Introduction Partnership plan of business association was developed: To permit combinations of capital, or capital and experience To secure economy

by eliminating some of the overhead costs of individual enterprises Sources of our law on partnership old Civil Code merican statutes: !niform Partnership ct and !niform "imited Partnership ct rt #$%$ Partnership is a legal concept, but the determination of the existence of a pshp may involve inferences drawn from an analysis of all the circumstances attending its creating and operation

8ssential features of Pshp #& There must be a valid contract a& pshp relation fundamentally contractual pshp is a voluntary relation created by agreement of the parties no such thing as pshp created by law or by operation or implication of law alone pshp relation is not the contract itself but the result of the contract Form relation is evidences by the terms of the contract, oral or written, express or implied from the acts and declarations of the parties, sub'ect to rt #$$# to #$$3 and to the Statute of 9rauds Articles of Pshp while the pshp relation may be informally created and its existence proved by manifestations of the parties, it is customary to embody the terms of the association is a written document stating the name, nature or purpose and location of the firm, defining the powers, rights, duties and liabilities of the partners, their contributions, and the manner by which profits and losses are to be shared, and the procedure for dissolving the pshp rticles of pshp must not be /ept secret among members: otherwise, the association shall have no legal personality Requisities all the essentials of a valid contract must be present 0Consent, 6b'ect, Cause1 there must be al least , competent parties pshp relation fiduciary in nature a personal relation in which the element of delectus personae 0choice of the person1 exists, involving trust and confidence between the partners no one can become a member of the pshp association without the consent of all the other associates fiduciary nature of the pshp relation and the liability of each partner for the acts of the others within t he scope of the pshp business re-uire that each person be granted the right to choose with whom he will be associated in the firm pplication of principles of estoppel a pshp liability may be imposed upon a person under principles of estoppel in favor of third persons where he holds himself out as a partner in an enterprise it is the substance which determines the legal relationship

Civil law v& merican concept of pshp C: pshp as a contract : that of a relation C: pshp has a 'uridical personality of its own, distinct and separate from that of each of the partners : does not recogni(e such separate 'uridical personality C: pshp, except for general professional pshp, are treated for income tax purpose as corporations : does not pay federal or state income )eneral Professional Pshp Profession * a group of men pursuing a learned art as common calling in the spirit of public service The practice of a profession is not a business or an enterprise for profit& +owever, the law allows the 'oint pursuit thereof by , or more persons as partners It is the individual partners, and not the pshp, who engage in the practice of the profession and are responsible for their own acts "aw does not allow individuals to practice a profession as a corporate entity& Personal -ualifications for such practice cannot be possessed by a corporation

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Pshp for the practice of law #& mere association for non-business purpose right to practice law is not a natural or constitutional right but is in the nature of a privilege use of trade name in law practice is improper ,& .istinguished form business practice of law is intimately and peculiarly related to the administration of 'ustice and should not be considered li/e an ordinary money-ma/ing trade ,&

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The parties must have legal capacity to enter into the contract a& Individuals );, any person may be a partner who is capable of entering into contractual relations 8xcept rt ,35 of 9amily Code: rt #$<, CC b& c& Pshp no prohibition against a pshp being a partner in another pshp Corporations unless authori(ed by statute or by its charters, a corporation is without capacity or power to enter in a contract of pshp limitation based on public policy, since in a pshp the corporation would be bound by the acts of persons who are not its duly appointed and authori(ed agents and offices, which would be entirely inconsistent with the policy that corporations shall manage its own affairs separately and exclusively a corporation may however enter into a 'oint venture pshp with another where the nature of the venture if in line with the business authori(ed by its charter

Primary characteristics which distinguish legal profession from business 0p& ##1 Characteristic elements of Pshp #& Consensual * perfected by mere consent, upon express or implied agreement of , or more persons ,& 2ominate * has a special name or designation on our law 3& 4ilateral * entered into by , or more persons and the rights and obligations arising are always reciprocal 5& 6nerous * each of the parties aspires to procure for himself a benefit through the giving of something 7& Commutative * underta/ing of each of the partners is considered as the e-uivalent of that of the others %& Principal * does not depend its existence or validity upon some other contracts $& Preparatory * entered into as a means to an end Pshp contract, in its essence, is a contract of agency 3&

There must be mutual contribution of money, property or industry to a common fund a& 8xistence of proprietary interest

partners must have a proprietary interest in the business by ma/ing mutual contribution to a common fund although its presence is not necessarily conclusive evidence of the existence of pshp a limited partner in a limited pshp, cannot contribute mere industry or services =oney * currency legal tender is the Philippines Property * real or personal, corporeal or incorporeal Industry * active cooperation, the wor/ of the party associated, either personal manual efforts or intellectual

Clear intent to derive profits from operation of business and not merely from property ownership 8xistence of fiduciary relationship between partners, if the parties are merely co-owners, there is none ;emedy for dispute of parties in pshp would be an action for dissolution, termination and accounting: for co-owner, action for non-performance of contract Property ac-uired by a man and a woman who live together as husband and wife shall be governed by the rules on co-ownership

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Proof of contribution proof is necessary that there be contribution of money, property or industry to a common fund with the intention of dividing the income of profits obtained

The ob'ect must be lawful 6b'ect is unlawful when contrary to law, morals, etc&& Purpose of pshp must be lawful otherwise, contract is inexistent and void ab initio The primary purpose must be to obtain profits and to divide the same among the parties The very reason for the existence of pshp is obtaining pecuniary profit or gain 2eed only be the principal aim, not exclusive aim It is necessary that there be an intention to divide the profits among the members, although not necessarily in e-ual shares The sharing in profits is merely presumptive and not conclusive, even if cogent, evidence of pshp The right it share in the profits carries with it the duty to contribute to the losses of any If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion

Sharing of gross returns lone does not indicate a pshp, since in a pshp, the partners share profits after satisfying all of the pshpAs liabilities not even presumptive evidence of pshp as distinguished from the general rule recogni(ing sharing of profits as presumptive evidence of pshp where there is evidence of mutual management and control, a pshp may result, even though the agreement calls for a portion of Bgross returnsC ;eceipt of share in the profits strong presumptive evidence of pshp but no conclusive, may be rebutted and outweighed by other circumstances lac/ of such agreement to share both profits and losses tends to strongly negate the existence of a pshp 4 SIC T8ST of Pshp: whether inter se, or as to third persons, is whether the business is carried on in behalf of the person sought to be held liable& nd persons who are partners in fact may not avoid the conse-uences of the relation by mere word of denial 4urden of Proof and Presumption );: burden of proving the existence of a pshp rests on the party having the affirmative of that issue 0p& 5%1 "egal intention is the crux of pshp& Parties may call themselves partners in no uncertain terms, yet their contract may be ad'udged something -uite different& Conversely, parties may expressly stipulate that their contract is not a pshp yet the law may determine otherwise on the basis of legal intent Tests and incidents of pshp 0p& 5$1 Pshp distinguished from: #& "abor !nion 0p& 5<1 ,& Trust 0p& 5<1 3& Co-ownership 0p&5?1 5& Con'ugal Pshp of )ains 0P& 7,1 7& Doluntary ssociation 0p& 731 %& Corporation 0p& 7$1 rt #$$> );: Parties possess absolute freedom to choose the transactions they must engage in& The only limitation is that the ob'ect must be lawful and for the common benefit of the members "imitation arises not only from the express provision of the law but from the general principles of morality and 'ustice 8ffects of an unlawful pshp #& contract is void ab initio and pshp never existed in the eyes of the law ,& profits confiscated in favor of the government 3& instruments or tools and proceeds of the crime shall also be forfeited in favor of the government 5& contributions f the partners shall no be confiscated unless they fall under 2o& 3 pshp is dissolved by operation of law upon the happening of an event which ma/es it unlawful for the business of the pshp to be carried on

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rt #$%< Pshp, a 'uridical person, to which the law grants a 'uridical personality separate and distinct from that of each of the partners may enter into contracts, ac-uire and possess property, incur obligations and bring civil or criminal actions In case of failure to comply with the re-uirements of rt #$$,, with reference to the execution of a public instruments and registration of the same with S8C, pshp capital exceeds P3,>>>, pshp ac-uires 'uridical personality 9ailure to comply with rt #$$3, the pshp shall not ac-uire 'uridical personality because the contract itself is void To organi(e a pshp that could claim a 'uridical personality of its own and transact business as such, is not a matter of absolute right but a privilege

rt #$%? );: to establish the existence of a pshp, all of its essential characteristics must be shown as being present 8xcept: In case of doubt, rt #$%? shall apply The issue as to whether a pshp exists is a factual matter& @here circumstances ta/en singly may be inade-uate to prove the intent to form a pshp, nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence of the partiesA intent

Partners not partners as to each other cannot be partners as to third persons whether or not he parties call their relationship pshp is immaterial except, pshp by estoppel Co-ownerhsip or co-possession whenever the ownership of a undivided thing or right belongs to different persons

'udicial decrees is not necessary to dissolve an unlawful pshp Third persons who deal with the pshp without being aware of its illegal purpose or character are protected unless such /nowledge can be presumed as where the transaction is plainly unlawful

Purpose of registration re-uirement of public instrument is imposed as a prere-uisite to registration necessary for the issuance of a license to engage in business @hen pshp considered registered from the date the pshp papers are presented to and left for record in the Commission recording of articles of pshp is not for the purpose of giving the pshp 'uridical personality, but to ma/e the recorded instrument open to all and to give notice to interest parties rt #$$3 intended primarily to protest third persons inventory is re-uired only when immovable property is contributed inventory important to show how much is due from each partner to complete his share in the common fund and how much is due to each of them in case of li-uidation rt #$$5 rt #$$7 The pshp relation is created only by voluntary agreement of the partners& It is essential that the partners are fully informed not only of the agreement but of all matters affecting the pshp It is essential that the articles of pshp be given publicity for the protection not only of the members themselves but also third persons from fraud and deceit member who transacts business for the secret pshp is his own name becomes personally bound to third persons unaware of the existence of such association 4ut a person may be held liable as a partner or pshp liability may result in favor of third persons by reason of estoppel

;ight to return of contribution where pshp is unlawful the fact that contributions are not included in the disposal prescribed for profits, the partners must be reimbursed the amount of their contributions partner who limits himself to demanding only the amount contributed by him need not resort to the pshp contract on which to base his claim since the purpose for which the contribution was made has not come into existence, the manager of the pshp is bound to return ;ight to receive profits where pshp is unlawful article permits no action for the purpose of obtaining the earnings, the partner have to base his action upon pshp contract which is null by reason of its unlawful ob'ect it would be immoral and un'ust for the law to permit a profit from a industry prohibited by it 8ffect of partial illegality of pshp business an account of that which is legal may be had where, without the /nowledge of the partners, the firmAs profits in a lawful business have been increase by wrongful acts, the innocent partners are not precluded as against the guilty partners from recovering their share of the profits 8ffect of subse-uent illegality of pshp business an accounting may be had as to the business transacted prior to such time Community of interest between the partners for business purposes salient feature of an ordinary pshp: #1 community of interest in profits and losses, ,1 community of interest in the capital employed, 31 community of power in administration although every pshp appears to be founded on community of interest, every community of interest does no necessarily constitute a pshp rt #$$# );: 2o special form is re-uired for the validity or existence of the contract of pshp: may be oral or written 8xcept: #& @here immovable property or real rights are contributed, a public instrument shall be necessary to affect third persons, transfer of real property to the pshp must be duly registered ,& @hen pshp agreement covered by Statute of 9rauds agreement unenforceable unless the same be in writing or at least evidences by some note or memorandum subscribed by the parties Pshp implied from conduct a pshp may exist based from the acts or conducts of the parties: the intention as disclosed by the entire transaction, and as gathered from the facts and from the language employed by the parties as well as thei conduct, should be ascertained rt #$$, , re-uirements where the capital of the pshp is P3,>>> or more, in money or property #& Contract must appear in a public instrument ,& It must be recorded or registered with S8C 9ailure to comply does not prevent the formation of pshp or affect its liability and that of the partners to third persons ny of the partners is granted the right by law to compel each other to execute the contract if a public instrument

rt #$$% 0p& $71 rt #$$$ rt #$$< rt #$$? !niversal pshp of profits * one which comprises all that the partners may ac-uire by their industry or wor/ during the existence of the pshp and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract Common property of all the partners #& Property which belonged to each of them at the time of the constitution of the pshp ,& Profits which they may ac-uire from the property contributed profits from other sources will become common property only if there is a stipulation rt #$<>

6bligations of the Partners ;elations created by a contract of pshp #& ;elations among the partners themselves ,& ;elations of the partners with the pshp 3& ;elations of the pshp with third persons with whom it contracts 5& ;elations of the partners with such third persons Pshp relationship essentially one of mutual trust and confidence - law imposes upon the partners highest standards of integrity and good faith in dealings with each other 9iduciary relationship remains until pshp terminated - when a pshp is dissolved, the assets of the pshp must still be managed in accordance with this fiduciary principle ;elationship in a limited pshp - does not involve the element of trust and confidence as in case of a general pshp rt #$<5 Commencement and term of pshp - a pshp is a consensual contract: hence, it exists from the moment of the celebration of the contract by the partners - its registration in the S8C is not essential to give it 'uridical personality - the birth and life of a pshp is predicated on the mutual desire and consent of the parties - no time limit is prescribed by law for the life of pshp: partners may fix in their contract any term and they shall be bound to remain under such a relation for the duration of the term barring the occurrence of any of the events causing dissolution of the pshp before its expiration ;ules governing pshp relation - what is necessary for the existence of a pshp is that the essential re-uisites of a contract of pshp are present even when: o partners have not yet actually begun the carrying on of its business or given their contribution o conditions and details have not yet been fixed 0PE" Sharing1 - when a pshp relation results, the law itself fixes the incidents and conse-uences of this relation if the parties fail to do so 8xecutory agreement of pshp rt #$<5 not absolute - Partners may stipulate some other date for the commencement of the pshp: as long as the agreement for a pshp remains inchoate or unperformed, the pshp is not consummated - .eath of either party to an executory agreement of pshp prevents the formation of a firm rt #$<7 Pshp with a fixed term - 6ne in which the term of its existence has been agreed upon expressly 0definite period1 or impliedly 0particular underta/ing1 - 8xpiration of the term or the accomplishment of the particular underta/ing specified will cause the automatic dissolution of the pshp - Pshp may be extended or renewed by the partners by express agreement, written or oral, or impliedly by the mere continuation of the business after termination - Pshp for a fixed term or particular underta/ing is dissolved and a new one, a pshp at will, is created .issolution of pshp - 6ne of the partner may, at his sole pleasure, dictate a dissolution of a pshp at will: he must act in good faith, otherwise bad faith can result in a liability for damages to the other partners: implicit in good faith that dissolution must not be made at an improper or unreasonable time

- Pshp for a fixed term may li/ewise be terminated by express will of any partner before the time mentioned Pshp for a term impliedly fixed lthough the term of a pshp is not expressly fixed, an agreement of the parties may evidence an understanding that the relation should continue until the accomplishment of particular underta/ing or certain things have been done or have ta/en place the mere expectation that the business would be successful and that the partners would be able to recoup their investment is not sufficient to create a pshp for a term& ll pshps are ordinarily entered into with the hope or expectation that they will be profitable, but that alone does not ma/e them all pshp for a term rt #$<% 6bligations with respect to contribution of property #& to contribute at the beginning of the pshp or at the stipulated time the money, property, or industry which he may have promised to contribute ,& =oney or property contributed by a partner becomes the property of pshp: cannot be withdrawn or disposed of without the consent or approval of the pshp or the other partners 9ailure to contribute ma/es the partner ipso 'ure a debtor of the pshp even in the absence of a demand: remedy is for specific performance and not rescission, with damages and interest form the defaulting partner from the time he should have complied with his obligation rt ##?# not applicable, rt #$<% and #$<< specifically applies to contract of pshp rt #<3< allows rescission or annulment of a pshp contract on ground of fraud or misrepresentation committed by one of the parties to answer for eviction in case the pshp is deprived of the determinate property contributed

8viction ta/es place when: - 4y final 'udgment based on a right prior to the sale or an act imputable to the vendor, vendee is deprived of the whole or part of the thing purchased - 4ecause pshp contract is an onerous contract 3& 5& 7& to answer to the pshp for the fruits of the property the contribution of which he delayed, from the date they should been contributed up to the time of actual delivery 2o demand is necessary to put the partner in default 9rom the mere fact that the property which a partner ought to deliver does not pass to the common fund on time and pshp fails to receive the fruits to preserve said property with the diligence of a good father of a family pending delivery to the pshp to indemnify the pshp for any damage caused to it by the retention of the same

"iability of a partner for failure to perform service stipulation );: unless there is a special agreement to that effect, the partners are not entitled to charge each other, or the pshp of which they are members, for their services in the firm business 8xcept: if the partner neglects or refuses, without reasonable cause, to render the service which he agreed to perform by reason of which the pshp suffered loss If the partner is compelled to ma/e good the loss, each member of the firm, including himself, will received his proportion of the amount in the distribution of the pshp assets, and in no 'ust sense can this e regarded as compensation for the services individually rendered Proper measure of damages is the value of the services wrongfully withheld rt #$<$

ppraisal of goods or property contributed necessary to determine how much has been contributed by the partners ppraisal is made: #1 in the manner prescribed by the contract of pshp: ,1 by experts chosen by the partners according to current prices fter goods have been contributed, the pshp bears the ris/ or gets the benefit of subse-uent changes in their value In case of immovable property, appraisal is made in the inventory of the said property rt #$<<

Permission given must be express: hence, mere toleration by the pshp will not exempt the industrial partner from liability rt #$?>

The partners can stipulate the contribution of une-ual shares to the common fund, but in the absence of such stipulation, the presumption is that their contribution shall be in e-ual shares 2ot applicable to industrial partner rt #$?#

, distinct cases #& money promised but no given on time ,& pshp money converted to the personal use of the partner 6bligations of the partners with respect to pshp capital #& To contribute on the date due amount he has underta/en to contribute to the pshp ,& To reimburse any amount he may have ta/en from the pshp coffers and converted to his own use 3& To pay the agreed or legal interest and indemnify for damages, if he fails to pay contribution on time or in case he ta/es any amount from the common fund and converts it to his own use )uilty partner is liable for interest and damages not from the time of 'udicial or extra'udicial demand but from the time he should have complied with his obligation 0obligation to contribute upon the perfection of the contract1 or from the time he converted the amount to his own use

);: a capitalist partner is not bound to contribute to the pshp more than what he agreed to contribute 8xcept: in case of an imminent loss of the business, and there is no agreement to the contrary, he is under obligation to contribute an additional share to save the venture: if he refuses, he shall be obliged to sell his interest to the other partners ;e-uisites #& There is an imminent loss of the business of the pshp ,& =a'ority of the capitalists partners are of the opinion that an additional contribution to the common fund would save the business 3& Capitalist partner refuses deliberately 0not because of financial inability1 to contribute an additional share to the capital 5& There is no agreement that even in case of an imminent loss the partners are not obliged to contribute ;eason - ;efusal to contribute reflects his lac/ of interest in the continuance of the pshp - It would be un'ust for him to remain and reap the benefits of the efforts of the others while he himself refuses to help rt #$?, @here a person is separately indebted to the pshp and to the managing partner at the same time, any sum received by the managing partner shall be applied to the , credits in proportion to their amounts: 8xcept where he received it for the account of the pshp, in which case, the whole sum shall be applied to the pshp credit

"iability of partner for failure to return pshp money received #& @here fraudulent misappropriation committed - Partner is guilty of estafa ,& @here there was mere failure to return - 2ot an act constituting the crime of estafa: action is a civil one arising from the pshp contract for a li-uidation of the pshp and levy on its assets if there should be any rt #$<? Industrial partner * one who contributes his industry, labor, or services to the pshp he becomes a debtor of the pshp for his wor/ or services from the moment the pshp relation begins if he engages in business for himself, such act is considered pre'udicial to the interest of the other partners action for specific performance to compel the partner to perform promised wor/ is not available 0involuntary servitude1 Prohibition against engaging in business #& s regards industrial partners prohibition is absolute and applied whether the he is to engage in the same business in which the pshp is engaged or in any /ind of business to prevent conflict of interest and to insure faithful compliance with his prestation ,& s regards capitalists partners prohibition extends only to any operation which is of the same /ind of business in which the pshp is engaged unless there is a stipulation to the contrary

;e-uisites #& There exist at least , debts, one where the collecting partner is creditor, and the other, where the pshp is the creditor ,& 4oth debts and demandable 3& The partner who collects is authori(ed to manage and actually manages the pshp ;eason - The law safeguards the interests of the pshp by preventing the possibility of their being subordinated by the managing partner to his own interest to the pre'udice of the other partners 2ot applicable where the partner who collects for his own credit only is not authori(ed to manage .ebtor is given the right to prefer payment of the credit of the partner if it should be more onerous to him rt #$?3 There is only one credit * credit in favor of the pshp pplies whether the partner who receives his share of the pshp credit is authori(ed to manage or not

;emedies where the industrial partner engages in business #& 8xclude him from the firm with damages ,& vail of the benefits which he may have obtained with damages

;e-uisites #& partner has received, in whole or in part, his share of the pshp credit ,& The other partners have not collected their shares

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The pshp debtor has become insolvent

rt #$?$ ;egulate the distribution of PE" among the partners, not refer to the liability of the partners to third persons

;eason - Community of interest among partners This article presupposes that there exists a pshp capital rt #$?5 PartnerAs fault must be determined in accordance with the nature of the obligation and the circumstances of the person, the time and the place

);: the damages caused by a partner to the pshp cannot be offset by the profits or benefits which he may have earned for the pshp by his industry a& partner has obligation to secure benefits for the pshp: profits which he may have earned pertain as a matter of law or right, to the pshp b& +e has the obligation to exercise diligence in the performance of his obligation as a partner, 8xcept: If unusual profits are reali(ed through the extraordinary efforts of the partner at fault, the courts may e-uitably mitigate or lessen his liability for damages rt #$?7 ;is/ of loss of things contributed #& Specific and determinate things which are not fungible where only the use is contributed ris/ of loss borne by the partner because he remains the owner of the things ,& 3& Specific and determinate things the ownership of which is transferred to the pshp ris/ of loss is for the account of the pshp 9ungible things or things which cannot be /ept without deteriorating even if they are contributed only for the use of the pshp ris/ of loss is borne by the pshp Things contributed to be sold pshp bears the ris/ of loss Things brought and appraised in the inventory pshp bears the ris/ of loss It presupposes that the things contributed have been delivered actually or constructively to the pshp& 4efore delivery, the ris/ of loss is borne by the partner since he remains their owner If the loss is due to the fault of any of the partners, he shall be liable for damages to the pshp rt #$?% In the absence of a stipulation to the contrary, every partner is an agent of the pshp for the purpose of its business: +ence, the pshp has obligation to: #& refund amounts disbursed by the partner in behalf of the pshp plus interest from the time the expense are made ,& answer for the obligation the partner may have contracted in good faith in the interest of the pshp business 3& answer for ris/s in conse-uence of its management Partner, being an agent, is not personally liable provided he is free from all fault and he acted within the scope of his authority: but he is not given the right of retention if he is not reimbursed

.istribution of profits #& ccording to their agreement ,& If there is no such agreement a& Share of each capitalist partner shall be in proportion to his capital contribution b& Industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as may be 'ust and e-uitable under the circumstances partner is entitled to receive only his share of the profits actually reali(ed by the venture& 8ven when an assurance was made by a partner that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the profits promised where the business is highly speculative and turned out to be a failure& +idden ris/s in any business venture have to be considered .istribution of "osses #& ccording to their agreement ,& If there is no such agreement, but the contract provides for the share of the partners in the profits, the share of each in the losses shall be in accordance with the profit-sharing ratio, but industrial partner shall not be liable for losses 3& If there is also profit-sharing stipulated, then losses shall be borne by the partners in proportion to their capital contributions, but he purely industrial partner shall be liable for the losses rt #$?< .esignation of the share in the profits and losses may be delegated to a third person by common consent& Third person not a partner Prohibition in the ,nd paragraph is necessary to guarantee the utmost impartiality in the distribution of shares in the PE" .esignation by third person would generally be binding unless manifestly ine-uitable partner who has begun to execute the decisions of the third person or who fails to impugn the same within 3 months from the time he had /nowledge of it can no longer complain: partner is guilty of estoppel or is deemed to have given his consent or ratification to the designation @hy 3 monthsF To forestall any paraly(ation in the operations of the pshp rt #$?? The law does not allow a stipulation excluding one or more partners from any share in the profits and losses& The pshp must exist for the common benefit and interest of the partners& lthough stipulation is void, pshp, if otherwise valid, subsists and PE" shall be apportioned as if there were not stipulation on the same @here the parties expressly stipulate that there shall be no sharing of PE", such fact may be a factor in determining that no pshp exists @here the one excluded from any share in the PE" is not intended by the parties to become a partner, the stipulation is valid stipulation exempting industrial partner from the losses in valid The limitation does not mean that the partners cannot stipulate for une-ual shares in the PE" even if their respective contributions are e-ual, unless the ine-uality is so gross rt #<>> 8ach partner has a right to an e-ual voice in the conduct of the pshp business, not dependent on the amount or si(e of the partnerAs capital contribution

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Partners may select a managing partners or ma/e such allocation of functions are the needs of the business dictate ;efers to partner, not a stranger, who has been appointed manager rt #<>5 Sub-partnership * pshp formed between a member of a pshp and a third person for a division of the profits coming to him from the pshp enterprise it is a pshp within a pshp and is distinct and separate from the main or principal pshp do not in any wise affect the composition, existence or operations of the firm subpartners are partners inter se, but, in the absence of the mutual assent of all the parties, a subpartner does not become a member of the pshp, even though the agreement is /nown to the other members of the firm not being a member of the pshp, he does not ac-uire the rights of a partner nor is he liable for its debts rt #<>7 The duty to /eep true and correct boo/s showing the firmAs accounts, such boo/s being at all times open to inspection of all members of the firm, primarily rests on the managing or active partner It is presumed that the partners have /nowledge of the contents of the pshp boo/s and that it states accurately the state of accounts The right to inspect or copy the boo/s is granted to enable the partners to have true and full information of all things affecting the pshp The partnersA inspection rights are not absolute& +e can be restrained from using the information gathered for other than pshp purpose Bany reasonable hourC mean reasonable hours on business days throughout the year and not merely during some arbitrary period of a few days chosen by the managing partners rt #<>% There must be no concealment among partners in all maters affecting the pshp The information must be used only for a pshp purpose Bon demandC does not meant that partner is under no obligation to ma/e a voluntary disclosure of information affecting the pshp rt #<>$ The relation between the partners is essentially fiduciary, each partner being considered the confidential agent of the others

, distinct cases #& ppointment as manager in the articles of pshp - may execute all acts of administration despite opposition unless he should act in bad faith - power revocable only upon 'ust and lawful cause and upon vote of the partners representing the controlling interest - ;eason: appointment is one of the conditions of the contract ,& ppointment as manager after the constitution of the pshp - =ay be revo/ed at any time for any cause whatsoever );: a partner appointed as manager has all the powers of a general agent as well as all the incidental powers necessary to carry out the ob'ect of the pshp in the transaction of its business 8xcept: when the powers of the manager are specifically restricted );: Partner generally not entitled to compensation - 8ach member of the pshp assumes the duty to give his time, attention and s/ill to the management of its affairs so far as may be reasonably necessary to the success of the common enterprise - In the absence of any prohibition in the articles of pshp for the payment of salaries to general partners, there is nothing to prevent the partners to enter into a collateral verbal agreement to that effect 8xcept: Page #,? rt #<># ;ight to oppose can be exercised only by those entrusted with the management of the pshp and not by any partner If there is a specification of the respective duties of the managing partners, the decision of the partner concerned shall prevail sub'ect only to the limitation that he should act in good faith

;e-uisites: #& , or more partners have been appointed as managers ,& There is no specification of their respective duties 3& There is no stipulation that one of them shall not act without the consent of all the others rt #<>, Consent is so indispensable that neither the absence nor disability of any one of them may be alleged as excuse or 'ustification to dispense with this re-uirement 8xcept: when there is an imminent danger of grave or irreparable in'ury to the pshp, in which case, a partner may act alone without the consent of the partner who is absent or under disability, without pre'udice to his liability for damages: not applicable when one of the managers, in the exercise of his right to oppose, ob'ects to the proposed act rt #<>3 In case of a timely opposition rt #<># applies !nanimous consent of all the partners is necessary for any important alteration in the immovable property of the pshp& The consent need not be express& It may be presumed from the fat of /nowledge of the alteration without interposing any ob'ection Prohibition applies to immovable property only because of the greater importance of this /ind of property compared to movable property and alteration must be important Prohibition applies even if alteration may be useful to the pshp& If alteration necessary for preservation of the property, it would seem that consent of the other partners is not re-uired

.uties of a partner #& .uty to act for common benefit he cannot, at the expense or to the detriment of the other partners, use or apply exclusively to his own individual benefit pshp assets or the results of the /nowledge and information gained in the character of partner managing partner particularly owe a fiduciary duty to inactive partners ,& 3& 5& .uty begins during formation of pshp principle of utmost good faith .uty continues even after dissolution of pshp .uty to account for secret and similar profits the duty of a partner to account as a fiduciary operates: a1 to prevent from ma/ing a secret profit out of the operation of the pshp, ,1 from carrying on the business of the pshp for his

7& %& $&

advantage, 31 a business in competition or rivalry with the business of his firm without the consent of the other partners .uty to account for earnings accruing even after termination of pshp .uty to ma/e full disclosure of information belonging to pshp information which can be used for the purposes of the pshp .uty not to ac-uire interest or right adverse to pshp a partner may not purchase, for his own benefit: a1 property of any /ind in which the pshp is interested, or lease property when the firm is entitled to the benefit of such lease b1 secure a valuable contract for himself which it is his duty to secure for the firm, c1 obtain secretly any right that should belong to the pshp and put it to his own individual profit

@hether the property shall belong to the pshp or the partners, the intent of the parties is the controlling factor Property ac-uired by a partner with pshp funds is pshp property rt #<##

Contemplates tangible property partner is a co-owner with his partners of specific pshp property but the rules on co-ownership do not necessarily apply

rt #<>< The prohibition against the capitalist partner to engage in business is relative, unli/e the industrial partner who is absolutely prohibited Capitalist partner is only prohibited from engaging for his own account in any operation which is the same as or similar to the business in which the pshp is engaged In case of losses, the capitalist partner shall bear them alone The partners, however, by stipulation may permit the capitalist partner to engage in the same /ind of business The rule prevents a partner from availing himself personally of information obtained by him in the course of the transaction of the pshp business or by reason of his connection with the firm regarding the business secrets and clientele of the firm to it pre'udice rt #<>? );: .uring the existence of the pshp, a partner is not entitled to a formal account of pshp affairs ;eason: rights of the partners to /now pshp affairs are amply protected in rt #<>7 and #<>% and to entitle any partner to the right to constantly demand or as/ for a formal accounting will cause much inconvenience and unnecessary waste of time 8xcep: rt #<>? n action for accounting is a personal action 0in personam1 and may be commenced and tried where the defendant resides or may be found or where the plaintiffs reside, at the election of the latter

8-ual right of possession any partner who uses the property for his own profit or benefit to the exclusion of his partners must account to the others for the profits derived or the value of his wrongful possession or occupation a partner who is wrongfully excluded from the possession of pshp property by his co-partner has a right to formal account from the later and even apply to a 'udicial decree of dissolution on the death of a partner, his right to specific pshp property vests in the surviving partners, not in the legal representative of the deceased partner 4y agreement, the right to possess specific pshp property may be surrendered ;ight no assignable a partner cannot separately assign his right to specific pshp property because it is impossible to determine the extent of his beneficial interest in the property until after the li-uidation of the pshp affairs but all of them can assign their rights in the same property ;eason: it prevents interference by outsiders in pshp affairs, it protects the right of other partners and pshp creditors to have pshp assets applied to firm debts: it is often impossible to measure or value a partnerAs beneficial interest in a particular pshp The law allows a retiring partner to assign his rights in pshp property to the partners continuing the business Strictly spea/ing, no particular pshp property or any specific or an ali-uot part can be considered the separate or individual property of any partners& The whole pshp property belongs to the pshp considered as a 'uridical person rt #<#, The partnerAs interest in the pshp consists of his share in the undistributed profits during the life of the pshp as a going concern and his share in the undistributed surplus after its dissolution

Property ;ights of a Partner rt #<#> 6ther rights of a partner: #& right to reimbursement 0 rt #$?%1 ,& right of access and inspection of pshp boo/s 0 rt #<>71 3& right to true and full information 0 rt #?>%1 5& right to a formal account 0 rt #<>?1 7& right to have the pshp dissolved 0 rt #<3>-#<3#1 Pshp property v& Pshp capital P: variable, value may vary C: constance P: includes not only the original capital contributions of the partners, but all property subse-uently ac-uired on account of the pshp or with pshp funds C: represents the aggregate of the individual contributions made by the partners in establishing or continuing the pshp

Profit * means the excess of returns over expenditure in a transaction or series of transaction: or the net income of the pshp for a given period of time Surplus * refers to the assets of the pshp after pshp debts and liabilities are paid and settled and the rights of the partners among themselves are ad'usted: excess of assets over liabilities partner is not a creditor of the pshp for the amount of his share The interest of partner is a going pshp business where there has been no settlement of his account is not a debt due to the partner by pshp and therefore, is not sub'ect to attachment or execution on a 'udgment recovered against the individual partner rt #<#3 partnerAs right in specific pshp property is not assignable but he may assign his interest in the pshp to any of his co-partners or to a third person irrespective of the consent of the other partners, in the absence of agreement to the contrary

It permits the conveyance by a partner of his whole interest in the pshp without causing dissolution, but does not grant the assignee the right: a& to interfere in the management b& to re-uire any information or account c& to inspect any of the pshp boo/s The assignment does not divest the assignor of his status and rights as a partner nor operate as a dissolution of the pshp: the law provides the non-assigning partners with a ground for dissolving the pshp if they so desire partnerAs conveyance of his interest in the pshp operates as a dissolution of the pshp only when it is clear that the parties contemplated and intended the entire withdrawal from the pshp of such partner and the termination of the pshp as between the partners

Persons who, not being partners, include their names in the firm name do not ac-uire the rights of a partners but they shall be sub'ect to the liability of a partner insofar as third persons without notice are concerned: partners by estoppel .oes not cover the case of a limited partner who allows his name to be included in the firm name or of a person continuing the business of a pshp after dissolution, who uses the name of the dissolved pshp or the name of a deceased partner as part

;ights of assignee #& To receive in accordance with his contract the profits accruing to the assigning partner ,& To avail himself of the usual remedies provided by law in the event of fraud in the management 3& To receive the assignorAs interest in case of dissolution 5& To re-uire an account of pshp affairs, but only in case the pshp is dissolved The purchaser of a partnerAs interest may apply to the court for the dissolution of the pshp, after the termination of the specified term or underta/ing or at any time if the pshp is one at will rt #<#5 @hile a separate creditor of a partner cannot attach or levy upon specific pshp property for the satisfaction of his credit, he cane secure attachment on his credit and then apply to the court for a Bcharging orderC, sub'ecting the interest of the debtor partner in the pshp with the payment of unsatisfied amount of such 'udgment Charging order, any amount which the pshp would otherwise pay to the debtor-partner should instead be given to the 'udgment creditor: but the claims of pshp creditors must be satisfied first The value of the partnerAs interest in the pshp has no bearing on the redemption proce which is li/ely to be lower since it will be dependent on the amount of the unsatisfied 'udgment debt The redeeming non-debtor partner does not ac-uire absolute ownership over the debtor-partnerAs interest but hold it is trust for him consistent with principle of fiduciary relationship

rt #<#% );: a partner has the right to ma/e all partners liable for contracts he ma/es for the pshp in the name and for the account of the pshp 8xcept: a partner may assume a separate underta/ing in his name with a third party to perform a pshp contract or ma/e himself solidarily liable on a pshp contract: in such case, the partner is personally bound by his contract even if only the pshp is shown to have derived benefits from it Partners, including the industrial partner, are liable to creditors of the pshp for the obligation contracted in the name and for the account of the pshp: the individually liability to creditors is pro rata and subsidiary

Pro-rate * mean e-ually or 'ointly: pro-rating based on the number of partners and not on the amount of their contributions to the common fund, sub'ect to ad'ustment among the partners Subsidiary * secondary because the partners become personally liable only after all the pshp assets have been exhausted 8ven the industrial partner who, ordinarily, is not liable for losses would have to pay but he can recover the amount he has paid from the capitalist partners unless there is an agreement to the contrary The exemption of the industrial partner to pay losses relates exclusively to the settlement of the pshp affairs among the partners themselves and has nothing to do with the liabilities of the partners to third persons rt #<#$ Insofar as it affect the rights of third persons but it is valid and enforceable only as among the partners

6bligations of the Partners with ;egard to Third Persons rt #<#7 pshp must have a firm name under which it will operate firm name is necessary to distinguish the pshp which has a disticnt and separate 'uridical personality form the individuals composing the pshp and from other pshps and entities 9irm name must be registered with the Intellectual Property 6ffice

);: partners en'oy utmost freedom in the selection of the pshp name, they may adopt any firm name desired: 4ut whatever the firm name may be, the signature of the firm name is the signature of the several partnersA name a& may be that of an individual partner b& the surnames of all the partners c& the surname of one or more of the members with the addition of Band CompanyC d& may consist of individual names wholly distinct from the names of any of the members e& may be purely fanciful or fictitious 8xcept: a& b& misleading name cannot use identical or deceptively confusingly similar to that of any existing pshp names of deceased partners

rt #<#< The liability of one partner for the acts of his co-partners is founded on the principle of mutual agency "imitations upon the authority of any one of the partners are not binding upon innocent third persons dealing with the pshp who have the right to assume that every general partner has power to bind the pshp especially those partners acting with ostensible authority The regular course of a business procedure does not re-uire that each time a third person contracts with one of the managing partners, he should in-uire as to the latterAs authority to do so, or that he should first ascertain whether or not the other partners have given their consent thereto& @hen a third party deals with a partner who has not express, implied or apparent authority, the pshp is not liable for his acts unless the other partners ratify his acts or are estopped from asserting the partnerAs lac/ of authority cts of a partner #& cts for apparently carrying on in the usual way the business of the pshp every partner is an agent and may execute such acts with binding effect on the pshp even if he has in fact no authority unless: a1 he has no authority b1 the third person /nows that the acting partner has no authority usual way meaning usual for the particular pshp or usual for similar pshps

,& 3& -

refers to acts of administration cts of strict dominion or ownership pshp is not bound unless authori(ed by all the other partners or unless they have abandoned the business cts in contravention of a restriction on authority pshp is not liable to third persons having actual or presumptive /nowledge of the restrictions, whether or not the acts are for apparently carrying on in the usual way the business of the pshp

2otice to, or /nowledge of, any partner of any matter relating to pshp affairs operates as a notice to or /nowledge of the pshp except in case of fraud

Cases of /nowledge of a partner #& Hnowledge of the partner acting in the particular matter ac-uired while a partner ,& Hnowledge of the partner acting in the particular matter then present to his mind 0ac-uired before became a partner1 3& Hnowledge of any other partner who reasonably could and should have communicated it to the acting partner rt #<,, rt #<,3 rt #<,5 rticles provide for the solidary liability of the partners and also the pshp to third persons for the wrongful act or omission or breach of trust of a partner acting within the scope of the firmAs business or with the authority of his co-partners ct or omission is called tort when it does not constitute a crime or felony punishable by law ;eason for imposition of wider liability: based on public policy because the law protects him who, in good faith, relied upon the authority of a partner, whether such authority is real or apparent 0respondeat superior1

);: the particular partner who underta/es to bind his co-partners by a contract without authority is himself personally liable on such contract rt #<#? );: title to real property or interest therein belonging to the pshp is registered in the pshp name 8xcept: title to property is not held by the pshp, although as between the partners there is no -uestion that is a pshp property ;eal property may be registered in the name of: a& pshp b& one or more but not all the partners c& one or more or all of the partners or in a third person in trust for the pshp d& al the partners The presumption is that property purchases with pshp funds belongs to the pshp unless a contrary intent is shown Par #,3,7 what is conveyed is title or ownership Par ,,5 what is conveyed is merely e-uitable interest 0right or interest in property which is imperfect and unenforceable at law but which, under well-recogni(ed e-uitable principles, should be and is convertible into a legal right or title1

;e-uisites for liability: #& partner must be guilty of a wrongful act or omission ,& +e must be acting in the ordinary course of business or with the authority of his co-partners even if the act is unconnected with the business rt #<,7 8stoppel * is a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or representation, either express or implied .ue to the doctrine of estoppel, one may become liable as a partner even though he is not a partner in fact and thus be held liable o third persons as if he were a partner when he: a1 directly represents himself to anyone as a partner in an existing pshp or in a non-existing pshp b1 indirectly represents himself by consenting to another representing him as a partner in an existing or non-existing pshp The liability of the person who represented himself to be a partner or who consented to his being represented as a partner and all those who made and consented to such representation, is 'oint or pro rata @hen there is no existing pshp and not all but only some of those represented as partners consented to the representation, or none of the partners in an existing pshp consented to such representation, then the liability will be separate rt #<,7 does not create a pshp as between the alleged partners& The law considers them as partners and the association of pshp only insofar as it is favorable to third persons by reason of the e-uitable principle of estoppel 6ne who is deemed to be liable as a partner by reason of estoppel does not thereby obtain full rights as a partner

Innocent purchasers without notice may be protected #& where legal title is in the partner ma/ing the conveyance, although e-uitable title is in the firm, a purchasers without notice may ac-uire valid title, since he has the right to presume that possession or interest of the pshp is subordinate to and not inconsistent with the record title ,& a conveyance by a partner of pshp property in the pshp name even though without authority, cannot be recovered by the pshp where it has been conveyed by te grantee to a holder for value and without notice or /nowledge that the partner had exceeded his authority Conveyance of pshp realty by one partner may be authori(ed by his coGpartners, or when made without authority, may be ratified by them& Such authority or ratification must affirmatively appear

rt #<,> );: a person is not bound by the act, admission, statement or agreement of another of which he has no /nowledge or to which he has not given his consent except by virtue of a particular relation between them 8xcept: admission of a partner made during the existence of the pshp are binding against the pshp when such admissions refer to a matter concerning pshp affairs and made within the scope of his authority 8xcept: @hen a partner ma/es admissions for himself only without purporting to act for the pshp, he alone shall be chargeable with his admission 4efore the pshp can be charged with the admission of a partner, the pshp relation must be shown and proof of that fact must be made by evidence other than the admission itself rt #<,#

8lements to establish liability as a partner on ground of estoppel #& Proof by plaintiff that he was individually aware of the defendantAs representations as to his being a partner or that such representation were made by others and not denied or refuted by the defendant ,& ;eliance on such representation by the plaintiff 3& "ac/ of any denial or refutation of the statements by the defendant The law ma/es liable as general partners all persons who assume to act as a corporation

rt #<,% 8xisting and subse-uent creditors have e-ual rights as against pshp property and separate property of the previously existing members of the pshp while only subse-uent creditors have rights against the separate estate of the newly admitted partner ;ule not harsh for the new partner because he parta/es of the benefits of the pshp property and an established business rt #<,$ @ith respect to pshp assets, the pshp creditors are entitled to priority of payment rt #<,< ny change in the membership of a pshp either by the retirement or death of partner, or by the admission of new members into the pshp, produces, technically, an immediate dissolution of the existing pshp relation, and the formation of a new one Change in the relation of the partners will dissolve the pshp but will not disturb the continuance by the remaining partners or by the existing and new partners of the business as before

3&

4y the express will of all the partners no particular form of agreement is necessary to dissolve a pshp by consent: may be express or by words and acts the agreement to dissolve before termination of the specified term or particular underta/ing must be unanimous: ma'ority alone cannot dissolve without breach of contract consent of the partners who have assigned their interest or suffered them to be charged by their separate debts is not re-uired to effect dissolution by expulsion of any partner has the effect of decreasing the number of the partners, hence, the dissolution expulsion must be in good faith and strictly in accordance with the power conferred by the agreement between the partners in the absence of an express agreement to that effect, there exists no right or power of any member, or even a ma'ority of the members, to expel all other members of the firm at will& 2or can they forfeit the share or interest of a member or members and compel him or them to -uit the firm, 8IC8PT: #1 Partner guilty of extreme and gross faults, ,1 Industrial partners, engaging in business for himself, 31 Power expressly given by agreement

5&

3 separate stages: #1 .issolution * change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business: demise of a pshp ,1 @inding up * process of settling the business or pshp affairs after dissolution 31 Termination * point in time when all pshp affairs are completely wound up and finally settled: end of pshp life rt #<,? .issolution does not automatically result in the termination of the legal personality of the pshp, nor the relations of the partners among themselves who remain as co-partners until pshp is terminated fter dissolution, a pshp is considered as maintaining a limited existence for the purpose of ma/ing good all outstanding engagements, of ta/ing and settling all accounts, and collecting all the property, means and assets of the pshp existing at the time of its dissolution for the benefit of all interested The principal significance of dissolution is that no new pshp business should be underta/en, but affairs should be li-uidated and distribution made to those entitled to the partnersA interest rt #<3> 8xtra'udicial dissolution may be cause without violation of the agreement between the partners or in contravention of said agreement It may be voluntary when caused by the will of one ore more or all of the partners or involuntary when brought about independently of the will of the partners or by operation of law Doluntary dissolution of pshp may be effected extra'udicially or 'udicially Sale or assignment by one partner of his entire interest in the pshp to a third person does not ipso facto bring about the dissolution of the pshp

.issolution in contravention of pshp agreement - any partner may cause the dissolution of the pshp at any time without the consent of his co-partners for any reason which he deems sufficient by expressly withdrawing therefrom even though the pshp was entered into for a definite term or particular underta/ing - a partner guilty of wrongful dissolution is not given the right to wind up pshp affairs - the right of a partner to dissolve is inseparably incident to every pshp and there can be no indissoluble pshp 4usiness becomes unlawful - dissolution may be caused involuntarily "oss of specific thing - refers only to specific things - "oss before delivery: pshp is dissolved because there is no contribution inasmuch as the thing to be contributed cannot be substituted with another: failure of a partner to fulfill his part of the obligation - "oss after delivery: pshp not dissolved, it assumes the loss of the thing having ac-uired ownership thereof - "oss where only use or en'oyment contributed: loss before or after delivery dissolves pshp because in either case, the partner cannot fulfill his underta/ing to ma/e available the use of the specific thing contributed .eath of any partner - Ipso facto dissolution of the pshp - Status of the pshp is pshp in li-uidation: before li-uidation is made, it is impossible to determine what rights or interests, if any the deceased partner had - "i-uidation of its affairs is by law entrusted to the surviving partners or to the appointed li-uidator and not to the administrator or executor of the deceased partner clause in the articles of co-pshp providing for the continuation of the firm notwithstanding the death of one of the partner is legal Insolvency of any partner or of pshp - =ust be ad'udged by a court - Insolvency of a partner sub'ects his interest in the pshp to the right of his creditors: an insolvent partner has not authority to act for the pshp nor the other partners to act for him - Insolvency of the pshp renders it property in the hands of the partners liable for the satisfaction of pshp obligations resulting in their inability to continue the business, which practically amounts to a dissolution Civil interdiction of any partner - Pshp re-uires the capacity of the partners

.issolution effected without violation of pshp agreement #& Termination of the definite term or particular underta/ing Pshp is automatically dissolved if after said expiration the partner continue the pshp without ma/ing a new agreement, the firm becomes a pshp at will ,& 4y the express will of any partner pshp at will, regardless of whether the business is profitable or not, may be dissolved at any time by an partner without the consent of his co-partners without breach of contract, provided, the said partner acts in good faith: bad faith cannot prevent dissolution of pshp but ma/es the partner liable for damages

person under civil interdiction cannot validly give consent as his capacity to act is limited: deprives the offender during the time of his sentence of the right to manage his property and dispose of such property by any act or any conveyance inter vivos

rt #<35 - cases when a partner continues to bind the pshp even after dissolution and cases when he cannot bind the pshp after dissolution @here there is no notice to third persons of dissolution - upon dissolution, as between themselves, the power of one partner to act and bind the others is effectively terminated - but the authority of a partner may apparently continue as regards third persons on the assumption that the pahp is still existing - the law, for the protection of innocent third persons, imposes upon the partners the duty of giving notice of the dissolution of the pshp @here there is actual or constructive /nowledge by third persons of dissolution - validity depends on whether transactions were necessary to li-uidate the pshp affairs 2otice of dissolution to creditors #& s to persons who extended credit to pshp prior to dissolution must have /nowledge or notice of the dissolution to relieve the pshp from liability ,& s to persons who had /nown of pshpAs existence dissolution published in the newspaper would be sufficient 3& where acting partner has not authority to wind up pshp affairs notice of dissolution necessary 5& @here acting partner has become insolvent partner who has no /nowledge or notice of the other partnerAs insolvency is protected in his continued right to ma/e binding pshp agreements third person who contracts with insolvent partner not protected because it is incumbent upon him to /now the status of the insolvent partner 7& @here dissolution caused by death of a partner notice necessary Character of notice re-uired to relieve retiring partner or representative of deceased partner from subse-uent liability #& s to prior dealers * notice must be actual ,& s to all others * notice is accomplished by an advertisement in a local newspaper .ormant partner need not give notice - "iability of a partner un/nown as such to the person with whom the contract is made or so far un/nown and inactive in pshp affairs shall be satisfied out of pshp assets alone - Third persons not entitled to notice of his withdrawal rt #<37 .issolution of a pshp does not of itself discharge the existing liability of a partner: may be relieved only by an agreement to that effect between himself, the pshp creditor and the other partners: consent of creditor and other partners may be implied from their conduct rt #<3% =anner of @inding !p #& Kudicially * under the control and direction of the proper court upon cause shown by any partner, his legal representative or his assignee ,& 8xtra'udicially * by the partners themselves without court intervention n action for the li-uidation of a pshp is a personal one

rt #<3# - .issolution by 'udicial decree )rounds for dissolution by decree of court #& 6n application by a partner a& Insanity the fact of his being of unsound mind must be duly proved insane person is incapacitated to enter into a contract b& Incapacity inability to discharge the duties imposed by his pshp contract incapacity which is lasting, from which the prospect of recovery is remote: otherwise, there is no fit ground to decree a dissolution c& =isconduct and persistent breach of pshp agreement they defeat and materially affect and obstruct the purpose of the pshp temporary grievances, discourtesies, disagreements, or mista/es of 'udgments that involve no permanent mischief or in'ury will not suffice as the basis for a 'udicial decree of dissolution d& 4usiness can be carried on only at a loss unprofitable with no reasonable prospects of success e& 6ther circumstances abandonment of the business, fraud in the management of the business, refusal without 'ustifiable cause to render accounting of pshp affairs ,& 6n application by the purchaser or assignee of a partnerAs interest

rt #<3, );: !pon dissolution, the pshp ceases to be a going concern and the partnerAs power of representation is confined only to acts incident to winding up or completing transactions begun but not them finished Jualifications: #& In so far as the partners themselves authority of any partner to bind the pshp by a new contract is immediately terminated when the dissolution is not by the act, insolvency or death of partner when dissolution is by such act, insolvency or death, the termination of authority depends upon whether or not the partner had /nowledge or notive of the dissolution ,& @ith respect to third persons the pshp is generally bound by the new contract although the authority of the acting partner is already terminated, the innocent partners can always recover from the acting partner rt #<33 - dissolution caused by the act, insolvency or death of a partner - applies only if the contract pf the partner binds the pshp uthority of partners inter se to act for the pshp is not deemed terminated, except: #& cause of dissolution is the act of a partner and the acting partner had /nowledge of such dissolution ,& cause of dissolution is the death or insolvency of a partner and the acting partner had /nowledge or notice of the death or insolvency Hnowledge of a fact * not only when he has actual /nowledge, but also when he has /nowledge of such other facts as in the circumstances show bad faith 2otice of a fact * when the person who claims the benefit of the notice: a1 state the fact to such person, b1 deliver through mail or other means of communication, a written statement of the facts to such person

Persons authori(ed to wind up #& Partners designated by the agreement ,& In the absence of such agreement, all the partners who have not wrongfully dissolved the pshp

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The legal representative of the last surviving partner not insolvent The court may, in its discretion, appoint a receiver to wind up the pshp affairs where such step is shown to be to the best interests of all persons concerned @hen a member of a pshp dies, the duty of li-uidating its affairs devolves upon the surviving member or members of the firm, not upon the legal representative of the deceased partner: latter has no right to interfere with the pshp business, so long as the surviving partner proceeds in good faith to settle its affairs

The rights of the partner entitled to rescind are without pre'udice to any other rights under other provisions of law rt #<3?

8-uitable lies or Juasi-lien * right of a partner to have debts owing to the pshp from his co-partners deducted from their respective shares PartnerAs lien law * each partner is entitled to a share in the surplus property of the pshp, if any, in proportion to his interest in the pshp The rules in settling accounts between partners after dissolution are sub'ect to variations by agreement of the partners either is their original pshp agreement, or in a dissolution agreement "oans and advances made by partners to the pshp are not capital unless otherwise agreed: payable at maturity and accumulated profits may be withdrawn at any time by consent of ma'ority Capital represents a debts of the firm to the contributing partners If the assets are insufficient, the deficit is a capital loss which re-uires contribution li/e any other loss: ny partner or his legal representative or any assignee for the benefit of creditors or any person appointed by the court, shall have the right to enforce the contribution of the partners rt #$?$: If any of the partners does not pay his share of the loss, the remaining partners have to pay but they can sue the non-paying partner for indemnification

Power of li-uidating partner #& =a/e new contracts * for the purpose of winding up the pshp ,& ;aise money to pay pshp debts - for the purpose of winding up the pshp 3& Incur obligations to complete existing contracts or preserve pshp assets 5& Incur expenses necessary in the conduct of litigation - for the purpose of winding up the pshp rt #<3$ - To provide for the payment of the partner who leaves the firm, and to indemnify him against existing or possible future liability PartnerAs lien * right of every partners, on a dissolution, against the other partners and persons claiming through them in respect of their interests as partners, to have the pshp property applied to discharge pshp liabilities and the surplus assets, if any, distributed in case to the respective partners, after deducting what may be due to the firm from them as partners ;ights where dissolution not in contravention of agreement #& To have the pshp property applied to discharge the liabilities of the pshp ,& To have the surplus, if any, applied to pay in cash the net amount owing to the respective partners ;ights where dissolution in contravention of agreement #& ;ight of partner who has not caused the dissolution wrongfully a& To have pshp property applied for the payment of its liabilities and to receive in cash his share of the surplus b& To be indemnified for damages caused by the partner guilty of wrongful dissolution c& To continue the business in the same name during the agreed term of the pshp, by themselves or 'ointly with others d& To possess pshp property should they decide to continue the business ,& ;ight of partner who has wrongfully caused the dissolution a& If the business is not continued by the other partners, to have the pshp property applied to discharge its liabilities and to receive in case his share of the surplus less damages caused by his wrongful dissolution b& If the business is continued: #1 to have the value of his interest in the pshp at the time of the dissolution, less any damage caused by the dissolution to his co-partners, ascertained and paid in cash, or secured by bond approved by the court: ,1 to be released from all existing and future liabilities of the pshp

.octrine of the marshaling of assets * Pshp assets to pshp creditors, individual assets to individual creditors: anything left from either goes to the other The separate creditor of an individual partner can execute against the assets of the firm only to the extent of the interest of the partner in the firm assets, which is nothing more than a right to any surplus remaining after firm creditors have been paid rt #<5> .issolution of a pshp by change in membership #& 2ew partner is admitted ,& partner retires or dies 3& partner withdraws or is expelled from pshp 5& The other partners assign their rights to the come remaining partner 7& ll the partners assign their rights in pshp property to third persons pshp dissolved by any of these happenings need not undergo the procedure relating to dissolution and winding of its business affairs, the remaining partners may elect to continue the business of the old pshp without interruption by simply ta/ing over the business enterprise and continuing the use of the old name

)oodwill of a business * advantage which it has from its establishment or from the patronage of its customers, over and above the mere value of its property and capital - )oodwill of a pshp, if of money value, is usually considered part of the property and assets of the firm, in the absence of a contract, express or implied, to the contrary - )oodwill of a business is proper sub'ect of sale but exist only in a commercial pshp rt #<3< If one is induced by fraud or misrepresentation to become a partner, the contract is voidable: if annulled, the in'ured partner is entitled to restitution

;ights of creditors of dissolved pshp which is continued - The law ma/es the creditors of the dissolved pshp also creditors of the persons or pshp continuing the business - Purpose: to maintain the preferential rights of the old creditors to the pshp property as against the separate creditors of the partner @hen corporation deemed a mere continuation of prior pshp - Corporation is presumed to have assumed pshp debts and is prima facie liable therefore - ;eason: members of the pshp may be said to have simply put a new coat or ta/en a corporate cloa/, and the corporation is a mere continuation of the pshp rt #<5# rt #<5,

Prescription begins to run only upon the dissolution of the pshp when the final accounting is done

): proper party to proceedings by or against a pshp ": not unless he is also a general partner or where the ob'ect of the proceeding is to enforce a limited partnerAs right against, or liability to, the pshp ): general partnerAs interest in the pshp may not be assigned as to ma/e the assignee a new partner without the consent of the other partners ": limited partnerAs interest is freely assignable, with the assignee ac-uiring all the rights of the limited partner sub'ect to certain -ualifications ): name of a general partner may appear in the firm name ": must not ): general partner is prohibited from engaging in a business of the same /ind if he is a capitalist, or in any business is he is an industrial partner ": no such prohibition in the case of a limited partner who is considered as a mere contributor to the pshp ): the retirement, death, insanity or insolvency of a general partner dissolves the pshp ": does not have the same effect ): general pshp may be constituted in any form by contract or conduct of the parties ": created by the members after compliance with the re-uirements set forth by law rt #<55 "imited pshp not created by mere voluntary agreement formed if there has been substantial compliance in good faith with the re-uirements, otherwise, the liability of the limited partners becomes the same as that of general partners creation of limited pshp is a formal proceeding and is not a mere voluntary agreement ;e-uirements for formation of a limited pshp #& certificate or articles of the limited pshp which states the matters enumerated in the article, must be signed and sworn to limited pshp cannot be constituted orally need not contain anything concerning the amount to be contributed by the general partners statement in the certificate must be true at the time the certificate is filed false certificate renders a persons liable as a general partner ,& such certificate must be filed for record in the 6ffice of the S8C to give actual or constructive notice to potential creditors of persons dealing with the pshp to ac-uaint them with its essential features, among which is the limited liability of the limited partners so that they may be defrauded or misled burden to show noncompliance is on the one see/ing to fix general liability Strict compliance with the legal re-uirements is not necessary: sufficient that there is substantial compliance in good faith @here neither the rights of third parties nor a partnerAs claim of limited liability is involved, failure to comply with the legal re-uirements could not affect the existence of a limited pshp insofar as the parties, inter se, are concerned I attaching creditors recogni(e and deal with a firm as a limited pshp, they will be estopped from insisting that there is no such pshp pshp transacting business is, prima facie, a general pshp: formation of limited pshp must show due compliance with the re-uirements of the laws

Persons liable to render an account #& @inding up partner ,& Surviving partner 3& Person or pshp continuing the business The profits of a business cannot be determined by ta/ing into account the result of one particular transaction instead of all the transaction had& +ence, the need for a general li-uidation before a member of a pshp may claim a specific sum as his hare of the profits partnerAs share cannot be returned without first dissolving and li-uidating the pshp, for the firmAs outside creditors have preference over the assets of the enterprise and the firmAs property cannot be diminished to their pre'udice @hen pshp is dissolved, a partner or his legal representative is entitled to the payment of what may be due after a li-uidation& 4ut not li-uidation is necessary when there is already a settlement or an agreement as to what he shall receive

"I=IT8. P ;2T8;S+IP rt #<53 "imited partners not personally liable for the pshp debts: liability to third persons is limited to a fixed amount, their capital contributions or the amount they have invested in the pshp: exception to rt #<#%

Characteristics of limited pshp #& formed by compliance with the statutory re-uirements ,& one or more general partners control the business and are personally liable to creditors 3& one or more limited partners contribute to the capital and share in the profits but do not participate in the management of the business and are not personally liable for pshp obligation beyond the amount of their capital contributions 5& limited partners may as/ for the return of their capital contributions under the conditions prescribed by law 7& the pshp debts are paid out of common fund and the individual properties of the general partners In the absence of statutory restriction, a limited pshp may carry on any business which could be carried on by a general pshp

4usiness reason and purpose of statutes authori(ing limited pshps #& Secure capital from others for oneAs business and still retain control ,& Share in profits of a business without ris/ of personal liability 3& ssociate as partner with those having business s/ill )eneral PshpLpartner v& "imited PshpLpartner ): general partner is personally liable for pshp obligations ": limited partnerAs liability extends only to his capital contribution ): when the manner of mgt has not been agreed upon, all the general partners have e-ual rights in the management of the business whether or not he has made any capital contribution ": limited partner has no share in the management of a limited pshp, his rights being limited to those enumerated in rt #<#7, such that he renders himself liable to creditors as a general partner if he ta/es part in the control of the business ): general partner may contribute money, property, or industry to the pshp ": limited partner must contribute cash or property to the pshp but not services

Construction of provisions on limited pshps Courts should adopt and enforce a reasonable construction which will not defeat one of the ob'ects of the law and will not fritter away the protection which the law has thrown around persons dealing with such pshps Courts must consider substance rather than form in construing the law

rt #<57 limited partner cannot contributed services, otherwise, he shall be considered an industrial and general partner and he shall not be exempted from personal liability Contribution of each limited partner must be paid before the formation of the limited pshp, although with respect to the additional contributions they may be paid after the limited pshp has been formed rt #<5% limited partner shall not be liable as a general partner with respect to third persons with actual /nowledge that he is only a limited partner rt #<5$ "iability for false statement in certificate #& Partner /new the statement to be false at the time he signed the certificate, or subse-uently, but having sufficient time to cancel or amend it or file a petition for its cancellation or amendment, he failed to do so ,& person see/ing to enforce liability has relied upon the false statement in transacting business with the pshp 3& person suffered loss as a result of reliance upon such false statement rt #<5< 0p& 3#,1 +is abstinence from participation in fact in the transaction of the business of the firm is essential to his exemption from liability for the debts of the firm @hether the limited partner has participated in the management is to be determined by whether he has exercised a controlling power in the firm:A transactions Control contemplates active participation on the management of the pshp business and does not comprehend the mere giving of advice to general partners as to specific matters which the latter may follow or not rt #<5? There must be proper amendment to the certificate which must be signed and sworn to by all of the partners rt #<7> 8ssential feature of a limited pshp is the union of , classes of members, limited and general partner The law re-uires that there be at least one general partner with unlimited liability ;ights, in general, of a limited partner Powers are much more limited than those of a general partner +e cannot ta/e part in the control of the business @henever the liability of a general partner is imposed on a limited partner, he is given the corresponding rights of a general partner rt #<7, Status of person erroneously believing himself to be a limited partner 2ot personally liable as a general partner by reason of his exercise of the rights of a limited partner provided: a& on ascertaining the mista/e, he promptly renounces his interest in the profits of the business or other compensation by way of income b& his surname does not appear in the pshp name c& he does not participate in the management of the business There is no obligation to return or pay bac/ profits or compensation already received: opposite view also has merit

);: n heir of a deceased general partner admitted as a partner under the articles of pshp providing for such admission, ordinarily becomes a limited partner for his own protection, because he would normally prefer to avoid any liability in excess of the value of the estate inherited so as not to 'eopardi(e his personal assets 8xcept: heir may disregard it and instead elect to become a collective or general partner, with all the rights and privileges of one, and answering for the debts of the firm not only with the inheritance but also with the heirAs personal fortune rt #<73 this means that while he is not relieved from personal liability to third persons for pshp debts, he is entitled to recover from the general partner the amount he has paid to such third persons: and in settling accounts after dissolution, he shall have priority over general partners in the return of their respective contributions rt #<75 In transacting business with the pshp as a non-member, the limited partner is considered as a nonpartner creditor& +owever, third persons always en'oy preferential rights insofar as pshp assets are concerned: designed to prevent illegal competition between the limited partner and creditors of the pshp for the assets of the pshp rt #<77 rt #<7% liabilities to limited partners other than on account of their contributions arising from business transactions by them with the pshp, en'oy protection, sub'ect to the preferential rights of pshp creditors rt #<7$ The limited partner must as/ first the other partners to have the pshp dissolved: if they refuse, then he can see/ the dissolution of the pshp by 'udicial decree rt #<7<

;ights, powers, and liabilities of a general partner #& general partner in a limited pshp is vested with the entire control of the firmAs business and has all the rights and powers and is sub'ect to all the liabilities and restrictions of a partner in a pshp without limited partners, i&e& in a general pshp in the absence of an agreement to the contrary, he is not entitled to compensation for his services beyond his share of the profits ,& +e may bind the pshp by an act of administration, but he has no power to do the specific acts enumerated in rt #<7> without the written consent or at least ratification of all the limited partners general partner who violates is liable for damages to the limited partners 6ther limitations: no power to bind the limited partner beyond the latterAs investment: no power to act for the firm beyond the purpose and scope of the pshp: no authority to change the nature of the business without the consent of limited partners:

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rt #<7#

"iabilities of a limited partner #& To the pshp as limited partners are not principals in the transaction of a pshp, their liability, as a rule, is to the pshp, not to the creditors of the pshp The general partners cannot, however, waive any liability of the limited partners to the pre'udice of such creditors ,& To pshp creditors and other partners a limited partner is liable for pshp obligations when he contributes services instead of only money or property to the pshp: when he allows his surname to appear in the firm name: when he fails to have a false statement in the certificate corrected, /nowing it to be false: when he ta/es part in the control of the business: when he receives pshp property as collateral security, payment, conveyance, or release in fraud of pshp creditors: when there is failure to substantially comply with the legal re-uirements governing the formation of limited pshp To separate creditors the creditor of a limited partner may apply to the proper court for a Bcharging orderC sub'ecting the interest in the pshp of the debtor partner for the payment of his obligation "iability for return of contribution lawfully received but cannot exceed the sum received by him rt #<7? 8ffect of change in the relation of limited partners Substitution of a person as limited partner in place of existing limited partner, or withdrawal, death, insolvency, insanity or civil interdiction of a limited partner, or the addition of new limited partners does not necessarily dissolve the pshp ;ights of assignee of limited partner ssignee ac-uires all the rights of the limited partner only when he becomes a substituted limited partner Substituted limited partner * a person admitted to all the rights of a limited partner who has dies or has assigned his interest in a pshp rt #<%> retirement or withdrawal, death, insolvency, insanity, or civil interdiction of a limited partner does not result in its dissolution, unless, there is only one limited partner if the business is continued by the remaining partners under the rights given in the certificate or with the consent of all the members, the limited pshp is not dissolved but the certificate must be amended to reflect change in order that limited partners may avail of the protection granted by law rt #<%# 8xecutor or administrator may constitute the assignee as a substituted limited partner only if the deceased partner was empowered to do so in the certificate 8state of the deceased limited partner is liable for all his liabilities contracted while he was a limited partner rt #<%, The limited partnerAs right under the exemption laws is also preserved under this article since his interest in the pshp is actually his property rt #<%3

Causes for dissolution of a limited pshp #& misconduct of a general partner ,& fraud practiced on the limited partner by the general partner 3& retirement, death, etc& of a general partner 5& when all the limited partners ceased to be such 7& expiration of the term for which it was to exist %& mutual consent of the partners before the expiration of the firmAs original term limited partner may bring a suit for the dissolution of the firm @hen the firm is dissolved by the expiration of the term fixed in the certificate, notice of the dissolution need not be given since the papers filed and recorded in the S8C are notice to all the world of the term of the pshp @here dissolution of by express will of the partners, the certificate shall be cancelled and a dissolution of the pshp is not effected until there has been compliance with the re-uirement in this respect @hen a limited pshp has been duly dissolved, the general partners have the right and power to wind up its affairs

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Share of limited partners in pshp assets Proportional sharing by the limited partners ta/es place where the pshp assets are insufficient to pay such claims In the event of insolvency of the pshp, its creditors ta/e preference over both general and limited partners rt #<%5 rt #<%7 ;e-uisites for amendment #& amendment must be in writing ,& must be signed and sworn to by all the members including the new members, and the assigning limited partner in case of substitution or addition of a limited or general partner 3& the certificate, as amended, must be filed for record in the S8C Cancellation of a certificate must also be in writing and signed by all the members and filed with the office of S8C& If the cancellation is ordered by the court, certified copy of such order shall be filed with the Commission pproval by the Commission of the amendment or cancellation is not re-uired rt #<%% The relationship between a limited partner and the other partners and the pshp is not one of trust and confidence limited partner is not prohibited from engaging in business for himself even is competition with that conducted by the pshp Since limited partner are not principals in sphp transactions, their liability is to the pshp not to the creditors of the pshp: they have no right of action against third persons against whom the pshp has any enforceable claim

@hen limited partner a proper party #& where the ob'ect is to enforce his individual rights against the pshp and to recover damages for violation of such right ,& an action at law may be maintained by creditors of a firm against a limited partner to account for and restore sums withdrawn by him from the capital of the firm with outstanding debts on a voluntary dissolution

2ature of limited partnerAs interest in firm #& the limited partnerAs contributions to the firm is not a loan and he is not a creditor of the firm because of his contribution ,& a limited partnerAs contribution is not a mere investment 3& a limited partner is, in a sense, an owner, which in interest in the capital of the firm and its business as such, but he has no property right in the firmAs assets 5& a limited partnerAs interest is in personal property, and it is immaterial whether the firmAs assets consist of realty or tangible or intangible personalty 7& nature of the limited partnerAs interest in the firm amounts to a share in the pshp assets after its liabilities have been deducted and a balance struc/& This interest is a chose in action, and hence, intangible property rt #<%$