Busorgens

BUSINESS ORGANIZATION I
3 – Manresa | 2019-2020 | Class Transcription

From the Discussions of Atty. Raymund Christian S. Ong Abrentes, CPA
PARTNERSHIP agent. There has to be someone who is going to represent your
business, there has to be someone who is going to transact on your
behalf so that’s why in Agency, it actually, these all types of Bus. Org
June 18, 2019
have some essence of agency. For example, Sole Proprietorship – one
owner ka nga lang, but necessary baka may manager ka, and this must
By: Abrasaldo, A.
be authorized to do business. You have your partnership, kahit may
partner ka, you are acting as an agent of your co-partner. You have
So Bus. Org – Bus Org II for next sem. Prereq is ObliCon.
your corporation. Now in Corporation, the management is centralized
through the BoD or Board of Directors so in essence, may agency
So what we’re going to discuss for this semester – Partnerships, Trusts,
relationship between the stockholder and the board of directors. So
Agency
there’s always a theme of agency. That’s why this is actually discussed
in Bsuiness Organization.
For Bus. Org II you have your Corporation Law (it’s revised actually).
And of course you have your special Laws for corporation. You have
So Trust, what is trust? Now trust is actually a common law concept.
Securities Regulation Code, Competition Law, FIA.
Now, before, if you try to read your civil code, the provision on Trust
may nakalagay na “n” which means it’s a new provision. We don’t have
So purposes of the Bar, this is actually covered by the Commercial Law
that in our previous civil code. Our previous civil code is called? It is
or Mercantile together with other subjects such as Banking, ano pa ba?
patterned and it is taken from Spanish Civil Code. Spanish or Spain is
Nego of course. CredTrans. Because if you remember your preference
under what type of law? Civil law. Spaniards are under the Civil law
of credit, this will be discussed also in your FIA. So this is your
concept. What’s the opposite of Civil? Common. Now Trust is under
commercial and Mercantile Law.
the concept of Common law. So that’s why sa dating civil code po natin
wala tayong provisions on Trust because again Trust is a common law
Now, Bus.Org I is actually part of your civil law. So medyo weird. Kasi
concept.
naman these are mostly civil concepts. So please do not think that
because it is under Business Organization I, it should be under your
Now what’s the difference between the civil and common law?
commercial or mercantile. So let’s further dissect.
A: Common law came into existence because of the practice of the
people in a certain society.
Partnership
Sir: Eh ang civil law hindi ganun?
Trust and Agency
A: Civil law is more codified, in terms of formality, civil law is formal
compared to the common law.
Okay so before that we will discuss what are the major forms of Bus
Sir: Okay, it’s codified. So codified si civil, si common law, ano?
Org in the Philippines? So in every commercial books, you have your
Uncodified?
partnerships and corporations. Now, addition to this is the new entity
A: Customary, sir.
called NBC(?), you have one person corporation. But is actually a
Sir: Meaning? So in other words, you bring emphasis on what?
nuance of a corporation and of course you have nuances in between.
Traditions? So pano yon? Ano tradition niyo dito? Sacrificial? Nagh-
head cut kami ng tao sir, so okay lang yon?
Okay so when you study this you have to view it as a medium of
business or commercial transactions. It’s like having eyeglasses, you
So it is civil is codified, that’s correct meaning they are only or mainly
have to view it in terms of business. This subject you have your
based on laws while common law is based on jurisprudence. So that’s
commercial law and also your tax. Otherwise, if you cannot view it in
why if you go to Singapore, it is more on common law. Mag ma-matter
that way, you will never understand it. And I think next to tax this is one
talaga yung decision of the judges. Now they say that Philippines is a
of the harder subjects in the bar.
mixture of two because jurisprudence is also part of the law of the land
. So that is the essence of it that’s why Trust is a common law concept
This is your forms of Business Organization:
because trust is actually premised on equity. Meaning even if the law
says it’s fair, it’s unfair, if on the basis of equity, it is fair and unfair,
What are 3 major forms of business organization?
that’s why it’s a common law and we adopted it. If we try to look at the
1. Sole Proprietorship – meaning mag-isa ka lang, usually ikaw ang may trust provision in the civil code, it’s taken from what? Guess which
ari, ikaw din sa business country? Based on American provisions. So American, there are 200
2. Corporation – composed at least 5 yung stockholders provisions but when we only adopted it I think 11 – 16 provisions. But
3. Partnership – composed two or more persons bind themselves to we have a catch-all provision which actually states that any type of
contribute money, property, or industry to a common fund, with the Trust which is governed by the General Law on Trust, which is also
intention of dividing the profi ts among themselves applicable here in the Philippines.
So let’s discuss Partnership proper.

(*NOTE: From 2018 TSN, because it was not actually mentioned sa
lecture, I think nasa board.)
So partnership proper, the origin of partnership is actually based on
For this semester our objectives will be two for us to learn Partnership, necessity. Imagine, for purposes of maximizing efficiency and
Trust and Agency. Now question: Sir, bakit pa sinali si Trust and Agency economies of scale, one businessman can partner into another
? Bakit? Are they forms of Business Organization? businessman. What’s the history of this? Now, it dates further back
when there is no professional transactions. Pero in essence, ang
Technically, no. Trust, when we go to Business Trust, under Tax, it is nangyayari because of the limitations of the small business owner,
treated as an individual. But under here, it has two separate juridical hindi literally small ha, pero small kasi konti lang, small business owner,
personality. We will discuss Business Trust I think after income tax. hindi nila na mamaximize ang potential for their business that’s why
Now, Agency is discussed here because of all the forms of Business they have to have associations of other businessmen. But before,
Organization, may theme of agency. It always involves agency, why? remember in the Europe, syempre we are or the Europe continent is
Because agency is born out of necessity. Because you cannot be at two actually segregated with body of water.
places at a time. So when you do your business, there has to be an
1
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Mahusay, Picot, Reyes, Rojo, Salem, Teng
So I have a capital, I want to do business in Venice. That’s why they call dissolved, what are the means for the partnership to be dissolved and
it the Merchant’s Venice. Now, I would partner into someone who is how are the properties liquidated or distributed. So that is the general
actually a xxx merchant, this is called the commendator or tractator. concept of partnership and we will discuss a nuance of partnership and
Bigyan na ng capital, pupunta siya ng Venice, mag-t-trade whatever limited partnership which is actually in between a partnership and a
profit, divide. What if lugi? Kung lugi siya, ang mag-aabsorb into is yung corporation. So a limited partnership both has the benefits of a general
nag capital. Si tractator, or the one who is a travelling merchant, wala partnership. So that is your objective this semester.
siyang actually liability for the losses. That’s how it originated. The UK
actually promulgated a limited partnership act. Because apparently, JUNE 21, 2019
there has to be some loss or liquidation to actually regulate those
transaction because imagine what are the potential disadvantage of Let us first discuss business partnership, trust and agency.
that? Potential problem for that set up? Now when they found the US
sometime in whatever, call it the New World, they adopted what they The source of our provisions in partnership is the Uniform Partnership
have learned in UK. Now the US promulgated what we called UPA or Act (UPA) of the United States, when it comes to the general
ULPA. UPA – Uniformed Partnership Act, the ULPA – Uniformed Limited partnership. Then we have the Uniform Limited Partnership Act (ULPA
Partnership Act. When we established our government, we copied the ), when it comes to limited partnership.
exact provision of the partnership law. That’s why our partnership law
is actually a copy of the partnership act. Before the Civil Code, again there are 2 types of partnership, we have
civil and commercial.
Now, let’s compare Civil Partnerships and Commercial Partnerships.
Before the New Civil Code, there are actually two kinds of partnership: The significance of the distinctions are the following:
1.) Civil; Registration was essential for the coming into existence of commercial
2.) Commercial; partnership and the acquisition of juridical personality. Whereas it was
the mere meeting of the minds for civil partnership.
Now commercial partnership is governed by the Code of Commerce.
The Civil Partnership is governed by the Spanish Civil Code. But this is
In commercial partnership, they are solidary liable for partnership
primarily for business – for partnership. What are the differences? Now
debts and subsidiarily liable therefore they have the benefit of
this one, this has to be registered for it to have a juridical personality (
excussion. Whereas the civil partners are primarily but only jointly
referring to commercial, *naga sulat man siya sa board). When we
adopted the new civil code, the provisions on commercial partnership liable for partnership debt.
are all repealed, sabi don, it is now one and the same with the
partnership under the New Civil Code. So eto na. And Article 41 and 46 In commercial partnership, there are merchants and subject to the
give this partnership a juridical personality. So in essence, hindi the Code of Commerce provisions for merchants.
same person under the law.
Who are merchants? What is the definition of merchants under the
So what will you learn for this semester? Code of Commerce?
We will learn of course how to organize a partnership.

Si partner 1, partner 2, can we have a partnership na isa lang? Or what
Article 1 of Code of Commerce. For purposes of this Code,
are the maximum number of partners for it to be partnership? So we merchants are:
will learn how to organize a partnership. What are the formal 1. Those who, having legal capacity to engage in
requirements. What is the effect of the partnership? When does it have commerce, habitually devote themselves to it;
or what is the reckoning point for it to have a juridical personality?
Once it is organized, what is the effect of the partnership? Now 2. The commercial or industrial companies which may be
necessarily, a partnership is just a preparatory contract. You have an created in accordance with [this code] existing
objective in mind when you organize a partnership. So necessarily, may legislation.
mga third persons involved.
We will learn what are the rights of the partnership, the rights and
obligation of the partnership. What are also the rights and obligation of
the third person with the partnership. Please take note of the definition of merchant under Code of
Commerce, it is important when you deal with commercial laws. So you
Now, the partners among them also have rights and obligation. And of
have to be a merchant first to be under the coverage of Code of
course, lease. Take note that this is one person (referring to partner 1),
Commerce.
this is another person (referring to partner 2), this partnership is also
another person(referring to another person).
The Code of Commerce before mas primary governing provisions when
(partner-1 + partner-2)partnership* (editor: * it comes to commercial transactions. It is now divided into several parts
3persons in all)
one of which is the partnership and the other one is the special laws
–banking and transportation laws. Some of the transportation laws
So necessarily, the partners also have rights or the partners have the
have been repealed under Code of Commerce.
rights and obligations with the partnership. So we will learn what are
those. And what is the impact of it having transactions with third
person now after that, after we will learn that, we will also learn the You have to be partnership in its tri-level of existence. It is a contractual
end of partnership. May end of partnership, now pag matapos yan, that relationship between and among the partners. It is a means of doing
is what you call dissolution. business with a structural separate juridical personality. It is only upon
your appreciation of partnership as a means, its not the end itself. It’s a
What happens after dissolution, paano kung may property na na-collect means, there is a purpose for establishing partnership.
ang partnership during the existence? We will discuss how it is
2
You do not establish a partnership just for the sake of partnership. You Bakit profit lng nakalagay? Kasi, pag partnership ba nag eexpect ka na
establish a partnership because you want to achieve a certain end. So, malulugi? So hindi nakailangan lagyan ng losses, because your intention
you have to consider this as a means. As a means to an end, there are for partnership is actually for profits.
certain rights and obligations.
Let’s go back to my first question.
The first provision is actually the entire the definition of partnership
“to contribute money, property or industry”
Article 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common Why does it have to specially mention money? Money is what?
fund, with the intention of dividing the profits among themselves.
Compare that to other property. Yes, it’s the most liquid asset, the
Two or more persons may also form a partnership for the exercise of a most liquid property. When we talk partnership, it is the means of
profession. doing business. So, we have to give emphasis on the liquidity of the
business. That is why it is mentioned specially because when you try to
Let us dissect this provision. look at the provisions, from the beginning to the end, you start
contributing cash and then you end up with liquidating and distributing
“By the contract of partnership…” cash. So that is the property which is the most liquid, pinka madaling
idistribute, medium of exchange for purposes of commercial
It is a contract. So there are obligations, because one of the sources of transactions.
obligations is a contract.
CONTRACT
“two or more persons”
By a contract, it has the essential elements of:
It must be at least 2 persons. So, the question there is that, is it just
1. Consent;
limited to natural persons? Can a partnership be a part also of another
2. Subject matter; and
partnership? So you have to consider ano bang meaning ng “person” na
3. Cause or consideration
yan.
“bind themselves” Characteristics of a Partnership

1. Consensual
There is a bind, a commitment. That is your vindiculum juris, your
juridical tie. You bind yourself. It is perfected by a mere consent, of course there are certain
exceptions. But as general rule, partnership is a consensual contract.
“to contribute money, property or industry” 2. Innominate
It is innominate since it has a special name designation under law.
There is a promise. There is a binding commitment to contribute
Again, what is the purpose of a contract being innominate? What is the
money, property or industry.
reason?
Now, is money a property? (yes) It has a specific designation. If the contract is innominate, you have first
to interpret and look for the provisions over that specific designation
Then, why does the law separate money and property? Bakit di before you apply the general laws on obligations and contracts.
sinabing to contribute property or industry? Bakit kailangan I’segregate 3. Bilateral
si money? Well in fact it is already subsumed under property?
Two or more parties with reciprocal rights and obligations.
“to a common fund” 4. Onerous

Each of the parties aspires to procure a benefit for the giving of
Take note whatever they contribute becomes the ownership of all, something.
“with the intention of dividing the profits among themselves.” As you
5. Commutative
can see although it is under the Civil Code, it is actually commercial in
nature. Undertaking of each partner is considered the equivalent of that the
other.
So without the intention to divide the profit among themselves, there 6. Principal
can be no partnership. The profit is really the intention.
It does not depend on other contract or does not depend its existence
to other.
“two or more persons may also form a partnership for the exercise of a
profession.” 7. Preparatory
It is a means to an end.
Kaya to naka separate because, some professions are not for profits.
Jarantilla vs. Jarantilla et al.
Bakit di sinabing dividing “profits and losses among themselves?”
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(a) an agreement to contribute money, property or industry to a
Facts: Antonieta Jarantilla filed a case for the accounting of the assets common fund; and
and income of the co-ownership, for its partition and the delivery of
her share. (b) intent to divide the profits among the contracting parties.
Antonieta claimed that in 1946, she had entered into an agreement The first element is undoubtedly present in the case at bar, for,
with Conchita and Buenaventura Remotigue, Rafael Jarantilla, and admittedly, all the parties in this case have agreed to, and did,
Rosita and Vivencio Deocampo to engage in business. Antonieta alleged contribute money and property to a common fund. Hence, the
that the initial contribution of property and money came from the issue narrows down to their intent in acting as they did.
heirs’ inheritance. Antonieta further claimed co-ownership of certain
properties in the name of the defendants since the only way the It is not denied that all the parties in this case have agreed to
defendants could have purchased these properties were through the contribute capital to a common fund to be able to later on share its
partnership as they had no other source of income. profits. They have admitted this fact, agreed to its veracity, and even
submitted one common documentary evidence to prove such
Antonieta’s allegations found support from a 1957 document partnership — the Acknowledgement of Participating Capital. The
entitled “Acknowledgement of Participating Capital”, wherein petitioner himself claims his share to be 6%, as stated in the document.
spouses Buenaventura and Conchita Remotigue acknowledged However, petitioner fails to realize that this document specifically
that while registered only in Buenaventura Remotigue’s name, enumerated the businesses covered by the partnership.
they were not the only owners of the capital of certain businesses
. They stated the participating capital of their co-owners as of the Since there was a clear agreement that the capital the partners
year 1952, with Antonieta Jarantilla’s stated as P8,000.00 and contributed went to the three businesses, then there is no reason to
Federico Jarantilla, Jr.’s as P5,000.00. deviate from such agreement and go beyond the stipulations in the
document. Therefore, the CA did not err in limiting petitioner’s share to
The respondents did not deny the existence and validity of the the assets of the businesses enumerated in the Acknowledgement of
“Acknowledgement of Participating Capital”, but they denied Participating Capital. There is no evidence that the subject real
using the partnership’s income to purchase the subject real properties were assets of the partnership referred to in the
properties and said that the certificates of title should be binding Acknowledgement of Participating Capital
on her.
How do you determine the intention? It’s all the mind dba? What do
During the course of the trial at the RTC, petitioner, who was one
you look for?
of the original defendants, entered into a compromise agreement
with Antonieta Jarantilla wherein he supported Antonieta's claims
and asserted that he too was entitled to 6% of the supposed Sy vs. Court of Appeals
partnership in the same manner as Antonieta was. He prayed for
a favorable judgment in his favor. Facts: In 1958, Sahot started working as a truck helper for
petitioners’ family-owned trucking business named Vicente Sy
RTC found that an unregistered partnership existed since 1946 Trucking, became a truck driver in 1965, which was renamed as T
which was affirmed in the 1957 document, the .Paulino Trucking Service). In 1994, Sahot who was already 59
“Acknowledgement of Participating Capital.” The RTC used this as years old had been incurring absences as he was suffering from
its basis for giving Antonieta Jarantilla an 8% share in the three various ailments, particularly causing him pain was his left thigh.
businesses listed therein and in the other businesses and real
properties of the respondents as they had supposedly acquired Sahot had filed a week-long leave for a medical examination and was
these through funds from the partnership. treated for several ailments. Then the management of the trucking
business told him to file a formal request for extension of his leave for
the whole month of June 1994, to which he complied. At this time,
CA agreed with the RTC as to Antonieta’s 8% share in the petitioners allegedly threatened to terminate his employment if he
business enumerated in the Acknowledgement of Participating refused to go back to work.
Capital, but not as to her share in the other corporations and real
properties Petitioners carried out their threat and dismissed him from work,
effective June 30, 1994. Sahot filed a complaint for illegal dismissal.
In the present petition, Frederico asserts that he was in a
partnership with the Remotigue spouses, the Deocampo spouses, Petitioners contend that Sahot was not illegally dismissed as a driver
Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin because he was in fact petitioner’s industrial partner. They add that it
Vismanos, as evidenced by the Acknowledgement of Participating was not until the year 1994, when SBT Trucking Corporation was
Capital. He contends that from this partnership, several other established, and only then did respondent Sahot become an employee
corporations and businesses were established and several real of the company.
properties were acquired. In this petition, he is essentially asking
for his 6% share in the subject real properties. Issue 1: Whether or not Sahot is an industrial partner – No.
Issues: Whether or not the partnership subject of the Held: Sahot was an employee of petitioner. The most important
Acknowledgement of Participating Capital funded the subject real element in determining the existence of an employment relationship is
properties. control. In this case, during the entire course of his employment he did
not have the freedom to determine where he would go, what he would
Held: NO. do, and how he would do it. He merely followed instructions of
Under Article 1767 of the Civil Code, there are two essential petitioners and was content to do so, as long as he was paid his wages.
elements in a contract of partnership:
4
Furthermore, Article 1767 of the Civil Code states that in a contract of
partnership two or more persons bind themselves to contribute money In this particular case, helper lang siya, there was no proof that he
, property or industry to a common fund, with the intention of dividing actively participated in the management of the business.
the profits among themselves. Not one of these circumstances is
present in this case. No written agreement exists to prove the Q: Let’s go to the next requisite. Was there intention to divide profits?
partnership between the parties. Private respondent did not contribute A: The Supreme Court said that there was no proof that he was
money, property or industry for engaging in the supposed business. receiving share of the profits.
There is no proof that he was receiving a share in the profits as a
matter of course, during the period when the trucking business was TORRES vs. COURT OF APPEALS
under operation. Neither is there any proof that he had actively GR 134559; (320 scar 428), December 9, 1999
participated in the management, administration and adoption of
policies of the business. Facts: Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel
Issue 2: Whether or not Sahot was illegally dismissed – Yes. Torres for the development of a parcel of land into a subdivision.
Held: Petitioners did not comply with the medical certificate Pursuant to the contract, they executed a Deed of Sale covering the
requirement before Sahot’s dismissal was effected. Also, no notice was said parcel of land in favor of respondent, who then had it registered in
served to apprise him of his particular acts or omissions for which his his name. By mortgaging the property, respondent obtained from
dismissal is sought as well as no notice was issued to inform him his Equitable Bank a loan of P40,000 which, under the Joint Venture
dismissal. Agreement, was to be used for the development of the subdivision. All
three of them also agreed to share the proceeds from the sale of the
Q: Why is it material to determine whether there is a partnership? subdivided lots.
The project did not push through, and the land was subsequently
A: To determine whether there is a liability on the part of Sy in the
foreclosed by the bank.
alleged dismissal case filed by Sahot against them.
Petitioners deny having formed a partnership with respondent. They

Q: How is it related to the issue on partnership? contend that the Joint Venture Agreement and the earlier Deed of Sale
were void.
A: Because if Sahot was a partner, NLRC would not have a jurisdiction
over the case for the illegal dismissal case filed. Because if he is Issue: Whether or not petitioners and respondent had formed a
considered as an industrial partner, he will not be considered as an partnership for the development of the subdivision. – Yes.
employee but as a partner.
Held: A reading of the terms embodied in the Agreement indubitably
JUNE 21, 2019 | Transcribed by: Carla Bayquen shows the existence of a partnership pursuant to Article 1767 of the
Civil Code, which provides:
Q: What if the difference between a partnership in writing and a
partnership not reduced in writing? Is it still valid? Art. 1767. By the contract of partnership two or more persons bind
A: Yes. Putting it into writing is just a reference to prove the existence themselves to contribute money, property, or industry to a common
that the partnership is there. fund, with the intention of dividing the profits among themselves.
Discussion: Even if there is no written agreement, it will not affect the The contract manifested the intention of the parties to form a
partnership but for evidentiary purposes parties enter into a written partnership.
agreement.
Under the Agreement, petitioners would contribute property to the
In this case, there is no sharing of profit. There was also no money, partnership in the form of land which was to be developed into a
property, and industry contributed. subdivision; while respondent would give, in addition to his industry,
the amount needed for general expenses and other costs. Furthermore,
Q: How about the efforts? Will it not be considered his contribution of the income from the said project would be divided according to the
industry? stipulated percentage. Clearly, the contract manifested the intention of
A: No. It will serve as his services in the employment contract. the parties to form a partnership.
Q: Why will it not fall in the services of an industrial partner? The parties implemented the contract. Thus, petitioners transferred the
A: It should be for the purpose of putting it in the common fund. title to the land to facilitate its use in the name of the respondent. On
the other hand, respondent caused the subject land to be mortgaged,
Q: How about industry? How will you put it in a common fund? What’s the proceeds of which were used for the survey and the subdivision of
the difference of performing services as an employee and performing the land. As noted earlier, he developed the roads, the curbs and the
services as an industrial partner? How do you delineate that line? gutters of the subdivision and entered into a contract to construct low-
A: If you are an industrial partner, you would have to share the profits. cost housing units on the property.
Discussion: Let’s go first to the contribution, later na ang for the

Respondent's actions clearly contradict petitioners' contention that he
purpose of dividing the profits. Employee siya diba, helper, naglilinis
made no contribution to the partnership. Under Article 1767 of the Civil
siya. Kung industrial partner ka, the services you are actually rendering
Code, a partner may contribute not only money or property, but also
are in line with the management; participating with the adoption of
industry.
policies and service ang ginagawa mo, that is contribution. If you are
rendering services in a capacity lower than management, then that is
rendering services as an employee.
5
Q: What was the contribution of the parties in this case? The Commissioner of Internal Revenue denied the protest and ordered
A: There was a partnership and one of the contribution was services. the petitioners, assessed as “Pool of Machinery Insurers,” to pay
deficiency income tax.
LIM vs PHIL. FISHING GEAR INDUSTRIES
GR 136448; November 3, 1991 The CA ruled that the pool of machinery insurers was a partnership
taxable as a corporation.
Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a Contract dated February 7, 1990, for the Petitioners contend that the Court of Appeals erred in finding that the
purchase of fishing nets of various sizes from the Philippine Fishing pool or clearing house was an informal partnership. They point out that
Gear Industries, Inc. They claimed that they were engaged in a business the reinsurance policies were written by them “individually and
venture with Lim Tong Lim, who however was not a signatory to the separately,” and that their liability was limited to the extent of their
agreement. allocated share in the original risks thus reinsured.
The buyers, however, failed to pay for the fishing nets and the floats; Issue: May the “insurance pool” so formed be deemed a partnership
hence, Philippine Fishing Gear filed a collection suit against Chua, Yao that is taxable as a corporation? – Yes.
and Lim Tong Lim. The suit was brought against the three in their
capacities as general partners, on the allegation that "Ocean Quest
Fishing Corporation" was a nonexistent corporation as shown by a Held: In the case before us, the ceding companies entered into a Pool
Certification from the Securities and Exchange Commission. Agreement or an association that would handle all the insurance
businesses covered under their reinsurance with Munich.
The Regional Trial Court ruled that Chua, Yao and Lim are general
partners. Thus, they are jointly liable to pay Philippine Fishing Gear. The The following unmistakably indicates a partnership or an association
court based its finding (1) on the testimonies of the witnesses covered by Section 24 of the NIRC:
presented and (2) on a Compromise Agreement executed by the three. (1) The pool has a common fund, consisting of money and other
valuables that are deposited in the name and credit of the pool. This
Issue: Whether by their acts, Lim, Chua and Yao could be deemed to common fund pays for the administration and operation expenses of
have entered into a partnership? – Yes. the pool;
(2) The pool functions through an executive board, which resembles
Held: Chua, Yao and Lim had decided to engage in a fishing business, the board of directors of a corporation, composed of one
which they started by buying boats worth P3.35 million, financed by a representative for each of the ceding companies.
loan secured from Jesus Lim who was Lim Tong Lim’s brother. In (3) True, the pool itself is not a reinsurer and does not issue any
pursuance of the business agreement, Peter Yao and Antonio Chua insurance policy; however, its work is indispensable, beneficial and
bought nets from Philippine Fishing Gear, in behalf of "Ocean Quest economically useful to the business of the ceding companies and
Fishing Corporation," their purported business name. Munich, because without it they would not have received their
premiums.
Thus, Lim Tong Lim is liable as a partner.
The ceding companies share “in the business ceded to the pool” and in
the “expenses” according to a “Rules of Distribution” annexed to the
Q: What was contributed?
Pool Agreement. Profit motive or business is, therefore, the primordial
A: Lim Tong Lim contributed his Credit Line; not cash and property but
reason for the pool’s formation. As aptly found by the CTA:
his credibility.
“The fact that the pool does not retain any profit or income does not
Discussion: Humiram sila sa kapatid ni Lim Tong Lim na mayaman, kung obliterate an antecedent fact, that of the pool being used in the
wala si Lim Tong Lim hindi naman makakahiran si Chua at si Yao. transaction of business for profit. It is apparent, and petitioners admit,
This is a landmark case in partnership, so please take note of this. It is that their association or coaction was indispensable [to] the transaction
not just fixed or tangible assets that can be contributed. of the business. If together they have conducted business, profit must
have been the object as, indeed, profit was earned. Though the profit
AFISCO INSURANCE CORP vs COURT OF APPEALS
was apportioned among the members, this is only a matter of
consequence, as it implies that profit actually resulted.”
GR 112675; January 25, 1999
Q: Was there contribution of money, property, or industry?

Facts: Pursuant to “reinsurance treaties,” a number of local insurance
A: Yes.
firms formed themselves into a “pool” in order to facilitate the handling
of business contracted with a nonresident foreign reinsurance company
Q: Was there an intention of dividing the profits among themselves?
.
A: They form it out of necessity because they are required to make a
pool, not because they want profit. They have to form that so that the
Petitioners are 41 non-life insurance corporations. On August 1, 1965,
reinsurer would accommodate them.
they entered into a Quota Share Reinsurance Treaty and a Surplus
Reinsurance Treaty with the Munchener Ruckversicherungs-
Discussion: Insurance companies in the Philippines have reinsurers,
Gesselschaft. The reinsurance treaties required petitioners to form a
specially for big amounts like airplane disasters. Di na kaya ng insurance
pool. Accordingly, a pool composed of the petitioners was formed on
companies ‘yan. Usually they are reinsured ng mga malalaking
the same day.
insurance company like Munich etc.
The pool was assessed by the Commissioner of Internal Revenue
This is tax case. For the purposes na itatax sila there is a partnership.
deficiency corporate taxes. These assessments were protested by the
Pero if you look at it, wala naming intention to divide profits. It’s just
petitioners through its auditors Sycip, Gorres, Velayo and Co.
that they have to do this to be reinsured kas inga may treaty. You have
to consider partnership on the premise that it is taxable.
6
Under the tax code, a commercial partnership is taxed in the same as a no partnership.
corporation. Sa tax niyo, may dalawang kinds of partnership:
• GPP- General Professional Partnership i.e. law firms, Any partner may request for the dissolution at will, however he must
accounting firms (this is not taxed as an entity, the act in good faith or he could be liable for damages.
taxes go to the partners)
• CP- Commercial Partnership (taxed as a corporation) LEGAL CAPACITY OF PARTIES
This blurs the light in defining a partnership. The concept of As to individuals, as a general rule, any person is capable to enter into
unregistered partnership is a tax creature. It is not in civil law. By contractual relations in order to be a partner.
definition, unregistered partnership is taxed as a corporation. But there
is no unregistered partnership in our civil law. In other words, based on your oblicon, who can not enter into
contracts?
PHILEX MINING vs CIR − Minors
GR 148187; April 17, 2008 − Insane or demented persons
− Deaf mutes who don’t know how to write
Facts: Petitioner Philex Mining entered into an agreement wih Baguio − Persons suffering from civil interdiction
Gold for the former to manage the latter’s mining claim known as the − Incompetence or under guardianship
Sto. Mine. The parties’ agreement was denominated as “Power of − Persons that are prohibited from giving each other in a
Attorney”. relation
The mine suffered continuing losses over the years, which resulted in As to juridical persons there is no prohibition for a partnership to be a
petitioner’s withdrawal as manager in the mine and eventually lead to partner in another partnership. All the members of the constituted
a cessation in mining operations. partnership will be held liable to the creditors.
The parties executed a “Compromise Dation in Payment”, wherein the As to corporations it is explicit now in the revised corporation code.
debt of Baguio Gold amounted to P112,136,000. Petitioner deducted Before, a corporation as a general rule cannot enter into a partnership
said amount from its gross income in its annual tax income return as with another corporation. It defeats the doctrine of centralized
“loss on the settlement of receivables from Baguio Gold against management under corporation law.
reserves and allowances”. BIR disallowed the amount as deduction for
bad debt. Petitioner claims that it entered a contract of agency Because of the revision in the revised corporation code it is not
evidenced by the “power of attorney” executed by them and the included in the enumerated express powers to enter into a partnership
advances made by petitioners is in the nature of a loan and thus can be or a joint venture with another corporation. As it is the rule now is that
deducted from its gross income. The Court of Tax Appeals (CTA) a corporation can actually enter into a partnership.
rejected the claim and held that it is a partnership rather than an
agency. The Court of Appeals (CA) affirmed the CTA. Illustration:
Issue: Whether or not it is an agency. – No.

Corporation 1 Corporation 2
Held: What is present is a contract of partnership. We go to the
BOD BOD
elements. First is the agreement to contribute money, property, or
industry which was present in this case.
Section 5 of the power of Attorney provides that:

Officers/Executives Officers/Executives
Whenever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NINO MINE, they may As a general rule, the management of the corporation is delegated to
transfer their own funds or property to the Sto. Nino PROJECT (the the Board of Directors or the BOD.
common fund).
Who chooses the directors? It is the owner of the corporation which is
The second requisite which is the intention to divide the profits is also the shareholders. The BOD is the decision making body.
present because there is also an agreement that whatever profits of
the Sto. Nino mine would be divided 50-50 % sharings. That is why Who executes the day-to-day operations of the corporation? It is the
there is a partnership. officers. Officers are either appointed or employed by the corporation.
PARTNERSHIP RELATION; FIDUCIARY To simplify, the BOD is the decision making body of the corporation.
Partnership is a form of a voluntary association. It’s a personal relation What happens if they enter into a partnership? As we have said, there
which the element of delectus personae (selection of persons) exists. must be mutual agency. Therefore, the acts of partner 2 binds partner
Involving as it does, trust and confidence among the partners. 1 and vise versa. The problem with that is the partner acts through the
Membership requires the consent of all. It is fiduciary in nature; it BOD. Actions of BOD 2 binds BOD 1 which defeats the principle of
includes the right to choose to whom you associate with. centralized management. There will be a conflict kasi hindi naman pinili
ni Shareholder 1 ang BOD ng Corporation 2. That really is the reason
Wala naming magfoforce sayo kanino ka makikipagpartner. You have why a corporation cannot partner with another entity because ang
the right to choose which is the principle of delectus personae. pumipili nito ay ang shareholders.
There has to be Trust Now, Nakita ng SEC na nagyayari ito. Example is subdivisions and condo
Trust take note, must be mutual. Trust and confidence must be mutual . Diba ang may-ari ng lupa ang nag dedevelop ng condo and sabi nila
based on the principle of delectus personae. Otherwise, there could be kung mag creccreate ng corporation it would be tedious. Why not just
7
partnership or joint venture for a specific project. INDUSTRY – again, it pertains to active cooperation. Hindi lang yung
Ang nangyayari, nagkakaroon ng condo projects. Sabi ng SEC na kapag passive, you have to be active in the management of the business.
ipagbawal ito baka maging counterproductive.
LEGALITY OF THE OBJECT - if the object is unlawful, is contrary to law,
We don’t have uber and airbnbs before, what we had before are hotels morals, customs or public policy, partnership cannot arise as the
with physical assests for transportation like cars. Now iba na, the laws contract is inexistent or void ab initio.
have to evolve, it has to be in line with the current development.
The purpose is really to obtain profits; that’s the very reason of the
Now we have hotels for businesses if you are familiar with that. Let’s existence of partnership. There can be no partnership kapag if it’s not
say gusto ko mag grow ng start-up company sa Davao. We have a intended for profit, except if it’s a profession.
service office, they call it hotels for businesses. Parang meron na siyang
reception, may printer na, may cabinets. Work ka nalang. May branch Partnership is a medium of doing business.
sila sa Europe or somewhere else. Once member ka, you have a client
of a certain company, you can actually go there to work. May mga This is exemplified by the fact that is given a “juridical personality
ganitong concept. separate and distinct from that of each of the partners even in case of
failure to comply with the requirements of Art.1772, first paragraph.” (
It is hard to negotiate this type of structures to the government na Art.1768)
medyo traditional mag-isip kasi di nila makuha ang changes at nuances
ng business structures. If you look at Article 44 (Civil Code), you find a list of juridical persons.
You have:
Going back to our discussion, sabi ng SEC, medyo madami nang
gumagawa non. Kung pagbabawalan natin sila, bakaw ala nang Art. 44. The following are juridical persons:
magnenegosyo. Kaya sabi nila, yes it is allowed provided that in the (1) The State and its political subdivisions;
Corporate Charter, it must be allowed, there must be a specific clause,
there must be an authorization to remedy that violation; (2) Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
Now, in the revised corporation code, it is allowed even if not expressly been constituted according to law;
allowed by the charter.
(3) Corporations, partnerships and associations for private interest or
CONTRIBUTION OF MONEY, PROPERTY, OR INDUSTRY IN A COMMON purpose to which the law grants a juridical personality, separate and
FUND distinct from that of each shareholder, partner or member.
Lahat ba ng pera legal tender? NO, there are limitations.
Article 1768 specifically grants that personality separate and distinct

BSP CIRCULAR NO. 537 from the partners.
Series of 2006
Article 45, “partnerships and associations for private interest or
Pursuant to Section 52 of Republic Act No. 7653 and Monetary purpose are governed by the provisions of the Code concerning
Board Resolution No. 862 dated 6 July 2006, the maximum
partnerships.”
amount of coins to be considered as legal tender is adjusted as
follows: Article 45 expressly repeals your provision on Code of Commerce.
Sinabhi ng Art.45, the governing law is now the Civil Code.
1. One thousand pesos (P1,000.00) for denominations of 1-
Piso, 5-Piso and 10-Piso coins; and DOCTRINE OF SEPARATE JURIDICAL PERSONALITY
2. One hundred pesos (P100.00) for denominations of 1-
sentimo, 5-sentimo, 10-sentimo, and 25-sentimo coins. Partnership is a juridical person, that’s the doctrine of separate juridical
personality.
This Circular shall take effect after fifteen (15) days following
its publication in the Official Gazette or in a newspaper of It is an independent juridical person; a partnership may enter into a
general circulation. contract, acquire and possess properties of all kinds in its name, as well
as incur obligations, civil or criminal action. Case in point, you have
Aguila v Court of Appeals.
AGUILA vs. CA
June 21, 2019 Continuation
FACTS: The petitioner here, is the manager of A.C. Aguila & Sons, Co.
Mali yung usual, na kung may galit ka sa naniningil, bayaran mo ng
which is a partnership engaged in lending activities. Private respondent
coins. He could say, “I will not accept that.” Medyo may alam si
on the other hand, is the registered owner of a house and lot.
naniningil. There’s no valid tender. Sabi din ng isa, “nag-aral din ako.
Ayaw mo i-accept, iconsign ko to sa court.” Can the person paying
Now, the partnership and private respondents entered into
consign it validly to the court? No, because one of the requisites in Memorandum of Agreement whereby they agreed that private
consignment is that there must be a valid legal tender. respondents would sell their house and lot. Pursuant to that, private
respondents executed an absolute sale in favor of AC Aguila. Within
PROPERTY - real, personal or corporeal. Or intangible, by the case of that said absolute sale, the SPA which was executed by spouse
Lim Tong Lim (fishing business/operation on a fish pond and not the respondents where they authorized the partnership AC Aguila to cause
contribution of a fish pond itself), even an intangible right could also be the cancellation of the TCT in case the spouses fail to redeem the said
contributed. sold property.
8
Subsequently, the spouses failed to redeem the property, hence, AC Let’s say, there are groups of persons who want to scam; they created
Aguila caused the cancellation of the TCT. an entity to perpetrate fraud. The law, paghinabol mo yung board of
directors, they can say, “it’s a separate juridical personality. It’s not us,
Because of that, Mrs. Abrogar (Mr. Abrogar died) filed a civil case for but the entity who’s getting your investments.” Just like Aguila v CA,
the nullity of the deed of sale. However, she only impleaded Mr. separate yung juridical personalities ng each partner and partnership.
Alfredo Aguila, Jr. She did not implead the partnership AC Aguila & Sons But, the doctrine of piercing allows, in certain instances, to “pierce” the
, Co.
separate juridical personality. Such that there would be liability now on
the owners, board of directors.
According to Alfredo Aguila, Jr. since under article 1768, he has a
separate and distinct personality with the partnership in which he is a Now, that’s a concept in corporation law, precisely because it has a
partner. He is not possibly be the proper person or the real party in
separate juridical personality. Now based on the premise, that a
interest in this case.
partnership has also a separate juridical personality, can that concept
be applied in the same way as a corporation? Can we also pierce the
ISSUE: Whether or not the case filed by Mrs. Felicidad Abrogar against
Alfredo Aguila will prosper. partnership veil in order to attribute liability to the partners?
It can be applied, to a lesser extent, in that the partners would still be

held liable, even without that doctrine, unlike in corporations. If we
HELD: NO. It will not prosper. The SC said, the civil case was filed not distinguish, if there’s still a remaining debt in a partnership, pwede
against the real party in interest.
pang habulin ang mga personal properties ng mga partners. Sa
corporation, kung ano lang yung nilagay mo na investment, hanggang
Under article 1768 of the New Civil Code, a partnership “has a juridical
doon lang. Kung meron kang utang, it cannot go after the personal
personality separate and distinct from that of each of the partners.”
property. So, ang doctrine of piercing, is actually for the owners to
The partners cannot be held liable for the obligations of the partnership
unless it is shown that the legal fiction of a different juridical answer the debts or liabilities of a corporation.
personality is being used for fraudulent, unfair, or illegal purposes.
Since in a partnership, pwede naman habulin si partners, hindi ganun
ka necessary to pierce the partnership entity. Does it apply? Yes, it
In this case, Felicidad has not shown that AC Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal applies, but to a lesser extent. Kasi nga meron nang personal obligation
purposes. Moreover, the title to the subject property is in the name of or liability si partners, which is not applicable kung corporate set up ka.
AC Aguila & Sons, Co. It is the partnership, not its officers, which should
PARTNERSHIP AS A BUSINESS ENTERPRISE.
be impleaded in any litigation involving property registered in its name.
A violation of this rule will result in the dismissal of the complaint.
You have this “on going concern”. Meaning, you don’t just establish a
partnership for particular purpose, or particular project. There is a
Okay. Ang mali, sino ang parties nila? It is the person, Mr. Aguila, a continuity. It’s not just for one specific project. There is that element of
partner, and not the partnership itself. habituality.
ENTITLEMENT OF CONSTITUTIONAL RIGHTS AND GUARANTEES VILLAREAL vs. RAMIREZ
Since it is given personhood under the law, can it also invoke the FACTS: Villareal, Carmelito Jose and Jesus Jose formed a partnership
guarantees of the Constitution similar to that of a natural person? Can with a capital of P750,000 for the operation of a restaurant and
it invoke rights against illegal searches and seizures? Can it invoke the catering business.
right against self-incrimination? Pwede ba yun, dahil person na siya
Later on, Ramirez joined as a partner in the business. He has the
according to the law? Can it have the same rights under the
capital contribution of P250,000.
Constitution?
There are certain rights, of course. In fact, the right against self- Afterwards, Jesus Jose withdrew from the partnership and thus, his
incrimination, the Supreme Court is flip-flopping, but I’m talking about capital contribution was refunded to him in cash by the agreement of
the partners.
corporations ha. Minsan sinasabi nila wala, walang nervous system si
In the same month, however, without the knowledge of Ramirez,
corporation, paano ma incriminate. Flip-flopping; minsan meron kapag
petitioners closed down the business allegedly because of the increase
may reputation. You will have the chance under Corporation.
rentals.
The question is, does it also apply to partnerships, given that it has a
So, Ramirez wrote petitioners stating that they were no longer
juridical personality? In the same way that you have the doctrine of
interested in continuing the partnership and that they were accepting
piercing-the-corporate- veil.
the latter’s offer to return their capital contribution. The demand made
by respondents both oral and written were unheeded.
Now, respondents filed a complaint for sum of money before the RTC.
What’s the doctrine of piercing the corporate veil? But in their complaint what was indicated there was not the
partnership but the individual names of the partners.
For example, the fact that it has a separate juridical personality, you
used that separate juridical personality for fraud, to defeat public policy ISSUE: Whether or not the petitioners can be held jointly and severally
, etc, that’s why the law allows, in certain instances, the “piercing”; idi- liable to the amount which is demanded.
disregard yung separate juridical personality.
HELD: NO. Ramirez have no right to demand from the petitioner the
return of their equity share. As found by the court petitioners did not
9
personally hold its equity or assets.
(2) Co-ownership or co-possession does not of itself establish a
Since the capital was contributed to the partnership, not to the partnership, whether such-co-owners or co-possessors do or do not
partners, it is the partnership that must refund the equity of the
share any profits made by the use of the property;
retiring partners. (Art.1768)
Co-ownership.
Therefore, the exact amount of refund equivalent to respondent’s one
There is co-ownership whenever a divided thing or right belongs to
third shares in the partnership cannot be determined until all the
many persons. So, how do you differential co-ownership to partnership
partnership assets will have been liquidated and all partnership
?
creditors have been paid. CA’s computation of the amount to be
refunded to respondents as their share was thus erroneous.
You have Obillos vs CIR.
-------------------------------------------------------------
OBILLOS vs. CIR
FACTS : In 1973 , Jose Obillo’s Sr. completed payment on two lots. The
What was wrong here?
next day, he transferred his rights to his 4 children for them to build
their own residences.
CA’s computation = However, the petitioners sold the property to Walled City Securities
(initial capital – liability)
Corporation and Olga Cruz Canda for P31,000 and P33,000 for each of
shares
them. They treated the profit as capital gains and paid an income tax of
P16,792.00.
*CA did not considered the partnership as an “on-going concern”
it’s as if the initial 1M was still existing after dissolution.
Subsequently, the CIR required the siblings to pay “corporate income
tax” of their share. Stating that this entire assessment is based on the
alleged partnership under art. 1769 of the NCC; R e a s o n : simply
NOTE: It is an on-going concern.
because they contributed each to buy the lots, resold them and divided
A partner, as an equity holder, is responsible for the profits and the
the profits among themselves.
losses, the liabilities and the assets during its operation.
The Obillos siblings argued that: they have no intention to form a
Hindi pwede na the capital you invested/contributed would still be the
partnership and that it was merely incidental since they sold the said
same at the time of dissolution. You have to consider the profits, losses,
lots due to the high demand of construction. Hence, naturally, when
because the partners are not mere lenders of capital. They are
they sell the properties as “co-partners” it will result to the share of
“owners”; equity-holder.
profits. Further, their intention was to divide the lots for residential
This would have been proper if you’re a debt holder. Let’s say, purposes.
nagpahiram ka lang ng 1million, kinuha mo yung principal. That would
have been proper, kasi you’re a debt-holder. But as an equity-holder, ISSUE: Whether or not a partnership exists among the Obillos Siblings
you are affected by the flow of profit/loss of the partnership. making them tax liable.
HELD: NO.
Article 1769. In determining whether a partnership exists, these rules
shall apply:
The Obillos siblings are not engaged in a partnership. Because the
siblings here have no intention to form a partnership as testified by
(1) Except as provided by article 1825, persons who are not partners as
Jose Obillos, Jr. The SC said, to consider them as partners obliterate the
to each other are not partners as to third persons; distinction between a co-ownership and a partnership.
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do not Under art. 1769 (3) which provides: “The sharing of gross returns does
share any profits made by the use of the property; not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from
(3) The sharing of gross returns does not of itself establish a partnership
which the returns are derived.” Thus, there must be an unmistakable
, whether or not the persons sharing them have a joint or common
intention to form a partnership.
right or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is In this case, the CIR should have investigated if the father paid the
prima facie evidence that he is a partner in the business, but no such donor’s tax to establish the fact that there was really no partnership.
inference shall be drawn if such profits were received in payment:
They pooled some money, and they divided the profits. What was the
(a) As a debt by installments or otherwise;
initial purpose? To build a residential house, which did not push
(b) As wages of an employee or rent to a landlord; through for some reasons.
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the So, sa requisites, walang intention to divide profits.
profits of the business; For example, binenta, may nakitang magandang property, at sabi nila,
(e) As the consideration for the sale of a goodwill of a business or other “bilihin natin ang property?” So binili nila. Continue natin ang story;
property by installments or otherwise. binenta nila kasi mas mahal magpa-construct; hindi feasible. Tapos,
may bumili, may na scout sila na mas magandang property, yun o, may
Note: These rules governing partnership is not exclusive. itatayong hospital sa malapit; mag-appreciate yung value. Bili na naman
10
tayo. They used the proceeds for another property. Tapos binenta na
naman. Is it now a partnership or is still a co-ownership? However, it is was found that while the purchase was made on October
31, 1950 and their brief as petitioners filed on October 20, 1965,
What again is the difference between partnership and co-ownership? almost 15 years later, there was no allegation that such division as
In partnership, there is an intent to divide profits, while in co- between them was in fact made. Moreover, the facts as found made
ownership, dividing of profits is only incidental. clear that the building in question continued to be leased by other
parties with petitioners dividing "equally the income. Thus, in this case
REYES v CIR there is an element of habituality, which shows their intention to form
(from 2018 TSN) a partnership.
FACTS: Florencio and Angel Reyes (Father and son) purchased a

In this particular case, it was considered a partnership. In fact, it was
lot a building for P835,000. Of which they paid the amount of
income generating.
P375,000, leaving the balance of P460,000 representing the
mortgage obligation of the vendors with the China banking
(3) The sharing of gross returns does not of itself establish a partnership
Corporation.
, whether or not the persons sharing them have a joint or common
Now, the initial payment of P375,000.00 was shared equally by right or interest in any property from which the returns are derived;
the Reyeses at the time of the purchased and the building was
leased to various tenants. The administration of this building was
entrusted to an administrator who collected the rents, etc. Kasi, pag-gross ang return, there is no deduction. You are not equity-
holder, you are not interested in the failure or successes. That is why
Also, the Reyeses here, divided the income that would have the sharing of gross return is not indicative of partnership.
derived from the income of the building after the expenses for
maintenance, etc. had been paid. Now, the gross income of the (4) The receipt by a person of a share of the profits of a business is
building was estimated about amount of P90,000.00 annually. prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
Now, the CIR imposed an income tax due from the partnership (a) As a debt by installments or otherwise;
allegedly formed by the petitioners. (b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
The Reyeses argued that they are not liable for the said imposed
(d) As interest on a loan, though the amount of payment vary with the
tax.
profits of the business;
ISSUE: Whether or not the Reyeses are liable for the (e) As the consideration for the sale of a goodwill of a business or other
corporation. property by installments or otherwise.
RULING: Yes
Just prima facie evidence. Kung nakakatanggap ka ng share of profits
that is a prima facie evidence that you’re a partner to a business.
There exist a partnership between the petitioners because the 2
elements for the existence of partnership are present.
Ano mangyari kung nag-sha-share ka ng profits, it’s just prima facie
evidence. The burden of proof is on the other person alleging na hindi
Article 1767 of the Civil Code, defining what contract of partnership is, siya partner. Once na ma-prove na person that it is for payment for
the opinion goes on to the State that the essential elements of the
another activity, not for profit as a profit. Then, there is no partnership.
partnership are two, namely:
It is presumptive evidence, but a very strong one.
1. An agreement to contribute money, property, or industry to Now, parties may call themselves “partners”, but their contract may be
a common fund; and adjudged something different. Pwede mong sabihin na mag-partner
2. Intent to divide the profits among the contracting parties.
kami, pero hindi naman pala. Best friends lang =)
In this case, the first element is undoubtedly present, because Conversely, partners may state that theirs is not a partnership, yet the
petitioners have agreed to and did contribute money and property to a law may determine otherwise from the basis of a document. However,
common fund. Hence, the issue narrows down to their intent in acting courts may influence in some extent in the partner’s contract.
as they did. Upon consideration of all the facts and circumstances
surrounding the case, it was determined that the purpose of the What are the tests and incidents of partnership?
petitioners was to engage in real estate transaction for monetary gain
and then divide the same among themselves. Here, the petitioners also - Share in the profits
argued that the ruling in the case of Evangelista is not applicable. - Equal rights in the management of the conduct of the
business
The SC said that, it is not applicable in this case even though they - Agent (of each other)
stressed that an affidavit of one of them found in the Bureau of - Personally liable in their fiduciary capacity
Internal Revenue records would indicate that their intention was to
house in the building acquired by them coupled with a plan of effecting BASTIDA v MENZI
a division in 10 years.
FACTS: Bastida offered to assign to Menzi & Co. his contract with Phil.
Sugar Centrals Agency and to supervise the mixing of the fertilizers and
11
to obtain other orders for 50% of the net profits that Menzi & Co. might allegedly falsified documents in a judicial proceeding. Petitioners
derive therefrom. complained that evidence offered by the defendants before the trial
court, consisting of payrolls indicating that Tan Eng Kee was a mere
Now, the agreement between the parties was verbal and was employee of Benguet Lumber, were fake.
confirmed by the letter of Menzi to Bastida dated Jan. 10, 1922.
CA: Reversed RTC
Pursuant to the verbal agreement, the defendant corporation on April
27, 1922 entered into a written contract with Bastida, which is the basis ISSUE: Whether Kee and Lay were partners in Benguet Lumber.
of this present action.
RULING: NO. There was no certificate of partnership between the
Now, the fertilizer business was carried on in the same manner as it brothers. The heirs were not able to show what was the agreement
was prior to the written contract and that Bastida receives 35% from between the brothers as to the sharing of profits. All they presented
the net profit. The intervention of the plaintiff was limited only to were circumstantial evidence which in no way proved partnership.
supervising the mixing of the fertilizers in the bodegas of Menzi.
It is obvious that there was no partnership whatsoever. Except for a
Prior to the expiration of the contract, the manager of Menzi notified firm name, there was no firm account, no firm letterheads submitted as
the plaintiff that the contract for his services would not be renewed. evidence, no certificate of partnership, no agreement as to profits and
When the contract expired, Menzi proceeded to liquidate the fertilizer losses, and no time fixed for the duration of the partnership.
business in question and the plaintiff refused to agree.
There was even no attempt to submit an accounting corresponding to
According to Bastida, the contract entered into by them is a contract of the period after the war until Kee’s death in 1984. It had no business
general regular commercial partnership, wherein Menzi was the book, no written account nor any memorandum for that matter and no
capitalist and the he is the industrialist partner. license mentioning the existence of a partnership.
HELD: NO. In fact, what is present here was an employer-employee In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is
relationship. Whereby the plaintiff here who received 35% of the net a sole proprietorship. He registered the same as such in 1954; that Kee
profits of the fertilizer business of Menzi is not necessarily mean that was just an employee based on the latter’s payroll and SSS coverage,
there was a partnership. It is in fact, a compensation for the services and other records indicating Tan Eng Lay as the proprietor. Also, the
rendered by Bastida to the fertilizer business of Menzi. business definitely amounted to more P3,000.00 hence if there was a
partnership, it should have been made in a public instrument.
Further, there was also no provisions in the contract nor the conduct of But the business was started after the war (1945) prior to the
the parties prior, contemporaneous or subsequently to its execution publication of the New Civil Code in 1950? Even so, nothing prevented
justified the finding that it was a contract of co-partnership. the parties from complying with this requirement. Also, the Supreme
Court emphasized that for 40 years, Tan Eng Kee never asked for an
The written contract was, in fact, according to the court is a
accounting. The essence of a partnership is that the partners share in
continuation of the verbal agreement between the parties, whereby
the plaintiff worked for the defendant corporation for one-half of the the profits and losses. Each has the right to demand an accounting as
net profits derived by the corporation from certain fertilizer contracts. long as the partnership exists. Even if it can be speculated that a
scenario wherein “if excellent relations exist among the partners at the
It was payment for his services; there was no partnership.
start of the business and all the partners are more interested in seeing
HEIRS OF TAN ENG KEE vs. CA the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible.” But in the situation in the
FACTS: case at bar, the deferment, if any, had gone on too long to be plausible.
A person is presumed to take ordinary care of his concerns. A demand
Following the death of Tan Eng Kee on September 13, 1984, Matilde for periodic accounting is evidence of a partnership which Kee never
Abubo, the common-law spouse of the decedent, joined by their did.
children HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY. The complaint was for accounting, liquidation Who is the employee? Tan Eng Kee
and winding up of the alleged partnership formed after World War II
between Tan Eng Kee and Tan Eng Lay. Plaintiffs alleged that after the How about the contention na nakatira siya doon sa kanilang store, and
second World War, Tan Eng Kee and Tan Eng Lay, pooling their that he was commanding the workers? Isn’t that indicative of him being
resources and industry together, entered into a partnership engaged in an owner also?
the business of selling lumber and hardware and construction supplies.
The Supreme Court took the relationship of the brothers. Sabi, kapatid
They named their enterprise "Benguet Lumber" which they jointly
sila. It’s not wild to think. There was no evidence kung partners sila.
managed until Tan Eng Kee's death.
June 25, 2019
They claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation Let’s go to the case of Tocao vs. Court of Appeals
called "Benguet Lumber Company." The incorporation was purportedly
a ruse to deprive Tan Eng Kee and his heirs of their rightful Take note: There are 2 cases, the 2000 decision and the decision on the
participation in the profits of the business. Motion for Reconsideration on 2004.
RTC: Declared Benguet Lumber as a joint venture which is akin to a TOCAO vs. Court of Appeals
particular partnership. As a side-bar to the proceedings, petitioners (G.R. No. 127405; October 4, 2000)
filed Criminal Case against Tan Eng Lay and Wilborn Tan for the use of
12
FACTS
(2) intention on the part of the partners to divide the profits among
Nenita A. Anay met William T. Belo, then the vice-president for themselves. It may be constituted in any form; a public instrument is
operations of Ultra Clean Water Purifier, through her former employer necessary only where immovable property or real rights are
in Bangkok. Belo introduced Anay to Marjorie Tocao, who conveyed her contributed thereto.
desire to enter into a joint venture with her for the importation and
local distribution of kitchen cookwares. This implies that since a contract of partnership is consensual, an oral
contract of partnership is as good as a written one..
Under the joint venture, Belo acted as capitalist, Tocao as president
and general manager, and Anay as head of the marketing department
and later, vice-president for sales.
————
The parties agreed that Belo's name should not appear in any TOCAO vs. CA (Motion for Reconsideration Case)
documents relating to their transactions with West Bend Company.
Anay having secured the distributorship of cookware products from the FACTS: Marjorie Tocao and William Belo filed a Motion for
West Bend Company and organized the administrative staff and the Reconsideration, alleging that there was no partnership between Belo
sales force, the cookware business took off successfully. They operated and Nenita Anay, the latter being a mere employee of Tocao.
under the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao's name. According to the witness Elizabeth Bantilan, Belo acted merely as
guarantor of Geminesse Enterprise.
The parties agreed further that Anay would be entitled to:
ISSUE: Whether or not a partnership exists between Belo and Anay?
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly RULING: No partnership exists between Belo and Anay.
production;
(3) thirty percent (30%) of the sales she would make; and It should be recalled that the business relationship created between
(4) two percent (2%) for her demonstration services. petitioner Tocao and respondent Anay was an informal partnership,
which was not even recorded with the Securities and Exchange
Commission. As such, it was understandable that Belo, who was after
The agreement was not reduced to writing on the strength of Belo's
all petitioner Tocao’s good friend and confidante, would occasionally
assurances that he was sincere, dependable and honest when it came
participate in the affairs of the business, although never in a formal or
to financial commitments.
official capacity. It was also confirmed in Bantilan’s testimony that Belo’
On October 9, 1987, Anay learned that Marjorie Tocao had signed a s presence in Geminesse Enterprise’s meetings was merely as
letter addressed to the Cubao sales office to the effect that she was no guarantor of the company and to help Tocao.
longer the vice-president of Geminesse Enterprise.
No evidence showed that Belo participated in the profits of the
business enterprise. Respondent Anay herself professed lack of
Anay attempted to contact Belo. She wrote him twice to demand her
knowledge that Petitioner Beloreceived any share in the net income of
overriding commission for the period of January 8, 1988 to February 5,
thepartnership. Also, Petitioner Tocao declared that petitioners Belo
1988 and the audit of the company to determine her share in the net
was not entitled to any share in the profits of Geminesse Enterprises.
profits.
With no participation in the profits, petitioner Belo cannot be deemed
a partner since the essence of a partnership is that the partners share
Anay still received her five percent (5%) overriding commission up to
in the profits and losses.
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P 13,300,360 With no participation in the profits, petitioner Belo cannot be deemed
.00. a partner since the essence of a partnership is that the partners share
in the profits and losses.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages against Marjorie D. Tocao and William Discussion:
Belo before the Regional Trial Court of Makati, Branch 140
Q: WON there is partnership?
The trial court held that there was indeed an "oral partnership Sir: Bakit? Bakit naging issue na meron bang partnership?
agreement between the plaintiff and the defendants. The Court of
Appeals affirmed the lower court’s decision. Q: Who was the flight attendant here? Is it Anay or Tocao?
A: -Tocao
ISSUE: WON the parties formed a partnership
Sir: It was Tocao who was in charge sa marketing then he used the
HELD: Yes, the parties involved in this case formed a partnership business of the other. So ang nangyari, nagkagulo tapos yun nagkaroon
ng ganitong issue tapos yun na WON there is a partnership kasi
inexclude, nilagyan na ng order (border?) “Do not come to the
The Supreme Court held that to be considered a juridical personality, a
premises, Miss Tocao! You are hereby excluded!” Now it is important
partnership must fulfill these requisites:
to determine if there is partnership. So, what did the Supreme Court
say?
(1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and A: there was no partnership here sir.
13
Q: So there was no partnership? Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of
the business. Yang answered the letter saying that upon the advice of
A: there was an informal partnership sir.
his counsel he had to suspend the payment (of the rentals) because of
Sir: So if there is informal partnership, walang partnership? So the pendency of the ejectment suit. In this letter Yang alleges that
kailangan bang formal sya? (LOL) inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid
to the lessors the rentals from August, 1949, he was retaining the
A: there was a partnership created sir. rentals to make good to the landowners the rentals due from Mrs. Yulo
in arrears.
Q: So ano ba talaga? Why did you say so? was there or wasn’t there a
partnership? In view of the refusal of Yang to pay to her the amount agreed upon,
A: ahhm, there was a partnership sir. Tocao is an industrial partner sir. Mrs. Yulo instituted this action on May 26, 1954, alleging the existence
of a partnership between them, that the defendant has acted
Q: What are the requisites of a partnership? maliciously and refuses to pay the participation of the plaintiff in the
profits of the business amounting to P35,000.
A: Two or more persons bind themselves to contribute either money,
industry or property With the intention to divide the profits among Yang alleges that the real agreement between the plaintiff and the
themselves. defendant was one of lease and not of partnership; that the
Q: So, what’s peculiar in this case is that they actually used the name of partnership was adopted as a subterfuge to get around the prohibition
the business of _____.They just registered as a? Ano yung business contained in the contract of lease between the owners and the plaintiff
name nila? against the sublease of the said property.
A: Geminesse Enterprise ISSUE: Whether the real agreement bet the parties was a partnership
or a sublease? Sublease.
Q: Which is a?
RULING: The agreement was a sublease, not a partnership.
A: which deals with a kitchenwares, cookwares and utensils.
The following are the requisites of partnership: (1) two or more persons
Q: Which is a? what kind of business is it? What kind of business
who bind themselves to contribute money, property, or industry to a
organization is it? (Mejo yawyaw si sir)
common fund; (2) intention on the part of the partners to divide the
A: It’s a partnership. profits among themselves. (Art. 1767, Civil Code.)
Sir: When we say enterprise, is it a partnership? It is a Sole In the first place, plaintiff did not furnish the supposed P20,000 capital.
proprietorship. So here you can see that no matter the fact that they In the second place, she did not furnish any help or intervention in the
actually used the name of a sole proprietorship, the court would still management of the theatre. In the third place, it does not appear that
rule in favor of it being a partnership, given the fulfilment of the she has ever demanded from defendant any accounting of the
requisites. You should look at the requisites. expenses and earnings of the business. Were she really a partner, her
first concern should have been to find out how the business was
Please read this case. This is one of the landmark cases in partnership.
This would be tackled when we go to dissolution. Number? So, let’s go progressing, whether the expenses were legitimate, whether the
to the case of Yulo v. Yang Chiao Seng. earnings were correct, etc. She was absolutely silent with respect to
any of the acts that a partner should have done; all that she did was to
YULO vs. YANG CHIAO SENG receive her share of P3,000 a month, which can not be interpreted in
any manner than a payment for the use of the premises which she had
FACTS:
leased from the owners. Clearly, plaintiff had always acted in
Yang Chiao Seng proposed to the plaintiff Mrs. Rosario U. Yulo the accordance with the original letter of defendant of June 17,1945 (Exh. "
formation of a partnership between them to run and operate a theatre A"), which shows that both parties considered this offer as the real
on the land rented by Mrs Yulo. contract between them.
One of the principal conditions of the offer is that Yang Chiao Seng Plaintiff claims the sum of P41,000 as representing her share or
guarantees Mrs. Yulo a monthly participation of P3,000, payable participation in the business from December, 1949. But the original
quarterly in advance within the first 15 days of each quarter, with the letter of the defendant, Exh. "A", expressly states that the agreement
condition that if Mrs. Yulo's right of lease is terminated by the owner, between the plaintiff and the defendant was to end upon the
then the partnership shall be terminated. termination of the right of the plaintiff to the lease. Plaintiff's right
having terminated in July, 1949 as found by the Court of Appeals, the
Pursuant to the above offer, which plaintiff evidently accepted, the partnership agreement or the agreement for her to receive a
parties executed a partnership agreement establishing the "Yang & participation of P3,000 automatically ceased as of said date.
Company, Limited," The capital is fixed at P100,000, P80,000 of which is
to be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains
and profits are to be distributed among the partners in the same Q: So why did they not execute a contract of lease? Bakit di nalang
proportion as their capital contribution, and the liability of Mrs. Yulo, in lease yung ginawa nilang contract? Bakit pa nila pahirapan ang sarili
case of loss, shall be limited to her capital contribution. nila? Bakit di nalang mag execute ng contract of lease na yun naman
talaga yung agreement? Why did they have made it appear that it is a
Since the land on which the theatre was constructed was owned by the
partnership?
Carrion Sta. Marias., and was merely leased to Petitioner Yulo; the
owners later exercised their right to cancel the contract of lease. Sir: (calls another student) is it a lease or a partnership?
14
A: It was sublease sir. Q: How about the requisite that there is an intention to divide the
profit among themselves? Was that complied with?
Q: but what did they execute?
A: No sir, because it appears that the plaintiff never demanded from
A: they executed a partnership agreement sir. the defendant any accounting of the expenses and earnings, and it was
stated in this case that a demand for accounting is actually one of the
Q: and why is that? Their intention was to create a partnership or a
strong evidences that there is a partnership.
lease agreement?
Q: Why?
A: their intention was to create a lease.
A: Because sir based on the essential requisites of partnership that
Q: Then why did they execute a partnership? Why not execute a
there is an intent to divide the profits among themselves, so a demand
contract of lease? What is the name of the document they executed?
for accounting is a strong indication that the second element is
A: It was not clearly stated here sir but according here sir they executed complied with.
a partnership agreement.
Sir: Kasi pag nag demand ng accounting, meaning? Kunwari ako lessor,
Q: Did they really execute a partnership agreement? Meron ba silang pinarent kita ng property, ngayon buwan buwan na akong
pinirmahan na partnership agreement? Meron ba silang document? I’m nagdedemand for payment for the lease and rental fees. How is that
talking about the document. Did they sign an articles of partnership? different from a demand for accounting? Because you said that when I
demand accounting, that means I could be a partner. But if I demand
A: No sir. just for the rental fees, is that a demand for accounting? kung
magdedemand lang ako ng rental fees?
Q: So ano yung document? Meron ba silang inexecute na document or
wala? A.There is a difference because accounting also accounts the expenses.
Yes you are accounting for the expenses. Meaning you are actually
A: What was stated in the case sir is merely a partnership agreement sir
after the profits. You are not only after the gross rental fees. When you
.
are demanding for the rental fees you are just after for the gross. Wala
Q: So merong partnership agreement na document? Meron? kang paki-alam kung nalugi ba iyong business o hindi. But when you
demand accounting you are also asking for the expenses meaning you
A: Yes sir. have demanded the profit of that business. In that words you are an
equity holder meaning you are demanding for the profit so that is why
Q: Okay but their intention was to execute a lease? it is said that it is a strong indication of a partnership.
A: Yes sir. EVANGELISTA vs CIR
Q: then why did they execute the partnership agreement when their FACTS: Petitioners borrowed sum of money from their father and
intention was to execute a lease agreement? What’s the ruling of the
together with their own personal funds they used said money to buy
Supreme Court? Is it a lease or a partnership agreement?
several real properties. They then appointed their brother (Simeon) as
A: It is a lease, sir. manager of the said real properties with powers and authority to sell,
lease or rent out said properties to third persons. They realized rental
Q: So bakit sila mag proprovide for provision for capitalization kung income from the said properties for the period 1945-1949.
lease naman talaga siya?
Sir: So, the reason kung bakit di nila inexecute ang lease contract is that On September 24, 1954 respondent Collector of Internal Revenue
there was a prohibition against SUBLEASING. Nirentahan lang nila demanded the payment of income tax on corporations, real estate
yung property that’s why they made it appear that it’s a partnership dealer's fixed tax and corporation residence tax for the years 1945-
agreement to circumvent the prohibition on subleasing. Pero sabi ng 1949. The letter of demand and corresponding assessments were
court, regardless of what you’re going to execute, it’s the intention of delivered to petitioners on December 3, 1954, whereupon they
the parties that will govern. So, in this case, the court said that this is instituted the present case in the Court of Tax Appeals, with a prayer
actually sublease because for one? that "the decision of the respondent contained in his letter of demand
dated September 24, 1954" be reversed, and that they be absolved
A: It was a lease because number 1, the plaintiff did not furnish the
from the payment of the taxes in question. CTA denied their petition
supposed capital.
and subsequent MR and New Trials were denied. Hence this petition.
Sir: So nilagay nila sa agreement, kunwari partnership tayo, (diba sa
partnership kailangan may capital?) so kunwari ilagay natin na ISSUE: Whether or not petitioners have formed a partnership?
magprovide tayo ng capital. Ang nangyari, they did not provide ng
capital. Ano pa? HELD: YES. The essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common
A: number 2, the plaintiff did not furnish any help or intervention in
fund; and (b) intent to divide the profits among the contracting
the management.
parties.
Sir: okay so walang capital na binigay, so pwede bang di tangible ang
ibigay? Pwede. Industry? Pero nag aactively manage ba sya? Nag The first element is undoubtedly present in the case at bar, for,
aactively participate ba sya? Wala. Dun palang sa first requisite na admittedly, petitioners have agreed to, and did, contribute money and
there was no contribution, wala ng partnership. There’s no partnership.
15
property to a common fund. Upon consideration of all the facts and HELD: The two (2) tests of partnership are:
circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain (a) there is an agreement to contribute money, property
and then divide the same among themselves, because of the following or industry to a common fund; (Elfeldo contributed
observations, among others: industry while the others contributed money)
(1) Said common fund was not something they found already in (b) intent to divide the profits among the contracting
existence; (2) They invested the same, not merely in one transaction, parties. (Elfledo did not receive wages or salaries from the
but in a series of transactions; (3) The aforesaid lots were not devoted partnership, indicating that what he actually received were
to residential purposes, or to other personal uses, of petitioners herein. shares of the profits of the business)
Although, taken singly, they might not suffice to establish the intent The following circumstances tend to prove that Elfledo was himself the
necessary to constitute a partnership, the collective effect of these partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave
circumstances is such as to leave no room for doubt on the existence of Elfledo ₱50,000.00, as share in the partnership, on a date that
said intent in petitioners herein. coincided with the payment of the initial capital in the partnership; (2)
Elfledo ran the affairs of the partnership, wielding absolute control,
For purposes of the tax on corporations, our National Internal Revenue power and authority, without any intervention or opposition
Code, includes these partnerships — with the exception only of duly whatsoever from any of petitioners herein; (3) all of the properties,
registered general copartnerships — within the purview of the term " particularly the nine trucks of the partnership, were registered in the
corporation." It is, therefore, clear to our mind that petitioners herein name of Elfledo; (4) Jimmy testified that Elfledo did not receive wages
constitute a partnership, insofar as said Code is concerned and are or salaries from the partnership, indicating that what he actually
subject to the income tax for corporations. received were shares of the profits of the business; and (5) none of the
petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in
Q. Material ba ang finding of series of transaction?
Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a
A. Yes because there was intention to gain profit from the series partnership.
transaction. Kasi kung wala it could have been a co-
ownership. Thre fact that there are series of transactions The above testimonies prove that Elfledo was not just a hired help but
mainly for profit, that indicated the existence of a contract of one of the partners in the trucking business, active and visible in the
partnership. running of its affairs from day one until this ceased operations upon his
demise. The extent of his control, administration and management of
LIM VS. LIM the partnership and its business, the fact that its properties were
placed in his name, and that he was not paid salary or other
FACTS: In 1980, the heirs of Jose Lim alleged that Jose Lim entered into
compensation by the partners, are indicative of the fact that Elfledo
a partnership agreement with Jimmy Yu and Norberto Uy. The three was a partner and a controlling one at that. It is apparent that the other
contributed P50,000.00 each and used the funds to purchase a truck to partners only contributed in the initial capital but had no say thereafter
start their trucking business. A year later however, Jose Lim died. The on how the business was ran. Evidently it was through Elfredo’s efforts
eldest son of Jose Lim, Elfledo Lim, took over the trucking business and and hard work that the partnership was able to acquire more trucks
under his management, the trucking business prospered. Elfledo was and otherwise prosper. Even the appellant participated in the affairs of
the partnership by acting as the bookkeeper sans salary.
able to put real properties in his name. From one truck, he increased it
to 9 trucks, all trucks were in his name however. He also acquired other
motor vehicles in his name. In 1993, Norberto Uy was killed.
ARTICLE 1770. A partnership must have a lawful object or purpose and
In 1995, Elfledo Lim died of a heart attack. Elfledo’s wife, Juliet Lim, must be established for the common benefit or interest of the partners
took over the properties but she intimated to Jimmy and the heirs of .
Norberto that she could not go on with the business. So the properties
When an unlawful partnership is dissolved by a judicial decree, the
in the partnership were divided among them. Now the other heirs of
profits shall be confiscated in favor of the State, without prejudice to
Jose Lim, represented by Elenito Lim, required Juliet to do an
the provisions of the Penal Code governing the confiscation of the
accounting of all income, profits, and properties from the estate of
instruments and effects of a crime.
Elfledo Lim as they claimed that they are co-owners thereof. Juliet
refused hence they sued her. The heirs of Jose Lim argued that Elfledo You have to take note that the object must be legal there must be
Lim acquired his properties from the partnership that Jose Lim formed community or benefit or interest of the partners.
with Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim
What are the effects of an unlawful partnership?
was the partner and not Elfledo Lim. The heirs testified that Elfledo was
merely the driver of Jose Lim. 1) The contract is considered void ab initio, it does not
exist in the eyes of the law and the profit shall be
confiscated in favor of the Government.
ISSUE: 1) Whether or not the parties formed a partnership? YES
2) Who between Jose and Elfeldo was the partner in the trucking 2) The instrument tools and proceeds of the crime shall
business? Elfeldo also be forfeited in favor of the Government; the
contributions of the partnership shall not be confiscated,
16
unless it is considered as instruments, tools and No questions on capital below 3,000 because by the provision it is
proceeds of the crime. consensual. So the time na mag execute ng contract of partnership
then there is a partnership.
Q. Why is it that the capital is not confiscated unless they form part of
the instruments or tools and proceeds of the crime? Q. How about the three thousand or more, kasi nakalagay sa Art. 1772
it must be recorded in the SEC. So is it the act of recording or the act of
A. Because your right to the profit stems from the contract of executing the articles of partnership?
partnership. You have to go to the contract of partnership for you to
get your right to the profits. And now if the contract of partnership is Because if you try to look at it, you have to execute first a contract of
void ab initio so void yung magiging basis mo of your profit. So since partnership before mo sya irecord. Ano yun mag record na kayo wala
void yung magiging basis mo of your profit wala kang interest doon sa pa kayo nag execute ng contract? NO. There has to be an execution
profit. Pero yung capital niyo, you can return that because you don’t first of the contract of partnership before sya irecord.
have to go to the contract of partnership for you to have that capital.
Because regardless of the contract of partnership ang capital niyo is Q. Saan mo ireckon ang juridical personality is it upon the execution of
magkaiba sa profit. a contract or is it upon the recording?
Again, profit stems from the contract of partnership that is the result of Stated otherwise is the recording now essential for the giving of
your contract of partnership. Without the contract of partnership hindi juridical personality of a partnership?
kayo magkak-aprofit but even wala kayong contract meron pa rin
A. What confers legal personality to a partnership is the act of
kayong capital. Because your capital existed even prior to your contract
executing the articles of partnership and not the recording in the SEC. It
of your partnership. So that is the reason why you can actually get it.
is well noted in the Civil Code that a partnership is valid in whatever
The only exception is when the capital contribution stems out of a form it was entered into because it does not require any formal
crime. formalities for the partnership to exist.
Q. Example of a crime na yung capital niyo is considered proceeds of a Q. Bakit nirequire pa ang recording?
crime?
A. The requirement of recording in the SEC is made for the purposes of
A. Money laundering can be one. regulation.
That is an example of an unlawful object or purpose. Q. How do you distinguish de jure partnership and de facto partnership
?
The essential attributes of Partnership, is that a contract of
partnership is— A. A de jure corporation is one that has completely fulfilled the
statutory formalities imposed by state partnership law in order to be
1. Consensual; granted existence. In comparison, a de facto partnership is one that has
2. There is mutual agency; acted in good faith and would be an ordinary partnership for failure to
3. It is governed by the Principle of Delectus Personae; comply with some technical requirements.
4. The partner is generally burdened with unlimited liability
Take note Art 1772 nakalagay lang which must be recorded hindi hindi
sinabi na kailangan ng approval.
ARTICLE 1771. A partnership may be constituted in any form, EXCEPT
where immovable property or real rights are contributed thereto, in So kung magpapa record ako sa SEC, can I by a petition for mandamus
which case a public instrument shall be necessary. mandate the SEC that “uy irecord niyo to” or discretionary ba sa kanila
ang act to record?
So from here you can actually determine that a contract of partnership
is consensual meaning it can be constituted in any form. Try to review the concept of de facto and de jure.
The only exception is actually tatlo (3) yan. When we go to limited July 9, 2019
partnership the Limited partnership has to be informed.
We discussed the cases on how to determine if there is a partnership.
But when an immovable property is contributed it has to be in a public Under Article 1770, we already discussed that the purpose must be
instrument, please take note of that. valid, it must be lawful otherwise you have the effects of unlawful
partnership.
ARTICLE 1772 Every contract of partnership having a capital of 3, 000
pesos or more, in money or property shall appear in a public We will start discussing the Attributes of a partnership:
instrument which must be recorded in the Office of the Securities and
Exchange Commission. 1. Consensual partnership
Failure to comply with the requirements of the preceding paragraph Art. 1771. A partnership may be constituted in any form, except where
shall not affect the liability of the partnership and the members immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary.
thereof to 3rd persons.
We have Article 1772 and 1773 which gives out the exceptions.
Q. When is your partnership constituted when your capital is three
thousand or more, is it upon the issuance/recording in the Office of the
Art. 1772. Every contract of partnership having a capital of three
SEC or is it upon the execution of the contracts of partnership?
thousand pesos or more, in money or property, shall appear in a public
17
instrument, which must be recorded in the Office of the Securities and Paragraph 2 refers to the recording of the SEC. Therefore what is the
Exchange Commission. purpose of recording in the SEC if it doesn’t affect the liability of the
partnership and the members thereof to third persons? It is for
So please take note that the SEC is only for the purposes of recording. purposes of regulation. It is to regulate. SEC is an agency for purposes
The SEC does not give its approval. So that’s the difference between a of regulation.
partnership and a corporation.In a corporation what gives its
personality is the State. That’s the beginning of the partnership. Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
Is it ministerial? Can you file a petition for mandamus for the SEC to made, signed by the parties, and attached to the public instrument.
record your Articles of Partnership? Pwede mo ba i-force si SEC na i-
record ang Article of Partnership? Can you compel them to record?
Take note this provision is very explicit. Therefore this is one of the
How about your corporation? Can you file a mandamus for the SEC to
exceptions wherein there is a formal requirement.
actually register your Article of Partnership?
Let’s recap the formal requirement.
As a rule, yes if it is only for recording you can actually compel the SEC
1. When immovable property or real right thereto is
to record your Articles if Partnership.
contributed to the partnership, it must be in a public
instrument and an inventory should be made, signed
Now, take note of Paragraph 2. Failure to comply with the
by the parties and attached to the public instrument,
requirements of the preceding paragraph shall not affect the liability of otherwise the contract is void. (Art 1773)
the partnership and the members thereof to third persons. So you have 2. In cases of limited partnership.
the general rule that a partnership is a consensual contract, just by the 3. When the capital is 3000 or more, it should appear in a
meeting of the minds you have already a contract of partnership. In public instrument which must be recorded in the office
relation to what I asked you before, some of your annotation discusses of the SEC. (Art 1772)
a de jure and de facto partnership. Being a consensual contract, how do
can you delineate if it is de jure or de facto? How can you say that this Take note this is only for purposes of recording and not for the validity
is a de jure or de facto? By definition of de facto, there’s a color of of the partnership. Therefore if Article 1772 is not followed, what
authority. happens? It does not affect the liability of the partnership and the
members thereof to third persons. If Article 1773 is not followed, it is
How do you distinguish de jure from de facto? considered as void. That is the only distinction of Article 1772 and
Article 1773.
De facto partnership or one which has failed to comply with all the legal
requirements for its establishment. Let’s discuss the case of Agad vs Mabato.
So it failed to comply with the legal requirements. So it is non-existence AGAD vs MABATO

. How can you say it is a partnership? Well that’s the problem with the
de facto and de jure kind of setup. Well ang sinasabi ko sa inyo, you can
FACTS: Mauricio Agad claim that he and SeverinoMabato are partners
exist as de facto but in law it is de jure. The problem with that is, where
in a fishpond business to which they contributed P1,000 each. Mabato
is the time that you can consider it de facto and when is the time that it
rendered the accounts of the partnership. However, for the years 1957-
is considered de jure?
1963, Mabato failed to render the accounts despite repeated demands
by Agad. Petitioner filed a complaint against Mabato for his share in the
Unlike incorporations is that after you submit your Article of
partnership profits. He attached a copy of the public instrument
Incorporation, you have 30 days to comply with your By-laws and that
evidencing their partnership in his complaint. Mabato denied the
is the period you can be considered a de facto. Kasi you are already
existence of the partnership alleging that Agad failed to pay his P1,000
existing but you have to comply with all the requirements pag you are
contribution. He then filed a motion to dismiss on the ground of lack of
already a corporation. So kung hindi ka nag submit within that period of
cause of action. The lower court dismissed the complaint finding a
30 days, iyon and de facto but if you submit you become a de jure.
failure to state a cause of action predicated upon the theory that the
contract of partnership is null and void because an inventory of the
Partnership is a consensual contract. Paano mag meeting of the minds?
fishpond referred in said instrument was not attached.
So saan doon si de facto? Saan doon si de jure? Kailanagan pa ba
magpirma? Good Question. Kailanagan pa ba magkaroon ng Articles of
ISSUE: Whether or not immovable property or real rights have been
Partnership? Kailangan pa ba magprima ng mga partner? Is it necessary
contributed to the partnership
for there to have a written agreement? Wala diba. Once mag aree na
partner tayo, partnership na ba?
RULING: Art. 1771. A partnership may be constituted in any form,
Q: Is it a partnership? Let’s say “Tol partner tayo”. May partnership na except where immovable property or real rights are contributed
ba? Tapos nag agree ka “Sige tol!”. May partnership na? thereto, in which case a public instrument shall be necessary.
A: Yes sir. If it does not comply with the legal requirements then there’s
no partnership.
Art. 1773. A contract of partnership is void, whenever immovable
Q: Saan doon yung de facto pa siya given na may partnership? Meron property is contributed thereto, if inventory of said property is not
ba talagang de facto partnership? made, signed by the parties; and attached to the public instrument.
A: Wala naman talagang de facto unlike in a corporation setup because
you have a period to comply with certain requirements. It does not in Mabato alleged and the lower court held that the answer should be in
fact involve the validity of the corporation. The problem with the affirmative, because it is really inconceivable how a partnership
partnership walang ganoon. Especially with de facto kasi partnership is engaged in the fishpond business could exist without said fishpond
consensual. property being contributed to the partnership. It should be noted,
however, that, as stated in Annex "A" the partnership was established "
to operate a fishpond", not to "engage in a fishpond business.
18
Moreover, none of the partners contributed either a fishpond or a real The parties then executed a Deed of Sale to respondent, who in turned
right to any fishpond. mortgaged the land for a loan. The proceeds of which will be for the
development of the said parcel of land. However, the project did not
The operation of the fishpond mentioned in Annex "A" was the purpose push through and the land was foreclosed.
of the partnership. Neither said fishpond nor a real right thereto was
contributed to the partnership or became part of the capital thereof, The sisters filed cases against the respondent. The lower court found
even if a fishpond or a real right thereto could become part of its assets that there is a partnership between the parties on the basis of the JVA
. and Deed of Sale. Since there were losses that that were incurred by
the parties, then they should share it proportionately.
We find that said Article 1773 of the Civil Code is not in point and that,
the order appealed from should be, as it is hereby set aside and the The petitioners opposed, contending that there is no partnership
case remanded to the lower court for further proceedings. because the JVA and the Deed of Sale which was the basis of their
partnership, were all void based on Art. 1773.
Q: What’s the issue?
A: Whether or not immovable property or real rights have been Issue: WON the parties had formed a partnership
contributed to the partnership
Ruling: YES. The terms embodied in the Agreement indubitably
Q: Bakit yan yung issue? shows the existence of a partnership pursuant to Article 1767 of
A: Because if it is an immovable property it must be in a public the Civil Code, which provides:
instrument.
Art. 1767. By the contract of partnership two or more persons bind
Sir: Ganito may partnership sila tapos nag file ng petition for dissolution themselves to contribute money, property, or industry to a common
. Kunin ko yung profit yun yon. Meron tayong partnership. Mag fund, with the intention of dividing the profits among themselves.
liquidate na tayo. Kunin ko na yung profit. Sabi nila wala naman profit
na pinaguusapan kasi hindi naman sila partnership in the first place. So The first requisite is present, it was shown that the sisters contributed a
it is very material to first determine if there is partnership or wala property, in a form of a land. While the respondent contributed for the
because ang cause of action ng isa which is dissolution and accounting amount needed for the general expenses. As to the second requisite,
for profits is premised on the fact that there is partnership. Kaya siya “the intention to divide the profits themselves.” This requisite is shown,
naging material. Kaya in-allege ng kabila “No, there’s no partnership so when the Income from the project would be divided according to the
walang cause of action.” That’s the meat of it. Ngayon they question stipulated percentage.
bakit walang cause of action kasi nag engage tayo in the business of
fishpond tapos may contribution daw na immovable property and then These 2 requisites which were shown under circumstances were all
it was not in the inventory or public instrument. present, hence there is a partnership.
Q: Ano sabi ng supreme court? Ano yung purpose ng business nila? Issue: WON the JVA is void
Pagsinabing to operate a fishpond, anong ibig sabihin? Pag engage in
the fishpond business, kailangan may contribution? San galing yung Ruling: Under Article 1773 of the Civil Code, which provides:
fishpond na inoperate nila? Paano sila mgooperate ng fishpond kung
wala silang contribution? Art. 1773. A contract of partnership is void, whenever immovable
A: Sila di nila kailangan magkaroon ng fishpond at the time they property is contributed thereto, if an inventory of said property is not
entered into an agreement. So you don’t need to contribute a fishpond made, signed by the parties, and attached to the public instrument.
or any real right thereto for you to operate a fishpond because pwede
mo naman i-acquire yan after. Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision
Q: What if I want to setup a real estate business? Pero wala akong lupa. which is a complement of Article 1771, "The execution of a public
Pwede ba ako magkaroon ng real estate business kung wala akong lupa instrument would be useless if there is no inventory of the property
ngayon? Anong kailangan ko? contributed, because without its designation and description, they
A: Kailngan ko ng pera kasi yung pera yun yung pambili ko ng lupa. cannot be subject to inscription in the Registry of Property, and their
Pagbili ko ng lupa meron na ako pang real estate. So in other words, contribution cannot prejudice third persons. This will result in fraud to
you don’t have to have that immovable at the time of setting up. those who contract with the partnership in the belief [in] the efficacy of
the guaranty in which the immovables may consist. Thus, the contract
So in other words the prohibition or requirements in Article 1773 is declared void by the law when no such inventory is made." The case
pertains to the initial contribution. Even if you will have a real right or at bar does not involve third parties who may be prejudiced.
immovable property later on, for as long as the initial contribution does
not consist of immovable property or real right you do not need to
comply with Article 1773. Q: So are you of the opinion that the requirement for subscription or
execution of public instrument is not for purposes of validity? What do
you call that? If it is for the benefit of third persons? Di na kailangan?
JULY 12, 2019
A: No.
Torres vs Court of Appeals
Facts: Antonia and Emeteria entered a joint venture together. The

purpose of this joint venture (JVA) is for the development of a land into
a subdivision.
19
So, if you are faced with this kind of problem, doon ka sa mas express
Litonjua vs. Litonjua
ang ruling, which is Lintojua vs Litonjua. In Torres kasi, it was not the
Facts: Aurelio and Eduardo are brothers. They entered into a only contention, that is why the Supreme Court ruled that way there
partnership. This was provided in an agreement called were other factors in interpreting the contract. Therefore, there was a
“memorandum.” Aurelio’s contribution here consisted of his seemingly in conflict if you would read carefully their rulings. The Court
share in the family business, which involves the movie theatre, is more express and explicit in ruling in Litonjua over the Torres case,
shipping and land development, so immovable properties and that justifies the provisions that without the public instrument the
real rights. contract of partnership is void but the court will not be prevented in
treating it as an ordinary contract which happened in Torres vs. CA.
Aurelio requested an accounting and liquidation of his share in
the partnership.
Article 1774. Any immovable property or an interest therein may be
Issue: WON the memorandum established a valid contract of acquired in the partnership name. Title so acquired can be conveyed
partnership only in the partnership name. (n)
Ruling: NO. The law requires that if the partnership involves It is in accordance with the concept that a partnership has a separate
immovable properties and real rights, there should be a public juridical personality. It can have properties under its name.
instrument and inventory signed by the parties, otherwise the
agreement will not be valid. Article 1775. Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members may
contract in his own name with third persons, shall have no juridical
personality, and shall be governed by the provisions relating to co-
Q: Is it for validity? Or to protect third persons? ownership. (1669)
A: In Litonjua sir it was for validity, because the Court said that the Characteristics of Mutual Agency
agreement was null and void for purposes of establishing partnership.
This only goes to show that there is actually a mutual agency between
Let me cite the actual ruling of the case, the partners. Kung partners kayo in partnership, whatever one partner
will do, binds the partnership.
Lest it be overlooked the contract validating inventory requirement, (so
that requirement is actually the one which gives validity to the contract Article 1803. When the manner of management has not been agreed
) under article 1773 of the civil code applies, as long as real property or upon, the following rules shall be observed:
real rights are initially brought into the partnership. In short, it is really (1) All the partners shall be considered agents and whatever any one of
of no moment which of the partners, or, in this case, who between them may do alone shall bind the partnership, without prejudice to the
petitioner or his brother Eduardo, contributed immovable. In context, provisions of article 1801.
the more important consideration is that real property was contributed
(2) None of the partners may, without the consent of the others, make
, in which case an inventory of the contributed property duly signed by
any important alteration in the immovable property of the partnership,
the parties should be attached to the public instrument, else there is
even if it may be useful to the partnership. But if the refusal of consent
legally no partnership to speak of.
by the other partners is manifestly prejudicial to the interest of the
Now, what happened to the Torres case? What case is correct? How partnership, the court's intervention may be sought. (1695a)
will you reconcile the 2 cases (Torres and Litonjua)?
Article 1818. Every partner is an agent of the partnership for the
So pano pag pag comply sa 1773? Is it for validity? purpose of its business, and the act of every partner, including the
execution in the partnership name of any instrument, for apparently
In Litonjua, the Court is very explicit in saying that it is the one that carrying on in the usual way the business of the partnership of which
validates the contract. Look at the ruling in Torres, anong sabi? he is a member binds the partnership, unless the partner so acting has
in fact no authority to act for the partnership in the particular matter,
Diba? first we clarified that it is for purposes of protecting third persons and the person with whom he is dealing has knowledge of the fact that
. Second, petitioners themselves invoked the allegedly void contract as he has no such authority.
to their claim that respondent should pay them 60%. They cannot in An act of a partner which is not apparently for the carrying on of
one breath deny the contract, while in the other recognize it, business of the partnership in the usual way does not bind the
depending on what momentarily suits their purpose. Parties cannot partnership unless authorized by the other partners.
adopt inconsistent positions in regard to a contract and courts will not
Except when authorized by the other partners or unless they have
tolerate, much less approve such practice.
abandoned the business, one or more but less than all the partners
In short the, the alleged nullity of the partnership will not prevent the have no authority to:
court from considering the JVA an ordinary contract from which the (1) Assign the partnership property in trust for creditors or on the
parties’ rights and obligations to each other may be inferred and assignee's promise to pay the debts of the partnership;
enforced.
(2) Dispose of the good-will of the business;
If you try to look at the ruling, medyo nag sway ang SC. It did not say na (3) Do any other act which would make it impossible to carry on the
its void, and even it is void, we are not prevented from treating it as an ordinary business of a partnership;
ordinary contract.
(4) Confess a judgment;
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Why damay ang personal assets? Bakit di na lang gayahin ang
(5) Enter into a compromise concerning a partnership claim or liability;
corporation? What is it with partnership that subjects the partners’
(6) Submit a partnership claim or liability to arbitration; personal assets?
(7) Renounce a claim of the partnership.
Back to our taho business example. Sino ba yung nag decide? Sno ba
No act of a partner in contravention of a restriction on authority shall yung may control sa business?
bind the partnership to persons having knowledge of the restriction. (n)
Diba isang tao lang? pwede syang kumuha ng pera sa ibang business.
We will discuss this later, just to emphasize that there is mutual agency
in partners. The principle of mutual agency lies on part of partnership Now lets go further. In a partnership, there’s a mutual agency, so it’s
arrangement. It defines the prerogative of every partner to participate still the partners who control the operations. It’s the partners who
in the management of the partnership business. It is basically a decide, as compared to a corporation, it is the board of the directors
partnership is a conglomeration of sole proprietorship. Otherwise, it is who are given the power.
counter-productive to the purpose, if kailangan nya pa ng consent ng
It would be unfair if gawing unlimited liability ang shareholder, na
iba.
walang control sa negosyo. They don’t know the ins and outs of the
Principle of Delectus Personae business or the funds if san na invest. Therefore, it would be unfair if
they are liable as to their personal assets na wala na man silang control.
The best way to define this principle is that the contract of partnership
creates the most personal relationship between and among the The essence of giving unlimited liability is based mainly on the control.
partners, which if broken also breaks the bond of partnership. Partners have control in the partnership, may mutual agency nga. It is
just a conglomeration of sole proprietorship. So is essentially because
This doctrine emphasizes the personal contractual relationship of the element of control, that is why sole proprietorship and
between and among the partners, being more important than property partnership have unlimited liability.
rights and the business enterprise created in the partnership.
Limited Partnership
Usually, all of the concepts on partnership is based on the premise that
there is that element of delectus personae. “I choose who I want to be A specie in a spectrum of business organization. It is in between
associated with, nobody could prevent me to associate with this person corporations and partnerships. It has the characteristics of a
.” But of course, you also have the right to break away from the corporation as well as of a partnership, particularly when it comes to
partnership. So walang pilitan. Di ka pipilitin na magkipag partner sa liability kasi may tinatawag na limited partner. They are only liable to
ibang tao, di ka rin pipilitan na mag stay. But that doesn’t mean na wala the extent of their contribution. Precisely because, doon lng ang
kang damages. That is the concept, like in liquidation if you are in bad liability nila, di sila authorized to control the business, kasi ang liability
faith, you have damages. lng nila is doon lang sa kanilang investment.
The Concept of Unlimited Liability Once they do manage or control the business, they become a general
partner, therefore they are liable to the extent of their personal assets.
Another characteristic of a partnership is that they are subject to The unlimited liability is in relation to the control of the owners. The
unlimited liability. Distinguish this with corporation. partners have absolute control when it comes to decision-making or
operations of the business.
Who owns the corporation?
Partnership Distinguished From Other Business Means
The shareholders.
Joint venture
The shareholders cannot be made liable to their own personal assets.
Magiging liable lang sila doon sa kanilang contribution. Whereas, Usually for a specific of single transaction. An example is development
generally, a partner in partnership is liable to the extent of their of condominiums, a joint venture between the land owner and the
personal assets. developer.
Kahit malugi yung partnership, kunwari meron pang utang, the Before, walang tax yung mga joint venture or the project itself but
creditors can actually go after the assets of the partners (concept of taxed separately. But lately, because of proliferation of this kind of set
unlimited liability). up, nag issue ng mga regulations na to be exempted the joint venture
must be between 2 contractors.
Kung sole proprietor ka, same din. Let us say marami kang negosyo. Sa
morning nagtataho ka. Sa afternoon bananaque, evening barbeque Co-ownership
naman. Let us say, yung taho mo nagkautang ka, kasi palugi sya, then
naniningil ang supplier. Tapos may benta ung other business mo, the Joint account, cuentas en participacion in some old cases (but no longer
creditor or supplier can go after that. applicable).
Yung partnership, same lang. Let us say, partner kayong dalawa. Agency
Nagkautang yung partnership, in relation to the business. Di na maka
If pure agency, the agency is merely a legal extension of the personality
bayad yung partnership, so the creditors can go after the partners. That
of the principal. Whereas in partnership, there is a mutual agency. The
is why you are given the rights to select to whom you want to be
partners are both agents and principals to each other.
associated with. Remember, ikaw ang pumili kung kaino mo gustong
makipag partner. Then there’s this mutual agency, kung ang partner Business Trust
pala utang, damay akong personal assets.
21
Distinguish (partnership) from agency – pag pure agency, the agency is (2) Number of incorporators. — A partnership may be organized by
merely the legal extension of the personality of the principal. only two persons (Art. 1767.), while a corporation (except a corporation
Whenever in the partnership, there is mutual agency. So partners are sole) requires at least five incorporators;
both agent and principal. (3) Commencement of juridical personality. — A partnership
commences to acquire juridical personality from the moment of the
Distinguish (partnership) from the business trust – now, trust, as I’ve execution of the contract of partnership (Art. 1784.), while a
told you, the business trust is more in line with the concept under your corporation begins to have juridical personality only from the date of
Banking. Trust, meaning they get the money noh from the public or issuance of the certificate of incorporation by the Securities and
from whatever funds, they manage your funds in trust fund. Exchange Commission;
(4) Powers. — A partnership may exercise any power authorized by the
We don’t have, or we have but we don’t usually use the concept of partners provided it is not contrary to law, morals, good customs,
trust na medyo familiar sa US. Trust Fund/Trust Fund person, Wala public order, or public policy (Art. 1306.), while a corporation can
masyadong gumawa yan ngayon dito sa atin kasi I don’t know it’s exercise only the powers expressly granted by law or implied from
because, I think it’s cultural thing. Pero pwede naman, may provisions those granted or incident to its existence;
naman tayo na pwede pero hindi rin siya ginagamit. Now it is actually a (5) Management. — In a partnership, when the management is not
good tool for estate planning. Sobrang yaman niyo except that the agreed upon, every partner is an agent of the partnership (Art. 1803.),
estate tax has already been too significant to 6% but come to think of it while in a corporation, the power to do business and manage its affairs
, if you have worth P200 Million of property tapos in 10 years time puro is vested in the board of directors or trustees;
land yan. Land is the only property that doesn’t really go down. Unless (6) Effect of mismanagement. — In a partnership, a partner as such can
of course magka earthquake. So it really goes up so if you have, if you sue a co-partner who mismanages (see Arts. 1794, 1806, 1809.), while
are a xxx person, 6% is still too much if you get properties of 500 in a corporation, the suit against a member of the board of directors or
Million. What happens with, wala na nag segue nako, what happens trustees who mismanages must be in the name of the corporation;
with lack of estate planning? You know the owner of the xxx? Double (7) Right of succession. — A partnership has no right of succession (see
mint? Uhm xxx .. I think John ang pangalan niya, 4th generation. They Arts. 1828-1831, 1860.), while a corporation has such right;
were forced to sell the company because they are heavily indebted (8) Extent of liability to third persons. — In a partnership, the partners (
with the estate I think when their lolo died tapos sobrang laki ng estate except limited partners) are liable personally and subsidiarily (
what happens pag sobrang laki? So hindi mo matransfer yung mga sometimes solidarily) for partnership debts to third persons (see Arts.
property mo kasi you need to secure, you need to bail that estate tax, 1816, 1822-1824.), while in a corporation, the stockholders are liable
secure the certificate of registration for it to transfer the title. Eh hindi only to the extent of the shares subscribed by them;
mo ma transfer yung property hanggat hindi ka magbabayad ng estate (9) Transferability of interest. — In a partnership, a partner cannot
tax. So ano mangyayari sa property? Matetengga kasi wala namang transfer his interest in the partnership so as to make the transferee a
bibili niyan pag hindi pa natatransfer sa buhay na tao sa mga anak. So partner without the consent of all the other existing partners because
ang mangyayari ma tetengga siya so what happens pag ang laki ng the partnership is based on the principle of delectus personarum (see
estate tax debt mo? You are forced to sell your property at a sacrificial Arts. 1767, 1804.), while in a corporation, a stockholder has generally
amount. Ang daming nangyari binenta, market value of the properties the right to transfer his shares without the prior consent of the other
10m nabebenta lang sa 5million kasi kailangan ng cash. Kasi hindi mo stockholders because a corporation is not based on this principle;
naman pwede ipangbayad yung lupa. It has to be paid generally in (10) Term of existence. — A partnership may be established for any
money unless of course, it is levied as a payment of taxes. Now, period of time stipulated by the partners (see Arts. 1767, 1785.), while
magbabayad so yun yung naging problema. In Rigles case, they had to a corporation may not be formed for a term in excess of 50 years
sell the shares of their company because wala silang pangbayad ng tax. extendible to not more than 50 years in any one instance;
So ayun, napunta sa ibang tao. I think that is what they are foreseeing (11) Firm name. — A limited partnership is required by the law to add
in Samson, the owner of Samson is xxx… That is what they are actually the word “Ltd.” to its name (Art. 1844[1, a].), while a corporation may
foreseeing kasi Korean estate tax law is very strict. They try to divert adopt any fi rm name provided it is not the same as or similar to any
funds, they try to ang ginagawa kasi ng iba is, they restructure registered firm name;
companies no, you can restructure in some of that. In Korea, if you (12) Dissolution. — A partnership may be dissolved at any time by the
restructure while you are already earning, it is tantamount to tax will of any or all of the partners (Art. 1830[1, 2].), while a corporation
evasion so… nahihirapan sila mag restructure. They are foreseeing that can only be dissolved with the consent of the State; and
unless of course they are very liquid at the time xxx, it might be sold to (13) Governing law. — A partnership is governed by the Civil Code,
someone else, to public auction. That is what they are foreseeing. So while a corporation is governed by the Corporation Code.
layo ng napunta natin…
Another question, does a defective incorporation process result into a
Distringuish (partnership) from the corporation – a partnership and partnership? Let’s say, sabi nga ni Mr. xxx, you can be a corporation
corporation – now if you have to memorize a distinction, it has to be with the consent of the State. Now, while in partnership it’s just mere
this one, it’s very common to distinguish partnership from a consent. Now what if nag apply ka as a corporation tapos na disapprove
corporation. or di nabigyan ng consent by the State to be a corporation? Does that
automatically considered a partnership? Gawa tayo ng corporation,
NOTE: Wala gidiscuss ni sir ang distinction between corporation and diba, gawa tayo ng Articles of Incorporation, sinubmit niyo sa SEC but
partnership. But under Partnership, Agency, and Trust book by De Leon for reasons, let’s say, may foreigner, for more than 40% so hindi inallow
, these are the distinctions between partnership and corporation) ng SEC. Hindi inallow ng SEC so will that be considered a partnership
now? Diba you try to put up a business kaso hindi inallow ng SEC for a
Partnership distinguished from legal reason. Will that be considered a partnership? Will a defective
a corporation. incorporation result into a partnership? Anyone?
The following are the distinctions: (NOTE: May recitations here about the answer to the question but dili
(1) Manner of creation. — A partnership is created by mere agreement kaayo nako siya matranscribe everything kay dili nako madunggan
of the parties (Art. 1787.), while a corporation is created by law or by tanan ginapangingon ☹) but in essence, the answer to the question is:
operation of law;
22
It does not result into a partnership because in the first place, there is Art. 1776. As to its object, a partnership is either universal or particular.
no meeting of the minds. It lacks the element of consent. As regards the liability of the partners, a partnership may be general or
limited. (1671a)
Cooperative, now cooperative is what? Cooperative is general
associations of persons with common body of interests who have Art. 1777. A universal partnership (*of all present property) may refer
voluntarily joined together to achieve common lawful socio-economic ( to all the present property or to all the profits. (1672)
universal accepted principle)
(2) As to liability of the partners. — It may be:
Im just reminded of this ano no, proliferation of KAPA .. siguro in the (a) General partnership or one consisting of general partners who are
past month, kadami ko na talagang consultations for the reason kasi liable pro rata and subsidiarily and sometimes solidarily with their
wala naman kasi masyadong nagpapractice ng corporate law dito sa separate property for partnership debts; or
Davao. So ang daming ano, they think they can just legalize it quickly. I
mean I went to the extent of talking to the BSPs, IT coregroup, to (b) Limited partnership or one formed by two or more persons having
explain no if it’s really possible. Noh we have VC, pwede naman tayo as members one or more general partners and one or more limited
here in the Ph, we call it Virtual Currency exchange. That’s the reason partners, the latter not being personally liable for the obligations of the
why in my banking class last time, I really try to allow my students to do partnership.
their research because these are disruptions, I think nakita ko na to
years back, uhm, the banking industry is going to be disrupted by this (3) As to its duration. — It is either:
proliferation of these commercial transactions. (a) Partnership at will or one in which no time is specified and is not
formed for a particular undertaking or venture and which may be
Here in Ph, you can have two VCs. Virtual Currency exchange. You have terminated at anytime by mutual agreement of the partners, or by the
to be registered as a remittance and transfer center with foreign will of any one partner alone; or one for a fixed term or particular
exchange dealings and VC service. Example, points PH ka, but the xxx undertaking which is continued by the partners after the termination of
set up is very rigorous yang points PH sobrang ganda. Ito namang taga such term or particular undertaking without express agreement or
tagum, mga tagum akala nila, nagbili lang ng sardinas, hindi ganun
kadali yan. You have to have a good business plan otherwise, hindi rin (b) Partnership with a fixed term or one in which the term for which the
yan maa-approve tapos akala nila ganung lang siya kadali. No. There’s a partnership is to exist is fixed or agreed upon or one formed for a
lot of efficacies that you have to consider. particular undertaking, and upon the expiration of the term or
completion of the particular enterprise, the partnership is dissolved,
Even BSP and SECs(?), they are at odds with each other. Kasi naapprove unless continued by the partners.
ka nga, nabigyan ka nga ng license to cooperate the CVC exchange pero
what did you do? Mag advertise ka blah blah blah, (literally said by sir) (4) As to the legality of its existence. — It may be:
papasok si SEC, uy wait lang, that is an investment contract. If that is an (a) De jure partnership or one which has complied with all the legal
investment contract, you need to be registered under SRC (Securities requirements for its establishment; or
Regulation Code). So these are very technical, specific requirements.
(b) De facto partnership or one which has failed to comply with all the
Kaya nga the reason why KAPA, diba paulit ulit? The reason why KAPA legal requirements for its establishment.
violates the law is because it does not have secondary license. Kasi it *Partnership is merely perfected by mere consent. It is consensual, not
cannot just get investment from the public without securing secondary formal.
license under the SRC. Now, yung bagong lawyer pa ako, merong kasing
hospital, ginagawa ng mga hospitals is that, uy invest kayo, merong Ito na yun, may dejure and defacto, but again my opinion on this one is
mga free medical benefits, etc. etc. ang dami niyan, tingnan niyo sa there is no de facto kasi kung base on consent lang, saan mo
mga probinsya niyo, kasi ang funding niyan kasi dun sa investments malalaman kung saan yung time moment of time kung magkakaroon
ng…practically, public, 200k, isang slot ng chair, ganon, tapos meron pa siya ng xxx defacto(?) nihinay iyang tingog ☹
ganito ganito. Now, may pumunta sa akin, sabi niya legal ba daw to?
Sabi ko, to be honest, hindi siya legal because you cannot just solicit (5) As to representation to others. — It may be:
investment. Now, kung mag incorporate ka ng corporation, may limited (a) Ordinary or real partnership or one which actually exists among the
incorporators lang yan tapos every year, may limited number may partners and also as to third persons;
limited number of shareholders ang papasok, hindi yan pwedeng
sabayan kasi the reason why may SRC tayo is precisely to prevent (b) Ostensible partnership or partnership by estoppel or one which in
scams. Kasi what happens if madali ka lang matintal? Ano ba ang reality is not a partnership, but is considered a partnership only in
ginagawa sa secondary license? Pag mag apply ka ng secondary license, relation to those who, by their conduct or admission, are precluded to
chinecheck ng SEC capable ba yung company mo? Ano yung source of deny or disprove its existence.
funds mo? Ano operations mo? Now positive kumikita ka ba for the
past three years? May capacity ka ba to make good promises to the We have one particular provision regarding ostensible partnership
public, otherwise, pag wala kang ganito, hindi ka ma-aapprovan ng
secondary license, so you cannot solicit investments from the public. So (6) As to publicity. — It may be:
ito sinasabi nila na okay naman pwede naman maging shareholders. (a) Secret partnership or one wherein the existence of certain persons
That’s technically wrong kasi limited lang po number of shareholders na as partners is not avowed or made known to the public by any of the
pwedeng ipapasok pag wala kang secondary license. So these are for partners; or
the purposes of protecting the public and sometimes people don’t
really get that. You know when you are a lawyer, sometimes age is (b) Open or notorious partnership or one whose existence is avowed or
against you. made known to the public by the members of the firm.
Different classifications of partnership (7) As to purpose. — It may be:

(a) Commercial or trading partnership or one formed for the
transaction of business; or
23
not he has an actual interest in the firm. Thus, he may be an
(b) Professional or non-trading partnership or one formed for the actual partner or a nominal partner. If he is not actually a
exercise of a profession. partner, he is subject to liability by the doctrine of estoppel;
Kinds of partners (b) Secret partner or one who takes active part in the
business but is not known to be a partner by outside parties
Partners are classified according to their interests in the partnership nor held out as a partner by the other partners, although he
business, or their obligations to the partnership, or their liabilities to participates in the profits and losses of the partnership. He is
third persons. an actual partner. He is also an active partner in the sense
that he participates in the management of the partnership
(1) Under the Civil Code. — Partners are classified into: affairs;
(a) Capitalist partner or one who contributes money or
property to the common fund; (c) Silent partner or one who does not take any active part in
the business although he may be known to be a partner.
(b) Industrial partner or one who contributes only his Thus, he need not be a secret partner. If he withdraws from
industry or personal service; the partnership, he must give notice to those persons who
do business with the firm to escape liability in the future;
(c) General partner or one whose liability to third persons
extends to his separate property; he may be either a capitalist or (d) Dormant partner or one who does not take active part in
industrial partner. He is also known as real partner; the business and is not known or held out as partner. He
would be both a silent and a secret partner. He would be
This one is there is unlimited liability as to third persons. both a secret and a silent partner. He may retire from the
partnership without giving notice and cannot be held liable
(d) Limited partner or one whose liability to third persons is for obligations of the firm subsequent to his withdrawal. His
limited to his capital contribution. He is also known as special partner. only interest in joining the partnership would be the sharing
The terms “general partner” and “limited partner” have relevance only of the profits earned.
in a limited partnership; The term is used as synonymous with “sleeping partner”;
(e) Managing partner or one who manages the affairs or (e) Original partner or one who is a member of the
business of the partnership; he may be appointed either in the articles partnership from the time of its organization;
of partnership or after the constitution of the partnership. He is also
known as general or real partner; (f) Incoming partner or a person lately, or about to be, taken
into an existing partnership as a member; and
(f) Liquidating partner or one who takes charge of the
winding up of partnership affairs upon dissolution; (g) Retiring partner or one withdrawn from the partnership;
a withdrawing partner.
(g) Partner by estoppel or one who is not really a partner, not All partners in any of these six classes are subject to liability
being a party to a partnership agreement, but is liable as a for all partnership
partner for the protection of innocent third persons. He is obligations.
one who is represented as being in fact a partner, but who is
not so as between the partners themselves. He is also known Just note the definition but I really doubt if this will come out in the Bar
as partner by implication or nominal partner. because gone are the days of the bar questions to be objective. More
on hypothetical mga cases na siya, for a reason kasi you have to argue
The term “quasi-partner” is sometimes used; naman no on the basis of what you have learned.
(h) Continuing partner or one who continues the business of Art. 1777. A universal partnership (*of all present property) may refer
a partnership after it has been dissolved by reason of the to all the present property or to all the profits. (1672)
admission of a new partner, or the retirement, death, or
expulsion of one or more partners; Sir: Please take note that you have universal partnership of all present
property and you have universal partnership to all the profits.
Sir: Kapag na dissolve na tapos gi continue ng isang partner, of course if
I-continue ng isang partner, meron pa siyang isang partner. Of all present property – so let’s discuss first the first type of universal
partnership.
(i) Surviving partner or one who remains after a partnership
has been dissolved by the death of any partner; and Art. 1778. A partnership of all present property is that in which the
partners contribute all the property which actually belongs to them to a
(j) Subpartner or one who, not being a member of the common fund, with the intention of dividing the same among
partnership, contracts with a partner with reference to the themselves, as well as all the profits which they may acquire therewith.
latter’s share in the partnership. (1673)
Sir: There’s a provision in subpartnership, yung partner meron siyang Art. 1779. In a universal partnership of all present property, the
kanyang partner. So may partnership, may partner, meron din siyang property which belongs to each of the partners at the time of the
ibang partner. Subpartnership. constitution of the partnership, becomes the common property of all
the partners, as well as all the profits which they may acquire therewith
(2) Other classifications. — They have also been classified into: .
(a) Ostensible partner or one who takes active part and

known to the public as a partner in the business, whether or
24
A stipulation for the common enjoyment of any other profits may also (Sir: Please take note that this is already under your Property diba, no
be made; but the property which the partners may acquire need for a conviction, only a preponderance of evidence is required.)
subsequently by inheritance, legacy, or donation cannot be included in
such stipulation, except the fruits thereof. (1674a) (2) Those made between persons found guilty of the same criminal
offense, in consideration thereof;
Sir: So this sounds really really familiar. Under your… ano? Kung ano (Sir: Example of this one is what? Anti-graft.)
yung property niyo, partner kayo, lagay sa fund.. your? Property
Relations under your Family Code. So please take note, there’s an (3) Those made to a public officer or his wife, descendants and
implications of husband and wife entering into a partnership under the ascendants, by reason of his office.
Civil Code and property relations under your Family Code. We’ll discuss (Sir: Ito rin anti graft.)
that later.
In the case referred to in No. 1, the action for declaration of nullity may
Art. 1780. A universal partnership of profits comprises all that the be brought by the spouse of the donor or donee; and the guilt of the
partners may acquire by their industry or work during the existence of donor and donee may be proved by preponderance of evidence in the
the partnership. same action. (n)
Movable or immovable property which each of the partners may Sir: Now a good question now is that can spouses just between
possess at the time of the celebration of the contract shall continue to themselves or with third party validly enter into a contract of
pertain exclusively to each, only the usufruct passing to the partnership partnership? Can they enter into a partnership provided that the same
. (1675) is not a universal partnership? Can spouses enter into a partnership?
Art. 1781. Articles of universal partnership, entered into without CIR v. SUTER, what happened in this case?
specification of its nature, only constitute a universal partnership of
profits. (1676) Commissioner of Internal Revenue v. William Suter G.R.
No. L-25532, February 28, 1969
Sir: Now why, kapag by default, only considered as UNP of all profits?
Because this is the more or the contract which requires or which it has Facts: A limited partnership, named "William J. Suter 'Morcoin' Co.,
which has the, for the interpretations of contracts, diba, to interpret Ltd.," was formed on 30 September 1947 by herein respondent
contract, dun ka, in case of doubt, dun ka sa least transmission of right. William J. Suter as the general partner, and Julia Spirig and Gustav
So dun ka sa UNP of profits. Kasi remember pag of all present property, Carlson, as the limited partners. The partners contributed, respectively
mas maraming nata-transmit na rights. , P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1
October 1947, the limited partnership was registered with the
Art. 1782. Persons who are prohibited from giving each other any Securities and Exchange Commission. The firm engaged, among other
donation or advantage cannot enter into universal partnership. (1677) activities, in the importation, marketing, distribution and operation of
automatic phonographs, radios, television sets and amusement
Sir: If you are prohibited from donating to one another, you cannot machines, their parts and accessories. It had an office and held itself
enter into a universal partnership because that would be doing out as a limited partnership, handling and carrying merchandise, using
indirectly what you cannot do directly. invoices, bills and letterheads bearing its trade-name, maintaining its
own books of accounts and bank accounts, and had a quota allocation
Art. 1783. A particular partnership has for its object determinate things with the Central Bank.
, their use or fruits, or specific undertaking, or the exercise of a
In 1948, however, general partner Suter and limited partner Spirig got
profession or vocation. (1678)
married and, thereafter, on 18 December 1948, limited partner
Carlson sold his share in the partnership to Suter and his wife. The
Sir: So pag particular ka, ang object is determinate things, use or fruits sale was duly recorded with the Securities and Exchange Commission
or specific undertaking. Please take note on different kinds of on 20 December 1948.
partnership.
The limited partnership had been filing its income tax returns as a
Let’s discuss the limitations about the right of the partnership. Now, corporation, without objection by the herein petitioner, Commissioner
persons who are prohibited by law to give donations cannot enter into of Internal Revenue, until in 1959 when the latter, in an assessment,
a universal partnership for the reason that each of the partners consolidated the income of the firm and the individual incomes of the
virtually makes a donation. Which is tama naman. Let’s say ako I cannot partners-spouses Suter and Spirig resulting in a determination of a
donate to my kirida (?) Pwede ba? So magpartnership nalang kami. deficiency income tax against respondent Suter in the amount of P2,
678.06 for 1954 and P4,567.00 for 1955.
Who are prohibited from giving or donating each other? Now you have
Respondent Suter protested the assessment, and requested its
Article 87 of the Family Code.
cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed
Art. 87 of the Family. Every donation or grant of gratuitous advantage,
to the Court of Tax Appeals, which court, after trial, rendered a decision
direct or indirect, between the spouses during the marriage shall be
, on 11 November 1965, reversing that of the Commissioner of Internal
void, except moderate gifts which the spouses may give each other on
Revenue.
the occasion of any family rejoicing. The prohibition shall also apply to
persons living together as husband and wife without a valid marriage. According to CIR: the marriage of Suter and Spirig and their subsequent
acquisition of the interests of remaining partner Carlson in the
Article 739 of the Civil Code. The following donations shall be void: partnership dissolved the limited partnership, and if they did not, the
fiction of juridical personality of the partnership should be disregarded
(1) Those made between persons who were guilty of adultery or for income tax purposes because the spouses have exclusive ownership
concubinage at the time of the donation; and control of the business; consequently the income tax return of
respondent Suter for the years in question should have included his
25
and his wife's individual incomes and that of the limited partnership, in marriage in 1948.
accordance with Section 45 (d) of the National Internal Revenue Code.
Principle: It being a basic tenet of the Spanish and Philippine law that
However, according to Suter: his marriage with limited partner Spirig the partnership has a juridical personality of its own, distinct and
and their acquisition of Carlson's interests in the partnership in 1948 is separate from that of its partners (unlike American and English law that
not a ground for dissolution of the partnership, either in the Code of does not recognize such separate juridical personality), the bypassing of
Commerce or in the New Civil Code, and that since its juridical the existence of the limited partnership as a taxpayer can only be done
personality had not been affected and since, as a limited partnership, by ignoring or disregarding clear statutory mandates and basic
as contra distinguished from a duly registered general partnership, it is principles of our law. The limited partnership's separate individuality
taxable on its income similarly with corporations, Suter was not bound makes it impossible to equate its income with that of the component
to include in his individual return the income of the limited partnership. members. True, section 24 of the Internal Revenue Code merges
registered general co-partnerships (compañias colectivas) with the
Issue: Whether or not the partnership was dissolved after the marriage
personality of the individual partners for income tax purposes. But this
of the partners, respondent William J. Suter and Julia Spirig Suter and
rule is exceptional in its disregard of a cardinal tenet of our partnership
the subsequent sale to them by the remaining partner, Gustav Carlson,
laws, and can not be extended by mere implication to limited
of his participation of P2,000.00 in the partnership for a nominal
partnerships.
amount of P1.00?
Application: As the limited partnership under consideration is taxable
Ruling: NO.
on its income, to require that income to be included in the individual
tax return of respondent Suter is to overstretch the letter and intent of
The thesis that the limited partnership, William J. Suter "Morcoin"
the law. In fact, it would even conflict with what it specifically provides
Co., Ltd., has been dissolved by operation of law because of the
in its Section 24: for the appellant Commissioner's stand results in
marriage of the only general partner, William J. Suter to the
equal treatment, tax wise, of a general copartnership (compañia
originally limited partner, Julia Spirig one year after the
colectiva) and a limited partnership, when the code plainly
partnership was organized is rested by the appellant upon the
differentiates the two.
opinion of now Senator Tolentino in Commentaries and
Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th
Ed., page 58, that reads as follows: Q: So ano can they enter into a partnership? Can the spouses enter into
a partnership?
A husband and a wife may not enter into a contract A: In this case, sir, yes.
of general copartnership, because under the Civil Code, which
Q: All types of partnership?
applies in the absence of express provision in the Code of
Commerce, persons prohibited from making donations to each A: Only the limited partnership sir.
other are prohibited from entering into universal partnerships. (2 Q: In this particular case, sabi ng court, they can enter provided that it
Echaverri 196) It follows that the marriage of partners necessarily is limited. Therefore, can they enter into a universal partnership?
brings about the dissolution of a pre-existing partnership.
A: If we follow this case, sir, no.
However in this case: The petitioner-appellant has evidently
failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. In this case, sabi ng court, they can enter into a limited partnership.
was not a universal partnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 ( But please remember that CIR v. SUTER is more of a tax case.
which was the law in force when the subject firm was organized
in 1947), a universal partnership requires either that the object of Sir: There is an opinion on which I would agree more by Villanueva. He
the association be all the present property of the partners, as is saying spouses are not qualified to enter into other forms of
contributed by them to the common fund, or else "all that the partnership except professional partnership. Sabi niya, and for valid
partners may acquire by their industry or work during the reasons sabi niya, the only type of partnership that spouses can enter
existence of the partnership". William J. Suter "Morcoin" Co., Ltd. into is a professional partnership. You cannot enter into a universal
was not such a universal partnership, since the contributions of partnership or limited partnership. Now, anong reasons niya? Every
the partners were fixed sums of money, P20,000.00 by William form effectively makes partners donor to one another of their
Suter and P18,000.00 by Julia Spirig and neither one of them was contribution to the partnership kasi kahit limited partnership ka, diba
an industrial partner. kapag limited partnership ka, limited yung binigay mon a capital
contributions. Kahit nagbigay ka ng limited property to the partnership
Therefore: It follows that William J. Suter "Morcoin" Co., Ltd. that is also indirectly donating to your spouse because your spouse
was not a partnership that spouses were forbidden to enter by would still have control over that. Kasi ano yung kinontribute mo sa
Article 1677 of the Civil Code of 1889. partnership, magiging pagmamay-ari na yun ng partnership. Now what
prevents the spouses from stipulating that the wife is the limited
Also: The appellant's view, that by the marriage of both partners partner and the husband is the general partner? Effectively, general
the company became a single proprietorship, is equally erroneous partner or the husband has the control over the property given by the
. The capital contributions of partners William J. Suter and Julia wife so it would be indirectly violating the prohibitions on donations.
Spirig were separately owned and contributed by
them before their marriage; and after they were joined in
Art. 87 of the Family. Every donation or grant of gratuitous advantage,
wedlock, such contributions remained their respective separate
direct or indirect, between the spouses during the marriage shall be
property under the Spanish Civil Code (Article 1396):
void, except moderate gifts which the spouses may give each other on
the occasion of any family rejoicing. The prohibition shall also apply to
The following shall be the exclusive property of each spouse:
persons living together as husband and wife without a valid marriage.
(a) That which is brought to the marriage as his or her own;

First contention: Ibenta pala sir? How about benta?
Thus, the individual interest of each consort in William J. Suter "
Morcoin" Co., Ltd. did not become common property of both after their
26
Kasi pwede naman sabihin, hindi naman yan donation, yung binigay ni How about conjugal? Sir dili man mi absolute, conjugal man kami.
wife sa limited partnership, it’s onerous, it’s not gratuitous kasi may Meron- Article 87 of the Family Code. That by amending the property
consideration yun which is yung right ni wife as a limited partner. That regime it should violate Article 108.
also violates Article 1490.
3. Contract of partnership may offend Articles 76 and 77 of the Family
Art. 1490. The husband and the wife cannot sell property to each other Code and there will arise the issue on control and binding effects of the
, except: acts of the partners.
1. When a separation of property was agreed upon in the marriage Article 76. In order that any modification in the marriage
settlements; or settlements may be valid, it must be made before the
2. When there has been a judicial separation or property under Article celebration of the marriage x x x
191.
*indirect violation. The husband has an interest over the property.
So that’s the reason bakit hindi parin pwede Article 77. The marriage settlements and any modification
thereof shall be in writing, signed by the parties and executed
Second contention: The property regime should be under the Family before the celebration of the marriage. x x x
Code and not under the Partnership under the New Civil Code.
So let’s go to Article 89 of the Family Code. Again, that cannot be made if you are in a partnership.
Art. 89. No waiver of rights, shares and effects of the absolute 4. (This is more valid) Partnership charges. Rule of preference of
community of property during the marriage can be made except partnership grantors.
in case of judicial separation of property.
Diba sa Family Code yung property ng mag asawa may specific
When the waiver takes place upon a judicial separation of preference yan?
property, or after the marriage has been dissolved or annulled,
the same shall appear in a public instrument and shall be For example: mag asawa diba, may preference sino ba mauuna; para
recorded as provided in Article 77. The creditors of the spouse saan ba iaallocate yan. Anong sample of preference? Yung property ng
who made such waiver may petition the court to rescind the mag asawa ha. Yung charges sa administration ng property. Ano?
waiver to the extent of the amount sufficient to cover the amount Article 94- Support of the spouses, the common children.
of their credits.
So I’ll give you a scenario. May property tayo, ngayon kung allowed
Sir: So under Article 89 of the Family Code, no waiver of rights, shares tayo sa batas na gumawa ng partnership edi gawa tayo ng partnership
and effects of the absolute community of property during the marriage mag asawa. Now sa partnership, and preferred niya is the partnership
can be made except in case of judicial separation of property, what creditors. Kung yung business nagkaka-utang siyempre yung assets nun,
does this mean? Pag nagpakasal kayo, whatever is your property, that kung anong nilagay na capital ipambabayad yun sa partnership
cannot be ano modified unless there is separation of property. So, creditors. Now meron tayong lupa. Isa lang yung lupa nating mag asawa
pwede bang magpakasal tayo tapos in the middle of our marriage, tapos marami tayong anak tapos ang gawin natin is ilagay natin siya sa
gumawa tayo ng partnership kahit limited partnership, would that be partnership. Nagka utang ang partnership tapos nalugi siya so hindi
considered a modification of property relations? YES. Because nakabayad. So ang mangyayari is magkakaroon ng conflict ang
whatever you own at the time you married each other, is also the preference.
ownership of other party. Therefore, in creating this partnership
during your marriage, you are modifying your property relations Ang partnership niyo preferred ang partnership creditor. But since mag
which is not allowed. asawa tayo, meron also ang preference under the Family Code which is
the property is first for the support of our common children. So that is
one of the reasons bakit hindi pwede mag enter into partnership ang
So under Article 89 of your Family Code: mag asawa. Because it could modify the rules of the Family Code.
Anong pwedeng gawin na partnership ng mag-asawa?

Article 89. “No waiver of rights, interests, shares and effects of This is the opinion of Villanueva and I’m saying this because there is still
the absolute community of property during the marriage can be no jurisprudence to this effect. The only jurisprudence is CIR v Suter is
made except in case of judicial separation of property.” not really in line with answering the question kasi tax case and it
decided under the Spanish Civil Code. So, what happens with the
advent of the New Civil Code, is it still applicable? These are the things
What does this mean? Pag nagpakasal kayo, yung property that’s
you have to consider.
absolute community of property. That cannot be modified unless there
is a separation of property.
Anong pwede nilang gawin? Essentially the contribution is serviced by
the spouses. In other words, pwede sila mag enter into professional
Pwede bang magpakasal tayo tapos in the middle of our marriage
partnership. That’s the only partnership they can create. Because
gumawa kayo ng partnership, kahit limited partnership- will that be
considered a modification of the property relation? YES. Because
professional partnership is not really for the pursuit of profit but rather
for the exercise of profession, expression of ideas of an individual
whatever you own at the time that you married each other is also the
consistent with Article 73 of the Family Code.
ownership of the other party. So therefore, in creating this partnership
during the marriage, you are modifying your property relation which
is NOT allowed.
27
Pag sinabing “expressly”, nakalagay sa charter and kung ano yung
Article 73. Either spouse may exercise any legitimate
expressly provided sa Corporation Code.
profession, occupation, business or activity without the consent
of the other.
Pag “incidental”, what is necessary to get to that express power.
Now in this particular case kasi may revision na, it is considered

So yan sabi nila pwede lang daw sila mag enter into professional expressly granted. So hindi na kailangan magkaroon sa Articles of
partnership. Incorporation ng corporation ang express grant of power to enter into a
partnership or joint venture.
Now what happens if you are going to be asked in the Bar?
Let’s proceed with the Obligations of the Partners.
Can spouses enter into partnership? Kung gusto nimo 75 lang, you
answer that in the basis of CIR v Suter because that is the only law We already discussed how partnership is formed, what are the nuances
governing that. , what are the distinctions. The concept of a partnership having a
juridical personality separate and distinct from the partners.
But if you want your paper to float among the sea of papers, notebooks
then you discuss this. That although there is a case- CIR v Suter, which So, Obligation of Partners.
allows the establishment of a limited partnership, it is my submission
that the spouses can only enter into professional partnership because
this will bla bla. So diba yun pa lang, wag niyo na sagutin yung ibang Article 1784. A partnership begins from the moment of the
questions. execution of the contract, unless it is otherwise stipulated.
Now let’s discuss Particular Partnership.

So therefore, you can actually stipulate when is the partnership. Agree
Particular Partnership is valid which is neither a universal partnership of tayo na tomorrow ang partnership so ngayon hindi pa tayo partner.
property nor a universal partnership of profits. So the fundamental
difference between this and the universal partnership ones lies on the Please take note that the partners can stipulate some other day for the
scope of the subject matter or object. In the former, the object is commencement of the partnership. There can be a future partnership
vague and indefinite contemplating a business of ambiguity while the which at the moment has no juridical existence. So ok lang kahit wala
latter is limited and well defined. kang past basta may future ka naman.
I have already discussed this but if you have time please secure a copy If it does not start within a year from the making of the contract, it has
of SEC OGC Opinion No. 22-2016 dated October 4, 2016. to be in writing to comply with the statute of frauds.
This is with regard to the power of corporation to enter into

Article 1785. When a partnership for a fix term or particular
partnerships. It provides:
undertaking is continued after the termination of such term or
“The Commission has consistently opined that as a general rule, a
particular undertaking without any express agreement, the
corporation cannot enter into a contract of partnership with an rights and duties of the partners remain the same as they were
individual or another corporation.” at such termination, so far as is consistent with a partnership at
will.
The reason is because it would violate the Doctrine of Centralized
Management. Pero exceptions, they may be allowed to do so provided
it complies with certain conditions. We will just discuss this because
this is impliedly repealed by the revisions of the Revised Corporation This is an example of a partnership for a specific purpose. Kung
Code. continued without dissolution.
Before the revisions of the Revised Corporation Code, ito yung sabi ng A continuation of the business by the partners or such of them
SEC: general rule- they cannot enter into a partnership. But they can as habitually acted therein during the term, without any
enter into a partnership provided merong “the authority to enter into a settlement or liquidation of the partnership affairs is prima facie
partnership relation is expressly conferred by the charter”. evidence of a continuation of the partnership.
Dapat merong express grant that the corporation can enter into a
partnership. The business must be in line with those authorized by the
Charter. Second, if it is a foreign corporation, it must obtain a license to
transact business in the country in accordance with the Corporation Article 1786. Every partner is a debtor of the partnership for
Code of the Philippines. whatever he may have promised to contribute thereto.
Ito na, yun lang yun. Kaso ni-revise ng Corporation Code na nilagay na
sa powers of corporation explicitly provides that the Corporation has
the power to enter into joint venture or partnership. So therefore, kahit So if you have promised to contribute property, money, you are
sa Articles of Incorporation ng corporation hindi na nakalagay that it considered a debtor.
has the power to enter into a joint venture or partnership, pwede pa
rin siya mag enter into partnership or joint venture because sa enabling
law which is the Revised Corporation, it expressly provides.
Meron kasi tayong tinatawag na powers- expressly, impliedly and

incidental.
28
He shall also be bound for warranty in case of eviction with It is not rescission which is the proper remedy, but to ask for
regard to specific and determinate things which may have specific performance for the payment of the promised investment
of Lizarraga.
contributed to the partnership, in the same cases and in the
same manner as the vendor is bound with respect to the vendee
. He shall also be liable for the fruits thereof from the time they Article 1787. When the capital or a part thereof which a
should have been delivered, without the need of any demand. partner is bound to contribute consists of goods, their appraisal
must be made in the manner prescribed in the contract of
partnership, and in the absence of stipulation, it shall be made
by experts chosen by the partners, and according to current
Co-relate this with your law on warranties. It said from the time they prices, the subsequent changes thereof being for the account of
should have been delivered without the need of any demand. This is the partnership.
one of those stipulations diba when demand is not necessary.
When is demand not necessary in your obligations and contracts? So kung goods, the reason for having it appraised is to know the value-
the current value of the property to be contributed.
If it is provided by contracts or if it is provided by law.
So this is one of the provisions which grants the power of the Article 1788. A partner who has undertaken to contribute a
partnership to have the fruits even if there is no demand. sum of money and fails to do so becomes a debtor for the
interest and damages from the time he should have complied
What is the effect of failure to contribute the property promised? You with his obligation.
are debtor to the partnership for whatever you have promised to
contribute thereto.
Take note it says interest AND damages, not OR. So interest here is not
So if ang contribution mo is money, you are debtor of that money in in the form of damages but in the form of what.
favor of the partnership.
The same rule applies to any amount he may have taken from
What if ang contribution mo is service? You are a debtor to the service?
the partnership coffers, and his liability shall begin from the time
Pano yun? Failure to contribute makes the partner ipso jure a debtor to he converted the amount to his own use.
the partnership even in the absence of any demand.
What is the remedy therefore of the partnership pag ayaw ibigay? -

SPECIFIC Performance. It is not rescission of the contract. So the interest here refers to what? It is a payment for the cost of
money, not for the damages. So cost of money.
Sancho v. Lizaraga. Just read that case.
Liwanag v CA. Wala jan (referring to syllabus).
SANCHO vs LIZARRAGA
Article 1789. An industrial partner cannot engage in business
FACTS: Sancho brought an action for the rescission of a for himself, unless the partnership expressly permits him to do
partnership contract between himself and the defendant and for
so; and if he should do so, the capitalist partners may either
the reimbursement by the latter of his investment. Lizarraga, on
the other hand, asks for the dissolution of the partnership, and exclude him from the firm or avail themselves of the benefits
the payment to him as its manager and administrator of P500 which he may have obtained in violation of this provision, with a
monthly from October 15, 1920. right to damages in either case.
The CFI ruled that Lizarraga did not contribute at all the capital
he had promised to invest and subsequently declared the
This is what we call the prohibition against engaging in business.
partnership to be dissolved and liquidated.
General Rule: pag industrial partner ka, there is absolute prohibition.
Pag capitalist partner ka, there is only a relative prohibition.
ISSUE: WON Sancho may validly ask for the rescission of the
partnership
So let’s go first sa Industrial Partner. Pag industrial partner ka ang
icontribute mo lang is service. Yung oras mo lang and service. He
RULING: No
cannot engage in business for himself. Exception: there must be an
express permission. If you violate it, anong remedy nila capitalist
Owing to the defendant’s failure to pay to the partnership the
partner? They can exclude you from the firm or they avail of the
whole amount which he bound himself to pay, he became
benefits. Ibig sabihin, kung kumita ka dun sa business na yun they can
indebted to it for the remainder, with interest and any damages
avail of that. With a right to damages in either case.
occasioned thereby, but the plaintiff did not thereby acquire the
right to demand rescission of the partnership contract according
to Article 1124 of the Code. So anong benefit ni capitalist partner? Exclusion with damages or avail
with damages.
This article cannot be applied to the case in question, because it
refers to the resolution of obligations in general, whereas article That is for industrial partner- he cannot engage in business for himself.
1681 and 1682 specifically refer to the contract of partnership in
particular. And it is a well-known principle that special provisions Let’s look at the prohibition against capitalist partner.
prevail over general provisions.
29
Article 1808. The capitalist partners cannot engage for their

own account in any operation which is of the kind of business in Article 1792. If a partner authorized to manage collects a
demandable sum which was owed to him in his own name, from
which the partnership is engaged, unless there is a stipulation to
a person who owed the partnership another sum also
the contrary. demandable, the sum thus collected shall be applied to the two
credits in proportion to their amounts, even though he may have
given a receipt for his own credit only;
So if you look at it, hindi siya pwedeng mag engage in business of the
same kind sa partnership. Exception is if there is a stipulation to the
contrary. Kelangan expressed permission. This is a classic provision on having the mutual trust and confidence in
the partnership. So kapag may dalawang nagco-collect, may utang ang
Any capitalist partner violating this prohibition shall bring to the third person sa partner and may utang din siya sa partnership so he
should apply it in proportion to the amounts even if ang resibo niya is
common funds any profits accruing to him from his transactions,
only for his own credit.
and shall personally bear all the losses.
but should he have given it for the account of the partnership

credit, the amount shall be fully applied to the latter.
Ito yung remedy. You bring to the common fund whatever profits you
earn and you bear all the losses.
Bakit pag industrial partner absolute yung prohibition, even if it is not So therefore, talagang preferred ang partnership if you are a partner.
competing to the partnership? Bakit kapag capitalist partner doon lang
ang prohibition sa competing with the partnership? Why is it like that? The provisions of this article are understood to be without
prejudice to the right granted to the other debtor by article 1252
Because remember, pag industrial ka and binibigay mo is yung service , but only if the personal credit of the partner should be more
mo. The giving of service requires the giving of time. So paano ka onerous to him.
makakabigay ng oras kung marami kang inaatupag. Kung capitalist ka,
pera lang naman ang binibigay. Pero kung industrial partner ka, oras na
nga lang ang hinihingi ng partnership sayo hindi mo pa mabigay. Take note that this does not prejudice the right of debtor to application
of payments.
Article 1790. Unless there is a stipulation to the contrary, the
Remember in your ObliCon, may right si debtor na iapply kung ano
partners shall contribute equal shares to the capital of the
yung more onerous sa kanya. So hindi pwedeng ipilit mo na according
partnership.
sa partnership kailangan unahin ko yung partnership credits. Tapos pala
may naka collateral siya tapos ma foreclose na. So, no. Si debtor ang
may right to say, I will apply this to my utang to you because my utang
So pwede bang hindi equal? Pwede. In the absence of a stipulation, it to you is more onerous than my utang to the partnership.
can.
Article 1793. A partner who has received, in whole or in part,

Article 1791. If there is no agreement to the contrary, in case his share of a partnership credit, when the other partners have
of an imminent loss of the business of the partnership, any not collected theirs, shall be obliged, if the debtor should
partner who refuses to contribute an additional share to the thereafter become insolvent, to bring to the partnership capital
capital, except an industrial partner, to save the venture, shall what he received even though he may have given receipt for his
he obliged to sell his interest to the other partners. share only.
Take note: kailangan may imminent loss. This is another example of having that preference in favor of the
partnership.
What are the requisites for this article to apply?
1. There must be an imminent loss of the business; Article 1794. Every partner is responsible to the partnership
2. The majority of the capitalist are of the opinion that an for damages suffered by it through his fault, and he cannot
additional contribution to the common fund would save compensate them with the profits and benefits which he may
the business; have earned for the partnership by his industry.
3. The capital partner refuses deliberately
(Hindi naman kasi sa hindi makabayad yung capital pero wala
kasi talaga siyang pambayad, ok lang yun. Pero if you are
deliberately refusing to give additional capital then that is Let’s say because of your negligence nasunugan ang part ng business
the application of Art. 1791); niyo. Hindi mo pwedeng sabihin na ayaw lang ko pabayara, magka
4. There is no agreement that even in case of an imminent profit man ta in the next months so i-minus lang didto. Icompensate
loss of the business the partners are not obliged to
lang didto sa akong share. That is not allowed.
contribute.
Now. Bakit exempt si industrial partner mag give ng additional capital?

Bakit? Kasi service na nga lang diba ang kanyang ibigay.
30
BAD FAITH DOES NOT SIMPLY CONNOTE BAD JUDGMENT OR
However, the courts may equitably lessen this responsibility if
NEGLIGENCE. IT IMPORTS A DISHONEST PURPOSE OR SOME MORAL
through the partner's extraordinary efforts in other activities of OBLIQUITY AND CONSCIOUS DOING OF A WRONG.
the partnership, unusual profits have been realized.
July 16, 2019
Take note that it isn’t the partners who’s going to equitably lessen the The rule in distribution of profits and losses
responsibility but it is the courts. Therefore it requires the filing of a
case so that the courts may order your damages or obligations to be For profits, first you have to determine if there is an agreement. Second
equitably lessened. The reason for that is the partners’ extraordinary if there is no such agreement, the share of each capitalist partner shall
efforts. And, unusual profits have been realized. So example nag be in proportion to his capital contribution.
volunteer ka maghatag ug flyers sa mall, sa school 24 hrs ka magbigay.
Pero dapat there is unusual profit. Okay lang if capitalist partners lahat. How about for the industrial
partners?
Article 1795. The risk of specific and determinate things, which Industrial partner shall receive such share which must be satisfied first
are not fungible, contributed to the partnership so that only
before the capitalist partner … as may be just and equitable.
their use and fruits may be for the common benefit, shall be
borne by the partner who owns them. The problem here is that who determines just and equitable? It is not
fixed. The partner is entitled to receive his share in profits actually
received… (inaudible)
What is fungible? Capable of being substituted. So it is a question of
what? What makes a thing fungible? Ang nangyayari, kapag industrial partner pano mo malalaman na just
and equitable ang nakalagay?
If the things contribute are fungible, or cannot be kept without
Usually, they agree na may sahod sya, may share in profit. Pero kung
deteriorating, or if they were contributed to be sold, the risk
shall be borne by the partnership. In the absence of stipulation, wala?
the risk of the things brought and appraised in the inventory,
Same amount as the lowest of the capitalist partners. Kung ano yung
shall also be borne by the partnership, and in such case the
claim shall be limited to the value at which they were appraised. pinakamababa, but it can be subject to agreement.
For losses, first is the agreement. Kung ang agreement is specific as to

how the losses should be distributed, that should govern.
The reason for the appraisal is to know the value.
If no agreement, and the contract provides for the share in the profits,
the profit sharing shall govern.
Article 1796. The partnership shall be responsible to every
Kung wala kang agreement as to losses, wala ka ring profit sharing ratio
partner for the amounts he may have disbursed on behalf of the
, it should be in proportionate to capital contribution.
partnership and for the corresponding interest,
Take note of the differences:
This presupposes that the partners advanced payments in favor of the Profit Losses
partnership. So in that case si partnership meron din siyang utang to
reimburse the partners with interest.
1. Agreement 1. Agreement as to
from the time the expense are made; it shall also answer to 2. Capital contribution losses
each partner for the obligations he may have contracted in good in proportion 2. Profit sharing
faith in the interest of the partnership business, and for risks in agreement
3. Capital contributions
consequence of its management.
Take note of good faith.
So hindi pwedeng let’s say may dalawang partner tapos ang isa in good Article 1798. If the partners have agreed to intrust to a third
faith entered into contract with the supplier tapos yun pala nag default person the designation of the share of each one in the profits
yung supplier nagka lugi lugi. Hindi pwedeng iattribute niya yung fault and losses, such designation may be impugned only when it is
doon sa partner if it is done in good faith kasi diba may mutual agency. manifestly inequitable. In no case may a partner who has
So that risk is given to the partnership. begun to execute the decision of the third person, or who has
not impugned the same within a period of three months from
What is the meaning of bad faith? What is bad faith? Dapat yung mga the time he had knowledge thereof, complain of such decision.
ganito memorize niyo, bala niyo yan sa exam. The designation of losses and profits cannot be intrusted to
one of the partners.
What is the legal definition of bad faith? Isearch niyo.
31
lawful or just cause.
The last paragraph is actually in line with the principle of? Bakit “A power granted after the partnership has been constituted may be
designation? Bakit cannot be intrusted to the partners? revoked at any time.”
Principle of Mutuality, that is the legal purpose of the last paragraph. Meaning? kung hindi nakalagay sa articles of partnership ang kanyang
appointment as manager, it may be revoked.
Why 3 months?
TAI TONG CHUACHE VS INSURANCE COMMISSION
The reason for the 3 months is to avoid or to forestall any paralyzation
of the operations of the partnership. If more that 3 months, it is already Facts: Sps Palomo acquired from a certain Rolando Gonzales a parcel of
counterproductive for the partnership. land and a building in Davao. Complainants assumed the mortgage of
the building in favor of SSS, which building was insured with
respondent SSS Accredited Group of Insurers for P25,000.
Article 1799. A stipulation which excludes one or more
partners from any share in the profits or losses is void. On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong
Chuache in the amount of P100,000. To secure the payment of the loan
, a mortgage was executed over the land and building in favor of Tai
Tong Chuache. On April 25, Arsenio Chua, representative of Tai Tong
Can you exclude a partner from the share of any profits or losses? Chuache insured the latter’s interest with Travellers Multi-Indemnity
What if may ganitong agreement? Corporation.
Take note of that it is only the stipulation which is void. The partnership
Then, the building and the contents were totally razed by fire. Demand
remains valid in that particular instance.
was made from respondent Travellers Multi-Indemnity for its share in
the loss but the same was refused.
How about a stipulation exempting a partner from losses?
Travellers Insurance, on its part, admitted the issuance of the

Article 1800. The partner who has been appointed manager Policy and alleged as its special and affirmative defenses the
in the articles of partnership may execute all acts of following, to wit: that Fire Policy No. 599 DV, covering the
administration despite the opposition of his partners, unless he furniture and building of complainants was secured by a certain
should act in bad faith; and his power is irrevocable without Arsenio Chua, mortgage creditor, for the purpose of protecting
just or lawful cause. The vote of the partners representing the his mortgage credit against the complainants; that the said policy
controlling interest shall be necessary for such revocation of was issued in the name of Azucena Palomo, only to indicate that
power. she owns the insured premises; that the policy contains an
endorsement in favor of Arsenio Chua as his mortgage interest
A power granted after the partnership has been constituted may appear to indicate that insured was Arsenio Chua and the
may be revoked at any time. complainants; that the premium due on said fire policy was paid
by Arsenio Chua; that respondent Travellers is not liable to pay
complainants.
“The partner who has been appointed manager in the articles of Tai Tong Chuache & Co. filed a complaint in intervention.
partnership may execute all acts of administration despite the
opposition of his partners, unless he should act in bad faith; and his Contention of respondent Travellers:
power is irrevocable without just or lawful cause.”
1. Intervenor (Tai Tong) is not entitled to indemnity under its Fire
Insurance Policy for lack of insurable interest before the loss of
You have to know that there could have been an appointment the insured premises and that the complainants, spouses Pedro
indicated in the articles of partnership and that there could have been
and Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor.
appointed as manager not indicated in the articles of partnership.
Magkaiba yung effects.
2. Public respondent argues however, that if the civil case really
1800 describes the effects of the acts of a partner who has been
stemmed from the loan granted to Azucena Palomo by petitioner
the same should have been brought by Tai Tong Chuache or by
appointed as manager in the articles of partnership.
its representative in its own behalf. And that the civil case filedd
Sa mismong agreement or of articles of partnership may nakalagay
by Arsenio Chua was in his capacity as personal creditor of
spouses Palomo.
doon na, this partner, partner X who is going to be appointed as
manager.”
Issue: WON Chua can act in behalf of Tai Tong
What are the effects if siya ang manager sa articles of partnership?
Ruling: YES. Chua can act in behalf of Tai Tong because he was a
He can execute all acts of administration despite the opposition of his managing partner.
partners.
Tai Tong Chuache Inc. being a partnership may sue and be sued
Please take note na kahit ayaw ng majority of the partners ang in its name or by its duly authorized representative. The fact that
kanayang posisyon, they can execute, but only all acts of administration Arsenio Lopez Chua is the representative of petitioner is not
. questioned. Petitioner's declaration that Arsenio Lopez Chua acts
as the managing partner of the partnership was corroborated by
The only exception is if he should act in bad faith and his power is respondent insurance company. Thus Chua as the managing
irrevocable without just and lawful cause. Therefore, kailangan ng partner of the partnership may execute all acts of administration
including the right to sue debtors of the partnership in case of
32
their failure to pay their obligations when it became due and by the partners owning the controlling interest.”
demandable. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache & Company is an agent of the Let’s say A,B,C,D and E. tapos si A,B,C yung managing partners. So si A
partnership. Being an agent, it is understood that he acted for
pwede syang mag conduct ng all acts of administration, di nya
and in behalf of the firm. Public respondent's allegation that the
civil case flied by Arsenio Chua was in his capacity as personal kailangan ng consent ni B and C kasi wala naming nakalagay. What if B
creditor of spouses Palomo has no basis. opposed? What will happen? Which decision shall prevail?
Let us say 20%-20%-20%, same silang tatlo (ABC). Nag oppose si B sa

Please take note that Article 1800 distinguishes a managing partner
act ni A. Whose decision will prevail? Majority. Dun ka sa tatlo. Tapos si
appointed in articles of partnership from that managing partner not
A or B convince nila si C, kung ano yung decision ni C, yun ang majority.
appointed in articles of partnership.
Why is that the managing partner not appointed in articles of How about in case of a tie (walang kakampihan si C)? Here, it will be
partnership can be revoked at any time? decided by partners owning the controlling interest. So ang mangyayari
, doon na ifo-float sa iba [ibang partners, it will now include D and E].
Because, the fact of appointment in the articles of partnership
constitutes the very … of partnership. It becomes the major stipulation
Now let us say 10%(A) 10%(B) 10%(C) 10%(D) 60%(E). E rin ang
in the contract of partnership, it requires just and lawful cause for it to
mananalo in case of a tie.
be revoked. While the partners appointed as managers after the
execution of articles of partnership is just the effect or nature of
So anong gagawin ni B (para di na maka-join si D and E)? Convince nya
partnership, dba mutual agency. It does not really require a just and
talaga si C para di na maging material ang decision ni D and E. Kahit
lawful cause for him to be revoked.
20% lang sila, wala namang masasabi si D and E kasi hindi naman sila
Article 1801. If two or more partners have been intrusted with the managing.
management of the partnership without specification of their
respective duties, or without a stipulation that one of them shall not Note: D and E will only surface in the picture in case of a tie between
act without the consent of all the others, each one may separately the managing partners, A, B and C. So kahit 20% lang ang interest ni B
execute all acts of administration, but if any of them should oppose the and C altogether, their decision will prevail. You can only refer to the
acts of the others, the decision of the majority shall prevail. In case of a entire partnership if there is a tie, otherwise, managing partners lang
tie, the matter shall be decided by the partners owning the controlling talaga.
interest.
This only refers to acts of administration. What will apply if acts of
“If two or more partners have been intrusted with the management of strict dominion? Controlling ba? Review your law on property.
the partnership without specification of their respective duties, or
without a stipulation that one of them shall not act without the consent Article 491. None of the co-owners shall, without the consent of the
of all the others, each one may separately execute all acts of others, make alterations in the thing owned in common, even though
administration,” benefits for all would result therefrom. However, if the withholding of
the consent by one or more of the co-owners is clearly prejudicial to
Kapag two or more ang appointed as managers, one may execute
the common interest, the courts may afford adequate relief. (397a)
without the consent of others.
Why not unanimous or not majority? Why without the consent of Article 1802. In case it should have been stipulated that none
others? of the managing partners shall act without the consent of the
others, the concurrence of all shall be necessary for the validity
Because it would defeat the purpose. It would forestall the operations.
Remember we are only talking about all acts of administration and not of the acts, and the absence or disability of any one of them
about acts of dominion. Like if you will buy and pay for your supplies, it cannot be alleged, unless there is imminent danger of grave or
does require the concurrence of all. Unless of course it is expressly irreparable injury to the partnership.
stipulated that it requires the concurrence of the rest of the managing
partners.
By saying that you should know what the acts of dominion are and
You cannot just allege na absent sya or disabled, unless there is
what are the acts of strict dominion.
imminent danger of grave or irreparable injury. It means you have to
How would you know if it is an act of administration or act of strict decide now, or else magkakaroon ng damage yung partnership.
dominion?
As to acts of administration, something that is in the ordinary course of

the business. So having said that, you should know the business, you
should know if it is in line in the ordinary course of the business.
“but if any of them should oppose the acts of the others, the decision
of the majority shall prevail. In case of a tie, the matter shall be decided
33
render on demand true and full information of all things affecting the
Article 1803. When the manner of management has not been partnership.
agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever Article 1807. Every partner must account to the partnership
any one of them may do alone shall bind the partnership,
without prejudice to the provisions of article 1801. for any benefit, and hold as trustee for it any profits derived by
him without the consent of the other partners from any
(2) None of the partners may, without the consent of the
others, make any important alteration in the immovable transaction connected with the formation, conduct, or
property of the partnership, even if it may be useful to the liquidation of the partnership or from any use by him of its
partnership. But if the refusal of consent by the other partners property.
is manifestly prejudicial to the interest of the partnership, the
court's intervention may be sought.
Please take note of the words ”court’s intervention.” Even if it is

Please take note hanggang saan ang duty of a trustee with your
prejudicial, you have to seek the intervention of the court. The partners
partners?
cannot unilaterally with themselves, agree to push through their
decision. It is upon appreciation of the judge or court that it is It begins from the formation, conduct or even liquidation.
manifestly prejudicial.
Example: May partnership kayo, like coffee shop. Kayo may ari ng lupa,
Article 1804. Every partner may associate another person structure and everything. Then, biglang na lugi, then na dissolve and
with him in his share, but the associate shall not be admitted nag liquidate ka. Sabi ng isang partner mo na ibenta na, tapos yung
into the partnership without the consent of all the other proceed divide. Then sabi mon a, ibenta mo sa kapatid mo, tapos
partners, even if the partner having an associate should be a nagpatong ka, let’s say mga 20%. If 10M ang selling price, binenta mo
manager. ng 12M kasi with 20%. Then your intention is to keep the 2M (20%),
and declare 10M only.
Take note that every partner must account to other partner and hold as
This is what we call the contract of sub-partnership. Dalawa kayong trustee any profits derived by him without the consent of the partners,
mag partner, yung isa ang ka sub. But please take note that the sub- or any transaction connected in the formation, conduct and even in
partnership only pertain to the share of this person (ka partner niya). liquidation. So in that particular case, the other partners can actually
The sub-partner is not a partner in the original partnership. demand for the 2 million, because it is part of your obligation.
article 1805. the partnership books shall be kept, subject to

Article 1808. The capitalist partners cannot engage for their
any agreement between the partners, at the principal place of own account in any operation which is of the kind of business
business of the partnership, and every partner shall at any in which the partnership is engaged, unless there is a
reasonable hour have access to and may inspect and copy any stipulation to the contrary.
of them. Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his
transactions, and shall personally bear all the losses.
This is one of the rights of a partner. When we say “partnership books,”

we are talking about records, accounting records, or any records like
expenses of the partnership.
I think the better question would be, what if a person is both an
Article 1806. Partners shall render on demand true and full industrial and a capitalist partner? Which prohibition would apply?
information of all things affecting the partnership to any Absolute or relative prohibition? And the business is not in the same
partner or the legal representative of any deceased partner or industry with the partnership?
of any partner under legal disability.
In industrial partner, the reason of the prohibition is to put the
partnership interest first. As an industrial partner you are giving or
contributing your time in the partnership. If you are a capitalist, you are
also an industrial partner. Therefore, which prohibition is more
congruent to the interest of partnership? Dun ka sa absolute
Pertains to partnership which is already dissolved because one of the
prohibition, industrial partner ka pa rin.
partners got disabled to the point that he can no longer perform his
obligations as a partner. The remaining partners have the obligation to
34
So being a capitalist and also an industrial partner at the same time, Held: The private respondent is a partner of the petitioner in Sun Wah
doon ka sa prohibition kung saan mas ma serve ang interest ng Panciteria. The requisites of a partnership which are — 1) two or more
persons bind themselves to contribute money, property, or industry to
partnership. Kung mapapansin nyo lahat ng provisions are all about the
a common fund; and 2) intention on the part of the partners to divide
interest of the partnership. Kung ganyan ang tanong, check the the profits among themselves have been established.
rationale.
Issue: Whether or not the right to an account of his interest as partner
JULY 23, 2019 | Transcribed by: Carla BayquenPARTNERSHI had already prescribe – No.
Held: It is Article 1842 of the Civil Code in conjunction with Articles

Article 1809. Any partner shall have the right to a formal
1144 and 1155 which is applicable. Article 1842 states:
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership The right to an account of his interest shall accrue to any partner, or his
business or possession of its property by his co-partners; legal representative as against the winding up partners or the surviving
(2) If the right exists under the terms of any agreement; partners or the person or partnership continuing the business, at the
(3) As provided by article 1807; date of dissolution, in the absence or any agreement to the contrary.
(4) Whenever other circumstances render it just and
reasonable. Regarding the prescriptive period within which the private respondent
may demand an accounting, Articles 1806, 1807, and 1809 show that
the right to demand an accounting exists as long as the partnership
exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
1807 pertains to the duty of a partner as a fiduciary.
In other words in the existence of a partnership, there is always a right Here, the partnership was not dissolved yet, therefore the prescriptive
to a formal account. period to demand an accounting has not yet prescribed. It was the
court in this case that ordered the dissolution of the said partnership.
Prescriptive Period
When does a right of a partner to demand a formal account prescribe? Q: How many years is the period?
When can a partner refuse to render accounting for the reason that it A: Look at the Law on Prescription. Article 1144. The following actions
has already prescribed? must be brought within ten years from the time the right of action
accrues:
CASES: (1) Upon a written contract;
(2) Upon an obligation created by law;
FUE LEUNG vs IAC (3) Upon a judgment.
GR No. 70926; January 31, 1989
EMNACE v. CA
Facts: A complaint was filed by respondent Leung Yiu with the then CFI GR 126334, November 23, 2001
of Manila to recover the sum equivalent to 22% of the annual profits
derived from the operation of Sun Wah Panciteria since October, 1955 Facts: Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
from petitioner Dan Fue Leung. Divinagracia were partners in a business concern known as Ma. Nelma
Fishing Industry. Sometime in January of 1986, they decided to dissolve
The Sun Wah Panciteria, a restaurant, located at Florentino Torres their partnership and executed an agreement of partition and
Street, Sta. Cruz, Manila, was established sometime in October, 1955. It distribution of the partnership properties among them.
was registered as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung as the sole Throughout the existence of the partnership, and even after Vicente
proprietor. Tabanao’s untimely demise in 1994, petitioner failed to submit to
Tabanao’s heirs any statement of assets and liabilities of the
Respondent Leung Yiu adduced evidence during the trial of the case to partnership, and to render an accounting of the partnership’s finances.
show that Sun Wah Panciteria was actually a partnership and that he
was one of the partners having contributed P4,000.00 to its initial Tabanao’s heirs, respondents herein, filed against petitioner an action
establishment. for accounting, payment of shares, division of assets and damages.
In essence, the private respondent alleged that when Sun Wah Petitioner filed a manifestation and motion to dismiss, arguing that the
Panciteria was established, he gave P4,000.00 to the petitioner with the trial court did not acquire jurisdiction over the case due to the
understanding that he would be entitled to twenty-two percent (22%) plaintiffs’ failure to pay the proper docket fees. Further, in a
of the annual profit derived from the operation of the said panciteria. supplement to his motion to dismiss, petitioner also raised prescription
These allegations, which were proved, make the private respondent as an additional ground warranting the outright dismissal of the
and the petitioner partners in the establishment of Sun Wah Panciteria complaint.
because Article 1767 of the Civil Code provides that "By the contract of
partnership two or more persons bind themselves to contribute money Issue: Whether or not the action for accounting has already prescribed
, property or industry to a common fund, with the intention of dividing – No.
the profits among themselves".
Held: The three (3) final stages of a partnership are: (1) dissolution; (2)
Issue: Whether or not private respondent is a partner – Yes. winding-up; and (3) termination. 36 The partnership, although
dissolved, continues to exist and its legal personality is retained, at
which time it completes the winding up of its affairs, including the
35
partitioning and distribution of the net partnership assets to the partners, or any of them, or the representatives of a deceased partner,
partners. For as long as the partnership exists, any of the partners may cannot claim any right under the homestead or exemption laws;
demand an accounting of the partnership’s business. Prescription of
the said right starts to run only upon the dissolution of the partnership (4) A partner's right in specific partnership property is not subject to
when the final accounting is done. legal support under article 291.
Contrary to petitioner’s protestations that respondents’ right to inquire This is very important.
into the business affairs of the partnership accrued in 1986, prescribing Q: Does partnership have the same legal consequences of co-
four (4) years thereafter, prescription had not even begun to run in the ownership under your property law?
absence of a final accounting. Article 1842 of the Civil Code provides:
For example, you have a partnership, it has a building. Can a partner
The right to an account of his interest shall accrue to any partner, or his say that, ako rin ang owner nito, I have all the rights, I can prevent
legal representative as against the winding up partners or the surviving someone from using the property in the same way that I can also
partners or the person or partnership continuing the business, at the prevent someone from using my property?
date of dissolution, in the absence of any agreement to the contrary.
Q: Does it have the same legal effect and consequences?
Applied in relation to Articles 1807 and 1809, which also deal with the
duty to account, the above-cited provision states that the right to Please take note, dissociate co-ownership in property from co-
demand an accounting accrues at the date of dissolution in the absence ownership of a partner in a partnership. Kasi magkaiba ang kanilang
of any agreement to the contrary. When a final accounting is made, it is effects at consequences.
only then that prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what respondents are Paragraph 1: Corelated with the law on co-ownership, is it the same?
seeking in their action before the trial court, since petitioner has failed
or refused to render an accounting of the partnership’s business and Q: Does the co-owner have the right to possess specific co-owned
assets. Hence, the said action is not barred by prescription. property? Does a co-owner has no right to possess the property for any
other purpose without the consent of his co-owners? Is it the same?
You review your obligations and contracts. What have you learned in your co-ownership?
PROPERTY RIGHTS OF A PARTNER Paragraph 2: Is it the same in co-ownership? Can the co-owner assign
his undivided interest in the co-ownership? Can he assign it only in
connection with the assignment of rights of all the co-owners?
Article 1810. The property rights of a partner are:
(1) His rights in specific partnership property; Paragraph 3: Attachment in execution of judgment.
(2) His interest in the partnership; and Remember in your credit transactions. There are certain properties that
(3) His right to participate in the management are exempted from being executed. Remember the carabaos? This
cannot be executed. These are the properties left for you to survive.
1. Please take note those are the principal rights, his. Meron pa ngang utensils etc.
Rights to specific partnership profits.
A partner's right in specific partnership property is not subject to
For example, a partnership has a building. A partner has specific attachment or execution, except on a claim against the partnership.
property rights over the partnership’s property. Is it the same property
right as you have learned in your law on property? Please take note of the exception, if the claim is against the ownership.
2. Another one is interest in the partnership. When partnership property is attached for a partnership debt the
3. His right to participate in the management. partners, or any of them, or the representatives of a deceased partner,
cannot claim any right under the homestead or exemption laws. Ano
That is basic. Otherwise, he is not considered as a partner if he cannot naman itong homestead or exemption laws?
participate.
Paragraph 4: This is also an amplification of the argument that spouses
Article 1811. A partner is co-owner with his partners of specific cannot enter into a universal partnership. This would vary the property
partnership property. rights and the administration of property vis-à-vis that under the family
code.
The incidents of this co-ownership are such that:
Please take note that your concept of co-ownership is very different
(1) A partner, subject to the provisions of this Title and to any from the concept of co-owned properties in a partnership. So what are
agreement between the partners, has an equal right with his partners those?
to possess specific partnership property for partnership purposes; but
he has no right to possess such property for any other purpose without Non-assignability. Take note of the effects.
the consent of his partners;
Example: May utang si partner at ang natitirang property niya nalang is
his property right in specific partnership. Can his specific creditor file a
(2) A partner's right in specific partnership property is not assignable
case, let’s say preliminary attachment? Or kung nanalo na si creditor,
except in connection with the assignment of rights of all the partners in
can he go to the specific partnership property, or the interest of the
the same property;
partner in the partnership?
(3) A partner's right in specific partnership property is not subject to
So these are the specific instances that you have to consider. You have
attachment or execution, except on a claim against the partnership.
to consider different implications because what we are talking about is
When partnership property is attached for a partnership debt the
36
separate juridical personality and it is not assignable in contrast to co-
*nagkalugi*
ownership.
wala pang revenue: 200
utang expenses:
A co-owner can assign his interest, that would mean the assignee
100
would become also a co-owner in the co-ownership. But at this
particular instance, a partner in a partnership cannot assign his right in may assets (
a specific property in a partnership except in connection with the profit = 100
500)
assignment of rights of all the partners in the same property.
surplus? yes!
Q: Why?
A: He cannot assign his share in the partnership because it will violate
the principle of delectus personae.
Student: “Measure of surplus depends upon your assets and liability.
For as long as assets exceeds your liability, then, there will be surplus.”
Article 1812. A partner's interest in the partnership is his
share of the profits and surplus.
When talking about surplus, you’re talking about your assets minus
liabilities. When you’re talking about profits, you’re talking about this
period.
Therefore, a partner’s interest in the partnership is not the property
itself, it’s not his share in the property, that’s different. So please take
note what’s the difference. Pag-surplus, “at a given point”, end of year-1, end of year-2, and end of
year-3, end of year-4. When you’re talking about profits, “at a given
Yung una, ay his rights to specific partnership profits. period”. (mura na siyag pila imong nabagsak sa third year, you’re
talking about the period. Pila imong bagsak sa kani na point in time,
Pangalawa, is his interest in the partnership. When we talk about
unsa imong status, at this point in time? When you’re talking about
interest in the property we are not talking about tangible interest. We
status, you’re talking about the surplus. When talking about period,
are talking about the share of the partner in the profits and in the
you’re talking about the profits).
surplus. So that is very crucial.
You have to distinguish profits from surplus. So pwede, at year-2, year -3, pwede diri, magkaroon ka ng positive na
status (or, surplus). And pwede malugi ka. In what instances? Kung
Profits means the excess of returns over expenditure in a transaction or sobra kaayo imong profit, year-O, year-1 that the loss cannot diminish
series of transactions; or the net income of the partnership for a given the profit that you have gained in year0-1. That won’t affect your
period of time. surplus.
Surplus refers to the partnership after partnership debts and liabilities

You have to know that.
are paid and settled and the rights of the partners among themselves
Kasi, pagtinanong kayo, differentiate profits from surplus. Are they
are adjusted. It is the excess of assets over liabilities. If the liabilities are
mutually exclusive? And you know the answer is no.
more than the assets, the difference represents the extent of the loss.
Q: Are they mutually exclusive? Can you have profits without surplus? Article 1813. A conveyance by a partner of his whole interest in the
Can you have surplus without profit? In what instances? partnership does not of itself dissolve the partnership, or, as against
A: You can have profits without surplus. the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership to interfere in the
July 23 Continuation management or administration of the partnership business or affairs,
or to require any information or account of partnership transactions, or
Q: Kailangan bang magkaprofit para magka-surplus? O pwede bang to inspect the partnership books; but it merely entitles the assignee to
walang profit, pero surplus parin? And if pwede, bakit? What’s the receive in accordance with his contract the ports to which the assigning
difference? partners would otherwise be entitled. However, in case of fraud in the
A: No, management of the partnership, the assignee may avail himself of the
usual remedies.
They are not mutually exclusive because…? In case of a dissolution of the partnership, the assignee is entitled to
When you talk about profits, they are measuring in a given period. receive his assignor’s interest and ma required an account from the
When you talk about surplus, you are measuring the partnership’s date only of the last amount agreed to by all the partners.
accounting book at a given point in time.
This talks about an assignment of a partner’s whole interest.
Year 1 - lugi, walang surplus
Year 2 - nagkaprofit, so may surplus na So when you talk about the effect of assignment of a partner’s whole
Year 3 - nalugi, but it’s not enough to deplete the surplus interest…yung in-assign, is the whole interest, not a partner’s right
over a specific partnership property.
Let’s say, five partners, 100 each (total: 500)
Again, you have to distinguish a partner’s right over a specific
partnership property and the partner’s interest in the partnership.
Year — Zero Year —1 Year — 2 Year — 3 Punta tayo ulit sa effects of co-ownership.
37
Can you assign a partner’s right in the specific partnership property? Di (1) With separate property, by any one ore more of the partners; or
ba hindi? yun nga ang differences with co-ownership (under Property). (2) With partnership property, by any one or more of the partners
But, can you assign the partner’s interest? Yes. with the consent of all the partners whose interests are not so charged
or sold.
Magkaiba si partner’s interest doon sa partner’s right in the specific
partnership property. Did you see the difference?
You can assign a partner’s interest, which consists in the partner’s Nothing in this Title shall be held to deprive a partner of his right, if
profits and interest. But you cannot assign the right of a partner in a any, under the exemption laws, as regards his interest in the
specific partnership property. partnership.
In other words, hindi pwede, kung ako yung assignee of the partner’s “Without prejudice to the preferred rights of partnership creditors
interest, I cannot demand that I have specific right in a specific under Article 1827, on due application to a competent court by any
partnership property. Kasi, yung in-assign lang naman sa akin is the judgment creditor of a partner, the court which entered the judgment,
interest, which composed of profits and surplus. or any other court, may charge the interest of the debtor partner…”
Kung walang profits and surplus, wala (walang ma-receive si assignee).

Let’s pause with that.
Did you see the difference? Ang assignable lang is the partner’s interest
in the partnership. Please take note of that.
Again, a partner can assign or convey his whole interest in the Remember, the creditor cannot attach the right of the partner in
partnership. And that does not of itself dissolve the partnership. specific partnership property. But, he can attach his interest in the
partnership. Among the three, pangalawa yun (out of 3Rights), aside sa
But what are the rights which the assignee cannot exercise?
fact na pwede siyang i-assign, pwede din siyang i-attach.
- to interfere in the management
- to require any information or account So this is what you call the Right of a Partner Creditor to a Charging
- to inspect any of the partnership books Order.
Bakit hindi siya pwedeng mag interfere in the management? Because Ang gagawin lang ni creditor is, syempre nanalo na siya, may
the property rights, which is the right to participate in the management competent judgment na, the court which entered the judgment may
, is separate from the interest. charge…may charge interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest thereon; and
Again, tatlo yung property rights nila diba? may then or later appoint a receiver of his share of the profits, and of
Right over the specific partnership property, interest nya, and rights to any other money due or to fail due to him in respect of the partnership,
participate. and make all other orders, directions, accounts and inquiries which the
debtor partner might have made or which the circumstances of the
case may require.
Yung in-assign, is yung pangalawa lang. Kasi, hindi assignable si one. Si
three, can you assign the rights to participate? Again what you can
assign is only the partner’s interest, which consists of profits and This is what you call CHARGING ORDER.
surplus.
In other words, yung interest ng partner, icha-charge.
Can you assign if may lugi or deficiency? Now, is it a security na mababayaran si partner creditor? No, because
No, because you cannot assign which you do not have. the interest, again, consists of surplus and profits. How about, kung
(deficient) wala ka nga eh; can you give something which you do not wala kang kita, walang surplus, walang profits, eh hindi pa rin
have? mababayaran si judgment creditor. It’s just a remedy of a partner
Remember your concepts in Property because that is all intertwined creditor, but is not actually a good remedy, kasi pwede naman maging
with all Civil Law subjects. wala. It would have been better if his specific rights over specific
partnership property pwede ma charge. But, again, that is exempt
from attachment or execution, kasi it is reserved for the partnership
Art.1814. Without prejudice to the preferred rights of partnership
creditors. All the properties of the partnership is reserved for the
creditors under Article 1827, on due application to a competent court
payment of partnership creditors.
by any judgment creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest of the debtor
partner with payment of the unsatisfied amount of such judgment debt Second Paragraph; Article 1814:
with interest thereon; and may then or later appoint a receiver of his “The interest charged may be redeemed at any time before
share of the profits, and of any other money due or to fail due to him in the foreclosure, or in case a sale being directed by the court, may be
respect of the partnership, and make all other orders, directions, purchased without thereby causing a dissolution..”
accounts and inquiries which the debtor partner might have made or
which the circumstances of the case may require. This is part of your topic in CredTrans on foreclosure sale. Remember,
na pagmay judgment creditor, pwede ma-foreclose ang property, and
The interest charged may be redeemed at any time before the you can always redeem that. Please remember your CredTrans, please
foreclosure, or in case a sale being directed by the court, may be lang.”
purchased without thereby causing a dissolution:
38
“(1) With separate property, by any one ore more of the partners; or, are talking about a firm, you're talking about the partnership. You do
(2) With partnership property, by any one or more of the partners with not put the term firm in a Corporation. As such, there is no XYZ Firm
the consent of all the partners whose interests are not so charged or Corporation. The word firm always implies a partnership.
sold.”
Now, can you have a partnership firm name that you just want to have?
Generally, yes, but you have to abide by certain rules regarding
intellectual property, trade name, or regarding not deceptively named
Please take note: but not confusingly and deceptively similar to an existing name.
“Nothing in this Title shall be held to deprive a partner of his right, if You have MC No. 5 series of 2008 RE: Guidelines and Procedures on the
any, under the exemption laws, as regards his interest in the Use of Corporate and Partnership Names. Here are some of the basic
partnership.” guidelines:
1. Do not chose a name that is identical or deceptively or

So yun pa. Diba sabi natin sa right sa specific partnership property, it is
confusingly similar to that of an existing corporation,
not subject to any exemption. Pero, itong partner’s interest in the partnership, or a registered sole proprietorship for the
partnership is subject to any exemption. Meaning, you can actually reason that it could pass off as someone else; it could pass
invoke (exemption). If the creditor runs after, you can invoke that it is off as that of the existing juridical person.
part of the exemption laws, this is part of my individual belonging, wala
na akong makakain kung pati ito pa tatanggalin. We see that the In one case, the Supreme Court held that the name “Universal Mills
Charging Order (1814) is not actually an effective remedy for the Corporation” is confusingly and deceptively similar to “Universal Textile
judgement creditor. Please take note of that. Mills, Inc.” particularly when they are engaged in the similar business.
In another case, the Supreme Court held that the “Industrial
JULY 26, 2019 Refractories Corp.,” as taken in your IP, is patently similar to
“Refractories Corp. of the Phils.”
Let us discuss SECTION 3: Obligations of the Partners with Regard to
Third Persons. You already know how it is to form a partnership. What 2. You have to put words that would identify the entity as a
the requirements are in the forming of a partnership. You already know corporation or a partnership.
the basic of partnership rights. What are the rights of a partner?
For corporation, the usual name is “Inc.” (Incorporated) or
“Corp.” (Corporation). For partnership, “Co.” or (Company) sa dulo ng
name. Pwede rin “Firm”, “Company”, or “Co.” as in “XYZ and Co.” That
Article 1810. The property rights of a partner are:
applies for partnership.
(1) His rights in specific partnership property;
3. Do not use a trade name or trademark registered with the
(2) His interest in the partnership; and IPO, unless the owner of the trade name or trademark gives
consent to its use.
(3) His right to participate in the management (n)
4. Do not use the name of a deceased person unless consent
is given by his or her heirs. This has already been amended
whereby a partnership may use the name of the deceased (
In a partnership, it is not only just about the rights. It’s also about the in a professional partnership, as in the case of a law firm).
obligations. Just as in any partnership, it is not only just about the rights But make sure that there is an indication that that person is
; it is also about the obligations. already dead.
Usually, may cross sign to indicate na namatay na. The reason for that
is that if you are going to change it again, it might affect the marketing
Article 1815. Every partnership shall operate under a firm
aspect of the partnership.
name, which may or may not include the name of one or
more of the partners. 5. Do not use the name of an internationally known foreign
corporation or one similar to it without the consent of the
Those who, not being members of the partnership foreign corporation.
, include their names in the firm name, shall be subject to
the liability of a partner. (n) 6. Do not use the words “State,” “National,” “Bureau,” or
“Commission.”
7. Do not use the name of a local geographical unit unless it is

accompanied by a descriptive word or phrase.
The last paragraph is what you call a partner by estoppel. You're not
really a partner [of the partnership], but to protect third persons and by There is no “Davao, Inc.,” “Davao Corp.,” among others, because that is
reason of the principle of estoppel or being estopped, you are deemed the name of a geographical unit. It must be used together with
to be a partner. So, you are estopped from denying your being a something descriptive like “Davao Mining,” “Davao Famous,” or “Davao
partner. Light.”
The firm, the name, the title, and the style under which the company Pwede bang magkaroon ng “Davao Light” sa Cagayan? Can I use the
transacts business, a partnership of term or persons, a commercial name of a geographical location in a different geographical location? Is
house in its common acceptation, the term implies a partnership. If you it allowed? Pag foreign ba ako na magba-branch dito, kailangan bang
39
may “branch”? You’ll learn that sa tamang panahon. subterfuges resorted to in order to evade liability for possible losses,
while assuming their enjoyment of the advantages to be derived from
8. Do not use the words “United Nations” or “U.N.” because the relation, must be disregarded. The partners who have disguised
that is actually an already appropriated for the UN their identity under a designation distinct from that of any of the
members of the firm should be penalized, and not the creditors who
9. Do not use the words “Finance Company,” “Financing
presumably have dealt with the partnership in good faith.
Company,” “Finance and Leasing Company,” “Leasing
Company,” “Investment Company,” “Investment House,” P: What, then, would happen if I use the name of another
“Bank,” “Banking,” “Banker,” “Savings and Loan Association, person as a firm name? It does not affect the existence of a partnership
” “Trust Corporation,” “Trust Company,” “Bonded,” or “SPV-
. What is the implication if I use the name of someone else who is not a
AMC” or a special purpose vehicle unless the corporation is
partner of the firm? How does it affect the liability to a third person?
engaged in the business described in the corporate name.
S: As to the third person, whatever is contracted by the
Therefore, you cannot have the name of a “Bank” if you are not a bank.
partnership with the third person is not affected. They are still liable as
Hindi pwede na Davao Banking Association pagkatapos restaurant.
a partner even if they did not use a firm name that incorporated the
10. Do not use the words “Investments” or “Capital” unless the name of a partner.
entity organized is an investment house, investment
company, or, holding company. In reality, it cannot be approved to be recorded with the SEC
if none of the partners is indicated in the partnership name. But the
11. Do not use the words “Asset/Investment/Fund/Financial implication of that is that sino yung nilagay mo ‘don may be held liable
Management,” or “Asset/Investment/Fund/Financial Adviser, as a partner by the principle of estoppel if may ginawa silang action.
or any similar words or phrases, unless the entity organized But that person can go actually to the person who used their name on
is an investment company adviser or holders of investment the ground of?
management activities license.
Can I use your name? Can I be you? What would be the implication?
12. Do not use the words “Association” or “Organization,” Can you sue me? If I used your name in entering into a contract with
unless the corporation or firm is primarily engaged in someone else, what will be my liability?
nonprofit activities.
13. Do not use the words “Stock Exchange/Futures Exchange/ Article 1816. All partners, including industrial ones, shall
Derivatives Exchange,” “Stock Broker/Securities be liable pro rata with all their property and after all the
Broker/Derivatives Broker,” Commodity/ Financial Futures partnership assets have been exhausted, for the contracts
Merchant/Broker,” “Securities Clearing Agency/Stock which may be entered into in the name and for the account
Cleaning Agency,” “Plans,” or any similar words or phrases of the partnership, under its signature and by a person
unless the corporation is licensed under the SEC. authorized to act for the partnership. However, any partner
may enter into a separate obligation to perform a
These are just some of the guidelines in the naming of the firm or partnership contract.
corporation.
We have the case of Jo Chung Cang vs. Pacific Commercial Company.
Professor: So, what happened here? This is very important. This pertains to the liabilities and obligations of a
partner to a third person.
Student: The name of their partnership did not include the name of a
partner. Please take note of the nature of the liability: it is pro rata and
subsidiary or secondary.
P: So, what did the Supreme Court say? Is it necessary?
Please take note, the pro rata here is not in proportion to the capital. It
S: Yes, the name must include at least the name of one of the is in proportion to the bodies of the partners. If there are three
partners. partners, then 1/3 liability each. Regardless of how much money you
put in the company, you are liable pro rata.
P: So, anong mangyayari sa ganoong company?
Please take note, this is subsidiary. Meaning, you have to exhaust first
S: The Supreme Court held that it does not affect third persons.
the assets of the partnership. In other words, the liability of a partner is
P: Meaning? Is there a partnership or not? similar to that of a guarantor because the guarantor has the benefit of
excussion. The property of the partnership must be first exhausted
S: There is a general partnership. before they may be held liable. That is the partners liability and that is
pro rata.
P: So, there's still a partnership because it’s just a name. In
other words, where is the error in that? Since it does not affect the That’s 1816, very important.
existence of the partnership, is it okay for the partnership name to not
have the name of one of the partners? Let's distinguish why the industrial partner is made liable. ‘Di
ba, hindi siya liable for the losses, services na nga lang ang kanyang
S: Here, the intention of the persons making up Teck Seing & co binigay, nalugi. Ngayon, liable pa siya.
., Ltd. was to establish a partnership which they erroneously
denominated a limited partnership. If this was their purpose, all You have to distinguish liability from losses.
40
When we talk about liability, we're talking about partnership debts: Bea 25% 10%
that point in time wherein the partner has debt with a third person.
100% 100%
When we talk about losses, we're talking about the period of time
when the partnership was operating. Pwede namang at a loss ka pero
wala ka namang utang. Pwede namang nagpa-profit ka pero marami
kang utang. The liability is pro rata but subsidiarily, meaning, Julia has to exhaust
first the assets of KSMB & Co. before siya makapunta sa partner.
Although an industrial partner cannot be held liable for losses, he could
be held liable for debts with third persons on the basis of Article 1816. That is 1816 and 1817.
Article 1817. Any stipulation against the liability laid down Article 1818. Every partner is an agent of the partnership for the
in the preceding article shall be void, except as among the purpose of its business, and the act of every partner, including the
partners. (n) execution in the partnership name of any instrument, for apparently
carrying on in the usual way the business of the partnership of which
he is a member binds the partnership, unless the partner so acting has
in fact no authority to act for the partnership in the particular matter,
and the person with whom he is dealing has knowledge of the fact that
This talks about the previous article where the liability is pro rata and
he has no such authority.
subsidiary. Pwede namang makigpartner ka and naa moy internal
agreement nga dili pro rata ang liability. In the event na maging liable An act of a partner which is not apparently for the carrying on of
ka, ako musagot. business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners.
For purposes of third persons, wala siyang pake sa internal agreement
niyo. I can sue each and every one of you for your liability pro rata. But, Except when authorized by the other partners or unless they
siyempre, kung yang partner mo, gi-sue siya sa third person, muingon have abandoned the business, one or more but less than all the
na naa man mi agreement sa akong partner nga dili ko mahimong liable partners have no authority to:
ana. Ang third person makaingon nga, uy pinag-aralan ko ‘to. Any (1) Assign the partnership property in trust for creditors or on the
stipulation to that effect shall be void, except as among the partners. assignee's promise to pay the debts of the partnership;
So, sa inyo ra na. Pwede gihapon taka ma-sue kay naa koy cause of
(2) Dispose of the good-will of the business;
action against you under Article 1816.
(3) Do any other act which would make it impossible to carry on
Under Article 1817, any stipulation against the liability laid down in the the ordinary business of a partnership;
preceding article shall be void, except as among the partners. Pwedeng
-pwede kang i-go after ng third person. (4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or
Let’s illustrate: Kunwari may partnership with four partners.
liability;
Ownership (6) Submit a partnership claim or liability to arbitration;

KSMB & Co. Contribution
Interest (7) Renounce a claim of the partnership.
Kim 30k 30%
No act of a partner in contravention of a
Sarah 30k 30% restriction on authority shall bind the partnership to persons having
knowledge of the restriction. (n)
Maja 30k 30%
Let’s dissect this provision because this talks about the acts of a partner
Bea 10k 10% .
100k 100% You have three classes of partnership:
1. Act of apparently carrying on in the usual way the business

of the partnership;
This is the partnership. Under 1816, Kim, Sarah, Maja, and Bea are
liable to third person. Let’s say, Julia. Pag magkautang si KSMB & Co. 2. Acts of strict dominion; and
kay Julia, then hindi siya makabayad, Juila has a cause of action against
3. Acts in contravention of this restriction on authority.
each of them to the extent of 25% or ¼ each.
In the first paragraph, every partner is an agent and may execute such
Ownership act with binding effect on the partnership even if he has, in fact, no
KSMB & Co. Liability to Julia
Interest authority, unless the third person has knowledge of such lack of
authority.
Kim 25% 30%
So, therefore, in our example: Kim, Sarah, Maja, or Bea are mutual
Sarah 25% 30% agents of one another. They are both agents and principals to each
Maja 25% 30% other due to the partnership.
41
So, therefore, Bea can contract with Julia and this can bind the
partnership. Now, let’s dissect. If it is for any act under the usual
business of the partnership, okay lang because you have paragraph one After everything is wound up, that’s the time the partnership is
whereby there is mutual agency when there is an act for a party wound up and everything is settled. That’s what you call
carrying on in the usual way the business of the partnership. termination. That signifies the end of the partnership life.
Question: how would you know if the act is for apparently carrying on
in the usual business of the partnership? It depends on the purpose of As to that, you may ask this question, sir, what if in the process
the partnership. Let’s say it is established for real estate tapos of winding up, you realise na siya pa rin? What if nagsusulian
nagbayad sila for real estate, so that is usual. Kung trading ka and nag- kayo ng gamit and you found out, the time na binigay nya are the
happy memories and you want that to continue? What happens?
purchase ka ng mga supplies and nag-sell ng mga products, that is usual
. So, no questions there.
That is a “new partnership”. Pagbabalik kayo, that’s a new
partnership. Therefore, clean slate. Walang hukatan ng butas.
Now, the only thing in the exceptions to that rule whereby hindi
That’s a new partnership because na dissolve na.
magiging liable si partnership. Take note, they are liable pro rata and
subsidiary. Please take note that they are only liable pro rata and
subsidiary if the liability stems from partnership liability. Liable lang sila What if walang drafting ng new agreement? That means that
dun sa liability ng KSMB & Co. We have to determine if it is a you’re previous agreement; you have decided to continue it. So,
partnership liability. ano kung ano ang agreement nyo before that would still continue
in the new partnership. But, my point is that there’s a new
part 2 partnership.
It doesn’t have to necessarily go through the process of winding

up, and ending the termination for you to establish a new
JULY 26 (Part 3) partnership. Kasi, if during the winding up you decide to continue
. That’s my point.
Again, sabi ko nga, everything that has a beginning has an end.
Effects of dissolution — the partnership is not terminated.
We talked about how it is to form a partnership. What are the Please take note, it is the end of the winding up process, wherein
rights and obligations of the partners to each other, the the partnership is terminated.
obligations and rights to third persons.
So the partnership is still existing; there is still a juridical
Now, we are talking about the DISSOLUTION. Ito na yung there’s personality. But it is only for a limited purpose; for purposes lang
a change in the partnership relations. of settling the affairs, benta ng assets pambayad ng liabilities,
and for the purpose of winding up. It is not for other purpose;
Then 3 terms to determine: not for the purpose continuing business transaction, but it is only
• Dissolution for the purpose of winding up.
• Winding-up
• Termination — Transaction of new business is Prohibited.
of course, there are nuances that we will later discuss.
Effects of change in membership in a partnership:
Now, what then causes dissolution? What causes the change in
dissolution of a partnership and creation of a new one; partnership relation?
transforms of all incoming partners, you have a continuance in
the remaining partners of the partnership as a form. DISSOLUTION WITHOUT THE NEED OF A COURT DECREE
Without violation of partnership In Contravention of Par

Dissolution is actually the change in the relationship caused by
agreement Agreement
any partners ceasing to be associated and carried on by the
business.
It is the point in time when the partners cease to carry on the
business together. So ayaw nyo na; Ayaw ko na maging
associated sayo. It’s not you, it’s not me also =) termination of the term pre-termination of period
It represents the demise of the partnership. So after the

dissolution, you now go winding-up. termination of the Specific undertaking Pre-termination of specific
Winding up is the process of settling the business or partnership

affairs after dissolution.
Will of any party exercised in good faith (in Will of any party exercised
Therefore, you decide to change the partnership relation through
partnership at will) partnership at will)
dissolution, so what’s next? Syempre, dini-dissolve, wini-wind up
ang partnership assets.
Ang analogy is that pag-nag break kayo, di ba yun yung

magsusulian kayo ng mga binigay nyo, yun yun? Ilagay sa sang
box, may pasunog-sunog; that’s winding up.
42
expulsion of a partner bona fide under the he exercises it with violation of the
Insolvency of agreement, you can ask for
the partnership
powers granted in the agreement damages. If someone cheated on you, ok lang, you can ask for
damages. That’s the point of the second.
Now, could there be an instance wherein wala talagang magawa

kayo because of circumstances beyond your control? That is your
mutual withdrawal by all partners third column.
“loss of specific thing promised to be contributed…”

kasi pagnawala yun, it would mean na walang ki-nontribute, it
would go against the very existence of the partnership.
These come from the provisions, but I just summarised it.for
better understanding. If you try to look at it, there are full of long Now what happens, let's say, binalik?
sentences. Nagcontribute ka ng land sa partnership, tapos binalik yung lupa,
would there be solution? There’s this old case, Fernandes vs Dela
Under the first column, “Without violation of partnership Rosa, sabi sa Court, no, kasi yung pagbalik there was already a
agreement”. In other words, there’s no bad faith, you did not partnership. And ang pagbalik it was because of the partners,
violate the agreement; baka nag change lang talaga. Remeber, managing; it does not go into the very nature of the partnership,
partnership is based on the principle of delectus personae; so it’s which that was existing at the time of its establishment.
fiduciary, based on selection of person.
“business becomes unlawful”
If you have the right to select the person you want to associate Of course, that is for causes beyond the control of the partners.
with, you also have the right to end whatever associations you
don’t want. Hindi tayo tali dito; meron tayong freedom; own “death, insolvency or civil interdiction of any partner”
freewill to be associated with someone you want.
These are the causes WITHOUT a need for court decree. You do
Now, what are examples of without violation of partnership not need to go to court to ask for a decree declaring the
agreement? partnership is dissolved.
1) Termination of the term Now, what are the causes which require court decree?
Remember your partnership with the term, let’s say, hoy first sem
lng ang partnership. So after second sem, wala na. There’s no Please take note:
bad faith in that.
In the following causes, there’s an element of “proving”
these facts. Magiging evidentiary siya; that is why kailangan ng
2) Termination of the Specific Undertaking
court decree because the court would step in to determine if the
Ang ating partnership is only up to the time na makapasa ako sa
allegations are correct.
ganitong subject.
Dissolution through a Court Decree
3) Will of any party exercised in good faith (in partnership at will)
If it is not with a specific undertaking or term, it could be a
• When a partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
partnership at will.
Hindi lang pwedeng partners kaayo, oi si Bea, medyo unsound mind
naman. Dissolve na tong partnership. You have to ask for the court to
order that, yes, unsound mind na itong si Bea. Kasi evidentiary siya;
pagpartnership at will, it is anytime; based on the will of the you have to prove that allegation.
partners, exercised in good faith. Ito yung mga no-strings
attached. • When a partner becomes incapacitated in
performing partnership contract;
4) Expulsion of a partner under a power granted bona fide in the
agreement Who will decide na incapacitated na siya? It’s not the partners, it is the
court; it has to be an independent person.
5) Mutual withdrawal by all partners
Ito, it is amicable ang pagbreak ng partnership relations, that is
also without violation of partnership agreement.
• When a partner of such conducts as tends to
affect prejudicially the carrying on of the
business;
Now, could there be a violation of partnership agreement?
Who will decide that it is “prejudicial”? It is the courts. That is why
1) Pre-termination of a term
kailangan ng court decree.
di tinapos ang pinag-usapan
2) Pre-termination of specific undertaking
3) Will of any party exercised in bad faith (partnership at will)
• When a partner wilfully or persistently commits a
breach of the partnership agreement, or
Now, what is bad faith?
otherwise so conducts himself in matters relating
to the partnership business that it is not
In its normal concept, is the conscious and intentional reasonably practicable to carry on the business in
design to do a wrongful act for a dishonest purpose or moral partnership with him;
obliquity. (Ortega v CA)
note: “wilfully” or “persistently”
Remember bad faith, because what distinguishes the first column
from the second, in the right of the affected partner to ask for Who will decide na wilful or persistent? It is the court.
damages, kasi doon sa second, may mga element of bad faith. If
43
Reason for
• When the business of the partnership can only be Reason for dissoltion:
Reason for dissolution:
dissolution:
carried on at loss; ACT of a Partner
INSOLVENCY OR
“other
DEATH of a Partner
causes”
• Other circumstances render a dissolution
equitable. Rule:
Each partner is liable Each partner is liable to
Therefore, the provision on the causes for dissolution is not actually to his Co-Partners for his Co-Partners for his
exclusive. There could be other reasons. No sharing
his share of the liability share of the liability
of liability
created by any partner created by any partner
Can a purchaser of a partner’s interest cause a dissolution? who acts for the who acts for the partner
Remember, pwede ibenta diba, pwede nga ma-attach, pwede ma- partnership
dissolve, pwede nga ma-execute.
Exception:
Exception:
When a purchaser of a partner’s interest can cause a dissolution If partner acting had
If partner acting had
KNOWLEDGE or
KNOWLEDGE of the
• After the termination of the specified term or particular NOTICE of the death or
dissolution
undertaking. insolvency
• At any time if the partnership was a partnership at will
when the interest was assigned or when the charging
order was issued. Discussion:
Note: Pwede siya hindi “at will” in the first place, at biglang naging “at When we’re talking of knowledge, it is not limited to the fact, but of all
will” kung kinuntinue ng mga partners. facts and specific of facts. It’s not similar to sinabihan ka lang, you have
to have your own knowledge.
Now, it must be at the time, it was assigned, it was a partnership at will
when the interest was assigned or the charging order was issued. Not, second column:
when at the time it was assigned or the charging order was issued that Rule: shared liability
it was not a partnership at will. In that case, the purchaser cannot ask Exception: no sharing if there’s knowledge or notice of death or
for a dissolution. Please take note of that, kasi magkaiba ang mga rights insolvency
na na-assign sa purchaser.
Let’s say, namatay si Kim, so na dissolve. Si Bea, nag-order ulit. Ngayon,
tinatanong ni Sarah, may sharing of liability ba sa order ni Bea. Sabi
Now, na dissolve na. Limited na lang ang purpose. naman ni Maja, you have to determine first: Meron bang knowledge or
What happens to the authority of a partner? Can I still have the same notice si Bea?
authority as an agent of the partnership or as an agent of the other
partners? May knowledge ba siya na patay na si Kim? Or notice na patay na? Now
, notice, kung pinublish siya, that constitute notice. It includes
The general rule = dissolution actually terminates all authority of any constructive notice. But when we’re talking of knowledge, that is
partners to act for the partnership. actual knowledge.
Dissolution is the point in time na wala ng authority. Wala na. “other causes” (not for the death or insolvency)
Except =
a) so far as necessary to wind up the partnership affairs.
Like, business becomes unlawful, there is no sharing of liability. Pagnag-
b) complete transactions began but not finished. contract ulit si Bea, si Bea lang ang liable.
(see Article 1832)
We’re talking “as to the partners”. How about “as to the partnership”?
As to the partners, what are the specific effects of transactions entered Here, same parin, may mga transactions entered after dissolution; the
into by a partner AFTER dissolution?
question is, di ba, dissolution terminates authority, but, there are
specific transactions where the partnership is bound by the actions of
General Rule: there is no authority
the acting partner even after dissolution.
exceptions: winding up, and complete transactions began but not
finished. Effects of Transactions entered into by a partner AFTER dissolution (
When Partnership is Bound)
Let’s say may order, di pa dissolved, you have to finish it because it will
affect the rights of third persons. Tapos, for specific actions of a partner
AFTER dissolution. Nature of the
Contracting Party:
transaction
Now, you to determine if the reason of the dissolution is the act,
insolvency/death, or other causes.
For winding up OR anyone
completing transactions
unfinished at dissolution by
Effects of Transactions Entered Into By A Partner AFTER dissolution (
a person authorized
As to Partners)
For winding up OR Had extended credit
completing transactions before dissolution AND
unfinished at dissolution by NO knowledge or notice
a person NOT authorized of the want of authority
44
For winding up OR Not extended credit but Dissolution is In contravention

completing transactions has knowledge of the Dissolution is Caused in Any of the Partnership
unfinished at dissolution by partnership before AND Way Agreement
a person authorized no publication at place of
business Have the partnership property Have the partnership property
applied to discharge its liabilities applied to discharge its liabilities
ANY transaction which Had extended credit
would bind the partnership ( before dissolution AND Have the surplus applied to pay Have the surplus applied to pay
ordinary course of business) NO knowledge or notice in cash the net amount owing to in cash the net amount owing to
of dissolution the respective partners the respective partner
ANY transaction which Not extended credit BUT
would bind the partnership ( has knowledge of the Right, as against each partner
ordinary course of business) partnership before AND who has caused the dissolution
no publication at place of wrongfully, to damages
business
Right to continue the business in
the same name either by
Let’s go to the Second part. themselves or jointly with others
provided they secure:
Kahit sino ka-contrata nila, the partnership is bound. 1. the payment by bond approved
by the court; OR
2. pay any partner who has caused
Third:
the dissolution wrongfully, the
Let’s say si Bea, nag contract siya; ang supplier niya si Marjorie. Si
value of his interest in the
Marjorie nag supply na ng credit after dissolution. Now, the partnership partnership at the dissolution, less
is bound, meaning, Marjorie can singil the partnership if, the third any damages
person, in this case Marjorie, had extended credit (yes), and wala
siyang knowledge or notice na walang authority si Bea. Kung wala tong
In other words, hindi pwede na kaning laptop na lang akoa, or kining
dalawa, she cannot singil the partnership.
yuta. The coral is specific, you have to PAY IN CASH.
Take note: What is common, after the dissolution, it terminates the

Let’s talk about Column 3 and 4.
authority. BUT, if it is against a third person who has extended credit
before and walang notice or knowledge na tapos na ang partnership,
Di ba magdi-distribute ka na ng cash, kung sino yung partner who have
then, he can go after the partnership.
wrongfully caused the partnership to be dissolved, tatanggalin yung
right to damages of such partner because the innocent partner has the
In the last instance, pag walang publication, meaning hindi alam ni third
right to damages.
person na wala ng partnership.
What if hindi nagcompletely wind up dahil kinuntinue. What if nag-

PLEASE: familiarize this because some of the questions in your exam
continue, ano ang mangyayari? They did not convert all the properties
will be on the liability of the partnership and partners. Yun lang naman
into cash; kasi nga kinuntinue. (Hindi ibig sabihin na wrongful partner
ang medyo tricky; all the rest ok lang naman. It would be an insult to
ka wala ka nang makuha; meron, less lang ng damages).
your intelligence kung madali lng ang exam.
Ano ang mangyayari, dahil hindi ma-dedetermine dahil nag continue
nga?
Who may wind up the partnership affairs?
(Art. 1836)
Ito na yung column 4:
1. Agreement;
2. Partners who have not wrongfully dissolved the
They can continue if:
partnership or the legal representative of the last
1) they pay a BOND; or
surviving partner, not insolvent;
2) pay any partner who has caused the dissolution wrongfully, the
3. Any partner, his legal representative or his assignee,
value of his interest in the partnership at the dissolution, less any
upon cause shown, may obtain in winding up by the
damages
court.
In other words, pwedeng ilagay sa Articles of Partnership na, itong si A Note: it’s just the “value”, wala talagang binentang property.
ang mag-wiwind up kung magdissolve. Kinumpute lang yung value of his interest on dissolution less any
damages.
#2 - Question, can the person who have wrongfully dissolve the
partnership be the one to wind up? Is there an exception to #2?
AUGUST 2, 2019
Pwede, kung nag-AGREE ang mga partners na siya (mag-wiwind up).
The reason kung bakit hindi siya isasali sa winding up, there’s a right to
damages in favor of those innocent parties. Kung siya ipa-wind up nyo,
how sure are you na fair ang distribution? So, let’s discuss the case of Ortega v. CA
Please take note of that.

Ortega vs. COURT OF APPEALS
Right of a partner in dissolution
45
in bad faith?
FACTS:
On December 19, 1980, respondent Misa associated himself together, Sir: Pwede ba kasing ayaw nya ng mag associate with you, so mag
iwwithdraw nalang sya, could that be still considered as good faith
as senior partner with petitioners Ortega, del Castillo, Jr., and Bacorro,
withdrawal?
as junior partners. On Feb. 17, 1988, respondent Misa wrote a letter
stating that he is withdrawing and retiring from the firm and asking for A: Yes sir.
a meeting with the petitioners to discuss the mechanics of the Q: How do you measure good faith in that sense?
liquidation. On June 30, 1988, petitioner filed a petition to the
A: (Inaudible)
Commision's Securities Investigation and Clearing Department for the
Q: Kung ayaw nya na, okay nay un? Di na sya in bad faith?
formal dissolution and liquidation of the partnership. On March 31,
1989, the hearing officer rendered a decision ruling that the withdrawal Sir: So, this case actually discusses when can bad faith withdrawal be
for a partner in a partnership. So the SC said that indeed for as long as
of the petitioner has not dissolved the partnership. On appeal, the SEC
the reason for withdrawal of a partner is not contrary to the dictates of
en banc reversed the decision and was affirmed by the Court of justice and fairness nor for the purpose of undue (nag dubidubidapdap
Appeals. Hence, this petition. na omg- inaudible) or the damage of the partnership, bad faith cannot
be said to characterize the act. So this is your measurement principle
knowing if there is bad faith or not. So bad faith is? PLEASE MEMORIZE
ISSUE: WHAT BAD FAITH IS. Memorize its definition kasi pwede nyo tong
Whether or not the Court of Appeals has erred in holding that the gawing bala (Char Falaban sa vakvakan!)
partnership is a partnership at will and whether or not the Court of

Appeals has erred in holding that the withdrawal of private respondent
So we have the case of Tocao vs. CA
dissolved the partnership regardless of his good or bad faith
TOCAO vs COURT OF APPEALS

HELD: G.R. No. 127405; October 4, 2000
No. The SC upheld the ruling of the CA regarding the nature of the FACTS:
partnership. The SC further stated that a partnership that does not fix Nenita A. Anay met William T. Belo, then the vice-president for operations of
its term is a partnership at will. The birth and life of a partnership at will Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to Marjorie Tocao, who conveyed her desire to enter into a joint
is predicated on the mutual desire and consent of the partners. The venture with her for the importation and local distribution of kitchen cookwares.
right to choose with whom a person wishes to associate himself is the
Under the joint venture, Belo acted as capitalist, Tocao as president and general
very foundation and essence of that partnership. Its continued manager, and Anay as head of the marketing department and later, vice-
existence is, in turn, dependent on the constancy of that mutual president for sales.
resolve, along with each partner's capability to give it, and the absence The parties agreed that Belo's name should not appear in any documents relating
to their transactions with West Bend Company. Anay having secured the
of a cause for dissolution provided by the law itself.
distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business
Verily, any one of the partners may, at his sole pleasure, dictate a took off successfully. They operated under the name of Geminesse Enterprise, a
dissolution of the partnership at will. He must, however, act in good sole proprietorship registered in Marjorie Tocao's name.
faith, not that the attendance of bad faith can prevent the dissolution The parties agreed further that Anay would be entitled to:
of the partnership but that it can result in a liability for damages.
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production;
Discussion:
(3) thirty percent (30%) of the sales she would make; and
Q: Bakit sya nag withdraw?
(4) two percent (2%) for her demonstration services. The agreement was not
A: Because of their personal problems among partners. reduced to writing on the strength of Belo's assurances that he was sincere,
dependable and honest when it came to financial commitments.
Sir: So nagkagulo sila, so ang issue is WON the withdrawal of Atty. Misa On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter
dissolved the partnership? addressed to the Cubao sales office to the effect that she was no longer the vice-
president of Geminesse Enterprise.
A: The SC said yes, sir. (Recites the Ruling)
Anay attempted to contact Belo. She wrote him twice to demand her overriding
Q: So bakit hindi daw in bad faith ang pag withdraw ni Atty. Misa? commission for the period of January 8, 1988 to February 5, 1988 and the audit
What are the contentions of the other party stating that there is bad of the company to determine her share in the net profits.
faith in her part? How would u characterize a withdrawal which is not
46
Anay still received her five percent (5%) overriding commission up to December she should be liable for damages. However, in this case the Supreme
1987. The following year, 1988, she did not receive the same commission Court said that Anay merely withhold the stocks of the partnership to
although the company netted a gross sales of P 13,300,360.00. determine what rightfully belongs to her after dissolution. Hence, there
was no bad faith on the part of Anay. Tocao was merely exercising her
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum
of money with damages against Marjorie D. Tocao and William Belo before the rights in the dissolution of the partnership.
Regional Trial Court of Makati, Branch 140
Q: There was no bad faith on the part of?
The trial court held that there was indeed an "oral partnership agreement
between the plaintiff and the defendants. The Court of Appeals affirmed the Anay, sir, because she is only withholding the stocks of the partnership.
lower court’s decision It was argued that the act of withholding the stocks is an act of bad
faith, but the Supreme Court held in this case that the withholding of
ISSUE: WON the parties formed a partnership stocks is not an act of bad faith but it is merely a security on the part of
Anay in ensuring her share in the partnership.
HELD: Yes, the parties involved in this case formed a partnership
The Supreme Court held that to be considered a juridical personality, a

Q: The partnership hasn’t been? Why does she want to seek for herself
partnership must fulfill these requisites: ?
(1) two or more persons bind themselves to contribute money, property or A: It was considered as an act of security
industry to a common fund; and
Q: why was is an act of security
(2) intention on the part of the partners to divide the profits among themselves.
It may be constituted in any form; a public instrument is necessary only where A: because the partnership has not been giving her the commission and
immovable property or real rights are contributed thereto. her share in the profit, sir
This implies that since a contract of partnership is consensual, an oral contract of Q: Why? Kasi di pa nag?
partnership is as good as a written one.
A: Di pa nag liquidate
In the case at hand, Belo acted as capitalist while Tocao as president and general
manager, and Anay as head of the marketing department and later, vice- Sir: No winding up yet.
president for sales. Furthermore, Anay was entitled to a percentage of the net
profits of the business.
Therefore, the parties formed a partnership. Bearneza vs. Dequilla
Balbino Dequilla, the herein defendant, and Perpetua

Bearneza formed a partnership for the purpose of exploiting a fish
pond. Perpetua obligating herself to contribute to the payment of
the expenses of the business, which obligation she made good,
Discussion: and both agreeing to divide the profits between themselves,
which they had been doing until the death of the said Perpetua in
Q: So sino nag withdraw? Si Anay or Tocao?
the year 1912.
A: Tocao, sir by the memo.
The deceased left a will in one of the clauses of which
she appointed Domingo Bearneza as her heir to succeed to all her
Q: What is the memo? rights and interests in the fish pond in question.
Domingo Bearneza brought this action recover said part
A: The memo states that Anay will not be anymore the vice president. of the fish pond and one-half of the profits received by the
defendant from the fish pond from the year 1913 to 1919, as
Sir: So pinatanggal nya diba? But the court said that meaning the damages (the amended complaint was filed on April 12, 1920),
withdrawal is from Tocao. So yun, pinatanggal sya. Sya yung amounting, according to plaintiff, to the sum of thirteen thousand
nagwithdraw sa partnership. That very act is an expression of her na one hundred pesos (13,100).
nagwithdraw na sya. Na ayaw nya ng makipag associate kay Anay.
ISSUE: Can the partnership survive beyond the death of one of its
Q: So is it a good faith or a bad faith dissolution?
partners?
HELD: NO.
A: In this case sir, it is actually a good faith dissolution. It was also
contended here that Anay failed to account the stocks of Geminesse Neither can it be maintained that the partnership
Enterprise and that therefore she should be liable for damages sir. continued to exist after the death of Perpetua, inasmuch as it
does not appear that any stipulation to that effect has ever been
made by her and the defendant.
The partnership having been dissolved by the death of
Perpetua Bearneza, its subsequent legal status was that of a
That very act of Tocao in withdrawing [Anay] from the partnership is an
partnership in liquidation, and the only rights inherited by her
testamentary heir, the herein plaintiff, were those resulting from
expression of her desire to disassociate herself from Anay.
the said liquidation in favor of the deceased partner, and nothing
Q: Is it a good faith or bad faith dissolution?
more. Before this liquidation is made, which up to the present has
not been effected, it is impossible to determine what rights or
A: Good faith dissolution, sir. It was contended here that Anay failed to interests, if any, the deceased had, the partnership bond having
account the stocks of the enterprise, an act of bad faith, and therefore been dissolved.
47
Neither can it be said that the partnership continued cannot be executed on. But the interest can. ‘Yun lang ang pwede
between the plaintiff and the defendant. It is true that the latter's niyang mapasa. That’s why ‘pag mamatay, automatic dissolved. But
act in requiring the heirs of Perpetua to contribute to the whatever is the result of the liquidation, ‘di ba ide-determine kung
payment of the expenses of exploitation of the aforesaid fishing magkano ang magiging profit, ide-determine kung magkano ang assets.
industry was an attempt to continue the partnership, but it is also Ang assets ipambabayad sa utang. Whatever remains, that is the
true that neither the said heirs collectively, nor the plaintiff
surplus. That can be distributed back.
individually, took any action in response to that requirement, nor
made any promise to that effect, and therefore no new contract In other words, what the heir can inherit is only the interest
of partnership existed.
of the partner consisting of the sharing of profits and the surplus. The
heir cannot inherit the specific partnership property because that is the
Q: What can the heir inherit? right of the partner which cannot be transmitted.
A: Only rights inherited by her testamentary heir, the herein plaintiff,
were those resulting from the said liquidation in favor of the deceased
partner, and nothing more. Rojas vs. Maglana
Maglana and Rojas executed their Articles of Co-Partnership
Before this liquidation is made, which up to the present has called Eastcoast Development Enterprises (EDE) with only the two of them
not been effected, it is impossible to determine what rights or interests as partners. The duly registered partnership EDE had an indefinite term of
, if any, the deceased had, the partnership bond having been dissolved. existence.
Because of the difficulties encountered, Rojas and Maglana

Q: Let’s say may partners. Namatay yung isa. May anak yung namatay. decided to avail of the services of Pahamotang as industrial partner.
Nag-demand yung anak na makakuha from the community property of
Maglana, Rojas and Agustin Pahamotang executed their Articles
the partnership. Can the heir have a share or interest in the partnership
of Co-Partnership under the same firm name as the previous one. Aside
properties? If not, what can the heir inherit?
from the slight difference in the purpose of the second partnership which
is to hold and secure renewal of timber license instead of to secure the
A: Only rights inherited by her testamentary heir.
license as in the first partnership and the term of the second partnership is
fixed to thirty (30) years, everything else is the same.
Q: What are those rights?
The partnership formed by Maglana, Pahamotang and Rojas
A: those resulting from the said liquidation in favor of the deceased started operation and was able to ship logs and realize profits. An income
partner. was derived from the proceeds of the logs.
Q: What are those resulting from the liquidation? Ano ba ang kino- Later on, Pahamotang, Maglana and Rojas executed a
document agreeing among themselves that Maglana and Rojas shall
compute during liquidation?
purchase the interest, share and participation in the Partnership of
Pahamotang. It was also agreed in the said instrument that after payment
Ang sabi ng Court is that ang mamana mo lang ang whatever
to Pahamotang and of the loan secured by Pahamotang in favor of the
that the liquidation would result to. So, ano pala yung details ng partnership, the second partnership shall be dissolved, among others. No
liquidation? other rights and obligations accrued in the name of the second partnership
.
A: Those assets which the partnership has.
After the withdrawal of Pahamotang, the partnership was
Q: The partnership in this case has a fishpond. So, the fish pond? continued by Maglana and Rojas without the benefit of any written
agreement or reconstitution of their written Articles of Partnership.
A: Interests in the fish pond.
Thereafter, Rojas entered into a management contract with
another logging enterprise, the CMS Estate, Inc. He left and abandoned
Q: Interests in the fish pond. What interests are that? Let’s say that a
the partnership.
partnership has a car. One of the partners dies. The deceased has a
child. What would the child inherit? Rojas withdrew his equipment from the partnership for use in
the newly acquired area. The equipment withdrawn were his supposed
A: The interest of the deceased partner in the partnership. contributions to the first partnership and was transferred to CMS Estate,
Inc. by way of chattel mortgage.
Q: The interest of the deceased partner in the partnership, not the fish
Maglana wrote Rojas reminding the latter of his obligation to
pond itself. And the interest consist of? What is the partner’s interest?
contribute, either in cash or in equipment, to the capital investments of
Look at the codal. the partnership as well as his obligation to perform his duties as logging
superintendent.
A: A partner’s interest consists of profits and surplus.
Two weeks thereafter, Rojas told Maglana that he will not be
Yes. Ginaulit-ulit ko diba? able to comply with the promised contributions and he will not work as
logging superintendent. Maglana then told Rojas that the latter's share will
A partner’s interest consists of profits and the surplus. Kung just be 20% of the net profits. Such was the sharing from 1957 to 1959
without complaint or dispute.
may property ang partnership, namatay ang partner, consider the
partnership dissolved. Meanwhile, Rojas took funds from the partnership more than
his contribution. Thus, in a letter, Maglana notified Rojas that he dissolved
The heir of the partner cannot have their specific right in the the partnership.
partnership property because, as between the interest and the specific ISSUE 1: What is the nature of the partnership and legal relationship of
right to the partnership property, restricted ang right to specific the Maglana-Rojas after Pahamotang retired from the second partnership?
partnership property. It cannot be assigned, it cannot be attached, it
48
HELD 1: It was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one. Except for the fact 2. In the absence of an agreement, the partners who have not
that they took in one industrial partner; gave him an equal share in the wrongfully dissolved the partnership or the legal
profits and fixed the term of the second partnership to thirty (30) years, representative of the last surviving partner, not insolvent.
everything else was the same.
To all intents and purposes therefore, the First Articles of 3. Any partner, his legal representative or his assignee, upon
Partnership were only amended, in the form of Supplementary Articles of cause shown, may obtain winding up by the Court.
Co-Partnership which was never registered. Otherwise stated, even during
the existence of the second partnership, all business transactions were How do you wind up your partnership?
carried out under the duly registered articles.
After dissolution, the general rule is that the authority of the
On the other hand, there is no dispute that the second
partnership was dissolved by common consent. Said dissolution did not partner to bind the partnership is severed except for some instances
affect the first partnership which continued to exist. Significantly, Maglana that we have already discussed.
and Rojas agreed to purchase the interest, share and participation in the
second partnership of Pahamotang and that thereafter, the two (Maglana What will the winding up partner do?
and Rojas) became the owners of equipment contributed by Pahamotang.
Under the circumstances, the relationship of Rojas and Maglana Do an accounting: how much is the assets and that they
after the withdrawal of Pahamotang can neither be considered as a De should be converted to cash to pay off the liabilities and, at the same
Facto Partnership, nor a Partnership at Will, for as stressed, there is an time, in the case of remaining cash, it can be returned to the
existing partnership, duly registered. partnership
ISSUE 2: Whether or not Maglana can unilaterally dissolve the
partnership in the case at bar How does the winding up of partnership affairs happen?
HELD 2: The answer is in the affirmative. The partnership assets, please take note, the priority is:
Hence, as there are only two parties when Maglana notified
Rojas that he dissolved the partnership, it is in effect a notice of 1. Those owing to creditors other than to those owed to their
withdrawal. partners.
Under Article 1830, par. 2 of the Civil Code, even if there is a 2. Those owing to partners other that for capital and profits
specified term, one partner can cause its dissolution by expressly
withdrawing even before the expiration of the period, with or without Kasi pwede namang si partner magbigay ng advance sa
justifiable cause. Of course, if the cause is not justified or no cause was
given, the withdrawing partner is liable for damages but in no case can he partnership not in the form of additional capital but in the form of a
be compelled to remain in the firm. With his withdrawal, the number of loan. Pwede syang magpautang sa partnership. That is what this second
members is decreased, hence, the dissolution. priority is saying.
And in whatever way he may view the situation, the conclusion
is inevitable that Rojas and Maglana shall be guided in the liquidation of
3. Those owing to partners in respect of capital; and
the partnership by the provisions of its duly registered Articles of Co-
Partnership; that is, all profits and losses of the partnership shall be 4. Those owing to partners in respect to profits.
divided "share and share alike" between the partners.
Please do take note of the hierarchy or the preference: (1)
It is a settled rule that when a partner who has undertaken to partnership creditors; (2) partner creditors; (3) capital of the partner;
contribute a sum of money fails to do so, he becomes a debtor of the
and (4) profits. Because when we go to limited partnerships, this would
partnership for whatever he may have promised to contribute (Article
1786, Civil Code) and for interests and damages from the time he should change. For a reason, of course.
have complied with his obligation (Article 1788, Civil Code). Being a
contract of partnership, each partner must share in the profits and losses Now, kapag partner’s asset, meaning the individual assets of
of the venture. That is the essence of a partnership. the partner, palagi talang pinag-uusapan itong creditors.
ISSUE 3: Whether Maglana is liable for damages because of such
withdrawal. NO 1. Those owing to separate creditors;
HELD 3: It will be recalled that after the withdrawal of Pahamotang, 2. Those owing to partnership creditors; and
Rojas entered into a management contract with another logging enterprise
, the CMS Estate, Inc., a company engaged in the same business as the These refer to instances whereby kapag may natira pa na
partnership. He withdrew his equipment, refused to contribute either in utang sa partnership creditors na hindi kayang bayaran ng partnership
cash or in equipment to the capital investment and to perform his duties
as logging superintendent, as stipulated in their partnership agreement. assets. ‘Di ba unlimited liability si partner. That collector can go after
The records also show that Rojas not only abandoned the partnership but the separate properties of the partner.
also took funds in an amount more than his contribution.
3. Those owing to partners by way of contribution.
In the given situation Maglana cannot be said to be in bad faith
nor can he be liable for damages.
That is an example of withdrawal. In principle, if it is not

attended by bad faith, it cannot lead to liability for damages.
Second, is pag meron pang matira, tska may utang sa partnership
creditors na hindi kayang bayaran ng partnership assets. Diba unlimited
Let’s discuss liquidation.
liability si partner so, that creditor can go after the separate assets of
Who may liquidate or wind up the partnership? the partner.
1. It could be by agreement. The partners may agree among Third, those owing to partner by way of contribution. what do you
themselves as to who is going to liquidate. mean by that? So, meaning si partner sa kanyang separate property
pwd pa siya magbigay sa partnerhip. In what instances, nagbigay ka ng
49
hindi dapat so the other partner owes you pero ibibigay niya after without paying the estate tax. Mangyayari, whatever is you assets,
liquidation? Remember liability is pro rata you cannot give a stipulation even if land yan for as long as hindi siya liquid, hindi siya cash. You have
exempting one from liability. So even if a person is an industrial partner no choice but to sell it kung sinong kakangat. Otherwise you cannot
hindi siya pwede magabsorb ng loses diba, pero required siya magbigay transfer the property. That is one of the example selling a property at a
ng contribution as to 3rd person. So, let’s say nagbigay siya ng sacrificial amount.
contribution to 3rd person, pwede niyang bawiin sa kapwa capitalist
In that sense, may losses na. Inconvert mo siya that becomes $87,000.
party. So, in that case the capitalist partner owes the partner by way of
contribution. So, tama un (referring to the answer in recit) if the
How do you pay your liabilities?
partnership is insolvent and then magcredit credit ung partnership so FIRST: Payment to creditors, so babayaran siya sa $40,000
they will only be liable to the extend of their contribution because lose THEN: To the partners, other than for the capital and profits. Diba si
in the absence of stipulation, the profit sharing agreement will govern, Holmes may pinautang sa partnership, bayaran mo muna un,
in the absence thereof, the contribution shares. because that is a partnership creditor.
AFTER: Whatever is the balance you distribute it.
For example there is a partnership, this is the accounts at the end of
partnership, at dissolution. You have enough cash.
Liabilities and Equity
Holmes and Kaiser Balance Sheet
December 31, 2008 Accounts Payable $ 40,000
Loan from Holmes 10,000
Assets Liabilities and Equity Holmes, capital 8,900
Kaiser, capital 28,100
$110,000
Cash $ 10,000 Accounts Payable $ 40,000
Receivables 30,000 Loan from Holmes 10,000
Inventory 30,000 Holmes, capital 25,000
Plants assets, net 40,000 Kaiser, capital 35,000
$110,000 $110,000
You have enough cash, receivables, inventory and plant or fixed assets.
Remember you have to pay in cash. So, lahat ng non-cash assets
Q: bakit 8, 900 and 28,100 nalang, diba ung capital nila is 25,000 and 35
icoconvert niyo yan into cash. How will you convert that? Remember
,000 respectively. Remember you obtained loses in selling na properties
you still have payable. The accounts payable pertains to the payable of
, so ididistribute siya.
the partnership to 3rd persons. That loan from Holmes, meaning
Holmes is one of the partner, nagpautang sa partnership. How will you
TO ILLUSTRATE:
liquidate?
110,000−87,000= 23,000 (the partnership suffered a loss of 23,000
Additional Stipulations:
)
Distribute this loss to each partner based on their profit sharing
1. Profit and losses are distributed as follows:
agreement which is 70:30.
70% to Holmes and 30% to Kaiser.
Holmes: 25,000- (23,000 * 0.70) = 8,900

2. They agreed to liquidate the partnership as soon as
Kaiser: 35,000- (23,000 * 0.30) = 28,100
possible after January 1, 2009.
Q: What if the business is continued?
3. Inventory items are sold for $25,000, plant assets are
sold for $ 30,000, $ 22,000 is collected from accounts A: Creditors of the dissolved partnership are also creditors of the
receivables. person or partnership continuing the business (eto na un what if may
pinaalis sila na isa tapos nagcontinue ang the rest on the business).
WHEN? This are the implications:

a. Admission of new partner, or when any partner retires
Holmes and Kaiser Balance Sheet and assigns his rights in partnership property, if the
December 31, 2008 business continued without liquidation;
Assets Liabilities and Equity
That is why it’s very important to have a liquidation because
without liquidation you cannot properly pay the partner or the
Cash $ 10,000 Accounts Payable $ 40,000 withdrawing or exiting partner. In that case, diba remember in
Receivables 22,000 Loan from Holmes 10,000 dissolution anong mangyayari, diba either bayaran mo ung
Inventory 25,000 Holmes, capital 25,000 kanyang interest or you get a bond, if you want to continue.
Plants assets, net 30,000 Kaiser, capital 35,000
$87,000 $110,000 b. When all but one of the partner retire and assign
the rights in partnership property to the remaining
partner, who continues the business without
Sir: bakit mas mababa ung pagkabenta? Is this practical? liquidation;
A: YES. Because when you already in liquidation you cannot get the full
value of your property. You are selling it to a sacrificial amount kasi c. When any partner retires or dies and the business
kailangan mo siya icash. Just like, example, namatay, wala kayong of the dissolved partnership is continued without
pambayad ng estate tax, tapos you cannot transfer the property liquidation with the consent of the retired partner
or the representative of the deceased partner, but
50
without any assignment of his right in the
partnership property;
~ end of coverage ~
d. When any partner wrongfully causes a dissolution

and the remaining partners continued the business,
and without liquidation of the partnership affairs.
e. When a partner is expelled and the remaining

partners continue the business either alone or with
others without liquidation of the partnership affairs.
What is common here, is that walang liquidation. For as long as

walang liquidation whoever is the creditor of the dissolved
partnership continues to be the creditor for the new partnership
because there is no liquidation. Remember na babayarna mo lang
siya( creditor) during liquidation (based sa table above), so paghindi
nagliliquidate ung dissolved partnership, nagcontinue sila, or bumalik
ang partner, consider as a new partnership. So, if walang liquidation,
whoever is the creditor of the previous partnership remains to be
the creditor of the new partnership.
Q: What is the right of a partner from accounts settled and liquidated

and the business continued?
Art. 1841. When any partner retires or dies, and the business is
continued under any of the conditions set forth in the preceding
article, or in Article 1837, second paragraph, No. 2, without any
settlement of accounts as between him or his estate and the
person or partnership continuing the business, unless otherwise
agreed, he or his legal representative as against such person or
partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor an
amount equal to the value of his interest in the dissolved
partnership with interest, or, at his option or at the option of his
legal representative, in lieu of interest, the profits attributable to
the use of his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership as against
the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under this
article, as provided Article 1840, third paragraph. (n)
A: you have the value of his interest at the date of dissolution.
Please take note, when do you value the interest of a partner, it is at

the date of dissolution not the date of liquidation.
You received as an ordinary creditor an amount equal to the value of

his interest and profits provided that the creditors are given their
grants. (Sir, summarized 1841, with this discussion)
Art. 1842. The right to an account of his interest shall accrue to

any partner, or his legal representative as against the winding up
partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the absence
of any agreement to the contrary. (n)
Now if you’ve noticed some of your cases involve an action for

accounting, so, that is a common remedy on partnership. Let’s say may
business tapos gusto mong kumuha ng share mo, what is your remedy?
You file an action for accounting
51

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BUSINESS ORGANIZATION I

3 – Manresa | 2019-2020 | Class Transcription

So let’s discuss Partnership proper.

We will learn of course how to organize a partnership.

“bind themselves” Characteristics of a Partnership

“to a common fund” 4. Onerous

Petitioners deny having formed a partnership with respondent. They

Discussion: Let’s go first to the contribution, later na ang for the

Q: Was there contribution of money, property, or industry?

Issue: Whether or not it is an agency. – No.

Section 5 of the power of Attorney provides that:

Article 1768 specifically grants that personality separate and distinct

It can be applied, to a lesser extent, in that the partners would still be

ENTITLEMENT OF CONSTITUTIONAL RIGHTS AND GUARANTEES VILLAREAL vs. RAMIREZ

FACTS: Florencio and Angel Reyes (Father and son) purchased a

A: Yes sir. EVANGELISTA vs CIR

So it failed to comply with the legal requirements. So it is non-existence AGAD vs MABATO

Facts: Antonia and Emeteria entered a joint venture together. The

Different classifications of partnership (7) As to purpose. — It may be:

(a) Ostensible partner or one who takes active part and

(a) That which is brought to the marriage as his or her own;

*indirect violation. The husband has an interest over the property.

Anong pwedeng gawin na partnership ng mag-asawa?

Now in this particular case kasi may revision na, it is considered

Now let’s discuss Particular Partnership.

This is with regard to the power of corporation to enter into

Meron kasi tayong tinatawag na powers- expressly, impliedly and

What is the remedy therefore of the partnership pag ayaw ibigay? -

Article 1808. The capitalist partners cannot engage for their

but should he have given it for the account of the partnership

Article 1793. A partner who has received, in whole or in part,

Now. Bakit exempt si industrial partner mag give ng additional capital?

July 16, 2019

For losses, first is the agreement. Kung ang agreement is specific as to

Take note of good faith.

Travellers Insurance, on its part, admitted the issuance of the

Let us say 20%-20%-20%, same silang tatlo (ABC). Nag oppose si B sa

As to acts of administration, something that is in the ordinary course of

Please take note of the words ”court’s intervention.” Even if it is

article 1805. the partnership books shall be kept, subject to

This is one of the rights of a partner. When we say “partnership books,”

Held: It is Article 1842 of the Civil Code in conjunction with Articles

Surplus refers to the partnership after partnership debts and liabilities

Kung walang profits and surplus, wala (walang ma-receive si assignee).

1. Do not chose a name that is identical or deceptively or

7. Do not use the name of a local geographical unit unless it is

We have the case of Jo Chung Cang vs. Pacific Commercial Company.

Ownership (6) Submit a partnership claim or liability to arbitration;

100k 100% You have three classes of partnership:

1. Act of apparently carrying on in the usual way the business

It doesn’t have to necessarily go through the process of winding

Without violation of partnership In Contravention of Par

It represents the demise of the partnership. So after the

Winding up is the process of settling the business or partnership

Ang analogy is that pag-nag break kayo, di ba yun yung

Now, could there be an instance wherein wala talagang magawa

“loss of specific thing promised to be contributed…”

For winding up OR Not extended credit but Dissolution is In contravention

Take note: What is common, after the dissolution, it terminates the

What if hindi nagcompletely wind up dahil kinuntinue. What if nag-

Please take note of that.

partnership is a partnership at will and whether or not the Court of

TOCAO vs COURT OF APPEALS