From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y.
2017-2018)
(Transcriber: Kristine Confesor)
PARTNERSHIP
Partnership is in your Business Organization.
Business Organization 1.If you ask me, the business
organization for the 3, is partnership lang. because trusts
and agency, di sila business organization since they don’t
have juridical personality. But, you will realize later on
that trusts and agency have similarities to partnership.
The concepts of agency can apply to partnership; the
concepts of agency is also applied in trusts. In a way,
partnership also applies in trust.
Q: What are three basic forms of business organization
1. Sole Proprietorship – from the word sole, siya
lang isa. Naa kay mga businesses, mga
companies, pero soleprop lang, meaning isa
lang ang tag-iya; governed by your law on
Sales, Civil Code Obligations and Contracts
2. Partnership – daghan ug tag-iya, essentially;
governed by a Title IX Art. 1767-1867
3. Corporation – governed by the Corporation
Code
You will realize later on that a partnership, it has a
separate juridical personality. But some authors say that
that is a weak juridical personality vs that of a
corporation.
Partnership Corporation
Owners are partners owners are stockholders
Members have the Centralized management thru
right to participate in board of directors
the partnership
For TRUSTS, the essence of trust is property relation
whereby a trustor places a property in trust to the
trustee for the benefit of a beneficiary. In essence, si
trustor, ang magbebenefit ng nilagay niyang property kay
trustee, is the beneficiary. In effect si trustor, dapat may
trust kay trustee.
For AGENCY, you have the principal, agent, and third
person. To simplify, si principal mag-coconstitute siya ng
contract of agency sa isang agent for that agent to
execute __ in behalf of the principal. In effect, parang si
principal ang nagcocontract with third person.Pero, in
actuality, si agent ang nagcocontract with 3rd person.
Given that differentiation, ang common sa tatlo:
Partnership, Trusts, and Agency – there has to be an
element of fiduciary relationship – trusts and confidence.
That’s the general concept of Partnership, Trusts, and
Agency.
HISTORY OF PARTNERSHIP
It dates back to Hammurabi Code, Mesopotamia, etc. but
there’s no concrete –version on how did the partnership
law came to be There’s a written paper published in
Queen’s University in Belfast in Ireland. Sabi niya 5th
Century daw. It starts with the Islamic code of
Hammurabi. Tapos, napunta siya sa Justinian Code. Then
11th century, dun na siya sa Rome, Byzantine. Basically,
due to the increase in trade, dati 1 owner= 1 business. So
imagine, how limited your resources would be.
 EX: Person 1 has a banana plantation and Person 2
is engaged in sugar industry. IF there is an increase
of trade and demand for banana cue, what will
happen? To exploit the investment opportunities,
person 1 and 2 will enter into a partnership.
In history, the contract of commenda, this one is
commendator, anddandator? Meron akong capital say
100, siya yung nagatravel sa mga merchants, naghahanap
ng investment opportunity. So ang nangayayari. They
enter into a partnership. One supplies the capital, then
the other gets the investment opportunities. Whatever is
the profit, they divide. In effect, one partner’s risk is in his
own capital. The other one, industry. Later on you will
realize, that in partnership, it’s not just the money or
property that is contributed, but also the industry.
In a contract of partnership, both parties will share the
profits and losses.
Eventually, hindi lang isa ang nagsusupply ng capital,
dumami. Sa Rome, mostly family-owned ang mga
businesses. Like yung mga banks before. Nagkakaroon na
ng privilege to manage ang commendator so meron na
rin silang voice in how to manage the business.
During the industrial revolution, yan yung inapply ng
England. They codified it, hence the English Partnership
Law. The concept of this English Partnership Law is similar
to this Commenda na limited ang liability nung capital.
Now the Americans, also codified it but they have both
general and limited liability – Universal Limited
Partnership Act.
The Philppine laws on partnership are mostly taken with
or without modifications from the 2 American Statutes:
Uniform Partnership Act and the Uniform Limited
Partnership Act.
Art. 45 last paragraph xxx
 Partnerships and associations for private
interest or purpose are governed by the
provisions of this Code concerning
partnerships. (36 and 37a)
So before, meron tayong civil partnerships sa civil code,
tapos meron tayong commercial, but because of Art. 45
last paragraph, it expressly repealed the previous law.
 Point: Partnership Law came into being to
govern business transactions.
JUNE 20, 2017
(Transcriber: Kristine Confesor)
Last meeting, we already discussed the overview of
partnership, trusts, and agency and we learned that
these types of contracts, may common ground sila, it is
always based on trust andconfidence. We also learned
the history of partnership. Partnership is anchored
towards business transactions. So siguro as you’ve read,
in most cases, pera ang pinag-uusapan. Again, this
subject is not as interesting as succession, kasi technical
siya, but it happens because it’s really relevant.
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.
Art. 1767 gives us the definition of the contract of
partnership. If there is one provision that you should
memorize in the law of partnership is that it would be
Art. 1767. This is the definition used in the cases. By the
contract of partnership
 two or more persons, hindi pwede magkaroon ng
partnership kung isa lang.
 bind themselves so there is an intention to form a
partnership
 to contributemoney, property, or industry. Now, as
I observed, in this particular provision, bakit
nakaseparate si money, industry, at property? Is
money not a property? It is understandable to
separate industry because it means services. Pero,
money or property? It’s because it’s liquid. Now,
as I’ve told you last meeting, the provisions of the
law of partnership is taken from the US law of
Partnership which is the Uniform Partnerships Act.
When you try to look at the definition of
partnership under the UPA, ang partnership is
hindi ganito yung pagkadefine. Kung tingnan mo
yung definition niya, sineparate siya sa liquidation.
When a partnership is already dissolved, iliquidate
na for the purpose of determining ano yung liquid
na asset na pwedeng pambayad sa partners. When
we say liquid, it is something that can be easily
exchanged. Money is liquid, since madali lang man
siya iexchange. Whereas other properties, like
lands buildings, hindi mo naman siya maexchange
basta-basta diba, so you have to convert that into
money.
 to a common fund, with the intention of dividing
the profits among themselves
so two or more persons may also form a
partnership to practice a profession.
Characteristics of Partnership.
why do we need to know the characteristics of a
contract? Because by knowing the characteristic of a
contract, you would already know the nature of the
contract – if it’s consensual, nominate, or principal. You
would be able to distinguish it from other contracts. In
this case, a contract of partnership is a
(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;1
(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
1It 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.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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 no’n is to
divide profits. That is the nature of the contract of
partnership.
JARANTILLA vs JARANTILLA
(Case Digest: Ana Lapu)
FACTS: The present case stems from the complaint filed
by Antonieta Jarantilla against Buenaventura Remotigue,
Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the
assets and income of the co-ownership, for its partition
and the delivery of her share corresponding to eight
percent (8%), and for damages. Antonieta claimed that in
1946, she had entered into an agreement with the
defendants to engage in business through the execution
of a document denominated as "Acknowledgement of
Participating Capital”. Antonieta also alleged that she had
helped in the management of the business they co-
owned without receiving any salary. Antonieta further
claimed co-ownership of certain properties (the subject
real properties) in the name of the defendants since the
only way the defendants could have purchased these
properties were through the partnership as they had no
other source of income. The respondents did not deny
the existence and validity of the "Acknowledgement of
Participating Capital" and in fact used this as evidence to
support their claim that Antonieta’s 8% share was limited
to the businesses enumerated therein. The respondents
denied using the partnership’s income to purchase the
subject real properties.
During the course of the trial at the RTC, petitioner
Federico Jarantilla, Jr., who was one of the original
defendants, entered into a compromise
agreement17 with AntonietaJarantilla wherein he
supported Antonieta’s claims and asserted that he too
was entitled to six percent (6%) of the supposed
partnership in the same manner as Antonieta was.
ISSUE: Whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the
subject real properties.
HELD: Under Article 1767 of the Civil Code, there are two
essential elements in a contract of partnership: (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
himself claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However,
petitioner fails to realize that this document specifically
enumerated the businesses covered by the partnership:
Manila Athletic Supply, Remotigue Trading in Iloilo City
and Remotigue Trading in Cotabato City. Since there was
a clear agreement that the capital the partners
contributed went to the three businesses, then there is
no reason to deviate from such agreement and go
beyond the stipulations in the document. There is no
evidence that the subject real properties were assets of
the partnership referred to in the Acknowledgement of
Participating Capital. Petition denied.
Q: What are the two elements in determining a contract of
partnership?
1. There must be a contribution of money, property,
and industry
2. There must be an intention by the parties to divide
the profits amongst themselves
Q: With the agreement of participating capital, did the SC
say the there was a contract of partnership? Yes.
Q: What did the parties contribute? The parties here
contributed money for the 3 businesses. But profits were
gained from real properties, and Antonieta and Federico
wanted profits from real properties.
Q: So in the acquisition of real properties, was there a
partnership? No, because the court said that the
Acknowledgment of Participating Capital specifically
provided for 3 businesses that were part of the
partnership. So they did not show any proof that the real
properties subject of this case were bought in
furtherance of the business.
Q: Now let’s try to check the elements. In the
acknowledgment of participating capital, no doubt there is
a partnership. As to the acquisition of real properties,
what are the elements lacking? There was no intention
sir.
Q: What are the evidences considered by the SC in finding
that there was no intention? Kasi wala naman talagang
documentary evidence na yung pinambili talaga non [real
properties] were assets coming from the partnership.
That’s why the contract of partnership did not extend to
the acquisition of real properties.
Q: Now, there’s a good discussion in this particular case
regarding the difference between co-ownership and
partnership. Can you please discuss the difference?
Here, Federico and Antonieta were pushing that there
was actually a co-ownership. But the SC said that the
existence of co-ownership does not necessarily mean
that there exists a partnership because it has laid down
the 2 elements of 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.
Q: How about if may partnership, necessarily ba may co-
ownership? With partnership, it is necessary that there is
co-ownership because in partnership, everyone has a say
in the manamanget, and
Again, ang nangyari ditto sa case is nagform sila ng
partnership. Yung kabilang party, bumili ng property.
Yung isang partner naman nagsabi na “uy may share ako
dun sa property, kasi ang pinanggamit dun na pera is out
of the partnership assets”. The problem here is, hindi
naman siya nakaproduce ng evidence. In fact, dun sa
written document na prinesent nila sa court, nakaspecify
na yung businesses subject of the partnership. So sabi ng
SC, wala naming intention based dun sa mga evidences
na prinesent.
A good question is regarding co-ownership. So a co-
ownership does not necessarily create a partnership
because of the 2 elements. Pero, kung partnership ka,
necessarily, in effect meron talagang co-ownership with
regards to the partnership assets. Diba, you contribute
money and property to the common fund. Now, once
nasa common fund na yun siya, sino ba nagmamay-ari?
Yung partnership.Sino ba nagmamay-ari ng
partnership?Yung partners.
In effect, may equity interestlang sila dun sa property.
SY VS CA
(Case Digest: Ana Lapu)
FACTS: Sometime in 1958, private respondent Jaime
Sahot started working as a truck helper for petitioners’
family-owned trucking business named Vicente Sy
Trucking. In 1965, he became a truck driver of the same
family business, renamed T. Paulino Trucking Service,
later 6B’s Trucking Corporation in 1985, and thereafter
known as SBT Trucking Corporation since 1994.
Throughout all these changes in names and for 36 years,
private respondent continuously served the trucking
business of petitioners. When Sahot was 59 years old, he
incurred several absences due to various ailments.
Particularly causing him pain was his left thigh, which
greatly affected the performance of his task as a driver.
He inquired about his medical and retirement benefits
with the Social Security System (SSS) on April 25, 1994,
but discovered that his premium payments had not been
remitted by his employer.Sahot filed a week-long leave to
get medical attention. He was treated for EOR,
presleyopia, hypertensive retinopathy G II and heart
enlargement. Because of such, Belen Paulino of the SBT
Trucking Service management told him to file a formal
request for extension of his leave. When Sahot applied
for an extended leave, he was threatened of termination
of employment should he refuse to go back to work.
Eventually, Sahot was dismissed from employment which
prompted the latter to file an illegal dismissal case with
the NLRC. For their part, petitioners admitted they had a
trucking business in the 1950s but denied employing
helpers and drivers. They contend that private
respondent was not illegally dismissed as a driver
because he was in fact petitioner’s industrial partner.
They add that it was not until the year 1994, when SBT
Trucking Corporation was established, and only then did
respondent Sahot become an employee of the company,
with a monthly salary that reached P4,160.00 at the time
of his separation. The NLRC and the CA ruled that Sahot
was an employee of the petitioner.
ISSUE: Whether Sahot is an industrial partner
HELD: No. Article 1767 of the Civil Code states that in a
contract of partnership two or more persons bind
themselves to contribute money, property or industry to
a common fund, with the intention of dividing the profits
among themselves. Not one of these circumstances is
present in this case. No written agreement exists to
prove the partnership between the parties. Private
respondent did not contribute money, property or
industry for the purpose of engaging in the supposed
business. There is no proof that he was receiving a share
in the profits as a matter of course, during the period
when the trucking business was under operation. Neither
is there any proof that he had actively participated in the
management, administration and adoption of policies of
the business. Thus, the NLRC and the CA did not err in
reversing the finding of the Labor Arbiter that private
respondent was an industrial partner from 1958 to 1994.
On this point, the Court affirmed the findings of the
appellate court and the NLRC. Private respondent Jaime
Sahot was not an industrial partner but an employee of
petitioners from 1958 to 1994. The existence of an
employer-employee relationship is ultimately a question
of fact and the findings thereon by the NLRC, as affirmed
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
by the Court of Appeals, deserve not only respect but
finality when supported by substantial evidence.
Substantial evidence is such amount of relevant evidence
which a reasonable mind might accept as adequate to
justify a conclusion.
Q:Why is it important to allege that Sahot is an industrial
partner and not an employee? It is important in order for
the owner of the trucking services not to be liable for the
illegal dismissal case.
Q: What element is missing here?
There was no intention.
Q: What is the most important thing mentioned by the SC?
Sabi ng SC . 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.
Q: What is the difference between receiving a salary as to
receiving a profit?
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.
So this is a labor case. You will see the difference. Some
of the contentions kasi ng lawyers is, hindi naming siya
empleyado, partner naming yan. Bakit importante yan?
Remember, a partner is an owner of the business. So pag
ma-allege yan at maprove yang tao nay an, walang illegal
dismissal, kasi walang empleyado.
SALARY VS PROFITS
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.
 Illustration: Let’s say asset mo is 100,
revenue 100, expenses mo 50. 50 yung
residual, yan yung profit mo. When you say
salary and wages, san yun papasok? Nasa
expenses mo yun. So regardless if w/n your
business is profiting or operating at a loss,
makakareceive ka [if you’re an employee].
Whereas, pag owner ka, pag loss, eh di wala,
absorb mo yun, lugi ka because being the
owner, you take the risks, na wala kang ma-
earn.
TORRES VS CA
(Case Digest: Ana Lapu)
FACTS: Sisters Antonia Torres and Emeteria Baring, herein
petitioners, entered into a "joint venture agreement"
with Respondent Manuel Torres for the development of a
parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said
parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of
P40,000 which, under the Joint Venture Agreement, was
to be used for the development of the subdivision. All
three of them also agreed to share the proceeds from the
sale of the subdivided lots.
The project did not push through, and the land was
subsequently foreclosed by the bank.
According to petitioners, the project failed because of
“respondent’s lack of funds or means and skills.” They
add that respondent used the loan not for the
development of the subdivision, but in furtherance of his
own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the
loan to implement the Agreement. Respondent claimed
that the subdivision project failed, however, because
petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land,
which eventually scared away prospective buyers.
Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on
the project.
Subsequently, petitioners filed a criminal case for estafa
against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case
which, upon respondent's motion, was later dismissed by
the trial court. On appeal, however, the appellate court
remanded the case for further proceedings. Thereafter,
the RTC issued its assailed Decision, which, as earlier
stated, was affirmed by the CA.
Ruling of the Court of Appeals:
In affirming the trial court, the Court of Appeals held that
petitioners and respondent had formed a partnership for
the development of the subdivision. Thus, they must
bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial court’s
pronouncement that losses as well as profits in a joint
venture should be distributed equally, [7] the CA invoked
Article 1797 of the Civil Code which provides:
“Article 1797 - The losses and profits shall be distributed
in conformity with the agreement. If only the share of
each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same
proportion.”
The CA elucidated further:
“In the absence of stipulation, the share of each partner
in the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not
be liable for the losses. As for the profits, the industrial
partner shall receive such share as may be just and
equitable under the circumstances. If besides his services
he has contributed capital, he shall also receive a share in
the profits in proportion to his capital.”
ISSUES:
1. WON the contract entered into by petitioners and
respondent is a contract of partnership. YES
2. WON the Joint Venture Agreement/Partnership and
the earlier Deed of Sale were void for not having
complied with the requirements prescribed in Art.
1773 and for not having a valid consideration. NO
HELD:
1. Main Issue: Existence of a Partnership
A reading of the terms embodied in the Agreement
indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which
provides:
“ART. 1767. By the contract of partnership two or more
persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of
dividing the profits among themselves.”
Under the Agreement between petitioners and
respondent, petitioners would contribute property to the
partnership in the form of land which was to be
developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for
general expenses and other costs. Furthermore, the
income from the said project would be divided according
to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a
partnership.
It should be stressed that the parties implemented the
contract. Thus, petitioners transferred the title to the
land to facilitate its use in the name of the respondent.
On the other hand, respondent caused the subject land
to be mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As noted
earlier, he (Respondent) developed the roads, the curbs
and the gutters of the subdivision and entered into a
contract to construct low-cost housing units on the
property.
Respondent’s actions clearly belie petitioners’ contention
that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute
not only money or property, but also industry.
2. Alleged Nullity of the Partnership Agreement:
Petitioners argue that the Joint Venture Agreement is
void under Article 1773 of the Civil Code, which provides:
“ART. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to the public instrument.”
They contend that since the parties did not make, sign or
attach to the public instrument an inventory of the real
property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M.
Tolentino states that under the aforecited provision
which is a complement of Article 1771, “the execution of
a public instrument would be useless if there is no
inventory of the property contributed, because without
its designation and description, they cannot be subject to
inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership
in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared
void by the law when no such inventory is made.” The
case at bar does not involve third parties who may be
prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should
pay them 60 percent of the value of the property. [13]
They cannot in one breath deny the contract and in
another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent
positions in regard to a contract and courts will not
tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the parties’
rights and obligations to each other may be inferred and
enforced.
Partnership Agreement Not the Result of an Earlier Illegal
Contract:
Petitioners also contend that the Joint Venture
Agreement is void under Article 1422 [14] of the Civil
Code, because it is the direct result of an earlier illegal
contract, which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its
first stipulation states that petitioners did not actually
receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated
as cause, can take different forms, such as the prestation
or promise of a thing or service by another.
In this case, the cause of the contract of sale consisted
not in the stated peso value of the land, but in the
expectation of profits from the subdivision project, for
which the land was intended to be used. As explained by
the trial court, “the land was in effect given to the
partnership as [petitioner’s] participation therein. x x x
There was therefore a consideration for the sale, the
[petitioners] acting in the expectation that, should the
venture come into fruition, they [would] get sixty percent
of the net profits.”
Add’l. Info.
Court’s ruling as to the liability of the parties:
Claiming that respondent was solely responsible for the
failure of the subdivision project, petitioners maintain
that he should be made to pay damages equivalent to 60
percent of the value of the property, which was their
share in the profits under the Joint Venture Agreement.
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 no
reversible error in the CA's ruling that petitioners are not
entitled to damages.
LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES
FACTS: Antonio Chua ang Peter Yao, on behalf of “Ocean
Quest Fishing Corporation” entered into a contract with
Philippine Fishing Gear Industries(PFGI) for the purchase
of fishing nets. They claimed that they were engaged in a
business venture with Lim Tong Lim (petitioner), who was
not a signatory to the agreement. The total price of the
nets was P532, 045. Floats worth P68, 000 were also sold.
The buyers of the fishing nets and floats were unable to
pay. Philippine Fishing Gear Industries filed a collection
suit against Chua, Yao and Lim as well as a prayer for writ
of preliminary attachment. The writ was issued and
enforced by attaching the fishing nets on the F/B
Lourdes.
Chua admitted liability and requested a reasonable time
within which to pay.
Yao filed an answer but failed to appear in subsequent
hearings.
Lim Tong Lim filed an answer with Counterclaim and
Crossclaim and moved for the lifting of the writ(denied)
and the nets were sold at public auction. He claimed that
no partnership existed.
Trial Court – Philippine Fishing Gear Industries is entitled
to the Writ of Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay PFGI.
CA - affirmed RTC
ISSUE: W/N a partnership exists between Chua, Yao and
Lim Tong Lim
HELD: Yes. Art. 1767 — By the contract of partnership,
two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who
was Lim Tong Lim’s brother.
In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the
purchase and the repair of which were financed with
borrowed money, fell under the term "common fund"
under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be
divided equally among them also shows that they had
indeed formed a partnership.
The partnership extended not only to the purchase of the
boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business.
Lim Tong Lim's argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing
venture is erroneous. His consent to the sale proved that
there was a preexisting partnership among all three.
Lim Tong Lim entered into a business agreement with
Chua and Yao, in which debts were undertaken in order
to finance the acquisition and the upgrading of the
vessels which would be used in their fishing business. The
sale of the boats, as well as the division among the three
of the balance remaining after the payment of their
loans, proves that F/B Lourdes, though registered in his
name, was not his own property but an asset of the
partnership. It is not uncommon to register the
properties acquired from a loan in the name of the
person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus
Lim.
It is unreasonable for petitioner to sell his property to pay
a debt he did not incur, if the relationship among the
three of them was merely that of lessor-lessee, instead of
partners.
It is true that petitioner did not directly act on behalf of
the corporation. However, having reaped the benefits of
the contract entered into by persons with whom he
previously had an existing relationship, he is deemed to
be part of said association and is covered by the scope of
the doctrine of corporation by estoppel.
Q: What did the parties contribute? They contributed
credits.
So this case is a very particular case wherein the SC –
even if you read the prefatory statement of J.
Panganiban , 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.
Would you think if iba yung partner na sinama nila, would
you think ilend sila ng money na ganoon ka laki? Because
it is precisely the nature and the persons constituting the
partnership that Jesus here offered to lend them money.
So what they contributed to their partnership is their
credit line. Take note this case is 1999 pa, SC said there is
a partnership.
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
(Case Digest: April Pareno)
DOCTRINE:
Unregistered Partnerships and associations are
considered as corporations for tax purposes – Under the
old internal revenue code, “A tax is hereby imposed upon
the taxable net income received during each taxable year
from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how
created or organized, xxx.” Ineludibly, the Philippine
legislature included in the concept of corporations those
entities that resembled them such as unregistered
partnerships and associations.
Insurance pool in the case at bar is deemed a partnership
or association taxable as a corporation –In the case at
bar, petitioners-insurance companies formed a Pool
Agreement, or an association that would handle all the
insurance businesses covered under their quota-share
reinsurance treaty and surplus reinsurance treaty with
Munich is considered a partnership or association which
may be taxed as a corporation.
Double Taxation is not Present in the Case at Bar –
Double taxation means “taxing the same person twice by
the same jurisdiction for the same thing.” In the instant
case, the insurance pool is a taxable entity distince from
the individual corporate entities of the ceding companies.
The tax on its income is obviously different from the tax
on the dividends received by the companies. There is no
double taxation.
FACTS:The petitioners are 41 non-life domestic insurance
corporations. They issued risk insurance policies for
machines. The petitioners in 1965 entered into a Quota
Share Reinsurance Treaty and a Surplus Reinsurance
Treaty with the Munchener Ruckversicherungs-
Gesselschaft (hereafter called Munich), a non-resident
foreign insurance corporation. The reinsurance treaties
required petitioners to form a pool, which they complied
with.
In 1976, the pool of machinery insurers submitted a
financial statement and filed an “Information Return of
Organization Exempt from Income Tax” for 1975. On the
basis of this, the CIR assessed a deficiency
of P1,843,273.60, and withholding taxes in the amount
of P1,768,799.39 and P89,438.68 on dividends paid to
Munich and to the petitioners, respectively.
The Court of Tax Appeal sustained the petitioner's
liability. The Court of Appeals dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latter’s
collection of premiums on behalf of its members, the
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
ceding companies, was taxable income.
ISSUE/S:
1. Whether or not the pool is taxable as a corporation.
2. Whether or not there is double taxation.
HELD:
1) Yes: Pool taxable as a corporation
Argument of Petitioner: The reinsurance policies were
written by them “individually and separately,” and that
their liability was limited to the extent of their allocated
share in the original risks thus reinsured. Hence, the pool
did not act or earn income as a reinsurer. Its role was
limited to its principal function of “allocating and
distributing the risk(s) arising from the original insurance
among the signatories to the treaty or the members of
the pool based on their ability to absorb the risk(s)
ceded[;] as well as the performance of incidental
functions, such as records, maintenance, collection and
custody of funds, etc.”
Argument of SC: According to Section 24 of the NIRC of
1975:
“SEC. 24. Rate of tax on corporations. -- (a) Tax on
domestic corporations. -- A tax is hereby imposed upon
the taxable net income received during each taxable year
from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered
general co-partnership (compañias colectivas), general
professional partnerships, private educational
institutions, and building and loan associations xxx.”
Ineludibly, the Philippine legislature included in
the concept of corporations those entities that
resembled them such as unregistered partnerships and
associations. Interestingly, the NIRC’s inclusion of such
entities in the tax on corporations was made even clearer
by the Tax Reform Act of 1997 Sec. 27 read together with
Sec. 22 reads:
“SEC. 27. Rates of Income Tax on Domestic
Corporations. --
(A) In General. -- Except as otherwise provided in this
Code, an income tax of thirty-five percent (35%) is hereby
imposed upon the taxable income derived during each
taxable year from all sources within and without the
Philippines by every corporation, as defined in Section 22
(B) of this Code, and taxable under this Title as a
corporation xxx.”
“SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term ‘corporation’ shall include partnerships, no
matter how created or organized, joint-stock companies,
joint accounts (cuentas en participacion), associations, or
insurance companies, but does not include general
professional partnerships [or] a joint venture or
consortium formed for the purpose of undertaking
construction projects or engaging in petroleum, coal,
geothermal and other energy operations pursuant to an
operating or consortium agreement under a service
contract without the Government. ‘General professional
partnerships’ are partnerships formed by persons for the
sole purpose of exercising their common profession, no
part of the income of which is derived from engaging in
any trade or business.
Thus, the Court in Evangelista v. Collector of Internal
Revenue held that Section 24 covered these unregistered
partnerships and even associations or joint accounts,
which had no legal personalities apart from their
individual members.
Furthermore, Pool Agreement or an association that
would handle all the insurance businesses covered under
their quota-share reinsurance treaty and surplus
reinsurance treaty with Munich may be considered a
partnership because it contains the following elements:
(1) The pool has a common fund, consisting of money
and other valuables that are deposited in the name and
credit of the pool. This common fund pays for the
administration and operation expenses of the pool. (2)
The pool functions through an executive board, which
resembles the board of directors of a corporation,
composed of one representative for each of the ceding
companies. (3) While, the pool itself is not a reinsurer
and does not issue any policies; its work is indispensable,
beneficial and economically useful to the business of the
ceding companies and Munich, because without it they
would not have received their premiums pursuant to the
agreement with Munich. Profit motive or business is,
therefore, the primordial reason for the pool’s formation.
2) No: There is no double taxation.
Argument of Petitioner: Remittances of the pool to the
ceding companies and Munich are not dividends subject
to tax. Imposing a tax “would be tantamount to an illegal
double taxation, as it would result in taxing the same
premium income twice in the hands of the same
taxpayer.” Furthermore, even if such remittances were
treated as dividends, they would have been exempt
under tSections 24 (b) (I) and 263 of the 1977 NIRC , as
well as Article 7 of paragraph 1and Article 5 of paragraph
5 of the RP-West German Tax Treaty.
Argument of Supreme Court: Double taxation means
“taxing the same person twice by the same jurisdiction
for the same thing.” In the instant case, the insurance
pool is a taxable entity distince from the individual
corporate entities of the ceding companies. The tax on its
income is obviously different from the tax on the
dividends received by the companies. There is no double
taxation.
Tax exemption cannot be claimed by non-resident foreign
insurance corporattion; tax exemption construed strictly
against the taxpayer - Section 24 (b) (1) pertains to tax on
foreign corporations; hence, it cannot be claimed by the
ceding companies which are domestic corporations. Nor
can Munich, a foreign corporation, be granted exemption
based solely on this provision of the Tax Code because
the same subsection specifically taxes dividends, the type
of remittances forwarded to it by the pool. The foregoing
interpretation of Section 24 (b) (1) is in line with the
doctrine that a tax exemption must be
construedstrictissimi juris, and the statutory exemption
claimed must be expressed in a language too plain to be
mistaken.
Q: Do you agree with the SC here that there is a
partnership? Check the elements. Yes sir, as to the 2nd
element sir, the division of profits, is lacking. But the SC
said the pool is considered engaged in a transaction for
business with an end to obtain a profit. SC is impliedly
saying that there is a division of profits.
This particular case is very different. There is no express
agreement that they’re 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.
The concept of reinsurance, diba may mga insurance
company A, B, C. Sympre may mga policy. So distribution
of risks yan diba. Let’s say may mamatay, ito yung policy
niya. So bigyan ng proceeds 2million, question, kapag
let’s say accident, sabay2 nagpatayan, anong mangyayari
ditto? Diba mauubos yung pera nila.That’s why, minsan
kumukuha sila ng reinsurer. So itong mga insurance
company is in fact being insured by reinsurers as required
by the Insurance Code. Itong mga reinsurance
companies, mga multinational companies yan, Europe.
Like sa plane crash, di naman mga local insurers
magbabayad yan sa kanila. So usually, insured sila by
reinsurers.
So here, ang nangyari, pursuant to a treaty, kailangan nila
magpool, so wala silang choice. Ngayon, syempre may
mga premium payments. Sabi ng SC partnership yan,
why?. Because under tax code, partnerships are taxed
are corporations. So whatever profits daw nito may tax.
Arguably, you can say that there is no partnership
because of the lack of intention to form a partnership.
But then again, ang ginamit na provisions sa case are
from the tax code, kung pansin niyo.
So this is an exceptional case where the SC stretched the
definition of partnership.
Most of the cases involve the CIR, because kasi nga under
the Tax Code, partnerships are taxable as a corporation.
PHILEX MINING CORPORATION, VS COMMISSIONER OF
INTERNAL REVENUE
(Case Digest: April Pareno)
FACTS: Petitioner Philex entered into an agreement with
Baguio Gold Mining Corporation for the former to
manage the latter’s mining claim know as the Sto. Mine.
The parties’ agreement was denominated as “Power of
Attorney”. The mine suffered continuing losses over the
years, which resulted in petitioners’ withdrawal as
manager of the mine. The parties executed a
“Compromise Dation in Payment”, wherein the debt of
Baguio amounted to Php. 112,136,000.00. Petitioner
deducted said amount from its gross income in its annual
tax income return as “loss on the settlement of
receivables from Baguio Gold against reserves and
allowances”. BIR disallowed the amount as deduction for
bad debt. Petitioner claims that it entered a contract of
agency evidenced by the “power of attorney” executed
by them and the advances made by petitioners is in the
nature of a loan and thus can be deducted from its gross
income. Court of Tax Appeals (CTA) rejected the claim
and held that it is a partnership rather than an agency. CA
affirmed CTA
ISSUE: Whether or not it is an agency.
HELD: No. The lower courts correctly held that the
“Power of Attorney” (PA) is the instrument material that
is material in determining the true nature of the business
relationship between petitioner and Baguio. An
examination of the said PA reveals that a partnership or
joint venture was indeed intended by the parties. While a
corporation like the petitioner cannot generally enter
into a contract of partnership unless authorized by law or
its charter, it has been held that it may enter into a joint
venture, which is akin to a particular partnership. The PA
indicates that the parties had intended to create a PAT
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
and establish a common fund for the purpose. They also
had a joint interest in the profits of the business as
shown by the 50-50 sharing of income of the mine.
Moreover, in an agency coupled with interest, it is the
agency that cannot be revoked or withdrawn by the
principal due to an interest of a third party that depends
upon it or the mutual interest of both principal and
agent. In this case the non-revocation or non-withdrawal
under the PA applies to the advances made by the
petitioner who is the agent and not the principal under
the contract. Thus, it cannot be inferred from the
stipulation that it is an agency.
Q: Was there a contract of partnership? Check the
elements. What did the parties contribute?
There was a contribution of services/industry on the part
of PHILEX 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 we’ll
discuss thoroughly next meeting.
JUNE 27, 2017
(Transcriber: Zarah Domingo)
SUMMARY:Definition of a contract of partnership,
Article 1767: By the contract of partnership two or more
persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership for the
exercise of a profession.
The crux of partnership is intention. If
there is an intention to form a partnership, there is
partnership. If there is no intention, there is no
partnership.
How do you determine intention?
What do you look at? The contemporaneous and
subsequent acts of the parties (as discussed in Lim Tong
Lim Case).
The contribution need not be money or property. It could
be:
1.) industry (Article 1757); or
2.) credit (as discussed in Lim Tong Lim Case).
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).
If you do not know how to read ba, is it presumed that
you don’t know how to write? Can you get an inference
from that? Kasi specific ang provision ng law: ‘deaf mutes
who do not know how to right’. I leave that to your
imagination.
If you are suffering from civil interdiction, you are civilly
dead. Under the law, you are dead.
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.
As a business vehicle, of course, partnerships, should have
separate juridical personality. 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.
Since it is a person of law, does it have the same rights as
a natural person? Can it invoke due process? Can it ask
for moral damages for anguish, besmirched reputation?
Does it have the same rights as a natural person?
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.
In the case of AGUILA VS CA: Namali ang inimplead-yung
partner. Ang sabi ng SC, ano ang mangyari kung hindi mo
inimplead ang real party in interest? Madi-dismiss
because of the failure to state the cause of action, wala
kang aggrieved party. So that is very important when it
comes to juridical persons. In this case, namali ang
kanyang inimplead, umabot pa sa Supreme Court,
nadismiss din pala.
AGUILA VS CA
(Case Digest: April Pareno)
FACTS: In April 1991, the spouses Ruben and Felicidad
Abrogar entered into a loan agreement with a lending
firm called A.C. Aguila & Sons, Co., a partnership. The
loan was for P200k. To secure the loan, the spouses
mortgaged their house and lot located in a subdivision.
The terms of the loan further stipulates that in case of
non-payment, the property shall be automatically
appropriated to the partnership and a deed of sale be
readily executed in favor of the partnership. She does
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
have a 90 day redemption period.
Ruben died, and Felicidad failed to make payment. She
refused to turn over the property and so the firm filed an
ejectment case against her (wherein she lost). She also
failed to redeem the property within the period
stipulated. She then filed a civil case against Alfredo
Aguila, manager of the firm, seeking for the declaration
of nullity of the deed of sale. The RTC retained the
validity of the deed of sale. The Court of Appeals
reversed the RTC. The CA ruled that the sale is void for it
is a pactum commissorium sale which is prohibited under
Art. 2088 of the Civil Code (note the disparity of the
purchase price, which is the loan amount, with the actual
value of the property which is after all located in a
subdivision).
ISSUE: Whether or not the case filed by Felicidad shall
prosper.
HELD: No. Unfortunately, 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.
Applicability of the ‘Doctrine of Piercing the Corporate
Veil.’
In Corporation Law, since may separate personality yung
corporation, it is separate from the owner. So kung
magiging insolvent si corporation, hindi mahahabol si
stockholder/owner, kasi nga separate. Pero we have this
‘Doctrine of Piercing the Corporate Veil’ that you can
disregard the fiction of corporate entity para ma-sue mo
yung stockholder/owner/corporate officer.
Since the corporation, may separate juridical personality,
and since sinabi natin na si partnership meron din
separate juridical personality,does the doctrine of piercing
the corporate veil equally apply to partnerships?
Si partnership, pag may utang si creditor, separate
personality ito, soubusin muna ang assets. But the
peculiarity of partnerships, unlike that of a corporation, is
that the creditors can go after the partners. Unlike in
corporation na hindi sila makapunta sa stockholder, ang
partnership, pag-ubos na ang assets at yung mga
partners individually may mga assets pa, si creditor
pwede pa pumunta to exhaust. Given that scenario, can
the Doctrine of Piercing the Corporate Entity apply sa
partnership?
There’s no recent case regarding that one but, there’s an
old case, COMMISSIONER OF INTERNAL REVENUE VS
SUTER (1969). This involves a partnership, nagcreateyung
mag-asawa, tapos nagka-in-love-an, nagpakasal. In this
case, hindi naman talaga directly sinabi ng Supreme
Court that it is applicable. However, if you try to look at
the facts of the case, it is a limited partnership. Tapos ang
ginawa, gi-compare siya into a corporation tapos in-apply
yung Doctrine of Corporate Personality. So in effect,
sinabi na, by analogy, applicable siya.
To my mind, it is applicable kasi nga although si creditor
can go after the partners, please note that the liability of
the partners pertaining to this one, is only subsidiary. So
meron siyang Benefit of Excussion, meaning si partner,
babayaran niya muna ang kanyang mga personal
creditors bago yung creditors of the partnership.
Pag-fraud kasi, ang liability mo is solidary. So in effect,
parang applicable pa rin yung concept. I am still waiting
for a case na aakyat sa Supreme Court na ganun yun,
whether or not iaapply ba talaga ng Supreme Court ang
Doctrine of Piercing the Corporate Veil.
Partnership as a Business Enterprise.Again, a going
concern, element of habituality.As you’ve 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.
Look at the case of VILLAREAL VS MARTINEZ, ang nangyari
nito, nagkaroon ng partnership. Umalis yung isang tao
tapos nagkaroon ng distribution. The problem with their
dissolution and liquidation is that, ang ginawa nilang
basis for capital, for illustration purposes, let’s say
nagcontribute sila P100, 4 sila, initial contribution P400,
nagoperate siya for 1 year. Ang nangyari, ang capital at
the end, same pa rin as is, P400, tapos ni-less nila ang
utang, let’s say P200. Ito yung dinivide nila, so tag-
P50.Tama o mali? Mali. Bakit mali? Kasi diba, a partner
has an equity interest. Ang nangyari nito, parang, it is as
if, yung assets, hindi gumalaw. Di ba, in operating the
business, you share in the profits and losses. Kaya sinabi
ng Supreme Court na mali yung computation niyo. Dapat,
kung ano yung assets mo at the time na na-dissolve, yun
ang i-deduct mo sa liabilities. Kasi dito, parang binalik
lang ang capital contribution, which is hindi naman
necessary.
VILLAREAL VS RAMIREZ
(Case Digest: April Pareno)
FACTS: In 1984, Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000for the
operation of a restaurant and catering business.
Respondent Ramirez joined as a partner in the business
with the capital contribution of P250,000. In 1987, Jesus
Jose withdrew from the partnership and within the same
time, Villareal and Carmelito Jose, petitioners closed the
business without prior knowledge of respondents In
March 1987, respondents wrote a letter to petitioners
stating that they were no longer interested in continuing
the partnership and that they were accepting the latter’s
offer to return their capital contribution. This was left
unheeded by the petitioners, and by reason of which
respondents filed a complaint in the RTC.RTC ruled that
the parties had voluntarily entered into a partnership,
which could be dissolved at any time, and this dissolution
was showed by the fact that petitioners stopped
operating the restaurant. On appeal, CA upheld RTC’s
decision that the partnership was dissolved and it added
that respondents had no right to demand the return of
their capital contribution. However since petitioners did
not give the proper accounting for the liquidation of the
partnership, the CA took it upon itself to compute their
liabilities and the amount that is proper to the
respondent. The computation of which was:(capital of
the partnership – outstanding obligation) / remaining
partners =amount due to private respondent
ISSUE: W/N petitioners are liable to respondents for the
latter’s 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. CA’s 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.
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.
Malamang, kung hindi kayo partners, hindi kayo partners
as to third persons.
7
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Co-ownership does not necessarily mean a partnership.
However, a partnership necessarily involves co-
ownership with regard to specific partnership property.
Even the share of profits is not itself a conclusive
evidence na partners kayo. If yung sharing niyo naman is
a payment for debt, payment for wages, payment for
annuity, payment as an interest, or consideration for the
sale of the goodwill of a business. Look at the five, ano
ang common doon? Ibig sabihin, pag-ganito ang
situation, it is not the intention of the partners namaging
partners sila.May ibang intention for the sharing of the
profits—i.e. payment of debt. Again, the crux of
partnership is always the intention, not the sharing of
profits.
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, let’s
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 states that 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 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.
Why is partnership, which has a separate juridical
personality, medyo informal yung pagcreate sa kanya?
Unlike in corporation na may mga formal requirements?
Bakit sa partnership, medyo considerate ang batas, it can
be constituted in any form. What do you think is the
reason?
Partnership is less expensive compared to corporations.
The law states that it is easier to form a partnership, kasi
nga yung mga nagcreate ng partnership are not as
heavily financed as a corporation. So the law gives a little
leeway kasi partnership, in its essence, parang mga small
sole proprietorship na nag-enter into partnership. So
hindi siya pareha sa corporation which is heavily
financed. If you are going to put a lot of formal
requirements in a partnership, then they might as well
form a corporation. So merely, for purposes lang siya of
convenience.
Article 1772: Every contract of partnership having a
capital of Three thousand pesos or more, in money or
property, shall appear in a public instrument, which must
be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirements of the preceding
paragraph shall not affect the liability 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.
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
Why (does) Article 1772 require it to be in a public
instrument, kung hindi naman pala makaka-affect sa
liability ng partnership and members thereof to third
persons?Is this a superfluous requirement?If the contract
is not in a public instrument, is it void? What do you think
is the reason? Bakit, hindi naman siya maka-affect nun,
bakit kailangan pa rin siya i-public instrument? Tapos
bakit sa Article 1773, pag immovable property ang pinag-
uusaan, pag hindi mo siya kinomply, void talaga yung
contract?Why is there a difference in the requirement?
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 (on dealings in real
property)-kung ano yung nakalagay sa title, yun lang yun.
Kung nagcontribute ka ng real property tapos hindi ka
naka-public instrument, there will be a case wherein the
property, di siya naka-annotate dun tapos partnership
property na pala. So imagine the evil sought to be
prevented.
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.
Kung hindi ireregister, paano malalaman ng gobyerno na
nag-ooperate yung partnership na yan.
Imagine the incidents of operating ng business, i.e. taxes.
Hindi malalaman ng BIR sino yung operatingna business.
So, it is for convenience.
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.
This is an incidence of a partnership having a separate
juridical personality.
Article 1775: Associations and societies, whose articles
are kept secret among the members, and wherein any
one of the members 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
court’s intervention may be sought.
3.) Delectus Personae (meaning, selection of persons).
Bautista refers to Delectus Personae as follows: For 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.
Again, the concept of delectus personae (meaning,
selection of persons), you cannot enter into a partnership
kung hindi mo gusto ang partners. By the mere fact na
gusto mo na i-dissolve ang partnership, it can be
dissolved. Kasi nga, partnership is grounded on that
principle of delectus personae. It is created by mere
consent, and it can be dissolved by mere consent.
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.
Again, joint venture is limited to single transaction. It is
not intended to pursue a continuous business. Whereas,
a partnership, though it may exist for a single transaction,
usually contemplates the undertaking of the general and
continuous business of a particular kind, which is
necessarily involves a series of transactions.
Joint Venture Partnership
limited to single though it may exist for a single
transaction and is transaction, usually contemplates
not intended to the undertaking of the general
pursue a and continuous business of a
continuous particular kind, which is
business necessarily involves a series of
transactions
Pansin niyo yung mga ‘the joint venture of Ayala Land
and ganito’ for a single condominium.Hindi naman
necessarily magiging partner pa rin sila in a separate
8
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
project.Sajoint venture, specific lang ang transaction, per
project basis.
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.
Bakit yung mga ganyang project, yung mga condominium,
bakit hindi na lang sila magform ng partnership or
corporation?i.e. Sta. Lucia with yung may-ari ng lupa.
You will learn in practice that maintaining a corporation
or partnership is very burdensome. That is why we exist.
The problem with that is that we carry their burden. That
is why they say a corporation is very expensive. A
partnership is less expensive than a corporation but more
expensive than a sole proprietorship. So parang
spectrum lang yan.
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, si 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. Again, yung
stockholder, ang exposure niya sa corporation is limited
lang sa kanyang investment. So kung insolvent man si
corporation, hindi na aabot sa kanya. Alam niyo yung
hotel, ang corporation niyan minsan 2 or 3.Ibayung
management, ibang corporation yung mga employees,
iba rin yung property.
Let’ say Marco Polo (hypothetical situation only), ang
mga employee niyan under a separate corporation, yung
owner ng properties under a separate corporation. Bakit
ganun?Kasi kung magkaroon ng gulo sa labor, ang ma-
exhaust lang ay yung property ng kung kanino
nakapangalan ang mga tao. Kasi hindi naman pwede i-
force, unless may fraud. So yun ang ginagawa nilang
restructuring, based on the concept na the corporation is
a separate juridical personality. The liability of the
stockholder is limited only doon sa investment. In a
partnership, will it apply? Not necessarily kasi nga sinabi
natin na ang partner has an unlimited liability although
subsidiarily.
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.
JUNE 30, 2017
(Transcriber: Jennifer Mortejo)
Review of the last discussion
Partnerships in general are allowed to enter into a
contract of partnership with other partnerships. As to
corporations, as a general rule, they are not allowed. We
will discuss this later why this is the rule and what are the
exceptions.
We proceeded with Article 1768 of the Civil Code which
states that a partnership has a juridical personality
separate and distinct from that of the partners. This
means that a partnership is considered a person under
the law which means it has the right to possess property
of all kinds, as well as incur obligations and bring civil or
criminal actions in conformity with the rules and
regulations of the organization.
We briefly discussed the case of:
Aguila vs CA - wherein nagkamali lang ng pag-implead.
The real party-in-interest was not impleaded.
Consequently, what will happen is that there is a failure
to state a cause of action. If you will file a case against the
partnership, you should implead the partnership itself
not the partners. Because again, by the concept of
separate juridical personality, a partnership is a person
under the law.
Q: If the partnership has separate juridical personality,
does it have all the rights in the same way as that of
natural persons? Example, can it ask for moral damages?
A: You know in your Torts that there are damages that it
can demand like besmirched reputation.
We also discussed the applicability of the doctrine of
piercing the corporate veil. The question is, is it applicable
given that the partnership has a separate juridical
personality? There is only 1 case pertaining to this
question:
CIR vs Suter - wherein apparently the SC applied the
doctrine of piercing the corporate veil in partnership
setting.
We also discussed:
Villareal vs Ramirez – concept of the partner having
equity interest in a partnership.
Article 1769 provides for the rules to be applied in
determining whether there is a partnership or not.
Start of today’s discussion – Recitation
OBILLOS VS CIR
(Case Digest: Cyndall Jardinel)
DOCTRINE: The sharing of gross returns does not of
itselfestablish apartnership, 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.
NATURE: Petition to review the decision of the Court of
Tax Appeals
FACTS: In 1973, Jose Obillos completed payment on two
lots located in Greenhills, San Juan. The next day, he
transferred his rights to his four children for them to
build their own residences. The Torrens title would show
that they were co-owners of the two lots. However, the
petitioners resold them to Walled City Securities
Corporation and Olga Cruz Canda for P313k or P33k for
each of them. They treated the profit as capital gains and
paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate
income tax of their shares, as this entire assessment is
based on the alleged partnership under Article 1767 of
the Civil Code; simply because they contributed each to
buy the lots, resold them and divided the profits among
them.
But as testified by Obillos, they have no intention to form
the partnership and that it was merely incidental since
they sold the said lots due to high demand of
construction. Naturally, when they sell them as co-
partners, it will result to the share of profits. Further,
their intention was to divide the lots for residential
purposes.
HELD :We hold that it is error to consider the
petitionersas having formed a partnership under article
1767 of the Civil Code simply because they allegedly
contributed P178,708.12 to buy the two lots, resold the
same and divided the profit among themselves.
To regard the petitioners as having formed a taxable
unregistered partnership would result in oppressive
taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be
obviated.
As testified by Jose Obillos, Jr., they had no such
intention. They were co-­­ owners pure and simple. To
consider them as partners would obliterate the
distinction between a co-­­ownership and a partnership.
The petitioners were not engaged in any joint venture by
reason of that isolated transaction.
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 Commissioner should have investigated if
the father paid donor's tax to establish the fact that there
was really no partnership.
DISPOSITION:WHEREFORE, the judgment of the Tax Court
is reversed and set aside.The assessments are cancelled.
No costs
Q: Can you make a distinction between the case of
Gatchalian vs CIR and this particular case?A:In the case of
Gatchalian, there were 15 persons who contributed in
the purchase of a two-peso sweepstakes ticket. The SC
said in this case that there was a partnership since these
15 persons already agreed that if ever they win, they
would divide the prize among themselves. The SC held
them liable for income tax as an unregistered
partnership. The elements of partnership were complied
with.
Q: What are the elements of a partnership?A: 1. There
must be 2 or more persons who bind themselves to
contribute money, property or industry to a common
fund;
2. There must be an intention that the parties would
divide the profits among themselves.
Just to make a point, when you read cases that involve
the CIR, pansin niyo na ang sinasabi nilang partnership is
9
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
“unregistered”. Please note, “unregistered partnership”
is a context under tax. You cannot find it in the Civil Code.
There is only “informal partnership” in the Civil Code,
which means that the requirements of the law were not
complied with (e.g. public instrument and recording
requirement). Now, if you will be asked if there is a
contract of partnership, do not say that there is a
contract of “unregistered partnership” because the basis
of the question is Civil Code. You can only say that when
the question is under your tax subject. Please distinguish
partnership and “unregistered partnership”.
N.B - Co-ownership is different from partnership. Time
and again, the proof of partnership is the intention. If
there is no intention to create a partnership, then there is
no partnership.
REYES VS CIR
(Case Digest: Cyndall Jardinel)
FACTS: Petitioners Florencio and Angel Reyes, father and
son, purchased a lot and building for P 835,000.00. 2. The
amount of P 375,000.00 was paid. 3. The balance of P
460,000.00 was left, which represents the mortgage
obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed
by the vendees. 4. The initial payment of P 375,000.00
was shared equally by the petitioners. 5. At the time of
the purchase, the building was leased to various tenants,
whose rights under the lease contracts with the original
owners, the purchaser, petitioners herein, agreed to
respect. 6. Petitioners divided equally the income of
operation and maintenance. 7. The gross income from
rentals of the building amounted to about P 90,000.00
annually. 8. An assessment was made against petitioners
by the CIR. 9. The assessment sought to be reconsidered
was futile. 10. On appeal to the Court of Tax Appeals, the
CTA ruled that petitioners are liable for the income tax
due from the partnership formed by petitioners.
ISSUE: Are petitioners subject to the tax on corporations
provided for in the National Internal Revenue Code?
HELD: After referring to another section of the NIRC,
which explicitly provides that the term corporations
includes partnerships and then to Article 1767 of the Civil
Code of the Philippines, defining what a contract of
partnership is, the opinion goes on to state that the
essential elements of a partnership are two, namely: 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, for, admittedly,
petitioners have agreed to, and did, contribute money
and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances
surrounding the case, it was determined that their
purpose was to engage in real estate transaction for
monetary gain and then divide the same among
themselves, hence taxable.
Q: Is there a partnership under the Civil Code in this case?
Are the elements of partnership present in this case?
What are the circumstances present in this case which led
to the conclusion of the SC that there was a partnership?
A:So again, 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.
BASTIDA VS MENZI
(Case Digest: Cyndall Jardinel)
FACTS: Bastida offered to assign to Menzi & Co. his
contract with Phil Sugar Centrals Agency and to supervise
the mixing of the fertilizer and to obtain other orders for
50 % of the net profit that Menzi & Co., Inc., might derive
therefrom. J. M. Menzi (gen. manager of Menzi & Co.)
accepted the offer. The agreement between the parties
was verbal and was confirmed by the letter of Menzi to
the plaintiff on January 10, 1922.
Pursuant to the verbal agreement, the defendant
corporation on April 27, 1922 entered into a written
contract with the plaintiff, marked Exhibit A, which is the
basis of the present action. Still, the fertilizer business as
carried on in the same manner as it was prior to the
written contract, but the net profit that the plaintiff
herein shall get would only be 35%. The intervention of
the plaintiff was limited to supervising the mixing of the
fertilizers in the bodegas of Menzi.
Prior to the expiration of the contract (April 27, 1927),
the manager of Menzi notified the plaintiff that the
contract for his services would not be renewed.
Subsequently, when the contract expired, Menzi
proceeded to liquidate the fertilizer business in question.
The plaintiff refused to agree to this. It argued, among
others, that the written contract entered into by the
parties is a contract of general regular commercial
partnership, wherein Menzi was the capitalist and the
plaintiff the industrial partner.
ISSUE: Is the relationship between the petitioner and
Menzi that of partners?
HELD: The relationship established between the parties
was not that of partners, but that of employer and
employee, whereby the plaintiff was to receive 35% of
the net profits of the fertilizer business of Menzi in
compensation for his services for supervising the mixing
of the fertilizers. Neither the provisions of the contract
nor the conduct of the parties prior or subsequent to its
execution justified the finding that it was a contract of co-
partnership. The written contract was, in fact, a
continuation of the verbal agreement between the
parties, whereby the plaintiff worked for the defendant
corporation for one-half of the net profits derived by the
corporation form certain fertilizer contracts.
According to Art. 116 of the Code of Commerce, articles
of association by which two or more persons obligate
themselves to place in a common fund any property,
industry, or any of these things, in order to obtain profit,
shall be commercial, no matter what it class may be,
provided it has been established in accordance with the
provisions of the Code. However in this case, there was
no common fund. The business belonged to Menzi & Co.
The plaintiff was working for Menzi, and instead of
receiving a fixed salary, he was to receive 35% of the net
profits as compensation for his services. The phrase in
the written contract “en sociedad con”, which is used as
a basis of the plaintiff to prove partnership in this case,
merely means “en reunion con” or in association with.
It is also important to note that although Menzi agreed to
furnish the necessary financial aid for the fertilizer
business, it did not obligate itself to contribute any fixed
sum as capital or to defray at its own expense the cost of
securing the necessary credit.
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
(Case Digest: Cyndall Jardinel)
FACTS: Benguet Lumber has been around even before
World War II but during the war, its stocks were
confiscated by the Japanese. After the war, the brothers
Tan Eng Lay and Tan Eng Kee pooled their resources in
order to revive the business. In 1981, Tan Eng Lay caused
the conversion of Benguet Lumber into a corporation
called Benguet Lumber and Hardware Company, with him
and his family as the incorporators. In 1983, Tan Eng Kee
died. Thereafter, the heirs of Tan Eng Kee demanded for
an accounting and the liquidation of the partnership.
Tan Eng Lay denied that there was a partnership between
him and his brother. He said that Tan Eng Kee was merely
an employee of Benguet Lumber. He showed evidence
consisting of Tan Eng Kee’s payroll; his SSS as an
employee and Benguet Lumber being the employee. As a
result of the presentation of said evidence, the heirs of
Tan Eng Kee filed a criminal case against Tan Eng Lay for
allegedly fabricating those evidence. Said criminal case
was however dismissed for lack of evidence.
RTC granted the petitioner for accounting and
determined that Tan Eng Kee and Tan Eng Lay had
entered into a joint venture, but the CA reversed such
decision, hence the present petition.
ISSUE: Whether or not Tan Eng Kee is a partner. NO
HELD: No. There was no certificate of partnership
between the brothers. The heirs were not able to show
what was the agreement between the brothers as to the
sharing of profits. All they presented were circumstantial
evidence which in no way proved partnership.
It is obvious that there was no partnership whatsoever.
Except for a firm name, there was no firm account, no
firm letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and
no time fixed for the duration of the partnership. There
was even no attempt to submit an accounting
corresponding to the period after the war until Kee’s
death in 1984. It had no business book, no written
account nor any memorandum for that matter and no
license mentioning the existence of a partnership.
In fact, Tan Eng Lay was able to show evidence that
Benguet Lumber is a sole proprietorship. He registered
the same as such in 1954; that Kee was just an employee
based on the latter’s payroll and SSS coverage, and other
records indicating Tan Eng Lay as the proprietor.
Also, the business definitely amounted to more
P3,000.00 hence if there was a partnership, it should
have been made in a public instrument.
But the business was started after the war (1945) prior to
the publication of the New Civil Code in 1950?
Even so, nothing prevented the parties from complying
with this requirement.
Also, the Supreme Court emphasized that for 40 years,
Tan Eng Kee never asked for an accounting. The essence
of a partnership is that the partners share in the profits
and losses. Each has the right to demand an accounting
as long as the partnership exists. Even if it can be
speculated that a scenario wherein “if excellent relations
10
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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:
1. Except as provided by Article 1825, persons
who are not partners as to each other are
not partners as to third persons;
2. Co-­­ownership or co-­­possession does not
of itself establish a partnership, whether
such co-­­owners or co-­­possessors do or do
not share any profits made by the use of the
property;
3. The sharing of gross returns does not of
itself establish a partnership, whether or not
the persons sharing them have a joint or
common right or interest in any property
which the returns are derived;
4. The receipt by a person of a share of the
profits of a business is a prima facie
evidence that he is a partner in the business,
but no such inference shall be drawn if such
profits were received in payment:
a) As a debt by installment or otherwise;
b) As wages of an employee or rent to a
landlord;
c) As an annuity to a widow or representative
of a deceased partner;
d) As interest on a loan, though the amount of
payment vary with the profits of the
business;
e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise.
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
(Case Digest: Lilybeth Petallo)
FACTS:
Petitioners Marjorie Tocao and William Belo filed a
Motion for Reconsideration, alleging that there was no
partnership between Petitioner Belo & Respondent
NenitaAnay, the latter being a mere employee of
Petitioner Tocao.
According to the testimony of respondent’s own witness,
Elizabeth Bantilan, Petitioner Belo acted merely as
guarantor of Geminesse Enterprise, Belo being a good
friend of Tocao.
ISSUE: WON partnership exists between Belo &Anay.
(NO)
HELD: No partnership exists between Belo and Anay.
It should be recalled that the business relationship
created between petitioner Tocao and respondent Anay
was an informal partnership, which was not even
recorded with the Securities and Exchange Commission.
As such, it was understandable that Belo, who was after all
petitioner Tocao's good friend and confidante, would
occasionally participate in the affairs of the business,
although never in a formal or official capacity. It was also
confirmed in Bantilan’s testimony that Belo’s presence in
Geminesse Enterprise’s meetings was merely as
guarantor of the company and to help petitioner Tocao.
No evidence showed that Belo participated in the profits
of the business enterprise. Respondent Anay herself
professed lack of knowledge that Petitioner Belo received
any share in the net income of the partnership. Also,
Petitioner Tocao declared that petitioners Belo was not
entitled to any share in the profits of Geminesse
Enterprises. With no participation in the profits, petitioner
Belo cannot be deemed a partner since the essence of a
partnership is that the partners share in the profits and
losses.
Q: Did it matter that the agreement to enter into a
partnership was not reduced into writing?
A: No, since partnership is a consensual contract. It does
not require any form.
Q: Would it make a difference had the agreement was
made in writing? Do you think this problem would arise if
the agreement was written?
A:Of course, it would have made a difference. If the
agreement was written, do you think the SC would
consider the circumstantial facts to determine if there
was a partnership? Siyempre, hindi na. Yes, partnership is
consensual. However, based on your law on evidence,
evidence that is in writing constitutes the agreement
between the parties. It would have made tons of
difference kung in writing siya.
Q: Is the sharing of profits sufficient to establish a
partnership? What are the things/circumstantial facts
considered by the SC to say that Anay was a partner and
not an employee of Tocao?
A:The fact that she has a voice in the management of the
business. She can select a person to be a manager. The
sharing of profits is merely a prima facie evidence of the
existence of a partnership. Correlate that with one case
where the SC said that the sharing of profits in payment
of compensation is not conclusive of a partnership since
you are merely an employee of the owner. Here, there is
sharing of profits plus Anay had a voice in the partnership
affairs. So look at circumstances in determining intention.
The parties in this case were Tocao, Belo and Anay. Tocao
and Belo were made liable. There was an MR where Belo
alleged that he was only a guarantor. The SC said that
Belo was indeed a mere guarantor.
N.B. - Compare this case with Heirs of Tan Eng Kee. The
relationship of the parties is significant.
(According to Sir, a friendship grounded on business is
better than a business grounded on friendship.)
YULO vs YANG CHIAO SENG
(Case Digest: Lilybeth Petallo)
FACTS:
1. 1945, Respondent Yang Chiao Seng proposed the
formation of a partnership with Petitioner Rosario
Yulofor the operation of a theater on the premises
occupied by Cine Oro, wherein Yang guarantees
Mrs. Yulo a monthly participation of P3,000,
payable quarterly in advance, etc.
2. Parties executed a partnership agreement
establishing Yang & Co., Ltd.:
a. That the capital is fixed at P100K:
P80K was furnished by Yang while
P20K by Yulo;
b. That all gains and profits are to be
distributed among the partners in the
same proportion as their capital
contribution;
c. That the liability of Yulo, in case of
loss, shall be limited to her capital
contribution.
3. However, since the land on which the theatre was
constructed was owned by the Carrion Sta.
Marias., and was merely leased to Petitioner Yulo;
the owners later exercised their right to cancel the
contract of lease.
4. So, the owners filed an action for ejectment
against Yulo and Yang. CFI granted the same. CA
affirmed.
5. Consequently, Yulo demanded from YANG her
share in the profits of the business.
6. Yang refused; hence, the action.
PETITIONER YULO’S CONTENTION:
That partnership exists between them, and
Yang is obliged to give her share in the profits.
RESPONDENT YANG’S 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.
RTC ruled in favor of Respondent Yang; that the
agreement was a sublease, not a partnership.
ISSUE: WON partnership exists, thereby requiring Yang to
give Yulo’s 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.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Q: Was there a partnership? What kind of contract was
entered into by the parties in this case?
A: No. It was a contract of sub-lease.
Q: 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
(Case Digest: Jennifer Lim)
FACTS:
Julia Buñales died leaving as heirs her surviving spouse,
Lorenzo Oña and her five children. A civil case was
instituted for the settlement of her state, in which Oña
was appointed administrator and later on the guardian of
the three heirs who were still minors when the project
for partition was approved. This shows that the heirs
have undivided ½ interest in 10 parcels of land, 6 houses
and money from the War Damage Commission.
Although the project of partition was approved by the
Court, no attempt was made to divide the properties and
they remained under the management of Oña who used
said properties in business by leasing or selling them and
investing the income derived therefrom and the
proceeds from the sales thereof in real properties and
securities. As a result, petitioners’ properties and
investments gradually increased. Petitioners returned for
income tax purposes their shares in the net income but
they did not actually receive their shares because this left
with Oña who invested them.
Based on these facts, CIR decided that petitioners formed
an unregistered partnership and therefore, subject to the
corporate income tax, particularly for years 1955 and
1956. Petitioners asked for reconsideration, which was
denied hence this petition for review from CTA’s
decision.
ISSUE:
W/N there was a co-ownership or an unregistered
partnership
HELD:
Unregistered partnership. 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 Oña 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.
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? Here, there was
really an intention to enter into a partnership since the
business is habitual. In the Obillos case, nagkataon lang.
We also discussed last meeting that a partnership must
have a lawful object or purpose otherwise the
partnership shall be void and the profits shall be
confiscated in favor of the Government.
Art. 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. (1666a)
We also discussed the formalities of a contract of
partnership.
General rule: Contract of Partnership is consensual in
nature, perfected by mere consent.
Exceptions:
Art. 1771. A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary. (1667a)
Art. 1772. Every contract of partnership having a capital of
three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in
the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding
paragraph shall not affect the liability of the partnership
and the members thereof to third persons. (n)
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory
of said property is not made, signed by the parties, and
attached to the public instrument. (1668a)
SEC is the government-governing body which oversees
corporations and partnerships.
AGAD VS MABATO
(Case Digest: Earvin Alparaque)
FACTS:
Mauricio Agad claim that he and SeverinoMabato are
partners in a fishpond business to which they contributed
P1,000 each. Mabato rendered the accounts of the
partnership. However, for the years 1957-1963, Mabato
failed to render the accounts despite repeated demands
by Agad. Petitioner filed a complaint against Mabato for
his share in the partnership profits. He attached a copy of
the public instrument evidencing their partnership in his
complaint.
Mabato denied the existence of the partnership alleging
that Agad failed to pay his P1,000 contribution. He then
filed a motion to dismiss on the ground of lack of cause of
action. The lower court dismissed the complaint finding a
failure to state a cause of action predicated upon the
theory that the contract of partnership is null and void
because an inventory of the fishpond referred in said
instrument was not attached.
ISSUE: Whether or not immovable property or real rights
have been contributed to the partnership
RULING:
Art. 1771. A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if inventory
of said property is not made, signed by the parties; and
attached to the public instrument.
Mabato alleged and the lower court held that the answer
should be in the affirmative, because it is really
inconceivable how a partnership engaged in the fishpond
business could exist without said fishpond property being
contributed to the partnership. It should be noted,
however, that, as stated in Annex "A" the partnership
was established "to operate a fishpond", not to "engage
in a fishpond business. Moreover, none of the partners
contributed either a fishpond or a real right to any
fishpond.
The operation of the fishpond mentioned in Annex "A"
was the purpose of the partnership. Neither said
fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if
a fishpond or a real right thereto could become part of its
assets.
We find that said Article 1773 of the Civil Code is not in
point and that, the order appealed from should be, as it is
hereby set aside and the case remanded to the lower
court for further proceedings.
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
12
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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.
JULY 4, 2017
(Transcriber:
Jennifer Mortejo)
Review of the last discussion
General rule: Partnership is consensual
Exceptions (instances when there are formal
requirements):
1. When the capital is 3000 or more, it should
appear in a public instrument which must be
recorded in the office of the SEC. (Art 1772)
2. When immovable property or real right
thereto is contributed to the partnership, it
must be in a public instrument and an
inventory should be made, signed by the
parties and attached to the public
instrument, otherwise the contract is void.
(Art 1773)
3. In cases of limited partnership.
If Article 1772 is not followed, what will happen?
Article 1772, par.2 - “Failure to comply with the
requirements of the preceding paragraph shall not affect
the liability of the partnership and the members thereof
to third persons.”
However, if Article 1773 is not followed, that’s void.
Why? For the reason that 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 the reliable means to
determine the status of ownership and the existing liens
of the property.
So in Agad vs Mabato, the SC ruled that there was no
immovable property or real right that was contributed.
What was the purpose of the partnership? To operate a
fishpond and not to engage into a fishpond business.
Please take note of this paragraph in this case: “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.”
Start of today’s discussion
TORRES VS CA
(Case Digest: Earvin Alparaque)
FACTS:
Courts may not extricate parties from the
necessary consequences of their acts. That the terms of a
contract turn out to be financially disadvantageous to
them will not relieve them of their obligations therein.
The lack of an inventory of real property will not ipso
facto release the contracting partners from their
respective obligations to each other arising from acts
executed in accordance with their agreement.
Petitioners Antonia Torres and Emeteria
Baring entered into a joint venture agreement with
Respondent Manuel Torres for the development of a
parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said
parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of
P40,000 which, under the Joint Venture Agreement, was
to be used for the development of the subdivision. All
three of them also agreed to share the proceeds from the
sale of the subdivided lots. The project did not push
through, and the land was subsequently foreclosed by
the bank.
According to petitioners, the project failed
because of respondent's lack of funds or means and skills.
They add that respondent used the loan not for the
development of the subdivision, but in furtherance of his
own company, Universal Umbrella Company. On the
other hand, respondent alleged that he used the loan to
implement the Agreement.
Respondent claimed that the subdivision
project failed, however, because petitioners and their
relatives had separately caused the annotations of
adverse claims on the title to the land, which eventually
scared away prospective buyers. Subsequently,
petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted.
Thereafter, they filed the present civil case.
ISSUE:
1. Whether or not a partnership was formed
between the parties - YES
2. If a partnership does exist, is it null and
void? - NO
RULING:
Petitioners deny having formed a
partnership with respondent. They contend that the Joint
Venture Agreement and the earlier Deed of Sale, both of
which were the bases of the appellate court's finding of a
partnership, were void. In the same breath, however,
they assert that under those very same contracts,
respondent is liable for his failure to implement the
project.
A reading of the terms embodied in the
Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code,
which provides:
Art. 1767. By the contract of partnership two or more
persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of
dividing the profits among themselves.
Under the Agreement, petitioners would
contribute property to the partnership in the form of
land which was to be developed into a subdivision; while
respondent would give, in addition to his industry, the
amount needed for general expenses and other costs.
Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly,
the contract manifested the intention of the parties to
form a partnership.
It should be stressed that the parties
implemented the contract. Thus, petitioners transferred
the title to the land to facilitate its use in the name of the
respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the
land.Respondent's actions clearly belie petitioners'
contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but
also industry.
Petitioners argue that the Joint Venture
Agreement is void under Article 1773 of the Civil Code,
which provides:
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to the public instrument.
They contend that since the parties did not
make, sign or attach to the public instrument an
inventory of the real property contributed, the
partnership is void.
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. Article 1773 provides:
A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached
to the public instrument.
The SC said:
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M.
Tolentino states that under the aforecited provision which
is a complement of Article 1771,[12] 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.
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?
13
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
But I think the SC ruled otherwise because of the 2nd
reason which provides that:
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should
pay them 60 percent of the value of the property.[13]
They cannot in one breath deny the contract and in
another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent
positions in regard to a contract and courts will not
tolerate, much less approve, such practice.
For me, the 2nd reason is the more valid reason. The SC
further said:
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.
What does this imply? This implies that even if the
contract of partnership is void because it does not
comply with a particular formal requirement, it does not
prevent the court from interpreting it as an ordinary
contract. Because at the end of the day, there was still an
agreement made by the parties.
LITONJUA VS LITONJUA
(Case Digest: Earvin Alparaque)
FACTS:
Aurelio and Eduardo are brothers. In 1973,
Aurelio and Eduardo entered into a contract of
partnership/joint venture. Aurelio showed as evidence a
letter sent to him by Eduardo that the latter is allowing
Aurelio to manage their family business (if Eduardo’s
away) and in exchange thereof he will be giving Aurelio
P1 million or 10% equity, whichever is higher. A
memorandum was subsequently made for the said
partnership agreement. The memorandum this time
stated that in exchange of Aurelio, who just got married,
retaining his share in the family business (movie theatres,
shipping and land development) and some other
immovable properties, he will be given P1 Million or 10%
equity in all these businesses and those to be
subsequently acquired by them whichever is greater.
In 1992 however, the relationship between
the brothers went sour. And so Aurelio demanded an
accounting and the liquidation of his share in the
partnership. Eduardo did not heed and so Aurelio sued
Eduardo.
ISSUE: Whether or not a partnership exists between the
two parties - NO
RULING:
Art. 1771. A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary.
Art. 1772. Every contract of partnership having a capital
of three thousand pesos or more, in money or property,
shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the preceding
paragraph shall not affect the liability of the partnership
and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to the public instrument.
The memorandum on its face, contains
typewritten entries, personal in tone, but is unsigned and
undated. As an unsigned document, there can be no
quibbling that it does not meet the public
instrumentation requirements exacted under Article
1771 of the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving more than
P3,000.00 in money or property, the memorandum
cannot be presented for notarization, let alone registered
with the Securities and Exchange Commission (SEC), as
called for under the Article 1772 of the Code. And
inasmuch as the inventory requirement under the
succeeding Article 1773 goes into the matter of validity
when immovable property is contributed to the
partnership, the next logical point of inquiry turns on the
nature of petitioner’s contribution, if any, to the
supposed partnership.
Petitioner, in an obvious bid to evade the
application of Article 1773, argues that the immovables in
question were not contributed, but were acquired after
the formation of the supposed partnership. Needless to
stress, the Court cannot accord cogency to this specious
argument. For, as earlier stated, petitioner himself
admitted contributing his share in the supposed shipping,
movie theatres and realty development family businesses
which already owned immovables even before the
memorandum was allegedly executed.
Considering thus the value and nature of
petitioner’s alleged contribution to the purported
partnership, the Court, even if so disposed, cannot
plausibly extend to the memorandum the legal effects
that petitioner so desires and pleads to be given. The
memorandum in fine, cannot support the existence of
the partnership sued upon and sought to be enforced.
The legal and factual milieu of the case calls for this
disposition. A partnership may be constituted in any
form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital
of at least ₱3,000.00, in which case a public instrument
shall be necessary. And if only to stress what has
repeatedly been articulated, an inventory to be signed by
the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever
immovable property is contributed to it.
This is not a case for damages but a case for accounting
and specific performance based on the alleged
partnership contract. The SC said that Article 1773 was
not complied but it applied the said article as it is in
resolving the case.
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.
Partner subject to unlimited liability
When you compare corporations to partnerships:
In Corporations, the owners are stockholders. Generally
the stockholders have limited liability in the sense that
they can only be liable for the corporation’s debts to the
extent of their capital contribution in the form of stocks.
In partnerships, partners have unlimited liability like the
sole proprietorship.
Sole proprietorship
e.g. I own a carwash and carinderia, magkatabi lang sila.
If I am the sole proprietor, let us say na-bankrupt si
carinderia pero booming si carwash, so nagka-utang2 ako
sa carinderia. Ang dami kong creditors. The creditors can
actually go to my property doon sa carwash. In return, I
have unlimited liability with respect to the creditors of the
carinderia.
Why is that the case? Look at this, me as the sole owner, I
can reap all the profits of the businesses. I manage the
businesses and I owned them. Essentially, kung malugi
siya dapat ako pud ang managot kay ako raman nag-
decide.
Corporation
Generally, the owners are the stockholders. Kinsa man
ang naga-buot?Are the stockholders the one “buot-ing”
?No. Ang nagpapa-lakad ng buong corporation are the
Board of Directors (BOD). Now, would it be fair if the
stockholders will have unlimited liability when in fact they
are not the one making decisions?
Partnership
Essentially in a partnership setting, it’s just like an
aggrupation of sole proprietorship. Partners are the ones
contributing money, property or industry, at the same
time they are the ones realizing the profits. Essentially,
sila pud dapat ang malugi kay sila man ang naga-
manage. That’s primarily the reason why partners have
unlimited liability compared to corporation’s
stockholders.
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)
(Sir reads the book of De Leon)
(1) As to the extent of its subject matter. — A partnership
may be:
(a) Universal partnership or one which refers to all the
present property or to all profits.
There are thus two kinds of universal partnership, to wit:
(1) Universal partnership of all present property.
(2) Universal partnership of profits. Or
(b) Particular partnership. — This is defined in Article
1783.
(2) As to liability of the partners. — It may be:
(a) General partnership or one consisting of general
partners who are liable pro rata and subsidiarily and
sometimes solidarily with their separate property for
partnership debts; or
(b) Limited partnership or one formed by two or more
persons having as members one or more general
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
partners and one or more limited partners, the latter not
being personally liable for the obligations of the
partnership.
*Sir - Just take note that in limited partnership, there
should be at least one limited partner. If there is no
limited partner, it is not a limited partnership.
(3) As to its duration. — It is either:
(a) Partnership at will or one in which no time is specified
and is not formed for a particular undertaking or venture
and which may be terminated at anytime by mutual
agreement of the partners, or by the will of any one
partner alone; or one for a fixed term or particular
undertaking which is continued by the partners after the
termination of such term or particular undertaking
without express agreement or
(b) Partnership with a fixed term or one in which the
term for which the partnership is to exist is fixed or
agreed upon or one formed for a particular undertaking,
and upon the expiration of the term or completion of the
particular enterprise, the partnership is dissolved, unless
continued by the partners.
(4) As to the legality of its existence. — It may be:
(a) De jure partnership or one which has complied with all
the legal requirements for its establishment; or
(b) De facto partnership or one which has failed to
comply with all the legal requirements for its
establishment.
*Sir – I have an issue with this. Generally, a partnership is
consensual in nature. So it’s a gray area to say that
there’s de jure or de facto partnership. If it failed to
comply with the formal requirements, then it is void. Why
do you say de facto?
(5) As to representation to others. — It may be:
(a) Ordinary or real partnership or one which actually
exists among the partners and also as to third persons;
(b) Ostensible partnership or partnership by estoppel or
one which in reality is not a partnership, but is
considered a partnership only in relation to those who,
by their conduct or admission, are precluded to deny or
disprove its existence.
(6) As to publicity. — It may be:
(a) Secret partnership or one wherein the existence of
certain persons as partners is not avowed or made
known to the public by any of the partners; or
(b) Open or notorious partnership or one whose
existence is avowed or made known to the public by the
members of the firm.
(7) As to purpose. — It may be:
(a) Commercial or trading partnership or one formed for
the transaction of business; or
(b) Professional or non-trading partnership or one
formed for the exercise of a profession.
Kinds of partners
Partners are classified according to their interests in the
partnership business, or their obligations to the
partnership, or their liabilities to third persons.
(1) Under the Civil Code. — Partners are classified into:
(a) Capitalist partner or one who contributes money or
property to the common fund;
(b) Industrial partner or one who contributes only his
industry or personal service;
(c) General partner or one whose liability to third persons
extends to his separate property; he may be either a
capitalist or industrial partner. He is also known as real
partner;
(d) Limited partner or one whose liability to third persons
is limited to his capital contribution. He is also known as
special partner. The terms “general partner” and “limited
partner” have relevance only in a limited partnership;
(e) Managing partner or one who manages the affairs or
business of the partnership; he may be appointed either
in the articles of partnership or after the constitution of
the partnership. He is also known as general or real
partner;
(f) Liquidating partner or one who takes charge of the
winding up of partnership affairs upon dissolution;
(g) Partner by estoppel or one who is not really a partner,
not being a party to a partnership agreement, but is liable
as a partner for the protection of innocent third persons.
He is one who is represented as being in fact a partner,
but who is not so as between the partners themselves.
He is also known as partner by implication or nominal
partner.
The term “quasi-partner” is sometimes used;
(h) Continuing partner or one who continues the business
of a partnership after it has been dissolved by reason of
the admission of a new partner, or the retirement, death,
or expulsion of one or more partners;
(i) Surviving partner or one who remains after a
partnership has been dissolved by the death of any
partner; and
(j) Subpartner or one who, not being a member of the
partnership, contracts with a partner with reference to
the latter’s share in the partnership.
(2) Other classifications. — They have also been classified
into:
(a) Ostensible partner or one who takes active part and
known to the public as a partner in the business, whether
or not he has an actual interest in the firm. Thus, he may
be an actual partner or a nominal partner. If he is not
actually a partner, he is subject to liability by the doctrine
of estoppel;
(b) Secret partner or one who takes active part in the
business but is not known to be a partner by outside
parties nor held out as a partner by the other partners,
although he participates in the profits and losses of the
partnership. He is an actual partner. He is also an active
partner in the sense that he participates in the
management of the partnership affairs;
(c) Silent partner or one who does not take any active
part in the business although he may be known to be a
partner. Thus, he need not be a secret partner. If he
withdraws from the partnership, he must give notice to
those persons who do business with the firm to escape
liability in the future;
(d) Dormant partner or one who does not take active part
in the business and is not known or held out as partner.
He would be both a silent and a secret partner. He would
be both a secret and a silent partner. He may retire from
the partnership without giving notice and cannot be held
liable for obligations of the firm subsequent to his
withdrawal. His only interest in joining the partnership
would be the sharing of the profits earned.
The term is used as synonymous with “sleeping partner”;
(e) Original partner or one who is a member of the
partnership from the time of its organization;
(f) Incoming partner or a person lately, or about to be,
taken into an existing partnership as a member; and
(g) Retiring partner or one withdrawn from the
partnership; a withdrawing partner.
All partners in any of these six classes are subject to
liability for all partnership obligations.
Sir reads the following provisions:
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 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.
That’s 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)
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)
Who are the persons prohibited from giving any donation
or advantage to each other?
The spouses. What do you think is the reason behind this
rule?
“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.”
15
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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.
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;
*Sir - no need for conviction. Only preponderance of
evidence is required.
(2) Those made between persons found guilty of the same
criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descendants
and ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration
of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donor and donee may be
proved by preponderance of evidence in the same action.
(n)
Can spouses just between themselves or with other 3rd
parties validly enter into a contract of partnership
provided that the resulting partnership is not a universal
partnership?
CIR VS SUTER
(Case Digest: Eliza Devilleres)
FACTS:
1.) A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed on by William J. Suter as
the general partner, and Julia Spirig and Gustav Carlson,
as the limited partners.
2.) The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership and was
thereafter registered with the SEC.
3.) The firm engaged,among other activities, in the
importation, marketing, distribution and operation of
automatic phonographs, radios,television sets and
amusement machines, their parts and accessories. It had
an office and held itself out as alimited partnership.
4.) However, general partner Suter and limited partner
Spirig got married and, thereafter,limited partner Carlson
sold his share in the partnership to Suter and his wife.
The sale was duly recordedwith the Securities and
Exchange Commission.
5.) The limited partnership had been filing its income tax
returns as a corporation, without objection by the
hereinpetitioner, Commissioner of Internal Revenue, until
in 1959 when the latter, in an assessment, determined a
deficiency income tax against respondent Suter in the
amount of P2,678.06 for 1954 andP4,567.00 for 1955.
6.) Suter protested but this was denied.
7.) CONTENTION OF CIR: The marriage of Suter and Spirig
and theirsubsequent acquisition of the interests of
remaining partner Carlson in the partnership dissolved
the limitedpartnership, and if they did not, the fiction of
juridical personality of the partnership should be
disregarded forincome tax purposes because the spouses
have exclusive ownership and control of the business,
consequentlythe income tax return of respondent Suter
for the years in question should have included his and his
wife'sindividual incomes and that of the limited
partnership
8.) CONTENTION OF SUTER: t his marriagewith limited
partner Spirig and their acquisition of Carlson's interests
in the partnership in 1948 is not a ground fordissolution
of the partnership, either in the Code of Commerce or in
the New Civil Code, and that since its juridicalpersonality
had not been affected and since, as a limited partnership,
as contra distinguished from a dulyregistered general
partnership, it is taxable on its income similarly with
corporations, Suter was not bound toinclude in his
individual return the income of the limited partnership.
ISSUE: W/N the partnership was dissolved after the
marriage of the partners, respondent William J. Suterand
Julia SpirigSuter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of hisparticipation.
HELD: No, it was not dissolved.
WHAT IS PROHIBITED IS FOR SPOUSES TO ENTER INTO A
GENERAL PARTNERSHIP.
A husband and a wife may not enter into a contract of
GENERAL COPARTNERSHIP, because under the CivilCode,
which applies in the absence of express provision in the
Code of Commerce, persons prohibitedfrom making
donations to each other are prohibited from entering
into UNIVERSAL PARTNERSHIPS. It follows that the
marriage of partners necessarily brings about the
dissolution of a pre-existingpartnership.
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 requireseither 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
partnershipthat 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 appellant's view, that by the marriage of both
partners the company became a single proprietorship,
isequally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately
ownedand 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 copartnerships
(compañiascolectivas)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.
The spouses can enter into a particular partnership
because the prohibition only provides that spouses are
prohibited to donate to one another or from entering
into a universal partnership. The issue here is that, is this
still applicable given the enactment of Family Code?
According to Villanueva, spouses are not qualified to
enter into other forms of partnership for gain except
professional partnership. The reasons are:
1. Every firm effectively makes partners donors to one
another of their contribution to the partnership.
- Why? Even if it’s particular, the wife will contribute the
land and the husband will contribute building. Ano ang
mangyayari sa contributed capital? It will become a co-
ownership. So necessarily, it would appear that the
prohibition against donation was violated indirectly.
- For instance, there would be a contention that the
partnership in not gratuitous in nature, thus should not
be considered a donation. It would still be violative of
Article 1490 of the Civil Code which provides:
“Art. 1490. The husband and the wife cannot sell property
to each other, except:
(1) When a separation of property was agreed upon in the
marriage settlements; or
(2) When there has been a judicial separation or property
under Article 191. (1458a)”
2. The property regime should be under the Family Code
and not the partnership law in the Civil Code.
- Can spouses governed by the absolute community
property regime vary the effects between them of certain
community property by contributing them into a
particular partnership for gains? NO. Article 89 of the
Family Code provides:
“No waiver of rights, shares and effects of the absolute
community of property during the marriage can be made
except in case of judicial separation of property.”
So nag-asawa kayo tapos eventually nag-create kayo ng
partnership, pag nagcontribute ka nagkakaroon ng co-
ownership. So essentially, you’re varying the effects of
the absolute community property which is not allowed
under Article 89.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
- 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. It’s 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.
I put on hold before the reason why a corporation cannot
be a partner, we will discuss it now.
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 corporation’s 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, let’s
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.”
JULY 7, 2017
(Transcriber: Zarah Domingo)
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.
As a consensual contract, a partnership exists from the
moment of the celebration of the contract.
The birth and life of a partnership is predicated on a
mutual desire and consent of the parties.
Unlike a corporation, no time limit is prescribed by the law
for the life of partnership.
Partners can fix it for one whole term. When you look at
the Corporation Code, the corporation has a limited life
of 50 years but it is renewable. Within 50 years of the
expiration, you can renew for another 50 years. In the
case of partnership, walang expiration.
You will learn later on that one of the reasons or causes of
dissolution is death.
So kung ang 17ay un partner, ang lifetime niya lang ay
30, hantud 30 lang pud, ma-dissolve siya.Limited siya of
the lifetime of the partner. But as a rule, there is no limit
for partnership.
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 dissolution—it
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.
What are the obligations of a partner with respect to the
contribution of property:
(1) To contribute at the beginning of the
partnership or at the stipulated time the
money, property, or industry which he may
have promised to contribute;
(2) To answer for eviction in case the
partnership is deprived of the determinate
property contributed; and
Note: Remember the requisites for eviction
on your law on sales. It equally applies.
(3) To answer to the partnership for the fruits of
the property the contribution of which he
delayed, from the date they should have
been contributed up to the time of actual
delivery; Note: This is an exception to the
rule that there has to be a demand for delay
to incur.
17
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
(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
(Case Digest: Eliza Devilleres)
FACTS:
1.) Sancho brought an action for the rescission of a
partnership contract between himself and the
defendant,the reimbursement by the latter of his
50,000 peso investment therein, withinterest at 12 per
cent per annum from October 15, 1920, with costs, and
any other just and equitable remedyagainst said
defendant.
2.) Lizarraga specifically denied the allegations of
Sancho and asks for the dissolution of thepartnership,
and the payment to him as its manager and
administrator of P500 monthly from October 15,
1920,until the final dissolution, with interest, one-half
of said amount to be charged to Sancho.
3.) CFI declared the partnership dissolved and ordered
for a liquidation.
4.) CONTENTION OF LIZARRAGA: This appeal
ispremature and therefore will not lie. The point is
based on the contention that inasmuch as the
liquidation orderedby the trial court, and the
consequent accounts, have not been made and
submitted, the case cannot be deemedterminated in
said court and its ruling is not yet appealable. In
support of this contention counsel cites section 123of
the Code of Civil Procedure, and the decision of this
court in the case of Natividad vs. Villarica (31 Phil.,
172).
ISSUE:
1799.)W/N the dissolution of the partnership
was proper. — No
2.) W/N 1681 & 1682 of the Civil Code was properly
applied. – Yes
HELD:
1.) APPEAL IN THE INSTANT CASE DEEMED PREMATURE
Until the accounts have been rendered as ordered by
the trial court, and untilthey have been either approved
or disapproved, the litigation involved in this action
cannot be considered ascompletely decided and, as it
was held in said case of Natividad vs Villarica, also with
reference to an appeal
taken from a decision ordering the rendition of
accounts following the dissolution of partnership, the
appeal in theinstant case must be deemed premature.
2.) LIZARRAGA’S 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 court’s 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 defendant’s failure to pay to the
partnership the whole amount which he bound himself
to pay, he became indebted to it for the remainder, with
interest and any damages occasioned thereby, but the
plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to
article 1124 of the Code.This article cannot be applied
to the case in question, because it refers to the
resolution of obligations in general, whereas article 1681
and 1682 specifically refer to the contract of partnership
in particular. And it is a well-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.
This provision gives you the rules on how appraisal should
be made.
1.) First, in the manner provided in the contract
of partnership.
2.) Second, kung walang stipulation sa contract,
yung expert chosen by the partners.
As you can see, hindi pwede yung partner ang magbuot-
buot sa goods. Kini P50,000.
(What about) if that is specifically stipulated sa contract
of partnership, will that be valid? Di ba nakasabi ‘in the
manner prescribed by the contract of partnership.’ What
if nakalagay sa contract of partnership that ‘the prices
should be determined by Partner A.’ Will that still be
valid?
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.
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 partner’s 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, let’s say Person 1, may money siya.
Sabi niya sa Person 2, bigay ko sayo pambili ng cigarettes.
Ang nangyari, hindi bumili ng cigarettes, it was converted
to his personal use. The contention of Person 2, may
contract of partnership kami so in effect, yung gi-
contribute, owner din siya, so mawala na ang element of
deceit (since this is a case against Person 2 for estafa).
18ay un18 Supreme Court, kahit na contract of
partnership, you look at this provision—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.
This is based on the premise 18ay un na nga lang ang
icontribute mo. How will you contribute your industry
kung hati-hati imuhang time?
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
18ay u-receive ni industrial partner, with right to
damages, for both instances. So either right or remedy,
may right to damages.
18
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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.
Let’s 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, and
walang agreement na in case of imminent loss, hindi ka
pa rin magcontribute, 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.
Bakit excluded si industrial partner? Kasi diba yun naman
talaga ang icontribute niya, service.Hindi na niya mabawi
ang efforts na kanyang inexert.
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 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 19ay 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
partner’s extraordinary efforts in other activities of the
partnership, unusual profits have been realized.
So hindi pwede, kunwari, nakasala ka, nagsuffer ang
partnership, na instead nimu bayaran ang damages, i-
charge na lang sa akuang profits sa share. That is not
allowed.
What if (there was an) extraordinary effort and unusual
profits have been realized?
Kunwari, in the normal course of business, naa lang siya
sa office. Nakasala siya. Kabalu siya sa Article 1794, dili
nako pwede icharge sa akuang profits, so dapat ko mag-
extraordinary effort. So, nigawas siya sa iyahang office,
nagdistribute siya ug flyers para mabenta ilahang
nabebenta. Because of that, marami na ang customer,
nagkaroon ng maraming profits.
Would the damages be offset by the profits?Would that
lessen the damages that he brought to the partnership?
Extraordinary effort 19ay un ha, dili usual na muadto siya
sa malls para lang makakuha customer.
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.
So this is based on the rule on your obligations and
contract. Ano yun? (No answer.)
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.
Take note of this provision kasi usually tinatanong ito.
(How is the)sharing of profits and losses (made)?
So again, kung may agreement as to profits, yun. Pag-
walang agreement sa profits, the share of each capitalist
partner shall be in proportion to its capital contribution.
What about theindustrial partner, (considering that he did
not contribute) capital?
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?
Kung walang agreement pero mayprofits, it should be in
accordance with the profit-sharing stipulation. If walang
profit-sharing stipulated, 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.
19
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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 profits—
as to capital contribution. Kung losses—capital
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
(Case Digest: Eliza Devilleres)
FACTS:
1.) AzucenaPalomo obtained a loan from Tai Tong
Chuache Inc. in the amount ofP100,000.00. To secure
the payment of the loan, a mortgage was executed
over the land and the building infavor of Tai Tong
Chuache& Co. On April 25, 1975, Arsenio Chua,
representative of Tai Tong Chuache& Co. insured the
latter’s interest with Travellers Multi-Indemnity
Corporation forP100,000.00.
2.) PedroPalomo secured a Fire Insurance Policy
covering thebuilding for P50,000.00 with respondent
Zenith Insurance Corporation. Another
FireInsurancewas procured from respondent Philippine
British Assurance Company,covering the same building
for P50,000.00 and the contents thereof for
P70,000.00.
3.) The building and the contents were totally razed by
fire.
4.) Based on the computation of the loss, including the
Travellers Multi-Indemnity, respondents,
ZenithInsurance, Phil. British Assurance and S.S.S.
Accredited Group of Insurers, paid their corresponding
sharesof the loss.
5.) Demand was made from respondent Travellers
Multi-Indemnity for its share in the loss but thesame
was refused. Hence, complainants demanded from the
other three (3) respondents the balance of eachshare
in the loss but the same was refused, hence, this
action.
6.) Tai Tong Chuache& Co. filed a complaint in
intervention claiming the proceeds of the fire
Insurance Policy issued by respondent Travellers Multi-
Indemnity.
7.) Travellers Insurance, in answer to the complaint in
intervention, alleged that the Intervenor is not entitled
toindemnity under its Fire Insurance Policy for lack of
insurable interest before the loss of the insured
premisesand that the complainants, spouses Pedro and
AzucenaPalomo, had already paid in full their mortgage
indebtedness to the intervenor.
8.) RULING OF THE INSURANCE COMMISSION: Absolved
respondent insurance company from liabilityon the
basis of the certification issued by the then Court of
First Instance of Davao, Branch II, that in a certain civil
actionagainst the Palomos, Arsenio Lopez Chua stands
as the complainant and not Tai Tong Chuache. From
said evidencerespondent commission inferred that the
credit extended by herein petitioner to the Palomos
secured by the insuredproperty must have been paid.
9.) TRAVELLERS’ CONTENTION: If the civil case really
stemmed from the loan granted to AzucenaPalomo
bypetitioner the same should have been brought by Tai
Tong Chuache or by its representative in its own behalf.
From theabove premise respondent concluded that the
obligation secured by the insured property must have
been paid.
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. Petitioner’s 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 respondent’s
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.
So let’s say may 5 managing partners. Walang stipulation
na dapat lahat sila mag-decide. So each of them can
decide all acts of administration.
What if may opposition? Sino magdedecide? Kung 5,
tatlo. Let’s say 2 yung pro, 3 yung against, pero yung 2 ay
tag-30% (equal to 60%), the rest total of 40%. Do they
have the right to question? Wala.Kasi hindi man tie.
So in case of a tie, saka magfollow ang rule on controlling
interest.
Kaya usually, in corporations, yung boards of directors,
bungkig jud na siya, like minimum of not more than 15.
They try to avoid paralyzation of business, maghulat pa
ug another way bago maconduct ang day-to-day
operation.
And it is also very crucial, in practice, dali ra jud maghimu
ug corporation. Muadto lang ka ug lawyer, bayad lang ka
P20,000, papel-papel, parehistro sa SEC. Sometimes man
gud, ang ginabuhat lang nila, maghimu lang ta ug tao,
dummy-dummy tapos magkaproblema na later on, asa
na tung mga tao na papirmahun, wala na, so
magtanggung ang operation. So sa mga tao na dili kayo
well-versed sa corporation law, magkaproblema later on.
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
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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.
JULY 15, 2017
(Transcriber: Isaihlene Abad)
Art. 1803. When the manner of management has not been
agreed upon, the following rules shall be observed:
1.) All the partners shall be considered agents and
whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of article
1801.
2.) None of the partners may, without the consent of the
others, make any important alteration in the immovable
property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the
partnership, the court’s intervention may be sought.
This talks about an act of strict dominion. You don’t need
the consent of all partners unless it is manifestly
prejudicial. You seek the court’s 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.
So consistent with the right to manage. The partner has
also the right to inspect the books kasi owner siya diba
but please take note of the provision – you can only
check the books at any reasonable hour and have access
or inspect them at the principal place of business. You
cannot demand to inspect the book at 6pm or beyond
the business hours.
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.
Consistent with your right as owner of the partnership,
you have the right to demand true and full information.
Kasi diba pwede naman the management of the
partnership is given to one or more person, so yung iba
can demand true and full information of the partnership.
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
(Case Digest: Jennifer Lim)
FACTS: Leung Yiu filed with the CFI of Manila, to recover
the sum equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun
WahPanciteria from petitioner Dan Fue Leung.
The Sun WahPanciteria was established sometime in
October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued
to and in favor of Fue Leung as the sole proprietor.
Leung Yiu adduced evidence during the trial of the case
to show that Sun WahPanciteria was actually a
partnership and that he was one of the partners having
contributed P4, 000.00 to its initial establishment.
The private respondent’s evidence is summarized as
follows:
 About the time the Sun WahPanciteria
started to become operational, the private
respondent gave P4,000.00 as his
contribution to the partnership. This is
evidenced by a receipt wherein the
petitioner acknowledged his acceptance of
the P4,000.00 by affixing his signature
thereto.
 Witnesses So Sia and Antonio Ah Heng
corroborated the private respondent’s
testimony to the effect that they were both
present when the receipt was signed by the
petitioner.
 Furthermore, the private respondent
received from the petitioner the amount of
P12,000.00 from the profits of the operation
of the restaurant for the year 1974.
The petitioner denied having received from the private
respondent the amount of P4,000.00. He contested and
impugned the genuineness of the receipt. His evidence is
summarized as follows:
 The petitioner did not receive any
contribution at the time he started the Sun
WahPanciteria. He used his savings from his
salaries as an employee and waiter
amounting to a little more than P2,000.00 as
capital in establishing Sun WahPanciteria.
 To bolster his contention that he was the
sole owner of the restaurant, the petitioner
presented various government licenses and
permits showing the Sun WahPanciteria was
and still is a single proprietorship solely
owned and operated by himself alone.
Dan Fue also argues: IAC erred in not resolving the issue
of prescription in his favor. The alleged receipt is dated
October 1, 1955 and the complaint was filed only on July
13, 1978 or after 22 years. From October 1, 1955 to July
13, 1978, no written demands were ever made by Leung
Yiu.
The CFI and IAC ruled in favor of the private respondent.
Both TC and IAC found that the Leung Yiu is a partner of
the petitioner in the setting up and operations of the
panciteria and the Leung Yiu invested in the business as a
partner
ISSUE: Whether or not the private respondent is a
partner of the petitioner in the establishment of Sun
WahPanciteria.
HELD: YES. Leung Yiu alleged that when the Panciteria
was established, he gave P4, 000 with the understanding
that he would be entitled to 22% of the annual profit.
This makes them partners in the establishment of Sun
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
WahPanciteria because NCC 1767 provides that "By the
contract of partnership two or more persons bind
themselves to contribute money, property or industry to
a common fund, with the intention of dividing the profits
among themselves".
Given its ordinary meaning, “financial assistance” is the
giving out of money to another without the expectation
of any returns. It connotes an ex gratia dole out in favor
of someone driven into a state of destitution. But this
circumstance under which the P4, 000 was given to the
Dan Fue does not apply because Leung Yiu is entitled to
22% of the annual profit.
Anent the issue on prescription, his argument is based on
NCC 1144 (which provides for actions must be brought
within 10 yrs: upon written contract, obligation created
by law, upon judgment) in relation to NCC 1155
(prescription is interrupted when they are filed before
the court, written extra judicial demand by creditor, &
written acknowledgment of debt by debtor)
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
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 Fue’s
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.
Q: How about the fact that it was registered as
a sole proprietorship? Diba this was a business registered
by the other party as a sole proprietorship?
A: 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.
Q: What provision was used by petitioner in
saying that the complaint has already prescribed?
A: Art.1144 of the CC. the following action
must be brought within the following year… Remember
petitioner’s 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
(Case Digest: Jennifer Lim)
FACTS: Emilio Emnace, Jacinto Divinagracia and Vicente
Tabanao formed a partnership engaged in the fishing
industry (Ma. Nelma Fishing Industry). In 1986, Jacinto
decided to leave the partnership hence they agreed to
dissolve the partnership. At that time, the partnership
has an estimated asset amounting to P30,000,000.00.
Until the death of Vicente Tabanao in 1994, Emnace
never rendered an accounting either to Vicente or his
heirs. Emnace reneged on his promise to turn over
Tabanao’s share which is 1/3 of the P30M.
The heirs of Tabanao then sued Emnace. Emnace argued,
among others, that the heirs are barred by prescription
hence they can no longer demand an accounting. He
contends that the partnership was dissolved in 1986 and
that was the time when Tabanao’s (and his heirs’) right to
inquire into the business affairs accrued; that said right
has expired in 1990 or 4 years after.
The trial court and appellate ruled that prescription
begins to run only upon the dissolution of the partnership
when the final accounting is done. Hence, prescription
has not set in the absence of a final
accounting. Moreover, an action based on a written
contract prescribes in ten years from the time the right of
action accrues.
ISSUE: Whether or not the right has prescribed.
HELD: No. 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
partnership’s 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 partnership’s business and
assets. Hence, the said action is not barred by
prescription.
Q: 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?
A: 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:
Differentiate this with other incidents of co-ownership of
partnership property.
1.) A partner, subject to the provisions of this Title
and to any agreement between the partners,
has an equal right with his partners to
possess specific partnership property for
partnership purposes; but he has no right to
possess such property for any other purpose
without the consent of his partners;
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.
2.) A partner’s right in specific partnership property
is not assignable except in connection with
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
the assignment of rights of all the partners in
the same property;
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.
3.) A partner’s right in specific partnership property
is not subject to attachment or execution,
except on a claim against the partnership.
When partnership property is attached for a
partnership debt the partners, or any of
them, or the representatives of a deceased
partner, cannot claim any right under the
homestead or exemption laws;
4.) A partner’s right in specific partnership property
is not subject to legal support under art. 291.
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.
Art. 1812. A partner’s 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 don’t 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 assignor’s 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 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 partner’s interest
1. To receive in accordance with his contract
the profits accruing to the assigning parter;
2. To avail himself of the usual rememdies
provided by law in the event of fraud in the
management;
3. To receive the assignor’s 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.
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.
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 that’s the
regularity 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 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?
3. a) the name shall not be identical,
misleading or confusingly similar to a corporate or
partnership name registered with the Commission, or
with the Department of Trade and Industry, in the case of
sole 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.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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.
This is applicable to franchise agreement, hindi nila
tatangapin unless hindi ka naclear ng IPO.
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;
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.
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;
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.
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.
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 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
(Case Digest: Jennifer Lim)
FACTS:*Facts were in Spanish.
In the insolvency proceedings of petitioner-
establishment, “SociedadMercantil, Teck Seing&Co.,
Ltd.”, creditors Pacific Commercial and others filed a
motion with the Court to declare the individual partners
parties to the proceeding, for each to file an inventory,
and for each to be adjudicated as insolvent debtors.
ISSUE: What is the nature of the mercantile
establishment TeckSeing& Co., Ltd.?
HELD: 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.
Q: if this case happened today(the applicable
law in the case was different)?
A: 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 doesn’t 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. Why is it now
that the industrial partner is liable?
COMPANIA MARITIMA vs MUNOZ
(Case Digest: Jennifer Lim)
FACTS: In 1905, the defendants Francisco Muñoz, Emilio
Muñoz, and Rafael Naval formed on ordinary general
mercantile partnership under the name of Francisco
Muñoz & Sons for the purpose of carrying on the
mercantile business in the Province of Albay which had
formerly been carried on by Francisco Muñoz.
Francisco was the capitalist partner while the other two
were industrial partners. In the articles of partnership, it
is expressly stated that they have agreed to form, and do
form, an ordinary, general mercantile partnership. The
object of the partnership, as stated in the fourth
paragraph of the articles, is a purely mercantile one and
all the requirements of the Code of Commerce in
reference to such partnership were complied with. The
articles of partnership were recorded in the mercantile
registry in the Province of Albay.
Later, the partnership was sued by La
CompañiaMartitama 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 can’t 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 CompañiaMartitama.
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.
24
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
The Court’s 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.
Article 141 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.
Q: 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.
A: 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.
Q: 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?
A: 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
(Case Digest: Lilybeth Petallo)
FACTS:
1. Petitioner Teodoro de los Reyes lent P1,086.65 in
favor of the firm “Lukban&Borja” for merchandise
bought on credit from petitioner’s ship supply
store, La Industria.
2. When “Lukban&Borja” defaulted payment,
Petitioner delos Reyes filed an action for recovery
of debt first against the firmLukban&Borja. The
court ordered the firm to pay the debt with
interest; but only one partner, i.e. Respondent
EspiridionBorja, paid P522.69; thus leaving a
balance of P853. Thereafter, the partnership was
dissolved.
3. In the attempt to recover the balance, Petitioner
delos Reyes, filed another action to recover the
balance of the debt now against both
Respondents-Partners Vicente Lukban and
EspiridionBorja; thus, making them individually
liable.
4. In his answer, Respondent Lukban’s alleged:
a. That he was merely an industrial
partner in the firm;
b. That respondent Borja was the one
who furnished the capital; and
c. That the assets of the firm
“Lukban&Borja” have not been
exhausted yet.
5. The lower court sentenced both respondents-
partners Lukban and Borjasolidarily liable for the
balance.
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 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 pointed 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.”
FOR THE FOREGOING REASONS, the judgment appealed
from is AFFIRMED with costs of this instance against the
appellant. So ordered.
So again same principle, industrial partner should not
share in the losses pero liable siya to third persons. Again,
his recourse is to the other partners.
Art. 1817. Any stipulation against the liability laid down in
the preceding article shall be void, except as among
partners.
So you cannot stipulate na hindi liable si industrial
partner sa third person. That stipulation is applicable only
between the parties but not with regards to third
persons. The premise is walang paki.alam si third person.
Bakit niya naman pahirapan si third person na siya na nga
ang ng.pautang. siya pah yung nahirapan. The creditor
has all the right to collect to all the partners.
Art. 1818. Every partner is an agent of the partnership for
the purpose of its business, and the act of every partner,
including the execution in the partnership name of any
instrument, for apparently carrying on in the usual way
the business of the partnership of which he is a member,
binds the partnership, unless the partner so acting has in
fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing
has knowledge of the fact that he has no such authority.
So you are an agent for apparently carrying on in the
usual way of business. Exception hindi na kapag the
partner has in fact no authority to act for the particular
matter and the person with whom he is dealing has
knowledge of the fact that he had no such authority.
An act of a partner which is not apparently for carrying on
of the business of the partnership in the usual way does
not bind the partnership unless authorized by the other
partners.
Lets say you are engage in the selling of beauty products
then biglang may isang partner bumili ng lupa. It not
apparently the usual course of business of the
partnership therefore as a third person you should check
whether or not there is authority. Pero kung the usual
way of business na naman, you are in no obligation to
check the authority of the partner to whom you are
dealing with.
Except when authorized by the other partners or unless
they have abandoned the business, one or more but less
than all the partners have no authority to:
1.) Assign the partnership property in trust for
creditors or on the assignee’s promise to pay
the debts of the partnership;
2.) Dispose of the goodwill of the business;
3.) Do any other act which would make it impossible
to carry on the ordinary business of a
partnership;
4.) Confess a judgment;
5.) Enter into a compromise concerning a
partnership claim or liability;
6.) Submit a partnership claim or liability to
arbitration;
7.) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on
authority shall bind the partnership to persons having
knowledge of the restriction.
Please take note all these acts are acts of strict dominion.
So you need to have consent of all the partners unless
ofcourse ng.abandon na ang lahat ng partners.
25
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Dispose of the goodwill of the business. What is goodwill?
Define goodwill. Look for its definition. What happened
to 2GO? They have restated their income. Ang
restatement pah pala is 90% of the income. SM(Henry Sy)
and Dennis Uy(Owner of phoenix) diversify their assets
and bought shares of 2GO. They required an audit of due
diligence as a pre-condition of the sale. One purpose of
which is to know if the assets of the company are subject
to attachment, garnished, or mortgaged. Chika…stock
market.Credit rating.KMPG and SGV.Auditing
practice.Publicly traded securities.
Power of partner as agent of partnership
In the absence of an agreement to the contrary, all
partners have equal rights in the management and
conduct of the partnership business.
As among themselves- when a partner performs an act
within the scope of his actual, implied, or apparent
authority, he is not only a principal as to himself, but is
also for all purposes, an agent as to his co-partners or the
partnership, considered as a group. Principle of mutual
agency.
As to third persons- limitations upon the authority of any
one of the partners are not binding upon innocent 3rd
persons dealing with the partnership who have the right
to assume that every general partner has power to bind
the partnership especially those partners acting with
ostensible authority, by whatever is proper for the
transaction in the ordinary and usual manner of the
business of the partnership.
MUNASQUE vs CA
(Case Digest: Lilybeth Petallo)
FACTS:
1. Petitioner Elmo Muñasque, in behalf of the
partnership of “Galan and Muñasque”, entered
into a contract with Respondent Tropical
Commercial Company for remodeling of a building.
Respondent Celestino Galan was casually named as
partner in the contract, for no consideration
except for the percentage/commission on account
of Galan’s introduction of the employing company
(Tropical) to petitioner.
2. As between Petitioner Muñasque and Tropical, the
latter agreed to pay in installments. Thus, Tropical
gave the 1st check issued in the name of
Muñasque. However, Muñasque indorsed the
check to Respondent Galan for purposes of
depositing it; but Galan instead encashed the
check for personal use.
3. Because of this, when the 2nd check came and
Galan asked that the same be indorsed to him,
Muñasque refused out of mistrust. As a result, the
check was withheld from Muñasque.
4. Meanwhile, Galan told Tropical of their
misunderstanding; so, Tropical changed the name
of the payee of the 2nd check from Muñasque to
“Galan & Associates”, which is the name of the
partnership under which the construction business
was registered. This enabled Galan to encash the
2nd check, again for his personal use.
5. Because Galan failed to pay for the labor and
materials, Petitioner Muñasque was forced to
continue the construction through his sole efforts.
6. With this, Muñasque filed a Complaint for Sum of
Money and Damages against Respondents Galan &
Tropical.
7. Meanwhile, Cebu Southern Hardware and Blue
Diamond Gold Palace, who supplied materials on
credit to the partnership, intervened.
8. Trial Court found Petitioner Muñasque and
Respondent Galan solidarily liable as partners to
the intervenors-creditors. CA affirmed, but
modified it to joint liability.
9. Hence, the petition.
PETITIONER’S CONTENTION:
a. That the courts erred in affirming the
existence of the partnership;
b. That he should be excluded from the
liabilities of the partnership.
ISSUE:
A. WON partnership exists. (YES)
B. WON Petitioner is liable to creditors for the
liabilities of the partnership. (YES)
C. WON Petitioner is solidarily liable with co-partner
Galan. (YES)
HELD:
A. Partnership exists.
The records showed that petitioner entered into a
contract with Tropical for the renovation of the
latter’s building on behalf of the partnership of
“Galan and Muñasque”. There was no indication
that the partnership was not a genuine one; and
the fact that there was misunderstanding between
the partners does not convert the partnership into
a sham organization.
When petitioner received the first check of
Tropical issued under his name, he indorsed it in
favor of Galan. With this, Tropical had the right to
assume that petitioner and Galan were true
partners. If they were not, it was petitioner’s fault
for making the relationship appear otherwise, not
only to Tropical but to the other creditors as well.
B. Petitioner is liable to the creditors for liabilities
incurred by the partnership.
Since the 2 were partners when the debts were
incurred, they are also both liable to third persons
who extended credit to their partnership.
“There is a general presumption
that each individual partner is
an authorized agent for the firm
and that he has authority to
bind the firm in carrying on the
partnership transactions.” (Mills
vsRiggle)
“The presumption is sufficient
to permit third persons to hold
the firm liable on transactions
entered into by one of members
of the firm acting apparently in
its behalf and within the scope
of his authority.”(Le Roy vs
Johnson)
C. Petitioner is solidarily-liable with co-partner Galan
as against the creditors.
While under ART. 1816, the liability of partners
under the law to third persons for contracts
executed in connection with the partnership
business is only pro rata (i.e. joint liability), this
should be construed together with ART. 1824,
which renders all partners solidarily liable for
everything chargeable to the partnership under
ART. 1822 and 1823.
RATIONALE FOR SOLIDARY LIABILITY: The
obligation is solidary because the law
protects him, who in good faith relied upon
the authority of a partner, whether such
authority is real or apparent. That is why
under ART. 1824, all partners, whether
innocent or guilty, as well as the legal entity
which is the partnership, are solidarily liable.
In the case at bar, Tropical had all the reason to
believe that a partnership existed between
petitioner and Galan. As such, Tropical should not
be faulted for making payments to “Galan and
Associates” and for delivering it to Galan because,
as far as Tropical is concerned, Galan was a true
partner with real authority to transact on behalf of
the partnership with which it was dealing. Same is
true with the other creditors who supplied
materials to the partnership. Thus, it is but fair that
the consequences of the wrongful act of any of the
partners (Galan, in this case) should be answered
solidarily by all the partners and the partnership as
a whole.
WHEREFORE, the decision appealed from is hereby
AFFIRMED with the MODIFICATION that the liability of
petitioner and respondent Galan to intervenors Blue
Diamond Glass and Cebu Southern Hardware is declared
to be joint and solidary. Petitioner may recover from
respondent Galan any amount that he pays, in his
capacity as a partner, to the above intervenors. SO
ORDERED.
Q: Payment was for what purpose here?
A: The payment made by tropical was for
construction services for the remodeling of the Cebu
branch building.
So in this particular case, it was a construction business,
the payment was for construction services. It would have
been different if the payment was for buy and sell of lots.
Because in here, the SC said there is a general
presumption, the agent is authorized. The third person
transacting with the partner or the agent of the
partnership is not under obligation to check the authority
of the partner. Just imagine for every transaction
mag.ask for authority. Diba its so inconvenient. Most
especially when the transaction is apparently carrying on
in the usual way of the business. Payment of construction
services and the firm of the partnership was engaged in
the construction services. So kung lets say iba yung bayad
at iba ang kanilang nature. Dun dapat mag.require si third
person ng authority of the person transacting that he was
authorized to do so. Pero since dito, they asked the
nature of the business and what the payment was for
what services. Pero sa seven circumstances you should
call out the consent of the other partners even if it is
apparently carrying on in the usual way of the business of
the partnership.
GOQUIOLAR vs SYCIP
(Case Digest: Lilybeth Petallo)
This involves Petitioner Antonio Goquiolay assailing the
validity of the sale of the lands owned by the partnership
“Tan Sin An &Goquiolay” made by the widow of the
managing partner, Tan Sin An, in favor of buyers
Washington Sycip and Betty Lee (Respondents).
FACTS:
1. Tan Sin An and Goquiolay entered into a general
commercial partnership known as “Tan Sin An
26
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
&Goquiolay” for the purpose of real estate
business. Under the agreement, Tan Sin An shall be
the sole managing partner of the partnership,
while Goquiolay shall have no voice or
participation in its management.
2. Consequently, the partnership purchased 49 lots,
which were later mortgaged to
“BancoHipotecario”.
3. Later, Tan Sin An died and was survived by his wife,
Kong Chai Pin, who apparently expressed her
desire to act as managing partner in lieu of her
deceased husband. This is premised on the articles
of co-partnership, which provided for the heirs’
continuation of the partnership even after the
death of the partners.
4. In the meantime, BancoHipotecariodemanded
payment of the mortgage debt from the
partnership. But Sing Yee Cuan Hardware Co.
assumed payment, and this was further assumed
by Respondents Washington Sycip and Betty Lee.
5. To relieve the partnership from said obligations,
Kong Chai Pin, with approval of the probate court,
sold the 49 lots to Respondents Sycip and Lee.
6. Upon knowing this, surviving partner Goquiolay
sought for the annulment of the sale to
respondents, alleging:
a. That Kong Chai Pin is not a partner;
hence, the sale made by her is void for
lack of consent of the other partners;
or
b. Granting that Kong may be partner,
she is nothing more than a limited
partner, and as such was disqualified
to manage the business.
7. Lower Court upheld the validity of the sale and
ruled that Kong Chai Pin lawfully acted as the
managing partner thereof.
ISSUE: WON Kong Chai Pin is authorized to sell properties
of the partnership to third persons, as sole managing
partner in lieu of her deceased husband, even without
the consent of the other partners. (YES)
HELD: Kong Chai Pin, as sole managing partner in lieu of
her deceased husband, is authorized to sell properties of
the partnership to third persons.
A. Kong Chai Pin lawfully acted as the sole managing
partner in lieu of her husband.
Although, the power of Tan Sin An as sole managing
partner, which is premised upon trust and confidence,
was a mere personal right that should have been
terminated upon Tan’s demise; such right was not
extinguished in this case based on the ff. circumstances:
a. The articles of co-partnership
specifically provided for the
continuation of the firm
notwithstanding the death of one of
the partners.
b. Since the heir of the deceased (i.e.
Kong Chai Pin) never repudiated or
refused to be bound by such
agreement, Kong Chai Pin became an
individual partner with surviving
partner Goquiolay upon Tan’s death.
Goquiolay argued that granting Kong became a partner,
she was nothing more than a limited partner who is
disqualified from managing the business. (LACKS MERIT)
Although ordinarily, such limitation exists, this does not
apply with Kong Chai Pin as she manifested her intent to
be bound by the partnership agreement not only as a
limited partner, but as general partner:
a. She managed and retained possession
of the partnership properties;
b. She derived income therefrom until
the properties were sold to
respondents;
c. She sold the properties in the name of
the partnership.
By allowing her to retain control of the firm’s property
from 1942 to 1949, Goquiolay is estopped from denying
Kong Chai Pin’s legal representation of the partnership.
Hence, Kong Chai Pin is a managing partner with the
power to bind the partnership by proper contracts.
B. Kong Chai Pin, as managing partner, can sell
properties of the partnership to respondents Sycip&
Lee, even without consent of the co-partner.
As a rule, “strangers dealing with a partnership have the
right to assume, in the absence of restrictive clauses in the
co-partnership agreement, that every general partner has
power to bind the partnership, especially those partners
acting with ostensible authority.”
“The public need not make inquiries as to the
agreements between the partners. Its
knowledge is enough that it is contracting
with the partnership which is represented by
one of the managing partners.”
“There is a general presumption that each
individual partner is an agent for the firm and
that he has authority to bind the firm in
carrying on the partnership transactions.”
“The presumption is sufficient to permit third
persons to hold the firm liable on transactions
entered into by one of the members of the
firm acting apparently in its behalf and
within the scope of his authority.”
“The regular course of business procedure
does not required that each time a third
person contracts with one of the managing
partners, he should inquire as to the latter’s
authority to do so, or that he should first
ascertain whether or not the other partners
had given their consent thereto.”
ART. 180, CODE OF COMMERCE
provides that even if a new
obligation was contracted
against the express will of one
of the managing partners, it
shall not be annulled for such
reason, and it shall produce its
effects without prejudice to the
responsibility of the member/s
who contracted it, for the
damages they may have caused
to the common fund.
Although the partnership under
consideration is a commercial partnership
and, therefore, to be governed by the Code
of Commerce, the provisions of the old Civil
Code may apply:
ART. 165, OCC
“(1) All the partners shall be
considered agents, and
whatever any one of them may
do individually shall bind the
partnership; but each one may
oppose any act of the others
before it has become legally
binding.”
In this case, as previously established, Kong Chai Pin
acted as a managing partner (or general partner). As
such, she became an agent of the firm, with the authority
to bind the firm in any contracts involving partnership
affairs (e.g. sale of partnership realty).
The co-partner, Goquiolay, could have made an
opposition to said sale, but he did not timely do so. He
only interposed his objections after the deed of
conveyance was executed and approved by the probate
court. Hence, his opposition was barred by laches. And
the sale of the partnership lots executed by Kong Chai Pin
in favor of respondents is valid.
WHEREFORE, finding no reversible error in the appealed
judgment, we AFFFIRM the same, with costs against
appellant Antonio Goquiolay.
The acts of a partner mentioned in Art. 1818 may be
grouped into three:
Acts for apparently carrying on in the usual way the
business of the partnership (Par.1) – every partner is an
agent and may execute such acts with binding effect on
the partnership even if he has in fact no authority unless
the 3rd person has knowledge of such lack of authority.
There are two requisites in order that the partnership will
not be liable:
a.) The partner so acting has in fact no
authority; and
rd
b.) The 3 person knows that the acting
partner has no authority.
Remember with regard to the two requisites it is “AND”
not “OR.”
Acts of strict dominion (pars. 2 and 3)– For acts which are
not apparently for carrying on in the usual way of
business of the partnership, the partnership is not bound,
unless authorized by all the other partners or unless they
have abandoned the business. The general rule is that
powers not specifically delegated in a partnership
agreement are presumed to be withheld. Paragraph 3
gives instances of acts generally outside the implied
power of a partner and constitute limitations to the
authority to bind partnership.
Acts in contravention of a restriction on authority (par. 4)–
The partnership is not liable to third persons having
actual or presumptive knowledge of the restrictions,
whether or not the acts are for apparently carrying on in
the usual way the business of the partnership. On the
other hand, persons not having such notice have a right
to assume that the authority of a partner is co-extensive
with the business transacted by the firm.
So what is the liability of partner acting without authority?
As a general rule, the particular partner who
undertakes to bind his co-partners by a contract without
authority is himself personally liable on such contract.
Such partner binds himself no matter in what name he
contracts. The fact that he attempts to bind his co-
partners and does not succeed does not avoid his own
act. He cannot be admitted to say that he was not
27
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
authorized to make a contract, as he is estopped to deny
its effect or validity.
Art. 1819. Where title to real property is in the partnership
name, any partner may convey title to such property by a
conveyance executed in the partnership name; but the
partnership may recover such property unless the
partner’s act binds the partnership under the provisions of
the first paragraph of article 1818, or unless such property
has been conveyed by the grantee or a person claiming
through such grantee to a holder for value without the
knowledge that the partner, in making the conveyance,
has exceeded his authority.
Where title to real property is in the name of the
partnership, a conveyance executed by a partner, in his
own name, passes the equitable interest of the
partnership, provided the act is one within the authority of
the partner under the provisions of the first paragraph of
article 1818.
Where title to real property is in the name of one or more
but not all the partners, and the record does not disclose
the right of the partnership, the partners in whose name
the title stands may convey title to such property, but the
partnership may recover such property if the partners’ act
does not bind the partnership under the provisions of the
first paragraph of Article 1818, unless the purchaser or his
assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or
more or all the partners, or in a third person in trust for
the partnership, a conveyance executed by a partner in
the partnership name, or in his name, passes the equitable
interest of the partnership, provided the act is one within
the authority of the partner under the provisions of the
first paragraph of Article 1818.
Where the title to real property is in the names of all the
partners a conveyance executed by all the partners passes
all their rights in such property.
Effects of conveyance of real property belonging to the
partnership
The ownership of real estate is prima facie that indicated
by the muniment of title. Ordinarily, title to real property
or interest therein belonging to the partnership is
registered in the partnership name. However, for one
reason or another, the title to the property is not held by
the partnership, although as between the partners there
is no question that it is a partnership property. The
presumption is that, property purchased with partnership
funds belongs to the partnership unless a contrary intent
is shown.
Article 1819 gives the legal effects of the conveyance of
real property belonging to the partnership depending in
whose name it is registered and in whose name it is
conveyed. Under the article, the real property may be
registered or owned in the name of:
1.) The partnership (pars. 1,2);
2.) One or more but not all the partners (par.
3);
3.) One or more or all the partners, or in a
rd
3 person in trust for the partnership (par.
4);
4.) All the partners (par. 5).
It will be noticed that under paragraphs 1, 3 and 5, what
is conveyed is title or ownership, while under paragraphs
2 and 4, what is conveyed is merely equitable interest.
“Conveyance” interpreted to include a mortgage. Thus,
the right to mortgage is included in the right to convey
(unlike in agency)
SANTIAGO INC vs CASTRO
(Case Digest: Lilybeth Petallo)
FACTS:
1. 1964, November, the Lims (Private Respondents)
borrowed from Petitioner Santiago Syjuco Inc. an
aggregate loan of P2,460,000, secured by
mortgage on properties registered in the names of
said LIMs as owners in common.
2. The Lims defaulted payment despite demands,
which prompted Syjuco to have the mortgage
extrajudicially foreclosed.
3. Problem is, the attempt to foreclose triggered off a
legal battle that has dragged on for more than 20
years now, fought through 5 cases in the trial
courts, 2 in the CA, and 3 more in the SC.
4. Among these cases was “The Secret Action: Civil
Case No. Q-36845” wherein the complaint was
presented, not in the individual names of the Lims,
but in the name of a partnership, “Heirs of Hugo
Lim”. They alleged that the mortgage no longer
belonged to the Lims at that time, having been
earlier deed over by them to the partnership,
“Heirs of Hugo Lim” as early as March 30, 1959.
Hence, the mortgage was void because it executed
by them without authority from the partnership.
ISSUE: WON the mortgage executed by the Lims is
attributable to the partnership, “Heirs of Hugo Lim”. (YES)
HELD: The mortgage is attributable to the partnership.
1. BY PRINCIPLE OF ESTOPPEL
The records showed that the respondent partnership is
compose exclusively of the individual Lims; their
contribution to the partnership consisted chiefly, if not
solely, of the property subject of the Syjuco mortgage.
It is also a fact that despite its having been contributed to
the partnership allegedly on March 30, 1959, the
property was never registered with the ROD in the name
of the partnership, but to this date remains registered in
the names of the Lims as owners in ommon.
The original mortgage deed of November 14, 1964 was
executed by the Lims as such owners. There can be no
dispute that in those circumstances, the respondent
partnership was chargeable with knowledge of the
mortgage from the moment of its execution.
“The legal fiction of a separate juridical
personality and existence will not shield it
from the conclusion of having such
knowledge which naturally and irresistibly
flows from the undenied facts. It would
violate all precepts of reason, ordinary
experience, and common sense to propose
that a partnership, as such, cannot be held
accountable with knowledge of matters
commonly known to all the partners or of acts
in which all of the latter, without exception,
have taken part, where such matters or acts
affect property claimed as its own by said
partnership.”
Therefore, with the respondent partnership being
inescapably chargeable with knowledge of the mortgage
executed by all the partners thereof, its silence and failure
to impugn said mortgage within a reasonable time, let
alone a space of more than 17 years, brought into play
the doctrine of estoppel to preclude any attempt to avoid
the mortgage as allegedly unauthorized.
2. UNDER ART. 1819, CC, LAST PARAGRAPH:
“ARTICLE 1819. XXX Where the title to real
property is in the names of all the partners,
a conveyance executed by all the partners
passes all their rights in such property.”
The term “conveyance” includes a
mortgage.
In this case, the mortgaged property is still registered in
the names of partners; hence, the conveyance (i.e. the
mortgage) executed by all the partners passes all their
rights in such property.
3. BY DOCTRINE OF RES JUDICATA
The cause of action of Civil Case No. Q036485 is barred
by prior judgment. The right subsumed in that cause is
the negation of the mortgage, postulated on the claim
that the parcels of land mortgaged by the Lims to Syjuco
did not in truth belong them, but to the partnership.
Assuming that the properties truly belonged to the
partnership, the prior actions filed in the individual
names of the Lims could very well have been put forth by
the partnership itself. Since the actions involved property
supposedly belonging to the partnership and were being
prosecuted by the entire membership of the partnership,
the partnership was in actuality, the real party in interest.
Thus, there is no reason to distinguish between the Lims,
as individuals, and the partnership itself, since the former
constituted the entire membership of the latter.
In other words, despite the concealment of the existence
of the partnership, for all intents and purposes and
consistently with the Lims’ own theory, it was the real
party in interest in all the actions; it was actually
represented in said actions by all the individual members
thereof, and consequently, those members’ acts,
declaration and omissions cannot be deemed to be
simply the individual acts of said members, but in fact
and in law, those of the partnership.
What was done by the Lims – or by the partnership of
which they were the only members – was to split their
cause of action in violation of the well-known rule that
only suit may be instituted for a single cause of action.
The right sought to be enforced by them in all their
actions was to strike down the mortgage constituted in
favor of Syjuco. They instituted 4 actions for the same
purpose on one ground or the other, making each ground
the subject of a separate action. Upon these premises,
application of the sanction indicated by law is called for,
i.e. the judgment on the merits in any one is available as
a bar in the others. Hence, barred by prior judgment. Res
judicata.
In its dispositive portion, the SC ordered for the sale in
public auction of the subject property and held the private
respondents (the Lims and the Partnership of the Heirs of
Hugo Lim) jointly and severally liable to petitioner.
28
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Q: How about the argument of the concept of
separate juridical personality. Diba iba naman yung
personality ni mortgagor from its owners.
A: The court said that the defense of separate
juridical personality is not applicable as it would be
prejudicial to the petitioner. The partnership is estopped
from denying the existence of the mortgage since the
partners are also the defendants in the case.
Q: What did the SC say as to the term
“conveyance” in Art. 1819? It had a discussion with the
meaning of the word “conveyance” compared to the law
on agency.
A: The term “conveyance” was taken from the
American … the right to mortgage is included in the
right..this is…
So in this particular case, the SC said that the word
“conveyance” in Art.1819 includes the right to mortgage.
This is different from the general rule that the right to
convey is different from the right to mortgage. Ang
nangyari kasi nito ay may judgement na. Execution na.
Talo na sila. Nimortgage nila yung property eh. They
contributed the real property to the partnership kaso the
real property was still in their names. Ngayon naforeclose.
Nkalagay na foreclose. E.execute na sana. But sabi nila
nabili na naming yan eh. Hindi naman yan personal
property namin. Property na ng partnership eventhough
nkapangalan sa amin. They made this argument for
purposes of delaying the execution. The SC said although
different yung juridical personality niyo, the fact that
kayo pah rin ang may-ari at kayo din ang owner ng
partnership. You already have notice that there was a
foreclosure. It is already too late to say ngayon lang kayo
maginvoke ng separate juridical personality. So in this
particular case, the SC ruled based on equity. Otherwise,
the case would be prolonged.
Art. 1820. An admission or representation made by any
partner concerning partnership affairs within the scope of
his authority in accordance with this Title is evidence
against the partnership.
Art. 1821. Notice to any partner of any matter relating to
partnership affairs, and the knowledge of the partner
acting in the particular matter, acquired while a partner or
then present to his mind, and the knowledge of any other
partner who reasonably could and should have
communicated it to the acting partner, operate as notice
to or knowledge of the partnership except in case of a
fraud on the partnership, committed by or with the
consent of that partner.
Notice to, or knowledge of, a partner of matter affecting
partnership affairs
Notice to, or knowledge of, any partner of any matter
relating to partnership affairs operates as a notice to or
knowledge of the partnership except in case of fraud.
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.
So this particular provision tells us that kahit sabihan mo
ang isang partner, it would operate as notice to the
partnership itself. So you do not need to tell all the other
partners.
Is notice to the partner, notice to the partnership? Is the
reverse true? Is notice to the partnership, notice to the
partner? (no answer given by sir)
Art. 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is
liable therefore to the same extent as the partner so
acting or omitting to act.
Art. 1823. The partnership is bound to make good the loss:
1.) Where one partner acting within the scope of his
apparent authority receives money or
property of a third person and misapplied it;
and
2.) Where the partnership in the course of its
business receives money or property of a
third person and the money or property so
received is misapplied by any partner while it
is in the custody of the partnership.
Art. 1824. All partners are liable solidarily with the
partnership for everything chargeable to the partnership
under Articles 1822 and 1823.
So in these provisions, the law gives solidary liability to
the partners. Diba as a general rule they are jointly and
severally liable but dito solidary liability. Please take note
that this is different from the contractual obligation. Here
it is solidary. In Art.1816, joint and subsidiary.
Furthermore, while the liability in Article 1816 refers to
partnership obligations, this article covers the liability of
the partnership arising from the wrongful acts or
omissions of any partner.
INFORMATION TECHNOLOGY FOUNDATION V. COMELEC
(Case Digest: Jordan Berguia)
FACTS: Petitioners were participating bidders
questioning the identity and eligibility of the awarded
contractor Mega Pacific Consortium (MPC) where the
competing bidder is Mega Pacific eSolutions, Inc. (MPEI)
as signed by Mr. Willy Yu of the latter. Private respondent
claims that MPEI is the lead partner tied up with other
companies like SK C&C, WeSolv, Election.com and ePLDT.
Respondent COMELEC obtained copies of Memorandum
of Agreements and Teaming Agreements.
ISSUE: Whether or not there was an existence of a
consortium.
RULING: NO. There was no documentary or other basis
for Comelec to conclude that a consortium had actually
been formed amongst MPEI, SK C&C and WeSolv, along
with Election.com and ePLDT. The president of MPEI
signing for allegedly in behalf of MPC without any further
proof, did not by itself prove the existence of the
consortium. It did not show that MPEI or its president
have been duly pre-authorized by the other members of
the putative consortium to represent them, to bid on
their collective behalf and, more important, to commit
them jointly and severally to the bid undertakings. The
letter is purely self-serving and uncorroborated.
So in this particular case, sabi ng SC wala namang
partnership eh. Wala namang joint venture kung meron
man limited ang rights. Sabi ng COMELEC meron and
since you misrepresented dapat solidary ang liability. The
SC said may written reference kung saan limited ang
liability yung iba sumali sa bidding. So theres actually a
consortium/ joint venture. Remember joint venture is a
specie of partnership. So pwede mag.apply ang provision
on partnership sabi ng OSG.
JULY 18, 2017
(Transcriber: Shats Tagtagan)
Article 1825:When a personby words spoken or written
or by conductrepresents himselfor consents to another
representing him to anyoneas a partner in an existing
partnership or with one or more persons not actual
partnershe is liable to any such persons to whom such
representation has been made
who hason the faith of such representation given credit
to the actual or apparent partnershipand if he has made
such representation or consented to its being made in a
public manner he is liable to such personwhether the
representation has or has not been made or
communicated to such person so giving credit by or with
the knowledge of the apparent partner making the
representation or consenting to its being made:
1.) When a partnership liability resultshe is liable as
though he were an actual member of the partnership;
2.) When no partnership liability resultshe is liable pro
rata with the other personsif anyso consenting to the
contract or representation as to incur liabilityotherwise
separately.
When a person has been thus represented to be a
partner in an existing partnershipor with one or more
persons not actual partnershe is an agent of the persons
consenting to such representation to bind them to the
same extent and in the same manner as though he were
a partner in factwith respect to persons who rely upon
the representation. When all the members of the existing
partnership consent to the representationa partnership
act or obligation results; but in all other cases it is the
joint act or obligation of the person acting and the
persons consenting to the representation.
Party by estoppel - Being of estoppel is a bar
which precludes a person from denying or asserting
anything contrary to that which has been established as
the truth that is only the representation either express or
implied. So estoppel and admission or representation is
conclusive upon the person making it and cannot be
denied as against the person later on.
When a person a partner by estoppel – A
person not a partner may become a partner by estoppel,
thus he may be liable to a third person as if he were a
partner, when by words or conduct he:
a) Directly represents himself to anyone as a partner in
an existing partnership or in a non-existing partnership
(with one or more persons not actual partners);
b) Indirectly represents himself by consenting to another
representing him as a partner in an existing partnership
or in a non existing partnership.
- To hold the party to be liable, the third
person must prove that there is representation or a bona
fide reliance by him causing injury.
29
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
When a partnership liability results – If all the
actual partners consented to the representation, then
the liability of the person who represented himself to be
a partner or who consented to such representation and
the actual partners is considered a partnership liability.
This is a case of partnership by estoppel. The person
becomes an agent of the partnership, kasi diba nya yung
kanilang partnership, so as regards the third person,
there is a partnership liability.
When liability is pro rata – When there is no
existing partnership and all those represented as partners
consented to the representation, or not all of the
partners of an existing partnership consented to the
representation, then, the liability of the person who
represented himself to be a partner or who consented to
his being represented as partner, and all those who made
and consented to such representation is joint or pro rata.
Pero kapag walang existing partnership, and only some of
those represented as partners consented to the
representation, the liability will be separate. Ang gawin
nyo dito is himay-himayin nyo lang sya. The importance
of this provision is you should know that ___ of the
liability, when does the partnership liability occur. Kapag
ang actual partner in an existing partnership consented
to another person representing him as partner,
magkakaroon ng partnership liability. It shall be pro rata
when walang partnership na existing and all those
represented as partners consented to the representation.
Magiging separate sya if not all consented sa
pagrerepresent as partners.
Please note that the important thing in this provision is
that this only pertains to liability to third persons who
rely on the representation. It is not created to establish a
partnership. Let’s say there’s a partner by
estoppel/partnership by estoppel, it does not mean that
a partner by estoppel is a partner by a contract of
partnership. Meaning, wala sya yung rights na diniscuss
natin before. This is only for the purpose of enforcing
liability as to third persons. As between them (the
partners), walang contract of partnership.
There’s 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, let’s
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. It’s just that, it created a liability in favor of
the third person; they can be liable as general partners.
So there’s a distinction as between themselves and 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.
This is the liability of an incoming partner. Kung incoming
partner ka, you’re still liable to third person-creditors, but
only to the extent of your share in the partnership
property for EXISTING, pero pag FUTURE, kasali na yung
separate property mo.
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.
In terms of preference, kapag partnership property,
preferred si partnership creditor. Kapag separate
property, preferred si separate creditor. But again,
because of the concept of unlimited liability, the
partnership creditor can still go after the separate
property of the partners.
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.
You have to be familiar of three terms:
DISSOLUTION, WINDING UP, TERMINATION.
Dissolution – there is only a change of
relation. Diba, the concept of partnership hinges to the
principle of delectus personae. Kung madestroy yun, yung
vinculum juris which ties the contract of partnership, may
dissolution. But it does not mean that the partnership is
already terminated. It has to go under the process of
winding up.
[De Leon’s book: 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.]
Winding up – settling of all accounts. After
settled na lahat, comes termination. [De Leon’s book:
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
partner’s 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.]
Kapag nag wawinding up ka, in theory, you
should not engage into transactions in the ordinary __ of
business. Dapat kapag winding up na, yan na sya yung
payment of liabilities, settling of accounts, settle ka with
the partners.
Termination – [De Leon’s book: 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?
Article 1830:Dissolution is caused:
1.) Without violation of the agreement between the
partners:
a.) By the termination of the definite term or particular
undertaking specified in the agreement;
b.) By the express will of any partner, who must act in
good faith, when no definite term or particular
undertaking is specified;
c.) By the express will of all the partners who have not
assigned their interests or suffered them to be charged
for their separate debts, either before or after the
termination of any specified term or particular
undertaking;
d.) By the expulsion of any partner from the business
bona fide in accordance with such a power conferred by
the agreement between the partners;
2.) In contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;
3.) By any event which makes it unlawful for the business
of the partnership to be carried out on or for the
members to carry it on in partnership;
4.) When a specific thing, a partner had promised to
contribute to the partnership, perishes before the
delivery; in any case by the loss of the thing, when the
partner who contributed it having reserved the
ownership thereof, has only transferred to the
partnership the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of the thing
when it occurs after the partnership has acquired the
ownership thereof;
5.) By the death of any partner;
6.) By the insolvency of any partner or of the partnership;
7.) By the civil interdiction of any partner;
8.) By decree of court under the following article.
Please note that the enumeration is EXCLUSIVE.
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
We have partnership for a specific term. Kapag natapos
na yung term, it can be dissolved.
(b) By the express will of any partnerwho must act in
good faithwhen no definite term or particular
undertaking is specified;
30
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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 dissolve the
partnership in bad faith, you can be held liable for
damages. Ground is Article 19 of the Civil Code.
( c ) By the express will of all the partners who have not
assigned their interests or suffered them to be charged
for their separate debtseither before or after the
termination of any specified term or particular
undertaking;
Please note that not all of the partners can actually
dissolve. Hindi pwede mag dissolve yung partners who
have assigned their interests or suffered them to be
charged for their separate debts.
(d) By the expulsion of any partner from the business
bona fide in accordance with such a power conferred by
the agreement between the partners;
3) By any event which makes it unlawful for the business
of the partnership to be carried out on or for the
members to carry it on in partnership;
For example, you started with a lawful business, then
there came a supervening event, it becomes unlawful. So
wala na.
4) When a specific thinga partner had promised to
contribute to the partnershipperishes before the
delivery; in any case by the loss of the thingwhen the
partner who contributed it having reserved the
ownership thereofhas only transferred to the partnership
the use or enjoyment of the same; but the partnership
shall not be dissolved by the loss of the thing when it
occurs after the partnership has acquired the ownership
thereof;
We already discussed that you become a debtor to the
partnership for the thing you have promised to
contribute. Kapag mawala yun, anong mangyayari? It can
be a ground for dissolution. My issue here is, kapag
dissolution, ibig sabihin may contract of partnership na.
What if promise pa lang? Is there a contract of
partnership? Meron, kasi diba consensual naman sya. It
does not have to be __ [Hindi talaga clear ang word, pero
it sounds like ‘delivered’, so maybe Sir means the
property does not have to be delivered.]
Article 1831:On application by or for a partner, the court
shall decree a dissolution whenever:
1.) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
2.) A partner becomes in any other way incapable of
performing his part of the partnership contract;
3.) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
4.) A partner willfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business
that it is not reasonably practicable to carry on the
business in partnership with him;
5.) The business of the partnership can only be carried on
at a loss;
6.) Other circumstances render a dissolution equitable;
On the application of the purchaser of a partner’s
interest under Article 1813 or 1814:
1.) After the termination of the specified term or
particular undertaking;
2.) At any time if the partnership was a partnership at will
when the interest was assigned or when the charging
order was issued.
Bakit kelangan ng judicial decree? As denominated, this
requires evidentiary proof.
1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
How do you know that the person is of unsound mind?
You have to prove that the unsoundness of his mind is
such as to the extent that he is incapable of performing
his duties as a partner.
4) A partner willfully or persistently commits a breach of
the partnership agreementor 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;
If a partner commits a breach of the partnership
agreement, that alone is not a ground. It has to be willful
or persistent.
5) The business of the partnership can only be carried on
at a loss;
Anong remedy mo kapag luging-lugi ka na talaga? Gusto
mong magdissolve tapos niyaya mo yung iba na
magdissolve. But the problem with that is pwedeng i-
allege ng kabilang party na bad faith, so maka damages
ka. Kung may ground ka naman for judicial declaration for
dissolution, magpa declare ka na lang to avoid bad faith.
On the application of the purchaser of a partner’s
interest under Article 1813 or 1814: We discussed before
the assignment of partner’s interest. Ito yung mga
remedies ng purchaser ng assignment.
1) After the termination of the specified term or
particular undertaking;
The assignee can ask for judicial decree of dissolution
after the termination of the specified term or particular
undertaking if with a specific term ang partnership.
2) At any time if the partnership was a partnership at will
when the interest was assigned or when the charging
order was issued.
Ito naman kapag walang term.
Article 1832:Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun but
not then finisheddissolution 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.
The general rule is that the partnership ceases to be a
going concern and the partner’s 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
actdeath or insolvency of partnereach 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
partnerthe partner acting for the partnership had
knowledge or notice of the death or insolvency.
It means that just because na dissolve na yung
corporation (maybe Sir means 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
31
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
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
– of the second paragraph, No. 2, all the rights of a partner
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
insolventhas the right to wind up thepartnership
affairsprovidedhoweverthat any partnerhis legal
representative or his assignee
upon cause shownmay 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
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
partner’s interest the value of the goodwill of the
business shall not be considered.
Ito winding up na. Ang gawin, yung assets, of course
ibebenta sya pambayad ng liabilities, and whatever
remains, pwede sya i-convert into cash. In accounting,
liquidate then bayad ng liabilities. Ano yung maremain,
ibebenta para may cash. Yun yung dinidistribute owing to
the respective partners.
(b) The rightas against each partner who has caused the
dissolution wrongfullyto damages for breach of the
agreement.
Kapag in contravention or in bad faith ka, the other
partners can ask damages from you.
(2) xx the second paragraphNo. 1 (b) of this articleand in
like manner indemnify him against all present or future
partnership liabilities.
For example may apat na partners, yung isa, in
contravention of the agreement. Let’s say si industrial
partner engaged in another business. So inexclude sya.
Kahit papano may right pa rin sya sa partnership. Anong
mangyayari kung icocontinue nung tatlo? So icacalculate
kung ano na lang yung share ni industrial partner at the
time na naexpel sya. They can secure the payment by
bond. Mag-aapply sila for bond, i-bond nila yung payment
sa industrial partner. Ang mangyayari, iaaccount. Assets –
liabilities = surplus. Idivide to how many partners, yun
yung share ni industrial partner. Pero diba, in
contravention with the agreement, so magdeduct pa ng
damages.Hindi kasi nila pwede ibenta yung assets kasi
icontinue nga nila yung partnership. The only way to
secure the payment of the interest of that person
expelled is to secure a bond.
Ano naman yung rights ng person who caused the
dissolution?
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
partner’s interest the value of the goodwill of the
business shall not be considered.
Please remember na kapag wrongfully
caused the dissolution, may corresponding damages.
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 property after satisfying the partnership
rd
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.
32
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
Pwede mag advance ang partner on behalf
of the partnership, because of the concept of trust and
agency. If in effect, marerescind yung contract, may lien
sya sa property, meaning may corresponding right sya
dun.
In cases when a non partner purchases an
interest in the partnership. Remember the case of
charging orders, tapos binibili lang ng isang partner, diba
meron syang interest dun.
Article 1839:In settling accounts between the partners
after dissolution, the following rules shall be observed,
subject to any agreement to the contrary:
1.) The assets of the partnership are:
a.) The partnership property,
b.) The contributions of the partners necessary for the
payment of all the liabilities specified in No. 2.
2.) The liabilities of the partnership shall rank in order of
payment, as follows:
a.) Those owing to creditors other than partners,
b.) Those owing to partners other than for capital and
profits,
c.) Those owing to partners in respect of capital,
d.) Those owing to partners in respect of profits.
3.) The assets shall be applied in the order of their
declaration in No. 1 of this article to the satisfaction of
the liabilities.
4.) The partners shall contribute, as provided by Article
1797, the amount necessary to satisfy the liabilities.
5.) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
6.) Any partner or his legal representative shall have the
right to enforce the contributions specified in No. 4, to
the extent of the amount which he has paid in excess of
his share of the liability.
7.) The individual property of a deceased partner shall be
liable for the contributions specified in No. 4.
8.) When partnership property and the individual
properties of the partners are in possession of a court for
distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual
property, saving the rights of lien or secured creditors.
9.) Where a partner has 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.
This is important because this is how the
accounts are settled. Remember in your cases, usually
the action is for accounting, liquidation. Paano
nililiquidate yan?In actual practice, nag-aaply sila ng
receivership. Si judge mag-aappoint ng receiver (usually
an accounting firm) kasi hindi naman lahat ng judge may
accounting background.
(2) The liabilities of the partnership shall rank in order of
payment, as follows:
a.) Those owing to creditors other than partners,
b.) Those owing to partners other than for capital and
profits,
c.) Those owing to partners in respect of capital,
d.) Those owing to partners in respect of profits.
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, it’s 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.
(7) The individual property of a deceased partner shall be
liable for the contributions specified in No. 4.
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.
(8) When partnership property and the individual
properties of the partners are in possession of a court for
distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual
property, saving the rights of lien or secured creditors.
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.
9.) Where a partner has 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.
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 1840:In the following cases creditors of the
dissolved partnership are also creditors of the person of
partnership continuing the business:
1.) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
more third persons, if the business is continued without
liquidation of the partnership affairs;
2.) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights
in partnership property to the remaining partner, who
continues the business without liquidation of partnership
affairs, either alone or with others;
3.) When any partner retires or dies and the business of
the dissolved partnership is continued as set forth in Nos.
1 and 2 of this article, with the consent of the retired
partners or the representative of the deceased partner,
but without any assignment of his right in partnership
property;
4.) When all the partners or their representatives assign
their rights in
partnership property to one or more third persons who
promise to pay the debts and who continue the business
of the dissolved partnership;
5.) When any partner wrongfully causes a dissolution and
the remaining partners continue the business under the
provisions of Article 1837, second paragraph, No. 2,
either alone or with others, and without liquidation of
partnership affairs;
6.) When a partner is expelled and the remaining
partners continue the business either alone or with
others without liquidation of the partnership affairs.
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to
the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
When the business of a partnership after dissolution is
continued under any conditions set forth in this article
the creditors of the dissolved partnership, as against the
separate creditors of the retiring or deceased partner,
have a prior right to any claim of the retired partner or
the representative of the deceased partner against the
person or partnership continuing the business, on
account of the retired or deceased partner’s interest in
the dissolved partnership or on account of any
consideration promised for such interest of for his right in
partnership property.
Nothing in this article shall be held to modify any right of
creditors to set aside any assignment on the ground of
fraud.
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
Article 1841:When any partner retires or diesand the
business is continued under any of the conditions set
forth in the preceding articleor in Article 1837second
paragraphNo. 2without any settlement of accounts as
between him or his estate and the person or partnership
continuing the businessunless otherwise agreedhe or his
legal representative as against such person or
33
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
partnership may have the value of his interest at the date
of dissolution ascertainedand shall receive as an ordinary
creditor an amount equal to the value of his interest in
the dissolved partnership with interestor at his option or
at the option of his legal representativein lieu of interest
the profits attributable to the use of his right in the
property of the dissolved partnership; provided that the
creditors of the dissolved partnership as against the
separate creditorsor the representative of the retired or
deceased partnershall have priority on any claim arising
under this article as provided by Article 1840third
paragraph.
We talked about expulsion and determination of interest.
Ito naman, if the partner retired or died, and kinontinue
ng existing partners yung business. Take note that the
creditors of the dissolved partnership as against the
separate creditors still have priority.
Article 1842:The right to an account of his interest shall
accrue to any partneror 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, let’s say let’s 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. _____
[Despite earnest effort, hindi ko na talaga ma-clear yung
last sentence ni Sir. Sorry ]
[OFF-TOPIC: Common Law Jurisdiction vs. Civil Law
jurisdiction. In common law, they bring more emphasis
on case laws, jurisprudence. That’s why mas revered
yung judgment. The jurisprudence becomes part of the
law of the land. Kapag civil law naman, codified. Ibig
sabihin the legislators have the ability to impose laws.
Atin kasi medyo both diba.In common law jurisdiction
(e.g. Singapore, India, Malaysia), walang codifications of
laws. Kung may particular transaction, si judge
magdecide. Anong implication non? Like in contracts in
general, diba tayo may obligation and contracts
provisions. Kapag common law ka, walang codification, so
the parties can actually freely stipulate anything, even if
medyo weird na as long as hindi contrary to law. Kung
civil law kasi, may mga limited liability na hindi mo
pwedeng sabihin na unlimited, kasi under the law, limited
lang sya. This is a classic example of how civil law
provisions are worded in such a way na mahirap sya
intindihin, because this is borrowed from the Spanish
Code. Trivia lang. ]
JULY 21, 2017
(Transcriber: Shats Tagtagan)
Q:Is dissolution limited only to the withdrawal [of the
partners]?What’s the principle behind the contract of
partnership?
A:Delectus Personae
Q:Anong nangyayari pag nagdidissolve ang partners?
What happens to that principle? A:There’s a change
in the relations of the partners.
Q:How about winding up? What is termination?Can there
be winding up without dissolution?A:No, kasi magsesettle
ka ng affairs, it could be that you are doing transactions
which are not in the ordinary course of the business of
the partnership. Syempre mamaligya kag assets, so dapat
mag ask ka ng dissolution.
Q:Can there be dissolution without winding up?A:Yes.
Pwede naman kasing tanggalin yun isang partner then
mag admit sila ng bago, or tanggal ng isang partner then
icontinue nila [ang partnership].
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. [!!!]
Summary of dissolution:
1) Dissolution without court decree
 Without violation of partnership
agreement.
 Termination of the definite
term or particular undertaking
specified in the agreement.
Paano kung mag preterminate sya, hindi nya tinapos
yung original undertaking? That will be in contravention
of the partnership agreement.
 Express will of any partner,
who must act in good faith,
when no definite term or
particular undertaking is
specified.
Remember, this is only for partnership at will. How about
if it is exercised in bad faith? Even if it is a partnership at
will pero inexercise mo sya in bad faith, that can be
construed as in contravention of the partnership
agreement.
 Expulsion of any partner from
the business bona fide in
accordance with such a power
conferred by the agreement
between the partners.
It is only when there is a power granted in the agreement
that the expulsion can be considered not in
contravention of the partnership agreement.
 Mutual withdrawal of all
partners.
[Not mentioned by Sir, pero nasa codal: Express will of all
the partners who have not assigned their interests or
suffered them to be charged for their separate debts,
either before or after the termination of any specified
term or particular undertaking.]
 In contravention of the
partnership agreement.
 One caused by force majeure or
outside the will of the partners.
 Loss of the specific thing
promised to be contributed.
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 it’s 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.
 Partnership business becomes
unlawful.
Say, there’s a joint venture. Two companies to log in the
Surigao area. Lopez becomes the DENR Secretary, tapos
nag issue sya ng regulation na bawal na. So it becomes
unlawful. Effectively, your partnership is dissolved.
 Death, insolvency or civil
interdiction of any partner.
 Insolvency of the partnership.
Insolvency of the partner is different from the insolvency
of the partnership.
2) Dissolution with court decree
In these particular cases, you have to secure a court
decree. You cannot unilaterally cause the dissolution.
Pero diba partnership is based on Delectus Personae?
Paano kung ayoko na talaga? Pwede ka naman umexit sa
partnership or hindi kumuha ng court decree, but it may
be construed as you acting in bad faith. You have the
liability for damages.
 A partner has been declared
insane in any judicial
proceeding or is shown to be of
unsound mind.
What if there is another case, let’s say in an annulment
case. Ang wife dun is ang partner. Doon, dineclare sya as
insane. Can you use that to ask the court to declare the
partnership dissolved? YES, kasi nakalagay ‘in ANY judicial
proceeding’. As long as there is a judicial declaration na
insane ang partner. But that does not automatically mean
na dissolve na ang partnership. We have to undergo a
court decree.
 A partner becomes in any other
way incapable of performing his
part of the partnership
contract.
 A partner has been guilty of
such conduct as tends to affect
prejudicially the carrying on of
the business.
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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
 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;
What if the manager is the one indicated in the
partnership, diba it’s hard to have that power revoked
kapag nakalagay sya. If the decision of that manager is
detrimental to the partnership, ipadissolve nyo na lang.
Ito yung ground nyo.
 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.
 The business of the partnership
can only be carried on at a loss.
 Other circumstances render a
dissolution equitable.
ORTEGA V. CA
(Case Digest: Jordan Berguia)
FACTS:On December 19, 1980, respondent Misa
associated himself together, as senior partner with
petitioners Ortega, del Castillo, Jr., and Bacorro, as junior
partners. On Feb. 17, 1988, respondent Misa wrote a
letter stating that he is withdrawing and retiring from the
firm and asking for a meeting with the petitioners to
discuss the mechanics of the liquidation. On June 30,
1988, petitioner filed a petition to the Commision's
Securities Investigation and Clearing Department for the
formal dissolution and liquidation of the partnership. On
March 31, 1989, the hearing officer rendered a decision
ruling that the withdrawal of the petitioner has not
dissolved the partnership. On appeal, the SEC en banc
reversed the decision and was affirmed by the Court of
Appeals. Hence, this petition.
ISSUE:Whether or not the Court of Appeals has erred in
holding that the partnership is a partnership at will and
whether or not the Court of Appeals has erred in holding
that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith
HELD: NO. The SC upheld the ruling of the CA regarding
the nature of the partnership. The SC further stated that
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 desire and consent of the
partners. The right to choose with whom a person wishes
to associate himself is the very foundation and essence of
that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law
itself. Verily, any one 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
attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for
damages.
Was the dissolution effective?Was he in bad faith?How
did the SC defined bad faith in this case?
In this case, SC said hindi naman sya in bad faith eh, kasi
nawalan na sya ng choice. There was an inter-personal
conflict between the partners. There was animosity. FOR
BAR EXAM AND YOUR EXAM PURPOSES, please
memorize the meaning of bad faith.
Compare that with case of Tocao vs. CA
TOCAO VS CA
(Case Digest: Jordan Berguia)
FACTS:
Private respondent Nenita A. Anay met petitioner William
T. Belo, then the vice-president for operations of Ultra
Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local
distribution of kitchen cookwares
Under the joint venture, Belo acted as capitalist, Tocao as
president and general manager, and Anay as head of the
marketing department and later, vice-president for sales
The parties agreed that Belo's name should not appear in
any documents relating to their transactions with West
Bend Company. Anay having secured the distributorship
of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the
cookware business took off successfully. They operated
under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocao's name.
The parties agreed further that Anay would be entitled
to:
(1) ten percent (10%) of the annual net profits of the
business;
(2) overriding commission of six percent (6%) of the
overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of
Belo's assurances that he was sincere, dependable and
honest when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao
had signed a letter addressed to the Cubao sales office to
the effect that she was no longer the vice-president of
Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to
demand her overriding commission for the period of
January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits.
Anay still received her five percent (5%) overriding
commission up to December 1987. The following year,
1988, she did not receive the same commission although
the company netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-
509, a complaint for sum of money with damages against
Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140
The trial court held that there was indeed an "oral
partnership agreement between the plaintiff and the
defendants. The Court of Appeals affirmed the lower
court’s decision.
ISSUE:
Whether the parties formed a partnership
HELD:
YES, the parties involved in this case formed a
partnership
The Supreme Court held that to be considered a juridical
personality, a partnership must fulfill these requisites:
(1) two or more persons bind themselves to contribute
money, property or industry to a common fund; and
(2) intention on the part of the partners to divide the
profits among themselves. It may be constituted in any
form; a public instrument is necessary only where
immovable property or real rights are contributed
thereto.
This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as a
written one.
In the case at hand, Belo acted as capitalist while Tocao
as president and general manager, and Anay as head of
the marketing department and later, vice-president for
sales. Furthermore, Anay was entitled to a percentage of
the net profits of the business.
Therefore, the parties formed a partnership.
What was the cause of dissolution? In the list where was
it?Was he in bad faith?
We have here a comparison of what constitutes bad
faith. Sinulatan nya yung Cubao office na hindi na
papasukin si Anay. SC said, dito clearly may bad faith. Sa
previous case wala. The one who caused bad faith is
liable for damages.
Not only can the partners cause the dissolution, but also
the __ of a partner’s 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 for
the termination of the specified or particular
undertaking, or any time if there is a partnership at will.
EFFECT OF DISSOLUTION AS TO PARTNER’S AUTHORITY
(ART 1832)
A partner acts as an agent of the partnership and of the
partners as well.
GENERAL RULE: Dissolution terminates all authority of
any partner to act for the partnership.
EXCEPTION:
(1) So far as necessary to wind up the partnership affairs
are completed;
(2) To complete transactions begun but not then finished.
EFFECTS OF TRANSACTIONS ENTERED INTO BY A PARTNER
AFTER DISSOLUTION
[Disclaimer: Medyo makalito ito na part. Wala sya sa
book ni De Leon. I think combination ito ng mga
provisions. Sir keeps mentioning about columns but I
don’t remember na sinulat nya sa board.]
35
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)
(1) If the reason of the dissolution is the act of a partner,
each partner is liable to his co-partners for his share on
the liability created by the partner who acts for the
partnership, EXCEPT (meaning no sharing of liability),
1.1 If the partner acting had knowledge of the cause of
the dissolution.
1.2 If it is insolvency or death of a partner and the
partner acting has knowledge or notice.
Mere notice [is enough]. Yung first, it shows bad faith.
Ikaw yung nag act eh alam mo naman na magdissolve na
kayo. May knowledge ka, so it shows bad faith. You
cannot go after the other partners.
This is in reference to the partners.
(2) If it is not the act, insolvency or death of a partner
No sharing of liability.These are transactions entered into
by the partner with respect to the partnership.Yung
kanina, with respect to the partners, so sharing of
liability. Can you bind the partnership of the transaction?
2.1 Nature of transaction and contracting party.
If for winding up or completing transaction unfinished at
dissolution, by a person authorized, any one na
kacontract mo not a partner to the partnership, bound
ang partnership dito. Kasi liquidating and winding up ka
na. For as long as the person acting is authorized.
2.2 What if the person acting is not authorized? Magiging
bound lang ang partnership if the contracting party had
extended credit before dissolution, and no knowledge or
notice of the want of authority.
What do you mean “had extended”? May transaction na
sya before with that partnership. Wala syang knowledge
na yung pumunta sa kanya na partner, wala palang
authority to wind up.
Example of “had extended credit”: May receivable. May
icocollect ang partnership sa third person. So sabi nya
[the partner]: ‘Nadissolve na kami. I’m authorized to
liquidate. You should pay.’ Is the partnership bound?
Kung 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.
2.3 By the person also not authorized, but this time, the
counter-party had NOT extended credit, pero alam nya
na existing ang partnership as such, and there was NO
PUBLICATION. PUBLICATION is very important.
Kung magdidissolve ka and wala namang authority yung
tao, ipublish mo na lang na “This person is the one
authorized to liquidate.”
What if I’m a partner tapos I have no authority to
liquidate, then I went to the person na may utang sa
partnership. Sabi ko “I’m the person authorized to
liquidate.” Wala syang kwarta that time, so nag hangyo
sya. Utang is P100, hangyo sya P60. Sabi ko, sige ok lang
P60. So nalugi ang partnership ng P40. But because it was
not published, partnership is BOUND. If it is published,
and the partner has no authority, the one really
authorized to liquidate, pwede pa rin nya icollect sa
counter-party the P100.
2.4 Any transaction which would bind the partnership,
meaning ordinary course of business. Not necessarily
yung magcollect ng receivable para magliquidate.
Ordinary, like purchase order, etc. Dissolved na ito ha
pero conduct pa rin ng ordinary course of business. The
counter-party has extended credit before dissolution and
wala syang knowledge or notice of dissolution.
2.5 Any transaction which will bind the partnership (so
ordinary course of business) has not extended credit but
has knowledge of the partnership [maybe Sir means
dissolution?] before, and no publication at the place of
business.
We talked about the person who has authority to wind
up. WHO ARE THOSE AUTHORIZED TO WIND UP? Under
ART 1836:
1. By agreement, so you can agree as to
person who can liquidate the partnership.
2. Kung walang agreement, those who had
not wrongfully dissolved the partnership.
3. The legal representative of the last
surviving partner not insolvent.
This presupposes na nangamatay na ang mga partners.
Isa na lang nabilin.
4. Any partner or his legal representative,
upon caused shown may obtain winding up
from the court.
Let’s say ang sa agreement, kaduda duda ang nakalagay.
Si person A, wala kay salig sa iyahang skills. You can ask
the court to assign someone else.
RIGHTS OF A PARTNER IN DISSOLUTION
If dissolution is caused in any way:
(a) The right to have the partnership property apply to
discharge liabilities
(b) The right to have the surplus (assets – liabilities), the
net na nabilin sa partnership, apply to pay in cash the net
amount owing to the respective partners.
Please note that the law provides you to be PAID IN
CASH. It does not state that you should be paid in
property.
If dissolution is caused in contravention with the
partnership agreement:
(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 (meaning
ART 1837).
(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 partner’s interest the value of the
goodwill of the business shall not be
considered.
In addition we have:
(c) The right as against the
partner who caused the dissolution
wrongfully for damages.
(d) The right to continue the
business in the same name, either by __ or
jointly with others, provided they secure the
payment by BOND approved by the court, or
pay the partner who has caused the
dissolution wrongfully the value of his
interest in the partnership pending the
dissolution, less any damage.
Let’s say five partners. One partner wrongfully caused the
dissolution. Sabi nila “ Sayang naman kung madissolve.
We’re earning. Icontinue na lang natin”. The four of them
continued. Unfair naman kung wala sya. Hindi naman
sinabi ng law na wala talaga sya matanggap. Ang sabi lang
is, he has to pay for damages. The four partners have the
option to pay BOND approved by the court. Ipapaaccount
mo yung interest nya at the time of dissolution, less
damages na liable sya sa apat [na partners]. Whatever
remains, pwede nyo syang bayaran in cash. Para you can
continue, wala ka ng utang.
The person who has wrongfully caused the dissolution:
Apply to discharge the liabilities, have the surplus applied
to pay in cash, then subject to liability for damages. The
partnership here was continued, vinalue ang kanyang
interest. Please take note that if the business has
GOODWILL, hindi sya icoconsider sa pag value ng interest.
Let’s 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;
36
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

(b) Those owing to partnership creditors; there’s no liquidation. Ibig sabihin, si creditor, hindi pa
( c ) Those owing to partners by way of contribution. satisfied ang kanyang __. Kung bigyan kayo ng problema
na nagliquidate pero kinontinue, hindi na sya kasali dito.
For the partner’s separate assets, priority ang kanyang
separate creditors. Again, the concept of unlimited *Sir did not mention the instances.[Sir said he will give
liability. The partnership creditors can go after the copy of the slides.]
separate properties of the partners.
EDITOR’S NOTE: There were assigned cases which were
Paano magkakaroon ng “by way of contribution”? not recited/mentioned in class. Please refer to the case
digest counterpart of this group.
Remember, as to third person, liability is pro rata in the
sense na depende kung ilan kayo, not really your *In Omnibus Amare et Servire Domino*In Everything, Love
contribution. Kung lima kayo, kahit 10% lang kinontribute and Serve the Lord.
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?]. Let’s 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,

37