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PARTNERSHIP

5. a CORPORATION cannot become a partner on


grounds of public policy

PARTNERSHIP
it is a CONTRACT whereby two or more
persons (1) bind themselves to CONTRIBUTE money,
property, or industry to a COMMON FUND (2) with the
intention of dividing the PROFITS among themselves or
in order to EXERCISE a PROFESSION
a STATUS and a FIDUCIARY RELATION
subsisting between persons carrying on a business in
common with a view on profit
CHARACTERISTICS
PARTNERSHIP

OF

THE

CONTRACT

OF

[C, C, L, I, AS, NP]


1. CONSENSUAL
perfected by mere consent
2. CONTRIBUTION of money, property or industry to a
COMMON FUND
3. LAWFUL object
4. INTENTION of DIVIDING the PROFIT among the
PARTNERS
5. AFFECTIO SOCIETATIS
the desire to formulate an ACTIVE UNION,
with people among whom there
exist a mutual
CONFIDENCE and TRUSTS
6. NEW PERSONALITY
the object must be for profit and not merely for
the common enjoyment otherwise only a co-ownership
has been formed. HOWEVER, pecuniary profit need not
be the only aim, it is enough that it is the principal
purpose
BUSINESS TRUSTS
when certain persons entrust their property or
money to others who will manage the same for the
former
RULES ON CAPACITY TO BECOME A PARTNER
1. a person capacitated to enter into contractual
relations may become a partner
2. an UNEMANCIPATED MINOR CANNOT
become a partner UNLESS his parent or
guardian consents
3. a MARRIED WOMAN, cannot contribute
conjugal funds as her contribution to the
partnership UNLESS she is permitted to do so
by her husband OR UNLESS she is the
administrator of the conjugal partnership, in
which the COURT must give its consent
authority
4. a PARTNERSHIP being a juridical person by
itself can form another partnership

a partner shares not only in profits but also in the


losses of the firm
RULE:
> the partnership has a PERSONALITY
SEPARATE and DISTINCT from that of each partner
CONSEQUENCES OF THE PARTNERSHIP BEING A
JURIDICAL ENTITY
1. its juridical personality is SEPARATE and
DISTINCT from that of each partner
2. the partnership CAN in GENERAL:
A) acquire and possess property of all
kinds
B) incur obligations
C) bring civil and criminal actions
D) can be adjudged insolvent even if the
individual members be each financially
solvent
3. unless he is generally sued, a partner has no
right to make a separate appearance in court, if
the partnership being sued is already
represented
LIMITATIONS ON ALIEN PARTNERSHIP
1) if 60% capital is not owned by Filipinos
the firm cannot acquire by purchase or
otherwise AGRICULTURAL Philippine lands
2) foreign partnership may lease lands provided the
period does not exceed 99 years
3) foreign partnership may be MORTGAGEES of land
period of 5 years, renewable for another 5
they cannot purchase it in a foreclosure sale
RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY
ORGANIZED AS PARTNERSHIP
1. it possesses NO LEGAL PERSONALITY
it cannot sue as such HOWEVER, the partners in
their individual capacity CAN
2. one who enters into a contract with a partnership
as such cannot when sued later on for recovery
of the debt, allege the lack of legal personality
on the part of the firm, even if indeed it had no
personality
ESTOPPEL
whether a partnership has a juridical
personality or not depends on its PERSONAL LAW of
the partnership or the law of the place where the
partnership was organized
REQUISITES FOR EXISTENCE OF PARTNERSHIP [I,
CF, JI]
1. INTENTION to create a partnership

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2. COMMON FUND obtained from contributions
3. JOINT INTERESTS in the PROFITS
WHAT DO NOT ESTABLISH A PARTNERSHIP
1. mere co-ownership or co-possession
even with profit sharing
2. mere sharing of GROSS returns
even with joint ownership of the properties
involved
RULES TO DETERMINE THE EXISTENCE OF A
PARTNERSHIP
1.

persons who are not partners to each other are


not partners as to third persons
EXCEPTION:
PARTNERSHIP BY ESTOPPEL

2.

CO-OWNERSHIP of a property does not itself


establish a partnership, even though the coowners share in the profits derived from the
incident of joint ownership

3.

SHARING OF GROSS RETURNS ALONE does


not indicate a partnership whether or not the
persons sharing them have a joint or common
right or interest in any property from which the
returns are derived

4.

the receipt of the share in the profits is a strong


presumptive evidence of partnership
HOWEVER, no such inference will be drawn if
such profits were received in payment
A) as a DEBT by installments or otherwise
B) as WAGES of an employee
C) as RENT to a landlord
D) as an ANNUITY to a widow or
representative of a deceased partner
E) as INTEREST on a LOAN, though the
amount of payment vary with the profits
of the business
F) as the CONSIDERATION for the sale of
a GOOD WILL of a business or other
property or otherwise
creditors are not partners, for their only
interest in the sharing of profits is the receipt or
payment of their credits
in a partnership, the partners are supposed to
trust and have confidence in all the partners

PARTNERSHIP BY ESTOPPEL
IF 2 persons not partners represent
themselves as partners to strangers, a
partnership by estoppel results
WHEN 2 persons, who are partners, in
connivance with a friend who is not a partner
inform a stranger that said friend is their partner,
a partnership by estoppel also result to the end
that the stranger should not be prejudiced

RULE: LAWFUL OBJECT or PURPOSE


a partnership must have LAWFUL OBJECT or
PURPOSE, and must be established for the common
benefit or interest of the partners
it must be within the commence of man,
possible and not contrary to law, morals, good customs,
public order or public policy
IF a partnership has SEVERAL PURPOSES,
one of which is UNLAWFUL, the partnership can still
validly exist so long as the illegal purpose can be
separated from the legal purposes
NO need for JUDICIAL DECREE to dissolve
an unlawful partnership
VOID AB INITIO
one of the causes for the dissolution of a
partnership is any event which makes it unlawful for the
business of the partnership to be carried on
RULE:

when an UNLAWFUL PARTNERSHIP is


dissolved by a judicial decree, the PROFITS shall be
CONFISCATED in FAVOR of the STATE
G. R.
a partnership may be constituted in any form
EXCEPTION: PUBLIC INSTRUMENT
1. IMMOVABLE PROPERTY is contributed
2. REAL RIGHTS are contributed
*

need for INVENTORY of IMMOVABLES

** for EFFECTIVITY of the partnership contract insofar


as innocent third persons are concerned the same must
be REGISTERED if REAL PROPERTIES are
INVOLVED
a partnership contract is NOT CONVERED by
the STATUTE of FRAUDS
an AGREEMENT TO FORM a partnership
does not itself create a partnership
when there are conditions to be fulfilled or
when a certain period is to lapse, the partnership
is not created till after the fulfillment of the
conditions or the arrival of the term and this is
true even if one of the parties has already
advanced his agreed share of the capital
RULE: if CAPITAL is P3,000 or more
REQUIRED:
1. PUBLIC INSTRUMENT
2. RECORDED S.E.C.

* FAILURE TO COMPLY shall not effect the liability


of the partnership and its members to third persons
** IF REAL PROPERTIES have been contributed,
REGARDLESS of the VALUE, a public instrument is
needed for the attainment of legal personality
REQUIREMENTS WHERE IMMOVABLE / REAL
PROPERTY IS CONTRIBUTED
1. PUBLIC INSTRUMENT
2. INVENTORY signed and attached to the P.I.
* applies regardless of the value of the real
property
* applies even if only real rights over the real
property are
contributed
* applies if aside from real property, cash or
personal property is
contributed
TRANSFER of land to the partnership must be duly
recorded in the ROD to make the transfer effective
insofar as third persons are concerned
RULE:
any immovable property or an interest therein maybe
acquired in the partnership
name
title so acquired can be conveyed only in the
partnership name
IF the partnership has ALIENS, it CANNOT OWN
LANDS, whether public or private or whether agricultural
or commercial EXCEPT through HEREDITARY
SUCCESSION
LIMITATIONS ON ACQUISITION
1. AGRICULTURAL LANDS 1024 HECTARES
2. lease of public lands (GRAZING) 2000 HAS.
RULES IF
A) articles are kept secret among the members
B) any one of the members may contract in his own
name with third persons
1. NOT a partnership NOT a LEGAL PERSON
2. it may be sued by third person under the
common name it uses
3. it cannot sue as such and cannot be ordinarily
be a party to a civil action
4. insofar as innocent third parties are concerned
the parities can be considered as members of a
partnership
5. as between themselves or insofar as third
persons are prejudiced
only the rules of co-ownership must apply
EFFECT OF CERTAIN TRANSACTIONS
1. contracts entered into by a partner in his own
name may be sued upon still by him in his

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individual
capacity,
notwithstanding
the
absence of a partnership
2. when two or more individuals, having a common
interests in a business bring a court action, it
should be presumed that they prosecute the
same in their individual capacity as co-owners
and not in behalf of a partnership which does not
exist in legal contemplation
CLASSIFICATION OF PARTNERSHIPS
A) ACCORDING TO MANNER OF CREATION
1. ORALLY constituted
2. constituted in a PRIVATE INSTRUMENT
3. constituted in a PUBLIC INSTRUMENT
4. REGISTERED S.E.C.
B) ACCORDING TO OBJECT
1. UNIVERSAL
2. PARTICULAR
C) ACCORDING TO LIABILITY
1. LIMITED PARTNERSHIP
2. GENERAL PARTNERSHIP
D) ACCORDING TO LEGALITY
1. LAWFUL OR LEGAL
2. UNLAWFUL OR ILLEGAL
E) ACCORDING TO DURATION
1. for a SPECIFIC PEIOD or FIXED PERIOD
2. PARTNERSHIP AT WILL
F) ACCORDING TO REPRESENTATION TO OTHERS
1. ORDINARY PARTNERSHIP
2. PARTNERSHIP BY ETOPPEL
G) AS TO LEGALITY OF EXISTENCE
1. DE JURE PARTNERSHIP
2. DE FACTO PARTNERSHIP
H) AS TO PUBLICITY
1. SECRET PARTNERSHIP
2. NOTORIOUS / OPEN PARTNERSHIP
I) AS TO PURPSE
1. COMMERCIAL / TRADING
2. PROFESSIONAL / NON-TRADING
GENERAL PARTNERSHIP
one where all the partners are general partners
they are LIABLE even with respect to their individual
properties, after the assets of the partnership has been
exhausted
LIMITED PATNERSHIP
one where at least one partner is a general partner
and the others are limited partners
one whose liability is limited only up to the extent of his
contribution
a partnership where all the partners are limited
partners cannot exist as a limited partnership
REFUSED REGISTRATION
IF it continuous as such, it will be considered as a
general partnership and all the
partners will be
general partners

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KINDS OF UNIVERSAL PARTNERSHIP
1. PARTNERSHIP OF ALL PRESENT PROPERTY
2. PARTNERSHIP OF ALL PROFITS
*UNIVERSAL PARTNERSHIP OF ALL PRESENT
PROPERTY
CONTRIBUTION of
1. ALL the properties actually belonging to the
partners
2. the PROFITS acquired with said property
BECOMES COMMON PROPERTY
EXCEPT all FUTURE PROPERTY
FRUITS of FUTURE PROPERTY INCLUDED IF
STIPULATED UPON
*UNIVERSAL PARTNERSHIP OF PROFITS
comprises all that the partners may acquire by the
INDUSTRY or WORK of the partners become common
property regardless of within said profits were obtained
through the usufruct contributed
EXCEPT PRIZES and GIFTS
RULE:
articles of universal partnership, entered without
specification of its nature, only constitute a universal
partnership of PROFITS
RULE:
persons who are prohibited from giving each other any
donation or advantage cannot enter into universal
partnership
WHO:
1. HUSBAND and WIFE
2. those guilty of ADULTERY or CONCUBINAGE
3. those guilty of the same criminal offense if the
partnership was entered into in consideration of
the same
while spouses cannot enter into a universal
partnership, they can enter into a particular partnership
or be members thereof
a universal partnership is virtually a donation to each
other of the partners properties or at least their usufruct
PARTICULAR PARTNERSHIP
a particular partnership has for its OBJECT:
1. DETERNMINATE THINGS their use or fruits
2. SPECIFIC UNDERTAKING
3. EXERCISE of a PROFESSION or VOCATION
OBLIGATIONS OF THE PARTNERS
RULE:
a PARTNERSHIP BEGINS from the moment of the
EXECUTION of the CONTRACT
* even if contributions have not yet been made the firm
already exists, for partnership is a consensual contract

DURATION OF PARTNERSHIP
UNLIMITED
* MAY BE AGREED UPON
1. EXPRESSLY definite period
2. IMPLIEDLY upon achievement of its
purpose
PARTNERSHIP AT WILL
a partnership wherein its continued existence really
depends upon the will of the partners or even on the will
of any of them
2 KINDS:
1. when there is no term, express or implied
2. when it is continued by the habitual managers
although the period has ended or the purpose
has been accomplished
3 IMPORTANT DUTIES OF EVERY PARTNER [C, D-F,
W]
1. duty to CONTRIBUTE what had been promised
2. duty to DELIVER the FRUITS of what should
have been delivered
3. duty to WARRANT
RIULES ON THE DUTY TO CONTRIBUTE
1. the contribution must be made at the time the
partnership is entered into UNLESS a different
period is stipulated
2. no demand is needed to put the partner in
default
3. the partner must exercise due diligence in
preserving the property to be contributed before
he actually contributes the same
4. a partner who promises to contribute to the
partnership becomes a promissory debtor of the
partnership
RULES ON THE DUTY TO DELIVER THE FRUITS
1. IF property has been promised, the fruits thereof
should also be given
2. the fruits referred to are those arising from the
time they should have been delivered, without a
need of any demand
3. IF the partner is in BAD FAITH, he is liable not
only for the fruits actually produced, BUT also for
those that could have been produced
4. IF MONEY HAS BEEN PROMISED, INTEREST
and DAMAGES from the time he should have
complied with his obligation should be given
5. NO DEMAND is needed to put the partner in
default

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6. it is DELIVERY, actual or constructive that
TRANSFERS OWNERSHIP
RULES ON THE DUTY TO WARRANT
1. the warranty in case of eviction refers to specific
and determinate things already contributed
2.

there is EVICTION whenever by a final


judgment based on a right prior to the sale or an
act imputable to the partner, the partnership is
deprived of the whole or a part of the thing
purchased

RULE WHEN CONTRIBUTION CONSISTS OF GOODS


APPRAISAL of VALUE is needed to determine how
much was contributed
> HOW APPRAISAL MADE
1. as PRESCRIBED in the CONTRACT
2. in default, by EXPERTS chosen by the partners,
and at CURRENT PRICES
*necessity of the INVENTORY APPRAISAL
RULE on RISK of LOSS
after goods have been contributed, the partnership
bears the risk of subsequent changes in the value
RULE:
a partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the
interest and damages from the time he should have
complied with his obligation
Types of Partners:
1) According to contribution:
a) CAPITALIST PARTNER
one who FURNISHES CAPITAL
NOT EXEMPTED from LOSSES
he can engage in other business PROVIDED
there is no competition between the partnership and his
business
share in the profits according to agreements
b) INDUSTRIAL PARTNER
one who FURNISHES INDUSTRY or LABOR
he is EXEMPTED from LOSSES as between
the partner BUT liable to strangers without prejudice to
reimbursement from the capitalist partner
he CANNOT engage in any other BUSINESS
WITHOUT the express CONSENT of the other partners,
OTHERWISE
1. he can be EXCLUDED from the firm - plus
damages OR
2. the BENEFITS he obtains from the other
businesses CAN BE AVAILED of by the other
partners - plus damages
whether or not there is COMPETITION
in computing always look for
----- NET PROFIT
----- NET LOSSES
c) CAPITALIST INDUSTRIALIST PARTNER
> one who contributes BOTH CAPITAL and
INDUSTRY

2) According to Liability:
c) GENERAL PARTNER
one who is liable beyond the extent of his
contribution
d) LIMITED PARTNER
one who is liable only to the extent of his
contribution
***an industrial partner can only be a general partner,
never a limited partner
3) According to participation/activity:
e) MANAGING PARTNER
one who manages actively the firms affairs
f) SILENT PARTNER
one who does not participate in the management,
though he shares in the PROFITS or LOSSES
g) LIQUIDATING PARTNER
one who winds up or liquidates the affairs of the
firm after it has been dissolved
h) OSTENSIBLE PARTNER
one whose connection with the firm is public and
open
i) SECRET PARTNER
one whose connection with the firm is concealed or
kept secret
j) DORMANT PARTNER
one who is both a secret (hidden) and silent (not
managing) partner
k) NOMINAL PARTNER
one who is not really a partner BUT who may
become liable as such insofar as third persons are
concerned
RULE:
partners shall CONTRIBUTE EQUAL SHARES to the
capital of the partnership
*it is permissible to contribute UNEQUAL SHARES
IF there is a stipulation to this effect
*in the absence of proof, the shares are presumed
to be equal
CONDITIONS before a capitalist partner is obliged to
sell his shares / interest to the other partners[IL, RC,
NA]
1. if there is IMMINENT LOSS of the BUSINESS of
the partnership
2. he REFUSES to
CONTRIBUTE
ADDITIONAL SHARE to the CAPITAL
3. there is no agreement to the contrary
* INDUSTRIAL PARTNER IS EXEMPTED

an

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*RULE if
CREDIT

MANAGING

PARTNER

COLLECTS

REQUISITES:
1. existence of at least 2 debts
---- PARTNERSHIP ---- PARTNER
2. both sums are demandable
3. the collecting partner is the managing partner
*the sum thus collected shall be applied to the two
credits in
proportion to their amounts
RULE:
*where a partner receives his share in the partnership
credit
CONDITIONS:
1. a partner has received his share in the
partnership credit in whole or in part
2. the other partners have not collected their part
of the credit
3. the debtor subsequently becomes INSOLVENT
RULE: - the partner shall be obliged to bring to the
partnership
capital what he received even though he may have given
receipt for
his share only
* DOES NOT APPLY when debt was collected after
dissolution of the partnership
RULE:
*every partner is responsible to the partnership for
damages suffered by it through his fault
*he cannot compensate them with the profits and
benefits, which he may have earned for the partnership
by his industry
*the courts may equitably lessen his responsibility
RES PERIT DOMINO
*RULES ON WHO BEARS THE RISK OF LOSS
1.

if SPECIFIC and DETERMINATE THINGS NOT


FUNGIBLE whose USUFRUCT is enjoyed by a
firm
the PARTNER who OWNS it bears the loss for
ownership was never transferred to the firm
2. FUNGIBLE or DETERIORABLE
FIRM bears the loss for it is evident ownership was
transferred
3. THINGS CONTRIBUTED to be SOLD
FIRM bears the loss for evidently the firm was intended
to be the owner

4. CONTRIBUTED under APPRAISAL


FIRM bears the loss because this has the effect of an
implied sale

RULE on RESPONSIBILITY of the FIRM


1. to REFUND amounts disbursed on behalf of the
firm plus legal interest from the time expenses
where made
2. to ANSWER to each partner for OBLIGATIONS
he may have entered into in good faith in the
interest of the partnership, as well as the risks in
consequence of its management
* REFUND must be made even in case of failure of the
enterprise entered into, provided the partner is not at
fault
* AMOUNT DISBURSED does not refer to the
ORIGINAL CAPITAL
*HOW PROFITS ARE DISTRIBUTED
1. according to AGREEMENT
2. IF
NONE,
according
to
CONTRIBUTION

amount

of

*HOW LOSSES are DISTRIBUTED


1. according to AGREEMENT as to losses
2. IF NONE, according to agreement as to
PROFITS
3. IF
NONE,
according
to
amount
of
CONTRIBUTION
*an INDUSTRIAL PARTNER shall receive a JUST and
EQUITABLE share in the profits
*RULE on INDUSTRIAL PARTNERS LIABILITIES
- may be held liable by third persons BUT he may
recover what he has paid from the other capitalist
partners
*RULE on DESIGNATION by THIRD PERSON of
SHARES in PROFITS and LOSSES
*third person is NOT a PARTNER -- appointed to only
distribute shares
*the designation of shares by third persons may be
IMPUGNED, IF it is MANIFESTLY INEQUITABLE
*the designation of shares by third persons CANNOT
be IMPUGNED EVEN IF MANIFESTLY INEQUITABLE
IF:
1. the aggrieved partner has already BEGUN to
EXECUTE the decision
2. the aggrieved partner has not IMPUGNED the
distribution within 3 months he had knowledge
*RULE IF APPOINTMENT OTHER THAN in the
ARTICLES of PARTNERSHIP

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1. power to act may be REVOKED at ANY TIME
with or without just cause
REMOVAL should be done by the controlling
interest

4. authority to bind the firm does not apply if


somebody else has been given authority to
manage in the articles of organization or through
some other means

2. EXTENT of POWER
as long as he remains manager, he can perform all
acts of administration BUT if others oppose and he
persists, he can be removed

5. ALTERATIONS REQUIRE UNANIMITY


- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is prejudicial
to the interest of the partnership
- COURTS INTERVENTION may be sought

*RULE WHEN there are 2 or MORE MANAGERS


CONDITIONS:
1. 2 or more partners are managers
2. there is no specification of respective duties
3. there is no stipulation requiring UNANIMITY
SPECIFIC RULES:
1. each may separately execute all acts of
administration
UNLIMITED POWER to ADMINISTER
2. IF any of the managers OPPOSE
MAJORITY RULE
IN CASE OF A TIE
- persons owning controlling interest prevail
provided they are also managers
*right to oppose is not given to NON-MANAGERS
* OPPOSITION should be done BEFORE the acts
produce legal effects insofar as third persons are
concerned
RULE WHEN UNANIMITY is REQUIRED
1. the CONCURRENCE of all shall be necessary
for the validity of the acts
2. the ABSENCE or DISABILITY of ANYONE of
them CANNOT BE ALLEGED UNLESS there is
imminent danger of grave or irreparable injury to
the partnership
RULE ON DUTY of THIRD PERSONS
third persons are not required to inquire as to whether
or not a partner with whom he transacts has the consent
of all the managers
*RULES to be observed when the manner of
management has not been agreed upon:
1. all the partners are considered AGENTS
whatever any one of them may do alone shall not
bind the partnership
2. IF the acts of one are opposed by the rest, the
majority shall prevail
3. when a partner acts in his OWN NAME, he does
not bind the partnership

RULES on ASSOCIATE of PARTNER


1. every partner may associate another person
with him in his share
2. for a partner to have an associate in his share
consent of all the other partners is NOT REQUIRED
3. for the associate to become a partner
ALL MUST CONSENT
RULES on PARTNERSHIP BOOKS
1. kept at the principal place of business of the
partnership
2. at any reasonable hour, every partner shall have
access to and may inspect and copy any of
them
DUTY of PARTNERS TO GIVE INFORMATION
good faith not only requires that a partner should not
make any FALSE CONCEALMENT, BUT he should
abstain from all concealment
DUTY to ACCOUNT [B, P, U-P]
every partner must account to the partnership
1. any benefit acquired
2. any profits received
3. any use of partnership property
RIGHT TO DEMAND a FORMAL ACCOUNT
any partner shall have the right to a formal account as
to partnership affairs
1. if wrongfully excluded from partnership
BUSINESS
2. if wrongfully excluded from partnership
PROPERTY by his co-partners
3. if the right exists under the terms of agreement
4. if the other partner receives other benefits,
profits or uses partnership property
5. whenever other circumstances render it just and
reasonable
*the right to demand an accounting exists as long as
the partnership exists
*prescription begins to run only upon the dissolution of
the partnership when the final accounting is done
PROPERTY RIGHTS OF PARTNERS [P, I, M]
1. rights in specific PARTNERSHIP PROPERTIES

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2. INTERESTS in the PARTNERSHIP
3. right to PARTICIPATE in the MANAGEMENT
RULE:
*a partner is CO-OWNER with his partners of
SPECIFIC PARTNERSHIP PROPERTY
* RIGHTS of a PARTNER
PARTNERSHIP PROPERTY

in

SPECIFIC

1. he has equal rights with his partners to


POSSESS the property BUT only for
PARTNERSHIP PURPOSES
he may possess such property for other purposes
PROVIDED the other partners expressly or impliedly
gives their CONSENT

*** while a partners INTEREST in the firm may be


CHARGED or LEVIED upon, his INTEREST in a specific
firm PROPERTY CANNOT be attached.
RIGHTS of the ASSIGNEE
1. to get whatever profits the assignor-partner
would have obtained
2. to avail himself of the usual remedies in case of
fraud in the management
3. to ask for ANNULMENT of the contract of
assignment IF:
A) he was induced to enter into it through any of the
vices of consent
OR
B) he himself was incapacitated to give consent

2. he CANNOT ASSIGN his right to the property


EXCEPT if all the other partners assign their
rights in the same property

4. to demand an accounting BUT only if the


partnership is dissolved

3. his right to the property is NOT SUBJECT to


ATTACHMENT or EXECUTION, EXCEPT on a
claim against partnership

PREFERENTIAL
RIGHTS
of
PARTNERSHIP
CREDITORS
*partnership creditors are entitled to PRIORITY over
partnership assets, including the partners interest in the
profits

4. his right to the property is NOT SUBJECT to


LEGAL SUPPORT
*if there is PARTNERSHIP DEBT, the specific property
can be attached
RULE:
*a PARTNERS INTEREST in the partnership is his
SHARE of the PROFITS and SURPLUS
IT CAN BE: [A, A, LS]
1. ASSIGNED
2. ATTACHED
3. be subject to LEGAL SUPPORT
*EFFECTS of CONVEYANCE by PARTNER of his
INTEREST in the PARTNERSHIP
1. IF he conveys his WHOLE INTEREST
A) partnership may still remain
B) partnership may be dissolved
*mere conveyance does not dissolve the partnership
2. the ASSIGNEE does not necessarily become a
partner
the ASSIGNOR is still the partner, with a right to
demand accounting and settlement
3. the ASSIGNEE CANNOT interfere in the
MANAGEMENT or ADMINISTRATION of the
firm
the ASSIGNEE CANNOT also DEMAND[I, A, I]
A) INFORMATION
B) ACCOUNTING
C) INSPECTION of partnership books

** SEPARATE or INDIVIDUAL creditors have


PREFERENCE in separate or individual properties
* when the CHARGING ORDER is applied for and
granted, the court may appoint a receiver of the partners
share in the profits
the receiver appointed is entitled to any relief
necessary to conserve the partnership assets for
partnership purposes
*interest charged may be redeemed at any time
before foreclosure
*AFTER FORECLOSURE the interest may still be
redeemed by (without causing dissolution)
1. withseparate property, by any one or more of the
partners
OR
2. withpartnership property, by any one or more partners
with the consent of all the partners whose interests are
not so charged or sold
*consent of the delinquent partner not needed
RULE:
every partnership shall operate under a FIRM NAME
*the firm name may or may not include the name of
one or more of the partners
** STRANGERS who include their names in the firm
are liable as partners because of ESTOPPEL, BUT do
NOT have the RIGHTS of partners

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** IF a LIMITED PARTNER includes his name in the
firm name, he has obligations BUT not the rights of a
general partner

*a partnership is a CONTARCT of MUTUAL AGENCY,


each partner acting as a principal on his own behalf and
as an agent for his co-partners or the firm

RULE
on
LIABILITY
for
CONTRACTUAL
OBLIGATIONS
*all partners, including industrial ones, shall be liable
pro-rata with all their property and after all the
partnership assets have been exhausted

REQUISITES on WHEN can a partner BIND the


partnership
1. expressly or impliedly AUTHORIZED
2. when he acts in BEHALF AND IN THE NAME of
the partnership

* NOT APPLICABLE for TORTS or CRIMES


----- LOSS
----- INJURY
----- MISAPPROPRIATION

INSTANCES of IMPLIED AUTHORIZATION


1. when the other partners DO NOT OBJECT,
although they have knowledge of the act
2. when the act is for apparently carrying on in the
usual way the business of the partnership
* this is binding on the firm even if the partner was
not really authorized PROVIDED that the third party is in
GOOD FAITH

**while an INDUSTRIAL PARTNER is exempted by law


from LOSSES as between the partners, he is NOT
EXEMPTED from liability insofar as third persons are
concerned
he may recover what he has paid from the CAPITALIST
partners
*under the law the liability of the partners is subsidiary
and joint NOT principal and solidary
*RULE on LIABILITY of a PARTNER who has
WITHDRAWN
1. a partner who withdraws is not liable for
liabilities contracted after he has withdrawn
2. if his interest has not yet been paid him
his right to the same is that of a mere creditor

RULE on UNUSUAL ACTS


one or more but less than all the partners HAVE NO
AUTHORITY TO:
[AP, DG, AI, CJ, EC, SA, RC]
1. ASSIGN the PARTNERS PROPERTY
2. DISPOSE of GOODWILL
3. do any other act which would make it impossible
to carry on the ordinary business of the
partnership
4. CONFESS a judgment
5. ENTER into a COMPROMISE
6. SUBMIT to ARBITRATION
7. RENOUNCE to CLAIM
*RULES on CONVEYANCE of REAL PROPERTY

**a stipulation exempting liability to third persons is


VOID
*any partner may enter into a separate obligation to
perform a partnership contract
RULE:
*every partner is an agent of the partnership for the
purpose of its business
G.R.- the act of every partner for apparently carrying on
in the USUAL WAY the business of the partnership of
which he is member binds the partnership
EXCEPT:
1. if he has NO AUTHORITY
and
2. the person with whom he was dealing with HAS
KNOWLEDGE of the fact that he has no such authority
RULE:
an act of a partner which is not apparently for the
carrying on of business of the partnership in the usual
way does not bind the partnership UNLESS authorized
by the other partners

1. where title to real property is in the partnership


name
any partner may convey title to such property by a
conveyance executed in the partnership name
* PARTNERSHIP MAY RECOVER SUCH PROPERTY
EXCEPT:
1. if the firm is engaged in the buying and
selling of land (USUAL BUSINESS)
2. if property was conveyed to a HOLDER
for VALUE and who had NO
KNOWLEDGE of the partners LACK of
AUTHORITY
2. where title is in the name of the partnership and
partner sold in his OWN NAME
IF DONE IN USUAL BUSINESS
buyer does not become owner BUT ACQUIRES
EQUITABLE INTEREST
IF NOT DONE IN USUAL BUSINESS
buyer does not become owner and is not even entitled
to equitable interest

10
3. where title is in the name of one or more BUT not all
the partners
partners in whose name the title is named MAY
CONVEY BUT the PARTNERSHIP may RECOVER such
property IF done not in its USUAL BUSINESS EXCEPT
if he had transferred it to a Holder for value
4. when property held in trust by partner
a sale only conveys EQUITABLE INTEREST
5. when title is in the name of all partners
conveyance executed by all partners possess all rights
of such property
EQUITABLE INTEREST
-BENEFICIAL INTEREST, BUT NOT NAKED
OWNERSHIP
*RULE on ADMISSION or REPRESENTATION MADE
by a PARTNER
an admission by a partner is an admission against the
partnersip,under the following conditions:
1. the admissions must concern partnership affairs
2. must be within the scope of his authority
RESTRICTIONS ON THE RULE:
1. admissions made BEFORE DISSOLUTION are
binding only when the partner has authority to
act on the particular matter
2. admissions made AFTER DISSOLUTION are
binding only if the admissions were necessary to
WIND UP the business
3. an admission made by a former partner made
after he has RETIRED from the partnership is
not evidence against the firm
EFFECT of NOTICE to a PARTNER
notice to a partner is notice to the partnership
*notice to a partner, given while already a partner is a
notice to the partnership PROVIDED it relates to
partnership affairs
EFFECT of KNOWLEDGE ALTHOUGH NO NOTICE
WAS GIVEN:
*knowledge of the partner is also knowledge of the
firm PROVIDED THAT:
1. the knowledge was acquired by a partner who is
acting in the particular matter involved; and
2. the partner having knowledge, had reason to
believe that the fact related to a matter which
had some possibility of being the subject of the
partnership business AND he was so situated

that he could communicate it to the partner


acting on that particular matter
* SERVICE of PLEADINGS on the partner in a law
firm is also service on the whole firm and the other
partners
LOSS OR INJURY
RULE on WRONGFUL ACT or OMISSION of a
PARTNER (SOLIDARY LIABILITY)
*the partnership is solidarily liable with the partner if
the wrongful act or omission
1. the partner is acting in the ordinary course of
business of the partnership
OR
2. with authority of his co-partners
*innocent partners have right to recover from the guilty
partner
* When the firm and other partners not liable:
1. if the wrongful act or omission was NOT DONE
A) within scope of partnership business
B) with authority of the other co-partners
2. if the act or omission is NOT WRONGFUL
3. if the act or omission, although wrongful did not
make the partner concern liable
- DAMNUN ABSQUE INSURIA
4. if the wrongful act or omission was committed
after the firm had been dissolved and the same
was not in connection with the process of
winding up.
LIABILITY of PARTNERSHIP for
MISAPPROPRIATION (SOLIDARY LIABILITY)
1. RECEIVING PARTY MISAPPROPRIATES
2. ANY PARTNER MISAPPPROPRIATES
- money or property in custody
partnership

of

PARTNER BY ESTOPPEL
a person who represents himself or consents to
another / others representing him to anyone as a partner
either in an existing partnership or in one that is fictitious
or apparent
PARTNERSHIP BY ESTOPPEL
when all the members of the existing partnership
consent to such representation of a partner by estoppel
RULES AND SITUATIONS:
1. if a third person is misled and acts because of
such misrepresentation
the deceiver is a partner by estoppel
2. if the partnership
misrepresentation
partnership liability results

consented

to

such

11
3. if the firm had not consented
no partnership liability results BUT the deceiver is
considered still as a partner by estoppel with all the
obligations but not the rights of a partner
4. when a person represents himself as a partner
of a NON-EXISTENT partnership
NO partnership liability results BUT the deceiver and
all persons who may have aided him in the
misrepresentation are still liable
liability would be JOINT or PRO-RATA
*when although there is misrepresentation, if the third
party is not deceived, the doctrine of estoppel does not
apply
BURDEN of PROOF
the creditor or whoever alleges the existence of a
partner or partnership by estoppel has the burden of
proving the existence of the MISREPRESENTATION
AND INNOCENT RELIANCE on it
ENTRY OF A NEW PARTNER into an EXISTING
PARTNERSHIP
RULE:
*he shall be liable for all the obligations of the
partnership BUT his liability will extend only to his share
in the partnership property
*his own individual property shall be excluded
*same liability of a limited partner
PREFERENCE of PARTNERSHIP CREDITORS
RULE:
*the creditors of the partnership shall be preferred to
those of such partner as regards the partnership
property
Without prejudice to this right
the private creditors of each partner may ask the
attachment and public sale of the share of the latter in
the partnership assets
**IF a partner sells his share to a third party, BUT the
firm itself still remains SOLVENT, partnership creditors
CANNOT assail the validity of the sale by alleging that it
is made in fraud of them, since they have not really been
prejudiced

TERMINATION
the point in time after all the partnership affairs have
been wound up
RULE ON DISSOLUTION
*on dissolution the partnership is not terminated BUT
continues until the winding up of partnership affairs is
completed
*EFFECT on OBLIGATIONS
1. just because a partnership is dissolved this does
not necessarily mean that a partner can evade
previous obligations entered into by the
partnership
2. dissolution saves the former partners from new
obligations to which they have not expressly or
impliedly consented UNLESS the same be
essential for winding up
*CAUSES OF DISSOLUTION
1. without VIOLATION of the AGREEMENT
between the partners
A) TERMINATION of the DEFINITE TERM
or PARTICULAR UNDERTAKING
B) EXPRESS WILL or ANY PARTY in
GOOD FAITH (PARTNERSHIP by
WILL)
C) EXPRESS WILL of ALL of the
PARTNERS except those who have
(interests)
ASSIGNED
or
whose
interests have been (separate debts)
CHARGED
D) EXPULSION in good faith of a member
2. in CONTRAVENTION of the agreement between
the partners
by the EXPRESS WILL of ANY PARTNER at any time
3. UNLAWFULNESS of the BUSINESS
4. LOSS thing promised
A) SPECIFIC THING PERISHES before
delivery
B) USUFRUCT is lost EXCEPT if
ownership had been transferred to the
partnership
5. DEATH of ANY partner
6. INSOLVENCY of any partner or of the
partnership
7. CIVIL INTERDICTION of any partner
8. DECREE of COURT

DISSOLUTION AND WINDING UP


the change in the relation of the partners caused by
any partner causing to be associated in the carrying on
of the business
it is the point of time the partners cease to carry on the
business together

***if the cause is not justified or no cause was given,


the withdrawing partner is liable for DAMAGES BUT in
no case can he be compelled to remain in the firm

WINDING UP
the process settling business affairs after dissolution

DISSOLUTION
ALOWED:

*the insolvency need not be judicially declared, it is


enough that the assets be less than the liabilities
by

JUDICIAL

DECREE

WHEN

12
(I, UM, I-PP, C, PB, BL, OC)
1. partner declared insane in any judicial
proceeding or is shown to be of UNSOUND
MIND
2. partner becomes INCAPABLE of performing his
part of the partnership contract
3. partner has been guilty of such CONDUCT as
tends to affect prejudicially the business
4. partners PERSISTENT BREACH of agreement
5. the business of the partnership can only be
denied on at a loss
6. other circumstances which render dissolution
equitable
IN CASE OF PURCHASER of PARTNERS INTEREST
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 ordered was
issued
*proof as to the existence of the firm must first be
given
*even if a partner has not yet been previously declared
insane by the court, dissolution may be asked, as long
as the insanity is duly proved in court
*in a suit for dissolution, the court may appoint a
RECEIVER at its discretion
EFFECTS OF DISSOLUTION
RULE:
*when the firm is dissolved, a partner can no longer
bind the partnership
*a dissolved partnership still has the personality for
the winding up of its affairs
the firm is still allowed to collect previously acquired
credits
the firm is still bound to pay of its debts
DISSOLUTION CAUSED by A-I-D
RULE: (STILL BOUND) as to each partners
G.R. where the dissolution is caused by the ACT,
INSOLVENCY or DEATH of a partner, each partner is
liable to his co-partners for his share of any liability
created by any partner acting for the partnership
EXCEPTION: - individual liabilities
1. if dissolution by ACT
the partner acting for the partnership HAD
KNOWLEDGE of the dissolution
OR
2. if dissolution by DEATH or INSOLVENCY
the partner acting for the partnership HAD knowledge
or notice of the death or insolvency
*only the partner acting assumes liability

*AFTER DISSOLUTION, a partner can still bind the


PARTNERSHIP
(WU, UT, TB)
1. By any ACT appropriate for WINDING UP
partnership affairs
2. By COMPLETING transactions UNFINISHED at
dissolution
3. By any TRANSACTION which could bind the
partnership IF dissolution had not taken place
PROVIDED the other party is:
A) PREVIOUS CREDITOR and had NO
KNOWLEDGE or NOTICE of the
dissolution OR
B) NOT a PREVIOUS CREDITOR, had NO
KNOWLEDGE
or
NOTICE
and
dissolution was NOT PUBLISHED
*if there was publication of the dissolution it is
presumed he already knows, regardless of actual
knowledge on non knowledge
WHEN is the PARTNERSHIP NOT BOUND
1. new business with third parties who are in bad
faith
2. firm dissolved because UNLAWFUL except for
acts of winding up
3. partner who acted became INSOLVENT
4. partner not authorized to wind up EXCEPT if
customer in good faith
* if after dissolution, if a stranger will represent himself
as a partner although he is not one he will be a partner
by estoppel
RULE:
*the dissolution of the partnership does not itself
discharge the existing liability of any partner
NEED for an AGREEMENT BETWEEN
1. partner concerned
2. other partners
3. creditors
RULE:
*the INDIVIDUAL PROPERTY of a DECEASED
PARTNER shall be liable for all obligations of the
partnership incurred while he was a partner BUT subject
to prior payments of his separate debts
* IF there be a NOVATION of the OLD PARTNERSHIP
DEBTS and such novation is done after one of the
partners has retired and without the consent of such
partner
said partner cannot be held liable by creditors who
made the novation with knowledge of the firms
dissolution
EXTRAJUDUCIAL AND JUDICIAL WINDING-UP

13
EXTRAJUDICIAL:
1. by the partners who have not wrongfully
dissolved the partnership
2. by the legal representative of the last surviving
partners
JUDICIAL:
under the control and direction of the court, upon
proper cause that is shown to the court
* profits that will actually enter the firm after dissolution
as a consequence of transactions already made before
dissolution are included because they are considered as
profits existing at the time of dissolution
* any other income earned after the time, like interest
or dividends on stock owned by the partners or
partnership at the time of dissolution should not be
distributed as profits BUT as merely additional income to
the capital
BETTER RIGHTS of INNOCENT PARTNERS
innocent partners have better rights than guilty
partners and that the guilty partners are required to
indemnify for the damages caused
* RIGHT of INOCENT PARTNERS TO CONTINUE the
BUSINESS
in essence this is a new partnership
can use the same firm name
can ask new members to join
BUT shall: for protection of guilty partners
1. give a BOND approved by the court
2. to PAY guilty partners his interests at the time of
dissolution MINUS DAMAGES
*a guilty partner who is EXCLUDED will be
indemnified against all present or future partnership
liabilities
RIGHT TO GET CASH
in case on non-continuance of the business, the
interest of the partner should if he desires be given in
cash
assets may be sold
a guilty partner, in ascertaining the value of his interest
is not entitled to a proportional share of the value of
GOOD WIL
RIGHTS OF INNOCENT PARTNERS IN CASE of
RESCISSION
based
on
FRAUD
AND
MISREPRESENTATION
1. Right to LIEN or RETENTION SURPLUS
CAPITAL
ADVANCES

2. Right of SUBROGATION as creditor


3. Right of INDEMNIFICATION
*ORDER
of
PAYMENT
in
WINDING-UP of
PARTNERSHIP LIABILITIES
GENERAL PARTNERSHIP: [C, R, C, P]
1. those owing to creditors other than partners
2. those owing to partners other than for capital
or profits REIMBURSEMENTS
3. those owing to partners in respect to CAPITAL
4. those owing to partners in respect to PROFITS
* IF the partnership assets are insufficient, the other
partners must contribute more money or property
PREFERENCE with RESPECT to the ASSETS
1. regarding partnership property
partnership creditors have preference
2. regarding individual properties of partners
individual creditors are preferred
RULE if PARTNER is INSOLVENT
- How INDIVIDUAL PROPERTY is DISTRIBUTED
ORDER OF PREFERENCE:
1. INDIVIDUAL or SEPARATE CREDITORS
2. PARTNERSHIP CREDITORS
3. those owing to other partners by way of
contribution
*When creditors of the dissolved partnership are
also creditors of the partnership continuing
business:
1. new partner is admitted without liquidation
2. a partner retires and assigns his rights IF the
business is continued without liquidation of the
partnership affairs
3. all but one partner retire without liquidation
4. when all partner assign their right to a person
who will assume their debt
5. after wrongful dissolution, remaining partners
continue the business without liquidation
6. when partner expelled and remaining partners
continue the business without liquidation
* liability of third person becoming a partner in the
partnership continuing the business to the creditors of
the dissolved partnership shall be satisfied out of the
partnership property ONLY
G.R. when a partner retires, he is entitled what is due
him after liquidation BUT no liquidation is needed if there
is already a settlement at the date of dissolution
JURISPRUDENCE
BASTIDA vs. MENZI

14
* articles of association by which 2 or more persons
obligate themselves to place in a common fund any
property, industry, or any of these things, in order to
obtain profit, shall be COMMERCIAL

* the sharing of gross returns does not itself


establish a partnership, within the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived

BORJA vs. ADDISON


*a surviving husband may form a partnership with the
heirs of the deceased wife for the management and
control of the community property
BUT in the absence of the formalities prescribed by
the Civil Code, knowledge of the existence of the new
partnership or community of property must at least be
brought home to third persons dealing with the surviving
husband in regard to the community real property in
order to bind them by the community agreement

*aside from the circumstances of profit, the presence


of other elements constituting partnership is necessary,
such as:
1. the clear intent to form a partnership
2. the existence of a juridical personality different
from that of the individual partners
AND
3. the freedom to transfer or assign any interest in
the property by one with the consent of the
others

KIEL vs. SABERT


*the declarations of one partner, not made in the
presence of his co-partner, are not competent to prove
the existence of a partnership between them as against
such partner
*the existence of a partnership cannot be established
by general reputation, rumor or hearsay
EVENGELISTA vs. C.I.R.
* By the contract of partnership 2 or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
the profits among themselves
ESSENTIAL ELEMENTS of a PARTNERSHIP
1. an agreement to CONTRIBUTE money,
property, or industry to a COMMON FUND
2. intent to divide the profits among the contracting
parties
* when our internal Revenue Code includes
partnerships among the entities subject to the tax on
corporations, said code which are not necessarily
partnerships in the technical sense of the term
*PARTNERSHIPS includes a SYNDICATE, GROUP,
POOL, JOINT VENTURE, or other unincorporated
organization, through or by the means of which any
business, financial operation, or venture is carried on
*a joint venture need not be undertaken in any of the
standard forms,
or in conformity with the usual requirements of the law
on partnerships, in order that one could be deemed
constituted for purposes of the TAX on corporations
PASCUAL vs. C.I.R.
*co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the
use of the property

* an isolated transaction whereby 2 or more persons


contribute funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary
intention cannot be considered a partnership
*persons who contribute property or funds for a
common enterprise and agree to share the gross returns
of that enterprise in proportion to their contribution, BUT
who severally retain the title to their respective
contribution, are not thereby rendered partners
they have no common stock or capital and no
community of interest as principal proprietors in the
business itself which the proceeds derived
*a joint purchase of land, by two does not constitute a
co-partnership in respect thereto, NOR does an
agreement to share the profits and losses on the sale of
land create a partnership
*in order to constitute a PARTNERSHIP INTER
SESE there must be:
A) an intent to form the same
B) generally participating in both profits and
losses
AND
C) such a community of interest, as far as
third persons are concerned as enables
each party to make a contract, manage
the business, and dispose of the whole
property
* the common ownership of property does not itself
create a partnership between the owners, though they
may use it for the purpose of making gains AND they
may without becoming partners, agree among
themselves as to the management and use of such
property and the application of the proceeds therefrom
*the sharing of returns does not in itself establish a
partnership within the persons sharing therein have a
joint or common right or interest in the property
there must be:
1. clear intent to form a partnership
2. the existence of a juridical personality different
from the individual partners
AND

15
3. the freedom of each party to transfer or assign
the whole property
DUTERTE vs. RALLOS
* an agreement between 2 persons to operate a
cockpit, by which one is to contribute his services and
the other to provide the capital, the profits to be divided
between them, constitutes a partnership
DELUAO vs. CASTEEL
* a contract of partnership to exploit a fishpond
pending its award to any qualified party or applicant is
VALID BUT a contract of partnership to divide the
fishpond after such award is ILLEGAL
*one of the causes of dissolution is any event which
make it unlawful for the business of the partnership to be
carried on or for the members to carry it on in
partnership
C.I.R. vs. SUTER
*a UNIVERSAL PARTNERSHIP requires either that
the object of the association be:
1. all the present property of the partners as
contributed by them to the common fund
OR
2. all that the partners may acquire by their
industry or work during the existence of the
partnership
* the subsequent marriage of the partners could not
operate to dissolve the partnership because it is not one
of the causes provided for dissolution by law with
regards to limited partnerships
*partnership has distinct and separate personality from
that of its partners
*a husband and wife may not enter into a contract of
general co-partnership/ UNIVERSAL partnership

1. EXCLUDE him from the firm


OR
2. AVAIL themselves of the benefits which he may
have obtained in violation of this provision
with a right to DAMAGES in either case
* the prohibition against an industrial partner engaging
in business for himself seeks to prevent any conflict of
interest between the industrial partner and the
partnership and to ensure faithful compliance by said
partner with his prostation
Corporation Law
1. 1. Doctrine of Corporate Opportunity a director
is made to account to his corporation, gains and
profits from transactions entered into by
him/another competing corporation in which he
has substantial interest, which should have been
a transaction undertaken by the corporation.
This s a breach of fiduciary relationship.
1. 2. Doctrine of Piercing the Veil of Corporate
Entity it is to disregard for justifiable reasons
by the state the fiction of juridical personality of
the corporation separate and distinct from the
persons composing it
1. 3. De Jure Corporation corporation formed
with all the requirements of law
1. 4. De Facto Corporation corporation
defectively formed from a bona fide attempt to
incorporate under the existing law and exercises
corporate powers
1. 5. Corporation by Estoppel a group of persons
which holds itself out as a corporation and
enters into a contract with 3rd persons on the
strength of such appearance cannot be
permitted to deny its existence in an action
under said contract

ACOAD vs. MABATO


* a partnership may be constituted in any form
EXCEPT where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary

1. 6. Corporation by Prescription body not


lawfully organized as a corporation but has been
recognized by immemorial usage as a
corporation with rights and duties maintainable
by law (ex. Roman Catholic)

*A CONTRACT of PARTNERSHIP is VOID


whenever immovable property is contributed
thereto, if inventory of said property is not made,
signed by the parties and attached to the public
instrument

1. 7. Trust Fund Doctrine the subscribed capital


stock of the corporation is a trust fund for the
payment of debts of the corporation which the
creditors have the right to look up to satisfy their
credits. Corporations may not dissipate this and
the creditors may sue the stockholders directly
for their unpaid subscriptions

EVANGELISTA vs. ABAD SANTOS


*an INDUSTRIAL PARTNER cannot engage in
BUSINESS FOR HIMSELF, UNLESS the partnership
expressly permits him to do so
IF HE SHOULD DO SO, the capitalist partners may
either:

1. 8. Voting Shares
1. a. Founders Shares given rights and
privileges not enjoyed by owners of
other stocks; right to vote/be voted in the

16
election of directors shall not exceed 5
years
Non-Voting Shares
1. a. Preferred Shares issued only with par value;
given preference in distribution of assets in
liquidation and in payment of dividends and
other preferences stated in the articles of
incorporation
2. b. Redeemable Shares expressly provided in
articles; have to be purchased/taken up upon
expiration of period of said shares purchased
whether or not there is unrestricted retained
earnings
3. c. Treasury Stocks stocks previously issued
and fully paid for and reacquired by the
corporation through lawful means (purchase,
donation, etc.)
1. 9. Exceptions where holders of non-voting
shares may vote:
1. a. amendments of articles of
incorporation
2. b. adoption/amendment of by-laws
3. c. increase/decrease of bonded
indebtedness
4. d. increase/decrease of capital stock
5. e. sale/disposition of all/substantially all
corporate property

1. 13. Watered Stock stock issued gratuitously,


money/property less than par value, services
less than par value, dividends where no surplus
profits exist
1. 14. Certificate of Stock written
acknowledgment by the corporation of the
stockholders interest in the corporation. It is the
personal property and may be
mortgaged/pledged. Transfer binds the
corporation when it is recorded in the corporate
books. A stockholder who does not pay his
subscription is not entitled to the issue of a stock
certificate. The total par value of the stocks
subscribed by him should first be paid.
1. 15. Chattel mortgage of shares registered with
the Registrar of Deeds need not be registered in
corporate books to bind third parties because
corporate books only cover absolute transfers.
But the pledgee/mortgagee may not have voting
rights unless stated in the contract and
registered in the corporate name.
1. 16. Methods of Collection of Unpaid
Subscription
1. a. call, delinquency and sale at public
auction of delinquent shares
2. b. ordinary civil action
3. c. collection from cash dividends and
other amounts due to stockholders if
allowed by by-laws/agreed to by him

6. f. merger/consolidation of corporation

1. 17. A corporation can reacquire stocks in the


following cases:

7. g. investment of funds in another


corporation/another business purpose

1. a. eliminate fractional shares

8. h. corporate dissolution

2. b. corporate indebtedness arising from


unpaid subscriptions

1. 10. Preferred Cumulative Participating Share of


Stock share entitling its holder to preference in
the payment of dividends ahead of common
stockholders and to be paid the dividends ahead
of common stockholders and to be paid the
dividends due for prior years and to participate
further with common stockholders in dividend
declarations
1. 11. Promotion Stock for Services Rendered Prior
to Incorporation Escrow Stock stock deposited
with a 3rd person to be delivered to
stockholder/assignor after complying with certain
conditions usually payment of full subscription
price
1. 12. Over-issued Stock stock issued in excess
of authorized capital stock; null and void

3. c. purchase delinquent shares


4. d. exercise of appraisal right
1. 18. Right of Appraisal
1. a. amending articles, changing,
restricting, enlarging stockholders
rights/extending, shortening corporate
life
2. b. sale/disposition of all/substantially all
of corporate assets
3. c. merger and consolidation
4. d. investment of funds in another
corporation/for a different purpose

17
1. 19. Grounds for Rejection of Registration

1. a. a direct participation in
management where his vote is
needed to approve certain corporate
actions

1. a. not in prescribed form


2. b. purpose illegal, inimical
3. c. treasurers affidavit false

2. b. indirect participation in management


to vote or remove directors

4. d. non-compliance with required Filipino


stock ownership

3. c. proprietary rights

1. 20. Corporation must organize within 2 years


from issuance of certificate of incorporation.
How to organize?
1. a. adoption of by-laws

4. d. remedial rights
1. 29. Voting Trust Agreement an agreement
between a group of stockholders and trustee for
a term not exceeding 5 years in which control
over the stocks is lodged in the trustee. The
purpose is for controlling the voting.

2. b. election of Board of Directors

1. a. in writing, notarized and filed with the


SEC and the corporation

3. c. election of officers

2. b. period not exceeding 5 years

But from issuance of certificate, it acquires juridical


personality

3. c. cannot be entered into to circumvent


the laws against monopolies, illegal
combinations in restraint of trade in
fraud

1. 21. Merger one corporation absorbs the other


and remains in existence while the other is
dissolved
1. 22. Consolidation a new corporation is created
and the consolidating corporations are
extinguished
1. 23. Theory of General Capacity a corporation
is said to hold such powers as are not
prohibited/withheld from it by general law
1. 24. Theory of Special Capacity the corporation
cannot exercise powers except those
expressly/impliedly given
1. 25. Concession Theory a group of persons
wanting to create a corporation will have to
execute documents and comply with
requirements set by the state before being given
corporate personality; merely a privilege; state
may provide causes for which the privilege may
be withdrawn
1. 26. Acts requiring majority vote of stockholder:
1. a. filing of issue value of no par value
share
2. b. adoption, amendment, repeal of bylaws
3. c. compensation and other per diems for
directors
1. 27. Where similar acts have been approved by
the directors as a matter of general practice,
custom and policy, the general manager may
bind the company even without formal
authorization of the board of directors
1. 28. Powers of stockholders:

1. 30. Cumulative Voting the number of votes


that a shareholders number of shares multiplied
by the number of directors may give all said
votes to one candidate or he may distribute
them as he may deem fit. Cumulative voting is a
matter of right in a stock corporation. In a nonstock corporation, it cannot be utilized unless
allowed by the by-laws/articles
1. 31. The power of removal of directors that may
be exercised with or without cause cannot apply
to the director representing the minority
shareholders. He may only be removed with
cause.
1. 32. General Rule: If surplus profits exceed the
requirements the corporation shall declare
dividends. This is compulsory if the surplus is
equal/or more than the paid-up capital.
Exceptions:
1. a. justified by approved expansion projects
2. b. prohibited by creditor to declare dividends
3. c. retention is necessary under existing
circumstances
1. 33. Business Judgment Rule decisions made
by a corporations management body shall not
be interfered with even by the courts unless
such acts are oppressive/unconscionable as to
violate the rights of the minority
1. 34. Individual Suit one brought to assert a right
of a stockholder peculiar to himself

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1. 35. Representative Suit brought by the
stockholder in his own behalf and in behalf of
other stockholders similarly situated, having
common cause against the corporation
1. 36. Derivative Suit brought by a stockholder
for and in behalf of the corporation to
protect/vindicate corporate rights after he has
exhausted intra-corporate remedies
Requisites:
1. a. cause of action in favor of the corporation
2. b. refusal of corporation to sue
3. c. injury to the corporation

Although corporations dissolved have 3 years to


wind up, they can convey their properties to a
trustee who can continue the suit beyond the 3
year period. The lawyer who handled the case in
the trial court may be considered as trustee for
the dissolved corporation with respect to the
matter in litigation only even if no appointment
was extended to him. (Selano vs. CA)
In a case filed before dissolution, it may continue
even beyond the 3 year period until final
determination of litigation. Otherwise, the
corporation in liquidation would lose what justly
belongs to them/be exempt from payment of
obligations because of a technicality.

1. 37. Foreign Corporations


1. a. Doing Business continuity of
commercial dealings incident to
prosecution of purpose and object of the
organization. Isolated, occasional or
casual transactions do not amount to
engaging in business. But where the
isolated act is not incidental/casual but
indicates the foreign corporations
intention to do other business, said
single act constitutes engaging in
business in the Philippines
2. b. Instances when unlicensed foreign
corporations can sue:

(6) where the unlicensed foreign corporation has a


domestic corporation
1. 38. Religious Corporations
1. a. Corporation Sole special form of
corporation; associated with the clergy
and consists of 1 person only and his
successors; incorporated by law giving
them legal capacity and advantage
2. b. Close Corporations one whose
articles provide that its shares shall not
be held by more than 20 persons; its
issued stock shall be subject to one or
more restrictions on transfer and shall
not be listed in any stock
exchange/make public offering
3. c. Non-stock Corporation one where
no part of its income is distributable to
its members and shall be used in
furtherance of the purpose of which it
was organized
1. 39. SEC Jurisdiction
1. a. original and exclusive jurisdiction
(1) fraudulent devices and schemes employed by
directors detrimental to public interest
(2) intra-corporate disputes and with the state in relation
to their franchise and right to exist as such
(3) controversies in the election, appointment of
directors, trustees, etc.
(4) petition to be declared in a state of suspension of
payments
1. b. Grounds for Suspension/Revocation of
Certificate of Registration
(1) fraud in procuring registration
(2) serious misrepresentation as to objectives of
corporation
(3) refusal to comply with lawful order of SEC
(4) continuousinoperation for at least 5 years

(1) isolated transactions

(5) failure to file by-laws within the required period

(2) action to protect good name, goodwill, and reputation


of a foreign corporation

(6) failure to file reports

(3) contracts provide that Phil. Courts will be venue to


controversies
(4) license subsequently granted enables foreign
corporation to sue on contracts executed before the
grant of the license
(5) recovery of misdelivered property

(7) other similar grounds

Issuance of New Certificates of Stock in Lieu of Lost,


Stolen or Destroyed Certificates:
1. Filing of an affidavit in triplicate setting forth the
circumstances as to how the relevant
certificate/s were lost, stolen or destroyed.

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2. Publication of notice in a newspaper of general
circulation once a week for three consecutive
weeks.
3. One year period within which any contest may
be presented to the corporation.

4. Cancellation of the lost, stolen or destroyed


certificates in the books of the corporation
5. Issuance of new certificates.