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CORPORATIONS

KYLE CHENG & MARGAUX COLOMA


4LM3
DEFINITION

• ART 1776, “CONTRACT OF PARTNERSHIP”


• A LEGAL RELATIONSHIP IS CONTRACTUAL IN NATURE.
• 3 IMPORTANT INCLUSIONS
• CONSENT
• SUBJECT MATTER
• CONSIDERATION
CONSENT

• MEETING OF THE MINDS BETWEEN TWO OR MORE PERSONS TO FORM A PARTNERSHIP.


• EX: TO PURSUE JOINTLY A BUSINESS ENTERPRISE OR TO JOINTLY EXERCISE A PROFESSION.
• ART 1769
• (1) EXCEPT AS PROVIDED BY ARTICLE 1825, PERSONS WHO ARE NOT PARTNERS AS TO EACH OTHER ARE NOT
PARTNERS AS TO THIRD PERSONS;
• (2) CO-OWNERSHIP OR CO-POSSESSION DOES NOT OF ITSELF ESTABLISH A PARTNERSHIP, WHETHER SUCH CO-
OWNERS OR CO- POSSESSORS DO OR DO NOT SHARE ANY PROFITS MADE BY THE USE OF THE PROPERTY;
• (3) THE SHARING OF GROSS RETURNS DOES NOT OF ITSELF ESTABLISH A PARTNERSHIP, WHETHER OR NOT THE
PERSONS SHARING THEM HAVE A JOINT OR COMMON RIGHT OR INTEREST IN ANY PROPERTY FROM WHICH THE
RETURNS ARE DERIVED;
• (4) THE RECEIPT BY A PERSON OF A SHARE OF THE PROFITS OF A BUSINESS IS PRIMA FACIE EVIDENCE THAT HE IS A
PARTNER IN THE BUSINESS, BUT NO SUCH INFERENCE SHALL BE DRAWN IF SUCH PROFITS WERE RECEIVED IN
PAYMENT:
• (A) AS A DEBT BY INSTALLMENTS OR OTHERWISE;
(B) AS WAGES OF AN EMPLOYEE OR RENT TO A LANDLORD;
(C) AS AN ANNUITY TO A WIDOW OR REPRESENTATIVE OF A DECEASED PARTNER;
• (D) AS INTEREST ON A LOAN, THOUGH THE AMOUNT OF PAYMENT VARY WITH THE PROFITS OF THE BUSINESS;
• (E) AS THE CONSIDERATION FOR THE SALE OF A GOODWILL OF A BUSINESS OR OTHER PROPERTY BY
INSTALLMENTS OR OTHERWISE.
• A. CONSENT TO PURSUE A BUSINESS JOINTLY IS THE NEXUS OF THE PARTNERSHIP RELATIONSHIP
• THE AGREEMENT OF TWO OR MORE PERSONS TO “BIND THEMSELVES” TO JOINTLY PURSUE A BUSINESS
VENTURE CONSTITUTES THE VERY NEXUS BY WHICH THE CONTRACT OF PARTNERSHIP ARISES UNDER ARTICLE
1767 OF THE CIVIL CODE. UNDER ARTICLE 1769 OF THE CIVIL CODE, “IN DETERMINING WHETHER A
PARTNERSHIP EXISTS,” THE FIRST AND FOREMOST RULE IS THAT “PERSONS WHO ARE NOT PARTNERS AS TO
EACH OTHER ARE NOT PARTNERS AS TO THIRD PERSONS.” IN OTHER WORDS, THE GENERAL RULES IS THAT NO
PERSON CAN FIND HIMSELF A PARTNER IN A PARTNERSHIP, EVEN AS TO THIRD PARTIES, UNLESS HE PREVIOUSLY
CONSENTED TO BE IN SUCH CONTRACTUAL RELATIONSHIP. ONE DOES NOT BECOME A PARTNER, NOR IS A
PARTNERSHIP CONSTITUTED, BUT THE FACT ALONE THAT THEY ARE ASSOCIATED TOGETHER IN SITUATION
WHERE THERE IS CO-OWNERSHIP OR PROFITS EARNED THEREFROM. THUS, UNDER ARTICLE 1769(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.”
THE ESSENCE OF EVERY PARTNERSHIP ARRANGEMENT IS THE CONSENT OF EACH OF THE PARTNERS TO BE
ASSOCIATED IN A BUSINESS VENTURE.
• B. LEGAL CAPACITY TO CONTRACT
• PARTIES TO A CONTRACT OF PARTNERSHIP MUST HAVE LEGAL CAPACITY TO CONTRACT.
UNDER ARTICLE 1782, PERSONS WHO ARE PROHIBITED FROM GIVING EACH OTHER ANY
DONATION OR ADVANTAGE CANNOT ENTER INTO A UNIVERSAL PARTNERSHIP. UNDER ARTICLE
87 OF THE FAMILY CODE, A MARRIED WOMAN MAY ENTER INTO A CONTRACT OF
PARTNERSHIP EVEN WITHOUT HER HUSBAND’S CONSENT, BUT THE LATTER MAY OBJECT UNDER
CERTAIN CONDITIONS.
• C. ADMISSION OF NEW PARTNER INTO AN EXISTING PARTNERSHIP
• SINCE CONSENT IS THE NEXUS OF ALL PARTNERSHIP RELATIONSHIPS, THE PRINCIPLE IS
EXEMPLIFIED UNDER ARTICLE 1804 OF THE CIVIL CODE WHICH PROVIDES EVEN IN AN ALREADY
EXISTING PARTNERSHIP, THAT NO PERSON SHALL BE ADMITTED INTO A PARTNERSHIP, OR
BECOME A PARTY TO THE PARTNERSHIP ARRANGEMENT WITHOUT THE CONSENT OF ALL THE
PARTNERS.
SUBJECT MATTER

• HAVING A CREATION OF A COMMON FUND.


• UNDERTAKING A BUSINESS VENTURE WITH THE INTENTION OF DIVIDING THE PROFITS AMONG
THEMSELVES.
• IN CASES OF A PROFESSIONAL PARTNERSHIP, IT IS EXERCISING TOGETHER A COMMON
PROFESSION.
PURSUIT OF A BUSINESS ENTERPRISE

• ESSENTIALLY, THE CONSENT OR MEETING OF THE MINDS OF THE PARTIES IN A CONTRACT OF PARTNERSHIP MUST BE UPON A PARTICULAR TYPE OF “SUBJECT MATTER”, WHICH ESSENTIALLY IS THE PURSUIT OF A ”BUSINESS ENTERPRISE”:

• (A) AN AGREEMENT TO CONTRIBUTE TO A COMMON FUND; AND

• (B) WITH JOINT INTEREST IN THE PROFITS AND LOSSES THEREOF.

• THE AGREEMENT TO SHARE PROFITS AND LOSSES FROM THE BUSINESS VENTURE IS THE HALLMARK OF A PARTNERSHIP ARRANGEMENT. IT IS ALSO THE ESSENCE OF THE “EQUITY” POSITION OF THE PARTNERS VIS-A-VIS THE BUSINESS
ENTERPRISE, AS DIFFERENTIATED FROM PARTNERSHIP SUPPLIERS AND CREDITORS, AND COMPANY EMPLOYEES, WHO BEAR NO PROPRIETARY INTEREST WITH THE BUSINESS ENTERPRISE THEY DEAL WITH.

• ARTICLE 1769 OF THE CIVIL CODE, IN PROVIDING FOR THE RULES “IN DETERMINING WHETHER A PARTNERSHIP EXISTS,” STATES UNDER PARAGRAPH (4) THAT “THE RECEIPT BY A PERSON OF A SHARE OF THE PROFITS IN THE BUSINESS IS
PRIMA FACIE EVIDENCE THAT HE IS A PARTNER IN THE BUSINESS.” IN CONTRAST, THE SAME ARTICLE PROVIDES, “THE SHARING OF GROSS RETURNS DOES NOT OF ITSELF ESTABLISH A PARTNERSHIP, WHETHER OR NOT THE PERSONS
SHARING THEM HAVE A JOINT OR COMMON RIGHT OR INTEREST IN ANY PROPERTY FROM WHICH THE RETURNS ARE DERIVED.”

• IT IS FAIRLY IMPLIED UNDER ARTICLE 1767, AS IT DEFINES A CONTRACT OF PARTNERSHIP, THAT THE ESSENCE OF THE AGREEMENT AMONG THE PARTNERS IS TO BECOME EQUITY-HOLDERS IN A BUSINESS ENTERPRISE, BECAUSE THEIR
CONSENT MUST BE THE CREATION OF A COMMON FUND “WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES.” THE ESSENCE OF AN EQUITY HOLDER IS TO TAKE THE PROFITS FROM THE BUSINESS, AND
CONSEQUENTLY, TO ABSORB ALSO THE LOSSES SUSTAINED THEREBY. THEREFORE, WHEN A PERSON IS ENTITLED TO SHARE IN THE “GROSS RETURNS” OF THE BUSINESS VENTURE, HE IS NOT AN EQUITY HOLDER, AND IF IT IS OPERATED
UNDER THE MEDIUM OF A PARTNERSHIP, SUCH PERSON IS NOT A PARTNER IN THE VENTURE.

• IN SANTOS V. REYES, 368 SCRA 261 (2001), THE FACT THAT IN THEIR “ARTICLES OF AGREEMENT,” THE PARTIES AGREED TO DIVIDE THE PROFITS OF A LENDING BUSINESS “IN A 70-15-15 MANNER, WITH THE PETITIONER GETTING THE
LION’S SHARE . . . PROVED THE ESTABLISHMENT OF A PARTNERSHIP,” (IBID, AT P. 269.) EVEN WHEN THE OTHER PARTIES TO THE AGREEMENT WERE GIVEN SEPARATE COMPENSATIONS AS BOOKKEEPER AND CREDITOR INVESTIGATOR.

• IN TOCAO V. COURT OF APPEALS, 365 SCRA 463 (2001), THE COURT HELD THAT A CREDITOR OF A BUSINESS ENTERPRISE CANNOT SEEK RECOVERY OF HIS CLAIM AGAINST THE PARTNERSHIP FROM A PERSON WHO IS WITHOUT ANY
RIGHT TO PARTICIPATE IN THE PROFITS AND WHO CANNOT BE DEEMED AS A PARTNER IN THE BUSINESS ENTERPRISE, SINCE THE ESSENCE OF PARTNERSHIP IS THAT THE PARTNERS SHARE IN THE PROFITS AND LOSSES.
• A. CO-OWNERSHIP OR CO-POSSESSION DO NOT NECESSARILY CONSTITUTE A PARTNERSHIP
• IN NAVARRO V. COURT OF APPEALS, 222 SCRA 675 (1993), THE COURT HELD THAT MERE CO-OWNERSHIP OR CO-POSSESSION OF
PROPERTY DOES NOT NECESSARILY CONSTITUTE THE CO-OWNERS OR CO-POSSESSORS PARTNERS, REGARDLESS OF WHETHER OR
NOT THEY SHARE ANY PROFITS DERIVED FROM THE USE OF THE PROPERTY, WHEN NO INDICATION IS SHOWN THAT THE PARTIES HAD
INTENDED TO ENTER INTO A PARTNERSHIP.
• IN OBILLOS, JR. V. COMMISSIONER OF INTERNAL REVENUE, 139 SCRA 436 (1985), FOUR BROTHERS AND SISTERS ACQUIRED LOTS
WITH THE ORIGINAL PURPOSE TO DIVIDE THE LOTS AMONG THEMSELVES FOR RESIDENTIAL PURPOSES; WHEN LATER THEY FOUND IT
NOT FEASIBLE TO BUILD THEIR RESIDENCES THEREON BECAUSE OF THE HIGH COST OF CONSTRUCTION, THEY DECIDED TO RESELL THE
PROPERTIES TO DISSOLVE THE CO-OWNERSHIP. THE COURT RULED THAT NO PARTNERSHIP WAS CONSTITUTED AMONG THE SIBLINGS,
SINCE THE ORIGINAL INTENTION WAS MERELY TO COLLECTIVELY PURCHASE THE LOTS AND EVENTUALLY TO PARTITION THEM AMONG
THEMSELVES TO BUILD THEIR RESIDENCES; AND THAT IN FACT THEY HAD NO CHOICE BUT TO RESELL THE SAME TO DISSOLVE THE CO-
OWNERSHIP. OBILLOS FOUND THAT THE DIVISION OF THE PROFITS WAS MERELY INCIDENTAL TO THE DISSOLUTION OF THE CO-
OWNERSHIP WHICH WAS IN THE NATURE OF THINGS A TEMPORARY STATE; AND THAT THERE COULD NOT HAVE BEEN ANY
PARTNERSHIP, BUT MERELY A CO-OWNERSHIP, SINCE THERE WAS UTTER LACK OF INTENT TO FORM A PARTNERSHIP OR JOINT VENTURE.
• IN CONTRAST, IN REYES V. COMMISSIONER OF INTERNAL REVENUE, 24 SCRA 198 (1968), THE COURT FOUND THAT WHERE FATHER
AND SON PURCHASED A LOT AND BUILDING AND HAD IT ADMINISTERED BY AN ADMINISTRATOR, AND DIVIDED EQUALLY THE NET
INCOME, THERE WAS A PARTNERSHIP FORMED BECAUSE PROFIT WAS THE ORIGINAL INTENTION FOR THE COMMON FUND.
• LIKEWISE IN EVANGELISTA V. COLLECTOR OF INTERNAL REVENUE, 102 PHIL. 140 (1957), WHERE THREE SISTERS BOUGHT FOUR PIECES
OF REAL PROPERTY WITH EVERY INTENTION TO LEASE THEM OUT, AND WHICH THEY IN FACT LEASED TO VARIOUS TENANTS AND
DERIVED RENTALS THEREFROM, THERE WAS A PARTNERSHIP FORMED.
• B. RECEIPT BY A PERSON OF A SHARE OF THE NET PROFIT
• UNDER ARTICLE 1769(4), THE RECEIPT BY A PERSON OF A SHARE OF THE NET PROFITS OF A
BUSINESS IS PRIMA FACIE EVIDENCE THAT HE IS A PARTNER IN THE BUSINESS. HOWEVER, IN THE
FOLLOWING CASES, WHERE THERE IS LEGAL AND CONTRACTUAL BASIS FOR THE RECEIPT OF THE
PROFITS OTHER THAN AS EQUITY HOLDER, THERE IS NO PARTNERSHIP CONSTITUTED, THUS:
• (A) AS INSTALLMENT PAYMENTS OF DEBT AND/OR INTERESTS THEREOF;
(B) AS WAGES OF AN EMPLOYEE;
(C) AS RENTALS PAID TO A LANDLORD;
(D) AS ANNUITY TO A WIDOW OR REPRESENTATIVE OF DECEASED PARTNER; (E) AS CONSIDERATION
OF SALE OF GOODWILL OR OTHER PROPERTY.
• THUS, IN PASTOR V. GASPAR, 2 PHIL. 592 (1903), THE COURT HELD THAT THERE WAS NO NEW
PARTNERSHIP FORMED WHEN A LOAN WAS OBTAINED TO PURCHASE LORCHAS NEEDED TO
EXPAND THE SHIPPING BUSINESS OF AN EXISTING SHIPPING PARTNERSHIP VENTURE UNDER THE
CONDITION THAT THE LENDER WOULD RECEIVE PART OF THE PROFITS OF THE BUSINESS IN LIEU OF
INTERESTS.
• C. MEETINGOFMINDSONTHEESTABLISHINGACOMMONFUNDISTHEESSENCEOFAPARTNERSHIPCONTRACT

• ALL THE FOREGOING EXAMPLES INDICATE THAT WHAT BRINGS ABOUT A CONTRACT OF PARTNERSHIP IS ESSENTIALLY AN AGREEMENT TO CONSTITUTE A COMMON
FUND WITH THE INTENTION OF DIVIDING THE PROFITS AND LOSSES; OUTSIDE OF THESE ESSENTIAL ELEMENTS, A CONTRACT OF PARTNERSHIP CANNOT SUBSIST.

• THE IMPORTANCE OF CONSENT, VIS-A-VIS THE ELEMENTS OF COMMON FUND AND INTENTION TO DIVIDE THE PROFITS AMONG THEMSELVES, IS BEST ILLUSTRATED
INYULO V. YANG CHIAO SENG, 106 PHIL. 111 (1959), WHERE IN FACT THE PARTIES HAD EXECUTED FORMAL ARTICLES OF PARTNERSHIP, AND YET THE COURT FOUND
THAT THE REAL INTENTION OF THE PARTIES WAS REALLY TO CONSTITUTE A RELATION OF SUBLEASE BETWEEN

• THE PARTIES OVER A COMMERCIAL LAND WHERE ONE PARTY (THE LESSEE) WAS PROHIBITED UNDER HER MAIN CONTRACT OF LEASE FROM SUBLEASING THE
PROPERTY, AND THE OTHER PARTY (THE SUBLESSEE) WANTED TO OPERATE A THREATER IN SAID PREMISES. THE COURT HELD –

• THE MOST IMPORTANT ISSUE RAISED IN THE APPEAL IS THAT CONTAINED IN THE FOURTH ASSIGNMENT OF ERROR, TO THE EFFECT THAT THE LOWER COURT ERRED IN
HOLDING THAT THE WRITTEN CONTRACTS, EXHS. “A”, “B”, AND “C”, BETWEEN PLAINTIFF AND DEFENDANT, ARE ONE OF LEASE AND NOT ONE OF PARTNERSHIP. WE
HAVE GONE OVER THE EVIDENCE AND WE FULLY AGREE WITH THE CONCLUSION OF THE TRIAL COURT THAT THE AGREEMENT WAS A SUBLEASE, NOT A
PARTNERSHIP. THE FOLLOWING ARE THE REQUISITES OF PARTNERSHIP: (1) TWO OR MORE PERSONS WHO BIND THEMSELVES TO CONTRIBUTE MONEY, PROPERTY,
OR INDUSTRY TO A COMMON FUND; (2) INTENTION ON THE PART OF THE PARTNERS TO DIVIDE THE PROFITS AMONG THEMSELVES. (ART. 1767, CIVIL CODE.)

• IN THE FIRST PLACE, PLAINTIFF DID NOT FURNISH THE SUPPOSED P20,000 CAPITAL. IN THE SECOND PLACE, SHE DID NOT FURNISH ANY HELP OR INTERVENTION IN
THE MANAGEMENT OF THE THEATRE. IN THE THIRD PLACE, IT DOES NOT APPEAR THAT SHE HAS EVER DEMANDED FROM DEFENDANT ANY ACCOUNTING OF THE
EXPENSES AND EARNINGS OF THE BUSINESS. WERE SHE REALLY A PARTNER, HER FIRST CONCERN SHOULD HAVE BEEN TO FIND OUT HOW THE BUSINESS WAS
PROGRESSING, WHETHER THE EXPENSES WERE LEGITIMATE, WHETHER THE EARNINGS WERE CORRECT, ETC. SHE WAS ABSOLUTELY SILENT WITH RESPECT TO ANY OF
THE ACTS THAT A PARTNER SHOULD HAVE DONE; ALL THAT SHE DID WAS TO RECEIVE HER SHARE OF P3,000 A MONTH, WHICH CAN NOT BE INTERPRETED IN ANY
MANNER THAN A PAYMENT FOR THE USE OF THE PREMISES WHICH SHE HAD LEASED FROM THE OWNERS. CLEARLY, PLAINTIFF HAD ALWAYS ACTED IN ACCORDANCE
WITH THE ORIGINAL LETTER OF DEFENDANT OF JUNE 17, 1945 (EXH. “A”), WHICH SHOWS THAT BOTH PARTIES CONSIDERED THIS OFFER AS THE REAL CONTRACT
BETWEEN THEM.” ( IBID, AT PP. 116-117)
• IN THE MORE CONTEMPORARY DECISION IN ESTANISLAO, JR. V. COURT OF APPEALS, 160 SCRA 830 (1988), THE COURT AFFIRMED THE DECISION OF THE TRIAL COURT “ORDERING THE
DEFENDANT TO EXECUTE A PUBLIC INSTRUMENT EMBODYING ALL THE PROVISIONS OF THE PARTNERSHIP AGREEMENT ENTERED INTO BETWEEN PLAINTIFFS AND DEFENDANT AS PROVIDED
FOR IN ARTICLE 1771, CIVIL CODE OF THE PHILIPPINES.” IN THAT CASE, THE SIBLINGS IN A FAMILY LEASED OUT TO SHELL A FAMILY COMMERCIAL LOT FOR THE ESTABLISHMENT OF A
GASOLINE STATION, AND THEY INVESTED THE ADVANCED RENTALS THEY RECEIVED FROM SHELL TO ALLOW ONE THEIR BROTHER TO BE THE REGISTERED DEALER OF SHELL UNDER THE
LATTER’S POLICY OF “ONE STATION, ONE DEALER,” AND THAT IN FACT THE REGISTERED DEALER HAD ACCOUNTED FOR THE OPERATIONS TO THE OTHER MEMBERS OF THE FAMILY. WHEN
LATER ON HE STOPPED ACCOUNTING FOR THE OPERATIONS, AND REFUSED TO ACKNOWLEDGE THE EXISTENCE OF A PARTNERSHIP OVER THE GASOLINE STATION, THE COURT HELD –

• MOREOVER OTHER EVIDENCE IN THE RECORD SHOWS THAT THERE WAS IN FACT SUCH PARTNERSHIP AGREEMENT BETWEEN THE PARTIES. . . PETITIONER SUBMITTED TO PRIVATE
RESPONDENTS PERIODIC ACCOUNTING OF THE BUSINESS. . . GAVE A WRITTEN AUTHORITY TO PRIVATE

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• RESPONDENT . . ., HIS SISTER, TO EXAMINE AND AUDIT THE BOOKS OF THEIR “COMMON BUSINESS” (AMING NEGOSYO). . . . THERE IS NO DOUBT THAT THE PARTIES HERETO FORMED A
PARTNERSHIP WHEN THEY BOUND THEMSELVES TO CONTRIBUTE MONEY TO A COMMON FUND WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES. THE SOLE DEALERSHIP
BY THE PETITIONER AND THE ISSUANCE OF ALL GOVERNMENT PERMITS AND LICENSES IN THE NAME OF PETITIONER WAS IN COMPLIANCE WITH THE AFORE-STATED POLICY OF SHELL AND
THE UNDERSTANDING OF THE PARTIES OF HAVING ONLY ONE DEALER OF THE SHELL PRODUCTS. (IBID, AT P. 837)

• THE OTHER IMPORTANT ASPECT IS DETERMINING WHETHER A PARTNERSHIP HAS BEEN CONSTITUTED AMONG SEVERAL PERSONS, IS THAT UNDER OUR TAX LAWS, A PARTNERSHIP IS TREATED
LIKE A CORPORATE TAXPAYER AND LIABLE SEPARATELY FOR INCOME TAX FOR ITS OPERATIONS APART FROM THE INDIVIDUAL INCOME TAX LIABILITIES OF EACH OF THE PARTNERS.

• THUS, IN EVANGELISTA V. COLLECTOR OF INTERNAL REVENUE, 102 PHIL. 140 (1957), THREE SISTERS BORROWED A HUGE AMOUNT OF MONEY FROM THEIR FATHER, AND WITH THEIR
PERSONAL FUNDS, PURCHASED UNDER SEVERAL TRANSACTIONS REAL ESTATE PROPERTIES, AND SUBSEQUENTLY APPOINTED THEIR BROTHER AS MANAGER THEREOF WHO LEASED THEM OUT
TO VARIOUS LESSEES. EVENTUALLY, THE COLLECTOR OF INTERNAL REVENUE ASSESSED THEM FOR THE PAYMENT OF CORPORATE INCOME TAX THEY HAVE BEEN OPERATING THE REAL ESTATE
VENTURE. IN ARGUING THAT THEY HAVE NEVER FORMED A PARTNERSHIP, AND THAT THEY MERELY CONSTITUTED THEMSELVES A CO-OWNERS OF THE PROPERTIES BOUGHT PRO INDIVISO,
THE COURT HELD –

• PURSUANT TO THIS ARTICLE, 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 AT BAR, 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, WE ARE FULLY SATISFIED THAT THEIR PURPOSE WAS TO ENGAGE IN REAL ESTATE TRANSACTIONS FOR MONETARY GAIN
AND THEN DIVIDE THE SAME AMONG THEMSELVES,
• D. PROOF OF THE EXISTENCE OF THE BUSINESS ENTERPRISE MAY SUPPORT THE EXISTENCE OF A
PARTNERSHIP EVEN AFTER DISSOLUTION
• THERE HAVE BEEN CASES WHERE THE EXISTENCE OF THE BUSINESS ENTERPRISE BECAME THE BASIS BY WHICH
THE COURTS WOULD CONCLUDE THAT INDEED A CONTRACT OF PARTNERSHIP HAD BEEN ENTERED INTO BY THE
PARTIES.
• IN IDOS V. COURT OF APPEALS,] 296 SCRA 194 (1998), IN DETERMINING WHETHER THE PARTNERSHIP
ENTERPRISE CONTINUED TO EXIST AND HAS NOT BEEN TERMINATED, THE COURT RULED THAT “THE BEST
EVIDENCE OF THE EXISTENCE OF THE PARTNERSHIP, WHICH WAS NOT YET TERMINATED (THOUGH IN THE
WINDING UP STAGE), WERE THE UNSOLD GOODS AND UNCOLLECTED RECEIVABLES, WHICH WERE PRESENTED
TO THE TRIAL COURT. SINCE THE PARTNERSHIP HAS NOT BEEN TERMINATED, THE PETITIONER AND PRIVATE
COMPLAINANT REMAINED AS CO-PARTNERS.” (IBID, AT P. 206.)
• IN TOCAO V. COURT OF APPEALS, 342 SCRA 20 (2000), CITING THE RULING INIDOS, THE COURT HELD THAT
THE FACT THAT THE CLAIMING PARTY “HAD BEEN UNCEREMONIOUSLY BOOTED OUT OF THE PARTNERSHIP . . .
SHE STILL RECEIVED HER OVERRIDING COMMISSION (IBID, AT P. 36) . . .
• THE WINDING UP OF PARTNERSHIP AFFAIRS HAS NOT YET BEEN UNDERTAKEN BY THE PARTNERSHIP. THIS IS
MANIFEST IN PETITIONERS’ CLAIM FOR STOCKS THAT HAD BEEN ENTRUSTED TO PRIVATE RESPONDENT IN THE
PURSUIT OF THE PARTNERSHIP BUSINESS.” (IBID, AT P. 38.)
• E. DOCTRINE OF “ATTRIBUTES OF PROPRIETORSHIP” AS A MEANS TO PROVE OR DISPROVE THE EXISTENCE OF A
PARTNERSHIP
• THERE ARE A NUMBER OF DECISIONS THAT USE THE HAZY DOCTRINE OF “ATTRIBUTES OF PROPRIETORSHIP” AS ONE OF
THE INDICATIONS OF THE EXISTENCE OF A CONTRACT OF PARTNERSHIP OR A PARTNERSHIP VENTURE.
• WE TAKE THE DECISION IN TOCAO V. COURT OF APPEALS, 342 SCRA 20 (2000), WHERE THE MAIN ISSUE WAS
WHETHER THERE EXISTED A CONTRACT OF PARTNERSHIP BETWEEN THREE PARTIES, NAMELY TOCAO, BELLO AND ANAY,
IN THE FACE OF THE ASSERTIONS OF BOTH TOCAO AND BELLO THAT THERE WAS NO PARTNERSHIP AGREEMENT
ENTERED INTO CONSIDERING THAT: (A) THERE WAS NO WRITTEN AGREEMENT EMBODYING THE ALLEGED PARTNERSHIP
AGREEMENT, AND THAT IN FACT THE BUSINESS WAS REGISTERED WITH THE GOVERNMENT AUTHORITIES AS A SINGLE
PROPRIETORSHIP IN THE STYLE OF “GEMINESSE ENTEPRISE” IN THE NAME OF TOCAO; (B) BELLO ASSERTS THAT HE
NEVER GAVE ANY CONTRIBUTION TO THE VENTURE, BUT MERELY GUARANTEED ITS CREDIT STANDING; AND (C) ANAY
NEVER CONTRIBUTED ANYTHING TO THE BUSINESS, AND SHE WAS RECEIVING OVERRIDING COMMISSION AND
PARTICIPATION IN PROFITS DIRECTLY AS A RESULT OF HER HANDLING THE MARKETING OF THE PRODUCTS, AND NOT
AS A PARTNER TO THE VENTURE.
• IN BRUSHING ASIDE THE ASSERTIONS OF NO CONTRACT OF PARTNERSHIP, THE COURT, APART FROM HOLDING THAT A
CONTRACT OF PARTNERSHIP NEED NOT BE IN WRITING TO BE VALID AND ENFORCEABLE, HELD THAT ALL THREE PARTIES
HAD BY THE EVIDENCE ADDUCED EXERCISED RIGHTS OF PROPRIETORSHIP ON THE BUSINESS VENTURE AS TO SHOW
WITHOUT DOUBT THE EXISTENCE OF A PARTNERSHIP, THUS:
• PETITIONERS [TOCAO AND BELO] ADMIT THAT PRIVATE RESPONDENT [ANAY] HAD THE
EXPERTISE TO ENGAGE IN THE BUSINESS OF DISTRIBUTORSHIP OF COOKWARE. PRIVATE
RESPONDENT CONTRIBUTED SUCH EXPERTISE TO THE PARTNERSHIP AND HENCE, UNDER THE
LAW, SHE WAS THE INDUSTRIAL OR MANAGING PARTNER. IT WAS THROUGH HER REPUTATION
WITH THE WEST BEND COMPANY THAT THE PARTNERSHIP WAS ABLE TO PEN THE BUSINESS OF
DISTRIBUTORSHIP OF THAT COMPANY’S COOKWARE PRODUCTS; IT WAS THROUGH THE SAME
EFFORTS THAT THE BUSINESS WAS PROPELLED TO FINANCIAL SUCCESS. PETITIONER TOCAO
HERSELF ADMITTED PRIVATE RESPONDENT [ANAY] HELD THE POSITIONS OF MARKETING
MANAGER AND VICE-PRESIDENT FOR SALES . . . X X X. (IBID, AT P. 31; UNDERSCORING
SUPPLIED)
• BY THE SET-UP OF THE BUSINESS, THIRD PERSONS WERE MADE TO BELIEVE THAT A
PARTNERSHIP HAD INDEED BEEN FORGED BETWEEN PETITIONERS [TACAO AND BELO] AND
PRIVATE RESPONDENT [ANAY] . . .
• ON THE OTHER HAND, PETITIONER BELO’S DENIAL THAT HE FINANCED THE PARTNERSHIP RINGS
HOLLOW IN THE FACE OF THE ESTABLISHED FACT THAT HE PRESIDED OVER MEETING REGARDING
MATTERS AFFECTING THE OPERATION OF THE BUSINESS. MOREOVER, HIS HAVING AUTHORIZED IN
WRITING . . . THAT PRIVATE RESPONDENT SHOULD RECEIVE THIRTY-SEVEN (37%) OF THE PROCEEDS
OF HER PERSONAL SALES, COULD NOT BE INTERPRETED OTHERWISE THAN THAT HE HAD A
PROPRIETARY INTEREST IN THE BUSINESS. HIS CLAIM THAT HE WAS MERELY A GUARANTOR IS BELIED
BY THAT PERSONAL ACT OF PROPRIETORSHIP IN THE BUSINESS . . . (IBID, AT P. 32;UNDERSCORING
SUPPLIED)
• THE BUSINESS VENTURE OPERATED UNDER GEMINESSE ENTERPRISE DID NOT RESULT IN AN
EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PETITIONERS AND PRIVATE RESPONDENT. WHILE IT IS
TRUE THAT THE RECEIPT OF A PERCENTAGE OF NET PROFITS CONSTITUTES ONLY PRIMA FACIE
EVIDENCE THAT THE RECIPIENT IS A PARTNERS IN THE BUSINESS, THE EVIDENCE IN THE CASE AT BAR
CONTROVERTS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES. IN THE FIRST PLACE,
PRIVATE RESPONDENT HAD A VOID IN THE MANAGEMENT OF THE AFFAIRS OF THE COOKWARE
DISTRIBUTORSHIP, INCLUDING SELECTION OF PEOPLE WHO WOULD CONSTITUTE THE
ADMINISTRATIVE STAFF AND THE SALES FORCE. . . (IBID, AT PP. 33-34; UNDERSCORING SUPPLIED)
• THE EXERCISE OF THE PREROGATIVES OF A PROPRIETOR SHOULD BE VIEWED AS MERELY COLLABORATIVE
EVIDENCE OF THE PARTNERSHIP RELATIONSHIP BETWEEN THE PARTIES IN A BUSINESS VENTURE; IN THE END THE
EXISTENCE OF THE CONTRACT OF PARTNERSHIP MUST BE LOCATED IN THE ACTUAL MEETING OF MINDS TO
CONSTITUTE A COMMON FUND AND TO DIVIDE THE PROFITS THEREOF AMONG THEMSELVES. THE REASON
WHY EXERCISING THE PREROGATIVES OF PROPRIETORSHIP OR PARTICIPATING IN THE MANAGEMENT OF THE
BUSINESS ENTERPRISE CANNOT ON THEIR OWN BE WEIGHTY EVIDENCE TO PROVE THE EXISTENCE OF A
PARTNERSHIP AGREEMENT IS BECAUSE, IT IS LOGICAL FOR A BUSINESS ENTERPRISE, WHETHER IT IS OPERATED
AS A PARTNERSHIP OR A SINGLE PROPRIETORSHIP, TO ACTUALLY APPOINT A MANAGER OR OTHER AGENTS,
AUTHORIZED TO EXERCISE ACTS OF MANAGEMENT, WITHOUT BEING OWNERS OR PARTNERS OF THE BUSINESS
VENTURE.
• IN ANY EVENT, THE APPLICATION OF THE SUPPLETORY DOCTRINE OF “ATTRIBUTES OF PROPRIETORSHIP” IN
JURISPRUDENCE IS A RECOGNITION THAT A PARTNERSHIP ARRANGEMENT IS IN ESSENCE A CONTRACTUAL
AGGREGATION OF SOLE PROPRIETORS, WHO COME TOGETHER TO FORM A COMMON VENTURE, EACH
ACTING VERY MUCH A PROPRIETOR OF THE BUSINESS VENTURE, WHILE AT THE SAME TIME AS AGENTS TO ONE
ANOTHER.
• THE RECENT DECISION IN SY V. COURT OF APPEALS, 398 SCRA 301 (2003), SUCCINCTLY SUMMARIZES THE
BADGES THAT WOULD NORMALLY ACCOMPANY A PARTNERSHIP RELATIONSHIP, THUS:
• 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 DIVING THE PROFITS AMONG
THEMSELVES. NOT ONE OF THESE CIRCUMSTANCES IS PRESENT IN THIS CASE [WHICH SOUGHT TO MAKE THE TRUCK DRIVER OF THE
COMPANY OF MANY YEARS TO BE CHARACTERIZED AS AN INDUSTRIAL PARTNER]. 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 INTHE SUPPOSED BUSINESS. THERE IS NO PROOF
THAT HE WAS RECEIVING A SHARE IN THE PROFITS AS A MATTER OF COURSE, CURING 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. (IBID, AT P. 308.)
• IN CONTRAST, WE SHOULD CONSIDER THE DECISION IN HEIRS OF TAN ENG KEE V. COURT OF APPEALS, 341 SCRA 740 (2000), WHERE
A PARTNERSHIP WAS INSISTED TO HAVE BEEN CONSTITUTED YET NO DIRECT EVIDENCE OF THE CONTRIBUTION TO A COMMON FUND
OR SHARING OF PROFITS HAD BEEN ADDUCED DURING TRIAL. THE COURT HELD –
• BESIDES, IT IS INDEED ODD, IF NOT UNNATURAL, THAT DESPITE THE FORTY YEARS THE PARTNERSHIP WAS ALLEGEDLY IN EXISTENCE, 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. WE HAVE ALLOWED A SCENARIO
WHEREIN “[I] EXCELLENT RELATIONS EXISTS 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.” [FUE LUNG V. IAC, 169 SCRA 764, 755 (1989)]. BUT IN THE SITUATION IN THE CASE AT BAR, THE DEFERMENT, IF
ANY, HAD GONE 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. (IBID, AT PP. 755- 756, CITING ESTANISLAO, JR. V. COURT OF APPEALS,
160 SCRA 830, 837 [1988]).
• F. WHEN SUBJECT MATTER (THE BUSINESS VENTURE) IS UNLAWFUL OR AGAINST PUBLIC POLICY
• WHEN THE SUBJECT MATTER OF A CONTRACT OF PARTNERSHIP IS UNLAWFUL, ARTICLE 1770 OF
THE CIVIL CODE PROVIDES THAT THE CONTRACT IS VOID; AND BEING VOID THE PURPORTED
PARTNERS HAVE NO RIGHT TO PARTICIPATE IN ANY PROFITS THAT MAY HAVE BEEN EARNED BY THE
PARTNERSHIP ENTERPRISE. THUS, THE ARTICLE PROVIDES THAT “THE PROFITS SHALL BE CONFISCATED
IN FAVOR OF THE STATE.”
• IN ARBES V. POLISTICO, 53 PHIL. 489 (1929), A PARTNERSHIP ORGANIZED TO ENGAGE IN ILLEGAL
GAMBLING WAS DECLARED VOID BY JUDICIAL ORDER, AND PURSUANT TO THE PROVISIONS OF
ARTICLE 1770, ALL THE PROFITS EARNED WERE DEEMED CONFISCATED IN FAVOR OF THE STATE.
HOWEVER, IT DECREED THAT THE PARTNERS HAD A RIGHT TO RECOVER THEIR CONTRIBUTIONS,
THUS:
• OUR CODE DOES NOT STATE WHETHER, UPON THE DISSOLUTION OF THE UNLAWFUL PARTNERSHIP,
THE AMOUNTS CONTRIBUTED ARE TO BE RETURNED TO THE PARTNERS, BECAUSE IT ONLY DEALS
WITH THE DISPOSITION OF THE PROFITS; BUT THE FACT THAT SAID CONTRIBUTIONS ARE NOT
INCLUDED IN
• THE DISPOSAL PRESCRIBED FOR SAID PROFITS, SHOWS THAT IN CONSEQUENCE OF SAID
EXCLUSION, THE GENERAL RULES OF LAW MUST BE FOLLOWED, AND HENCE, THE PARTNERS
MUST BE REIMBURSED THE AMOUNT OF THEIR RESPECTIVE CONTRIBUTIONS. ANY OTHER
SOLUTION WOULD BE IMMORAL, AND THE LAW WILL NOT CONSENT TO THE LATTER
REMAINING IN THE POSSESSION OF THE MANAGER OR ADMINISTRATOR WHO HAS REFUSED
TO RETURN THEM, BY DENYING TO THE PARTNERS THE ACTION TO DEMAND THEM. (IBID, AT P.
495, QUOTING FROM MANRESA, COMMENTARIES ON THE SPANISH CIVIL CODE, VOL. XI, PP.
262-264.)
• IN DELUAO V. CASTEEL, 26 SCRA 475 (1968), THE COURT HELD THAT A CONTRACT OF
PARTNERSHIP THAT SOUGHT TO DIVIDE BETWEEN THE TWO PARTNERS-APPLICANTS THE
FISHPOND IN CONTRAVENTION OF THE PROHIBITORY PROVISIONS OF LAW WAS DEEMED
DISSOLVED WHEN THE GOVERNMENT DID FINALLY ISSUE A FISHPOND PERMIT TO ONE OF THE
PARTNERS.
CONSIDERATION

• THE CONTRIBUTION OF CASH.


• PROPERTY OR SERVICE TO THE BUSINESS VENTURE AT HAND.
• 3. CAUSE OR CONSIDERATION: PROMISED CONTRIBUTIONS
• IN A CONTRACT OF PARTNERSHIP, IT IS HELD THAT THE CAUSE OR CONSIDERATION FOR EACH
PARTNER IS THE UNDERTAKING OF THE OTHER OR OTHERS TO CONTRIBUTE MONEY, PROPERTY
OR INDUSTRY TO A COMMON FUND (I.E., TO THE BUSINESS VENTURE). BEING ESSENTIALLY A
CONSENSUAL IS CHARACTERISTIC, A CONTRACT OF PARTNERSHIP IS PERFECTED BY THE
AGREEMENT BY THE PARTNERS TO MAKE SUCH CONTRIBUTION (I.E., BY THE ASSUMPTION OF
THE OBLIGATION TO CONTRIBUTE OR TO RENDER SERVICE).
• THE ESSENCE OF THE ELEMENT OF CAUSE OR CONSIDERATION IN EVERY CONTRACT OF
PARTNERSHIP IS EMPHASIZED IN:
• (A) ARTICLE 1786, WHICH DECLARES EVERY PARTNER TO BE A DEBTOR OF THE PARTNERSHIP FOR WHATEVER HE
MAY HAVE PROMISED TO CONTRIBUTE;
• (B) ARTICLE 1787, WHICH MAKES A PARTNER LIABLE FOR INTEREST AND DAMAGES FOR FAILING TO
CONTRIBUTE THE SUM OF MONEY HE WAS BOUND TO PAY UNDER THE ARTICLES OF PARTNERSHIP;
• (C) ARTICLE 1789, WHICH PROHIBITS AN INDUSTRIAL PARTNER FROM ENGAGING IN BUSINESS FOR HIMSELF,
SINCE HE BOUND HIMSELF TO CONTRIBUTE SERVICE TO THE PARTNERSHIP;
• (D) ARTICLE 1790, WHICH PRESUMES AN OBLIGATION TO CONTRIBUTE EQUAL SHARES AMONG THE PARTNERS
WHEN THERE IS NO STIPULATION AS TO MANNER AND AMOUNT OF CONTRIBUTION; AND
• (E) ARTICLE 1830(4), WHICH DECREES THE DISSOLUTION OF A PARTNERSHIP WHEN THE SPECIFIC THING,
WHICH A PARTNER HAD PROMISED TO CONTRIBUTE TO THE PARTNERSHIP, PERISHES BEFORE THE DELIVERY.
• CITY OF MANILA V. CUMBE, 13 PHIL. 677 (1909), HELD THAT “CREDIT”, SUCH AS A PROMISSORY NOTE OR
OTHER EVIDENCE OF OBLIGATION, OR EVEN A MERE GOODWILL, MAY BE VALIDLY CONTRIBUTED INTO THE
PARTNERSHIP. IN OTHER WORDS, IF SERVICE IS A VALID CONTRIBUTION TO THE COMMON FUND, THEN MORE
SO WHEN IT COMES TO INTANGIBLE THINGS, RIGHTS AND CHOOSES IN ACTION
CLASSES OF CORPORATIONS

• ART. 1783. A PARTICULAR PARTNERSHIP HAS FOR ITS OBJECT DETERMINATE THINGS, THEIR USE OR FRUITS, OR SPECIFIC UNDERTAKING, OR THE EXERCISE OF A
PROFESSION OR VOCATION. (1678)

• ART. 1782. PERSONS WHO ARE PROHIBITED FROM GIVEN EACH OTHER ANY DONATION OR ADVANTAGE CANNOT ENTER INTO UNIVERSAL PARTNERSHIP (1677)

• ART. 1781. ARTICLES OF UNIVERSAL PARTNERSHIP, ENTERED INTO WITHOUT SPECIFICATION OF ITS NATURE, ONLY CONSTITUTE A UNIVERSAL PARTNERSHIP OF
PROFITS. (1676)

• MOVABLE OR IMMOVABLE PROPERTY WHICH EACH OF THE PARTNERS MAY POSSES 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. 1780. A UNIVERSAL PARTNERSHIP OF PROFITS COMPRISES ALL THAT THE PARTNERS MAY ACQUIRE BY THEIR INDUSTRY OR WORK DURING THE EXISTENCE OF
THE PARTNERSHIP.

• 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. 1779. IN A UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY, THE PROPERTY WHICH BELONGED 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.
• 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. 1777. A UNIVERSAL PARTNERSHIP MAY REFER TO ALL THE PRESENT PROPERTY OR TO
ALL THE PROFITS. (1672) AS REGARDS THE LIABILITY OF THE PARTNERS, A PARTNERSHIP
MAY BE GENERAL OR LIMITED. (1671A)
ART. 1776. AS TO ITS OBJECT, A PARTNERSHIP IS EITHER UNIVERSAL OR PARTICULAR.
• OTHER THAN THE GENERAL AND LIMITED PARTNERS THAT HAVE BEEN PREVIOUSLY DISCUSSED, THERE ARE TWO KINDS OF PARTNERS WHEN IT COMES TO THE NATURE OF
THEIR CONTRIBUTIONS: CAPITALIST PARTNER AND INDUSTRIAL PARTNER.

• A CAPITALIST PARTNER CONTRIBUTES MONEY AND/OR PROPERTY TO THE PARTNERSHIP, WHILE AN INDUSTRIAL PARTNER CONTRIBUTES ONLY HIS INDUSTRY OR HIS
SERVICE. THE LAW DOES NOT SPECIFY THE KIND OF INDUSTRY THAT A PARTNER MAY CONTRIBUTE INTO THE PARTNERSHIP. (EVANGELISTA & CO. V. ABAD SANTOS, 51 SCRA
416 [1973]).

• THE IMPORTANCE OF SUCH DISTINCTION IS ESSENTIALLY ON THE NATURE OF THE OBLIGATIONS AND LIABILITIES THAT THEY MUST ASSUME:

• (A) THE CAPITALIST PARTNER IS LIABLE FOR THE LOSSES SUSTAINED BY THE BUSINESS AND ANY STIPULATION TO THE CONTRARY WOULD BE VOID (ARTICLES 1791, 1797,
AND 1799, CIVIL CODE); WHEREAS, THE INDUSTRIAL PARTNER IS NOT LIABLE FOR LOSSES OF THE PARTNERSHIP VENTURE (ARTICLE 1797, CIVIL CODE);

• (B) THE CAPITALIST PARTNER MAY NOT ENGAGE ON IN BUSINESS WHICH ARE COMPETING WITH THAT OF THE PARTNERSHIP BUSINESS (ARTICLE 1808, CIVIL CODE);
WHEREAS, THE INDUSTRIAL PARTNER CANNOT ENGAGE IN ANY OTHER BUSINESS AT ALL DURING HIS TENURE AS INDUSTRIAL PARTNER (ARTICLE 1789, CIVIL CODE); AND

• (C) WHEREAS A CAPITALIST PARTNER IS BOUND TO MAKE ADDITIONAL CONTRIBUTIONS TO THE PARTNERSHIP IN CASE OF AN IMMINENT LOSS OF THE BUSINESS OF THE
PARTNERSHIP, THE INDUSTRIAL PARTNER HAS NO SUCH OBLIGATION. (ARTICLE 1791, CIVIL CODE)

• PARTNERSHIP LAW ALSO DISTINGUISHES BETWEEN THE LIABILITIES ASSUMED BY AN ORIGINAL PARTNER WHO IS WITH THE PARTNERSHIP AT THE TIME OF ITS
CONSTITUTION, AND SUBSEQUENT OR INCOMING PARTNERS, WHO COME DURING THE LIFE OF A PRE-EXISTING PARTNERSHIP. IN THE

• CASE OF AN INCOMING PARTNER, HIS LIABILITY WITH RESPECT TO THE PARTNERSHIP OBLIGATIONS WHICH WERE INCURRED PRIOR TO HIS ADMISSION INTO THE
PARTNERSHIP SHALL BE SATISFIED ONLY OUT OF PARTNERSHIP PROPERTY, UNLESS IT IS OTHERWISE STIPULATED. (ARTICLES 1826 AND 1840, CIVIL CODE).

• PARTNERSHIP LAW ALSO REFERS TO THE MANAGING PARTNER WHO HAS BEEN GIVEN THE MANAGEMENT OF THE PARTNERSHIP ENTERPRISE (ARTICLES 1800 AND 1801,
CIVIL CODE); THE LIQUIDATING PARTNER, WHO TAKES CHARGE OF THE LIQUIDATION AND WINDING-UP OF PARTNERSHIP AFFAIRS (ARTICLE 1836, CIVIL CODE); A RETIRING
PARTNER, WHO CEASES TO BE PART OF THE PARTNERSHIP WHICH IS CONTINUED AFTER DISSOLUTION, AS COMPARED WITH THE PARTNERS WHO REMAIN WITH THE
VENTURE AS CONTINUING PARTNERS (ARTICLES 1837, 1839, 1840 AND 1841, CIVIL CODE); AND THE PARTNER BY ESTOPPEL, WHO IS NOT A FORMAL PARTNER IN AN
EXISTING PARTNERSHIP, BUT BY HIS ACT HE HAS LED THIRD-PARTIES DEALING WITH THE PARTNERSHIP TO BELIEVE HE IS A PARTNER, AND THEREBY BECOMES LIABLE AS A
REGULAR PARTNER AS SO SUCH RELYING CREDITORS (ARTICLE 1815, CIVIL CODE).