrial partners- NOT liable for any losses.
b. Any agreement that one or more partners shall NOT share in the profits or losses is VOID.
i. Stipulation that exempts the industrial partner from losses is VALID.
ii. The industrial partner will not share in the NET losses.
c. Profit and loss sharing may be entrusted to third person.
i. Except: manifestly inequitable; thus, if cancelled, the share in the profit shall be
according to their capital contributions
ii. Exception to the exception: designation can no longer be impugned or cancelled if:
1. Partner has begun to execute the decision of the third person; or
2. Does not impugn or cancel such designation within 3 months from the time he
had knowledge thereof.
iii. Absolutely: designation cannot be entrusted to one of the partners
5. Objective must be lawful
a. If there are several purposes or objectives, and one is illegal, such illegal objective or purpose
is separable from the legal objective/purpose.
b. Example of unlawful partnerships
i. Creation of illegal monopolies

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 ii. Illegal gambling
iii. Furnish apartment houses for prostitution
c. The profits from an unlawful partnership will be confiscated by the state. However, the
capital contributions of the partners must be returned.
6. 2 or more person who have the legal capacity to contract.
a. This means that unemancipated minors, insane, or demented persons, and deaf mutes who do
not know how to write cannot give their consent, and therefore cannot enter into a contract of
partnership.

Can a partnership by itself form another partnership? Yes. It is a juridical person. It can form another
partnership with other private individuals or with other partnerships. There is no legal prohibition.

Partnership for the exercise of a profession: the law allows the formation of a partnership for the exercise
of a profession although the exercise of a profession is not a business undertaking nor an enterprise for profit.

Partnership
Created by voluntary agreement
May exist for an indefinite period of time
Managed by ALL partners, unless they appoint a
managing partner
General partners liability extends beyond his
capital contribution; it extends to his separate
property
Partner may bind his co-partner for acts within the
scope of the business
Death of a general partner may dissolve the
partnership
Corporation
Created by law, special charter, or general law
50 years subject to extension
Managed by a board of directors or trustees elected
by the stockholders or members
A stockholders liability does not extend beyond his
investment in the corporation
Stockholders, not being agents of the corporation,
cannot bind the corporation except when
authorized by the corporation code in case of close
family corporations
Death of a stockholder does not dissolve the
corporation

Partnership
Created by agreement of the parties
Purpose is to make profits
A partner may not sell his interest (to make the
transferee a partner) without the consent of all
other partners
It has a juridical personality of its own
May exist indefinitely
Death of a general partner dissolves the
partnership
Co-Ownership
Created not only by agreement of the parties but
also by law
Purpose is common enjoyment
A co-owner may ordinarily sell his interest without
the consent of his co-owners subject to the latters
right of redemption
It has not juridical personality
May not, generally exist for more than 10 years, or
if term is imposed by a testator or donor, it must
not exceed 20 years
Death of a co-owner does not dissolve the co-
ownership

Partnership Joint Venture

It has a juridical personality of its own. Example: if
A,B, and C formed Partnership Y, there are 4
persons involved, separate and distinct from one
another.
May have varied purposes or activities for profit
If qualified as a partnership under the CC, it can
attain juridical personality.
Purpose or purposes limited to the same line of
business

Partnership Agency
Has its own juridical personality No juridical personality involved
Partners are agents fro the partnership and for Agent acts for his principal; he is not a principal
other partners; thus, a partner is a principal for his himself
own interest and agent at the same time

Partners is co-owner with his co-partners with Agent is not a co-owner with respect to principals
respect to partnerships property property

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For a partner to act, there is no need of a power of Power of attorney is ordinarily required before an
attorney, as long as the act is within the scope of agent may lawfully act
partnership business

Juridical personality and its effects on the partnership: separate and distinct from that of each of the
partners. The effects of a partnership having juridical personality are:
1. Can possess or acquire all kinds of property
2. Can incur obligation, that is, it can enter into contracts.
3. Can sue or be sued
4. Partnership may be adjudged insolvent even if the partners are solvent
5. Death of any of the partners would not warrant the dismissal of the case against the
partnership because the personality is different from that of the partners.
6. Summons upon the managing partner will bind the partnership it not being necessary to
summon the partners.

When does the partnership acquire juridical personality?

General Rule: from the moment the K of partnership is executed
Exception: stipulation that it shall begin at a later date.
Note on exception: if the agreement is to form a partnership at a later date, no partnership is established. The
exception pertains only to the acquisition of juridical personality. Therefore, when the agreement prvides that
the partnership will commenct at a fixed future date, or upon the performance of certain condition, such as the
complete payment of the partners contribution, or delivery of the object as contribution of a partner, the
partnership will no commence until that time arrives.

Effect of want of registration: the failure to register the contract of partnership does not invalidate the
same as among the partners, so long as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the members themselves knew the
contents of their contract (Sunga-Chan vs. Chua).

Test in determining the existence of a partnership: depends upon the contract itself, express or implied,
and the intention to create a partnership and in addition:
1. Existence of a common fund
2. Joint interest in the profits
3. Mutual benefits or advantage of partners

Rules in determining the existence of a partnership:

1. Persons who are not partners as to each other are not partners as to third persons
a. Except: When a person, represents himself, or consents to another representing him to
anyone, as a partner in an exiting 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 (1825).
b. Example: A and B are not partners, but B represents to X (a third person), that A and B are
partners, in the presence of A and without As objection, then the law considers A and B as
partners to X, although they are not actually partners.
2. Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners
or co-possessors do or do not share any profits made by the use of the property
a. Example: A and B agree to buy a parcel of land and that each of them will advance half the
price, and the property so acquired shall be divided between them, there exists a co-ownership
of the land, and not a partnership
3. Mere sharing of gross returns does not of itself establish a partnership because the basis of
sharing may arise from the fact that they are co-owners or co-possessors.
a. Except: when they share in the net profits, they may be considered as partners.

Facts destroying presumption of partnership existence resulting from participation in profits

General Rule: the receipt of a person of a share in the profits of the business raises the disputable
presumption that the recipient is a partner.
Exception: this presumption can be controverted by evidence such as
1. Debt by installment or otherwise
a. Example: A lends money to B, an owner of a business establishment. The consideration for the
loan is a share in the profits of the business. The loan does NOT make A a partner.
2. Profits were received in payment as wages of an employee or rent to landlord
a. Example: Employee A received a share of the profits in a business in consideration of the of the
rendition of service. This does not make him a partner.
3. Profits received in payment as an annuity to a widow or representative of a deceased partner.

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 a. Example: The death of partner A dissolves the partnership, and if it is continued, the fact that
As widow or heirs receive profits or annuity does not mean that they are partners.
4. Profits received in payment as interest on a loan, though the amount of payment vary with the profit of
the business
a. Example: A shares in the profits of a partnership, but such profit is given as interest on a loan
given by A to the partnership. A is not a partner.

Form of partnership contract: it depends on the properties contributed on the partnership

Contribution is money or personal property Contribution is immovable property or real

rights

Oral or written, express or implied. Even if the
capital is less or more than 3000 in money or
property (other than immovable), the same may be
constituted orally or in writing. Note that
registration is not a mandatory requirement, but is
merely directory.
the partnership contract must appear in a public
instrument, together with an inventory of the
immovables or real rights contributed, signed by
the parties, and attached to the public instrument,
otherwise the contract is VOID.
Effect of non-appearance in a public
instrument: If it is not in a public instrument and
the same is not registered regardless of the amount
of contributions in money or property, the legal
effects are:
1. There exists a valid partnership separate
and distinct from the partners
2. Partnership and the partners are still liable
3. Partners may compel each other to put it in
a public instrument
Exception: contribution of immovable. The
aforementioned effects do not apply.

Coverage of the statute of frauds in partnership contracts (must be in writing, otherwise unenforceable):
1. Promise to answer for the debt, default or miscarriage of another by a partnership
2. If the agreement to form a partnership shall be performed after one year
3. Contracts for the sale of real property of any interest therein or leasing of partnership property for
more than one year
4. Sale of personal property at a price not less than 500.
a. Except: when there is delivery or payment

Classification of partnership:

As to object 1. Universal- of all present property or of

profits
2. Particular
As to liability 1. General- all partners are liable to the
extent of their separate property
2. Limited- composed of at least one general
and one limited partner. The liability of the
limited partners is only to the extent of his
contribution

As to duration 1. At will- unlimited even after expiration, or

no agreed term. It is to last during the
mutual consent of the partners.
2. Fixed term- specific period of existence and
expiration. This may be converted into a
partnership at will, when after its
expiration, it is not dissolved or liquidated.
As to manner of creation 1. Orally
2. Written in a public or private instrument

Kinds of Partners:
1. As to liability

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 a. General- liability extends to his separate property
b. Limited- liability extends only to his contribution to the partnership
2. Nature of contribution to the partnership
a. Capitalist partner- one who contributes money or property
i. Prohibited from engaging FOR HIS OWN ACCOUNT in ANY OPERATION which is of the
kind of the business in which the partnership is engaged.
1. In case of violation
a. Shall bring to the partnership all the profits obtained
b. Personally bear losses.
b. Industrial partner- one who contributes only industry or personal services.
i. General Rule: an industrial partner cannot engage in business for himself
ii. Except: when permitted by the other partners.
iii. In case of violation:
1. effects
a. Expel industrial partner plus damages; OR
b. Profit or benefit shall be given to the partnership plus damages
2. Not an absolute prohibition. Exceptions:
a. Expressly stipulated that he may engage
b. Expressly or impliedly allowed to do so
c. Partnership ceases to be engaged in business.
iv. Example: A, B, and C formed a partnership engaged in buying and selling empty
bottles. A and B are the capitalist partners, while is the industrial partner.
1. C cannot engage in the same kind of business in which the partnership is
engaged. Even if he is a capitalist partner.
2. If C engages in the cleaning and storage of these empty bottles, the answer is
still no because this is a related business.
v. Industrial partners are from losses. But this does not mean that he is exempt from
liability to third persons. He may be liable to third persons, but with the right to
reimbursement from his fellow partners.
c. Distinguish
Capitalist Industrial
Contribution Money or property Industry
Prohibition to engage in other Cannot engage in the same or Cannot engage in any kind of
business similar kind of business unless business unless permitted to do
permitted by the other partner so
Profit According to the agreement; if Just and equitable share
none, pro-rate to his contribution
losses Stipulation profit sharing; pro-rate Exempted from losses as between
to contribution partners. Liable to third persons,
with the right to ask for
reimbursement from the capitalist
partner

3. As to knowledge by the public

a. Ostensible partner- one who is known to the public as a partner in the business
b. Secret partner- one whose connection with the business is unknown to the public
4. As to connection with the partnership
a. Real partner, one who is actually connected with the business of the partnership
b. Nominal partner- one who is a partner by name and is actually not a partner. Sometimes he is
referred to as a partner by estoppel
5. As to extent of participation in the business
a. Universal partner- participation refers to the whole or entire business
i. Of all present property- the partners contribute all the property which actually
belongs to them to a common fund including all profit acquired from such property
1. if stipulated, it may include the fruits of properties acquired by a partner by
inheritance, legacy or donation
2. Example: A, B, and C formed a UPPP (universal partnership of all present
property). A contributes his only property, a specific car, B contributes a
specific land (his only property), and C contributes a specific building (his only
property).
a. Who is the owner of the things contributed? The partnership
b. How about the profits of the fruits realized? The partnership
c. Suppose C inherits another building from his father? To C alone.
Because property subsequently acquired by inheritance, legacy, or

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 donation cannot be included even if there is a stipulation to that
effect. ONLY the fruits can be included, provided there is a stipulation.
3. Persons prohibited to enter into a universal partnership:
a. Made between spouses during the marriage
b. Made between persons who are guilty of adultery or concubinage at
the time of donation
c. Those made between persons found guilty to the same criminal
offense in consideration thereof
d. Those made between a public officer or his wife or some other person
by reason of the formers office
4. Status of partnership in violation of above: partnership is void, and will not
acquire juridical personality
ii. Of all the profits- presumption is in favor of this type of universal partnership
1. all profits acquired by each partner from his work or industry.
a. Includes: wages, professional fees, salaries, earnings in business or
trade, or in arts.
b. NOT included: those acquired by lucrative title such as donations,
succession, hereditary title, findings of hidden treasure
2. usufruct of movable or immovable property belonging to each partner at the
time of the perfection of the contract of partnership.
iii. Distinguish:
1. Present property refers to property contributed including the profits it acquires,
while partnership of profits refers to all that the partners may acquired by their
industry or work during the existence of the partnership
2. In present property, the property contributed becomes the common property of
all the partners. Meaning, the titles are transferred to the partnership. Under
profits, the contributing partner retains naked ownership, he only contributes
the use, usufruct, and the profits realized.
b. Particular partner- one whose relation to the business is specified or limited to a part of it
i. Scope
1. Determinate thing- partners contributing lands to be cultivated and planted,
the products to be sold in the market
2. Their use or fruits- partners contribute respective cars for rent a car business
3. Specific undertaking- partners contribute money to a common fund to
construct a building for profit
4. Exercise of a profession or vocation- partners, all attorneys, forma a
partnership to exercise their profession
c. Query: can a husband and wife enter into a universal partnership? A particular partnership? If
universal, they cannot because spouses are prohibited to donate to each other. However if the
partnership is a particular partnership or a limited partnership they can.
i. Example: A, B, and C formed a limited partnership. A and B were general partners
while C was a limited partner. Later, B and C got married, and afterwards A sold his
interest to B.
1. Is the partnership dissolved? No. the marriage of B and C, and the selling of
As interest to B will no dissolve the partnership because spouses can enter
into a particular partnership but not in a universal partnership.
6. As to his power in partnership management
a. Silent partner- has no control of or relation to the management of the business
b. Dormant partner- one whose connection with the partnership business is concealed and who
does not take any act or part in it
7. As to the time of admission
a. Original partner- partner at the time of the execution of the K of partnership
b. Newly admitted partner- partner after the formation of the partnership
8. As to the nature of management work
a. Managing partner- one who is appointed by the partners as manager of the partnership
business
i. Third party owes partnership and managing partner, and the managing
partner receives it: the amount received as payment must be applied to both
obligation in proportion to the credits, if the receipt is in the name of the managing
partner. However, if the receipt is in the name of the partnership, then the payment
must be applied to the partnership credit.
1. Example: A and B are partners, with A as the managing partner. X is indebted
to A in the amount of 30k, and to the partnership for 15k. Both debts are due
and demandable. X paid 3k to A and issued a receipt in his own name.

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 a. 2k must be applied to the indebtedness of X to A, and 1k must be
applied to the indebtedness of X to the partnership. The ratio is given
in proportion to the interest of A and the partnership.
b. IMPORTANT: there are exceptions to the rule if receipt is in the name
of the manager.
i. Debt of the partnership is not yet due on the date of the
payment
ii. Debt is more onerous in the exercise of the debtors right
1. Same facts as No. 1 above, except X owes A 30k with
10% interest payable on Dec. 25, and to the
partnership for 15k with 6% interest due on the same
date. If X pays A 10k with the agreed interest and
informed A that he is paying As credit, payment must
be applied on As credit because it is more onerous
than that of the partnership.
2. Example: Same facts as No. 1 above, except the receipt issued is in the name
of the partnership
a. 3k must be applied to the indebtedness of X to the partnership
because it is in the name of the partnership. In here, there is no
conflict of interest.
ii. These rules does not apply to an ordinary or silent partner.
1. Example: A, B, and C are partners. A is the managing partner. X owes C 30k
due on Dec. 25, and 15k to the partnership due on the same date. If on Dec.
26, X paid C 3k and the latter issued a receipt in his name, how will the
payment be applied?
a. Apply payment to Cs credit because he is only an ordinary creditor.
Had C been a manager, payment must be applied in prportion to both
obligations.
b. Liquidating partner- one who takes care of closing up the affairs of the partnership after
dissolution.
9. Property rights:
a. Specific partnership property
i. But there must be consent of all partners
ii. Example: A,B,C are partners. The partnership buys a car. A can use it for partnership
business without consent. But if A will personally use it, B and C must have consented.
iii. This right cannot be assigned, attached, nor be the subject of legal support.
1. Exception: interest in the specific partnership property can be attached,
charged, or levied upon (see b below)
b. Parnters interest in the partnership
i. Types
1. Profit
2. Surplus
c. Right to participate in the management

Damages suffered by the partnership due to the fault of a partner cannot be offset by benefits.

Management of the Partnership:

1. Modes of appointing
a. Via articles of partnership
i. Powers is irrevocable without just or lawful cause
1. Just cause- controlling partners should vote to oust him
2. Without cause- unanimity including himself
ii. Acts in good faith, he may do all acts of administration (NOT ownership) despite the
opposition of his co-partners
iii. Acts in bad faith, may be ousted from the firm by the vote of the controlling interest
b. Another instrument besis the AoP
i. Power revocable at any time with or without just cause.
ii. Acts of adminstration only. If he persists, he may be ousted.
2. Scope of powers- GENERAL AGENT.
3. Solidary management
a. Applies when:
i. 2 or more partners are appointed as managers
ii. no specification of respective duties
iii. no stipulation requiring unanimity
b. rules:

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 i. each may separately execute all acts of administration
ii. if one of the managers should oppose, the majority of the managers will prevail
iii. if there should be a tie, the matter will be decided by the controlling interest provided
they are also managers.
4. Joint management
a. Applies when:
i. 2 or more partners are appointed managers
ii. no one of the managers can act without the consent of the others.
b. Rules:
i. Consent of all managers required to execute an act
ii. One opposes, the act will not be executed
1. Except: imminent danger or irreparable injury to the partnership
iii. Absence of incapacity of one does not matter. The unanimity is still required unless
there is imminent danger
5. Manner of management not agreed upon
a. Each partner if acting in the name of the partnership can bind the partnership
b. If there is an opposition from one of the rest, the majority shall prevail, because the presumed
intention is for all of them to manage the partnership
6. Alteration in immovable property
a. Consent of all required.
b. May be expressed or implied

Assignment of interest to a 3rd person: this is allowed, whether or not there is consent from the other
partners. However, such assignee does not become a partner. There must be consent from the other partners
in order for the assignee to become a partner.

Who can demand information (different from rendering an accounting):

1. Any partner
2. Legal rep of a dead partner
3. Legal rep of any partner under legal disability

When may a partner demand a formal accounting of partnership affairs:

1. If a partner is wrongfully excluded from the partnership business or possession of its property by his
co-partners
2. Rights exists under the terms of any agreement
a. as a rule however, a partner cannot demand formal accounting because he has access to the
partnership books
3. Partner derived profits/benefits from any transaction connected with the formation, conduct or
liquidation of the partnership or from any use by him of its property; or
4. Whenever other circumstances render it just and reasonable.
Note: if an account was already made, it cannot be questioned anymore if it was accepted without objection.
Estoppel.

Effects of conveyance or assignment by a partner of his interest in the partnership

1. Conveys, assigns, sells, donates his whole interest in the Pp (profits and surplus): Pp NOT dissolved
and continues to exist.
2. Conveyee, assignee, donee, vendor does not become a Pr.
a. The conveyor etc. is still the partner
b. Still has the right to demand accounting
3. Conveyee etc cannot interfere in the management and administration of the Pp business or affairs.
4. Conveyee etc cannot demand information, accounting, or inspection of partnership books

Rights of the conveyee, assignee, donee, vendor

1. Obtain profits the conveyor/assignor would have gotten
2. Avail of usual remedies against fraud
3. After dissolution, right to demand accounting to cover the period only from the date of the last
accounting which had been agreed to by all the partners

Requisites in order that a partnership may be held liable to a third person for the act of one of the partners
1. Contractual obligation
a. K must be entered into in the name and for the account of the Pp and under its signature
b. Pr must be authorized to act for the Pp
2. Delict or Quasi-delict
a. Act must be performed by a Pr in the ordinary course of the business of the Pp with the
authority of his co-Prs.

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Firm Name: a Pp must have one, which may or may not include the name of one or more of the partners.
Liability of strangers who include their name: become liable as partners (estoppel), but do not have the
rights as a partner. Which means, he shall share in the losses but none of the profits. If he misrepresents
himself, the same liability applies.
Note: under the law, the liability of the partners is subsidiary and joint, not principal and solidary

Query: The AoP states that one of the partners is expressly exempted from personal liability for the losses of
the partnership. Is the agreement valid? It depends. If the exempted partner is an industrial one, the
agreement is valid among themselves, but not insofar as creditors are concerned. If the exempted partner is a
capitalist partner, the agreement is void as against creditors of the firms. As among themselves, it is valid,
regarding contributions in excess of the capital; but void, regarding the original contribution.

Instances when partnership is bound:

1. Requisites
a. Expressly/impliedly authorized
i. Implied authorization
1. No objection from other Prs despite knowledge
2. Act is for apparently carrying on in the usual way the business for the
partnership.
b. Acts in behalf and in the name of the Pp
Instances when Pp is not bound
1. Act executed not for usual way of conduct of Pp business.
a. Even if the 3rd person has no knowledge of the lack of authority, the Pp is not bound
2. Act executed is for the usual conduct BUT NOT authorized and the 3 rd person knows that the Pr is not
authorized.

Liability of the Pp for torts of the Pr

1. When liable
a. Wrongful act or omission is committed in the ordinary course of the business of the
Pp, or if not, the act or omission was made with the consent or authority of the other
Pr.
b. That the loss or injury is caused to a person who is not a Pr in the Pp.
2. When not liable
a. Wrongful act or omission was not done within the scope of the Pp business and for its benefit,
or with the authority of the co-partners
b. Act or omission was not wrongful
c. If the wrongful act or omission was committed after the Pp had been dissolved and the same
was not in connection with the process of winding up.
3. When solidary liable
a. Where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with authority of his co-partner, loss or injury is caused to any
person not being a partner.
b. Where one partner, acting within the scope of his authority, receives money or property from a
third person and misapplies them.
c. Where the Pp, in the course of business, receives money or property from a third person and it
is misapplied by any of the partners.
d. NOTE: in a,b, and c, the acting partner any or all of the partners, including the partnership are
liable because the obligation is solidary, without prejudice to their right to proceed against the
guilty partner.

Distinguish partner by estoppel and partnership by estoppel: when a person misrepresents himself as
a partner without the knowledge of the actual partners, and because of such misrepresentation, a third person
is misled, and acts because of such misrepresentation, the deceiver is a partner by estoppel. If the partners
consented to the misrepresentation, and a partnership liability results, there is a partnership by estoppel, with
the original members and the deceiver as partners. If the partnership or the partners had not consented, no
partnership liability results, but the deceiver is still considered a partner by estoppel with all the obligations
but no the rights of a partner. Be it noted that when although there is misrepresentation, the third
party is not deceived, the doctrine of estoppel does not apply.

Query: A and B are partners. C misrepresented himself to X with Bs knowledge only. As a result, X loaned to
C 1k. Is the 1k chargeable to the partnership? No. the 1k is not a partnership liability. A and C will share pro-
rata in paying X (500 each).

Liability of newly-admitted partner:

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 1. Obligations incurred before admission
a. Liable but limited to his capital contribution
i. Except: otherwise agreed upon
ii. Example (see Suarez 73)
2. Obligations incurred after admission
a. All partners (old and new) liable to the extent for their separate property
b. Example (see Suarez 74)

Effect of creation of a new partnership: dissolves the old one and creates a new one. But the creditors of
the old firm shall continue to be creditors of the new firms

Preference of partnership creditors: even if the separate creditors of the partners may attach the interest
or profit of a Pr in the Pp assets, still the creditor of the partnership are preferred as regards partnership
property.

When partnership not bound by transaction entered into by a partner:

1. When the acting partner is not authorized
2. Acting partner is insolvent
3. Business of the partnership becomes unlawful.

How partners liability is discharged: As a rule, the dissolution of the partnership will not automatically
discharge the liability of a partner from his obligation to the firm. His liability will be discharged only when an
agreement to that effect is reached by:
1. Partners concerned
2. Other partners
3. Creditors

Dissolution- change in the relation of the partners caused by any partner ceasing to be associated in carrying
out the business
1. Automatic dissolution
a. Causes
i. Without violation of agreement
1. Termination of the term or particular undertaking
2. Express will of any partner acting in good faith when no definite term or
particular undertaking is specified
3. Express will of ALL the partners
4. Expulsion of any partner.
ii. In violation of the Pp agreement
iii. Business becomes unlawful
iv. Loss of a specific thing contributed to the partnership
1. Specific thing itself is contributed
a. Loss before delivery- Pp dissolved
b. Loss after delivery- Pp is not dissolved
2. Only the use of the object is contributed
a. Whether before or after, Pp dissolved
v. Death of any partner
vi. Insolvency
1. Of any partner
2. Of the partnership
vii. Civil interdiction of any partner
viii. Decree of court
1. Insanity
2. Incapacity of a Pr
3. Guilty of such conduct that will prejudicially affect the business
4. Willful violation of agreement
5. Business can be carried on only at a loss
6. Other circumstances rendering dissolution equitable
2. Effect: authority of a partner to bind the Pp is terminated, except those necessary to wind-up
partnership affairs. Hence, Ks and obligations previously entered into, whether the firm is the creditor
or debtor remain to exist.
3. Two kinds of causes of dissolution
a. AID- act of a Pr, insolvency of a Pr, death
i. Effects

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 1. 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 bee
dissolved unless:
a. Acting partner had knowledge of the dissolution
b. If by death or insolvency of a partner, the partner acting for the
partnership had knowledge or notice of the death or insolvency
ii. Example: A, B, C are partners, contributing 10k each. C died. Without knowledge of
Cs death, A incurs a partnership obligation from X in the amount of 60k. After X
exhausts the Pp assets, can he go after As estate to collect 10k? Yes. A incurred the
loan in good faith. All the partners are liable. The same is true even if A incurred the
obligation with the knowledge of Cs death (in bad faith). However, B and C can go
after A for reimbursement.
b. Others

Winding-up- process of settling business affairs after dissolution

Termination- is the point in time after all the partnership affairs have been wound up.

A share in the partnership can only be returned after the completion of dissolution, liquidation, and winding up
of the business.

Limited Partnership

1. Definition: is one formed by 2 or more persons under the provisions of the following article, having as
members one or more general partners and one or more limited partners. The limited partners as
such shall not be bound by the obligations of the partnership.
2. Characteristics:
a. Organized according to law
b. MUST BE ONE OR MORE GENERAL PARTNERS
c. There must ONE OR MORE LIMITED PARNTERS contributing capital and sharing profits
d. The limited partners do not participate in the control of the business of the partnership.
e. The limited partners are not bound by the obligation of the partnership
f. Partnership debts shall be paid out of the common fund and the separate properties of the
general partners.
3. Requisites in formation
a. Certificate must be signed and sworn to by all the partners
b. Registered in the SEC
c. Effect of non-compliance: the partnership will be deemed a general one, wherein all the
partners will be liable to the extent of their separate properties.
4. Effect of omission of the word Limited or Ltd: partnership will be treated as a general one.
5. Contribution of each limited partner must be stated.
6. Allowed to contribute CASH or PROPERTY only.
a. If he contributes industry, he will be considered as a general industrial partner.
7. Effect of appearance of surname in Pp name: liable as a general partner
a. Except:
i. Surname of LP is the same as the surname of a GP
ii. Before the LP became as such, the business had been carried on under a name in
which his surname appeared
iii. When the 3rd person extended credit to the Pp with the knowledge that he is a LP
8. LP doesnt have a voice in the management of the firm
a. Acts constituting taking part in the control of the business
i. Selection of managing partner
ii. Supervision over a superintendent of the business
b. Acts which are not
i. Mere dealing with a customer
ii. Consultation with a GP
9. LP cannot perform acts of administration
10. Distinguish rights of GP and LP
a. GP-
i. Have all the rights and powers and is subject to all the restrictions and liabilities of a
partner in a G Pp. However, without the written consent or ratification by all the
limited partners, the general partners have no authority to execute any of the 7 acts
under 1850
b. LP
i. Require that the Pp books be kept at the principal place of business; inspect; copy
ii. Demand true and full information of all things affecting the Pp

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 iii. Demand formal accounting whenever just and reasonable.
iv. Ask for dissolution and winding up by court decree
v. Share of profits and other compensation by way of income
11. General-limited partner
a. All rights and liabilities of a GP
b. LP as to his rights of contribution (money and property)
12. LPs right to deal with the Pp
a. Loan money to the Pp
b. Transact business with the Pp
c. Receive a pro-rata share of the Pp assets with general creditors, unless he is a general-limited
Pp
13. Preferred limited partners: they are given priority over limited partners. However, this agreement
must be stated in the certificate.
a. Nature of preference can be
i. Return of contribution
ii. Compensation
iii. Other matters
14. When may an LP demand a return of contribution
a. Upon dissolution
b. Upon arrival of the date specified in the certificate of its return
c. No time is fixed, after 6 months notice n writing is given to all partners
d. Note: only cash returns, unless otherwise specified.
15. LPs liability for contribution
a. Difference between actual and promised (as stipulated in the certificate)
b. Additional contribution which he agrees to make at a future time
16. Assignability of interest: this is allowed, but the assignee does not become an LP unless requisites are
fulfilled
a. Requisites of substitution
i. Consent of all partners
ii. Certificate of amendment, signed, sworn by all partners including the substituted LP
iii. Amended certificate filed with the SEC
17. Rights of assignee (not a substituted LP): only one as compared to a GP- right to receive share of
profits
18. Causes of dissolution of an L Pp:
a. Retirement of GP
b. Death of a GP
c. Insolvency of a GP
d. Insanity of a GP (automatic dissolution; compared to a G Pp, insanity is a ground for judicial
dissolution)
e. Civil interdiction of a GP
19. Order of liquidation and preference of a L Pp
a. Outside creditors and limited Prs unless Pp is insolvent
b. Limited Prs share in the profits
c. Limited Prs return of capital contribution
d. GPs aside from profits and capital
e. GPs profit
f. GPs return of capital contribution

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