PARTNERSHIP TRANSCRIPTION 2018
So last meeting we discussed introduction to Business
Organization 1.
The concepts are COMMERCIAL but this is still part of your
CIVIL LAW.
For purposes of the bar, we study partnership as part of your
civil law.
You have to memorize Article 1767 which provides the
definition of a partnership.
Tri-level system of a contract of partnership. It should be
learned in three levels.
First, it is a contractual relationship between and among
partners
Second, it is a means of doing business
What are 3 major forms of business organization?
1. Sole Proprietorship – meaning mag-isa ka lang,
usually ikaw ang may ari, ikaw din sa business
2. Corporation – composed at least 5 yung stockholders
3. Partnership – composed two or more persons bind
themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profi ts among themselves
What makes a partnership the best business organization?
It depends upon the objectives of th one consituting the
business.
Partnerships are liable up to their personal assets. Meaning
kung may creditors they can after the personal assets of the
partners.
Whereas in a corporation it is only up to the extent of the
investment ng stockholder.
Third level of understanding the existence of a partnership is
that it is a business enterprise meaning may going concerns.
How do you distinguish a partnership from a mere co-
ownership?
The distinction lies in the “going-concern” concept meaning
kapag mag eestablish ka ng partnership you are engage into
a business hindi lang one transaction several transaction.
Going concern nga eh may element of habituality. Kung co-
owner ka there is no element of habituality. After co-
ownership is terminated wala na. Diba the law frowns upon co
-ownership ksai it limits the use of the property.
Whereas in partnership, pag partner kayo you have the right
as to the assets and the business is continued cause you have
a going concern.
You have the first provision in the law of partnership.
ARTICLE 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. (1665a)
As you can see this is a civil law provision but it has a
commercial element which is there is an intention of dividing
the profit.
“By the contract of partnership”
▪ What does this tell you?
It is a contract and it has a specific name.
▪ What do we call a type of contract that has a specific
name in law?
It is a nominate.
Why is it important for us to determine that it is a nominate?
▪
The significance of that is that kapag nominate sya
there is a SPECIFIC provision na inilaan ng batas to
govern that contract. So meaning you do not go
directly to the law on obligations and contracts, kasi
meron syang specific provisions.
▪ So you look first the specific provisions given by the
law to govern the rights and obligation of the
particular contract tapos pag wala dun ang specific
concern mo saka mo sya titingnan sa general law on
obligations and contracts. That is the importance of it
becoming a nominate contract. Kasi kung hindi
naman natin alam ang significance kung bakit sya
nominate it is useless to know that it is a nominate
contract. You have to know that it has a specific
name.
“two or more persons”
▪ Meaning you cannot put a partnership on your own,
it needs 2 or more persons.
“bind themselves to contribute money, property, or industry”
▪ Bind themselves to contribute
a. money meaning legal tender of the Philippines,
b. property, or
c. industry meaning service
▪ so pwede ka namang walang i-contribute initially
pero mag cocontribute ka ng services
“to a common fund, with the intention of dividing the profits
among themselves”
▪ So you have to be very particular with the intention
▪ If the intention is other than dividing the profits
among themselves that may not be a partnership
▪ What if loss? What if ang business magkakaroon ng
loss?
o It is already subsumed within that phrase
dividing the profits among themselves
“Two or more persons may also form a partnership for the
exercise of a profession.”
So there can be a general professional partnership.
Like any other contracts there are are elements.
a. Consent to pursue a business, legal capacity to enter
into a contract
b. Subject matter
c. Consideration
Characteristics of a contract of Partnership
(1) Consensual – because it is perfected by mere
consent
(2) Nominate – because it has a special name or
designation in our law;
(3) Bilateral – by two or more persons with reciprocal
rights and obligations
(4) Onerous – each of the parties aspires to procure for
himself a benefit through the giving of something;
(5) Commutative – which involves the undertaking of
each of the partners to give something or contribute
something
(6) Principal – because it does not depend for its
existence or validity
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(7) Preparatory – because it is a means to an end,
related to the concept of a business vehicle
A partnership is a contract of agency because it involves
mutual agency between the partners.
Case of JARANTILLA vs JARANTILLA
FACTS: The present case stems from the complaint filed by
Antonieta Jarantilla against Buenaventura Remotigue, Cynthia
Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and income
of the co-ownership, for its partition and the delivery of her
share corresponding to eight percent (8%), and for damages.
Antonieta claimed that in 1946, she had entered into an
agreement with the defendants to engage in business through
the execution of a document denominated as "
Acknowledgement of Participating Capital”. Antonieta also
alleged that she had helped in the management of the
business they co-owned without receiving any salary.
Antonieta further claimed co-ownership of certain properties (
the subject real properties) in the name of the defendants
since the only way the defendants could have purchased
these properties were through the partnership as they had no
other source of income. The respondents did not deny the
existence and validity of the "Acknowledgement of
Participating Capital" and in fact used this as evidence to
support their claim that Antonieta’s 8% share was limited to
the businesses enumerated therein. The respondents denied
using the partnership’s income to purchase the subject real
properties.
During the course of the trial at the RTC, petitioner Federico
Jarantilla, Jr., who was one of the original defendants,
entered into a compromise agreement17 with
AntonietaJarantilla wherein he supported Antonieta’s claims
and asserted that he too was entitled to six percent (6%) of
the supposed partnership in the same manner as Antonieta
was.
ISSUE: Whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the subject
real properties.
HELD: Under Article 1767 of the Civil Code, there are two
essential elements in a contract of partnership:  When Sahot applied for an extended leave, he was threatened
(a) an agreement to contribute money, property or industry
to a common fund; and
(b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar,
for, admittedly, all the parties in this case have agreed to,
and did, contribute money and property to a common fund.  petitioner’s industrial partner. They add that it was not until
Hence, the issue narrows down to their intent in acting as
they did. It is not denied that all the parties in this case have
agreed to contribute capital to a common fund to be able to
later on share its profits. They have admitted this fact, agreed
to its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement of
Participating Capital. The petitioner himself claims his share to
be 6%, as stated in the Acknowledgement of Participating
Capital.
However, petitioner fails to realize that this document
specifically enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue Trading in
Iloilo City and Remotigue Trading in Cotabato City.
Since there was a clear agreement that the capital the
partners contributed went to the three businesses, then there
is no reason to deviate from such agreement and go beyond
the stipulations in the document. There is no evidence that
the subject real properties were assets of the partnership
referred to in the Acknowledgement of Participating Capital.
Petition denied.
Q: Is it necessarry to have the Acknowledgement of
Participating Capital? What if walang Acknowledgent will the
SC rule that there is still a contract of partnership? Kailangan
ba talaga na may contract na WRITTEN? Is it necessary to
have a WRITTEN contract of partnership?
A: According to the requirements of the Civil Code
there is no such requirement that t must be written. Only the
3 elements must have concurred in order for an organization
to be considered as a partnership.
Ok even if wala ang document na to and they can prove it
otherwise, pwede pa rin. This only corroborated their
intention to create a partnership. It is not necessary to have a
written contract to have a contract of partnership.
Case of SY vs CA
FACTS: Sometime in 1958, private respondent Jaime Sahot
started working as a truck helper for petitioners’ family-
owned trucking business named Vicente Sy Trucking. In 1965,
he became a truck driver of the same family business,
renamed T. Paulino Trucking Service, later 6B’s Trucking
Corporation in 1985, and thereafter known as SBT Trucking
Corporation since 1994. Throughout all these changes in
names and for 36 years, private respondent continuously
served the trucking business of petitioners. When Sahot was
59 years old, he incurred several absences due to various
ailments. Particularly causing him pain was his left thigh,
which greatly affected the performance of his task as a driver.
He inquired about his medical and retirement benefits with
the Social Security System (SSS) on April 25, 1994, but
discovered that his premium payments had not been remitted
by his employer.Sahot filed a week-long leave to get medical
attention. He was treated for EOR, presleyopia, hypertensive
retinopathy G II and heart enlargement. Because of such,
Belen Paulino of the SBT Trucking Service management told
him to file a formal request for extension of his leave.
of termination of employment should he refuse to go back to
work. Eventually, Sahot was dismissed from employment
which prompted the latter to file an illegal dismissal case with
the NLRC. For their part, petitioners admitted they had a
trucking business in the 1950s but denied employing helpers
and drivers. They contend that private respondent was not
illegally dismissed as a driver because he was in fact
the year 1994, when SBT Trucking Corporation was
established, and only then did respondent Sahot become an
employee of the company, with a monthly salary that reached
P4,160.00 at the time of his separation. The NLRC and the CA
ruled that Sahot was an employee of the petitioner.
  
ISSUE: Whether Sahot is an industrial partner
 
HELD: No. Article 1767 of the Civil Code states that in a
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.
Not one of these circumstances is present in this case.
No written agreement exists to prove the partnership between
the parties. Private respondent did not contribute money,
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property or industry for the purpose of engaging in the
supposed business. There is no proof that he was receiving a
share in the profits as a matter of course, during the period
when the trucking business was under operation. Neither is
there any proof that he had actively participated in the
management, administration and adoption of policies of the
business. Thus, the NLRC and the CA did not err in reversing
the finding of the Labor Arbiter that private respondent was
an industrial partner from 1958 to 1994. On this point, the
Court affirmed the findings of the appellate court and the
NLRC.
Private respondent Jaime Sahot was not an industrial partner
but an employee of petitioners from 1958 to 1994. The
existence of an employer-employee relationship is ultimately
a question of fact and the findings thereon by the NLRC, as
affirmed by the Court of Appeals, deserve not only respect
but finality when supported by substantial evidence.
Substantial evidence is such amount of relevant evidence
which a reasonable mind might accept as adequate to justify
a conclusion.
Why can he evade liability from illegal dimissal?
If it found out that Jaime is not the employee of Sy then Sy
will not be liable for illegal dismissal
So partnership this is a case wherein kung mag fa-file ng
illegal dismissal one of the arguments is that hindi namin siya
employee kasi may ari naman siya in fact industrial partner
namin siya kaya nga ang demarcation line ng employee at
industrial partner nagiging blurred kasi ang industrial partner
contributes services. In the same an employee does provide
services.
You have the employer-employee relationship. You have to
know the active participation of the person in the business.
Kasi kung active naman siya in the position of an owner then
he is an industrial partner. Kung hindi he can be an employee
not an industrial partner.
Case of Torres vs CA
FACTS: Sisters Antonia Torres and Emeteria Baring, herein
petitioners, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of
land into a subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel of land in
favor of respondent, who then had it registered in his name.
By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the Joint
Venture Agreement, was to be used for the development of
the subdivision. All three of them also agreed to share the
proceeds from the sale of the subdivided lots. The project did
not push through, and the land was subsequently foreclosed
by the bank.
According to petitioners, the project failed because of
“respondent’s lack of funds or means and skills.” They add
that respondent used the loan not for the development of the
subdivision, but in furtherance of his own company, Universal
Umbrella Company.
On the other hand, respondent alleged that he used the loan
to implement the Agreement. Respondent claimed that the
subdivision project failed, however, because petitioners and
their relatives had separately caused the annotations of
adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims,
thereby forcing him to give up on the project.
Subsequently, petitioners filed a criminal case for estafa
against respondent and his wife, who were however acquitted
. Thereafter, they filed the present civil case which, upon
respondent's motion, was later dismissed by the trial court.
On appeal, however, the appellate court remanded the case
for further proceedings. Thereafter, the RTC issued its
assailed Decision, which, as earlier stated, was affirmed by
the CA.
Ruling of the Court of Appeals:
In affirming the trial court, the Court of Appeals held that
petitioners and respondent had formed a partnership for the
development of the subdivision. Thus, they must bear the
loss suffered by the partnership in the same proportion as
their share in the profits stipulated in the contract.
Disagreeing with the trial court’s pronouncement that losses
as well as profits in a joint venture should be distributed
equally, [7] the CA invoked Article 1797 of the Civil Code
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which provides:
“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.”
The CA elucidated further: “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.”
ISSUES:
1. WON the contract entered into by petitioners and
respondent is a contract of partnership. YES
2. WON the Joint Venture Agreement/Partnership and the
earlier Deed of Sale were void for not having complied
with the requirements prescribed in Art. 1773 and for not
having a valid consideration. NO
HELD:
1. Main Issue: Existence of a Partnership
A reading of the terms embodied in the Agreement
indubitably shows the existence of a partnership pursuant to
Article 1767 of the Civil Code, which provides:
“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.”
Under the Agreement between petitioners and respondent,
petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision;
while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs.
Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form a
partnership.
It should be stressed that the parties implemented the
contract. Thus, petitioners transferred the title to the land to
facilitate its use in the name of the respondent. On the other
hand, respondent caused the subject land to be mortgaged,
the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he (Respondent)
developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct low-cost
housing units on the property.
Respondent’s actions clearly belie petitioners’ contention that
he made no contribution to the partnership. Under Article
1767 of the Civil Code, a partner may contribute not only
money or property, but also industry.
2. Alleged Nullity of the Partnership Agreement:
Petitioners argue that the Joint Venture Agreement is void
under Article 1773 of the Civil Code, which provides:
“ART. 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.”
They contend that since the parties did not make, sign or
attach to the public instrument an inventory of the real
property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M. Tolentino
states that under the aforecited provision which is a
complement of Article 1771, “the execution of a 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. This will result in fraud to those who contract
with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. 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.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay
them 60 percent of the value of the property. [13] They
cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their
purpose. Parties cannot adopt inconsistent positions in regard
to a contract and courts will not tolerate, much less approve,
such practice.
In short, the alleged nullity of the partnership will not prevent
courts from considering the Joint Venture Agreement an
ordinary contract from which the parties’ rights and
obligations to each other may be inferred and enforced.
Partnership Agreement Not the Result of an Earlier
Illegal Contract:
Petitioners also contend that the Joint Venture Agreement is
void under Article 1422 [14] of the Civil Code, because it is
the direct result of an earlier illegal contract, which was for
the sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement
clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its first
stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause, can take
different forms, such as the prestation or promise of a thing
or service by another.
In this case, the cause of the contract of sale consisted not in
the stated peso value of the land, but in the expectation of
profits from the subdivision project, for which the land was
intended to be used. As explained by the trial court, “the land
was in effect given to the partnership as [petitioner’s]
participation therein. x x x There was therefore a
consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [
would] get sixty percent of the net profits.”
Add’l. Info.
Court’s ruling as to the liability of the parties:
Claiming that respondent was solely responsible for the failure
of the subdivision project, petitioners maintain that he should
be made to pay damages equivalent to 60 percent of the
value of the property, which was their share in the profits
under the Joint Venture Agreement.
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Ano ang kinontribute? Lupa. Yung isa services.
We are not persuaded. True, the Court of Appeals held that
petitioners’ acts were not the cause of the failure of the And the intention to divide profits among themselves is
project. [16] But it also ruled that neither was respondent reflected in the agreement of a 50-50 sharing.
responsible therefor. [17] In imputing the blame solely to him
, petitioners failed to give any reason why we should Ok we said that it is not necessary to have a WRITTEN
disregard the factual findings of the appellate court relieving contract of partnership for us to know that there is a contract
him of fault. Verily, factual issues cannot be resolved in a of partnership.
petition for review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition
Good thing kung may written.
constitutes one of the exceptions to this doctrine. Accordingly,
we find no reversible error in the CA's ruling that petitioners
are not entitled to damages. What if kung walang written? Makikita natin yan kasi may
contribution. But how about the intention to divide profits?

Intention is a creature of the mind.

How can we determine intention in cases where there is no

written document stating that they intend to divide profits
among themselves?

By their contemporaneous acts

Ok you have to look at their previous and contemporaneous

acts. Now if their previous and contemporaneous acts prove
that there is really an intention to divide profit among
themselves then you can say that there is a contract of
partnership.
Case of LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES

FACTS: Antonio Chua ang Peter Yao, on behalf of “Ocean

Quest Fishing Corporation” entered into a contract with
Philippine Fishing Gear Industries(PFGI) for the purchase of
fishing nets. They claimed that they were engaged in a
business venture with Lim Tong Lim (petitioner), who was not
a signatory to the agreement. The total price of the nets was
P532, 045. Floats worth P68, 000 were also sold.

The buyers of the fishing nets and floats were unable to pay.
Philippine Fishing Gear Industries filed a collection suit against
Chua, Yao and Lim as well as a prayer for writ of preliminary
attachment. The writ was issued and enforced by attaching
the fishing nets on the F/B Lourdes.

Chua admitted liability and requested a reasonable time

within which to pay.
Yao filed an answer but failed to appear in subsequent
hearings.
Lim Tong Lim filed an answer with Counterclaim and
Crossclaim and moved for the lifting of the writ(denied) and
the nets were sold at public auction. He claimed that no
partnership existed.

Trial Court – Philippine Fishing Gear Industries is entitled to

the Writ of Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay PFGI.

CA - affirmed RTC

ISSUE: W/N a partnership exists between Chua, Yao and Lim

Tong Lim

HELD: Yes. 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.

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Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was
Lim Tong Lim’s brother.
In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of
the boats, and to divide equally among them the excess or
loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term "common
fund" under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed
formed a partnership.
The partnership extended not only to the purchase of the boat
, but also to that of the nets and the floats. The fishing nets
and the floats, both essential to fishing, were obviously
acquired in furtherance of their business.
Lim Tong Lim's argument that he was merely the lessor of the
boats to Chua and Yao, not a partner in the fishing venture is
erroneous. His consent to the sale proved that there was a
preexisting partnership among all three.
Lim Tong Lim entered into a business agreement with Chua
and Yao, in which debts were undertaken in order to finance
the acquisition and the upgrading of the vessels which would
be used in their fishing business. The sale of the boats, as
well as the division among the three of the balance remaining
after the payment of their loans, proves that F/B Lourdes,
though registered in his name, was not his own property but
an asset of the partnership. It is not uncommon to register
the properties acquired from a loan in the name of the person
the lender trusts, who in this case is the petitioner himself.
After all, he is the brother of the creditor, Jesus Lim.
It is unreasonable for petitioner to sell his property to pay a
debt he did not incur, if the relationship among the three of
them was merely that of lessor-lessee, instead of partners.
It is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the
contract entered into by persons with whom he previously had
an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of
corporation by estoppel.
Is the compromise agreement necessary for the court to rule
that there is a partnership?
No. It is not necessary because the elements of a partnership
as enunciated under Article 1767 is already present.
In this case the court ruled that you cannot only contribute
money but you can also contribute credit. Yung credit line mo
lang pwede. That can be considered as a contribution for
partnership to exist. Lim here wala namang siyang pera pero
yung kapatid nya meron so ginamit nila ang pangalan ni lim
para mka borrow ng money and that was the contribution of
Lim.
To quote, “A partnership may be deemed to exist among
parties who agree to borrow money to pursue a business and
to divide the profits or losses that may arise therefrom, even
if it is shown that they have not contributed any capital of
their own to a "common fund." Their contribution may be in
the form of credit or industry, not necessarily cash or fixed
assets. Being partners, they are all liable for debts incurred by
or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or
ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that
contract.”
Case of AFISCO INSURANCE CORP vs CA
DOCTRINE:
Unregistered Partnerships and associations are considered as
corporations for tax purposes – Under the old internal
revenue code, “A tax is hereby imposed upon the taxable net
income received during each taxable year from all sources by
every corporation organized in, or existing under the
laws of the Philippines, no matter how created or
organized, xxx.” Ineludibly, the Philippine legislature
included in the concept of corporations those entities that
resembled them such as unregistered partnerships and
associations.
Insurance pool in the case at bar is deemed a partnership or
association taxable as a corporation –In the case at bar,
petitioners-insurance companies formed a Pool Agreement, or
an association that would handle all the insurance businesses
covered under their quota-share reinsurance treaty and
surplus reinsurance treaty with Munich is considered a
partnership or association which may be taxed as a
corporation.
Double Taxation is not Present in the Case at Bar – Double
taxation means “taxing the same person twice by the same
jurisdiction for the same thing.” In the instant case, the
insurance pool is a taxable entity distince from the individual
corporate entities of the ceding companies. The tax on its
income is obviously different from the tax on the dividends
received by the companies. There is no double taxation.
FACTS:The petitioners are 41 non-life domestic insurance
corporations. They issued risk insurance policies for machines.
The petitioners in 1965 entered into a Quota Share
Reinsurance Treaty and a Surplus Reinsurance Treaty
 with the Munchener Ruckversicherungs-Gesselschaft (
hereafter called Munich), a non-resident foreign insurance
corporation.  The reinsurance treaties required petitioners to
form a pool, which they complied with.
In 1976, the pool of machinery insurers submitted a financial
statement and filed an “Information Return of Organization
Exempt from Income Tax” for 1975. On the basis of this, the
CIR assessed a deficiency of P1,843,273.60, and withholding
taxes in the amount of P1,768,799.39 and P89,438.68 on
dividends paid to Munich and to the petitioners, respectively.
The Court of Tax Appeal sustained the petitioner's liability.
The Court of Appeals dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latter’s
collection of premiums on behalf of its members, the ceding
companies, was taxable income. 
ISSUE/S:
1. Whether or not the pool is taxable as a corporation.
2. Whether or not there is double taxation.
HELD:
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PARTNERSHIP TRANSCRIPTION 2018
1) Yes: Pool taxable as a corporation
Argument of Petitioner: The reinsurance policies were written
by them “individually and separately,” and that their liability
was limited to the extent of their allocated share in the
original risks thus reinsured. Hence, the pool did not act or
earn income as a reinsurer. Its role was limited to its principal
function of “allocating and distributing the risk(s) arising from
the original insurance among the signatories to the treaty or
the members of the pool based on their ability to absorb the
risk(s) ceded[;] as well as the performance of incidental
functions, such as records, maintenance, collection and
custody of funds, etc.”
Argument of SC: According to Section 24 of the NIRC of
1975:
“SEC. 24.  Rate of tax on corporations.  --  (a)  Tax on
domestic corporations.  --  A tax is hereby imposed upon the
taxable net income received during each taxable year from all
sources by every corporation organized in, or existing under
the laws of the Philippines, no matter how created or
organized, but not including duly registered general co-
partnership (compañias colectivas), general professional
partnerships, private educational institutions, and building
and loan associations xxx.”
Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as
unregistered partnerships and associations. Interestingly, the
NIRC’s inclusion of such entities in the tax on corporations
was made even clearer by the Tax Reform Act of 1997 Sec.
27 read together with Sec. 22 reads:
“SEC. 27.  Rates of Income Tax on Domestic Corporations.  --
 
(A)  In General.  --  Except as otherwise provided in this Code
, an income tax of thirty-five percent (35%) is hereby
imposed upon the taxable income derived during each taxable
year from all sources within and without the Philippines by
every corporation, as defined in Section 22 (B) of this Code,
and taxable under this Title as a corporation xxx.”
“SEC. 22.  --  Definition.  --  When used in this Title:
xxx  xxx                                    xxx
(B)  The term ‘corporation’ shall include partnerships, no
matter how created or organized, joint-stock companies, joint
accounts (cuentas en participacion), associations, or
insurance companies, but does not include general
professional partnerships [or] a joint venture or consortium
formed for the purpose of undertaking construction projects
or engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium agreement
under a service contract without the Government.  ‘General
professional partnerships’ are partnerships formed by
persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from
engaging in any trade or business.
Thus, the Court in Evangelista v. Collector of Internal
Revenue held that Section 24 covered these unregistered
partnerships and even associations or joint accounts, which
had no legal personalities apart from their individual members
. facilitate the reinsurance agreement. These companies
Furthermore, Pool Agreement or an association that would
handle all the insurance businesses covered under their quota
-share reinsurance treaty and surplus reinsurance treaty with
Munich may be considered a partnership because it contains
the following elements: (1) The pool has a common fund,
consisting of money and other valuables that are deposited in
the name and credit of the pool. This common fund pays for
the administration and operation expenses of the pool. (2)
The pool functions through an executive board, which
resembles the board of directors of a corporation, composed
of one representative for each of the ceding companies. (3)
While, the pool itself is not a reinsurer and does not issue any
policies; its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich,
because without it they would not have received their
premiums pursuant to the agreement with Munich. Profit
motive or business is, therefore, the primordial reason for the
pool’s formation.
2) No: There is no double taxation.
Argument of Petitioner: Remittances of the pool to the ceding
companies and Munich are not dividends subject to tax.
Imposing a tax “would be tantamount to an illegal double
taxation, as it would result in taxing the same premium
income twice in the hands of the same taxpayer.”
Furthermore, even if such remittances were treated as
dividends, they would have been exempt under tSections 24 (
b) (I) and 263 of the 1977 NIRC , as well as Article 7 of
paragraph 1and Article 5 of paragraph 5 of the RP-West
German Tax Treaty.
Argument of Supreme Court: Double taxation means “taxing
the same person twice by the same jurisdiction for the same
thing.” In the instant case, the insurance pool is a taxable
entity distince from the individual corporate entities of the
ceding companies. The tax on its income is obviously different
from the tax on the dividends received by the companies.
There is no double taxation.
Tax exemption cannot be claimed by non-resident foreign
insurance corporattion; tax exemption construed strictly
against the taxpayer - Section 24 (b) (1) pertains to tax on
foreign corporations; hence, it cannot be claimed by the
ceding companies which are domestic corporations. Nor can
Munich, a foreign corporation, be granted exemption based
solely on this provision of the Tax Code because the same
subsection specifically taxes dividends, the type of
remittances forwarded to it by the pool. The foregoing
interpretation of Section 24 (b) (1) is in line with the doctrine
that a tax exemption must be construedstrictissimi juris, and
the statutory exemption claimed must be expressed in a
language too plain to be mistaken.
Why did they create the pool? Did they create the pool with
the intent to divide the profits?
They created the pool in compliance with the treaty. So
without the treaty would they have created the pool?
Requirement yun ng insurer nila diba
In insurance, you have the insuarance company and the
insured. Kapag malaki na ang amount hindi na kayang i-
insured ng local companies.. so there has to be an insurer
There was a treaty wherein they have to create the pool to
grouped together to create a pool in compliance with the
treaty. Effectively there was an intention to create a pool to
comply with what is mandated by the reinsurance company
This is a tax case. Wala naman talagang intention. They just
have to comply with the mandate of the treaty. Pero sabi ng
court taxable sya. This is associated with the concept of an
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PARTNERSHIP TRANSCRIPTION 2018
unregistered partnership. Kasi an unregistered partnership is
a concept under the tax law. It is not a concept of a civil
partnership. Unregistered partnerships are taxable as a
corporation.
Case of Philex Mining vs. CIR
FACTS: Petitioner Philex entered into an agreement with
Baguio Gold Mining Corporation for the former to manage the
latter’s mining claim know as the Sto. Mine. The parties’
agreement was denominated as “Power of Attorney”. The
mine suffered continuing losses over the years, which resulted
in petitioners’ withdrawal as manager of the mine. The parties
executed a “Compromise Dation in Payment”, wherein the
debt of Baguio amounted to Php. 112,136,000.00. Petitioner
deducted said amount from its gross income in its annual tax
income return as “loss on the settlement of receivables from
Baguio Gold against reserves and allowances”. BIR disallowed
the amount as deduction for bad debt. Petitioner claims that it
entered a contract of agency evidenced by the “power of
attorney” executed by them and the advances made by
petitioners is in the nature of a loan and thus can be deducted
from its gross income. Court of Tax Appeals (CTA) rejected
the claim and held that it is a partnership rather than an
agency. CA affirmed CTA
In a contract of partnership there must be mutual trust and
confidence. So, the operative word is mutual. Hindi pwede
yong one-way lang ang trust and confidence. So, please take
note of that.
In fact, if may aalis one of the causes of dissolution is one
partner aalis sya sa partnership. Kasi may issue na on the
trust and confidence of the other partner. Kaya it is
considered a ground to dissolve a partnership.
Among the partners mutual agency arises and the doctrine of
deluctus personae allows them to have the power to dissolve
the partnership.
In fact, you can actually dissolve the partnership by—gusto
mo lang umalis. There is no need of any reason. But of course
, there are damages involve if it will cause damage to the
other partners.
Any partner may dissolve the partnership at will. He must be
acted in good faith in order to avoid damages. However, NOT
the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages.

ISSUE: Whether or not it is an agency. Now, let’s go to the essential requisites of the contract of
partnership.
HELD: No. The lower courts correctly held that the “Power of
Attorney” (PA) is the instrument material that is material in
determining the true nature of the business relationship
between petitioner and Baguio. An examination of the said PA
reveals that a partnership or joint venture was indeed
intended by the parties. While a corporation like the petitioner
cannot generally enter into a contract of partnership unless
authorized by law or its charter, it has been held that it may
enter into a joint venture, which is akin to a particular
partnership. The PA indicates that the parties had intended to
create a PAT and establish a common fund for the purpose.
They also had a joint interest in the profits of the business as
shown by the 50-50 sharing of income of the mine.

Moreover, in an agency coupled with interest, it is the agency

that cannot be revoked or withdrawn by the principal due to
an interest of a third party that depends upon it or the mutual
interest of both principal and agent. In this case the non-
revocation or non-withdrawal under the PA applies to the
advances made by the petitioner who is the agent and not the
principal under the contract. Thus, it cannot be inferred from
the stipulation that it is an agency.

How about the argument that there is just a power of

attorney? Agent lang siya?
The SC held that the main object of the "Power of Attorney"
was not to confer a power in favor of petitioner to contract
with third persons on behalf of Baguio Gold but to create a
business relationship between petitioner and Baguio Gold, in
which the former was to manage and operate the latter’s
mine through the parties’ mutual contribution of material
resources and industry.
Kasi if contract of agency it’s an extension lang siya of the
personality of Baguio Gold in fact it is particular in this
agreement that is to engage in the business of mining in fact
there is a sharing of profits. Sabi ng SC this is the strongest
indication that there is a contract of partnership.

Part 2 6 – Castro MC

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PARTNERSHIP TRANSCRIPTION 2018
1. The contracting parties must have the necessary LEGAL
CAPACITY to enter into the contract.
You have of course an individual. As a general rule: Any
person may be a partner who is capable of entering
into contractual relations. Exceptions:
1. Unemancipated minors;
2. Insane or demented persons;
3. Deaf-mutes who do not know how to write;
4. Persons who are suffering from civil interdiction; (
because they are considered civilly dead) and
5. Incompetents who are under guardianship.
Additional:
6. Persons who are prohibited from giving each other
any donation or advantage cannot enter into a
universal partnership.
Q: But can a minor enter into a contract of partnership
through his guardian? (I leave that to you)
Q: Can a partnership enter into a contract of partnership with
other partnership?
A: Yes. There is no prohibition against a partnership being a
partner in another partnership. When 2 or more partnerships
combine with each other (or with a natural person or persons)
creating a distinct partnership, say, partnership X, all the
members of the constituent partnerships will be individually
liable to the creditors of partnership X. (De Leon)
How about Corporation?
General Rule: Unless authorized by statute or by its charter
—A corporation is WITHOUT CAPACITY or power to
enter into a contract of partnership.
This limitation is based on public policy, since in a partnership
the corporation would be bound by the acts of persons who
are not its duly appointed and authorized agents and officers,
which would be entirely inconsistent with the policy of the law
that the corporation shall manage its own affairs separately
and exclusively.
But you have exceptions to this. Well actually, ang exceptions
nito kasi sabi nila it will be counter-productive to economic
development if i prohibit mo si corporation.
Ang sabi, partnership 1 and partnership 2 – they will enter
into partnership. NO PROHIBITION.
How about Corporation 1 and Corporation 2 that will enter
into a partnership? If you look at the concept of a corporation,
they are not allowed. May mga exceptions lang ito. We will
discuss it when we go to JOINT VENTURES. But bakit ba hindi
sya allowed? Di ba, pag partnership—whatever is the liability
of the partnership they are also liable. And both ito and ito (
referring to his illustration) sila yong mag ma-manage nang
partnership.
What happen in the corporation is that the management of
the corporation is consolidated or centered into the Board of
Directors (BoD). Ito yong concept nang corporation delegated
authority. It is delegated to BoD. Ang BoD ba ang may-ari
nang company? NO. Ang may-ari nang company is the
shareholders. Every year mag e-elect sila nag director which
will manage the company.
What will happen if payagan natin sila mag partnership? Kasi,
initially there is mutual agency sa partnership. So, ang act
nito ma bo-bound ito (referring to his illustration). So,
necessarily ang BoD nito mag a-act sya—mag contact sya
nang supplier or customer, effectively corporation 1 mag
babayad din which will go against sa concept na ang
shareholders ang yong mag ma-manage nang business. Itong
concept na delegated power is not present in partnership.
That’s why, General Rule—hindi pwede ang corporation mag
enter into a contract of partnership.
Again, contribution of money, property, of industry to a
common fund.
MONEY—which is the legal tender in the Philippines.
PROPERTY—Real or personal, corporeal or incorporeal. Or
maybe credit as we know in the case of Lim Tong Lim.
INDUSTRY— is the active cooperation, the work of the
party associated, which may be either personal manual
efforts or intellectual, and for which he receives a share
in the profits (not merely salary) of the business.
PROOF OF CONTRIBUTION; NECESSARY – in partnership,
proof of contribution is necessary that there be contribution of
money, property, or industry to a common fund with the
intention of dividing the income or profits obtained therefrom.
Now, the object of the partnership must also be LAWFUL.
When the object is contrary to law, morals, good customs,
public order, or public policy—the object of the partnership is
also unlawful.
As in other kinds of contract, the purpose of a partnership
must be lawful, otherwise, no partnership can arise as the
contract is inexistent and void ab initio.
The purpose again is to gain profits. That is the very reason of
the existence of the partnership.
SHARING OF PROFITS; NOT NECESSARILY EQUAL: Since
the partnership is engaged for the common benefit or interest
of the partner, it is necessary that there be an INTENTION TO
DIVIDE the profits among the members, although NOT
NECESSARILY IN EQUAL SHARES.
Sharing of losses is necessary corollary of a participation in
profits.
Agreement in sharing of losses is NOT NECESSARY. It is not
necessary for the partners to agree upon a system of sharing
losses. Because again, bakit ka naman mag fo-form nang
partnership if ang motivation mo is mag share nang losses.
For the obligation is implied from the partnership relation but
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.
Now, as I have said earlier, a partnership is a medium of
doing business. It is a business vehicle.
Article 1768. 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 Article 1772,
first paragraph.
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PARTNERSHIP TRANSCRIPTION 2018
So, who are juridical persons? You have article 44 of the New
Civil Code for that.
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities
for public interest or purpose, created by law;
their personality begins as soon as they have
been constituted according to law;
(3) Corporations, partnerships and
associations for private interest or
purpose to which the law grants a
juridical personality, separate and distinct
from that of each shareholder, partner or
member.
So, what’s the law that grants partnership juridical personality
? That is article 1768.
Article 1768 explicitly provides that a partnership has a
juridical personality separate and distinct from that each of
the parties.
So, we have the DOCTRINE OF SEPARATE JURIDICAL
PERSONALITY. What do we mean when we say separate
juridical personality?
Under the law, it is a separate person. I can enter into a
contract. I can incur obligations. It has a personality separate
of the partners.
We have a case of Aguila v. CA which discussed this concept.
AGUILA vs. CA
FACTS: The petitioner here, is the manager of
A.C. Aguila & Sons, Co. which is a partnership
engaged in lending activities. Private
respondent on the other hand, is the
registered owner of a house and lot.
Now, the partnership and private respondents
entered into Memorandum of Agreement
whereby they agreed that private respondents
would sell their house and lot. Pursuant to that
, private respondents executed an absolute
sale in favor of AC Aguila. Within that said
absolute sale, the SPA which was executed by
spouse respondents where they authorized the
partnership AC Aguila to cause the cancellation
of the TCT in case the spouses fail to redeem
the said sold property.
Subsequently, the spouses failed to redeem
the property, hence, AC Aguila caused the
cancellation of the TCT.
Because of that, Mrs. Abrogar (Mr. Abrogar
died) filed a civil case for the nullity of the
deed of sale. However, she only impleaded Mr.
Alfredo Aguila, Jr. She did not implead the
partnership AC Aguila & Sons, Co.
According to Alfredo Aguila, Jr. since under
article 1768, he has a separate and distinct
personality with the partnership in which he is
a partner. He is not possibly be the proper
person or the real party in interest in this case.
ISSUE: Whether or not the case filed by Mrs.
Felicidad Abrogar against Alfredo Aguila will
prosper.
HELD: NO. It will not prosper. The SC said,
the civil case was filed not against the real
party in interest.
Under article 1768 of the New Civil Code, a
partnership “has a juridical personality
separate and distinct from that of each of the
partners.” The partners cannot be held liable
for the obligations of the partnership unless it
is shown that the legal fiction of a different
juridical personality is being used for
fraudulent, unfair, or illegal purposes.
In this case, Felicidad has not shown that AC
Aguila & Sons, Co., as a separate juridical
entity, is being used for fraudulent, unfair, or
illegal purposes. Moreover, the title to the
subject property is in the name of AC Aguila &
Sons, Co. It is the partnership, not its officers,
which should be impleaded in any litigation
involving property registered in its name. A
violation of this rule will result in the dismissal
of the complaint.
So, dapat dito ang I implead nya is the partnership. Bat ang
ginawa nya is si partner and gi implead. In fact, the latter
part of the decision, pinagalitan nag SC ang RTC and CA.
Bakit daw umabot pa sa kanila ang issue na ganito—when in
fact it is very elementary.
Sa RTC pa lang sana na appreciate nila na there is separate
juridical personality of partnership. So, the doctrine of
separate juridical personality is applicable in partnership.
Now, another issue given by this case is that, the piercing of
the corporate veil – corporate fiction. Kasi in corporation law,
we have separate juridical personality. But if you used the
separate juridical personality for fraudulent purposes—pwede
mo syang I pierce or pwede mo syang I disregard.
Example: Hindi ako allowed to own certain property. Ang
ginawa ko I created a corporation to own specific property.
Now, pwede mo I pierce—magkaroon nang damage ang third
person, pwede syang mag file nang kaso. Pwede nyang I
pierce ang separate juridical personality or corporate fiction
nang corporation. Because it was made for fraudulent
purposes.
Q: The issue here, is that similar concept applicable here?
Can I also pierce the separate juridical personality of a
partnership in case the partner/s use the separate juridical
personality of the partnership for fraudulent purposes?
A: Yes. you can actually use that. Pero technically, if you try
to think of it, it is in lesser capacity because how do you
distinguish corporation in terms of liability from partnership?
10
PARTNERSHIP TRANSCRIPTION 2018
Corporation and partnership. Pag may third person, di ba ang
liability—sino ang owner nang corporation—stockholders. Ang
owner nang partnership—partners.
So, kung may third person, let’s say:
1. corporation—can they go after the property of the
stockholders? NO.
2. But can a third person go after the property of the partners
of the partnership? Yes.
What is the exception in #1? If they can pierce the corporate
fiction.
In #2 is it still necessary to pierce when in fact they can go
after the properties of the partners? That is why it is in lesser
capacity. Kasi hindi naman talaga sya necessary. Because the
third person can go after the property of the partners in
contra distinction with the corporation that it really needs to
pierce. Kaya nga walang “piercing the partnership veil.” Ang
tawag kasi—corporate veil.
Partnership as a Business Enterprise. – there is a going
concern, when we say going concern—there is an element of
continuity or habituality. Partners are equity holders. So, they
are owners. We have the case of Villareal v. Ramirez.
VILLAREAL vs. RAMIREZ
FACTS: In 1984, Villareal, Carmelito Jose and
Jesus Jose formed a partnership with a capital
of P750,000 for the operation of a restaurant
and catering business.
Later on, the respondents in this case which is
Ramirez joined as a partner in the business. He
has the capital contribution of P250,000.
Afterwards, Jesus Jose withdrew from the
partnership and thus, his capital contribution
was refunded to him in cash by the agreement
of the partners.
In the same month, however, without the
knowledge of Ramirez, petitioners closed down
the business allegedly because of the increase
rentals.
So, respondents (Ramirez) wrote petitioners
stating that they were no longer interested in
continuing the partnership and that they were
accepting the latter’s offer to return their
capital contribution. The demand made by
respondents both oral and written were
unheeded.
Now, respondents filed a complaint for sum of
money before the RTC. But in their complaint
what was indicated there was not the
partnership but the individual names of the
partners.
ISSUE: Whether or not the petitioners can be
held jointly and severally liable to the amount
which is demanded.
HELD: NO. Respondents have no right to
demand from the petitioner the return of their
equity share. As found by the court petitioners
did not personally hold its equity or assets.
Under article 1768 which provides: “The
partnership has a juridical personality separate
and distinct from that of each of the partners.”
Since the capital was contributed to the
partnership, not to the partners, it is the
partnership that must refund the equity of the
retiring partners.
Sir: So, how the CA compute the amount that
should be refunded to respondents?
A: However, before the partners can be paid of
their shares, the creditors of the partnership
must be first be compensated.
Therefore, the exact amount of refund
equivalent to respondent’s one third shares in
the partnership cannot be determined until all
the partnership assets will have been
liquidated and all partnership creditors have
been paid. CA’s computation of the amount
to be refunded to respondents as their
share was thus erroneous.
Ang ginawa kasi mag di-dissolve na sila, so ang ginawa ang
capital is 1,000,000. So, whatever is the utang to the creditor
– ito of course deduction—tapos ito whatever remains to the
partners.
Now, the problem here, ang ginawang consideration nang CA
is the initial capital, which is kung ano ang gi contribute. They
failed to consider, na of course hindi naman intact yong
capital. Gagamitin yon to purchase asset—kasi equity holders
lang si partners. It should be the capital at the end of the
dissolution.
So, sabi nang SC, you (CA) failed to consider the fact that
they (partners) are equity holders—meaning they did not hold
the assets. They hold the net assets. Meaning, you need to
consider the liabilities.
What should the CA do is that it should consider the capital at
the end of the dissolution. Kasi ito yong laman nag coffers
nang partnership.
So, that is the meaning of the partner being the equity holder
of the partnership.
Art. 1769. In determining whether a
partnership exists, these rules shall apply:
(1) Except as provided by Article 1825,
persons who are not partners as to each other
are not partners as to third persons;
Discussion: this is self-explanatory. Of course
, if you are not partners as to each other you
are not partners to third person.
Persons who are partners as between
themselves are partners to third persons.
Conversely: if they are not partners as
between themselves, they cannot be partners
as to third persons.
Partnership is a matter of intention, each
party giving his consent to become a partner.
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PARTNERSHIP TRANSCRIPTION 2018
However, whether a partnership exists
between the parties is a factual matter. Where
the parties expressly declare they are not
partners, this, as a rule, settles the question as
between themselves.
EXCEPTION: where persons by their acts,
consent, or representations have misled third
persons or parties into believing that the
former are partners in a non-existing
partnership, such persons become subject to
liabilities of partners to all who, in good faith,
deal with them in their apparent relations. This
liability is predicated on the doctrine of
estoppel.
If there is third person prejudiced because the
third person thought that they were partners—
then they can be a partner by estoppel.
(2) Co-ownership or co-possession does not of
itself establish a partnership, whether such-co-
owners or co-possessors do or do not share
any profits made by the use of the property;
Discussion: So, the fact that the property is
co-owned by several people it does not mean
that partnership exist. Because profit in that
sense is a mere incidental and not the primary
intention of the parties. You have the case of
OBILLOS v. CIR.
OBILLOS vs. CIR
FACTS: In 1973, Jose Obillos Sr. completed
payment on two lots. The next day, he
transferred his rights to his 4 children for them
to build their own residences.
However, the petitioners sold the property to
Walled City Securities Corporation and Olga
Cruz Canda for P31,000 and P33,000 for each
of them. They treated the profit as capital
gains and paid an income tax of P16,792.
00.
Subsequently, the CIR required the 4 siblings
to pay “corporate income tax” of their share.
Stating that this entire assessment is based on
the alleged partnership under art. 1769 of the
NCC; Reason: simply because they
contributed each to buy the lots, resold
them and divided the profits among
themselves.
The petitioner argued that: they have no
intention to form a partnership and that it was
merely incidental since they sold the said lots
due to the high demand of construction. Hence
, naturally, when they sell the properties as “co
-partners” it will result to the share of profits.
Further, their intention was to divide the lots
for residential purposes.
ISSUE: Whether or not the Obillos siblings are
partners in a partnership, thus, liable for
corporate income tax.
HELD: NO. The Obillos siblings are not
engaged in a partnership.
Because the siblings here have no intention to
form a partnership as testified by Jose Obillos,
Jr. The SC said, to consider them as partners
would obliterate the distinction between a co-
ownership and a partnership.
Under art. 1769 (3) which provides: “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.” Thus, there must be an
unmistakable intention to form a partnership.
In this case, the CIR should have investigated
if the father paid the donor’s tax to establish
the fact that there was really no partnership.
You have here the distinction between co-ownership and
partnership. So, the fact that they gained profits from a co-
owned property but it does not mean that there exist
partnership.
So, nangyari dito, minana lang nila ang property tapos
binenta and gi divide nila ang proceeds—so the profit here is
mere incidental.
Q: why does the CIR taxed it as partnership?
A: Because according to the CIR, the unregistered partnership
can also be taxed like a corporation. However, according to
the SC, there is no partnership in this case but only a
situation of co-ownership.
One thing to distinguish it from partnership- pag ang co-
ownership walang habituality. Like, ganito, minana lang nya
ang property tapos binenta.
Pag binayaran mo property tapos binenta, tapos bumili ka na
naman nang property tapos binenta—then there has to be
partnership. Because there is already an intention to pursue a
business venture.
Pag one time – co-ownership.
Pero kung may habituality—like, binenta tapos ang proceeds
binili uli nang property there is already an element of
habituality. You can argue that there is already an intention to
pursue a business venture. So, that is a contract of
partnership.
REYES vs. CIR
FACTS: Petitioners Florencio and Angel Reyes (Father and son
) purchases a lot and building for P835,000. Of which they
paid the amount of P375,000, leaving the balance of P460,
000 representing the mortgage obligation of the vendors with
the China banking Corporation.
Now, the initial payment of P375,000.00 was shared equally
by the petitioners at the time of the purchased and the
building was leased to various tenants. The administration of
12
PARTNERSHIP TRANSCRIPTION 2018
this building was entrusted to an administrator who collected
the rents, etc.
Also, the petitioners here, divided the income that would have
derived from the income of the building after the expenses for
maintenance, etc. had been paid. Now, the gross income of
the building was estimated about amount of P90,000.00
annually.
Now, the CIR imposed an income tax due from the
partnership allegedly formed by the petitioners.
The petitioners argued that they are not liable for the said
imposed tax.
ISSUE: Whether or not petitioners are liable to the tax on
corporation as provided for in Sec. 24 of the NIRC.
HELD: Yes. Here the SC said, there exist a partnership
between the petitioners because the 2 elements for the
existence of partnership are present.
Article 1767 of the Civil Code, defining what contract of
partnership is, the opinion goes on to the State that the
essential elements of the partnership are two, namely:
1. An agreement to contribute money, property, or industry to
a common fund; and
2. Intent to divide the profits among the contracting parties.
In this case, the first element is undoubtedly present,
because petitioners have agreed to and did contribute money
and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. Upon consideration
of all the facts and circumstances surrounding the case, it was
determined that the purpose of the petitioners was to engage
in real estate transaction for monetary gain and then divide
the same among themselves.
Here, the petitioners also argued that the ruling in the case of
Evangelista is not applicable.
The SC said that, it is not applicable in this case even though
they stressed that an affidavit of one of them found in the
Bureau of Internal Revenue records would indicate that their
intention was to house in the building acquired by them
coupled with a plan of effecting a division in 10 years.
However, it is was found that while the purchase was made
on October 31, 1950 and their brief as petitioners filed on
October 20, 1965, almost 15 years later, there was no
allegation that such division as between them was in fact
made. Moreover, the facts as found made clear that the
building in question continued to be leased by other parties
with petitioners dividing "equally the income. Thus, in this
case there is an element of habituality which shows their
intention to form a partnership.
In view of the foregoing, the petitioners are liable to the tax
on corporation as provided for in Sec. 24 of the NIRC as a
partnership.
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;
Discussion: Why? Kasi pag sinabi gross
returns—hindi gi consider ang other expenses
and costs of the business. Meaning, since we
talked about partners are equity holders
meaning dapat gi consider ang costs.
Thus, the mere sharing of gross returns
alone does not indicate partnership, the
partners share of net profits after satisfying all
of the partnership’s liabilities. In short, sharing
of gross returns is not an evidence of the
existence of a partnership.
The sharing of net returns, yan— it could be
considered as strong proof of partnership.
(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
installments or otherwise. (n)
Discussion: So, as a rule, if a person receives
a share in a net profit or net returns, it is a
strong indication of a partnership but it is not
conclusive evidence.
An agreement to hold profits strongly
establishes the existence of partnership.
Q: bakit hindi sya conclusive?
A: because it could be a payment for
installment; it could be a payment for
employment; it could be an annuity to a widow
—but it is a strong evidence of the existence of
a partnership.
The burden of proving the existence of a
partnership rests on the party having
affirmative of that issue.
BURDEN OF PROOF; PRESUMPTION:
1. The existence of a partnership must be
proved and will not be presumed;
2. The law presumes that the persons who are
acting as partners have entered into a contact
of partnership. Where the law presumes the
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PARTNERSHIP TRANSCRIPTION 2018
existence of partnership, the burden of proof is
on the party denying its existence;
3. When a partnership is shown to exist, the
presumption is that it continues in the absence
of evidence to the contrary, and the burden of
proof is on the person asserting its termination
. (De Leon)
BASTIDA vs. MENZI
FACTS: Bastida offered to assign to Menzi &
Co. his contract with Phil. Sugar Centrals
Agency and to supervise the mixing of the
fertilizers and to obtain other orders for 50%
of the net profits that Menzi & Co. might derive
therefrom.
Now, the agreement between the parties was
verbal and was confirmed by the letter of
Menzi to Bastida dated Jan. 10, 1922.
Pursuant to the verbal agreement, the
defendant corporation on April 27, 1922
entered into a written contract with Bastida,
which is the basis of this present action.
Now, the fertilizer business was carried on in
the same manner as it was prior to the written
contract and that Bastida receives 35% from
the net profit. The intervention of the plaintiff
was limited only to supervising the mixing of
the fertilizers in the bodegas of Menzi.
Prior to the expiration of the contract, the
manager of Menzi notified the plaintiff that the
contract for his services would not be renewed.
When the contract expired, Menzi proceeded to
liquidate the fertilizer business in question and
the plaintiff refused to agree.
According to Bastida, the contract entered into
by them is a contract of general regular
commercial partnership, wherein Menzi was
the capitalist and the he is the industrialist
partner.
ISSUE: Whether or not there was a
partnership.
HELD: NO. In fact, what is present here was
an employer-employee relationship. Whereby
the plaintiff here who received 35% of the net
profits of the fertilizer business of Menzi is not
necessarily mean that there was a partnership.
It is in fact, a compensation for the services
rendered by Bastida to the fertilizer business of
Menzi.
Further, there was also no provisions in the
contract nor the conduct of the parties prior,
contemporaneous or subsequently to its
execution justified the finding that it was a
contract of co-partnership.
The written contract was, in fact, according to
the court is a continuation of the verbal
agreement between the parties, whereby the
plaintiff worked for the defendant corporation
for one-half of the net profits derived by the
corporation from certain fertilizer contracts.
Also, according to this case, there was also no
common fund which is one of the elements of
the contract of partnership. The business
belonged entirely to Menzi and the plaintiff was
merely working for Menzi and receiving a fixed
salary.
Also, the court made mentioned of the phrase
written in the contract the en sociedad con,
which used as their basis to prove the
partnership in this case. But, the SC said, it
merely means en reunion con or in association
with and does not carry the meaning of "in
partnership with".
Also, according to the SC, Menzi furnishes the
necessary financial aid to the fertilizer business
but it did not obligation itself to contribute any
fixed sum as a capital.
Basically here, the plaintiff is considered as a
mere employee of Menzi.
So, in this case, even if the petitioner receives the net profit—
it is not a conclusive evidence that partnership exist. Because
he receives it as COMPENSATION for his services.
ARTICLE 1769-1782 PART I
HEIRS OF TAN ENG KEE vs. CA
FACTS:
Following the death of Tan Eng Kee on September 13, 1984,
Matilde Abubo, the common-law spouse of the decedent,
joined by their children HEIRS OF TAN ENG KEE, filed suit
against the decedent's brother TAN ENG LAY. The complaint
was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee
and Tan Eng Lay.
Plaintiffs alleged that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business
of selling lumber and hardware and construction supplies.
They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. they claimed that
in 1981, Tan Eng Lay and his children caused the conversion
of the partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business.
RTC: Declared Benguet Lumber as a joint venture which is
akin to a particular partnership.
As a side-bar to the proceedings, petitioners filed Criminal
Case No. 78856 against Tan Eng Lay and Wilborn Tan for the
use of allegedly falsified documents in a judicial proceeding.
Petitioners complained that evidence offered by the
defendants before the trial court, consisting of payrolls
indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake.
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PARTNERSHIP TRANSCRIPTION 2018
CA: Reversed RTC
It is obvious that there was no
partnership whatsoever. Except for a firm name, there was no
firm account, no firm letterheads submitted as evidence, no
certificate of partnership, no agreement as to profits and [special circumstances emphasized by Sir]
losses, and no time fixed for the duration of the partnership.
(i) even a mere supervisor in a company, factory or store
There was even no attempt to submit an accounting
gives orders and directions to his subordinates. So long,
corresponding to the period after the war until Kee's death in
therefore, that an employees position is higher in rank, it is
1984. It had no business book, no written account nor any
not unusual that he orders around those lower in rank.
memorandum for that matter and no license mentioning the
existence of a partnership.
(ii) even a messenger or other trusted employee, over whom
confidence is reposed by the owner, can order materials from
The deceased, Kee, was merely an employee of the Benguet
suppliers for and in behalf of Benguet Lumber. Furthermore,
Lumber Company, on the basis of his SSS coverage effective
even a partner does not necessarily have to perform this
1958, In the Payrolls, Kee was similarly listed only as an
particular task. It is, thus, not an indication that Tan Eng Kee
employee; precisely, he was on the payroll listing. In the
was a partner.
Termination Notice, Lay was mentioned also as the proprietor.

ISSUE: Whether Kee and Lay were partners in Benguet
Lumber.
RULING: NO. There was no certificate of partnership between
the brothers. The heirs were not able to show what was the
agreement between the brothers as to the sharing of profits.
All they presented were circumstantial evidence which in no
way proved partnership.
It is obvious that there was no partnership whatsoever.
Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and no
time fixed for the duration of the partnership. There was even
no attempt to submit an accounting corresponding to the
period after the war until Kee’s death in 1984. It had no
business book, no written account nor any memorandum for
that matter and no license mentioning the existence of a
partnership.
In fact, Tan Eng Lay was able to show evidence that Benguet
Lumber is a sole proprietorship. He registered the same as
such in 1954; that Kee was just an employee based on the
latter’s payroll and SSS coverage, and other records
indicating Tan Eng Lay as the proprietor.
(iii) although Tan Eng Kee, together with his family, lived in
the lumber compound and this privilege was not accorded to
other employees, the undisputed fact remains that Tan Eng
Kee is the brother of Tan Eng Lay. Naturally, close personal
relations existed between them. Whatever privileges Tan Eng
Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan
Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was
quarrelling with Tan Eng Lay in connection with the pricing of
stocks, this does not adequately prove the existence of a
partnership relation between them. Even highly confidential
employees and the owners of a company sometimes argue
with respect to certain matters which, in no way indicates that
they are partners as to each other.
Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between
themselves, which is one of the essential features of a
partnership. There being no partnership, it follows that there
is no dissolution, winding up or liquidation to speak of. Hence,
the petition must fail.

Also, the business definitely amounted to more P3,000.00

TOCAO vs. CA
hence if there was a partnership, it should have been made in
a public instrument.

But the business was started after the war (1945) prior to the
publication of the New Civil Code in 1950?
Even so, nothing prevented the parties from complying with
this requirement.
Also, the Supreme Court emphasized that for 40 years, Tan
Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses
. Each has the right to demand an accounting as long as the
partnership exists. Even if it can be speculated that a scenario
wherein “if excellent relations exist among the partners at the
start of the business and all the partners are more interested
in seeing
the firm grow rather than get immediate returns, a deferment
of sharing in the profits is perfectly plausible.” But in the
situation in the case at bar, the deferment, if any, had gone
on too long to be plausible. A person is presumed to take
ordinary care of his concerns. A demand for periodic
accounting is evidence of a partnership which Kee never did.
FACTS: Marjorie Tocao and William Belo filed a Motion for
Reconsideration, alleging that there was no partnership
between Petitioner Belo & Respondent Nenita Anay, the latter
being a mere employee of Petitioner Tocao.
According to the witness Elizabeth Bantilan, petitioner Belo
acted merely as guarantor of Geminesse Enterprise
ISSUE: Whether or not a partnership exists between Belo &
Anay
RULING: No partnership exists between Belo and Anay.
It should be recalled that the business relationship created
between petitioner Tocao and respondent Anay was an
informal partnership, which was not even recorded with the
Securities and Exchange Commission. As such, it was
understandable that Belo, who was after all petitioner Tocao's
good friend and confidante, would occasionally participate in
the affairs of the business, although never in a formal or
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PARTNERSHIP TRANSCRIPTION 2018
official capacity. It was also confirmed in Bantilan’s testimony
that Belo’s presence in Geminesse Enterprise’s meetings was
merely as guarantor of the company and to help petitioner
Tocao.
No evidence showed that Belo participated in the profits of the
business enterprise. Respondent Anay herself professed lack
of knowledge that Petitioner Belo received any share in the
net income of the partnership. Also, Petitioner Tocao declared
that petitioners Belo was not entitled to any share in the
profits of Geminesse Enterprises. With no participation in the
profits, petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the
profits and losses.
With no participation in the profits, petitioner Belo cannot be
deemed a partner since the essence of a partnership is that
the partners share in the profits and losses.
SIR: In judging if there is a partnership or not, again,
you have to look at the totality of circumstances. In judging
whether there is a partnership or not, you have to look at first
, if there is an agreement although not necessarily, if there is
an agreement it is evidence, they are partners to themselves
and they are partners as to 3rd persons. If none, you have to
look at the totality of circumstances.
It doesn’t mean that a person has a share in the net profits,
he is deemed a partner. You have to look at— why does he
have a share? What is the nature of his work? What is the
nature of his participation in the business for you to consider
whether that person is a partner or not.
YULO vs. YANG CHIAO SENG
FACTS:
Yang Chiao Seng proposed to the plaintiff Mrs. Rosario U. Yulo
the formation of a partnership between them to run and
operate a theatre on the land rented by Mrs Yulo.
One of the principal conditions of the offer is that Yang Chiao
Seng guarantees Mrs. Yulo a monthly participation of P3,000,
payable quarterly in advance within the first 15 days of each
quarter, with the condition that if Mrs. Yulo's right of lease is
terminated by the owner, then the partnership shall be
terminated.
Pursuant to the above offer, which plaintiff evidently accepted
, the parties executed a partnership agreement establishing
the "Yang & Company, Limited," The capital is fixed at P100,
000, P80,000 of which is to be furnished by Yang Chiao Seng
and P20,000, by Mrs. Yulo. All gains and profits are to be
distributed among the partners in the same proportion as
their capital contribution, and the liability of Mrs. Yulo, in case
of loss, shall be limited to her capital contribution.
Since the land on which the theatre was constructed was
owned by the Carrion Sta. Marias., and was merely leased to
Petitioner Yulo; the owners later exercised their right to
cancel the contract of lease.
Mrs. Yulo demanded from Yang Chiao Seng her share in the
profits of the business. Yang answered the letter saying that
upon the advice of his counsel he had to suspend the
payment (of the rentals) because of the pendency of the
ejectment suit. In this letter Yang alleges that inasmuch as he
is a sublessee and inasmuch as Mrs. Yulo has not paid to the
lessors the rentals from August, 1949, he was retaining the
16
PARTNERSHIP TRANSCRIPTION 2018
rentals to make good to the landowners the rentals due from
Mrs. Yulo in arrears.
In view of the refusal of Yang to pay to her the amount
agreed upon, Mrs. Yulo instituted this action on May 26, 1954,
alleging the existence of a partnership between them, that
the defendant has acted maliciously and refuses to pay the
participation of the plaintiff in the profits of the business
amounting to P35,000.
Yang alleges that the real agreement between the plaintiff
and the defendant was one of lease and not of partnership;
that the partnership was adopted as a subterfuge to get
around the prohibition contained in the contract of lease
between the owners and the plaintiff against the sublease of
the said property.
ISSUE: Whether the real agreement bet the parties was
a partnership or a sublease? Sublease.
RULING: The agreement was a sublease, not a
partnership.
The following are the requisites of partnership: (1) two or
more persons who bind themselves to contribute money,
property, or industry to a common fund; (2) intention on the
part of the partners to divide the profits among themselves. (
Art. 1767, Civil Code.)
In the first place, plaintiff did not furnish the supposed P20,
000 capital. In the second place, she did not furnish any help
or intervention in the management of the theatre. In the third
place, it does not appear that she has ever demanded from
defendant any accounting of the expenses and earnings of the
business. Were she really a partner, her first concern should
have been to find out how the business was progressing,
whether the expenses were legitimate, whether the earnings
were correct, etc. She was absolutely silent with respect to
any of the acts that a partner should have done; all that she
did was to receive her share of P3,000 a month, which can
not be interpreted in any manner than a payment for the use
of the premises which she had leased from the owners.
Clearly, plaintiff had always acted in accordance with the
original letter of defendant of June 17,1945 (Exh. "A"), which
shows that both parties considered this offer as the real
contract between them.
Plaintiff claims the sum of P41,000 as representing her share
or participation in the business from December, 1949. But the
original letter of the defendant, Exh. "A", expressly states that
the agreement between the plaintiff and the defendant was to
end upon the termination of the right of the plaintiff to the
lease. Plaintiff's right having terminated in July, 1949 as
found by the Court of Appeals, the partnership agreement or
the agreement for her to receive a participation of P3,
000 automatically ceased as of said date.
SIR: The Supreme Court said that there was no partnership
because there was no proof that they actively participated in
the partnership.
ONA vs. CIR
FACTS:
Julia Buñales died leaving as heirs her surviving spouse,
Lorenzo Oña and her five children.
A civil case was instituted for the settlement of her state, in
which Oña was appointed administrator and later on the
guardian of the three heirs who were still minors when the
project for partition was approved. Although the project of
partition was approved by the Court, no attempt was made to
divide the properties and they remained under the
management of Oña who used said properties in business by
leasing or selling them and investing the income derived
therefrom and the proceeds from the sales thereof in real
properties and securities. Petitioners’ properties and
investments gradually increased. -Petitioners returned for
income tax purposes their shares in the net income but they
did not actually receive their shares because this left with Oña
who invested them.
CIR decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate income
tax, particularly for years 1955 and 1956.
Petitioners asked for reconsideration, which was denied hence
this petition for review from CTA’s decision.
ISSUE: Whether or not there was a co-ownership or an
unregistered partnership—Unregistered partnership.
RULING: The Tax Court found that instead of actually
distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the
properties remained under the management of Lorenzo T.
Oña who used said properties in business by leasing or selling
them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and
securities," as a result of which said properties and
investments steadily increased. And all these became possible
because, admittedly, petitioners never actually received any
share of the income or profits from Lorenzo T. Oña and
instead, they allowed him to continue using said shares as
part of the common fund for their ventures, even as they paid
the corresponding income taxes on the basis of their
respective shares of the profits of their common business.
It is thus incontrovertible that petitioners did not, contrary to
their contention, merely limit themselves to holding the
properties inherited by them. Indeed, it is admitted that
during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said
profit, petitioners engaged, thru Lorenzo T. Oña, in the
purchase and sale of corporate securities. It is likewise
admitted that all the profits from these ventures were divided
among petitioners proportionately in accordance with their
respective shares in the inheritance. In these circumstances,
it is Our considered view that from the moment petitioners
allowed not only the incomes from their respective shares of
the inheritance but even the inherited properties themselves
to be used by Lorenzo T. Oña as a common fund in
undertaking several transactions or in business, with the
intention of deriving profit to be shared by them
proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect,
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PARTNERSHIP TRANSCRIPTION 2018
they thereby formed an unregistered partnership within the
purview of the above-mentioned provisions of the Tax Code.
Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to all
the heirs, obviously, without them becoming thereby
unregistered co- partners, but it does not necessarily follow
that such status as co- owners continues until the inheritance
is actually and physically distributed among the heirs, for it is
easily conceivable that after knowing their respective shares
in the partition, they might decide to continue holding said
shares under the common management of the administrator
or executor or of anyone chosen by them and engage in
business on that basis. Withal, if this were to be allowed, it
would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of
the National Internal Revenue Code.
From the moment of such partition, the heirs are entitled
already to their respective definite shares of the estate and
the incomes thereof, for each of them to manage and dispose
of as exclusively his own without the intervention of the other
heirs, and, accordingly, he becomes liable individually for all
taxes in connection therewith.
If after such partition, he allows his share to be held in
common with his co-heirs under a single management to be
used with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes,
at least, an unregistered partnership is formed.
HEIRS OF LIM vs. LIM
FACTS: Petitioners are the heirs of the late Jose Lim. (wife
Cresencia and children) They filed a Complaint for Partition,
Accounting and Damages against respondent Juliet Villa Lim (
respondent), widow of the late Elfledo Lim (Elfledo), who was
the eldest son of Jose and Cresencia.
Jose managed the operations of this trucking business until
his death on August 15, 1981. Thereafter, Jose's heirs,
including Elfledo, and partners agreed to continue the
business under the management of Elfledo. The shares in the
partnership profits and income that formed part of the estate
of Jose were held in trust by Elfledo, with petitioners'
authority for Elfledo to use, purchase or acquire properties
using said funds. By the time the partnership ceased, it had
nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledos
management of the partnership that he was able to purchase
numerous real properties by using the profits derived
therefrom, all of which were registered in his name and that
of respondent. Elfledo died, leaving respondent as his sole
surviving heir. Claiming that they are co-owners of the
properties, petitioners required respondent to submit an
accounting of all income, profits and rentals received from the
estate of Elfledo, and to surrender the administration thereof.
Elfledo was not a partner; and that Jimmy and Norberto
entered into a partnership with Jose.
ISSUE: Who between Jose and Elfledo... was the "
partner" in the trucking business.
RULING: JOSE.
Art. 1769. In determining whether a partnership exists, these
rules shall apply:
(1) Except 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 co-possessors 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 a prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits
were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
Applying the legal provision to the facts of this case, the
following circumstances tend to prove that Elfledo was himself
the partner of Jimmy and Norberto: 1) Cresencia testified that
Jose gave Elfledo P50,000.00, as share in the partnership, on
a date that coincided with the payment of the initial capital in
the partnership; (2) Elfledo ran the affairs of the partnership,
wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners
herein; (3) all of the properties, particularly the nine trucks of
the partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or salaries
from the partnership, indicating that what he actually
received were shares of the profits of the business; and (5)
none of the petitioners, as heirs of Jose, the alleged partner,
demanded periodic accounting from Elfledo during his lifetime
. As repeatedly stressed in Heirs of Tan Eng Kee, a demand
for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to
show that the real and personal properties acquired and
registered in the names of Elfledo and respondent formed part
of the estate of Jose, having been derived from Jose's alleged
partnership with Jimmy and Norberto. They failed to refute
18
PARTNERSHIP TRANSCRIPTION 2018
respondent's claim that Elfledo and respondent engaged in
other businesses. Edison even admitted that Elfledo also sold
Interwood lumber as a sideline.[1 Petitioners could not offer
any credible evidence other than their bare assertions.
SIR: So, those examples of the cases where the
Supreme Court determines whether or not there was a
contract of partnership.
ARTICLE 1770. A partnership must have a lawful object
or purpose and must be established for the common
benefit or interest of the partners.
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.
Please take note, the object or the purpose must be lawful.
Please take note, that it is only the profits which is only
confiscated in favor of the State. It does not involve the
initial contributions of the parties unless of course, the initial
contribution will be considered as the instruments or effects of
the crime.
DE LEON [as mentioned by sir]: The provision of the 1st
paragraph reiterates (2) essential elements of a contract of
partnership— legality of the object & community of benefit or
interest of the partners.
What are the effects of an unlawful partnership?
1. The contract is void ab initio meaning nothing can
emanate from a contract considered as void ab initio that
is why the profit is confiscated in favor of the government
— because if you have a right to the profit meaning that
would mean you will go into the legality of the contract of
partnership which is the basis of the profit.
2. The instruments or tools and proceeds of the crime shall
also be forfeited in favor of the government; [again, the
initial contributions shall not be confiscated, unless it is
considered as instruments, tools and proceeds of the
crime] and
Q: What if it is partially illegal?
A: When part of a business is legal and part of it is illegal, of
course, that legal part may proceed but the illegal ones or the
illegal part of your business, cannot continue.
Q: Can there be a situation when it is initially legal and
later becomes illegal?
A: Yes. If there is a subsequent law making your business
illegal. Example—
Mining, it will eventually become prohibited, that would mean
at the time of the effectivity of the law, your business is
already dissolved.
Let’s go the attributes of Partnership.
The essential attributes of Partnership, is that a
contract of partnership is—
1. Consensual;
2. There is mutual agency;
3. It is governed by the Principle of Delectus Personae;
4. The partner is generally burdened with unlimited liability
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PARTNERSHIP TRANSCRIPTION 2018
ARTICLE 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.
In other words, a contract of partnership is constituted in any
form or made constituted in any form. It is essentially
consensual. You can actually form a partnership by mere
consent. The fact that you agree to form a partnership to
contribute your money, property, or industry, then you can
have a contract of partnership.
Article 1772 provides for the EXCEPTION—
ARTICLE 1772. Every contract of partnership having a
capital of 3, 000 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 3rd persons.
The office of the Securities and Exchange Commission (SEC)
is the one tasked by the government to regulate corporations
and partnerships.
But technically, if you go there, they’ll say we only, actually,
do the recording of partnerships which is correct if you look at
the law which only provides the recording. They do not
actually give approval inasmuch as they do in corporations
because they only record. This is also based on the principle
that a partnership is essentially consensual. So, no need for
approval on the part of the SEC. That is why they only record.
Take note of the 2nd par., that even if you do not put into the
public instrument the agreement or record it in the SEC., still
the liability of the partnership and the partners are valid as to
3rd persons.
VERY IMPORTANT—
ARTICLE 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory is not made, signed by the parties and
attached to the public instrument.
How can you know if it is immovable? You go to your
provisions on Property— Article 415.
What are the instances where formal requirements are
necessary?
1. Capital of 3, 000 or more;
2. Immovable property or real rights are contributed
thereto, there must be a public instrument;
And if there is no inventory signed by the parties and
attached to that public instrument, the contract of
partnership is void.
3. Limited Partnership [which we will discuss later on]
Q: Why is it important to have an inventory of
immovable property in cases wherein immovable
property or real rights are contributed thereto? What’s
the rationale of this provision?
A: Because remember, if you contribute land to a partnership,
in essence the partnership is the owner thereof and if you do
not have a document to state that you contributed this land to
the partnership, how will you annotate it on the title of the
real property that this has already been contributed?
If you cannot annotate it, you will deceive 3rd persons who
looks at your property as clean— there are no annotations. So
that’s the reason why it is necessary to have a public
instrument and there should be an inventory so you can have
that inscripted in the Registry of Property. This is basically to
protect 3rd persons from being defrauded by the partners
contributing real property.
AGAD VS MABATO
FACTS:
Mauricio Agad claim that he and SeverinoMabato are partners
in a fishpond business to which they contributed P1,000 each.
Mabato rendered the accounts of the partnership. However,
for the years 1957- 1963, Mabato failed to render the
accounts despite repeated demands by Agad. Petitioner filed a
complaint against Mabato for his share in the partnership
profits. He attached a copy of the public instrument
evidencing their partnership in his complaint.
Mabato denied the existence of the partnership alleging that
Agad failed to pay his P1,000 contribution. He then filed a
motion to dismiss on the ground of lack of cause of action.
The lower court dismissed the complaint finding a failure to
state a cause of action predicated upon the theory that the
contract of partnership is null and void because an inventory
of the fishpond referred in said instrument was not attached.
ISSUE: Whether or not immovable property or real rights
have been contributed to the partnership
RULING: NO. 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. 1773. 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.
Mabato alleged and the lower court held that the answer
should be in the affirmative, because it is really inconceivable
how a partnership engaged in the fishpond business could
exist without said fishpond property being contributed to the
partnership. It should be noted, however, that, as stated in
Annex "A" the partnership was established "to operate a
fishpond", not to "engage in a fishpond business. Moreover,
none of the partners contributed either a fishpond or a real
right to any fishpond.
The operation of the fishpond mentioned in Annex "A" was the
purpose of the partnership. Neither said fishpond nor a real
right thereto was contributed to the partnership or became
part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.
We find that said Article 1773 of the Civil Code is not in
point and that, the order appealed from should be, as it
is hereby set aside and the case remanded to the lower
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PARTNERSHIP TRANSCRIPTION 2018
court for further proceedings.
Q: What was the business?
A: To operate a fishpond.
Q: What was contributed?
A: Money.
This particular case, their business is to operate a fishpond.
The argument there, is that how can you operate a fishpond
when you don’t have a fishpond?
And the SC determined that there is none.
What is the importance of this case?
Meaning, the requirement of putting it into a public document
and to an inventory is only applicable at the time of the
constitution. Now, if during the business, if they acquire
immovable properties, it is not anymore part of the
requirement.
In the first instance, that they constituted a partnership, they
contributed money, and if they used this money to buy real
property this is outside the ambit of Article 1773.
What is only applicable or what is only required is that you
have to put it in a public instrument and an inventory should
be attached thereto, if the initial contribution is an immovable
property. If you subsequently acquire an immovable property,
it is not anymore applicable. So, no need for you to have it in
a public instrument with an attachment of the inventory of the
immovable property. That is the importance of this case.
Now, the problem with Torres vs. CA, what happened here is
one will contribute land and the other will develop it. And
eventually it wasn’t developed properly, pointing fingers—
pointing the blame. The other party said give back the money
since the contract is void.
The court said this provision is only applicable if there is a 3rd
party involved. For purposes of protecting a 3rd party, this is
applicable. If it is the parties themselves, this cannot be made
applicable. But if you try look at the provision, it is as express
as this should have been. If there is no public instrument or
inventory it is void. It did not state that it is only void if there
is a 3rd person.
But in Torres vs. CA, it is only void if there is a 3rd person
involved. But look at the decision of the court, binawi rin siya
sa huli…
EXCERPT from the case that Sir emphasized: The alleged
nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract
from which the parties rights and obligations to each other
may be inferred and enforced.
The court said, it is not void if there is no 3rd party. But even
if it is void, we can actually construe it as an ordinary contract
. In effect, the court did not categorically state this is not void
because there is no 3rd party involved. The court said that it is
not void even if there is a 3rd party involved. Even if it is void,
you can construe it as an ordinary contract.
What does that tell us? It tells us that still, the provision
provides that it is void if there is no immovable property.
Remember the rationale of having the inventory attached to
the public instrument, it is in order to protect 3rd persons
subsequently dealing with the real property. Take note of
Torres vs. CA
LITONJUA VS LITONJUA
FACTS:
Aurelio and Eduardo are brothers. In 1973, Aurelio and
Eduardo entered into a contract of partnership/joint venture.
Aurelio showed as evidence a letter sent to him by Eduardo
that the latter is allowing Aurelio to manage their family
business (if Eduardo’s away) and in exchange thereof he will
be giving Aurelio P1 million or 10% equity, whichever is
higher. A memorandum was subsequently made for the said
partnership agreement. The memorandum this time stated
that in exchange of Aurelio, who just got married, retaining
his share in the family business (movie theatres, shipping and
land development) and some other immovable properties, he
will be given P1 Million or 10% equity in all these businesses
and those to be subsequently acquired by them whichever is
greater.
In 1992 however, the relationship between the brothers went
sour. And so Aurelio demanded an accounting and the
liquidation of his share in the partnership. Eduardo did not
heed and so Aurelio sued Eduardo.
ISSUE: Whether or not a partnership exists between
the two parties
RULING: NO
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. 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 requirement of the preceding
paragraph shall not affect the liability of the partnership and
the members thereof to third persons.
Art. 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.
The memorandum on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an unsigned
document, there can be no quibbling that it does not meet the
public instrumentation requirements exacted under Article
1771 of the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving more than P3,
000.00 in money or property, the memorandum cannot be
presented for notarization, let alone registered with the
Securities and Exchange Commission (SEC), as called for
under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes
into the matter of validity when immovable property is
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PARTNERSHIP TRANSCRIPTION 2018
contributed to the partnership, the next logical point of
inquiry turns on the nature of petitioner’s contribution, if any,
to the supposed partnership.
Petitioner, in an obvious bid to evade the application of Article
1773, argues that the immovables in question were not
contributed, but were acquired after the formation of the
supposed partnership. Needless to stress, the Court cannot
accord cogency to this specious argument. For, as earlier
stated, petitioner himself admitted contributing his share in
the supposed shipping, movie theatres and realty
development family businesses which already owned
immovables even before the memorandum was allegedly
executed.
Considering thus the value and nature of petitioner’s alleged
contribution to the purported partnership, the Court, even if
so disposed, cannot plausibly extend to the memorandum the
legal effects that petitioner so desires and pleads to be given.
The memorandum in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal
and factual milieu of the case calls for this disposition. A
partnership may be constituted in any form, save when
immovable property or real rights are contributed thereto or
when the partnership has a capital of at least ₱3,000.00, in
which case a public instrument shall be necessary. And if only
to stress what has repeatedly been articulated, an inventory
to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to it.
This reiterated the principle that the requisites for a public
instrument and an inventory is only applicable if what is
contributed initially are immovable properties or real rights
thereto.
ARTICLE 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.
Remember your Intellectual Property Law with regards to
trade name. You can have whatever any partnership name
you want for as long as it does not violate any existing trade
names.
ARTICLE 1775. Associations and societies who articles are
kept secret among the members, and wherein any one of
the members may contract in his own name with 3rd persons,
shall have no juridical personality and shall be governed
by the provisions relating to co-ownership.
That co-ownership is with regards to their property.
We have another attribute of partnership which is mutual
agency. This is actually the heart of the partnership because it
defines the prerogative of every partner who participate in the
management of the partnership business.
There is mutual agency meaning if there’s 2 of you, that
person can act in behalf of the partnership and that other
person can also act in behalf of the partnership. That is
mutual agency. You are mutual agents of each other and of
the partnership.
Another attribute is the Principle of Delectus Personae
or selection of person— one selects his partner on the
basis of the personal qualifications and qualities—solvency,
ability, honesty, trustworthiness among others. It is for this
reason there is mutual representation among the partners
that the act of one is the responsibility of the others as well.
Last— partners subject of unlimited liability
Q: Why is it partners have unlimited liability? what is
the principle or rationale?
Meaning, let’s say, that the partnership is bankrupt, and there
are remaining debts, those creditors can actually go to the
personal property of those partners. That is what we mean by
unlimited liability.
Partnership vs Corporation
So, why do you think a partner has unlimited liability
? And why is a stockholder has limited liability? Kasi, a
general partner is able to share in the profits of the business
and leverage the strengths and expertise of other owners, but
spread out the risks. In some cases, a key partner creates
new business channels or supply relationships that
spark greater profitability than what an individual owner
could generate as a sole proprietor. As a general partner, you
have unlimited liability, which means your personal assets
aren't treated separately from those of the business.
Therefore, if the company is sued, you could experience
financial ruin. Relative to a proprietorship, partnerships add
to this unlimited liability risk because of the obligation one
partner has for the poor actions of another. 
Because it is treated separately, you have limited
personal liability with a corporation. You do have to complete
regular paperwork through a state office, but your assets aren
't exposed, unless you act illegally, unethically or neglectfully.
Another major benefit is that a corporation can attract
equity investors to raise capital, whereas partnerships
must seek private investment from a limited partnership or
acquire debt.
In essence, in partnership, you have active
participation—they decide, they take risks. In stockholder,
they do not manage the business. Sa corporation ang BOD
ang nag-mamanage.
Partnership vs Joint Venture
In partnership, though it may exist for a single transaction,
usually contemplates the undertaking of the general and
continuous business of a particular kind, which is necessarily
involves a series of transactions.
In joint venture, it is limited to single transaction and is not
intended to pursue a continuous business.
Partnership vs Co-ownership
In partnership, there is contractual intent to pursue business
venture in common.
Partnership vs Agency
In partnership, there is mutual agency. Meaning, the principal
may be the agent of the other partner. In agency, the agent
is merely a legal extension of the personality of the principal,
and thereby under the complete control of the principal.
Partnership vs Business Trust
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PARTNERSHIP TRANSCRIPTION 2018
The creation of business trust does not give rise to a separate
juridical personality and is mainly governed by contractual
doctrines and common-law principles on trust.
Does a defective incorporation process result into a
partnership?
Look at the intention. If the intention is for incorporation, then
not partnership. In partnership, all partners must agree to
come up with a partnership.
Different classifications of 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. (1671a)
(1) As to the extent of its subject matter. — A
partnership may be:
(a) Universal partnership or one which refers to all the
present property or to
all profits.
There are thus two kinds of universal partnership, to wit:
(1) Universal partnership of all present property.
(2) Universal partnership of profits. Or
(b) Particular partnership. — This is defined in Article 1783.
(2) As to liability of the partners. — It may be:
(a) General partnership or one consisting of general partners
who are liable pro rata and subsidiarily and sometimes
solidarily with their separate property for partnership debts;
or
(b) Limited partnership or one formed by two or more persons
having as members one or more general partners and one or
more limited partners, the latter not being personally liable
for the obligations of the partnership.
(3) As to its duration. — It is either:
(a) Partnership at will or one in which no time is specified and
is not formed for a particular undertaking or venture and
which may be terminated at anytime by mutual agreement of
the partners, or by the will of any one partner alone; or one
for a fixed term or particular undertaking which is continued
by the partners after the termination of such term or
particular undertaking without express agreement or
(b) Partnership with a fixed term or one in which the term for
which the partnership is to exist is fixed or agreed upon or
one formed for a particular undertaking, and upon the
expiration of the term or completion of the particular
enterprise, the partnership is dissolved, unless continued by
the partners.
(4) As to the legality of its existence. — It may be:
(a) De jure partnership or one which has complied with all the
legal requirements for its establishment; or
(b) De facto partnership or one which has failed to comply
with all the legal requirements for its establishment.
*Partnership is merely perfected by mere consent. It is
consensual, not formal.
(5) As to representation to others. — It may be:
(a) Ordinary or real partnership or one which actually exists
among the partners and also as to third persons;
(b) Ostensible partnership or partnership by estoppel or one
which in reality is not a partnership, but is considered a
partnership only in relation to those who, by their conduct or
admission, are precluded to deny or disprove its existence.
(6) As to publicity. — It may be:
(a) Secret partnership or one wherein the existence of certain
persons as partners is not avowed or made known to the
public by any of the partners; or
(b) Open or notorious partnership or one whose existence is
avowed or made known to the public by the members of the
firm.
(7) As to purpose. — It may be:
(a) Commercial or trading partnership or one formed for the
transaction of business; or
(b) Professional or non-trading partnership or one formed for
the exercise of a profession.
Kinds of partners
Partners are classified according to their interests in the
partnership business, or their obligations to the partnership,
or their liabilities to third persons.
(1) Under the Civil Code. — Partners are classified into:
(a) Capitalist partner or one who contributes money
or property to the common fund;
(b) Industrial partner or one who contributes only his
industry or personal service;
(c) General partner or one whose liability to third
persons extends to his separate property; he may be either
a capitalist or industrial partner. He is also known as real
partner;
(d) Limited partner or one whose liability to third
persons is limited to his capital contribution. He is also known
as special partner. The terms “general partner” and “limited
partner” have relevance only in a limited partnership;
(e) Managing partner or one who manages the
affairs or business of the partnership; he may be appointed
either in the articles of partnership or after the constitution of
the partnership. He is also known as general or real partner;
(f) Liquidating partner or one who takes charge of
the winding up of partnership affairs upon dissolution;
(g) Partner by estoppel or one who is not really a
partner, not being a party to a partnership
agreement, but is liable as a partner for the
protection of innocent third persons. He is one who is
represented as being in fact a partner, but who is not
so as between the partners themselves. He is also
known as partner by implication or nominal partner.
The term “quasi-partner” is sometimes used;
(h) Continuing partner or one who continues the
business of a partnership after it has been dissolved
by reason of the admission of a new partner, or the
retirement, death, or expulsion of one or more
partners;
(i) Surviving partner or one who remains after a
partnership has been dissolved by the death of any
partner; and
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PARTNERSHIP TRANSCRIPTION 2018
(j) Subpartner or one who, not being a member of
the partnership, contracts with a partner with
reference to the latter’s share in the partnership.
(2) Other classifications. — They have also been classified
into:
(a) Ostensible partner or one who takes active part
and known to the public as a partner in the business,
whether or not he has an actual interest in the firm.
Thus, he may be an actual partner or a nominal
partner. If he is not actually a partner, he is subject
to liability by the doctrine of estoppel;
(b) Secret partner or one who takes active part in
the business but is not known to be a partner by
outside parties nor held out as a partner by the other
partners, although he participates in the profits and
losses of the partnership. He is an actual partner. He
is also an active partner in the sense that he
participates in the management of the partnership
affairs;
(c) Silent partner or one who does not take any
active part in the business although he may be
known to be a partner. Thus, he need not be a secret
partner. If he withdraws from the partnership, he
must give notice to those persons who do business
with the firm to escape liability in the future;
(d) Dormant partner or one who does not take active
part in the business and is not known or held out as
partner. He would be both a silent and a secret
partner. He would be both a secret and a silent
partner. He may retire from the partnership without
giving notice and cannot be held liable for obligations
of the firm subsequent to his withdrawal. His only
interest in joining the partnership would be the
sharing of the profits earned.
The term is used as synonymous with “sleeping
partner”;
(e) Original partner or one who is a member of the
partnership from the time of its organization;
(f) Incoming partner or a person lately, or about to
be, taken into an existing partnership as a member;
and
(g) Retiring partner or one withdrawn from the
partnership; a withdrawing partner.
All partners in any of these six classes are subject to
liability for all partnership
obligations.
Art. 1777. A universal partnership (*of all present property)
may refer to all the present property or to all the profits. (
1672)
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. (1673)
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. (1674a)
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. (1675)
Art. 1781. Articles of universal partnership, entered into
without specification of its nature, only constitute a
universal partnership of profits. (1676)
Why? Because in UNP, the profit is only contributed.
How about by property chance? Not included.
Art. 1782. Persons who are prohibited from giving each other
any donation or advantage cannot enter into universal
partnership. (1677)
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. (1678)
Can a husband enter into universal partnership? CIR vs
SUTER
CIR VS SUTER
FACTS:
-A limited partnership, named "William J. Suter 'Morcoin' Co.,
Ltd.," was formed on by William J. Suter as the general
partner, and Julia Spirig and Gustav Carlson, as the limited
partners. -The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership and was
thereafter registered with the SEC.
-The firm engaged in the importation, marketing, distribution
and operation of automatic phonographs, radios,television
sets and amusement machines, their parts and accessories. It
had an office and held itself out as alimited partnership.
-General partner Suter and limited partner Spirig got married.
-Limited partner Carlson sold his share in the partnership to
Suter and his wife. The sale was duly recorded with the
Securities and Exchange Commission.
-The limited partnership had been filing its income tax returns
as a corporation, without objection by the Commissioner of
Internal Revenue.
-In 1959, CIR, in an assessment, determined a deficiency
income tax against respondent Suter in the amount of P2,678
.06 for 1954 andP4,567.00 for 1955.
- Suter protested but this was denied.
CIR: 1. The marriage of Suter and Spirig and their
subsequent acquisition of the interests of remaining partner
Carlson in the partnership dissolved the limited partnership 2.
If they did not, the fiction of juridical personality of the
partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of
the business, consequently the income tax return of
respondent Suter for the years in question should have
included his and his wife'sindividual incomes and that of the
limited partnership
SUTER: 1. His marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in 1948 is
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PARTNERSHIP TRANSCRIPTION 2018
not a ground for dissolution of the partnership, either in the
Code of Commerce or in the New Civil Code, 2. Since its
juridical personality had not been affected and since, as a
limited partnership, as contra distinguished from a duly
registered general partnership, it is taxable on its income
similarly with corporation. 3. Suter was not bound to include
in his individual return the income of the limited partnership.
ISSUE: Whether or not the partnership was dissolved after
the marriage of the partners, William J. Suter and Julia Spirig
Suter and the subsequent sale to them by the remaining
partner, Gustav Carlson, of his participation---
No HELD: A husband and a wife may not enter into a
contract of general copartnership, because under the Civil
Code, which applies in the absence of express provision in the
Code of Commerce, persons prohibited from making
donations to each other are prohibited from entering into
universal partnerships. (2 Echaverri 196) It follows that the
marriage of partners necessarily brings about the dissolution
of a pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to
observe the fact that William J. Suter "Morcoin" Co., Ltd. was
not a universal partnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of
1889 (which was the law in force when the subject firm was
organized in 1947), a universal partnership requires either
that the object of the association be all the present property
of the partners, as contributed by them to the common fund,
or else "all that the partners may acquire by their industry or
work during the existence of the partnership".
William J. Suter "Morcoin" Co., Ltd. was not such a
universal partnership, since the contributions of the partners
were fixed sums of money, P20,000.00 by William Suter and
P18,000.00 by Julia Spirig and neither one of them was an
industrial partner. It follows that William J. Suter "Morcoin" Co
., Ltd. was not a partnership that spouses were forbidden to
enter by Article 1677 of the Civil Code of 1889. Nor could the
subsequent marriage of the partners operate to dissolve it,
such marriage not being one of the causes provided for that
purpose either by the Spanish Civil Code or the Code of
Commerce.
The appellant's view, that by the marriage of both
partners the company became a single proprietorship, is
equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and
contributed by them before their marriage; and after they
were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code (
Article 1396): The following shall be the exclusive property
of each spouse: (a) That which is brought to the marriage as
his or her own; .... Thus, the individual interest of each
consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948. It
being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and
separate from that of its partners (unlike American and
English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of
our law. The limited partnership's separate individuality
makes it impossible to equate its income with that of the
component members. True, section 24 of the Internal
Revenue Code merges registered general co-partnerships with
the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a
cardinal tenet of our partnership laws, and can not be
extended by mere implication to limited partnerships.
The spouses can enter into a particular partnership because
the prohibition only provides that spouses are prohibited to
donate to one another or from entering into a universal
partnership. The issue here is that, is this still applicable given
the enactment of Family Code?
According to Villanueva, spouses are not qualified to enter
into other forms of partnership for gain except professional
partnership. The reasons are:
1. Every firm effectively makes partners donors to one
another of their contribution to the partnership. -
Why? Even if it’s particular, the wife will contribute
the land and the husband will contribute building.
Ano ang mangyayari sa contributed capital? It will
become a co-ownership. So necessarily, it would
appear that the prohibition against donation was
violated indirectly.
- For instance, there would be a contention that the
partnership in not gratuitous in nature, thus should
not be considered a donation. It would still be
violative of Article 1490 of the Civil Code which
provides:
Art. 1490. The husband and the wife cannot sell
property to each other, except:
(1) When a separation of property was agreed upon
in the marriage settlements; or
(2) When there has been a judicial separation or
property under Article 191.
*indirect violation. The husband has an interest over
the property.
2. The property regime should be under the Family Code
and not the partnership law in the Civil Code.
- Can spouses governed by the absolute community
property regime vary the effects between them
of certain community property by contributing them
into a particular partnership for gains? NO.
Article 89 of the Family Code provides:
“No waiver of rights, shares and effects of the
absolute community of property during the marriage
can be made except in case of judicial separation of
property.”
So nag-asawa kayo tapos eventually nag-create kayo ng
partnership, pag nagcontribute ka nagkakaroon ng co-
ownership. So essentially, you’re varying the effects of the
absolute community property which is not allowed under
Article 89.
- How about in conjugal partnership of gains? You have Article
87 of the Family Code. It would be amending the property
regime which should violate Article 108 of the Family Code.
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PARTNERSHIP TRANSCRIPTION 2018
- How about complete separation of property, may the So what are those conditions? We have SEC OGC Opinion
spouses validly enter into a contract of particular partnership? No. 22-2016 dated October 4, 2016 which provides:
No, it would amount to donation contrary to Article 87. “The Commission has consistently opined that as a general
rule, a corporation cannot enter into a contract of partnership
2. A contract of partnership may offend Articles 76 and with an individual or another corporation; however, it may be
77 of the Family Code and there will arise the issue allowed to do so provided it complies with certain conditions,
on control and binding effects of the acts of partners. to wit:
It’s the co-administrators versus agents of partners. 1. The authority to enter into a partnership relation is
Article 76 and 77 states: expressly conferred by the charter (Sir: meaning expressly
authorized by the owners. In effect, the owners are waiving
“Art. 76. In order that any modification in the
their right to question the effects of mutual agency) or the
marriage settlements may be valid, it must be made
articles of incorporation of the corporation, and the nature of
before the celebration of the marriage, subject to the
the business venture to be undertaken by the partnership is
provisions of Articles 66, 67, 128, 135 and 136.
in line with the business authorized by the charter or articles
Art. 77. The marriage settlements and any
of incorporation of the corporation involved.
modification thereof shall be in writing, signed by the
2. If it is a foreign corporation, it must obtain a license to
parties and executed before the celebration of the
transact business in the country in accordance with the
marriage. They shall not prejudice third persons
Corporation Code of the Philippines.
unless they are registered in the local civil registry
where the marriage contract is recorded as well as in
However, while a corporation has no power to enter into a
the proper registries of properties.”
partnership, nevertheless, it may validly enter into a joint
venture agreement, where the nature of that venture is in line
Again, under absolute community property and conjugal
with the business authorized by its charter.”
partnership of gains, the spouses are co-administrators. They
are mutual agents with respect to the property they
contributed to the partnership. There is a difference between
OBLIGATIONS OF THE PARTNERSHIP
a co-administrators and co-agents of a certain property.
Relations created by the contract of partnership
How about partnership charges? Remember in the Family
Code, there is a rule of preference regarding charges of the
1.) Relations among the partners themselves;
property of the spouses.
2.) Relation of the partners with the partnership;
Villanueva said that spouses can only enter into professional 3.) Relation of the partnership with third persons;
partnerships because this is allowed by Article 73 of the 4.) Relation of partners with third persons.
Family Code which provides: “Either spouse may exercise any
legitimate profession, occupation, business or activity without Why is there a relation of partners with third persons?
the consent of the other.”

What if this will come out in the Bar exams? How will you
Because partners are liable unlimitedly so that is why there is
answer it? Can the spouses validly enter into a particular
a relation of the partners with third persons.
partnership? You can answer that based on CIR vs Suter. It is
not yet overturned. But for
Partnership relationship is essentially one of mutual
your answer to pop out of the 5000 notebooks, you will
trust and confidence.
discuss the Family Code.
Each partner is a trustee and cestui que trust at the same
Generally, a corporation is not allowed to become a partner
time. He is entrusted to the extent that the juris bind him as
in a partnership.
far as the juris present in his co-partners. The many particular
rights and duties are but aspects of the broad fiduciary
Let us say, C1 and C2 are corporations. Remember, a
relation.
principle in corporation law is that the management is
centralized, nasa BOD (BOD1 and BOD2). Their authority
So meaning, fiduciary relationship remains until the
came from the stockholders. So partners kunwari si C1 and
partnership is terminated. The relation of trust applies also to
C2. Diba pag partner ka, may mutual agency? So in effect,
matters concerned with the formation of partnership and even
everything that BOD1 will do, damay si BOD2 because of
if the partnership is dissolved, the assets of the partnership
mutual agency. Will it not violate the principle in corporation
must be managed according with fiduciary principle. The
law that the authority of BOD is given only by the
fiduciary obligation of the partners remains until the
corporation’s stockholders? Decision ni BOD1, damay si BOD2
relationship is terminated and equities between the partners
when in fact the stockholders of C2 only authorized BOD2 to
is satisfied
manage its affairs.

So this is the evil sought to be prevented by prohibiting the
corporation from becoming a partner in a partnership. This is
actually a concept in Anglo- American. The Philippines
adopted the jurisprudence of American courts in prohibiting
the corporations. Now because of the *proliferation* of this
na sabi ng SEC parang unfair naman kung ipagbabawal, to
prevent this scenario, let’s put conditions to allow a
corporation to enter into a partnership.
Article 1784: A partnership begins from the moment of the
execution of the contract, unless it is otherwise stipulated.
The reckoning point of the partnership is from the execution
of the contract, exception if it is otherwise stipulated.
Consensual Contract- So as a consensual contract, the
partnership exists from the moment of the celebration of the
contract. The birth and life of the partnership is predicated at
the mutual desire and consent of the parties
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PARTNERSHIP TRANSCRIPTION 2018
Example: In case you promised to contribute a cow, tapos
Time Limit- Unlike a corporation, no time limit is specified by nanganak, yung anak kasali.
law for a partnership’s lifetime. Partners may fix in their
contract a term.

Future Partnership- the partners may stipulate some other

date for the commencement of the partnership. There can be
a future partnership which at the moment has no juridical
existence. But please take note of your Statute of Frauds, if it
is not to start within a year of the making of the contract, it
must be in writing, some note or memorandum signed and
subscribed by the parties for it to be enforceable.

Agreement to create a partnership

A partnership in fact cannot be predicated on an agreement

created to enter into a partnership unless it is shown that
such agreement is actually consummated. So long as the
document remains executory, the partnership is in hold.

Article 1785: When a partnership for a fix 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.

1st par: So you have a partnership for a particular

undertaking, once that undertaking has been fulfilled, and
they continued the partnership, then that can be considered
as partnership at will.

2nd par: So even if it is for a fixed term or particular

undertaking, once they continued it without liquidating or
dissolving the partnership, it is a prima facie evidence of the
desire to continue the partnership. it now becomes a
partnership at will after the undertaking has already been
fulfilled.

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.
What are the obligations of a partner with respect to
the contribution of property:
(1) To contribute at the beginning of the partnership or at the
stipulated time the money, property, or industry which he
may have promised to contribute;
(2) To answer for eviction in case the partnership is deprived
of the determinate property contributed;
Note: Remember the requisites for eviction on your law on
sales. It equally applies.
(3) To answer to the partnership for the fruits of the property
the contribution of which he delayed, from the date they
should have been contributed up to the time of actual delivery
;

27
PARTNERSHIP TRANSCRIPTION 2018
From the time you have promised to contribute up to the time
you have actually contributed, whatever fruits there are, you
have to consider that for delivery/contribution.
(4) To preserve said property with the diligence of a good
father of a family pending delivery to the partnership;
(5) To indemnify the partnership for any damage caused to it
by the retention of the same or by the delay in its contribution
. Article 1788: A partner who has undertaken to contribute a
Failure to contribute makes the partner ipso facto a debtor of
the partnership even in the absence of any demand
Remedy in case of non-contribution: Not rescission, but
an action for specific performance. That is to collect what is
owing to that partner with damages and interest.
SANCHO vs LIZARRAGA
FACTS: Sancho brought an action for the rescission of a
partnership contract between himself and the defendant and
for the reimbursement by the latter of his 50,000 peso
investment. Lizarraga, on the other hand, asks for the
dissolution of the partnership, and the payment to him as its
manager and administrator of P500 monthly from October 15,
1920. The CFI ruled that Lizarraga did not contribute at all the
capital he had promised to invest and subsequently declared
the partnership to be dissolved and liquidated.
ISSUE: WON Sancho may validly ask for the rescission of the
partnership
RULING: No
Owing to the defendant’s failure to pay to the partnership the
whole amount which he bound himself to pay, he became
indebted to it for the remainder, with interest and any
damages occasioned thereby, but the plaintiff did not thereby
acquire the right to demand rescission of the partnership
contract according to article 1124 of the Code. This article
cannot be applied to the case in question, because it refers to
the resolution of obligations in general, whereas article 1681
and 1682 specifically refer to the contract of partnership in
particular. And it is a well-known principle that special
provisions prevail over general provisions.
It is not rescission which is the proper remedy, but to ask for
specific performance for the payment of the promised
investment of Lizarraga.
Question: So the provision applied by the court is what?
Answer: Article 1681 and 1682
Question: So sabi ng court what should be applied and what
should be demanded is ano? Specific performance and not
rescission kasi sabi meron daw sa special law. Now question,
Article 1681 and 1682 is in the Old Civil Code, correct? Is it
replicated in the New Civil Code? Sabi ng Court, kaya the
proper remedy is specific performance kasi may special
provision. If ia-apply today, will that argument still has merit?
Answer: Yes, Article 1786 of the Law on Partnership will be
applied and not the general law in Obligations and Contracts.
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 the account of the partnership.
Of course, it has to be appraised for you to know the value of
your contribution.
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 of 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.
So take note, the partners are liable not only for interest but
also damages. Hindi sinabing interest OR damages, but
interest AND damages.
So if you converted the amount or the money from the
partnership coffers, you are also liable for interest AND
damages. Please take note it is interest AND damages.
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.
Limitation of the rights of an industrial partner
So you have here a limitation of the rights of an industrial
partner, what is an industrial partner?
An industrial partner is one who contributes his industry,
labor or services to the partnership. He is considered the
owner of his services which is considered as his contribution
to the common fund. Unless it is EXPRESSLY permitted, he
cannot engage in a business for himself. In effect, the
partnership acquires the exclusive right to avail itself of his
industry, consequently if he engages in a business for himself,
such act is considered prejudicial to the interest of other
partners.
Can you compel or file an action for specific performance
against an industrial partner?
No, because it would tantamount to involuntary servitude.
How do we reconcile those provisions?
1. If it is a capitalist partner, you can actually file an
action for specific performance - of the promise
contribution.
2. If it is an industrial partner, you cannot file for
specific performance because that would be
tantamount to involuntary servitude.
What is the rationale why we prohibit an industrial
partner to engage in business?
Hindi naman absolute prohibition, you can do so if expressly
permitted.
Kasi pag industrial ka, you contribute services/time, oras na
lang nga icontribute mo hatiin mo pa. You cannot be an
effective service provider to the partnership if may kahati.
Kaya bawal. It is against the interest of the partnership.
What are remedies when industrial partner engages
business for himself without the express permission of
the partnership?
A capitalist partner has a right to either -
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PARTNERSHIP TRANSCRIPTION 2018
1. Exclude him from the firm ; or
2. Avail themselves of the benefits which he may have
obtained. Kung nag prosper, they can avail of the
profits of the business. If naluginaman, i-exclude
monalang.
3. In either case, there is a right to damages.
Art. 1790. Unless there is a stipulation to the contrary,
the partners shall contribute equal shares to the capital
of the partnership. (n)
The partners can stipulate the contribution of unequal shares
to the common fund, but in the absence of such stipulation,
the presumption is that their contribution shall be in equal
shares.
Obviously, the above rule is not applicable to an industrial
partner unless, besides his services, he has contributed
capital pursuant to an agreement to that effect.
Pwede ba maging both capitalist and industrial partner
?Pwede.
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. (n)
What are the requisites for this rule to apply?
(a) There is an imminent loss of the business of the
partnership;
(b) The majority of the capitalist partners are of the
opinion that an additional contribution to the
common fund would save the business;
(c) The capitalist partner refuses deliberately (not
because of his financial inability to do so), to
contribute an additional share to the capital; and
Hindi pwedeng he refuses kasi wala na siyang pera,
it has to be deliberate. May money siya pero ayaw
niya lang mag contribute. The reason for his refusal
to contribute must be unjustifiable.
(d) There is no agreement that even in case of an
imminent loss of the business the partners are not
obliged to contribute.
The industrial partner is exempt because naka contribute
naman siya ng time and effort tapos nalugi then ipa-
contribute mo pa siya so parang ano yun, slavery?
Reason for the sanction: The refusal of the partner to
contribute his additional share reflects his lack of interest in
the continuance of the partnership. It would be unjust for him
to remain and reap the benefits of the efforts of the others
while he himself refuses to help.
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. (1684)
So ito, may utang ang 3rd person, gi-collect. May utang siya
kay partner, may utang siya kay partnership pagnaka collect,
you apply it proportionally even if ang receipt lang niya is
doon sa kanyang personal credit. But if he has given a receipt
for the account of the partnership credit, the amount shall be
fully applied to the latter. Meaning, dapat preferred ang
partnership, iset-aside niyamuna personal interest niya over
that of the partnership.
But of course, you have to look at Article 1252 which provides
for the application of payments.
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)
Ito naman, the debt has already become a bad debt. Meaning
- uncollected. It would be unjust for the partner not to share
in the loss. It is based on the community of interest among
the partners.
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. (1686a
)
Please take note you cannot set-off whatever damages you
have caused the partnership with your compensation in the
form of profits.
Meaning may partnership, you misappopriated the funds.
Hindi mo pwede sabihin na may share naman ako diyan, di ba
pwede off set nalang? Di yan na lang kunin sa share ko.
The provision is very specific: the damages caused by a
partner to the partnership cannot be offset by the profits or
benefits which he may have earned for the partnership by his
industry.
However, please take note 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.
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PARTNERSHIP TRANSCRIPTION 2018
So anong gawin mo para di ka ma charge for damages? You
do extraordinary efforts. Punta ka sa mga malls, bigay ka ng
mga flyers. Punta ka sa overpass tapos balikan mo ang
partners, because of your marketing, maraming benta so you
cannot demand damages. Can he do that? Is that legal?
Please take note, the Courts, it is not the partners. It is only
the courts who will determine whether there are extraordinary
efforts. These are evidentiary facts that has to be proven. You
cannot absolutely eradicate, only equitably lessen.
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. (
1687)
What is fungible? Is it really necessary that all consumable
goods, fungible? Are they synonymous?
Fungible goods are capable of substitution. It is a question of
intention. If you intend that good to be substituted, that is
fungible.
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)
So kapag gumastos ka for the partnership, you are also
entitled to be reimbursed, with interest from the time the
expenses are made.
So kung nalugi ang partnership, ok lang so long as you
contracted that for the interest of the partnership and in good
faith.
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)
How do we distribute profits?
(a) The partners share the profits according to their
agreement.
(b) If there is no such agreement:
1) The share of each capitalist partner shall be in
proportion to his capital contribution. So 50-50
ang capital contribution, it should be in
proportion to that.
Now the share of the industrial partner is only that which is
just and equitable under the circumstances. So very
subjective. Ano yung ginagawa ngayon? What is the lowest
contribution to the capital, yun yung kinoconsider. So let’s
say 20% of the capital, yun yung kinoconsider as just and
equitable. So inuuna muna yun, whatever is excess, that is
allocated to the capitalist partner.
Distribution of losses:
(a) The losses shall be distributed according to their
agreement according to agreement.
(b) If there is no such agreement, but the contract
provides for the share of the partners in the profits,
the share of each in the losses shall be in accordance
with the profit-sharing ratio.
(c) If there is also no profit-sharing stipulated in the
contract, then losses shall be borne by the partners
in proportion to their capital contributions.
July 13, 2108 (Part 1)
Transcribed by: Pearlie Joy M. Suarez
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
.
You have the rule on profit sharing. This is important because
this is really the reason why there is a partnership in the first
place.
First, the partners shall share according to their agreement. If
no agreement? The capitalist’s share shall be in proportion to
his capital contribution. The industrial partner shall receive
what is just and equitable.
Pag losses naman, you follow the agreement. Pag walang
agreement, you follow the profit sharing ratio. But the
industrial partner shall not be liable for losses. Pag no profit-
sharing agreement, then you follow the proportional
contribution. But purely industrial partner shall not be liable to
the losses. Be that as it may, kapag capitalist-industrial sya,
liable parin sya sa loss as to him being a capitalist
30
PARTNERSHIP TRANSCRIPTION 2018
partner but as to him being an industrial partner, di sya liable
sa losses.
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.
What can you impugn? It’s only the designation of the
share. That’s the only thing that can be impugned if it is
manifestly inequitable.
Can you question the third person bakit sya ang pinili?
Pwede mo bang iimpugn ang third person? Please take
note the last sentence “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
.”
Bakit 3 months? Bakit hndi six months? Bakit hndi one
year? This is actually because the longer the period, the
more likely it is that the partnership will be paralyzed. So this
is to avoid such scenario na wala ng sharing kasi nagkagulo
na ang mga partners. So three months is deemed to be a
sufficient period for them to agree.
So why is it that the designation of losses and profits
cannot be intrusted to one of the partners? What
principle of obligations and contracts would this violate
? Principle of Mutuality.
Article 1799: A stipulation which excludes one or more
partners from any share in the profits or losses is void.
Please take note that it is only the stipulation that is void, not
the partnership. It is as if wala silang stipulation.
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.
So you have here a distinction as to the appointment of
manager.
If the manager is appointed in the Articles of Partnership, his
power is irrevocable without just or lawful cause. Exception: if
he acts in bad faith.
A manager appointed after the constitution of the partnership
may be revoked at any time, meaning there is no need to
have just and lawful cause, by vote of the partnership.
Can you not absolutely revoke the power of the
manager appointed in the Articles of Partnership? No.
You can revoke it but it has to be by the vote of the parties
representing the controlling interest. So when we say
controlling interest, hindi sya majority ha.
Article 1801: If two or more partners have been
intrusted with the management of the partnership
without specification of their respective duties, or
without 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. Incase of a tie,
the matter shall be decided by the partners owning the
controlling interest.
Article 1801 presupposes a situation wherein there are two or
more partners entrusted in the management of the
partnership. Each one of them is presumed to have the power
to execute all acts of administration. The provision is specific
that they can only execute all acts of administration.
What is the opposite of acts of administration? Acts of
strict dominion. So acts of strict dominion imply ownership.
So pag sinabi mong acts of administration, it is only to
administer the partnership. So without a stipulation that both
of them or all of the managers appointed in the articles of
corporation should act together, each one of them can act
separately all acts of administration. But if any of them
oppose the acts of the others, the decision of the majority
shall prevail.
So please compare this to the previous provision. This needs
the majority and not the controlling interest. But take note
that this is only applicable in acts of administration.
So how will you know if such acts are acts of
administration and acts of dominion? I’ll give you a
scenario, what if your business is engaged in real
estate? If it is normal and usual in the ordinary course of
business, then it is an act of administration. If ang negosyo
mo ay real estate business, so usual lang naman na
magbenta ka, so you do not require the consent of the other
partners.
Please take note that if there is 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.
So the default is that each of the managing partner stipulated
is capable of acting separately. But if it is expressly 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.
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PARTNERSHIP TRANSCRIPTION 2018
Di mo pwedeng sabihing “ay, wala sya dito eh. Tinawagan ko
sya pero wala di sya sumasagot.” Dapat you have to prove
that that person is absent or disabled, unless there is
imminent danger of grave or irreparable injury to the
partnership.
What happened in the case of Litton vs Hill?
Litton vs Hill & Ceron 67 Phil 509
Facts:
This is a petition to review on certiorari the decision of the
Court of Appeals. On February 14, 1934, Litton sold and
delivered to Carlos Ceron, who is one of the managing
partners of Hill & Ceron, a certain number of mining claims,
and by virtue of said transaction, Ceron delivered to plaintiff
adocument (receipt) acknowledging that he received from
Litton certain share certificates of Big Wedge Mining Company
totaling P1870. Ceron paid to the plaintiff the sum or P1,150
leaving an unpaid balance of P720, and unable to collect this
sum either from Hill & Ceron or from its surety Visayan Surety
& Insurance Corporation, Litton filed a complaint in the Court
of First Instance of Manila against the said defendants for the
recovery of the said balance.
The lower court, after trial, ordered Carlos Ceron personally to
pay the amount claimed and absolved the partnership Hill &
Ceron, Robert Hill and the Visayan Surety & Insurance
Corporation. On appeal to the CA, the latter affirmed the
decision of the lower court, having reached the conclusion
that Ceron did not intend to represent and did not act for the
firm Hill & Ceron in the transaction involved in this litigation.
Issue: WON Ceron’s act binds the partnership.
Held:
Yes, we reach the conclusion that the transaction made by
Ceron with the plaintiff should be understood in law as
effected by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he
testified at the trial that he and Ceron, during the partnership,
had the same power to buy and sell; that in said partnership
Hill as well as Ceron made the transaction as partners in
equal parts; that on the date of the transaction, February 14,
1934, the partnership between Hill and Ceron was in
existence.
According to the articles of copartnership of ‘Hill & Ceron,’ a
written contract of the firm can only be signed by one of the
partners if the other partner consented. Without the consent
of one partner, the other cannot bind the firm by a written
contract. Now, assuming for the moment that Ceron
attempted to represent the firm in this contract with the
plaintiff (the plaintiff conceded that the firm name was not
mentioned at that time), the latter has failed to prove that Hill
had consented to such contract. Also, third persons, like the
plaintiff, are not bound in entering into a contract with any of
the two partners, to ascertain whether or not this partner with
whom the transaction is made has the consent of the other
partner. The public need not make inquires as to the
agreements had between the partners. Its knowledge, is
enough that it is contracting with the partnership which is
represented by one of the managing partners.
The respondent argues in its brief that even admitting that
one of the partners could not, in his individual capacity,
engage in a transaction similar to that in which the
partnership is engaged without binding the latter,
nevertheless there is no law which prohibits a partner in the
stock brokerage business for engaging in other transactions
different from those of the partnership, as it happens in the
present case, because the transaction made by Ceron is a
mere personal loan, and this argument, so it is said, is
corroborated by the Court of Appeals. We do not find this
alleged corroboration because the only finding of fact made by
the Court of Appeals is to the effect that the transaction made
by Ceron with the plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are
ordered to pay to the plaintiff, jointly and severally, the sum
of P720, with legal interest, from the date of the filing of the
complaint, minus the commission of one-half per cent (½%)
from the original price of P1,870, with the costs to the
respondents.
Is there a stipulation that all of the partners consent?
Yes.
So in essence, this article 1802 does not apply as to third
persons. Kasi the rationale of the court here is that it is not
the obligation of the third person to know na everytime naay
transaction, “o nagconsent ba yung ano? Ano ba nakalagay,
required ba lahat magconsent?” So sabi ng court, if the
transaction is within the normal course of business, they do
not need to burden the third person. Kapag it is not in the
ordinary course of business, then the burden shifts to the
third person.
Let’s say banana cue ang business tpos biglang nagbenta ka
ng lupa. Kung ikaw ang third person sobrang obvious naman
diba? So you would inquire the authority of the one selling.
But let’s say banana cue and nagbenta ka ng banana cue, it
would appear that since this transaction is within the ordinary
course of business, that person is authorized. You do not need
to inquire as to the authority of that partner. The recourse of
the one who did not consent is to go after the co-partner.
So the validity of the act should not prejudice the third person
.
Art. 1803. When the manner of management has not
been agreed upon, the following rules shall be
observed:
1.) 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.
2.) None of the partners may, without the consent of
the others, make any important alteration in the
immovable property of the partnership, even if it may
be useful to the partnership. But if the refusal of
consent by the other partners is manifestly prejudicial
to the interest of the partnership, the court’s
intervention may be sought.
So you have here a remedy wherein if there is a refusal of
consent by other partners, you can go to court and seek for
intervention.
Art. 1804. Every partner may associate another person
with him in his share, but the associate shall not be
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PARTNERSHIP TRANSCRIPTION 2018
admitted into the partnership without the consent of all
the other partners, even if the partner having an
associate should be a manager.
So this is what you call Contract of Subpartnership. So kung
may dalawang partner, eto magsusubpartner *draws
illustration*. Please take note that the fact na may subpartner
ka, that does not mean that the subpartner is partner to the
original partnership.
Why? Again, there must be mutual trust and confidence.
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.
This is in relation to your right as owner of the ownership. Of
course you have the right to inspect the books. But please
take note that the access must be at a reasonable time. Di
naman pwedeng gabi.
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.
You have the duty to render information on demand. There
must be no concealment to the partners to the matters
affecting the partnership. Information must be used for
partnership purposes.
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.
So a partner must account for any benefit not only in the
formation and conduct but even pati liquidation.
So let’s say nagliquidate, nagbenta na ng property, pagbenta
nya may bibili. Let’s say ang property worth P10 million, but
ang market value is at P20 million. May friend sya willing to
buy it at P22 million. Di nya pwedeng sabihin na P20M lang
yung sa partnership, akin na yung P2 million because he is a
trustee for any profits derived not only with the formation and
conduct but also with the liquidation of the partnership.
What if hindi nya talaga idi-disclose? Anong remedy ng
other partners? The other partners can actually ask for
accounting to recover the P2 million in the partnership coffers.
So yung P2 million babalik din sa partnership coffers,
paghahatian na yan nila. That is based on the principle that a
partner is a trustee for 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.
There is a duty to act for the common benefit of the
partnership because the basis of partnership is? MUTUAL
TRUST AND CONFIDENCE.
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.
So compare this to the prohibition on the industrial partner.
Pag capitalist partner, you are not allowed to engage in the
same kind of business in which the partnership is engaged,
unless there is a stipulation to the contrary. Pero please take
note the exception in an industrial partner, it has to be
EXPRESSLY permitted. Please take note of the words
“expressly permitted” as compared to a capitalist partner
wherein it is allowed if there is a “stipulation to the contrary.”
So the permission given to an industrial partner must be
expressed samantalang sa capitalist partner, stipulation is
sufficient di na kailangan expressed.
How do we distinguish stipulation from express
provision? I will ask that in your exam. ☺
So anong remedy pag ang industrial partner mag
eengage into business without express provision?
Iexclude or avail themselves of the benefits.
Ano’ng remedy if the capitalist partner engages into
business without a stipulation to the contrary? The
capitalist partner shall bring to the common fund any profits
accruing to him and shall personally bear the losses. Ano
yung wala?? Eclusion. You can bring the profits but you
cannot exclude a capitalist partner. This is what you call a
relative (?) prohibition as opposed to the absolute prohibition
as regards an industrial partner.
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 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.
***BREAK***
Part 2- Article 1816- Castro MC
FUE LEUNG vs. IAC
FACTS: Leung Yui filed with the CFI of Manila,
to recover the sum of money equivalent to
twenty-two (22%) of the annual profits derived
from the operation of Sun Wah Panciteria from
petitioner Dan Fue Leung.
The Sun Wah Panciteria was established
sometime in October 1955 and was registered
as a single proprietorship and its licenses and
permits were issued to and in favor of Fue
Leung as the sole proprietor.
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PARTNERSHIP TRANSCRIPTION 2018
Leung Yiu presented evidence during the trial
of the case to show that Sun Wah Panciteria
was actually a partnership and that he was one
of the partners having contributed P4,000 to
its initial establishment as evidence by a
receipt and a check in the amount of P12,000.
Now, Leung Yui alleged that the amount he
gave is with the understanding that he would
be entitled to a 22% of the annual profit
derived from Sun Wah Panciteria.
Now, Fue Leung argued that there was no
partnership and Lueng Yui merely extended
financial assistance to the establishment of
Sun Wah Panciteria. Also, alleging that it was
error on the part of IAC to construe the
financial assistance as capital contribution by a
partner to a partnership.
ISSUE: Whether or not there exist partnership
between the parties.
HELD: Yes. Citing Article 1767, which provides
that, “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.”
The SC here agreed that, “financial assistance”
is the giving out of money to another without
the expectation of any returns. However, this
circumstance under which the P4,000 was
given to Fue Leung does not apply because
Leung Yui is entitled of the annual profit of
22%.
Anent the issue of prescription:
Here, petitioner invoked prescription. He
contended that under Art. 1144 NCC, “the
following actions must be brought within ten
years from the time the right of action
accrues: (1) Upon a written contract; (2) Upon
an obligation created by law; (3) Upon a
judgment.” In relation to Art. 1155, which
provides, “The prescription of actions is
interrupted when they are filed before the
court, when there is a written extra-judicial
demand by the creditor, and when there is any
written acknowledgment of the debt by the
debtor.”
The SC held, such contention in untenable
because the private respondent is a partner of
the petitioner in Sun Wah Panciteria.
The requisites of a partnership which are — 1)
two or more persons bind themselves to
contribute money, property, or industry to a
common fund; and
2) intention on the part of the partners to
divide the profits among themselves (Article
1767, Civil Code.
As stated by the respondent, a partner shares
not only in profits but also in the losses of the
firm. If excellent relations exist among the
partners at the start of business and all the
partners are more interested in seeing the firm
grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly
plausible.
It would be incorrect to state that if a partner
does not assert his rights anytime within ten
years from the start of operations, such rights
are irretrievably lost. The private respondent's
cause of action is premised upon the failure of
the petitioner to give him the agreed profits in
the operation of Sun Wah Panciteria. In effect
the private respondent was asking for an
accounting of his interests in the partnership.
The SC said, it is Article 1842 of the Civil Code
in conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:
“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 or
any agreement to the contrary.”
Regarding the prescriptive period within which
the private respondent may demand an
accounting, Articles 1806, 1807, and 1809
show that the right to demand an accounting
exists as long as the partnership exists.
Prescription begins to run only upon the
dissolution of the partnership when the final
accounting is done.
So, in here, you have a case wherein, first settle the issue of
whether or not partnership exist. And once that issue was
settled, then let’s go to the issue of prescription.
Sir: What is the remedy when you are a partner and you are
excluded?
A: When you are a partner and you are excluded your remedy
is for accounting for profits.
Now, the issue here is kailan mag re-reckon? Kasi ang sabi
nang kalaban, prescribed na daw. Dapat gi ask niya within? A:
10 years. From? Di ba gi-exclude s’ya? The reckoning point is
? A: from 1955 based on the receipt.
So, the written contract (receipt) is the constitution of the
partnership. 10 years from the constitution of the partnership,
that is the basis of your written contract.
Ang sabi 10 years from the execution of the contract, dapat
doon mag re-reckon. How funny is that argument? So ibig
sabihin pag nag operate pa nang more than 10 years ang
partnership, prescribed na your right of the account? Kaya
ang sabi nang court, your right for accounting reckons from
dissolution where final accounting was made.
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PARTNERSHIP TRANSCRIPTION 2018
Ganito kasi you have xxxx itutuloy nang itutuloy hanggang A: No. the Supreme Court said, there are 3
final accounting is settled. And doon mo malalaman kung stages of the partnership:
magkano ba talaga ang xxx partnership. So, that is the time 1. Dissolution;
that you start counting the prescriptive period because that is 2. Winding-up; and
the time that your right accrues. Your right of accounting of 3. Termination.
the entire income of the firm accrues from the time nag stop
nan ang operation. At the time na nag settled na kayo nang So, even if the partnership is already dissolved
mga uutang doon mo ma re-reckon magkaon ba talaga it continues to exist and the legal personality is
interest mo. remained by it.

It’s funny to say that the 10 years should reckon from the
time you operate or from the time it was constituted kasi
what if more than 10 years pala mag operate ‘yong
partnership ninyo? It is only at the time of dissolution because
, in legal parlance—dissolution is where the final accounting is
made and there is termination of the partnership. Iba yong
winding-up. Iba yong liquidation and iba din yong dissolution.
Dissolution is the time when the partner said: stop na tayo
mag business. We have to account. We have to start to count
magkano ba talaga. You ask for accounting.
EMNACCE vs. CA
Sir: Continue to exist for the purpose of?
A: For the purpose of winding- up, for payment
of debts, partitioning its assets to the partners.
So, for as long as partnership exist, any
partners may demand an accounting of the
partnership business. So, prescription sets of
the said right, starts to run only upon the
dissolution of the partnership. So, prescription,
thus, will not run in the absence of the final
accounting.

FACTS: Emilio Emnace, Jacinto Divinagracia,

and Vicente Tabanao formed a partnership
engaged in the fishing industry known as Ma.
Nelma Fishing Industry. However, in 1986,
Jacinto decided to leave the partnership, hence
, they agreed to dissolve the partnership. Then
they executed an agreement for the partition
and distribution of the partnership because
Divinagracia will remove from the partnership.

So, here the heirs of Tabanao filed this action

for accounting, payment of shares, division of
assets and damages. They alleged that
throughout the existence of the partnership
and even when Tabanao was the partner in the
partnership died in 1994, Emnace failed to
submit any statements of account, assets,
liabilities of the partnership, and render an
accounting of the partnership.

So, here the heirs of Tabanao asked for the

1/3 share in the total assets of the partnership
which amounts to P30 Million for the sum of
P10 Million.

So, Emnace here filed motion to dismiss

because of the lack of capacity to sue. So, this
was denied by the RTC. Emnace further argued
that the action for accounting was already
prescribed.

ISSUE: Whether or not the right for

accounting already prescribed.

RULING: NO. Anent the issue on

prescription, the RTC ruled: prescription
begins to run only upon the dissolution of the
partnership when the final accounting is done.
Hence, prescription has not set in the absence
of a final accounting.

Sir: Is the personality of the partnership

terminated in dissolution?

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PARTNERSHIP TRANSCRIPTION 2018
So, we have here the principle that we already discussed
that: to ask for accounting commences from dissolution.
Because that is the time where final accounting is made.
Meaning, as long as partnership exist, you can ask for
accounting but right to ask for accounting di pa nag pe-
prescribed because it only prescribe pag may dissolution.
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;
Q: Is your right in the co-owned property is subject to
attachment or execution?

Article 1810. The 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.
Please take note that the right to participate in the
management is—PROPERTY RIGHT.
Q: Pag maraming partners and may property, are they
necessary co-owners?
Di ba, ang sabi natin ang may-ari nang partnership—partners.
What if may property under the partnership name. Are
partners co-owners of that property? Do they have the same
rights as co-owners?
Article 1181. A partner is co-owner with his
partners of specific partnership property.
The incidents of this co-ownership are such
that:
Meron na kayong Prov Rem di ba? Preliminary attachment.
Can I attach your co-owned property?
So, may co-owned property ako, dalawa kami may ari—
magkapatid. Tapos may utang ako, di ako nakabayad. Yong
kalaban ko nag file nang case—writ of preliminary attachment
. Wala akong ibang property kundi yong co-owned property
lang. tapos gi attached nya yong 1/2. Can he do that?
I am trying to give you the comparison. Ito yong co-
ownership and ito yong sa partnership. Kasi ang nakalagay sa
partnership, “A partner’s right in partnership property is not
subject to attachment or execution, except on a claim against
the partnership.” It can only be attach if the debtor is the
debtor of the partnership.
Pero if co-ownership ba, ma attach lang ba yan if the debtor
is ang debtor of all the co-owners? (I think gina-mean ni sir
Creditor)
So, is this the same principle governing co-ownership?
Kailangan ba, before it is subject to execution does it have or
the claim has to be referred to all of the co-owners or pwede
isa lang?

Discussion: Please take note that the incidents in this co- Kasi sa partnership dapat claim nang partnership.
ownership is different from the co-ownership under your
property law. A: Preliminary attachment—to the property of the decedent or
to his legal heirs. So, if B here has the debt of 1M and the co-
(1) A partner, subject to the provisions of this owned property is 2M, then the 3rd person can only attach
Title and to any agreement between the only to the extent of 1M the share of B.
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;

Q: pag co-owner ka, can you assign you inchoate right to the
co-ownership?

Let’s say, co-owner ako, can I assign my share to the co-

owned property?

A: Yes. but in this particular case, the partners right to the

specific partnership property IS NOT ASSIGNABLE. Except in
connection with the assignment of rights of all partners in the
same property.

So, it has to be in connection in the assignment of all the

partners in the same property. So, d’yan palang magkaiba na
sila.

(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

36
PARTNERSHIP TRANSCRIPTION 2018
Sir: Yes. the co-owner can make that portion attached.
Because property naman talaga nyan yon—in the fullest sense
.
Pag partner ka, your right to the specific property—you are a
co-owner but not in the fullest sense. The partnership has to
have preference. When partnership property is attached
for a specific debt the partners, or any of them, or the
representative of a deceased partner, cannot claim any
right under the homestead or exemption laws.
Meaning, di ba, we have property exempt from execution?
Cred Trans, remember?
Let’s say partnership property, may partnership creditor, in-
attach because of the partnership debt. Me, I am a partner, I
have specific interest in that partnership. I cannot claim or
defend na: oy, you cannot attach that because that is
exempted from attachment.
Let’s say yon nalang natitira kong asset for my sustenance. I
cannot say na: you cannot attach that because that is under
the exemption. So, that is what this sentence refers to.
So, when the partnership property, preferred pa rin yong
partnership creditors even if you owned that specific property.
So, that is the difference between in the normal co-ownership
. liabilities— pag may excess ako of assets that is a surplus. If
(4) A partner’s right in specific partnership
property is not subject to legal support under
article 291.
A partner’s rights in the specific property is not subject even
to legal support under art. 291 of the NCC. So, meaning pag
ako—ang mama ko, mayroon syang share doon sa
partnership property—I cannot ask for legal support kasi hindi
sya subject. Meaning the partnership property always belongs
first to the partnership creditor and not to the creditor of the
partners of the partnership. So, ito yong kaibahan in the usual
law on co-ownership. These are the different rights of the
partners in the specific property.
So, anong break away natin dito? Ako, kung maraming akong
utang gagawa kong nang partnership. Doon ko ilalagay kasi
hindi sya maaring ma attach. So, kung maraming akong
utang, maraming din akong property—gagawa ako nang
partnership. But, of course you will not do that (lol).
Article 1812. A partner’s interest in the
partnership is the share of the profits and
surplus.
We know that the partner’s property rights in the specific
partnership property which consist of profits and surplus. So,
how we differentiate Surplus from profits?
A: Profits means the excess of returns over expenditure in a
transaction or series of transactions; or the net income of the
partnership for a given period of time. While, Surplus refers
to the assets of the partnership after partnership debts and
liabilities are paid and settled and the rights of the partners
among themselves are adjusted. It is the excess of assets
over liabilities. If the liabilities are more than the assets, the
difference represents the extent of the loss.
Q: can we have a profit without a surplus?
A: Yes.
Sir: Even if we don’t have any surplus we can still have a
profit.
So, PROFITS are the excess of returns over expenditure in a
transaction or series of transactions within a specific period of
time.
SURPLUS is the assets of the partnership after partnership
debts and liabilities are paid and settled and the rights of the
partners among themselves are adjusted.
So, pagsinasabi natin na may surplus ka, ang ibig sabihin
your asset exceeds your liability. So, your assets have
exceeded your liabilities at a given period of time.
You can have a profit even without a surplus in cases na
maraming kang utang. Pag marami kang utang wala kang
surplus. Kasi wala kang excess of assets because of your
liabilities. Pero pwede naman maraming kang utang pero
kumikita ka. Because when you say profits—kumikita ang
negosyo. Pwede naman marami kang utang—it is more than
your assets pero kumikita ka kasi ang ginagamit mo na fund
to operate is your liabilities—kahit na, it will exceed your
assets.
Profits—yon ang kita mo for a given period of time. Surplus—
if this given period of time after account of my assets and
di ako mag excess kasi marami akong utang—wala akong
surplus.
So, that is a partner’s interest in the partnership. A partner’s
interest remember is not a debt due from the partnership. So,
you cannot contractually ask for your share pag wala naman
talagang profits and surplus.
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 partners 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 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.
Please take note that di ba, I cannot assign my interest in the
specific partnership property, unless all of the partners will
assign. But I can in fact assign my interest in the partnership.
Can you see the difference? Dito, art. 1813—a conveyance by
a partner of his whole interest in the partnership—when we
37
PARTNERSHIP TRANSCRIPTION 2018
say interest of the partners in the partnership refers to?
PROFITS AND SURPLUS.
So, profits and surplus I can assign that. But my right to the
specific property—I cannot assign, unless all of the partners
will consent. Because those properties (specific partnership
property) are reserved for the partnership creditors. But my
profits and surplus are my property in the fullest sense. I can
do anything about it as an owner.
And what are the rights of the assignee if gi assign ko
aking surplus and profits (art. 1813):
1. An assignee cannot in the absence of any agreement
interfere in the management or administration of the
partnership because they are not partners;
2. An assignee cannot require any information or account of
partnership or cannot inspect the partnership books.
3. An assignee merely entitles to receive in accordance with
his contract the profits to which the assigning partner would
otherwise be entitled.
(From 2017 TSN) Rights withheld from assignee:
1. To interfere in the management;
2. To require any information or account; and
3. To inspect any of the partnership books.
Rights of Assignee of partner’s interest:
1. To receive in accordance with his contract the profits
accruing to the assigning partner;
2. To avail himself of the usual remedies provided by law in
the event of fraud in the management;
3. To receive the assignor’s interest in case of dissolution;
and
4. To require an account of partnership affairs, but only in
case the partnership is dissolved, and such account shall
cover the period from the date only of the last account agreed
to by all partners.
So, remember the rights of the assignee. So, what if walang
profits and walang surplus? So, walang ma re-receive si
assignee. Kasi ang interest lang naman nang partners is the
Surplus and the Profits. So, wala syang interest in the losses
in case may loss. So, please take note of that.
Article 1814. without prejudice to the preferred
rights of partnership creditors under Art. 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 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 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.
Take the last paragraph, “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.” So, sa
interest mo in the partnership which is consist of? Profits and
Surplus— I can invoke the exemption laws. Pwede kong
sabihin: hoy, you cannot attach that. You cannot execute that
because that is protected under the exemption laws.
But my right to the specific property, I cannot invoke my
exemptions pag may partnership creditor na mag collect nang
debt.
Art. 1814 is what is called in charging orders. So, this is the
remedies of the separate creditors of the partners. So, pag
wala na syang asset, yon nalang interest nya sa partnership—
I can apply for the charging order. While separate creditors
cannot attach specific partnership property, ito yong kanyang
recourse.
I cannot attach that specific partnership property but I can
ask the court in charging order as regards the interest of the
partner in the which consist of profits and surplus.
Subjecting the interest of the debtor partner in the
partnership with the payment of the unsatisfied amount of
such judgment with interest thereon with the least
interference with the partnership business and the rights of
the other partners. By virtue of the charging order, any
amount or portion thereof which the partnership would
otherwise pay to the debtor-partner should instead be given
to the judgment creditor.
Charging Order—hindi yan sya specified. Precisely because
hindi mo naman malalaman na kung meron ba talagang profit
or surplus. Kaya nga mag a-appoint nang receiver. Ang
receiver magkuha nang share nya (partner debtor) tapos
ibigay sa creditor to apply for charging order. That is effect of
the charging order.
Now, can the partners or one of the partners redeem the
interest charged? Yes. you have that in your last paragraph.
Can redeem with separate property, by any one or more of
the partners; or with partnership property with the consent of
all the partners whose interests are not so charged or sold.
Now, the redeeming non-debtor partner does not acquire
absolute ownership over the debtor-partner’s interest but
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PARTNERSHIP TRANSCRIPTION 2018
holds it in trust for him consistent with principles of fiduciary
relationship.
So, limang mag partner ang isa gi-charge ang kanyang
interest then kaning isa binayaran nya ang kanyang creditor.
So, does it mean that this person now owns the share of this
person? No. because by redeeming it, he holds it in trust for
this person. That is based on the principle of fiduciary
relationship. So, ang partnership mas trust-worthy pa sya
kaysa sa ibang relationship. That’s the point.
Rights of partner under exemption laws:
Under article 1811, a partner cannot claim any right under the
homestead laws or exemption laws when specific partnership
property is attached for partnership debt. But, with regard to
the interest of the partner in the partnership—you can invoke
exemption laws.
Article 1815. Every partnership shall operate
under a firm name, which may or may not
include the name of one or more of the
partners.
Those who, not being members of the
partnership, include their names in the firm
name, shall be subject to the liability of a
partner.
So, can you use the name of a deceased partner? Yes. We
have a case Rozaida Romulo case of the Code of Professional
Responsibility. Pwede naman, provided that you indicate in
your correspondence that the said partner is already deceased
. Pero hindi naman sya ano—kasi I worked in a firm before
tapos patay naman yong dalawa tapos wala naming mga
cross. Maybe because it is of public knowledge.
Look at SEC Memo Circular 5 Series of 2008 which provides
basic guidelines and procedure for choosing a partnership or
corporate name. This is only applicable for corporate names.
3. (a) the name shall not be identical, misleading or
confusingly similar to a corporate or partnership name
registered with the Commission, or with the Department of
Trade and Industry, in the case of sole proprietorship.
Discussion: First, do not choose a corporate name that is
identical, misleading or confusingly similar to a corporate or
partnership name registered with the Commission, or with the
Department of Trade and Industry, in the case of sole
proprietorships.
Now, what is patently deceptive or what is confusingly similar,
is your discussion based on your discussion in Intellectual
Property Law of what constitute deceptive or confusingly
similar.
(b) if the name applied for is similar to that of a registered
corporation or partnership, the applicant shall add one or
more distinctive words to the proposed name to remove the
similarity or differentiate it from the registered name;
However, the addition of one or more distinctive words shall
not be allowed if the registered name is coined or unique
unless the board of directors or majority of the partners of the
subject corporation or partnership gives its consent to the
applied name.
Discussion: Now, dati kung magpa register ka dito sa Davao,
hindi nila tsine-check but ngayon ni re-require na nila. Na
kapag ma hi-hit sya as registered tradename, you have to
have the consent of the user or the owner of that tradename.
(c) Punctuation marks, spaces, signs, symbols and other
similar characters, regardless of their form or arrangement,
shall not be acceptable as distinguishing words for purposes
of differentiating a proposed name from a registered name.
(d) A name that consists solely of special symbols,
punctuation marks or specially designed characters shall not
be registered.
4. Only one business or trade name may be registered for
each corporate or partnership name.
5. A tradename or trademark registered with the Intellectual
Property Office may be used as part of the corporate or
partnership name of a party other than its owner if the latter
gives its consent to such use.
6. (A) the full name or surname of a person maybe used in a
corporate or partnership name if he or she is a stockholder,
member or partner of the said entity and has consented to
such use; if the person is already deceased, the consent shall
be given by his or her estate;
7. The name of an internationally known foreign corporation,
or something similar to it, cannot be used by a domestic
corporation unless it is subsidiary and the parent corporation
has consented to such use; indecorous meaning in any of the
country’s official languages or major dialects.
However, a name written in a foreign language, even if
registered in another country, shall be not registered in the
name violates good morals, public order or public policy, or
has an offensive or indecorous meaning in any of the
country’s official language or major dialects.
8. A subsidiary or affiliate of a foreign corporation that applies
for the registration of all or substantially all of the name of its
parent company shall use the word “Philippines” as part of its
name which shall be written as (“Philippines”) or “(Phil.)” after
the name.
9. the name of a local geographical unit, site or location
cannot be used as a corporate or partnership name unless it
is accompanied by a descriptive word or phrase, e.g. Pasay
Food Store, Inc.
10. Pursuant to existing laws, the following words and
phrases can be used as corporate or partnership name only in
the manner enumerated below:
(a) “Finance Company,” “Financing Company,” “Investment
Company,” “Investment House,” – by entities engaged in the
financing or investment house business;
(b) “Lending Company,” and “Lending Investor”— by lending
companies, or “pawnshop” – by entities authorized to operate
pawnshops;
(c) “Bank,” “Banking,” “Banker,” “Savings and Loan
Association,” “Trust Corporation” or words of similar meaning
39
PARTNERSHIP TRANSCRIPTION 2018
– by entities engaged in the banking or trust business;
(d) “United Nations,” “UN,” in full or abbreviation form –
exclusively by the United Nations and its attached agencies;
partnership business, as a whole, has been operated at a loss.
The partnership may have outstanding credits which for the
moment may be unavailable for the payment of debts, but

(e) “Bonded” – by entities with licensed warehouse’

(f) “SPV-AMC” – by corporation authorized to act as special

purpose vehicle.

Discussion: Do not use the name of the deceased person,

unless the consent of the heirs is given.

Do not use the name of an internationally known corporation

or similar to it without consent of the foreign corporation.

12. Unless otherwise authorized by the Commission, the

words and phrases enumerated can be used only by the
entities mentioned:

(c) “National”, “Bureau”, “Commission”, “State”, and other

words, acronyms, abbreviations that have gained wide
acceptance in the Philippines – by entities that perform
government functions;

Discussion: Do not use the name “National”, “Bureau”,

“Commission”, “State”, and other words acronyms,
abbreviations that have gained wide acceptance in the
Philippines – by entities that perform government functions;

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. However, any
partner may enter into a separate obligation to
perform a partnership contract.

Q: Di ba sabi natin na: Industrial partner should not be liable

to the losses of the partnership? Pero bakit liable sya pro rata
. Di ba sabi natin: nag effort na gani sya so dapat hindi na sya
liable. So, why is he still liable—pro rata after the partnership
assets is exhausted?

A: Art. 1816 lays down the rule that the partners, including
the industrial partner, are liable to creditors of the partnership
for the obligations contracted by a partner in the name and
for the account of the partnership. The debts and obligation of
the partnership are, in substance also the debts and
obligations of each individual member of the firm. Their
individual liability to creditors is pro rata and subsidiary. (
Book of De Leon)

You have to distinguish losses from liabilities. If liability you

can ask to pay (industrial partner). But, you can ask for
reimbursement. Kasi nga di ka liable for losses. The cause of
action for reimbursement is the fact na hindi sya liable for
losses. There is no inconsistency with the other provision vis a
vis to what we discussed.

Distinction between a liability and a loss:

1. The inability of a partnership to pay debt to a third party at

a particular time does not necessarily mean that the
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PARTNERSHIP TRANSCRIPTION 2018
which may eventually may be realized upon and yield profits
more than sufficient to cover all losses.
2. The exemption of the industrial partner to pay losses
related exclusively to the settlement of the partnership affairs
among the partners themselves and has nothing to do with
the liabilities of the partner to third persons for the debts of
the partnership. (Compania Maritima v. Munoz)
Lastly, Art. 1816 refers to “LIABILITIES” while Art. 1797
speaks of “LOSSES.” There is no conflict between the two
articles. (Book of De Leon)
oOo
So again same principle, industrial partner should not share in the losses pero
liable siya to third persons. Again, his recourse is to the other partners.
Art. 1817. Any stipulation against the liability laid down in the preceding
article shall be void, except as among partners.
So you cannot stipulate na hindi liable si industrial partner sa third person.
That stipulation is applicable only between the parties but not with regards
to third persons. The premise is walang paki.alam si third person. Bakit niya
naman pahirapan si third person na siya na nga ang ng.pautang. siya pah
yung nahirapan. The creditor has all the right to collect to all the partners.
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 particular matter, and the
person with whom he is dealing has knowledge of the fact that he has
no such authority.
So you are an agent for apparently carrying on in the usual way of business.
Exception hindi na kapag the partner has in fact no authority to act for the
particular matter and the person with whom he is dealing has knowledge of
the fact that he had no such authority.
An act of a partner which is not apparently for carrying on of the
business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners.
Lets say you are engage in the selling of beauty products then biglang may
isang partner bumili ng lupa. It not apparently the usual course of business of
the partnership therefore as a third person you should check whether or not
there is authority. Pero kung the usual way of business na naman, you are in
no obligation to check the authority of the partner to whom you are dealing
with.
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 goodwill 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.
Please take note all these acts are acts of strict dominion. So you need to
have consent of all the partners unless ofcourse ng.abandon na ang lahat ng
partners.
Dispose of the goodwill of the business. What is goodwill? Define goodwill.
Look for its definition. What happened to 2GO? They have restated their
income. Ang restatement pah pala is 90% of the income. SM(Henry Sy) and
Dennis Uy(Owner of phoenix) diversify their assets and bought shares of 2GO
. They required an audit of due diligence as a pre-condition of the sale. One
purpose of which is to know if the assets of the company are subject to
attachment, garnished, or mortgaged. Chika…stock market.Credit rating.
KMPG and SGV.Auditing practice.Publicly traded securities.
Power of partner as agent of partnership
In the absence of an agreement to the contrary, all partners have equal rights
in the management and conduct of the partnership business.
As among themselves- when a partner performs an act within the scope of
his actual, implied, or apparent authority, he is not only a principal as to
himself, but is also for all purposes, an agent as to his co-partners or the
partnership, considered as a group. Principle of mutual agency.
As to third persons- limitations upon the authority of any one of the partners
are not binding upon innocent 3rd persons dealing with the partnership who
have the right to assume that every general partner has power to bind the
partnership especially those partners acting with ostensible authority, by
whatever is proper for the transaction in the ordinary and usual manner of
the business of the partnership.
MUNASQUE vs CA
(Case Digest: Lilybeth Petallo)
FACTS:
1. Petitioner Elmo Muñasque, in behalf of the partnership of “Galan and
Muñasque”, entered into a contract with Respondent Tropical
Commercial Company for remodeling of a building. Respondent
Celestino Galan was casually named as partner in the contract, for no
consideration except for the percentage/commission on account of
Galan’s introduction of the employing company (Tropical) to petitioner.
2. As between Petitioner Muñasque and Tropical, the latter agreed to pay
in installments. Thus, Tropical gave the 1st check issued in the name of
Muñasque. However, Muñasque indorsed the check to Respondent
Galan for purposes of depositing it; but Galan instead encashed the
check for personal use.
3. Because of this, when the 2nd check came and Galan asked that the
same be indorsed to him, Muñasque refused out of mistrust. As a result
, the check was withheld from Muñasque.
4. Meanwhile, Galan told Tropical of their misunderstanding; so, Tropical
changed the name of the payee of the 2nd check from Muñasque to “
Galan & Associates”, which is the name of the partnership under which
the construction business was registered. This enabled Galan to encash
the 2nd check, again for his personal use.
5. Because Galan failed to pay for the labor and materials, Petitioner
Muñasque was forced to continue the construction through his sole
efforts.
6. With this, Muñasque filed a Complaint for Sum of Money and Damages
against Respondents Galan & Tropical.
7. Meanwhile, Cebu Southern Hardware and Blue Diamond Gold Palace,
who supplied materials on credit to the partnership, intervened.
8. Trial Court found Petitioner Muñasque and Respondent Galan solidarily
liable as partners to the intervenors-creditors. CA affirmed, but
modified it to joint liability.
9. Hence, the petition.
PETITIONER’S CONTENTION:
a. That the courts erred in affirming the existence of the
partnership;
b. That he should be excluded from the liabilities of the
partnership.
ISSUE:
A. WON partnership exists. (YES)
B. WON Petitioner is liable to creditors for the liabilities of the partnership
. (YES)
C. WON Petitioner is solidarily liable with co-partner Galan. (YES)
41
PARTNERSHIP TRANSCRIPTION 2018
HELD:
A. Partnership exists.
The records showed that petitioner entered into a contract with
Tropical for the renovation of the latter’s building on behalf of the
partnership of “Galan and Muñasque”. There was no indication that the
partnership was not a genuine one; and the fact that there was
misunderstanding between the partners does not convert the
partnership into a sham organization.
When petitioner received the first check of Tropical issued under his
name, he indorsed it in favor of Galan. With this, Tropical had the right
to assume that petitioner and Galan were true partners. If they were
not, it was petitioner’s fault for making the relationship appear
otherwise, not only to Tropical but to the other creditors as well.
B. Petitioner is liable to the creditors for liabilities incurred by the
partnership.
Since the 2 were partners when the debts were incurred, they are also
both liable to third persons who extended credit to their partnership.
“There is a general presumption that each individual
partner is an authorized agent for the firm and that he
has authority to bind the firm in carrying on the
partnership transactions.” (Mills vsRiggle)
“The presumption is sufficient to permit third persons
to hold the firm liable on transactions entered into by
one of members of the firm acting apparently in its
behalf and within the scope of his authority.”(Le Roy vs
Johnson)
C. Petitioner is solidarily-liable with co-partner Galan as against the
creditors.
While under ART. 1816, the liability of partners under the law to third
persons for contracts executed in connection with the partnership
business is only pro rata (i.e. joint liability), this should be construed
together with ART. 1824, which renders all partners solidarily liable for
everything chargeable to the partnership under ART. 1822 and 1823.
RATIONALE FOR SOLIDARY LIABILITY: The obligation is solidary
because the law protects him, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent.
That is why under ART. 1824, all partners, whether innocent or
guilty, as well as the legal entity which is the partnership, are
solidarily liable.
In the case at bar, Tropical had all the reason to believe that a
partnership existed between petitioner and Galan. As such, Tropical
should not be faulted for making payments to “Galan and Associates”
and for delivering it to Galan because, as far as Tropical is concerned,
Galan was a true partner with real authority to transact on behalf of the
partnership with which it was dealing. Same is true with the other
creditors who supplied materials to the partnership. Thus, it is but fair
that the consequences of the wrongful act of any of the partners (
Galan, in this case) should be answered solidarily by all the partners
and the partnership as a whole.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to
be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors.
SO ORDERED.
Q: Payment was for what purpose here?
A: The payment made by tropical was for construction services for
the remodeling of the Cebu branch building.
So in this particular case, it was a construction business, the payment was for
construction services. It would have been different if the payment was for
buy and sell of lots. Because in here, the SC said there is a general
presumption, the agent is authorized. The third person transacting with the
partner or the agent of the partnership is not under obligation to check the
authority of the partner. Just imagine for every transaction mag.ask for
authority. Diba its so inconvenient. Most especially when the transaction is
apparently carrying on in the usual way of the business. Payment of
construction services and the firm of the partnership was engaged in the
construction services. So kung lets say iba yung bayad at iba ang kanilang
nature. Dun dapat mag.require si third person ng authority of the person
transacting that he was authorized to do so. Pero since dito, they asked the
nature of the business and what the payment was for what services. Pero sa
seven circumstances you should call out the consent of the other partners
even if it is apparently carrying on in the usual way of the business of the
partnership.
GOQUIOLAR vs SYCIP
(Case Digest: Lilybeth Petallo)
This involves Petitioner Antonio Goquiolay assailing the validity of the sale of
the lands owned by the partnership “Tan Sin An &Goquiolay” made by the
widow of the managing partner, Tan Sin An, in favor of buyers Washington
Sycip and Betty Lee (Respondents).
FACTS:
1. Tan Sin An and Goquiolay entered into a general commercial
partnership known as “Tan Sin An &Goquiolay” for the purpose of real
estate business. Under the agreement, Tan Sin An shall be the sole
managing partner of the partnership, while Goquiolay shall have no
voice or participation in its management.
2. Consequently, the partnership purchased 49 lots, which were later
mortgaged to “BancoHipotecario”.
3. Later, Tan Sin An died and was survived by his wife, Kong Chai Pin, who
apparently expressed her desire to act as managing partner in lieu of
her deceased husband. This is premised on the articles of co-
partnership, which provided for the heirs’ continuation of the
partnership even after the death of the partners.
4. In the meantime, BancoHipotecariodemanded payment of the
mortgage debt from the partnership. But Sing Yee Cuan Hardware Co.
assumed payment, and this was further assumed by Respondents
Washington Sycip and Betty Lee.
5. To relieve the partnership from said obligations, Kong Chai Pin, with
approval of the probate court, sold the 49 lots to Respondents Sycip
and Lee.
6. Upon knowing this, surviving partner Goquiolay sought for the
annulment of the sale to respondents, alleging:
a. That Kong Chai Pin is not a partner; hence, the sale made by
her is void for lack of consent of the other partners; or
b. Granting that Kong may be partner, she is nothing more
than a limited partner, and as such was disqualified to
manage the business.
7. Lower Court upheld the validity of the sale and ruled that Kong Chai Pin
lawfully acted as the managing partner thereof.
ISSUE: WON Kong Chai Pin is authorized to sell properties of the partnership
to third persons, as sole managing partner in lieu of her deceased husband,
even without the consent of the other partners. (YES)
HELD: Kong Chai Pin, as sole managing partner in lieu of her deceased
husband, is authorized to sell properties of the partnership to third persons.
A. Kong Chai Pin lawfully acted as the sole managing partner in lieu of
her husband.
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PARTNERSHIP TRANSCRIPTION 2018
Although, the power of Tan Sin An as sole managing partner, which is
premised upon trust and confidence, was a mere personal right that should
have been terminated upon Tan’s demise; such right was not extinguished in
this case based on the ff. circumstances:
a. The articles of co-partnership specifically provided for the
continuation of the firm notwithstanding the death of one of
the partners.
b. Since the heir of the deceased (i.e. Kong Chai Pin) never
repudiated or refused to be bound by such agreement, Kong
Chai Pin became an individual partner with surviving
partner Goquiolay upon Tan’s death.
Goquiolay argued that granting Kong became a partner, she was nothing
more than a limited partner who is disqualified from managing the business.
(LACKS MERIT)
Although ordinarily, such limitation exists, this does not apply with Kong Chai
Pin as she manifested her intent to be bound by the partnership agreement
not only as a limited partner, but as general partner:
a. She managed and retained possession of the partnership
properties;
b. She derived income therefrom until the properties were sold
to respondents;
c. She sold the properties in the name of the partnership.
Although the partnership under consideration is a commercial
partnership and, therefore, to be governed by the Code of
Commerce, the provisions of the old Civil Code may apply:
ART. 165, OCC
“(1) All the partners shall be considered agents, and
whatever any one of them may do individually shall
bind the partnership; but each one may oppose any act
of the others before it has become legally binding.”
In this case, as previously established, Kong Chai Pin acted as a managing
partner (or general partner). As such, she became an agent of the firm, with
the authority to bind the firm in any contracts involving partnership affairs (e.
g. sale of partnership realty).
The co-partner, Goquiolay, could have made an opposition to said sale, but
he did not timely do so. He only interposed his objections after the deed of
conveyance was executed and approved by the probate court. Hence, his
opposition was barred by laches. And the sale of the partnership lots
executed by Kong Chai Pin in favor of respondents is valid.
WHEREFORE, finding no reversible error in the appealed judgment, we
AFFFIRM the same, with costs against appellant Antonio Goquiolay.

By allowing her to retain control of the firm’s property from 1942 to 1949,
Goquiolay is estopped from denying Kong Chai Pin’s legal representation of
the partnership. Hence, Kong Chai Pin is a managing partner with the power
to bind the partnership by proper contracts.

B. Kong Chai Pin, as managing partner, can sell properties of the

partnership to respondents Sycip& Lee, even without consent of the co
-partner.

As a rule, “strangers dealing with a partnership have the right to assume, in

the absence of restrictive clauses in the co-partnership agreement, that
every general partner has power to bind the partnership, especially those
partners acting with ostensible authority.”

“The public need not make inquiries as to the agreements

between the partners. Its knowledge is enough that it is
contracting with the partnership which is represented by one of
the managing partners.”

“There is a general presumption that each individual partner is

an agent for the firm and that he has authority to bind the firm
in carrying on the partnership transactions.”

“The presumption is sufficient to permit third persons to hold the

firm liable on transactions entered into by one of the members
of the firm acting apparently in its behalf and within the scope of
his authority.”

“The regular course of business procedure does not required that

each time a third person contracts with one of the managing
partners, he should inquire as to the latter’s authority to do so, or
that he should first ascertain whether or not the other partners
had given their consent thereto.”

ART. 180, CODE OF COMMERCE provides that even if a

new obligation was contracted against the express will
of one of the managing partners, it shall not be
annulled for such reason, and it shall produce its
effects without prejudice to the responsibility of the
member/s who contracted it, for the damages they
may have caused to the common fund.

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PARTNERSHIP TRANSCRIPTION 2018
The acts of a partner mentioned in Art. 1818 may be grouped into three:
Acts for apparently carrying on in the usual way the business of the
partnership (Par.1) – every partner is an agent and may execute such acts
with binding effect on the partnership even if he has in fact no authority
unless the 3rd person has knowledge of such lack of authority.
There are two requisites in order that the partnership will not be liable:
a.) The partner so acting has in fact no authority; and
b.) The 3rd person knows that the acting partner has no authority.
Remember with regard to the two requisites it is “AND” not “OR.”
Acts of strict dominion (pars. 2 and 3)– For acts which are not apparently for
carrying on in the usual way of business of the partnership, the partnership is
not bound, unless authorized by all the other partners or unless they have
abandoned the business. The general rule is that powers not specifically
delegated in a partnership agreement are presumed to be withheld.
Paragraph 3 gives instances of acts generally outside the implied power of a
partner and constitute limitations to the authority to bind partnership.
Acts in contravention of a restriction on authority (par. 4)– The partnership
is not liable to third persons having actual or presumptive knowledge of the
restrictions, whether or not the acts are for apparently carrying on in the
usual way the business of the partnership. On the other hand, persons not
having such notice have a right to assume that the authority of a partner is co
-extensive with the business transacted by the firm.
So what is the liability of partner acting without authority? As a
general rule, the particular partner who undertakes to bind his co-partners
by a contract without authority is himself personally liable on such contract.
Such partner binds himself no matter in what name he contracts. The fact
that he attempts to bind his co-partners and does not succeed does not avoid
his own act. He cannot be admitted to say that he was not authorized to
make a contract, as he is estopped to deny its effect or validity.
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 the 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 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 names of all the partners a
conveyance executed by all the partners passes all their rights in such
property.
Effects of conveyance of real property belonging to the partnership
The ownership of real estate is prima facie that indicated by the muniment of
title. Ordinarily, title to real property or interest therein belonging to the
partnership is registered in the partnership name. However, for one reason
or another, the title to the property is not held by the partnership, although
as between the partners there is no question that it is a partnership property.
The presumption is that, property purchased with partnership funds belongs
to the partnership unless a contrary intent is shown.
Article 1819 gives the legal effects of the conveyance of real property
belonging to the partnership depending in whose name it is registered and in
whose name it is conveyed. Under the article, the real property may be
registered or owned in the name of:
1.) The partnership (pars. 1,2);
2.) One or more but not all the partners (par. 3);
3.) One or more or all the partners, or in a 3rd person in trust for
the partnership (par. 4);
4.) All the partners (par. 5).
It will be noticed that under paragraphs 1, 3 and 5, what is conveyed is title
or ownership, while under paragraphs 2 and 4, what is conveyed is merely
equitable interest. “Conveyance” interpreted to include a mortgage. Thus,
the right to mortgage is included in the right to convey (unlike in agency)
SANTIAGO INC vs CASTRO
(Case Digest: Lilybeth Petallo)
FACTS:
1. 1964, November, the Lims (Private Respondents) borrowed from
Petitioner Santiago Syjuco Inc. an aggregate loan of P2,460,000,
secured by mortgage on properties registered in the names of said LIMs
as owners in common.
2. The Lims defaulted payment despite demands, which prompted Syjuco
to have the mortgage extrajudicially foreclosed.
3. Problem is, the attempt to foreclose triggered off a legal battle that has
dragged on for more than 20 years now, fought through 5 cases in the
trial courts, 2 in the CA, and 3 more in the SC.
4. Among these cases was “The Secret Action: Civil Case No. Q-36845”
wherein the complaint was presented, not in the individual names of
the Lims, but in the name of a partnership, “Heirs of Hugo Lim”. They
alleged that the mortgage no longer belonged to the Lims at that time,
having been earlier deed over by them to the partnership, “Heirs of
Hugo Lim” as early as March 30, 1959. Hence, the mortgage was void
because it executed by them without authority from the partnership.
ISSUE: WON the mortgage executed by the Lims is attributable to the
partnership, “Heirs of Hugo Lim”. (YES)
HELD: The mortgage is attributable to the partnership.
1. BY PRINCIPLE OF ESTOPPEL
The records showed that the respondent partnership is compose exclusively
of the individual Lims; their contribution to the partnership consisted chiefly,
if not solely, of the property subject of the Syjuco mortgage.
It is also a fact that despite its having been contributed to the partnership
allegedly on March 30, 1959, the property was never registered with the ROD
in the name of the partnership, but to this date remains registered in the
names of the Lims as owners in ommon.
The original mortgage deed of November 14, 1964 was executed by the Lims
as such owners. There can be no dispute that in those circumstances, the
respondent partnership was chargeable with knowledge of the mortgage
from the moment of its execution.
“The legal fiction of a separate juridical personality and
existence will not shield it from the conclusion of having such
knowledge which naturally and irresistibly flows from the
undenied facts. It would violate all precepts of reason, ordinary
experience, and common sense to propose that a partnership, as
such, cannot be held accountable with knowledge of matters
commonly known to all the partners or of acts in which all of the
latter, without exception, have taken part, where such matters
or acts affect property claimed as its own by said partnership.”
44
PARTNERSHIP TRANSCRIPTION 2018
Therefore, with the respondent partnership being inescapably chargeable
with knowledge of the mortgage executed by all the partners thereof, its
silence and failure to impugn said mortgage within a reasonable time, let
alone a space of more than 17 years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the mortgage as allegedly
unauthorized.
2. UNDER ART. 1819, CC, LAST PARAGRAPH:
“ARTICLE 1819. XXX Where the title to real property is in the
names of all the partners, a conveyance executed by all the
partners passes all their rights in such property.”
The term “conveyance” includes a mortgage.
In this case, the mortgaged property is still registered in the names of
partners; hence, the conveyance (i.e. the mortgage) executed by all the
partners passes all their rights in such property.
3. BY DOCTRINE OF RES JUDICATA
The cause of action of Civil Case No. Q036485 is barred by prior judgment.
The right subsumed in that cause is the negation of the mortgage, postulated
on the claim that the parcels of land mortgaged by the Lims to Syjuco did not
in truth belong them, but to the partnership.
Assuming that the properties truly belonged to the partnership, the prior
actions filed in the individual names of the Lims could very well have been
put forth by the partnership itself. Since the actions involved property
supposedly belonging to the partnership and were being prosecuted by the
entire membership of the partnership, the partnership was in actuality, the
real party in interest. Thus, there is no reason to distinguish between the
Lims, as individuals, and the partnership itself, since the former constituted
the entire membership of the latter.
In other words, despite the concealment of the existence of the partnership,
for all intents and purposes and consistently with the Lims’ own theory, it
was the real party in interest in all the actions; it was actually represented in
said actions by all the individual members thereof, and consequently, those
members’ acts, declaration and omissions cannot be deemed to be simply
the individual acts of said members, but in fact and in law, those of the
partnership.
What was done by the Lims – or by the partnership of which they were the
only members – was to split their cause of action in violation of the well-
known rule that only suit may be instituted for a single cause of action. The
right sought to be enforced by them in all their actions was to strike down
the mortgage constituted in favor of Syjuco. They instituted 4 actions for the
same purpose on one ground or the other, making each ground the subject
of a separate action. Upon these premises, application of the sanction
indicated by law is called for, i.e. the judgment on the merits in any one is
available as a bar in the others. Hence, barred by prior judgment. Res
judicata.
In its dispositive portion, the SC ordered for the sale in public auction of the
subject property and held the private respondents (the Lims and the
Partnership of the Heirs of Hugo Lim) jointly and severally liable to petitioner.
Q: How about the argument of the concept of separate juridical
personality. Diba iba naman yung personality ni mortgagor from its owners.
A: The court said that the defense of separate juridical personality is
not applicable as it would be prejudicial to the petitioner. The partnership is
estopped from denying the existence of the mortgage since the partners are
also the defendants in the case.
Q: What did the SC say as to the term “conveyance” in Art. 1819? It
had a discussion with the meaning of the word “conveyance” compared to
the law on agency.
A: The term “conveyance” was taken from the American … the right
to mortgage is included in the right..this is…
So in this particular case, the SC said that the word “conveyance” in Art.1819
includes the right to mortgage. This is different from the general rule that the
right to convey is different from the right to mortgage. Ang nangyari kasi nito
ay may judgement na. Execution na. Talo na sila. Nimortgage nila yung
property eh. They contributed the real property to the partnership kaso the
real property was still in their names. Ngayon naforeclose. Nkalagay na
foreclose. E.execute na sana. But sabi nila nabili na naming yan eh. Hindi
naman yan personal property namin. Property na ng partnership eventhough
nkapangalan sa amin. They made this argument for purposes of delaying the
execution. The SC said although different yung juridical personality niyo, the
fact that kayo pah rin ang may-ari at kayo din ang owner ng partnership. You
already have notice that there was a foreclosure. It is already too late to say
ngayon lang kayo maginvoke ng separate juridical personality. So in this
particular case, the SC ruled based on equity. Otherwise, the case would be
prolonged.
Art. 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.
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 case of a fraud on the
partnership, committed by or with the consent of that partner.
Notice to, or knowledge of, a partner of matter affecting partnership affairs
Notice to, or knowledge of, any partner of any matter relating to partnership
affairs operates as a notice to or knowledge of the partnership except in case
of fraud.
A 3rd person desiring to give notice to a partnership of some matter
pertaining to the partnership business need not communicate with all the
partners. If notice is delivered to a partner, that is an effective
communication to the partnership notwithstanding the failure of the partner
to communicate such notice or knowledge to his co-partners.
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PARTNERSHIP TRANSCRIPTION 2018
So this particular provision tells us that kahit sabihan mo ang isang partner, it
would operate as notice to the partnership itself. So you do not need to tell
all the other partners.
Is notice to the partner, notice to the partnership? Is the reverse true? Is
notice to the partnership, notice to the partner? (no answer given by sir)
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 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.
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
misapplied 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.
Art. 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.
So in these provisions, the law gives solidary liability to the partners. Diba as
a general rule they are jointly and severally liable but dito solidary liability.
Please take note that this is different from the contractual obligation. Here it
is solidary. In Art.1816, joint and subsidiary. Furthermore, while the liability in
Article 1816 refers to partnership obligations, this article covers the liability
of the partnership arising from the wrongful acts or omissions of any partner.
INFORMATION TECHNOLOGY FOUNDATION V. COMELEC
(Case Digest: Jordan Berguia)
FACTS: Petitioners were participating bidders questioning the identity and
eligibility of the awarded contractor Mega Pacific Consortium (MPC) where
the competing bidder is Mega Pacific eSolutions, Inc. (MPEI) as signed by Mr.
Willy Yu of the latter. Private respondent claims that MPEI is the lead partner
tied up with other companies like SK C&C, WeSolv, Election.com and ePLDT.
Respondent COMELEC obtained copies of Memorandum of Agreements and
Teaming Agreements.
ISSUE: Whether or not there was an existence of a consortium.
RULING: NO. There was no documentary or other basis for Comelec to
conclude that a consortium had actually been formed amongst MPEI, SK C&C
and WeSolv, along with Election.com and ePLDT. The president of MPEI
signing for allegedly in behalf of MPC without any further proof, did not by
itself prove the existence of the consortium. It did not show that MPEI or its
president have been duly pre-authorized by the other members of the
putative consortium to represent them, to bid on their collective behalf and,
more important, to commit them jointly and severally to the bid
undertakings. The letter is purely self-serving and uncorroborated.
So in this particular case, sabi ng SC wala namang partnership eh. Wala
namang joint venture kung meron man limited ang rights. Sabi ng COMELEC
meron and since you misrepresented dapat solidary ang liability. The SC said
may written reference kung saan limited ang liability yung iba sumali sa
bidding. So theres actually a consortium/ joint venture. Remember joint
venture is a specie of partnership. So pwede mag.apply ang provision on
partnership sabi ng OSG.
JULY 18, 2017
(Transcriber: Shats Tagtagan)
Article 1825:When a personby words spoken or written or by
conductrepresents himselfor consents to another representing him to
anyoneas a partner in an existing partnership or with one or more persons
not actual partnershe is liable to any such persons to whom such
representation has been made
who hason the faith of such representation given credit to the actual or
apparent partnershipand if he has made such representation or consented to
its being made in a public manner he is liable to such personwhether 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 resultshe is liable as though he were an actual
member of the partnership;
2.) When no partnership liability resultshe is liable pro rata with the other
personsif anyso consenting to the contract or representation as to incur
liabilityotherwise separately.
When a person has been thus represented to be a partner in an existing
partnershipor with one or more persons not actual partnershe 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 factwith
respect to persons who rely upon the representation. When all the members
of the existing partnership consent to the representationa 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.
Party by estoppel - Being of estoppel is a bar which precludes a
person from denying or asserting anything contrary to that which has been
established as the truth that is only the representation either express or
implied. So estoppel and admission or representation is conclusive upon the
person making it and cannot be denied as against the person later on.
When a person a partner by estoppel – A person not a partner
may become a partner by estoppel, thus he may be liable to a third person as
if he were a partner, when by words or conduct he:
a) Directly represents himself to anyone as a partner in an existing
partnership or in a non-existing partnership (with one or more persons not
actual partners);
b) Indirectly represents himself by consenting to another representing him as
a partner in an existing partnership or in a non existing partnership.
- To hold the party to be liable, the third person must prove that
there is representation or a bona fide reliance by him causing injury.
When a partnership liability results – If all the actual partners
consented to the representation, then the liability of the person who
represented himself to be a partner or who consented to such representation
and the actual partners is considered a partnership liability. This is a case of
partnership by estoppel. The person becomes an agent of the partnership,
kasi diba nya yung kanilang partnership, so as regards the third person, there
is a partnership liability.
When liability is pro rata – When there is no existing partnership
and all those represented as partners consented to the representation, or
not all of the partners of an existing partnership consented to the
representation, then, the liability of the person who represented himself to
be a partner or who consented to his being represented as partner, and all
those who made and consented to such representation is joint or pro rata.
Pero kapag walang existing partnership, and only some of those represented
as partners consented to the representation, the liability will be separate.
Ang gawin nyo dito is himay-himayin nyo lang sya. The importance of this
provision is you should know that ___ of the liability, when does the
partnership liability occur. Kapag ang actual partner in an existing partnership
consented to another person representing him as partner, magkakaroon ng
partnership liability. It shall be pro rata when walang partnership na existing
and all those represented as partners consented to the representation.
Magiging separate sya if not all consented sa pagrerepresent as partners.
Please note that the important thing in this provision is that this only pertains
to liability to third persons who rely on the representation. It is not created
to establish a partnership. Let’s say there’s a partner by estoppel/partnership
by estoppel, it does not mean that a partner by estoppel is a partner by a
contract of partnership. Meaning, wala sya yung rights na diniscuss natin
before. This is only for the purpose of enforcing liability as to third persons.
As between them (the partners), walang contract of partnership.
46
PARTNERSHIP TRANSCRIPTION 2018
There’s a discussion in the book of De Leon that “The law makes When a partner becomes incapacitated in performing
partnership contract;
liable as general partners ‘all persons who assume to act as a corporation’
• When a partner of such conducts as tends to affect
and may include persons who attempt, but fail to form a corporation and
prejudicially the carrying on of the business;
who carry on business under the corporate name.” Sabi natin before na,
• When a partner willfully or persistently commits a
kapag nag-apply ka as corporation, let’s say hindi mo na-comply ang partner
breach of the partnership agreement, or otherwise so
requisites, it does not automatically result into a partnership, because
conducts himself in matters relating to the
partnership is by intention. But sabi dito, they can be held liable as a general
partnership business that it is not reasonably
partner. Those who acted as a corporation failed to form a corporation, they
practicable to carry on the business in partnership
can be held liable as general partners. How do we make sense of this
with him;
statement? Remember that this is only in reference to third persons, kung
• When the business of the partnership can only be
nagkaroon ng liability yung persons who failed to form a corporation. So in
carried on at loss;
effect, wala pa ring partnership na nabuo because of the failed corporation. • Other circumstances render a dissolution equitable.
It’s just that, it created a liability in favor of the third person; they can be
liable as general partners. So there’s a distinction as between themselves and When a purchaser of a partner’s interest can cause a
as between third persons. This provision protects the rights of third persons. dissolution
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 • After the termination of the specified term or
though he had been a partner when such obligations were incurredexcept particular undertaking.
that this liability shall be satisfied only out of partnership propertyunless • At any time if the partnership was a partnership at
there is a stipulation to the contrary. will when the interest was assigned or when the
charging order was issued. (n)
This is the liability of an incoming partner. Kung incoming partner ka, you’re Effects of Transactions Entered Into By A Partner
still liable to third person-creditors, but only to the extent of your share in AFTER dissolution (As to Partners)
the partnership property for EXISTING, pero pag FUTURE, kasali na yung Reason for dissolution: ACT Reason for dissolution:
separate property mo. of a Partner INSOLVENCY OR DEATH of a
Article 1827:The creditors of the partnership shall be preferred to those of Partner
each partner as regards the partnership property. Without prejudice to this Each partner is liable to his Co- Each partner is liable to his Co-
rightthe private creditors of each partner may ask the attachment and public Partners for his share of the Partners for his share of the liability
sale of the share of the latter in the partnership assets. liability created by any partner created by any partner who acts for
who acts for the partnership the partner
In terms of preference, kapag partnership property, preferred si partnership Except (No sharing of liability) Except (no sharing of liability)
creditor. Kapag separate property, preferred si separate creditor. But again, Partner acting had KNOWLEDGE Partner acting had KNOWLEDGE or
because of the concept of unlimited liability, the partnership creditor can still of the dissolution NOTICE of the death or insolvency
go after the separate property of the partners.
Effects of Transactions entered into by a partner AFTER
From the PPT of Atty. Ong-Abrantes dissolution (When Partnership is Bound)
DISSOLUTION, WINDING UP and TERMINATION NATURE For For For ANY ANY
Dissolution without need of Court Decree OF windin windin windin transa transa
Without In Contravention Caused by TRANSA g up g up g up ction ction
violation of of the Force Majeure CTIONS OR OR OR which which
Partnership Partnership or Outside the compl compl compl would would
Agreement Agreement Will of the eting eting eting bind bind
Partners transa transa transa the the
Termination of the Pre-termination of Loss of specific ctions ctions ctions partne partne
term period thing promised to unfinis unfinis unfinis rship ( rship (
be contributed hed at hed at hed at ordina ordina
Termination of the Pre-termination of Partnership dissolu dissolu dissolu ry ry
Specific specific undertaking business tion by tion by tion by course course
undertaking becomes unlawful a a a of of
Will of any partner Will of any partner Death, insolvency person person person busine busine
exercised in good exercised in bad or civil author NOT author ss) ss)
faith (partnership faith (partnership interdiction of ized author ized
at will) at will) any partner ized
Expulsion of a Insolvency of the CONTRAC ANYON Had Not Had Not
partner bona fide partnership TING E extend extend extend extend
under the powers PARTY ed ed ed ed
granted in the credit credit credit credit
agreement before BUT before BUT
Mutual withdrawal dissolut has dissolu has
by all partners ion knowle tion knowle
AND dge of AND dge of
❖ Fernandez v. Dela Rosa NO the NO the
knowle partner knowle partner
Dissolution through a Court Decree dge or ship dge or ship
• When a partner has been declared insane in any notice before notice before
judicial proceeding or is shown to be of unsound of the AND no of AND
mind; want of publicat dissolu no
• authorit ion at tion publica
47
PARTNERSHIP TRANSCRIPTION 2018
y place of tion at Right of a partner where the contract is rescinded (
busines place Fraud or misrepresentation)
s of • To a lien on or right or retention of, the surplus
busine of the partnership property after satisfying the
ss partnership liabilities to third person for any sum
of money paid by him for the purchase of an
Who may wind up the partnership affairs? interest in the partnership and for any capital or
(Art. 1836) advances contributed by him;
1. Agreement; • To stand, after all liabilities to third persons have
2. Partners who have not wrongfully dissolved the been satisfied, in the place of the creditors of
partnership or the legal representative of the last the partnership for any payments made by him
surviving partner, not insolvent; in respect of the partnership liabilities;
3. Any partner, his legal representative or his assignee, • To be indemnified by the person guilty of the
upon cause shown, may obtain in winding up by the fraud or making the representation against all
court. debts and liabilities of the partnership.
Winding up of the Partnership Affairs
Right of a partner in dissolution Partnership Assets* Partner’s Assets
Those owing to creditors Those owing to separate
Dissolution is in other than partners creditors
Dissolution is contravention of the Those owing to partners other Those owing to partnership
Caused in Any Partnership Agreement than for capital and profits creditors
Way Those owing to partners in Those owing to partners by
respect of capital way of contribution
Have the partnership Have the partnership Those owing to partners in
property applied to discharge property applied to discharge respect of profits
its liabilities its liabilities
Have the surplus applied to Have the surplus applied to *The partners shall contribute, as provided by article 1797,
pay in cash the net amount pay in cash the net amount the amount necessary to satisfy the liabilities. Art. 1797
owing to the respective owing to the respective provides that in the absence of stipulation, the share of each
partners partner partner in the profits and losses shall be in proportion to what
Right, as against each he may have contributed, but the industrial partner shall not
partner who has caused the be liable for the losses.
dissolution wrongfully, to The individual property of a deceased partner shall be liable
damages for the contributions
Right to continue the
business in the same name Simple Partnership Liquidation
either by themselves or Holmes and Kaiser Balance Sheet
jointly with others provided December 31, 2008
they secure: Assets
Liabilities and Equity
1. the payment by bond Cash $ 10,000
approved by the court; OR Accounts payable $40,000
2. pay any partner who has A/R, net 30,000 Loan
caused the dissolution from Holmes 10,000
wrongfully, the value of his Inventory 30,000 Holmes,
interest in the partnership at capital 25,000
the dissolution, less any Plant assets, net 40,000 Kaiser,
damages capital 35,000
$110,000 $110,000
Rights of a partner who has caused the dissolution
wrongfully Simple Partnership Liquidation
• Have the partnership property applied to discharge Profits and losses are distributed as
its liabilities. follows:
• Have the surplus applied to pay in cash the net 70% to Holmes and 30% to Kaiser
amount owing to the respective partners.
• Subject to liability for damages They agreed to liquidate the
• If business is continued, right to have the value of partnership as soon as possible after
his interest in the partnership, less any damage January 1, 2009
caused to his co-partners by the dissolution,
ascertained and paid to him in cash, o the payment Inventory items are sold for $25,000,
secured by a bond approved by the court. In plant assets are sold for $30,000,
ascertaining the value of the partner’s interest the $22,000 is collected from accounts
value of the good-will of the business shall not be receivables
considered.
• To be released from all existing liabilities of the
partnership.
Simple Partnership Liquidation
Order of Payment

48
PARTNERSHIP TRANSCRIPTION 2018
I. To creditors for accounts payable remaining partner, who continues the
$40,000 business without liquidation;
II. To Holmes for his loan balance • When any partner retires or dies and the
10,000 business of the dissolved partnership is
III. To Holmes for his capital balance continued without liquidation with the
8,900 consent of the retires partners or the
To Kaiser for his capital balance representative of the deceased partner, but
28,000 without any assignment of his right in
Total distribution partnership property;
$87,000 • When any partner wrongfully causes a
dissolution and the remaining partners
Sample Liquidation 1 continue the business, and without
HOLMES AND KAISER PARTNERSHIP STATEMENT OF liquidation of the partnership affairs;
PARTNERSHIP LIQUIDATION FOR THE PERIOD JANUARY 1, • When a partner is expelled and the
2009, TO JANUARY 31, 2009 (IN THOUSANDS) remaining partners continue the business
CA NONCA PRIORIT HOLM HOLM KAIS either alone or with others without
SH SH Y ES ES ER liquidation of the partnership affairs.
ASSET LIABILIT LOAN CAPIT CAPIT
IES AL ( AL ( Rights of a partner if accounts are not
70%) 30) settled/liquidated and the business is continued
Balance $10 $100 $40 $10 $25 $35 • Have the value of his interest at the date of
January 25 (30) ___ ___ (3.5 (1.5 dissolution ascertained;
1, 2009 35 70 40 10 ) ) • Receive as an ordinary creditor:
Sale of 30 (40) ___ ___ 21.5 33.5 • An amount equal to the value of his interest in the
invento 65 30 40 10 (7) (3) dissolved partnership;
ry 22 (30) ___ ___ 14.5 30. • Interest, or at his option, in lieu of interest, the
87 __ 40 10 (5.6 5 profits attributable to the use of his rights in the
Sale of ( (40) ___ ) (2. property of the dissolved partnership
plant 40) __ 10 8.9 4)
assets 47 (10) ___ 28. Provided that the creditors of the dissolved partnership as
( ___ 8.9 1 against the separate creditors, or the representative of the
Collecti 10) ___ ___ retired or deceased partner, shall have priority on any claim.
on of 37 8.9 28.
receiva 1 • Right to an account of his interest shall accrue to
bles ___ any partner, or his legal representative as
28. against the winding up partners or the surviving
1 partners or the person or partnership continuing
Paymen ( the business, at the date of dissolution in the
t of 37) absence of any agreement to the contrary.
liabilitie
s -oOo-
28.1

Paymen
t of
Holmes
loan

Total
distribu
tion to
partner
s

When business is continued

• Creditor of the dissolved partnership

are also creditors of the person or
partnership continuing the business
• Admission of new partner, or when any
partner retires and assigns his rights in
partnership property, if the business is
continued without liquidation;
• When all but one partner retire and assign
their rights in partnership property to the

49