Partnership Codal+Outline

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KINDS OF PARTNERSHIPA. As to Object

1. Universal Partnership Art. 1776. As to its object, a partnership is either universal or

particular. As regards the liability of the partners, a partnership may be general or limited.

Art. 1777. A universal partnership may refer to all the present property or to all the profits.

Art. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith.

Art. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith.

A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof.

Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership.

Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership.

Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits.

Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership.

2. Particular Partnership Art. 1783. A particular partnership has for its object

determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation.

B. As to Duration1. Fixed Term2. Particular Undertaking3. At Will Art. 1785. When a partnership for a fixed term or particular

undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will.

A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership.

C. As to Liability of Partners1. General2. Limited Art. 1776. As to its object, a partnership is either universal or

particular. As regards the liability of the partners, a partnership may be general or limited.

Art. 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited

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partners. The limited partners as such shall not be bound by the obligations of the partnership.

Art. 1844. Two or more persons desiring to form a limited partnership shall: Sign and swear to a certificate, which shall state –

The name of the partnership, adding thereto the word "Limited";

The character of the business; The location of the principal place of business; The name and place of residence of each member, general

and limited partners being respectively designated; The term for which the partnership is to exist; The amount of cash and a description of and the agreed

value of the other property contributed by each limited partner;

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;

The time, if agreed upon, when the contribution of each limited partner is to be returned;

The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution;

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;

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

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;

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

The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.

File for record the certificate in the Office of the Securities and Exchange Commission.

A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.

Art. 1845. The contributions of a limited partner may be cash or property, but not services.

Art. 1846. The surname of a limited partner shall not appear in the partnership name unless: It is also the surname of a general partner, or Prior to the time when the limited partner became such, the

business has been carried on under a name in which his surname appeared.

A limited partner whose surname appears in a partnership name contrary to the provisions of the first paragraph is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

Art. 1847. If the certificate contains a 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 as provided in Article 1865.

Art. 1848. A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business.

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Art. 1849. After the formation of a lifted partnership, additional limited partners may be admitted upon filing an amendment to the original certificate in accordance with the requirements of Article 1865.

Art. 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to: Do any act in contravention of the certificate; Do any act which would make it impossible to carry on the

ordinary business of the partnership; Confess a judgment against the partnership; Possess partnership property, or assign their rights in specific

partnership property, for other than a partnership purpose; Admit a person as a general partner; Admit a person as a limited partner, unless the right so to do is

given in the certificate; 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.

Art. 1851. A limited partner shall have the same rights as a general partner to: 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;

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

Have dissolution and winding up by decree of court.

A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in Articles 1856 and 1857.

Art. 1852. Without prejudice to the provisions of Article 1848, a person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income.

Art. 1853. A person may be a general partner and a limited partner in the same partnership at the same time, provided that this fact shall be stated in the certificate provided for in Article 1844.A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner.

Art. 1854. A limited partner also 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 such claim: Receive or hold as collateral security and partnership property,

or Receive from a general partner or the partnership 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.

The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership.

Art. 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a

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priority over other limited partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing.

Art. 1856. A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners.

Art. 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions 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 them;

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.

Subject to the provisions of the first paragraph, 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.

In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution.

A limited partner may have the partnership dissolved and its affairs wound up when:

He rightfully but unsuccessfully demands the return of his contribution, or

The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of his contribution.

Art. 1858. A limited partner is liable to the partnership: For the difference between his contribution as actually

made and that stated in the certificate as having been made; and

For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.

A limited partner holds as trustee for the partnership: Specific property stated in the certificate as contributed by

him, but which was not contributed or which has been wrongfully returned, and

Money or other property wrongfully paid or conveyed to him on account of his contribution.

The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities.

When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return.

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Art. 1859. A limited partner's interest is assignable.

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.

An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to inspect 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.

An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.

An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with Article 1865.

The substituted limited partner 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.

The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under Articles 1847 and 1848.

Art. 1860. The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partners: Under a right so to do stated in the certificate, or With the consent of all members.

Art. 1861. On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner.

The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.

Art. 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the circumstances of the case may require.

The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property.

The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.

Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption.

Art. 1863. In setting accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order: Those to creditors, in the order of priority as provided by law,

except those to limited partners on account of their contributions, and to general partners;

Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions;

Those to limited partners in respect to the capital of their contributions;

Those to general partners other than for capital and profits; Those to general partners in respect to profits; Those to general partners in respect to capital.

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Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on their contribution respectively, in proportion to the respective amounts of such claims.

Art. 1864. The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such.A certificate shall be amended when: There is a change in the name of the partnership or in the

amount or character of the contribution of any limited partner; A person is substituted as a limited partner; An additional limited partner is admitted; A person is admitted as a general partner; A general partner retires, dies, becomes insolvent or insane, or

is sentenced to civil interdiction and the business is continued under Article 1860;

There is a change in the character of the business of the partnership;

There is a false or erroneous statement in the certificate; 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;

A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate, or

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.

Art. 1865. The writing to amend a certificate shall: Conform to the requirements of Article 1844 as far as necessary

to set forth clearly the change in the certificate which it is desired to make; and

Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or

added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner.

The writing to cancel a certificate shall be signed by all members.

A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof.

If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment.

A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate is recorded: A writing in accordance with the provisions of the first or

second paragraph, or A certified copy of the order of the court in accordance with the

provisions of the fourth paragraph; After the certificate is duly amended in accordance with this

article, the amended certified shall thereafter be for all purposes the certificate provided for in this Chapter.

Art. 1866. A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership.

Art. 1867. A limited partnership formed under the law prior to the effectivity of this Code, may become a limited partnership under

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this Chapter by complying with the provisions of Article 1844, provided the certificate sets forth: The amount of the original contribution of each limited partner,

and the time when the contribution was made; and That the property of the partnership exceeds the amount

sufficient to discharge its liabilities to persons not claiming as general or limited partners by an amount greater than the sum of the contributions of its limited partners.

A limited partnership formed under the law prior to the effectivity of this Code, until or unless it becomes a limited partnership under this Chapter, shall continue to be governed by the provisions of the old law.

ESSENTIAL CHARACTERISTICSA. Primarily a Contractual Relationship

Art. 1767. By the 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.

Two or more persons may also form a partnership for the exercise of a profession.

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated.

B. Informal/Consensual and Weak Juridical Personality Art. 1768. The partnership has a judicial personality separate and

distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph.

Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name.

C. Delectus Personae Art. 1804. 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.

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners.

D. Mutual Agency Art. 1803. When the manner of management has not been agreed

upon, the following rules shall be observed:

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.

Art. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the

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particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.

An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners.

Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to: Assign the partnership property in trust for creditors or on the

assignee's promise to pay the debts of the partnership; Dispose of the good-will of the business; Do any other act which would make it impossible to carry on

the ordinary business of a partnership; Confess a judgment; Enter into a compromise concerning a partnership claim or

liability; Submit a partnership claim or liability to arbitration; Renounce a claim of the partnership.No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. (n)

Art. 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority.

Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.

Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of the first paragraph of Article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge.

Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.

Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property.

Art. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner.

Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of 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.

Art. 1823. The partnership is bound to make good the loss:

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Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and

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.

E. No Limited Liability for Partners Art. 1816. 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.

Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners.

Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823.

Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary: (4) The partners shall contribute, as provided by article 1797,

the amount necessary to satisfy the liabilities. (7) The individual property of a deceased partner shall be liable

for the contributions specified in No. 4.

MULTI-LEVEL EXISTENCE OR LEGAL RELATIONSHIPSA. Primarily a Contractual RelationshipB. Juridical PersonC. Medium by which to pursue a Business Enterprise

COMPARED WITH OTHER MEDIA OF DOING BUSINESSA. Co-ownershipB. Sole ProprietorshipC. Business TrustD. AgencyE. Job Contracting or SubcontractingF. CorporationsG. Cooperatives

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THE PARTNERS AND THE PARTNERSHIPA. Kinds of Partners

1. General and Limited2. Industrial [his industry or his service] and Capitalist [money and/or

property to the partnership]3. Ostensible, Nominal and Dormant4. Original [with the partnership at the time of its constitution] and

Incoming [come during the life of a pre-existing partnership]

5. Managing [management of the partnership enterprise] and Liquidating [takes charge of the liquidation and winding-up of partnership affairs]

6. Retiring [ceases to be part of the partnership which is continued

after dissolution], Surviving and Continuing [remain with the venture]

B. Obligations of Partners1. Obligation to Contribute to the Common Fund

Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand.

a. When sum of money Article 1788. 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.

The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use.

b. When property In general

Article 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.

If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised.

Who bears risk of loss for determinate thing Article 1830. Dissolution is caused:

(4) 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. When contribution in goods Article 1787. When the capital or a part thereof which a

partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership.


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d. When real property Article 1772. Every contract of partnership having a capital

of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n)

Article 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

e. When in service Article 1789. An industrial partner cannot engage in

business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case.

f. Presumption as to percentage capital Article 1790. Unless there is a stipulation to the contrary,

the partners shall contribute equal shares to the capital of the partnership.

g. Additional contribution, in case of imminent loss Article 1791. If there is no agreement to the contrary, in

case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the

venture, shall be obliged to sell his interest to the other partners.

2. On recovery of demandable sum Article 1792. If a partner authorized to manage collects a

demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter.

The provisions of this article are understood to be without prejudice to the right granted to the other debtor by article 1252 [right of debtor to stipulate the application of payment], but only if the personal credit of the partner should be more onerous to him.

3. On receiving partnership credit Article 1793. A partner who has received, in whole or in part, his

share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only.

4. As to 3rd personsC. Obligation of Partnership to the Partners

1. For amounts disbursed for the partnership Article 1796. The partnership shall be 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 expenses are made; it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business, and for risks in consequence of its management.

2. Formal accounting of partnership affairs Article 1809. Any partner shall have the right to a formal

account as to partnership affairs:

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(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

(2) If the right exists under the terms of any agreement; (3) As provided by article 1807; (4)Whenever other circumstances render it just and

reasonable.D. Mutual Agency

1. General Rule on Agency Article 1803. When the manner of management has not been

agreed upon, the following rules shall be observed: 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.

Article 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.


Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:

(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership;

(2) Dispose of the good-will of the business; (3) Do any other act which would make it impossible to

carry on the ordinary business of a partnership; (4) Confess a judgment;

(5) Enter into a compromise concerning a partnership claim or liability;

(6) Submit a partnership claim or liability to arbitration; (7) Renounce a claim of the partnership.

No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction.

2. When there is designation of manager or management prerogatives Article 1800. The partner who has been appointed manager in

the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power.

A power granted after the partnership has been constituted may be revoked at any time.

Article 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest.

Article 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, 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, unless there is imminent danger of grave or irreparable injury to the partnership.

3. Specified Powers of Partnersa. Can dispose of partnership property even when in partnership

name

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Article 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority.

Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of article 1818.

Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of the first paragraph of article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge.

Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of article 1818.

Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property.

b. Admission or representation made by any partner concerning partnership affairs is evidence against the partnership Article 1820. An admission or representation made by any

partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership.

c. Notice to any partner of any matter relating to partnership affairs is notice to the partnership Article 1821. Notice to any partner of any matter relating to

partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner.

d. Wrongful act or omission of any partner acting for partnership affairs makes the partnership liable Article 1822. Where, by any wrongful act or omission of any

partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act.

e. Partnership bound to make good losses for acts or misapplications of partners Article 1823. The partnership is bound to make good the

loss: (1) Where one partner acting within the scope of his

apparent authority receives money or property of a third person and misapplies it; and

(2) 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.

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4. Mutual Obligations of Partners: Full Information and Accounting to other partners Article 1806. Partners shall render on demand true and full

information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability.

E. Fiduciary Duties1. Duty of Diligence: For damages caused to the business

Article 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized.

2. Duty to account: Full accounting to the partnership for partnership transactions Article 1807. Every partner must account to the partnership for

any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.

3. Duty of Loyaltya. Capitalist partners can’t engage for their own account in similar

partnership business Article 1808. The capitalist partners cannot engage for their

own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary.

Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses.

b. Industrial partner can’t engage in any form of business Article 1789. An industrial partner cannot engage in

business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail

themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case.

c. Engaging in competitive business

F. Property Rights of Partners1. Rights to Specific Partnership Property

Article 1810. The property rights of a partner are: (1) His rights in specific partnership property; (2) His interest in the partnership; and (3) His right to participate in the management

a. Equal right to possess but for partnership purpose only.b. Non-assignablec. Not subject to attachment or execution

Article 1811. A partner is co-owner with his partners of specific partnership property.

The incidents of this co-ownership are such that: (1) A partner, subject to the provisions of this Title and

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;

(2) 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;

(3) 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;

(4) A partner's right in specific partnership property is not subject to legal support under article 291.

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d. Remedy of partner’s separate creditors Article 1814. Without prejudice to the preferred rights of

partnership creditors under article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require.

The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (1) With separate property, by any one or more of the

partners; or (2) With partnership property, by any one or more of

the partners with the consent of all the partners whose interests are not so charged or sold.

Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership.

2. Right of Participate in Management Article 1810. The property rights of a partner are:

(3) His right to participate in the management Article 1818. Every partner is an agent of the partnership for the

purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.


Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to: (1) Assign the partnership property in trust for creditors or

on the assignee's promise to pay the debts of the partnership;

(2) Dispose of the good-will of the business; (3) Do any other act which would make it impossible to

carry on the ordinary business of a partnership; (4) Confess a judgment; (5) Enter into a compromise concerning a partnership claim

or liability; (6) Submit a partnership claim or liability to arbitration; (7) Renounce a claim of the partnership.

No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction.

3. Interest in the Partnership Venture Article 1812. A partner's interest in the partnership is his share of

the profits and surplus.a. Right to Dispose of such Interest

Article 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the

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management of the partnership, the assignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners.

b. Right of Partner’s Creditors to Execute upon it4. Participation in Profits and Losses

a. A stipulation excluding a partner from any share in the profits or losses is void. Article 1799. A stipulation which excludes one or more

partners from any share in the profits or losses is void.b. Distribution of profits and losses

Article 1797. The losses and profits shall be distributed in conformity with the agreement. 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.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

c. When 3rd party designated to share Article 1798. If the partners have agreed to intrust to a third

person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision.

The designation of losses and profits cannot be intrusted to one of the partners.

G. Other Proprietary Rights of Partners1. Access to Partnership Books and Records

Article 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them.

2. Right to Formal Accounting Article 1809. Any partner shall have the right to a formal

account as to partnership affairs: If he is wrongfully excluded from the partnership business

or possession of its property by his co-partners; If the right exists under the terms of any agreement; As provided by article 1807; Whenever other circumstances render it just and

reasonable.3. Right to Reimbursement for Advances and Indemnification for Risks



4. Right to Dissolve the Partnership Article 1830. Dissolution is caused:

(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;

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H. Partners’ Unlimited Liability1. All partners are liable pro rata with all their properties and after

partnership assets have been exhausted, for all partnership debts Article 1816. 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.a. Any stipulation against personal liability of partners for

partnership debts is void, except as among them. Article 1817. Any stipulation against the liability laid

down in the preceding article shall be void, except as among the partners.

2. All partners are liable solidarily with the partnership for everything chargeable to the partnership when caused by the wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with authority from the other partners and for partner’s act or misapplication of properties. Article 1824. All partners are liable solidarily with the

partnership for everything chargeable to the partnership under articles 1822 and 1823.

3. A newly admitted partner into an existing partnership is liable for all the obligations of the partnership arising before his admission, but out of partnership property shares. Article 1826. A person admitted as a partner into an existing

partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary.

4. Partnership creditors are preferred to those of each of the partners as regards the partnership property. Article 1827. The creditors of the partnership shall be preferred

to those of each partner as regards the partnership property. Without prejudice to this right, the private creditors of each

partner may ask the attachment and public sale of the share of the latter in the partnership assets.

5. Upon dissolution of the partnership, the partners shall contribute the amounts necessary to satisfy the partnership liabilities. Article 1839. In settling accounts between the partners after

dissolution, the following rules shall be observed, subject to any agreement to the contrary: (4) The partners shall contribute, as provided by article

1797, the amount necessary to satisfy the liabilities. (7) The individual property of a deceased partner shall be

liable for the contributions specified in No. 4.I. Relations and Dealings with Third Persons

1. Representation as a Partner to Third Parties Article 1825. When a person, by words spoken or written or by

conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made: (1) When a partnership liability results, he is liable as though

he were an actual member of the partnership; (2) When no partnership liability results, he is liable pro rata

with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.

When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the

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representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.

DISSOLUTION, WINDING-UP, AND TERMINATION OF PARTNERSHIPA. Nature and Effects of Dissolution

1. As to the Relationship of the Partners Article 1828. The dissolution of a partnership is the change in

the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.

Article 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership: (1) With respect to the partners,

(a) When the dissolution is not by the act, insolvency or death of a partner; or

(b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires;

(2) With respect to persons not partners, as declared in article 1834.

2. On the partnership Itself Article 1829. On dissolution the partnership is not terminated,

but continues until the winding up of partnership affairs is completed.

3. On Authority of the Partners Article 1832. Except so far as may be necessary to wind up

partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership: (1) With respect to the partners,

(a) When the dissolution is not by the act, insolvency or death of a partner; or

(b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires;

(2) With respect to persons not partners, as declared in article 1834. (n)

Article 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless: (1) The dissolution being by act of any partner, the partner

acting for the partnership had knowledge of the dissolution; or

(2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency.

Article 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article: (1) By any act appropriate for winding up partnership affairs

or completing transactions unfinished at dissolution; (2) By any transaction which would bind the partnership if

dissolution had not taken place, provided the other party to the transaction: (a) Had extended credit to the partnership prior to

dissolution and had no knowledge or notice of the dissolution; or

(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on.

The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution:

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(1) Unknown as a partner to the person with whom the contract is made; and

(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it.

The partnership is in no case bound by any act of a partner after dissolution: (1) Where the partnership is dissolved because it is unlawful

to carry on the business, unless the act is appropriate for winding up partnership affairs; or

(2) Where the partner has become insolvent; or (3) Where the partner has no authority to wind up

partnership affairs; except by a transaction with one who – (a) Had extended credit to the partnership prior to

dissolution and had no knowledge or notice of his want of authority; or

(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b).

Nothing in this article shall affect the liability under article 1825 of any person who after dissolution represents himself or consents to another representing him as a partner in a partnership engaged in carrying on business.

4. On the Liabilities of the Partners Article 1835. The dissolution of the partnership does not of

itself discharge the existing liability of any partner.

A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor

having knowledge of the dissolution and the person or partnership continuing the business.

The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts.

B. Types (Causes) of Dissolution Article 1830. Dissolution is caused:

(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 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;

(4) 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;

(5) By the death of any partner; (6) By the insolvency of any partner or of the partnership; (7) By the civil interdiction of any partner;

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(8) By decree of court under the following article.

Article 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: (1) When any new partner is admitted into an existing

partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;

(3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs.

The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud.

The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership.

1. Non-Judicial Dissolutiona. Without Violation of the Partnership Agreement

Expiration of term or undertaking By the express will of a partner in a partnership at will Mutual assent of the partners Expulsion of a partner pursuant to an agreement granting

such rightb. In Contravention of Agreementc. By Operation of Law

Supervening illegality Loss of Specific Thing Contributed Death, Insolvency or Civil Interdiction of Partner

2. Judicial Dissolution Article 1770. A partnership must have a lawful object or

purpose, and must be established for the common benefit or interest of the partners.

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When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime.

Article 1831. On application by or for a partner the court shall decree a dissolution whenever: (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 willfully 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.

On the application of the purchaser of a partner's interest under article 1813 or 1814: (1) After the termination of the specified term or particular

undertaking; (2) At any time if the partnership was a partnership at will

when the interest was assigned or when the charging order was issued.

C. Winding-Up of the Partnership Business Enterprise1. Binding Authority of Partners after Dissolution2. Who has Authority to Wind-Up3. Discharge of Liabilities4. When there is Fraud or Misrepresentation5. Manner of Settling Accounts among the Partners6. Claims of Creditors7. Effect on Death or Retiring Partner when Partnership Business

continued after Dissolution

a. Right of Expelled Partner8. Right to Receiving Proper Accounting for Partnership Interest9. Right to Continue Business when Partnership Wrongfully Dissolved

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LIMITED PARTNERSHIPA. Origin, Concept and PurposeB. Formation and Statutory Requirements

1. Requirements2. Sworn Certificate of Limited Partnership filed with SEC

a. Partnership Name added the word Limitedb. Character and Location of Business

3. Doctrine of Substantial Compliance4. Effects of Failure to Comply with Registration Requirements5. Effects of False Statement in Certificate

Art. 1847. If the certificate contains a 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 as provided in Article 1865.

6. Amendment of Certificate Art. 1864. The certificate shall be cancelled when the

partnership is dissolved or all limited partners cease to be such.

A certificate shall be amended when: There is a change in the name of the partnership or in the

amount or character of the contribution of any limited partner;

A person is substituted as a limited partner; An additional limited partner is admitted; A person is admitted as a general partner; A general partner retires, dies, becomes insolvent or insane,

or is sentenced to civil interdiction and the business is continued under Article 1860;


There is a false or erroneous statement in the certificate; 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;



Art. 1865. The writing to amend a certificate shall: Conform to the requirements of Article 1844 as far as

necessary to set forth clearly the change in the certificate which it is desired to make; and

Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner.

The writing to cancel a certificate shall be signed by all members.

A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof.

If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment.

A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate is recorded:

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A writing in accordance with the provisions of the first or second paragraph, or

A certified copy of the order of the court in accordance with the provisions of the fourth paragraph;

After the certificate is duly amended in accordance with this article, the amended certified shall thereafter be for all purposes the certificate provided for in this Chapter.

C. Rights, Powers, Restrictions and Liabilities on Partners1. General Partner

Art. 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to: Do any act in contravention of the certificate; Do any act which would make it impossible to carry on the

ordinary business of the partnership; Confess a judgment against the partnership; Possess partnership property, or assign their rights in

specific partnership property, for other than a partnership purpose;

Admit a person as a general partner; Admit a person as a limited partner, unless the right so to

do is given in the certificate;

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.

2. Limited Partners at Formation Art. 1848. A limited partner shall not become liable as a general

partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business.

Art. 1851. A limited partner shall have the same rights as a general partner to:

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;

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

Have dissolution and winding up by decree of court.

A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in Articles 1856 and 1857.

Art. 1854. A limited partner also 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 such claim: Receive or hold as collateral security and partnership

property, or Receive from a general partner or the partnership 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.

The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership.

a. Contributions may be cash/property but not services Art. 1845. The contributions of a limited partner may be

cash or property, but not services.b. Priority agreements among Limited Partners

Art. 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their

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compensation by way of income, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing.

c. Stipulation on Profits and Compensation Art. 1856. A limited partner may receive from the

partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners.

d. Stipulation on when contribution received Art. 1857. A limited partner shall not receive from a general

partner or out of partnership property any part of his contributions 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 them;

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.

Subject to the provisions of the first paragraph, 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.

In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution.

A limited partner may have the partnership dissolved and its affairs wound up when: He rightfully but unsuccessfully demands the return of

his contribution, or The other liabilities of the partnership have not been

paid, or the partnership property is insufficient for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of his contribution.

e. Liabilities to the Partnership Art. 1858. A limited partner is liable to the partnership:

For the difference between his contribution as actually made and that stated in the certificate as having been made; and

For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.

A limited partner holds as trustee for the partnership: Specific property stated in the certificate as contributed

by him, but which was not contributed or which has been wrongfully returned, and

Money or other property wrongfully paid or conveyed to him on account of his contribution.

The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities.

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When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return.

f. Additional Limited Partners Art. 1849. After the formation of a lifted partnership,

additional limited partners may be admitted upon filing an amendment to the original certificate in accordance with the requirements of Article 1865.

g. “Assignability” of Rights Art. 1859. A limited partner's interest is assignable.

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.

An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to inspect 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.

An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.

An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with Article 1865.

The substituted limited partner 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.

The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under Articles 1847 and 1848.

h. No Standing to Sue for Partnership Art. 1866. A contributor, unless he is a general partner, is

not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership.

3. Liability of One Believing himself to be Limited Partner Art. 1852. Without prejudice to the provisions of Article 1848, a

person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income.

4. General Partner also as Limited Partner Art. 1853. A person may be a general partner and a limited

partner in the same partnership at the same time, provided that this fact shall be stated in the certificate provided for in Article 1844.

A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner.

D. Dissolution and Winding Up1. Causes affecting the General Partner

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Art. 1860. The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partners: Under a right so to do stated in the certificate, or With the consent of all members.

2. Causes pertaining to the Limited Partner Art. 1861. On the death of a limited partner his executor or

administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner.

The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.

Art. 1864. The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such.

A certificate shall be amended when: There is a change in the name of the partnership or in the

amount or character of the contribution of any limited partner;

A person is substituted as a limited partner; An additional limited partner is admitted; A person is admitted as a general partner; A general partner retires, dies, becomes insolvent or insane,

or is sentenced to civil interdiction and the business is continued under Article 1860;


There is a false or erroneous statement in the certificate; 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;



3. Dealings of Limited Partners with Partnership Affairs4. Application of a Creditor of Limited Partner

Art. 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the circumstances of the case may require.

The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property.

The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption.

5. Settlement of Accounts Art. 1863. In setting accounts after dissolution the liabilities of

the partnership shall be entitled to payment in the following order: Those to creditors, in the order of priority as provided by

law, except those to limited partners on account of their contributions, and to general partners;

Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions;

Those to limited partners in respect to the capital of their contributions;

Those to general partners other than for capital and profits; Those to general partners in respect to profits; Those to general partners in respect to capital.

Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in

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respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on their contribution respectively, in proportion to the respective amounts of such claims.

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JURISDICTION ON PARTNERSHIP MATTERSPD 902-A

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving.

(a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder, partners, members of associations or organizations registered with the Commission;

(b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; and

(c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:(a) To issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply;

(b) To punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of, and penalties prescribed by, the Rules of Court;

(c) To compel the officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision;

(d) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent stockholders or members;

(e) To issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases order search and seizure or cause the search and seizure of all documents, papers, files and records as well as books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it;

(f) To impose fines and/or penalties for violation of this Decree or any other laws being implemented by the Commission, the pertinent rules and regulations, its orders, decisions and/or rulings;

(g) To authorize the establishment and operation of stock exchanges, commodity exchanges and such other similar organization and to supervise and regulate the same; including the authority to determine their number, size and location, in the light of national or regional requirements for such activities with the view to promote, conserve or rationalize investment;

(h) To pass upon, refuse or deny, after consultation with the Board of Investments, Department of Industry, National Economic and Development Authority or any other appropriate government agency, the application for registration of any corporation, partnership or association or any form of organization falling within its jurisdiction, if their establishment, organization or operation will not be consistent with the declared national economic policies.

(i) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following:

[1] Fraud in procuring its certificate of registration;

[2] Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public;

[3] Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would amount to a grave violation of its franchise;

[4] Continuous inoperation for a period of at least five (5) years;

[5] Failure to file by-laws within the required period;

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[6] Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period;

(j) To exercise such other powers as implied, necessary or incidental to the carrying out the express powers granted to the Commission or to achieve the objectives and purposes of this Decree.In the exercise of the foregoing authority and jurisdiction of the Commission, hearings shall be conducted by the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of procedures to govern the proceedings, hearings and appeals of cases falling within its jurisdiction.

The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for petition for review in accordance with the pertinent provisions of the Rules of Court.

RA 8799

Section 5. Powers and Functions of the Commission.– 5.1. The commission shall act with transparency and shall have the powers and functions provided by this code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnership or associations who are the grantees of primary franchises and/or a license or a permit issued by the Government;

(b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspect of the securities market and propose legislation and amendments thereto;

(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;

(d) Regulate, investigate or supervise the activities of persons to ensure compliance;

(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs;

(f) Impose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant thereto;

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulation and orders;

(h) Enlist the aid and support of and/or deputized any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and function under its Code;

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;

(j) Punish for the contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court;

(k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision;

(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;

(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnership or associations, upon any of the grounds provided by law; and

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(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

INTERIM RULES OF PROCEDURE FOR INTRA-CORPORATE DISPUTES

Rule IGENERAL PROVISIONS

Section 1. (a) Cases covered. - These Rules shall govern the procedure to be observed in civil cases involving the following:

(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association;

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively;

(3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations;

(4) Derivative suits; and

(5) Inspection of corporate books.

(b) Prohibition against nuisance and harassment suits. - Nuisance and harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following:

(1) The extent of the shareholding or interest of the initiating stockholder or member;

(2) Subject matter of the suit;

(3) Legal and factual basis of the complaint;

(4) Availability of appraisal rights for the act or acts complained of; and

(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case.

Sec. 2. Suppletory application of the Rules of Court. - The Rules of Court, in so far as they may be applicable and are not inconsistent with these Rules, are hereby adopted to form an integral part of these Rules.

Sec. 3. Construction. - These Rules shall be liberally construed in order to promote their objective of securing a just, summary, speedy and inexpensive determination of every action or proceeding.

Sec. 4. Executory nature of decisions and orders. - All decisions and orders issued under these Rules shall immediately be executory. No appeal or petition taken therefrom shall stay the enforcement or implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal.

Sec. 5. Venue. - All actions covered by these Rules shall be commenced and tried in the Regional Trial Court which has jurisdiction over the principal office of the corporation, partnership, or association concerned. Where the principal office of the corporation, partnership or association is registered in the Securities and Exchange Commission as Metro Manila, the action must be filed in the city or municipality where the head office is located.

Sec. 6. Service of pleadings. - When so authorized by the court, any pleading and/or document required by these Rules may be filed with the court and/or served upon the other parties by facsimile transmission (fax) or electronic mail (e-mail). In such cases, the date of transmission shall be deemed to beprima facie the date of service.

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Sec. 7. Signing of pleadings, motions and other papers. - Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated. A party who is not represented by an attorney shall sign the pleading, motion, or other paper and state his address.

The signature of an attorney or party constitutes a certification by the signer that he ha read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing jurisprudence; and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

If a pleading, motion, or other paper is not signed, it shall be stricken off the record unless it is promptly signed by the pleader or movant, after he is notified of the omission.

Sec. 8. Prohibited pleadings. - The following pleadings are prohibited:

(1) Motion to dismiss;

(2) Motion for a bill of particulars;

(3) Motion for new trial, or for reconsideration of judgment or order, or for re-opening of trial;

(4) Motion for extension of time to file pleadings, affidavits or any other paper, except those filed due to clearly compelling reasons. Such motion must be verified and under oath; and

(5) Motion for postponement and other motions of similar intent, except those filed due to clearly compelling reasons. Such motion must be verified and under oath.

Sec. 9. Assignment of cases. - All cases filed under these Rules shall be tried by judges designated by the Supreme Court to hear and decide cases transferred from the Securities and Exchange Commission to the Regional Trial Courts and filed directly with said courts pursuant to Republic Act No. 8799, otherwise known as the

Securities Regulation Code.

Rule 2COMMENCEMENT OF ACTION AND PLEADINGS

Section 1. Commencement of action. - An action under these Rules is commenced by the filing of a verified complaint with the proper Regional Trial Court.

Sec. 2. Pleadings allowed. - The only pleadings allowed to be filed under these Rules are the complaint, answer, compulsory counterclaims or cross-claims pleaded in the answer, and the answer to the counterclaims or cross-claims.

Sec. 3. Verification. - The complaint and the answer shall be verified by an affidavit stating that the affiant has read the pleading and the allegations therein are true and correct based on his own personal knowledge or on authentic records.

Sec. 4. Complaint. - The complaint shall state or contain:

(1) the names, addresses, and other relevant personal or judicial circumstances of the parties;

(2) all facts material and relevant to the plaintiff's cause or causes of action, which shall be supported by affidavits of the plaintiff or his witnesses and copies of documentary and other evidence supportive of such cause or causes of action;

(3) the law, rule, or regulation relied upon, violated, or sought to be enforced;

(4) a certification that (a) the plaintiff has not therefore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency, and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court; and

(5) the relief sought.

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Sec. 5. Summons. - The summons and the complaint shall be served together not later than five (5) days from the date of filing of the complaint.

(a) Service upon domestic private juridical entities. - If the defendant is a domestic corporation, service shall be deemed adequate is made upon any of the statutory or corporate officers as fixed by the by-laws or their respective secretaries. If the defendant is a partnership, service shall be deemed adequate if made upon any of the managing or general partners or upon their respective secretaries. If the defendant is an association service shall be deemed adequate if made upon any of its officers or their respective secretaries.

(b) Service upon foreign private juridical entity. - When the defendant is a foreign private juridical entity which is transacting or has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines.

Sec. 6. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within fifteen (15) days from service of summons. In the answer, the defendant shall:

(1) Specify each material allegation of fact the truth of which he admits;

(2) Specify each material allegation of fact the truth of which he does not admit. Where the defendant desires to deny only a part of an averment, he shall specify so much of it as true and material and shall deny only the remainder;

(3) Specify each material allegation of facts as to which truth he has no knowledge or information sufficient to form a belief, and this shall have the effect of a denial;

(4) State the defenses, including grounds for a motion to dismiss under the Rules of Court;

(5) State the law, rule, or regulation relied upon;

(6) Address each of the causes of action stated in the complaint;

(7) State the facts upon which he relied for his defense, including affidavits of witnesses and copies of documentary and other evidence supportive of such cause or causes of action;

(8) State any compulsory counterclaim/s and cross-claim/s; and

(9) State the relief sought.

The answer to counterclaims or cross-claims shall be filed within ten (10) days from service of the answer in which they are pleaded.

Sec. 7. Effect of failure to answer. - If the defendant fails to answer within the period above provided, he shall be considered in default. Upon motion ormotu proprio, the court shall render judgment either dismissing the complaint or granting the relief prayed for as the records may warrant. In no case shall the court award a relief beyond or different from that prayed for.

Sec. 8. Affidavits, documentary and other evidence. - Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence.

Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading: Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases:

(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor;

(2) If the failure to submit the evidence is for meritorious and compelling reasons; and

(3) Newly discovered evidence.

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In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence.

Rule 3MODES OF DISCOVERY

Section 1. In general. - A party can only avail of any of the modes of discovery not later than fifteen (15) days from the joinder of issues.

Sec. 2. Objections. - Any mode of discovery such as interrogatories, request for admission, production or inspection of documents or things, may be objected to within ten (10) days from receipt of the discovery device and only on the ground that the matter requested is patently incompetent, immaterial, irrelevant or privileged in nature. The court shall rule on the objections not later than fifteen (15) days from the filing thereof.

Sec. 3. Compliance. - Compliance with any mode of discovery shall be made within ten (10) days from receipt of the discovery device, or if there are objections, from receipt of the ruling of the court.

Sec. 4. Sanctions. - The sanctions prescribed in the Rules of Court for failure to avail of, or refusal to comply with, the modes of discovery shall apply. In addition, the court may, upon motion, declare a party non-suited or as in default, as the case may be, if the refusal to comply with a mode of discovery is patently unjustified.

Rule 4PRE-TRIAL

Section 1. Pre-trial conference; mandatory nature. - Within five (5) days after the period for availment of, and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue and serve an order immediately setting the case for pre-trial conference and directing the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each other copies of their respective pre-trial brief in such manner as to ensure its receipt by the court and the other party at least five (5) days before the date set for the pre-trial.

The parties shall set forth in their pre-trial briefs, among other matters, the following:

(1) Brief statement of the nature of the case, which shall summarize the theory or theories of the party in clear and concise language;

(2) Allegations expressly admitted by either or both parties;

(3) Allegations deemed admittedly by either or both parties;

(4) Documents not specifically denied under oath by either or both parties;

(5) Amendments to the pleadings;

(6) Statement of the issues, which shall separately summarize the factual and legal issues involved in the case;

(7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavits supporting their positions on each of the issues;

(8) All other pieces of evidence, whether documentary of otherwise and their respective purposes;

(9) Specific proposals for an amicable settlement;

(10) Possibility of referral to mediation or other alternative modes of dispute resolution;

(11) Proposed schedule of hearings; and

(12) Such other matters as may aid in the just and speedy disposition of the case.

Sec. 2. Nature and purpose of pre-trial conference. - During the pre-trial conference, the court shall, with its active participation, ensure that the parties consider in detail all of the following:

(1) The possibility of an amicable settlement;

(2) Referral of the dispute to mediation or other forms of dispute resolution;

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(3) Facts that need not be proven, either because they are matters of judicial notice or expressly or deemed admitted;

(4) Amendments to the pleadings;

(5) The possibility of obtaining stipulations and admission of facts and documents;

(6) Objections to the admissibility of testimonial, documentary and other evidence;

(7) Objections to the form or substance of any affidavit, or part thereof;

(8) Simplification of the issues;

(9) The possibility of submitting the case for decision on the basis of position papers, affidavits, documentary and real evidence;

(10) A complete schedule of hearing dates; and

(11) Such other matters as may aid in the speedy and summary disposition of the case.

Sec. 3. Termination. - The preliminary conference shall be terminated not later than ten (10) days after its commencement, whether or not the parties have agreed to settle amicably.

Sec. 4. Judgment before pre-trial. - If, after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda.

Sec. 5. Pre-trial order; judgment after pre-trial. - The proceedings in the pre-trial shall be recorded. Within ten (10) days after the termination of the pre-trial, the court shall issue an order which shall recite in detail the matters taken up in the conference, the actions taken thereon, the amendments allowed in the pleadings, and the agreements or admissions made by the parties as to any of the matters

considered. The court shall rule on all objections to or comments on the admissibility of any documentary or other evidence, including any affidavit or any part thereof. Should the action proceed to trial, the order shall explicit define and limit the issues to be tried and shall strictly follow the form set forth in Annex "A" of these Rules.

The contents of the order shall control the subsequent course of the action, unless modified before trial to prevent manifest injustice.

After the pre-trial, the court may render judgment, either full or partial, as the evidence presented during the pre-trial may warrant.

Rule 5TRIAL

Section 1. Witnesses. - If the court deems necessary to hold hearings to determine specific factual matters before rendering judgment, it shall, in the pre-trial order set the case for trial on the dates agreed upon by the parties.

Only persons whose affidavits were submitted may be presented as witnesses, except in cases specified in Section 8, Rule 2 of these Rules. The affidavits of the witnesses shall serve as their direct testimonies, subject to cross-examination in accordance with existing rules on evidence.

Sec. 2. Trial schedule. - Unless judgment is rendered pursuant to Rule 4 of these Rules, the initial hearing shall be held not later than thirty (30) days from the date of the pre-trial order. The hearings shall be completed not later than sixty (60) days from the date of the initial hearing, thirty (30) days of which shall be allotted to the plaintiffs and thirty (30) days to the defendants in the manner prescribed in the pre-trial order. The failure of a party to present a witness on a scheduled hearing date shall be deemed a waiver of such hearing date. However, a party may present such witness or witnesses within his remaining allotted hearing dates.

Sec. 3. Written offer of evidence. - Evidence not otherwise admitted by the parties or ruled upon by the court during the pre-trial conference shall be offered in writing not later than five (5) days from the completion of the presentation of evidence of the party concerned. The opposing party shall have five (5) days from receipt of the offer to file his comments or objections. The court shall make its ruling on the offer within five (5) days from the expiration of the period to file comments or objections.

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Sec. 4. Memoranda. - Immediately after ruling on the last offer of evidence, the court shall order the parties to simultaneously file, within thirty (30) days from receipt of the order, their respective memoranda. The memoranda shall contain the following:

(1) A "Statement of the Case," which is a clear and concise statement of the nature of the action and a summary of the proceedings;

(2) A "Statement of the Facts," which is a clear and concise statement in narrative form of the established facts, with reference to the testimonial, documentary or other evidence in support thereof;

(3) A "Statement of the Issues," which is a clear and concise statement of the issues presented to the court for resolution;

(4) The "Arguments," which is a clear and concise presentation of the argument in support of each issue; and

(5) The "Relief," which is a specification of the order or judgment which the party seeks to obtain.

No reply memorandum shall be allowed. Sec. 5. Decision after trial. - The court shall render a decision not later than (90) days from the lapse of the period to file the memoranda, with or without said pleading having been filed.

Rule 6ELECTION CONTESTS

Section 1. Cases covered. - The provisions of this rule shall apply to election contests in stock and non-stock corporations.

Sec. 2. Definition. - An election contests refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the article of incorporation or by-laws so provide.

Sec. 3. Complaint. - In addition to the requirements in Section 4, Rule 2 of these Rules, the complaint in an election contests must state the following:

(1) The case was filed fifteen (15) days from the date of the election if the by-laws of the corporation do not provide for a procedure for resolution of the controversy, or within fifteen (15) days from the resolution of the controversy by the corporation as provided in its by-laws; and

(2) The plaintiff has exhausted all intra-corporate remedies in election cases as provided for in the by-laws of the corporation.

Sec. 4. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in form and substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of the complaint, on the defendant within two (2) days from its issuance.

Sec. 5. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten (10) days from service of summons and the complaint. The answer shall contain the matters required in Section 6, Rule 2 of these Rules.

Sec. 6. Affidavits, documentary and other evidence. - The parties shall attach to the complaint and answer the affidavits of witnesses, documentary and other evidence in support thereof, if any.

Sec. 7. Effect of failure to answer. - If the defendants fails to file an answer within the period above, the court shall, within ten (10) days from the lapse of said period, motu proprio or on motion, render judgments as may be warranted by the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. In no case shall the court award a relief beyond or different from that prayed for.

Sec. 8. Trial. - If the court deems it necessary to hold a hearing to clarify specific factual matters before rendering judgment, it shall, within ten (10) days from the filling of the last pleading, issue an order setting the case for hearing for the purpose. The order shall, in clear and concise terms, specify the factual matters the court desires to be clarified and the witnesses, whose affidavits have been submitted, who will give the necessary clarification.

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The hearing shall be set on a date not later than ten (10) days from the date of the order, and shall be completed not later than fifteen (15) days from the date of the first hearing. The affidavit of a witness who fails to appear for clarificatory questions of the court shall be ordered stricken off the record.

Sec. 9. Decision. - The Court shall render a decision with fifteen (15) days from receipt of the last pleading, or from the date of the last hearing as the case may be. The decision shall be based on the pleadings, affidavits, documentary and other evidence attached thereto and the answers of the witnesses to the clarificatory questions of the court given during the hearings.

Rule 7INSPECTION OF CORPORATE BOOKS AND RECORDS

Section 1. Cases covered. - The provisions of this Rule shall apply to disputes exclusively involving the rights of stockholders or members to inspect the books and records and/or to be furnished with the financial statements of a corporation, under Sections 74 and 75 of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines.

Sec. 2. Complaint. - In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must state the following:

(1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to be furnished with financial statements under Sections 74 and 75 of the Corporation Code of the Philippines;

(2) A demand for inspection and copying of books and records and/or to be furnished with financial statements made by the plaintiff upon defendant;

(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals, if any; and

(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof.

Sec. 3. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in form and substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of the complaint, on the defendant within two (2) days from its issuance.

Sec. 4. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten (10) days from the service of summons and the complaint. In addition to the requirements in Section 6, Rule 2 of these Rules, the answer must state the following:

(1) The grounds for the refusal of defendant to grant the demands of the plaintiff, stating the law and jurisprudence in support thereof;

(2) The conditions or limitations on the exercise of the right to inspect which should be imposed by the court; and

(3) The cost of inspection, including manpower and photocopying expenses, if the right to inspect is granted.

Sec. 5. Affidavits, documentary and other evidence. - The parties shall attach to the complaint and answer the affidavits of witnesses, documentary and other evidence in support thereof, if any.

Sec. 6. Effect of failure to answer. - If the defendants fails to file an answer within the period above provided, the court, within ten (10) days from the lapse of the said period, motu proprio or upon motion, shall render judgment as warranted by the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. In no case shall the court award a relief beyond or different from that prayed for.

Sec. 7. Decision. - The court shall render a decision based on the pleadings, affidavits and documentary and other evidence attached thereto within fifteen (15) days from receipt of the last pleading. A decision ordering defendants to allow the inspection of books and records and/or to furnish copies thereof shall also order the plaintiff to deposit the estimated cost of the manpower necessary to produce the books and records and the cost of copying, and state, in clear and categorical terms, the limitations and conditions to the exercise of the right allowed or enforced.

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Rule 8DERIVATIVE SUITS

Section 1. Derivative action. — A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the acts or acts complained of; and

(4) The suits is not a nuisance or harassment suit.

In case of nuisance of harassment suit, the court shall forthwith dismiss the case.

Sec. 2. Discontinuance. - A derivative action shall not be discontinued, compromised or settled without approval of the court. During the pendency of the action, any sale of shares of the complaining stockholders shall be approved by the court. If the court determines that the interest of the stockholders or members will be substantially affected by the discontinuance, compromise or settlement, the court may direct that notice, by publication or otherwise, be given to the stockholders or members whose interest it determines will be so affected.

Rule 9MANAGEMENT COMMITTEE

Section 1. Creation of a management committee. - As an incident to any of the cases filed under these Rules or the Interim Rules Corporate Rehabilitation, a party may apply for the appointment of a management committee for the corporation, partnership or association, when there is imminent danger of:

(1) Dissipation, loss, wastage or destruction of assets or other properties; and

(2) Paralyzation of its business operations which may be prejudicial to the interest of the minority stockholders, parties-litigants or the general public.

Sec. 2. Receiver. -- In the event the court finds the application to be sufficient in form and substance, the court shall issue an order; (a) appointing a receiver of known probity, integrity and competence and without any conflict of interest as hereunder defined to immediately take over the corporation, partnership or association, specifying such powers as it may deem appropriate under the circumstances, including any of the powers specified in Section 5 of this Rule; (b) fixing the bond of the receiver; (c) directing the receiver to make a report as to the affairs of the entity under receivership and on other relevant matters within sixty (60) days from the time he assumes office; (d) prohibiting the incumbent management of the company, partnership or association from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and (e) directing the payment in full of all administrative expenses incurred after the issuance of the order.

Sec. 3. Receiver and management committee as officers of the court. - The receiver and the members of the management committee in the exercise of their powers and performance of their duties are considered officers of the court and shall be under its control and supervision.

Sec. 4. Composition of the management committee. - After due notice and hearing, the court may appoint a management committee composed of three (3) members chosen by the court. In the appointment of the members of the management committee, the following qualifications shall be taken into consideration by the court.

(1) Expertise and acumen to manage and operate a business similar in size and completely as that the corporation, association or partnership sought to be put under management committee;

(2) Knowledge in management and finance;

(3) Good moral character, independence and integrity;

(4) A lack of a conflict of interest as defined in these Rules; and

(5) Willingness and ability to file a bond in such amount as may be determined by the court.

Without limiting the generality of the following, a member of a management committee may be deemed to have a conflict of interest if:

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(1) He is engaged in a line of business which completes with the corporation, association or partnership sought to be placed under management;

(2) He is a director, officer or stockholder charged with mismanagement, dissipation or wastage of the properties of the entity under management; or

(3) He is related by consanguinity or affinity within the fourth civil degree to any director, officer or stockholder charged with mismanagement, dissipation or wastage of the properties of the entity under management.

Sec. 5. Powers and functions of the management committee. - Upon assumption to office of the management committee, the receiver shall immediately render a report and turn over the management and control of the entity under his receivership to the management committee.

The management committee shall have the power to take custody of and control all assets and properties owned or possessed by the entity under management. It shall take the place of the management and board of directors of the entity under management, assume their rights and responsibilities, and preserve the entity's assets and properties in its possession. Without limiting the generality of the foregoing, the management committee shall exercise the following powers and functions:

(1) To investigate the acts, conduct, properties, liabilities, and financial condition of the corporation, association or partnership under management;

(2) To examine under oath the directors and offices of the entity and any other witnesses that it may deem appropriate;

(3) To report to the court any fact ascertained by it pertaining to the causes of the problems, fraud, misconduct, mismanagement and irregularities committed by the stockholders, directors, management or any other person;

(4) To employ such person or persons such as lawyers, accountants, auditors, appraisers and staff as are necessary in performing its functions and duties as management committee;

(5) To report to the court any material adverse change in the business of the corporation, association or partnership under management;

(6) To evaluate the existing assets and liabilities, earnings and operations of the corporation, association or partnership under management;

(7) To determine and recommended to the court the best way to salvage and protect the interest of the creditors, stockholders and the general public, including the rehabilitation of the corporation, association or partnership under management;

(8) To prohibit and report to the court any encumbrance, transfer, or disposition of the debtor's property outside of the ordinary course of business or what is allowed by the court;

(9) To prohibit and report to the court any payments made outside of the ordinary course of business;

(10) To have unlimited access to the employees, premises, books, records and financial documents during business hours;

(11) To inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in the possession of the corporation, association or partnership or other persons;

(12) To gain entry into any property for the purposes of inspecting, measuring, surveying, or photographing it or any designated relevant object or operation thereon;

(13) To bring to the attention of the court any material change affecting the entity's ability to meet its obligations;

(14) To revoke resolutions passed by the Executive Committee or Board of Directors/Trustees or any governing body of the entity under management and pass resolution in substitution of the same to enable it to more effectively exercise its powers and functions;

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(15) To modify, nullify or revoke transactions coming to its knowledge which it deems detrimental or prejudicial to the interest of the entity under management;

(16) To recommend the termination of the proceedings and the dissolution of the entity if determines that the continuance in business of such entry is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors or the general public;

(17) To apply to the court for any order or directive that it may deem necessary or desirable to aid it in the exercise of its powers and performance of its duties and functions; and

(18) To exercise such other powers as may, from time to time, be conferred upon it by the court.

Sec. 6. Action by management committee. - A majority of its members shall be necessary for the management committee to act or make a decision. The chairman of the management committee shall be chosen by the members from among themselves. The committee may delegate its management functions as may be necessary to operate the business of the entity under management and preserve its assets.

Sec. 7. Transactions deemed to be in bad faith. - All transactions made by the previous management and directors shall be deemed fraudulent and are rescissible if made within thirty (30) days prior to the appointment of the receiver or management committee or during their incumbency as receiver or management committee.

Sec. 8. Fees and expenses. - The receiver or the management committee and the persons hired by it shall be entitled to reasonable professionals fees reimbursement of expenses which shall be considered as administrative expenses.

Sec. 9. Immunity from suit. - The receiver and members of the management committee and the persons employed by them shall not be subject to any action, claim or demand in connection with any act done or omitted by them in good faith in the exercise of their functions and powers. All official acts and transactions of the receiver or management committee duly approved or ratified by the court shall render them immune from any suit in connection with such act or transaction.

Sec. 10. Reports. - Within a period of sixty (60) days from the appointment of its members, the management committee shall make a report to the court on the state of the corporation, partnership or association under management. Thereafter, the management committee shall report every three (3) months to the court or as often as the court may require on the general condition of the entity under management.

Sec. 11. Removal and replacement of a member of the management committee. - A member of the management is deemed removed upon appointment by the court of his replacement chosen in accordance with Section 4 of this Rule.

Sec. 12. Discharge of the management committee. - The management committee shall be discharged and dissolved under the following circumstances:

(1) Whenever the court, on motion of motu proprio, has determined that the necessity for the management committee no longer exist;

(2) By agreement of the parties; and

(3) Upon termination of the proceedings.

Upon its discharge and dissolution, the management committee shall submit its final report and render accounting of its management within such reasonable time as the court may allow.

Rule 10PROVISIONAL REMEDIES

Section 1. Provisional remedies. - A party may apply for any of the provisional remedies provided in the Rules of Court as may be available for the purposes. However, no temporary restraining order or status quo order shall be issued save in exceptional cases and only after hearing the parties and the posting of bond.

Rule 11SANCTIONS

Section 1. Sanctions of the parties or counsel. - In any of the following cases, the court may, upon motion motu proprio, impose appropriate sanctions:

(1) In case the court determines in the course of the proceeding that the action is a nuisance or harassment suit;

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(2) In case a pleading, motion or other paper is filed in violation of Section 7, Rule 1 of these Rules;

(3) In case a party omits or violates the certification required under Section 4, Rule 2 of these Rules;

(4) In case or unwarranted denials in the answer to the complaint;

(5) In case of willful concealment or non-disclosure of material facts or evidence;

The sanctions may include an order to pay the other party of parties the amount of the reasonable expenses incurred because of the act complained of, including reasonable attorney's fees.

Sec. 2. Disciplinary sanctions on the judge. - The presiding judge may, upon a verified complaint filed with the Office of the Court Administrator, be subject to disciplinary action under any of the following cases;

(1) Failure to observe this special summary procedures prescribed in these Rules; or

(2) Failure to issue a pre-trial order in form prescribed in these Rules.

Rule 12FINAL PROVISIONS

Section. 1. Severability. - If any provision or section of these Rules is held invalid, the remaining provisions or sections shall not be affected thereby. Sec. 2. Effectivity. - These Rules shall take effect on 1 April 2001 following its publication in two (2) newspapers of general circulation in the Philippines.