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Partnership Reviewer

- 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
Prof. Roberto Dio
attached to the public instrument (Art. 1773).
2D; Sem. 2, 2009-2010
- In the case at bar: The partnership was established to
operate a fishpond and not to engage in a fishpond
I. NATURE; CREATION business. Neither said fishpond nor a real right
thereto was contributed to the partnership by any one
A. Definition; essential features of the partners or became part of the capital thereof,
even if a fishpond or a real right thereto could become
Kinds of Organizations: part of its assets. Art. 1773 is NOT applicable.
(1) Sole proprietorship has a business name;
only one individual TORRES vs. CA (1999)
(2) Partnership partnership name; separate Quick facts: Partnership entered into for the purpose of
personality; 2 or more individuals developing land into subdivision; but their venture
(3) Corporation Corporate name; separate failed. Petitioner sisters contributed the land,
personality; multiple owners (not limited to Respondent Torres contributed his industry and
individuals) advanced the expenses and costs.
(4) Trusts - Petitioners contend that the contract is void because
(5) Associations there was no inventory of the land, citing Art. 1773.
Ratio: (1) Art. 1773 was intended primarily to protect
Requisites of a Partnership: third persons.
(1) Two or more persons bind themselves to - SC cited Tolentino: the execution of the public
contribute money, property or industry to a instrument would be useless if there is no inventory of
common fund (even if there is no actual the property contributed, because without its
contribution as long as there is an agreement to designation and description, they cannot be subject to
contribute). inscription in the Registry of Property, and their
(2) Intention to divide the profits among contribution cannot prejudice third persons. Thus, the
themselves (profits and losses) contract is declared void by the law when no such
inventory is made.
Industry work, i.e., any activity of the human body; it - THE CASE AT BAR DOES NOT INVOLVE THIRD
actually pertains to future industry PARTIES WHO MAY BE PREJUDICED.
(a) time rendered (2) Petitioners cannot in one breath deny the contract
(b) idea and in another recognize it to be able to claim from
(c) service rendered Torres the 60% of the value of the property.
- The alleged nullity of the partnership will not prevent
Features of a partnership: (Quiz) courts from considering the JVA an ordinary contract
(1) Partnership name from which the parties rights and obligations to each
(2) Joint interest (Common fund) other may be inferred and enforced.
(3) Joint management and control
(4) Mutual agency ARBES vs. POLISTICO (1929)
(5) Business for profit - There is no question that Turnuhan Polistico & Co. is
an unlawful partnership.
Purpose: to engage in a commercial or business - A partnership must have a lawful object and must be
transaction (there is the element of habituality) established for the common benefit of the partners.
Cause: The undertaking to contribute When the dissolution of an unlawful partnership is
Object: Must be lawful decreed, the profits shall be given to charitable
- Unlawful objects: (1) Prohibited by law (RPC); institutions
(1) As to profits:
(2) Those not penal in nature but prohibited by law
- To be able to receive the profits, the partners to an
unlawful partnership would have to base his action on
B. Creation
the contract which is VOID and NON EXISTENT.
- It would be immoral and unjust for the law to permit
AGAD vs. MABATO (1968)
a profit from an industry prohibited by it.
- A partnership may be constituted in any form, except
(2) As to contributions:
where immovable property or real rights are
- Since the contract is void, there is no reason for the
contributed thereto, in which case a public instrument
administrator of the Partnership to retain the
shall be necessary (Art. 1771).
contribution of the others without any consideration
because there is NO CONTRACT; for which reason he is - A contract of P. is consensual; an oral contract of P is
bound to return it, and he who has paid his as good as a written one. Where no immovable property
contribution is bound to recover it. or real rights are involved, what matters is that the
- Court applied concept of unjust enrichment parties have complied with the requisites of a
partnership.
BAUTISTA (on ARBES vs. POLISTICO CASE): - The partnership has a juridical personality separate
- Court should have applied: and distinct from that of each of the partners, even in
Art. 1411. When the nullity proceeds from the case of failure to comply with the requirements of Art.
illegality of the cause or object of the contract, and 1772, first paragraph (Capital of 3K and up public
the act constitutes a criminal offense, both parties instrument & registered with SEC).
being in pari delicto, they shall have no action - The best evidence of the existence of the partnership,
against each other, and both shall be prosecuted. which is not yet terminated (though in the winding up
Moreover, the provisions of the Penal Code relative to stage), are the unsold goods and uncollected
the disposal of effects or instruments of a crime receivables still in the possession of Tocao. (Her right to
(forfeited in favor of the State) shall be applicable to possess the goods of the partnership proved that she
the things or the price of the contract. was a partner/co-possessor.)
- A mere falling out or misunderstanding between
Art. 1412. If the act in which the unlawful or partners does not convert the partnership into a sham
organization the partnership exists until dissolved
forbidden cause consists does not constitute a
under the law.
criminal offense, the following rules shall be
- Any one of the partners may, at his sole pleasure,
observed: (1) When the fault is on the part of both
dictate a dissolution of the partnership at will, though
contracting parties, neither may recover what he has
he must, however, act in good faith, not that the
given by virtue of the contract, or demand the
attendance of bad faith can prevent the dissolution of
performance of the other's undertaking;
the P but that it can result in a liability for damages.
- Thus the contributions should not have been
- The right to choose with whom a person wishes to
returned to the contributors, but should have been
associate is the very foundation and essence of a P. It
confiscated in favor of the State. The contributors must
continued existence is dependent on the constancy of
be presumed to have known the criminal nature of the
that mutual resolve.
object of the partnership they agreed to form, and
- Doctrine of delectus personae: allows the partners to
should have thus been prosecuted and convicted for
have the power, not necessarily the right to dissolve the
running a gambling joint. (Bautista, p. 19)
P.
- The partnership continues even after dissolution for
Notes: the purpose of winding up the business.
PROCEDURE to establish a PARTNERSHIP where
immovables are contributed:
C. Separate Juridical Personality
(1) Purpose
(2) Contribution
AGUILA vs. CA (1999)
(3) Division of Profits
- A partnership has a juridical personality separate
(4) AOP: have it notarized
and distinct from that of each of the partners it is the
(5) Inventory: make, sign and attach
partnership, not its officers or agents, which should be
(6) Register with SEC
impleaded in any litigation involving property registered
(7) Deed of Sale (to transfer ownership of
in the name of the P.
the immovable property from the partner who
- The partners cannot be held liable for the obligations
originally owns it to the partnership).
of the P unless it is shown that the legal fiction of a
different juridical personality is being used for
ART. 1811
fraudulent, unfair, or illegal purposes.
- Common fund DOES NOT EQUATE TO co-ownership,
only co-possession.
TAN vs. DEL ROSARIO (1994)
- The partnership owns the property because it has its
- A general professional partnership, unlike an
own juridical personality apart from its
ordinary business partnership (which is treated as a
members/partners, thus there is no co-ownership.
corporation for income tax purposes and thus subject
- Co-possession is limited to partnership purposes and
to corporate income tax), is not of itself an income tax
for the pursuance of the ordinary business of the
payer. The income tax is imposed not on the
partnership.
professional P, which is tax exempt, but on the
partners themselves in their individual capacity
computed on their distributive shares of partnership
TOCAO vs. CA (2000)
profits.
- There is no distinction in income tax liability between partnership which contemplates a general business
a person who practices his profession alone or with some continuity. Moreover, a joint venture does
individually and one who does it through a not have a firm name, there is no mutual agency, and it
partnership. does not have a separate juridical personality.
- Partnerships are either: (1) taxable Ps, or (2) exempt
Ps. A general profession P falls under (2). 4) Joint Adventures
5) Joint Accounts; Cuentas en Participacion
MENDIOLA vs. CA (2006) - A partnership constituted in such a manner, the
- In a partnership, members become co-owners (co- existence of which was only known to those who had
possessors) of what is contributed to the firm capital an interest in the same, there being no mutual
and of all the property that may be acquired thereby. agreements between the partners, and without a
Each partner possesses a joint interest in whole corporate name indicating to the public in some way
partnership property. that there were other people besides the one who
- If the relation does not have this feature, it is not one ostensibly managed and conducted the business, is
of partnership. exactly the accidental partnership of cuentas en
- In this case, the parties merely shared profits. This participacion. (Bourns vs. Carman)
alone does not make a partnership.
- A corporation cannot become a member of a 6) Agency
partnership in the absence of express authorization by - There is no mutual agency in that the agent is only
statute or charter. 2 reasons: the agent, and is not likewise the principal of his
(1) The mutual agency between the partners, whereby principal. There is also no common fund in agency.
the corporation would be bound by the acts of persons
who are not its duly appointed and authorized agents
Art. 1769. In determining whether a partnership
and officers, would be inconsistent with the policy of
exists, these rules shall apply:
the law that the corporation shall manage its own
(1) Excepts as provided by Article 1825, persons who
affairs separately and exclusively;
are not partners as to each other are not partners as
(2) Such an arrangement would improperly allow
to third persons;
corporate property to become subject to risks not
contemplated by the stockholders when they originally
(2) Co-ownership or co-possession does not of itself
invested in the corporation.
establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by
ANGELES vs. Sec. of Justice (2005)
the use of the property;
- Mere failure to register the contract of partnership
with the SEC does not invalidate a contract that has
(3) The sharing of gross returns does not of itself
the essential requisites of a P. The purpose of
establish a partnership, whether or not the persons
registration of the contract of P is to give notice to third
sharing them have a joint or common right or
persons. Neither does such failure to register affect the
interest in any property from which the returns are
Ps juridical personality.
derived;
A P may exist even if the partners do not use the
words partner or partnership.
(4) The receipt by a person of a share of the profits of
- Sosyo industrial Industrial partnership
a business is prima facie evidence that he is a
partner in the business, but no such inference shall
D. Mutual Agency: Partners in a partnership are be drawn if such profits were received in payment:
mutual agents and principals of each other. a. As a debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
E. Distinguish Partnership from: c. As an annuity to a widow or representative of a
1) Co-ownership; Co-possession deceased partner;
- There is no co-ownership in partnership because it is d. As interest on a loan, though the amount of
the partnership which owns the property. payment vary with the profits of the business;
e. As the consideration for the sale of a goodwill of a
2) Tenancy in common; joint tenancy business or other property by installment or
- Joint tenancy is co-possession, and tenancy in otherwise.
common is co-ownership.
Sir: The list is not exclusive
3) Joint Ventures
- Joint ventures are generally concerned with an Art. 1825. When a person, by words spoken or
isolated transaction or project, as opposed to a written or by conduct, represents himself, or
consents to another representing him to anyone, as a Art. 242. Those who contract with the merchant who
partner in an existing partnership or with one or carries on the business shall have a right of action
more persons not actual partners, he is liable to any against him only and not against the others
such persons to whom such representation has been interested therein, who shall also have no right
made, who has, on the faith of such representation, against the third person who contracted with the
given credit to the actual or apparent partnership, manager, unless the latter formally cedes his rights
and if he has made such representation or consented to them.
to its being made in a public manner, he is liable to
such person whether the representation has or has Art. 243. The liquidation shall be made by the
not been made or communicated to such person so manager who, upon the conclusion of the
giving credit by or with the knowledge of the transactions, shall render a verified account of their
apparent partner making the representation or results.
consenting to its being made:
(1) When a partnership liability results, he is liable SEC OPINION [February 29, 1980]
as though he were an actual member of the
partnership; [NOTE: This is only a summary of the article, but I
(2) When no partnership liability results, he is liable think these are the important parts.=)]
pro rata with the other persons, if any, so
consenting to the contract or representation as A corporation cannot ordinarily enter into a
to incur liability, otherwise separately. contract of partnership with another corporation or
individual.
When a person has been thus represented to be a The limitation is based on public policy, since in a
partner in an existing partnership, or with one or partnership the corporation would be bound by the
more persons not actual partners, he is an agent of acts of persons who are not duly appointed and
the persons consenting to such representation to authorized agents and officers, which would be
bind them to the same extent and in the same entirely inconsistent with the policy of the law that
manner as though he were a partner in fat, with a corporation shall manage its own affairs,
respect to persons who rely upon the representation. separately and exclusively.
When all the members of the existing partnership In entering into a partnership, the identity of the
consent to the representation, a partnership act or
corporation is lost or merged with that of another.
obligation results; but in all other cases it is the joint
Remember that a corporation can act only through
act or obligation of the person acting and persons
its duly authorized agents and is not bound by the
consenting to the representation.
acts of anyone else.
EXCEPTIONS to the application of this general rule
CODE OF COMMERCE may be allowed PROVIDED the following conditions
are met:
Title II: Joint Accounts o The articles of incorporation of the
corporations involved must expressly authorize
Art. 239. Merchants may interest themselves in the the corporation to enter into contracts of
transaction of other merchants, contributing thereto partnership with others in the pursuit of its
the part of the capital they may agree upon, and business;
participating in the favorable or unfavorable results o The agreement or article of partnership must
thereof in the proportion they may determine. provide that all the partners will manage the
partnership; and
Art. 240. In their formation, joint accounts shall not o The articles of partnership must stipulate that
be subject to any formality, and may be privately all the partners are and shall be jointly and
contracted orally or in writing, and their existence severally liable for all the obligations of the
may be proved by any of the means recognized by law partnership.
(according to the provisions of Article 51). Moreover, two or more corporations may enter into
a joint venture/consortium if the nature of the
Art. 241. In the transactions referred to by the two venture is in line with the business authorized by
preceding articles, no commercial name common to its charter. BUT note that no independent legal
all the participants can be adopted, nor can any entity is borne out of it and the same need not be
further direct credit be used than that of the registered with the Commission.
merchant who makes and directs them in his name
and under his individual responsibility. GATCHALIAN VS. CIR
FACTS: Gatchalian and company, by pooling together another since the two cannot enter into a partnership
their resources, bought a lotto ticket. They won and are is without merit since they may nevertheless, enter
now being charged by the CIR to pay income tax on the into a joint venture where the nature of the venture is
prize. in line with the business authorized by its charter.
HOLDING: A partnership of a civil nature was
organized because Gatchalian and company put up HEIRS OF TAN ENG KEE VS. CA
money to buy a lotto ticket for the sole purpose of FACTS: This was a complaint filed by Tan Eng Kee (and
dividing equally the prize which they may win, as they they later continued by his heirs upon his death)
in fact, did. Having organized a partnership, it is the against his brother Tan Eng Lay for accounting ,
latter which is bound to pay the income tax and not liquidation and winding up of the alleged partnership
the individual partners pro rata. formed between them.
HOLDING: There was no partnership between the
PASCUAL VS. CIR brothers. There was no firm account, no firm
FACTS: Pascual et al. bought two parcels of land which letterheads, no certificate of partnership, no agreement
it resold to a third person. They paid the corresponding as to profits and losses, and no time fixed for the
capital gains tax, but are now also being charged with duration of the partnership. Most importantly, for forty
corporate income tax on the ground that they formed a years Tan Eng Kee never demanded for an accounting.
partnership. A demand for periodic accounting is evidence of
HOLDING: There was no partnership. The character of partnership. The evidence support the establishment
habituality peculiar to business transactions engaged only of a proprietorship.
in for the purpose of gain was absent. An isolated
transaction whereby two or more persons contribute The SC also discussed the concept of a joint venture. It
funds to buy certain real estate for profit in the said that a particular partnership is distinguished from
absence of other circumstances showing a contrary a joint adventure in that the latter has no firm name
intention cannot be considered as a partnership. and no legal personality. Also, a joint venture is usually
limited to a single transaction, while a partnership
OBILLOS VS. CIR generally relates to a continuing business.
FACTS: Obillos bought a parcel of land and transferred
his rights thereto to his children. The children resold On the other hand, in a joint account, the participating
the land. They are now being taxed for corporate merchants can transact business under their own
income tax on the ground that they formed an name and can be individually liable therefore.
unregistered partnership.
HOLDING: There was no partnership. The sharing of AURBACH VS. SANITARY WARES
gross returns does not of itself, establish a partnership. FACTS: This was the case where there were essentially
There must be an unmistakable intention to form a two groups of shareholders in the company: one
partnership. In this case, the division of the profits was composed of Filipinos, and the other group of foreign
only incidental to the dissolution of the co-ownership. investors. There was an increase in the latters shares
in the company so they wanted a proportionate
RIVERA VS. PEOPLES BANK increase in their nominees to the companys Board of
FACTS: Rivera was the Stephensons housekeeper and Directors.
they executed a survivorship agreement. Upon HOLDING: Although a corporation cannot enter into a
Stephensons death, Rivera tried to claim the amount partnership, it can nevertheless engage in a joint
pursuant to the agreement, but the bank refused. venture with others. In this case, taking into
HOLDING: Rivera and Stephenson were joint owners. consideration their intent and history, the parties
As such, either of them could withdraw any part of the formed a joint venture and not a corporation. This
whole of said account during their lifetime, and the becomes relevant because it implies that the argument
balance, if any, upon the death of either, belonged to of ASI (the foreign investors), having been based on the
the survivor. Corporation Code, will not apply.

A joint venture has been generally understood to mean


TUASON VS. BOLANOS an organization formed for some temporary purpose. It
FACTS: This was an action to recover possession of a is distinguished mainly from a partnership in that the
parcel of land where the plaintiff was represented by a latter contemplates a general business with some
corporation. continuity while the former is formed for the execution
HOLDING: There is nothing in the rules which prohibit of a single transaction.
a corporation from being represented by another
person, natural or juridical. The contention that one LITONJUA VS. LITONJUA
corporation cannot act as managing partner for
FACTS: This was a suit filed by Aurelio against his payable to it from Baguio Gold. The CIR disallowed the
brother Eduardo for specific performance and deduction.
accounting, contending that they had a partnership HOLDING: The agreement between the parties created
arrangement in the Odeon Theater business. This was a partnership relationship between them. As such, the
premised on a letter written by Eduardo, addressed to money contributed was not a loan and cannot be
Aurelio. deducted from the partnerships taxable income. The
HOLDING: Eduardo and Aurelio are not partners. The strongest indication of the existence of the partnership
formalities required by law were not complied with, to relation was the fact that each of them would receive
wit: 50% of the profits. By pegging its compensation as
o When immovable property or real rights are profits, Philex stood not to be remunerated in case the
contributed, or when the partnership has a mine had no income. This is definitely not the nature of
capital of at least Php3,000, a public a loan, instead, it partakes of the nature of a capital
instrument is necessary. contribution.
o When immovable property is contributed, an
inventory, signed by the parties, must be II. KINDS OF PARTNERSHIP
attached to the public instrument.
A. Universal
BOURNS VS. CARMAN
Art. 1776. As to its object, a partnership is either
FACTS: This was an action to recover a sum of money,
universal or particular. As regards the liability of the
filed against Lo-Chim-Lim and his other co-defendants
partners, a partnership may be general or limited.
on the ground that they were joint proprietors.
HOLDING: There was a partnership of cuentas en
participacion. It was a business conducted by Lo-Chim- Art. 1777. A universal partnership may refer to all
Lim exclusively, in his own name, and under his the present property or to all the profits.
personal management. A partnership constituted in
such a manner, the existence of which was only known i. Universal Partnership of Present Property
to those who had an interest in the same, there being Art. 1778. A partnership of all present property is
no mutual agreements between the partners, and that in which the partners contribute all the property
without a corporate name indicating to the public in which actually belongs to them to a common fund,
some way that there were other people besides the one with the intention of dividing the same among
who ostensibly managed and conducted the business, themselves, as well as all the profits which they may
is exactly the accidental partnership of cuentas en acquire therewith.
participacion. Those who contract with the person
under whose name the business of such partnership is Art. 1779. In a universal partnership of all present
conducted, shall have a right of action only as against property, the property which belongs to each of the
that person, and not against other persons interested, partners at the time of the constitution of the
and the latter shall likewise, have no right of action partnership, becomes the common property of all the
against such third persons. partners, as well as all the profits which they may
acquire therewith.
SEVILLA VS. CA
FACTS: This was the case where Sevilla had bound A stipulation for the common enjoyment of any other
herself with the corporation to pay for rent. She profits may also be made; but the property which the
managed the business but was subsequently prevented partners may acquire subsequently by inheritance,
from continuing as manager of the branch where she legacy, or donation cannot be included in such
worked. stipulation, except the fruits thereof.
HODLING: There was no partnership or joint venture
as there was no parity of standing between Sevilla and The prohibition in Art. 1779, 2 nd par. is in
Tourist World Services, and they did not exercise equal consonance with the general provision of the Code
rights. The court concluded that there was an agency disallowing contracts upon future inheritance.
relationship. But it is believed that the usufruct of property
acquired by inheritance, legacy, or donation may be
PHILEX MINING VS. CIR stipulated as contributed to the common fund.
FACTS: Baguio Gold and Philex Mining entered into a
contract whereby the latter would operate the formers ii. Universal Partnership of Profits
mining claim. Philex, apart from transferring its own
Art. 1780. A universal partnership of profits
funds for the business, also shelled out money to cover
comprises all that the partners may acquire by their
for the losses incurred by the business. Philex then
attempted to deduct what it purported to be bad loans
industry or work during the existence of the donations from doing indirectly what the law
partnership. prohibits them from doing directly.

Movable or immovable property which each of the B. Particular


partners may possess at the time of the celebration Art. 1776. As to its object, a partnership is either
of the contract shall continue to pertain exclusively universal or particular. As regards the liability of the
to each, only the usufruct passing to the partners, a partnership may be general or limited.
partnership.
Art. 1783. A particular partnership has for its object
In other words, all that the partners may determinate things, their use or fruits, or specific
acquire, jointly or separately, through physical or undertaking, or the exercise of a profession or
intellectual effort whether it be in the pursuit of a vocation.
trade or the exercise of an art or profession or
otherwise pertain to the partnership and are
C. General (check Art. 1776)
subject to division among the partners upon its
A general partnership is one where all the
termination.
partners are liable subsidiarily and pro rata with
It does not cover: (1) acquisitions of the
their individual property for partnership
partners through any means not requiring the
obligations.
exertion of human effort or intelligence; (2)
property which each of the partners acquired or
D. Limited (check Art. 1776)
possessed before the celebration of the contract
In a limited partnership, only some partners
(only the usufruct of the property passes).
are personally liable for partnership obligations;
iii. Other Rules the others are not so liable, their liability being
limited to their capital contribution.

Art. 1781. Articles of universal partnership, entered


E. At Will
into without specification of its nature, only
constitute a universal partnership of profits. Art. 1785. When a partnership for a fixed term or
particular undertaking is continued after the
termination of such term or particular undertaking
Art. 1782. Persons who are prohibited from giving
without any express agreement, the rights and duties
each other any donation or advantage cannot enter
of the partners remain the same as they were at such
into universal partnership.
termination, so far as is consistent with a
partnership at will.
Art. 739. The following donations shall be void:
A continuation of the business by the partners or
(1) Those made between persons who were guilty of
such of them as habitually acted therein during the
adultery or concubinage at the time of the donation;
term, without any settlement or liquidation of the
(2) Those made between persons found guilty of the
partnership affairs, is prima facie evidence of a
same criminal offense, in consideration thereof;
continuation of the partnership.
(3) Those made to a public officer or his wife,
descedants and ascendants, by reason of his office.
A partnership which is designed to continue
for no fixed period of time and is formed to last
In the case referred to in No. 1, the action for
only during the mutual consent or pleasure of the
declaration of nullity may be brought by the spouse
parties, its existence being terminable at the will of
of the donor or donee; and the guilt of the donor and
any one or more of them.
donee may be proved by preponderance of evidence
in the same action.
F. For a Term or Undertaking (check Art. 1785)
A partnership where the period of time during
The presumption in Art. 1781 is in accordance
which the partnership shall exist has been
with the rule in interpretation of contracts that, in
specified.
case of doubt, that which involves the least
Or a partnership formed to engage in a specific
transmission of rights and interests will be favored.
undertaking without specification of the term but,
The prohibition in Art. 1782 is founded on the
owing to the nature of its purpose, with the implied
theory that a contract of universal partnership is
understanding that it shall last only and until the
for all purposes a donation and, thus, seeks to
completion of the undertaking.
prevent persons disqualified from making
G. Commercial o Person who:
Art. 1767. By the contract of partnership two or By (a) words spoken or written or by (b)
more persons bind themselves to contribute money, conduct
property, or industry to a common fund, with the Represents himself or consents to
intention of dividing the profits among themselves. representation
As a partner in an
Two or more persons may also form a partnership for existing partnership or
the exercise of a profession. As a partner in an
apparent partnership
A commercial partnership has for its object the To anyone
realization of some mercantile of commercial act And such person has given credit to
either as a means or an end the representation
o Manner of Representation
H. Professional (check Art. 1767) Public
This is the class of partnerships formed by Personal/Non-public
professional for the exercise of the professions they o Liability
belong to. Partnership Liability (if
there is an existing partnership and
I. By Estoppel/Apparent when the act is ratified by the
partnership)
Art. 1825. When a person, by words spoken or
Joint Liability (if there is
written or by conduct, represents himself, or
only an apparent partnership)
consents to another representing him to anyone, as a
partner in an existing partnership or with one or
Partnership/Joint Obligor
more persons not actual partners, he is liable to any
o Requires consent
such persons to whom such representation has been
If all partners consent,
made, who has, on the faith of such representation,
partnership act results
given credit to the actual or apparent partnership,
If only some consent, joint
and if he has made such representation or consented
to its being made in a public manner he is liable to act results among those who
such person, whether the representation has or has consented and the partner by estoppel
not been made or communicated to such person so o Apparent partner becomes agent
giving credit by or with the knowledge of the
apparent partner making the representation or Ortega vs. CA
consenting to its being made: - The birth and life of a partnership at will is
predicated on the mutual desire and consent of the
(1) When a partnership liability results, he is liable partners.
as though he were an actual member of the - Through the doctrine of delectus personae, all
partnership; the partners have the power, though not
(2) When no partnership liability results, he is liable necessarily the right, to dissolve the partnership.
pro rata with the other persons, if any, so consenting - Thus, any of the partners may dissolve the
to the contract or representation as to incur liability, partnership at will at his sole pleasure; but he
otherwise separately. must do so in good faith or he will be liable for
damages.
When a person has been thus represented to be a
partner in an existing partnership, or with one or III. KINDS OF PARTNERS
more persons not actual partners, he is an agent of
the persons consenting to such representation to A. Industrial
bind them to the same extent and in the same
Art. 1789. An industrial partner cannot engage in
manner as though he were a partner in fact, with
business for himself, unless the partnership
respect to persons who rely upon the representation.
expressly permits him to do so; and if he should do
When all the members of the existing partnership
so, the capitalist partners may either exclude him
consent to the representation, a partnership act or
from the firm or avail themselves of the benefits
obligation results; but in all other cases it is the joint
which he may have obtained in violation of this
act or obligation of the person acting and the persons
provision, with a right to damages in either case.
consenting to the representation.

Partner by Estoppel:
Art. 1797. The losses and profits shall be distributed
in conformity with the agreement. If only the share of Art. 1790 embodies the presumption of
each partner in the profits has been agreed upon, the law as to the equality in standing of the
the share of each in the losses shall be in the same partners.
proportion. Art. 1808 is limited to business which
competes with the partnership business; thus, it
In the absence of stipulation, the share of each must be the same products (same category), same
partner in the profits and losses shall be in services, and in the same location.
proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. C. Managing
As for the profits, the industrial partner shall receive Art. 1792. If a partner authorized to manage collects
such share as may be just and equitable under the a demandable sum which was owed to him in his
circumstances. If besides his services he has own name, from a person who owed the partnership
contributed capital, he shall also receive a share in another sum also demandable, the sum thus
the profits in proportion to his capital. collected shall be applied to the two credits in
proportion to their amounts, even though he may
The industrial partners contribution is have given a receipt for his own credit only; but
based on quantum meruit. should he have given it for the account of the
partnership credit, the amount shall be fully applied
B. Capitalist to the latter.
Art. 1789. An industrial partner cannot engage in
business for himself, unless the partnership The provisions of this article are understood to be
expressly permits him to do so; and if he should do without prejudice to the right granted to the other
so, the capitalist partners may either exclude him debtor by Article 1252, but only if the personal credit
from the firm or avail themselves of the benefits of the partner should be more onerous to him.
which he may have obtained in violation of this
provision, with a right to damages in either case. Art. 1800. The partner who has been appointed
manager in the articles of partnership may execute
Art. 1790. Unless there is a stipulation to the all acts of administration despite the opposition of
contrary, the partners shall contribute equal shares his partners, unless he should act in bad faith; and
to the capital of the partnership. his power is irrevocable without just or lawful cause.
The vote of the partners representing the controlling
Art. 1797. The losses and profits shall be distributed interest shall be necessary for such revocation of
power.
in conformity with the agreement. If only the share of
each partner in the profits has been agreed upon,
A power granted after the partnership has been
the share of each in the losses shall be in the same
constituted may be revoked at any time.
proportion.

In the absence of stipulation, the share of each Art. 1801. If two or more partners have been
partner in the profits and losses shall be in intrusted with the management of the partnership
proportion to what he may have contributed, but the without specification of their respective duties, or
industrial partner shall not be liable for the losses. without a stipulation that one of them shall not act
As for the profits, the industrial partner shall receive without the consent of all the others, each one may
such share as may be just and equitable under the separately execute all acts of administration, but if
circumstances. If besides his services he has any of them should oppose the acts of the others, the
contributed capital, he shall also receive a share in decision of the majority shall prevail. In case of a tie,
the profits in proportion to his capital. the matter shall be decided by the partners owning
the controlling interest.
Art. 1808. The capitalist partners cannot engage for
their own account in any operation which is of the Art. 1802. In case it should have been stipulated
kind of business in which the partnership is that none of the managing partners shall act without
engaged, unless there is a stipulation to the contrary. the consent of the others, the concurrence of all shall
be necessary for the validity of the acts, and the
Any capitalist partner violating this prohibition shall absence or disability of any one of them cannot be
bring to the common funds any profits accruing to alleged, unless there is imminent danger of grave or
him from his transactions, and shall personally bear irreparable injury to the partnership.
all the losses.
Art. 1800 speaks of the managing which he may have obtained in violation of this
partner. provision, with a right to damages in either case.
Art. 1801 refers to a situation where
there is more than one managing partner and Art. 1790. Unless there is a stipulation to the
there is solidary management among them. contrary, the partners shall contribute equal shares
Art. 1802 speaks of joint management. to the capital of the partnership.
But, since this relates to the obligations of partners
inter se, the acts of a managing partner in violation Art. 1791. If there is no agreement to the contrary,
of Art. 1802 may still be binding insofar as third in case of an imminent loss of the business of the
persons in good faith are concerned. partnership, any partner who refuses to contribute
an additional share to the capital, except an
D. By Estoppel industrial partner, to save the venture, shall he
See previous discussion on kinds of obliged to sell his interest to the other partners.
partnerships.
Art. 1795. The risk of specific and determinate
IV. PARTNERS OBLIGATIONS TO THE things, which are not fungible, contributed to the
partnership so that only their use and fruits may be
PARTNERSHIP
for the common benefit, shall be borne by the
partner who owns them.
A. To Contribute; Warrant
Art. 1786. Every partner is a debtor of the If the things contribute are fungible, or cannot be
partnership for whatever he may have promised to kept without deteriorating, or if they were
contribute thereto. contributed to be sold, the risk shall be borne by the
partnership. In the absence of stipulation, the risk of
He shall also be bound for warranty in case of the things brought and appraised in the inventory,
eviction with regard to specific and determinate shall also be borne by the partnership, and in such
things which he may have contributed to the case the claim shall be limited to the value at which
partnership, in the same cases and in the same they were appraised.
manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof The 2nd sentence of Art. 1786, when it
from the time they should have been delivered, speaks of specific and determinate things, refers to
without the need of any demand. non-fungible things.
Art. 1786 only specifically talks about
Art. 1787. When the capital or a part thereof which warranty against eviction but Prof. Bautista states
a partner is bound to contribute consists of goods, that the other warranties of sale (warranty against
their appraisal must be made in the manner hidden defects and warranty for merchantability
prescribed in the contract of partnership, and in the for purpose) should also be made applicable.
absence of stipulation, it shall be made by experts Art. 1786 explicitly does away with the
chosen by the partners, and according to current need for demand as to the fruits in the last
prices, the subsequent changes thereof being for sentence thereof.
account of the partnership. The appraisal in Art. 1787 is
necessary to know the value of the capital
Art. 1788. A partner who has undertaken to contribution of property.
contribute a sum of money and fails to do so o Valuation is usually done by
becomes a debtor for the interest and damages from agreement because the transfer of property to
the time he should have complied with his obligation. the partnership is similar to a sale; or it may
be done by an expert (appraiser).
The same rule applies to any amount he may have o If its through the former, the value is
taken from the partnership coffers, and his liability based on the agreement. But if its throught he
shall begin from the time he converted the amount to latter, the value is based on current prices or
his own use. the fair market value
Art. 1789. An industrial partner cannot engage in Art. 1791 refers to total loss of the
business for himself, unless the partnership business such that the partnership can no longer
expressly permits him to do so; and if he should do continue to pursue its purpose.
so, the capitalist partners may either exclude him o There must first be capital call; there
from the firm or avail themselves of the benefits must be an agreement for everyone to
contribute to continue the business; after such
agreement, the failure to contribute gives the o Cannot acquire for himself a
right to buy-out the interest of the partnership asset nor divert to his own use a
uncontributing partner. partnership opportunity;
Under the 1st par. of Art. 1795, the o Must not compete with partnership
partner retains ownership because he only within its scope of business.
contributes the usufruct and, thus, he still bears
the risk of loss (principle of respirit domino); it also Liwanag vs. CA
only refers to non-fungible things. Even when a contract of partnership has been entered
Under the 2nd par. of Art. 1795, if a into, when money or property have been received by a
partner loses the fungible goods before delivery, he partner for a specific purpose and he later
remains an obligor and, thus, still a partner misappropriated it, such partner is guilty of estafa.
subject to the delivery of his contribution, which is
a fungible thing.
Note that the risk of loss is
transferable by stipulation. US vs. Clarin
- When a partner contributes to the common fund,
B. To Apply Sums Collected Pro Rata he invests it in the risks or benefits of the business
Art. 1792. If a partner authorized to manage collects and, even if only the usufruct over the money has
a demandable sum which was owed to him in his been conveyed, the duty to return such capital
own name, from a person who owed the partnership devolves upon the partnership and not any of the
another sum also demandable, the sum thus partners.
collected shall be applied to the two credits in - When money has been received by the partnership,
proportion to their amounts, even though he may the business commenced and profits accrued, the
have given a receipt for his own credit only; but action that lies with the partner who furnished
should he have given it for the account of the capital for recovery of his money is not a criminal
partnership credit, the amount shall be fully applied action for estafa, but a civil one arising from the
to the latter. partnership contract for a liquidation of the
partnership and a levy on its assets if there should
The provisions of this article are understood to be be any.
without prejudice to the right granted to the other
debtor by Article 1252, but only if the personal credit Pang Lim vs. Lo Seng
of the partner should be more onerous to him. - Partners are required to
exhibit towards each other the highest degree of
C. To Compensate good faith because the relation is essentially
fiduciary as each is considered the confidential
Art. 1794. Every partner is responsible to the
agent of the other.
partnership for damages suffered by it through his
- Therefore, one partner cannot,
fault, and he cannot compensate them with the
to the detriment of another, apply exclusively to his
profits and benefits which he may have earned for
own benefit the results of the knowledge and
the partnership by his industry. However, the courts
information gained in the character of partner.
may equitably lessen this responsibility if through
the partner's extraordinary efforts in other activities
of the partnership, unusual profits have been Catalan vs. Gatchalian
realized. - The right of redemption
pertains to the owner of the property; as it was the
This also covers negligence of a partner
partnership which owned the property, in this
case, it was only the partnership which could
D. To Be Loyal; Fiduciary Duty
properly exercise the right of redemption.
Art. 1807. Every partner must account to the - When Catalan redeemed the
partnership for any benefit, and hold as trustee for it properties, he became a trustee and held the same
any profits derived by him without the consent of the in trust for his co-partner Gathchalian, subject to
other partners from any transaction connected with his right to demand from the latter his
the formation, conduct, or liquidation of the contribution to the amount of redemption.
partnership or from any use by him of its property.

V. PARTNERS OBLIGATION INTER SE


Basic fiduciary duties of a partner:
o Account for any profit acquired in a
A. To bring to collation
manner injurious to the partnerships interest;
Art. 1793. A partner who has received, in whole or As for the profits, the industrial partner shall receive
in part, his share of a partnership credit, when the such share as may be just and equitable under the
other partners have not collected theirs, shall be circumstances. If besides his services he has
obliged, if the debtor should thereafter become contributed capital, he shall also receive a share in
insolvent, to bring to the partnership capital what he the profits in proportion to his capital. (1689a)
received even though he may have given receipt for
his share only. (1685a) Liability for loss refers to loss AFTER liquidation
In case of losses, it can be stipulated that the
There is one debtor and one or 2 partners have industrial partner share in the losses
received their share of debt in their personal
capacity then the debtor becomes insolvent Art. 1798. If the partners have agreed to intrust to a
third person the designation of the share of each one
Pioneer Insurance v. CA in the profits and losses, such designation may be
Quick Facts: Lim, owner-operator of Southern Air impugned only when it is manifestly inequitable. In
Lines, purchased 2 aircrafts and set of spare parts no case may a partner who has begun to execute the
form Japan Domestic Airlines to be paid in decision of the third person, or who has not
installments. Pioneer executed a surety bond in favor of impugned the same within a period of three months
JDA for the balance. Bormaheco, Cervanteses and from the time he had knowledge thereof, complain of
Maglana contributed funds for the formation of a new such decision.
corporation proposed by Lim. There was no
incorporation. The designation of losses and profits cannot be
Ratio: Persons who attempt, but fail, to form a intrusted to one of the partners. (1690)
corporation and who carry on business under the
corporate name occupy the position of partners inter The designation of profits and losses may be
se. However, such a relation does not necessarily exist, designated to 2 or more partners, but not to 1
for ordinarily persons cannot be made to assume the partner
relation of partners, as between themselves, when their
purpose is that no partnership shall exist and it should
Art. 1799. A stipulation which excludes one or more
be implied only when necessary to do justice between
partners from any share in the profits or losses is
the parties. Lim never intended to form a corporation
void. (1691)
despite his representations. No de facto partnership
was created.
Moran, Jr. v. CA
Quick Facts: Pecson and Moran entered into an
Evangelista & Co. v. Abad Santos
agreement to print 95,000 posters (featuring the
Quick Facts: Judge Abad Santos is an industrial
delegates of the 1971 Con-Con). They agreed each
partner in Evangelista & Co. with 3 petitioners who
would contribute P15,000 and that Pecson would
were the capitalist partners. Abad Santos alleged that
receive P1,000 commission per month. Pecson
the other 3 partners were refusing to let her examine
contributed P10,00; Moran supervised the work. Only
the partnership books and were not paying her share
2,000 posters were printed. Pecson filed an action
in the profits. Other 3 are arguing that Abad Santos
asking for the return of his contribution, profits he
could not be an industrial partner since she was a City
would have earned and promised commission.
Court judge (Art.1789).
Ratio: There is no basis for the award of speculative
Ratio: Abad Santos is not engaged in any business
damages in favor of Moran as there was no evidence
antagonistic to the partnership as being a judge can
that the partnership would be a profitable venture.
hardly be characterized as a business.
Partners are to share in the profits and the losses.
However, Pecson is not barred from totally recovering.
B. To share in the profits/losses
He is entitled to P6,000 (out of P10,000 only P4,000
Art. 1797. The losses and profits shall be distributed was used in printing) for his contribution which
in conformity with the agreement. If only the share of remained unused and P3,000 for share in net profits
each partner in the profits has been agreed upon, from the sale of 2,000 posters.
the share of each in the losses shall be in the same (Sir noted that there was an award of unused capital
proportion. even if there was no liquidation.)

In the absence of stipulation, the share of each C. To render true and full information
partner in the profits and losses shall be in
Art. 1806. Partners shall render on demand true
proportion to what he may have contributed, but the
and full information of all things affecting the
industrial partner shall not be liable for the losses.
partnership to any partner or the legal representative so, the capitalist partners may either exclude him
of any deceased partner or of any partner under legal from the firm or avail themselves of the benefits
disability. (n) which he may have obtained in violation of this
provision, with a right to damages in either case. (n)
Martinez v. Ong Pong Co
Quick Facts: Martinez delivered P1,500 to Ong Pong Co Art. 1808. The capitalist partners cannot engage for
and Ong Lay to invest in a store. They agreed that the their own account in any operation which is of the
profits and losses would be equally shared by all of kind of business in which the partnership is
them. Martinez was demanding for the 2 Ongs to engaged, unless there is a stipulation to the contrary.
render an accounting or to refund him the P1,500. Ong
Pong Co alleged that Ong Lay, now deceased was the VI. PARTNERS OBLIGATIONS TO
one who managed the business, and the capita of
P1,500 resulted in a loss.
PERSONAL AND PARTNERSHIP
Ratio: The 2 partners (Ongs) were the administrators CREDITORS; THIRD PARTIES
and obliged to render accounting. Since neither of
them rendered an account nor proven the losses, they A. To have his partnership interest charged for
are obliged to return the capital. Art. 1796 is not personal debts (primary)
applicable because no other money than that
contributed as capital was involved. The liability of the Art. 1814. Without prejudice to the preferred rights
partners is joint. Ong Pong Co shall only pay P750 to of partnership creditors under Article 1827, on due
Martinez. application to a competent court by any judgment
creditor of a partner, the court which entered the
Agustin v. Inocencio judgment, or any other court, may charge the
Quick Facts: The parties are all industrial partners. interest of the debtor partner with payment of the
For the construction of a casco, profits of the business unsatisfied amount of such judgment debt with
were contributed and money was borrowed from wife of interest thereon; and may then or later appoint a
the managing partner, Inocencio, Inocencio also receiver of his share of the profits, and of any other
advanced funds necessary to complete the work. The money due or to fall due to him in respect of the
other partners were not informed of the borrowing and partnership, and make all other orders, directions,
the advancement but the books were always open to accounts and inquiries which the debtor partner
their inspection. might have made, or which the circumstances of the
Ratio: The nature of the transaction (construction of case may require.
casco) was within the scope of the business of the
partnership so Inocencio, in borrowing money and The interest charged may be redeemed at any time
advancing funds, was acting within the scope of his before foreclosure, or in case of a sale being directed
authority as a managing partner. All the partners are by the court, may be purchased without thereby
liable for the debt. causing a dissolution:

Soncuya v. De Luna (1) With separate property, by any one or more of the
Quick Facts: Soncuya, de Luna and deceased Avelino partners; or
were members of a partnership, Centro Escolar de
Senoritas. Soncuya filed a complaint praying for (2) With partnership property, by any one or more of
damages as result of the fraudulent administration by the partners with the consent of all the partners
managing partner De Luna. whose interests are not so charged or sold.
Ratio: For a partner to be able to claim damages
allegedly suffered by him by reason of the fraudulent Nothing in this Title shall be held to deprive a
administration of the managing partner, a previous partner of his right, if any, under the exemption laws,
liquidation of the partnership is necessary. A as regards his interest in the partnership. (n)
liquidation of the business is necessary so the
following may be determined: profits and losses, causes remedy of a judgment creditor against a partner
of the losses, responsibility of the defendant and This refers to partners interest in the partnership
damages each partner may have suffered. and NOT to his right over a specific partnership
property
D. Not to engage in another business partners interest share of the profits and
Art. 1789. An industrial partner cannot engage in surplus
business for himself, unless the partnership
expressly permits him to do so; and if he should do
rights to specific partnership property right subsidiarily and pro rata for all partnership
of possession for partnership purposes obligations

CHARGING ORDER - why not solidary liability?


separate juridical personality of the partnership;
- attaches interest of the partner therefore, exhaust partnership assets first
1) Directs the partnership to pay any profits that
may be due to the judgment debtor, in favour of the pro rata
judgment creditor in satisfaction of his credit = proportional
(including interests) - basis? in proportion to his SHARE in the PROFITS
2) May ask the court to appoint a receiver NOT capital contribution
- to collect money
3) may be sold at auction/foreclosure partnership obligation
remedy: right of redemption 1) entered in the firm name, under its signature
a) with separate property 2) by a person authorized (ex: employee)
b) with partnership property
(requires the consent of all partners) when SOLIDARILY liable? last sentence

Best Choice? separate obligation to perform a partnership


No. 1 first since the payment will be ongoing contract
No. 2 comes second 1) agrees to solidary liability (this provision)
No. 3 is a poor remedy, single payment; net effect: only 2) 1822 (tort liability)
sell back to judgment debtor 3) 1823 (misappropriation)

Art. 1827. The creditors of the partnership shall be Art. 1817. Any stipulation against the liability laid
preferred to those of each partner as regards the down in the preceding article shall be void, except as
partnership property. Without prejudice to this right, among the partners. (n)
the private creditors of each partner may ask the
attachment and public sale of the share of the latter what if other parties waived?
in the partnership assets. (n)
VOID as against 3rd parties
preference of partnership creditors over personal therefore, as to them, pro rata liability applies
creditors (in case of insolvency or liquidation) except as among partners
2nd sentence: without prejudice to private creditors if there is waiver by some parties, those
right to ask attachment benefitted can claim against the other partners
what he paid pro rata
B. To be liable pro rata for partnership debts
(subsidiary & joint) Art. 1835. The dissolution of the partnership does
not of itself discharge the existing liability of any
Art. 1816. All partners, including industrial ones, partner.
shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, A partner is discharged from any existing liability
for the contracts which may be entered into in the upon dissolution of the partnership by an agreement
name and for the account of the partnership, under to that effect between himself, the partnership
its signature and by a person authorized to act for creditor and the person or partnership continuing
the partnership. However, any partner may enter into the business; and such agreement may be inferred
a separate obligation to perform a partnership from the course of dealing between the creditor
contract. (n) having knowledge of the dissolution and the person
or partnership continuing the business.
refers to all GENERAL partners
The individual property of a deceased partner shall
- can industrial partners be general partners? YES be liable for all obligations of the partnership
- as a GR, all partners are general partners incurred while he was a partner, but subject to the
exception: stipulation limited partner prior payment of his separate debts. (n)

liable pro rata with all their property 2nd paragraph


both real and personal
discharged
1) agreement D. Liability in case of estoppels
- (3 parties: partner, creditor, and partnership)
2) no agreement Art. 1825. When a person, by words spoken or
- knowledge of the creditor and continues to written or by conduct, represents himself, or
transact with the partnership continuing the consents to another representing him to anyone, as a
business partner in an existing partnership or with one or
more persons not actual partners, he is liable to any
3rd paragraph such persons to whom such representation has been
made, who has, on the faith of such representation,
estate given credit to the actual or apparent partnership,
pay personal debts before partnership debts and if he has made such representation or consented
to its being made in a public manner he is liable to
condition: such person, whether the representation has or has
a) dead partner not been made or communicated to such person so
b) no more partnership assets giving credit by or with the knowledge of the
apparent partner making the representation or
C. Tort liability; breach of trust liability (primary consenting to its being made:
& solidary)
(1) When a partnership liability results, he is liable
Art. 1822. Where, by any wrongful act or omission of as though he were an actual member of the
any partner acting in the ordinary course of the partnership;
business of the partnership or with the authority of
co-partners, loss or injury is caused to any person, (2) When no partnership liability results, he is liable
not being a partner in the partnership, or any pro rata with the other persons, if any, so consenting
penalty is incurred, the partnership is liable therefor to the contract or representation as to incur liability,
to the same extent as the partner so acting or otherwise separately.
omitting to act. (n)
When a person has been thus represented to be a
TORT (wrongful act or omission) partner in an existing partnership, or with one or
more persons not actual partners, he is an agent of
a) ordinary course of the business the persons consenting to such representation to
b) not in pursuance BUT with the authority of the bind them to the same extent and in the same
co-partners manner as though he were a partner in fact, with
c) penalty refers to a crime respect to persons who rely upon the representation.
When all the members of the existing partnership
Art. 1823. The partnership is bound to make good consent to the representation, a partnership act or
the loss: obligation results; but in all other cases it is the joint
act or obligation of the person acting and the persons
(1) Where one partner acting within the scope of his consenting to the representation. (n)
apparent authority receives money or property of a
third person and misapplies it; and PARTNERSHIP BY ESTOPPEL

(2) Where the partnership in the course of its


business receives money or property of a third liability
person and the money or property so received is - liable as a partner: pro rata and subsidiary
misapplied by any partner while it is in the custody ONLY WHEN it results in a partnership liability
of the partnership. (n) There is partnership liability when all the partners
consent to the representation
MISAPPROPRIATION
allows to be represented as a partner to a non-
partner
Art. 1824. All partners are liable solidarily with the liability joint, as if one of those liable
partnership for everything chargeable to the
partnership under Articles 1822 and 1823. (n) Corporation Code
Sec. 21. Corporation by estoppel. - All persons who
SOLIDARY LIABILITY assume to act as a corporation knowing it to be
without authority to do so shall be liable as general
partners for all debts, liabilities and damages - Art. 1840 no saleable goodwill to be distributed as a
incurred or arising as a result thereof: Provided, firm asset on its dissolution
however, That when any such ostensible corporation - on customs: judicial custom v. social custom
is sued on any transaction entered by it as a judicial custom can supplement statutory law
corporation or on any tort committed by it as such, it - result: firms DID NOT comply! SC merely denied and
shall not be allowed to use as a defense its lack of ADVISED
corporate personality.
Litton v. Hill
One who assumes an obligation to an ostensible - Hill: Ceron entered into in his own name. I told
corporation as such, cannot resist performance Litton, well be dissolved!
thereof on the ground that there was in fact no - SC: joint management
corporation. It is enough for the third party to transact with the
managing partner
assume to act as a corporation - what if third party is required to determine?
result: hinder commercial transactions
- corporations MUST be registered with the SEC - presumption of mutual agency
knowing to be without authority bad faith
MacDonald v. National City Bank
liable as general partners pro rata and
representation
subsidiarily
- defectively formed corporation/partnership
in effect: partnership by estoppels de facto partnership
- for purposes of the Chattel Mortgage Law, a de facto
ostensible corporation partnership also has domicile

lack of corporate personality cannot be used as a Compania Maritima v. Muoz


defense - TC absolved industrial partner on the theory that
nothing was contributed
2nd paragraph - SC: contributed industry, general partner
- unfair? NO, had a voice in management and shared
-contemplates a situation where 3rd party is being
in the profits
sued
-third person assumes liability, also cannot make
use of the lack of personality Co-Pitco v. Yulo
The fact that the other partner had left the country
CANNOT increase the liability of remaining partners.
E. Liability of new partners (subsidiary)
extends to insolvent and dead partners
Art. 1826. A person admitted as a partner into an
existing partnership is liable for all the obligations of Pacific Commercial v. Aboitiz
the partnership arising before his admission as *applied Compania doctrine
though he had been a partner when such obligations - distinguished loss from liability
were incurred, except that this liability shall be - while A141 of the Code of Commerce provides that
satisfied only out of partnership property, unless industrial partners will not be liable for loss, A127
there is a stipulation to the contrary. (n) (which applies in this case) provides that ALL partners
are liable for for transactions in the name of the
new partnership partnership, albeit subsidiarily
- old partnership ipso jure dissolved BUT:
- same assets and same firm name Magdusa v. Albaran (in the quiz)
- therefore, same liability - demanded shares upon withdrawal from the
new partners liability extent: limited to his capital partnership, suit against capitalist, managing partner
contribution only
- SC: partners share cannot be returned without first
dissolving and liquidating because of the preference for
In re Sycip
partnership creditors AND the fact that the others
GR if partner dies: Partnership is DISSOLVED.
partners are indispensible parties to the suit
- in case of firm names, Art. 1815 prefers to living
- since the liquidation document prepared by the
persons
managing partner was not signed by the others, it does
- public relations use of deceased partners name
not bind them
SC: undue advantage
- moreover, the managing partner could not be held
personally liable since as such MP, he merely acts as a B. To access, inspect and copy partnership books
trustee of the partnership
Art. 1805. The partnership books shall be kept,
Island Sales v. United subject to any agreement between the partners, at
- the case was dismissed, upon motion of the plaintiff, the principal place of business of the partnership,
in favour of one of the 5 general partners and every partner shall at any reasonable hour have
- SC: clarified pro rata liability remained at 1/5; access to and may inspect and copy any of them. (n)
condonation of one did not unmake him as a general
partner to effect an increase in the shares of the other Subject to contrary agreement, express or implied,
partners the partnership books belong to all partners and
each one of them has equal rights thereto.
Munasque v. CA Every partner has the right, at any reasonable
- misunderstanding between the partners hour to have access to and inspect and copy any of
- SC: third party had the right to presume the said books.
authority of the partner when the contract was entered reasonable hour any reasonable hour on
into in the name of the partnership authority business days throughout the year, and not merely
- since the payments were misappropriated, Art. 1823 during some arbitrary period of a few days chosen
would apply on solidarity of liability by some or one of the partners.
The right in this Article is granted to enable the
Lim Tong Lim v. Philippine Fishing Gear, Inc. partner to obtain true and full information of the
- fact of partnership: common funds, purpose of partnership affairs, for after all, he is a co-owner of
business, sold boat for partners debt, sharing of the properties, including the books.
profits
- SC: corporation by estoppels applies against third
persons who benefitted (partner); therefore, liable as a
general partner despite not being named in the C. To have a formal account
contract
Art. 1809. Any partner shall have the right to a
Bachrach v. La Protectora formal account as to partnership affairs:
- partnership common carrier (1) If he is wrongfully excluded from the partnership
- Barba: president and partner business or possession of its property by his co-
TC: Partnership and all partners liable solidarily partners;
SC: authority given to bind only the partnership and (2) If the right exists under the terms of any
not themselves; therefore, liable as partners only agreement;
(subsidiarily) (3) As provided by article 1807;
(4) Whenever other circumstances render it just and
VII. RIGHTS OF A PARTNER reasonable. (n)

Right to formal account right to accounting


A. To associate another in his share referred to in 1807
GENERAL RULE: no partner has a right to demand
Art. 1804. Every partner may associate another a formal accounting except as a consequence of
person with him in his share, but the associate shall dissolution or unless he at the same time seeks
not be admitted into the partnership without the dissolution of the partnership.
consent of all the other partners, even if the partner Article 1809 provides the instances when the
having an associate should be a manager. (1696) general rule is not to be observed.
The last of these instances covers circumstances,
For a partner to have an associate in his share, frequently arising, which impose on one or more
consent of the other partners is not required. partners the duty of rendering a formal account to
For the associate to become a partner, ALL must the copartner, as where one partner is traveling for
consent (whether the partner having the associate a long period of time on partnership business, and
is a manager or not) other partners are in possession of the partnership
Reasons: books.
o Mutual trust is the basis of partnership
o Change in membership is a modification or Art. 1842. The right to an account of his interest
novation of the contract. shall accrue to any partner, or his legal
representative as against the winding up partners or own use, he shall be liable not only for the amount
the surviving partners or the person or partnership converted but also for interest and damages from
continuing the business, at the date of dissolution, the time of such conversion.
in the absence of any agreement to the contrary. (n) (2) This rule obtains even if the assignment is
The right to demand the account accrues at the made after dissolution of the partnership but
date of dissolution in the absence of any contrary before its termination by the completion of the
agreement. winding up of its business.
Any separate assignment of such right, or any
D. Property rights attempt at such assignment is null and void,
except when real property is involved and the
Art. 1810. The property rights of a partner are: provisions of Art 1819 relative to the interest of an
(1) His rights in specific partnership property; innocent purchaser apply.
(2) His interest in the partnership; and If the law recognized the right of a partner to
(3) His right to participate in the management. (n) assign his right in particular partnership property
to a third person, the assignee would pro tanto
become a partner, since he would have the right to
1. To possess specific partnership property
possess the property for partnership purposes
irrespective of the desires of the other partners.
Art. 1811. A partner is co-owner with his partners of
But partnership is a voluntary relation, and the
specific partnership property.
other partners cannot have a new partner thrust
upon them without their consent.
The incidents of this co-ownership are such that:
(3) A partners interest in specific property of the
(1) A partner, subject to the provisions of this Title
firm is taken out of the reach of his individual
and to any agreement between the partners, has an
creditors.
equal right with his partners to possess specific
While a partners right in specific partnership
partnership property for partnership purposes; but
property may not be attached, executed upon, or
he has no right to possess such property for any
garnished by his separate creditors, partnership
other purpose without the consent of his partners;
creditors may do so.
(2) A partner's right in specific partnership property
(4) This incident follows from the nature of such
is not assignable except in connection with the
right and the basic policy of the law to keep intact
assignment of rights of all the partners in the same
partnership property for creditors and for
property;
partnership purposes.
(3) A partner's right in specific partnership property
A partner has no personal property in any specific
is not subject to attachment or execution, except on
property of the partnership, and he has no right to
a claim against the partnership. When partnership
possess or use it except for a partnership purpose.
property is attached for a partnership debt the
partners, or any of them, or the representatives of a
deceased partner, cannot claim any right under the 2. To convey partnership interest
homestead or exemption laws;
(4) A partner's right in specific partnership property Art. 1812. A partner's interest in the partnership is
is not subject to legal support under Article 291. (n) his share of the profits and surplus. (n)

Each partner has been said to be possessed of a Profit the gain realized from the business or
joint interest in the whole of partnership property, investment over and above expenditures or the
but does not own individually any particular article excess of the value of returns over the value of
or any separate part or aliquot part thereof. advances.
(1) The right of equal possession includes use and Surplus- the excess of assets over liabilities; simply
control, including the power of sale and what is left of the assets of a firm after all its
disposition, such as applying partnership property liabilities have been satisfied.
to partnership debts, even without the consent of The interest of the partner in the partnership has
the other partners. It is however subject to several been otherwise described as the net balance
limitations. remaining to him; after all partnership debts or
One limitation: extends only to partnership claims against it have been paid and the equities
purposes. He has no right to possess it for any and accounts between such partner and his
other purpose without the consent of his partners. copartners have been adjusted.
If he does, he is accountable for the value of such Unlike his rights in specific partnership property, a
use as well as for any profits he may have derived partners interest in the partnership is assignable
therefrom. If he converts partnership money to his irrespective of the consent of the other partners.
It may be reached by the partners separate Art. 1830. Dissolution is caused: [xxx]
creditors by means of a charging order and the (2) In contravention of the agreement between the
other remedies specified in Art 1814. And the partners, where the circumstances do not permit a
partner can, with respect to it, claim rights under dissolution under any other provision of this article,
the exemption laws. by the express will of any partner at any time;
Art. 1831. On application by or for a partner the
Art. 1813. A conveyance by a partner of his whole court shall decree a dissolution whenever:
interest in the partnership does not of itself dissolve
the partnership, or, as against the other partners in (1) A partner has been declared insane in any judicial
the absence of agreement, entitle the assignee, proceeding or is shown to be of unsound mind;
during the continuance of the partnership, to
interfere in the management or administration of the (2) A partner becomes in any other way incapable of
partnership business or affairs, or to require any performing his part of the partnership contract;
information or account of partnership transactions,
or to inspect the partnership books; but it merely (3) A partner has been guilty of such conduct as
entitles the assignee to receive in accordance with tends to affect prejudicially the carrying on of the
his contract the profits to which the assigning business;
partner would otherwise be entitled. However, in case
of fraud in the management of the partnership, the (4) A partner willfully or persistently commits a
assignee may avail himself of the usual remedies. breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the
In case of a dissolution of the partnership, the partnership business that it is not reasonably
assignee is entitled to receive his assignor's interest practicable to carry on the business in partnership
and may require an account from the date only of the with him;
last account agreed to by all the partners. (n)
(5) The business of the partnership can only be
If partner conveys (assigns, sells, donates) his carried on at a loss;
WHOLE interest in the partnership (his share in
the profits and surplus), the partnership remains, (6) Other circumstances render a dissolution
in general. equitable.
WoN a dissolution results from the assignment
depends on its nature as much as on the intent or On the application of the purchaser of a partner's
agreement of the parties, as may be gathered from interest under Article 1813 or 1814:
the original partnership agreement, the written
assignment, or from their subsequent conduct. (1) After the termination of the specified term or
The assignee does not necessarily become a particular undertaking;
partner. The assignor is still the partner, with a
right to demand accounting and settlement. (2) At any time if the partnership was a partnership
Rights of assignee: at will when the interest was assigned or when the
o To get whatever profits the assignor-partner charging order was issued. (n)
would have obtained. (5) loss means operating loss for an extended
o To avail himself of the usual remedies in case of period of time
fraud in the management.
o To ask for annulment of the contract of Dan Fue Leung v. IAC
assignment if he was induced to enter it thru any Arts. 1806-1809 show that the right to demand an
of the vices of consent or if he himself was accounting exists as long as the partnership exists.
incapacitated to give consent. Partnership begins to run only upon the dissolution of
o To demand accounting but only if indeed the the partnership when the final accounting is done.
partnership is dissolved, but even then, the
account can cover the period only from the date US v. Clarin supra
of the last accounting which has been agreed to
by all the partners. Emnace v. CA
o Assignee can demand dissolution of the Action for accounting, payment of partnership shares,
partnership when the partnership has become a division of assets and damages is a personal action
partnership at will. which may be commenced and tried where the
defendant resides or may be found, or where the
E. To ask for dissolution plaintiffs reside, at the election of the latter.
If an action is against a partner, on the basis of his partnership business. These include personal
personal liability, it is an action in personam, and the obligations incurred by him in the ordinary and
fact that two of the assets of the partnership are proper course of partnerships affairs and in the
parcels of land does not materially change the nature preservation of its business or property.
of the action.
Each partner is further entitled to be indemnified
The heirs, as successors who stepped into the shoes of by the partnership for risks in consequence of its
their decedent upon his death, can bring an action for management. This contemplates risks and losses
accounting originally pertaining to the decedent. This which a partner necessarily incurs on behalf of the
right is transmitted by law. The heirs are complainants partnership.
in their own right as successors.

For as long as the partnership exists, any of the


partners may demand an accounting of the IX. RIGHTS OF ASSIGNEES
partnerships business, and prescription of the said
right starts to run only upon the dissolution of the A. To receive the interest
partnership when the final accounting is done.
Prescriptive period: 10 years B. To require an account

VIII. PARTNERSHIPS OBLIGATIONS TO Art. 1813. A conveyance by a partner of his whole


THE PARTNERS interest in the partnership does not of itself dissolve
the partnership, or, as against the other partners in
A. To reimburse; to answer for obligations
the absence of agreement, entitle the assignee,
contracted
during the continuance of the partnership, to
interfere in the management or administration of the
Art. 1796. The partnership shall be responsible to
partnership business or affairs, or to require any
every partner for the amounts he may have information or account of partnership transactions,
disbursed on behalf of the partnership and for the or to inspect the partnership books; but it merely
corresponding interest, from the time the expense entitles the assignee to receive in accordance with
are made; it shall also answer to each partner for the his contract the profits to which the assigning
obligations he may have contracted in good faith in partner would otherwise be entitled. However, in case
the interest of the partnership business, and for of fraud in the management of the partnership, the
risks in consequence of its management. (1688a) assignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the


A partner has no obligation to loan or advance assignee is entitled to receive his assignors interest
money to his firm. He may however do so, in which and may require an account from the date only of the
case, if there be no contrary agreement, he last account agreed to by all the partners. (n)
becomes a creditor of his firm and as such entitled
to reimbursement for such loan or advance before In case of dissolution of the partnership, the
there can be any distribution of profits. assignee is entitled to an accounting from the date
only of the last account agreed to by all the
Any voluntary contribution of money or property partners and to receive, after all the partnership
for the use of the partnership beyond the amount affairs have been settled and adjusted, his
required to be contributed by the partnership assignors share of the residue, if any, of
agreement is considered an advance or a loan. This partnership assets.
includes money to advanced to discharge
partnership obligations.

The firm must refund amounts disbursed on its C. To ask for dissolution
behalf plus interest from the time expenses were
made (and not from demand, since after all, a
partner is an agent, and the rule on agency applies
Art. 1831. On application by or for a partner the
to him).
court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial
The Code also makes the partnership answerable
proceeding or is shown to be of unsound mind;
to each partner for the obligations he may have
contracted in good faith in the interest of the
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;

(3) A partner has been guilty of such conduct as


tends to affect prejudicially the carrying on of the
business;

(4) A partner willfully or persistently commits a


breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the
partnership business that it is not reasonably
practicable to carry on the business in partnership
with him;

(5) The business of the partnership can only be


carried on at a loss;

(6) Other circumstances render a dissolution


equitable.

On the application of the purchaser of a partner's


interest under Article 1813 or 1814:
(1) After the termination of the specified term or
particular undertaking;

(2) At any time if the partnership was a partnership


at will when the interest was assigned or when the
charging order was issued. (n)

Assignee has a right to dissolve partnership if the


partnership is a partnership at will.