From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y.
2017-2018)
TITLE IX
PARTNERSHIP
CHAPTER 1
General Provisions
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.
PARTNERSHIP
it is a CONTRACT whereby two or more persons
(1) bind themselves to CONTRIBUTE money, property, or industry to a
COMMON FUND
(2) with the intention of dividing the PROFITS among themselves or in
order to EXERCISE a PROFESSION1
Characteristics of Partnership.
(1) Consensual, because it is perfected by mere consent, that is, upon
the express or implied agreement of two or more persons;
(2) Nominate, because it has a special name or designation in our
law;2
(3) Bilateral, because it is entered into by two or more persons and
the rights and obligations arising therefrom are always reciprocal;
(4) Onerous, because each of the parties aspires to procure for
himself a benefit through the giving of something;
(5) Commutative, because the undertaking of each of the partners is
considered as the equivalent of that of the others;
(6) Principal, because it does not depend for its existence or validity
upon some other contracts; and
(7) Preparatory, because it is entered into as a means to an end, i.e.,
to engage in business or specific venture for the realization of
profits with the view of dividing them among the contracting
parties.
Again, an example of an end to a contact of partnership is when you execute
a contract of sale. The end goal of partnership is the realization of profits. Go
back to the provision. Ano ba ang end ng 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. So
they enter into an agreement, ang purpose non is to divide profits. That is
the nature of the contract of partnership.
JARANTILLA vs JARANTILLA
(Case Digest: Ana Lapu)
FACTS: 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 Antonietas 8% share was limited
to the businesses enumerated therein. The respondents denied using the
partnerships income to purchase the subject real properties.
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: (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. 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
1
General Professional Partnership
2 no reversible error in the CA's ruling that petitioners are not entitled to
It is important to know that it is a nominate contract because meron siyang specific
provisions provided under the law. Again, pag nominate ang contract, di ka na dun sa
General Principles pupunta (ObliCon), dun ka na sa specific provisions. Whereas, kung
innominate yung contract, dun ka sa general principles.
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.
theres a good discussion in this particular case regarding the difference
between co-ownership and partnership
There is a co-ownership when an undivided thing or right belongs to
different persons. It is a partnership when 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. With
partnership, it is necessary that there is co-ownership because in
partnership, everyone has a say in the manamanget.
SY VS CA
ISSUE: Whether Sahot is an industrial partner
HELD: No written agreement exists to prove the partnership between the
parties. Private respondent did not contribute money, 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. Private respondent Jaime Sahot
was not an industrial partner but an employee of petitioners from 1958 to
1994.
It is important to allege that Sahot is an industrial partner and not an
employee to escape liability in the illegal dismissal case since a partner
would be considered as owner of the business.
SALARY VS PROFITS
Receiving a salary whether the business is operating at a loss, you will get a
salary. Whereas, a partner in such a case, would not receive any profit from
the operations of the business.
Now, as you can see in labor cases where it is alleged na partner yung
employee, there is a difference between receiving a salary vs receiving a
profit. The difference mainly lies on the fact that when you receive a profit,
you have anequity interest, you have a residual interest in the business.
TORRES VS CA
HELD:
1. Main Issue: Existence of a Partnership
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership
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. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
Courts 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.
We are not persuaded. True, the Court of Appeals held that petitioners acts
were not the cause of the failure of the project. [16] But it also ruled that
neither was respondent responsible therefor. [17] In imputing the blame
solely to him, petitioners failed to give any reason why we should disregard
the factual findings of the appellate court relieving him of fault. Verily,
factual issues cannot be resolved in a petition for review under Rule 45, as in
this case. Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine. [18] Accordingly, we find
damages.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES
ISSUE: W/N a partnership exists between Chua, Yao and Lim Tong Lim
HELD: Yes. 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. 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.
A partnership may be deemed to exist among partners who agree to borrow
money to pursue a business and to divide profits that may be received
therefrom. Even if it may be shown they did not contribute 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. So what they contributed is
their credit line.
How do you determine intention to form a partnership? By the parties
contemporaneous and subsequent acts. Because in this particular case,
merong 9 circumstances wherein the SC laid down the reasons why there is a
contract of partnership.
AFISCO INSURANCE CORP vs CA
FACTS: Petitioners argue that 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.
HELD:
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
pools formation.
This particular case is very different. There is no express agreement that
theyre going to share profits. But the SC said ang purpose naman ng
insurance is business diba. Essentially, yung individual insurers,
magkakaprofit yun through policy payments. So particularly, when you look
at this case, you would say akala ko ba there has to be an intention. Bakit
ngayon ganito may partnership, wala naming express agreement. In fact, the
pooling of the insurers was because of a treaty na kailangan nilang gawin.
So this is an exceptional case where the SC stretched the definition of
partnership.
PHILEX MINING CORP VS CIR
The strongest indication that petitioner was a partner in the Sto Nio mine is
the fact that it would receive 50% of the net profits as compensation under
paragraph 12 of the agreement. The entirety of the parties contractual
stipulations simply leads to no other conclusion than that petitioners
compensation is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the receipt by a
person of a share in the profits of a business is prima facie evidence that he is
a partner in the business. Petitioner asserts, however, that no such inference
can be drawn against it since its share in the profits of the Sto. Nio project
was in the nature of compensation or wages of an employee, under the
exception provided in Article 1769 (4) (b).
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid wages pursuant to an employer-
employee relationship. To begin with, petitioner was the manager of the
project and had put substantial sums into the venture in order to ensure its
viability and profitability. By pegging its compensation to profits, petitioner
also stood not to be remunerated in case the mine had no income. It is hard
to believe that petitioner would take the risk of not being paid at all for its
services, if it were truly just an ordinary employee.
Consequently, we find that petitioners compensation under paragraph 12
of the agreement actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to an equal share in
the income of the mine if it were just an employee of Baguio Gold. It is not
surprising that petitioner was to receive a 50% share in the net profits,
considering that the Power of Attorney also provided for an almost equal
contribution of the parties to the St. Nino mine. The compensation agreed
upon only serves to reinforce the notion that the parties relations were
indeed of partners and not employer-employee.
There was a contribution of services/industry on the part of Petitioner to
manage the mine. And another element is the intention to divide the profits.
The SC said there that there was actually an intention because in the
agreement, it provided for the 50/50 sharing of the profits of the Sto Nino
mines and that provision indicates that they intended a partnership.
The good discussion of this particular case is the definition of a joint venture.
From FT of the case: An examination of the Power of Attorney reveals that
a partnership or joint venture was indeed intended by the parties. Under 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. While a corporation, like 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 legal concept of a joint venture is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a
mutual right of control. The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary nature.
This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking.It would seem
therefore that under Philippine law, a joint venture is a form of partnership
and should be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has
held that although a corporation cannot enter into a partnership contract, it
may however engage in a joint venture with others.
So this is very common na isa yung may-ari ng property tapos yung isa yung
magma-manage. In effect sabi ng SC Joint Venture is a specie of partnership.
In common law jurisdiction, iba yung joint venture and partnership. Pero
mixed na tayo eh, and when you try to look at the provision, there is what we
call a partnership which well discuss thoroughly next meeting.
Article 1767 xxx Two or more persons may also form a partnership for the
exercise of a profession
2
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
The last paragraph of Article 1767: Pinaka-common example is a lawfirm. A
lawfirm is a partnership.
Definition of partnership for the practice of law.
It is a mere association for non-business purpose. The right to practice law is
not a constitutional right but a privilege of franchise that is why you have to
take the Bar. It cannot be likened to partnerships formed by other
professionals for business. It does not form for the purpose of carrying on
trade or business or upholding property. As distinguished from business, it is
intimately and peculiarly related to the administration of justice. It is
fiduciary in nature.
Characteristics of Partnership for the Practice of Law:
1.) Duty of public service;
2.) In relation as an officer of the court: administration of justice;
3.) In relation to clients: highly fiduciary;
4.) In relation to colleagues at the Bar: characterized by candor and
fairness.
Legal Capacity of Parties to Enter into a Contract: As you learned in ObliCon,
there are also persons who are not capable of entering into contract.
General Rule: Any person who is capable of entering into contractual
relations may be a partner.
Exception:
1.) Minors;
2.) Insane or demented persons;
3.) Deaf-mutes who do not know how to write;
4.) Persons who are suffering from civil interdiction;
5.) Incompetents who are under guardianship;
6.) Persons who are prohibited from giving to each other any donation
cannot enter into a universal partnership (i.e. spouses and common-law
spouse).
Can a partnership enter into a contract of partnership with another
partnership? As a general rule, yes. Partnerships can enter into a contract of
partnership with a partnership.
Can a corporation enter into a contract of partnership?As a general rule, no.
There are exceptions which will be explained later.
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.
What do we mean when we say that a partnership has a juridical personality
separate and distinct from that of each partner? Your basis of that is Article
46.
Article 46: Juridical persons may acquire and possess property of all kinds, as
well as incur obligations and bring civil or criminal actions, in conformity with
the laws and regulations of their organization.
You will learn in your Corporation Law that although it is a separate person
under the law, it has a different right from that of a natural person. There is
a flip-flopping decision: Sinabing wala kasi wala namang nervous system si
corporation. Afterwards, sinabing pwede, kasi may reputation naman ang
corporation.
To my mind, may reputation naman talaga ang corporation which, once
tarnished, you can have the right to sue for damages. Pero siguro sa mental
anguish, wala naman. The crux of moral damages is not only sleepless nights
but also besmirched reputation.
As an independent juridical person, a partnership may:
enter into contracts;
acquire and possess properties of all kinds in its firm name;
incur obligations;
bring civil and criminal actions;
be declared insolvent even if partners are not;
enter into contracts and may sue and be sued in its firm name or its
duly authorized representative.
AGUILA VS CA
the civil case was filed not against the real party in interest. As pointed out by
Aguila, he is not the real party in interest but rather it was the partnership
A.C. Aguila & Sons, Co. The Rules of Court provide that every action must
be prosecuted and defended in the name of the real party in interest. A
real party in interest is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit. Any decision rendered
against a person who is not a real party in interest in the case cannot be
executed. Hence, a complaint filed against such a person should be dismissed
for failure to state a cause of action, as in the case at bar.
Under Art. 1768 of the 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 A.C. 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 A.C. Aguila & Sons, Co. It is the
partnership, not its officers or agents, 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.
Application of the Doctrine of Piercing the Veil of Separate Juridical Fiction
The doctrine of piercing the veil of corporate fiction finds relevance in
Corporate Law because it is the means by which to by-pass the effects of the
doctrine of limited liability, and through piercing, acting stockholders
and/or officers may be held personally liable for corporate debts.
In spite of the partnership being accorded also a separate juridical
partnership, the piercing doctrine has less application in Partnership Law
because the partners are unlimitedly liable (i.e., personally liable with their
separate properties) for partnership debts. And yet, the doctrine found
application to partnerships in Commissioner of Internal Revenue v. Suter, 27
SCRA 152 (1969), where the Court addressed the legal position of the Tax
Commissioner seeking to make the individual partners liable for income tax
for the income earned by the limited partnership, thus:
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 partnerships
separate individuality makes it impossible to equate its income with that of
the component members. . . (Ibid, at pp. 158-157.). . . In the cited cases, the
corporations were already subject to tax when the fiction of their corporate
personality was pierced; in the present case, to do so would exempt the
limited partnership from income taxation but would throw the tax burden
upon the partners-spouses in their individual capacities. The corporations, in
the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate
personalities for tax purposes. This is not true in the present case. Here, the
limited partnership is not a mere business conduit of the partner- spouses; it
was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellees marriage; and had been filing
its own income tax returns as such independent entity. . . . As far as the
records show, the partners did not enter into matrimony and thereafter buy
the interests of the remaining partner with the premeditated scheme or
design to use the partnership as a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed. (at p. 159.)
In other words, Suter holds that when the facts show that the juridical
personality of the partnership is but a means to evade the law or a sham,
then the courts will pierce the veil of its separate juridical personality to treat
the partners as directly liable or accountable for the consequences of the
acts or contracts done in the partnership name.
The piercing doctrine also found recognition, albeit by way of obiter,
inAguila, Jr. v. Court of Appeals, 319 SCRA 246 (1999), but only in the limited
area of determining standing in a suit brought against claims pertaining to
the partnership. In Aguila, Jr. the complaint was filed against the partners
and officers to enforce essentially a partnership obligation. the Court held
Under Art. 1768 of the 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, private respondent has
not shown that A.C. 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 A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private respondent with
the consent of her late husband, and A.C. Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not its officers, or agents, which
should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result to dismissal of the complaint.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Partnership as a Business Enterprise.Again, a growing concern, element of
habituality.As youve learned in PHILEX MINING VS CIR, sinabing particular
ang purpose ng joint venture. However, in partnership law, we have what we
call particular partnership, kung saan, particular yung purpose. In effect, the
law that governs joint venture is the law on partnership kasi meron tayong
provision on particular partnership. Pero generally, a partnership has an
element of habituality. Hindi pwedemag-create ng partnership for one
purpose lang, for one transaction lang.Mag-create ka ng partnership kasi
may going concern siya.
VILLAREAL VS RAMIREZ
ISSUE: W/N petitioners are liable to respondents for the latters share in the
partnership?
HELD: No. Respondents have no right to demand from petitioner the return
of their equity share. As found by the court petitioners did not personally
hold its equity or assets. 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 petitioners, it is the partnership that
must refund the equity of the retiring partners. However, before the partners
can be paid their shares, the creditors of the partnership must first be
compensated. Therefore, the exact amount of refund equivalent to
respondents one-third share in the partnership cannot be determined until
all the partnership assets will have been liquidated and all partnership
creditors have been paid. CAs computation of the amount to be refunded to
respondents as their share was thus erroneous.
Equity interest (means) as a partner, you absorb all the losses and you gain
also all the profits. For me, that is a very good case showing that partners
are equity holders xxx The recognition of the inherent relationship between
and among the partners to be bound by the results of operations from the
business enterprise has been well-explained by the Court in Villareal v.
Ramirez, 406 SCRA 145 (2003), thus:
First, it seems that the appellate court was under the misapprehension that
the total capital contribution was equivalent to the gross assets to be
distributed to the partners at the time of the dissolution of the partnership.
We cannot sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural
and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does not
remain static and unaffected by the changing fortunes of the business.
In the present case, the financial statements presented before the trial court
showed that the business had made meager profits. The partnership was
actually sustaining substantial losses, which consequently decreased the
capital of the partnership, consequently, the partnership capital was actually
reduced.
The original amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the
time of dissolution did not amount to that much.
In fact, it is only from the partnership business enterprise level that we can
fully appreciate the concept that essentially the partners are owners of the
business, or that they take the position of equity holders, as distinguished
from creditors who advance money to the partnership as debt holders.
Thus, it is an essential element to the existence of the partnership under
Article 1767 of the Civil Code, the obligation assumed by each partner to
contribute money, property or industry to a common fund, which
essentially represents the business enterprise to be pursued, to thereby
assume the position of being owners or equity holders, and thereby to
be entitled to the profits made from the pursuit of the business enterprise,
and logically to assume the risks connected with it, including absorbing the
losses sustained. This critical position of equity holders of partners is
confirmed under Article 1770 Civil Code which requires that a partnership
must be established for the common benefit or interest of the partners,
which aptly describes their positions as owners of the partnership business
enterprise.
Article 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 do not of itself establish a
partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business is
prima facie evidence that he is a partner in the business, but no
such inference shall be drawn if such profits were received in
payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment very
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.
Article 1769 provides for the rules to be applied in determining whether
there is a partnership or not.
OBILLOS VS CIR
FACTS: four brothers and sisters acquired lots with the original purpose to
divide the lots among themselves for residential purposes; when later they
found it not feasible to build their residences thereon because of the high
cost of construction, they decided to resell the properties to dissolve the co-
ownership. HELD: The Court ruled that no partnership was constituted
among the siblings, since the original intention was merely to collectively
purchase the lots and eventually to partition them among themselves to
build their residences; and that in fact they had no choice but to resell the
same to dissolve the co-ownership. Article 1769(3) of the Civil Code provides
that "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". There must be
an unmistakable intention to form a partnership or joint venture. In this case,
the division of the profits was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state; and that
there could not have been any partnership, but merely a co-ownership,
since there was utter lack of intent to form a partnership or joint venture.
Distinguish this from Gatchalian v. Collector of Internal Revenue, 67 Phil.
666 (1939), where fifteen people contributed money to buy a sweepstakes
ticket with the intention to divide the prize which they may win, and in fact
the ticket won third prize, the Court ruled that they had formed a
partnership which was subject to tax as a corporate taxpayer.
REYES VS CIR
In Reyes v. Commissioner of Internal Revenue, 24 SCRA 198 (1968), the
Court found that where father and son purchased a lot and building and had
it administered by an administrator, and divided equally the net income,
there was a partnership formed because profit was the original intention for
the common fund.
it is not a conclusive evidence to say that there is a partnership once there is
habituality. If there is a contribution to a common fund and then there is a
transaction, pag paulit-ulit na ganun yung set-up, not merely one transaction
but several transactions, there is a presumption that the intention of the
parties is to establish a business. N.B Habituality is one of the determining
factors of partnership.
Under Article 1769(4), the receipt by a person of a share of the net profits of
a business is prima facie evidence that he is a partner in the business.
However, in the following cases, where there is legal and contractual basis
for the receipt of the profits other than as equity holder, there is no
partnership constituted, thus:
(a) As installment payments of debt and/or interests thereof;
(b) As wages of an employee;
(c) As rentals paid to a landlord;
(d) As annuity to a widow or representative of deceased partner;
(e) As consideration of sale of goodwill or other property.
BASTIDA VS MENZI
despite the agreement that Bastida was to receive 35% of the profit from the
business of mixing and distributing fertilizer registered in the name of Menzi
& Co., there was never any contract of partnership constituted between
them based on the following key elements:
(a) there was never any common fund created between the parties, since
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
the entire business as well as the expenses and disbursements for
operating it were entirely for the account of Menzi & Co.;
(b) there was no provision in the agreement for reimbursing Menzi & Co. in
case there should be no profits at the end of the year; and
(c) the fertilizer business was just one of the many lines of business of
Menzi & Co., and there were no separate books and no separate bank
accounts kept for that particular line of business. The arrangement was
deemed to be one of employment, with Bastida contributing his
services to manage the particular line of business of Menzi & Co
If there is no contract, does it necessarily follow that there was no intention
to enter into partnership? How about the fact that Bastida is receiving 35%
of the net profits, would that lead to a conclusion that there was a
partnership?NO to both questions.
HEIRS OF TANG ENG KEE VS CA
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.
The Supreme Court also noted:
In determining whether a partnership exists, these rules shall apply: (1769)
DISPOSITIVE: There being no partnership, it follows that there is no
dissolution,winding up or liquidation to speak of. Hence, the petition must
fail.
Q: Why is there no partnership in this case but only an employer-employee
relationship? How about the fact that Tan Eng Kee lived in the compound
and this privilege is not given to the other employees, what did the SC say
about it?
A:The contention of the Heirs of Tan Eng Kee is that there was a partnership
since Tan Eng Kee were allowed to order stocks and he was enjoying a
privilege not granted to other ordinary employees. He also had a right to
supervise. The SC said that those circumstances alone are not sufficient to
prove that there is a contract of partnership. The SC considered the
relationship of Tan Eng Kee to the owner who was his brother. It all goes
back to the intention.
N.B. - Intention is a product of mind. And how do you determine intention? By
looking at the contemporaneous and subsequent acts.
TOCAO VS CA
The business venture operated under Geminesse Enterprise did not result in
an employer-employee relationship between petitioners and private
respondent. While it is true that the receipt of a percentage of net profits
constitutes only prima facie evidence that the recipient is a partner in the
business,[25] the evidence in the case at bar controverts an employer-
employee relationship between the parties. In the first place, private
respondent had a voice in the management of the affairs of the cookware
distributorship,[26] including selection of people who would constitute the
administrative staff and the sales force. Secondly, petitioner Tocaos
admissions militate against an employer-employee relationship. She
admitted that, like her who owned Geminesse Enterprise,[27]private
respondent received only commissions and transportation and
representation allowances[28] and not a fixed salary. If indeed petitioner
Tocao was private respondents employer, it is difficult to believe that they
shall receive the same income in the business. In a partnership, each partner
must share in the profits and losses of the venture, except that the industrial
partner shall not be liable for the losses.[31] As an industrial partner, private
respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.[32]
N.B. - Compare this case with Heirs of Tan Eng Kee. The relationship of the
parties is significant
YULO vs YANG CHIAO SENG
PETITIONER YULOS CONTENTION:
That partnership exists between them, and Yang is obliged to give her share
in the profits.
RESPONDENT YANGS DEFENSE:
That it was only a sublease; that the partnership was only adopted as a
subterfuge to circumvent the prohibition against sublease in the lease
contract between Yulo and the landowners.
ISSUE: WON partnership exists, thereby requiring Yang to give Yulos share in
the profits. (NO)
HELD: No partnership exists. It was a sublease contract.
The ff. facts belie her allegation of partnership:
a. Yulo did not furnish the supposed P20K capital;
b. She did not help or intervene in the management of the theatre;
c. She never demanded 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 only received her of P3K a month, which cannot be interpreted in any
manner than a payment for the use of the premises which she had leased
from the owners.
Yulo demonstrates the principle that a contract of partnership is consensual
in nature and is constituted by the real meeting of the minds; such that even
when formal articles of partnership are drawn-up between the parties, when
it fact the evidence shows that they never intended to enter into a
partnership, the article of partnership cannot create a partnership when in
fact there has never been a meeting of minds to constitute one.
Why did the SC say that it was a sub-lease?
A: The first element of a contract of partnership was not present in this case
since Yulo failed to furnish the supposed P20,000 capital. Also, she did not
furnish any help or intervention in the management of the theatre. It does
not appear that she has ever demanded from Yang 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 cannot be interpreted in any manner than a payment for the
use of the premises which she had leased from the owners.
N.B. The sharing of profits does not always mean there is a partnership. It
could be a payment of lease rentals.
ONA VS CIR
Instead of distributing the estate among the heirs after the approval of the
project of partition, the properties remained under the mgt of Lorenzo who
used the same in business. As a result of which, their investments and
properties steadily increased. From the moment the petitioners allowed
Lorenzo to use their inherited properties and the incomes from their
respective shares as a common fund in undertaking several business
ventures, with the intention of deriving profit from it and dividing the
profit proportionally among themselves, such act was tantamount to
actually contributing such incomes to a common fund and, in effect, they
thereby formed an unregistered partnership within the purview of the
provisions of the Tax Code.
The Tax Court found that instead of actually distributing the estate of the
deceased among themselves pursuant to the project of partition, the heirs
allowed their properties to remain under the management of Oa and let
him use their shares as part of the common fund for their ventures, even as
they paid corresponding income taxes on their respective shares.
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.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Compare this case to the case of Obillos vs CIR. In that case, the siblings
inherited the land which was later found to be not good for residential so
they sold it and they divided the profits among themselves Here, the land
was inherited, then they sold it and then they invested the proceeds again.
See the difference?
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.
This provision reiterates 2 essential elements:
1.) Legality of the object;
2.) Benefit or interest
If nag-form kayo ng partnership for the purpose of, lets say, operating a
drug den or magbenta ng shabu, of course it is unlawful. Ano ang
mangyayari, the contract is void ab initio and the partnership never existed
in the eyes of the law. So the profits under Article 1770, shall be confiscated
in favor of the government. The instruments, tools or proceeds of the crime,
shall also be forfeited in favor of the government.
How about the capital contribution? Yung capital, ibalik pa rin sa partners
unless it would fall under the instruments, tool or proceeds of the crime.
Attributes of Partnership:
1.) Consensual
2.) Mutual Agency
3.) Delectus Personae
4.) Partners have unlimited liability
1.) Consensual.
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.
Article 1772: Every contract of partnership having a capital of Three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.3
Failure to comply with the requirements of the preceding paragraph
shall not affect the liability if the partnership and the members
thereof to third persons.
Article 1773: A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.4
General Rule: A partnership is consensual, meaning it is perfected
by mere consent.
Exception:
1.) A capital of P3,000 or more shall appear in a public
instrument. (Note: The amount is outdated);
2.) Where immovable property or real rights are
contributed into the partnership;
3.) Limited Partnership
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.5
Article 1775: Associations and societies, whose articles are kept
secret among the members, and wherein any one of the members
3 For Article 1772, the reason why it still has to be registered with the office of the
Securities and Exchange Commission, is for purposes of government monitoring.
Imagine the incidents of operating ng business, i.e. taxes. Hindi malalaman ng BIR sino
yung operatingna business. So, it is for convenience.
4 According to Villanueva, in Article 1773, real property is considered as constituting a
cornerstone of our economic life and that dealings therewith must be formal and
public, which would afford to the public a reliable means to determine the status of
ownership and the existing liens on the property. Relate this with your concept in
Landtitles--the Mirror Principle
5 This is an incidence of a partnership having a separate juridical personality.
may contract in his own name with third persons, shall have no
juridical personality, and shall be governed by the provisions relating
to co-ownership.
So why does the law not grant juridical personality to
associations and societies na yung articles are kept secret?
According to Villanueva, the obligation of these individuals is not
meant to undertake a business or commercial venture that is
supposed to deal with the public at large so there is no purpose to
grant a separate juridical personality.
2.) Mutual agency.
Article 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. But if the refusal of consent
by the other partners is manifestly prejudicial to the
interest of the partnership, the courts intervention may
be sought.
3.) Delectus Personae (meaning, selection of persons). in accordance with
the principle of delectus personae, one selects partners on the basis of their
personal qualifications and qualities which are solvency, ability, honesty and
trustworthiness, among others. It is for this reason that there is mutual
representation among partners so that the act of one is considered the act
and responsibility of the others as well.
4.) Partners subject to unlimited liability. To distinguish from a corporation
wherein a stockholder has a limited liability sa investments niya, sa
partnership, the creditor can actually go to the personal properties of the
partner, albeit, subsidiarily. So, in essence, unlimited yung kanyang liability.
Partnership, distinguished from OTHER business media.
Joint Venture Partnership
limited to single though it may exist
transaction and is for a single
not intended to transaction, usually
pursue a continuous contemplates the
business undertaking of the
general and
continuous business
of a particular kind,
which is necessarily
involves a series of
transactions
But then again, under our law, we have what we call particular partnership (it
is a partnership for a specific project also.) So necessarily, when you read
your cases, ang ina-apply pa rin, the concepts and stipulations, is under the
law on partnership. Pero in different jurisdictions, meron talaga silang joint
venture provisions.
Partnership distinguished from Co-ownership.
A Co-ownership constitutes merely a property relation whereby two or more
person own pro-indiviso a property but the relationship does not seek the
business or mercantile purpose of the property relationship. In other words,
a co-ownership situation comes about other than a contractual intent to
pursue a business venture in common. Consequently, no separate juridical
personality arises from a purely co-ownership relationship.
Partnership distinguished from an Agency.
In a pure agency agreement, an agent is merely a legal extension of the
personality of the principal, and thereby under the complete control of the
principal. Whereas, in a partnership, there is a mutual agency.Meaning, yung
agent, principal din siya nung kanyang ka-partner.
Partnership distinguished from a Business Trust.
A business trust is constituted by deed of trust which is easier and less
expensive to constitute for it is not bounded by any legal requirements. 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.
Partnership distinguished from Corporation.
A stockholder has a limited liability whereas a partners liability is unlimited.
So kung insolvent man si corporation, hindi na aabot sa kanya. Alam niyo
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
yung hotel, ang corporation niyan minsan 2 or 3.Ibayung management, ibang
corporation yung mga employees, iba rin yung property.
Does a defective incorporation process result into a partnership?
Again, look at the crux of partnership, it is the intention. Iba-iba ang
requirements ng corporationat ng partnership in such a way na pag-hindi na
push as a corporation, it does not necessarily mean na magiging partnership
na siya.
AGAD VS MABATO
it is not the purpose clause of the articles of partnership or the designated
business to be engaged in, that determine whether there should be deemed
contributed immovable properties to the venture to trigger the application of
Article 1773 of the Civil Code. The Court held in Agad that since the articles of
partnership indicated that the partners were going to contribute cash into
the venture, then the fact that the partnership was expressly organized to
operate fishpond, did not necessarily mean that either a fishpond or a real
right to any fishpond was contributed into the venture. Just because the
partnership venture owns or operates immovables does not mean it comes
into the operation of Article 1773, as when such immovables were not
contributed by the partners but were purchased during the operations of
the partnership business.
Q: So in this case, the SC said that the purpose of partnership is to operate
a fishpond, not to engage in the fishpond business. May difference ba?
A: Yes. 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. Meaning, at the time of the
constitution of the partnership, pag walang real property or real right that
was contributed, there is no need to follow Article 1773 even if along the
way, you will acquire real right or immovable. There is a difference between
capital and assets. Capital, yan yung initial na contribution ng partners.
Assets may include the capital contribution but not necessarily the entirety.
Because along the way in the operation of your business, you will acquire
assets which is not already part of your initial capital. So know the
distinction. Even if a real right or an immovable is acquired as asset, it does
not necessarily mean that it is part of the initial capital contribution.
TORRES VS CA
First, Article 1773 was intended primarily to protect third persons. 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. 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.
This is a very peculiar case because it appears that it runs contrary to the
provision of Article 1773. The SC said that there was no contract of
partnership because there was a real property contributed but no inventory
was made. Article 1773 was enacted primarily to protect third persons.
So it appears that Article 1773 is only applicable when it prejudices the right
of 3rd persons. But is it expressly written in the provision itself? Had it been
the intention of the Congress to make the contract of partnership void only
when it prejudices the right of 3rd persons, they should have made it clear in
the provision. My point is, why did they make it clear in Article 1772 and not
in Article 1773?
But I think the SC ruled otherwise because of the 2nd reason which provides
that: 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.
LITONJUA VS LITONJUA
ISSUE: Whether or not a partnership exists between the two parties - NO
HELD:
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 contributed to the partnership, the next
logical point of inquiry turns on the nature of petitioners 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.
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.
The SC further said that considering that the allegations in the complaint
showed that petitioner contributed immovable properties to the alleged
partnership, the Memorandum which purports to establish the said
partnership/joint venture is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the
said Memorandum is null and void for purposes of establishing the existence
of a valid contract of partnership.
Since here, the partnership was void; the action will not prosper because
there was no actionable document. In this case, the SC did not anymore
determine whether there are 3rd persons or none and it applied Article 1773
as it is. This ruling is more in keeping with the law compared to the ruling in
the previous case.
Again, what is the reason why the contract of partnership is void when there
is no inventory and public instrument? Under Land Titles and Deeds, if a real
property contributed to the partnership is not annotated/registered with
the Registry of Property, it is equivalent to defrauding the persons who
would transact with that particular property.
LIABILITY
When you compare corporations to partnerships:
CORPORATIONS PARTNERSHIPS
owners are stockholders Owners are partners
stockholders have limited liability in partners have unlimited liability like
the sense that they can only be the sole proprietorship
liable for the corporations debts to
the extent of their capital
contribution in the form of stocks.
Ang nagpapa-lakad ng buong Why is that the case? Look at this,
corporation are the Board of me as the sole owner, I can reap all
Directors (BOD). Now, would it be the profits of the businesses. I
fair if the stockholders will have manage the businesses and I owned
unlimited liability when in fact they them. Essentially, kung malugi siya
are not the one making decisions? dapat ako pud ang managot kay ako
raman nag-decide.
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)
As to the extent of its subject matter.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
(1) UNIVERSAL
a. UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY
which comprises the following:
i. Property which belonged to each of the
partners at the time of the constitution of
the partnership
ii. Profits which they may acquire from all
property contributed
b. UNIVERSAL PARTNERSHIP OF PROFITS comprises all
that the partners may acquire by their industry or work
during the existence of partnership.
(2) PARTICULAR which has for its objects:
a. Determinate things
b. Their use or fruits
c. Specific undertaking
d. Exercise of profession or vocation
As to liability of the partners
(1) GENERAL one consisting of general partners who are liable pro
rata and subsidiarily and sometimes solidarily with their separate
property for partnership debts; or
(2) LIMITED 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.
As to its duration
(1) 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
(2) 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.
As to the legality of its existence
(1) DE JURE PARTNERSHIP or one which has complied with all the
legal requirements for its establishment; or
(2) DE FACTO PARTNERSHIP or one which has failed to comply with
all the legal requirements for its establishment.
As to representation to others
(1) ORDINARY OR REAL PARTNERSHIP or one which actually exists
among the partners and also as to third persons;
(2) 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.
As to publicity.
1.) 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
2.) OPEN OR NOTORIOUS PARTNERSHIP or one whose existence is
avowed or made known to the public by the members of the firm.
As to purpose.
(1) COMMERCIAL OR TRADING PARTNERSHIP or one formed for the
transaction of business; or
(2) 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
(j) Subpartner or one who, not being a member of the partnership,
contracts with a partner with reference to the latters 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 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
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

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)
Again, in a UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY, what is
the common property?
1. Property which belongs to each of them at the time of the
constitution of the partnership.
2. The profits which they may acquire from the contributed
property.
How about future property?
Generally, it cannot be contributed. Future pa nga eh. Thats why inheritance
cannot be included.
In a UNIVERSAL PARTNERSHIP OF PROFITS, it is composed of all the property
that the partners may acquire by their industry or work during the existence
of the partnership.
Art. 1782. Persons who are prohibited from giving each other any donation
or advantage cannot enter into universal partnership. (1677)6
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)
Art. 739 (Civil Code). The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation;7
WILLIAM SUTER MORCOIN LTD. WAS NOT A GENERAL PARTNERSHIP BUT A
PARTICULAR PARTNERSHIP. HENCE, IT IS NOT A PROHIBITED PARTNERSHIP
ENTERED INTO BY THE SPOUSES CIR evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not auniversal partnership, but a
particular one. As appears from Articles 1674 and 1675 of the Spanish Civil
Code, of1889 (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 thecommon fund, or else "all that the partners may acquire by their
industry or work during the existence of thepartnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions ofthe partners were fixed sums of money, P20,000.00 by
William Suter and P18,000.00 by Julia Spirig and neitherone 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.
CONTRIBUTIONS BY THE SPOUSES REMAINED AS THEIR SEPARATE
PROPERTIES EVEN AFTER MARRIAGE. Nor could the subsequent marriage of
the partners operate to dissolve it, such marriage not being one of thecauses
provided for that purpose either by the Spanish Civil Code or the Code of
Commerce. 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
contributionsremained 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 commonproperty 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 bedone 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 (compaiascolectivas)with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its
disregardof a cardinal tenet of our partnership laws, and can not be
extended by mere implication to limited partnerships.

(2) Those made between persons found guilty of the same criminal
The spouses can enter into a particular partnership because the prohibition
offense, in consideration thereof;
only provides that spouses are prohibited to donate to one another or from
entering into a universal partnership. The issue here is that,
(3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
Is this still applicable given the enactment of Family Code? According to
Villanueva, spouses are not qualified to enter into other forms of partnership
In the case referred to in No. 1, the action for declaration of nullity may be
for gain except professional partnership. The reasons are:
brought by the spouse of the donor or donee; and the guilt of the donor
and donee may be proved by preponderance of evidence in the same
1. Every firm effectively makes partners donors to one another of their
action. (n)
contribution to the partnership.
- Why? Even if its particular, the wife will contribute the land and the
Can spouses just between themselves or with other 3rd parties validly enter
husband will contribute building. Ano ang mangyayari sa contributed
into a contract of partnership provided that the resulting partnership is not a
capital? It will become a co-ownership. So necessarily, it would appear
universal partnership?
that the prohibition against donation was violated indirectly.
CIR VS SUTER
- For instance, there would be a contention that the partnership in
not gratuitous in nature, thus should not be considered a donation. It
WHAT IS PROHIBITED IS FOR SPOUSES TO ENTER INTO A GENERAL
would still be violative of Article 1490 of the Civil Code which
PARTNERSHIP. A husband and a wife may not enter into a contract of
provides:
GENERAL COPARTNERSHIP, because under the CivilCode, which applies in
Art. 1490. The husband and the wife cannot sell property to each
the absence of express provision in the Code of Commerce, persons
other, except:
prohibitedfrom making donations to each other are prohibited from entering
(1) When a separation of property was agreed upon in the marriage
into UNIVERSAL PARTNERSHIPS. It follows that the marriage of partners
settlements; or
necessarily brings about the dissolution of a pre-existingpartnership.
(2) When there has been a judicial separation or property under Article
191. (1458a)

2.
6 Donations between spouses during marriage are void except moderate gifts on
occasion of family rejoicing. This also applies to persons living together as husband and
wife without the benefit of marriage.
Why? Because there is a tendency that the one who is superior would exert undue
influence and force to compel the other one to donate.
7 *Sir - no need for conviction. Only preponderance of evidence is required.
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.

9
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
So nag-asawa kayo tapos eventually nag-create kayo ng partnership,
pag nagcontribute ka nagkakaroon ng co-ownership. So essentially,
youre 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.
- How about complete separation of property, may the spouses validly
enter into a contract of particular partnership? No, it would amount
to donation contrary to Article 87.
3. A contract of partnership may offend Articles 76 and 77 of the Family
Code and there will arise the issue on control and binding effects of
the acts of partners. Its the co-administrators versus agents of
partners. Article 76 and 77 states:
Art. 76. In order that any modification in the marriage settlements
may be valid, it must be made before the celebration of the marriage,
subject to the provisions of Articles 66, 67, 128, 135 and 136.
Art. 77. The marriage settlements and any modification thereof shall
be in writing, signed by the parties and executed before the
celebration of the marriage. They shall not prejudice third persons
unless they are registered in the local civil registry where the marriage
contract is recorded as well as in the proper registries of properties.
Again, under absolute community property and conjugal 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 a co-administrators and co-agents of a
certain property.
How about partnership charges?
Remember in the Family Code, there is a rule of preference regarding
charges of the property of the spouses.
Villanueva said that spouses can only enter into professional
partnerships because this is allowed by Article 73 of the Family Code
which provides:
Either spouse may exercise any legitimate profession, occupation,
business or activity without the consent of the other.
What if this will come out in the Bar exams? How will you answer it? Can
the spouses validly enter into a particular partnership? You can answer that
based on CIR vs Suter. It is not yet overturned. But for your answer to pop
out of the 5000 notebooks, you will discuss the Family Code.
Why cant a Corporation be a partner?
Generally, a corporation is not allowed to become a partner in a partnership.
Let us say, C1 and C2 are corporations. Remember, a principle in corporation
law is that the management is centralized, nasa BOD (BOD1 and BOD2). Their
authority came from the stockholders. So partners kunwari si C1 and C2. Diba
pag partner ka, may mutual agency? So in effect, everything that BOD1 will
do, damay si BOD2 because of mutual agency. Will it not violate the principle
in corporation law that the authority of BOD is given only by the
corporations stockholders? Decision ni BOD1, damay si BOD2 when in fact
the stockholders of C2 only authorized BOD2 to 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,
lets put conditions to allow a corporation to enter into a partnership.
So what are those conditions? We have SEC OGC Opinion No. 22-2016 dated
October 4, 2016 which provides:
The Commission has consistently opined that as a general rule, a
corporation cannot enter into a contract of partnership with an
individual or another corporation; however, it may be allowed to do so
provided it complies with certain conditions, to wit:
1. The authority to enter into a partnership relation is
expressly conferred by the charter (Sir: meaning expressly
authorized by the owners. In effect, the owners are waiving
their right to question the effects of mutual agency) or the
articles of incorporation of the corporation, and the nature
of the business venture to be undertaken by the partnership
is in line with the business authorized by the charter or
articles of incorporation of the corporation involved.
2. If it is a foreign corporation, it must obtain a license to
transact business in the country in accordance with the
Corporation Code of the Philippines.
However, while a corporation has no power to enter into a partnership,
nevertheless, it may validly enter into a joint venture agreement, where
the nature of that venture is in line with the business authorized by its
charter.
Obligations of the Partners
Relations created by the contract of partnership:
1.) Relations among the partners themselves;
2.) Relation of the partners with the partnership;
3.) Relation of the partnership with third persons;
4.) Relation of partners with third persons.
Partnership relationship is essentially one of mutual trust and confidence.
Each partner is a trustee and cestui que trust at the same time. He is
entrusted to the extent that the juris bind him as far as the juris present in
his co-partners. The many particular rights and duties are but aspects of the
broad fiduciary relation.
Article 1784: A partnership begins from the moment of the execution of
the contract, unless it is otherwise stipulated.
Can you have a contract of future partnership?
Look at the article unless it is otherwise stipulated. So pwede ba mag-agree
kayo ngayon tapos sabihin ninyo in 3 months, doon tayo magstart.
Pwede?Pwede. That is what you call future partnership.
The partners may stipulate some other time for the commencement of the
partnership. There can be a future partnership which at the moment has no
juridical existence yet. But please take note of your statute of frauds, if
within 1 year, it must be in some form, note or memorandum to be
enforceable.
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.
We enumerated the classification of partnership:
1.) partnership at will; and
2.) partnership for a fixed term.
If and when mag-expire ang partnership for a fix term or a particular
undertaking, then they continued, there is an implied agreement na wala
naman silang dissolutionit can be considered as a partnership at will.
A continuation of the business by the partners or such of them as habitually
acted thereon during the term without any settlement or liquidation of the
partnership affairs, is prima facie evidence of the continuation of the
partnership.
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.
PROMISED CONTRIBUTION
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 contributed8; and
8 Note: Remember the requisites for eviction on your law on sales. It equally applies.
10
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
(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; 9
(4) To preserve said property with the diligence of a good father of a
family pending delivery to the partnership; and
(5) To indemnify the partnership for any damage caused to it by the
retention of the same or by the delay in its contribution.
Example: Kailangan na bumili ng equipment, hindi pa nadeliver
yung money na supposedly contribution. So since need na talaga
ang money, nagborrow. So ano ang damage nun? Yung interest.
So you can demand the:
a.) interest of the loan of the money borrowed; and
b.) interest doon sa money na dapat i-contribute.
So iba yung damage, iba yung interest, even if both naman sila
interest.
Failure to contribute makes the partner ipso jure a debtor of the
partnership even in the absence of any demand. So what is your remedy in
case hindi pa magco-contribute yung isang partner?
SANCHO vs LIZARAGA
DOCTRINE:
When a partner fails to comply with his obligation to deliver what he
promised to contribute to the partnership, and there is no desire to
dissolve the partnership, the remedy that is available to the other partners
cannot be rescission. The proper remedies would be to seek a collection of
the promised contribution, with recovery of interests and damages as
provided for in Articles 1786 and 1788, or ask for dissolution of the
partnership under Article 1831.
LIZARRAGAS FAILURE TO PAY THE PARTNERSHIP, HE BECAME INDEBTED
TO IT. BUT SANCHO CANNOT DEMAND RESCISSION.
The affirmation of the judgment appealed from is inevitable. In view ofthe
lower courts findings referred to above, which we cannot revise because
the parol evidence has not beenforwarded to this court, articles 1681 and
1682 of the Civil Code have been properly applied.
Owing to the defendants 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-knownprinciple that special provisions prevail over general provisions.
Like the Old Civil Code, meron ding specific provision sa New Civil Code, kaya
applicable pa rin siya. Based on the premise that a debtor is a partner who
failed to contribute, (the remedy is) specific performance.
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.
rules on how appraisal should be made.
1.) First, in the manner provided in the contract of partnership.
2.) Second, in the absence of stipulation, by the expert chosen by the
partners.
Article 1788: A partner who has undertaken to contribute a sum of money
and fails to do so becomes a debtor for the interest and damages from the
time he should have complied with his obligation.
The same rule applies 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.
Obligation with respect to contribution of money and converted to
personal use:
1.) To contribute;
2.) To reimburse any amount he may have taken from the
partnership coffers and converted to personal use;
3.) To pay the agreed or legal interest;
4.) To indemnify the partnership for damages.
9 Note: This is an exception to the rule that there has to be a demand for delay to incur.
He is liable for interest and damages not from the time of judicial or extra-
judicial demand. So this is an exception to the general rule in obligations and
contracts. In the partners case, it is from the time he should have complied
his obligation or from the time he converted the amount to his own use.
Unless otherwise stipulated, obligation to contribute arises from the
commencement of the partnership.
In LIWANAG VS CA,even assuming that a contract of partnership has been
entered into by and between the parties, we have a rule that when money
and property have been received by a partner for a specific purpose and he
later misappropriated it, such partner is guilty of estafa. Why? Because the
relationship of partners is based on mutual trust and confidence.Meron pa
din yung element ng trust, so maydeceit pa din, if you used it in a different
way.
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.
So as you can see, an industrial partner, this is on the premise na dapat, since
industry ang icontribute mo, dapat focus ka sa business.
The limitation is absolute: Cannot engage in business for himself, whether
or not that business is related to the partnership.
Unless the contrary is stipulated, he becomes a debtor of the partnership
for his work or services from the moment the partnership relation begins.
In effect the partnership acquires an exclusive right to avail himself of his
industry.
Can you demand specific performance pag-industrial partner? No. It will be
tantamount to involuntary servitude. So, walang pilitan. Bayad ka na lang ng
damages.
What are your remedies should the industrial partner engage into
business? You have the right to either:
1.) Exclude him from the firm; or
2.) Avail themselves of the benefits which he may have obtained.
Kunwari may isa siyang business, tapos profitable yun. Pwedeng sabihin ng
capitalist partner na kung ano man ang profit mo doon, amin yun. I-avail niya
yung benefits 11ay u-receive ni industrial partner, with right to damages, for
both instances. So either right or remedy, may right to damages.
Article 1790: Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership.
Kapag ba maliit lang yung gi-contribute mo, do you have a lesser voice in the
management of the partnership. Lets say 10% lang ang gicontribute,
minority lang, meaning ba nun, dili ka kabuot?
Article 1791: If there is no agreement to the contrary, in case of an
imminent loss of the business of the partnership, any partner who refuses
to contribute an additional share to the capital except an industrial
partner, to save the venture, shall be obliged to sell his interest to the
other partners.
General Rule: Capitalist partner is not bound to contribute more than what
he agreed to.
Exception: In case of imminent loss of the business, you are obliged to
contribute additional share, to save the venture. This is based on the
concept that as an owner, your interest should be to the partnership.
Requisites for the application of the rule:
1.) There is an imminent loss of the business of the partnership;
2.) The majority of the capitalist partners are of the opinion that an
additional contribution to the common fund would save the
business;
3.) The capitalist partner refuses deliberately (not because of his
financial inability to do so), to contribute an additional share to
the capital; and
4.) There is no agreement that even in case of an imminent loss of
the business the partners are not obliged to contribute.
Article 1792: If a partner authorized to manage collects a demandable
sum, which was owed to him in his own name, from a person who owed
the partnership another sum also demandable, the sum thus collected
shall be applied to the two credits in proportion to their amounts, even
though he may have given a receipt for his own credit only; but should he
have given it for the account of the partnership credit, the amount shall
11
 From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
be fully applied to the latter.
The provisions of this article are understood to be without prejudice to
the right granted to the debtor by Article 1252, but only if the personal
credit of the partner should be more onerous to him.
Kapag you are authorized to manage the partnership tapos naka-collect ka,
even if yung resibo nasa pangalan mo lang, you have to apportion. This is
because your interest should be, nasa partnership.
But take note of the application. Article 1252 is the provision on applications
for payment. The debtor has the right to apply the credit kung asa ang mas
onerous, asa niya iapply ang credit. He is given this right. Take note of that.
But this application for payment will apply only if the personal credit is more
onerous. This was discussed thoroughly in your credit transactions.
Article 1793: A partner who has received, in whole or in part, his share of
a partnership credit, when the other partners have not collected theirs,
shall be obliged, if the debtor should thereafter become insolvent, to
bring to the partnership capital what he received even though he may
have given receipt for his share only.
Requisites for application of this rule:
1.) A partner has received, in whole or in part, his share of the partnership
credit;
2.) The other partners have not collected their shares; and
3.) The partnership debtor has become insolvent.
Does this apply during the partnership or after dissolution?
There are some commentators na nagsasabi na during the partnership.
Meron 12ay un nagsasabi na both during and after. It is weird because you
collect a partnership credit while the partnership is ongoing. How will that be
for accounting purposes na nauna siya collect tapos sa iyahang self
gibutang? But then again, he has to account.
Just take note of the opinion of Manresa and Riccina hindi daw siya
applicable pag after dissolution kasi it will not be just that:
1.) he who diligently collected should suffer the consequence of the
negligence of his associates; and
2.) upon the dissolution, the tie that unites the partnership ceases thus the
reason for the obligation disappears.
Article 1794: Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot compensate
them with the profits and benefits which he may have earned for the
partnership by his industry. However, the courts may equitably lessen
this responsibility if through the partners extraordinary efforts in other
activities of the partnership, unusual profits have been realized.
It is the court that will lessen equitably lessen.
So hindi pwede na by that effort alone, ma-lessen na ang kanyang obligation,
ang kanyang damages. Kasi kahit pa extraordinary efforts, he has to ask the
authority of the court to lessen his responsibility.
Article 1795: The risk of specific and determinate things, which are not
fungible, contributed to the partnership so that only their use and fruits
may be for the common benefit, shall be borne by the partner who owns
them.
If the things contributed 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 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.
Article 1796: The partnership shall be responsible to every partner for the
amounts he may have disbursed on behalf of the partnership and for the
corresponding interest, from the time the expenses are made; it shall also
answer to each partner for the obligations he may have contracted in
good faith in the interest of the partnership business, and for risks in
consequence of its management.
Hindi lang ang partner ang may responsibility sa partnership. Ang
partnership din may responsibility sa partner. So kung nag-advance ka, dapat
ipapareimburse mo rin sa partnership.
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.
(How is the)sharing of profits and losses (made)?
1) agreement as to profits, or
2) In its absence, in proportion to its capital contribution.
What about theindustrial partner, (considering that he did not contribute)
capital?
1) He shall receive a just and equitable share under the circumstance.
Sa accounting, inuuna ang industrial, ina-apportion. Ito yung profit.Pag-
walang agreement, unahin ang industrial.Usually yungpinaka-mababa
sa capitalist, ineequivalent siya sa industrial. So una talaga yung
industrial, just and equitable. Usually pag-partnership, yung market
value, magkano yung market value ng services niya, i.e. market value
ng manager sa ganitong industry.
The losses shall be according to agreement. This is very weird, there is an
agreement of sharing of losses. Who would agree to distribute the loss?
the losses in proportion to capital contribution. But again the industrial
partner is not liable for losses. The principle that the industrial partner is not
liable for losses is luging-lugi na siya kung malugi ang company kasi nag-
effort na siya. Maayo man ang capitalist kay hayahay ra man siya.
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.
The reason for this is to avoid any conflict, kasi pera-pera na. Take a look at
the provision? Bakit 3 months?Kasi kung pahabain mo pa yan, wala na,
maparalyze na ang operation kasi nagalalis na mu kung unsaun pagdivide sa
profits and losses.
Article 1799 is a very important provision.
Article 1799: A stipulation which excludes one or more partners from
any share in the profits or losses is void.
Is the partnership void (if there is a stipulation that) Partner A (should not
share in the losses)? No, the partnership is not void, only the stipulation.
(How are they now going to) distribute the profits and losses? It is as if
there is no stipulation. So kung profitsas to capital contribution. Kung
lossescapital contribution.
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.
Kapag naglagay kayo sa articles of partnershipkung sino yung
manager, yung power niya, ang hirap tanggalin. Look at the
provision,he can execute all acts of administration despite the
opposition of his partners. The only exception is pag maybad
faith. So sa day to day decision, pwede siya magbuot-buot. So that
is the disadvantage kung naglagay kayo ng pangalan doon.
Pagnasabutan ninyu ang manager after the constitution, what
will happen? It may be revoked at any time. No need for bad
faith. Good faith or bad faith, pwede nimu siya i-invoke. Pag-
constitution siya, naa siya sa articles of partnership, there has to
be bad faith.
TAI TONG CHUACHE & CO vs INSURANCE COMMISSION
12
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
ISSUE: W/N Chua can act in behalf of Tai Tong.
HELD: Yes.
A PARTNERSHIP MAY SUE AND BE SUED IN ITS NAME OR BY ITS DULY
AUTHORIZED REPRESENTATIVE
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2
respondent pointed out that the action must bebrought in the name of
the real party in interest. We agree. However, it should be borne in mind
that petitioner being a partnership may sue and be sued in its name or
by its duly authorized representative. The fact that Arsenio Lopez Chua is
the representative ofpetitioner is not questioned. Petitioners declaration
that Arsenio Lopez Chua acts as the managing partner of the partnership
wascorroborated by respondent insurance company. Thus Chua as the
managing partner of the partnership may execute all acts
ofadministration including the right to sue debtors of the partnership in
case of their failure to pay their obligations when it becamedue and
demandable. Or at the very least, Chua being a partner of petitioner Tai
Tong Chuache& Company is an agent of thepartnership. Being an agent, it
is understood that he acted for and in behalf of the firm. Public
respondents allegation that the civil case filed by Arsenio Chua was in his
capacity as personal creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of
herein petitioner which policy was of legal force andeffect at the time of
the fire, it is bound by its terms and conditions. Upon its failure to prove
the allegation of lack ofinsurable interest on the part of the
petitioner,respondent insurance company is and must be held liable.
All acts of administration includes the right to sue debtors of the
partnership in case of their failure to pay the obligation when it became
due and demandable. So all acts of administration, it includes the right to
sue. So you can actually sue in behalf of the partnership if you are the
managing partner, of course.
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.
Requisites for application of the rule:
1.) Two or more partners have been appointedas managers;
2.) There is no specification of their respective duties; and
3.) There is no stipulation that one of them shall not act
without the consent of all the others.
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.
Kapag may stipulation na kailangan mag-act ang lahat, dapat mag-act ang
lahat. Even disability cannot be alleged. What is the problem pag ganito ang
setup? Madelay ang operations ng business. What if magbakasyon yung isa
or dalawa, kailangan tawagan mo pa? Kailangan ba bilhin ito?
That is why there is a caveat that unless there is imminent danger of grave
or irreparable injury to the partnership. So even if (the)managers (are not
complete),they can still act provided that the circumstance imposes an
imminent danger of irreparable injury to the partnership.
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 courts intervention may
be sought.
This talks about an act of strict dominion. You dont need the consent of all
partners unless it is manifestly prejudicial. You seek the courts intervention.
Again you cannot just decide on your own.
Art. 1804. Every partner may associate another person with him in his
share, but the associate shall not be admitted into the partnership
without the consent of all the other partners, even if the partner having
an associate should be a manager.
Contract of Subpartnership. An original partner can partner with someone
else but that person cannot be admitted to the original partnership because
that partnership is based on mutual trust and confidence. This is based on
the principle of delectus personae. Ikaw ng.contract ka ug partnership sa
ibang tao does not mean the original partners agree with your decision of
selecting a particular subpartner.
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.
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.
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.
Since partnership is based on mutual trust and confidence, the partner has
the duty to act for the common benefit. In this particular provision, any
transaction connected with the formation, conduct or liquidation of the
partnership. In liquidation, lets say ng.liquidate ka ng partnership, nagbenta
kayo ng assets, the money charged for liquidation has been able to gain
profits, that person must account for the profit and hold it as trustee for the
partnership.
Duty begins during formation of partnership
Principle of good faith applies not only during partnership but during the
negotiations leading to the formation of the partnership.
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.
Compare and contrast this with the prohibition on industrial partners.
Remember capitalist partner only prohibited to engage in similar kind of
business because of your duty as an owner(duty of interest). Compare this
with the industrial partners prohibition which is absolute. What are the
remedies of other partners? You can demand any profits accruing to the
capitalist partner but the losses shall be borne by him.
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.
General Rule: During the existence of partnership, a partner is not entitled to
a formal account of partnership affairs. Reason rights of partner amply
protected in Arts. 1805 and 1806. Also, it would cause inconvenience and
unnecessary waste of time.
Exception: in cases under Art. 1809
FUE LEUNG VS IAC
They are partners in Sun WahPanciteria as they fit the requisites of a
partnership. If excellent relations exist among the partners 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 10 years from the start of operations, such rights are
13
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
irretrievably lost. NCC 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. The resolution of the IAC ordering the
payment of Dan Fues obligation shows that it continues until fully paid.
The question now arises as to whether or not the payment of a share of
profits shall continue into the future with no fixed ending date. Considering
the facts of this case, the Court may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in part, provides: On application
by or for a partner the court shall decree a dissolution whenever:
xxx (3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
xxx(6) Other circumstances render a dissolution equitable.
Thus, there shall be liquidation and winding up of partnership affairs, return
of capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
Even if its registered as a sole proprietorship, you have to look at the
intention of the parties. The evidence presented by the parties here is
actually more in keeping with partnership than sole proprietorship.
What provision was used by petitioner in saying that the complaint has
already prescribed? Art.1144 of the CC. the following action must be
brought within the following year Remember petitioners cause of action
was not based on contract but his right as a partner. The provisions on
partnership should apply as compared to Art. 1144 kasi yung cause does not
arise from the receipt, but his right as a partner. In this particular case, the
prescription will begin upon dissolution of the partnership because it is
only then you can demand an accounting. In accounting, to determine if
there is remaining debts, whether it has net loss or net profit.
EMNACE vs CA
Prescription has not run in this case, it has never begun.
The three final stages of partnership are:
a) dissolution,b) winding up, and c) termination.
In this case, Emnace and his partners dissolved their partnership but such did
not perfect the dissolution because no accounting took place. The
partnership, although dissolved, continues to exist and its legal personality is
retained, at which time it completes the winding up of its affairs, including
the partitioning and distribution of the net partnership assets to the
partners.
For as long as the partnership exists, any of the partners (or legal
representative in this case the heirs of Tabanao) may demand an
accounting of the partnerships business. Prescription of the said right
starts to run only upon the dissolution of the partnership when the final
accounting is done.
When a final accounting is made, it is only then that prescription begins to
run. In the case at bar, no final accounting has been made, and that is
precisely what the heirs are seeking in their action before the trial court,
since Emnace has failed or refused to render an accounting of the
partnerships business and assets. Hence, the said action is not barred by
prescription.
For example, a partnership was in year 1982- established and later in 1986
dissolved. But nkalagay sa agreement nila na mg.accouting sila in 1983. Now,
would the prescription begin at the time of dissolution or that of the
stipulated agreement? The time of Dissolution.
Art. 1809 (4) Whenever other circumstances render it just and reasonable.
Although there is a stipulation to account in 1983 but the partnership
continued on and was dissolved in 1986. From 1982 to 1983, the stipulation
to account pertains only to that. At the time of dissolution, you still have to
demand a formal accounting precisely for the periods when no accounting
has not been done(time of covered by the stipulation to account up to time
of actual liquidation). Your cause of action for the stipulation to account is
different from your cause of action to demand formal accounting at the time
of liquidation.
Art. 1810. The property rights of a partner are:
1.) His rights in specific partnership property;
2.) His interest in the partnership; and
3.) His right to participate in the management.
Extent of property rights of a partner
Principal rights-
1. Rights in specific partnership property
2. Interest in partnership
3. Right to participate in management
Related rights
1. Right to reimbursement for amounts advanced to partnership and
to indemnification for risks in consequence of management (Art.
1796).
2. Right of access and inspection of partnership books (Art. 1805).
3. Right to true and full information of all things affecting
partnership (Art. 1806).
4. Right to formal account of partnership affairs under certain
circumstances (Art. 1809).
5. Right to have partnership dissolved under certain conditions (Art.
1830-1831).
Ownership of certain property
Property used by the partnership- Where there is no express agreement that
property used by a partnership constitutes partnership property, such use
does not make it partnership property, and whether it is so depends on the
intention of the parties, which may be shown by proving an express
agreement or acts of particular conduct.
Art. 1811. A partner is co-owner with his partners of specific partnership
property.
The incidents of this co-ownership are such that:
1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his
partners to possess specific partnership property for partnership
purposes;10 but he has no right to possess such property for any
other purpose without the consent of his partners;
2) A partners right in specific partnership property is not assignable
except in connection with the assignment of rights of all the
partners in the same property;11
3) A partners right in specific partnership property is not subject to
attachment or execution, except on a claim against the
partnership. When partnership property is attached for a
partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right
under the homestead or exemption laws; 12
4) A partners right in specific partnership property is not subject to
legal support under art. 291.
Art. 1812. A partners interest in the partnership is his share of the
profits and surplus.
Distinguish profits from surplus.
Profits are income from a particular period.
Surplus are excess of assets over liabilities. It does not mean if you are
operating at a loss, you dont have a surplus.
Art. 1813. A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, against the
other partners in the absence of agreement, entitle the assignee, during
the continuance of the partnership, to interfere in the management or
administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive in
accordance with his contract the profits to which the assigning partner
would otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of the
usual remedies.
In case of dissolution of the partnership, the assignee is entitled to
receive his assignors interest and may require an account from the date
only of the last account agreed to by all the partners.
As a partner I can assign my whole interest, but my assignee does not
become a partner based on the principle of delectus personae since the other
10 His right is limited to partnership purpose. Lets say yung partnership mo ng.renta ng
apartment. You cannot use it for a different purpose other than for partnership.
11 Contrary to your usual co-ownership, you have a particular aliquot part of the
property and that part can be specifically assigned. However, in partnership, you cannot
assign that particular specific partnership property unless every partner consents.
12 Lets say yung partnership property kay carabao(property exempted from execution).
A partnership creditor can attach such property because you cannot invoke such
exemption. Remember partnership creditors are preferred over the partners with
regard to debts even if the partner specifically owns that partnership property.
14
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
partners did not select that assignee to become a partner of the original
partnership. Necessarily, that assignee has limited rights.
Rights withheld from assignee-
1. To interfere in the management;
2. To require any information or account;
3. To inspect any of the partnership books;
Rights of Assignee of partners interest
1. To receive in accordance with his contract the profits accruing to
the assigning parter;
2. To avail himself of the usual remedies provided by law in the
event of fraud in the management;
3. To receive the assignors interest in case of dissolution;
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.
Art. 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 to him in
respect of the partnership, and make all other orders, directions,
accounts and inquiries which the debtor partner might have made, or
which circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure,
or in any case of a sale being directed by the court, may be purchased
without thereby causing a dissolution:
1.) With separate property, by any one or more of the partners; or
2.) With partnership property, by any one or more of the partners
with the consent of all the partners whose interest 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.13
Remedies of separate judgement creditor of a partner.
Application for a charging order after securing judgement on his credit.
So si judgement creditor(personal judgement creditor ni partner) lets say
may unsatisfied judgement. Remember this is only applicable if there is an
unsatisfied judgment. It is property pa personally of debtor-partner. Di pwde
iinvoke ni debtor. Dapat ngsatisfy ng judgment bago siya mg.apply ng
charging order, tapos iicharge ang interest niya. Tinawag ito na charging
order dahil i.charge lang siya. Hindi pa determinate na masatisfy yung
unsatisfied judgment dahil depende pah sa interest na matitira ni debtor-
partner.
Right of the existing partners to redeem
Lets say may charging order and ayaw nila may papasok mg.dedemand ng
interest. Sabi ng isang partner since parating na man ung share ko bayaran ko
nalang ang unsatisfied creditor. Anyone of the partner or even the
partnership itself can pay the unsatisfied creditor. The effect nabayaran nila
they do not not step into the shoes of the creditor. There is no novation(?)
pagbayaran ng utang ng isa, I step into the shoes of the creditor. You hold it
in trust of the original partner-debtor. So papaano ka babayaran?Lets say
pagdating ng formal accounting mas malaki ang kanyang interest so pwede
ka bayaran or pwede niyo din pag.usapan na bayaran muna ako tapos
m.comply ko na yung debt isauli ko yung interest sayo. So only holds it in
trust of the debtor-partner. It is very peculiar as compared to your usual
contracts and obligations.
Art. 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.
Please read SEC Memo Circular 5 series of 2008 which gives us the guidelines
and procedure for choosing a partnership or corporate name. So we cannot
unilaterally or by your own will choose a corporate or partnership name kasi
ofcourse registered yan. It is the SEC thats the regulating body who oversees
partnership and corporations. Usually they require 5 names. First, preferred
pero kung mahit siya, yung second na naman, then third. In your application
13
Please differentiate this with rights of a partner to a specific partnership property.
Remember we said we cannot invoke the exemption laws. But in this particular
provision you can actually invoke exemption laws. Because in actuality, yung interest
mo is actually your property.
you will have to execute an affidavit that In the event the applied name has
already been used, the applicant must change said name.
What are the guidelines?
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
proprietorships;
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;
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 soley of special symbols, punctuation marks or
specially designed characters shall not be registered.
Take note also:
The corporate name shall contain the word Corporation or
incorporated, or the abbreviations Corp. or Inc., respectively;
The partnership name shall bear the word Company or Co. and if it is a
limited partnership, the word limited or Ltd. A professional partnership
name may bear the word Company, Associates, or Partners, or other
similar descriptions;
The corporate name of a foundation shall use the word Foundation.
So hindi pwede partnership ka at yung surname or lastname is Inc., Corp.
or Corporation. Lets say Dulay Corporation or Dulay Inc. or Dulay Corp.
hindi siya pwede partnership. But Dulay Co or Dulay Company pwede siya
partnership.
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.14
A) the full name or surname of a person may be 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;15
The name of an internationally known foreign corporation, or something
similar to it, cannot be used by a domestic corporation unless it is its
subsidiary and the parent corporation has consented to such use;16
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 governmental functions;
So you cannot have the partnership name as Bureau of Dulay because that
name is exclusively for government.
The name of a local geographical unit, site or location cannot be used as a
corporate or partnership name unless its is accompanied by a descriptive
word or phrase, e.g., Pasay Food Store, Inc.
14This is applicable to franchise agreement, hindi nila tatangapin unless hindi ka naclear
ng IPO.
15 There are 2 cases assigned to this. Just refer to it. Dati kasi bawal mg.use ng name ng
decease but right now pwede as long as any of your correspondents you would indicate
na patay na siya. Usually may nilalagay or mark na cross.
16 Remember in your Intellectual property, theres this convention, Paris convention(?),
that even if wala nareserve na name sa Philippines, pwede niya mainvoke ang kanyang
right for as long as the Philippines and the country to which it was registered are
signatories to the convention. So you cannot use it. Even if you raise the argument na
hindi naman siya n.reserve sa Philippines eh. You cannot raise that due to the Paris
Convention.
15
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Walang store na Davao Company or Davao Corporation. Dapat talagang may
in between. E.g. Davao Lumber Corporation. Because you cannot use a
location without a descriptive word or phrase otherwise it would be
misleading. Also do not use the words United Nations or UN because it is
strictly limited to the UN. Also, Finance Company, Financing Company,
Finance and Leasing Company and Leasing Company, Investment
Company, Investment House - are exclusive to entities engaged in the
financing or investment house business. Also, Lending Company and
Lending Investor by lending companies or pawnshop by entities Why is it now that the industrial partner is liable?
authorized to operate pawnshops. Bank, Banking, Banker, Savings and
Loan Assocation, Trust Corporation, Trust Company- exclusive to
entities engaged in the banking or trust business. SPV-AMC exclusive to
corporations authorized to act as special purpose vehicle(SPV).
Another rule, do use Investment(s) or capital exclusive to entities
organized as investment house, investment company or holding company;
Asset/Investment/Fund/Financial Management, or
Asset/Investment/Fund/Financial Management Adviser, or any similar
words or phrases exclusive to entities organized as investment company
adviser or holders of investment management activities license from the
Bangko Sentral ng Pilipinas; Association and Organization or similar
words which pertain to non-stock corporations exclusive to entities
primarily engaged in non-profit acitivities; Stock Exhange/Futures
Exhange/Derivatives Exchange and Stock Exhange/Futures
Exhange/Derivatives Exchange broker by entities engaged organizes as an
exchange, broker dealer, commodity futures broker, clearing agency, or pre-
need company under the Securities Regulation Code.
Again, you cannot just use any name. Those mentioned are highly regulated
entities.
JO CHUNG CANG vs. PACIFIC COMMERCIAL CO
The contract of partnership established a general partnership. By process of
elimination, TeckSeing& Co., Ltd. Is neither a corporation nor an accidental
partnership (joint account association).
To establish a limited partnership, there must be, at least, one general
partner and the name of at least one of the general partners must appear in
the firm name. This requirement has not been fulfilled. Those who seek to
avail themselves of the protection of laws permitting the creation of limited
partnerships must the show a substantially full compliance with such laws.
It must be noted that all the requirements of the Code have been met w/ the
sole exception of that relating to the composition of the firm name. The legal
intention deducible from the acts of the parties controls in determining the
existence of a partnership. If they intend to do a thing w/c in law constitutes
a partnership, they are partners although their very purpose was to avoid the
creation of such relation. Here the intention of the persons making up,
TeckSeing& Co., Ltd. was to establish partnership w/c they erroneously
denominated as a limited partnership.
if this case happened today(the applicable law in the case was different)?
YES. Art.1815. would still be considered a general partnership Again, it is
only optional if you include your name. pwede ka mg.include ng ibang name
as long as it is compliant with the SEC circular.
Art. 1816. All partners, including industrial ones, shall be liable pro rata
with all their property and after all the partnership assets have been
exhausted, for the contracts which may be entered into in the name and
for the account of the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.
Partnership Liability Partners are principals to the other partners and
agents for them and the partnership. They are liable to 3rd persons who have
dealt with one of them in the same way that a principal is liable to 3rd
persons who have dealt with an agent. The general rules is that a partner has
the right to make all partners liable for contracts he makes for the
partnership in the name and for the account of the partnership.
Please take note of the liability of the partners- its pro-rata meaning equally
or jointly not proportionately. Pro rata is based on the number of partners
and not on the amount of their contributions to the common fund. So even
of one partner contributed only 10% of the capital, it doesnt mean ang
matatangap niya ay 10% lang din. Because that would not be proportionate.
So if there are 5 partners, mag-1/5th sila isa-isa. Even if one of the partners
contributed only 10%. Hindi pwedeng i.pro-rate mo siya based on capital
contributions but based on the number of individual or partners there are.
It is only subsidiary or secondary because the partners become personally
liable only when the partnership assets have been exhausted. So you can
liken your obligation to that of a guaranty than a surety. The guarantor has
the right of excusion. So dapat i.exhaust sa tanan. Whereas in surety has no
right. So the creditor can demand payment directly to the surety. While on
guaranty you have to prove that you have exhausted the properties of the
debtor.
Please take not in this provision, that even an industrial partner is liable.
Under the previous provisions, the industrial partner is not liable for losses.
COMPANIA MARITIMA vs MUNOZ
the partnership was sued by La CompaiaMartitama for collection of sum
of money amounting to P26,828.30. The partnership lost the case and
was ordered to make said payment; that in case the partnership cant pay
the debt, all the partners should be liable for it in accordance with Article
127 of the Code of Commerce. Francisco now argues that the industrial
partners should not be liable pursuant to Article 141 of the Code of
Commerce.
ISSUE: Whether or not the industrial partners are liable to third parties
like La CompaiaMartitama.
HELD: Yes. The controlling law is Article 127. There is no injustice in
imposing this liability upon the industrial partners. They have a voice in
the management of the business, if no manager has been named in the
articles; they share in the profits and as to third persons it is no more
than right that they should share in the obligations. It is admitted that if in
this case there had been a capitalist partner who had contributed only
P100 he would be liable for this entire debt of P26,000.
The Courts construction of the article is that it relates exclusively to the
settlement of the partnership affairs among the partners themselves
and has nothing to do with the liability of the partners to third persons;
that each one of the industrial partners is liable to third persons for the
debts of the firm; that if he has paid such debts out of his private
property during the life of the partnership, when its affairs are settled he
is entitled to credit for the amount so paid, and if it results that there is
not enough property in the partnership to pay him, then the capitalist
partners must pay him.
In relation to this, the Supreme Court noted that partnerships under the
Civil Code provides for a scenario where all partners are industrial
partners (like when it is a partnership for the exercise of a profession). In
such case, if it is permitted that industrial partners are not liable to third
persons then such third persons would get practically nothing from such
partnerships if the latter is indebted.
What is the recourse of the industrial partner given that he becomes liable?
Kung nibayad siya unsa iya recourse? Diba hindisiya liable for losses, but
liable siya for liability. Lets say nagbayad siya to his pro-rata share with
regard to the liability to the third person. Exhaust all the partnership
properties before he can be held liable. I think this particular case is under
the premise that there has been exhaustion of the partnership properties
dahil nag.hahabol na siya sa industrial partner niya dahil wala ng mabayad.
Lets say nagbayad na sila, industrial partner liable din siya. Lets say nagbayad
siya ng kanyang share. Ano ang kanyang recourse? We talked about the
previous article, hindi na man siya liable for losses. So saan siya maliable?
Liabilities. In this particular provision, you have to distinguish losses from
liabilities. Industrial partner shall not share with the losses but liable siya to
third persons. If nagbayad ang industrial partner sa share niya sa third
person ang recourse niya is on the other partners. In effect he does not share
in the losses of the partnership.
Losses from liability. Lets say na.exhaust na ang partnership assets so hinabol
na si partners. Even if you are an industrial partner, the creditors can actually
demand for you to pay your share. However, your recourse is on the
capitalist partner. Dahil hindi ako liable sa losses eh. Nagseserbisyo na nga
ako.lugi pah dahil pababayarin mo pah ako.The third person wala namang
paki.alam eh. Hindi alam ni third person na industrial ka lang. Wag mong
pahirapan si third person.
So it is not in conflict with the previous provision that the industrial partner is
not liable for losses.
DELOS REYES vs LUKBAN
ISSUE:WON Creditor delos Reyes may collect individually from the
partners, Lukban and Borja, the balance of the debt that the partnership
firm owed at the time of its dissolution. (YES)
HELD: Creditor delos Reyes may collect individually from the partners.
It should be noted that the dissolved partnership of Lukban&Borja had
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
absolutely no property whatever of its own, based on the contents of the
writ, the return of the execution of the final judgment, and the fact that
respondent Lukban did not point this out to avoid liability in solidum. As
to Creditor delos Reyes right to collect individually from the partners
Lukban and Borja the amount owed by the partnership firm, it is
unquestionable that such a right has given rise to the corresponding right
of action to demand the payment of the debt from the partners
individually, or from each of them, by the insolvency of the partnership,
inasmuch as they are personally and severally liable with all their
property for the results of the operations of the partnership which they
conducted.
ART. 127, CODE OF COMMERCE provides:
All the members of the general co-partnership, be they or be
they nor managing partners of the same, are personally and
severally liable with all their property for the results of the
transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person
authorized to make use thereof.
where the partners liability for a partnership debt was only secondary
or subsidiary, their right of excussion was deemed already satisfied
where at the time the judgment was executed against the partnership
they were unable to show that there were still partnership assets, or
when a writ of execution against the partnership had been returned not
fully satisfied.
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.
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.17
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
assignees 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.
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-
17Lets 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.
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
Partnership exists.
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 petitioners fault for making the
relationship appear otherwise, not only to Tropical but to the other creditors
as well.
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)
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.
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
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.
Kong Chai Pin lawfully acted as the sole managing partner in lieu of her
husband.Although, the power of Tan Sin An as sole managing partner, which
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
is premised upon trust and confidence, was a mere personal right that should
have been terminated upon Tans 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 Tans 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.
By allowing her to retain control of the firms property from 1942 to 1949,
Goquiolay is estopped from denying Kong Chai Pins legal representation of
the partnership. Hence, Kong Chai Pin is a managing partner with the power
to bind the partnership by proper contracts. 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 require that each time a
third person contracts with one of the managing partners, he should inquire
as to the latters 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.
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.
The acts of a partner mentioned in Art. 1818 may be grouped into three:
1) 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 for the partnership NOT to be liable:
a.) The partner so acting has in fact no authority; AND
rd
b.) The 3 person knows that the acting partner has no
authority.
2) 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.
3) 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?
GR: 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
1) the partners act binds the partnership under the provisions of the
first paragraph of article 1818, or
2) 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);
rd
(3) One or more or all the partners, or in a 3 person in trust for the
partnership (par. 4);
(4) All the partners (par. 5).
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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
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.
BY PRINCIPLE OF ESTOPPEL
The records showed that the respondent partnership is composed 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.
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.
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.
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.
How about the argument of the concept of separate juridical personality.
Diba iba naman yung personality ni mortgagor from its owners. 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.
What did the SC say as to the term conveyance in Art. 1819? 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.
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.
rd
A 3 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
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
Enforcement of Liabilities
Under the Civil Code Not Possible
In any event, it is claimed that Comelec may still enforce the liability of the
consortium members under the Civil Code provisions on partnership,
reasoning that MPEI et al. represented themselves as partners and members
of MPC for purposes of bidding for the Project. They are, therefore, liable to
the Comelec to the extent that the latter relied upon such representation.
Their liability as partners is solidary with respect to everything chargeable to
the partnership under certain conditions.
The Court has two points to make with respect to this argument. First, it
must be recalled that SK C&C, WeSolv, Election.com and ePLDT never
represented themselves as partners and members of MPC, whether for
purposes of bidding or for something else. It was MPEI alone that
represented them to be members of a consortium it supposedly headed.
Thus, its acts may not necessarily be held against the other members.
Second, this argument of the OSG in its Memorandum[44] might possibly
apply in the absence of a joint venture agreement or some other writing that
discloses the relationship of the members with one another. But precisely,
this case does not deal with a situation in which there is nothing in writing to
serve as reference, leaving Comelec to rely on mere representations and
therefore justifying a falling back on the rules on partnership. For, again, the
terms and stipulations of the MOAs entered into by MPEI with SK C&C and
WeSolv, as well as the Teaming Agreements of MPEI with Election.com and
ePLDT (copies of which have been furnished the Comelec) are very clear with
respect to the extent and the limitations of the firms respective liabilities.
In the case of WeSolv and SK C&C, their MOAs state that their liabilities,
while joint and several with MPEI, are limited only to the particular areas of
work wherein their services are engaged or their products utilized. As for
Election.com and ePLDT, their separate Teaming Agreements specifically
19
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
ascribe to them the role of subcontractor vis--vis MPEI as contractor and,
based on the terms of their particular agreements, neither Election.com nor
ePLDT is, with MPEI, jointly and severally liable to Comelec.[45] It follows
then that in the instant case, there is no justification for anyone, much less
Comelec, to resort to the rules on partnership and partners liabilities.
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 liabilitySo 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. .
The SC said may written reference kung saan limited ang liability yung iba
sumali sa bidding.
Article 1825: When a person by words spoken or written or by conduct
represents himself or consents to another representing him to anyone as a
partner in an existing partnership or with one or more persons not actual
partners he is liable to any such persons to whom such representation has
been made who 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 results he is liable as though he were an
actual member of the partnership;
2.) When no partnership liability results he is liable pro rata with the other
persons if any so consenting to the contract or representation as to incur
liability otherwise separately.
When a person has been thus represented to be a partner in an existing
partnership or with one or more persons not actual partners ,he is an agent
of the persons consenting to such representation to bind them to the same
extent and in the same manner as though he were a partner in 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. Lets say theres 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.
Theres a discussion in the book of De Leon that The law makes liable as
general partners all persons who assume to act as a corporation and may
include persons who attempt, but fail to form a corporation and who carry
on business under the corporate name. Sabi natin before na, kapag nag-
apply ka as corporation, lets say hindi mo na-comply ang partner requisites,
it does not automatically result into a partnership, because partnership is by
intention. But sabi dito, they can be held liable as a general partner. Those
who acted as a corporation failed to form a corporation, they can be held
liable as general partners. How do we make sense of this statement?
Remember that this is only in reference to third persons, kung nagkaroon ng
liability yung persons who failed to form a corporation. So in effect, wala pa
ring partnership na nabuo because of the failed corporation. Its just that, it
created a liability in favor of the third person; they can be liable as general
partners. So theres a distinction as between themselves and as between
third persons. This provision protects the rights of third persons.
Article 1826:A person admitted as a partner into an existing partnership is
liable for all the obligations of the partnership arising before his admission
as though he had been a partner when such obligations were
incurredexcept that this liability shall be satisfied only out of partnership
propertyunless there is a stipulation to the contrary.
Article 1827:The creditors of the partnership shall be preferred to those of
each partner as regards the partnership property. Without prejudice to this
rightthe private creditors of each partner may ask the attachment and
public sale of the share of the latter in the partnership assets.
DISSOLUTION AND WINDING UP
Article 1828:The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the carrying
on as distinguished from the winding up of the business.
(1) Dissolution is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on of the business. It is
that point in time when the partners cease to carry on the business
together. It represents the demise of a partnership. Thus, any time a
partner leaves the business, the partnership is dissolved. This does not
necessarily mean the business must cease to exist for the partners may
be allowed to continue the business.
(2) Winding up is the actual process of settling the business or
partnership affairs after dissolution, involving the collection and
distribution of partnership assets, payment of debts, and determination
of the value of each partners interest in the partnership. It is the final
step after the dissolution in the termination of the partnership. The
priority for distributing the proceeds of the process is set out in Article
1839.]
(3) Termination is that point in time that all partnership affairs are
completely wound up and finally settled. It signifies the end of the
partnership life. It takes place after both dissolution and winding up
have occurred.
Article 1829:On dissolution the partnership is not terminatedbut continues
until the winding up of partnership affairs is completed.
Effects of dissolution:
1) Partnership not terminated;
2) Partnership continues for a limited purpose;
3) Transaction of new business prohibited.
How do we cause the dissolution of a partnership?
There is no such thing as indissoluble partnership. Any partner has the power
dissolve a partnership, but not necessarily the right. It means that if you
20
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

dissolve the partnership in bad faith, you can be held liable for damages. Article 1830. Dissolution without need of Court Decree
Ground is Article 19 of the Civil Code.
Without Violation In Contravention Caused by Force
of Partnership of the Majeure or
Agreement Partnership Outside the Will
Agreement of the Partners

Termination of Pre-termination Loss of specific

the term of period thing promised
to be
contributed*

Termination of Pre-termination Partnership

the Specific of specific business
undertaking undertaking becomes
unlawful

Will of any Will of any Death,

partner partner insolvency or
exercised in exercised in bad civil interdiction
good faith faith of any partner
(partnership at (partnership at
will) will)

Expulsion of a Insolvency of the

partner bona partnership
fide under the
powers granted
in the
agreement

Mutual
withdrawal by all
partners

In Fernandez vs. Dela Rosa, it was discussed that ang nakalagay sa law is loss
the specific thing promised to be contributed. In effect, hindi sya
nacontribute. What if yung kinontribute mo originally during the term of the
partnership, binalik? Would that cause dissolution? Dito (loss of the specific
thing promised to be contributed), hindi nakuha ng partnership ang thing,
hindi nagamit ng partnership, so its a cause of dissolution. What if binigay ko
ngayon, tapos may partnership na, after a week, kinuha ko. Would that cause
dissolution? So in this case, the SC said NO, kasi in effect, binigay mo naman
yung promise mo. After the fact na naestablish ang partnership, wala ng
pakialam dun ang law. The law is specific; it is only with regard to the thing
promised to be contributed.

Article 1831:On application by or for a partner, the court shall decree a

dissolution whenever:
1.) A partner has been declared insane in any judicial proceeding or
is shown to be of unsound mind;
2.) A partner becomes in any other way incapable of performing his
part of the partnership contract;
3.) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
4.) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
5.) The business of the partnership can only be carried on at a loss;
6.) Other circumstances render a dissolution equitable;

On the application of the purchaser of a partners interest under Article

1813 or 1814:
1.) After the termination of the specified term or particular
undertaking;
2.) At any time if the partnership was a partnership at will when the
interest was assigned or when the charging order was issued.

Article 1832:Except so far as may be necessary to wind up partnership

affairs or to complete transactions begun but not then finished dissolution
terminates all authority of any partner to act for the partnership:
1.) With respect to the partners
a. When the dissolution is not by the actinsolvency or
death of a partner; or
b. When the dissolution is by such actinsolvency or
death or a partnerin cases where Article 1833 so
requires;

2.) With respect to persons not partnersas declared in Article 1834.

21
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
GR: the partnership ceases to be a going concern and the partners power of
representation is confined only to his acts incident to the winding up or
completing transactions begun but not then finished. So again, ano yung mga
winding up affairs? Bentahan ng assets, liquidate the assets. To pay for the
partnership debts. Generally, those are the only transactions to be
undertaken during the winding up. The event of dissolution terminates the
actual authority of a partner to undertake new business for the partnership.
Article 1833:Where the dissolution is caused by the actual death or
insolvency of partner, each partner is liable to his co-partners for his share
of any liability created by any partner acting for the partnership as if the
partnership had not been dissolved unless:
1.) The dissolution being the act of any partner the partner acting
for the partnership had knowledge of the dissolution; or
2.) The dissolution being by the death or insolvency of a partner the
partner acting for the partnership had knowledge or notice of
the death or insolvency.
It means that just because na dissolve na yung partnership, a partner cannot
make his co-partner liable. Please note that if the cause of the dissolution is
the act of any partner, the person acting for the partnership must act with
knowledge. Kapag by death or insolvency, pwede notice lang.
Article 1834:After dissolution, a partner can bind the partnership except as
provided in the third paragraph of this article:
1.) By any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution; or
2.) By any transaction which would bind the partnership if dissolution
had not taken place, provided the other party to the transaction:
a.) Had extended credit to the partnership prior to dissolution and
had no knowledge or notice of the dissolution; or
b.) Though he had not so extended credit, had nevertheless known
of the partnership prior to dissolution, and, having no
knowledge or notice of dissolution, the fact of dissolution had
not been advertised in a newspaper of general circulation in the
place (or in each place if more than one) at which the
partnership business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied
out of partnership assets alone when such partner had been prior to
dissolution:
1.) Unknown as a partner to the person with whom the contract is
made; and
2.) So far unknown and inactive in partnership affairs that the
business reputation of the partnership could not be said to have
been in any degree due to his connection with it.
The partnership is in no case bound by any act of a partner after
dissolution:
1.) Where the partnership is dissolved because it is unlawful to
carry on the business, unless the act is appropriate for winding
up partnership affairs; or
2.) Where the partner has become insolvent; or
3.) Where the partner has no authority to wind up partnership
affairs, except by a transaction with one who
a.) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of his want of
authority; or
b.) Had not extended credit to the partnership prior to
dissolution, and, having no knowledge or notice of his
want of authority, the fact of his want of authority has
not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph,
No. 2.
Nothing in this article shall effect the liability under Article 1825 of any
person who after dissolution represents himself or consents to another
representing him as a partner in a partnership engaged in carrying in
business.
AKA the winding up period.
Essentially, kung yung third person, hindi nya alam na nadissolve, tapos he
extended credit before, pwede nya ma-bind ang partnership. Pero kapag
alam nya na, hindi na pwede.
Article 1835:The dissolution of the partnership does not of itself discharge
the existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of the
partnership by an agreement to that effect between himself, the
partnership creditor and the person or partnership continuing the business;
and such agreement may be inferred from the course of dealing between
the creditor having knowledge of the dissolution and the person or
partnership continuing the business.
The individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner, but subject
to the prior payment of his separate debts.
This pertains to a situation wherein, nag dissolve, may umalis na partner
tapos kinontinue nung naremain. The partner na umalis na sa partnership,
can he be discharged of the liability? Sabi dito, pwede lang kung may
agreement. Because this is an essence of what kind of contract, in your
oblicon? Change of debtor.
Article 1836:Unless otherwise agreedthe partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving
partnernot insolvent has the right to wind up thepartnership affairs
provided however that any partner his legal representative or his assignee
upon cause shown may obtain winding up by the court.
Kung may nakalagay na This person should wind up the partnership affairs,
pwede. Pero kung wala, those persons who have not wrongfully dissolved
the partnership, or kung patay na lahat, yung legal representative ng last
surviving partner. Even if the person who has wrongfully dissolved the
partnership, general rule, hindi sya pwede, he can still actually ask the court
na sya ang mag wind up, provided that the court agrees, upon caused shown.
Article 1837:When dissolution is caused in any way, except in
contravention of the partnership agreement, each partner, as against his
co-partners and all persons claiming through them in respect of their
interests in the partnership, unless otherwise agreed, may have the
partnership property applied to discharge its liabilities, and the surplus
applied to pay in cash the net amount owing to the respective partners. But
if dissolution is caused by expulsion of a partner, bona fide under the
partnership agreement and if the expelled partner is discharged from all
partnership liabilities, either by payment or agreement under the second
paragraph of Article 1835, he shall receive in cash only the net amount due
him from the partnership.
When dissolution is caused in contravention of the partnership agreement
the rights of the partners shall be as follows:
1.) Each partner who has not caused dissolution wrongfully shall have:
a.) All the rights specified in the first paragraph of this article, and
b.) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the agreement.
2.) The partners who have not caused the dissolution wrongfully, if they
all desire to continue the business in the same name either by
themselves or jointly with others, may do so, during the agreed term
for the partnership and for that purpose may possess the partnership
property, provided they secure the payment by bond approved by the
court, or pay to any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at the
dissolution, loss any damages recoverable under the second
paragraph, No. 1 (b) of this article, and in like manner indemnify him
against all present or future partnership liabilities.
3.) A partner who has caused the dissolution wrongfully shall have:
a.) If the business is not continued under the provisions of the
second paragraph, No. 2, all the rights of a partner under the
first paragraph, subject to liability for damages in the second
paragraph, No. 1(b), of this article.
b.) If the business is continued under the second paragraph, No. 2,
of this article, the right as against his copartners and all claiming
through them in respect of their interests in the partnership, to
have the value of his interest in the partnership, less any
damage caused to his co-partners by the dissolution, ascertained
and paid to him in cash, or the payment secured by a bond
approved by the court, and to be released from all existing
liabilities of the partnership; but in ascertaining the value of the
partners interest the value of the goodwill of the business shall
not be considered.
22
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

Article 1838:Where a partnership contract is rescinded on the ground of the

fraud or misrepresentation of one of the parties thereto, the party entitled
to rescind is, without prejudice to any other right, entitled:
1.) To a lien on, or right of retention of, the surplus of the partnership
rd
property after satisfying the partnership liabilities to 3 persons for
any sum of money paid by him for the purchase of an interest in the
partnership and for any capital or advances contributed by him;
rd
2.) To stand, after all liabilities to 3 persons have been satisfied, in the
place of the creditors of the partnership for any payments made by
him in respect of the partnership liabilities; and
3.) To be indemnified by the person guilty of fraud or making the
representation against all debts and liabilities of the partnership.
2.) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
3.) When any partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this article, with the
consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership property;
4.) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the
debts and who continue the business of the dissolved partnership;

5.) When any partner wrongfully causes a dissolution and the remaining
Article 1839:In settling accounts between the partners after dissolution, the
partners continue the business under the provisions of Article 1837, second
following rules shall be observed, subject to any agreement to the contrary:
paragraph, No. 2, either alone or with others, and without liquidation of
1.) The assets of the partnership are:
partnership affairs;
a.) The partnership property,
b.) The contributions of the partners necessary for the
6.) When a partner is expelled and the remaining partners continue the
payment of all the liabilities specified in No. 2.
business either alone or with others without liquidation of the partnership
affairs.
2.) The liabilities of the partnership shall rank in order of payment,
as follows:
The liability of a third person becoming a partner in the partnership
a.) Those owing to creditors other than partners,
continuing the business, under this article, to the creditors of the dissolved
b.) Those owing to partners other than for capital and profits,
partnership shall be satisfied out of the partnership property only, unless
c.) Those owing to partners in respect of capital,
there is a stipulation to the contrary.
d.) Those owing to partners in respect of profits. 18
When the business of a partnership after dissolution is continued under
3.) The assets shall be applied in the order of their declaration in
any conditions set forth in this article the creditors of the dissolved
No. 1 of this article to the satisfaction of the liabilities.
partnership, as against the separate creditors of the retiring or deceased
4.) The partners shall contribute, as provided by Article 1797, the
partner, have a prior right to any claim of the retired partner or the
amount necessary to satisfy the liabilities.
representative of the deceased partner against the person or partnership
5.) An assignee for the benefit of creditors or any person appointed
continuing the business, on account of the retired or deceased partners
by the court shall have the right to enforce the contributions
interest in the dissolved partnership or on account of any consideration
specified in the preceding number.
promised for such interest of for his right in partnership property.
6.) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
Nothing in this article shall be held to modify any right of creditors to set
amount which he has paid in excess of his share of the liability.
aside any assignment on the ground of fraud.
7.) The individual property of a deceased partner shall be liable for
the contributions specified in No. 4. 19
The use by the person or partnership continuing the business of the
8.) When partnership property and the individual properties of the
partnership name, or the name of a deceased partner as part thereof, shall
partners are in possession of a court for distribution, partnership
not of itself make the individual property of the deceased partner liable for
creditors shall have priority on partnership property and
any debts contracted by such person or partnership.
separate creditors on individual property, saving the rights of
lien or secured creditors. 20
9.) Where a partner has become insolvent or his estate is insolvent,
the claims against his separate property shall rank in the
following order: Article 1841:When any partner retires or diesand the business is continued
a.) Those owing to separate creditors; under any of the conditions set forth in the preceding articleor in Article
b.) Those owing to partnership creditors; 1837second paragraphNo. 2without any settlement of accounts as between
c.) Those owing to partners by way of contribution.21 him or his estate and the person or partnership continuing the
businessunless otherwise agreedhe or his legal representative as against
such person or partnership may have the value of his interest at the date of
dissolution ascertainedand shall receive as an ordinary creditor an amount
Article 1840:In the following cases creditors of the dissolved partnership
equal to the value of his interest in the dissolved partnership with
are also creditors of the person of partnership continuing the business:
interestor at his option or at the option of his legal representativein lieu of
1.) When any new partner is admitted into an existing partnership, or when
interest the profits attributable to the use of his right in the property of the
any partner retires and assigns (or the representative of the deceased
dissolved partnership; provided that the creditors of the dissolved
partner assigns) his rights in partnership property to two or more of the
partnership as against the separate creditorsor the representative of the
partners, or to one or more of the partners and one or more third persons,
retired or deceased partnershall have priority on any claim arising under
if the business is continued without liquidation of the partnership affairs;
this article as provided by Article 1840third paragraph.

18 Please take note of this because the order of payment in limited partnership is quite
different, in case you would be asked the comparison of how accounts are settled in
general partnership and a limited partnership. How are liabilities settled? This is the
order of payment. Remember kung nag advance si partner, its as if si partner naging
creditor pero hindi pa rin sya preferred. Ang preferred pa rin is the third party creditor.
After the third party creditor, we have the partner creditor. Then the partner as to their
capital, meaning yung capital muna nila bago yung profits.
19 Kapag mas marami yung liabilities kaysa sa assets, by the concept of unlimited
liability, the partners separate assets can be used to pay partnership creditor. So kung
merong partner na nag exceed ng kanyang share of liability, he can go after the existing
partners.
20 Kapag partnership property, preferred si partnership creditor.Kapag separate
property, preferred si separate creditor. This is actually one of the contentions ni
Villanueva, sabi nya spouses cannot regulate (?) partnership of any kind, except
professional. Sabi nya, iba yung priority payment dun sa property because of the Family
Code, kung property is under Absolute Community of Property or Conjugal Partnership
of Gains. If i-allow sila to enter into a partnership, you will distort the provisions in the
Family Code on settling the priorities of the Absolute or Conjugal. But then sabi saCIR vs.
Suter, they can enter into a particular partnership.
21 If nagcontribute si partner more than he has to contribute, he has a right of recourse
sa other partners. What if insolvent yung other partners? Wala syang macollect.
Article 1842:The right to an account of his interest shall accrue to any
partner or his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the businessat
the date of dissolutionin the absence of any agreement to the contrary.
Even if may agreement naman sila, lets say lets have a wrap-up today, but
they continued the business, the reckoning of your prescriptive period should
account the time na nag wrap-up, yung final dissolution nila.
There cannot be a termination without winding up.
Dissolution is the change in the relations of the partners. Compare that with
winding up, which means settling of the affairs up to the point where all the
assets are liquidated, then terminated na sya. It is only at the point of
termination when the partnership ceases to exist. During winding up,
generally, the the business of the partnership is limited only for the purpose
of settling the affairs. You have to distinguish the three definitions.
Under Article 1830 and 1831, you have the enumeration of all the causes. Be
familiar, in fact you can even memorize it. I suggest you memorize. [!!!]
23
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

ORTEGA V. CA
ACT of a Partner INSOLVENCY OR DEATH Not the ACT
ISSUE:Whether or not the partnership is a partnership at will and whether or
of a Partner INSOLVENCY OR
not the withdrawal of private respondent dissolved the partnership DEATH of a
regardless of his good or bad faith Partner
HELD: A PARTNERSHIP THAT DOES NOT FIX ITS TERM IS A PARTNERSHIP AT
WILL. The birth and life of a partnership at will is predicated on the mutual
Each partner is liable to Each partner is liable to No sharing of
desire and consent of the partners. The right to choose with whom a person
his Co-Partners for his his Co-Partners for his liability
wishes to associate himself is the very foundation and essence of that
share of the liability share of the liability
partnership. Its continued existence is, in turn, dependent on the constancy created by any partner created by any partner
of that mutual resolve, along with each partner's capability to give it, and the who acts for the who acts for the
absence of a cause for dissolution provided by the law itself. Verily, any one partnership partnership
of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the Except: (n0 sharing of Except: (n0 sharing of
attendance of bad faith can prevent the dissolution of the partnership but liability) liability)
that it can result in a liability for damages. Partner acting had Partner acting had
KNOWLEDGE of the KNOWLEDGE or NOTICE
dissolution of the death or
ATTORNEY MISA DID NOT ACT IN BAD FAITH. Public respondents viewed his
insolvency
withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, we agree, to let any of the partners remain in
the partnership under such an atmosphere of animosity; certainly, not Can you bind the partnership of the transaction?
against their will. 12Indeed, for as long as the reason for withdrawal of a EFFECTS OF TRANSACTIONS ENTRED INTO BY A PARTNER AFTER
partner is not contrary to the dictates of justice and fairness, nor for the DISSOLUTION (When partnership is bound)
purpose of unduly visiting harm and damage upon the partnership, bad faith
NATURE OF TRANSACTIONS CONTRACTING PARTY
cannot be said to characterize the act. Bad faith, in the context here used, is
For winding up or completing ANY ONE
no different from its normal concept of a conscious and intentional design to
transactions unfinished at
do a wrongful act for a dishonest purpose or moral obliquity.
dissolution by a person authorized
For winding up or completing Had extended credit22 before
Compare that with case of Tocao vs. CA transactions unfinished at dissolution AND NO knowledge or
TOCAO VS CA dissolution by a person not notice of the want of authority
a mere falling out or misunderstanding between partners does not convert authorized
the partnership into a sham organization.[40] The partnership exists until For winding up or completing Not extended credit But has
dissolved under the law. Since the partnership created by petitioners and transactions unfinished at knowledge of the partnership before
private respondent has no fixed term and is therefore a partnership at will dissolution by a person not AND no publication at place of
predicated on their mutual desire and consent, it may be dissolved by the authorized business
will of a partner. Thus: ANY transaction which would bind Had extended credit before
x x x. The right to choose with whom a person wishes to associate himself is the partnership (ordinary course of dissolution AND NO knowledge or
the very foundation and essence of that partnership. Its continued existence business) notice of dissolution
is, in turn, dependent on the constancy of that mutual resolve, along with
ANY transaction which would bind Not extended credit But has
each partners capability to give it, and the absence of cause for dissolution
the partnership (ordinary course of knowledge of the partnership before
provided by the law itself. Verily, any one of the partners may, at his sole
business) AND no publication at place of
pleasure, dictate a dissolution of the partnership at will. He must, however,
business
act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for
.
damages.[41]
WHO ARE THOSE AUTHORIZED TO WIND UP? Under ART 1836:
1. By agreement, so you can agree as to person who can liquidate the
An unjustified dissolution by a partner can subject him to action for damages
partnership.
because by the mutual agency that arises in a partnership, the doctrine of
2. Kung walang agreement, those who had not wrongfully dissolved the
delectus personae allows the partners to have the power, although not
partnership.
necessarily the right to dissolve the partnership.[42]
3. The legal representative of the last surviving partner not insolvent.
4. Any partner or his legal representative, upon caused shown may
In this case, petitioner Tocaos unilateral exclusion of private respondent from
obtain winding up from the court.
the partnership is shown by her memo to the Cubao office plainly stating
that private respondent was, as of October 9, 1987, no longer the vice-
RIGHTS OF A PARTNER IN DISSOLUTION
president for sales of Geminesse Enterprise.[43] By that memo, petitioner
Tocao effected her own withdrawal from the partnership and considered Dissolution is Caused in Any Dissolution is in contravention of the
herself as having ceased to be associated with the partnership in the carrying Way partnership agreement
on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.[44] Have the partnership property Have the partnership property applied
The winding up of partnership affairs has not yet been undertaken by the applied to discharge its liabilities to discharge its liabilities
partnership. This is manifest in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business. Have the surplus applied to pay Have the surplus applied to pay in cash
in cash the net amount owing to the net amount owing to the
Not only can the partners cause the dissolution, but also the assignee of a the respective partners respective partners
partners interest. Remember that we can have the interest assigned. Kung
ikaw ang purchaser ng interest na yun, ito yung cause mo. You have to wait Right, as against each partner who has
for the termination of the specified or particular undertaking, or any time if caused the dissolution wrongfully, to
there is a partnership at will. damages

Right to continue the business in the

EFFECT OF DISSOLUTION AS TO PARTNERS AUTHORITY (ART 1832)
same name either by themselves or
A partner acts as an agent of the partnership and of the partners as well.
jointly with others provided they
GENERAL RULE: Dissolution terminates all authority of any partner to act for
secure:
the partnership.
1. the payment by
EXCEPTION:
(1) So far as necessary to wind up the partnership affairs are completed;
(2) To complete transactions begun but not then finished. 22
Example of had extended credit: May receivable. May icocollect ang
EFFECTS OF TRANSACTIONS ENTERED INTO BY A PARTNER AFTER partnership sa third person. So sabi nya [the partner]: Nadissolve na kami.
DISSOLUTION Im authorized to liquidate. You should pay. Is the partnership bound? Kung
Reasons: magbayad yung third person, matanggal ba yung collectible ng partnership sa
kanya? Kung wala syang knowledge to the want of authority of that partner,
BOUND ang partnership
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

*In Omnibus Amare et Servire Domino*In Everything, Love and Serve the
bond approved by
Lord.
the court, or
2. pay any partner
who has caused the
dissolution
wrongfully, the
value of his interest
in the partnership
at the dissolution,
less any damages

Please take note that if the business has GOODWILL, hindi sya icoconsider sa
pag value ng interest. Lets say Jollibee, real cost of your burger is P10. They
can bill you with P25, because of the goodwill. Having the value of the
interest of the person who wrongfully caused the dissolution, pwedeng i-
disregard ang goodwill.In effect, bababa ang kanyang interest.

RIGHTS OF INJURED PARTNER WHERE THE PARTNERSHIP CONTRACT IS

RESCINDED:
1) Right of a lien on, or right of retention of, the surplus of partnership
property after satisfying partnership liabilities for any sum of money
paid or contributed by him;
2) Right to subrogation in place of partnership creditors after payment of
partnership liabilities;
3) Right of indemnification by the guilty partner against all debts and
liabilities of the partnership.

Paano ba mag wind up? As to partnership assets, ito yung priority:

(1) Creditors other than the partners;(2) Those owing to partners other than
for capital and profits;(3) Those owing to partners in respect of capital;(4)
Those owing to partners in respect of profits.
Where a partner become insolvent or his estate is insolvent, the claims
against his separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
( c ) Those owing to partners by way of contribution.

For the partners separate assets, priority ang kanyang separate creditors.
Again, the concept of unlimited liability. The partnership creditors can go
after the separate properties of the partners.
Paano magkakaroon ng by way of contribution?
Remember, as to third person, liability is pro rata in the sense na depende
kung ilan kayo, not really your contribution. Kung lima kayo, kahit 10% lang
kinontribute ng isa, as to third person, pare pareho kayo ng liability. Kapag si
10% binayaran nya ang 20%.So 110 / 5. So 20 dapat [22 pag icompute].Si
third person, 20-20 ang icollect hanggang sa ma 100. Dapat ang contribution
nya lang is 10. So nagbayad sya ng additional 10. He can actually go after the
other partners. Ito yung those owing to partners by way of
contribution.Because he contributed more than he should have.

Example: Assumption: Profits and losses. Dalawang partners, Holmes and

Case. 70-30 ang ano [sharing siguro ginamean ni Sir?]. Lets say, at the time
of dissolution, ito yung assets nila. You have cash, liabilities, equity, loan. Pag
paano sya dinistribute, sa third person, unahin muna si 40. Partnership
creditor.Next mo yung partners but not in the form of their capital or
profit.May loan sya kay Holmes, so you have 10. The distribution will be like
this:
The creditors 40
To Holmes, not in the form of contribution or profit 10
To Holmes, for the capital 89
If the assets they have are more than 87, yun yung distribution of profits.
Pero ito kasi hindi sya umabot.
[Just refer to the slides (kung may ibigay si Sir). Magulo ito na part kasi
nagdali na si Sir kay time na + I think nagka technical malfunction sa gadget}
Ganito ang itsura ng pag liquidate:
First, meron syang non-cash asset 100. Binenta, sa gilid makita nyo Sale of
Inventory. Usually kasi pag nag liliquidate, whatever is the value of the
property, ang mabebenta mo dyan, lower. Hindi kayo magcompute sa exam
nyo [!!]
When the business is continued, the creditors of the dissolved partnership
are also creditors of the person or partnership continuing the business. Ito
yung mga instances *. Take note that what is common to them is, theres no
liquidation. Ibig sabihin, si creditor, hindi pa satisfied ang kanyang __. Kung
bigyan kayo ng problema na nagliquidate pero kinontinue, hindi na sya kasali
dito.
*Sir did not mention the instances.[Sir said he will give copy of the slides.]
EDITORS NOTE: There were assigned cases which were not
recited/mentioned in class. Please refer to the case digest counterpart of this
group.

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