Partnership Reviewer

Prof. Roberto Dio

2D; Sem. 2, 2009-2010

I.

NATURE; CREATION

A.

Definition; essential features

Kinds of Organizations:
(1)
Sole proprietorship has a business name;
only one individual
(2)
Partnership partnership name; separate
personality; 2 or more individuals
(3)
Corporation Corporate name; separate
personality; multiple owners (not limited to
individuals)
(4)
Trusts
(5)
Associations
Requisites of a Partnership:
(1)
Two or more persons bind themselves to
contribute money, property or industry to a
common fund (even if there is no actual
contribution as long as there is an agreement to
contribute).
(2)
Intention to divide the profits among
themselves (profits and losses)
Industry work, i.e., any activity of the human body; it
actually pertains to future industry
(a) time rendered
(b) idea
(c) service rendered
Features of a partnership: (Quiz)
(1)
Partnership name
(2)
Joint interest (Common fund)
(3)
Joint management and control
(4)
Mutual agency
(5)
Business for profit
Purpose: to engage in a commercial or business
transaction (there is the element of habituality)
Cause: The undertaking to contribute
Object: Must be lawful
- Unlawful objects: (1) Prohibited by law (RPC);
(2) Those not penal in nature but prohibited by law
B.

Creation

AGAD vs. MABATO (1968)

- 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. 1771).

- A contract of partnership is void, whenever

immovable property is contributed thereto, if inventory
of said property is not made, signed by the parties, and
attached to the public instrument (Art. 1773).
- In the case at bar: The partnership was established to
operate a fishpond and not to engage in a fishpond
business. Neither said fishpond nor a real right
thereto was contributed to the partnership by any one
of the partners or became part of the capital thereof,
even if a fishpond or a real right thereto could become
part of its assets. Art. 1773 is NOT applicable.
TORRES vs. CA (1999)
Quick facts: Partnership entered into for the purpose of
developing land into subdivision; but their venture
failed. Petitioner sisters contributed the land,
Respondent Torres contributed his industry and
advanced the expenses and costs.
- Petitioners contend that the contract is void because
there was no inventory of the land, citing Art. 1773.
Ratio: (1) Art. 1773 was intended primarily to protect
third persons.
- SC cited Tolentino: the execution of the public
instrument would be useless if there is no inventory of
the property contributed, because without its
designation and description, they cannot be subject to
inscription in the Registry of Property, and their
contribution cannot prejudice third persons. Thus, the
contract is declared void by the law when no such
inventory is made.
- THE CASE AT BAR DOES NOT INVOLVE THIRD
PARTIES WHO MAY BE PREJUDICED.
(2) Petitioners cannot in one breath deny the contract
and in another recognize it to be able to claim from
Torres the 60% of the value of the property.
- The alleged nullity of the partnership will not prevent
courts from considering the JVA an ordinary contract
from which the parties rights and obligations to each
other may be inferred and enforced.
ARBES vs. POLISTICO (1929)
- There is no question that Turnuhan Polistico & Co. is
an unlawful partnership.
- A partnership must have a lawful object and must be
established for the common benefit of the partners.
When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable
institutions
(1) As to profits:
- To be able to receive the profits, the partners to an
unlawful partnership would have to base his action on
the contract which is VOID and NON EXISTENT.
- It would be immoral and unjust for the law to permit
a profit from an industry prohibited by it.
(2) As to contributions:
- Since the contract is void, there is no reason for the
administrator of the Partnership to retain the
contribution of the others without any consideration

because there is NO CONTRACT; for which reason he is

bound to return it, and he who has paid his
contribution is bound to recover it.
- Court applied concept of unjust enrichment
BAUTISTA (on ARBES vs. POLISTICO CASE):
- Court should have applied:
Art. 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of
effects or instruments of a crime (forfeited in favor of
the State) shall be applicable to the things or the price
of the contract.
Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed: (1) When
the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the
contract, or demand the performance of the other's
undertaking;
- Thus the contributions should not have been
returned to the contributors, but should have been
confiscated in favor of the State. The contributors must
be presumed to have known the criminal nature of the
object of the partnership they agreed to form, and
should have thus been prosecuted and convicted for
running a gambling joint. (Bautista, p. 19)
Notes:
PROCEDURE to establish a PARTNERSHIP where
immovables are contributed:
(1)
Purpose
(2)
Contribution
(3)
Division of Profits
(4)
AOP: have it notarized
(5)
Inventory: make, sign and attach
(6)
Register with SEC
(7)
Deed of Sale (to transfer ownership of
the immovable property from the partner who
originally owns it to the partnership).
ART. 1811
- Common fund DOES NOT EQUATE TO co-ownership,
only co-possession.
- The partnership owns the property because it has its
own
juridical
personality
apart
from
its
members/partners, thus there is no co-ownership.
- Co-possession is limited to partnership purposes and
for the pursuance of the ordinary business of the
partnership.

TOCAO vs. CA (2000)

- A contract of P. is consensual; an oral contract of P is

as good as a written one. Where no immovable property
or real rights are involved, what matters is that the
parties have complied with the requisites of a
partnership.
- The partnership has a juridical personality separate
and distinct from that of each of the partners, even in
case of failure to comply with the requirements of Art.
1772, first paragraph (Capital of 3K and up public
instrument & registered with SEC).
- The best evidence of the existence of the partnership,
which is not yet terminated (though in the winding up
stage), are the unsold goods and uncollected
receivables still in the possession of Tocao. (Her right to
possess the goods of the partnership proved that she
was a partner/co-possessor.)
- A mere falling out or misunderstanding between
partners does not convert the partnership into a sham
organization the partnership exists until dissolved
under the law.
- Any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will, though
he must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of
the P but that it can result in a liability for damages.
- The right to choose with whom a person wishes to
associate is the very foundation and essence of a P. It
continued existence is dependent on the constancy of
that mutual resolve.
- Doctrine of delectus personae: allows the partners to
have the power, not necessarily the right to dissolve the
P.
- The partnership continues even after dissolution for
the purpose of winding up the business.
C.

Separate Juridical Personality

AGUILA vs. CA (1999)

- A partnership has a juridical personality separate
and distinct from that of each of the partners it is the
partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered
in the name of the P.
- The partners cannot be held liable for the obligations
of the P unless it is shown that the legal fiction of a
different juridical personality is being used for
fraudulent, unfair, or illegal purposes.
TAN vs. DEL ROSARIO (1994)
- A general professional partnership, unlike an
ordinary business partnership (which is treated as a
corporation for income tax purposes and thus subject
to corporate income tax), is not of itself an income tax
payer. The income tax is imposed not on the
professional P, which is tax exempt, but on the
partners themselves in their individual capacity
computed on their distributive shares of partnership
profits.

- There is no distinction in income tax liability between

a person who practices his profession alone or
individually and one who does it through a
partnership.
- Partnerships are either: (1) taxable Ps, or (2) exempt
Ps. A general profession P falls under (2).
MENDIOLA vs. CA (2006)
- In a partnership, members become co-owners (copossessors) of what is contributed to the firm capital
and of all the property that may be acquired thereby.
Each partner possesses a joint interest in whole
partnership property.
- If the relation does not have this feature, it is not one
of partnership.
- In this case, the parties merely shared profits. This
alone does not make a partnership.
- A corporation cannot become a member of a
partnership in the absence of express authorization by
statute or charter. 2 reasons:
(1) The mutual agency between the partners, whereby
the corporation would be bound by the acts of persons
who are not its duly appointed and authorized agents
and officers, would be inconsistent with the policy of
the law that the corporation shall manage its own
affairs separately and exclusively;
(2) Such an arrangement would improperly allow
corporate property to become subject to risks not
contemplated by the stockholders when they originally
invested in the corporation.
ANGELES vs. Sec. of Justice (2005)
- Mere failure to register the contract of partnership
with the SEC does not invalidate a contract that has
the essential requisites of a P. The purpose of
registration of the contract of P is to give notice to third
persons. Neither does such failure to register affect the
Ps juridical personality.
A P may exist even if the partners do not use the
words partner or partnership.
- Sosyo industrial Industrial partnership
D. Mutual Agency: Partners in a partnership are
mutual agents and principals of each other.
E. Distinguish Partnership from:
1) Co-ownership; Co-possession
- There is no co-ownership in partnership because it is
the partnership which owns the property.
2) Tenancy in common; joint tenancy
- Joint tenancy is co-possession, and tenancy in
common is co-ownership.
3) Joint Ventures
- Joint ventures are generally concerned with an
isolated transaction or project, as opposed to a

partnership which contemplates a general business

with some continuity. Moreover, a joint venture does
not have a firm name, there is no mutual agency, and it
does not have a separate juridical personality.
4) Joint Adventures
5) Joint Accounts; Cuentas en Participacion
- A partnership constituted in such a manner, the
existence of which was only known to those who had
an interest in the same, there being no mutual
agreements between the partners, and without a
corporate name indicating to the public in some way
that there were other people besides the one who
ostensibly managed and conducted the business, is
exactly the accidental partnership of cuentas en
participacion. (Bourns vs. Carman)
6) Agency
- There is no mutual agency in that the agent is only
the agent, and is not likewise the principal of his
principal. There is also no common fund in agency.
Art. 1769. In determining whether a partnership
exists, these rules shall apply:
(1) Excepts as provided by Article 1825, persons who
are not partners as to each other are not partners as to
third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if
such profits were received in payment:
a. As a debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
c. As an annuity to a widow or representative of a
deceased partner;
d. As interest on a loan, though the amount of
payment vary with the profits of the business;
e. As the consideration for the sale of a goodwill of a
business or other property by installment or otherwise.
Sir: The list is not exclusive
Art. 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 fat, with respect to
persons who rely upon the representation. When all
the members of the existing partnership consent to the
representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of
the person acting and persons consenting to the
representation.

therein, who shall also have no right against the third

person who contracted with the manager, unless the
latter formally cedes his rights to them.
Art. 243. The liquidation shall be made by the manager
who, upon the conclusion of the transactions, shall
render a verified account of their results.
SEC OPINION [February 29, 1980]
[NOTE: This is only a summary of the article, but I
think these are the important parts.=)]

CODE OF COMMERCE
Title II: Joint Accounts
Art. 239. Merchants may interest themselves in the
transaction of other merchants, contributing thereto
the part of the capital they may agree upon, and
participating in the favorable or unfavorable results
thereof in the proportion they may determine.
Art. 240. In their formation, joint accounts shall not be
subject to any formality, and may be privately
contracted orally or in writing, and their existence may
be proved by any of the means recognized by law
(according to the provisions of Article 51).
Art. 241. In the transactions referred to by the two
preceding articles, no commercial name common to all
the participants can be adopted, nor can any further
direct credit be used than that of the merchant who
makes and directs them in his name and under his
individual responsibility.
Art. 242. Those who contract with the merchant who
carries on the business shall have a right of action
against him only and not against the others interested

A corporation cannot ordinarily enter into a

contract of partnership with another corporation or
individual.
The limitation is based on public policy, since in a
partnership the corporation would be bound by the
acts of persons who are not duly appointed and
authorized agents and officers, which would be
entirely inconsistent with the policy of the law that
a corporation shall manage its own affairs,
separately and exclusively.
In entering into a partnership, the identity of the
corporation is lost or merged with that of another.
Remember that a corporation can act only through
its duly authorized agents and is not bound by the
acts of anyone else.
EXCEPTIONS to the application of this general rule
may be allowed PROVIDED the following conditions
are met:
o The articles of incorporation of the
corporations involved must expressly authorize
the corporation to enter into contracts of
partnership with others in the pursuit of its
business;
o The agreement or article of partnership must
provide that all the partners will manage the
partnership; and
o The articles of partnership must stipulate that
all the partners are and shall be jointly and
severally liable for all the obligations of the
partnership.
Moreover, two or more corporations may enter into
a joint venture/consortium if the nature of the
venture is in line with the business authorized by
its charter. BUT note that no independent legal
entity is borne out of it and the same need not be
registered with the Commission.

GATCHALIAN VS. CIR

FACTS: Gatchalian and company, by pooling together
their resources, bought a lotto ticket. They won and are
now being charged by the CIR to pay income tax on the
prize.
HOLDING: A partnership of a civil nature was
organized because Gatchalian and company put up

money to buy a lotto ticket for the sole purpose of

dividing equally the prize which they may win, as they
in fact, did. Having organized a partnership, it is the
latter which is bound to pay the income tax and not
the individual partners pro rata.
PASCUAL VS. CIR
FACTS: Pascual et al. bought two parcels of land which
it resold to a third person. They paid the corresponding
capital gains tax, but are now also being charged with
corporate income tax on the ground that they formed a
partnership.
HOLDING: There was no partnership. The character of
habituality peculiar to business transactions engaged
in for the purpose of gain was absent. An isolated
transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary
intention cannot be considered as a partnership.
OBILLOS VS. CIR
FACTS: Obillos bought a parcel of land and transferred
his rights thereto to his children. The children resold
the land. They are now being taxed for corporate
income tax on the ground that they formed an
unregistered partnership.
HOLDING: There was no partnership. The sharing of
gross returns does not of itself, establish a partnership.
There must be an unmistakable intention to form a
partnership. In this case, the division of the profits was
only incidental to the dissolution of the co-ownership.
RIVERA VS. PEOPLES BANK
FACTS: Rivera was the Stephensons housekeeper and
they executed a survivorship agreement. Upon
Stephensons death, Rivera tried to claim the amount
pursuant to the agreement, but the bank refused.
HOLDING: Rivera and Stephenson were joint owners.
As such, either of them could withdraw any part of the
whole of said account during their lifetime, and the
balance, if any, upon the death of either, belonged to
the survivor.

TUASON VS. BOLANOS

FACTS: This was an action to recover possession of a
parcel of land where the plaintiff was represented by a
corporation.
HOLDING: There is nothing in the rules which prohibit
a corporation from being represented by another
person, natural or juridical. The contention that one
corporation cannot act as managing partner for
another since the two cannot enter into a partnership
is without merit since they may nevertheless, enter
into a joint venture where the nature of the venture is
in line with the business authorized by its charter.
HEIRS OF TAN ENG KEE VS. CA

FACTS: This was a complaint filed by Tan Eng Kee (and

they later continued by his heirs upon his death)
against his brother Tan Eng Lay for accounting ,
liquidation and winding up of the alleged partnership
formed between them.
HOLDING: There was no partnership between the
brothers. There was no firm account, no firm
letterheads, no certificate of partnership, no agreement
as to profits and losses, and no time fixed for the
duration of the partnership. Most importantly, for forty
years Tan Eng Kee never demanded for an accounting.
A demand for periodic accounting is evidence of
partnership. The evidence support the establishment
only of a proprietorship.
The SC also discussed the concept of a joint venture. It
said that a particular partnership is distinguished from
a joint adventure in that the latter has no firm name
and no legal personality. Also, a joint venture is usually
limited to a single transaction, while a partnership
generally relates to a continuing business.
On the other hand, in a joint account, the participating
merchants can transact business under their own
name and can be individually liable therefore.
AURBACH VS. SANITARY WARES
FACTS: This was the case where there were essentially
two groups of shareholders in the company: one
composed of Filipinos, and the other group of foreign
investors. There was an increase in the latters shares
in the company so they wanted a proportionate
increase in their nominees to the companys Board of
Directors.
HOLDING: Although a corporation cannot enter into a
partnership, it can nevertheless engage in a joint
venture with others. In this case, taking into
consideration their intent and history, the parties
formed a joint venture and not a corporation. This
becomes relevant because it implies that the argument
of ASI (the foreign investors), having been based on the
Corporation Code, will not apply.
A joint venture has been generally understood to mean
an organization formed for some temporary purpose. It
is distinguished mainly from a partnership in that the
latter contemplates a general business with some
continuity while the former is formed for the execution
of a single transaction.
LITONJUA VS. LITONJUA
FACTS: This was a suit filed by Aurelio against his
brother Eduardo for specific performance and
accounting, contending that they had a partnership
arrangement in the Odeon Theater business. This was
premised on a letter written by Eduardo, addressed to
Aurelio.

HOLDING: Eduardo and Aurelio are not partners. The

formalities required by law were not complied with, to
wit:
o When immovable property or real rights are
contributed, or when the partnership has a
capital of at least Php3,000, a public
instrument is necessary.
o When immovable property is contributed, an
inventory, signed by the parties, must be
attached to the public instrument.
BOURNS VS. CARMAN
FACTS: This was an action to recover a sum of money,
filed against Lo-Chim-Lim and his other co-defendants
on the ground that they were joint proprietors.
HOLDING: There was a partnership of cuentas en
participacion. It was a business conducted by Lo-ChimLim exclusively, in his own name, and under his
personal management. A partnership constituted in
such a manner, the existence of which was only known
to those who had an interest in the same, there being
no mutual agreements between the partners, and
without a corporate name indicating to the public in
some way that there were other people besides the one
who ostensibly managed and conducted the business,
is exactly the accidental partnership of cuentas en
participacion. Those who contract with the person
under whose name the business of such partnership is
conducted, shall have a right of action only as against
that person, and not against other persons interested,
and the latter shall likewise, have no right of action
against such third persons.
SEVILLA VS. CA
FACTS: This was the case where Sevilla had bound
herself with the corporation to pay for rent. She
managed the business but was subsequently prevented
from continuing as manager of the branch where she
worked.
HODLING: There was no partnership or joint venture
as there was no parity of standing between Sevilla and
Tourist World Services, and they did not exercise equal
rights. The court concluded that there was an agency
relationship.
PHILEX MINING VS. CIR
FACTS: Baguio Gold and Philex Mining entered into a
contract whereby the latter would operate the formers
mining claim. Philex, apart from transferring its own
funds for the business, also shelled out money to cover
for the losses incurred by the business. Philex then
attempted to deduct what it purported to be bad loans
payable to it from Baguio Gold. The CIR disallowed the
deduction.
HOLDING: The agreement between the parties created
a partnership relationship between them. As such, the
money contributed was not a loan and cannot be
deducted from the partnerships taxable income. The

strongest indication of the existence of the partnership

relation was the fact that each of them would receive
50% of the profits. By pegging its compensation as
profits, Philex stood not to be remunerated in case the
mine had no income. This is definitely not the nature of
a loan, instead, it partakes of the nature of a capital
contribution.

II. KINDS OF PARTNERSHIP

A. Universal
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.
i.

Universal Partnership of Present Property

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.

The prohibition in Art. 1779, 2 nd par. is in

consonance with the general provision of the Code
disallowing contracts upon future inheritance.
But it is believed that the usufruct of property
acquired by inheritance, legacy, or donation may be
stipulated as contributed to the common fund.
ii.

Universal Partnership of Profits

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.

In other words, all that the partners may

acquire, jointly or separately, through physical or
intellectual effort whether it be in the pursuit of a
trade or the exercise of an art or profession or
otherwise pertain to the partnership and are
subject to division among the partners upon its
termination.
It does not cover: (1) acquisitions of the
partners through any means not requiring the
exertion of human effort or intelligence; (2)
property which each of the partners acquired or
possessed before the celebration of the contract
(only the usufruct of the property passes).

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.
C.

General (check Art. 1776)

A general partnership is one where all the
partners are liable subsidiarily and pro rata with
their
individual
property
for
partnership
obligations.

D.

Limited (check Art. 1776)

In a limited partnership, only some partners
are personally liable for partnership obligations;
the others are not so liable, their liability being
limited to their capital contribution.

iii. Other Rules

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.
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the
same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife,
descedants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in
the same action.

B.

The presumption in Art. 1781 is in accordance

with the rule in interpretation of contracts that, in
case of doubt, that which involves the least
transmission of rights and interests will be favored.
The prohibition in Art. 1782 is founded on the
theory that a contract of universal partnership is
for all purposes a donation and, thus, seeks to
prevent
persons
disqualified
from
making
donations from doing indirectly what the law
prohibits them from doing directly.
Particular

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.

E.

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.

A partnership which is designed to continue

for no fixed period of time and is formed to last
only during the mutual consent or pleasure of the
parties, its existence being terminable at the will of
any one or more of them.

F.

For a Term or Undertaking (check Art. 1785)

A partnership where the period of time during
which the partnership shall exist has been
specified.
Or a partnership formed to engage in a specific
undertaking without specification of the term but,
owing to the nature of its purpose, with the implied
understanding that it shall last only and until the
completion of the undertaking.

G.

Commercial

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.

H.

A commercial partnership has for its object the

realization of some mercantile of commercial act
either as a means or an end

Professional (check Art. 1767)

This is the class of partnerships formed by
professional for the exercise of the professions they
belong to.

I.

By Estoppel/Apparent

Art. 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
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.

Partner by Estoppel:
Person who:

By (a) words spoken or written or by

conduct

Represents himself or consents

representation

As a partner in
existing partnership or

As a partner in
apparent partnership

To anyone

(b)
to
an
an

And such person has given credit to

the representation
Manner of Representation
Public
Personal/Non-public
Liability
Partnership Liability (if
there is an existing partnership and
when the act is ratified by the
partnership)
Joint Liability (if there is
only an apparent partnership)

Partnership/Joint Obligor
Requires consent

If all partners consent,

partnership act results

If only some consent, joint

act
results
among
those
who
consented and the partner by estoppel
Apparent partner becomes agent

Ortega vs. CA
The birth and life of a partnership at will is
predicated on the mutual desire and consent of the
partners.
Through the doctrine of delectus personae, all
the partners have the power, though not
necessarily the right, to dissolve the partnership.
Thus, any of the partners may dissolve the
partnership at will at his sole pleasure; but he
must do so in good faith or he will be liable for
damages.

III. KINDS OF PARTNERS

A.

Industrial

Art. 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.
Art. 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.

B.

The industrial partners contribution is

based on quantum meruit.
Capitalist

Art. 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.
Art. 1790. Unless there is a stipulation to the
contrary, the partners shall contribute equal shares to
the capital of the partnership.
Art. 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.
Art. 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.

C.

Art. 1790 embodies the presumption of

the law as to the equality in standing of the
partners.
Art. 1808 is limited to business which
competes with the partnership business; thus, it
must be the same products (same category), same
services, and in the same location.
Managing

Art. 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, but only if the personal credit
of the partner should be more onerous to him.
Art. 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.
Art. 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.
Art. 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.
Art. 1800 speaks of the managing

partner.

Art. 1801 refers to a situation where

there is more than one managing partner and
there is solidary management among them.
Art. 1802 speaks of joint management.
But, since this relates to the obligations of partners
inter se, the acts of a managing partner in violation
of Art. 1802 may still be binding insofar as third
persons in good faith are concerned.

D.

By Estoppel
See previous discussion on kinds of
partnerships.

IV. PARTNERS OBLIGATIONS TO THE

PARTNERSHIP
A.

To Contribute; Warrant

Art. 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.
Art. 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.

Art. 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.

Art. 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.
Art. 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.

Art. 1790. Unless there is a stipulation to the

contrary, the partners shall contribute equal shares to
the capital of the partnership.
Art. 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 he obliged to sell his
interest to the other partners.

The 2nd sentence of Art. 1786, when it

speaks of specific and determinate things, refers to
non-fungible things.
Art. 1786 only specifically talks about
warranty against eviction but Prof. Bautista states
that the other warranties of sale (warranty against
hidden defects and warranty for merchantability
for purpose) should also be made applicable.
Art. 1786 explicitly does away with the
need for demand as to the fruits in the last
sentence thereof.
The appraisal in Art. 1787 is
necessary to know the value of the capital
contribution of property.
o
Valuation
is
usually
done
by
agreement because the transfer of property to
the partnership is similar to a sale; or it may
be done by an expert (appraiser).
o
If its through the former, the value is
based on the agreement. But if its throught he
latter, the value is based on current prices or
the fair market value
Art. 1791 refers to total loss of the
business such that the partnership can no longer
continue to pursue its purpose.
o
There must first be capital call; there
must be an agreement for everyone to
contribute to continue the business; after such
agreement, the failure to contribute gives the
right to buy-out the interest of the
uncontributing partner.
Under the 1st par. of Art. 1795, the
partner retains ownership because he only
contributes the usufruct and, thus, he still bears
the risk of loss (principle of respirit domino); it also
only refers to non-fungible things.
Under the 2nd par. of Art. 1795, if a
partner loses the fungible goods before delivery, he
remains an obligor and, thus, still a partner
subject to the delivery of his contribution, which is
a fungible thing.

Note that the

transferable by stipulation.

risk

of

loss

is

To Apply Sums Collected Pro Rata

B.

Art. 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, but only if the personal credit
of the partner should be more onerous to him.
To Compensate

C.

Art. 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.

This also covers negligence of a partner

To Be Loyal; Fiduciary Duty

D.

Art. 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.

o
o

Basic fiduciary duties of a partner:

Account for any profit acquired in a
manner injurious to the partnerships interest;
Cannot
acquire
for
himself
a
partnership asset nor divert to his own use a
partnership opportunity;
Must not compete with partnership
within its scope of business.

Liwanag vs. CA
Even when a contract of partnership has been entered
into, when money or property have been received by a
partner for a specific purpose and he later
misappropriated it, such partner is guilty of estafa.

US vs. Clarin

When a partner contributes to the common fund,

he invests it in the risks or benefits of the business
and, even if only the usufruct over the money has
been conveyed, the duty to return such capital
devolves upon the partnership and not any of the
partners.
When money has been received by the partnership,
the business commenced and profits accrued, the
action that lies with the partner who furnished
capital for recovery of his money is not a criminal
action for estafa, but a civil one arising from the
partnership contract for a liquidation of the
partnership and a levy on its assets if there should
be any.

Pang Lim vs. Lo Seng

Partners
are
required to
exhibit towards each other the highest degree of
good faith because the relation is essentially
fiduciary as each is considered the confidential
agent of the other.
Therefore, one partner cannot,
to the detriment of another, apply exclusively to his
own benefit the results of the knowledge and
information gained in the character of partner.
Catalan vs. Gatchalian
The
right
of
redemption
pertains to the owner of the property; as it was the
partnership which owned the property, in this
case, it was only the partnership which could
properly exercise the right of redemption.
When Catalan redeemed the
properties, he became a trustee and held the same
in trust for his co-partner Gathchalian, subject to
his right to demand from the latter his
contribution to the amount of redemption.

V. PARTNERS OBLIGATION INTER SE

A. To bring to collation
Art. 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.
(1685a)

There is one debtor and one or 2 partners have

received their share of debt in their personal
capacity then the debtor becomes insolvent

Pioneer Insurance v. CA
Quick Facts: Lim, owner-operator of Southern Air
Lines, purchased 2 aircrafts and set of spare parts
form Japan Domestic Airlines to be paid in

installments. Pioneer executed a surety bond in favor of

JDA for the balance. Bormaheco, Cervanteses and
Maglana contributed funds for the formation of a new
corporation proposed by Lim. There was no
incorporation.
Ratio: Persons who attempt, but fail, to form a
corporation and who carry on business under the
corporate name occupy the position of partners inter
se. However, such a relation does not necessarily exist,
for ordinarily persons cannot be made to assume the
relation of partners, as between themselves, when their
purpose is that no partnership shall exist and it should
be implied only when necessary to do justice between
the parties. Lim never intended to form a corporation
despite his representations. No de facto partnership
was created.
Evangelista & Co. v. Abad Santos
Quick Facts: Judge Abad Santos is an industrial
partner in Evangelista & Co. with 3 petitioners who
were the capitalist partners. Abad Santos alleged that
the other 3 partners were refusing to let her examine
the partnership books and were not paying her share
in the profits. Other 3 are arguing that Abad Santos
could not be an industrial partner since she was a City
Court judge (Art.1789).
Ratio: Abad Santos is not engaged in any business
antagonistic to the partnership as being a judge can
hardly be characterized as a business.
B. To share in the profits/losses
Art. 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. (1689a)

Liability for loss refers to loss AFTER liquidation

In case of losses, it can be stipulated that the
industrial partner share in the losses

Art. 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. (1690)

The designation of profits and losses may be

designated to 2 or more partners, but not to 1
partner

Art. 1799. A stipulation which excludes one or more

partners from any share in the profits or losses is void.
(1691)
Moran, Jr. v. CA
Quick Facts: Pecson and Moran entered into an
agreement to print 95,000 posters (featuring the
delegates of the 1971 Con-Con). They agreed each
would contribute P15,000 and that Pecson would
receive P1,000 commission per month. Pecson
contributed P10,00; Moran supervised the work. Only
2,000 posters were printed. Pecson filed an action
asking for the return of his contribution, profits he
would have earned and promised commission.
Ratio: There is no basis for the award of speculative
damages in favor of Moran as there was no evidence
that the partnership would be a profitable venture.
Partners are to share in the profits and the losses.
However, Pecson is not barred from totally recovering.
He is entitled to P6,000 (out of P10,000 only P4,000
was used in printing) for his contribution which
remained unused and P3,000 for share in net profits
from the sale of 2,000 posters.
(Sir noted that there was an award of unused capital
even if there was no liquidation.)
C. To render true and full information
Art. 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. (n)
Martinez v. Ong Pong Co
Quick Facts: Martinez delivered P1,500 to Ong Pong Co
and Ong Lay to invest in a store. They agreed that the
profits and losses would be equally shared by all of
them. Martinez was demanding for the 2 Ongs to
render an accounting or to refund him the P1,500. Ong
Pong Co alleged that Ong Lay, now deceased was the
one who managed the business, and the capita of
P1,500 resulted in a loss.
Ratio: The 2 partners (Ongs) were the administrators
and obliged to render accounting. Since neither of
them rendered an account nor proven the losses, they
are obliged to return the capital. Art. 1796 is not

applicable because no other money than that

contributed as capital was involved. The liability of the
partners is joint. Ong Pong Co shall only pay P750 to
Martinez.
Agustin v. Inocencio
Quick Facts: The parties are all industrial partners.
For the construction of a casco, profits of the business
were contributed and money was borrowed from wife of
the managing partner, Inocencio, Inocencio also
advanced funds necessary to complete the work. The
other partners were not informed of the borrowing and
the advancement but the books were always open to
their inspection.
Ratio: The nature of the transaction (construction of
casco) was within the scope of the business of the
partnership so Inocencio, in borrowing money and
advancing funds, was acting within the scope of his
authority as a managing partner. All the partners are
liable for the debt.
Soncuya v. De Luna
Quick Facts: Soncuya, de Luna and deceased Avelino
were members of a partnership, Centro Escolar de
Senoritas. Soncuya filed a complaint praying for
damages as result of the fraudulent administration by
managing partner De Luna.
Ratio: For a partner to be able to claim damages
allegedly suffered by him by reason of the fraudulent
administration of the managing partner, a previous
liquidation of the partnership is necessary. A
liquidation of the business is necessary so the
following may be determined: profits and losses, causes
of the losses, responsibility of the defendant and
damages each partner may have suffered.
D. Not to engage in another business
Art. 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. (n)
Art. 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.

VI.
PARTNERS OBLIGATIONS TO
PERSONAL AND PARTNERSHIP
CREDITORS; THIRD PARTIES
A. To have his partnership interest charged for
personal debts (primary)

Art. 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. (n)
remedy of a judgment creditor against a partner

This refers to partners interest in the partnership

and NOT to his right over a specific partnership
property
partners interest share of the profits and
surplus
rights to specific partnership property right
of possession for partnership purposes

CHARGING ORDER
- attaches interest of the partner
1) Directs the partnership to pay any profits that
may be due to the judgment debtor, in favour of the
judgment creditor in satisfaction of his credit
(including interests)
2) May ask the court to appoint a receiver
- to collect money
3) may be sold at auction/foreclosure
remedy: right of redemption
a) with separate property
b) with partnership property
(requires the consent of all partners)
Best Choice?
No. 1 first since the payment will be ongoing
No. 2 comes second
No. 3 is a poor remedy, single payment; net effect: only
sell back to judgment debtor

Art. 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. (n)

Art. 1817. Any stipulation against the liability laid

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

VOID as against 3rd parties

therefore, as to them, pro rata liability applies
except as among partners
if there is waiver by some parties, those
benefitted can claim against the other partners
what he paid pro rata

preference of partnership creditors over personal

creditors (in case of insolvency or liquidation)
2nd sentence: without prejudice to private creditors
right to ask attachment
B. To be liable pro rata for partnership debts
(subsidiary & joint)
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. (n)

refers to all GENERAL partners

- can industrial partners be general partners? YES

- as a GR, all partners are general partners
exception: stipulation limited partner
liable pro rata with all their property
both real and personal

Art. 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. (n)

- why not solidary liability?

separate juridical personality of the partnership;
therefore, exhaust partnership assets first

partnership obligation
1) entered in the firm name, under its signature
2) by a person authorized (ex: employee)

2nd paragraph
discharged
1) agreement
- (3 parties: partner, creditor, and partnership)
2) no agreement
- knowledge of the creditor and continues to
transact with the partnership continuing the
business

subsidiarily and pro rata for all partnership

obligations

pro rata
= proportional
- basis? in proportion to his SHARE in the PROFITS
NOT capital contribution

what if other parties waived?

3rd paragraph
estate
pay personal debts before partnership debts
condition:
a) dead partner
b) no more partnership assets

when SOLIDARILY liable? last sentence

C. Tort liability; breach of trust liability (primary

& solidary)

separate obligation to perform a partnership

contract
1) agrees to solidary liability (this provision)
2) 1822 (tort liability)
3) 1823 (misappropriation)

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 copartners, 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. (n)

TORT (wrongful act or omission)

a) ordinary course of the business
b) not in pursuance BUT with the authority of the
co-partners
c) penalty refers to a crime

Art. 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. (n)

MISAPPROPRIATION

Art. 1824. All partners are liable solidarily with the

partnership for everything chargeable to the
partnership under Articles 1822 and 1823. (n)

SOLIDARY LIABILITY

D. Liability in case of estoppels

Art. 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
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. (n)

PARTNERSHIP BY ESTOPPEL

liability
- liable as a partner: pro rata and subsidiary
ONLY WHEN it results in a partnership liability
There is partnership liability when all the partners
consent to the representation
allows to be represented as a partner to a nonpartner
liability joint, as if one of those liable
Corporation Code
Sec. 21. Corporation by estoppel. - All persons who
assume to act as a corporation knowing it to be
without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided, however, That
when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to
use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof
on the ground that there was in fact no corporation.

assume to act as a corporation

- corporations MUST be registered with the SEC
knowing to be without authority bad faith
liable as general partners pro rata and
subsidiarily
in effect: partnership by estoppels
ostensible corporation
lack of corporate personality cannot be used as a
defense
2nd paragraph
-contemplates a situation where 3rd party is being
sued
-third person assumes liability, also cannot make
use of the lack of personality

E. Liability of new partners (subsidiary)

Art. 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. (n)
new partnership
- old partnership ipso jure dissolved BUT:
- same assets and same firm name
- therefore, same liability
new partners liability extent: limited to his capital
contribution
In re Sycip
GR if partner dies: Partnership is DISSOLVED.
- in case of firm names, Art. 1815 prefers to living
persons
- public relations use of deceased partners name
SC: undue advantage
- Art. 1840 no saleable goodwill to be distributed as a
firm asset on its dissolution
- on customs: judicial custom v. social custom
judicial custom can supplement statutory law
- result: firms DID NOT comply! SC merely denied and
ADVISED
Litton v. Hill
- Hill: Ceron entered into in his own name. I told
Litton, well be dissolved!
- SC: joint management
It is enough for the third party to transact with the
managing partner
- what if third party is required to determine?
result: hinder commercial transactions
- presumption of mutual agency
MacDonald v. National City Bank
representation
- defectively formed corporation/partnership
de facto partnership
- for purposes of the Chattel Mortgage Law, a de facto
partnership also has domicile
Compania Maritima v. Muoz
- TC absolved industrial partner on the theory that
nothing was contributed
- SC: contributed industry, general partner
- unfair? NO, had a voice in management and shared
in the profits
Co-Pitco v. Yulo

The fact that the other partner had left the country
CANNOT increase the liability of remaining partners.
extends to insolvent and dead partners
Pacific Commercial v. Aboitiz
*applied Compania doctrine
- distinguished loss from liability
- while A141 of the Code of Commerce provides that
industrial partners will not be liable for loss, A127
(which applies in this case) provides that ALL partners
are liable for for transactions in the name of the
partnership, albeit subsidiarily
Magdusa v. Albaran (in the quiz)
- demanded shares upon withdrawal from the
partnership, suit against capitalist, managing partner
only
- SC: partners share cannot be returned without first
dissolving and liquidating because of the preference for
partnership creditors AND the fact that the others
partners are indispensible parties to the suit
- since the liquidation document prepared by the
managing partner was not signed by the others, it does
not bind them
- moreover, the managing partner could not be held
personally liable since as such MP, he merely acts as a
trustee of the partnership
Island Sales v. United
- the case was dismissed, upon motion of the plaintiff,
in favour of one of the 5 general partners
- SC: clarified pro rata liability remained at 1/5;
condonation of one did not unmake him as a general
partner to effect an increase in the shares of the other
partners
Munasque v. CA
- misunderstanding between the partners
- SC: third party had the right to presume the
authority of the partner when the contract was entered
into in the name of the partnership authority
- since the payments were misappropriated, Art. 1823
would apply on solidarity of liability
Lim Tong Lim v. Philippine Fishing Gear, Inc.
- fact of partnership: common funds, purpose of
business, sold boat for partners debt, sharing of
profits
- SC: corporation by estoppels applies against third
persons who benefitted (partner); therefore, liable as a
general partner despite not being named in the
contract
Bachrach v. La Protectora
- partnership common carrier
- Barba: president and partner
TC: Partnership and all partners liable solidarily

SC: authority given to bind only the partnership and

not themselves; therefore, liable as partners only
(subsidiarily)

(3) As provided by article 1807;

(4) Whenever other circumstances render it just and
reasonable. (n)

VII.

RIGHTS OF A PARTNER

A. To associate another in his share

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. (1696)

For a partner to have an associate in his share,

consent of the other partners is not required.
For the associate to become a partner, ALL must
consent (whether the partner having the associate
is a manager or not)
Reasons:
o Mutual trust is the basis of partnership
o Change in membership is a modification or
novation of the contract.

B. To access, inspect and copy partnership books

Art. 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. (n)

Subject to contrary agreement, express or implied,

the partnership books belong to all partners and
each one of them has equal rights thereto.
Every partner has the right, at any reasonable
hour to have access to and inspect and copy any of
said books.
reasonable hour any reasonable hour on
business days throughout the year, and not merely
during some arbitrary period of a few days chosen
by some or one of the partners.
The right in this Article is granted to enable the
partner to obtain true and full information of the
partnership affairs, for after all, he is a co-owner of
the properties, including the books.

C. To have a formal account

Art. 1809. Any partner shall have the right to a formal
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his copartners;
(2) If the right exists under the terms of any agreement;

Right to formal account right to accounting

referred to in 1807
GENERAL RULE: no partner has a right to demand
a formal accounting except as a consequence of
dissolution or unless he at the same time seeks
dissolution of the partnership.
Article 1809 provides the instances when the
general rule is not to be observed.
The last of these instances covers circumstances,
frequently arising, which impose on one or more
partners the duty of rendering a formal account to
the copartner, as where one partner is traveling for
a long period of time on partnership business, and
other partners are in possession of the partnership
books.

Art. 1842. The right to an account of his interest shall

accrue to any partner, or his legal representative as
against the winding up partners or the surviving
partners or the person or partnership continuing the
business, at the date of dissolution, in the absence of
any agreement to the contrary. (n)

The right to demand the account accrues at the

date of dissolution in the absence of any contrary
agreement.

D. Property rights
Art. 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. (n)
1.

To possess specific partnership property

Art. 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. (n)

Each partner has been said to be possessed of a

joint interest in the whole of partnership property,
but does not own individually any particular article
or any separate part or aliquot part thereof.
(1) The right of equal possession includes use and
control, including the power of sale and
disposition, such as applying partnership property
to partnership debts, even without the consent of
the other partners. It is however subject to several
limitations.
One limitation: extends only to partnership
purposes. He has no right to possess it for any
other purpose without the consent of his partners.
If he does, he is accountable for the value of such
use as well as for any profits he may have derived
therefrom. If he converts partnership money to his
own use, he shall be liable not only for the amount
converted but also for interest and damages from
the time of such conversion.
(2) This rule obtains even if the assignment is
made after dissolution of the partnership but
before its termination by the completion of the
winding up of its business.
Any separate assignment of such right, or any
attempt at such assignment is null and void,
except when real property is involved and the
provisions of Art 1819 relative to the interest of an
innocent purchaser apply.
If the law recognized the right of a partner to
assign his right in particular partnership property
to a third person, the assignee would pro tanto
become a partner, since he would have the right to
possess the property for partnership purposes
irrespective of the desires of the other partners.
But partnership is a voluntary relation, and the
other partners cannot have a new partner thrust
upon them without their consent.
(3) A partners interest in specific property of the
firm is taken out of the reach of his individual
creditors.
While a partners right in specific partnership
property may not be attached, executed upon, or
garnished by his separate creditors, partnership
creditors may do so.
(4) This incident follows from the nature of such
right and the basic policy of the law to keep intact
partnership property for creditors and for
partnership purposes.
A partner has no personal property in any specific
property of the partnership, and he has no right to
possess or use it except for a partnership purpose.

2.

To convey partnership interest

Art. 1812. A partner's interest in the partnership is

his share of the profits and surplus. (n)

Profit the gain realized from the business or

investment over and above expenditures or the
excess of the value of returns over the value of
advances.
Surplus- the excess of assets over liabilities; simply
what is left of the assets of a firm after all its
liabilities have been satisfied.
The interest of the partner in the partnership has
been otherwise described as the net balance
remaining to him; after all partnership debts or
claims against it have been paid and the equities
and accounts between such partner and his
copartners have been adjusted.
Unlike his rights in specific partnership property, a
partners interest in the partnership is assignable
irrespective of the consent of the other partners.
It may be reached by the partners separate
creditors by means of a charging order and the
other remedies specified in Art 1814. And the
partner can, with respect to it, claim rights under
the exemption laws.

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. (n)

If partner conveys (assigns, sells, donates) his

WHOLE interest in the partnership (his share in
the profits and surplus), the partnership remains,
in general.
WoN a dissolution results from the assignment
depends on its nature as much as on the intent or
agreement of the parties, as may be gathered from
the original partnership agreement, the written
assignment, or from their subsequent conduct.

The assignee does not necessarily become a

partner. The assignor is still the partner, with a
right to demand accounting and settlement.
Rights of assignee:
o To get whatever profits the assignor-partner
would have obtained.
o To avail himself of the usual remedies in case of
fraud in the management.
o To ask for annulment of the contract of
assignment if he was induced to enter it thru any
of the vices of consent or if he himself was
incapacitated to give consent.
o To demand accounting but only if indeed the
partnership is dissolved, but even then, the
account can cover the period only from the date
of the last accounting which has been agreed to
by all the partners.
o Assignee can demand dissolution of the
partnership when the partnership has become a
partnership at will.

E. To ask for dissolution

Art. 1830. Dissolution is caused: [xxx]
(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;
Art. 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. (n)
(5) loss means operating loss for an extended
period of time
Dan Fue Leung v. IAC
Arts. 1806-1809 show that the right to demand an
accounting exists as long as the partnership exists.
Partnership begins to run only upon the dissolution of
the partnership when the final accounting is done.
US v. Clarin supra
Emnace v. CA
Action for accounting, payment of partnership shares,
division of assets and damages is a personal action
which may be commenced and tried where the
defendant resides or may be found, or where the
plaintiffs reside, at the election of the latter.
If an action is against a partner, on the basis of his
personal liability, it is an action in personam, and the
fact that two of the assets of the partnership are
parcels of land does not materially change the nature
of the action.
The heirs, as successors who stepped into the shoes of
their decedent upon his death, can bring an action for
accounting originally pertaining to the decedent. This
right is transmitted by law. The heirs are complainants
in their own right as successors.
For as long as the partnership exists, any of the
partners may demand an accounting of the
partnerships business, and prescription of the said
right starts to run only upon the dissolution of the
partnership when the final accounting is done.
Prescriptive period: 10 years

VIII. PARTNERSHIPS OBLIGATIONS TO

THE PARTNERS

A. To reimburse; to answer for obligations

contracted
Art. 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 expense 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. (1688a)

A partner has no obligation to loan or advance

money to his firm. He may however do so, in which
case, if there be no contrary agreement, he
becomes a creditor of his firm and as such entitled

to reimbursement for such loan or advance before

there can be any distribution of profits.
Any voluntary contribution of money or property
for the use of the partnership beyond the amount
required to be contributed by the partnership
agreement is considered an advance or a loan. This
includes money to advanced to discharge
partnership obligations.
The firm must refund amounts disbursed on its
behalf plus interest from the time expenses were
made (and not from demand, since after all, a
partner is an agent, and the rule on agency applies
to him).
The Code also makes the partnership answerable
to each partner for the obligations he may have
contracted in good faith in the interest of the
partnership business. These include personal
obligations incurred by him in the ordinary and
proper course of partnerships affairs and in the
preservation of its business or property.
Each partner is further entitled to be indemnified
by the partnership for risks in consequence of its
management. This contemplates risks and losses
which a partner necessarily incurs on behalf of the
partnership.

IX. RIGHTS OF ASSIGNEES

A. To receive the interest
B. To require an account
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 assignors interest and may
require an account from the date only of the last
account agreed to by all the partners. (n)

In case of dissolution of the partnership, the

assignee is entitled to an accounting from the date
only of the last account agreed to by all the
partners and to receive, after all the partnership
affairs have been settled and adjusted, his

assignors share of
partnership assets.

the

residue,

if

any,

of

C. To ask for dissolution

Art. 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. (n)

Assignee has a right to dissolve partnership if the

partnership is a partnership at will.