Law on Partnership

A partnership is a contract whereby 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, or in order to exercise a profession.

CHARACTERISTICS:
1. Consensual – it is perfected by mere consent or the meeting of minds between parties (Art. 1305).
2. Bilateral or Multilateral – it is entered into between two or more persons;
3. Nominate – it is designated by a specific name and there are specific rules applicable only to it;
4. Principal – its existence does not depend on the existence of another contract;
5. Onerous – certain contributions have to be made to become a partner;
6. Preparatory – in the sense that after it has been entered into, other contracts essential in the carrying out of its
purposes can be entered into.

Principles applicable: There must be Affectio Societatis – the desire to formulate an ACTIVE union with people among
whom there exists mutual confidence and trust.

In connection thereto, the principle of Delectus Personae (Personal Choices), which pertains to the right to choose who
to associate with, is also applicable.

PURPOSE: can either be for the intention of dividing the profits among themselves, or in order to exercise a profession.
Nevertheless, it is required that a partnership must have a LAWFUL object or purpose, otherwise it may be declared
dissolved by judicial decree, and the profits shall be confiscated in favor of the state. (Art. 1770)

SEPARATE JURIDICAL PERSONALITY: The partnership has a judicial personality separate and distinct from that of
each of the partners. The partnership can, in general:
1. Acquire and possess property of all kinds;
2. Incur obligations;
3. Bring civil or criminal actions;
4. Adjudged insolvent even if the individual members be each financially solvent.

RULES TO APPLY IN DETERMINING EXISTENCE OF PARTNERSHIP:

1. There is no partnership:
a. Between persons who are not partners as to each other are not partners as to third persons; except a
partnership by estoppel.
b. Co-ownership or co-possession of itself, whether such-co-owners or co-possessors do or do not share any
profits made by the use of the property;
c. The sharing of gross returns, whether or not the persons sharing them have a joint or common right or interest
in any property from which the returns are derived;

2. Presumption: the receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
a. As a debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
c. As an annuity to a widow or representative of a deceased partner;
d. As interest on a loan, though the amount of payment vary with the profits of the business;
e. As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
PARTNERSHIPS VS. CORPORATION:

PARTNERSHIP CORPORATION

Creation Voluntary agreement of parties. Created by the state in the form of a special
charter or by a general enabling law (The
Corporation Code)

Number of organizers Two or more Not more than 15

Existence No time limit except agreement of parties With perpetual existence

Liability of owners May extend to private property. Liable only up to their capital contribution

Transferability of interest All partners need to consent to the transfer Does not need the consent of the other
of interest to another. stockholders.

Ability of owners to bind Generally, partners acting on behalf of the Generally, stockholders cannot bind
the firm partnership are agents thereof; corporations since its official acts are through
a board of directors

Remedies in case of A partner can sue another partner who A stockholder cannot sue a director who
mismanagement mismanages mismanages, it must be in the name of the
corporation, through a derivative suit.

Nationality A partnership is a national of the country Generally, under whose laws it was created
where it was created, and dependent on as to whether domestic or foreign, and as to
percentage of ownership. nationality, on the ownership of the
outstanding capital stock.

Legal Personality from the time the contract begins Generally from issuance of COR.

Right of Succession None. Death, retirement, insolvency, civil Yes. Such causes do not dissolve a
interdiction, or insanity of a partner corporation
dissolves the partnership.

FORMAL REQUIREMENTS:

General Rule: A partnership may be constituted in any form,

Except: A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the public instrument.

Capital is P3,000 or more – the contract of partnership must appear in a public instrument, which must be recorded in the
SEC. This does not in any way affect the validity of the partnership as it is intended only to affect third persons.
 KINDS OF PARTNERSHIPS

According to OBJECT:
1. Universal:
ALL PROFITS VS. ALL PRESENT PROPERTY

ALL PROFITS ALL PRESENT PROPERTY

Only the USUFRUCT of the properties of the partners ALL the property actually belonging to the partners are
become common property; NAKED OWNERSHIP is contributed both ownership and naked ownership.
retained by each of the partners.

ALL PROFITS acquired by industry or work of the partners As a rule, aside from the contributed properties, only the
become common property (regardless of whether or not PROFITS OF THE CONTRIBUTED PROPERTY.
said profits were obtained through the usufruct
contributed) Profits from other sources may become partnership
property, but only if there is a stipulation to such effect.

Properties subsequently acquired by inheritance, legacy,

or donation, cannot be included in the stipulation, BUT the
fruits thereof can be included in the stipulation.

In case of ambiguity: If the Articles of Universal Partnership does not specify the nature of the Universal Partnership, it is
deemed that what is constituted is only a universal partnership of profits.

Persons not allowed to form a universal partnership: those who cannot donate to each other, namely:
a. Husband and Wife (Art. 133)
b. Those guilty of adultery and concubinage (Art. 739);
c. Those guilty of the same criminal offense, if the partnership was entered into in consideration of the same (Art. 739);

2. Particular where the object are:

a. Determinate things, their use or fruits;
b. A specific undertaking, or
c. The exercise of a profession or occupation.

According to LIABILITY:
1. General where all the partners are general partners whose liability extends to their individual properties, after the
assets of the partnership have been exhausted;
2. Limited where at least one of the partners are liable only up to the extent of his contribution.

According to TERM:
1. Partnership with a fixed term or particular undertaking - upon arrival of the fixed term or fulfillment of a
particular undertaking, partnership is dissolved, and if continued, it will constitute a partnership at will and the
rights and duties of the partners remain the same, so far as is consistent with a partnership at will.
2. Partnership at will – when there is no fixed term or particular undertaking.

KINDS OF PARTNERS

ACCORDING TO CONTRIBUTION:
1. Capitalist Partners – contributes capital; and
2. Industrial Partners – furnishes industry or labor.
3. Capitalist-Industrial Partners – furnishes both.
AS TO LIABILITY:
1. General Partners - liable up to his personal assets.
2. Limited Partners – liable up to his capital contributions only.

OTHER KINDS OF PARTNERS:

1. Silent Partner – one who does not participate in the management of the partnership.
2. Secret Partner – one who is not known to third persons as a partner
3. Dormant Partner – one who is both a silent and secret partner
4. Ostensible Partner – direct opposite of a dormant partner or one who participates in the management and is
known to third parties as a partner.
5. Managing Partner – one who undertakes the management of the partnership.
6. Liquidating Partner – one who undertakes the winding-up of partnership affairs after its dissolution.
7. Incoming Partner – one who is admitted to the partnership after it has already been constituted.

RULES ON MANAGEMENT
i. ONE MANAGING PARTNER

● MANAGING PARTNER in the ARTICLES OF PARTNERSHIP: May execute all acts of administration, in good
faith, even with opposition from the other partners;

The power to execute all acts of administration can only be revoked if (a) with just or lawful cause; and (2) by a
vote of the partners representing the controlling interest.

● MANAGING PARTNER AFTER PARTNERSHIP HAS BEEN CONSTITUTED: The power as manager may be
revoked by a vote of the partners representing the controlling interest EVEN WITHOUT just or lawful cause.

ii. MULTIPLE MANAGING PARTNERS:

1. With stipulation that no Managing Partner may act without the consent of the others – no one can perform an act
of administration without the others’ consent.

2. With Specification of Duties – each Managing Partner can perform an act of administration within their
respective duties.

3. Without specification of their respective duties, or without a stipulation that one of them shall not act without the
consent of all the others:
a) Each managing partner may separately execute all acts of administration;
b) Should one of the managing partners oppose the act of another, the matter shall be decided by a majority of
the managing partners per head count;

c) Should there be a tie in the votes of the managing partners, the controlling interest of ALL the partners shall
prevail.

iii. NO MANAGING PARTNER; WITH STIPULATION THAT NO PARTNER CANNOT ACT WITHOUT THE SUPPORT
OF PARTNERS: the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any
one of them cannot be alleged.

Except: if there is imminent danger of grave or irreparable injury to the partnership.

iv. NO AGREEMENT AS TO MANAGEMENT OF PARTNERSHIP:

All the partners shall be considered agents and whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of Article 1801 (on Multiple Managing Partners)
Except: None of the partners may, without the consent of the others, make any important alteration in the
immovable property of the partnership, even if it may be useful to the partnership.

Exception to the exception: if the refusal of consent by the other partners is manifestly prejudicial to the interest
of the partnership, the court's intervention may be sought.

OBLIGATIONS OF A PARTNER:TO THE PARTNERSHIP AND OTHER PARTNERS

1. To give his contribution

a. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership.
b. As a rule, the contribution must be provided upon perfection of the contract, except if the partners stipulate otherwise.
c. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation. Thus, no demand shall be necessary since the law
specifically provides for the liability in case of delay.
d. A partner is likewise liable similar to a vendor:
i. He is bound to deliver the fruits thereof from the time they should have been delivered, without need of demand
(Art. 1786).
ii. A partner must exercise due diligence in preserving the thing promised to be contributed; otherwise, he shall be
liable for loss and deterioration.
iii. Warrant the thing delivered against eviction

Risk of Loss:
LOSS BORNE BY THE PARTNER:
a. Thing contributed is specific and determinate which is NOT fungible and only their use and fruits may be for the
common benefit; and
b. There is stipulation that he shall bear the loss of the thing brought and appraised in the inventory.

LOSS BORNE BY THE PARTNERSHIP:

a. Things contributed are
i. Fungible;
ii. cannot be kept without deteriorating; or
iii. they were contributed to be sold; and
b. There was appraisal in the inventory and no stipulation that partner will bear the loss.

2. To give additional contribution in case of imminent losses:

In case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional
share to the capital to save the venture, shall be obliged to sell his interest to the other partners.

Except:
a. Industrial partners except if there is stipulation that he will likewise contribute
b. If there is stipulation to the contrary

3. Prohibition to engage in other businesses:

a. Industrial partners - cannot engage in business for himself except when the capitalist partners permit him to do so.
Effect of non-compliance: The capitalist partners may either:
i. Exclude him from the firm or
ii. Avail themselves of the benefits which he may have obtained in violation of this provision.

b. Capitalist partners – the prohibition is limited to businesses in the same industry as that of the partnership which may
result in competition.
Exceptions:
i. When it is expressly stipulated that the capitalist partner can so engage himself;
ii. When the other partners allow him to do so, whether expressly or impliedly;
iii. During the period of liquidation and winding up, when the partnership is already non-existent.
iv. When the general-capitalist partner becomes a limited partner in a competitive enterprise.

Effect of non-compliance:
i. He shall bring to the partnership all the profits illegally obtained;
ii. He is liable, personally, for all the losses;
iii. He may be ousted for loss of trust and confidence

4. Credit to the firm the payment made by a debtor who owes both the partnership and the managing partner

MANAGING PARTNER COLLECTING FROM A COMMON DEBTOR: To prevent the managing partner from furthering
his personal interest to the detriment of the firm, if such managing partner collects a sum from a common debtor who
owes money both to said partner and to the partnership:

a. If the managing partner issued a receipt in the name of the partnership: the payment shall be applied to the partnership
credit;
b. If the managing partner issued a receipt in his name: the payment shall be applied proportionate to the amounts of the
two debts. EXCEPT: When the debt owed by the debtor to the managing partner is more onerous, the debtor may choose
to apply the payment exclusively to such

5. Other obligations of partners to the partnership and to other partners:

a. Not to convert partnership funds/ property for his own use
b. To account for and hold as trustee, unauthorized (or secret) personal profits
c. Share with other partners the share of the partnership credit which he has received from an insolvent firm debtor
d. Keep the partnership books in the principal office (except when otherwise agreed) and allow other partners to have
access, inspect and copy the same.
e. Reimburse the partnership of damages suffered by it through his fault.
i. The liability for damages is not compensable with profits and benefits earned for the partnership;
ii. Damages, however, may be decreased by courts if through the partner’s extraordinary efforts, the partnership
earned unusual profits.
f. To inform the other partners on all matters affecting the partnership or relative to partnership affairs.
g. To observe the diligence of a good father of a family in all his dealings.
h. To adhere to the partnership agreement and decisions of appointed managing partner(s)

OBLIGATIONS OF PARTNERS: TO THIRD PARTIES

1. FIRM NAME: Every partnership shall operate under a firm name, which may or may not include the name of one or
more of the partners.

Strangers who include their name in the firm are liable as partners because of estoppel but do not have the rights of
partners.

2. LIABILITY AFTER EXHAUSTION OF PARTNERSHIP ASSETS: All partners, including industrial ones, shall be liable
pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be
entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for
the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. Any
stipulation to the contrary shall be void, except as to the partners.

3. AUTHORITY TO ACT FOR AND IN BEHALF OF THE PARTNERSHIP: Every partner is an agent of the partnership for
the purpose of its business.

The authority of the partner to act in behalf of the partnership may be:

a. Express – those expressly granted to the partner; or

b. Implied – those which may be implied from the express authority; or
c. Apparent – when he apparently carries on the usual business of the partnership and the person to whom he is dealing
has no knowledge of the fact that he has no such authority.

4. EFFECTS OF CONVEYANCE OF REAL PROPERTY:

Property is in the Conveyance is in the Who conveyed the Effect

name of name of property

Partnership Partnership Partner Valid conveyance but partnership may

recover, except (no right to recover):
One or more partners One or more partners One or more partners a. When the transfer binds the partnership
b. Transferee had no knowledge of lack or
excess of authority

Partnership Partner Partner Passes only equitable interest of the

partnership if within the authority (if not,
One or more Partner/ Partnership Partner apparently nothing transfers)
partners/Third
persons (in trust)

All partners All partners All partners Valid transfer

5. SOLIDARY LIABILITY FOR TORTS/QUASI-DELICT: Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any
person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.

6. SOLIDARY LIABILITY FOR MISAPPROPRIATION: The partnership is bound to make good the loss, in two situations:
a. Pertains to partner as receiver: Where one partner acting within the scope of his apparent authority receives money
or property of a third person and misapplies it.

b. Pertains to partnership as receiver: Where the partnership in the course of its business receives money or property
of a third person and the money or property so received is misapplied by any partner while it is in the custody of the
partnership.

In both 5 and 6 above, all partners are solidarily liable with each other and the partnership.

7. PARTNER BY ESTOPPEL:

a. One who represents himself as a partner of an existing partnership with or without consent of the partnership:
i. When the partnership consented – a partnership by estoppel is created between the original members and the
deceiver. A partnership liability results.
ii. When the partnership did NOT consent – deceiver becomes a partner by estoppel where he is liable as a
partner but does not acquire the rights thereof. No partnership liability exists. Only those who consented shall be liable.
b. One who represents himself as a partner of a NON-existent partnership:
Liability of parties is pro rata, since there is no partnership liability. This applies whenever the third person is
misled by the representation.

8. LIABILITY OF NEW (or INCOMING) PARTNER:

a. Debts incurred prior to admission: liable up to his contribution (Except if there is stipulation)
b. Debts incurred after admission: liable up to his personal assets.

RIGHTS OF A PARTNER

1. Right to share in the profits

DISTRIBUTION OF PROFITS:
a. In accordance with the agreement as to the distribution of profits;
b. If there was no such agreement, in proportion to contribution and the industrial partner shall receive such share as may
be just and equitable.

DISTRIBUTION OF LOSSES:
a. In accordance with agreement as to distribution of losses;
b. If there was no agreement as to losses, same proportion as to the agreement as to profits;
c. If no agreement as to losses and profits, in proportion to contribution but the industrial partner shall not be liable for
losses.

2. Property rights (Art. 1810)

PROPERTY RIGHTS OF A PARTNER:

a. His rights in specific partnership property – a partner is a co-owner with his partners of specific partnership
property. The incidents of such co-ownership are:

i. A partner, subject to any agreement between the partners, has an equal right with his partners to possess specific
partnership property for partnership purposes; but he has no right to possess such property for any other purpose
without the consent of his partners;
ii. A partner's right in specific partnership property is not assignable except in connection with the assignment of rights of
all the partners in the same property;
iii. A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against
the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right under the homestead or exemption Laws;
iv. A partner's right in specific partnership property is not subject to legal support.

b. His interest in the partnership - A partner's interest in the partnership is his share of the profits and surplus.

Effect of conveyance of a partner’s whole interest:

i. Does not, in itself, dissolve the partnership. The partnership is deemed dissolved only if there is stipulation to
that effect.
ii. The conveyee does not necessarily become a partner and such has no right to
1) demand accounting and settlement;
2) interfere in the management or administration of the partnership business; or
3) demand information, accounting and inspection of the partnership books.

Rights of the assignee/conveyee:

i. To get profits the assignor-partner would have obtained;
ii. To avail of the usual remedies in case of fraud in the management;
iii. Receive assignor’s interest in the event of a dissolution.

c. His right to participate in the management.

 OTHER RIGHTS OF A PARTNER:

1. To associate with another person in his share - every partner may associate another person with him in his share,
but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner
having an associate should be a manager.

2. To inspect and copy partnership books – the partnership books shall be kept in the principal place of business
unless otherwise agreed.

3. To demand a formal account in the following cases:

a. A partner was wrongfully excluded from the partnership business or possession of its property by his
co-partners;
b. When there is a stipulation granting such right
c. As to information affecting partnership affairs, such as secret profits earned by other partners;
d. Whenever just and reasonable.

4. To ask for a dissolution of the firm at the proper time and the right to return of capital and advancements –
subject to the rules of distribution of partnership assets during liquidation.

5. Right to compensation – exists only when there is an agreement or stipulation granting such right or entitlement

6. Right to reimbursement – the partnership is responsible to every partner for the amounts he may have disbursed on
behalf of the partnership and for the corresponding interest from the time the expense was made

DISSOLUTION AND WINDING-UP

Dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in
the carrying on as distinguished from the winding up of the business. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is completed.

Winding up: on the other hand, is the process of settling business affairs after dissolution.

CAUSES OF DISSOLUTION:

Extrajudicial causes: without intervention of the court:

1. Without violation of the agreement between the partners:
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, when no definite term or particular is specified;
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 term 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. In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under
any other provision of this article, by the express will of any partner at any time;
3. By operation of law:
a. By any event which makes it unlawful for the business of the partnership to be carried on or for the members to
carry it on in partnership;
b. When a specific thing which a partner had promised to contribute to the partnership, perishes before the
delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership
thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be
dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;
c. By the death of any partner;
d. By the insolvency of any partner or of the partnership;
e. By the civil interdiction of any partner;
Judicial causes: where the dissolution of the partnership is decreed by the court:
1. A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
2. A partner becomes in any other way incapable of performing his part of the partnership contract;
3. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
4. A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership
with him;
5. The business of the partnership can only be carried on at a loss;
6. Other circumstances render a dissolution equitable.

Note that in all the above judicial causes, a trial will be necessary to prove the facts necessary to dissolve the partnership.

EFFECTS OF DISSOLUTION:
1. The mutual agency is terminated. As a rule, the partners can no longer act to bind the partnership, subject to the
following rules:
a. If the cause of the dissolution is Acts, Insolvency or Death (AID) – NOTICE should be given by the partners to
terminate the mutual agency
b. If the cause is NOT AID – the mutual agency is terminated and the dissolution is binding even without notice.
2. The following acts are still binding even after dissolution:
a. Acts to for winding-up of the affairs of the partnership
b. Contracts with creditors who had no notice of the dissolution
3. The partners may continue the partnership after dissolution of the old partnership. Such continuation still dissolves the
old partnership and a new partnership is created. The creditors of the old partnership are also creditors of the person or
partnership continuing the business.

WINDING UP OR LIQUIDATION

This is the process of liquidating the partnership assets and the distributing the proceeds to satisfy the claims against the
partnership.

Liquidator: the liquidator shall be:

1. A party who has not wrongfully caused the dissolution;
2. The legal representative of the last surviving partner (if all are dead), if not insolvent;
3. The court, upon cause shown by a partner, his legal representative or assignee.

Distribution of Assets: will be done 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 profits.

Note: that in the distribution of a Limited Partnership’s assets, priority is given to the share of partners as to the profits
over their share as to capital.

Partner’s Liability: in case the assets of the partnership are not sufficient to cover the liabilities, the remaining claims
may be satisfied against the separate assets of the partners.

However, where a partner has become insolvent, the claims against his separate property shall be satisfied 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

Limited Partnership: is one formed by two or more persons having as members one or more general partners and one
or more limited partners.

Limited liability: a limited partners’ liability is limited only to his capital contribution. Such that, after exhaustion of
partnership assets, he cannot be made to contribute to answer the remaining liabilities to third parties.

FORMATION: Two or more persons desiring to form a limited partnership shall:

Sign and swear to a certificate, which shall state -
a. The name of the partnership, adding thereto the word "Limited"; - absence of the word Limited or “LTD” in the firm
name, the partnership will be treated as a general partnership.
b. The character of the business;
c. The location of the principal place of business;
d. The name and place of residence of each member, general and limited partners being respectively designated;
e. The term for which the partnership is to exist;
f. The amount of cash and a description of and the agreed value of the other property contributed by each limited partner;
g. The 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;
(f) and (g) are important because as to any difference (in amount stated in the certificate and actual contributions, or
failure to provide additional contributions), the limited partner will be liable as a debtor to the partnership.
h. The time, if agreed upon, when the contribution of each limited partner is to be returned;

Note, however, that the limited partner may nevertheless demand the return of his contribution:
i. 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; or
ii. On the dissolution of a partnership;

The above, however, is still subject to availability of funds after partnership debts are paid.

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;

However, the assignee does not necessarily become a substitute limited partner.
i. Substitute Limited Partner: A Substituted Limited Partner is a person admitted to all the rights of a limited
partner who has died or has assigned his interest in a partnership: Provided:
1) All the partners consent;
2) The assignor (Limited Partner), being thereunto empowered by the certificate, gives the assignee that
right.
ii. The substitute 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.
1) The substitution does not release the original limited partner from liability to the partnership.
2) If the assignee does not become an substitute, he has no right to require any information or account of
the partnership books; he is only entitled to receive the share of the profits or other compensation by way
of income or the return of his contribution to which his assignor would otherwise be entitled; The assignee
is still an OUTSIDER to the Partnership.

Limited Partners’ Interest: or his share in the profits and surplus may likewise be the subject of assignment or
attachment/execution. However, unlike the interest of a general partner, a limited partners’ interest may only be redeemed
with the general partners’ property and not with partnership property. (see Rights of a Partner)
a. The right, if given, of the partners to admit additional limited partners;
b. 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;
c. 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
d. The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution. The
said certificate will be filed with the SEC and a limited partnership is formed if there has been substantial compliance in
good faith with the foregoing requirements. If such certificate is not filed, the partnership may be liable in the same
manner as a general partnership.

LIMITATIONS ON A LIMITED PARTNER:

1. A limited partner cannot be an industrial partner. His contribution must always be money or property.
2. The surname of a limited partner shall not appear in the partnership name unless:
a. It is also the surname of a general partner, or
b. Prior to the time when the limited partner became such, the business has been carried on under a name in
which his surname appeared.
3. The limited partner cannot take part in the management of the partnership.

If a limited partner contributed industry, or his name appears in the partnership name (except for the above exceptions)
and/or took part in the management of the partnership, he shall be liable as if he is a general partner.

RIGHTS OF A LIMITED PARTNER:

1. Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to
inspect and copy any of them;
2. Have on demand true and full information of all things affecting the partnership, and a formal account of partnership
affairs whenever circumstances render it just and reasonable; and
3. Have dissolution and winding up by decree of court.
4. Receive a share of the profits or other compensation by way of income, and to the return of his contribution. However, a
limited partner shall not receive any part of his contribution until:
a. 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 them;
b. The consent of all members is had, unless the return of the contribution may be rightfully demanded as
provided in number 5; and
c. The certificate is canceled or so amended as to set forth the withdrawal or reduction.
5. Rightfully demand for his contribution:
a. On the dissolution of a partnership; or
b. When the date specified in the certificate for its return has arrived, or
c. 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.
6. Have his written consent or ratification be sought by the general partner/s in order to:
a. Do any act in contravention of the certificate;
b. Do any act which would make it impossible to carry on the ordinary business of the partnership;
c. Confess a judgment against the partnership;
d. Possess partnership property, or assign their rights in specific partnership property, for other than a partnership
purpose;
e. Admit a person as a general partner;
f. Admit a person as a limited partner, unless the right so to do is given in the certificate;
g. Continue the business with partnership property on the death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless the right so to do is given in the certificate.
7. A limited partner may loan money and to transact other business with the partnership, subject to the following
restrictions:
a. He cannot receive or hold as collateral security any partnership property;
b. He cannot receive any payment, conveyance or release from liability if at the time the assets of the partnership
are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.
Any violation of the above restrictions would be in fraud of creditors and may thus be treated as a rescissible contract.

GENERAL-LIMITED PARTNER: A person may be a general partner and a limited partner in the same partnership,
provided that this fact is stated in the certificate.
He shall have the rights and powers and be subject to all the restrictions of a general partner. Except that, in respect of his
contribution, he shall have the rights against the other partners which he would have had if he were not also a general
partner.

DISSOLUTION AND WINDING-UP

Grounds: The retirement, death, insolvency, insanity or civil interdiction of a GENERAL PARTNER dissolves the
partnership.
Except: If the partnership business is continued by the remaining general partners under a right to do so as stated in the
Certificate of Limited Partnership OR with the consent of all the partners.
A limited partner may have the partnership dissolved and its affairs wound up when he rightfully but unsuccessfully
demands the return of his contribution.

Distribution of Assets of a Limited Partnership: will be done in the following order:

1. Those owing to creditors other than partners;
2. Those owing to the limited partners, other than capital and profits;
3. Those owing to the limited partners in respect of profits;
4. Those owing to the limited partners in respect of capital;
5. Those owing to general partners other than for capital and profits;
6. Those owing to general partners in respect of profits;
7. Those owing to general partners in respect of capital.
 INSURANCE LAW
A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.

Suretyship is a contract where a person binds himself solidarily to the creditor to fulfill the obligation of the debtor in case
the latter should fail to do so.

A contract of suretyship shall be deemed to be an insurance contract, within the meaning of the Insurance Code, only if
made by a surety who or which, as such, is doing an insurance business.

Concept of Insurance

Insurance is a means by which one seeks to be covered against the consequences of an event that may cause loss or
damage. The concept is that the premiums paid are accumulated in a pool from which payment of claims are to be
obtained.

It is assumed that the people contributing premiums exceed those making claims resulting in a larger pool of money than
the amounts being claimed.

Elements of Insurance
1. The insurer has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.

CHARACTERISTICS AND NATURE OF INSURANCE CONTRACTS

1. Uberrimae Fides Contract - The contract of insurance is one of perfect good faith, not for the insured alone, but
equally so for the insurer. In fact, it is more so for the latter since the insurer’s dominant bargaining position carries with it
stricter responsibility.

2. Contract of Indemnity - The insured is entitled to recover only the amount of total loss sustained, and the burden is
upon him to prove the amount of such loss.

3. Risk Distributing Device - The risk of economic loss is distributed among a large group of people bearing the same
risk.

4. Aleatory - The obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an
event which is uncertain. It does not depend upon some contingent event.

5. Contract of Adhesion - An insurance contract is a ready-made form of contract, which the other party may accept or
reject, but which the latter cannot modify.

6. Personal - The law presumes that the insurer considered the personal qualification of the insured in approving the
insurance application. The insured cannot assign, before the happening of the loss, his rights under a property policy
without the consent of the insurer.

7. Voluntary - A contract of insurance is not compulsory, and the parties may incorporate such terms and conditions as
they may deem convenient. This is allowed provided that they do not contravene any provision of law and are not against
public policy.
8. Synallagmatic - Both the insured and insurer have reciprocal obligations of equal value to each other

CLASSES OF INSURANCE

1. Life insurance – insurance on human lives and insurance appertaining thereto or connected therewith.

2. Fire insurance – shall include insurance against loss by fire, lightning, windstorm, tornado or earthquake and other
allied risks, when such risks are covered by extension to fire insurance policies or under separate policies.

3. Casualty insurance – is an insurance covering loss or liability from accident or mishap. Casualty insurance includes
employer’s liability insurance, motor vehicle liability insurance, burglary and theft insurance and personal accident and
health insurance.

4. Suretyship – agreement whereby a party called the surety guarantees the performance by another party called the
principal or obligor of an obligation or undertaking in favor of a third party called the obligee.

5. Compulsory motor vehicle liability insurance – is a contract of insurance on passenger and third party liability for
death or bodily injuries and damage to property arising from motor vehicle accident.

6. Marine insurance - is an insurance against risks connected with navigation, to which a ship, cargo, freightage, profits,
or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time.

7. Microinsurance – is an insurance intended to over low income households or individuals that would allow them to
recover indemnity for illness, injury or death.

8. Compulsory insurance coverage for agency hired workers is an insurance mechanism made available by law to
provide insurance protection for our overseas Filipino workers (OFW).

9. Double insurance - exists where the same person is insured by several insurers separately in respect to the same
subject and interest.

The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select
up to the amount for which the insurers are severally liable under their respective contracts.

Each insurer is bound as between himself and the other insurers to contribute ratably to the loss in proportion to the
amount for which he is liable under his contract.

10. Contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by
reason of an original insurance.

A reinsurance is presumed to be a contract of indemnity against liability and not merely against damage.

The original insured has no interest in a contract of reinsurance.

VARIABLE INSURANCE - shall mean any policy or contract on either a group or on an individual basis issued by an
insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect
investment results of any segregated portfolio of investments or of a designated separate account in which amounts
received in connection with such contracts shall have been placed and accounted for separately and apart from other
investments and accounts.
 INSURABLE INTEREST
LIFE INSURANCE

Every person who has an insurable interest in the life and health:
1. Of himself, of his spouse, and of his children;
2. Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
3. Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance; and
4. Of any person upon whose life any estate or interest vested in him depends. (Sec. 10)

Measure: conditions sine qua non:

1. Positive: will you be benefited if the person does not die;
2. Negative: the amount of loss and effect of that loss, or the amount by which you will be damnified.

No Insurable Interest: Art. 2012 of the Civil Code provides that anyone who is forbidden from receiving any donation
under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him.

Creditor: may only insure the life of the debtor upto the amount of the debt. Such that if the debt has been paid prior to
death, the creditor can no longer recover. However, if the debtor insures his own life for the benefit of the creditor, upon
full payment of the debt, the insurance will inure to the benefit of the debtor’s estate upon death.

PROPERTY INSURANCE

Insurable interest in property is any interest therein, or liability in respect thereof, and it may consist in:
1. An existing interest,
2. An inchoate interest founded on existing interest, or
3. Any expectancy coupled with an existing interest. (Sec. 14)

In general, a person has an insurable interest in the property, if he derives pecuniary benefit or advantage from its
preservation or would suffer pecuniary loss, damage or prejudice by its destruction whether he has or has no title in, or
lien upon, or possession of the property. Hence, pecuniary interest over the property is always necessary.

INSURABLE INTEREST ON MORTGAGED PROPERTY

Mortgagor: as owner, has an insurable interest to the extent of its value, even though the mortgage debt equals such
value.
Mortgagee: has an insurable interest in the mortgaged property to the extent of the debt secured; such interest continues
until the mortgage debt is extinguished.

BENEFICIARY:
1. Property – must have insurable interest;
2. Life
A. If the insurance is taken by the insured on his own life, he may designate anybody as beneficiary even those
without insurable interest;
B. If the insurance is taken by a third person on the life of the insured, he must have insurable interest.

ASSIGNEE:
1. Property – must have insurable interest and the assignment must be with the consent of the insurer;
2. Life – the assignee need not have insurable interest.
 EFFECT OF CHANGE OF INTEREST IN INSURED PROPERTY:

General Rule: a change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in
the insurance suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the
insurance are vested in the same person.

Exceptions:
1. a change of interest in the thing insured after the occurrence of an injury which results in a loss.
2. a change of interest in one or more of several distinct things, separately insured by one policy.
3. A change of interest by will or succession on the death of the insured
4. A transfer of interest by one of several partners, joint owners or owners in common, who are jointly insured, to the
others.
5. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may
become the owner of the interest insured.

Consent: of the insurer is generally required, since the personal qualifications of the insured are considered by the
insurer. However, such consent is only necessary if there will be alienation of the property.

PERFECTION OF THE CONTRACT OF INSURANCE

PERFECTION: A contract of insurance is a consensual contract which is perfected by the meeting of the minds between
the insured and the insurer.

In the usual course, it is the insured who will fill-up an application to be insured subject to the insured’s approval. The
mere submission of an application without the corresponding approval, even if no memorandum or rejection as provided,
does not result in a perfected contract of insurance.

PREMIUMS: this is the consideration paid by the insured to the insurer for undertaking the assumption of the risk covered
by the insurance contract. As a general rule, there can be no binding contract of insurance if there is no payment of the
premium, considering that it is one of the elements of an insurance contract.

EXCEPTIONS: (enumerated by the Supreme Court in its resolution of the Motion for Reconsideration for the case of
UCPB General Insurance Co., Inc. vs. Masagana Telemart, Inc., GR No. 137172, April 4, 2001):
1. Whenever a grace period provision applies as provided under Section 77 of the Insurance Code.
2. If there is an agreement to grant the insured credit extension of the premium due under Section 72 of the
Insurance Code.
3. If the parties intended the policies to be valid despite payment of insurance premiums in installment as laid down
in the case of Makati Tuscany Condominium Corporation vs. Court of Appeals
4. If the insurer granted a credit term for the payment of the premium and loss occurs before the expiration of the
term, recovery on the policy should be allowed.
5. When the parties are barred by estoppel.

RESCISSION OF INSURANCE CONTRACTS

A NON-LIFE Insurance Policy may be CANCELED by the insurer on the following ground:
1. Nonpayment of premium;
2. Conviction of a crime arising out of acts increasing the hazard insured against;
3. Discovery of fraud or material misrepresentation;
4. Discovery of willful or reckless acts or omissions increasing the hazard insured against;
5. Physical changes in the property insured which result in the property becoming uninsurable;
6. Discovery of other insurance coverage that makes the total insurance in excess of the value of the property
insured; or
7. A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in
violation of this Code.
 OTHER GROUNDS FOR RESCISSION OR CANCELLATION OF THE INSURANCE CONTRACT:

1. Concealment – a neglect to communicate that which a party knows and ought to communicate. A concealment,
whether intentional or unintentional, entitles the injured party to rescind the contract of insurance. (Section 27)

2. False Representation or Misrepresentation.

A representation may be oral or written and may be made at the time of, or before, issuance of the policy.

If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to
rescind the contract from the time when the representation becomes false.

3. Breach of Warranty
A warranty may either be expressed or implied, and may relate to the past, the present, the future or to any or all
of these.

A statement in a policy, of a matter relating to the person or thing insured, or to the risk, as fact, is an express
warranty thereof. (Section 71)

CLAIMS SETTLEMENT AND SUBROGATION

LIFE INSURANCE:
1. If there is a maturity – immediately upon such maturity;
2. If the policy matures upon death – within 60 days after presentation of the claim and filing of the proof of the death
of the insured.

PROPERTY INSURANCE:
1. Ascertainment of loss is either by agreement or by arbitration – within 30 days after proof of loss is received by
the insurer and ascertainment of the loss or damage is made;
2. If no ascertainment is made within 60 days after receipt of proof of loss – within 90 days after such receipt.

Delay: non-compliance with the above periods entitles the beneficiary to:
1. Interest – for the duration of the delay at a rate TWICE the legal interest;
2. Attorney’s fees and other litigation expenses;
3. Appropriate damages under the Civil Code like moral and exemplary.

PRESCRIPTION:
1. In the absence of stipulation, 10 years.
2. However, the parties may validly agree on a shorter period provided it is NOT less than 1 year from the time the cause
of action accrues.

The cause of action accrues from the time of the final rejection of the claim and not from the time of loss. If there is a
motion for reconsideration, the one year period is to be counted from the date of first denial and not on the denial of the
reconsideration.

SUBROGATION: is a normal incident of indemnity property insurance as a legal effect of payment; it inures to the insurer
without any formal assignment or any express stipulation to that effect in the policy.

The rights of the insurer are those which are available to the insured at the time of payment.

CLAIMS:
1. Notice – must be given without undue delay. Otherwise, the insurer is exonerated;
2. Proof – the insurer may give the best evidence he has. Even if there is a stipulated requirement of proof,
substantial compliance thereof would suffice.