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any other contract.


o Preparatory
LAW ON PARTNERSHIP § Casis: relevant in cases where the
characterization of the contract is an
I. NATURE; CREATION issue. The fact that a contract is entered
into as a means for entering into other
The Nature of Partnership contracts can be used as an argument
for the existence
1. A Contract § Although it can be used for a contract of
Art. 1767. By the contract of partnership two or more persons agency, at least it excludes other types
bind themselves to contribute money, property, or industry to of contracts.
a common fund, with the intention of dividing the profits • Bautista: Partnership is a relation between two or more
among themselves. persons to which the law attaches special attributes and
Two or more persons may also form a partnership for the consequences, chief among which is its endowment
exercise of a profession. with legal personality. The relation is established by
contract but the law, to a great extent, fixes the condition
• This is exactly how the old Civil Code defined the contract under which it shall operate once so established.
of partnership. • Partnership is one of the most regulated types of contracts
• It can be said that the concept of partnership remains under the Civil Code.
unchanged from its civil law origins although a substantial
number of provisions of the CC on partnerships are 2. The Elements of a Partnership
derived from UPA, which is a codification of the common • The elements of a contract of partnership are:
law on partnership. 1. Two or more persons bind themselves to
• As a contract, it must comply with these essential contribute money, property or industry to a
requisites: common fund; and
1. Consent of the contracting parties; 2. With the intention of dividing the profits among
2. Object certain; and themselves.
3. Cause of the obligation.
• Consent: parties must agree to contribute money, a. Common Fund
property or industry to a common fund with the intention • Individuals use their existing capital or property.
of dividing the profits among themselves. • Partnerships may also be created among properties who
• Object: business undertaking of the partnership. have no money or property but agree to borrow money to
• Cause: profits derived therefrom. pursue a business and to divide the profits/losses that may
• Parties: “persons” whether natural or juridical; may form arise.
a partnership with other persons provided he/she does • What is required that they “bind themselves to
not suffer from any incapacity to enter into contracts. contribute”. A partnership may exist prior to the creation
o But jurisprudence and SEC (through its opinions) of a common fund, and such fund may not even come
have established limitations on corporations who from the partners’ own funds, but may be borrowed.
desire to form partnerships. à legal basis is based • Contribution may be in the form of credit or industry,
on another source of substantive law not necessarily cash or fixed assets.
(Corporation Code) o The Civil Code does not explicitly provide for any
• A contract of partnership is1: rule on whether it is possible for all partners to
o Consensual – requires consent only contribute industry to a partnership or
§ Casis: to say that a contract of whether it is required that at least one partner
partnership is perfected by mere contribute cash.
consent would not be entirely accurate o It is possible for a partnership to operate without
because the law requires certain cash in the common fund if the partnership
formalities under certain cases (e.g. borrows money from outside sources for
limited partnerships) operating expenses.
o Bilateral – entered into by two or more persons
§ Casis: this does not distinguish it from AFISCO v. CA (1999)
Facts:
• Some local insurance firms formed themselves into a
1
The first two are not of practical relevance and are not entirely “pool” in order to facilitate the handling of business
accurate.
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contracted with a non-resident foreign reinsurance obliterate the fact that the pool is being used in the
company with which they executed “reinsurance treaties.” transaction of business for profit.
• The issue is whether the pool should be deemed a
partnership that is taxable as a corporation under the Casis: Based on this ruling, it seems that the partnership itself
National Internal Revenue Code. is not required to directly earn profits for as long as the
• The insurance firms argued that there was no partnership creation of the partnership is “indispensable,
because there was no common fund. beneficial and economically useful” to the partners, and
that the profit motive must have been the “primordial
Held: The pool had a common fund, consisting of “money reason for the establishment of the partnership”.
and other valuables that are deposited in the name and credit
of the pool”. This common fund pays for the administration 3. Attributes of Partnership
and operation expenses of the pool.
a. Lawful Purpose
Casis: Thus, it would seem that a common fund may consist of Art. 1770. A partnership must have a lawful object or
money and property made available to a group for the purpose purpose, and must be established for the common benefit
of engaging in profitable undertakings. or interest of the partners.
When an unlawful partnership is dissolved by a judicial
Lim Tong Lim v. Philippine Fishing (1999) decree, the profits shall be confiscated in favor of the
Facts: State, without prejudice to the provisions of the Penal
• Chua and Yao entered into a contract for the purchase of Code governing the confiscation of the instruments and
fishing nets from Philippine Fishing Gear Industries on effects of a crime.
behalf of Ocean Quest Fishing Corporation.
• Chua and Yao alleged that they were engaged in a
• The business undertaking of the partnership must be legal.
business venture with Lim Tong Lim who was not a
• This requirement may be considered to be third element
signatory to the agreement.
required for the formation of the partnership.
• They failed to pay for the fishing nets so Philippine Fishing
• A partnership with unlawful purpose will generally be void
filed a collection suit against Chua, Yao and Lim.
ab initio.
• The issue was whether by their acts, Lim, Chua and Yao
• The only way the partnership will exist despite an illegal
could be deemed to have formed a partnership.
purpose is if the law will allow the purpose to be voided but
not the partnership itself.
Held: There was a partnership. The purchase and repair of the
− This requires that the law allows a partnership to exist
boats that were financed with borrowed money fell under the
without a purpose apart from obtaining profits.
term “common fund”, because the contribution to such fund
− Theoretically, two or more persons can pool together
need not be cash or fixed assets but it could be an intangible,
their resources for the purpose of obtaining profits,
like credit or industry.
without having decided upon exactly how they will do
so.
b. Intention to Divide Profits
• A partnership with unlawful purpose can be formed is if it
• Ordinarily such profits are derived from the business the
has at least two purposes, at least one of which is lawful.
partnership is engaged in.
SEC Opinion (October 17, 1989) addressed to Ms. C.A. Reyes
Afisco v. CA (1999)
Santos
Facts: The insurance companies argued that the pool “was
• SEC ruled on the validity of a proposed partnership
not and could not possibly have engaged in the business of
between an Englishman and a Filipino. It ruled that the
reinsurance from which it could have derived income for itself.”
proposed business should be denied registration.
If the pool could not earn profits, then it is not a partnership.
• The proposed partnership was to advertise in the local
newspapers and magazines for Filipino women interested
Held: Argument is untenable. The pool’s work is
in writing to and eventually meeting English gentlemen of
“indispensable, beneficial and economically useful to the
their choice.
business of the ceding companies and Munich, because
• SEC: While the purpose of the partnership may seem
without it, they could not have received their premiums.”
innocuous, its modus operandi and actual objective may be
• The profit motive or business is the primordial reason for
deemed immoral. Moreover, some quarters claim that
the pool’s formation.
similar businesses are operated to circumvent labor laws on
• The Court also cited the Court of Tax Appeals: The fact that
overseas recruitment.
the pool does not retain any profit or income does not
• Art. 1770 also provides that “when an unlawful partnership
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is dissolved by a judicial decree, the profits shall be same way as those who deal with partnerships who are
confiscated in favour of the State, without prejudice to the involved in obviously illegal activity.
provisions of the Penal Code governing the confiscation of
the instruments and effects of a crime.” b. Common Benefit
• In the Old Civil Code, the rule was that “when the • A “benefit” may be pecuniary in nature or otherwise. The
dissolution of an unlawful partnership is decreed, the meaning of the term in the context of Art. 1770 may be
profits shall be given to the charitable institutions of the disputed.
domicile of the partnership, or, in default of such, to those • It may be argued that a person may agree to be part of a
of the province.” partnership although he derives no pecuniary benefit or as
• The current rule is simpler; the former rule required a long as he derives some satisfaction or psychic reward form
determination as to which charitable institution will benefit. the benefits received by the other partners.
• Art. 1770 refers to profits being confiscated, but a different − Example: A parent who forms a partnership with
rule applies to the amounts contributed. The rule was his children. It is not inconceivable that a parent
stated in Arbes v. Polistico. will agree to contribute capital but his children
• The rule in Art. 1770 appears to contemplate a situation are to enjoy all profits.
wherein the partnership originally had a lawful purpose but • But if benefit means “profit” then this means that every
subsequently, the purpose became unlawful. single partner must receive the profits.
− But the provision mentions a judicial decree − This follows from the second element which is
dissolving the partnership. the intention of the partners to divide profits
− Thus, there is some doubt whether the rule applies if among themselves.
the parties simply dissolve the partnership because of − An agreement which creates a common fund for
the subsequent unlawfulness of the purpose. the purpose of obtaining profit for some but not
• There seems to be no justification for the parties to retain all of the contributors, is NOT a partnership.
the profits in a situation where there is no judicial decree. • In the alternative, the law will only consider a partnership to
• In addition to confiscation, the parties have no right to be formed among those receiving profit.
enforce claims which depend upon its validity. NO action • The Civil Code explicitly provides that a stipulation in the
can be brought for the purpose of recovering a share of the partnership agreement, which excludes one or more
profits made by the unlawful partnership; nor can an partners from any share in the profits is void.
accounting be enforced.
− The partnership itself, if formed for illegal purpose or c. Juridical Personality
without the necessary license, cannot sue on contracts i. When Personality Exists
made in pursuance of its business.
• The law provides NO protection for a third party who Art. 1768. The partnership has a juridical personality separate
transacted with a partnership with an unlawful purpose and distinct from that of each of the partners, even in case of
though aware of such unlawfulness. failure to comply with the requirements of Article 1772, first
− But there’s no agreement in the case where the third paragraph.
party was unaware of the unlawful purpose.
− Bautista: Some commentators, including Manresa,
Art 1772. Every contract of partnership having a capital of
consider it unjust to apply to such cases the rule
three thousand pesos or more, in money or property, shall
denying juridical existence to the partnership. Manresa
appear in a public instrument, which must be recorded in the
agreeing with Ricci, opines that the rule is established in
Office of the Securities and Exchange Commission.
the interest of public order in view of which the good
Failure to comply with the requirements of the preceding
faith of third parties is immaterial. Such good faith,
paragraph shall not affect the liability of the partnership and
Manresa and Ricci maintain, CANNOT inject life into an
the members thereof to third persons.
inexistent contract, although it may serve as basis for
the third party to demand indemnity from the other
partner or partners who dealt with him. In most cases, juridical personality exists even if it fails to

register with the SEC.
• Good faith of a third party CANNOT cure the defect of
• Philippine Partnership Law has always followed the entity
illegality off the purpose of a partnership. But equity
theory of partnerships as opposed to the aggregate
dictates that the law distinguish between partnerships with
theory in common law.
obviously unlawful purposes and those which appear to
have lawful purpose. o Entity theory – a partnership has existence
• Third parties who are victimized by partnerships which separate from the partners.
appear to have a lawful purpose should not be treated the o Aggregate theory – a partnership is an
aggregate of individuals and does not constitute
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a separate legal entity. invalid a separate agreement between two members of a
partnership pursuant to which one guarantees the other
Evangelista v. CIR (1957) against loss of his capital contribution or assures him of
Facts: profit. Neither can the rule be invoked as against third
• Siblings pooled money to buy real properties which they persons by the partners entering into the secret
rented out. stipulations, in consonance with the general principle that
• One of the parties argued that they were merely a party should not be allowed to take advantage of a
co-owners and not partners because the acts performed nullity which he himself has caused.”
by them did not create a legal entity.
Summary: The partnership’s separate juridical personality has
Held: The basic elements of a partnership existed because the following effects:
they created a common fund for the purpose of dividing profits 2. It may sue or be sued in its name or by its duly authorized
among themselves. representative.
3. A partner may not be sued in his personal capacity for the
Casis: Having created a partnership, the Court could have obligations of the partnership.
ruled that a juridical personality was in fact created. Instead, it 4. It has a domicile.
went on to discuss that under the Internal Revenue Code, 5. It has the power to contract.
taxable ‘partnerships’ are not necessarily partnerships in the 6. It has the ability to acquire and possess property.
technical sense of the term and that the lawmaker did not 7. It can obtain rights and incur obligations.
consider personality as a condition. 8. It may enter into contracts with the partners themselves.
• While it may be true that tax law may consider a group of 9. Properties acquired by the partnership belong to it, and
persons a partnership even though the Civil Code may not, not to the members in common.
in this particular case there really was a partnership 10. The insolvency of the partnership is not based on the
because the basic elements were present. insolvency of the partners.
• The ruling in Evangelista was cited by the Court in Oña v.
CIR (1972), as basis for differentiating between *The separate legal personality of a partnership subsists even
partnerships under the Civil Code and unregistered after dissolution and until termination of the partnership.
partnerships under the NIRC.
• In Oña, the parties formed a common fund for purposes of ii. Effects of Juridical Personality
dividing profits among themselves. But unlike Evangelista, • Because of the separate juridical personality, the
in Oña, the ‘partnership contract’ was void because partnership “may sue or be sued in its name or by its duly
immovable properties were contributed to the common authorized representative.”
fund which required an inventory and a notarized
partnership agreement. Vargas & Company v. Chan (1915)
• A peculiar provision in the Civil Code involves associations Facts:
and societies whose articles are kept secret among the • Chan Hang Chiu sued Vargas & Company to recover a
members, and wherein any one of the members may sum of money.
contract in his own name with third persons. • The summons and complaint were served by the sheriff by
• The Civil Code provides that such societies and delivering and leaving these with Jose Macapinlac, the
associations will have no juridical personality and shall be managing agent of Vargas & Co. Judgment was rendered
governed by the rules on co-ownership. against Vargas which it paid under protest.
• Bautista, citing Manresa, explains that the phrase “kept • Vargas argued that being a partnership, it was necessary,
secret among the members” means that the articles in bringing an action against it, to serve the summons on
“allow any one of the members to contract in his own all of the parties, delivering to each one of them
name with third persons” and “are known to some personally a copy thereof.
members only and kept secret from the rest.” Thus, the • It further argued that the summons having been served on
“secrecy is not directed to third persons but to some of the managing agent of the company only, the service was
the partners.” of no effect as against the company and the members
• Bautista: “The rule is intended to preserve the equality thereof, and the judgment entered by virtue of such
which must exist among the partners and to prevent any service is void.
of them from defrauding the partnership of the other
members. This being the case it does not prohibit secret Held: In suits filed against the partnership, the summons need
stipulations which are not designed to produce this result. not be served on all the partners, the suit being against the
It would not, for instance, have the effect of rendering partnership itself and not the partners.

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• It is the practice in the Philippines since the American partners are not alleged and proven to be insolvent.
occupation to treat companies of the class to which Vargas
and Company belongs as legal or juridical entities and to Supreme Court: Unlike the common law, the Philippine
permit them to sue and be sued in the name of the statutes consider a limited partnership as juridical entity for all
company, the summons being served solely on the intents and purposes, which personality is recognized in all its
managing agent or other official of the company specified acts and contracts.
by the section of the Code of Civil Procedure. • This being so and the juridical personality of a limited
• The plaintiff brings the action in the company name and partnership being different from that of its members, it
not in the name of the members of the firm. must, on general principle, answer for, and suffer, the
• Actions against companies of the class to which plaintiff subject of rights and obligations.
belongs are brought against such companies in their • If, as in the instant case, the limited partnership of Campos
company names and not against the individual partners Rueda & Co. failed to pay its obligations with three
constituting the firm. creditors for a period of more than 30 days, which failure
• In the States, in which the individual members of the firm constitutes, under our Insolvency Law, one of the acts of
must be separately served with process, the rule also bankruptcy upon which an adjudication of involuntary
prevails that they must be parties to the action, either insolvency can be predicated, this partnership must suffer
plaintiffs or defendants, and that the action cannot be the consequences of such failure, and must be adjudged
brought in the name of or against the company itself. insolvent.
• This follows naturally for the reason that, if it is necessary • We are not unmindful of the fact that some courts of the
to serve the partners individually they are entitled to be US have held that partnership may not be adjudged
heard individually in the action and they must, therefore, insolvent in an involuntary insolvency proceeding unless all
be made parties thereto so that they can be heard. of its members are insolvent while others have maintained
• It would be idle to serve process on individual members of a contrary view.
a partnership if the litigation were to be conducted in the
name of the partnership itself and by the duly constituted Yu v. NLRC (1993)
officials of the partnership exclusively. Held: The occurrence of events which precipitates the legal
• A partner may not be sued in his personal capacity for the consequence of dissolution of a partnership does not
obligations of the partnership. automatically result in the termination of the legal personality
of the old partnership.
Aguila v. CA (1999) • Art. 1829: On dissolution, the partnership is not
• Aside from the power to sue and be sued, a separate terminated, but continues until the winding up of
juridical personality means that a partnership has: partnership affairs is completed.
1. A domicile • In the ordinary course of events, the legal personality
2. The power to contract of the expiring partnership persists for the limited
3. The ability to acquire and possess property purpose of winding up and closing of the affairs of the
4. Obtain rights and incur obligations. partnership.
• A partnership may also enter into contracts with the
partners themselves. D. Rules to Determine Existence
• Property acquired by the partnership belongs to it and not
to the members in common. Art. 1767. By the contract of partnership two or more persons
o Bautista: “All that the members have are their bind themselves to contribute money, property, or industry to
respective interests in the capital, but such a common fund, with the intention of dividing the profits
interests follow the fortunes of the partnership. It among themselves.
is only when the partnership is dissolved and Two or more persons may also form a partnership for the
liquidated that the members individually acquire exercise of a profession.
the interests belonging to them.”
• The insolvency of the partnership is not based on the
Art. 1769. In determining whether a partnership exists, these
insolvency of the partners.
rules shall apply:
(1) Except as provided by Article 1825, persons who are not
Campos Rueda v. Pacific Commercial (1922)
partners as to each other are not partners as to third
Facts: The trial court found that the insolvency of the
persons;
partnership was not proven, and it was not even alleged that
(2) Co-ownership or co-possession does not of itself establish a
the members of the partnership were insolvent and the
partnership, whether such-co-owners or co-possessors do
partnership cannot be adjudged insolvent so long as the
or do not share any profits made by the use of the property;
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(3) The sharing of gross returns does not of itself establish a • The siblings had the properties rented or leased to various
partnership, whether or not the persons sharing them have tenants.
a joint or common right or interest in any property from • The Collector of Internal Revenue demanded payment of
which the returns are derived; income tax on corporations, real estate dealer’s fixed tax
(4) The receipt by a person of a share of the profits of a and corporation residence tax for several years.
business is prima facie evidence that he is a partner in the • CTA found them liable for the above-mentioned taxes.
business, but no such inference shall be drawn if such
profits were received in payment: Issue: WON the siblings were subject to the tax on
(a) As a debt by installments or otherwise; corporations as provided for in the NIRC.
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a Held: There was an agreement to contribute money,
deceased partner; property or industry to a common fund, and the only question
(d) As interest on a loan, though the amount of payment was whether there was an intent to divide the profits among
vary with the profits of the business; themselves. The Court found that they do have an intention to
(e) As the consideration for the sale of a goodwill of a divide the profits among themselves, for the following reasons:
business or other property by installments or otherwise. 1. The common fund was not something they found already in
existence. They created it purposely and was not a
property inherited by them pro indiviso. They jointly borrowed
• Art. 1769 was derived from Sec. 7 of UPA, with the only
a substantial portion of the common fund in order to establish
difference being item 2. Comments from US case law on
it.
these rules are highly persuasive in our jurisdiction.
2. They invested in a series of transactions. The number of the
lots acquired and transactions undertaken, and the brief
1. In General
interregnum between each was strongly indicative of a patter
a. No One Factor Determinative
or common design that was not limited to the conservation
• US Case Law: No one factor or circumstance is a
and preservation of the common fund or even of the property
conclusive test of partnership, nor is it possible to state
acquired by them. Thus, there was habituality peculiar to
any number of facts decisive in all cases. There are no hard
business transactions engaged in for purposes of gain.
and fast rules, and arbitrary tests are not useful. Each case
3. The lots were leased separately to several persons, who,
must be decided under its peculiar facts, considering the
from 1945 to 1948 paid the total sum of P70, 068.30 by way of
totality of all relevant facts and circumstances.
rentals. There was no evidence that there had been any change
• Dalton v. Austin: Under the UPA, as under the common
in the utilization thereof.
law, the existence of a partnership is an inference of law
4. The properties have been under the management of one
based on established facts… No one factor is alone
person (Simeon Evangelista) with full power to lease, to collect
determinative of the existence of a partnership.
rents, to issue receipts, to bring suits, etc. Thus the
• Las Vegas Machinery and Engineering Works v. Roemisch:
properties have been handled as if the same
There is no one exclusive test, that no single arbitrary test
belonged to a corporation or business enterprise for
is conclusive, that the relationship depends upon the
profit.
intention of the parties and that every case must stand
5. These conditions have existed for more than 10 years, since
upon its own merits.
the first property was acquired, and over 12 years since Simeon
• There is no single factor or element that is decisive to
became manager.
establish the existence of a partnership.
6. Petitioners did not testify nor introduce any evidence, either
on their purpose in creating the set up already adverted to, or
b. Intent of the Parties
on the causes for its continued existence. They did not even try
to offer an explanation therefor.
Evangelista v. CIR (1957)
• The collective effect of these circumstances is such as to
Facts:
leave no room for doubt on the existence of the intent of
• A group of siblings borrowed from their father a sum of
the petitioners.
money that together with their personal monies was used
• US Case Law: The intent of the parties is one of the most
by them for the purpose of buying real properties.
important factors in determining in whether a partnership
• They purchased several parcels of land from several
exists between purported partners, where third parties’
vendors and appointed one of the siblings to “manage
rights are not involved, since partnership rests on mutual
their properties with full power to lease; to collect and
voluntary consent manifested by the terms of the
receive rents; to issue receipts… to bring suits against the
parties’ agreement or their conduct under it.
defaulting tenant, etc. for and in their behalf and to
• P&M Cattle Co. v. Holler: As in any contractual relationship,
endorse and deposit all notes and checks for them.”

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the intent of the parties is controlling. The parties members of the existing partnership consent to the
must intend to create the relationship of joint venture or representation, a partnership act or obligation results; but in all
partnership… super-imposed upon the rule of intent, it is other cases it is the joint act or obligation of the person acting
frequently held that where there is no express agreement and the persons consenting to the representation.
to form a partnership, the question of whether such a
relation exists must be gathered from the conduct, b. Co-Ownership Does Not of Itself Establish a
surrounding circumstances and the transactions Partnership
between the parties.
o Even a written agreement designating the parties
Art. 1769. In determining whether a partnership exists, these
as partners and providing for a sharing of the
rules shall apply:
profits, is only evidential and not conclusive of
(1) Except as provided by Article 1825, persons who are not
the existence of a partnership.
partners as to each other are not partners as to third
• It seems that even a written agreement may not override
persons;
intent. But the nature of the intent is crucial.
(2) Co-ownership or co-possession does not of itself establish a
o Murphy v. Stevens (1982): “That intent, however,
partnership, whether such-co-owners or co-possessors do
is the intent to do the things which
or do not share any profits made by the use of the property;
determine whether a partnership relation
(3) The sharing of gross returns does not of itself establish a
exists. Persons who intend to do the things that
partnership, whether or not the persons sharing them have
constitute a partnership are partners whether
a joint or common right or interest in any property from
their expressed purpose was to create or avoid
which the returns are derived;
the relationship.”
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the
2. Specific Rules
business, but no such inference shall be drawn if such
a. Persons Not Partners to Each Other Not
profits were received in payment:
Partners to Third Persons
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
General Rule: Persons who are not partners as to each other
(c) As an annuity to a widow or representative of a deceased
are not partners as to third persons. (Art. 1769 (1))
partner;
(d) As interest on a loan, though the amount of payment
Exception: Partnership by estoppel (Art. 1825)
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
Art. 1825. When a person, by words spoken or written or by business or other property by installments or otherwise.
conduct, represents himself, or consents to another
representing him to anyone, as a partner in an existing
• Based on Sec. 7 (2) of UPA of 1914: Joint tenancy, tenancy
partnership or with one or more persons not actual partners, he
in common, tenancy by the entireties, joint property,
is liable to any such persons to whom such representation has
common property, or part ownership does not of itself
been made, who has, on the faith of such representation, given
establish a partnership, whether such co-owners do or do
credit to the actual or apparent partnership, and if he has made
not share any profits made by the use of property;
such representation or consented to its being made in a public
• The mere fact that two or more persons own or possess in
manner he is liable to such person, whether the representation
common a thing, which earns profits in exchange for use,
has or has not been made or communicated to such person so
does not create a partnership.
giving credit by or with the knowledge of the apparent partner
making the representation or consenting to its being made:
Oña v. CIR (1972)
(1) When a partnership liability results, he is liable as though he
Facts:
were an actual member of the partnership;
• The surviving spouse and children inherited properties
(2) When no partnership liability results, he is liable pro rata
belonging to the decedent. The Court approved the
with the other persons, if any, so consenting to the contract
project of partition.
or representation as to incur liability, otherwise separately.
o The estate consisted of parcels of land, houses
When a person has been thus represented to be a partner
and a sum of money that was later used to
in an existing partnership, or with one or more persons not
rehabilitate the properties.
actual partners, he is an agent of the persons consenting to
• No attempt was made to divide the properties but instead
such representation to bind them to the same extent and in the
these remained under the management of Oña, the
same manner as though he were a partner in fact, with respect
surviving spouse, who used said properties in business by
to persons who rely upon the representation. When all the
leasing or selling them and investing the income derived
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therefrom and the proceeds from the sales thereof in real that basis.
properties and securities. o Withal, if this were to be allowed, it would be
• The properties and investment increased as a result. the easiest thing for heirs in any inheritance
• The heirs did not actually receive their shares in the yearly to circumvent and render meaningless Sec.
income but these were left in the hands of Oña who 24 and 84 (b) of the NIRC.
invested them in real properties and securities. • For tax purposes, the co-ownership of inherited
• The Commissioner of Internal Revenue decided that the properties is automatically converted into an
heirs formed an unregistered partnership and therefore, unregistered partnership the moment said common
subject to the corporate income tax. properties and/or the incomes derived therefrom are
• CTA affirmed the Commissioner. used as a common fund with intent to produce
profits for the heirs in proportion to their
Issue: Whether the heirs were merely co-owners. respective shares in the inheritance as
determined in a project partition.
Held: The heirs formed a partnership because they did not o Reason: From the moment of such partition,
merely limit themselves to holding the properties they the heirs are entitled already to their
inherited. respective definite shares of the estate and
• During the material years, some of the properties the incomes thereof, for each of them to
were sold at considerable profit. With the said manage and dispose of as exclusively his
profit, the heirs engaged, thru Lorenzo Oña, in the own without the intervention of the other
purchase and sale of corporate securities. heirs, and, accordingly he becomes liable
• All profits from these ventures were divided among individually for all taxes in connection
petitioners proportionately in accordance with their therewith.
respective shares in the inheritance. o If after the partition, he allows his share to be
• From the moment petitioners allowed not only the held in common with his co-heirs under a
incomes from their respective shares of the single management to be used with the
inheritance but even the inherited properties intent of making profit thereby in
themselves to be used by Oña as a common proportion to his share, there can be no
fund in undertaking several transactions or in doubt that, even if no document or
business, with the intention of dividing the profit instrument were executed for the purpose,
to be shared by them proportionally, such act was for tax purposes, at least, an unregistered
tantamount to actually contributing such incomes partnership is formed.
to a common fund and, in effect, they thereby formed
an unregistered partnership within the purview of the Obillos v. CIR (1985)
provisions of the tax code.
o Casis: This means that the heirs were not Pascual v. CIR (1988)
partners from the very beginning.
• Court: There should be a period when the heirs can Stern v. Department of Revenue (1974)
be considered as co-owners rather than unregistered Facts:
co-partners. • The plaintiff wanted to be taxed along with his wife as a
o Before the partition and distribution of the partnership but instead he was taxed as a sole
estate of the deceased, all the income proprietorship.
thereof does belong commonly to all the • Bernard Stern and his wife Marie started a business known
heirs, without them becoming unregistered as Rhinelander Decorating Company to which they both
co-partners. contributed $3,500.
o But it does not necessarily follow that such • They built a building and dealt in draperies, carpeting and
status as co-owners continues until the interior decorating. Marie spent full time at the store,
inheritance is actually and physically handled the sales and did all the consulting and advising
distributed among the heirs, for it is easily as to interior decorating.
conceivable that after knowing their • Bernard spent a little time at the store but did all of the
respective shares in the partition, they might wall paper hanging and carpet laying.
decide to continue holding said shares under • The title to the real estate was in joint tenancy in the
the common management of the names of Bernard and Marie. The bank account was in the
administrator or executor or of anyone company name with both authorized to sign the checks,
chosen by them and engage in business on which they both did. The statutory selling permit was

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issued in the company name showing both Bernard and transactions relating to the common property,
Marie as owners. An employer registration certificate does not change the legal relationship of the
issued in the name of the company showed the names of several owners, with respect to the common
both Bernard and Marie as employers. Both Bernard and property, from a tenancy in common to one of
Marie signed notes for business loans. partnership…
• There was neither a written nor oral partnership
agreement, nor any agreement, as to compensation for Casis: The importance of community of interest should not be
services or division of profits. The books of the company diminished.
were not kept upon a partnership basis. Social security • Under the UPA as well as prior laws and statutes, one
payments were made on behalf of Bernard but none for of the fundamental tests for existence of a partnership
Marie. is whether there is community of interest among the
• Neither one was well versed in accounting. The parties for business purposes.
bookkeeping and preparation of income tax returns were
done by a hired accountant. At no time were partnership Chariton Feed & Grain Inc. v. Harder (1985)
income tax returns filed with state or federal authorities – Held:
this upon the decision of the accountant. • Co-ownership of control, or a community of interest in
the administration of the business, is a key element in
Held: There was no partnership in this case. The record shows determining the existence of a partnership.
that Bernard and Marie had a very close relationship and that • Partnership is characterized by ownership, but the
they carried over this relationship into the business operation. existence of the latter by itself does not necessarily
This relationship, however, stems from their marriage and their mean that there is partnership.
desire to hold all property jointly and not from any business • In a partnership, the members become co-owners of
motive. what is contributed to the firm capital and of all
• The facts and legal issues of this case were similar to those property that may be acquired thereby and through
in Skaar v. Department of Revenue (1974): the efforts of the members.
o A partnership is an association of two or more • The property or stock of the enterprise forms a
persons to carry on as co-owners a business for community of goods, a common fund, in which
profit. each party has a proprietary interest. This means that
o It has four elements: the members’ respective contributions become as
§ Contracting parties must intend to form one and their commingled property and interests are
a bona fide partnership and accept the thereby made subject to each of the associates on the
legal requirements and duties trust and inducement that each would act for the
emanating therefrom. benefit of all. If the relation does not have this feature,
§ There must be a community of interest it is not one of partnership.
in the capital employed.
§ There must be an equal voice in the c. Sharing of Gross Return does not Establish a
management of the partnership. Partnership
§ There must be a sharing and distribution • Art. 1769 (3) provides that the sharing of gross returns
of profits and losses. does not of itself establish a partnership, whether or not
o Applying these elements to the case at bar, a the persons sharing them have a joint or common right or
bona fide partnership does not exist, since they interest in any property from which the returns are derived.
did not intend to create a bona fide partnership. • Bautista: The reason is that an agreement to share gross
• The court also quoted Andersen v. Andersen: returns is inconsistent with the idea of community of
o A mere community of interest in property, such as interest in the business, joint ownership of the profits and
that which exists between tenants in common or joint sharing of the loss.
joint tenants of real or personal property, does o Partners are supposed to share the fortunes of
not make such owners partners or raise a the business; they should be “interested in its
presumption that a partnership exists, and this is failure as well as successes.” Consequently, if no
so even though they cooperate in making profits have been made, no partner is entitled to
improvements on their property and in realizing any share as against the others, for there is
and sharing the profits or the losses and nothing to share. But where the agreement is to
expenses arising therefrom. share gross returns, the share is
o The adoption of an assumed name, as convenient independent of the existence of profits,
mode of designating all the joint owners, in and may be taken when there is loss.

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• In Oña, the alleged partners relied on Art. 1769 (3) in partner;
arguing that they did not form a partnership. The Court (d) As interest on a loan, though the amount of payment
simply said that this rule and any other provision of the CC vary with the profits of the business;
on partnerships were unavailing. (e) As the consideration for the sale of a goodwill of a
o The basis was the ruling on Evangelista that business or other property by installments or otherwise.
differentiated the concept of partnerships under
the CC from that of unregistered partnerships • Bautista: The presumption is based on the theory that
which are considered as “corporations” under persons who take part of the profits take part of that fund
the NIRC. on which creditors of the business rely for their payments,
o Casis: The Court seems to be implying that the and for this reason “ought to be considered presumptively,
CC rules on partnership do NOT apply when as the principals upon whom liability for obligations
what is involved is an unregistered partnership incurred on carrying on the business is to be placed.”
under the tax code. • In one case, the court ruled that “tax returns which show
o The Court ruled that there was an unregistered the person or entity as receiving profits from the business
partnership because the heirs did not divide their are prima facie evidence that a partnership exists.”
inheritance and used it to engage in business • The fact that the profit received is less than what the other
transactions for profit. has received does not prevent the presumption from
§ Casis: The Court applied the CC arising because “the sharing of profits between partners
requirement that there be an need not be in equal proportions since they may agree on
agreement to create a common fund any proportion or formula and an unequal sharing or
and the intent to divide profits, as basis distribution does not disprove partnership.”
for determining that there was • When the general rule applies, a presumption arises that
partnership. partnership exists.
o It would be inaccurate to say that the CC o Presumption can be rebutted by a showing that
provisions do not apply when the issue involved there was NO intent to create a partnership, since
is the existence of an unregistered partnership intent of the parties is controlling.
under the tax code. • Although the sharing of profits is a prima facie indication
• Casis: One would need the CC rules on partnerships to of a partnership, it does NOT conclusively establish the
determine if there was a partnership to being with and same. If other elements of a partnership are absent, the
there is no incongruence in using Art. 1769 to assist in this existence of a partnership is rebutted.
determination. Had Art. 1769 (3) been used in this case, o Benefit: shifts the burden of proving the
the ruling would not have changed because the heirs did existence of the partnership to the opposing
not merely share in gross returns but shared in the profits. party, requiring him to go forward with rebuttal
evidence to negate the presumption, failing
d. Receipt of Profits is Prima Facie Evidence of which proof of partnership is deemed conclusive.
Being a Partner
Art. 1769. In determining whether a partnership exists, these Philex Mining v. CIR (2008)
rules shall apply:
(1) Except as provided by Article 1825, persons who are not Heirs of Lim v. Lim (2010)
partners as to each other are not partners as to third persons; Facts:
(2) Co-ownership or co-possession does not of itself establish a The heirs of the late Jose Lim filed a Complaint for Partition,
partnership, whether such-co-owners or co-possessors do or Accounting and Damages against Juliet Lim, widow of the late
do not share any profits made by the use of the property; Elfledo Lim (eldest son of Jose)
(3) The sharing of gross returns does not of itself establish a • Heirs alleged that Jose, together with his friends Jimmy
partnership, whether or not the persons sharing them have a and Norberto, formed a partnership to engage in the
joint or common right or interest in any property from which trucking business.
the returns are derived; o Initially, with a contribution of P50, 000 each, they
(4) The receipt by a person of a share of the profits of a purchased a truck to be used in the hauling and
business is prima facie evidence that he is a partner in the transport of lumber of the sawmill.
business, but no such inference shall be drawn if such profits o Jose managed the operations of this business
were received in payment: until his death.
(a) As a debt by installments or otherwise; • Jose’s heirs, including Elfledo, and partners agreed to
(b) As wages of an employee or rent to a landlord; continue the business under the management of Elfledo
(c) As an annuity to a widow or representative of a deceased to use, purchase or acquire properties using said funds.

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• By the time the partnership ceased, it had nine trucks Tan Eng Kee, a demand for periodic accounting
which were all registered in Elfledo’s name. is evidence of a partnership).
• The heirs argued that through E’s management of the • Petitioners failed to adduce evidence to show that the real
partnership, he was able to purchase numerous real and personal properties acquired and registered in the
property by using the profits derived therefrom, all of names of E and Juliet formed part of the estate of Jose,
which were registered in his name and that of Juliet Lim. having been derived from Jose’s alleged partnership with
o Elfledo died, leaving Juliet as his sole surviving Jimmy and Norberto. Petitioners:
heir. o Failed to refute claim that E had other
• The heirs claimed that Juliet took over the administration businesses.
of the properties belonging to the estate of Jose, without o Admitted that E also sold Interwood lumber as
their consent and approval. sideline.
o Claiming that they are co-owners of the o Could not offer any credible evidence other than
properties, the heirs required Juliet to submit an bare assertions.
accounting of all income, profits and rentals § Between documentary and oral
received from the estate of Elfledo, and to evidence, the former carries more
surrender the administration thereof. Juliet weight.
refused. • The Court agreed with CA: Elfeldo was not just a hired
• Juliet’s arguments: help but one of the partners, active and visible in the
o Elfledo was himself a partner of Norberto and running of its affairs from day one until this ceased
Jimmy. operations upon his demise.
o Jose gave Elfledo P50, 000 as the latter’s capital o Indicators that he was a partner:
in an informal partnership with Jimmy and § Extent of his control, administration and
Norberto. management of the partnership and its
o When she and E got married in 1981, the business;
partnership only had one truck, but through the § The fact that its properties were placed
efforts of E, the business flourished. in his name
o E had other businesses thus they were able to § He was not paid salary or other
buy real properties and to put up their own car compensation by the partners.
assembly and repair business. o Other partners only contributed initial capital but
o When Jose died, he left no known assets, and the had no say thereafter on how the business was
partnership with Jimmy and Norberto ceased run.
upon his demise.
o Jose left no properties that Elfledo could have Casis’ Comments:
held in trust. • There is nothing in the discussion that refers to any of the
rules in Art. 1769, and instead relied on the 5 facts
Held: Elfledo, not Jose, is the partner. mentioned.
• The following facts tend to prove that Elfledo was himself o The closest possible reference to Art. 1769 was
the partner of Jimmy and Norberto: the assumed receipt of profits. But the receipt of
1. A witness testified that Jose gave Elfledo P50, profits in this case was not proven but only
000 as share in the partnership on a date that assumed because Elfledo allegedly did not
coincided with the payment of the initial capital in receive wages.
the partnership; • It is not clear how the non-demand of periodic accounting
2. E ran the affairs of the partnership without any is supportive of the view that E is a partner.
intervention or opposition whatsoever from any • The Court mainly based its ruling that E was a partner on
of the petitioners; the fact that he controlled the affairs of the partnership
3. All the properties, particularly the nine trucks to the point that partnership properties were placed in his
were registered in the name of E; name.
4. Jimmy testified that E did not receive wages or
salaries from the partnership, indicating that what A. Definition; essential features
he actually received were shares of the profits of Art. 1767. By the contract of partnership two or more persons
the business; and, bind themselves to contribute money, property, or industry to
5. None of the petitioners, as heirs of Jose, the a common fund, with the intention of dividing the profits
alleged partner, demanded periodic accounting among themselves.
from E during his lifetime (as stressed in Heirs of Two or more persons may also form a partnership for the

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exercise of a profession. to the public instrument. (1668a)

B. Creation − While Art. 1771 does not provide for the consequences of
Art. 1770. A partnership must have a lawful object or failing to notarize the partnership agreement where
purpose, and must be established for the common benefit or immovable or real rights are contributed, it can be inferred
interest of the partners. from Art. 1773 that such failure voids the agreement.
When an unlawful partnership is dissolved by a judicial decree, • The requirements of Art. 1773 cannot be complied with
the profits shall be confiscated in favor of the State, without without a notarized partnership agreement. As such,
prejudice to the provisions of the Penal Code governing the failure to comply with Art. 1771 voids the contract of
confiscation of the instruments and effects of a crime. partnership.
• Although Art. 1773 only mentions contributions of
Art. 1411. When the nullity proceeds from the illegality of the immovable property, it is reasonable to expect that it also
cause or object of the contract, and the act constitutes a applies when real rights are contributed.
criminal offense, both parties being in pari delicto they shall − Prof. Bautista disagrees with the aforementioned
have no action against each other, and both shall be interpretation, stating that it is based only on Art. 1773.2
prosecuted. Moreover, the provisions of the Penal Code Citing Arts. 1356 to 1358, he argues that “in order that a
relative to the disposal of effects or instruments of a crime shall contract may be considered void for non-compliance with a
be applicable to the things or the price of the contract. formal requirement the law must specifically provide that the
This rule shall be applicable when only one of the parties is contract shall be void if the formality required is absent.”
guilty; but the innocent one may claim what he has given, and
shall not be bound to comply with his promise. Prof. Bautista Prof. Casis
Because Art. 1771 itself does Art. 1771 does say that the
Code of Professional Responsibility Rule 3.02. In the not state that failure to execution of a notarized
choice of a firm name, no false, misleading or assumed name execute a notarized partnership agreement when
shall be used. The continued use of the name of a deceased partnership agreement voids immovable or real rights are
partner is permissible provided that the firm indicates in all its the partnership, failure to contributed “is necessary”.
communications that said partner is deceased. comply with this requirement This means that there is a
does not make the legal flaw when there is failure
1. Formal Requirements partnership void. to execute such, making the
a. In General agreement, at the very least,
Art. 1771. A partnership may be constituted in any form, not valid. The agreement is
except where immovable property or real rights are void as per Art. 1773.
contributed thereto, in which case a public instrument shall be Because what Art. 1773 Art. 1773 clearly requires the
necessary. requires is the making of an parties to make, sign and
inventory, the attach the inventory to a
− A partnership may be constituted in “any form”, meaning it non-preparation of a notarized partnership
may be made orally or in writing. If in writing, it need not be notarized partnership agreement. While Art. 1773
notarized unless immovable property or real rights are agreement does not make the does not require the
contributed. partnership agreement void. execution of a notarized
− In Lilibeth Sunga-Chan v CA (2001), the issue was the partnership agreement, this
existence of a partnership. In finding that a partnership requirement is provided for in
existed, the Court argued: Art. 1771.
• Based on the intention of the parties, as gathered from the The mere attachment of the The attachment of the signed
facts and ascertained from their language and conduct, a inventory to a public inventory to a notarized
verbal contract of partnership may arise. instrument should not affect partnership agreement is not
• Essential points that must be proven to show that a the creation of a juridical a trivial matter. The signed
partnership was agreed upon: personality. inventory becomes relevant
1. Mutual contribution to a common stock; and only in relation to the
2. A joint interest in the profits partnership agreement to
which it pertains. It offers no
b. When Immovables or Real Rights are Contributed protection on its own.
Art. 1773. A contract of partnership is void, whenever To interpret Art. 1773 as Art. 1771 provides for the
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached 2
Esteban B. Bautista, Treatise on Philippine Partnership Law 72 (1995)
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requiring the execution of requirement while Art. 1773 appear in a public instrument, which must be recorded in the
notarized partnership specifies the consequence of Office of the Securities and Exchange Commission.
agreement would render Art. failing to comply with the
1771 redundant. requirement. The articles Failure to comply with the requirements of the preceding
complement each other. paragraph shall not affect the liability of the partnership and
the members thereof to third persons. (n)
− In Torres v CA (1999), it was argued that a partnership
agreement was void because the parties did not make, sign i. SEC Registration Requirements and Procedure
or attach to the public instrument an inventory of the real − In practice, the SEC does not merely “record” but “approves”
property contributed. The Court nevertheless upheld the partnership agreements.
validity of the agreement on the following grounds: − Officers of the SEC determine the following before
1. Art. 1773 only applies if there is a third party that will be approving the registration of partnerships:
prejudiced. No third party will be prejudiced in case at • Compliance with all documentary requirements;
bar. • Verify if the name appearing on the documents is the
• Casis: Art. 1773 is not solely for the protection of name appearing in the name verification slip;
third parties but is equally for the protection of the • The nationalities of the partners, to ensure compliance
parties to the contract, considering that contributions with requirements on minimum Filipino ownership; and
to the partnership may affect the partners’ share in • The legality of the proposed partnership business
profits and losses. − The proposed name of the partnership must be verified and
• Also, it is a rule in statutory construction that one only reserved with SEC
goes into the intent of the law if the terms are unclear. • It will be determined whether the proposed partnership
The language of Art. 1773 is clear. It admits of no name is compliant with the rules in partnership name
exception. • Once the proposed name is verified to be available for use
2. Parties cannot adopt inconsistent positions in regard to and reserved, a name verification slip will be issued
a contract. In case at bar, the petitioners themselves • In addition to the name verification slip, four sets of the
invoke the allegedly void contract as basis for their claim following documents must be submitted:
that respondent should pay the 60% of the value of the 1. Cover sheet;
property. 2. Articles of Partnership; and
• Casis: The party may indeed be estopped, but it 3. Undertaking to change name (not required if part of
should be clarified that the fact that the party used it the articles)
as a basis of its claim does not make it a valid − Depending on the nature of business of the partnership,
partnership contract. endorsements or clearances from the relevant government
− In Litonjua v Litonjua (2005), the underlying issue was agencies may also be required
whether a partnership was formed between the parties. In − If the partnership has foreign partners, the following are
this alleged partnership, immovable and real rights were required:
contributed. The Court found that the alleged partnership • SEC Form No. F-105
agreement was unsigned and undated which meant it could • Bank certificate on the capital contribution of partners;
not have been notarized and registered with the SEC. The and
Court also found that the inventory requirement was not • Proof of remittance of contribution of foreign partners
complied with. In ruling that no partnership exists, the Court − The following fees must be paid:
said: • Filing fee which is equivalent to 1/5 of 1% of the
• The contract-validating inventory requirement under Art. partnership capital but not less than P1,000; and
1773 applies as long as real property or real rights are • Legal research fee which is 1% of the filing fee
initially brought into the partnership, regardless of which
of the partners contributed immovable. ii. Effect of Non-compliance
• The more important consideration is that real property was Art. 1768. The partnership has a juridical personality separate
contributed, in which case an inventory of the contributed and distinct from that of each of the partners, even in case of
property duly signed by the parties should be attached to failure to comply with the requirements of article 1772, first
the public instrument, else there is legally no partnership paragraph. (n)
to speak of.
− The failure to notarize the partnership agreement and record
c. When the Capital is at Least Three Thousand Pesos
the same with the SEC does not prevent the formation of a
Art. 1772. Every contract of partnership having a capital of partnership because the juridical personality of a partnership
three thousand pesos or more, in money or property, shall is created whether or not such notarization and recording is
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complied with. the Corporation Code of the Philippines.
− Lilibeth Sunga-Chan v CA (2001): The registration 2. The articles of partnership of the proposed company
requirement in Art. 1772 is not mandatory. Art. 1768 explicitly must expressly stipulate that all partners are and shall
provides that the partnership retains its juridical personality be jointly and severally liable for all the obligations of
even if it fails to register. The failure to register the contract the partnership in the Philippines.
of partnership does not invalidate the same as among the • A foreign corporation can be represented by a resident
partners so long as the contract has the essential requisites, agent in the signing of the partnership contract for as long
because the main purpose of registration is to give notice to as no other officer or agent is authorized to do so under
third parties, and it can be assumed that the members knew the charter of the foreign corporation.
of the contents of their contract. § The SEC further requires the submission of a board
resolution on the matter and a SPA in favor of the agent
2. Corporations as Partners authorizing him to sign in behalf of the corporation
− The Civil Code definition of a contract of partnership does § If executed abroad, said documents must be properly
not distinguish between natural and juridical persons. authenticated in accordance with Act No. 2103
However, while the definition itself does not prohibit − SEC Opinion dated Dec 1, 1993 issued to Atty. Val Antonio
corporations from being partners, jurisprudence and SEC Suarez: A Dutch corporation wanted to establish a Philippine
Opinions have established limitations on corporations branch, which will then form a general partnership with a
seeking to become partners in the Philippines. Philippine corporation. This proposed partnership was
− J.M. Tuason & Co., Inc. v Quirino Bolaños (1954): A contemplated to engage in the development of a power
corporation cannot enter into a contract of partnership but it plant on a build, operate and transfer basis pursuant to
may enter into a joint venture provided the business of the which the partnership was to design, construct, own and
latter “is in line with the business authorized by its charter.” operate the power plant for 10 years.
− SEC Opinion dated Feb. 29, 1980 issued to Mr. Antonio E. • As to conditions for the application of the exception in the
Librea: The issue is WON two or more medium-sized Librea Opinion, SEC said:
corporations can enter into a partnership or joint 1. The authority to enter into a partnership relation is
venture/consortium for the purpose of qualifying in terms of expressly conferred by the respective charters or
capitalization and equipment in large-scale projects of the articles of incorporation of the constituent
Ministry of Public Highways. corporations, and the nature of the business venture
• GR: Citing American Jurisprudence and Fletcher, to be undertaken by the partnership is in line with the
corporations are prohibited from joining partnerships for business authorized by the charter or articles of
the following reasons: incorporation of the constituent corporations.
1. In a partnership, a corporation would be bound by 2. The agreement on the articles of partnership must
acts of persons not authorized to manage it; provide that all the partners will manage the
2. In a partnership, the identity of a corporation is lost or partnership, and consequently, the articles of
is merged with that of the former. partnership must stipulate that all the partners are
• XPN: When the following conditions concur: and shall be jointly and severally liable for all the
1. The articles of incorporation of the corporations obligations of the partnership.
involved must expressly authorize the corporation to 3. The foreign corporation must obtain a license to
enter into contracts of partnership with others in the transact business in the country in accordance with
pursuit of its business; the Corporation Code of the Philippines and the
2. The agreement or articles of partnership must provide Foreign Investments Act.
that all the managers will manage the partnership; − Mendiola v CA (2006): a corporation cannot become a
and member of a partnership in the absence of express
3. The articles of partnership must stipulate that all the authorization by statute or charter. This doctrine us based on
partners are and shall be jointly and severally liable for the following considerations:
all the obligations of the partnership. 1. The mutual agency between the partners, whereby the
− SEC Opinion dated Sept. 3, 1984 issued to Mr. Romeo D. corporation would be bound by the acts of persons who
Orsolino are not its duly appointed and authorized agents and
• If the corporation is expressly authorized under its articles officers, would be inconsistent with the policy that the
of incorporation, it can enter into a partnership or joint corporation shall manage its own affairs
venture agreement with a Filipino individual, with the 2. Such an arrangement would improperly allow corporate
following restrictions: property to become subject to risks not contemplated
1. The foreign corporation must obtain a license to by the stockholders when they originally invested in the
transact business in the country in accordance with corporation

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− Bautista: The doctrine that a corporation cannot become a 3. Firm Name
member of a partnership in the absence of express Art. 1815. Every partnership shall operate under a firm name,
authorization by statute or charter needs to be reexamined, which may or may not include the name of one or more of the
seeing as even in the US where it originated, it has been partners.
questioned and the more recent decisions seemed to be
veering towards its reversal. Also, the Uniform Partnership Those who, not being members of the partnership, include
Act , which has been adopted in several states, expressly their names in the firm name, shall be subject to the liability of
allows corporations to become partners. a partner. (n)
− Corpus Juris Secundum: Entities other than individuals, such
as corporations and other partnerships, may be partners in a − The Civil Code requires that every partnership operates
partnership. under a firm name. In common law, however, a partnership
may acquire a name by usage or it may exist without a name.
3. Partnership Term − Those who, not being members of the partnership, include
Art. 1784. A partnership begins from the moment of the their names in the firm name do not enjoy the rights of
execution of the contract, unless it is otherwise stipulated. partners. They are merely burdened with the same liability as
(1679) partners.
− Pursuant to SEC Memorandum Circular No. 5 Series of 2008,
− Since the parties may stipulate the commencement date of partnerships must comply with certain rules on partnership
the partnership’s term of existence, the partnership may be names.
deemed to exist prior to the contribution being made or the
actual carrying on of the business. a. In General
− Unlike in the case of a corporation, there is no statutory limit − Similar to the rule for corporations, the partnership name
as to the lifetime of a partnership. must not be identical, misleading or confusingly similar to a
• Stipulating a term beyond the lifetime of the partners corporate or partnership name registered with the
would be ineffective as the death of any of the partners Commission, or with the DTI, in the case of sole
dissolves the partnership, subject to certain exceptions. proprietorships.
− If the partners do not stipulate a term but the partnership is − If the name applied for is similar to that of a registered
established for a particular undertaking, the partnership term corporation or partnership, the applicant must find another
will last until the undertaking is completed, provided it is not name or add one or more distinctive words to the proposed
dissolved due to other causes. name to differentiate from the registered name.
− If there is no fixed term or undertaking, then it is a • The addition of distinctive worlds shall not be allowed if
partnership at will, subject to dissolution at any time by the the registered name is coined or unique, unless the board
will of any of the partners. of directors or majority of the partners of the subject
corporation or partnership gives its consent to the applied
a. Partnership Purpose name.
− SEC Opinion dated Dec. 8, 2003 issued to Ms. Arlyn Solitario:
The SEC explained how the partnership purpose should be b. Partnerships in Particular
indicated in the articles. − Mandatory requirement in SEC Guidelines: Every
• There should be specification of the partnership’s partnership name “shall bear” the word “Company” or “Co.”
intended purposes with sufficient clarity and elucidation in and if it is a limited partnership, the word “Limited” or “Ltd.”
the articles of partnership to define with more certainty the − Directory: A professional partnership name “may bear” the
scope of the contract between the parties. word “Company”, “Associates”, or “Partners”, or other
• When the purposes are enumerated in the Articles of similar descriptions.
Partnership, it is to be construed as including incidental − SEC Opinion dated Oct. 19, 1984 addressed to Atty. Renato
purposes reasonable necessary to the proper exercise of Santiago: SEC ruled ona request seeking reconsideration
the enumerated purposes and as excluding other of its denial to allow the use of partnership name which does
non-enumerated purposes. not include the term “Company” but include the term
− SEC Opinion dated March 28, 1985 issued to the Supervision “Unlimited”.
and Examination Section of the Central Bank of the • SEC quoted its guidelines which required the use of the
Philippines: The SEC explained that unlike in the case of term “Company” and argued that because the policy has
corporations with more than one stated purpose, not been amended or superseded, there is no reason to
partnerships are not required to indicate which of the not apply the same
purposes is the primary purpose. • SEC cited Wolfe v Joubert as basis for the argument that
by statute, it may be provided that a partnership be

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required to use the designation “& Co.” in the firm name − SEC Opinion addressed to Atty. Demosthenes Gadioma:
to represent an actual partner. Atty. Gadioma requested for permission to continue using
§ Casis: The statute referred to in that case merely the partnership name of the dissolved “Gadioma and Colon,
provided a requirement when the term is used and did Lawyers” in his individual practice for 5 more years.
not explicitly require that it must be used. • SEC opined that Atty. Gadioma could transact business
• As for the use of the term “Unlimited”, the SEC merely using the name of the dissolved partnership for purposes
stated that “there is no provision of law which allows the of winding-up of business or partnership affairs or
inclusion of the said word in any partnership name.” completing transaction begun but not finished at the
§ Casis: Neither is there a law prohibiting use of said dissolution.
term. • When a firm transacts business other than the
− SEC Opinion dated July 8, 1987 addressed to the Ministry of above-mentioned activities using the name of the
Trade and Industry: Because it has been the policy of SEC for dissolved partnership but with the consent of the
a partnership name to include the word “Company”, it withdrawing partner, Art. 1815 shall apply.
would “not be fitting or appropriate but rather confusing or
deceptive to allow a single proprietor to adopt the term as e. Business/Trade Name
part of its business name. − Sec. 4 of Memo Circular No. 5 Series of 2008 was amended
on Dec. 11, 2008 such that a business or trade name that is
c. Surnames different from the partnership name should be indicated in
− The full name or surname of a person may be used in a the articles of partnership and that it can only have one
partnership name if he or she is a partner of the said entity business or trade name.
and has consented to such use. If the person is already − The previous rule did not require the business or trade name
deceased, the consent must be given by his or her estate.3 to be indicated in the articles.
− In case of a limited partnership, Art. 1846 is controlling.

Art. 1846. The surname of a limited partner shall not appear


in the partnership name unless: CASES:
1) It is also the surname of a general partner, or
2) Prior to the time when the limited partner became such, Agad v. Mabato (1968) – Concepcion, J.
the business had been carried on under a name in which Brief facts: Agad filed a complaint against Mabato for his
the surname appeared. share in the profits and to wind up their partnership’s fishpond
A limited partner whose surname appears in a partnership business. Mabato denied the existence of the partnership
name contrary to the provisions of the first paragraph is liable despite the execution of the contract and that even if there was
as a general partner to partnership creditors who extend credit indeed a partnership, it is void since according to the Civil
to the partnership without actual knowledge that he is not a Code, a whenever immovable property is contributed to a
general partner. partnership an inventory of said property signed by the parties
should be attached to the public instrument.
− SEC Opinion dated April 25, 1984, addressed to Milton Doctrine: If immovable property is not contributed to the
Cristopher Co. Ltd.: Although the law prohibits only the use partnership, it is not necessary to include an inventory in the
of “surname”, we cannot allow the inclusion of the “first public instrument.
name” of a limited partner as its inclusion would have the
same misleading effect that the “limited” partner is a Torres v. CA (1999) – Panganiban J.
“general” partner since Milton Cristopher and Milton Brief facts: Antonia and Emetria (sisters) entered into a JVA
Christopher Fitch are one and the same person. with Manuel for the development of a parcel of land into a
subdivision. The sisters would contribute the land to be
d. Dissolved Partnerships developed and Manuel would contribute industry and amounts
− The name of a partnership that has been dissolved or whose for general expenses and the profits to be divided 60-40. The
registration has been revoked cannot be used by another project did not push through and then the sisters filed a civil
corporation or partnership within 3 years from the date of case against Manuel for their share equal to 60%
revocation, unless its use has been allowed at the time of the Doctrine: Under Article 1767 of the Civil Code, a partner may
dissolution or revocation by the partners who represent a contribute not only money or property, but also industry and
majority of the dissolved partnership.4 must share in the profits and losses.

Arbes v. Politico (1929) – Villamor, J.


3
Sec. 6(a), SEC Memo Circular No. 5 S. 2008. Brief facts: Arbes et al were members and shareholders of
4
Sec. 15(a), SEC Memo Circular No. 5 S. 2008.
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Turnuhan Polistico. Polistico et al were the officers. Trial Court
declared “Turnuhan Polistico & Co.” is unlawful and sentenced C. Separate juridical personality
officers to return the P24.607.80 capital to the members. Art. 1768. The partnership has a juridical personality separate
Officers allege since it is unlawful, some charitable institution and distinct from that of each of the partners, even in case of
to whom the partnership funds may be ordered to be turned failure to comply with the requirements of Article 1772, first
over, should be included, as a party defendant. paragraph.
Doctrine: In an unlawful partnership, the profits are to be
turned over to a charitable institution within the domicile of Art. 1775. Associations and societies, whose articles are kept
said partnership, pursuant to CC 1666. The contributions of the secret among the members, and wherein any one of the
partners should be reimbursed even if the law is silent on this members may contract in his own name with third persons,
matter as any other solution would be immoral. shall have no juridical personality, and shall be governed by the
provisions relating to co-ownership.
Casis: Art. 1770 refers to profits being confiscated, but a
different rule applies to the amounts contributed. The rule in National Internal Revenue Code Sec. 22(b). The term
Arbes v. Polistico (decided under the Old Civil Code), citing "corporation" shall include partnerships, no matter how
Manresa, was that the partners must be reimbursed the created or organized, joint-stock companies, joint accounts
amount of their respective contributions. (cuentas en participacion), association, or insurance
• But according to Bautista: “While it may be conceded that, companies, but does not include general professional
in a situation such as that dealt with in Arbes v. Polistico, partnerships and a joint venture or consortium formed for the
the general rules of the law must be followed, Manresa purpose of undertaking construction projects or engaging in
and the Court applied the wrong rules. They gave effect to petroleum, coal, geothermal and other energy operations
the general rules or principles on quasi-contract or unjust pursuant to an operating consortium agreement under a
enrichment, when what were and are properly applicable service contract with the Government "General professional
are the general rules or principles on void contracts, a partnerships" are partnerships formed by persons for the sole
partnership contract void on account of its illicit and purpose of exercising their common profession, no part of the
criminal purposes (running a gambling joint called income of which is derived from engaging in any trade or
turnuhan) being involved in that case.” business.
• Bautista quoted Art. 1411 (in pari delicto rule). He added:
The contributions of the parties to the partnership in this National Internal Revenue Code Sec. 26. Tax Liability of
case may well be regarded as “the things or the price of Members of General Professional Partnerships. - A general
the contract”. Hence, they should NOT have been professional partnership as such shall not be subject to the
returned to the contributors but, pursuant to the RPC, income tax imposed under this Chapter.
should have been confiscated in favour of the State and Persons engaging in business as partners in a general
the contributors themselves, who must be presumed to professional partnership shall be liable for income tax only in
have known the criminal nature of the object of the their separate and individual capacities. cralaw
partnership they agreed to form, must have been For purposes of computing the distributive share of the
prosecuted for and convicted of running a gambling joint. partners, the net income of the partnership shall be computed
in the same manner as a corporation.
Tocao v. CA (2000) – Ynares-Santiago, J. Each partner shall report as gross income his distributive share,
Brief facts: Anay entered into a joint venture with Belo and actually or constructively received, in the net income of the
Tacao. Anay would be the head of marketing, Belo the partnership.
capitalist, Tacao the general manager. The parties agreed that
Anay would be entitled to 10% of the annual net profits. The Art. 1811 par 2. A partner is a co-owner with his partners of a
agreement was not reduced to writing. When the business
specific partnership property.
flourished, Anay was excluded from the business and was not The incidents of this co-ownership are such that:
given her share of the profits or her commission. Belo and (2) A partner’s right in specific partnership property is not
Tacao allege she is a mere employee. assignable except in connection with the assignment of rights
Doctrine: A partnership may be constituted in any form; a
of all the partners in the same property
public instrument is necessary only where immovable property
or real rights are contributed thereto. Since a contract of
partnership is consensual, an oral contract of partnership is as
good as a written one. Therefore, where no immovable
property or real rights are involved, what matters is that the CASES:
parties have complied with the requisites of a partnership.
Aguila v CA (1999)-Mendoza
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Brief Facts: MOA and Deed of Sale was executed between Mercado and his wife. The Angeles spouses filed a criminal
Felicidad (with the consent of her late husband) and A.C. complaint for estafa. The Sec of Justice ruled that the
Aguila & Sons, Co. (represented by Alfredo). Felicidad filed a indictment for estafa against Mercado cannot be sustained as a
petition for declaration of nullity of the deed of sale because partnership existed between the parties.
she claims her husband’s signature was forged. CA declares Doctrine: Mere failure to register the contract of partnership
the deed of sale void because the transaction was an equitable with the SEC does not invalidate a contract that has the
mortgage. Alfredo brings the case to the SC contending that essential requisites of a partnership. The purpose of
he is not a real party in interest. registration of the contract of partnership is to give notice to
Doctrine: Under Article 1768 of the Civil Code, a partnership third parties. Failure to register the contract of partnership
"has a juridical personality separate and distinct from that of does not affect the liability of the partnership and of the
each of the partners." The partners cannot be held liable for partners to third persons. Neither does such failure to register
the obligations of the partnership unless it is shown that the affect the partnership's juridical personality. A partnership may
legal fiction of a different juridical personality is being used for exist even if the partners do not use the words "partner" or
fraudulent, unfair, or illegal purposes. "partnership."

Tan v Del Rosario (1994)-Vitug D. Mutual Agency


Brief Facts: Petitioners challenge the constitutionality of RA Art. 1803. When the manner of management has not been
7496 (Simplified Net Income Taxation Scheme/ SNIT) In G.R. agreed upon, the following rules shall be observed:
No. 109289, petitioners claim that the RA violates certain (1) All the partners shall be considered agents and whatever
constitutional provisions. In G.R. No. 109446, petitioners argue any one of them may do alone shall bind the partnership,
that respondents have exceeded their rule-making authority in without prejudice to the provisions of Art. 1801.
applying SNIT to general professional partnerships. (2) None of the partners may, without the consent of the
others, make any important alteration in the immovable
Doctrine: SNIT should apply to general professional property of the partnership, even if it may be useful to the
partnerships. The income tax is imposed not on the partnership. But if the refusal of consent by the other partners
professional partnership, which is tax exempt, but on the is manifestly prejudicial to the interest of the partnership, the
partners themselves in their individual capacity computed on court’s intervention may be sought.
their distributive shares of partnership profits. In the
determination of the tax liability, a partner does so as an Art. 1818. Every partner is an agent of the partnership for the
individual. The general professional partnership is deemed to purpose of its business, and the act of every partner, including
be no more than a mere mechanism or a flow-through entity in the execution in the partnership name of any instrument, for
the generation of income by, and the ultimate distribution of apparently carrying on the usual way the business of the
such income to, respectively, each of the individual partners. partnership of which he is a member binds the partnership,
unless the partner so acting has in fact no authority to act for
Mendiola v CA (2006)-Puno the partnership n the particular matter, and the person with
Brief Facts: ATM is the resident agent of Pacfor in the Ph. whom he is dealing has knowledge of the fact that he has no
When he clarified his 50% equity on Pacfor Phils, Pacfor replied such authority.
saying he is not a part owner, as Pacfor Phils is merely a An act of a partner which is not apparently for the carrying on
representative office. Pacfor placed ATM on preventive of business of the partnership in the usual way does not bind
suspension and charged him with various offenses. ATM, on the partnership unless authorized by the other partners.
the other hand, filed a complaint for illegal dismissal. LA found Except when authorized by the other partners or unless they
there was constructive dismissal, while NLRC and CA ruled that have abandoned the business, one or more but less than all
there was no employer-employee relationship between the the partners have no authority to:
parties but perhaps a partnership. (1) Assign the partnership property in trust for creditors or on
Doctrine: Each partner possesses a joint interest in the whole the assignee’s promise to pay the debts of the partnership;
of partnership property. If the relation does not have this (2) Dispose of the goodwill of the business;
feature, it is not one of partnership. In a partnership, the (3) Do any other act which would make it impossible to carry on
members become co-owners of what is contributed to the firm the ordinary business of a partnership;
capital and of all property that may be acquired thereby and (4) Confess a judgment;
through the efforts of the members. (5) Enter into a compromise concerning a partnership claim or
liability;
Angeles v Sec of Justice (2005)-Carpio (6) Submit a partnership claim or liability to arbitration;
Brief Facts: Angeles spouses discovered that the contract of (7) Renounce a claim of the partnership.
antichresis which they entered into was in the name of No act of a partner in contravention of a restriction on authority

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shall bind the partnership to persons having knowledge of the or any penalty is incurred, the partnership is liable therefor to
restriction. the same extent as the partner so acting or omitting to act.

Art. 1819. Where title to real property is in the partnership Art. 1825. When a person, by words spoken or written or by
name, any partner may convey title to such property by a conduct, represents himself, or consents to another
conveyance executed in the partnership name; but the representing him to anyone, as a partner in an existing
partnership may recover such property unless the partner's act partnership or with one or more persons not actual partners, he
binds the partnership under the provisions of the first is liable to any such persons to whom such representation has
paragraph of article 1818, or unless such property has been been made, who has, on the faith of such representation, given
conveyed by the grantee or a person claiming through such credit to the actual or apparent partnership, and if he has made
grantee to a holder for value without knowledge that the such representation or consented to its being made in a public
partner, in making the conveyance, has exceeded his authority. manner he is liable to such person, whether the representation
Where title to real property is in the name of the partnership, a has or has not been made or communicated to such person so
conveyance executed by a partner, in his own name, passes the giving credit by or with the knowledge of the apparent partner
equitable interest of the partnership, provided the act is one making the representation or consenting to its being made:
within the authority of the partner under the provisions of the (1) When a partnership liability results, he is liable as though he
first paragraph of Article 1818. were an actual member of the partnership;
Where title to real property is in the name of one or more but (2) When no partnership liability results, he is liable pro rata
not all the partners, and the record does not disclose the right with the other persons, if any, so consenting to the contract or
of the partnership, the partners in whose name the title stands representation as to incur liability, otherwise separately.
may convey title to such property, but the partnership may When a person has been thus represented to be a partner in
recover such property if the partners' act does not bind the an existing partnership, or with one or more persons not actual
partnership under the provisions of the first paragraph of partners, he is an agent of the persons consenting to such
Article 1818, unless the purchaser or his assignee, is a holder representation to bind them to the same extent and in the
for value, without knowledge. same manner as though he were a partner in fact, with respect
Where the title to real property is in the name of one or more to persons who rely upon the representation. When all the
or all the partners, or in a third person in trust for the members of the existing partnership consent to the
partnership, a conveyance executed by a partner in the representation, a partnership act or obligation results; but in all
partnership name, or in his own name, passes the equitable other cases it is the joint act or obligation of the person acting
interest of the partnership, provided the act is one within the and the persons consenting to the representation.
authority of the partner under the provisions of the first
paragraph of Article 1818. Revised Rules of Court Rule 130 Sec. 29. Admission by a
Where the title to real property is in the name of all the co-partner or agent. - The act or declaration of a partner or
partners a conveyance executed by all the partners passes all agent of the party within the scope of his authority and during
their rights in such property. the existence of the partnership or agency, may be given in
evidence against such party after the partnership or agency is
Art. 1820. An admission or representation made by any shown by evidence other than such act or declaration. The
partner concerning partnership affairs within the scope of his same rule applies to the act or declaration of a joint owner,
authority in accordance with this Title is evidence against the joint debtor, or other person jointly interested with the party.
partnership.
1997 Revised Rules of Civil Procedure Rule 14 Sec. 11.
Art. 1821. Notice to any partner of any matter relating to Service upon domestic private juridical entity. - When the
partnership affairs, and the knowledge of the partner acting in defendant is a corporation, partnership or association
the particular matter, acquired while a partner or then present organized under the laws of the Philippines with a juridical
to his mind, and the knowledge of any other partner who personality, service may be made on the president, managing
reasonably could and should have communicated it to the partner, general manager, corporate secretary, treasurer, or
acting partner, operate as notice to or knowledge of the in-house counsel.
partnership, except in the case of fraud on the partnership,
committed by or with the consent of that partner. Art. 1800. The partner who has been appointed manager in
the articles of partnership may execute all acts of
Art. 1822. Where, by any wrongful act or omission of any administration despite the opposition of his partners, unless he
partner acting in the ordinary course of the business of the should act in bad faith; and his power is irrevocable without just
partnership or with the authority of co-partners, loss or injury is or lawful cause. The vote of the partners representing the
caused to any person, not being a partner in the partnership, controlling interest shall be necessary for such revocation of

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power. (b) Though he had not so extended credit, had nevertheless
A power granted after the partnership has been constituted known of the partnership prior to dissolution, and, having no
may be revoked at any time. knowledge or notice of dissolution, the fact of dissolution had
not been advertised in a newspaper of general circulation in
Art. 1801. If two or more partners have been intrusted with the place (or in each place if more than one) at which the
the management of the partnership without specification of partnership business was regularly carried on.
their respective duties, or without a stipulation that one of
them shall not act without the consent of all the others, each The liability of a partner under the first paragraph, No. 2, shall
one may separately execute all acts of administration, but if any be satisfied out of partnership assets alone when such partner
of them should oppose the acts of the others, the decision of had been prior to dissolution:
the majority shall prevail. In case of a tie, the matter shall be (1) Unknown as a partner to the person with whom the contract
decided by the partners owning the controlling interest. is made; and
(2) So far unknown and inactive in partnership affairs that the
Art. 1802. In case it should have been stipulated that none of business reputation of the partnership could not be said to
the managing partners shall act without the consent of the have been in any degree due to his connection with it.
others, the concurrence of all shall be necessary for the validity
of the acts, and the absence or disability of any one of them The partnership is in no case bound by any act of a partner
cannot be alleged, unless there is imminent danger of grave or after dissolution:
irreparable injury to the partnership. (1) Where the partnership is dissolved because it is unlawful to
carry on the business, unless the act is appropriate for winding
Art. 1832. Except so far as may be necessary to wind up up partnership affairs; or
partnership affairs or to complete transactions begun but not (2) Where the partner has become insolvent; or
then finished, dissolution terminates all authority of any partner (3) Where the partner has no authority to wind up partnership
to act for the partnership: affairs; except by a transaction with one who:
(1) With respect to the partners: (a) Had extended credit to the partnership prior to
(a) When the dissolution is not by the act, insolvency or dissolution and had no knowledge or notice of his want of
death of a partner; or authority; or
(b) When the dissolution is by such act, insolvency or death (b) Had not extended credit to the partnership prior to
of a partner, in cases where article 1833 so requires; dissolution, and, having no knowledge or notice of his want of
(2) With respect to persons not partners, as declared in article authority, the fact of his want of authority has not been
1834. advertised in the manner provided for advertising the fact of
dissolution in the first paragraph, No. 2 (b).
Art. 1833. Where the dissolution is caused by the act, death Nothing in this article shall affect the liability under Article 1825
or insolvency of a partner, each partner is liable to his of any person who, after dissolution, represents himself or
co-partners for his share of any liability created by any partner consents to another representing him as a partner in a
acting for the partnership as if the partnership had not been partnership engaged in carrying business.
dissolved unless:
(1) The dissolution being by act of any partner, the partner E. Distinguish from: (see cases)
acting for the partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a a)Co-ownership; co-possession 5
partner, the partner acting for the partnership had knowledge Partnership Co-ownership
or notice of the death or insolvency. Legal Yes None
Personality
Art. 1834. After dissolution, a partner can bind the Creation Only created Several means of
partnership, except as provided in the third paragraph of this through contract creation
article: Purpose For profit Collective
(1) By any act appropriate for winding up partnership affairs or enjoyment
completing transactions unfinished at dissolution; Mutual Yes None
(2) By any transaction which would bind the partnership if Representation
dissolution had not taken place, provided the other party to Term of May be for more May not stipulate
the transaction: existence than 10 years indivision for more
(a) Had extended credit to the partnership prior to than 10 years (20
dissolution and had no knowledge or notice of the dissolution;
or 5
A2016 Agency and Partnership Reviewer
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years for it is a joint agreement between 2/more entities to enter into a
testator/donor) commercial undertaking
Extinguishment Dissolves upon Continues even if a - it is essentially a partnership created for a limited purpose
death of a partner co-owner dies - But take note that this is subject to certain qualifications as
Disposal of Consent needed in Consent not set under jurisprudence
interest disposal needed in disposal - in a joint venture, each party has an equal proprietary interest
Sharing of Profits may be Profits must always in the capital or property contributed and where each party
profits stipulated depend on exercises equal rights in the conduct of the business (Sevilla v.
proportionate CA)
share
d) Joint accounts 8
b) Tenancy in common; joint tenancy 6 - a bank or brokerage account shared by two or more
Tenancy in common individuals.
- A form of concurrent ownership of real property in which two - Mostly, joint accounts are created between close relatives or
or more persons possess the property simultaneously; it can be business partners. Each party to the joint account has a present
created by deed, will, or operation of law. right to all the funds in the account.
- a specific type of concurrent, or simultaneous, ownership of - Any member of the joint account can deposit and withdraw
real property by two or more parties. from it. In the case where one of the joint owners passes away,
- title to property (usually real property, but it can apply to the survivor will become the owner of the account. The
personal property) held by two or more persons, in which each deceased party’s heirs will have no right in a joint account.
has an "undivided interest" in the property and all have an
equal right to use the property, even if the percentage of e) Cuentas en participacion
interests are not equal or the living spaces are different sizes. - "A partnership constituted in such a manner that its existence
- Unlike "joint tenancy" there is no "right of survivorship" if one was only known to those who had an interest in the same, there
of the tenants in common dies, and each interest may be being no mutual agreement between the partners, and without
separately sold, mortgaged or willed to another. Thus, unlike a a corporate name indicating to the public in some way that
joint tenancy interest which passes automatically to the survivor, there were other people besides the one who ostensibly
upon the death of a tenant in common there must be a managed and conducted the business, is exactly the accidental
probate (court supervised administration) of the estate of the partnership of cuentas en participacion defined in article 239 of
deceased to transfer the interest (ownership) in the tenancy in the Code of Commerce." (Bourns vs. Carman; 7 Phil. Rep., 117)
common. - In a partnership of cuentas en participacion, under the
provisions of article 242 of the Code of Commerce, those who
Joint tenancy contract with the person in whose name the business of such a
- A type of ownership of real or Personal Property by two or partnership was conducted shall have only the right of action
more persons in which each owns an undivided interest in the against such person and not against other persons interested.
whole. (Dietrich v. Freeman G.R. No. L-6252, Jan 28, 1911)
- In estate law, joint tenancy is a special form of ownership by
two or more persons of the same property. The individuals, f) Agency 9
who are called joint tenants, share equal ownership of the - A contract of partnership is a contract of agency, and it differs
property and have the equal, undivided right to keep or from a pure agency in that while an agent acts only for his
dispose of the property. Joint tenancy creates a Right of principal, a partner act not only for his co-partners and the
Survivorship. This right provides that if any one of the joint partnership but also as principal of himself.
tenants dies, the remainder of the property is transferred to the o A partner is both an agent and the principal of a co-partner,
survivors. depending on their roles in a transaction.
- provides that each party owns an undivided interest in the o A partnership then is in effect, a contract of mutual agency.
entire parcel, with both having the right to use all of it and the - Because of this mutual agency, a partner can bind his
right of survivorship, which means that upon the death of one co-partners in contracts made within the scope of authority.
joint tenant, the other has title to it all. - Take note of the role of a managing partner and an ordinary
partner in a partnership with regard to their scope of authority.
c) Joint ventures 7
- Sometimes called a “joint adventure” or a “joint enterprise”, Art. 1769. In determining whether a partnership exists, these

6 8
Legal-dictionary.com definitions.uslegal.com
7 9
Ibid. A2016 Agency and Partnership Reviewer
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rules shall apply: participating in the favorable or unfavorable results thereof in
(1) Except as provided by Article 1825, persons who are not the proportion they may determine.
partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a Code of Commerce Art. 240. With regard to their
partnership, whether such-co-owners or co-possessors do or formation, joint accounts shall not be subjected to any
do not share any profits made by the use of the property; formality, and may be privately contracted orally or in writing,
(3) The sharing of gross returns does not of itself establish a and their existence may be proved by any of the means
partnership, whether or not the persons sharing them have a accepted by law, in accordance with the provisions of Article
joint or common right or interest in any property from which 51.
the returns are derived;
(4) The receipt by a person of a share of the profits of a Code of Commerce Art. 241. In the transactions treated of
business is prima facie evidence that he is a partner in the in the foregoing articles, no commercial name common to all
business, but no such inference shall be drawn if such profits the participants can be adopted, nor can any further direct
were received in payment: credit be made use of except that of the merchant who
(a) As a debt by installments or otherwise; transacts and manages the business in his own name and
(b) As wages of an employee or rent to a landlord; under his individual liability.
(c) As an annuity to a widow or representative of a deceased
partner; Code of Commerce Art. 242. Persons transacting business
(d) As interest on a loan, though the amount of payment with the merchant carrying on the joint business shall only have
vary with the profits of the business; a right of action against the latter and not against the other
(e) As the consideration for the sale of a goodwill of a persons interested, and the latter, on the other hand, shall
business or other property by installments or otherwise. have no right of action against the third person who made the
transaction with the manager unless said manager formally
Art. 1825. When a person, by words spoken or written or by cedes his rights to them.
conduct, represents himself, or consents to another
representing him to anyone, as a partner in an existing Code of Commerce Art. 243. The liquidation shall be
partnership or with one or more persons not actual partners, he effected by the manager, and after the transactions have been
is liable to any such persons to whom such representation has concluded, he shall render a proper account of its results.
been made, who has, on the faith of such representation, given
credit to the actual or apparent partnership, and if he has made
such representation or consented to its being made in a public
manner he is liable to such person, whether the representation
has or has not been made or communicated to such person so
CASES:
giving credit by or with the knowledge of the apparent partner
making the representation or consenting to its being made:
SEC Opinion dated February 29, 1980:
(1) When a partnership liability results, he is liable as though he
• The Commission reiterates the general rule that
were an actual member of the partnership;
corporation CANNOT ordinarily enter into a contract of
(2) When no partnership liability results, he is liable pro rata
partnership with another corporation or individual.
with the other persons, if any, so consenting to the contract or
o Am Jur: a corporation has no implied power to
representation as to incur liability, otherwise separately.
become a partner with an individual or another
When a person has been thus represented to be a partner in
corporation. This limitation is based on public policy,
an existing partnership, or with one or more persons not actual
since in a partnership the corporation would be
partners, he is an agent of the persons consenting to such
bound by the acts of persons who are not duly
representation to bind them to the same extent and in the
appointed and authorized agent sand officers, which
same manner as though he were a partner in fact, with respect
would be entirely inconsistent with the policy of
to persons who rely upon the representation. When all the
the law that the corporation shall manage its own
members of the existing partnership consent to the
affairs, separately and exclusively"
representation, a partnership act or obligation results; but in all
o “…in entering into a partnership the identity of the
other cases it is the joint act or obligation of the person acting
corporation is lost or merged with that of another
and the persons consenting to the representation.
and the direction of the affairs is placed in
other hands than those permitted by the law of its
Code of Commerce Art. 239. Merchants may interest
creation. A corporation can act only through its duly
themselves in the transaction of other merchants, contributing
authorized agents and is not bound by the acts of
thereto the amount of capital they may agree upon, and
anyone else, while in a partnership each member
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binds the firm when acting within the scope of the partnership existed is not limited to business profits.
partnership." • The case implies that the undertaking of a partnership
• Exceptions may be allowed provided that the ff. requisites NEED NOT necessarily be a business undertaking.
are adequately met: • Based on this case “profits” which partners intend to
1. The articles of incorporation of the corporations divide include prizes or earnings from a game of chance.
involved must expressly authorize the corporation to enter Thus any group of individuals who pool resources together
into contracts of partnership with others in the pursuit of for the purpose of using funds to fund any legal activity
its business; that may result in funds that can be divided among them,
2. The agreement or articles of partnership must may be considered a partnership.
provide that all the partners will manage the partnership; • But it may e argued that the rule derived from this case
and should only be limited to determining the existence of a
3. The articles of partnership must stipulate that all the partnership for purpose of taxation.
partners are and shall be jointly and severally liable for all
the obligations of the partnership. Pascual v. CIR (1988) – Gancayco, J.
• If the requisites for the exception to apply are satisfied, the Brief Facts: Pascual and Dragon bought 2 parcels of land and
Commission will allow the recording of the said articles of subsequently sold them at a higher price realizing a profit of
partnership. P165, 224.70 (1st sale) and P60,000 (2nd sale). Pascual and
• The articles of partnership must be accompanied by the Dragon are now being taxed by the CIR for corporate income
ff.: tax, which is distinct from their individual income tax, alleging
1. proper SEC verification slip regarding the proposed that they formed a partnership or joint venture.
partnership name Doctrine: The sharing of returns does not in itself establish a
2. written undertaking to change the partnership name partnership whether or not the persons sharing therein have a
in the event that another person, firm or entity has joint or common right or interest in the property. There must
acquired a prior right to the use of said name or is be a clear intent to form a partnership, the existence of a
misleading or confusingly similar to it juridical personality different from the individual partners, and
3. Data Sheet of the registrant partnership and the the freedom of each party to transfer or assign the whole
recording fee of 1/10 of 1% of the partnership's capital but property.
not less than P100 or more than P50,000. Casis:
• 2 or more corporations may enter into a joint • While the fact that there were only two isolated
venture/consortium if the nature of the venture is in line transactions in Pascual was a factor which led the Court to
with the business authorized by its charter through a rule that there was no partnership, there is authority for the
contract or voluntary agreement between the said parties. view that a partnership may be formed even if there was
No independent legal entity is borne out of it and the only one transaction.
same need not be registered with the Commission. • In Gatchalian v CIR, the partners engaged only in one
However when the JV/consortium would result in the transaction which is the purchase of one sweepstakes
formation of a corporation or partnership, the same has to ticket while in Schneider v. Brenner:
be registered with the Commission and the conditions and “While a joint purchase of land does not make the owners
requirements above-mentioned should be complied with. partners, nevertheless it is well-settled law that a partnership
may be created by an agreement relating to a single
transaction in the sale or purchase of land; and it has been
Gatchalian v. CIR (1939) – Imperial, J. repeatedly held that a partnership for dealing in land is created
Brief Facts: 15 people (Gatchalian, et al.) contributed to buy where the lands were bough jointly for speculation, each party
1 lotto ticket. The ticket won and the proceeds were divided to share equally in the profits.”
among them. CIR assessed Gatchalian, et al. collectively for the
income tax. Obillos v. CIR (1985) – Aquino, J.
Doctrine: A partnership of a civil nature may be organized by Brief Facts: This case is about the income tax liability of four
several people, each of them putting up money to buy a brothers and sisters who sold two parcels of land which they
sweepstakes ticket for the sole purpose of dividing equally the had acquired from their father.
prize which they may win. The partnership, not the individuals, Doctrine: There is no partnership where original purpose was
is liable for the income tax. to divide the lots for residential purposes.
Casis:
Casis: What is involved in the case is not a business • In Obillos, it seems that the Court mainly based its
undertaking, but a game of chance. Thus it would seem that decision that a partnership was not formed on the intent of
the concept of “profits” for purposes of determining whether a the partners and the fact that it considered the sale of the

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properties as an isolated transaction. firm name and no legal personality. In a joint account, the
• The question is: How many isolated transactions can be participating merchants can transact business under their
allowed before it will be considered having a character of own name, and can be individually liable therefore.
habituality peculiar to business transactions? l Usually, but not necessarily, a joint venture is limited to a
single transaction, although the business of pursuing
Rivera v. People’s Bank (1942) – Ozaeta, J. to a successful termination may continue for a number of
Brief facts: A survivorship agreement was executed between years; a partnership generally related to a continuing
Ana (housekeeper) and Edgar (her master). Edgar died and the business of various transactions of a certain kind.
bank did not want to give Ana the money which is the subject - A joint venture presupposes a parity of standing between
of the agreement. The validity of said agreement was the join co-ventures or partners, in which each party has an
questioned. equal proprietary interest in the capital/property contributed,
Doctrine: A bank account may be so created that two and where each party exercises equal rights in the conduct of
persons shall be joint owners thereof during their mutual the business.
lives, and the survivor take the whole on the death of the other.
Aurbach v. Sanitary Wares (1989) – Gutierrez, Jr., J.
Tuason v. Bolanos (1954) – Reyes, J. Brief facts: Saniwares entered into an agreement with ASI, a
Brief facts: Tuason’s complaint was to recover possession of foreign corporation. The dispute arose between the ASI
a registered land. In the complaint, Tuason is represented by Group and the Lagdameo group as regards to the election of
its Managing Partner, Gregorio Araneta, Inc., another the members of the Board of Directors of the company. The
corporation. Bolanos appealed directly Court, in resolving the issue, determined whether the parties
to SC and contended, among others, that Gregorio Araneta, intended to form a joint venture or a mere corporation.
Inc. cannot act as managing partner for plaintiff on the theory Doctrine: Whether the parties have established a joint
that it is illegal for two corporations to enter into a partnership. venture or some other relation depends on their actual
Doctrine: A corporation cannot enter into a intention.
partnership but it may nevertheless enter into a joint - It would seem under Philippine law, a joint venture is a
venture with another where the nature of that venture is form of partnership and should thus be governed
in line with the business authorized by its charter. This by the law on partnerships.
implies a difference between a partnership and a joint venture. - However, according to SC, there is a distinction between
these two business forms, and has held that although a
Heirs of Tan Eng Kee v. CA (2000) – De Leon, Jr., J. corporation cannot enter into a partnership
Brief facts: Kee’s heirs sued Lay for accounting, liquidation contract, it may however engage in a joint venture
and winding up of an alleged partnership formed by Kee and with others. (Tuason v Bolanos)
Lay after WWII. The heirs alleged that their father together with
his brother (LAY) pooled their resources and industry together Litonjua, Jr. v. Litonjua, Sr. (2005) - Garcia
and entered into a partnership. Brief Facts: Aurelio brought a petition to compel a
Doctrine: Whether a partnership exists is a factual liquidation of an alleged partnership with Eduardo and Robert
matter. Yang alleging that by virtue of an agreement, he is entitled to
- The best evidence would have been the contract of profits resultant of the partnership agreement.
partnership or its articles of incorporation. However, there is Doctrine: If immovable are to be contributed to a partnership
none in this case. Thus, the court will determine whether or if the capital to the partnership is worth at least P3,000 then
a partnership existed based purely on the contract of partnership must be in a public instrument and
circumstantial evidence. there must be an inventory of the items contributed to the
o The essence of a partnership is that the partners partnership, otherwise, the contract of partnership is void ab
share in the profits and losses. initio.
o A demand for a periodic accounting is
evidence of a partnership. Bourns v. Carman (1906) - Mapa
Brief Facts: Lo Chim Lim and Bourns entered into a contract
- In order to constitute a partnership, it must be where Bourns demanded a certain sum from Lim and certain
established that (1) two or more persons bound themselves to persons alleged to be Lim’s partners.
contribute money, property, or industry to a common fund, Doctrine: A partnership whose existence was only known to
and (2) they intend to divide the profits among themselves. those who had interest in the same, with no mutual agreement
- Particular Partnership v Joint Venture: between the partners and without corporate name is an
l A joint adventure (an American concept similar to our accidental partnership of cuentas en participacion in Art. 239 of
joint accounts) is a sort of informal partnership, with no the Code of Commerce. Those who contracted with persons in

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whose name the business of a partnership of cuentas en criminal offense, in consideration thereof;
participacion is conducted shall only have a right of action (3) Those made to a public officer or his wife, descedants
against such person and not against the other persons and ascendants, by reason of his office.
interested and the other persons interested shall have no right In the case referred to in No. 1, the action for declaration of
of action against such third persons. nullity may be brought by the spouse of the donor or donee;
and the guilt of the donor and donee may be proved by
Sevilla v CA (1988)- Sarmiento preponderance of evidence in the same action. (n)
Brief Facts: Lina Sevilla agreed to man Tourist World
Service’s Ermita office. She received 4% commission whenever Art. 1776. As to its object, a partnership is either universal or
she solicited airline fares. When Tourist found out she was particular.As regards the liability of the partners, a partnership
working for a competitor, they terminated the lease contract may be general or limited. (1671a)
they had with Noguera, disconnected the telephone lines, and
padlocked the branch. Sevilla says their relationship was a joint • Object” seems to be referring to what the common
business venture while Tourist maintains it was merely fund consists of.
employer-employee so Sevilla was bound by her employer’s
acts. a. Universal Partnership of Present Property
Doctrine: One major difference between a joint venture and Art. 1778. A partnership of all present property is that in
partnership, and agency is that in the former there is a parity of which the partners contribute all the property which actually
relationship between the parties to the contract as each party belongs to them to a common fund, with the intention of
has an equal proprietary interest in the capital or property dividing the same among themselves, as well as all the profits
contributed and each party exercises equal rights unlike in an which they may acquire therewith. (1673)
agency where the agent is almost always under the control of
the principal. Art. 1779. In a universal partnership of all present property,
the property which belongs to each of the partners at the time
Philex Mining Corporation v. Commissioner on of the constitution of the partnership, becomes the common
Internal Revenue (2008) - Ynares Santiago property of all the partners, as well as all the profits which they
Brief Facts: Philex entered into a joint venture agreement may acquire therewith.
with Baguio Gold to develop the Sto. Nino Mines which was A stipulation for the common enjoyment of any other profits
subsequently closed due to lost profits. The BIR taxed the may also be made; but the property which the partners may
amounts due to Philex acquire subsequently by inheritance, legacy, or donation
Doctrine: The most distinguishing characteristics of a cannot be included in such stipulation, except the fruits
contract of partnership are commonality of interest and profit thereof. (1674a)
sharing. It is different from a loan as unlike in a loan the parties
to a partnership undertakes the risk to not recover what they b. Universal Partnership of Profits
have contributed to the partnership. It is different from agency
Art. 1780. A universal partnership of profits comprises all that
as the purpose of partnership is profit sharing and not
the partners may acquire by their industry or work during the
representation. It is different from employment as again the
existence of the partnership.
partner bears the risk of not being failed if the business does Movable or immovable property which each of the partners
not succeed.
may possess at the time of the celebration of the contract shall
continue to pertain exclusively to each, only the usufruct
II. KINDS OF PARTNERSHIP
passing to the partnership. (1675)

A. Universal
• This is the default type of universal partnership.
Art. 1776. As to its object, a partnership is either universal or
Art. 1781. Articles of universal partnership, entered into
particular.As regards the liability of the partners, a partnership
without specification of its nature, only constitute a universal
may be general or limited. (1671a)
partnership of profits. (1676)

Art. 1777. A universal partnership may refer to all the present


Art. 1782. Persons who are prohibited from giving each other
property or to all the profits. (1672)
any donation or advantage cannot enter into universal
partnership. (1677)
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of
• Persons prohibited from giving each other any donation or
adultery or concubinage at the time of the donation;
advantage (according to Art. 739 of CC and Art. 87 of FC):
(2) Those made between persons found guilty of the same

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o Persons who were guilty of adultery or they did not, the fiction of juridical personality of
concubinage at that time; the partnership should be disregarded for
o Persons found guilty of the same criminal offense, income tax purposes because the spouses have
in consideration of the partnership; exclusive ownership and control of the business.
o A public officer or his wife, descendants and o Thus, the income tax return of Suter for the years
ascendants, in relation to a partnership given by in question should have included his and his
reason of his office; and, wife’s individual incomes and that of the limited
o Spouses during their marriage or spouses living partnership.
together as husband and wife without a valid
marriage. Held: The partnership was a particular one.
• Bautista: The prohibition is founded on the theory that a • A universal partnership requires either that the object of
contract of universal partnership is for all purposes a the association be all the present property of the partners,
donation. Its purpose is to prevent persons disqualified as contributed by them to the common fund, or else “all
from making donations to each other from doing indirectly that the partners may acquire by their industry or work
what the law prohibits them from doing. during the existence of the partnership.”
• AmJur: A universal partnership is created by an express • The partnership was not such a universal partnership, since
writing of the parties whereby they agre to make a the contributions of the partners were fixed sums of
common stock of all property they respectively possess, money, P20, 000 by Suter, and P18, 000 by Spirig, and
extended to all property or limited to personal property, neither one of them was an industrial partner. It follows
and including the option to make the property common that the partnership was not partnership that spouses were
stock or only the fruits of the property common stock, and forbidden to enter by Art. 1677 of the Civil Code of 1889.
excluding such property as may accrue to one of the • The argument that the limited partnership had been
parties after entering into the partnership. dissolved by operation of law because of the marriage of
the only general partner to the originally limited partner
B. Particular one year after the partnership was organized was based on
Art. 1776. As to its object, a partnership is either universal or the opinion of Tolentino:
particular.As regards the liability of the partners, a partnership o A husband and a wife may not enter into a
may be general or limited. (1671a) contract of general co-partnership, because
under the Civil Code, persons prohibited from
Art. 1783. A particular partnership has for its object making donations to each other are prohibited
determinate things, their use or fruits, or specific undertaking, from entering into universal partnerships. It
or the exercise of a profession or vocation. (1678) follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing
• Most modern partnerships fall under this category. partnership.

Commissioner of Internal Revenue v. Suter (1969) • Casis: thus the determination that the partnership was a
particular partnership was based on the fact that the
Facts: partners contributed fixed sums of money and not all their
• William J. Suter, as the general partner, with Julia Spirig property. Being a particular partnership, the spouses were
and Gustav Carlson, as the limited partners formed a not prohibited from forming it.
limited partnership, named “William J. Suter ‘Marcoin’ Co.,
Ltd.” and was registered with the SEC. C. General
• Suter and Spirig got married, and Carlson sold his share in Art. 1776. As to its object, a partnership is either universal or
the partnership to the two of them. particular.As regards the liability of the partners, a partnership
• The limited partnership had been filing its income tax may be general or limited. (1671a)
returns as a corporation, without objection by the
Commissioner, until the latter, in an assessment, l What distinguishes a general from a limited partnership is
consolidated the income of the firm and the individual its composition (i.e. the inclusion of at least one limited
incomes of the partners-spouses Suter and Spirig, partner) and the fact that it is primarily governed by
resulting in a determination of a deficiency income tax Chapter 4 which is derived entirely from the ULPA. For all
against Suter. matters not covered by Chapter 4, the rules of general
o Theory of CIR: marriage of Suter and Spirig and partnership should apply.
their subsequent acquisition of the interests of
Carlson dissolved the limited partnership, and if D. Limited

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Art. 1776. As to its object, a partnership is either universal or o The result is that a professional partnership is
particular.As regards the liability of the partners, a partnership generally without goodwill in the nature of a
may be general or limited. (1671a) partnership asset, so the value of business
goodwill in a professional partnership is
l See description under General generally cannot be distributed as a firm
asset on dissolution.
E. At will
Art. 1785. When a partnership for a fixed term or particular Lyon v. Lyon
undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the Held:
rights and duties of the partners remain the same as they were • The nature of a professional partnership for the
at such termination, so far as is consistent with a partnership at practice of law, the reputation of which depends on
will. the skill, training and experience of each individual
A continuation of the business by the partners or such of them member, and the personal and confidential
as habitually acted therein during the term, without any relationship existing between each member and the
settlement or liquidation of the partnership affairs, is prima client, places such a partnership in a class apart from
facie evidence of a continuation of the partnership. (n) other businesses and professional partnerships.
• The relationship between the members of the
F. For a term/ undertaking profession and their clients cannot be likened to the
Art. 1785. When a partnership for a fixed term or particular relationship of a merchant to his customer.
undertaking is continued after the termination of such term or • There is no case in this jurisdiction in which an
particular undertaking without any express agreement, the allowance was made to a partner for goodwill upon
rights and duties of the partners remain the same as they were the dissolution of a partnership created for the
at such termination, so far as is consistent with a partnership at practice of law.
will. • In Little v. Caldwell, the widow’s recovery was limited
A continuation of the business by the partners or such of them to her deceased husband’s share of the value of
as habitually acted therein during the term, without any services rendered in his law partnership with
settlement or liquidation of the partnership affairs, is prima defendant prior to his death. SC said:
facie evidence of a continuation of the partnership. (n) o When a professional partnership between
lawyers is dissolved by the death of one, the
G. Commercial survivor is entitled to his own future earnings,
Art. 1767. By the contract of partnership two or more persons and is not required to make an allowance in
bind themselves to contribute money, property, or industry to the settlement of the partnership accounts
a common fund, with the intention of dividing the profits for what may be termed goodwill of the
among themselves. partnership, or for the profits of such future
Two or more persons may also form a partnership for the business as may have been given to him by
exercise of a profession. (1665a) former clients of the firm.
• Heywood v. Sooy: A partner is not accountable after
H. Professional dissolution for any allowance for goodwill of the
Art. 1767. By the contract of partnership two or more persons partnership which may result in contracts of
bind themselves to contribute money, property, or industry to employment after dissolution.
a common fund, with the intention of dividing the profits • Cook v. Lauten: The general rule is that a professional
among themselves. partnership, the reputation of which depends on the
Two or more persons may also form a partnership for the individual skill of the members has NO goodwill to be
exercise of a profession. (1665a) distributed as a firm asset on its dissolution.
I. By estoppel/ apparent
• According to Art. 1767, two or more persons may form a Art. 1825. When a person, by words spoken or written or by
partnership for the exercise of a profession. This is a type conduct, represents himself, or consents to another
of particular partnership. representing him to anyone, as a partner in an existing
• One distinction between a professional partnership and a partnership or with one or more persons not actual partners, he
commercial partnership is the treatment of goodwill. is liable to any such persons to whom such representation has
o The reputation of a professional partnership been made, who has, on the faith of such representation, given
generally depends on the individual skill of the credit to the actual or apparent partnership, and if he has made
members. such representation or consented to its being made in a public

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manner he is liable to such person, whether the representation o Need not be in writing; may include oral
has or has not been made or communicated to such person so representation, or silence in response to
giving credit by or with the knowledge of the apparent partner demands for money and payment of debts of a
making the representation or consenting to its being made: business with which one is publicly associated,
(1) When a partnership liability results, he is liable as followed by actual part payments of such debts
though he were an actual member of the partnership; on demand without denial of partnership.
(2) When no partnership liability results, he is liable pro • The doctrine does not arise from mere belief that a certain
rata with the other persons, if any, so consenting to the person is a member of the partnership without a holding
contract or representation as to incur liability, otherwise out of partnership and conduct tending to induce belief.
separately.
When a person has been thus represented to be a partner in Anfenson v. Banks
an existing partnership, or with one or more persons not actual
partners, he is an agent of the persons consenting to such Facts:
representation to bind them to the same extent and in the • EJ Penfield bought a small private banking business from
same manner as though he were a partner in fact, with respect Starr.
to persons who rely upon the representation. When all the o Pendfield operated the same under the name
members of the existing partnership consent to the Bank of Kelley until 1911 when he absconded
representation, a partnership act or obligation results; but in all and left the bank in an insolvent condition.
other cases it is the joint act or obligation of the person acting • The depositaries of the bank brought an action against
and the persons consenting to the representation. (n) Henry Banks alleging that he was a partner of Penfield, or
in the alternative, that he became an “ostensible partner”
• US Case Law: Partnership by estoppels may arise out of when he knowingly allowed Penfield to hold him out to the
conduct and circumstances despite the absence of a world as his business partner.
contractual undertaking, express or implied, between the • Plaintiffs claimed that because of said holding out, they
ostensible partners and even though they may have were induced to place their money in the bank.
expressed their intent, unknown to the third parties, not to o Their theory of ostensible partnership was
become partners. anchored on the small booklet or circular issued
o This rule permits persons who are not partners to by the Bank which stated that Henry Banks is one
become bound as partners to all who deal with of the owners.
them. • Banks denied liability and alleged that he was not in any
way connected with the Bank. Upon learning of the circular,
1. How created he immediately went to the Bank, broached the subject
and protested against the unauthorized use of his name.
• Two ways:
o A person may by his words or conduct represent Issue: Whether a document indicating a person as a partner is
himself as a partner in an existing partnership, or sufficient to consider him an ostensible partner. – No
with persons who are not partners.
o A person may by his words or conduct consent to • There may be circumstances under which a person will
another’s representation that he is a partner in an be held to liability as a partner, though he is not and
existing partnership or with persons who are not never has been a partner in fact, will not be denied;
actual partners. but such burden can be imposed upon him only
when by reason of some act or wrong or fault
a. Representation or holding out on his own part he has estopped himself to
deny the partnership relation.
• Partnership by estoppels is predicated on a holding out or • No presumption of partnership can arise from
representation of partnership to third parties by the reputation alone, however long continued.
person estopped to deny the partnership, or with his • The rule that partnership is not to be proved by
knowledge and consent. current gossip or vague general understanding is
o Holding out may be manifested by declarations, applicable to all partnerships whether actual or
representations, and admissions, or by any ostensible.
conduct reasonably calculated to lead others to • There was no duty on the part of the alleged partner
suppose that the person so held out or to exercise some degree of diligence to discover or to
represented is a partner. know the existence of floating rumor or gossip or
general repute connecting him with the partnership.

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• “No man is to be held responsible for the truth or Hunter v. Croysdill
falsity of a current report or reputation concerning Facts:
himself or his business, unless he has given rise • Plaintiffs were partners in the firm of Quinco Tool Products.
thereto by his own conduct, or the existence thereof • For six years, defendant Crawford has been the sole owner of
has been brought to his knowledge in such manner M.C. Crawford Company, a tool component supply business.
that in equity and good conscience he should meet it • Keith B. Croysdill was employed by the Coast Tool Company,
with denial.” which distributed the plaintiff’s line. Croysdill wished to
become the west coast distributor for plaintiffs’ products and
b. Consent told Homer Hunter, one of the partners of Quinco, that
Crawford would be his partner and financial backer.
• It is required that the partner by estoppel gave his o Croysdill also told Hunter that the defendant would
consent to the holding out “or that he negligently send him a letter of verification. Crawford sent the
failed to assert the non-existence of the partnership in letter.
time to prevent others from relying on its existence, • Crawford and Croysdill flew to Detroit for five days and met
when he learns of the holding out.” with the plaintiffs there for a portion of each of the five days.
• Specific intent to mislead is not required to be shown, o Crawford represented himself to plaintiffs as a partner
but the act must be sufficient to constitute a knowing with Croysdill in Associated Tool Supply, and that said
misrepresentation. representation was made for the purpose and with
• The doctrine of partnership by estoppel is NOT the intent that plaintiffs would rely thereon and to
applicable if the alleged partner does not know or has induce plaintiffs to give credit to such apparent
no reason to know of his purported partner’s activities, partnership.
and has done nothing to estop himself from denying • Plaintiffs did rely on these representations, and on faith thereof,
the partnership. extended credit.
• To not be considered a partner by estoppel it must be • When plaintiffs became chargeable with notice that Crawford
shown that the person, if he was aware of being held was not in fact a partner, Crawford and Croysdill were indebted
out as a partner “did all that a reasonable man would to the plaintiffs in the net amount of $14, 701.20.
do under similar circumstances to assert and show • Plaintiffs filed an action to recover money due for credit
that he was not a partner, preventing innocent extended. The Superior Court of Los Angeles County rendered
persons from being misled.” judgment for the plaintiffs.
• In his appeal to the District Court of Appeal, Crawford argued
Brown v. Gerstein that any representations made referred to a future rather than
Facts: Sps. Brown brought an action against their attorney, to a past or present business organization, and that an
Gerstein, alleging malpractice and violation of consumer estoppel cannot e invoked where the representations relate to
protection statutes, and also sought to hold the attorney’s future intentions.
alleged partner, Weinstein derivatively liable under the
doctrine of partnership by estoppel. Held:
• The crucial point is whether defendant represented that
Issue: Whether the use of a person’s name in a business by an there was a then existing partnership between Croysdill
alleged partner is sufficient to constitute the former as a and himself.
partner by estoppel. – No. • These facts strongly suggest that, prior to the time credit
was actually extended, defendant had conveyed the idea
Held: Weinstein was not a partner by estoppel because “the that his relationship with Croysdill had matured and was
use of a person’s name in a business, even with that person’s not merely a representation to associate in the future.
knowledge, is too slender a thread to warrant a favourable o Defendant’s letter states: “We are ready to start
finding on the consent element.” functioning as soon as you can furnish the
• There was no evidence that plaintiffs ever met Weiner or necessary stock, so any change of distributors can
that Weiner rendered any legal services on their behalf. be done without any lost time or sales.”
o When in Detroit, defendant and Croysdill had
Casis’ comments: This should not be the rule in our already selected a name for their business, had
jurisdiction. If the use of a person’s name is with that person’s decided where the tools were to be shipped, and
consent, then it is sufficient to constitute him as a partner by defendant told Croysdill to decide on the original
estoppel. The only caveat would be whether or not the alleged stocking order.
partner had an opportunity to correct the misrepresentation.

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• There was substantial evidence justifying the inference § This bill is the account in suit.
that defendant represented he was current a partner with • There was no evidence that Wayne was in fact either a
Croysdill. partner or an agent of defendant at the time when Wayne
requested the phone number to be listed under the name
2. Who May Invoke W.R. Lehmann & Son, or that he had any authority from
Walter to request such listing or to obligate defendant to
• The apparent or ostensible partner is liable to the person pay for telephone service.
to whom the representation was made and who on the • Plaintiff based its case on the claim that Wayne had
faith of such representation, gave credit to the actual or apparent or ostensible authority to bind his father in the
apparent partnership. premises.
o Thus, the person who may invoke the rule is the
recipient of the representation who relied on Held:
such representation. • There is no evidence in the record that plaintiff did
• If the apparent partner made such representation or anything it would not have done or refrained from doing
consented to its being made in public manner, he is anything that it otherwise would have done, had it known
liable to the person giving credit even if the representation the true facts relative to the relationship between
was not communicated to such person by the apparent defendant and Wayne.
partner or was communicated without his consent. • The service had been rendered when the telephone was
• Extension of credit alone is not sufficient to create listed in Wayne’s name, and there is no showing that
partnership by estoppel. Proof that it was done in plaintiff would not have continued to render the service as
reliance on a representation of partnership is long as the bills were paid, had it known that only Wayne
required. The extension of credit must be made after would be responsible for payment.
representation is made. • There is nothing to show that in changing the listing from
• The doctrine on partnership by estoppel may be invoked y Wayne’s name to that of W.R. Lehmann & Son, plaintiff
those who know of and rely on the apparent partnership. relied in any way on defendant’s credit.
• American Jurisprudence: A holding out of a person as a
partner, effective to create a partnership by estoppel as to
third persons, cannot be raised between the purported • Good faith is required on the part of the third party
partners themselves because everyone is presumed to dealing with the partnership by estoppel.
know their associates in business. • Third person must exercise due diligence in ascertaining
the facts, and must have a reasonable ground to
Wisconsin Telephone v. Lehman believe that the person he seeks to hold liable as a partner
Facts: instead of an individual.
• Walter R. Lehmann dealt in cattle as a sole trader under • It seems that it is possible that an apparent partner will
the name W.R. Lehmann & Son. His son, Wayne R. escape liability to a third person dealing with him if the
Lehmann, had formerly been in business with him, but had latter is negligent in ascertaining his true authority or could
withdrawn and gone into business for himself as a dealer have easily discovered that the former was not a partner
in calves. by the exercise of due diligence.
• Wayne lived across the road from Walter, and had his
business headquarters in a building on Walter’s farm, over 3. Effect
which was a sign “W.R. Lehmann & Son-Dairy Cattle.”
• Telephone No. 196W was located in that building. a. Liability
• Plaintiff carried Phone No. 196W in the name of Wayne R.
Lehmann, and it so appeared in the 1952 directory. Bills • Liability depends on whether a partnership liability
were sent to Wayne, and he paid them. results.
• Later, Wayne requested plaintiff to list phone No. 196W • If partnership liability results, he is liable as though he
under the name W.R. Lehmann & Son. were an actual member of the partnership.
o Change was made, and the phone was listed in • When no partnership liability results, he is liable pro
the 1953 and 1954 directories under that name. rata with the other persons, if any, so consenting to
o Monthly bills were mailed to W.R. Lehmann & the contract or representation as to incur liability,
Son, RR 4, Watertown (which was also Wayne’s otherwise separately.
address), and were paid by checks signed by
Wayne or his wife until December 1954 when the b. Agency
bill was not paid.

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• When a person has been represented to be a partner in an o Primelink shall undertake to contribute
existing partnership, or with one or more persons not money, labor, personnel, machineries,
actual partners, he is an agent of the persons consenting equipment, managerial expertise and other
to such representation, to bind them to the same extent needed resources to develop the property
and in the same manner as though he were a partner in and construct the units for sale.
fact, with respect to persons who rely upon the • Primelink failed to comply with the JVA. The Lazatins
representation. informed Primelink that they had decided to rescind
o The rules on agency will apply even if there is the JVA effective upon its receipt of the said letter
only a partnership by estoppel. and filed a complaint for rescission, accounting and
damages.
c. Partnership Act
Held: The parties entered into a joint venture as evidenced by
When all the members of the existing partnership consent to their JVA. Joint ventures are a form of partnership, and thus
the representation, a partnership act or obligation results. governed by the law on partnership.
Otherwise, it is the joint act or obligation of the person acting
and the persons consenting to the representation. Sevilla v. CA (1988)
• The Court said that at the very least, joint ventures and
J. Joint Venture partnership both share a common characteristic in that
both “presupposes generally a party of standing
SEC Opinion (February 29, 1980) between joint co-adventurers or partners in which each
• Joint venture or consortium is formed by two or party has an equal proprietary interest in the capital or
more corporations through an agreement between property contributed and where each party exercises
them. equal rights in the conduct of its businesses.”
o May or may not result in the formation of a
partnership or corporation. Aurbach v. Sanitary Wares (1989) – Gutierrez, Jr., J.
Brief facts: Saniwares entered into an agreement with ASI, a
Litonjua, Jr. v. Litonjua, Sr. (2005) - Garcia foreign corporation. The dispute arose between the ASI
Brief Facts: Aurelio brought a petition to compel a Group and the Lagdameo group as regards to the election of
liquidation of an alleged partnership with Eduardo and Robert the members of the Board of Directors of the company. The
Yang alleging that by virtue of an agreement, he is entitled to Court, in resolving the issue, determined whether the parties
profits resultant of the partnership agreement. intended to form a joint venture or a mere corporation.
Doctrine: If immovable are to be contributed to a partnership Doctrine: Whether the parties have established a joint
or if the capital to the partnership is worth at least P3,000 then venture or some other relation depends on their actual
the contract of partnership must be in a public instrument and intention.
there must be an inventory of the items contributed to the - It would seem under Philippine law, a joint venture is a
partnership, otherwise, the contract of partnership is void ab form of partnership and should thus be governed
initio. by the law on partnerships.
• The Court in Litonjua treated a joint venture as no - However, according to SC, there is a distinction between
different from a partnership and stated that it was a these two business forms, and has held that although a
form of partnership. corporation cannot enter into a partnership
o Not entirely clear what the other forms of contract, it may however engage in a joint venture
partnership are and how they differ from with others. (Tuason v Bolanos)
joint ventures.
• Aurbach case identifies one distinction between a joint
Primelink v. Lazatin-Magat (2006) venture and partnership: that a JV can be comprised of
Facts: corporations while a partnership cannot.
• Primelink, a domestic corporation and the Lazatins
entered into a Joint Venture Agreement for the Mendiola v CA (2006)-Puno
development of two adjacent parcels of land into a Brief Facts: ATM is the resident agent of Pacfor in the Ph.
residential subdivision to be known as “Tagaytay When he clarified his 50% equity on Pacfor Phils, Pacfor replied
Garden Villas.” saying he is not a part owner, as Pacfor Phils is merely a
• Under the JVA: representative office. Pacfor placed ATM on preventive
o Lazatin siblings shall contribute two parcels suspension and charged him with various offenses. ATM, on
of land as their share in the JV the other hand, filed a complaint for illegal dismissal. LA found

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there was constructive dismissal, while NLRC and CA ruled that PPGI and Sps. Ang because a joint venture in our
there was no employer-employee relationship between the jurisdiction is considered partnership.
parties but perhaps a partnership. • Under the CC, all partners are solidarily liable with the
Doctrine: Each partner possesses a joint interest in the whole partnership for everything chargeable to the
of partnership property. If the relation does not have this partnership, including loss or injury caused to a third
feature, it is not one of partnership. In a partnership, the person or penalties incurred due to any wrongful act
members become co-owners of what is contributed to the firm or omission acting in the ordinary course of the
capital and of all property that may be acquired thereby and business of the partnership or with the authority of his
through the efforts of the members. co-partners.
o Whether innocent or guilty all the partners
Heirs of Tan Eng Kee v. CA (2000) – De Leon, Jr., J. are solidarily liable with the partnership itself.
Brief facts: Kee’s heirs sued Lay for accounting, liquidation
and winding up of an alleged partnership formed by Kee and Casis: It seems that in this case, the Court assumed that what
Lay after WWII. The heirs alleged that their father together with was formed was a joint venture simply because the parties
his brother (LAY) pooled their resources and industry together executed a JVA.
and entered into a partnership. • American Jurisprudence: Joint ventures and
Doctrine: Whether a partnership exists is a factual partnerships are governed by the same basic legal
matter. principles, but there are important differences… The
- The best evidence would have been the contract of major distinction is that a joint venture relates to a
partnership or its articles of incorporation. However, there is single enterprise, while a partnership relates to a
none in this case. Thus, the court will determine whether continuing business.
a partnership existed based purely on Casis:
circumstantial evidence. • Joint venture – any limited, specific or project-based
o The essence of a partnership is that the partners collaborative commercial undertaking between at
share in the profits and losses. least two persons.
o A demand for a periodic accounting is o May take the form of a partnership, a
evidence of a partnership. corporation, a consortium or any other
business arrangement suitable for its
J. Tiosejo Investment v. Spouses Ang (2010) purpose.
Facts: o By choosing the appropriate business
• JTI entered into a JVA with Primetown Property Group, Inc. vehicle, a joint venture becomes bound by
(PPGI) for the development of a residential condominium the specific rules applicable for the chosen
project to be known as The Meditel. vehicle.
• JTI contributed the real property to the JV and PPGI § If a corporation is formed, then the
undertook to develop the condominium appropriate corporate law rules
• PPGI executed a contract to sell with the Sps. Ang who would apply.
filed against JTI and PPGI the complaint for the rescission § If a partnership is formed, then
of the contracts due to failure to complete the project as rules on partnership apply.
scheduled. • There is no reason to continue with the “oft-repeated
• JTI argued that: but inaccurate” statement that “a joint venture is a
o It was not privy to the contracts to sell executed form of partnership” for the simple reason that not all
by PPGI and Sps. Ang and it did not receive any joint ventures are partnerships.
portion of the payments made by the latter; and
o Without any contributory fault and negligence on
its part, PPGI breached its undertakings under
the JVA by failing to complete the condominium Ortega v. CA (1995) – Vitug, J.
project. Brief facts: Atty. Misa wanted to retire from the firm and
Held: wanted to dissolve and liquidate the partnership. The SEC
• The JVA has a provision which obligated JTI to ruled that it being a partnership at will, it could be dissolved by
respect and strictly comply with any covenant entered any partner at any time regardless of good or bad faith.
into by PPGI and third parties with respect to any of its Doctrine: A partnership that does not fix its term is a
units in the Condominium Project. partnership at will. The birth and life of a partnership at will is
• JTI cannot avoid liability by claiming that it was not in predicated on the mutual desire and consent of the partners.
any way privy to the Contracts to Sell executed by The right to choose with whom a person wishes to associate

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himself is the very foundation and essence of that partnership. which the partnership is engaged, unless there is a stipulation
to the contrary.
Any capitalist partner violating this prohibition shall bring to
the common funds any profits accruing to him from his
III. KINDS OF PARTNERS transactions, and shall personally bear all the losses. (n)

A. Industrial C. Managing
Art. 1789. An industrial partner cannot engage in business for Art. 1792. If a partner authorized to manage collects a
himself, unless the partnership expressly permits him to do so; demandable sum which was owed to him in his own name,
and if he should do so, the capitalist partners may either from a person who owed the partnership another sum also
exclude him from the firm or avail themselves of the benefits demandable, the sum thus collected shall be applied to the
which he may have obtained in violation of this provision, with two credits in proportion to their amounts, even though he
a right to damages in either case. (n) may have given a receipt for his own credit only; but should he
have given it for the account of the partnership credit, the
Art. 1797. The losses and profits shall be distributed in amount shall be fully applied to the latter.
conformity with the agreement. If only the share of each The provisions of this article are understood to be without
partner in the profits has been agreed upon, the share of each prejudice to the right granted to the other debtor by Article
in the losses shall be in the same proportion. 1252, but only if the personal credit of the partner should be
In the absence of stipulation, the share of each partner in the more onerous to him. (1684)
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the Art. 1800. The partner who has been appointed manager in
losses. As for the profits, the industrial partner shall receive the articles of partnership may execute all acts of
such share as may be just and equitable under the administration despite the opposition of his partners, unless he
circumstances. If besides his services he has contributed should act in bad faith; and his power is irrevocable without just
capital, he shall also receive a share in the profits in proportion or lawful cause. The vote of the partners representing the
to his capital. (1689a) controlling interest shall be necessary for such revocation of
power.
B. Capitalist A power granted after the partnership has been constituted
Art. 1789. An industrial partner cannot engage in business for may be revoked at any time. (1692a)
himself, unless the partnership expressly permits him to do so;
and if he should do so, the capitalist partners may either Art. 1801. If two or more partners have been intrusted with
exclude him from the firm or avail themselves of the benefits the management of the partnership without specification of
which he may have obtained in violation of this provision, with their respective duties, or without a stipulation that one of
a right to damages in either case. (n) them shall not act without the consent of all the others, each
one may separately execute all acts of administration, but if any
Art. 1790. Unless there is a stipulation to the contrary, the of them should oppose the acts of the others, the decision of
partners shall contribute equal shares to the capital of the the majority shall prevail. In case of a tie, the matter shall be
partnership. (n) decided by the partners owning the controlling interest.
(1693a)
Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each Art. 1802. In case it should have been stipulated that none of
partner in the profits has been agreed upon, the share of each the managing partners shall act without the consent of the
in the losses shall be in the same proportion. others, the concurrence of all shall be necessary for the validity
In the absence of stipulation, the share of each partner in the of the acts, and the absence or disability of any one of them
profits and losses shall be in proportion to what he may have cannot be alleged, unless there is imminent danger of grave or
contributed, but the industrial partner shall not be liable for irreparable injury to the partnership. (1694)
losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the D. By estoppel
circumstances. If, besides his services he has contributed Art. 1825. When a person, by words spoken or written or by
capital, he shall also receive a share in the profits in proportion conduct, represents himself, or consents to another
to his capital. (1689a) representing him to anyone, as a partner in an existing
partnership or with one or more persons not actual partners, he
Art. 1808. The capitalist partners cannot engage for their own is liable to any such persons to whom such representation has
account in any operation which is of the kind of business in been made, who has, on the faith of such representation, given
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credit to the actual or apparent partnership, and if he has made claim shall be limited to the value at which they were
such representation or consented to its being made in a public appraised. (1687)
manner he is liable to such person, whether the representation
has or has not been made or communicated to such person so i. Sum of Money
giving credit by or with the knowledge of the apparent partner Art. 1788. A partner who has undertaken to contribute a sum
making the representation or consenting to its being made: of money and fails to do so becomes a debtor for the interest
(1) When a partnership liability results, he is liable as and damages from the time he should have complied with his
though he were an actual member of the partnership; obligation.
(2) When no partnership liability results, he is liable pro
rata with the other persons, if any, so consenting to the The same rule applies of any amount he may have taken from
contract or representation as to incur liability, otherwise the partnership coffers, and his liability shall begin from the
separately. time he converted the amount to his own use. (1682)
When a person has been thus represented to be a partner in
an existing partnership, or with one or more persons not actual ii. Specific and Determinate Things
partners, he is an agent of the persons consenting to such
representation to bind them to the same extent and in the − Pursuant to Art. 1786, the partner has two obligations if he
same manner as though he were a partner in fact, with respect contributes specific and determinate things:
to persons who rely upon the representation. When all the 1. The partner is bound for warranty in case of eviction “in
members of the existing partnership consent to the the same cases and in the same manner as the vendor is
representation, a partnership act or obligation results; but in all bound with respect to the vendee.”
other cases it is the joint act or obligation of the person acting • Art. 1548 provides that “eviction takes place
and the persons consenting to the representation. (n) whenever by a final judgment based on a right prior
to the sale or act imputable to the vendor, the vendee
IV. PARTNER’S OBLIGATIONS TO THE PARTNERSHIP is deprived of the whole or part of the thing
A. To Contribute; warrant purchased.”
Art. 1786. Every partner is a debtor of the partnership for • Art. 1547 also provides that unless a contrary intention
whatever he may have promised to contribute thereto. appears in a contract of sale, there is an implied
He shall also be bound for warranty in case of eviction with warranty on the p[art of the vendor that the vendee,
regard to specific and determinate things which he may have from the time ownership passes, shall have and enjoy
contributed to the partnership, in the same cases and in the legal and peaceful possession of the thing.
same manner as the vendor is bound with respect to the • Tolentino and Bautista: Art. 1786 also includes the
vendee. He shall also be liable for the fruits thereof from the vendor’s warranty against hidden defects.
time they should have been delivered, without the need of any 2. The partner is liable for the fruits of the specific and
demand. (1681a) determinate things from the time they should have been
delivered, without the need of any demand.
Art. 1790. Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of the
partnership. (n) iii. Goods
Art. 1787. When the capital or a part thereof which a partner
Art. 1791. If there is no agreement to the contrary, in case of is bound to contribute consists of goods, their appraisal must
an imminent loss of the business of the partnership, any be made in the manner prescribed in the contract of
partner who refuses to contribute an additional share to the partnership, and in the absence of stipulation, it shall be made
capital, except an industrial partner, to save the venture, shall by experts chosen by the partners, and according to current
he obliged to sell his interest to the other partners. (n) prices, the subsequent changes thereof being for account of
the partnership. (n)
Art. 1795. The risk of specific and determinate things, which
are not fungible, contributed to the partnership so that only B. To apply sums collected pro rata
their use and fruits may be for the common benefit, shall be Art. 1792. If a partner authorized to manage collects a
borne by the partner who owns them. demandable sum which was owed to him in his own name,
If the things contribute are fungible, or cannot be kept without from a person who owed the partnership another sum also
deteriorating, or if they were contributed to be sold, the risk demandable, the sum thus collected shall be applied to the
shall be borne by the partnership. In the absence of stipulation, two credits in proportion to their amounts, even though he
the risk of the things brought and appraised in the inventory, may have given a receipt for his own credit only; but should he
shall also be borne by the partnership, and in such case the have given it for the account of the partnership credit, the
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amount shall be fully applied to the latter.
The provisions of this article are understood to be without d. Responsible for Damage Suffered by the
prejudice to the right granted to the other debtor by Article Partnership
1252, but only if the personal credit of the partner should be Art. 1794. Every partner is responsible to the partnership for
more onerous to him. (1684) damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may
C. To compensate have earned for the partnership by his industry. However, the
Art. 1794. Every partner is responsible to the partnership for courts may equitably lessen this responsibility if through the
damages suffered by it through his fault, and he cannot partner's extraordinary efforts in other activities of the
compensate them with the profits and benefits which he may partnership, unusual profits have been realized. (1686a)
have earned for the partnership by his industry. However, the
courts may equitably lessen this responsibility if through the − “Damages” in this rule refer to injury or damage, “economic
partner's extraordinary efforts in other activities of the or otherwise, suffered by the partnership and not “damages”
partnership, unusual profits have been realized. (1686a) in the form of payment made to third persons for injuries
caused to such third persons.
D. To be loyal; fiduciary duty − Being “responsible to the partnership” is broader than mere
Art. 1807. Every partner must account to the partnership for payment of damages. It may extend to withholding of profits
any benefit, and hold as trustee for it any profits derived by him or some other penalty.
without the consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of the e. Bear risk of Loss of Specific and
partnership or from any use by him of its property. (n) Determinate Things
Art. 1795. The risk of specific and determinate things, which
Other Obligations of Partners are not fungible, contributed to the partnership so that only
their use and fruits may be for the common benefit, shall be
1. In General borne by the partner who owns them.

a. Additional Capital If the things contributed are fungible, or cannot be kept


Art. 1791. If there is no agreement to the contrary, in case of without deteriorating, or if they were contributed to be sold,
an imminent loss of the business of the partnership, any the risk shall be borne by the partnership. In the absence of
partner who refuses to contribute an additional share to the stipulation, the risk of the things brought and appraised in the
capital, except an industrial partner, to save the venture, shall inventory, shall also be borne by the partnership, and in such
he obliged to sell his interest to the other partners. (n) case the claim shall be limited to the value at which they were
appraised. (1687)
b. Alteration in Immovable Property
Art. 1803. When the manner of management has not been f. Share in Losses
agreed upon, the following rules shall be observed: Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
(2) None of the partners may, without the consent of the partner in the profits has been agreed upon, the share of each
others, make any important alteration in the immovable in the losses shall be in the same proportion.
property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other In the absence of stipulation, the share of each partner in the
partners is manifestly prejudicial to the interest of the profits and losses shall be in proportion to what he may have
partnership, the court's intervention may be sought. contributed, but the industrial partner shall not be liable for the
(1695a) losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the
c. Bring to Partnership Capital Credit circumstances. If besides his services he has contributed
Received capital, he shall also receive a share in the profits in proportion
Art. 1793. A partner who has received, in whole or in part, his to his capital. (1689a)
share of a partnership credit, when the other partners have not
collected theirs, shall be obliged, if the debtor should Art. 1798. If the partners have agreed to intrust to a third
thereafter become insolvent, to bring to the partnership capital person the designation of the share of each one in the profits
what he received even though he may have given receipt for and losses, such designation may be impugned only when it is
his share only. (1685a) manifestly inequitable. In no case may a partner who has

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begun to execute the decision of the third person, or who has proportional to their contributions to the partnership.
not impugned the same within a period of three months from • Island Sales v United Pioneers (1975): There were 5 general
the time he had knowledge thereof, complain of such decision. partners and the Court ruled that because the liability of
the partners is pro rata, the liability of one partner should
The designation of losses and profits cannot be intrusted to be limited to only 1/5 of the obligations of the defendant
one of the partners. (1690) company. There was no discussion regarding the
contributions of each partner.
§ Casis: Considering that even industrial partners who do
Art. 1799. A stipulation which excludes one or more partners
not contribute money or property are liable, having the
from any share in the profits or losses is void. (1691)
partners divide the liability among all of them equally
makes more sense than basing it on their contributions.
− Similar to the rule on profits, the losses must be shared by
§ While it is true that industrial partners do not share in
the partners in the following manner:
partnership losses absent a stipulation, liability for
1. Losses distributed as stipulated in their agreement but a
partnership contracts are not necessarily losses.
stipulation which excludes one or more partners from
• Pacific Commercial v Aboitiz (1926): The exemption of
any share in the losses is void;
industrial partners relates merely to the distribution of
2. If there is no stipulation as to losses but only sharing in
losses among the partners themselves in the settlement of
the profits has been agreed upon, the share of each in
the partnership affairs and has no reference to partnership
the losses shall be in the same proportion;
obligations to third parties.
3. If there is no stipulation as to profits and losses, the
§ There is a marked distinction between a liability and a
share of each partner in losses shall be in proportion to
loss, and the inability of a partnership to pay a debt to
what he may have contributed, but the industrial partner
third party at a particular time does not necessarily
shall not be liable for the losses.
mean that the partnership business, as a whole, has
been operated at a loss.
g. Account for Benefits
• Muñasque v CA (1985): Elmo Muñasque executed a
Art. 1807. Every partner must account to the partnership for
contract on behalf of the partnership of “Galan and
any benefit, and hold as trustee for it any profits derived by him
Muñasque” as contractor for remodeling of Tropical’s
without the consent of the other partners from any transaction
Cebu branch building. A dispute arose between Galan
connected with the formation, conduct, or liquidation of the
and Muñasque as a result of which Tropical made a
partnership or from any use by him of its property. (n)
second payment to “Galan and Associates.” Muñasque
filed a complaint for payment of sum of money and
h. Liable for Partnership Contracts damages against Galan and Tropical seeking to recover
Art. 1816. All partners, including industrial ones, shall be the amounts covered by the first and second checks.
liable pro rata with all their property and after all the § TC and CA: Muñasque and Galan are liable to
partnership assets have been exhausted, for the contracts creditors who intervened in the case.
which may be entered into in the name and for the account of § SC: Art. 1816 should be construed together with Art.
the partnership, under its signature and by a person authorized 1824 which provides that “all partners are liable
to act for the partnership. However, any partner may enter into solidarily with the partnership for everything chargeable
a separate obligation to perform a partnership contract. (n) to the partnership under Arts. 1822 and 1823.” While the
liability of the partners is merely joint in transactions
Art. 1817. Any stipulation against the liability laid down in the entered into by the partnership, a third person who
preceding article shall be void, except as among the partners. transacted with said partnership can hold the partners
(n) solidarily liable for the whole obligation if the case of the
third persons falls under Arts. 1822 or 1823.
− Each partner’s share in the liability for partnership contracts
is pro rata but the meaning of the term appears to be in i. Solidarily Liable with the Partnership for
dispute. Wrongful Acts or Omissions
• De Leon and De Leon Jr.: The term must be understood to Art. 1822. Where, by any wrongful act or omission of any
mean equally or jointly, and not proportionately which is partner acting in the ordinary course of the business of the
the literal meaning because the pro-rating is based on the partnership or with the authority of co-partners, loss or injury is
number of partners and not the amount of their caused to any person, not being a partner in the partnership,
contributions to the common fund. or any penalty is incurred, the partnership is liable therefor to
• Code Commission: Under this article, the personal liability the same extent as the partner so acting or omitting to act. (n)
of the partners to third persons is subsidiary and

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Art. 1823. The partnership is bound to make good the loss: more onerous to him. (1684)

1) Where one partner acting within the scope of his Art. 1252. He who has various debts of the same kind in favor
apparent authority receives money or property of a third of one and the same creditor, may declare at the time of
person and misapplies it; and making the payment, to which of them the same must be
2) Where the partnership in the course of its business applied. Unless the parties so stipulate, or when the
receives money or property of a third person and the application of payment is made by the party for whose benefit
money or property so received is misapplied by any the term has been constituted, application shall not be made
partner while it is in the custody of the partnership. (n) as to debts which are not yet due.

Art. 1824. All partners are liable solidarily with the partnership If the debtor accepts from the creditor a receipt in which an
for everything chargeable to the partnership under Articles application of the payment is made, the former cannot
1822 and 1823. (n) complain of the same, unless there is a cause for invalidating
the contract. (1172a)
2. New Partners
Art. 1826. A person admitted as a partner into an existing Art. 1292. In order that an obligation may be extinguished by
partnership is liable for all the obligations of the partnership another which substitute the same, it is imperative that it be so
arising before his admission as though he had been a partner declared in unequivocal terms, or that the old and the new
when such obligations were incurred, except that this liability obligations be on every point incompatible with each other.
shall be satisfied only out of partnership property, unless there (1204)
is a stipulation to the contrary. (n)
b. Concurrence of other managing partners
3. Industrial Partners Art. 1802. In case it should have been stipulated that none of
Art. 1789. An industrial partner cannot engage in business for the managing partners shall act without the consent of the
himself, unless the partnership expressly permits him to do so; others, the concurrence of all shall be necessary for the validity
and if he should do so, the capitalist partners may either of the acts, and the absence or disability of any one of them
exclude him from the firm or avail themselves of the benefits cannot be alleged, unless there is imminent danger of grave or
which he may have obtained in violation of this provision, with irreparable injury to the partnership. (1694)
a right to damages in either case. (n)
5. Capitalist Partner
− The Civil Code does not specify if the industrial partner is Art. 1808. The capitalist partners cannot engage for their own
prohibited from entering into any type of business or just account in any operation which is of the kind of business in
business similar to the business of the partnership. But which the partnership is engaged, unless there is a stipulation
considering that CC expressly prohibits capitalist partners to the contrary.
from “the kind of business in which the partnership is
engaged”, it may be argued that the lack of qualification in Any capitalist partner violating this prohibition shall bring to
the case of industrial partners implies a disqualification from the common funds any profits accruing to him from his
all types of business. transactions, and shall personally bear all the losses. (n)

4. Managing Partners
a. Application of Sums Received Lim Tanhu v Remolete (1975)-Barredo
Art. 1792. If a partner authorized to manage collects a Brief Facts: (Note: Case is mainly CivPro) Common law wife
demandable sum which was owed to him in his own name, Tan is alleging that the partners and brothers (Lim Tanhu and
from a person who owed the partnership another sum also Ng Sua) of her deceased spouse (Po Chuan) used the funds of
demandable, the sum thus collected shall be applied to the the partnership to set up a new corporation. She is asking for a
two credits in proportion to their amounts, even though he liquidation of the business of the defunct partnership.
may have given a receipt for his own credit only; but should he Doctrine: Where it appears that most of the properties
have given it for the account of the partnership credit, the supposed to have been acquired by defendants with funds of
amount shall be fully applied to the latter. the partnership appear to have been transferred in their names
long after the partnership had been automatically dissolved as
The provisions of this article are understood to be without a result of the death of a partner, defendants have no
prejudice to the right granted to the other debtor by Article obligation to account to anyone for such acquisitions in the
1252, but only if the personal credit of the partner should be

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absence of clear proof that they had violated the trust of the or profits derived from his act as a partner.Consequently, when
deceased partner during the existence of the partnership. Catalan redeemed the properties in question, he became a
trusteeand held the same in trust for his copartner Gatchalian,
Liwanag v CA (1997) – Romero, J. subject to his right to demand from the latter his contribution
Brief Facts: Rosales gave money to Liwanag for the purpose to the amount of redemption
of purchasing cigarettes to be sold later on. When Liwanag and
Tabilaran stopped reporting regarding the progress of the
business, Rosales filed a suit for estafa.
Doctrine: In a contract of partnership, when money or V. PARTNER’S OBLIGATIONS INTER SE
property have been received by a partner for a specific
purpose (such as that obtaining in the instant case) and he later A. To bring to collation
misappropriated it, such partner is guilty of estafa. Art. 1793. A partner who has received, in whole or in part, his
share of a partnership credit, when the other partners have not
US v. Clarin (1910) –Arellano,C.J. collected theirs, shall be obliged, if the debtor should
Brief facts: Larin entered into an agreement that Tarug, thereafter become insolvent, to bring to the partnership capital
Clarin, and De Guzman will sell mangoes while he would what he received even though he may have given receipt for
provide the capital. They agreed that the profits would be his share only. (1685a)
divided equally among them. Larin subsequently charged them
with Estafa for allegedly misappropriating the amounts (but the B. To share in the profits/losses
fiscal filed the information only against Clarin).
Art. 1797. The losses and profits shall be distributed in
Doctrine: The action that lies with the partner who furnished conformity with the agreement. If only the share of each
the capital for the recovery of his money is not a criminal action
partner in the profits has been agreed upon, the share of each
for estafa, but a civil one arising from the partnership
in the losses shall be in the same proportion.
contract for a liquidation of the partnership and a levy
In the absence of stipulation, the share of each partner in the
on its assets, if there should be any. profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
Pang Lim v Lo Seng (1921), Street, J.
losses. As for the profits, the industrial partner shall receive
Brief facts: Pang Lim and Lo Seng were partners in a business
such share as may be just and equitable under the
of distillery. They rented the property for the distillery from Lo circumstances. If besides his services he has contributed
Yao. The lease was extended to 15 years, during which, Pang capital, he shall also receive a share in the profits in proportion
Lim sold his shares of the partnership to Lo Seng, and later
to his capital. (1689a)
partnered with Benito Galvez. Pang Lim then purchased the
property to Pang Lim and Benito Galvez. Pang Lim now seeks
Art. 1798. If the partners have agreed to intrust to a third
to eject Lo Seng from the property, Lo Seng refused.
person the designation of the share of each one in the profits
Doctrine: Above all other persons in business relations,
and losses, such designation may be impugned only when it is
partners are required to exhibit towards each other the highest
manifestly inequitable. In no case may a partner who has
degree of good faith. In fact the relation between partners is
begun to execute the decision of the third person, or who has
essentially fiduciary, each being considered in law, as he is in
not impugned the same within a period of three months from
fact, the confidential agent of the other. It is therefore
the time he had knowledge thereof, complain of such decision.
accepted as fundamental in equity jurisprudence that one
The designation of losses and profits cannot be intrusted to
partner cannot, to the detriment of another, apply exclusively
one of the partners. (1690)
to his own benefit the results of the knowledge and
information gained in the character of partner.
Art. 1799. A stipulation which excludes one or more partners
from any share in the profits or losses is void. (1691)
Catalan v. Gatchalian (1959) - Montemayor, J.
Brief facts: Catalan and Gatchalian are partners. They
C. To render true and full information
mortgaged two lots to Dr. Maravetogether with the
Art. 1806. Partners shall render on demand true and full
improvements thereon to secure a credit from the latter.
information of all things affecting the partnership to any
Thepartnership failed to pay the obligation. The properties
partner or the legal representative of any deceased partner or
were sold to Dr. Marave at apublic auction. Catalan redeemed
of any partner under legal disability. (n)
the property and he contends that title should becancelled and
a new one must be issued in his name.
Doctrine: Under Article 1807 of the NCC every partner D. Not to engage in another business
becomes a trustee for his copartner with regard to any benefits Art. 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so;
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and if he should do so, the capitalist partners may either Brief Facts: Pecson and Moran entered into an agreement
exclude him from the firm or avail themselves of the benefits whereby both would contribute P15K each for the purpose of
which he may have obtained in violation of this provision, with printing 95,000 posters which they will thereafter sell, with
a right to damages in either case. (n) Moran supervising the work. Pecson only gave P10K and Moran
was able to print only 2,000 posters. Pecson filed an action for
Art. 1808. The capitalist partners cannot engage for their own recovery of the P10K he contributed. CA ordered Moran to
account in any operation which is of the kind of business in pay Pecson unrealized profits.
which the partnership is engaged, unless there is a stipulation Doctrine: Each partner must share in the profits and losses of
to the contrary. the venture. Even with an assurance made by one of the
Any capitalist partner violating this prohibition shall bring to partners that they would earn a huge amount of profits, in the
the common funds any profits accruing to him from his absence of fraud, the other partner cannot claim a right to
transactions, and shall personally bear all the losses. (n) recover the highly speculative profits.

Martinez v. Ong Pong Co (1910) – Arellano, CJ.


Brief facts: The Ongs received from Martinez an amount to
be invested in a store, wherein they will divide the profits and
CASES:
losses in equal shares. Petitioner demanded the return of the
amount or an accounting, but respondents failed to do so.
Pioneer Insurance v CA (1989) – Gutierrez, Jr., J.
Doctrine: A partner who acted as agent in receiving money
Brief Facts: Lim purchased two aircrafts and one set of spare
for a given purpose, for which he has rendered no accounting,
parts from JDA, with Bormaheco et al. advancing the down
is responsible only for the losses which he incurred.
payments. Pioneer Insurance issued a surety bond in behalf of
Lim for the balance of the purchase price. Lim executed a
Agustin v. Inocencio (1901) – Tracey, J.
chattel mortgage over the aircrafts in favor of Pioneer. Lim
Brief facts: The parties had been conducting a partnership
defaulted in the payment of the installments and Pioneer filed
as industrial partners without capital. They contributed from its
an action for judicial foreclosure against Lim and Bormaheco et
profits and borrowed a sum from wife of Inocencio to raise
al. Bormaheco et al. filed a counter-claim, seeking the recovery
P4,300 for the construction of a casco to be used in their
of the sums they advanced to Lim.
business. In the progress of the work Inocencio (managing
Doctrine: Persons who attempt, but fail, to form a corporation
partner) found that it called for additional funds, which he
and who carry on business under the corporate name occupy
advanced.
the position of partners inter se. However, such a relation does
Doctrine: The managing partner may be allowed to advance
not necessarily exist. When no de facto partnership was
funds necessary to the completion of the work, within the
actually created among the parties, they do not have the
scope of the business. Such constitutes a debt for which all the
obligation to share in the losses.
associates are liable.
Evangelista v. Abad Santos (1973) – Makalintal, J.
Soncuya v. De Luna (1939) – Villareal, J.
Brief Facts: A co-partnership was formed under the name of
Brief facts: Soncuya, Avelino and de Luna were partners in
“Evangelista & Co.” with Evangelista, Leonardo Abad Santos,
the “Centro Escolar de Senoritas.” Soncuya filed a complaint
and Navarro as capitalists, and Estrella Abad Santos as
against de Luna praying for damages he allegedly suffered by
industrial partner. Estrella filed suit against the 3 other partners,
the fraudulent administration and management of the
alleging that the partnership had been paying dividends to the
partnership.
partners except to her. Evangelista et al. averred that
Doctrine: For a partner to be able to claim from the
Estrella’s inclusion in the partnership was never contemplated
managing partner damages allegedly suffered by reason of the
by the parties for the latter could not lawfully contribute her full
fraudulent administration, a previous liquidation of said
time and industry (obligation of an industrial partner pursuant
partnership is necessary.
to Art. 1789 ), considering that she was, and still is, a Judge of
the City Court of Manila:
VI. PARTNER’S OBLIGATIONS TO PERSONAL AND
Doctrine: Art. 1789 seeks to prevent any conflict of interest
PARTNERSHIP CREDITORS; THIRD PARTIES
between the industrial partner and the partnership, and to
insure faithful compliance by said partner with this prestation.
• A partnership established under Philippine law has a
Being a Judge of a City Court does not amount to engaging in
juridical personality separate and distinct from that of
a business antagonistic to the partnership as the same can
the partners. Thus, apart from the obligations of the
hardly be characterized as a business.
partners, the partnership itself as an entity, has obligations
to the partners and third parties.
Moran v. CA (1984) – Gutierrez, Jr., J.

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partnership and while engaged in transacting its
A. Bound by Authorized Acts of Partners legitimate business, or relating to matters within the
scope of the partnership, are admissible against the
• A partnership is bound by the act of the partners. firm.”
• Art. 1803: All partners are considered agents when the • For the rule to apply: the fact of partnership must be
manner of management of the partnership has not been independently shown. But admissibility of partner’s
agreed upon. admissions is limited to matters within the scope of
• Art. 1818: Every partner is an agent of the partnership for his authority.
the purpose of its business, and the act of every partner
for apparently carrying on in the usual way of the business E. Bound by Notice to or Knowledge of a Partner
of the partnership binds the partnership.
o Exception: when the partner is not authorized to 1. General Rule:
perform such act and the third party dealing with • According to Art. 1821, the following operate as
him was aware of it. notice to or knowledge of the partnership:
(constructive notice)
B. Bear Risk of Certain Types of Contribution 1. Notice to any partner of any matter relating to
Art. 1795. The risk of specific and determinate things, which are partnership affairs; and
not fungible, contributed to the partnership so that only their 2. Knowledge of the partner acting in the particular
use and fruits may be for the common benefit, shall be borne matter, acquired while a partner or then present
by the partner who owns them. to his mind; and
If the things contributed are fungible, or cannot be kept 3. Knowledge of any other partner who reasonably
without deteriorating, or if they were contributed to be sold, could and should have communicated to it to the
the risk shall be borne by the partnership. In the absence of acting partner.
stipulation, the risk of things brought and appraised in the
inventory, shall also be borne by the partnership, and in such 2. Exception
case the claim shall be limited to the value at which they were
appraised. a. Knowledge derived from transactions
unconnected with partnership
• The partnership bears the risk of loss of contributions • Rule does not apply where knowledge is derived from
which are fungible, or cannot be kept without distinct transactions unconnected with partnership
deteriorating, or if they were contributed to be sold. affairs.
• If no stipulation, risk of things brought and appraised • Harris v. Faultfinders Inc.: the rule does not apply
in the inventory is borne by partnership, and the claim when “the suit is not brought by or directed against
shall be limited to the value at which they were the partnership or the partners as members of the
appraised. partnership or if it does not relate to partnership
business.”
C. Repay Disbursement of Partners
Art. 1796. The partnership shall be responsible to every partner b. Fraud by a partner against the partnership
for the amounts he may have disbursed on behalf of the • Committed by or with the consent of that partner who
partnership and for the corresponding interest, from the time had knowledge
the expenses are made; it shall also answer to each partner for • “independent fraudulent act of a partner, for his own
the obligations he may have contracted in good faith in the business and personal interest and adverse to the
interest of the partnership business, and for risks in partnership”
consequence of its management. • Exception to the exception: Even if the partner
who has knowledge commits fraud against the
D. Bound by Admission or Representation partnership, a partnership is still bound by such
knowledge with respect to a third party who has no
• An admission or representation made by any partner knowledge of such fraud.
concerning partnership affairs within the scope of his
authority is evidence against the partnership. Sussel Co. v. First Federal
• Rule was adapted from Sec. 11 of the Uniform Arguments raised: There is a well established exception to
Partnership Act: “In an action against partners or their the general rule that the knowledge of an agent is to be
partnership on a partnership liability, a partner’s imputed to the principal, in situations where the conduct
admission or declaration during the existence of the and dealings of the agent are such as to raise a clear

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presumption that he will not communicate to the principal
the facts in controversy. Art. 2176. Whoever by act or omission causes damage to
• This is the case where the agent is engaged in another, there being fault or negligence, is obliged to pay for
committing an independent fraudulent act on his own the damage done. Such fault or negligence, if there is no
account and the facts to be imputed relate to this pre-existing contractual relation between the parties, is called
fraudulent act so that the communication of such facts a quasi-delict, and is governed by the provisions of this
to the principal would necessarily prevent the Chapter.
consummation of the fraud.
• Such is also the case where the third persons, or their • The Supreme Court has in several instances equated
representatives, who claim the benefit of the quasi-delicts with torts and has referred to Art. 2176 as
imputation of the agent’s knowledge to the principal, basis for an action on tort.
collude with the agent to cheat or defraud the • Based on US law, the following rules apply under this
principal. provision:
1. To determine whether the partnership is liable for
Held: Court ruled that it could not apply such exception as the a partner’s intentional tort, “the test is not the
facts did not support the application of the exception. There illegality or malicious and wilful character of the
was no finding that the partner was acting fraudulently and wrong but whether it falls within the scope
neither was the third person aware of any fraud. of the partner’s authority.
2. If the partner committing the act “acted
F. Liability for loss or injury outside the purview of the partnership
Art. 1822. Where, by any wrongful act or omission of any business in committing the acts, whether
partner acting in the ordinary course of the business of the from wantonness or other motive, he
partnership or with the authority of his co-partners, loss or alone is responsible.”
injury is caused to any person, not being a partner in the 3. Once the plaintiff proves the existence of a
partnership, or any penalty is incurred, the partnership is liable partnership at the time of his injury, an inference
therefor to the same extent as the partner so acting or omitting arises that the partnership continues to exist for
to act. purposes of imputing the negligence of one
partner to the partnership and co-partners, in the
• The rule in Art. 1822 makes the partnership solidarily liable absence of contrary proof.
with the partner who has caused the loss or injury.
• The partner who commits the wrong must be acting with 2. Crime
the authorization of the partners, not that the violation • A partnership has a separate juridical personality from
itself be authorized. the partners which “may be held responsible for the
• Bautista: The basis of the liability is the same as that which commission of a criminal act to the same extent as the
applies to the relation of principal and agent, or master partner or partners committing the act.”
and servant. All partners are solidarily liable with the • Fraudulent misrepresentations committed by a
partnership for everything chargeable to the partnership partner in the course of the partnership business will
under said provisions. This liability includes liability for make the partnership liable for loss or injury.
wilful malicious act, as well as for acts of sinful negligence. o Liability is not dependent on the other
• The provision applies to cases involving loss or injury to partner’s knowledge of the fraud.
third persons or penalties incurred by the partnership as • A partner’s fraud will make the partnership liable for
result of torts and crimes. the loss or injury to a third party, except if it is
outside the scope of his authority.
1. Tort • Bautista: The partnership is responsible even where
• Bautista: On the principle of mutual agency, the the partner, in making the fraudulent representation
partnership, or every member of the partnership, is on behalf of the partnership, has for his object only his
liable for torts committed by one of the members personal benefit.
acting within the scope of firm business, though they o Partnership liability arises in cases such as
do not participate in, ratify, or have knowledge of fraud or misrepresentation by a partner in
such torts. Test of liability: Whether the wrong was connection with the sale of firm property,
committed in behalf of the partnership and within fraudulent procurement from an innocent
the reasonable scope of its business, and if so third person of a contract relating to firm
committed, the partners are liable as joint business, and misappropriation of moneys
tortfeasors. entrusted by a third person to the firm.

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Nothing in this Title shall be held to deprive a partner of his
G. Misapplication of Funds right, if any, under the exemption laws, as regards his interest
Art. 1823. The partnership is bound to make good the loss: in the partnership. (n)
1. Where one partner acting within the scope of his
apparent authority receives money or property of a Art. 1827. The creditors of the partnership shall be preferred to
third person and misapplies it; and those of each partner as regards the partnership property.
2. Where the partnership in the course of its business Without prejudice to this right, the private creditors of each
receives money or property of a third person and the partner may ask the attachment and public sale of the share of
money or property so received is misapplied by any the latter in the partnership assets. (n)
partner while it is in the custody of the partnership.
B. To be liable pro rata for partnership debts
• US Law: the liability of the partnership… imposed (subsidiary & joint)
without regard to fault when a partner’s breach of Art. 1816. All partners, including industrial ones, shall be liable
trust causes a partnership client to suffer a monetary pro rata with all their property and after all the partnership
loss is not strict liability but arises under respondeat assets have been exhausted, for the contracts which may be
superior. entered into in the name and for the account of the
o The partnership is in the position of an partnership, under its signature and by a person authorized to
insurer, guaranteeing that its innocent client act for the partnership. However, any partner may enter into a
will not bear loss by the wrongful act or separate obligation to perform a partnership contract. (n)
omission of a partner. The partnership must
reimburse the client, and may then recover Art. 1817. Any stipulation against the liability laid down in the
its loss from the guilty partner. preceding article shall be void, except as among the partners.
• For the partnership to be liable under this rule, the (n)
partner who misappropriated the funds must have
been authorized to receive the funds. Art. 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
OTHER LIABILITIES (UNDER SYLLABUS)
A partner is discharged from any existing liability upon
A. To have his partnership interest charged for dissolution of the partnership by an agreement to that effect
personal debts (primary) between himself, the partnership creditor and the person or
Art. 1814. Without prejudice to the preferred rights of partnership continuing the business; and such agreement may
partnership creditors under Article 1827, on due application to be inferred from the course of dealing between the creditor
a competent court by any judgment creditor of a partner, the having knowledge of the dissolution and the person or
court which entered the judgment, or any other court, may partnership continuing the business.
charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest The individual property of a deceased partner shall be liable
thereon; and may then or later appoint a receiver of his share for all obligations of the partnership incurred while he was a
of the profits, and of any other money due or to fall due to him partner, but subject to the prior payment of his separate debts.
in respect of the partnership, and make all other orders, (n)
directions, accounts and inquiries which the debtor partner
might have made, or which the circumstances of the case may C. Tort liability; breach of trust liability (primary &
require. solidary)
- see F (page 2)
The interest charged may be redeemed at any time before Art. 1822. Where, by any wrongful act or omission of any
foreclosure, or in case of a sale being directed by the court, partner acting in the ordinary course of the business of the
may be purchased without thereby causing a dissolution: partnership or with the authority of co-partners, loss or injury is
caused to any person, not being a partner in the partnership,
(1) With separate property, by any one or more of the or any penalty is incurred, the partnership is liable therefor to
partners; or the same extent as the partner so acting or omitting to act. (n)

(2) With partnership property, by any one or more of the


Art. 1823. The partnership is bound to make good the loss:
partners with the consent of all the partners whose interests are
not so charged or sold.
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
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person and misapplies it; and CASES:

(2) Where the partnership in the course of its business In re: SyCip (1979)- Melencio Herrera
receives money or property of a third person and the money or Brief Facts: Surviving partners are praying that they be
property so received is misapplied by any partner while it is in allowed to continue the names of deceased partners in their
the custody of the partnership. (n) firm names. They are seeking a re-examination of previous
rulings of the SC.
Art. 1824. All partners are liable solidarily with the partnership Doctrine: The names in a firm name of a partnership must
for everything chargeable to the partnership under Articles either be those of living partners and, in the case of
1822 and 1823. (n) non-partners, should be living persons who can be subjected
to liability. The Civil Code prohibits a third person from
D. Liability in case of estoppel including his name in the firm name under pain of assuming
Art. 1825. When a person, by words spoken or written or by the liability of a partner. The heirs of a deceased partner in a
conduct, represents himself, or consents to another law firm cannot be held liable as the old members to the
representing him to anyone, as a partner in an existing creditors of a firm particularly where they are non-lawyers.
partnership or with one or more persons not actual partners, he (NOTE: This is no longer good law due to the revision
is liable to any such persons to whom such representation has of the Canons)
been made, who has, on the faith of such representation, given
credit to the actual or apparent partnership, and if he has made Litton v Hill (1939)- Concepcion
such representation or consented to its being made in a public Brief Facts: George Litton sold mining claims to which Hill &
manner he is liable to such person, whether the representation Ceron failed to pay on time. LC absolved the partnership and
has or has not been made or communicated to such person so held managing partner Ceron as individually responsible, for it
giving credit by or with the knowledge of the apparent partner was not proven that Hill (the other managing partner)
making the representation or consenting to its being made: consented to the contract.
Doctrine: Third persons are not bound, in entering into a
(1) When a partnership liability results, he is liable as contract with any of the two partners, to ascertain if it has the
though he were an actual member of the partnership; consent of the partner. A third person may and has a right to
presume that the partner with whom he contracts has, in the
(2) When no partnership liability results, he is liable pro ordinary and natural course of business, the consent of his
rata with the other persons, if any, so consenting to the copartner; for otherwise he would not enter into the contract.
contract or representation as to incur liability, otherwise There is a general presumption that each individual partner is
separately. an authorized agent for the firm and that he has authority to
bind the firm in carrying on the partnership transactions.
When a person has been thus represented to be a partner in
an existing partnership, or with one or more persons not actual Goquiolay v Sycip (108 Phil 947) (July 26 1960)- JBL Reyes
partners, he is an agent of the persons consenting to such Brief Facts: Tan Sin An and Goquiolay entered into a
representation to bind them to the same extent and in the partnership. The partnership, and Tan Sin An in his personal
same manner as though he were a partner in fact, with respect capacity, purchased 3 and 46 lots, respectively. In doing so,
to persons who rely upon the representation. When all the they assumed the mortgage obligations on such lots. Tan Sin
members of the existing partnership consent to the died, and his widow Kong Chai Pin was designated as
representation, a partnership act or obligation results; but in all administratrix. Demands were made on the partnership and
other cases it is the joint act or obligation of the person acting Goquiolay to pay the mortgage. Kong Chai Pin, supposedly
and the persons consenting to the representation. (n) without the consent of Goquiolay, sold all 49 parcels of land to
Sycip and Lee to settle the debts. When Goquiolay learned of
E. Liability of new partners (subsidiary) the sale, he filed a petition claiming that the sale is invalid
Art. 1826. A person admitted as a partner into an existing insofar as his interest over the parcels of land was concerned.
partnership is liable for all the obligations of the partnership Doctrine: The SC upheld the validity of the sale. Strangers
arising before his admission as though he had been a partner dealing with a partnership have the right to assume, in the
when such obligations were incurred, except that this liability absence of restrictive clauses in the partnership agreement
shall be satisfied only out of partnership property, unless there that every general partner has power to bind the partnership,
is a stipulation to the contrary. (n) especially those partners acting with ostensible authority.

Goquiolay v Sycip (9 SCRA 663) (Dec 10 1963)- JBL Reyes

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Brief Facts: Goquiolay appealed from the original decision states that he shall not.
and alleges that Kong Chai Pin’s sale to Sycip was void as she - An industrial partner has not contributed any property
did not have authority to effect the sale, and that it should be whatever; he therefore offers no subject for the principal and
set aside because it was executed with the intent to defraud direct seizure when the assets of the copartnership are
Goquiolay of his share in the properties sold. attached. How is it possible to conceive any ulterior, subsidiary,
Doctrine: The stipulation in the articles of partnership that any indirect responsibility over the property which it was not even
of the two managing partners may contract and sign in the thought to be included, since he only contributed to the
name of the partnership with the consent of the other, company his industry and work, not property of any class
undoubtedly creates on obligation between the two partners, whatever? It seems very anomalous that one who has not
which consists in asking the other's consent before contracting obligated himself in the least should be responsible or the
for the partnership. This obligation of course is not imposed greater part, that he who is not comprehended within the
upon a third person who contracts with the partnership. explicit terms should be included by implication, and that he
Neither it is necessary for the third person to ascertain if the who pledge nothing should be held to respond with his
managing partner with whom he contracts has previously property.
obtained the consent of the other. A third person may and has
a right to presume that the partner with whom he contracts has, Co-Pitco v. Yulo (1907)-Willard, J.
in the ordinary and natural course of business, the consent of Brief Facts: Pedro and Jaime are partners. They had dealings
his copartner; for otherwise he would not enter into the with a chinaman and was left with a balance of P 1638.4.
contract. The third person would naturally not presume that the Co-Pitco tried to recover the whole amount of debt only from
partner with whom he enters into the transaction is violating one of the partners, Pedro.
the articles of partnership, but on the contrary is acting in Doctrine: The liability of the partners is pro rata. Hence,
accordance therewith. Pedro may only be held liable for ½ of the debt incurred by the
partnership.
MacDonald v. National City Bank of New York (1956) – Paras, J.
Brief Facts: Gorcey, Gavino and Da Costa formed Pacific Commercial v. Aboitiz (1926) – Ostrand, J.
Stasikinocey, a partnership. However, it was denied registration Brief facts: De Silva, G. Aboitiz, V. Aboitiz, and Martinez
by SEC. Stasikinocey executed a loan (as a esult of the (industrial partner) formed a partnership. G. Aboitiz, on behalf
overdraft) with National City Bank of New York. The loan was of the partnership, obtained a loan from Pacific Commercial
secured by a chattel mortgage. On the same day of the and executed a promissory note secured by a chattel
execution of the mortgage, the partners sold the property to mortgage. Partnership defaulted. Mortgage on was foreclosed
shaeffer and were eventually transferred to McDonald and for only for P2K. Pacific then sued partnership for the balance.
Gonzales. Doctrine: Art 127 Code of Commerce: all the members of
Doctrine: While an unregistered commercial partnership has a general co-partnership are liable with all their property
no juridical personality, nevertheless, where two or more for the results of the duly authorized transactions made in the
persons attempt to create a partnership failing to comply with name and for the account of the partnership. This includes
all the legal formalities, the law considers them as partners and even industrial partners.
the association is a partnership in so far as it is a favorable to
third persons, by reason of the equitable principle of estoppel. Magdusa v. Albaran (1962) – Reyes, J.B.L., J.
Brief facts: Magdusa and Albaran et al. formed a partnership
La Compañia Maritima V. Muñoz, et al. (1907) – Willard, J. verbally for the sale of general merchandise. However, Albaran
Brief Facts: Francisco (capitalist) and Emilio and Rafael et al. soon wanted to withdraw from the partnership and
(industrial partners) formed a partnership to conduct prompted Magdusa to make an accounting of their respective
mercantile business. Maritima bought an action to recover the shares.
sum of P26,828.30 against the partnership. CFI acquitted Emilio Doctrine: A partner’s share cannot be returned
and Naval but sentenced the partnership and Francisco to pay. without first dissolving and liquidating the
Doctrine: Industrial partners, contribute their skill and/or partnership. The return is dependent on the discharge
expertise. Even if they do not contribute property to the of the creditors, whose claims enjoy preference over those
common fund nor named as managing partner, they are still of the partners; and it is self-evident that all members of the
“partners” in the partnership. As partners, industrial partners partnership are interested in his assets and business,
are still liable for the obligations of the partnership. and are entitled to be heard in the matter of the firm's
Obligations are different from losses. liquidation and the distribution of its property. (Po
Dissent – Arellano, CJ Yeng Cheo v Lim Ka Yam)
-Should an industrial partner be responsible for such losses, for
such obligations in favor of third persons? Article 141 expressly Island Sales v. United (1975) – Concepcion Jr., J.

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Brief facts: Island sued the United partnership and the 5 PROTECTORA should first be applied to the indebtedness
general partners for the balance of motor vehicle bought in pursuant to the judgment of the CFI. Each of the 4
installment basis. The case was dismissed as to one of the partners-appellants shall be liable only for the 1/5th part of the
partners, Lumauig. remainder unpaid.
Doctrine: The dismissal of the complaint in favor of one of the
general partners does not increase the joint and subsidiary
liability of each of the remaining partners. All partners
including industrial ones, shall only be liable pro rata
with all their property and after all the partnership
VII. RIGHTS OF A PARTNER
assets have been exhausted.
² IN SYLLABUS:
Muñasque v CA (1985) – Gutierrez, Jr. J.
Brief facts: Munasque, in behalf of his partnership with Galan,
A. To associate another in his share
entered into a contrac with Tropical and Pons for the
B. To access, inspect and copy partnership books
remodeling of Tropical’s branch in Cebu. On the first payment,
C. To have a formal account
Tropical paid Munasque, who later indorsed the check to D. Property rights
Galan. On the second payment, the check was paid to Galan,
a) To posses specific partnership property
under the name “Galan and Associates”. Munasque files an
b) To convey partnership interest
action to recover payment from Tropical and Pons.
E. To ask for dissolution
Doctrine: While the liability of the partners are merely joint in
transactions entered into by the partnership, a third person ² CASIS ANNOTATIONS:
who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third
1. Partners in General
person falls under Articles 1822 or 1823.
a. Mutual Agency
Lim Tong Lim v Philippine Fishing Gear (1999) – Panganiban, J.
i. General Rule
Brief facts: Antonio Chua and Peter Yao, on behalf of “Ocean
Quest Fishing Corporation” bought fishing nets of various sizes
Partner Authorized to Act
and floats from Philippine Fishing Gear Industries, Inc. They
Article 1803. When the manner of management has not been
claimed that they were engaged in a business venture with Lim
agreed upon, the following rules shall be observed:
Tong Lim. When Yao and Chua failed to pay, Philippine Fishing
(1) All the partners shall be considered agents and whatever
filed a suit against the three. Apparently, Ocean Quest Fishing
any one of them may do alone shall bind the partnership,
Corporation is a non-existent corporation. Lim claims that he is
without prejudice to the provisions of Article 1801.
not liable.
(2) None of the partners may, without the consent of the others,
Doctrine: Clearly, under the law on estoppel, those acting on
make any important alteration in the immovable property of
behalf of a corporation and those benefited by it, knowing it to
the partnership, even if it may be useful to the partnership. But
be without valid existence, are held liable as general partners
if the refusal of consent by the other partners is manifestly
prejudicial to the interest of the partnership, the court's
Bachrach v. La Protectora (1918) – Street, J.
intervention may be sought. (1695a)
Brief facts: Segundo, Adiarte, Flores, Serrano formed a
partnership named La Protectora, to engage in the business of
Article 1801. If two or more partners have been intrusted with
transporting passengers and freight in Laoag, Ilocos Norte.
the management of the partnership without specification of
Barba, acting as a manager purchased trucks for the business.
their respective duties, or without a stipulation that one of
He was given a document authorizing Barba, as president, to
them shall not act without the consent of all the others, each
purchase the trucks. When the partnership defaulted in the
one may separately execute all acts of administration, but if any
obligation to pay, the individual partners disclaimed liability.
of them should oppose the acts of the others, the decision of
Doctrine: Article 1698 of the Civil Code declares that a
the majority shall prevail. In case of a tie, the matter shall be
member of a civil partnership is not liable in solidum
decided by the partners owning the controlling interest.
(solidariamente) with his fellows for its entire indebtedness; but
(1693a)
it results from this article, in connection with article 1137 of the
Civil Code, that each is liable with the others
(mancomunadamente) for his aliquot part of such - Article 1803 (1) provides for a mechanism in settling
indebtedness. disagreements among partners.
- Strictly construing said article, partners are only agents of the
However, it should be noted that any property pertaining to LA
partnership if the manner of management has not been
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agreed upon. Facts:
- Article 1818 (derived from UPA10 , Sec. 9; US case law may be 1. West and Falconer formed a partnership called A&L
instructive in interpretation): Farms involved in the purchase and resale of farms.
o GR: Any partner may bind the partnership by any act 2. Stratemeyer and Falconer executed a contract
for apparently carrying on in the usual way the whereby the former would supply materials and labor
business of the partnership. for grain bins on the Kayser Farm and the Prater Farm,
• This includes the authority to execute both owned by the partnership
contracts in the partnership name. 3. Stratemeyer testified that
• Thus, one implication of the implied a. He dealt exclusively with Falconer;
authority of the partner is a contract binding b. It was his assumption that Falconer was
on a partnership need not be signed by all contracting for A&L Farms; and
partners, even in the absence of an SPA. c. He had no knowledge of Falconer’s alleged
o XPN: Partner has no authority to perform the said act, want of authority or the eventual partnership
and the third person dealing with him has knowledge dissolution.
he has no authority. 4. Stratemeyer brought an action against West to
- Thus, even if manner of management has been agreed upon, recover the amount owed on the contract.
any partner is an agent of the partnership provided that his 5. West: No evidence of Falconer’s express authority to
act is for apparently carrying on in the usual way the business contract or that he ever held him out as having such
of the partnership. authority.
- However, if the manner of management is not agreed upon,
all partners are considered agents. Held: The existence of the partnership having been admitted,
o It may be argued that the authority extends to acts proof of express authority was unnecessary. It was West’s
beyond the partnership’s usual business because burden to establish that Falconer had no authority and
Article 1803 does not limit the partners’ authority to Stratemeyer knew of such.
acts “for apparently carrying on in the usual way the
business of the partnership,” subject to the rules on Casis:
agency. − In this case, there was no evidence that entering into the
contract was not within the partnership’s ordinary course of
Presumption business.
− US case law rule: every partner, apart from any special − There was actually evidence from which it could be
powers conferred by the partnership contract, is not only a concluded that, as general manager of the partnership’s
principal but a general and authorized agent of the firm farming aspect, Falconer was responsible got planting,
and all partners for all purposes within the scope and harvesting, storing, and selling the crops.
objectives of the partnership. o As an incident of which, he contracted with
o Once existence of partnership established, party Stratemeyer for the construction of the grain storage
seeking to challenge authority of partner has the bins.
burden of establishing the partner lacked authority. − This was considered by the court as an act within the scope
− UPA gives rise to the presumption of a partner’s authority of the partnership business especially given West’s
and agency to act for the partnership and his partners. testimony that he had grain stored in the bins and accepted
o Effect: A person’s status as a partner serves as benefit from the contract.
complete authority with respect to any acts
apparently within the usual course of the partnership When the Act is within Partnership Business
business, obviating the necessity of any express − In case of dispute, the court may consider:
authority. o That a partner in a partnership limited to a particular
o However, parties seeking to bing the partnership by trade or business cannot bind his copartner by any
acts of a single partner have the burden of proving contract not related to that trade or business, or by
that such acts fall within the scope of the partnership any contract made after the business is concluded.
business. o Past transactions indicating a custom or course of
− Since Article 1818 is derived from the UPA, the same dealing peculiar to the firm in question or to the
presumption should arise in this jurisdiction. general custom of parties and firms similarly situated
and circumstanced.
Stratemeyer v. West
Cook v. Brundidge, Fountain, Elliot & Churchill
Facts:
10
Uniform Partnership Act
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1. The plaintiffs brought an action against the law firm to the partnership in the usual way.
recover actual and exemplary damages for alleged
a. Breaches of fiduciary duties of the XPNS:
attorney-client relationship and
b. Fraudulent acts of Lyon, a partner of the firm Lack of Authority Known to Third Person
− No act of a partner in contravention of a restriction on
Held: authority shall bind the partnership to persons having
− The extent of authority of a partner is determined knowledge of the restriction.
essentially by the same principles as those measuring the o Test of apparent authority is subjective; it is a test for
scope of an agent’s authority. reasonable detrimental reliance by a third party.
− Cited Randall v. Meredith: − However, a partnership has a duty to inform those who deal
o If the power exercised in a given case be one usually with its members in the course of the partnership business
exercised by partners in a like business, all the whether there are special restrictions on the authority of
members of the firm must be supposed to have particular partners, and persons not usually in a position to
intended to confer a like power on each other. know of such special agreements.
o If the power be habitually exercised by a partner, o Different from law on agency placing the burden to
and acquiesced in by the other members of the firm, determine the extent of authority of the agent on
it is but fair to conclude that the members of the third persons.
firm intended it to be exercised.
− As explained by American Jurisprudence: Transactions Requiring Unanimous Consent
o The authority for each transaction may be implied − Requires consent of all partners:
from the nature of the business according to the o Assign the partnership property in trust for creditors
usual and ordinary course in which it is carried on by or on the assignee’s promise to pay the debts of the
those engaged in it in the locality where it operates, partnership;
but the scope may be broadened by the actual o Dispose of the good-will of the business;
conduct of the business. o Do any other act which would make it impossible to
carry on the ordinary business of a partnership;
Owens v. Palos Verdes Monaco o Confess a judgment;
Held: the apparent scope of partnership business depends o Enter into a compromise concerning a partnership
primarily on the conduct of the partnership and its partners and claim or liability;
what they cause third persons to believe about the authority of o Submit a partnership claim or liability to arbitration;
the partners. o Renounce a claim of the partnership.
− XPNS: (consent of all partners not required)
Good Faith of Partner Immaterial o When one or some of the partners are authorized by
− Under the UPA, a partner may bind all other partners by his the other partners to execute such acts or
actions within the scope of the business, regardless o When other partners abandoned the business.
whether he is acting in good faith.
o The contract is binding on the partnership and other b. Share in Profits
partners even when the partner making it applies its Article 1797. The losses and profits shall be distributed in
fruits to his private use provided conformity with the agreement. If only the share of each
§ The contract is made in the usual course of partner in the profits has been agreed upon, the share of each
business and in the losses shall be in the same proportion.
§ The appropriation is unknown to the other In the absence of stipulation, the share of each partner in the
contracting party. profits and losses shall be in proportion to what he may have
− If the partner was authorized, the contract is binding contributed, but the industrial partner shall not be liable for the
regardless of his bad faith against his partners. losses. As for the profits, the industrial partner shall receive
o His partners may have a right of action against him such share as may be just and equitable under the
but this does not affect his authority as far as third circumstances. If besides his services he has contributed
persons are concerned. capital, he shall also receive a share in the profits in proportion
to his capital. (1689a)
ii. Exceptions
− Each partner has a right to the share in the profits in
GR: A partner is presumed to be authorized to act for the accordance with stipulation.
partnership for acts apparently for carrying on the business of − A stipulation that excludes one or more partners from any

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share in the profits or losses is void. debts of the sub-partnership.
− If no stipulation as to sharing of profits, share shall be o It may also be argued that a change in the language
proportionate to contribution. implies that what is envisioned is no longer a
− Industrial partner: receive such share as may be just and sub-partnership.
equitable under the circumstances. § It may mean that the partner is merely given
o If besides services, he contributed capital, he shall the right to allow another to receive the profits
also receive a share in the profits in proportion to his he was entitled to and that the change was
capital. meant to prevent the creation of a juridical
o Old CC: share is equal to the one who contributed the personality for the sub-partnership.
least capital.
− In case of dispute, the court has no discretion to determine d. Access to Books and Information
this amount. Article 1805. The partnership books shall be kept, subject to
any agreement between the partners, at the principal place of
c. Right to Associate Another/Authorize Admission business of the partnership, and every partner shall at any
Article 1804. Every partner may associate another person reasonable hour have access to and may inspect and copy any
with him in his share, but the associate shall not be admitted of them. (n)
into the partnership without the consent of all the other
partners, even if the partner having an associate should be a − One of the ordinary duties of partners: keep true and correct
manager. (1696) books showing firm accounts, such books being at all times
open to the inspection of all the members of the firm.
− Every partner may associate another person with him in his − The Article is copied from Section 19 of the UPA but under
share. the most recent version of the rule, the requirement is
− Other partners have a corresponding right to admit or not modified to include not only “books” but partnership records
admit into the partnership the associate, even if the partner as well.
having an associate should be a manager. − “Reasonable hour,” according to Bautista, means any
− The article does not define what it means for a partner to reasonable hour on business days throughout the year, and
“associate with him in his share” not merely during some arbitrary period of a few days chosen
o Derived from Old CC 1686 by some or one of the partners.
§ Any partner may form a partnership with another − Duty to account imposed on
person with respect to his share, but such person o Managing or active partner where management has
shall not become a member of the partnership been entrusted to one or more partners
without the unanimous consent of other partners, o Liquidating partner if the partnership is undergoing
even when the former is the manager. winding up
o Thus, if the change in the language was not intended as o Surviving partner in relation to representatives of a
a change in the meaning, a partner’s association of deceased partner.
another for his fair share is the formation of a − Any partner or his legal representative has the right to
partnership with respect to his share, a form of require other partners to render on demand, true and full
sub-partnership. information of all things affecting the partnership.
§ Also found under US Law: partnership between
a member of a pre-existing partnership and a e. Formal Account
third person for a division of the profits from Article 1809. Any partner shall have the right to a formal
the original partnership. It is immaterial how account as to partnership affairs:
profits will be divided between the members. (1) If he is wrongfully excluded from the partnership business or
Also, the mere fact that the one who is not a possession of its property by his co-partners;
partner of the original partnership is to receive (2) If the right exists under the terms of any agreement;
the entire profits will not prevent the formation (3) As provided by article 1807;
of a sub-partnership. (4) Whenever other circumstances render it just and
§ Rights of sub-partners: They are partners reasonable. (n)
between themselves, but a sub-partner does
not become a member of the original Art. 1842. The right to an account of his interest shall accrue to
partnership without an agreement between any partner, or his legal representative as against the winding
him and other original partners. Consequently, up partners or the surviving partners or the person or
a sub-partner is not liable for the debts of the partnership continuing the business, at the date of dissolution,
original partnership, but may be liable for in the absence of any agreement to the contrary. (n)
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o A partner’s right is not subject to attachment or
− Taken from Section 22 of the UPA execution; and
o A partner, when the partnership has not been dissolved, o A partner’s right is not subject to legal support.
does not necessarily have the right to demand formal − Bautista on the consequence of adopting this provision:
accounts, except at particular times and under o Inconsistent with the Code because the UPA was
particular circumstances. framed on the common law theory of partnership which
− GR: Partner has no right to demand formal accounting except is not considered an entity or a legal person. It cannot
as a consequence of dissolution or unless he at the same time hold title and hence, partnership of property is deemed
seeks dissolution of the partnership. held or owned in common by the partners.
o According to Bautista, the reason: the partner has − Casis: Bautista appears to be correct because the most
equal access with his partners to the books and there recent version of the UPA abolished the co-ownership rule to
is no reason why they should constantly render to him reflect the adoption of the entity theory (entity/juridical
accounts in the formal sense of the word. person owns the partnership property and the partners are
− XPNS: Article 1809 merely agents):
o A partner is not a co-owner of partnership property
Emnace v. CA (2001) and has no interest in partnership property which can
Held: Any of the partners may demand an accounting for as be transferred, either voluntarily or involuntarily.
long as the partnership exists. The prescription of this right
only starts to run upon the dissolution of the partnership when Possession for Partnership Purposes
the final accounting is done. − A partner has an equal right with his partners to possess
specific partnership property for partnership purposes.
f. Property Rights o Subject to the provisions of the Code and any
Article 1810. The property rights of a partner are: agreement between the partners
(1) His rights in specific partnership property; − A partner has no right to possess such property for any
(2) His interest in the partnership; and other purpose without the consent of his partners
(3) His right to participate in the management (n) − Bautista refers to this as the partner’s equal right to
possess.
i. To Possess/ Rights to Specific Partnership Property o Limitations:
Article 1811. A partner is co-owner with his partners of § Partnership provisions of the code and any
specific partnership property. agreement of the parties
The incidents of this co-ownership are such that: § Possession or use must be for partnership
purposes
(1) A partner, subject to the provisions of this Title and to any
§ If possession or use is for other purposes, it
agreement between the partners, has an equal right with his
partners to possess specific partnership property for must be with consent of the partners
partnership purposes; but he has no right to possess such
property for any other purpose without the consent of his Right not assignable
− Partner’s right in specific partnership property is not
partners;
(2) A partner's right in specific partnership property is not assignable except in connection with the assignment of
assignable except in connection with the assignment of rights rights of all the partners in the same property.11
of all the partners in the same property; o This applies even if the assignment is made after
dissolution of the partnership but before its
(3) A partner's right in specific partnership property is not
subject to attachment or execution, except on a claim against termination by the completion of the winding-up of
the partnership. When partnership property is attached for a its business.
partnership debt the partners, or any of them, or the − Effect of non-compliance according to Bautista:
representatives of a deceased partner, cannot claim any right o Any separate assignment of a right or any attempt at
under the homestead or exemption laws; such is null and void, except when real property is
(4) A partner's right in specific partnership property is not involved and CC 1819 relative to the interest of an
subject to legal support under article 291. (n) innocent purchaser shall apply.
o But while such assignment is void and ineffective as
an assignment of the partner’s right in specific
− Derived from Section 25 of the UPA
partnership property, it may in a proper sense be
− Consequences of this co-ownership:
regarded and held as a valid assignment of his
o Any partner has the right to possession for partnership
purposes;
o A partner’s right is not assignable; 11
Article 1811 (2)
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interest in the partnership.
Profit Surplus
Right not subject to Attachment or Execution Gain realized from the Excess of assets over
business or investment over liabilities; simply what is left of
• A partner’s right in specific partnership property is not and above expenditures or the assets of a firm after all its
subject to attachment or execution, except on a claim the excess of the value of liabilities have been satisfied
against the partnership. returns over the value of
• When partnership property is attached for a advances
partnership debt, the partners, or any of them, or the May be determined and Usually determined and
representatives of a deceased partner, cannot claim distributed from time to time determined only after
any right under the homestead or exemption laws. before the dissolution of the dissolution, winding up and
• A partner’s right in specific partnership property is partnership and consequent liquidation.
subject to attachment and execution where the claim winding up and liquidation of
is against the firm and not subject to attachment or its affairs.
execution for his personal debt.
• Reason for the rule: to prevent disruption of • Bautista: Surplus:
partnership affairs or interference with partnership o If it is more than capital investment or
business and assets on claims against individual advances, then it represents both the profits
partners. and the capital investment or advances.
o If it is less than the capital investment or
Willamette Production Credit Association v. Morley: The advances then the difference is the extent of
purpose of the rule is to prevent disruption of partnership the loss.
affairs by the creditor of an individual partner but ruled that the • There may be a surplus but there may not be by
partners were not entitled to this protection in certain cases. profits at all
• In the case “the partners created the situation which
induced plaintiff to deal with and sue Elmer as if he Nature of the Interest
were an individual for both individual and partnership
obligations without segregation. Partners cannot keep • A partner’s interest in the partnership is personal
the existence of the partnership secret and later claim property, which is different from his right to specific
the protection afforded partnerships.” partnership property.
• Assignable even without the consent of the other
• The rule prohibiting attachment/execution against a partners.
partner’s interest in specific partnership property does
not apply when the partners created a situation where Effect of Conveyance of Whole Interest
the creditor was induced to deal with the partner as Art. 1813. A conveyance by a partner of his whole interest in
an individual. the partnership does not of itself dissolve the partnership, or,
as against the other partners in the absence of agreement,
Right Not Subject to Legal Support entitle the assignee, during the continuance of the partnership,
to interfere in the management or administration of the
• Bautista: This follows from the nature of such right and partnership business or affairs, or to require any information or
from the basic policy of the law to keep intact account of partnership transactions, or to inspect the
partnership property for creditors and for partnership partnership books; but it merely entitles the assignee to
purposes. A partner has no personal property in any receive in accordance with his contract the profits to which the
specific property of the partnership, and he has no assigning partners would otherwise be entitled. However, in
right to possess or use it except for a partnership case of fraud in the management of the partnership, the
purpose. assignee may avail himself of the usual remedies.

ii. To convey interest in the Partnership In case of a dissolution of the partnership, the assignee is
Art. 1812. A partner's interest in the partnership is his share of entitled to receive his assignor’s interest and may require an
the profits and surplus. (n) account from the date only of the last account agreed to by all
the partners.
Elements of the Interest
• Interest – a partner’s share of the profits and surplus • Effects of conveyance of whole interest:
• Bautista: Difference between profit and surplus: 1. Does not dissolve the partnership

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2. Does not, in the absence of agreement, attachment or execution except on a claim against the
entitle the assignee during the continuance partnership
of the partnership:
§ to interfere in the management or XPN: The court which entered the judgment, or any other court,
administration of the partnership may charge the interest of the debtor partner with payment of
business or affairs the unsatisfied amount of such judgment debt with interest
§ to require any information or thereon, without prejudice to the preferred rights of
account of partnership transactions partnership creditors, and on due application to a competent
§ to inspect the partnership books court by any judgment creditor of a partner.
3. Entitles the assignee to receive in
accordance with his contract the profits to • The court may then or later appoint a receiver of his
which the assigning partner would otherwise share of the profits, and of any other money due or to
be entitled fall due to him in respect of the partnership, and make
4. In case of fraud in the management of the all other orders, directions or accounts and inquiries
partnership, the assignee may avail himself which the debtor partner might have made, or which
of the usual remedies the circumstances of the case may require.
5. Upon dissolution, assignee is entitled to
receive his assignor’s interest and may Krauth v. First Continental Dev-Con, Inc.,: A charging order
require an account from the date only of the is a flexible court-supervised substitute for the more disruptive
last account agreed to by all the partners. process of execution by the sheriff.
Charging the Interest • It seems logical that, in the absence of precedent or
Art. 1827. The creditors of the partnership shall be preferred to statute to the contrary, the method of apportioning
those of each partner as regards the partnership property. payment to judgment creditors from a partnership
Without prejudice to this right, the private creditors of each interest should be parallel to the method of
partner may ask the attachment and public sale of the share of determining priority among judgment creditors
the latter in the partnership assets. seeking execution on other kinds of personal
property.
Art. 1814. Without prejudice to the preferred rights of • In the ordinary execution process, where more than
partnership creditors under Art. 1827, on due application to a one judgment has been obtained against a debtor,
competent court by any judgment creditor of a partner, the the one first put in the hands of the sheriff for
court which entered the judgment, or any other court, may execution should be the first satisfied.
charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest Taylor v. S&M Lamp Co. : The purpose of the lien of a charging
thereon; and may then or later appoint a receiver of his share order is to permit the judgment creditor to realize on his
of the profits, and of any other money due or to fall due to him judgment against an individual partner by appropriate
in respect of the partnership, and make all other orders, supplementary proceedings or orders against that partner’s
directions, accounts and inquiries which the debtor partner interest in the partnership.”
might have made, or which the circumstances of the case may • A charging order protects the interest of the creditor
require. without disrupting the partnership

The interest charged may be redeemed at any time before • When the remedy may be availed of: The partner’s
foreclosure, or in case a sale being directed by the court, may interest may be charged for as long as the debtor
be purchased without thereby causing a dissolution: partner has not received such interest. Thus a
1. With separate property, by any one or more of charging order may be availed of even upon
the partners; or dissolution and during winding-up of the partnership.
2. With partnership property, by any one or more of A charging order may be allowed even if the
the partners with the consent of all the partners partnership is dissolved if it was a fraudulent
whose interests are not so charged or sold. dissolution.
• A charging order does not necessarily justify the sale
Nothing in this Title shall be held to deprive a partner of his of partnership assets.
right, if any, under the exemption laws, as regards his interest
in the partnership.
Bohonus v. Amerco
GR: Specific property of a partnership is NOT subject to Facts: Amerco secured a judgment against Bohonus and

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sought a charging order from the court which was granted. Part property claimed to be exempt from execution
of that order mandated the sale of Bohonus’ business. • No payments were made by the partnerships in two
Held: While the charged interest of the debtor-partner may be years, thus the bank in an ex parte hearing moved for
sold, this does not make the sale of the partnership assets valid. the execution and sale of the partnership assets
A charging order against a debtor-partner’s interest in charged in the orders.
partnership may authorize the judicial sale of the charged o Court granted the motion; ordered sheriff to
interest, but not particular assets or property of the execute upon the properties.
partnership. Held:
• The court noted “that it is only a partner’s interest in • The ex parte order for execution and sheriff’s sale was
the partnership which may be charged and, in some improperly entered into because it was issued without
jurisdictions, sold. It cannot be overemphasized that due application to modify the court’s earlier order
“interest in the partnership” has a special limited charging the partnership interests.
meaning in the context of the UPA and the Arizona • Because of the nature of partnership property and the
statutes.” possible adverse impact that this sale could have
upon the non-defendant partners, if any, the court
• There is authority suggesting that the sale of the should have conducted another hearing with
partnership assets may be an appropriate means of proper notice to affected parties, to determine the
execution under a charging order, provided the other propriety of allowing an execution sale of the
partners are afforded a full opportunity to contest the partnership interests in lieu of payments of the debtor
sale. partner’s share of partnership profits to the judgment
creditor.
First National Bank of Denver v. District Court • The substantive right of a judgment creditor to
Facts: enforce collection of the judgment may be statutorily
• The bank brought a suit on the basis of a promissory limited. Thus partnership property may only be
note executed by the five defendants. charged with payment of the judgment debt after
• Judgment in the amount of $182, 530.55 was due application with notice and hearing.
rendered against the defendants. • In this setting the charging order required payment of
• The district court entered orders charging partnership the partnership profits to the judgment creditor.
interests of the judgment debtors in three
partnerships with payment of the unsatisfied portion Casis’ comments: This case implies that the execution and
of the judgment debt, costs and interests. sale would have been property if the proper procedure on due
• The orders charged the partnership interests of the application was followed.
named defendants in Quadrangle Ltd. and the
partnership interests of Robert Sanders, Paul Sanders • Under Art. 1814, the interest charged may be
and Lawrence Sanders in the partnerships known as redeemed at any time before foreclosure, or in
Saddleback Ltd. and Grassroots Co. case of a sale being directed by the court, may be
• The charging orders directed the partnerships to, purchased without thereby causing a dissolution:
among others: o With separate property, by any one or more
o Pay the bank all present and future shares of of the partners; or
all distributions, credits, drawings or o With partnership property, by any one or
payments which would have been paid to more of the partners with consent of all the
the respective named defendants for their partners whose interests are not so charged
interests in the partnerships or sold.
o Continue such payments until the judgment,
including interests and costs, was satisfied in iii. Right to Participate in the Management
full. Until that time, partnerships were
ordered not to make capital acquisitions of • Under Art. 1810 (3), any partner may participate in the
property of the judgment debtors, not to management of the partnership.
loan money to nor pay any creditor of the • A partner is deemed an agent of the partnership if the
judgment debtors, and not to make a sale or manner off management has not been agreed upon
modification of partnership interests unless or even if it has been agreed upon, for any act
approval of the court or the judgment apparently for carrying on the usual business of the
creditor was first obtained. partnership.
• The order charging the partnership property excluded

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g. Conveyance of Property in Partnership Name knowledge of this fact; or
Art. 1774. Any immovable property or an interest therein may 2. The property has been conveyed by the
be acquired in the partnership name. Title so acquired can be grantee or a person claiming through such
conveyed only in the partnership name. grantee to a holder for value without
knowledge that the partner, in making the
• Also, according to Art. 1819, the effect of conveyance conveyance, has exceeded his authority.
of the partnership’s real property by a partner or • If partner A executed in the name of the partnership a
some partners, and the partnership’s right to recover deed of sale over a parcel of land titled in the name of
depends on whose name the property is titled and the partnership in favour of buyer B, the latter obtains
the manner by which the property is conveyed. title over the parcel of land.
• Art. 1819 is derived from Sec. 10 of UPA. Regarding • The partnership may try to recover the parcel
Sec. 10 of UPA, American Jurisprudence states: of land but cannot do so if partner A had
o Real property so held can be conveyed only authority to execute the deed or if he wasn’t,
in the partnership name. buyer B had no knowledge of such lack of
o Any partner may convey title t such property authority.
by a conveyance executed in the partnership • Even if partner A did not have authority, the
name, but the partnership may recover the partnership cannot recover if buyer B had
property where the partner’s acts exceed his sold the parcel of land to buyer C who had
authority and do not bind the partnership, no knowledge of partner A’s lack of
subject to an exception for the grantee’s authority.
subsequent conveyance to innocent
purchasers for value. Hodge v. Garrett
o A partner may also pass an equitable title by Facts:
a conveyance in his own name affecting • Hodge and Voeller, the managing partner of the
property held in the partnership name. Pay-Ont Drive-In Theatre, signed a contract for the
o Thus, a conveyance executed by the partner sale of a small parcel of land belonging to the
in his own name, without mentioning the partnership.
partnership, passes the equitable title of the • The agreement stated that it was between Hodge and
partnership, making it an effective the Pay-Ont Drive In Theatre, a partnership. Voeller
conveyance, provided the title is in the signed the agreement for the partnership.
partnership and the conveyance is for • Hodge sued the partnership for specific performance.
partnership purposes.
• Rationale behind Sec. 10 of UPA: to do away with the Issue: WON Voeller had actual authority.
common-law rule that a conveyance executed by one
partner transfers only his interest, and to make a Held: There was no indication that Voeller had express or
conveyance by one of the partners effective not only implied authority to sell real property belonging to the
as to his interest in the partnership, but as to all partnership, and there was no evidence that Voeller had sold
partnership property. property belonging to the partnership in the past, and
obviously the partnership was not engaged in the business of
i. Title in Partnership Name buying and selling real estate.
• Voeller in executing the contract was not conducting
Conveyance in the Partnership Name the partnership business in the usual way.
o For a theatre, “carrying on in the usual way
• Where title to real property is in the partnership name, the business of the partnership” means
any partner may convey title to such property by a running the operations of the theatre; it does
conveyance executed in the partnership name. not mean selling a parcel of property
• But even though title is transferred, the partnership adjacent to the theatre where that property
may recover the property except under the following is not being used in partnership business
conditions: (what the trial court held)
1. The partner’s act binds the partnership • The contract may be valid “if Voeller had the actual
because it was for apparently carrying on in authority to sell the property, or, even if Voeller did
the usual way of business of the partnership not have such authority, the contract is still
OR if he was not authorized, the person to enforceable if the sale was in the usual way of carrying
whom he sold the property had no on the business and Hodge did not know that Voeller

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did not have this authority.” issue was whether Solecki’s act bound the partnership
• Court’s explanation of the applicable law: under Sec. 9 (1):
o If record title is in the partnership and a o “Every partner is an agent of the partnership
partner conveys in the partnership name, for the purpose of its business, and the act of
legal title passes. every partner, including the execution in the
o But the partnership may recover the property partnership name of any instrument, for
(except from a bona fide purchaser from the apparently carrying on in the usual way the
grantee) if it can be shown: business of the partnership of which he is a
§ That the conveying partner was not member binds the partnership, unless the
apparently carrying on business in partner so acting has in fact no authority to
the usual way; OR act for the partnership in the particular
§ That he had in fact no authority and matter, and the person with whom he is
the grantee had knowledge of that dealing has knowledge of the fact that he
fact. has no such authority.”
o The burden of proof with respect to authority • Solecki’s act of conveying title to the property binds
is on the partnership. the partnership if this act was for “apparently carrying
on in the usual way the business of the partnership”.
Backowski v. Solecki • If the conveyance was made in the usual course of
Facts: business it must then be determined whether:
• H.S. & L. Investment Co. was a partnership with Henry o Solecki had in fact no authority to act for
Solecki, Lottie Solecki and Backowski as original the partnership in the particular matter, and
partners. Lottie Solecki’s interest in the partnership o Billmax had knowledge of the fact that
was subsequently transferred to Henry. Solecki had no such authority.
• The business of H.S. & L. was the ownership and • If it is found that the conveyance was no for
leasing of warehouse space. “apparently carrying on in the usual way the business
• The property that was the subject matter of the of the partnership, then the partnership may recover
dispute was bought in the partnership name by a land the property.
contract. • There was an additional question of fact necessary to
• Backowski filed a complaint alleging that Henry the resolution of the dispute. Sec. 9 (2) provides:
Solecki had deprived him of partnership revenue and o An act of a partner which is not apparently
had refused to render an accounting. for the carrying on of the business of the
o Backowski sought to enjoin Solecki from partnership in the usual way does not bind
distributing partnership assets and sought an the partnership unless authorized by the
order for an accounting. other partners.
o While the case between Solecki and • Partnership would be bound by the sale of the
Backowski was still pending, Solecki property even if the sale was not apparently for the
executed a quitclaim deed and an carrying on of the business of the partnership in the
assignment of the land contract purportedly usual way if Solecki was in fact authorized.
on behalf of the partnership conveying the • The court remanded the case to the trial court for
partnership’s interest in the property to specific findings of fact on the issues raised in its
Billmax Properties. opinion.
• Backowski brought an action to recover the property.
Conveyance in Partner’s Name
Held: There was proper transfer of tile. But the partnership • If the real property is in the name of the partnership
may recover unless the partner’s act binds the partnership or and the partner executes the conveyance in his own
the property has been conveyed to a bona fide purchaser. name, the conveyance passes the equitable
• The court applied Sec. 10 of the UPA: Where title to interest of the partnership, provided the act is one
real property is in the partnership name, any partner within the authority of the partner because it was
may convey a title to such property by a conveyance for apparently carrying on in the usual way the
executed in the partnership name… business of the partnership or if he was not authorized,
• The property was in the name of the partnership and the person to whom he sold the property had no
Solecki conveyed the property in the partnership knowledge of this fact.
name.
• Because Billmax did not convey the property, the only ii. Title in the name of one partner or some partners

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and partnership right is undisclosed should oppose the acts of the others, the decision of
the majority shall prevail.
• Where title to real property is in the name of one or o In case of a tie, the matter shall be decided
more but not all the partners, and the record does not by the partners owning the controlling
disclose the right of the partnership, the partners in interest.
whose name the title stands may convey title
to such property. v (Continued from Syllabus A-D)
• The partnership may recover such property if the
partners’ act does not bind the partnership because it E. To ask for dissolution
was not for apparently carrying on in the usual way the Art. 1830. Dissolution is caused:
business of the partnership or if the partners had no 2) In contravention of the agreement between the partners,
authority and the buyer had knowledge of this fact. where the circumstances do not permit a dissolution
• The partnership cannot recover if the buyer or his under any other provision of this article, by the express
assignee is a holder for value, without knowledge will of any partner at any time;
of the lack of authority.
Art. 1831. On application by or for a partner the court shall
iii. Title in the name of one, some or all of the partners decree a dissolution whenever:
or third person in trust for the partnership 1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
• A conveyance executed by a partner in the 2) A partner becomes in any other way incapable of
partnership name, or in his own name, passes the performing his part of the partnership contract;
equitable interest of the partnership provided the 3) A partner has been guilty of such conduct as tends to
act is one within the authority of the partner affect prejudicially the carrying on of the business;
because it is for apparently carrying on in the usual 4) A partner willfully or persistently commits a breach of the
way the business of the partnership or if he had no partnership agreement, or otherwise so conducts himself
authority the purchaser had no knowledge of the fact in matters relating to the partnership business that it is
that he has no such authority. not reasonably practicable to carry on the business in
• Equitable interest is NOT transferred “where the partnership with him;
grantee under the conveyance has knowledge that 5) The business of the partnership can only be carried on at
the partner who signs the contract for the sale lacks a loss;
the authority to so bind the partnership.” 6) Other circumstances render a dissolution equitable.

iv. Title in the name of all the partners On the application of the purchase or a partner’s interest under
Article 1813 or 1814:
• A conveyance executed by all the partners passes all 1) After the termination of the specified term or particular
their rights in such property. undertaking;
2) At any time if the partnership was a partnership at will
2. Right of Managing Partners when the interest was assigned or when the charging
order was issued. (n)
• The managing partner may execute all acts of
administration despite the opposition of his Rights of Partners upon Dissolution
partners, unless he should act in bad faith. a. Right to Wind-Up
• Power is irrevocable without just or lawful cause. Art. 1836. Unless otherwise agreed, the partners who have
• The vote of the partners representing the not wrongfully dissolved the partnership or the legal
controlling interest shall be necessary for such representative of the last surviving partner, not insolvent, has
revocation of power. the right to wind up the partnership affairs, provided, however,
• A power granted after the partnership has been that any partner, his legal representative or his assignee, upon
constituted may be revoked at any time. cause shown, may obtain winding up by the court. (n)
• If two or more partners have been entrusted with
the management of the partnership without − CC authorizes the partners who have not wrongfully
specification of their respective duties, or without a dissolved the partnership or the legal representative of the
stipulation that one of them shall not act without the last surviving partner, not insolvent, to wind up the
consent of all the others, each one may separately partnership affairs, subject to any agreement made by the
execute all acts of administration, but if any of them partners. However, CC also allows any partner or his legal

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representative or his assignee, upon cause shown, to obtain respect of their interests in the partnership, to have
winding-up by the court. the value of his interest in the partnership, less any
− The winding-up may be extrajudicial or judicial. damage caused to his co-partners by the dissolution,
ascertained and paid to him in cash, or the payment
b. Right to Damages for/Continue Business on secured by a bond approved by the court, and to be
Wrongful Dissolution released from all existing liabilities of the partnership;
Art. 1837. When dissolution is caused in any way, except in but in ascertaining the value of the partner's interest
contravention of the partnership agreement, each partner, as the value of the good-will of the business shall not be
against his co-partners and all persons claiming through them considered. (n)
in respect of their interests in the partnership, unless otherwise
agreed, may have the partnership property applied to i. Right of the Innocent Partner
discharge its liabilities, and the surplus applied to pay in cash
the net amount owing to the respective partners. But if − Requirements for the remaining partners to continue
dissolution is caused by expulsion of a partner, bona fide under business after wrongful dissolution:
the partnership agreement and if the expelled partner is • All remaining partners desire to continue the business in
discharged from all partnership liabilities, either by payment or the same name either by themselves or jointly with others;
agreement under the second paragraph of Article 1835, he • Secure the payment by bond approved by the court; or
shall receive in cash only the net amount due him from the • Pay any partner who has caused the dissolution wrongfully,
partnership. the value of his interest in the partnership at the
dissolution, less any damages recoverable; and
When dissolution is caused in contravention of the partnership • Indemnify partner who has caused the dissolution
agreement the rights of the partners shall be as follows: wrongfully against all present or future partnership
liabilities.
1) Each partner who has not caused dissolution wrongfully
shall have: ii. Right of the Guilty Partner
a) All the rights specified in the first paragraph of this Art. 1837.
article, and
b) The right, as against each partner who has caused the 3) A partner who has caused the dissolution wrongfully shall
dissolution wrongfully, to damages breach of the have:
agreement. a) If the business is not continued under the provisions
of the second paragraph, No. 2, all the rights of a
2) The partners who have not caused the dissolution partner under the first paragraph, subject to liability
wrongfully, if they all desire to continue the business in for damages in the second paragraph, No. 1 (b), of
the same name either by themselves or jointly with this article.
others, may do so, during the agreed term for the b) If the business is continued under the second
partnership and for that purpose may possess the paragraph, No. 2, of this article, the right as against
partnership property, provided they secure the payment his co-partners and all claiming through them in
by bond approved by the court, or pay any partner who respect of their interests in the partnership, to have
has caused the dissolution wrongfully, the value of his the value of his interest in the partnership, less any
interest in the partnership at the dissolution, less any damage caused to his co-partners by the dissolution,
damages recoverable under the second paragraph, No. 1 ascertained and paid to him in cash, or the payment
(b) of this article, and in like manner indemnify him secured by a bond approved by the court, and to be
against all present or future partnership liabilities. released from all existing liabilities of the partnership;
but in ascertaining the value of the partner's interest
3) A partner who has caused the dissolution wrongfully shall the value of the good-will of the business shall not be
have: considered. (n)
a) If the business is not continued under the provisions
of the second paragraph, No. 2, all the rights of a − “A partner whose wrongful act causes the dissolution of the
partner under the first paragraph, subject to liability partnership does not hereby forfeit his partnership interest,
for damages in the second paragraph, No. 1 (b), of but is entitled to receive it less the damages caused by his
this article. breach.” (59A AmJur 2d Partnership § 895 citing Staszak v.
b) If the business is continued under the second Romanik)
paragraph, No. 2, of this article, the right as against
his co-partners and all claiming through them in c. Right to Lien or Retention, Stand in Place of

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Creditor, to be Indemnified shall have priority on any claim as against the separate
Art. 1838. Where a partnership contract is rescinded on the creditors, or the representative of the retired or deceased
ground of the fraud or misrepresentation of one of the parties partner.12
thereto, the party entitled to rescind is, without prejudice to
any other right, entitled: e. Right to Account

1) To a lien on, or right of retention of, the surplus of the − Under Art. 1842, any partner or his legal representative has
partnership property after satisfying the partnership the right to an account of his interest, as against the
liabilities to third persons for any sum of money paid by winding-up partners or the surviving partners, or the person
him for the purchase of an interest in the partnership and or partnership continuing the business, at the date of the
for any capital or advances contributed by him; dissolution, in the absence of any agreement to the contrary.
2) To stand, after all liabilities to third persons have been
satisfied, in the place of the creditors of the partnership CASES:
for any payments made by him in respect of the
partnership liabilities; and Emnace v CA (2001)- Ynares Santiago
3) To be indemnified by the person guilty of the fraud or Brief Facts: Emnace, Tabanao, and Divinagracia were
making the representation against all debts and liabilities partners. They dissolved the partnership but Emnace failed to
of the partnership. (n) comply with the agreement of partition and distribution of
partnership properties. Tabanao’s heirs filed an action for
− American Jurisprudence explains the UPA provision from accounting, payment of shares, division of assets and damages.
which Art. 1838 is derived: Each innocent person is entitled Emnace filed a motion to dismiss the complaint on the grounds
not only so much of the partnership property as reflects his of improper venue, lack of jurisdiction, lack of capacity to sue,
respective interest, but also to damages for the breach of and prescription.
the agreement as against the partner who has caused the Doctrine: The partnership, although dissolved, continues to
dissolution wrongfully. However, the effect of the Uniform exist and its legal personality is retained, at which time it
Act is to subordinate the defrauded partner to the rights of completes the winding up of its affairs, including the
third-party creditors, so that as a practical matter no property partitioning and distribution of the net partnership assets to
may be left to satisfy the defrauded partner’s claim. the partners. For as long as the partnership exists, any of the
− The use of the phrase “without prejudice to any other right” partners may demand an accounting of the partnership's
in the UPA and as carried over to Art. 1838 has been held to business. Prescription of the said right starts to run only upon
“not permit the defrauded partner to plead fraud as a bar to the dissolution of the partnership when the final accounting is
liability to third party creditors.” done.
• Van Andel v. Smith: The statute means that even though
the partnership contract was procured by the fraud of one Dan Fue Leung v. IAC (1989) – Gutierrez, Jr.
of the partners, nevertheless the partnership entity is Brief Facts: Leung Yiu and So Sia contributed P4,000 each to
created and until it is dissolved the defrauded partner is the partnership to operate a restaurant. Leung Yiu filed a
liable for debts of the partnership to third persons incurred complaint with CFI to recover sum equivalent to 22% of the
during the life of the partnership. annual profits derived from the operation of Sun Wah
Panciteria.
d. Right of Retiring/Deceased Partner Doctrine: Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the partnership exists.
− Under Art. 1841, when any partner retires or dies, and the Prescription begins to run only upon the dissolution of the
business is continued without any settlement of accounts as partnership when the final accounting is done. There shall be a
between him or his estate and the person or partnership liquidation and winding up of partnership affairs, return of
continuing the business, unless otherwise agreed, he or his capital, and other incidents of dissolution because the
legal representative: continuation of the partnership has become inequitable.
• May have the value of his interest at the date of dissolution
ascertained, and US v. Clarin (1910) –Arellano,C.J.
• Shall receive as an ordinary creditor: Brief facts: Larin entered into an agreement that Tarug,
§ An amount equal to the value of his interest in the Clarin, and De Guzman will sell mangoes while he would
dissolved partnership with interest, or, provide the capital. They agreed that the profits would be
§ In lieu of interest, the profits attributable to the use of divided equally among them. Larin subsequently charged them
his right in the property of the dissolved partnership.
− The caveat is that the creditors of the dissolved partnership
12
Arising under Art. 1841, as provided by Art. 1840, third paragraph.
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with Estafa for allegedly misappropriating the amounts (but the A. To receive the interest
fiscal filed the information only against Clarin). Art. 1813. A conveyance by a partner of his whole interest in
Doctrine: The action that lies with the partner who furnished the partnership does not of itself dissolve the partnership, or,
the capital for the recovery of his money is not a criminal action as against the other partners in the absence of agreement,
for estafa, but a civil one arising from the partnership entitle the assignee, during the continuance of the partnership,
contract for a liquidation of the partnership and a levy to interfere in the management or administration of the
on its assets, if there should be any. partnership business or affairs, or to require any information or
account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to
receive in accordance with his contract the profits to which the
VIII. PARTNERSHIP’S OBLIGATIONS TO THE assigning partner would otherwise be entitled. However, in
PARTNERS case of fraud in the management of the partnership, the
assignee may avail himself of the usual remedies.
A. To reimburse; to answer for obligations contracted
Art. 1796. The partnership shall be responsible to every partner In case of a dissolution of the partnership, the assignee is
for the amounts he may have disbursed on behalf of the entitled to receive his assignor's interest and may require an
partnership and for the corresponding interest, from the time account from the date only of the last account agreed to by all
the expense are made; it shall also answer to each partner for the partners. (n)
the obligations he may have contracted in good faith in the
interest of the partnership business, and for risks in B. To require an account
consequence of its management. (1688a)
Art. 1813 (see above)

CASES: C. To ask for dissolution


Art. 1831. On application by or for a partner the court shall
Martinez v. Ong Pong Co (1910) – Arellano, C.J. decree a dissolution whenever:
Brief facts: Ongs received from Martinez an amount to be
invested in a store, wherein they will divide the profits and (1) A partner has been declared insane in any judicial
losses in equal shares. After some time, Martinez demanded proceeding or is shown to be of unsound mind;
the return of the amount or of an accounting, but the Ongs (2) A partner becomes in any other way incapable of
failed to do so. performing his part of the partnership contract;
Doctrine: Ongs failed to fulfill their obligation as partners (3) A partner has been guilty of such conduct as tends to
who, acting as Martinez’ agents in receiving money, did not affect prejudicially the carrying on of the business;
render proper accounting. Such renders them jointly liable (4) A partner wilfully or persistently commits a breach of
for the losses, solidarity not having been established. the partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
Agustin v Inocencio (supra) (1907), Tracey, J. reasonably practicable to carry on the business in partnership
Brief facts: The parties had been conducting a partnership as with him;
industrial partners without capital. They contributed from its (5) The business of the partnership can only be carried on
profits and borrowed a sum from wife of Inocencio to raise at a loss;
P4,300 for the construction of a casco to be used in their (6) Other circumstances render a dissolution equitable.
business. In the progress of the work Inocencio (managing
partner) found that it called for additional funds, which he On the application of the purchaser of a partner's interest
advanced. under Article 1813 or 1814:
Doctrine: The managing partner may be allowed to advance (1) After the termination of the specified term or particular
funds necessary to the completion of the work, within the undertaking;
scope of the business. Such constitutes a debt for which all the (2) At any time if the partnership was a partnership at will
associates are liable. when the interest was assigned or when the charging order was
issued. (n)

X. DISSOLUTION & WINDING UP

IX. RIGHTS OF ASSIGNEES


A. Dissolution; winding up; termination

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second was virtually the same as the first except for a
1. Meaning and Effect few details.
Art. 1828. The dissolution of a partnership is the change in
the relation of the partners caused by any partner ceasing to • Problem: The Civil Code defines dissolution as any
be associated in the carrying on as distinguished from the “change in the relation of the partners”
winding up of the business. • In the case, the partners took in an additional partner
aside from the fact that they changed the partnership
Art. 1829. On dissolution the partnership is not terminated, from a partnership at will to a partnership with a
but continues until the winding up of partnership affairs is specific term.
completed. (n) o It is possible that these major changes would
NOT constitute a dissolution of the first
• AmJur definition: an act that changes the legal partnership if the second is considered an
relationship of the partnership. entirely separate partnership.
• On dissolution, the partnership is not terminated but o Thus there is NO dissolution of the first
continues until the winding up of partnership because there was no change in the relations
affairs is completed. between Rojas and Maglana.
• Dissolution is NOT termination or winding up but • That the renewals of the timber license agreement
merely a change in relation, which may culminate in were allegedly secured in the name of the first
termination. partnership is of no moment since the partnership has
o Only descriptive of the change in the the same name and thus the renewals may be
partnership construed as made in favour of the second and not
o Preparatory step to termination in which an the first.
accounting and a winding up of the business • Problem: The Court also said that the first articles of
are necessary steps. partnership were only amended by the second
• Dissolution, termination and winding-up/liquidation: agreement. Because of this statement one cannot
o Dissolution: the point in time when the escape the fact that the first partnership was
partners cease to carry on the business dissolved as defined by the Civil Code.
together o Perhaps what the Court meant to say was
o Termination: the point in time when all the that the first partnership was never
partnership affairs are wound-up liquidated or terminated because it was
o Winding-up or liquidation: process of certainly dissolved if the changes introduced
settling the partnership affairs after by the second articles were an amendment
dissolution to the first.

Testate Estate of Mota v. Serra (1925): The dissolution of a firm II. The Court also made much of the fact that the
does not relieve any of its members from liability for existing so-called supplementary articles were never
obligations. registered.
• During dissolution, the partnership will be reputed as • The fact that these were never registered did not
existing until the juridical relations arising out of a necessarily mean that the partnership never came into
contract are dissolved. existence.
• As the Court observed that “even during the
Sy v. CA (1999): The SEC retained jurisdiction over a existence of the second partnership, all business
partnership during dissolution because the partnership transactions were carried out under the duly
continues to exist until its termination. registered articles” and that up to that point, “there
• From the time a dissolution is ordered until the actual were still subsisting obligations and contracts of the
termination of the partnership, the SEC retained duly registered articles” the partners, including
jurisdiction to adjudicate all incidents relative thereto. Pahamotang, conducted business on the basis of the
first set of articles, which meant it had to have been
Rojas v. Maglana (1990) – see page 17-18 amended.
It is more in keeping with the clear definition of dissolution
Casis’ Comments: Points that need to be addressed: under the Civil Code to rule that the first partnership was
dissolved.
I. The Court said that the first partnership was not
dissolved by the second partnership because the B. Causes of dissolution

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Art. 1830. Dissolution is caused: b.
By the express will of any partner, who must
1. Without violation of the agreement between the act in good faith, when no definite term or
partners: particular undertaking is specified;
a. By the termination of the definite term or c. By the express will of all the partners who
particular undertaking specified in the have not assigned their interests or suffered
agreement; them to be charged for their separate debts,
b. By the express will of any partner, who must either before or after the termination of any
act in good faith, when no definite term or specified term or particular undertaking;
particular undertaking is specified; By the expulsion of nay partner from the business bona fide in
c. By the express will of all the partners who accordance with such a power conferred by the agreement
have not assigned their interests or suffered between the partners
them to be charged for their separate debts,
either before or after the termination of any • The causes of dissolution which do not violate the
specified term or particular undertaking; agreement include:
d. By the expulsion of nay partner from the 1. termination of the definite term or particular
business bona fide in accordance with such a undertaking specified in the agreement;
power conferred by the agreement between 2. express will of any partner, who must act in
the partners; good faith 13 , when no definite term or
2. In contravention of the agreement between the particular undertaking is specified;
partners, where the circumstances do not permit a 3. express will of all the partners who have not
dissolution under any other provision of this article, by assigned their interests or suffered them to
the express will of any partner at any time; be charged for their separate debts, either
3. By any event which makes it unlawful for the business before or after the termination of any
of the partnership to be carried on or for the specified term or particular undertaking;
members to carry it on in partnership; 4. expulsion of nay partner from the business
4. When a specific thing, which a partner had promised bona fide in accordance with such a power
to contribute to the partnership, perishes before the conferred by the agreement between the
delivery; in any case by the loss of the thing, when the partners;
partner who contributed it having reserved the • But there is authority for the view that “circumstances
ownership thereof, has only transferred to the otherwise working a dissolution of a partnership may
partnership the use or enjoyment of the same; but the not have that effect where a partnership agreement
partnership shall not be dissolved by the loss of the expressly provides that the partnership will continue
thing when it occurs after the partnership has and that dissolution and winding up are not required
acquired the ownership thereof; on the occurrence of certain events.”
5. By the death of any partner; • Cagnolatti v. Guinn: While normally the withdrawal or
6. By the insolvency of any partner or of the partnership; expulsion of a partner effects a dissolution of a
7. By the civil interdiction of any partner; partnership, where the agreement expressly provides
8. By decree of court under the following article. otherwise the partnership continues and an
accounting, winding up and dissolution is not
• The causes of dissolution may generally be divided required.
into four categories: o Here, the partnership agreement specifically
1. Dissolution without violating partnership provided the withdrawal of a partner under
agreement; conditions presented would not effect a
2. Dissolution violating partnership agreement; dissolution but such partner would be paid
3. Dissolution by operation of law; and the value of his equity by the trustees from
4. Dissolution by judicial decree. available cash
• Based from Sec. 31 of the UPA.
i. Termination of Term or undertaking
a) Without violating the agreement
Art. 1830 (1). Dissolution is caused: • A partnership may be dissolved without violation of
Without violation of the agreement between the partners: the agreement between the partners by the
a. By the termination of the definite term or termination of the definite term or particular
particular undertaking specified in the
agreement;
13
Under the UPA, the partner is not required to act in good faith.
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undertaking specified in the agreement. agreement, there is NO prescribed mode for a
• If the partnership agreement provides that partner to terminate the partnership at will.
partnership term will be for a certain number of years, o All that is required is that a notice of
the partnership is dissolved upon the expiration of the dissolution be communicated to the
term. other members of the firm. By such
• If the partnership is created for a specific project, the notice, the partnership is dissolved. The
partnership is dissolved upon completion of the requirement is one of actual notice of an
project. intention to treat the business relationship as
dissolved, but no particular form or
Ortega v. CA (1995) – see page 17 notice is required, and notice may be
implied from circumstance inconsistent with
• Thus a partnership created for a specific undertaking the continuation of the partnership. (AmJur)
is one created for a specific project which impliedly • The fact that the dissolution was voluntary must be
has a point of completion. proved by evidence showing not only that the
parties mutually agreed to dissolve it but that they
ii. Termination of Partnership at Will performed acts in accordance with their mutual
• When no definite term or particular undertaking is agreement for dissolution.
specified by the partnership agreement, the Civil • Regarding conveyance of whole interest: Under
Code provides that the partnership may be dissolved Art. 1813 of the Civil Code, the conveyance by the
without contravention of the partnership agreement partner of his whole interest does not of itself dissolve
by the express will of any partner acting in good the partnership.
faith. o Such conveyance is not a withdrawal by the
• A partnership that does not fix its term is a partner which dissolves the partnership.
partnership at will which may be dissolved by a o But a dissolution may result from an
partner at any time. assignment of partnership interests when it is
o But the Civil Code requires the dissolving clear that the parties contemplate and
partner to act in good faith. intend the assignor’s entire withdrawal from
o But the absence of good faith will NOT the partnership and the termination of the
prevent dissolution but will make the partnership between them.
dissolving partner liable for damages. o Thus conveyance may coincide with other
• In Ortega v. CA, one of the main issues was whether conduct constituting a withdrawal of the
the withdrawal of the partner caused the dissolution partner whose interest is assigned.
of the partnership. o An assignment of partnership interests which
o Court: The birth and life of a partnership at effectively reduce the membership to
will is predicated on the mutual desire a single partner may cause a dissolution at
and consent of the partners. The right to the time of the assignment in the absence of
choose with whom a person wishes to agreement to the contrary.
associate himself is the very foundation and o Reason: a partner’s conveyance of all his
essence of the partnership. Its continued interest in the partnership to his co-partner in
existence is dependent on the constancy of a two partner firm is a vote to dissolve the
that mutual resolve, along with each partnership to which the co-partner may
partner’s capability to give it, and the accede by accepting the conveyance.
absence of a cause for dissolution provided
by the law itself. Verily, any one of the iii. Termination by all partners with retained interest
partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, • The partnership may be dissolved without violating
however, act in good faith, not that the the partnership agreement by the express will of all
attendance of bad faith can prevent the the partners who have not assigned their interests or
dissolution of the partnership but that it can suffered them to be charged for their separate debts,
result in a liability for damages. either before or after the termination of any specified
o In this case, the partner withdrew from the term or particular undertaking.
partnership by sending the other partners a o This is a dissolution by the partners who have
letter. retained their interest in the partnership.
• Unless otherwise prescribed by the partnership

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iv. Expulsion of a partner same; but the partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership has acquired the
• A partnership may be dissolved without violating the ownership thereof;
partnership agreement by the expulsion of any (5) By the death of any partner;
partner from the business bona fide in accordance (6) By the insolvency of any partner or of the partnership;
with such a power conferred by the agreement (7) By the civil interdiction of any partner;
between the parties.
• If partnership agreement does not provide for the A partnership is dissolved by operation of law under the
power to expel: one view is that the partnership will following circumstances:
be dissolved not because of the expulsion, but as an 1. By any event which makes it unlawful for the business of
express act of one of the partners. the partnership to be carried on or for the members to
Since dissolution may be caused by the will of any one partner, carry it on in partnership;
the act of one or more partners expelling a co-partner can 2. When a specific thing, which a partner had promised to
cause a dissolution. contribute to the partnership, perishes before the delivery
or by the loss of the thing, when the partner who
b) In contravention of the agreement contributed it reserved the ownership thereof, and only
Art. 1830 (2). In contravention of the agreement between the transferred to the partnership the use or enjoyment of the
partners, where the circumstances do not permit a dissolution same;
under any other provision of this article, by the express will of 3. By the death of any partner;
any partner at any time. • There is also authority for the view that the death
of the partner will not cause the dissolution of the
• Any partner at any time may cause the dissolution of partnership if the partners agree otherwise.
the partnership even if the circumstance does not fall • An agreement continuing a partnership by
within any of the provisions of Art. 1830. surviving partners may be enforced as a type of
• Reason: No one can be forced to continue a winding up of the partnership without the
partnership against his/her will. necessity of discontinuing the day-to-day
• Rojas v. Maglana: The Court applied Art. 1830 (2) to a business.
case wherein the partnership was for a specified term, • But still, there is in effect a dissolution of the first
but the partner nonetheless causes its dissolution by partnership and the establishment of a new
expressly withdrawing even before the expiration of partnership with respect to the surviving partners.
the period, with or without justifiable cause. 4. By the insolvency of any partner or of the partnership.
o “If the cause is not justified or no cause was • Casis: Because of the separate juridical
given, the withdrawing partner is liable for personality of the partnership, the insolvency of
damages, but in no case can he be any partner or all of the partners does not
compelled to remain in the firm. With his necessarily make the partnership insolvent. So
withdrawal, the number of members is the reason for dissolution cannot be the
decreased, hence, the dissolution.” insolvency of the partnership.
• Every partner has the power to dissolve the • The reason may be in the inability of the
partnership, but he does not necessarily have the insolvent partner to perform his obligations to
right to do so. the partnership and share in the liability to
o If a partner exercises his power to dissolve creditors.
the partnership, without the right to do so, § Similar to withdrawal by a partner.
he must be prepared to suffer the penalties 5. By the civil interdiction of any partner.
provided under the partnership agreement. • This is effectively a withdrawal by a partner.

c) By operation of law The effective date of dissolution by operation of law is the


Art. 1830 (3) By any event which makes it unlawful for the date of occurrence of the event causing it.
business of the partnership to be carried on or for the
members to carry it on in partnership d) By court decree
(4) When a specific thing, which a partner had promised to Art. 1830 (8). By decree of court under the following article.
contribute to the partnership, perishes before the delivery; in
any case by the loss of the thing, when the partner who Art. 1831. On application by or for a partner the court shall
contributed it having reserved the ownership thereof, has only decree a dissolution whenever:
transferred to the partnership the use or enjoyment of the

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1. A partner has been declared insane in any judicial of individual debt, failure to divide profits as
proceeding or is shown to be of unsound mind; provided in the agreement, wrongful withholding
2. A partner becomes in any other way incapable of of partnership assets where co-partners are
performing his part of the partnership contract; entitled to distribution
3. A partner has been guilty of such conduct as tends to o competition with the partnership
affect prejudicially the carrying on of the business; o Hanes v. Giambrone: “It is the duty of a partner
4. A partner wilfully or persistently commits a breach of to observe and conform to the terms of the
the partnership agreement, or otherwise so conducts partnership agreement, and where there is no
himself in matters relating to the partnership business express contract of partnership he must conform
that it is not reasonably practicable to carry on the to the terms of the implied agreement. Deviation
business in partnership with him; may give other partners the right to dissolve the
5. The business of the partnership can only be carried on partnership, and places upon the guilty partner
at a loss; the duty to indemnify for all loss occasioned by
6. Other circumstances render a dissolution equitable. his breach.”
• On Art. 1830 (5): If the partnership can no longer earn
On the application of the purchaser of a partner’s interest profits, the reason for its establishment in the first place no
under Article 1813 or 1814: longer exists and therefore, should be dissolved.
o What constitutes a business being carried on at a
1. After the termination of the specified term or loss for purposes of judicial dissolution? - “loss of
particular undertaking; entire capital of the partnership or destruction of
2. At any time if the partnership was a partnership at will over one-half of its total assets”
when the interest was assigned or when the charging • On Art. 1830 (6)
order was issued. o Art. 1838 provides that a partnership contract
may be rescinded on the ground of fraud or
• An example of Art. 1831 (2) would be if the partner was misrepresentation of one of the parties
convicted of a crime and was incarcerated. thereto.
o The incapacity may result from a change in o Hanes v. Giambrone: Where one is induced to
personal or professional status, or from an illness form a partnership by reason of the fraud or
which is lasting rather than merely temporary and misrepresentations of another, a court of equity
which materially affects his ability to discharge will, on the application of the injured party and
the duties imposed by his partnership relation after the deceit becomes known, rescind the
and contract, including, perhaps, the effects of contract of partnership.
alcohol or drug addiction. § To be entitled to remedy of rescission,
o But if incapacity is caused by insolvency or defrauded party must act promptly
civil interdiction, a decree of court would not upon the discovery of the fraud.
be necessary as this would be a dissolution by § Dissolution may also be granted where a
operation of law. partner has been guilty of other fraud in
• On Art. 1831 (4): A partner’s failure or refusal to comply the partnership affairs. It is not essential
with the terms of the partnership agreement as to that the misrepresentation be sufficient
contributing capital or services required for the successful to afford grounds for an action in deceit,
prosecution of the business is a ground for dissolution. but it must be material.
Other examples/instances: o Other circumstances may include dissensions
o refusal of a partner to render an accounting or to and disagreement among the partners.
permit the other partners’ inspection of § Must be of a serious and permanent
partnership books; character as to prevent profitable
o excluding a co-partner from participation in the continuance of the partnership business.
conduct of business; partner repeatedly § Owen v. Cohen: Courts may order the
breached partnership agreement, appropriated dissolution of partnership where there
partnership property to his own use, been guilty are quarrels and disagreements of such
of other fraud in the partnership affairs, or nature and to such extent that all
committed other gross misconduct (Schroer v. confidence and cooperation between
Schroer) the parties has been destroyed or where
o wrongful withholding or disposition of funds: one of the parties by his misbehaviour
application of partnership funds to the payment materially hinders the proper conduct of

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the partnership business. − On the dissolution of the partnership, the general agency of
A partnership may also be dissolved by court decree on one partner for his copartners ceases.19
application of the purchaser of a partner’s interest under Art. − The dissolution of the partnership works an absolute
1813 or 1814. revocation of all implied authority of the partners to bind one
another.20
C. Effects of dissolution
Art. 1833. Where the dissolution is caused by the act, death
a. Continuation Until Winding Up or insolvency of a partner, each partner is liable to his
Art. 1829 14 . On dissolution the partnership is not terminated, co-partners for his share of any liability created by any partner
but continues until the winding up of partnership affairs is acting for the partnership as if the partnership had not been
completed. (n) dissolved unless:
(1) The dissolution being by act of any partner, the partner
− The dissolution of a partnership operates to terminate the acting for the partnership had knowledge of the
partnership only with respect to future transactions.15 dissolution; or
− The partnership continues as to past matters until they are (2) The dissolution being by the death or insolvency of a
concluded or terminated. Thus, the partnership continues partner, the partner acting for the partnership had
only until the winding up of partnership affairs is completed, knowledge or notice of the death or insolvency.
unless the partners exercise a right of election to continue
the partnership business after dissolution, or the parties − A partner who was unaware of a dissolution caused by the
provide otherwise by their express agreement.16 act, death or insolvency of his copartner, “has the right to act
− The UPA contemplates that the dissolved partnership “may and therefore the right to contribution.”21
continue in business for a short, long or indefinite period of
time. So long as the rights of creditors are not jeopardized Art. 1834, par. 1. After dissolution, a partner can bind the
and none of the partners insist on a winding up and final partnership, except as provided in the third paragraph of this
termination of the partnership business.”17 article:
− It is possible that the dissolution of the partnership will not (1) By any act appropriate for winding up partnership affairs
cause its liquidation if: or completing transactions unfinished at dissolution;
• There is an agreement among the partners stating that it (2) By any transaction which would bind the partnership if
does not do so; or dissolution had not taken place, provided the other
• A partner is expelled pursuant to the terms of the party to the transaction:
partnership agreement and if he is paid the net amount (a) Had extended credit to the partnership prior to
due him from the firm and is protected from the dissolution and had no knowledge or notice of the
liabilities.18 dissolution; or
(b) Though he had not so extended credit, had
b. Termination of Partner’s Authority to Act for nevertheless known of the partnership prior to
Partnership dissolution, and, having no knowledge or notice of
Art. 1832. Except so far as may be necessary to wind up dissolution, the fact of dissolution had not been
partnership affairs or to complete transactions begun but not advertised in a newspaper of general circulation in
then finished, dissolution terminates all authority of any partner the place (or in each place if more than one) at
to act for the partnership: which the partnership business was regularly carried
(1) With respect to the partners: on.
(a) When the dissolution is not by the act, insolvency or
death of a partner; or − A partner in a dissolved partnership can still bind the
(b) When the dissolution is by such act, insolvency or partnership to third persons depending on the nature of the
death of a partner, in cases where article 1833 so transaction or the identity of the third party.
requires; • As to the nature of the transaction, a dissolved partnership
(2) With respect to persons not partners, as declared in is still bound by the act of a partner if the transaction:
article 1834. (n) i. Is appropriate for winding up partnership affairs; or
ii. Commenced prior to dissolution and remains
unfinished,
14
Identical with §30 of the Uniform Partnership Act.
15
59A Am Jur 2d Partnership §886 (1987).
16 19
59A Am Jur 2d Partnership §886 (1987). Partnership §934.
17
Partnership §888. 20
Partnership §936.
18
Partnership §892 citing UPA §38(1); copied in Art. 1837. 21
Partnership §935.
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• As to the identity of the third party, a dissolved his want of authority, the fact of his want of
partnership is still bound by the act of a partner if: authority has not been advertised in the manner
i. The third party extended credit to the partnership and provided for advertising the fact of dissolution in
had no knowledge or notice of the dissolution; or the first paragraph, No. 2 (b).
ii. The third party did not extend credit but knew of the
partnership prior to dissolution and had no − The third paragraph of Art. 1834 provides for three instances
knowledge or notice of the dissolution, the where the partner cannot bind the partnership.
happening of which was not published in a newspaper 1. Where it is unlawful for the partnership to carry
of general circulation. on the business. This may contemplate a case where
− Casis: The rules found in the first paragraph of Art. 1834 the business itself, originally lawful, has become
raise a number of questions on their application. Particularly unlawful. Another case may be where the partnership
perplexing are the rules on third parties who had prior becomes disqualified under the law to carry on such a
dealings or had prior knowledge of the partnership. However business.
some guidance may be obtained from American 2. Where the partner becomes insolvent. The
Jurisprudence on the notice requirement: insolvency of a partner is a ground for dissolution by
• While the general rule is usually stated in terms of persons operation of law. Unlike in the case of #1, CC does not
who have had “dealings” with the firm, it has been held provide for an exception in this instance.
that persons who have merely purchased goods from a 3. When the partner had no authority to wind up
partnership before dissolution are not included within this partnership affairs. The exception is in the case
rule. where the transaction is with the third party described in
• UPA makes it clear that direct notice must be given only to Art, 1834, par. 1.
those parties who have extended credit to the partnership
prior to dissolution.22 LeMay Bank & Trust Co. v. Lawrence
FACTS:
Art. 1834, par. 2. The liability of a partner under the first − Heimos and Lawrence were engaged in a business
paragraph, No. 2, shall be satisfied out of partnership assets partnership known as H&G Equipment Co,
alone when such partner had been prior to dissolution: − 7/26/1974 – Heimos and his wife executed a continuing
(1) Unknown as a partner to the person with whom the guaranty whereby they guaranteed payment of any existing
contract is made; and or future debts owed by H&G to Lemay Bank.
(2) So far unknown and inactive in partnership affairs that − 1975 – Heimos and Lawrence dissolved their partnership,
the business reputation of the partnership could not be H&G Equipment Co., by mutual agreement.
said to have been in any degree due to his connection
with it. ISSUE: Whether Lemay Bank had notice of H&G’s dissolution
(NO)
− While an act of a partner may be binding on the dissolved
partnership under the aforementioned rules, partnership RATIO:
assets are not necessarily liable for such acts. NO, Lemay Bank did not receive notice of H&G’s
dissolution before 1979, the date when the former
Art. 1834, par. 3. The partnership is in no case bound by any demanded that the Heimoses pay the $21,800 owing
act of a partner after dissolution: under the line of credit.
(1) Where the partnership is dissolved because it is unlawful − The appropriate standard for determining whether notice of
to carry on the business, unless the act is appropriate for dissolution has been given to a partnership creditor is
winding up partnership affairs; or whether such notice has been “brought home” to the
(2) Where the partner has become insolvent; or creditor. Such notice must be given directly, or delivered
(3) Where the partner has no authority to wind up through some channels that the law recognizes as legitimate
partnership affairs; except by a transaction with one means of communication.
who: − Here, the evidence does not support a finding that notice of
(a) Had extended credit to the partnership prior to dissolution was “brought home” to Lemay Bank before 1979.
dissolution and had no knowledge or notice of his • Frank Ziegler, VP of Lemay Bank, expressly denied
want of authority; or receiving such notice.
(b) Had not extended credit to the partnership prior to • Heimos, in his communications with Ziegler, never gave
dissolution, and, having no knowledge or notice of any direct notice of dissolution.
− The Heimoses seemingly suggest that Ziegler should have
inferred from the circumstances or discovered through his
22
Partnership §957.
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own investigation that the partnership had been dissolved. 1. Meaning of Winding-up
The law, however, places no such duty upon a partnership − In relation to liquidation: Administration of assets for
creditor; rather, it is the duty of the partners to “bring home” terminating the business and discharging the obligations of
the notice of dissolution to the creditors. a partnership to its member and its creditors or the process
of settling partnership affairs after dissolution; involves
Casis: liquidation in the absence of a contrary agreement.
− The sufficiency of notice to third parties “to relieve a partner − Liquidation is a part of winding-up.
from liability for his former partner’s acts, depends in large o Erroneous to use them interchangeably
part on whether the person to whom notice is given had − A partnership is wound-up by an accounting generally
former dealings with the firm.”23 followed by liquidation.
• Parties who have engaged in actual dealings with the firm
entitled to direct notice of the dissolution 2. The Right to Wind-up
§ Notice must be given through some channel that the
law recognizes as a legitimate means of communication. Article 1836. Unless otherwise agreed, the partners who have
• Parties who have known of the existence of the firm but not wrongfully dissolved the partnership or the legal
have not dealt with it or have dealt with it on some representative of the last surviving partner, not insolvent, has
noncredit basis entitled merely to constructive or general the right to wind up the partnership affairs, provided, however,
notice that any partner, his legal representative or his assignee, upon
− Standard of sufficiency of notice: Reasonableness cause shown, may obtain winding up by the court. (n)
under the circumstances.24
− No notice is required when the partnership is dissolved on − If the partnership dissolved by mutual consent or by
the ground that it is unlawful to carry on the business25 of expiration of term, all partners have the right to wind-up.
the firm, 26 or on the ground of insolvency, 27 or on the o No partner excluded and no further authority is
withdrawal of a dormant partner.28 required from any partner for the right to be
exercised.
Art. 1834, last par. Nothing in this article shall affect the − The right extends to all partners at the time of dissolution,
liability under Article 1825 of any person who, after dissolution, including withdrawing partners, where the partnership
represents himself or consents to another representing him as contract provides, but not one who sells or exchanges his
a partner in a partnership engaged in carrying business. (n) partnership interest prior to dissolution.
− Although each partner is generally under duty to liquidate,
c. Discharge of Liabilities those who have not wrongfully caused the dissolution are
Art. 1835. The dissolution of the partnership does not of itself not required to wind-up the business and may continue it
discharge the existing liability of any partner. so long as no other partners insist on a wind-up and
termination.
− A partner is discharged from any existing liability upon − During wind-up:
dissolution of the partnership by an agreement to that effect o Possession and control of assets: with the partners
between himself, the partnership creditor and the person or § Those with majority interest do not have the
partnership continuing the business. absolute right to control said assets
− Such agreement may be inferred from the course of dealing o Obligation of partners: administration of assets
between the creditor having knowledge of the dissolution
and the person or partnership continuing the business. 3. The Liquidating Partner
− The individual property of a deceased partner shall be liable − Partners who have the right to wind-up, by agreement, may
for all obligations of the partnership incurred while he was a one or more of them as liquidating partners.
partner, but subject to the prior payment of his separate − Authority to act as liquidating partner need not be
debts. expressly conferred.
o May be implied or presumed from the partner’s acts,
D. Right to wind up with the knowledge of his copartners.
− Liquidating partner dies: authority reverts to those who had
authority to wind-up
23
Guynn v. Brondum
24
Partnership §951. 4. Period for Winding-up
25
Unless the act is appropriate for winding up partnership affairs. − Not important
26
Partnership §947. − No specific deadline for completion
27
Art. 1834. − However, a partner who feels aggrieved may apply for
28
Art. 1834.
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judicial relief if he believes there has been unreasonable Art. 1797. The losses and profits shall be distributed in
delay conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each
E. Settling of accounts/ application of properties/ in the losses shall be in the same proportion.
sharing of profits & losses
In the absence of stipulation, the share of each partner in the
Article 1842. The right to an account of his interest shall profits and losses shall be in proportion to what he may have
accrue to any partner, or his legal representative as against the contributed, but the industrial partner shall not be liable for the
winding up partners or the surviving partners or the person or losses. As for the profits, the industrial partner shall receive
partnership continuing the business, at the date of dissolution, such share as may be just and equitable under the
in the absence of any agreement to the contrary. (n) circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion
1. Rules on Settling Accounts to his capital. (1689a)

Article 1839. In settling accounts between the partners after Art. 1798. If the partners have agreed to intrust to a third
dissolution, the following rules shall be observed, subject to person the designation of the share of each one in the profits
any agreement to the contrary: and losses, such designation may be impugned only when it is
manifestly inequitable. In no case may a partner who has
(1) The assets of the partnership are: begun to execute the decision of the third person, or who has
(a) The partnership property, not impugned the same within a period of three months from
(b) The contributions of the partners necessary for the payment the time he had knowledge thereof, complain of such decision.
of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of The designation of losses and profits cannot be intrusted to
payment, as follows: one of the partners. (1690)
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits, Art. 1799. A stipulation which excludes one or more partners
(c) Those owing to partners in respect of capital, from any share in the profits or losses is void. (1691)
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration Ortega v. CA: liquidation of assets of partnership following its
in No. 1 of this article to the satisfaction of the liabilities. dissolution is governed by CC. However, an agreement of the
(4) The partners shall contribute, as provided by article 1797, partners is binding among them and normally takes
the amount necessary to satisfy the liabilities. precedence to the extent applicable over the CC’s general
(5) An assignee for the benefit of creditors or any person provisions
appointed by the court shall have the right to enforce the
contributions specified in the preceding number. a. Order of payment
(6) Any partner or his legal representative shall have the right to − CC 1839 adopted from Section 40 of UPA, provides that
enforce the contributions specified in No. 4, to the extent of liabilities of the partnership must be paid in a certain order.
the amount which he has paid in excess of his share of the − First: owing to creditors other than partners
liability. o All firm debts must be paid before any partner is
(7) The individual property of a deceased partner shall be liable entitled to any part of its assets.
for the contributions specified in No. 4. o Each partner has a right to demand that assets be
(8) When partnership property and the individual properties of applied to discharge liabilities before any distribution to
the partners are in possession of a court for distribution, partners
partnership creditors shall have priority on partnership property o Under ordinary conditions, a partner is not allowed to
and separate creditors on individual property, saving the rights compete with the creditors
of lien or secured creditors. − Second: those owing to partners other than capital and
(9) Where a partner has become insolvent or his estate is profits
insolvent, the claims against his separate property shall rank in o In accord with GR that in the absence of an agreement
the following order: which will determine rights as to advances, each partner
(a) Those owing to separate creditors; is a creditor of the firm as to money loaned it and has a
(b) Those owing to partnership creditors; right to repayment after debts to other creditors have
(c) Those owing to partners by way of contribution. (n) been met.
o Payment on interest of advances also included if there is
an express or implied agreement to pay interest.

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− Third: those owing to partners in respect of capital amount to be refunded is necessarily limited to its total
o Capital contributed by partner: debt of partnership resources.
which must be paid after outside creditors but before − However, before the partners can be paid their shares, the
any division of profits creditors of the partnership must first be compensated.
o Partners are entitled not to a return of invested capital The exact amount of refund equivalent to the Ramirezes’ share
but only to the value of respective shares in the cannot be determined until all the partnership assets have
business after a full accounting or settlement of affairs. been liquidated and all partnership creditors, if any, have been
§ Essential element of every partnership contract paid.

Villareal v. Ramirez (2003) Mahan v. Mahan


Facts: Facts:
1. Luzviminda Villareal, Carmelito Jose, and Jesus Jose 1. A construction and agricultural partnership existed
formed a partnership between Terrell Mahan and his brothers, Gordon &
a. Capital: P750k Merwin. The profits were divided equally among the
b. Restaurant and catering business partners.
c. Name: Aquarius Food House and Catering 2. Merwin withdrew from the partnership.
Services 3. The partnership traded one of the partnership
d. General Manager: Villareal properties for a home into which Terrell and his wife,
e. Operations Manager: Carmelito Helen, moved.
2. Donaldo Ramirez joined as a partner a. The property was taken in the name of
a. Capital contribution: P250k, paid by his Terrell and Helen.
parents, Cesar & Carmelita b. Consequently, the bookkeeper reduced the
3. Jesus withdrew from the partnership. His capital capital account of Terrell and Helen by $23k
contribution of P250k was refunded in cash by (from equal shares, they now had $23k less
agreement of the partners. than Gordon’s share)
4. Villareal and Carmelito closed down the restaurant 4. The partnership became inactive until Terrell’s death.
a. Allegedly due to increased rental 5. Gordon, surviving partner, did no accounting and
b. Without Ramirez’s prior knowledge settling of the affairs of the partnership.
5. Restaurant furniture and equipment deposited in 6. Helen sued Gordon Mahan in her own right and as
Ramirezes’ (Cesar & Carmelita) house for storage. executrix of Terrell’s estate.
6. Cesar & Carmelita wrote to Villareal & Carmelito: they 7. The balance sheet showed $33,274.61 worth of assets.
were no longer interested in continuing their a. Red Lake Ranch: $15,622.61
partnership or in reopening the restaurant and that b. 2 investments: $9,150 (book value)/$900 and
they were accepting the latter’s offer to return their $0 (market values)
capital. c. Oil lease: $4,000 (listed but actually
7. Carmelita wrote another letter informing Villareal & worthless)
Carmelito of deterioration of restaurant furniture and 8. TC: accepted Gordon’s contention that since Terrell’s
equipment and reiterating their request for the return capital account was reduced by $23k to $4,005.45 and
of their share in the equity. was 1/8 of the value of the total capital account
8. These requests were left unheeded. ($31,308.06), Helen should receive 1/8 of $33,274.31
9. Ramirezes filed a complaint for collection of a sum of ($4,159.29)
money from Villareal & Carmelito. 9. Helen: after payment of partnership debts. She should
10. TC: awarded damages share with Gordon on a 50-50 basis
11. CA: set aside TC and awarded merely their share in
the capital contribution Held: The SC agreed with Helen as long as it is understood
that the capital account represents a debt of the partnership.
Held: − The capital of the partnership is the amount specified in the
Ramirezes had no right to demand from other partners the agreement of the partners.
return of their equity share. − While generally, the amount of capital may not be changed
− Except as managers of the partnership, Villareal & absent consent of all partners, the partners in this case have
Carmelito did not personally hold its equity or assets apparently conceded to adjustments in their capital
− It is the partnership that must refund the equity of the accounts.
retiring partners. − The partnership assets must be liquidated and that the
− Since it is the partnership that must refund the shares, the general creditors be paid first.

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o If the assets are insufficient, the estate and Gordon
should be charged equally for the losses. − CC 1839 (8) was taken from Section 40(h) of the UPA.
o If the assets are more, the surviving partner should − It is said to be the codification of the doctrine of marshaling
be paid first up to the amount of $23,297.16 to set of assets:
off the withdrawal from the capital account by o Partnership creditors are in the first instance satisfied
Terrell. from the partnership estate, and separate or private
o Any amount leftover should be equally divided creditors of the individual partners from the separate
between Terrell’s estate and Gordon. and private estates of the partners with whom they
By reducing his capital account, the partner did not proportion have made private and individual contracts.
nately reduce his share of the surplus which remained after o The private and individual property of the partners is
recoupment of capital and the partner was entitled to ½ of the not applied in the extinguishment of partnership
value of remaining profits. debts until the separate and individual creditors of the
It was also held that any asset “attributable to one partner respective partners are paid.
must be evaluated and a finding made whether it was intended o Neither class of creditors is allowed to trespass on the
that it be brought into the partnership as a capital fund belonging to the other until the claims of that
contribution.” other are satisfied.
Undistributed profits may be considered as capital contribution
for the partner entitled to the distribution of profits. 3. Right of Expelled Partner

− Lastly: those owing to partners in respect of profits. Article 1837. When dissolution is caused in any way, except
in contravention of the partnership agreement, each partner, as
b. Payment Sources against his co-partners and all persons claiming through them
− To pay for partnership liabilities, the partnership property in respect of their interests in the partnership, unless otherwise
will be first applied. agreed, may have the partnership property applied to
− If not enough, partners will contribute amount necessary to discharge its liabilities, and the surplus applied to pay in cash
satisfy liabilities. the net amount owing to the respective partners. But if
o Even individual property of deceased partner shall be dissolution is caused by expulsion of a partner, bona fide under
liable the partnership agreement and if the expelled partner is
o If partner/his estate insolvent, the claims shall rank in discharged from all partnership liabilities, either by payment or
the following order agreement under the second paragraph of article 1835, he
§ Those owing to separate creditors shall receive in cash only the net amount due him from the
§ Those owing to partnership creditors partnership.
§ Those owing to partners by way of contribution When dissolution is caused in contravention of the partnership
o This is to prevent the partnership or partners from agreement the rights of the partners shall be as follows:
representing it from sharing in the separate estate (1) Each partner who has not caused dissolution wrongfully
until separate creditors are paid shall have:
(a) All the rights specified in the first paragraph of this article,
2. Right of Creditors and
(b) The right, as against each partner who has caused the
Article 1827. The creditors of the partnership shall be dissolution wrongfully, to damages breach of the agreement.
preferred to those of each partner as regards the partnership (2) The partners who have not caused the dissolution
property. Without prejudice to this right, the private creditors wrongfully, if they all desire to continue the business in the
of each partner may ask the attachment and public sale of the same name either by themselves or jointly with others, may do
share of the latter in the partnership assets. (n) so, during the agreed term for the partnership and for that
purpose may possess the partnership property, provided they
Article 1839. In settling accounts between the partners after secure the payment by bond approved by the court, or pay any
dissolution, the following rules shall be observed, subject to partner who has caused the dissolution wrongfully, the value of
any agreement to the contrary: his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1 (b) of
(8) When partnership property and the individual properties of this article, and in like manner indemnify him against all present
the partners are in possession of a court for distribution, or future partnership liabilities.
partnership creditors shall have priority on partnership property (3) A partner who has caused the dissolution wrongfully shall
and separate creditors on individual property, saving the rights have:
of lien or secured creditors. (a) If the business is not continued under the provisions of the

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second paragraph, No. 2, all the rights of a partner under the must act promptly upon the discovery of the fraud.
first paragraph, subject to liability for damages in the second l Dissolution may also be granted where a partner has
paragraph, No. 1 (b), of this article. been guilty of other fraud in the partnership affairs. It is
(b) If the business is continued under the second paragraph, not essential that the misrepresentation be sufficient to
No. 2, of this article, the right as against his co- partners and all afford grounds for an action in deceit, but it must be
claiming through them in respect of their interests in the material.
partnership, to have the value of his interest in the partnership,
less any damage caused to his co-partners by the dissolution, Article 1839. In settling accounts between the partners after
ascertained and paid to him in cash, or the payment secured by dissolution, the following rules shall be observed, subject to
a bond approved by the court, and to be released from all any agreement to the contrary:
existing liabilities of the partnership; but in ascertaining the
value of the partner's interest the value of the good-will of the (1) The assets of the partnership are:
business shall not be considered. (n) (a) The partnership property,
(b) The contributions of the partners necessary for the payment
− If the dissolution was caused by the expulsion of a partner, of all the liabilities specified in No. 2.
bona fide under the partnership agreement and he is (2) The liabilities of the partnership shall rank in order of
discharged from all partnership liabilities either by payment payment, as follows:
or agreement, he is entitled to receive in cash only the net (a) Those owing to creditors other than partners,
amount due him from the partnership. (b) Those owing to partners other than for capital and profits,
− In effect, an expelled partner becomes a creditor of other (c) Those owing to partners in respect of capital,
partners on the date of his expulsion to the extent of the (d) Those owing to partners in respect of profits.
current value of the partnership interest. (3) The assets shall be applied in the order of their declaration
o As an ordinary creditor, he is entitled to be paid his in No. 1 of this article to the satisfaction of the liabilities.
interest before the balance is divided between the (4) The partners shall contribute, as provided by article 1797,
remaining partners without participating in the the amount necessary to satisfy the liabilities.
division of assets as a partner. (5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
F. Effects of rescission contributions specified in the preceding number.
Art. 1838. Where a partnership contract is rescinded on the (6) Any partner or his legal representative shall have the right to
ground of the fraud or misrepresentation of one of the parties enforce the contributions specified in No. 4, to the extent of
thereto, the party entitled to rescind is, without prejudice to the amount which he has paid in excess of his share of the
any other right, entitled: liability.
(1) To a lien on, or right of retention of, the surplus of the (7) The individual property of a deceased partner shall be liable
partnership property after satisfying the partnership liabilities for the contributions specified in No. 4.
to third persons for any sum of money paid by him for the (8) When partnership property and the individual properties of
purchase of an interest in the partnership and for any capital or the partners are in possession of a court for distribution,
advances contributed by him; partnership creditors shall have priority on partnership property
(2) To stand, after all liabilities to third persons have been and separate creditors on individual property, saving the rights
satisfied, in the place of the creditors of the partnership for any of lien or secured creditors.
payments made by him in respect of the partnership liabilities; (9) Where a partner has become insolvent or his estate is
and insolvent, the claims against his separate property shall rank in
(3) To be indemnified by the person guilty of the fraud or the following order:
making the representation against all debts and liabilities of (a) Those owing to separate creditors;
the partnership. (n) (b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
- Art. 1838 provides that a partnership contract may be
rescinded on the ground of fraud or misrepresentation of
one of the parties thereto. G. Effects of continuation of the business
- Hanes v. Giambrone: Where one is induced to form a
partnership by reason of the fraud or misrepresentations of 1. Election to Continue the Business
another, a court of equity will, on the application of the injured i. Dissolution Not Due to Wrongful Causes
party and after the deceit becomes known, rescind the contract
of partnership. − GR: Partnership dissolution that is not wrongful causes a
l To be entitled to remedy of rescission, defrauded party wind up of a partnership business, rather than a continuation.

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− XPN: When the outgoing partner consents to a continuation wrongfully, if they all desire to continue the business in
of the business. the same name either by themselves or jointly with
others, may do so, during the agreed term for the
Lange v. Bartlett partnership and for that purpose may possess the
Brief Facts: Lange and Bartlett formed a partnership called partnership property, provided they secure the payment
“Pool Boys” engaged in the business of installing swimming by bond approved by the court, or pay any partner who
pools. Later, Lange told Bartlett that he no longer wanted to has caused the dissolution wrongfully, the value of his
participate in the partnership and thus retired as partner. interest in the partnership at the dissolution, less any
Bartlett offered Lange $3,000 as his share in the partnership. damages recoverable under the second paragraph, No.
He refused and sued Bartlett to recover his share of the 1 (b) of this article, and in like manner indemnify him
partnership. against all present or future partnership liabilities.
Held: (3) A partner who has caused the dissolution wrongfully
− At the point of dissolution, the retiring partner makes an shall have:
election. (a) If the business is not continued under the provisions
• He can force the business to wind-up and take his part of of the second paragraph, No. 2, all the rights of a
the proceeds, sharing in profits and losses after dissolution; partner under the first paragraph, subject to liability
or for damages in the second paragraph, No. 1 (b), of
• He can permit the business to continue and claim as this article.
creditor the value of his interest at dissolution. (b) If the business is continued under the second
− If the partner elects winding-up, the partner receives the paragraph, No. 2, of this article, the right as against
value of his interest at the date of liquidation or final his co-partners and all claiming through them in
settlement. He shares in both profits and losses until respect of their interests in the partnership, to have
termination. the value of his interest in the partnership, less any
− If the partner agrees to a continuation, he can receive either damage caused to his co-partners by the
legal interest or profits from the date of dissolution, in dissolution, ascertained and paid to him in cash, or
addition to the value of his or her interest in the partnership. the payment secured by a bond approved by the
− This election need not be made until there has been a final court, and to be released from all existing liabilities
accounting of the partnership. of the partnership; but in ascertaining the value of
the partner's interest the value of the good-will of
ii. Dissolution Due to Wrongful Causes the business shall not be considered. (n)
Art. 1837. When dissolution is caused in any way, except in
contravention of the partnership agreement, each partner, as − To avert a dissolution on notice by another partner of his
against his co-partners and all persons claiming through them intention to wrongfully terminate the partnership, the
in respect of their interests in the partnership, unless otherwise innocent partner must comply with the requirements in Art.
agreed, may have the partnership property applied to 1837(2).
discharge its liabilities, and the surplus applied to pay in cash
the net amount owing to the respective partners. But if d. Liability of Person/Partnership Continuing the
dissolution is caused by expulsion of a partner, bona fide under Business
the partnership agreement and if the expelled partner is Art. 1840. In the following cases creditors of the dissolved
discharged from all partnership liabilities, either by payment or partnership are also creditors of the person or partnership
agreement under the second paragraph of Article 1835, he continuing the business:
shall receive in cash only the net amount due him from the (1) When any new partner is admitted into an existing
partnership. partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
When dissolution is caused in contravention of the partnership rights in partnership property to two or more of the
agreement the rights of the partners shall be as follows: partners, or to one or more of the partners and one or
(1) Each partner who has not caused dissolution wrongfully more third persons, if the business is continued without
shall have: liquidation of the partnership affairs;
(a) All the rights specified in the first paragraph of this (2) When all but one partner retire and assign (or the
article, and representative of a deceased partner assigns) their
(b) The right, as against each partner who has caused rights in partnership property to the remaining partner,
the dissolution wrongfully, to damages breach of who continues the business without liquidation of
the agreement. partnership affairs, either alone or with others;
(2) The partners who have not caused the dissolution (3) When any partner retires or dies and the business of the

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dissolved partnership is continued as set forth in Nos. 1 without any settlement of accounts as between him or his
and 2 of this article, with the consent of the retired estate and the person or partnership continuing the business,
partners or the representative of the deceased partner, unless otherwise agreed, he or his legal representative as
but without any assignment of his right in partnership against such person or partnership may have the value of his
property; interest at the date of dissolution ascertained, and shall receive
(4) When all the partners or their representatives assign as an ordinary creditor an amount equal to the value of his
their rights in partnership property to one or more third interest in the dissolved partnership with interest, or, at his
persons who promise to pay the debts and who option or at the option of his legal representative, in lieu of
continue the business of the dissolved partnership; interest, the profits attributable to the use of his right in the
(5) When any partner wrongfully causes a dissolution and property of the dissolved partnership; provided that the
the remaining partners continue the business under the creditors of the dissolved partnership as against the separate
provisions of article 1837, second paragraph, No. 2, creditors, or the representative of the retired or deceased
either alone or with others, and without liquidation of partner, shall have priority on any claim arising under this
the partnership affairs; article, as provided Article 1840, third paragraph. (n)
(6) When a partner is expelled and the remaining partners
continue the business either alone or with others Yu v NLRC (1993)
without liquidation of the partnership affairs. FACTS:
1. Benjamin Yu was formerly the Assistant General Manager of
The liability of a third person becoming a partner in the Jade Mountain Products Company Limited. The said
partnership continuing the business, under this article, to the partnership was originally organized with Lea and Rhodora
creditors of the dissolved partnership shall be satisfied out of Bendal as general partners and Chia Shian Jeng, Chen
the partnership property only, unless there is a stipulation to Ho-Fu and Yu Chang as limited partners.
the contrary. 2. The general partners sold and transferred their interests in
the partnership to Willy Co and Emmanuel Zapanta. Yu
When the business of a partnership after dissolution is Chang, a limited partner, also sold did the same.
continued under any conditions set forth in this article the 3. The partnership, then constituted solely by Co and Zapanta,
creditors of the dissolved partnership, as against the separate continued to use the old firm name of Jade Mountain,
creditors of the retiring or deceased partner or the though they moved the firm’s main office from Makati to
representative of the deceased partner, have a prior right to Mandaluyong.
any claim of the retired partner or the representative of the 4. The actual operations of the business enterprise continued
deceased partner against the person or partnership continuing as before and all the employees of the partnership
the business, on account of the retired or deceased partner's continued working in the business except Benjamin Yu. He
interest in the dissolved partnership or on account of any filed a complaint for illegal dismissal and recovery of unpaid
consideration promised for such interest or for his right in salaries.
partnership property. 5. Co and Zapanta claimed that Yu was never hired by the new
partnership.
Nothing in this article shall be held to modify any right of
creditors to set aside any assignment on the ground of fraud. HELD:
− While the sale of 82% of the total partnership interest in the
The use by the person or partnership continuing the business original partnership to Co and Zapanta coupled with the
of the partnership name, or the name of a deceased partner as retirement of the partners who originally owned such interest
part thereof, shall not of itself make the individual property of was enough to constitute a new partnership, the occurrence
the deceased partner liable for any debts contracted by such of events which precipitate the legal consequence of
person or partnership. (n) dissolution of a partnership does not, however, automatically
result in the termination of the legal personality of the old
− The rule limiting the liability of new partners admitted to partnership.
existing partnerships for prior debts or obligations to − The new partnership simply took over the business
satisfaction out of partnership property is “to eliminate the enterprise owned by the preceding partnership, and
difficulty which arises when a new partner is admitted continued using the old name of Jade Mountain, without
without liquidation of firm debts.” winding up the business affairs of the old partnership, paying
off its debts, liquidating and distributing its net assets, and
Art. 1841. When any partner retires or dies, and the business re-assembling the said assets or most of them and opening a
is continued under any of the conditions set forth in the new business enterprise.
preceding article, or in Article 1837, second paragraph, No. 2, − Under Art. 1840, creditors of the old Jade Mountain (like

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Benjamin Yu) are also creditors of the new Jade Mountain evidence Alarilla's share in the partnership property. SC
which continued the business of the old one without acquitted Idos, saying that she issued the check in good faith.
liquidation of the partnership affairs. Doctrine: Upon dissolution, the partnership is not terminated.
− It is not necessary to determine under which one of the six Under the CC, the three final stages of a partnership are:
paragraphs in Art. 1840 the present case would fall, if only dissolution, winding up, and termination. The parties were still
because the facts on record are not detailed with sufficient in the process of "winding up" the affairs of the partnership
precision to permit such determination. It is, however, clear when the check in question was issued. The agreement to
that Benjamin Yu is entitled to enforce his claim for unpaid dissolve the partnership did not automatically put an end to
salaries, as well as other claims relating to his employment the partnership, since they still had to sell the goods on hand
with the previous partnership, against the new Jade and collect the receivables from debtors.
Mountain.
Ortega v CA (1995)- Vitug (supra)
Casis: Brief Facts: Atty. Joaquin Misa, a senior partner, used to be a
− Contrary to what the Court said, it was necessary for it to part of the law firm Bito, Misa & Lozada. Due to interpersonal
determine which case under Art. 1840 applies in this case. conflict among the partners, Atty. Misa decided to withdraw
This is because it may be said that the purpose of from the firm. He filed a petition for the dissolution and
enumerating the scenarios when the creditors of the liquidation of the partnership, which was opposed by Atty.
dissolved partnership become the creditors of the persons Ortega and others. The SEC en banc and CA rendered the
or partnership continuing the business of the dissolved partnership dissolved upon the withdrawal of Atty. Misa. The
partnership is precisely to limit the application of the rule to SC affirmed the decisions of the SEC and CA.
such situations. Doctrine:
− The case most likely reflective of what occurred in Yu is • The birth and life of a partnership at will is predicated
covered by Art. 1840(4). But Art. 1840(4) requires that the on the mutual desire and consent of the partners. The
assignee “promise to pay the debts” of the dissolved right to choose with whom a person wishes to
partnership. Thus, if there is no such promise, the new associate himself is the very foundation and essence
partnership should not be liable for the obligations of the of that partnership. Its continued existence is, in turn,
dissolved partnership. dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the
H. Prescription of action absence of a cause for dissolution provided by the law
Art. 1153. The period for prescription of actions to demand itself.
accounting runs from the day the persons who should render • Verily, any one of the partners may, at his sole
the same cease in their functions. pleasure, dictate a dissolution of the partnership at
The period for the action arising from the result of the will. He must, however, act in good faith, not that the
accounting runs from the date when said result was recognized attendance of bad faith can prevent the dissolution of
by agreement of the interested parties. (1972) the partnership but that it can result in a liability for
damages.
Art. 1144. The following actions must be brought within ten • Upon its dissolution, the partnership continues and its
years from the time the right of action accrues: legal personality is retained until the complete
(1) Upon a written contract; winding up of its business culminating in its
(2) Upon an obligation created by law; termination.
(3) Upon a judgment. (n) • For as long as the reason for withdrawal of a partner is
not contrary to the dictates of justice and fairness, nor
for the purpose of unduly visiting harm and damage
CASES: upon the partnership, bad faith cannot be said to
characterize the act.
Idos v CA (1998)- Quisumbing
Brief Facts: Alarilla and Idos were business partners engaged Rojas v. Maglana (1990)- Paras
in leather tanning under the style "Tagumpay Brief Facts: Maglana and Rojas executed AOP and formed a
Manufacturing." They decided to terminate the partnership. partnership with an indefinite term of existence. They shall
For Alarilla's share, Idos issued four checks while they were still share in all profits and loss equally. Due to difficulties
in the process of "winding up" the partnership. The third check encountered they decided to avail of the sources of
bounced so Alarilla filed a complaint for violation of BP22. The Pahamatong as industrial partners. They again executed an
TC found Idos guilty and this was affirmed by the CA. Idos AOP with the partnership’s term set at 30 years. After
contends that the issuance of the check was merely to sometime Pamahatong sold his interest to Maglana and Rojas

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including equipment contributed. After 3 months, Rojas partnership.
entered into a management contract with another logging
enterprise. Rojas stopped working as superintendent and Singsong v. Isabela Sawmill (1979) – Fernandez, J.
withdrew his equipment from the partnership which was Brief facts: The partnership was dissolved and a case was
transferred to CMS. Maglana then told Rojas that the latter filed by Sandejano (leaving partner) against the partnership
share will just be 20% of the net profits. Rojas took funds from and other partners. They executed a MOA and Chattel
the partnership more than his contribution. Thus, Maglana Mortgage in favor of Sandejano. The other partners (Garibay
notified Rojas that he dissolved the partnership. and Tubungbanua) did not divide assets but continued the
Doctrine: Under Art. 1830 (par. 2) of the CC, even if there is a business under the name of Isabela Sawmill. There were some
specified term, one partner can cause its dissolution by unpaid debts by the partnership (one before dissolution and
expressly withdrawing even before the expiration of the period, others made after it). Thus, creditors filed this case to recover
with or without justifiable cause. If the cause is not justified or the unpaid debts, annul chattel mortgage deed, etc.
no cause was given, the withdrawing partner is liable for Sandejano purchased some of the assets of the partnership in
damages but in no case can he be compelled to remain in the a foreclosure sale (enforcement of judgment in the first case)
firm. while the case filed by creditors is pending.
Doctrine: The partnership continues until winding up. A
Lichauco v. Lichauco(1916)-J. Carson partner who withdrew from the partnership is relieved
Brief Facts: When the partnership was formed, it was from partnership liability only when there is
provided in the articles that Faustino Lichauco will be the liquidation of the assets of the partnership and his
managing partner and that the firm cannot be dissolved except withdrawal has been published.
upon the 2/3 vote of all the partners. In 1904, the firm wasn’t
performing well and was unprofitable and so its machineries Bonnevie v Hernandez (1954) Reyes, J.
were dismantled. Eugenia and one other partner demanded Brief facts: Several partners, including Bonnevie decided to
Faustino to make an accounting of the firm’s assets but withdraw from the partnership when they felt that the business
Faustino refused to do so arguing that that the firm was not was not doing well. They agreed on a settlement and was
dissolved pursuant to the partnership agreement there being reimbursed for their investmen. Two years after, when the
no 2/3 vote from all the members (Faustino et al are only 1/5 of business prospered, Bonnevie is now asking for his share of
the firm). Eugenia et al filed a civil suit against Faustino to profits.
compel him to perform accounting. Doctrine: As a general rule, when a partner retires from the
Doctrine: A provision of AOP which prohibits the dissolution firm, he is entitled to the payment of what may be due him
of the partnership except by the consent and agreement of after a liquidation. But certainly no liquidation is necessary
two-thirds of the partners, denies the right of a less number of where there is already a settlement or an agreement as to what
the partners to effect a dissolution of the partnership through the retiring partner shall receive.
judicial intervention or otherwise. It would be absurd and
unreasonable to hold that the partnership could never be Yu v NLRC (1993) - Feliciano, J.
dissolved and liquidated without the consent of two-thirds of Brief facts: Benjamin Yu was terminated after a new set of
its partners notwithstanding that it had lost all its capital, or had partners bought the business of Jade Mountain. He filed for
become bankrupt, or that the enterprise for which it had been illegal termination. Since he has unpaid salaries from the firm,
organized had been concluded or utterly abandoned. he is also asserting his claim for the unpaid salaries.
Doctrine: The liability of a third person becoming a partner in
Bearneza v. Dequilla (1922) – Romualdez, J. the partnership continuing the business to the creditors of the
Brief facts: Balbino Dequilla and Perpetua Bearneza formed dissolved partnership shall be satisfied out of the partnership
a partnership for the purpose of exploiting a fishpond in Talisay. property only, unless there is a stipulation to the contrary.
Perpetua obligated herself to contribute to the payment of When the business of a partnership after dissolution is
business expenses, which they have been doing until her death. continued under any conditions in Art. 1480, the creditors of
It was then found that Perpetua left a will appointing Domingo the retiring or deceased partner or the representative of the
Bearneza as her heir to succeed to all her rights and interests in deceased partner, have a prior right to any claim of the retired
the fishpond. partner or the representative of the deceased partner against
Doctrine: A partnership is dissolved by the death of any of its the person or partnership continuing the business on account
partners. After the dissolution, its legal status is that of a of the retired or deceased partner's interest in the dissolved
partnership in liquidation. The only rights and interests are partnership or on account of any consideration promised for
transmitted to the legal successor are those resulting from the such interest or for his right in partnership property.
liquidation. Before said liquidation is made, it is impossible to
determine what rights or interests the deceased had in the Sunga-Chan v. Court of Appeals (2008) - Velasco, Jr., J.

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Brief facts: Chua and Jacinto Sunga formed a partnership provisions were taken from the Uniform Limited
(Shellite). Jacinto died and his heirs (widow and daughter) Partnership Act of 1916 (ULPA).
continued the business without the consent of Chua. Chua • US jurisprudence interpreting the provisions of ULPA
demanded for accounting and winding up of the business. He reproduced in the Civil Code should be highly
submitted a CPA computation of claims which was approved persuasive in this jurisdiction.
by the court after the Sungas failed to appear in the hearings. • The ULPA was drafted to promote limited
After the approval, the Sungas submitted their own CPA partnerships as a form of business organization.
computation which was rejected by the court while accepting a o To relieve harsh rules by which any minor
new computation submitted by Chua lessening his aggregate deviation from prior statutory provisions as
share. Due to a writ of execution issued by the court, the Sheriff to organization of a limited partnership
of Manila levied on the ACP of Lilibeth (Jacinto's daughter) and resulted in unlimited liability for those
her husband Norberto which was subsquently sold in a public intended in good faith to become limited
auction to answer for the liabilities of Lilibeth as adjudged by partners.
the RTC in an already final and executory decision. o The strict interpretation given by the courts
Doctrine: The continuance of the business and management to limited partnership statutes prior to the
of Shellite by even after its dissolution against the will of a adoption of the ULPA was rendering limited
co-partner gave rise to a solidary obligation, the acts partnerships commercially impracticable.
complained of not being severable in nature. Any suggestion • Rathke v. Griffith: The limited partnership statutes
that the obligation to undertake an inventory, render an were quite commonly coming to be regarded as a
accounting of partnership assets, and to wind up the trap because any minor deviations from the statutory
partnership affairs is divisible ought to be dismissed. provisions might have the effect of subjecting the
Judgment therefore can be rendered only against one limited partners to unlimited liability, naturally
defendant i.e. Lilibeth. rendered the limited partnership a hazardous means
of obtaining limited liability and discourage its
Primelink Properties v. Lazatin-Magat (2006) - Callejo, Sr., J. employment.
Brief facts: Primelink and the Lazatins executed a JVA for the o William Lewis drafted the ULPA.
development of a residential subdivision, the "Tagaytay o He said: all the differences between the new
Garden Villas". After four years from the signing, the Lazatins uniform act and the existing statutes were
decided to rescind the JVA for alleged breach of contract due to the desire of the conference to
(under the JVA, the project is supposed to be completed present to the legislatures an act under
within 3 years). The trial court approved and awarded the which a person willing to invest his money in
possession of the property and "all improvements" to the a business for a share in the profits, may
Lazatins. Primelink now asks for reimbursement for the become a limited partner, with the same
improvements that they introduced to the said property of the sense of security from any possibility of
Lazatins. unlimited liability as the subscribes to the
Doctrine: With the rescission of the JVA, all authority of any shares of a corporation.
partner to act for the partnership is terminated except so far as
may be necessary to wind up the partnership affairs or to B. Purpose of Limited Partnerships
complete the transactions begun but not yet finished. On
dissolution, the partnership is not terminated but continues • Main purpose: to permit a form of business enterprise
until the winding up of partnership affairs is completed. Until other than a corporation, in which persons can invest
the partnership accounts are determined, it cannot be money without becoming liable for the debts of the
ascertained how much any of the parties is entitled to, if at all. firm.
It was thus premature for Primelink to be demanding that it • Limited partner has a position analogous to that of a
be indemnified for the value of the improvements. corporate shareholder, provided that he does not
hold himself out as a general partner or participate
actively in the business.

XI. LIMITED PARTNERSHIP Allen v. Amber Manor Apartments Partnership: Limited


partnerships are unknown at common law; they are exclusively
A. Source of Limited Partnership Law a creature of statute. Their main purpose is to permit a form of
business enterprise other than a corporation in which persons
• The Philippine law on limited partnerships is found in could invest money without becoming liable as general
Chapter 4 of Title IX of Book IV of the Civil Code. Such partners for all debts of the partnership.

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• Difference between liability of general partners and limited partner;
limited partners: General partners are responsible • The additional contributions, if any, to be made by
in solido for the debts and obligations of the firm, each limited partner and the times at which or events
without regard to the amounts contributed by them to on the happening of which they shall be made;
the capital, while the latter is not personally liable if • The time, if agreed upon, when the contribution of
the statute has been complied with, because his cash each limited partner is to be returned;
contribution is substituted for a personal liability. • The share of the profits or the other compensation by
• A limited partnership is in the nature of an way of income which each limited partner shall receive
investment. Through his contribution, the limited by reason of his contribution;
partner becomes entitled to the share in the profits • The right, if given, of a limited partner to substitute an
and losses of the partnership, though his share of the assignee as contributor in his place, and the terms and
losses will not exceed the amount of capital initially conditions of the substitution;
contributed by him to the enterprise. • The right, if given, of the partners to admit additional
• “Contributions” – limited to the contributions limited partners;
made by limited partner at the time of formation of • The right, if given, of one or more of the limited
the partnership for the benefit of the partnership’s partners to priority over other limited partners, as to
creditors. contributions or as to compensation by way of income,
and the nature of such priority;
• A limited partnership is a vehicle by which individuals • The right, if given, of the remaining general partner or
may make investments without the accompanying partners to continue the business on the death,
risks and liabilities of running the business directly. retirement, civil interdiction, insanity or insolvency of a
This explains why a limited partner is referred to as a general partner; and
contributor. • The right, if given, of a limited partner to demand and
receive property other cash in return for his
C. Definition and Formation contribution.
Art. 1843. A limited partnership is one formed by two or more 2. File for record the certificate in the Office of the SEC.
persons under the provisions of the following article, having as − Because of these twin requisites, “a limited partnership
members one or more general partners and one or more cannot be created by informal agreement, nor may the
limited partners. The limited partners as such shall not be status of its members be established by implication, because
bound by the obligations of the partnership. its creation is a formal, public proceeding which must comply
with statutory requirements.”
− CC defined a limited partnership on the basis of its • There is no such thing as implied limited partnership or
composition and compliance with the formal requirements. limited partnership by estoppel.
− As to composition, a limited partnership must have at least − CC does not require strict compliance but only substantial
one general partner and at least one limited partner. compliance. However, since the CC does not explicitly
• Limited partner – one who is not personally bound by the provide for a rule on what constitutes substantial compliance,
obligations of the partnership beyond his capital it is up to the courts to determine what it is under the
contribution. specific circumstances of each case.
• General partner – in the absence of definition, implied to • Bautista: It has been ruled that there is no substantial
be the same as any partner in a general partnership. compliance:
− As to formal requirements, the partners must substantially § If the certificate is not signed, sworn to or filed.
comply with the following: o Failure to file makes all partners personally liable to
1. Sign and swear to a certificate which shall state the creditors.
following: o A signed but unfiled amendment, or a condition not
• The name of the partnership, adding thereto the word set out in, or at variance with, the certificate, has no
“Limited”; effect on the rights of third parties.
• The character of the business; o Because the filing is for the protection of third
• The location of the principal place of business; persons, the limited partnership agreement may be
• The name and place of residence of each member, binding among the partners themselves.
general and limited partners being respectively § If limited partners are not named.
designated; • CC requires substantial compliance in good faith. If there
• The term for which the partnership is to exist; is substantial compliance but no good faith, a limited
• The amount of cash and a description of and the partnership cannot be formed.
agreed value of the other property contributed by each • Bautista also notes that if there is no substantial

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compliance, a general partnership may be formed with exception.
respect to third persons, provided that the minimum - 1998 SEC Opinion: Confirmed the view that a foreign
requirements are partners. Among the partners, limited corporation may enter into a partnership with Philippine
liability is in force. corporations, the former as a general partner responsible
− Allen v. Allen Manor Apartments Partnership: The creation of for managing the partnership’s affairs and the latter as
a limited partnership is not a mere private, informal, limited partners. Provided:
voluntary agreement as in the case of a general partnership, o The authority to enter into a partnership as a
but is a public and formal proceeding which must follow the general partner is expressly conferred by the
statutory requirements of the ULPA. charters or articles of incorporation of the foreign
• The principal function of the certificate is to give third partner
persons notice of the essential features of the limited o The nature of the business venture is in line with
partnership. The certificate is a statutory prerequisite to the business authorized by the charter or articles
the creation of a limited partnership and until it is filed, the of incorporation
partnership is not formed as a limited partnership. o The investment of the partner is allowable under
• However, the recording requirement is meant to protect the Foreign Investments Act
the public, and parties to the partnership are not bound by o The foreign partner must obtain a license to
the terms of the certificate simply because it is recorded. transact business in the Philippines
o The articles of partnership shall stipulate that the
Art. 1847. If the certificate contains a false statement, one foreign partner, being the general partner, shall be
who suffers loss by reliance on such statement may hold liable liable for all the obligations of the partnership; its
any party to the certificate who knew the statement to be false: liability is not limited to its contribution but
(1) At the time he signed the certificate, or extends to its assets; liability shall not terminate
(2) Subsequently, but within a sufficient time before the even after dissolution; resident agent shall be
statement was relied upon to enable him to cancel or jointly and severally liable with it
amend the certificate, or to file a petition for its - Uniform Limited Partnership Act (ULPA): silent as to
cancellation or amendment as provided in Article 1865. whether a corporation may be a partner. However, there is
authority for the view that it is allowed.
− Art. 1847 contemplates a situation where the Certificate o It has no language excluding a corporation from
contains a false statement but makes no mention of the the meaning of “persons” when it speaks of a
invalidity of the Certificate. The silence of the article on the limited partnership as being formed by two or
effect of falsity on validity of the certificate can be argued in more “persons.”
favor of substantial compliance. - Recent versions of ULPA are now clear on this issue: a
corporation can be a general or limited partner in a limited
D. Corporation as Partner partnership.
- CASIS: No reason why a corporation cannot be a general or
- 1994 SEC Opinion: Corporations may not form limited limited partner provided that it is allowed under its articles
partnerships. of incorporation and by-laws and the Corporation Code
o If a corporation is allowed to be limited partner only, and relevant laws to do so.
there is no assurance that the corporate partner shall o The Civil Code provisions on limited partnership do
participate in management as required. not proscribe this and the prohibition of any would
o This may create a situation wherein the corporation have to emanate from laws regulating corporations.
may not be bound by the acts of the partnership in
the event that it opts not to participate in the E. The Certificate
management, defeating the intention of the policy Certificate of limited Limited partnership
requiring that all partners of a partnership composed partnership agreement
of corporations shall be jointly and severally liable for A document which is filed as Contains the complete
all the partnership’s obligations. a public record and which agreement among the
- 1995 SEC Opinion issued because foreign investors wanted may not embody the parties
to form a limited partnership with certain corporate complete agreement among
partners as general partners, in charge of management, the partners
and certain corporate partners as limited partners, acting as Public document Private document
passive investors.
Third parties may rely on it Third parties should not be
o Reiterated GR prohibiting corporations from being
prejudiced by its provisions
partners and the conditions required for the

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(2) File for record the certificate in the Office of the
Art. 1867. A limited partnership formed under the law prior to Securities and Exchange Commission.
the effectivity of this Code, may become a limited partnership
under this Chapter by complying with the provisions of Article A limited partnership is formed if there has been substantial
1844, provided the certificate sets forth: compliance in good faith with the foregoing requirements.
(1) The amount of the original contribution of each limited
partner, and the time when the contribution was made; and Requirements of a certificate of limited partnership
(2) That the property of the partnership exceeds the 1. Liability for False Statements
amount sufficient to discharge its liabilities to persons not • Art. 1847: If the certificate contains a false statement,
claiming as general or limited partners by an amount greater one who suffers loss by reliance on such statement
than the sum of the contributions of its limited partners. may hold liable any party to the certificate who knew
the statement to be false
A limited partnership formed under the law prior to the - But in order to be liable, the party must have
effectivity of this Code, until or unless it becomes a limited known the statement to be false
partnership under this Chapter, shall continue to be governed § At the time he signed the certificate,
by the provisions of the old law. or
§ Afterwards, but within a sufficient
Art. 1844. Two or more persons desiring to form a limited time for him to have cancelled or
partnership shall: amended or to file a petition for its
(1) Sign and swear to a certificate, which shall state - cancellation or amendment
(a) The name of the partnership, adding thereto the • Bautista: Mere knowledge of a false statement in the
word "Limited"; certificate does not necessarily result in liability for
(b) The character of the business; damages. Liability is predicated on actual reliance
(c) The location of the principal place of business; upon the false statement and actual loss logically
(d) The name and place of residence of each member, arising from the reliance.
general and limited partners being respectively designated; • Elements for liability of a partner under Art 1847
(e) The term for which the partnership is to exist; - false statement in the certificate
(f) The amount of cash and a description of and the - partner knew about the false statement
agreed value of the other property contributed by each limited - third party relies on false statement
partner; - third party suffers loss on account of the
(g) The additional contributions, if any, to be made by reliance
each limited partner and the times at which or events on the
happening of which they shall be made; 2. Cancellation and Amendment
(h) The time, if agreed upon, when the contribution of a. Grounds (Art 1864)
each limited partner is to be returned; Art. 1864. The certificate shall be cancelled when the
(i) The share of the profits or the other compensation partnership is dissolved or all limited partners cease to be such.
by way of income which each limited partner shall receive by
reason of his contribution; A certificate shall be amended when:
(j) The right, if given, of a limited partner to substitute (1) There is a change in the name of the partnership or in
an assignee as contributor in his place, and the terms and the amount or character of the contribution of any limited
conditions of the substitution; partner;
(k) The right, if given, of the partners to admit (2) A person is substituted as a limited partner;
additional limited partners; (3) An additional limited partner is admitted;
(l) The right, if given, of one or more of the limited (4) A person is admitted as a general partner;
partners to priority over other limited partners, as to (5) A general partner retires, dies, becomes insolvent or
contributions or as to compensation by way of income, and the insane, or is sentenced to civil interdiction and the business is
nature of such priority; continued under Article 1860;
(m) The right, if given, of the remaining general (6) There is a change in the character of the business of the
partner or partners to continue the business on the death, partnership;
retirement, civil interdiction, insanity or insolvency of a general (7) There is a false or erroneous statement in the
partner; and certificate;
(n) The right, if given, of a limited partner to demand (8) There is a change in the time as stated in the certificate
and receive property other than cash in return for his for the dissolution of the partnership or for the return of a
contribution. contribution;

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(9) A time is fixed for the dissolution of the partnership, or the partnership, or
the return of a contribution, no time having been specified in the return of a
the certificate, or contribution, no
(10) The members desire to make a change in any other time having been
statement in the certificate in order that it shall accurately specified in the
represent the agreement among them. certificate, or
• The members desire
Cancellation Amendment to make a change in
• When the • There is a change in any other statement
partnership is the name of the in the certificate in
dissolved or all partnership or in the order that it shall
limited partners amount or character accurately represent
cease to be such of the contribution the agreement
of any limited among them.
partner
• A person is • CC does not provide for a time frame for cancellation
substituted as a or amendment. It does not also provide the
limited partner consequences if the partners do not cancel or amend.
• An additional limited • If the partners do not cancel even if the partnership
partner is admitted certificate ought to be cancelled
• A person is admitted - partners and the existing partnership shall be
as a general partner liable to third persons that have been
• A general partner prejudiced by their reliance on the certificate
retires, dies, • If partnership certificate ought to have been amended
becomes insolvent - changes should not be binding on third
or insane, or is persons who have relied on the unchanged
sentenced to civil certificate
interdiction and the - change should be binding on every partner
business is who was aware of the change
continued under
Article 186029 b. Requirements to amend
• There is a change in • Art 1865: The document to amend a certificate must
the character of the comply with the following requirements:
business of the - Amended certificate must conform to the
partnership requirements of Article 1844 30 as far as
• There is a false or necessary to set forth clearly the change in
erroneous statement the certificate which it is desired to make
in the certificate - Amended certificate must be signed and
• There is a change in sworn to by all members, and an amendment
the time as stated in substituting a limited partner or adding a
the certificate for the limited or general partner shall be signed
dissolution of the also by the member to be substituted or
partnership or for added, and when a limited partner is to be
the return of a substituted, the amendment shall also be
contribution signed by the assigning limited partner.
• The time is fixed for - Certificate must be filed for record in the
the dissolution of Office of the Securities and Exchange
Commission
Art. 1865. The writing to amend a certificate shall:
29
The retirement, death, insolvency, insanity or civil (1) Conform to the requirements of Article 1844 as far as
interdiction of a general partner dissolves the partnership,
unless the business is continued by the remaining general
30
partners: Art 1844: Certificate indicating the specific information
(1) Under a right so to do stated in the certificate, or listed must be signed and sworn to and the certificate must be
(2) With the consent of all members. filed with SEC
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necessary to set forth clearly the change in the certificate which the court order in case of judicial cancellation or
it is desired to make; and amendment is filed for record in the SEC
(2) Be signed and sworn to by all members, and an
amendment substituting a limited partner or adding a limited F. Partnership Name
or general partner shall be signed also by the member to be GR: Surname of the limited partner in the partnership name is
substituted or added, and when a limited partner is to be prohibited
substituted, the amendment shall also be signed by the EXP:
assigning limited partner. 1. When the name is also the surname of the general partner
2. Prior to the time when the limited partner because such,
The writing to cancel a certificate shall be signed by all the business had been carried on under a name which his
members. surname appeared.
-A limited partner will be liable to partnership creditors as a
A person desiring the cancellation or amendment of a general partner when:
certificate, if any person designated in the first and second 1. His/her surname appears in the partnership name
paragraphs as a person who must execute the writing refuses 2. Limited partner not covered by the exception
to do so, may petition the court to order a cancellation or 3. Creditor extended credit to the partnership without actual
amendment thereof. knowledge that he is not a general partner.

If the court finds that the petitioner has a right to have the G. Limited Partner
writing executed by a person who refuses to do so, it shall Art. 1848. A limited partner shall not become liable
order the Office of the Securities and Exchange Commission as a general partner unless, in addition to the exercise
where the certificate is recorded, to record the cancellation or of his rights and powers as a limited partner, he takes
amendment of the certificate; and when the certificate is to be part in the control of the business.
amended, the court shall also cause to be filed for record in
said office a certified copy of its decree setting forth the -Limited partner has no right to participate in the management
amendment. and operation of the business, or to interfere in any manner
with its conduct or control, otherwise, he loses his status as a
A certificate is amended or cancelled when there is filed for limited partner
record in the Office of the Securities and Exchange - Liable only with his contributions in the capital
Commission, where the certificate is recorded:
(1) A writing in accordance with the provisions of the first GENERAL AND LIMITED PARTNERS DISTINGUISHED (fr.
or second paragraph, or BOC)
(2) A certified copy of the order of the court in accordance
with the provisions of the fourth paragraph; General partner Limited partner
(3) After the certificate is duly amended in accordance with
Extent of liability
this article, the amended certified shall thereafter be for all
purposes the certificate provided for in this Chapter. Personally, but Liable only to the extent
subsidiarily, liable for of his capital
c. Requirements to cancel obligations of the contributions
• Art 1865: Cancellation of the certificate must be partnership
- In writing Right to participate in management
- Signed by all members
- Filed for record in the SEC Unless otherwise agreed No right to participate in
upon, all general management
d. Judicial cancellation or amendment partners have an equal
• Art 1865: A person may have a partnership certificate right to manage the
cancelled or amended if any person designated to partnership
execute the document required refuses to do so by Nature of contribution
petitioning the court to order a cancellation or
Cash, property or Cash or property only,
amendment.
industry not industry

f. Effective date of amendment or cancellation Proper party in proceedings by


• GR: Certificate is deemed amended or cancelled or against partnership
when the amended certificate or the certified copy of Proper party Not proper party, unless

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name
(1)he is also a general partner; or (2) where thecontrary tothe
object of theproceedings
provisions ofis the first paragraph
to enforce his right is liable or liabilit
against
as a general partner to partnership creditors who extend credit
Firm name
to the partnership without actual knowledge that he is not a
Name may appear in the Name must not appear general partner.
firm name in the firm name
Prohibition to engage in other business Delaney v. Fidelity Lease Ltd
Facts: Fidelity is a ltd partnership with 22 individual partners
Prohibited (subject to Not prohibited and 1 corporate general partner, Interlease. Interlease’s
qualifications) officers, who are also limited partners of Fidelity, entered into
Effect of retirement, death, insanity an agreement with Delaney et al., acting by and through
or insolvency Interlease, to lease a fast-food restaurant to the partnership.
Delaney et al. built the restaurant but Fidelity failed to take
Dissolves partnership Does not dissolve
possession and pay rent. Delaney et al. brought action for
partnership; rights
damages against Fidelity, Interlease, and all its ltd partners.
transferred to executor
The issue was whether ltd partners in a ltd partnership become
or administrator for
liable a general partners if they take part in the control of the
selling his estate
business while acting as officers of a corporation which is the
Assignability of interest sole general partner of the ltd partnership.
Not assignable Assignable Held: Limited partners liable as general partners. SC
cited Texas Uniform LTD Partnership Act which provides that
“a limited partner shall not become liable as a general partner
1. Contribution
unless, in addition to the exercise of his rights and powers as a
Art. 1845. The contributions of a limited partner may be cash
limited partner, he takes part in the control of the business”.
or property, but not services.

b. To the Partnership
-The contributions of a limited partner may be cash or other
property, but not services [Art. 1845].
Art. 1858. A limited partner is liable to the partnership:
-It is said that a limited partner is not (a partner) in a true sense,
(1) For the difference between his contribution as actually
but only a investor.
made and that stated in the certificate as having been
-Contribution need not be made personally by the limited
made; and
partner; it may be paid on his behalf.
(2) For any unpaid contribution which he agreed in the
-1845 does not indicate the consequence if the limited partner
certificate to make in the future at the time and on the
contributes services
conditions stated in the certificate.
-Casis: If the services amounts to aking control or management
of the partnership, then limited partner liable under Art 1848
A limited partner holds as trustee for the partnership:
-De Leon (fr. BOC): A limited partner is liable for partnership
(1) Specific property stated in the certificate as
obligations when he contributes services instead of only money
contributed by him, but which was not contributed or
or property to the partnership.
which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed
2. Liability
to him on account of his contribution.
a. In General
-To be liable under Art 1848, it is not required to prove that
The liabilities of a limited partner as set forth in this article
reliance or that the person was misled into believing that the
can be waived or compromised only by the consent of
limited partner had unlimited liability.
all members; but a waiver or compromise shall not affect
-liability not based on estoppel, mere taking control of the
the right of a creditor of a partnership who extended credit
business is sufficient basis for the liability.
or whose claim arose after the filing and before a cancellation
or amendment of the certificate, to enforce such liabilities.
Art. 1846. The surname of a limited partner shall not appear
in the partnership name unless:
When a contributor has rightfully received the return in
(1) It is also the surname of a general partner, or
whole or in part of the capital of his contribution, he is
(2) Prior to the time when the limited partner became such,
nevertheless liable to the partnership for any sum, not
the business has been carried on under a name in which his
in excess of such return with interest, necessary to
surname appeared.
discharge its liabilities to all creditors who extended
credit or whose claims arose before such return.
A limited partner whose surname appears in a partnership
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of the assets. No limited partner shall in respect to any such
- In terms of contribution, a limited partner is liable to the claim:
partnership for: (1) Receive or hold as collateral security and partnership
o the difference between his contribution as actually property, or
made and that stated in the certificate as having been (2) Receive from a general partner or the partnership any
made; and payment, conveyance, or release from liability if at the
o any unpaid contribution which he agreed in the time the assets of the partnership are not sufficient to
certificate to make in the future at the time and on the discharge partnership liabilities to persons not
conditions stated in the certificate. claiming as general or limited partners.
- A limited partner holds as trustee for the partnership:
o specific property stated in the certificate as contributed The receiving of collateral security, or payment, conveyance, or
by him, but which was not contributed or which has release in violation of the foregoing provisions is a fraud on the
been wrongfully returned, and creditors of the partnership.
o money or other property wrongfully paid or conveyed to
him on account of his contribution. - AmJur: It has been ruled that this provision is for the
- AmJur citing Linder v Vouge, First Bank & Trust Co v purpose of “preventing illegal competition, between
Cannon: If the limited partner withdraws his contribution at creditors and limited partner, for the assets of the
the time when the firm is insolvent, he is “required to return partnership.”
it at the instigation of the partnership or its creditors, but in
order for a creditor to enforce the obligation he must have c. Return of Contribution
been a creditor before the return of capital.”
Art. 1857. A limited partner shall not receive from a general
Art. 1849. After the formation of a lifted partnership, partner or out of partnership property any part of his
additional limited partners may be admitted upon filing an contributions until:
amendment to the original certificate in accordance with the (1) All liabilities of the partnership, except liabilities to
requirements of Article 1865. general partners and to limited partners on account of
their contributions, have been paid or there remains
c. Additional Limited Partners property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return
3. Rights of a Limited Partner of the contribution may be rightfully demanded under
the provisions of the second paragraph; and
a. In Common with a General Partner (3) The certificate is cancelled or so amended as to set
forth the withdrawal or reduction.
Art. 1851. A limited partner shall have the same rights as a
general partner to: Subject to the provisions of the first paragraph, a limited
(1) Have the partnership books kept at the principal partner may rightfully demand the return of his contribution:
place of business of the partnership, and at a (1) On the dissolution of a partnership; or
reasonable hour to inspect and copy any of them; (2) When the date specified in the certificate for its return
(2) Have on demand true and full information of all things has arrived, or
affecting the partnership, and a formal account of (3) After he has six months' notice in writing to all other
partnership affairs whenever circumstances render it members, if no time is specified in the certificate,
just and reasonable; and either for the return of the contribution or for the
(3) Have dissolution and winding up by decree of court. dissolution of the partnership.

A limited partner shall have the right to receive a share of the In the absence of any statement in the certificate to the
profits or other compensation by way of income, and to the contrary or the consent of all members, a limited partner,
return of his contribution as provided in Articles 1856 and 1857. irrespective of the nature of his contribution, has only the right
to demand and receive cash in return for his contribution.
b. Loan Money/Transact Business with Partnership
A limited partner may have the partnership dissolved and its
Art. 1854. A limited partner also may loan money to and affairs wound up when:
transact other business with the partnership, and, unless he is (1) He rightfully but unsuccessfully demands the return of
also a general partner, receive on account of resulting claims his contribution, or
against the partnership, with general creditors, a pro rata share (2) The other liabilities of the partnership have not been

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paid, or the partnership property is insufficient for f. Assignment of Interests
their payment as required by the first paragraph, No.
1, and the limited partner would otherwise be entitled Art. 1859. A limited partner's interest is assignable.
to the return of his contribution.
A substituted limited partner is a person admitted to all
- AmJur citing Whitley v Klauber: “whether a transaction the rights of a limited partner who has died or has assigned his
constitutes the return of a limited partner’s contribution is interest in a partnership.
determined not by the limited partner’s purpose or intent,
not by how the transaction is structured, but by its effect An assignee, who does not become a substituted limited
on the partnership creditors. partner, has no right to require any information or account of
o A transaction or series of transactions in which all the the partnership transactions or to inspect the partnership
partners dispose of their interests to a third party, books; he is only entitled to receive the share of the profits or
leaving a creditor unpaid, constitutes such a return other compensation by way of income, or the return of his
notwithstanding that in form it is the sale of the contribution, to which his assignor would otherwise be entitled.
limited partners’ interests in exchange for stock of the
purchaser’s parent corp, and it is immaterial that a An assignee shall have the right to become a
defendant limited partner took no part in negotiating substituted limited partner if all the members consent
the transaction.” thereto or if the assignor, being thereunto empowered by the
certificate, gives the assignee that right.
Art. 1855. Where there are several limited partners the
members may agree that one or more of the limited An assignee becomes a substituted limited partner when the
partners shall have a priority over other limited certificate is appropriately amended in accordance with Article
partners as to the return of their contributions, as to their 1865.
compensation by way of income, or as to any other matter. If
such an agreement is made it shall be stated in the The substituted limited partner has all the rights and powers,
certificate, and in the absence of such a statement all the and is subject to all the restrictions and liabilities of his
limited partners shall stand upon equal footing. assignor, except those liabilities of which he was ignorant at
the time he became a limited partner and which could not be
d. To Dissolve ascertained from the certificate.

Art. 1857, last paragraph. A limited partner may have the The substitution of the assignee as a limited partner does not
partnership dissolved and its affairs wound up when: release the assignor from liability to the partnership under
(1) He rightfully but unsuccessfully demands the return of Articles 1847 and 1848.
his contribution, or
(2) The other liabilities 31 of the partnership have not - The person receiving the interest is either a substituted
been paid, or the partnership property is insufficient limited partner or an assignee.
for their payment as required by the first paragraph,
No. 1, and the limited partner would otherwise be Provisions mentioned in Art. 1859
entitled to the return of his contribution. Art. 1865. The writing to amend a certificate shall:
(1) Conform to the requirements of Article 1844 as far as
e. Share in Profits necessary to set forth clearly the change in the
certificate which it is desired to make; and
Art. 1856. A limited partner may receive from the partnership
the share of the profits or the compensation by way of (2) Be signed and sworn to by all members, and an
income stipulated for in the certificate; provided that amendment substituting a limited partner or adding a
after such payment is made, whether from property of the limited or general partner shall be signed also by the
partnership or that of a general partner, the partnership member to be substituted or added, and when a
assets are in excess of all liabilities of the partnership limited partner is to be substituted, the amendment
except liabilities to limited partners on account of their shall also be signed by the assigning limited partner.
contributions and to general partners.
The writing to cancel a certificate shall be signed by all
members.

31
These are liabilities apart from liabilities to general and limited A person desiring the cancellation or amendment of a
partners on account of their contributions.
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certificate, if any person designated in the first and second - AmJur citing Linder v Vogue: Also, the provision does not
paragraphs as a person who must execute the writing refuses mean that the limited partner cannot intervene in an
to do so, may petition the court to order a cancellation or action against the partnership.
amendment thereof. o AmJur citing McCully v Radack: One court, however,
placed significant restraints on intervention by
If the court finds that the petitioner has a right to have the limited partners. They may intervene in a
writing executed by a person who refuses to do so, it shall commercial transaction when there are allegations
order the Office of the Securities and Exchange Commission that the 3rd party has wrongfully acted in concert and
where the certificate is recorded, to record the cancellation or collusion with the general partner to the detriment of
amendment of the certificate; and when the certificate is to be the partnership, but only if the court determines
amended, the court shall also cause to be filed for record in (after an evidentiary hearing, if necessary) that there
said office a certified copy of its decree setting forth the are strong allegations and strong proof of such
amendment. collusion or that the interest of the general partner
in protecting his own financial welfare is so in conflict
A certificate is amended or cancelled when there is filed for with the interest of the limited partnership as to
record in the Office of the Securities and Exchange render him disqualified to oppose the third
Commission, where the certificate is recorded: party.
(1) A writing in accordance with the provisions of the first
or second paragraph, or h. Effect of Death
(2) A certified copy of the order of the court in Art. 1861. On the death of a limited partner his executor or
accordance with the provisions of the fourth administrator shall have all the rights of a limited
paragraph; partner for the purpose of setting his estate, and such power
(3) After the certificate is duly amended in accordance as the deceased had to constitute his assignee a substituted
with this article, the amended certified shall thereafter limited partner.
be for all purposes the certificate provided for in this
Chapter. The estate of a deceased limited partner shall be liable for all
his liabilities as a limited partner.
Art. 1847. If the certificate contains a false statement, one
who suffers loss by reliance on such statement may hold liable 5. Charging Interest
any party to the certificate who knew the statement to be false:
(1) At the time he signed the certificate, or Art. 1862. On due application to a court of competent
(2) Subsequently, but within a sufficient time before the jurisdiction by any creditor of a limited partner, the court may
statement was relied upon to enable him to cancel or charge the interest of the indebted limited partner
amend the certificate, or to file a petition for its with payment of the unsatisfied amount of such claim, and
cancellation or amendment as provided in Article may appoint a receiver, and make all other orders, directions
1865. and inquiries which the circumstances of the case may require.

Art. 1848. A limited partner shall not become liable as a The interest may be redeemed with the separate
general partner unless, in addition to the exercise of his rights property of any general partner, but may not be
and powers as a limited partner, he takes part in the control of redeemed with partnership property.
the business.
The remedies conferred by the first paragraph shall not be
g. Immunity from Suit Against the Partnership deemed exclusive of others which may exist.

Art. 1866. A contributor, unless he is a general partner, is not Nothing in this Chapter shall be held to deprive a limited
a proper party to proceedings by or against a partnership, partner of his statutory exemption.
except where the object is to enforce a limited partner's right
against or liability to the partnership. - AmJur citing Executive House Realty v Hagen: An
attachment of a limited partner’s interest, without further
- AmJur citing Hagstrom v Breutman: But it has been held court proceedings, does not affect the operation of the
under the ULPA that “where several limited partners bring partnership nor the interest of the other partners, it
an action against the general partner, the other limited merely prevents restructuring or dissolution of the
partners are indispensable parties and must be joined if partnership in disregard of the creditors’ rights.
there is no procedural or jurisdictional bar to doing so.”

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H. Person Erroneously Believing He is a Limited partner
Partner • In spite of the restrictions in Art. 1850, general
partners are responsible for the management of the
Art. 1852. Without prejudice to the provisions of Article 1848, business because they necessarily possess
a person who has contributed to the capital of a business considerable authority
conducted by a person or partnership erroneously believing • The prohibition against making it impossible to carry
that he has become a limited partner in a limited partnership, is on the business (Art. 1850, par 2, number 2) is the
not, by reason of his exercise of the rights of a limited partner, most extensively litigated of the restrictions in the US.
a general partner with the person or in the partnership carrying o Violating this is a breach of the general
on the business, or bound by the obligations of such person or partner’s fiduciary duty which makes him
partnership, provided that on ascertaining the mistake he liable to the limited partner who did not give
promptly renounces his interest in the profits of the business, his consent
or other compensation by way of income. o This prohibition is absolute, therefore, the
limited partners have an absolute right to
• Law requires notice of renunciation be prompt refuse consent.
• However, it does not specify any particular form which § Reasonableness of the refusal is
renunciation should take immaterial
• If UPA rule is applied, notice to the creditor is • With regard to assignment of the general partners’
sufficient interest:
o The ULPA, although specifically addressing
I. General Partner the issue of assignment by a limited partner,
Art. 1850. A general partner shall have all the rights and speaks only in terms of retirement, death or
powers and be subject to all the restrictions and liabilities insanity of a general partner.
of a partner in a partnership without limited partners. o This implies that his interest is not assignable,
However, without the written consent or ratification of the or is assignable only with the consent of
specific act by all the limited partners, a general partner or limited partners
all of the general partners have no authority to:
J. Limited and General
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on - Article 1853 NCC provides, that a person may be a general
the ordinary business of the partnership; partner and a limited partner in the same partnership at the
(3) Confess a judgment against the partnership; same time, provided that this fact shall be stated in the
(4) Possess partnership property, or assign their rights in certificate provided for in Art 1844
specific partnership property, for other than a partnership - A person who is a general partner, and at the same time, also
purpose; a limited partner, shall have all the rights and powers and he
(5) Admit a person as a general partner; subject to all the restrictions of a general partner, except that,
(6) Admit a person as a limited partner, unless the right so in respect to his contribution, he shall have the rights against
to do is given in the certificate; the other members which he would have had if he were not
(7) Continue the business with partnership property on the also a general partner
death, retirement, insanity, civil interdiction or insolvency
of a general partner, unless the right so to do is given in K. Dissolution
the certificate.
- The retirement, death, insolvency, insanity or civil interdiction
Art. 1853. A person may be a general partner and a of a general partner dissolves the partnership, unless the
limited partner in the same partnership at the same time, business is continued by the remaining general partners
provided that this fact shall be stated in the certificate l Under a right so to do stated in the certificate, or
provided for in Article 1844. l With the consent of all members
- Under Art 1851, a limited and general partner has the right to
• GR: A general partner has all rights and powers and is obtain a judicial decree for dissolution and winding-up
subject to all the restrictions and liabilities of a - Art 1857 states that the limited partner is entitled to this when
partnership without limited partners. (Art. 1850, par. 1) he rightfully but unsuccessfully demands the return of his
• XPN: If he is also a limited partner under Art. 1853, he contribution or when he would be entitled to its return but for
shall have the rights against the other members which the fact that the liabilities have not been paid and the
he would have had if he were not also a general partnership property is insufficient for their payment.

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- also sent to the clients informing them of the dissolution
Art. 1857. A limited partner shall not receive from a general 5. Najim filed a Petition for Dissolution with the SEC and with a
partner or out of partnership property any part of his prayer of injunction enjoining his other two partners from
contributions until: continuing the partnership
(1) All liabilities of the partnership, except liabilities to 6. De Mesa filed a Petition for continuation of partnership with
general partners and to limited partners on account of their the SEC
contributions, have been paid or there remains property of the - also sent a letter to SEC informing it of the withdrawal of
partnership sufficient to pay them; Najim as a partner
(2) The consent of all members is had, unless the return of
the contribution may be rightfully demanded under the ISSUE: WON the withdrawal of a limited partner dissolved the
provisions of the second paragraph; and partnership
(3) The certificate is cancelled or so amended as to set
forth the withdrawal or reduction. HELD:
Under Chapter 4 on Limited Partnership on the Law on
Subject to the provisions of the first paragraph, a limited Partnership of the CC , there is no provision which provides
partner may rightfully demand the return of his contribution: that a withdrawal or retirement of a limited partner shall
(1) On the dissolution of a partnership; or dissolve a limited partnership. But there is a provision which
(2) When the date specified in the certificate for its return states that “the retirement, death, insolvency, insanity or civil
has arrived, or interdiction of a general partner dissolves the partnership,
(3) After he has six months' notice in writing to all other unless the business is continued by the remaining parties:
members, if no time is specified in the certificate, either for the 1. Under a right to do so stated in the certificate; OR
return of the contribution or for the dissolution of the 2. With the consent of all members
partnership.
Art. 1860. The retirement, death, insolvency, insanity or civil
In the absence of any statement in the certificate to the interdiction of a general partner dissolves the partnership,
contrary or the consent of all members, a limited partner, unless the business is continued by the remaining general
irrespective of the nature of his contribution, has only the right partners:
to demand and receive cash in return for his contribution. (1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
A limited partner may have the partnership dissolved and its
affairs wound up when: - It is the withdrawal of a general partner, not a limited partner,
(1) He rightfully but unsuccessfully demands the return of in a limited partnership, that operates as a dissolution of the
his contribution, or partnership. The dissolution can even be prevented, if the
(2) The other liabilities of the partnership have not been business is continued by the remaining partners
paid, or the partnership property is insufficient for their
payment as required by the first paragraph, No. 1, and the L. Preference of Credits
limited partner would otherwise be entitled to the return of his Art. 1863. In setting accounts after dissolution the liabilities of
contribution. the partnership shall be entitled to payment in the following
order:
Najim v. De Mesa: (1) Those to creditors, in the order of priority as provided
FACTS: by law, except those to limited partners on account of their
1. Levi de Mesa registered a business name under the style contributions, and to general partners;
International Skill Development Co. Ltd. (Philippines). (2) Those to limited partners in respect to their share of the
2. Levi together with Khalid J. Najim and James Greenberg profits and other compensation by way of income on their
formed and organized a limited partnership using De Mesa’s contributions;
trade name (3) Those to limited partners in respect to the capital of
- De Mesa was the general partner while Najim and Greenberg their contributions;
were the limited partners (4) Those to general partners other than for capital and
3. Najim wrote de Mesa a letter giving formal notice of his profits;
withdrawal from their partnership on the alleged ground of (5) Those to general partners in respect to profits;
failure of de Mesa to account for his management of the (6) Those to general partners in respect to capital.
partnership
4. Najim issued notices to the public through a newspaper Subject to any statement in the certificate or to subsequent
advertisement that the partnership has been dissolved agreement, limited partners share in the partnership assets in

TIMELESS REVIEWERS B2017 | AGENCY AND PARTNERSHIP | PROF. OLIVA 8


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AGENCY AND PARTNERSHIP | PARTNERSHIP REVIEWER
respect to their claims for capital, and in respect to their claims
for profits or for compensation by way of income on their
contribution respectively, in proportion to the respective
amounts of such claims.

- In settling accounts after dissolution, the liabilities of the


limited partnership shall be entitled to payment in the
following order:
1. Those to creditors, in the order of priority as provided by law,
except those to limited partners on account of their
contributions, and to general partners;
2. Those to limited partners in respect to their share of the
profits and other compensation by way of income on their
contributions;
3. Those to limited partners in respect to the capital of their
contributions;
4. Those to general partners other than for capital and profits;
5. Those to general partners in respect to profits;
6. Those to general partners in respect to capital.

- Subject to any statement in the certificate or to subsequent


agreement, limited partners share in the partnership assets in
respect to their claims for capital, and in respect to their claims
for profits or for compensation by way of income on their
contribution respectively, in proportion to the respective
amounts of such claims.

TIMELESS REVIEWERS B2017 | AGENCY AND PARTNERSHIP | PROF. OLIVA 8


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