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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y.

2017-2018)

himself claims his share to be 6%, as stated in the Acknowledgement of


TITLE IX Participating Capital. However, petitioner fails to realize that this document
PARTNERSHIP specifically enumerated the businesses covered by the partnership: Manila
Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
CHAPTER 1 Cotabato City. Since there was a clear agreement that the capital the
General Provisions partners contributed went to the three businesses, then there is no reason
Article 1767. By the contract of partnership two or more persons bind to deviate from such agreement and go beyond the stipulations in the
themselves to contribute money, property, or industry to a common fund, document. There is no evidence that the subject real properties were
with the intention of dividing the profits among themselves. Two or more assets of the partnership referred to in the Acknowledgement of
persons may also form a partnership for the exercise of a profession. Participating Capital.

PARTNERSHIP theres a good discussion in this particular case regarding the difference
it is a CONTRACT whereby two or more persons between co-ownership and partnership
(1) bind themselves to CONTRIBUTE money, property, or industry to a
COMMON FUND There is a co-ownership when an undivided thing or right belongs to
(2) with the intention of dividing the PROFITS among themselves or in different persons. It is a partnership when two or more persons bind
order to EXERCISE a PROFESSION1 themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves. With
Characteristics of Partnership. partnership, it is necessary that there is co-ownership because in
(1) Consensual, because it is perfected by mere consent, that is, upon partnership, everyone has a say in the manamanget.
the express or implied agreement of two or more persons;
(2) Nominate, because it has a special name or designation in our SY VS CA
law;2 ISSUE: Whether Sahot is an industrial partner
(3) Bilateral, because it is entered into by two or more persons and
the rights and obligations arising therefrom are always reciprocal; HELD: No written agreement exists to prove the partnership between the
(4) Onerous, because each of the parties aspires to procure for parties. Private respondent did not contribute money, property or industry
himself a benefit through the giving of something; for the purpose of engaging in the supposed business. There is no proof that
(5) Commutative, because the undertaking of each of the partners is he was receiving a share in the profits as a matter of course, during the
considered as the equivalent of that of the others; period when the trucking business was under operation. Neither is there any
(6) Principal, because it does not depend for its existence or validity proof that he had actively participated in the management, administration
upon some other contracts; and and adoption of policies of the business. Private respondent Jaime Sahot
(7) Preparatory, because it is entered into as a means to an end, i.e., was not an industrial partner but an employee of petitioners from 1958 to
to engage in business or specific venture for the realization of 1994.
profits with the view of dividing them among the contracting
parties. It is important to allege that Sahot is an industrial partner and not an
employee to escape liability in the illegal dismissal case since a partner
Again, an example of an end to a contact of partnership is when you execute would be considered as owner of the business.
a contract of sale. The end goal of partnership is the realization of profits. Go
back to the provision. Ano ba ang end ng contract of partnership? two or SALARY VS PROFITS
more persons bind themselves to contribute money, property, or industry to a Receiving a salary whether the business is operating at a loss, you will get a
common fund, with the intention of dividing the profits among themselves. So salary. Whereas, a partner in such a case, would not receive any profit from
they enter into an agreement, ang purpose non is to divide profits. That is the operations of the business.
the nature of the contract of partnership.
Now, as you can see in labor cases where it is alleged na partner yung
JARANTILLA vs JARANTILLA employee, there is a difference between receiving a salary vs receiving a
(Case Digest: Ana Lapu) 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.
FACTS: Antonieta claimed that in 1946, she had entered into an agreement
with the defendants to engage in business through the execution of a
document denominated as "Acknowledgement of Participating Capital. TORRES VS CA
Antonieta also alleged that she had helped in the management of the HELD:
business they co-owned without receiving any salary. Antonieta further 1. Main Issue: Existence of a Partnership
claimed co-ownership of certain properties (the subject real properties) in A reading of the terms embodied in the Agreement indubitably shows the
the name of the defendants since the only way the defendants could have existence of a partnership
purchased these properties were through the partnership as they had no Under the Agreement between petitioners and respondent, petitioners
other source of income. The respondents did not deny the existence and would contribute property to the partnership in the form of land which was
validity of the "Acknowledgement of Participating Capital" and in fact used to be developed into a subdivision; while respondent would give, in addition
this as evidence to support their claim that Antonietas 8% share was limited to his industry, the amount needed for general expenses and other costs.
to the businesses enumerated therein. The respondents denied using the Furthermore, the income from the said project would be divided according
partnerships income to purchase the subject real properties. to the stipulated percentage. Clearly, the contract manifested the intention
of the parties to form a partnership. Under Article 1767 of the Civil Code, a
ISSUE: Whether or not the partnership subject of the Acknowledgement of partner may contribute not only money or property, but also industry.
Participating Capital funded the subject real properties.

HELD: Under Article 1767 of the Civil Code, there are two essential elements Courts ruling as to the liability of the parties:
in a contract of partnership: (a) an agreement to contribute money, property Claiming that respondent was solely responsible for the failure of the
or industry to a common fund; and (b) intent to divide the profits among the subdivision project, petitioners maintain that he should be made to pay
contracting parties. The first element is undoubtedly present in the case at damages equivalent to 60 percent of the value of the property, which was
bar, for, admittedly, all the parties in this case have agreed to, and did, their share in the profits under the Joint Venture Agreement.
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 We are not persuaded. True, the Court of Appeals held that petitioners acts
in this case have agreed to contribute capital to a common fund to be able to were not the cause of the failure of the project. [16] But it also ruled that
later on share its profits. They have admitted this fact, agreed to its veracity, neither was respondent responsible therefor. [17] In imputing the blame
and even submitted one common documentary evidence to prove such solely to him, petitioners failed to give any reason why we should disregard
partnership - the Acknowledgement of Participating Capital. The petitioner 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
1
constitutes one of the exceptions to this doctrine. [18] Accordingly, we find
General Professional Partnership
2 no reversible error in the CA's ruling that petitioners are not entitled to
It is important to know that it is a nominate contract because meron siyang specific
provisions provided under the law. Again, pag nominate ang contract, di ka na dun sa damages.
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)

LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES So this is an exceptional case where the SC stretched the definition of
partnership.
ISSUE: W/N a partnership exists between Chua, Yao and Lim Tong Lim

HELD: Yes. In their Compromise Agreement, they subsequently revealed PHILEX MINING CORP VS CIR
their intention to pay the loan with the proceeds of the sale of the boats, and The strongest indication that petitioner was a partner in the Sto Nio mine is
to divide equally among them the excess or loss. These boats, the purchase the fact that it would receive 50% of the net profits as compensation under
and the repair of which were financed with borrowed money, fell under the paragraph 12 of the agreement. The entirety of the parties contractual
term "common fund" under Article 1767. The contribution to such fund stipulations simply leads to no other conclusion than that petitioners
need not be cash or fixed assets; it could be an intangible like credit or compensation is actually its share in the income of the joint venture.
industry. That the parties agreed that any loss or profit from the sale and Article 1769 (4) of the Civil Code explicitly provides that the receipt by a
operation of the boats would be divided equally among them also shows that person of a share in the profits of a business is prima facie evidence that he is
they had indeed formed a partnership. a partner in the business. Petitioner asserts, however, that no such inference
can be drawn against it since its share in the profits of the Sto. Nio project
The partnership extended not only to the purchase of the boat, but also to was in the nature of compensation or wages of an employee, under the
that of the nets and the floats. The fishing nets and the floats, both essential exception provided in Article 1769 (4) (b).
to fishing, were obviously acquired in furtherance of their business. On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid wages pursuant to an employer-
Lim Tong Lim's argument that he was merely the lessor of the boats to Chua employee relationship. To begin with, petitioner was the manager of the
and Yao, not a partner in the fishing venture is erroneous. His consent to the project and had put substantial sums into the venture in order to ensure its
sale proved that there was a preexisting partnership among all three. It is viability and profitability. By pegging its compensation to profits, petitioner
unreasonable for petitioner to sell his property to pay a debt he did not also stood not to be remunerated in case the mine had no income. It is hard
incur, if the relationship among the three of them was merely that of lessor- to believe that petitioner would take the risk of not being paid at all for its
lessee, instead of partners. services, if it were truly just an ordinary employee.
Consequently, we find that petitioners compensation under paragraph 12
It is true that petitioner did not directly act on behalf of the corporation. of the agreement actually constitutes its share in the net profits of the
However, having reaped the benefits of the contract entered into by persons partnership. Indeed, petitioner would not be entitled to an equal share in
with whom he previously had an existing relationship, he is deemed to be the income of the mine if it were just an employee of Baguio Gold. It is not
part of said association and is covered by the scope of the doctrine of surprising that petitioner was to receive a 50% share in the net profits,
corporation by estoppel. considering that the Power of Attorney also provided for an almost equal
contribution of the parties to the St. Nino mine. The compensation agreed
upon only serves to reinforce the notion that the parties relations were
A partnership may be deemed to exist among partners who agree to borrow indeed of partners and not employer-employee.
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 There was a contribution of services/industry on the part of Petitioner to
their credit line. 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
How do you determine intention to form a partnership? By the parties agreement, it provided for the 50/50 sharing of the profits of the Sto Nino
contemporaneous and subsequent acts. Because in this particular case, mines and that provision indicates that they intended a partnership.
merong 9 circumstances wherein the SC laid down the reasons why there is a
contract of partnership. The good discussion of this particular case is the definition of a joint venture.

AFISCO INSURANCE CORP vs CA 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
FACTS: Petitioners argue that the reinsurance policies were written by contract of partnership, two or more persons bind themselves to contribute
them individually and separately, and that their liability was limited to money, property, or industry to a common fund, with the intention of
the extent of their allocated share in the original risks thus reinsured. dividing the profits among themselves. While a corporation, like petitioner,
Hence, the pool did not act or earn income as a reinsurer. Its role was cannot generally enter into a contract of partnership unless authorized by
limited to its principal function of allocating and distributing the risk(s) law or its charter, it has been held that it may enter into a joint venture
arising from the original insurance among the signatories to the treaty or which is akin to a particular partnership:
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, The legal concept of a joint venture is of common law origin. It has no precise
maintenance, collection and custody of funds, etc. legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. It is in fact hardly
HELD: distinguishable from the partnership, since their elements are similar
Pool Agreement or an association that would handle all the insurance community of interest in the business, sharing of profits and losses, and a
businesses covered under their quota-share reinsurance treaty and surplus mutual right of control. The main distinction cited by most opinions in
reinsurance treaty with Munich may be considered a partnership because it common law jurisdictions is that the partnership contemplates a general
contains the following elements: business with some degree of continuity, while the joint venture is formed
(1) The pool has a common fund, consisting of money and other valuables for the execution of a single transaction, and is thus of a temporary nature.
that are deposited in the name and credit of the pool. This common fund This observation is not entirely accurate in this jurisdiction, since under the
pays for the administration and operation expenses of the pool. Civil Code, a partnership may be particular or universal, and a particular
(2) The pool functions through an executive board, which resembles the partnership may have for its object a specific undertaking.It would seem
board of directors of a corporation, composed of one representative for therefore that under Philippine law, a joint venture is a form of partnership
each of the ceding companies. and should be governed by the law of partnerships. The Supreme Court has
(3) While, the pool itself is not a reinsurer and does not issue any policies; however recognized a distinction between these two business forms, and has
its work is indispensable, beneficial and economically useful to the business held that although a corporation cannot enter into a partnership contract, it
of the ceding companies and Munich, because without it they would not may however engage in a joint venture with others.
have received their premiums pursuant to the agreement with Munich.
Profit motive or business is, therefore, the primordial reason for the So this is very common na isa yung may-ari ng property tapos yung isa yung
pools formation. 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
This particular case is very different. There is no express agreement that mixed na tayo eh, and when you try to look at the provision, there is what we
theyre going to share profits. But the SC said ang purpose naman ng call a partnership which well discuss thoroughly next meeting.
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 Article 1767 xxx Two or more persons may also form a partnership for the
ngayon ganito may partnership, wala naming express agreement. In fact, the exercise of a profession
pooling of the insurers was because of a treaty na kailangan nilang gawin.

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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

The last paragraph of Article 1767: Pinaka-common example is a lawfirm. A for failure to state a cause of action, as in the case at bar.
lawfirm is a partnership.
Under Art. 1768 of the Civil Code, a partnership has a juridical personality
Definition of partnership for the practice of law. separate and distinct from that of each of the partners. The partners
It is a mere association for non-business purpose. The right to practice law is cannot be held liable for the obligations of the partnership unless it is
not a constitutional right but a privilege of franchise that is why you have to shown that the legal fiction of a different juridical personality is being used
take the Bar. It cannot be likened to partnerships formed by other for fraudulent, unfair, or illegal purposes. In this case, Felicidad has not
professionals for business. It does not form for the purpose of carrying on shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being
trade or business or upholding property. As distinguished from business, it is used for fraudulent, unfair, or illegal purposes. Moreover, the title to the
intimately and peculiarly related to the administration of justice. It is subject property is in the name of A.C. Aguila & Sons, Co. It is the
fiduciary in nature. partnership, not its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A violation of this rule
Characteristics of Partnership for the Practice of Law: will result in the dismissal of the complaint.
1.) Duty of public service;
2.) In relation as an officer of the court: administration of justice; Application of the Doctrine of Piercing the Veil of Separate Juridical Fiction
3.) In relation to clients: highly fiduciary; The doctrine of piercing the veil of corporate fiction finds relevance in
4.) In relation to colleagues at the Bar: characterized by candor and Corporate Law because it is the means by which to by-pass the effects of the
fairness. doctrine of limited liability, and through piercing, acting stockholders
and/or officers may be held personally liable for corporate debts.
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. In spite of the partnership being accorded also a separate juridical
partnership, the piercing doctrine has less application in Partnership Law
General Rule: Any person who is capable of entering into contractual because the partners are unlimitedly liable (i.e., personally liable with their
relations may be a partner. separate properties) for partnership debts. And yet, the doctrine found
Exception: application to partnerships in Commissioner of Internal Revenue v. Suter, 27
1.) Minors; SCRA 152 (1969), where the Court addressed the legal position of the Tax
2.) Insane or demented persons; Commissioner seeking to make the individual partners liable for income tax
3.) Deaf-mutes who do not know how to write; for the income earned by the limited partnership, thus:
4.) Persons who are suffering from civil interdiction;
5.) Incompetents who are under guardianship;
It being a basic tenet of the Spanish and Philippine law that the partnership
6.) Persons who are prohibited from giving to each other any donation
has a juridical personality of its own, distinct and separate from that of its
cannot enter into a universal partnership (i.e. spouses and common-law
partners (unlike American and English law that does not recognize such
spouse).
separate juridical personality). The bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding clear
Can a partnership enter into a contract of partnership with another
statutory mandates and basic principles of our law. The limited partnerships
partnership? As a general rule, yes. Partnerships can enter into a contract of
separate individuality makes it impossible to equate its income with that of
partnership with a partnership.
the component members. . . (Ibid, at pp. 158-157.). . . In the cited cases, the
corporations were already subject to tax when the fiction of their corporate
Can a corporation enter into a contract of partnership?As a general rule, no.
personality was pierced; in the present case, to do so would exempt the
There are exceptions which will be explained later.
limited partnership from income taxation but would throw the tax burden
upon the partners-spouses in their individual capacities. The corporations, in
Article 1768: The partnership has a juridical personality separate and distinct
the cases cited, merely served as business conduits or alter egos of the
from that of each of the partners, even in case of failure to comply with the
stockholders, a factor that justified a disregard of their corporate
requirements of Article 1772 first paragraph.
personalities for tax purposes. This is not true in the present case. Here, the
limited partnership is not a mere business conduit of the partner- spouses; it
What do we mean when we say that a partnership has a juridical personality
was organized for legitimate business purposes; it conducted its own
separate and distinct from that of each partner? Your basis of that is Article
dealings with its customers prior to appellees marriage; and had been filing
46.
its own income tax returns as such independent entity. . . . As far as the
records show, the partners did not enter into matrimony and thereafter buy
Article 46: Juridical persons may acquire and possess property of all kinds, as the interests of the remaining partner with the premeditated scheme or
well as incur obligations and bring civil or criminal actions, in conformity with design to use the partnership as a business conduit to dodge the tax laws.
the laws and regulations of their organization. Regularity, not otherwise, is presumed. (at p. 159.)

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 In other words, Suter holds that when the facts show that the juridical
a flip-flopping decision: Sinabing wala kasi wala namang nervous system si personality of the partnership is but a means to evade the law or a sham,
corporation. Afterwards, sinabing pwede, kasi may reputation naman ang then the courts will pierce the veil of its separate juridical personality to treat
corporation. the partners as directly liable or accountable for the consequences of the
acts or contracts done in the partnership name.
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 The piercing doctrine also found recognition, albeit by way of obiter,
anguish, wala naman. The crux of moral damages is not only sleepless nights inAguila, Jr. v. Court of Appeals, 319 SCRA 246 (1999), but only in the limited
but also besmirched reputation. area of determining standing in a suit brought against claims pertaining to
the partnership. In Aguila, Jr. the complaint was filed against the partners
As an independent juridical person, a partnership may: and officers to enforce essentially a partnership obligation. the Court held
enter into contracts;
acquire and possess properties of all kinds in its firm name;
Under Art. 1768 of the Civil Code, a partnership has a juridical personality
incur obligations;
separate and distinct from that of each of the partners. The partners cannot
bring civil and criminal actions;
be held liable for the obligations of the partnership unless it is shown that
be declared insolvent even if partners are not;
the legal fiction of a different juridical personality is being used for
enter into contracts and may sue and be sued in its firm name or its fraudulent, unfair, or illegal purposes. In this case, private respondent has
duly authorized representative. 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
AGUILA VS CA subject property is in the name of A.C. Aguila & Sons, Co. and the
the civil case was filed not against the real party in interest. As pointed out by Memorandum of Agreement was executed between private respondent with
Aguila, he is not the real party in interest but rather it was the partnership the consent of her late husband, and A.C. Aguila & Sons, Co., represented by
A.C. Aguila & Sons, Co. The Rules of Court provide that every action must petitioner. Hence, it is the partnership, not its officers, or agents, which
be prosecuted and defended in the name of the real party in interest. A should be impleaded in any litigation involving property registered in its
real party in interest is one who would be benefited or injured by the name. A violation of this rule will result to dismissal of the complaint.
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

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From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

Partnership as a Business Enterprise.Again, a growing concern, element of partnership, whether such co-owners or co-possessors do or do
habituality.As youve learned in PHILEX MINING VS CIR, sinabing particular not share any profits made by the use of the property;
ang purpose ng joint venture. However, in partnership law, we have what we (3) The sharing of gross returns do not of itself establish a
call particular partnership, kung saan, particular yung purpose. In effect, the partnership, whether or not the persons sharing them have a joint
law that governs joint venture is the law on partnership kasi meron tayong or common right or interest in any property from which the
provision on particular partnership. Pero generally, a partnership has an returns are derived;
element of habituality. Hindi pwedemag-create ng partnership for one (4) The receipt by a person of a share of the profits of a business is
purpose lang, for one transaction lang.Mag-create ka ng partnership kasi prima facie evidence that he is a partner in the business, but no
may going concern siya. such inference shall be drawn if such profits were received in
payment:
(a) As a debt by installments or otherwise;
VILLAREAL VS RAMIREZ (b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
ISSUE: W/N petitioners are liable to respondents for the latters share in the partner;
partnership? (d) As interest on a loan, though the amount of payment very
with the profits of the business;
HELD: No. Respondents have no right to demand from petitioner the return (e) As the consideration for the sale of a goodwill of a business
of their equity share. As found by the court petitioners did not personally or other property by installments or otherwise.
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 Article 1769 provides for the rules to be applied in determining whether
contributed to the partnership, not to petitioners, it is the partnership that there is a partnership or not.
must refund the equity of the retiring partners. However, before the partners OBILLOS VS CIR
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 FACTS: four brothers and sisters acquired lots with the original purpose to
all the partnership assets will have been liquidated and all partnership divide the lots among themselves for residential purposes; when later they
creditors have been paid. CAs computation of the amount to be refunded to found it not feasible to build their residences thereon because of the high
respondents as their share was thus erroneous. cost of construction, they decided to resell the properties to dissolve the co-
ownership. HELD: The Court ruled that no partnership was constituted
among the siblings, since the original intention was merely to collectively
purchase the lots and eventually to partition them among themselves to
build their residences; and that in fact they had no choice but to resell the
Equity interest (means) as a partner, you absorb all the losses and you gain same to dissolve the co-ownership. Article 1769(3) of the Civil Code provides
also all the profits. For me, that is a very good case showing that partners that "the sharing of gross returns does not of itself establish a partnership,
are equity holders xxx The recognition of the inherent relationship between whether or not the persons sharing them have a joint or common right or
and among the partners to be bound by the results of operations from the interest in any property from which the returns are derived". There must be
business enterprise has been well-explained by the Court in Villareal v. an unmistakable intention to form a partnership or joint venture. In this case,
Ramirez, 406 SCRA 145 (2003), thus: 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
First, it seems that the appellate court was under the misapprehension that there could not have been any partnership, but merely a co-ownership,
the total capital contribution was equivalent to the gross assets to be since there was utter lack of intent to form a partnership or joint venture.
distributed to the partners at the time of the dissolution of the partnership.
We cannot sustain the underlying idea that the capital contribution at the Distinguish this from Gatchalian v. Collector of Internal Revenue, 67 Phil.
beginning of the partnership remains intact, unimpaired and available for 666 (1939), where fifteen people contributed money to buy a sweepstakes
distribution or return to the partners. Such idea is speculative, conjectural ticket with the intention to divide the prize which they may win, and in fact
and totally without factual or legal support. the ticket won third prize, the Court ruled that they had formed a
partnership which was subject to tax as a corporate taxpayer.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does not REYES VS CIR
remain static and unaffected by the changing fortunes of the business.
In the present case, the financial statements presented before the trial court In Reyes v. Commissioner of Internal Revenue, 24 SCRA 198 (1968), the
showed that the business had made meager profits. The partnership was Court found that where father and son purchased a lot and building and had
actually sustaining substantial losses, which consequently decreased the it administered by an administrator, and divided equally the net income,
capital of the partnership, consequently, the partnership capital was actually there was a partnership formed because profit was the original intention for
reduced. the common fund.

The original amount of P250,000 which they had invested could no longer be it is not a conclusive evidence to say that there is a partnership once there is
returned to them, because one third of the partnership properties at the habituality. If there is a contribution to a common fund and then there is a
time of dissolution did not amount to that much. 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
In fact, it is only from the partnership business enterprise level that we can parties is to establish a business. N.B Habituality is one of the determining
fully appreciate the concept that essentially the partners are owners of the factors of partnership.
business, or that they take the position of equity holders, as distinguished
from creditors who advance money to the partnership as debt holders. Under Article 1769(4), the receipt by a person of a share of the net profits of
Thus, it is an essential element to the existence of the partnership under a business is prima facie evidence that he is a partner in the business.
Article 1767 of the Civil Code, the obligation assumed by each partner to However, in the following cases, where there is legal and contractual basis
contribute money, property or industry to a common fund, which for the receipt of the profits other than as equity holder, there is no
essentially represents the business enterprise to be pursued, to thereby partnership constituted, thus:
assume the position of being owners or equity holders, and thereby to (a) As installment payments of debt and/or interests thereof;
be entitled to the profits made from the pursuit of the business enterprise, (b) As wages of an employee;
and logically to assume the risks connected with it, including absorbing the (c) As rentals paid to a landlord;
losses sustained. This critical position of equity holders of partners is (d) As annuity to a widow or representative of deceased partner;
confirmed under Article 1770 Civil Code which requires that a partnership (e) As consideration of sale of goodwill or other property.
must be established for the common benefit or interest of the partners,
which aptly describes their positions as owners of the partnership business
enterprise. BASTIDA VS MENZI

Article 1769: In determining whether a partnership exists, these rules shall despite the agreement that Bastida was to receive 35% of the profit from the
apply: business of mixing and distributing fertilizer registered in the name of Menzi
(1) Except as provided by Article 1825, persons who are not partners & Co., there was never any contract of partnership constituted between
as to each other are not partners as to third persons; them based on the following key elements:
(2) Co-ownership or co-possession does not of itself establish a (a) there was never any common fund created between the parties, since

4
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

the entire business as well as the expenses and disbursements for YULO vs YANG CHIAO SENG
operating it were entirely for the account of Menzi & Co.;
(b) there was no provision in the agreement for reimbursing Menzi & Co. in PETITIONER YULOS CONTENTION:
case there should be no profits at the end of the year; and That partnership exists between them, and Yang is obliged to give her share
(c) the fertilizer business was just one of the many lines of business of in the profits.
Menzi & Co., and there were no separate books and no separate bank
accounts kept for that particular line of business. The arrangement was RESPONDENT YANGS DEFENSE:
deemed to be one of employment, with Bastida contributing his That it was only a sublease; that the partnership was only adopted as a
services to manage the particular line of business of Menzi & Co subterfuge to circumvent the prohibition against sublease in the lease
contract between Yulo and the landowners.
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% ISSUE: WON partnership exists, thereby requiring Yang to give Yulos share in
of the net profits, would that lead to a conclusion that there was a the profits. (NO)
partnership?NO to both questions.
HELD: No partnership exists. It was a sublease contract.
The ff. facts belie her allegation of partnership:
HEIRS OF TANG ENG KEE VS CA a. Yulo did not furnish the supposed P20K capital;
b. She did not help or intervene in the management of the theatre;
Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never c. She never demanded any accounting of the expenses and
asked for an accounting. The essence of a partnership is that the partners earnings of the business (Were she really a partner, her first
share in the profits and losses. Each has the right to demand an accounting concern should have been to find out how the business was
as long as the partnership exists. Even if it can be speculated that a scenario progressing, whether the expenses were legitimate, whether the
wherein if excellent relations exist among the partners at the start of the earnings were correct, etc.)
business and all the partners are more interested in seeing the firm grow She only received her of P3K a month, which cannot be interpreted in any
rather than get immediate returns, a deferment of sharing in the profits is manner than a payment for the use of the premises which she had leased
perfectly plausible. But in the situation in the case at bar, the deferment, if from the owners.
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 Yulo demonstrates the principle that a contract of partnership is consensual
of a partnership which Kee never did. in nature and is constituted by the real meeting of the minds; such that even
when formal articles of partnership are drawn-up between the parties, when
The Supreme Court also noted: it fact the evidence shows that they never intended to enter into a
In determining whether a partnership exists, these rules shall apply: (1769) partnership, the article of partnership cannot create a partnership when in
DISPOSITIVE: There being no partnership, it follows that there is no fact there has never been a meeting of minds to constitute one.
dissolution,winding up or liquidation to speak of. Hence, the petition must
fail. 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
Q: Why is there no partnership in this case but only an employer-employee since Yulo failed to furnish the supposed P20,000 capital. Also, she did not
relationship? How about the fact that Tan Eng Kee lived in the compound furnish any help or intervention in the management of the theatre. It does
and this privilege is not given to the other employees, what did the SC say not appear that she has ever demanded from Yang any accounting of the
about it? expenses and earnings of the business. Were she really a partner, her first
A:The contention of the Heirs of Tan Eng Kee is that there was a partnership concern should have been to find out how the business was progressing,
since Tan Eng Kee were allowed to order stocks and he was enjoying a whether the expenses were legitimate, whether the earnings were correct,
privilege not granted to other ordinary employees. He also had a right to etc. She was absolutely silent with respect to any of the acts that a partner
supervise. The SC said that those circumstances alone are not sufficient to should have done; all that she did was to receive her share of P3,000 a
prove that there is a contract of partnership. The SC considered the month, which cannot be interpreted in any manner than a payment for the
relationship of Tan Eng Kee to the owner who was his brother. It all goes use of the premises which she had leased from the owners.
back to the intention.
N.B. The sharing of profits does not always mean there is a partnership. It
N.B. - Intention is a product of mind. And how do you determine intention? By could be a payment of lease rentals.
looking at the contemporaneous and subsequent acts.
ONA VS CIR
TOCAO VS CA
The business venture operated under Geminesse Enterprise did not result in Instead of distributing the estate among the heirs after the approval of the
an employer-employee relationship between petitioners and private project of partition, the properties remained under the mgt of Lorenzo who
respondent. While it is true that the receipt of a percentage of net profits used the same in business. As a result of which, their investments and
constitutes only prima facie evidence that the recipient is a partner in the properties steadily increased. From the moment the petitioners allowed
business,[25] the evidence in the case at bar controverts an employer- Lorenzo to use their inherited properties and the incomes from their
employee relationship between the parties. In the first place, private respective shares as a common fund in undertaking several business
respondent had a voice in the management of the affairs of the cookware ventures, with the intention of deriving profit from it and dividing the
distributorship,[26] including selection of people who would constitute the profit proportionally among themselves, such act was tantamount to
administrative staff and the sales force. Secondly, petitioner Tocaos actually contributing such incomes to a common fund and, in effect, they
admissions militate against an employer-employee relationship. She thereby formed an unregistered partnership within the purview of the
admitted that, like her who owned Geminesse Enterprise,[27]private provisions of the Tax Code.
respondent received only commissions and transportation and
representation allowances[28] and not a fixed salary. If indeed petitioner The Tax Court found that instead of actually distributing the estate of the
Tocao was private respondents employer, it is difficult to believe that they deceased among themselves pursuant to the project of partition, the heirs
shall receive the same income in the business. In a partnership, each partner allowed their properties to remain under the management of Oa and let
must share in the profits and losses of the venture, except that the industrial him use their shares as part of the common fund for their ventures, even as
partner shall not be liable for the losses.[31] As an industrial partner, private they paid corresponding income taxes on their respective shares.
respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.[32] 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
N.B. - Compare this case with Heirs of Tan Eng Kee. The relationship of the intervention of the other heirs, and, accordingly, he becomes liable
parties is significant 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.

5
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

Compare this case to the case of Obillos vs CIR. In that case, the siblings may contract in his own name with third persons, shall have no
inherited the land which was later found to be not good for residential so juridical personality, and shall be governed by the provisions relating
they sold it and they divided the profits among themselves Here, the land to co-ownership.
was inherited, then they sold it and then they invested the proceeds again.
See the difference? 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
Article 1770: A partnership must have a lawful object or purpose, and must meant to undertake a business or commercial venture that is
be established for the common benefit or interest of the partners. supposed to deal with the public at large so there is no purpose to
grant a separate juridical personality.
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 2.) Mutual agency.
of the Penal Code governing the confiscation of the instruments and effects
of a crime. Article 1803: When the manner of management has not been agreed
upon, the following rules shall be observed:
This provision reiterates 2 essential elements: (1) All the partners shall be considered agents and whatever
1.) Legality of the object; any one of them may do alone shall bind the partnership,
2.) Benefit or interest without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the
If nag-form kayo ng partnership for the purpose of, lets say, operating a others, make any important alteration in the immovable
drug den or magbenta ng shabu, of course it is unlawful. Ano ang property of the partnership. But if the refusal of consent
mangyayari, the contract is void ab initio and the partnership never existed by the other partners is manifestly prejudicial to the
in the eyes of the law. So the profits under Article 1770, shall be confiscated interest of the partnership, the courts intervention may
in favor of the government. The instruments, tools or proceeds of the crime, be sought.
shall also be forfeited in favor of the government.
3.) Delectus Personae (meaning, selection of persons). in accordance with
How about the capital contribution? Yung capital, ibalik pa rin sa partners the principle of delectus personae, one selects partners on the basis of their
unless it would fall under the instruments, tool or proceeds of the crime. personal qualifications and qualities which are solvency, ability, honesty and
trustworthiness, among others. It is for this reason that there is mutual
Attributes of Partnership: representation among partners so that the act of one is considered the act
1.) Consensual and responsibility of the others as well.
2.) Mutual Agency
3.) Delectus Personae 4.) Partners subject to unlimited liability. To distinguish from a corporation
4.) Partners have unlimited liability wherein a stockholder has a limited liability sa investments niya, sa
partnership, the creditor can actually go to the personal properties of the
1.) Consensual. partner, albeit, subsidiarily. So, in essence, unlimited yung kanyang liability.
Article 1771: A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in Partnership, distinguished from OTHER business media.
which case a public instrument shall be necessary. Joint Venture Partnership
limited to single though it may exist
Article 1772: Every contract of partnership having a capital of Three transaction and is for a single
thousand pesos or more, in money or property, shall appear in a not intended to transaction, usually
public instrument, which must be recorded in the Office of the pursue a continuous contemplates the
Securities and Exchange Commission.3 business undertaking of the
general and
Failure to comply with the requirements of the preceding paragraph continuous business
shall not affect the liability if the partnership and the members of a particular kind,
thereof to third persons. which is necessarily
involves a series of
Article 1773: A contract of partnership is void, whenever immovable transactions
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.4
But then again, under our law, we have what we call particular partnership (it
General Rule: A partnership is consensual, meaning it is perfected is a partnership for a specific project also.) So necessarily, when you read
by mere consent. your cases, ang ina-apply pa rin, the concepts and stipulations, is under the
Exception: law on partnership. Pero in different jurisdictions, meron talaga silang joint
1.) A capital of P3,000 or more shall appear in a public venture provisions.
instrument. (Note: The amount is outdated);
2.) Where immovable property or real rights are Partnership distinguished from Co-ownership.
contributed into the partnership; A Co-ownership constitutes merely a property relation whereby two or more
3.) Limited Partnership 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
Article 1774: Any immovable property or an interest therein may be pursue a business venture in common. Consequently, no separate juridical
acquired in the partnership name. Title so acquired can be conveyed personality arises from a purely co-ownership relationship.
only in the partnership name.5
Partnership distinguished from an Agency.
In a pure agency agreement, an agent is merely a legal extension of the
Article 1775: Associations and societies, whose articles are kept personality of the principal, and thereby under the complete control of the
secret among the members, and wherein any one of the members principal. Whereas, in a partnership, there is a mutual agency.Meaning, yung
agent, principal din siya nung kanyang ka-partner.

3 For Article 1772, the reason why it still has to be registered with the office of the Partnership distinguished from a Business Trust.
Securities and Exchange Commission, is for purposes of government monitoring. A business trust is constituted by deed of trust which is easier and less
Imagine the incidents of operating ng business, i.e. taxes. Hindi malalaman ng BIR sino expensive to constitute for it is not bounded by any legal requirements. The
yung operatingna business. So, it is for convenience.
creation of business trust does not give rise to a separate juridical personality
4 According to Villanueva, in Article 1773, real property is considered as constituting a
and is mainly governed by contractual doctrines and common-law principles
cornerstone of our economic life and that dealings therewith must be formal and on trust.
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 Partnership distinguished from Corporation.
Landtitles--the Mirror Principle A stockholder has a limited liability whereas a partners liability is unlimited.
5 This is an incidence of a partnership having a separate juridical personality.
So kung insolvent man si corporation, hindi na aabot sa kanya. Alam niyo

6
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

yung hotel, ang corporation niyan minsan 2 or 3.Ibayung management, ibang


corporation yung mga employees, iba rin yung property. ISSUE: Whether or not a partnership exists between the two parties - NO
HELD:
Does a defective incorporation process result into a partnership? The memorandum on its face, contains typewritten entries, personal in tone,
Again, look at the crux of partnership, it is the intention. Iba-iba ang but is unsigned and undated. As an unsigned document, there can be no
requirements ng corporationat ng partnership in such a way na pag-hindi na quibbling that it does not meet the public instrumentation requirements
push as a corporation, it does not necessarily mean na magiging partnership exacted under Article 1771 of the Civil Code. Moreover, being unsigned and
na siya. doubtless referring to a partnership involving more than P3,000.00 in money
or property, the memorandum cannot be presented for notarization, let
AGAD VS MABATO alone registered with the Securities and Exchange Commission (SEC), as
it is not the purpose clause of the articles of partnership or the designated called for under the Article 1772 of the Code. And inasmuch as the inventory
business to be engaged in, that determine whether there should be deemed requirement under the succeeding Article 1773 goes into the matter of
contributed immovable properties to the venture to trigger the application of validity when immovable property is contributed to the partnership, the next
Article 1773 of the Civil Code. The Court held in Agad that since the articles of logical point of inquiry turns on the nature of petitioners contribution, if any,
partnership indicated that the partners were going to contribute cash into to the supposed partnership.
the venture, then the fact that the partnership was expressly organized to
operate fishpond, did not necessarily mean that either a fishpond or a real Petitioner, in an obvious bid to evade the application of Article
right to any fishpond was contributed into the venture. Just because the 1773, argues that the immovables in question were not contributed, but
partnership venture owns or operates immovables does not mean it comes were acquired after the formation of the supposed partnership. Needless to
into the operation of Article 1773, as when such immovables were not stress, the Court cannot accord cogency to this specious argument. For, as
contributed by the partners but were purchased during the operations of earlier stated, petitioner himself admitted contributing his share in the
the partnership business. supposed shipping, movie theatres and realty development family businesses
Q: So in this case, the SC said that the purpose of partnership is to operate which already owned immovables even before the memorandum was
a fishpond, not to engage in the fishpond business. May difference ba? allegedly executed.
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 A partnership may be constituted in any form, save when
right thereto could become part of its assets. Meaning, at the time of the immovable property or real rights are contributed thereto or when the
constitution of the partnership, pag walang real property or real right that partnership has a capital of at least 3,000.00, in which case a public
was contributed, there is no need to follow Article 1773 even if along the instrument shall be necessary. And if only to stress what has repeatedly been
way, you will acquire real right or immovable. There is a difference between articulated, an inventory to be signed by the parties and attached to the
capital and assets. Capital, yan yung initial na contribution ng partners. public instrument is also indispensable to the validity of the partnership
Assets may include the capital contribution but not necessarily the entirety. whenever immovable property is contributed to it.
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 The SC further said that considering that the allegations in the complaint
distinction. Even if a real right or an immovable is acquired as asset, it does showed that petitioner contributed immovable properties to the alleged
not necessarily mean that it is part of the initial capital contribution. 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
TORRES VS CA said Memorandum is null and void for purposes of establishing the existence
of a valid contract of partnership.
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 Since here, the partnership was void; the action will not prosper because
the property contributed, because without its designation and description, there was no actionable document. In this case, the SC did not anymore
they cannot be subject to inscription in the Registry of Property, and their determine whether there are 3rd persons or none and it applied Article 1773
contribution cannot prejudice third persons. This will result in fraud to those as it is. This ruling is more in keeping with the law compared to the ruling in
who contract with the partnership in the belief in the efficacy of the guaranty the previous case.
in which the immovables may consist. Thus, the contract is declared void by
the law when no such inventory is made. 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
The case at bar does not involve third parties who may be prejudiced. property contributed to the partnership is not annotated/registered with
Second, petitioners themselves invoke the allegedly void contract as basis for the Registry of Property, it is equivalent to defrauding the persons who
their claim that respondent should pay them 60 percent of the value of the would transact with that particular property.
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 LIABILITY
not tolerate, much less approve, such practice. When you compare corporations to partnerships:
CORPORATIONS PARTNERSHIPS
In short, the alleged nullity of the partnership will not prevent courts from owners are stockholders Owners are partners
considering the Joint Venture Agreement an ordinary contract from which stockholders have limited liability in partners have unlimited liability like
the parties' rights and obligations to each other may be inferred and the sense that they can only be the sole proprietorship
enforced. liable for the corporations debts to
the extent of their capital
This is a very peculiar case because it appears that it runs contrary to the contribution in the form of stocks.
provision of Article 1773. The SC said that there was no contract of Ang nagpapa-lakad ng buong Why is that the case? Look at this,
partnership because there was a real property contributed but no inventory corporation are the Board of me as the sole owner, I can reap all
was made. Article 1773 was enacted primarily to protect third persons. Directors (BOD). Now, would it be the profits of the businesses. I
So it appears that Article 1773 is only applicable when it prejudices the right fair if the stockholders will have manage the businesses and I owned
of 3rd persons. But is it expressly written in the provision itself? Had it been unlimited liability when in fact they them. Essentially, kung malugi siya
the intention of the Congress to make the contract of partnership void only are not the one making decisions? dapat ako pud ang managot kay ako
when it prejudices the right of 3rd persons, they should have made it clear in raman nag-decide.
the provision. My point is, why did they make it clear in Article 1772 and not
in Article 1773?

But I think the SC ruled otherwise because of the 2nd reason which provides
that: Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.In short, the alleged Different classifications of partnership
nullity of the partnership will not prevent courts from considering the Joint
Venture Agreement an ordinary contract from which the parties rights and Art. 1776. As to its object, a partnership is either universal or
obligations to each other may be inferred and enforced. particular. As regards the liability of the partners, a partnership may
be general or limited. (1671a)

LITONJUA VS LITONJUA As to the extent of its subject matter.

7
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

(1) UNIVERSAL (b) Industrial partner or one who contributes only his industry or
a. UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY personal service;
which comprises the following: (c) General partner or one whose liability to third persons extends to
i. Property which belonged to each of the his separate property; he may be either a capitalist or industrial
partners at the time of the constitution of partner. He is also known as real partner;
the partnership (d) Limited partner or one whose liability to third persons is limited to
ii. Profits which they may acquire from all his capital contribution. He is also known as special partner. The
property contributed terms general partner and limited partner have relevance only
b. UNIVERSAL PARTNERSHIP OF PROFITS comprises all in a limited partnership;
that the partners may acquire by their industry or work (e) Managing partner or one who manages the affairs or business of
during the existence of partnership. the partnership; he may be appointed either in the articles of
(2) PARTICULAR which has for its objects: partnership or after the constitution of the partnership. He is also
a. Determinate things known as general or real partner;
b. Their use or fruits (f) Liquidating partner or one who takes charge of the winding up of
c. Specific undertaking partnership affairs upon dissolution;
d. Exercise of profession or vocation (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
As to liability of the partners partners themselves. He is also known as partner by implication or
(1) GENERAL one consisting of general partners who are liable pro nominal partner.The term quasi-partner is sometimes used;
rata and subsidiarily and sometimes solidarily with their separate (h) Continuing partner or one who continues the business of a
property for partnership debts; or partnership after it has been dissolved by reason of the admission
of a new partner, or the retirement, death, or expulsion of one or
(2) LIMITED one formed by two or more persons having as members more partners;
one or more general partners and one or more limited partners, (i) Surviving partner or one who remains after a partnership has been
the latter not being personally liable for the obligations of the dissolved by the death of any partner; and
partnership. (j) Subpartner or one who, not being a member of the partnership,
contracts with a partner with reference to the latters share in the
As to its duration partnership.
(1) PARTNERSHIP AT WILL or one in which no time is specified and is
not formed for a particular undertaking or venture and which may (2) Other classifications. They have also been classified into:
be terminated at anytime by mutual agreement of the partners, (a) Ostensible partner or one who takes active part and known to the
or by the will of any one partner alone; or one for a fixed term or public as a partner in the business, whether or not he has an
particular undertaking which is continued by the partners after actual interest in the firm. Thus, he may be an actual partner or a
the termination of such term or particular undertaking without nominal partner. If he is not actually a partner, he is subject to
express agreement or liability by the doctrine of estoppel;

(2) PARTNERSHIP WITH A FIXED TERM or one in which the term for (b) Secret partner or one who takes active part in the business but is
which the partnership is to exist is fixed or agreed upon or one not known to be a partner by outside parties nor held out as a
formed for a particular undertaking, and upon the expiration of partner by the other partners, although he participates in the
the term or completion of the particular enterprise, the profits and losses of the partnership. He is an actual partner. He is
partnership is dissolved, unless continued by the partners. also an active partner in the sense that he participates in the
management of the partnership affairs;
As to the legality of its existence
(1) DE JURE PARTNERSHIP or one which has complied with all the (c) Silent partner or one who does not take any active part in the
legal requirements for its establishment; or business although he may be known to be a partner. Thus, he
(2) DE FACTO PARTNERSHIP or one which has failed to comply with need not be a secret partner. If he withdraws from the
all the legal requirements for its establishment. partnership, he must give notice to those persons who do
business with the firm to escape liability in the future;
As to representation to others
(1) ORDINARY OR REAL PARTNERSHIP or one which actually exists (d) Dormant partner or one who does not take active part in the
among the partners and also as to third persons; 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
(2) OSTENSIBLE PARTNERSHIP OR PARTNERSHIP BY ESTOPPEL or a silent partner. He may retire from the partnership without
one which in reality is not a partnership, but is considered a giving notice and cannot be held liable for obligations of the firm
partnership only in relation to those who, by their conduct or subsequent to his withdrawal. His only interest in joining the
admission, are precluded to deny or disprove its existence. 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


As to publicity. the time of its organization;
1.) SECRET PARTNERSHIP or one wherein the existence of certain
persons as partners is not avowed or made known to the public (f) Incoming partner or a person lately, or about to be, taken into an
by any of the partners; or existing partnership as a member; and
2.) OPEN OR NOTORIOUS PARTNERSHIP or one whose existence is (g) Retiring partner or one withdrawn from the partnership; a
avowed or made known to the public by the members of the firm. withdrawing partner.

As to purpose. All partners in any of these six classes are subject to liability for all
(1) COMMERCIAL OR TRADING PARTNERSHIP or one formed for the partnership obligations.
transaction of business; or
(2) PROFESSIONAL OR NON-TRADING PARTNERSHIP or one formed
for the exercise of a profession. Art. 1777. A universal partnership may refer to all the present property or
to all the profits. (1672)
Kinds of partners
Partners are classified according to their interests in the partnership Art. 1778. A partnership of all present property is that in which the partners
business, or their obligations to the partnership, or their liabilities to third contribute all the property which actually belongs to them to a common
persons. fund, with the intention of dividing the same among themselves, as well as
all the profits which they may acquire therewith. (1673)
(1) Under the Civil Code. Partners are classified into:
(a) Capitalist partner or one who contributes money or property to the Art. 1779. In a universal partnership of all present property, the property
common fund; which belongs to each of the partners at the time of the constitution of the

8
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

partnership, becomes the common property of all the partners, as well as WILLIAM SUTER MORCOIN LTD. WAS NOT A GENERAL PARTNERSHIP BUT A
all the profits which they may acquire therewith. PARTICULAR PARTNERSHIP. HENCE, IT IS NOT A PROHIBITED PARTNERSHIP
ENTERED INTO BY THE SPOUSES CIR evidently failed to observe the fact that
A stipulation for the common enjoyment of any other profits may also be William J. Suter "Morcoin" Co., Ltd. was not auniversal partnership, but a
made; but the property which the partners may acquire subsequently by particular one. As appears from Articles 1674 and 1675 of the Spanish Civil
inheritance, legacy, or donation cannot be included in such stipulation, Code, of1889 (which was the law in force when the subject firm was
except the fruits thereof. (1674a) organized in 1947), a universal partnership requires either that the object of
the association be all the present property of the partners, as contributed by
Art. 1780. A universal partnership of profits comprises all that the partners them to thecommon fund, or else "all that the partners may acquire by their
may acquire by their industry or work during the existence of the industry or work during the existence of thepartnership". William J. Suter
partnership. "Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions ofthe partners were fixed sums of money, P20,000.00 by
Movable or immovable property which each of the partners may possess at William Suter and P18,000.00 by Julia Spirig and neitherone of them was an
the time of the celebration of the contract shall continue to pertain industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not
exclusively to each, only the usufruct passing to the partnership. (1675) a partnership that spouses were forbidden to enter by Article 1677 of the
Civil Code of 1889.
Art. 1781. Articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership of profits. CONTRIBUTIONS BY THE SPOUSES REMAINED AS THEIR SEPARATE
(1676) PROPERTIES EVEN AFTER MARRIAGE. Nor could the subsequent marriage of
the partners operate to dissolve it, such marriage not being one of thecauses
Again, in a UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY, what is provided for that purpose either by the Spanish Civil Code or the Code of
the common property? Commerce. The capital contributions of partners William J. Suter and Julia
1. Property which belongs to each of them at the time of the Spirig were separately owned and contributed by them before their
constitution of the partnership. marriage, and after they were joined in wedlock, such
2. The profits which they may acquire from the contributed contributionsremained their respective separate property under the Spanish
property. Civil Code (Article 1396): The following shall be the exclusive property of each
spouse:
How about future property? (a) That which is brought to the marriage as his or her own ....
Generally, it cannot be contributed. Future pa nga eh. Thats why inheritance
cannot be included.
Thus, the individual interest of each consort in William J. Suter "Morcoin"
In a UNIVERSAL PARTNERSHIP OF PROFITS, it is composed of all the property Co., Ltd. did not become commonproperty of both after their marriage in
that the partners may acquire by their industry or work during the existence 1948. It being a basic tenet of the Spanish and Philippine law that the
of the partnership. 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
Art. 1782. Persons who are prohibited from giving each other any donation such separate juridical personality), the bypassing of the existence of the
or advantage cannot enter into universal partnership. (1677)6 limited partnership as a taxpayer can only bedone by ignoring or disregarding
clear statutory mandates and basic principles of our law. The limited
Art. 1783. A particular partnership has for its object determinate things, partnership's separate individuality makes it impossible to equate its income
their use or fruits, or specific undertaking, or the exercise of a profession or with that of the component members.
vocation. (1678) True, section 24 of the Internal Revenue Code merges registered general co-
partnerships (compaiascolectivas)with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its
Art. 739 (Civil Code). The following donations shall be void: disregardof a cardinal tenet of our partnership laws, and can not be
(1) Those made between persons who were guilty of adultery or extended by mere implication to limited partnerships.
concubinage at the time of the donation;7

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

2. The property regime should be under the Family Code and not the
6 Donations between spouses during marriage are void except moderate gifts on partnership law in the Civil Code.
occasion of family rejoicing. This also applies to persons living together as husband and Can spouses governed by the absolute community property regime
wife without the benefit of marriage. vary the effects between them of certain community property by
contributing them into a particular partnership for gains? NO. Article
Why? Because there is a tendency that the one who is superior would exert undue
89 of the Family Code provides:
influence and force to compel the other one to donate.
No waiver of rights, shares and effects of the absolute community of
7 *Sir - no need for conviction. Only preponderance of evidence is required. property during the marriage can be made except in case of judicial
separation of property.

9
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

So nag-asawa kayo tapos eventually nag-create kayo ng partnership, 2. If it is a foreign corporation, it must obtain a license to
pag nagcontribute ka nagkakaroon ng co-ownership. So essentially, transact business in the country in accordance with the
youre varying the effects of the absolute community property which Corporation Code of the Philippines.
is not allowed under Article 89.
However, while a corporation has no power to enter into a partnership,
- How about in conjugal partnership of gains? You have Article 87 of nevertheless, it may validly enter into a joint venture agreement, where
the Family Code. It would be amending the property regime which the nature of that venture is in line with the business authorized by its
should violate Article 108 of the Family Code. charter.

- How about complete separation of property, may the spouses validly


enter into a contract of particular partnership? No, it would amount Obligations of the Partners
to donation contrary to Article 87. Relations created by the contract of partnership:
1.) Relations among the partners themselves;
3. A contract of partnership may offend Articles 76 and 77 of the Family 2.) Relation of the partners with the partnership;
Code and there will arise the issue on control and binding effects of 3.) Relation of the partnership with third persons;
the acts of partners. Its the co-administrators versus agents of 4.) Relation of partners with third persons.
partners. Article 76 and 77 states:
Art. 76. In order that any modification in the marriage settlements Partnership relationship is essentially one of mutual trust and confidence.
may be valid, it must be made before the celebration of the marriage, Each partner is a trustee and cestui que trust at the same time. He is
subject to the provisions of Articles 66, 67, 128, 135 and 136. 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
Art. 77. The marriage settlements and any modification thereof shall broad fiduciary relation.
be in writing, signed by the parties and executed before the
celebration of the marriage. They shall not prejudice third persons Article 1784: A partnership begins from the moment of the execution of
unless they are registered in the local civil registry where the marriage the contract, unless it is otherwise stipulated.
contract is recorded as well as in the proper registries of properties.
Can you have a contract of future partnership?
Again, under absolute community property and conjugal partnership Look at the article unless it is otherwise stipulated. So pwede ba mag-agree
of gains, the spouses are co-administrators. They are mutual agents kayo ngayon tapos sabihin ninyo in 3 months, doon tayo magstart.
with respect to the property they contributed to the partnership. Pwede?Pwede. That is what you call future partnership.
There is a difference between a co-administrators and co-agents of a
certain property. 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
How about partnership charges? juridical existence yet. But please take note of your statute of frauds, if
Remember in the Family Code, there is a rule of preference regarding within 1 year, it must be in some form, note or memorandum to be
charges of the property of the spouses. enforceable.

Villanueva said that spouses can only enter into professional Article 1785: When a partnership for a fix term or particular undertaking is
partnerships because this is allowed by Article 73 of the Family Code continued after the termination of such term or particular undertaking
which provides: without any express agreement, the rights and duties of the partners
Either spouse may exercise any legitimate profession, occupation, remain the same as they were at such termination, so far as is consistent
business or activity without the consent of the other. with a partnership at will.

What if this will come out in the Bar exams? How will you answer it? Can A continuation of the business by the partners or such of them as
the spouses validly enter into a particular partnership? You can answer that habitually acted therein during the term, without any settlement or
based on CIR vs Suter. It is not yet overturned. But for your answer to pop liquidation of the partnership affairs is prima facie evidence of a
out of the 5000 notebooks, you will discuss the Family Code. continuation of the partnership.

Why cant a Corporation be a partner? We enumerated the classification of partnership:


Generally, a corporation is not allowed to become a partner in a partnership. 1.) partnership at will; and
Let us say, C1 and C2 are corporations. Remember, a principle in corporation 2.) partnership for a fixed term.
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 If and when mag-expire ang partnership for a fix term or a particular
pag partner ka, may mutual agency? So in effect, everything that BOD1 will undertaking, then they continued, there is an implied agreement na wala
do, damay si BOD2 because of mutual agency. Will it not violate the principle naman silang dissolutionit can be considered as a partnership at will.
in corporation law that the authority of BOD is given only by the
corporations stockholders? Decision ni BOD1, damay si BOD2 when in fact A continuation of the business by the partners or such of them as habitually
the stockholders of C2 only authorized BOD2 to manage its affairs. acted thereon during the term without any settlement or liquidation of the
partnership affairs, is prima facie evidence of the continuation of the
So this is the evil sought to be prevented by prohibiting the corporation from partnership.
becoming a partner in a partnership. This is actually a concept in Anglo-
American. The Philippines adopted the jurisprudence of American courts in Article 1786: Every partner is a debtor of the partnership for whatever he
prohibiting the corporations. Now because of the *proliferation* of this na may have promised to contribute thereto.
sabi ng SEC parang unfair naman kung ipagbabawal, to prevent this scenario,
lets put conditions to allow a corporation to enter into a partnership. 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
So what are those conditions? We have SEC OGC Opinion No. 22-2016 dated partnership, in the same cases and in the same manner as the vendor is
October 4, 2016 which provides: bound with respect to the vendee. He shall also be liable for the fruits
The Commission has consistently opined that as a general rule, a thereof from the time they should have been delivered, without the need
corporation cannot enter into a contract of partnership with an of any demand.
individual or another corporation; however, it may be allowed to do so
provided it complies with certain conditions, to wit: PROMISED CONTRIBUTION
obligations of a partner with respect to the contribution of property:
1. The authority to enter into a partnership relation is (1) To contribute at the beginning of the partnership or at the
expressly conferred by the charter (Sir: meaning expressly stipulated time the money, property, or industry which he may
authorized by the owners. In effect, the owners are waiving have promised to contribute;
their right to question the effects of mutual agency) or the (2) To answer for eviction in case the partnership is deprived of the
articles of incorporation of the corporation, and the nature determinate property contributed8; and
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.

8 Note: Remember the requisites for eviction on your law on sales. It equally applies.
10
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

(3) To answer to the partnership for the fruits of the property the He is liable for interest and damages not from the time of judicial or extra-
contribution of which he delayed, from the date they should judicial demand. So this is an exception to the general rule in obligations and
have been contributed up to the time of actual delivery; 9 contracts. In the partners case, it is from the time he should have complied
(4) To preserve said property with the diligence of a good father of a his obligation or from the time he converted the amount to his own use.
family pending delivery to the partnership; and
(5) To indemnify the partnership for any damage caused to it by the Unless otherwise stipulated, obligation to contribute arises from the
retention of the same or by the delay in its contribution. commencement of the partnership.
Example: Kailangan na bumili ng equipment, hindi pa nadeliver
yung money na supposedly contribution. So since need na talaga In LIWANAG VS CA,even assuming that a contract of partnership has been
ang money, nagborrow. So ano ang damage nun? Yung interest. entered into by and between the parties, we have a rule that when money
So you can demand the: and property have been received by a partner for a specific purpose and he
a.) interest of the loan of the money borrowed; and later misappropriated it, such partner is guilty of estafa. Why? Because the
b.) interest doon sa money na dapat i-contribute. relationship of partners is based on mutual trust and confidence.Meron pa
So iba yung damage, iba yung interest, even if both naman sila din yung element ng trust, so maydeceit pa din, if you used it in a different
interest. way.

Failure to contribute makes the partner ipso jure a debtor of the Article 1789: An industrial partner cannot engage in business for himself,
partnership even in the absence of any demand. So what is your remedy in unless the partnership expressly permits him to do so; and if he should do
case hindi pa magco-contribute yung isang partner? 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
SANCHO vs LIZARAGA this provision, with a right to damages in either case.

DOCTRINE: So as you can see, an industrial partner, this is on the premise na dapat, since
When a partner fails to comply with his obligation to deliver what he industry ang icontribute mo, dapat focus ka sa business.
promised to contribute to the partnership, and there is no desire to
dissolve the partnership, the remedy that is available to the other partners The limitation is absolute: Cannot engage in business for himself, whether
cannot be rescission. The proper remedies would be to seek a collection of or not that business is related to the partnership.
the promised contribution, with recovery of interests and damages as
provided for in Articles 1786 and 1788, or ask for dissolution of the Unless the contrary is stipulated, he becomes a debtor of the partnership
partnership under Article 1831. 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
LIZARRAGAS FAILURE TO PAY THE PARTNERSHIP, HE BECAME INDEBTED industry.
TO IT. BUT SANCHO CANNOT DEMAND RESCISSION. Can you demand specific performance pag-industrial partner? No. It will be
The affirmation of the judgment appealed from is inevitable. In view ofthe tantamount to involuntary servitude. So, walang pilitan. Bayad ka na lang ng
lower courts findings referred to above, which we cannot revise because damages.
the parol evidence has not beenforwarded to this court, articles 1681 and
1682 of the Civil Code have been properly applied. What are your remedies should the industrial partner engage into
business? You have the right to either:
Owing to the defendants failure to pay to the partnership the whole 1.) Exclude him from the firm; or
amount which he bound himself to pay, he became indebted to it for the 2.) Avail themselves of the benefits which he may have obtained.
remainder, with interest and any damages occasioned thereby, but the
plaintiff did not thereby acquire the right to demand rescission of the Kunwari may isa siyang business, tapos profitable yun. Pwedeng sabihin ng
partnership contract according to article 1124 of the Code.This article capitalist partner na kung ano man ang profit mo doon, amin yun. I-avail niya
cannot be applied to the case in question, because it refers to the yung benefits 11ay u-receive ni industrial partner, with right to damages, for
resolution of obligations in general, whereas article 1681 and 1682 both instances. So either right or remedy, may right to damages.
specifically refer to the contract of partnership in particular. And it is a
well-knownprinciple that special provisions prevail over general provisions. Article 1790: Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership.
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 Kapag ba maliit lang yung gi-contribute mo, do you have a lesser voice in the
failed to contribute, (the remedy is) specific performance. management of the partnership. Lets say 10% lang ang gicontribute,
minority lang, meaning ba nun, dili ka kabuot?
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 Article 1791: If there is no agreement to the contrary, in case of an
prescribed in the contract of partnership, and in the absence of stipulation, imminent loss of the business of the partnership, any partner who refuses
it shall be made by experts chosen by the partners, and according to to contribute an additional share to the capital except an industrial
current prices, the subsequent changes thereof being for the account of the partner, to save the venture, shall be obliged to sell his interest to the
partnership. other partners.

rules on how appraisal should be made. General Rule: Capitalist partner is not bound to contribute more than what
1.) First, in the manner provided in the contract of partnership. he agreed to.
2.) Second, in the absence of stipulation, by the expert chosen by the Exception: In case of imminent loss of the business, you are obliged to
partners. contribute additional share, to save the venture. This is based on the
concept that as an owner, your interest should be to the partnership.
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 Requisites for the application of the rule:
time he should have complied with his obligation. 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
The same rule applies of any amount he may have taken from the additional contribution to the common fund would save the
partnership coffers, and his liability shall begin from the time he converted business;
the amount to his own use. 3.) The capitalist partner refuses deliberately (not because of his
financial inability to do so), to contribute an additional share to
Obligation with respect to contribution of money and converted to the capital; and
personal use: 4.) There is no agreement that even in case of an imminent loss of
1.) To contribute; the business the partners are not obliged to contribute.
2.) To reimburse any amount he may have taken from the
partnership coffers and converted to personal use; Article 1792: If a partner authorized to manage collects a demandable
3.) To pay the agreed or legal interest; sum, which was owed to him in his own name, from a person who owed
4.) To indemnify the partnership for damages. 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
9 Note: This is an exception to the rule that there has to be a demand for delay to incur.
11
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

be fully applied to the latter.


In the absence of stipulation, the share of each partner in the profits and
The provisions of this article are understood to be without prejudice to losses shall be in proportion to what he may have contributed, but the
the right granted to the debtor by Article 1252, but only if the personal industrial partner shall not be liable for the losses. As for the profits, the
credit of the partner should be more onerous to him. industrial partner shall receive such share as may be just and equitable
under the circumstances. If, besides his services he has contributed
Kapag you are authorized to manage the partnership tapos naka-collect ka, capital, he shall also receive a share in the profits in proportion to his
even if yung resibo nasa pangalan mo lang, you have to apportion. This is capital.
because your interest should be, nasa partnership.
(How is the)sharing of profits and losses (made)?
But take note of the application. Article 1252 is the provision on applications 1) agreement as to profits, or
for payment. The debtor has the right to apply the credit kung asa ang mas 2) In its absence, in proportion to its capital contribution.
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 What about theindustrial partner, (considering that he did not contribute)
onerous. This was discussed thoroughly in your credit transactions. capital?
1) He shall receive a just and equitable share under the circumstance.
Article 1793: A partner who has received, in whole or in part, his share of Sa accounting, inuuna ang industrial, ina-apportion. Ito yung profit.Pag-
a partnership credit, when the other partners have not collected theirs, walang agreement, unahin ang industrial.Usually yungpinaka-mababa
shall be obliged, if the debtor should thereafter become insolvent, to sa capitalist, ineequivalent siya sa industrial. So una talaga yung
bring to the partnership capital what he received even though he may industrial, just and equitable. Usually pag-partnership, yung market
have given receipt for his share only. value, magkano yung market value ng services niya, i.e. market value
ng manager sa ganitong industry.
Requisites for application of this rule:
1.) A partner has received, in whole or in part, his share of the partnership The losses shall be according to agreement. This is very weird, there is an
credit; agreement of sharing of losses. Who would agree to distribute the loss?
2.) The other partners have not collected their shares; and the losses in proportion to capital contribution. But again the industrial
3.) The partnership debtor has become insolvent. 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-
Does this apply during the partnership or after dissolution? effort na siya. Maayo man ang capitalist kay hayahay ra man siya.
There are some commentators na nagsasabi na during the partnership.
Meron 12ay un nagsasabi na both during and after. It is weird because you Article 1798: If the partners have agreed to intrust to a third person the
collect a partnership credit while the partnership is ongoing. How will that be designation of the share of each one in the profits and losses, such
for accounting purposes na nauna siya collect tapos sa iyahang self designation may be impugned only when it is manifestly inequitable. In
gibutang? But then again, he has to account. 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
Just take note of the opinion of Manresa and Riccina hindi daw siya three months from the time he had knowledge thereof, complain of
applicable pag after dissolution kasi it will not be just that: such decision.
1.) he who diligently collected should suffer the consequence of the
negligence of his associates; and The designation of losses and profits cannot be intrusted to one of the
2.) upon the dissolution, the tie that unites the partnership ceases thus the partners.
reason for the obligation disappears.
The reason for this is to avoid any conflict, kasi pera-pera na. Take a look at
Article 1794: Every partner is responsible to the partnership for the provision? Bakit 3 months?Kasi kung pahabain mo pa yan, wala na,
damages suffered by it through his fault, and he cannot compensate maparalyze na ang operation kasi nagalalis na mu kung unsaun pagdivide sa
them with the profits and benefits which he may have earned for the profits and losses.
partnership by his industry. However, the courts may equitably lessen
this responsibility if through the partners extraordinary efforts in other Article 1799 is a very important provision.
activities of the partnership, unusual profits have been realized. Article 1799: A stipulation which excludes one or more partners from
any share in the profits or losses is void.
It is the court that will lessen equitably lessen.
So hindi pwede na by that effort alone, ma-lessen na ang kanyang obligation, Is the partnership void (if there is a stipulation that) Partner A (should not
ang kanyang damages. Kasi kahit pa extraordinary efforts, he has to ask the share in the losses)? No, the partnership is not void, only the stipulation.
authority of the court to lessen his responsibility.
(How are they now going to) distribute the profits and losses? It is as if
Article 1795: The risk of specific and determinate things, which are not there is no stipulation. So kung profitsas to capital contribution. Kung
fungible, contributed to the partnership so that only their use and fruits lossescapital contribution.
may be for the common benefit, shall be borne by the partner who owns
them.
Article 1800: The partner who has been appointed manager in the
If the things contributed are fungible, or cannot be kept without articles of partnership may execute all acts of administration despite the
deteriorating, or if they were contributed to be sold, the risk shall be opposition of his partners, unless he should act in bad faith; and his
borne by the partnership. In the absence of stipulation, the risk of things power is irrevocable without just or lawful cause. The vote of the
brought and appraised in the inventory, shall also be borne by the partners representing the controlling interest shall be necessary for such
partnership, and in such case the claim shall be limited to the value at revocation of power.
which they were appraised.
A power granted after the partnership has been constituted may be
revoked at any time.
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 Kapag naglagay kayo sa articles of partnershipkung sino yung
corresponding interest, from the time the expenses are made; it shall also manager, yung power niya, ang hirap tanggalin. Look at the
answer to each partner for the obligations he may have contracted in provision,he can execute all acts of administration despite the
good faith in the interest of the partnership business, and for risks in opposition of his partners. The only exception is pag maybad
consequence of its management. faith. So sa day to day decision, pwede siya magbuot-buot. So that
is the disadvantage kung naglagay kayo ng pangalan doon.
Hindi lang ang partner ang may responsibility sa partnership. Ang
partnership din may responsibility sa partner. So kung nag-advance ka, dapat Pagnasabutan ninyu ang manager after the constitution, what
ipapareimburse mo rin sa partnership. 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-
Article 1797: The losses and profits shall be distributed in conformity with constitution siya, naa siya sa articles of partnership, there has to
the agreement. If only the share of each partner in the profits has been be bad faith.
agreed upon, the share of each in the losses shall be in the same
proportion. TAI TONG CHUACHE & CO vs INSURANCE COMMISSION

12
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

This talks about an act of strict dominion. You dont need the consent of all
ISSUE: W/N Chua can act in behalf of Tai Tong. partners unless it is manifestly prejudicial. You seek the courts intervention.
Again you cannot just decide on your own.
HELD: Yes.
Art. 1804. Every partner may associate another person with him in his
A PARTNERSHIP MAY SUE AND BE SUED IN ITS NAME OR BY ITS DULY share, but the associate shall not be admitted into the partnership
AUTHORIZED REPRESENTATIVE without the consent of all the other partners, even if the partner having
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 an associate should be a manager.
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 Contract of Subpartnership. An original partner can partner with someone
that petitioner being a partnership may sue and be sued in its name or else but that person cannot be admitted to the original partnership because
by its duly authorized representative. The fact that Arsenio Lopez Chua is that partnership is based on mutual trust and confidence. This is based on
the representative ofpetitioner is not questioned. Petitioners declaration the principle of delectus personae. Ikaw ng.contract ka ug partnership sa
that Arsenio Lopez Chua acts as the managing partner of the partnership ibang tao does not mean the original partners agree with your decision of
wascorroborated by respondent insurance company. Thus Chua as the selecting a particular subpartner.
managing partner of the partnership may execute all acts
ofadministration including the right to sue debtors of the partnership in Art. 1805. The partnership books shall be kept, subject to any
case of their failure to pay their obligations when it becamedue and agreement between the partners, at the principal place of business of
demandable. Or at the very least, Chua being a partner of petitioner Tai the partnership, and every partner shall at any reasonable hour have
Tong Chuache& Company is an agent of thepartnership. Being an agent, it access to and may inspect and copy any of them.
is understood that he acted for and in behalf of the firm. Public
respondents allegation that the civil case filed by Arsenio Chua was in his
capacity as personal creditor of spouses Palomo has no basis. Art. 1806. Partners shall render on demand true and full information of
all things affecting the partnership to any partner or the legal
The respondent insurance company having issued a policy in favor of representative of any deceased partner or of any partner under legal
herein petitioner which policy was of legal force andeffect at the time of disability.
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. 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
All acts of administration includes the right to sue debtors of the consent of the other partners from any transaction connected with the
partnership in case of their failure to pay the obligation when it became formation, conduct, or liquidation of the partnership or from any use by
due and demandable. So all acts of administration, it includes the right to him of its property.
sue. So you can actually sue in behalf of the partnership if you are the Since partnership is based on mutual trust and confidence, the partner has
managing partner, of course. the duty to act for the common benefit. In this particular provision, any
transaction connected with the formation, conduct or liquidation of the
Article 1801: If two or more partners have been intrusted with the partnership. In liquidation, lets say ng.liquidate ka ng partnership, nagbenta
management of the partnership without specification of their respective kayo ng assets, the money charged for liquidation has been able to gain
duties, or without stipulation that one of them shall not act without the profits, that person must account for the profit and hold it as trustee for the
consent of all the others, each one may separately execute all acts of partnership.
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 Duty begins during formation of partnership
be decided by the partners owning the controlling interest. Principle of good faith applies not only during partnership but during the
negotiations leading to the formation of the partnership.
Requisites for application of the rule:
1.) Two or more partners have been appointedas managers; Art. 1808. The capitalist partners cannot engage for their own account
2.) There is no specification of their respective duties; and in any operation which is of the kind of business in which the
3.) There is no stipulation that one of them shall not act partnership is engaged, unless there is a stipulation to the contrary.
without the consent of all the others. Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions, and
Article 1802: In case it should have been stipulated that none of the shall personally bear all the losses.
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 Compare and contrast this with the prohibition on industrial partners.
imminent danger of grave or irreparable injury to the partnership. Remember capitalist partner only prohibited to engage in similar kind of
business because of your duty as an owner(duty of interest). Compare this
Kapag may stipulation na kailangan mag-act ang lahat, dapat mag-act ang with the industrial partners prohibition which is absolute. What are the
lahat. Even disability cannot be alleged. What is the problem pag ganito ang remedies of other partners? You can demand any profits accruing to the
setup? Madelay ang operations ng business. What if magbakasyon yung isa capitalist partner but the losses shall be borne by him.
or dalawa, kailangan tawagan mo pa? Kailangan ba bilhin ito?
Art. 1809. Any partner shall have the right to a formal account as to
That is why there is a caveat that unless there is imminent danger of grave partnership affairs:
or irreparable injury to the partnership. So even if (the)managers (are not 1.) If he is wrongfully excluded from the partnership business or
complete),they can still act provided that the circumstance imposes an possession of its property by his co-partners;
imminent danger of irreparable injury to the partnership. 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.
Art. 1803. When the manner of management has not been agreed upon, General Rule: During the existence of partnership, a partner is not entitled to
the following rules shall be observed: a formal account of partnership affairs. Reason rights of partner amply
1.) All the partners shall be considered agents and whatever any one protected in Arts. 1805 and 1806. Also, it would cause inconvenience and
of them may do alone shall bind the partnership, without unnecessary waste of time.
prejudice to the provisions of article 1801.
Exception: in cases under Art. 1809
2.) None of the partners may, without the consent of the others,
make any important alteration in the immovable property of the
FUE LEUNG VS IAC
partnership, even if it may be useful to the partnership. But if the
refusal of consent by the other partners is manifestly prejudicial
They are partners in Sun WahPanciteria as they fit the requisites of a
to the interest of the partnership, the courts intervention may
partnership. If excellent relations exist among the partners and all the
be sought.
partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert his
rights anytime within 10 years from the start of operations, such rights are
13
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

irretrievably lost. NCC 1806, 1807, and 1809 show that the right to demand Extent of property rights of a partner
an accounting exists as long as the partnership exists. Principal rights-
1. Rights in specific partnership property
Prescription begins to run only upon the dissolution of the partnership 2. Interest in partnership
when the final accounting is done. The resolution of the IAC ordering the 3. Right to participate in management
payment of Dan Fues obligation shows that it continues until fully paid.
Related rights
The question now arises as to whether or not the payment of a share of 1. Right to reimbursement for amounts advanced to partnership and
profits shall continue into the future with no fixed ending date. Considering to indemnification for risks in consequence of management (Art.
the facts of this case, the Court may decree a dissolution of the partnership 1796).
under Article 1831 of the Civil Code which, in part, provides: On application 2. Right of access and inspection of partnership books (Art. 1805).
by or for a partner the court shall decree a dissolution whenever: 3. Right to true and full information of all things affecting
xxx (3) A partner has been guilty of such conduct as tends to partnership (Art. 1806).
affect prejudicially the carrying on of the business; 4. Right to formal account of partnership affairs under certain
(4) A partner willfully or persistently commits a breach of the circumstances (Art. 1809).
partnership agreement, or otherwise so conducts himself in 5. Right to have partnership dissolved under certain conditions (Art.
matters relating to the partnership business that it is not 1830-1831).
reasonably practicable to carry on the business in partnership
with him; Ownership of certain property
xxx(6) Other circumstances render a dissolution equitable. Property used by the partnership- Where there is no express agreement that
Thus, there shall be liquidation and winding up of partnership affairs, return property used by a partnership constitutes partnership property, such use
of capital, and other incidents of dissolution because the continuation of the does not make it partnership property, and whether it is so depends on the
partnership has become inequitable. intention of the parties, which may be shown by proving an express
agreement or acts of particular conduct.

Even if its registered as a sole proprietorship, you have to look at the Art. 1811. A partner is co-owner with his partners of specific partnership
intention of the parties. The evidence presented by the parties here is property.
actually more in keeping with partnership than sole proprietorship. The incidents of this co-ownership are such that:
1) A partner, subject to the provisions of this Title and to any
What provision was used by petitioner in saying that the complaint has agreement between the partners, has an equal right with his
already prescribed? Art.1144 of the CC. the following action must be partners to possess specific partnership property for partnership
brought within the following year Remember petitioners cause of action purposes;10 but he has no right to possess such property for any
was not based on contract but his right as a partner. The provisions on other purpose without the consent of his partners;
partnership should apply as compared to Art. 1144 kasi yung cause does not 2) A partners right in specific partnership property is not assignable
arise from the receipt, but his right as a partner. In this particular case, the except in connection with the assignment of rights of all the
prescription will begin upon dissolution of the partnership because it is partners in the same property;11
only then you can demand an accounting. In accounting, to determine if 3) A partners right in specific partnership property is not subject to
there is remaining debts, whether it has net loss or net profit. attachment or execution, except on a claim against the
partnership. When partnership property is attached for a
EMNACE vs CA partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right
Prescription has not run in this case, it has never begun. under the homestead or exemption laws; 12
The three final stages of partnership are: 4) A partners right in specific partnership property is not subject to
a) dissolution,b) winding up, and c) termination. legal support under art. 291.
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 Art. 1812. A partners interest in the partnership is his share of the
retained, at which time it completes the winding up of its affairs, including profits and surplus.
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 Distinguish profits from surplus.
representative in this case the heirs of Tabanao) may demand an Profits are income from a particular period.
accounting of the partnerships business. Prescription of the said right
starts to run only upon the dissolution of the partnership when the final Surplus are excess of assets over liabilities. It does not mean if you are
accounting is done. operating at a loss, you dont have a surplus.
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 Art. 1813. A conveyance by a partner of his whole interest in the
precisely what the heirs are seeking in their action before the trial court, partnership does not of itself dissolve the partnership, or, against the
since Emnace has failed or refused to render an accounting of the other partners in the absence of agreement, entitle the assignee, during
partnerships business and assets. Hence, the said action is not barred by the continuance of the partnership, to interfere in the management or
prescription. 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
For example, a partnership was in year 1982- established and later in 1986 accordance with his contract the profits to which the assigning partner
dissolved. But nkalagay sa agreement nila na mg.accouting sila in 1983. Now, would otherwise be entitled. However, in case of fraud in the
would the prescription begin at the time of dissolution or that of the management of the partnership, the assignee may avail himself of the
stipulated agreement? The time of Dissolution. usual remedies.
Art. 1809 (4) Whenever other circumstances render it just and reasonable. In case of dissolution of the partnership, the assignee is entitled to
Although there is a stipulation to account in 1983 but the partnership receive his assignors interest and may require an account from the date
continued on and was dissolved in 1986. From 1982 to 1983, the stipulation only of the last account agreed to by all the partners.
to account pertains only to that. At the time of dissolution, you still have to As a partner I can assign my whole interest, but my assignee does not
demand a formal accounting precisely for the periods when no accounting become a partner based on the principle of delectus personae since the other
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
10 His right is limited to partnership purpose. Lets say yung partnership mo ng.renta ng
of liquidation.
apartment. You cannot use it for a different purpose other than for partnership.
11 Contrary to your usual co-ownership, you have a particular aliquot part of the
Art. 1810. The property rights of a partner are: property and that part can be specifically assigned. However, in partnership, you cannot
1.) His rights in specific partnership property; assign that particular specific partnership property unless every partner consents.
2.) His interest in the partnership; and 12 Lets say yung partnership property kay carabao(property exempted from execution).

3.) His right to participate in the management. A partnership creditor can attach such property because you cannot invoke such
exemption. Remember partnership creditors are preferred over the partners with
regard to debts even if the partner specifically owns that partnership property.
14
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

partners did not select that assignee to become a partner of the original you will have to execute an affidavit that In the event the applied name has
partnership. Necessarily, that assignee has limited rights. already been used, the applicant must change said name.

Rights withheld from assignee- What are the guidelines?


1. To interfere in the management; a) the name shall not be identical, misleading or confusingly similar to a
2. To require any information or account; corporate or partnership name registered with the Commission, or
3. To inspect any of the partnership books; with the Department of Trade and Industry, in the case of sole
proprietorships;
Rights of Assignee of partners interest b) if the name applied for is similar to that of a registered corporation or
1. To receive in accordance with his contract the profits accruing to partnership, the applicant shall add one or more distinctive words to
the assigning parter; the proposed name to remove the similarity or differentiate it from
2. To avail himself of the usual remedies provided by law in the the registered name;
event of fraud in the management; However, the addition of one or more distinctive words shall not be
3. To receive the assignors interest in case of dissolution; allowed if the registered name is coined or unique unless the board of
4. To require an account of partnership affairs, but only in case the directors or majority of the partners of the subject corporation or
partnership is dissolved, and such account shall cover the period partnership gives its consent to the applied name;
from the date only of the last account agreed to by all partners. c) Punctuation marks, spaces, signs, symbols and other similar
characters, regardless of their form or arrangement, shall not be
Art. 1814. Without prejudice to the preferred rights of partnership acceptable as distinguishing words for purposes of differentiating a
creditors under art. 1827, on due application to a competent court by proposed name from a registered name.
any judgment creditor of a partner, the court which entered the d) A name that consists soley of special symbols, punctuation marks or
judgment, or any other court, may charge the interest of the debtor specially designed characters shall not be registered.
partner with payment of the unsatisfied amount of such judgment debt
with interest thereon; and may then or later appoint a receiver of his Take note also:
share of the profits, and of any other money due or to fall due to him in The corporate name shall contain the word Corporation or
respect of the partnership, and make all other orders, directions, incorporated, or the abbreviations Corp. or Inc., respectively;
accounts and inquiries which the debtor partner might have made, or The partnership name shall bear the word Company or Co. and if it is a
which circumstances of the case may require. limited partnership, the word limited or Ltd. A professional partnership
The interest charged may be redeemed at any time before foreclosure, name may bear the word Company, Associates, or Partners, or other
or in any case of a sale being directed by the court, may be purchased similar descriptions;
without thereby causing a dissolution: The corporate name of a foundation shall use the word Foundation.
1.) With separate property, by any one or more of the partners; or So hindi pwede partnership ka at yung surname or lastname is Inc., Corp.
2.) With partnership property, by any one or more of the partners or Corporation. Lets say Dulay Corporation or Dulay Inc. or Dulay Corp.
with the consent of all the partners whose interest are not so hindi siya pwede partnership. But Dulay Co or Dulay Company pwede siya
charged or sold. partnership.

Nothing in this Title shall be held to deprive a partner of his right, if any, 4. Only one business or trade name may be registered for each
under the exemption laws, as regards his interest in the partnership.13 corporate or partnership name.

5. A tradename or trademark registered with the Intellectual


Remedies of separate judgement creditor of a partner. Property Office may be used as part of the corporate or partnership name
Application for a charging order after securing judgement on his credit. of a party other than its owner if the latter gives its consent to such use.14
So si judgement creditor(personal judgement creditor ni partner) lets say
may unsatisfied judgement. Remember this is only applicable if there is an A) the full name or surname of a person may be used in a corporate or
unsatisfied judgment. It is property pa personally of debtor-partner. Di pwde partnership name if he or she is a stockholder, member or partner of the
iinvoke ni debtor. Dapat ngsatisfy ng judgment bago siya mg.apply ng said entity and has consented to such use; if the person is already
charging order, tapos iicharge ang interest niya. Tinawag ito na charging deceased, the consent shall be given by his or her estate;15
order dahil i.charge lang siya. Hindi pa determinate na masatisfy yung
unsatisfied judgment dahil depende pah sa interest na matitira ni debtor- The name of an internationally known foreign corporation, or something
partner. similar to it, cannot be used by a domestic corporation unless it is its
subsidiary and the parent corporation has consented to such use;16
Right of the existing partners to redeem
Lets say may charging order and ayaw nila may papasok mg.dedemand ng 12. Unless otherwise authorized by the Commission, the words and phrases
interest. Sabi ng isang partner since parating na man ung share ko bayaran ko enumerated can be used only by the entities mentioned: (c) National,
nalang ang unsatisfied creditor. Anyone of the partner or even the Bureau, Commission, State, and other words, acronyms,
partnership itself can pay the unsatisfied creditor. The effect nabayaran nila abbreviations that have gained wide acceptance in the Philippines - by
they do not not step into the shoes of the creditor. There is no novation(?) entities that perform governmental functions;
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 So you cannot have the partnership name as Bureau of Dulay because that
ka bayaran or pwede niyo din pag.usapan na bayaran muna ako tapos name is exclusively for government.
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 The name of a local geographical unit, site or location cannot be used as a
contracts and obligations. corporate or partnership name unless its is accompanied by a descriptive
word or phrase, e.g., Pasay Food Store, Inc.
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 14This is applicable to franchise agreement, hindi nila tatangapin unless hindi ka naclear
and procedure for choosing a partnership or corporate name. So we cannot ng IPO.
unilaterally or by your own will choose a corporate or partnership name kasi
ofcourse registered yan. It is the SEC thats the regulating body who oversees 15 There are 2 cases assigned to this. Just refer to it. Dati kasi bawal mg.use ng name ng
partnership and corporations. Usually they require 5 names. First, preferred decease but right now pwede as long as any of your correspondents you would indicate
pero kung mahit siya, yung second na naman, then third. In your application na patay na siya. Usually may nilalagay or mark na cross.
16 Remember in your Intellectual property, theres this convention, Paris convention(?),

that even if wala nareserve na name sa Philippines, pwede niya mainvoke ang kanyang
13
right for as long as the Philippines and the country to which it was registered are
Please differentiate this with rights of a partner to a specific partnership property.
signatories to the convention. So you cannot use it. Even if you raise the argument na
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 hindi naman siya n.reserve sa Philippines eh. You cannot raise that due to the Paris
mo is actually your property. Convention.

15
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

Walang store na Davao Company or Davao Corporation. Dapat talagang may liken your obligation to that of a guaranty than a surety. The guarantor has
in between. E.g. Davao Lumber Corporation. Because you cannot use a the right of excusion. So dapat i.exhaust sa tanan. Whereas in surety has no
location without a descriptive word or phrase otherwise it would be right. So the creditor can demand payment directly to the surety. While on
misleading. Also do not use the words United Nations or UN because it is guaranty you have to prove that you have exhausted the properties of the
strictly limited to the UN. Also, Finance Company, Financing Company, debtor.
Finance and Leasing Company and Leasing Company, Investment
Company, Investment House - are exclusive to entities engaged in the Please take not in this provision, that even an industrial partner is liable.
financing or investment house business. Also, Lending Company and Under the previous provisions, the industrial partner is not liable for losses.
Lending Investor by lending companies or pawnshop by entities Why is it now that the industrial partner is liable?
authorized to operate pawnshops. Bank, Banking, Banker, Savings and
Loan Assocation, Trust Corporation, Trust Company- exclusive to COMPANIA MARITIMA vs MUNOZ
entities engaged in the banking or trust business. SPV-AMC exclusive to
corporations authorized to act as special purpose vehicle(SPV). the partnership was sued by La CompaiaMartitama for collection of sum
of money amounting to P26,828.30. The partnership lost the case and
Another rule, do use Investment(s) or capital exclusive to entities was ordered to make said payment; that in case the partnership cant pay
organized as investment house, investment company or holding company; the debt, all the partners should be liable for it in accordance with Article
Asset/Investment/Fund/Financial Management, or 127 of the Code of Commerce. Francisco now argues that the industrial
Asset/Investment/Fund/Financial Management Adviser, or any similar partners should not be liable pursuant to Article 141 of the Code of
words or phrases exclusive to entities organized as investment company Commerce.
adviser or holders of investment management activities license from the
Bangko Sentral ng Pilipinas; Association and Organization or similar ISSUE: Whether or not the industrial partners are liable to third parties
words which pertain to non-stock corporations exclusive to entities like La CompaiaMartitama.
primarily engaged in non-profit acitivities; Stock Exhange/Futures HELD: Yes. The controlling law is Article 127. There is no injustice in
Exhange/Derivatives Exchange and Stock Exhange/Futures imposing this liability upon the industrial partners. They have a voice in
Exhange/Derivatives Exchange broker by entities engaged organizes as an the management of the business, if no manager has been named in the
exchange, broker dealer, commodity futures broker, clearing agency, or pre- articles; they share in the profits and as to third persons it is no more
need company under the Securities Regulation Code. 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
Again, you cannot just use any name. Those mentioned are highly regulated P100 he would be liable for this entire debt of P26,000.
entities.
The Courts construction of the article is that it relates exclusively to the
JO CHUNG CANG vs. PACIFIC COMMERCIAL CO settlement of the partnership affairs among the partners themselves
and has nothing to do with the liability of the partners to third persons;
The contract of partnership established a general partnership. By process of that each one of the industrial partners is liable to third persons for the
elimination, TeckSeing& Co., Ltd. Is neither a corporation nor an accidental debts of the firm; that if he has paid such debts out of his private
partnership (joint account association). 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
To establish a limited partnership, there must be, at least, one general not enough property in the partnership to pay him, then the capitalist
partner and the name of at least one of the general partners must appear in partners must pay him.
the firm name. This requirement has not been fulfilled. Those who seek to
In relation to this, the Supreme Court noted that partnerships under the
avail themselves of the protection of laws permitting the creation of limited
Civil Code provides for a scenario where all partners are industrial
partnerships must the show a substantially full compliance with such laws.
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
It must be noted that all the requirements of the Code have been met w/ the
persons then such third persons would get practically nothing from such
sole exception of that relating to the composition of the firm name. The legal
partnerships if the latter is indebted.
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
What is the recourse of the industrial partner given that he becomes liable?
creation of such relation. Here the intention of the persons making up,
Kung nibayad siya unsa iya recourse? Diba hindisiya liable for losses, but
TeckSeing& Co., Ltd. was to establish partnership w/c they erroneously
liable siya for liability. Lets say nagbayad siya to his pro-rata share with
denominated as a limited partnership.
regard to the liability to the third person. Exhaust all the partnership
if this case happened today(the applicable law in the case was different)?
properties before he can be held liable. I think this particular case is under
YES. Art.1815. would still be considered a general partnership Again, it is
the premise that there has been exhaustion of the partnership properties
only optional if you include your name. pwede ka mg.include ng ibang name
dahil nag.hahabol na siya sa industrial partner niya dahil wala ng mabayad.
as long as it is compliant with the SEC circular.
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
Art. 1816. All partners, including industrial ones, shall be liable pro rata previous article, hindi na man siya liable for losses. So saan siya maliable?
with all their property and after all the partnership assets have been Liabilities. In this particular provision, you have to distinguish losses from
exhausted, for the contracts which may be entered into in the name and liabilities. Industrial partner shall not share with the losses but liable siya to
for the account of the partnership. However, any partner may enter into a third persons. If nagbayad ang industrial partner sa share niya sa third
separate obligation to perform a partnership contract. person ang recourse niya is on the other partners. In effect he does not share
in the losses of the partnership.

Partnership Liability Partners are principals to the other partners and Losses from liability. Lets say na.exhaust na ang partnership assets so hinabol
agents for them and the partnership. They are liable to 3rd persons who have na si partners. Even if you are an industrial partner, the creditors can actually
dealt with one of them in the same way that a principal is liable to 3rd demand for you to pay your share. However, your recourse is on the
persons who have dealt with an agent. The general rules is that a partner has capitalist partner. Dahil hindi ako liable sa losses eh. Nagseserbisyo na nga
the right to make all partners liable for contracts he makes for the ako.lugi pah dahil pababayarin mo pah ako.The third person wala namang
partnership in the name and for the account of the partnership. paki.alam eh. Hindi alam ni third person na industrial ka lang. Wag mong
pahirapan si third person.
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 So it is not in conflict with the previous provision that the industrial partner is
and not on the amount of their contributions to the common fund. So even not liable for losses.
of one partner contributed only 10% of the capital, it doesnt mean ang
matatangap niya ay 10% lang din. Because that would not be proportionate.
DELOS REYES vs LUKBAN
So if there are 5 partners, mag-1/5th sila isa-isa. Even if one of the partners
ISSUE:WON Creditor delos Reyes may collect individually from the
contributed only 10%. Hindi pwedeng i.pro-rate mo siya based on capital
partners, Lukban and Borja, the balance of the debt that the partnership
contributions but based on the number of individual or partners there are.
firm owed at the time of its dissolution. (YES)
It is only subsidiary or secondary because the partners become personally HELD: Creditor delos Reyes may collect individually from the partners.
liable only when the partnership assets have been exhausted. So you can It should be noted that the dissolved partnership of Lukban&Borja had
16
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

absolutely no property whatever of its own, based on the contents of the partners or the partnership, considered as a group. Principle of mutual
writ, the return of the execution of the final judgment, and the fact that agency.
respondent Lukban did not point this out to avoid liability in solidum. As As to third persons- limitations upon the authority of any one of the
to Creditor delos Reyes right to collect individually from the partners partners are not binding upon innocent 3rd persons dealing with the
Lukban and Borja the amount owed by the partnership firm, it is partnership who have the right to assume that every general partner
unquestionable that such a right has given rise to the corresponding right has power to bind the partnership especially those partners acting with
of action to demand the payment of the debt from the partners ostensible authority, by whatever is proper for the transaction in the
individually, or from each of them, by the insolvency of the partnership, ordinary and usual manner of the business 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 MUNASQUE vs CA
conducted. Partnership exists.
There was no indication that the partnership was not a genuine one; and the
ART. 127, CODE OF COMMERCE provides: fact that there was misunderstanding between the partners does not convert
All the members of the general co-partnership, be they or be the partnership into a sham organization. When petitioner received the first
they nor managing partners of the same, are personally and check of Tropical issued under his name, he indorsed it in favor of Galan.
severally liable with all their property for the results of the With this, Tropical had the right to assume that petitioner and Galan were
transactions made in the name and for the account of the true partners. If they were not, it was petitioners fault for making the
partnership, under the signature of the latter, and by a person relationship appear otherwise, not only to Tropical but to the other creditors
authorized to make use thereof. as well.

where the partners liability for a partnership debt was only secondary Petitioner is liable to the creditors for liabilities incurred by the partnership.
or subsidiary, their right of excussion was deemed already satisfied Since the 2 were partners when the debts were incurred, they are also both
where at the time the judgment was executed against the partnership liable to third persons who extended credit to their partnership. There is a
they were unable to show that there were still partnership assets, or general presumption that each individual partner is an authorized agent for
when a writ of execution against the partnership had been returned not the firm and that he has authority to bind the firm in carrying on the
fully satisfied. 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
Art. 1817. Any stipulation against the liability laid down in the preceding scope of his authority.(Le Roy vs Johnson)
article shall be void, except as among partners.
So you cannot stipulate na hindi liable si industrial partner sa third person. Petitioner is solidarily-liable with co-partner Galan as against the creditors.
That stipulation is applicable only between the parties but not with regards While under ART. 1816, the liability of partners under the law to third
to third persons. The premise is walang paki.alam si third person. Bakit niya persons for contracts executed in connection with the partnership business is
naman pahirapan si third person na siya na nga ang ng.pautang. siya pah only pro rata (i.e. joint liability), this should be construed together with ART.
yung nahirapan. The creditor has all the right to collect to all the partners. 1824, which renders all partners solidarily liable for everything chargeable to
the partnership under ART. 1822 and 1823.
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 RATIONALE FOR SOLIDARY LIABILITY: The obligation is solidary because the
the partnership name of any instrument, for apparently carrying on in law protects him, who in good faith relied upon the authority of a partner,
the usual way the business of the partnership of which he is a member, whether such authority is real or apparent. That is why under ART. 1824, all
binds the partnership, unless the partner so acting has in fact no partners, whether innocent or guilty, as well as the legal entity which is the
authority to act for the partnership in the particular matter, and the partnership, are solidarily liable.
person with whom he is dealing has knowledge of the fact that he has
no such authority. 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
An act of a partner which is not apparently for carrying on of the faulted for making payments to Galan and Associates and for delivering it
business of the partnership in the usual way does not bind the to Galan because, as far as Tropical is concerned, Galan was a true partner
partnership unless authorized by the other partners.17 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
Except when authorized by the other partners or unless they have partnership. Thus, it is but fair that the consequences of the wrongful act of
abandoned the business, one or more but less than all the partners have any of the partners (Galan, in this case) should be answered solidarily by all
no authority to: the partners and the partnership as a whole.
1.) Assign the partnership property in trust for creditors or on the
assignees promise to pay the debts of the partnership; The payment made by tropical was for construction services for the
2.) Dispose of the goodwill of the business; remodeling of the Cebu branch building. So in this particular case, it was a
3.) Do any other act which would make it impossible to carry on the construction business, the payment was for construction services. It would
ordinary business of a partnership; have been different if the payment was for buy and sell of lots. Because in
4.) Confess a judgment; here, the SC said there is a general presumption, the agent is authorized.
5.) Enter into a compromise concerning a partnership claim or The third person transacting with the partner or the agent of the
liability; partnership is not under obligation to check the authority of the partner.
6.) Submit a partnership claim or liability to arbitration; Just imagine for every transaction mag.ask for authority. Diba its so
7.) Renounce a claim of the partnership. inconvenient. Most especially when the transaction is apparently carrying on
in the usual way of the business. Payment of construction services and the
No act of a partner in contravention of a restriction on authority shall firm of the partnership was engaged in the construction services. So kung
bind the partnership to persons having knowledge of the restriction. lets say iba yung bayad at iba ang kanilang nature. Dun dapat mag.require si
Please take note all these acts are acts of strict dominion. So you need to third person ng authority of the person transacting that he was authorized to
have consent of all the partners unless ofcourse ng.abandon na ang lahat ng do so. Pero since dito, they asked the nature of the business and what the
partners. 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
Power of partner as agent of partnership the usual way of the business of the partnership.
In the absence of an agreement to the contrary, all partners have equal
rights in the management and conduct of the partnership business. GOQUIOLAR vs SYCIP
As among themselves- when a partner performs an act within the
scope of his actual, implied, or apparent authority, he is not only a ISSUE: WON Kong Chai Pin is authorized to sell properties of the partnership
principal as to himself, but is also for all purposes, an agent as to his co- 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
17Lets say you are engage in the selling of beauty products then biglang may isang husband, is authorized to sell properties of the partnership to third persons.
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 Kong Chai Pin lawfully acted as the sole managing partner in lieu of her
kung the usual way of business na naman, you are in no obligation to check the husband.Although, the power of Tan Sin An as sole managing partner, which
authority of the partner to whom you are dealing with.
17
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

is premised upon trust and confidence, was a mere personal right that should a.) The partner so acting has in fact no authority; AND
rd
have been terminated upon Tans demise; such right was not extinguished in b.) The 3 person knows that the acting partner has no
this case based on the ff. circumstances: authority.
a. The articles of co-partnership specifically provided for the
continuation of the firm notwithstanding the death of one of the 2) Acts of strict dominion (pars. 2 and 3) For acts which are not
partners. apparently for carrying on in the usual way of business of the
b. Since the heir of the deceased (i.e. Kong Chai Pin) never repudiated or partnership, the partnership is not bound, unless authorized by all the
refused to be bound by such agreement, Kong Chai Pin became an other partners or unless they have abandoned the business. The
individual partner with surviving partner Goquiolay upon Tans death. general rule is that powers not specifically delegated in a partnership
agreement are presumed to be withheld. Paragraph 3 gives instances of
Goquiolay argued that granting Kong became a partner, she was nothing acts generally outside the implied power of a partner and constitute
more than a limited partner who is disqualified from managing the business. limitations to the authority to bind partnership.
(LACKS MERIT). Although ordinarily, such limitation exists, this does not apply 3) Acts in contravention of a restriction on authority (par. 4) The
with Kong Chai Pin as she manifested her intent to be bound by the partnership is not liable to third persons having actual or presumptive
partnership agreement not only as a limited partner, but as general partner: knowledge of the restrictions, whether or not the acts are for
a. She managed and retained possession of the partnership properties; apparently carrying on in the usual way the business of the partnership.
b. She derived income therefrom until the properties were sold to On the other hand, persons not having such notice have a right to
respondents; assume that the authority of a partner is co-extensive with the business
c. She sold the properties in the name of the partnership. transacted by the firm.

By allowing her to retain control of the firms property from 1942 to 1949, So what is the liability of partner acting without authority?
Goquiolay is estopped from denying Kong Chai Pins legal representation of GR: the particular partner who undertakes to bind his co-partners by a
the partnership. Hence, Kong Chai Pin is a managing partner with the power contract without authority is himself personally liable on such contract. Such
to bind the partnership by proper contracts. Kong Chai Pin, as managing partner binds himself no matter in what name he contracts. The fact that he
partner, can sell properties of the partnership to respondents Sycip& Lee, attempts to bind his co-partners and does not succeed does not avoid his
even without consent of the co-partner. own act. He cannot be admitted to say that he was not authorized to make a
contract, as he is estopped to deny its effect or validity.
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 Art. 1819. Where title to real property is in the partnership name, any
every general partner has power to bind the partnership, especially those partner may convey title to such property by a conveyance executed in
partners acting with ostensible authority. the partnership name; but the partnership may recover such property
unless
The public need not make inquiries as to the agreements between the 1) the partners act binds the partnership under the provisions of the
partners. Its knowledge is enough that it is contracting with the partnership first paragraph of article 1818, or
which is represented by one of the managing partners. 2) unless such property has been conveyed by the grantee or a
person claiming through such grantee to a holder for value
There is a general presumption that each individual partner is an agent for without the knowledge that the partner, in making the
the firm and that he has authority to bind the firm in carrying on the conveyance, has exceeded his authority.
partnership transactions.
Where title to real property is in the name of the partnership, a
The presumption is sufficient to permit third persons to hold the firm conveyance executed by a partner, in his own name, passes the
liable on transactions entered into by one of the members of the firm equitable interest of the partnership, provided the act is one within the
acting apparently in its behalf and within the scope of his authority. authority of the partner under the provisions of the first paragraph of
article 1818.
The regular course of business procedure does not require that each time a
third person contracts with one of the managing partners, he should inquire Where title to real property is in the name of one or more but not all
as to the latters authority to do so, or that he should first ascertain whether the partners, and the record does not disclose the right of the
or not the other partners had given their consent thereto. partnership, the partners in whose name the title stands may convey
title to such property, but the partnership may recover such property if
ART. 180, CODE OF COMMERCE provides that even if a new obligation the partners act does not bind the partnership under the provisions of
was contracted against the express will of one of the managing the first paragraph of Article 1818, unless the purchaser or his assignee,
partners, it shall not be annulled for such reason, and it shall produce is a holder for value, without knowledge.
its effects without prejudice to the responsibility of the member/s who
contracted it, for the damages they may have caused to the common Where the title to real property is in the name of one or more or all the
fund. 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
Although the partnership under consideration is a commercial partnership the equitable interest of the partnership, provided the act is one within
and, therefore, to be governed by the Code of Commerce, the provisions of the authority of the partner under the provisions of the first paragraph
the old Civil Code may apply: of Article 1818.

ART. 165, OCC Where the title to real property is in the names of all the partners a
(1) All the partners shall be considered agents, and whatever any one conveyance executed by all the partners passes all their rights in such
of them may do individually shall bind the partnership; but each one property.
may oppose any act of the others before it has become legally binding.
Effects of conveyance of real property belonging to the partnership
In this case, as previously established, Kong Chai Pin acted as a managing The ownership of real estate is prima facie that indicated by the muniment of
partner (or general partner). As such, she became an agent of the firm, with title. Ordinarily, title to real property or interest therein belonging to the
the authority to bind the firm in any contracts involving partnership affairs partnership is registered in the partnership name. However, for one reason
(e.g. sale of partnership realty). 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
The co-partner, Goquiolay, could have made an opposition to said sale, but property. The presumption is that, property purchased with partnership
he did not timely do so. He only interposed his objections after the deed of funds belongs to the partnership unless a contrary intent is shown.
conveyance was executed and approved by the probate court. Hence, his
opposition was barred by laches. And the sale of the partnership lots Article 1819 gives the legal effects of the conveyance of real property
executed by Kong Chai Pin in favor of respondents is valid. 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
The acts of a partner mentioned in Art. 1818 may be grouped into three: registered or owned in the name of:
1) Acts for apparently carrying on in the usual way the business of the (1) The partnership (pars. 1,2);
partnership (Par.1) every partner is an agent and may execute such (2) One or more but not all the partners (par. 3);
acts with binding effect on the partnership even if he has in fact no rd
authority unless the 3rd person has knowledge of such lack of authority. (3) One or more or all the partners, or in a 3 person in trust for the
There are two requisites for the partnership NOT to be liable: partnership (par. 4);
(4) All the partners (par. 5).
18
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

What did the SC say as to the term conveyance in Art. 1819? The word
It will be noticed that under paragraphs 1, 3 and 5, what is conveyed is title conveyance in Art.1819 includes the right to mortgage. This is different
or ownership, while under paragraphs 2 and 4, what is conveyed is merely from the general rule that the right to convey is different from the right to
equitable interest. Conveyance interpreted to include a mortgage. Thus, mortgage.
the right to mortgage is included in the right to convey (unlike in agency)
Art. 1820. An admission or representation made by any partner
concerning partnership affairs within the scope of his authority in
SANTIAGO INC vs CASTRO accordance with this Title is evidence against the partnership.

ISSUE: WON the mortgage executed by the Lims is attributable to the Art. 1821. Notice to any partner of any matter relating to partnership
partnership, Heirs of Hugo Lim. (YES) affairs, and the knowledge of the partner acting in the particular matter,
acquired while a partner or then present to his mind, and the
HELD: The mortgage is attributable to the partnership. knowledge of any other partner who reasonably could and should have
BY PRINCIPLE OF ESTOPPEL communicated it to the acting partner, operate as notice to or
The records showed that the respondent partnership is composed exclusively knowledge of the partnership except in case of a fraud on the
of the individual Lims; their contribution to the partnership consisted chiefly, partnership, committed by or with the consent of that partner.
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 rd
A 3 person desiring to give notice to a partnership of some matter
March 30, 1959, the property was never registered with the ROD in the name
pertaining to the partnership business need not communicate with all the
of the partnership, but to this date remains registered in the names of the
partners. If notice is delivered to a partner, that is an effective
Lims as owners in ommon. The original mortgage deed of November 14,
communication to the partnership notwithstanding the failure of the partner
1964 was executed by the Lims as such owners. There can be no dispute that
to communicate such notice or knowledge to his co-partners
in those circumstances, the respondent partnership was chargeable with
knowledge of the mortgage from the moment of its execution.
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
The legal fiction of a separate juridical personality and existence will not
authority of his co-partners, loss or injury is caused to any person, not
shield it from the conclusion of having such knowledge which naturally and
being a partner in the partnership, or any penalty is incurred, the
irresistibly flows from the undenied facts. It would violate all precepts of
partnership is liable therefore to the same extent as the partner so
reason, ordinary experience, and common sense to propose that a
acting or omitting to act.
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 Art. 1823. The partnership is bound to make good the loss:
property claimed as its own by said partnership. 1.) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplied it; and
Therefore, with the respondent partnership being inescapably chargeable 2.) Where the partnership in the course of its business receives money
with knowledge of the mortgage executed by all the partners thereof, its or property of a third person and the money or property so received
silence and failure to impugn said mortgage within a reasonable time, let is misapplied by any partner while it is in the custody of the
alone a space of more than 17 years, brought into play the doctrine of partnership.
estoppel to preclude any attempt to avoid the mortgage as allegedly
unauthorized. Art. 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.
UNDER ART. 1819, CC, LAST PARAGRAPH: So in these provisions, the law gives solidary liability to the partners. Diba as
ARTICLE 1819. XXX Where the title to real property is in the names of all the a general rule they are jointly and severally liable but dito solidary liability.
partners, a conveyance executed by all the partners passes all their rights in Please take note that this is different from the contractual obligation. Here
such property. it is solidary. In Art.1816, joint and subsidiary. Furthermore, while the
liability in Article 1816 refers to partnership obligations, this article covers
The term conveyance includes a mortgage. the liability of the partnership arising from the wrongful acts or omissions
In this case, the mortgaged property is still registered in the names of of any partner.
partners; hence, the conveyance (i.e. the mortgage) executed by all the
partners passes all their rights in such property.
INFORMATION TECHNOLOGY FOUNDATION V. COMELEC
BY DOCTRINE OF RES JUDICATA Enforcement of Liabilities
The cause of action of Civil Case No. Q036485 is barred by prior judgment. Under the Civil Code Not Possible
The right subsumed in that cause is the negation of the mortgage, postulated In any event, it is claimed that Comelec may still enforce the liability of the
on the claim that the parcels of land mortgaged by the Lims to Syjuco did not consortium members under the Civil Code provisions on partnership,
in truth belong them, but to the partnership. reasoning that MPEI et al. represented themselves as partners and members
of MPC for purposes of bidding for the Project. They are, therefore, liable to
Assuming that the properties truly belonged to the partnership, the prior the Comelec to the extent that the latter relied upon such representation.
actions filed in the individual names of the Lims could very well have been Their liability as partners is solidary with respect to everything chargeable to
put forth by the partnership itself. Since the actions involved property the partnership under certain conditions.
supposedly belonging to the partnership and were being prosecuted by the
entire membership of the partnership, the partnership was in actuality, the The Court has two points to make with respect to this argument. First, it
real party in interest. Thus, there is no reason to distinguish between the must be recalled that SK C&C, WeSolv, Election.com and ePLDT never
Lims, as individuals, and the partnership itself, since the former constituted represented themselves as partners and members of MPC, whether for
the entire membership of the latter. purposes of bidding or for something else. It was MPEI alone that
represented them to be members of a consortium it supposedly headed.
In other words, despite the concealment of the existence of the partnership, Thus, its acts may not necessarily be held against the other members.
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 Second, this argument of the OSG in its Memorandum[44] might possibly
said actions by all the individual members thereof, and consequently, those apply in the absence of a joint venture agreement or some other writing that
members acts, declaration and omissions cannot be deemed to be simply discloses the relationship of the members with one another. But precisely,
the individual acts of said members, but in fact and in law, those of the this case does not deal with a situation in which there is nothing in writing to
partnership. serve as reference, leaving Comelec to rely on mere representations and
therefore justifying a falling back on the rules on partnership. For, again, the
terms and stipulations of the MOAs entered into by MPEI with SK C&C and
How about the argument of the concept of separate juridical personality. WeSolv, as well as the Teaming Agreements of MPEI with Election.com and
Diba iba naman yung personality ni mortgagor from its owners. The court ePLDT (copies of which have been furnished the Comelec) are very clear with
said that the defense of separate juridical personality is not applicable as it respect to the extent and the limitations of the firms respective liabilities.
would be prejudicial to the petitioner. The partnership is estopped from
denying the existence of the mortgage since the partners are also the In the case of WeSolv and SK C&C, their MOAs state that their liabilities,
defendants in the case. while joint and several with MPEI, are limited only to the particular areas of
work wherein their services are engaged or their products utilized. As for
Election.com and ePLDT, their separate Teaming Agreements specifically
19
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

ascribe to them the role of subcontractor vis--vis MPEI as contractor and, magkakaroon ng partnership liability. It shall be pro rata when walang
based on the terms of their particular agreements, neither Election.com nor partnership na existing and all those represented as partners consented to
ePLDT is, with MPEI, jointly and severally liable to Comelec.[45] It follows the representation. Magiging separate sya if not all consented sa
then that in the instant case, there is no justification for anyone, much less pagrerepresent as partners.
Comelec, to resort to the rules on partnership and partners liabilities.
Please note that the important thing in this provision is that this only pertains
So in this particular case, sabi ng SC wala namang partnership eh. Wala to liability to third persons who rely on the representation. It is not created
namang joint venture kung meron man limited ang rights. Sabi ng COMELEC to establish a partnership. Lets say theres a partner by estoppel/partnership
meron and since you misrepresented dapat solidary ang liabilitySo theres by estoppel, it does not mean that a partner by estoppel is a partner by a
actually a consortium/ joint venture. Remember joint venture is a specie of contract of partnership. Meaning, wala sya yung rights na diniscuss natin
partnership. So pwede mag.apply ang provision on partnership sabi ng OSG. . before. This is only for the purpose of enforcing liability as to third persons.
The SC said may written reference kung saan limited ang liability yung iba As between them (the partners), walang contract of partnership.
sumali sa bidding.
Theres a discussion in the book of De Leon that The law makes liable as
Article 1825: When a person by words spoken or written or by conduct general partners all persons who assume to act as a corporation and may
represents himself or consents to another representing him to anyone as a include persons who attempt, but fail to form a corporation and who carry
partner in an existing partnership or with one or more persons not actual on business under the corporate name. Sabi natin before na, kapag nag-
partners he is liable to any such persons to whom such representation has apply ka as corporation, lets say hindi mo na-comply ang partner requisites,
been made who hason the faith of such representation given credit to the it does not automatically result into a partnership, because partnership is by
actual or apparent partnershipand if he has made such representation or intention. But sabi dito, they can be held liable as a general partner. Those
consented to its being made in a public manner he is liable to such who acted as a corporation failed to form a corporation, they can be held
personwhether the representation has or has not been made or liable as general partners. How do we make sense of this statement?
communicated to such person so giving credit by or with the knowledge of Remember that this is only in reference to third persons, kung nagkaroon ng
the apparent partner making the representation or consenting to its being liability yung persons who failed to form a corporation. So in effect, wala pa
made: ring partnership na nabuo because of the failed corporation. Its just that, it
created a liability in favor of the third person; they can be liable as general
1.) When a partnership liability results he is liable as though he were an partners. So theres a distinction as between themselves and as between
actual member of the partnership; third persons. This provision protects the rights of third persons.
2.) When no partnership liability results he is liable pro rata with the other
persons if any so consenting to the contract or representation as to incur Article 1826:A person admitted as a partner into an existing partnership is
liability otherwise separately. liable for all the obligations of the partnership arising before his admission
as though he had been a partner when such obligations were
When a person has been thus represented to be a partner in an existing incurredexcept that this liability shall be satisfied only out of partnership
partnership or with one or more persons not actual partners ,he is an agent propertyunless there is a stipulation to the contrary.
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 Article 1827:The creditors of the partnership shall be preferred to those of
members of the existing partnership consent to the representationa each partner as regards the partnership property. Without prejudice to this
partnership act or obligation results; but in all other cases it is the joint act rightthe private creditors of each partner may ask the attachment and
or obligation of the person acting and the persons consenting to the public sale of the share of the latter in the partnership assets.
representation.

Party by estoppel - Being of estoppel is a bar which precludes a person from DISSOLUTION AND WINDING UP
denying or asserting anything contrary to that which has been established as
the truth that is only the representation either express or implied. So Article 1828:The dissolution of a partnership is the change in the relation of
estoppel and admission or representation is conclusive upon the person the partners caused by any partner ceasing to be associated in the carrying
making it and cannot be denied as against the person later on. on as distinguished from the winding up of the business.

When a person a partner by estoppel A person not a partner may become (1) Dissolution is the change in the relation of the partners caused by any
a partner by estoppel, thus he may be liable to a third person as if he were a partner ceasing to be associated in the carrying on of the business. It is
partner, when by words or conduct he: that point in time when the partners cease to carry on the business
a) Directly represents himself to anyone as a partner in an existing together. It represents the demise of a partnership. Thus, any time a
partnership or in a non-existing partnership (with one or more partner leaves the business, the partnership is dissolved. This does not
persons not actual partners); necessarily mean the business must cease to exist for the partners may
b) Indirectly represents himself by consenting to another representing be allowed to continue the business.
him as a partner in an existing partnership or in a non existing
partnership. (2) Winding up is the actual process of settling the business or
partnership affairs after dissolution, involving the collection and
To hold the party to be liable, the third person must prove that there is distribution of partnership assets, payment of debts, and determination
representation or a bona fide reliance by him causing injury. of the value of each partners interest in the partnership. It is the final
step after the dissolution in the termination of the partnership. The
When a partnership liability results If all the actual partners consented to priority for distributing the proceeds of the process is set out in Article
the representation, then the liability of the person who represented himself 1839.]
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 (3) Termination is that point in time that all partnership affairs are
estoppel. The person becomes an agent of the partnership, kasi diba nya completely wound up and finally settled. It signifies the end of the
yung kanilang partnership, so as regards the third person, there is a partnership life. It takes place after both dissolution and winding up
partnership liability. have occurred.

When liability is pro rata When there is no existing partnership and all Article 1829:On dissolution the partnership is not terminatedbut continues
those represented as partners consented to the representation, or not all of until the winding up of partnership affairs is completed.
the partners of an existing partnership consented to the representation,
then, the liability of the person who represented himself to be a partner or Effects of dissolution:
who consented to his being represented as partner, and all those who made 1) Partnership not terminated;
and consented to such representation is joint or pro rata. 2) Partnership continues for a limited purpose;
3) Transaction of new business prohibited.
Pero kapag walang existing partnership, and only some of those represented
as partners consented to the representation, the liability will be separate. How do we cause the dissolution of a partnership?
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 There is no such thing as indissoluble partnership. Any partner has the power
partnership liability occur. Kapag ang actual partner in an existing dissolve a partnership, but not necessarily the right. It means that if you
partnership consented to another person representing him as partner,

20
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

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

Termination of Pre-termination Loss of specific


the term of period thing promised
to be
contributed*

Termination of Pre-termination Partnership


the Specific of specific business
undertaking undertaking becomes
unlawful

Will of any Will of any Death,


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

Expulsion of a Insolvency of the


partner bona partnership
fide under the
powers granted
in the
agreement

Mutual
withdrawal by all
partners

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

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


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

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


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

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


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

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

21
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

Article 1835:The dissolution of the partnership does not of itself discharge


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

22
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

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


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

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

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

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

Right to continue the business in the


EFFECT OF DISSOLUTION AS TO PARTNERS AUTHORITY (ART 1832)
same name either by themselves or
A partner acts as an agent of the partnership and of the partners as well.
jointly with others provided they
GENERAL RULE: Dissolution terminates all authority of any partner to act for
secure:
the partnership.
1. the payment by
EXCEPTION:
(1) So far as necessary to wind up the partnership affairs are completed;
(2) To complete transactions begun but not then finished. 22
Example of had extended credit: May receivable. May icocollect ang
EFFECTS OF TRANSACTIONS ENTERED INTO BY A PARTNER AFTER partnership sa third person. So sabi nya [the partner]: Nadissolve na kami.
DISSOLUTION Im authorized to liquidate. You should pay. Is the partnership bound? Kung
Reasons: magbayad yung third person, matanggal ba yung collectible ng partnership sa
kanya? Kung wala syang knowledge to the want of authority of that partner,
BOUND ang partnership
24
From the Lectures of: Atty. Raymund Christian S. Ong Abrantes, CPA (S.Y. 2017-2018)

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

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

RIGHTS OF INJURED PARTNER WHERE THE PARTNERSHIP CONTRACT IS


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

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


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

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

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


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

25