BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

Learning Outcomes:
1. Explain the concepts of contract of partnership as a means of doing business.
2. Discuss the obligations of the partners.
3. Explain the concepts and rules of dissolution and winding up the affairs of the business.
4. Distinguish general partnership from limited partnership.

I. Pre – Lecture Activity

Partnerships and Corporations are types of business organization according to ownership.
Cite in table below the similarities and differences of the said business organization. Use additional
sheet if necessary.
Partnership Corporation
1. Similarities:

2. Differences:

II. Concepts and Rules

Contract of Partnership
- Two or more persons bind themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profits among themselves.
o It may also be established in the exercise of the profession (General Professional
Partnership).
o Contract of partnership is perfected by mere consent, a meeting of the minds as to the
object and cause of the contract.
o Any person capacitated to enter into a contract can be a partner.

- From the perfection of the contract, partnership possesses juridical personality, separate and
distinct from the partners. This is called entity theory.
o Partnership has separate personality, regardless of the failure to comply with the
formalities required by law in establishing a partnership. In other words, third persons
will not be prejudiced by non – compliance of the partners as to the formalities in the
formation of partnership.
o Secret associations or societies do not possess juridical personality; hence, no
partnership is created but only co-ownership.
o As a result of juridical personality, properties acquired or interest therein shall be in the
name of the partnership. Partnership can incur liabilities under its name. likewise, it
may be sued or sue others.

- Formalities: Partnership can be created in any form, except

pg. 1 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

o Public instrument must be executed and submitted to the SEC when there is a
contribution of personal property amounting to P 5,000 or more, or a real property or
real rights is contributed thereto. Likewise, inventory of real properties must be attached
to public instrument. Non-compliance of these provisions will make the partnership
VOID.

- Partnership must be established for lawful object or purpose and for the common benefit of the
partners.
o When unlawful partnership is dissolved by a judicial decree, the profits shall be
confiscated by the State without prejudice to provisions of the Penal Code.
No partnership, under the following:
- Persons not partners to each other are not partners to third persons, except partners by estoppel;
- Co – ownership or co – possession;
- Mere sharing of gross returns;
- Share in profits in lieu of: (1) debt, (2) wages or rent, (3) annuity, (4) interest on a loan, (5)
consideration of the sale of goodwill.

Kinds of Partnership –
• As to object
o Particular Partnership
o Universal Partnership (either “all the present property” or “all the profits”);
• As to liability
o General Partnership
o Limited Partnership
• As to duration
o partnership at will
o partnership with a fixed term
Partnership of all present property –
• Partners contribute all the present property that belongs to them at the time of the constitution
of the partnership, to a common fund, as well as the profits that may be acquired therewith.
• Except: those properties will be acquired through inheritance, legacy, or donation EXCEPT the
fruits thereof.
Partnership of all the profits –
• Profits that the partners may acquire by their industry or work during the existence of
partnership shall be part of their contribution;
• Property that belongs to them shall be the exclusive property of the partners; ONLY THE
USUFRUCT PASS to the partnership.
Note:
• If not clear whether universal or particular, then it is universal.
• Persons who are prohibited to give donation cannot enter into a universal partnership.

pg. 2 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

• Spouse cannot enter into a universal partnership with the other spouse.
o But he or she can enter into a limited partnership with the other spouse.
Particular partnership –
• Its object is determinate things, their use or fruits or a specific undertaking, or the exercise of
a profession or vocation.
Partnership for a fix term –
• When the partnership reaches its fix term and continued by the partners without the express
agreement, the rights and duties of the partners remain the same.
• It turns to partnership at will (without a fix term).
General Partnerships –
• A partnership that comprise of general partners, who are liable to the liability of the partnership
beyond their capital contribution to the partnership.
Limited Partnerships –
• A partnership that has general partners and limited partners. Limited partners are not liable to
partnership debts beyond their personal contribution to the partnership.

Kinds of Partner
• Capitalist partner – one who contributes money, or property.
o Unless otherwise stipulated, he has the obligation to contribute additional capital to
save the partnership from imminent losses. If he does not, he will be obliged to sell his
interest to other partners.
• Industrial partner – one who contributes industry.
o He is not liable for losses inter se;
o He is liable to third persons for partnership obligations but he has the right to ask for
reimbursement from the capitalist partner.
o He cannot engage in business unless expressly provided in the agreement of the
partners.
• General partner – controls and manages the business and liable to partnership obligations.
• Limited partner – not involved in the management of the business and not liable to partnership
debts beyond his personal contribution. A limited partner who is involved in the management
of the business, he will be liable as general partner.
o He is not a proper party in the proceedings by or against a partnership, except what is
being enforced is his right against liability or to the partnership.
• Managing partner – one who manages the business.
• Liquidating partner – one who winds up the affairs of the business.
• Associate or sub partner – one who has a partner who shares in the profit in the partnership.
QUERY: Can a corporation be a partner in the partnership?
Answer: Yes, provided I meets the following conditions: (1) expressly provided in the Articles of
incorporation and align with the purpose of the corporation; (2) the partnership must be a limited

pg. 3 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

partner and the corporation is a limited partner (3) if it is a foreign corporation, it must have license
to transact business in the country.

Obligations of the Partners Among Themselves

Contribution: All partner must contribute EQUAL shares to the capital of the partnership, unless
otherwise stipulated. The contributions may either be:
a. Money
- The partner becomes the debtor from the time of execution of the partnership.
- The partner is liable to pay interest and damages, even not stipulated and
without demand, from the time of the execution of the partnership, unless
otherwise stipulated.
b. Property – it must be delivered from the time of execution.
- The partner is liable to damages in case of non-delivery.
- He who fails to deliver shall bear the risk of loss.
- He is liable to warranty against eviction and hidden defects.
c. Industry
- Cannot be agreed that all partners will contribute services.
- The limited partner cannot contribute services.
Fiduciary Duties (LODI): The partners have (1) duty of loyalty; (2) duty of obedience; (3) duty of
diligence and (4) duty to inform.
a. Duty of loyalty.
- Giving preference to own credit is prohibited.
i. For instance, A (debtor) is indebted to the partnership for P1,000 and to the
managing partner B for P2,000. B was able to collect from A P600 issuing
a receipt showing that P 600 was deducted from the P 2,000. B must give
the partnership P 200 (1:2 or 1/3) of the amount that he collected.
- Industrial partner cannot engage in any business, unless permitted by the
partnership. Violations thereof:
i. He will exclude from the partnership plus damages; OR
ii. Avail of the benefits derived by the industrial partner plus damages.
- Capitalist partner competing with the partnership without permission.
i. Violation, the profits of that partner belongs to the partnership while the loss
shall beat by the said partner.
- Secret profits.
i. Account the profits to the partnerships.
- Misuse of partnership property.
i. Account the profits to the partnership with interest and damages.

b. Duty of obedience
- Adherence to the agreement and decision of the partners.

c. Duty of diligence
- Partners shall be exercise diligence in dealing with other in behalf of the partnership.

pg. 4 De Guzman, C.L.

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d. Duty to inform
- Information on the partnership affairs
- Notice to the partner is notice to the partnership, unless there is fraud.
- Inspection of books and records.

Rights of Partners
1. Right to participate in the management
- Unless otherwise agreed, each partner may separately execute all acts of administration.
2. Right to share in profits
- Stipulations which excludes one or more from any share in the profits or losses is void.
- Allocation of profit and losses shall be based on agreement of the partners, in the
absence thereof, in proportion to their capital contributions.
- For industrial partner, he shall receive just and equitable share under circumstances. If
he contributes money or property, he shall receive share in proportion to his
contribution.
3. Right to compensation
- Partners are not entitled unless agreed upon by the parties.
4. Right to reimbursement
- Entitled reimbursement for expenses incurred in behalf of the partnership.
5. Right to return of advances
- Reimbursed for the advances or loans extended to the partnership, however, in case of
dissolution, outside creditors are given preference.
6. Right to return of capital
- It occurs in case of dissolution after satisfying the claims of the creditors.
7. Right to information
- It includes right to inspect and copy of the partnership’s book and records at any
reasonable hour; and the right to demand true and full information and things affecting
the partnership.
8. Right to accounting
- An action for formal accounting when: (1) Partner excluded from the partnership
business or profession of its property by his co-partners; (2) rights exists under the terms
of any agreement; (3) he derives secret profits pertaining to the partnerships; (4)
whenever other circumstances render it just and reasonable.

Property Rights of the Partnership and Partners

1. Specific Partnership Property
- A partner is a co-owner of other partners in the properties of the partnership subject to
the following limitations:
i. The partner can possess the properties not for his own purposes unless with
consent of the other partners.
ii. The partner who has the possession of the properties cannot exclude other
partners in doing so.

pg. 5 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

iii. Properties cannot be assigned except when all partners are consented thereto.
iv. Properties cannot be attached and executed except on a claim against the
partnership.
v. Not subject to legal support.

2. Interest in the Partnership Itself

- A partner’s interest in the partnership is his share in the profits and surplus.
- A partner may assign his rights.
i. His interest can be assigned without dissolution of the partnership. The assignee
does not acquire all the right of the partners.
ii. Rights acquired by the assignee are: (1) share in the profits; (2) share in the
surplus in case of dissolution; (3) limited right to accounting upon dissolution –
from the date of last account agreed upon by the partners.
iii. Rights NOT acquired by the assignee are: (1) the right to interfere in the
management; (2) right to information or account; (3) the right to inspect books;
or (4) to file a petition for dissolution.
iv. When the partner assigns his rights to the other partners, the latter acquires all
the rights of the former.
- A partner may associate another person in his share, but that associate does not become
a partner.
- The judgement creditor may ask for a “charging order” if a decision in a case is rendered
against a partner. However, the creditor does not become a partner.
i. Charging order – an order from the court charging the interest of the debtor
partner with payment of the unsatisfied amount of such judgement debt with
interest thereon.
ii. Appointment of Receiver – one who will receive the payment and fulfill the
orders of the court.
iii. Right of redemption – the partners with their separate property, or the
partnership thru its property with the consent of all partners whose interest are
not so charged or sold.

Management of the Partnership

- The designated manager can perform all acts of administration, his decision is irrevocable even
objected by other partners unless he acted in bad faith.
- When two or more managers are designated:
o Specific duties may be designated in which case one can perform such duties without
the consent of the others.
o Unanimity may be agreed upon in which case all must consent to actions, except there
is grave or irreparable injury.
o When no specific duties are designated and unanimity is not agreed upon, each
managing partner may separately perform acts of administration. In case of conflict, the
majority prevails. In case of tie, the partners owning controlling interest shall decide.
- When manager is not designated, all partners are considered agent of the partnership and
whatever any one of them do alone shall bind the partnership. However, important alienation
of immovable property is not allowed, even it is useful to the partnership, without the consent

pg. 6 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

of other partners. If the refusal of the consent of the partners is prejudicial to the partnership,
the court’s intervention may be sought.
Liability of the Partners to Third Parties
- All partners are pro rata liable to the liability of the partnership based on contract to the third
person even up to the extent of their personal assets. Any stipulation to the contrary is VOID.
o Exception: limited partners.
- Mutual Agency Rule: Every partner is an agent of the partnership for the purpose of its
business.
- The partnership is liable to the acts of the partner if it is performed in the exercise of the
partner’s authority (express, implied and apparent authority).
o Third person is not duty bound to inquire or investigate the limits of the apparent
authority of the partner.
- Unanimity approval of all the partners are required under the following situations:
o Assign the partnership property in trust for creditors or on the assignee’s promise to pay
the debts of the partnership.
o Dispose of the goodwill of the partners.
o Do nay other act which would make it impossible to carry on the ordinary business of
a partnership.
o Confess a judgement.
o Enter into a compromise concerning a partnership claim or liability.
o Submit a partnership claim or liability to arbitration.
o Renounce a claim of the partnership.

- Sale or mortgage of real property by the partner is binding if it is in the exercise of his express,
implied and apparent authority, and the title is in the name of the partnership. But if it is in the
name of the partner, equitable title will be transferred to the buyer because a buyer in good
faith and for value is always protected.
- The partnership is also bound by the acts of the partners thought acted beyond his authority if
ratified by the other partners.
- Partners are joint liable for contracts and debts of the partnership. Joint liability means that the
plaintiff must name the partnership, and all the partners are defendant. If the plaintiff is
successful, he can recover the entire amount of judgement from any or all of the partners.

- The partnership is also liable for the wrongful acts or omission (TORT) done by the partners
in exercise of his authority, or in the ordinary course of business of the partnership, for
misapplication of money in partnership custody, and misappropriation of funds received by the
partner acted within his authority.
- All the partners are joint and solidary liable with the partnership in all cases of tort liability.

- Partners by Estoppel. A person who is not a partner but who represent himself as a partner (or
who consented to such representation being made public) is liable to third persons who relied
on his representation. One can be a partner by estoppel even if there is no partnership.
o Person who is not a partner is liable to the partnership obligation if his name appears in
the partnership name.

pg. 7 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

o Those who consented to the partner by estoppel and the partner by estoppel are pro rata
liable to third person.

- Liability of the incoming partner. He is liable to the antecedent partnership debts up to the
extent of his personal contributions. After becoming a partner, he is now personally liable to
for debts and obligations incurred by the partnership.
- Liability of the outgoing partner. If the partnership is dissolved and continued by other partners,
the retiring partner still be liable to third person who had no notice that he is no longer part of
the partnership.

Dissolution, Winding Up and Termination of the Partnerships

Effect of Delectus Personae. The continued existence of partnership is dependent on the constancy
of mutual resolve, along with each partner’s capability to give it, and the absence of cause for
dissolution provided by the law itself.
Dissolution – the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying of the business.
Winding up – the administration of the assets of the partnerships for the purpose of terminating
the business and discharging the obligations of the partnership.
Termination – end of the process of winding-up of the partnership.

Types of Dissolution.
1. Judicial dissolution
2. Extrajudicial dissolution
- With or without violation of the agreement
3. Operation of law
Extrajudicial dissolution – includes all dissolution without any court action.
1. Without contravention of the agreement
a. By the termination of the definite term or particular undertaking specified in the
agreement.
b. By the express will of any partner, who must act in good faith, with no definite term or
particular undertaking.
c. By the express will of all the partners who have not assigned their interests or suffered
them to be charged for their separate debts, either before or after the termination of any
specified tern or particular undertaking.
d. By the expulsion of any partner from the business bona fide in accordance with such a
power conferred by the agreement between the partners.

2. With contravention of the agreement

pg. 8 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

- Dissolution is allowed despite of the violation in lieu of the principle of involuntary

servitude.
Dissolution by Operation of Law
a. Illegality of the partnership business.
b. Specific thing promised to be contributed by the partner perishes before the delivery.
c. Death of any partner.
d. Insolvency of any partner or the partnership.
e. Civil interdiction of any partner.
Judicial Dissolution
a. A partner has been declared insane in any judicial proceeding or is shown to be of unsound
mind.
b. A partner in any other way incapable of performing his part of the partnership contract.
c. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on the
business.
d. A partner willfully or persistently commits a breach of the partnership agreement, or otherwise
so conducts himself in matters relating to the partnerships business that it is not reasonably
practicable to carry on the business in partnership with him.
e. The business of the partnership can only be carried on at a loss.
f. Other circumstances render a dissolution equitable.
Right of Purchaser to File a Court Action.
a. After the termination of the specified term or particular undertaking.
b. At any time if the partnership was a partnership at will when the interest was assigned or when
the charging order was issued.
Wrongful Dissolution
- A partner who wrongfully terminates the partnership in contravention of the agreement may be
held liable for damages by the innocent partners.
Effect of Dissolution on Authority
- It terminates the mutual agency. The dissolution is binding even without notice to all partners
if the dissolution is NOT due to any act, death or insolvency of the partner (e.g. business
becomes illegal, insolvency of the partnership). If the dissolution is due to any act, death, or
insolvency of the partner, notice should be given to the partners, otherwise, the acts the
unnotified partner binds the partnership and other partners.
- However, even if the partners are not bound because there was notice, the partners may be held
liable by creditors but subject to the right of reimbursement from the partner who transacted.
Partner’s Authority to Bind the Partnership
- After dissolution, the following acts are binding: (1) winding up of business; (2) contracts
with creditor without notice (actual or constructive).
Effect of Dissolution on Existing Credits

pg. 9 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

- Credit should be satisfied out of partnership assets, in case of insufficiency, the partners are
liable with their personal assets.
Continuation of the Partnership After Dissolution
- The surviving partners may continue the partnership after dissolution. In effect, the old
partnership is dissolved and a new partnership is created.
- Creditors of the dissolved partnership are also creditors of the person or partnership
continuing the business.
Winding Up and Distribution of Assets
- Partnership assets are distributed in the following order:
1. Those owing to creditors other than partners.
2. Those owing to partners other than for capital and profits.
3. Those owing to partners in respect of capital.
4. Those owing to partners in respect of profit.

- A partner is liable if partnership properties are insufficient. Where a partner has become
insolvent or his estate is insolvent, the claims against his separate property shall rank in the
following order:
1. Those owing to separate creditors.
2. Those owing to partnership creditors.
3. Those owing to partners by way of contribution.

LIMITED PARTNERSHIP
Formation: Substantially comply in good faith the following, otherwise limited partnership is not
formed.
1. Sign and swear to a certificate which shall state the stipulations provided for under Art. 1484.
2. File for record the certificate in the SEC.
Art. 1484 – The certificate shall contain the following:
a. Name of the partnership, adding the word “limited”;
b. Character of the business;
c. Location of the principal place of business;
d. Name and place of residence of each member, general and limited partners being respectively
designated;
e. The term for which the partnership exists;
f. Amount and description of the contribution by each limited partner;
g. Additional contributions, if any, to be made by each limited partner and the times at which or
events on the happening of which they shall be made;
h. The time, if agreed upon, when the contribution of each limited partner is to be returned;
i. The share of the profits or the other compensation by way of income which each limited partner
shall receive by reason of his contribution;
j. The right, if given, of a limited partner to substitute an assignee as contributor in his place, and
the terms and conditions of the substitution.

pg. 10 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

k. The right, if given, of the partners to admit additional limited partners.

l. The right, if given, of one or more of the limited partners to priority over other limited partners,
as to contributions or as to compensation by way of income, and the nature of such priority.
m. The right, if given, of the remaining general partner or partners to continue the business on the
death, retirement, civil interdiction, insanity or insolvency of a general partner; and
n. The right, if given, of a limited partner to demand and receive property other than cash in return
for his contribution.
Effect of False Statement
- One who suffers loss by reliance on such statement may hold liable any party to the certificate
who knew the statement to be false at the time he signed the certificate or subsequently, but
within a sufficient time before the statement was relied upon to enable him to cancel or amend
the certificate, or to file a petition for its cancellation or amendment.
Certificate vs. Limited Partnership Agreement
- Limited Partnership Agreement is a document that sets forth the rights and duties of general
and limited partners, the terms and conditions regarding the operation, termination and
dissolution of the partnership and the like. It is separate from the certificate and is not required
for the creation of a limited partnership.
Cancellation of Certificate
- When the partnership is dissolved or all limited partners cease to be such.
Amendment of Certificate
a. There is a change in the name of the partnership or in the amount or character of the
contribution of any limited partner.
b. A person is substituted as a limited partner.
c. An additional limited partner is admitted.
d. A person is admitted as a general partner.
e. A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction
and the business is continued under Art. 1860.
f. There is a change in the character of the business of the partnership.
g. There is a false or erroneous statement in the certificate.
h. There is a change in the time as stated in the certificate for the dissolution of the partnership or
for the return of a contribution.
i. A time is fixed for the dissolution of the partnership, or the return of a contribution no time
having been specified in the certificate.
j. The members desire to make a change in any other statement in the certificate in order that it
shall accurately represent the agreement among them.
Rules on the Limited Partnership Name
- The surname of the limited partner shall not appear in the partnership name unless
o It is also the surname of the general partner;
o Prior to the time when the limited partner became such, the business has been carried
on under the name in which his surname appeared.

pg. 11 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

- If the surname of the limited partner appears, he will be liable as general partner to the creditor
who extended debts to the partnership not knowing that he is not a general partner.
Liability for Unpaid Contribution
- The limited partner is liable to the difference between the actual contribution and that stated in
the certificate; and the unpaid contribution which he agreed in the certificate to make in the
future at the time and on the conditions stated in the certificate.
When Return can be Demanded. A limited partner may rightfully demand the return of his
contribution:
- On the dissolution of a partnership; or
- When the date specified in the certificate for its return has arrived; or
- After he has six months’ notice in writing to all other members, if no time is specified in the
certificate, either for the return of the contribution or for the dissolution of the partnership.
Conditions for Return of Contribution. A limited partner shall not receive from a general partner or
out of partnership property any part of his contribution until:
- All liabilities of the partnership, except liabilities to general partners and to limited partners on
account of their contributions, have been paid or there remains property of the partnership
sufficient to pay.
- The consent of all members is had, unless the return of the contribution may be rightfully
demanded under the provisions of the second paragraph; and
- The certificate is cancelled or so amended as to set forth the withdrawal or reduction.
When Consent or Ratification of Limited Partner
1. Do any act in contravention of the certificate;
2. Do any act which would make it impossible to carry on the ordinary business of the partnership;
3. Possess partnership property, or assign their rights in specific partnership property, for other
than a partnership purpose;
4. Admit a person as a general partner;
5. Admit a person as a limited partner, unless the right so to do is given certificate.
6. Continue the business with partnership property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner, unless the right to do is given in the certificate.
Loan to Partnership. A limited partner may loan money to and transact other business with the
partnership, and, unless he is also a general partner, receive on account of resulting claims against the
partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to
any claim on loan he or she extended:
1. Receive or hold as collateral security and partnership property; or
2. Receive from a general partner or the partnership any payment, conveyance, or release from
liability if at the time the assets of the partnerships are not sufficient to discharge partnership
liabilities to persons not claiming as general or limited partners. The receipt of those constitute
fraud on the creditors of the partnership.
Assignment of Interest. The interest of the limited partner is assignable. The assignee may or may not
become a substituted limited partner.

pg. 12 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

• Substituted limited partner (SLP) – one who admitted to all the rights of a limited partner who
has died or has assigned his interest in a partnership. He can become an SLP provided: (1) all
members consent thereto; or (2) if the assignor is empowered in the certificate to assign his
rights.
• SLP has all the rights and powers, and is subject to all the restrictions and liabilities of his
assignor, except those liabilities of which he was ignorant at the time he became a limited
partner and which could not be ascertained from the certificate.
• Substitution does not release the assignor (limited partner) from liability to partnership for any
false statement in the certificate and if he takes part in the control of the business.
• NOT SLP – he only acquires the right of the limited partner to receive share and return of the
contribution which the assignor is entitled to.
DISSOLUTION.
- The partnership is dissolved when:
o Retirement, death, insolvency, insanity, or civil interdiction of a GENERAL
PARTNER except when continued by the remaining general partners under a right to
do so in the certificate and with the consent of all members.
- A partnership may be dissolved at the instance of LIMITED PARTNER when:
o He rightfully but unsuccessfully demands the return of his contribution; or
o The other liabilities of the partnership have not been paid, or the partnership property
is insufficient for the payment of his demanded contribution.
Preference of Credits. The liabilities of the partnership shall be paid in the following order:
1. Those to creditors other than partners on account of their contributions and general partners;
2. Those to limited partners in respect to their share of the profits and other compensation by way
of income on their contributions;
3. Those to limited partners in respect to the capital of their contributions;
4. Those to general partners other than for capital and profits;
5. Those to general partners in respect to profits;
6. Those to general partners in respect to capital.

III. Activity 1
Discuss in your own words the following terms. Use separate sheet(s).
Terms:
1. Partnership 11. Universal partnership of all present property
2. Particular partnership 12. Limited partnership
3. Partnership for a fixed term 13. Winding up
4. Partnership by estoppel 14. Partnership for a particular undertaking
5. Capitalist partner 15. Universal partnership of profits
6. Dissolution 16. Termination
7. Substituted limited partner 17. Partnership at will
8. Delectus personae 18. Limited partner
9. General partnership 19. Industrial partner

pg. 13 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

10. Subsidiary liability 20. General partner

IV. Activity 2
1. X and Y are partners in a certain business, X being the managing partner. Z owes X P 5,000
and the partnership P 10,000, and both credits are demandable. Z pays X P 3,000 and the latter
issues a receipt in his name. Should X collect the entire amount? Would the results be the same
if the receipt is in the name of the partnership? Explain.
2. Joe and Rudy formed a partnership to operate a car repair shop in Quezon City. Joe provided
the capital while Rudy contributed his labor and industry. On one side of their shop, Joe opened
and operated a coffee shop, while on the other side, Rudy put up a car accessories store. May
they engage in such separate businesses? Why?
3. Kristina brought her diamond ring to a jewelry shop for cleaning. The jewelry shop undertook
to return the ring by February 1, 2013. When the said date arrived, the jewelry shop informed
Kristina that the job was not yet finished. They asked her to return five days after. ON February
6, 2013, Kristina went to the shop to claim the ring, but she was informed that the same was
stolen by a thief who entered the shop the night before. Kristina filed an action for damages
against the jewelry shop which put up the defense of force majeure. Will the action prosper or
not? Why?
4. Pauline, Patricia, and Priscilla formed a busines partnership for the purpose of engaging in neon
advertising for a term of five years. Pauline subsequently assigned to Philip her interest in the
partnership. When Patricia and Priscilla learned of the assignment, they decided to dissolve the
partnership before the expiration of its term as they had an unproductive business relationship
with Philip in the past. On the other hand, unaware of the move of Patricia and Priscilla but
sensing their negative reaction to his acquisition of Pauline’s interest, Philip simultaneously
petitioned for the dissolution of the partnership.
a. Is the dissolution done by Patricia and Priscilla without the consent of Pauline or Philip
valid? Explain.
b. Does Philip have any right to petition for the dissolution of the partnership before the
expiration of its specified term? Explain.
5. A, B, and C formed a partnership under the following terms: (1) participation: A – 40%; B –
40%; C – 20%. (2) A and B would supply the entire capital. C would contribute his management
expertise and be manager for the first five years without compensation. (3) C shall be liable for
losses. The partnership became bankrupt.
a. Could A alone, opposed by B and C have C removed as manager. Explain.
b. Could C be personally held liable for debts of the partnership not satisfied with the
assets of the partnerships? Amplify.
6. A, B, and C formed a general partnership with the following contributions to the common fund:
A, P 2,000; B, P 4,000; C, P 6,000. There was no agreement on the division of profits or
apportionment of losses. After some years of business operations, the assets of the partnerships
dwindled to P 3,000, so the partners agreed to stop their business. The partnership is indebted
to Corpuz for a loan of P 12,000. Under the circumstances, from whom Corpuz demand
satisfaction of his credits and to what extent?
7. Tomas, Rene and Jose entered in a partnership under the firm name “Manila Lumber”.
Subsequently, upon mutual agreement, Tomas withdrew from the partnership and the
partnership was dissolved. However, the remaining partners, Rene and Jose, did not terminate

pg. 14 De Guzman, C.L.

 BUSINESS LAWS AND REGULATIONS – CONTRACT OF PARTNERSHIP

the business of “Manila Lumber.” Instead of winding up the business of the partnership and
liquidating the assets, Rene and Jose continued the business in the name of “Manila Lumber”
apparently without objection from Tomas. The withdrawal of Tomas from the partnership was
not published in the newspaper.
Could Tomas be held liable for any obligation or indebtedness Rene and Jose might
incur while doing business in the name of “Manila Lumber” after his withdrawal from the
partnership? Explain.
8. A, B, and C formed a partnership for the purpose of contracting with the Government on the
construction of one of its bridges. On June 30, 2013, after completion of the project, the bridge
was turned over by the partners to the Government. On August 30, 2013, D, a supplier of
materials used in the project sued A for collection of the indebtedness to him, A moved to
dismiss the complaint against him on the ground that it was the ABC partnership that is liable
for the debt. D replied that ABC partnership was dissolved upon completion of the project for
which purpose the partnership was formed. Will you dismiss the complaint against B if you
were the judge?
9. Tomas, Rene and Jose entered into a partnership under the firm name “Manila Lumber”.
Subsequently, upon mutual agreement, Tomas withdrew from the partnership and the
partnership was dissolved. However, the remaining partners, Rene and Jose, did not terminate
the busines of “Manila Lumber” apparently without objection from Tomas. The withdrawal of
Tomas from the partnership was not published in the newspapers. Could Tomas be held liable
for any obligation or indebtedness Rene and Jose might incur while doing business in the name
of “Manila Lumber” after his withdrawal from one partnership? Explain.

Score: _____
Comments from the Professor:
_________________________________________________________________________________
_________________________________________________________________________________

References:
Reviewer on Civil Law, 2018 Edition, Timoteo Aquino
New Civil Code of the Philippines, Art, 1767 to Art. 1867.

pg. 15 De Guzman, C.L.