Composition 
   of   Partnerships;    Spouses;    will  manage  the  partnership,  and  they shall be jointly
Corporations (1994)
1)    Can a husband and wife form a limited partnership
to engage in real estate business, with the wife being a
limited partner?
2)
Can two corporations organize a general partnership und
er the Civil Code of the Philippines?
3)     corporation will violate the corporation law principle
Can a corporation and an individual form a general partn
ership?
SUGGESTED ANSWER:
1)    a) Yes. The Civil Code prohibits a husband and wife
from constituting a universal partnership.   Since a
limited partnership is not a universal partnership, a
husband and wife may validly form one.
b)  Yes.  While  spouses  cannot  enter  into  a  universal 
partnership, they can enter into a limited partnership or
be members thereof (CIR v. Suter,  et. al. , 27 SCRA
152).
SUGGESTED ANSWER:
2)     a)   No,  a corporation is managed by its board of
directors.      If the corporation were to become a partner,
co-partners would have the power to make the
corporation party  to  transactions  in  an  irregular
manner  since  the partners are not agents subject to the
control of the Board of  Directors.  But  a  corporation
may  enter  into  a  joint venture with another
corporation as long as the nature of the venture is in line
with the business authorized by its
charter (Tuason & Co., Inc. v. Bolano, 95 Phil. 106).
b) As a general rule a corporation may not form a
general partnership with another corporation or an
individual because a corporation may not be bound by
persons who are neither directors nor officers of the
corporation.
However,  a corporation may  form  a  general
partnership with another corporation or an individual
provided the following conditions are met:
1)    The Articles of Incorporation of the corporation
expressly allows the corporation to enter into
partnerships;
2)     hip for the purpose of engaging in neon advertising for a
The Articles of Partnership must provide that all partners
and severally liable; and
3)    In  case  of  a  foreign  corporation,  it  must  be
licensed to do business in the Philippines.
c) No. A corporation may not be a general partner
because the  principle  of  mutual  agency  in  general
partnership
allowing the other general partner to bind the
that only the board of directors may bind the
corporation.
SUGGESTED ANSWER:
3) No, for the same reasons given in the Answer to
Number 2 above.
Conveyance of a Partner’s Share Dissolution (1998)
Dielle, Karlo and Una are general partners in a
merchandising firm. Having contributed equal amounts
to the capital, they also agree on equal distribution of
whatever net profit is realized per fiscal period. After
two years of operation, however, Una conveys her whole
interest in the partnership to Justine, without the
knowledge and consent of Dielle and Karlo.
1.    Is the partnership dissolved?
2. What are the rights of Justine, if any, should she
desire to participate in the management of the
partnership and in the distribution of a net profit of
P360.000.00 which was realized after her purchase of
Una’s interest?
 SUGGESTED ANSWER:
1.  No, a conveyance by a partner of his whole interest in
a partnership does not of itself dissolve the partnership in
the absence of an agreement. (Art. 1813. Civil Code)
SUGGESTED ANSWER:
2. Justine cannot interfere or participate in the
management or administration of the partnership
business or  affairs.  She  may,  however,  receive  the 
net  profits  to which Una would have otherwise been
entitled. In this case, P120.000 (Art. 1813, Civil Code)
Dissolution of Partnership (1995)
Pauline, Patricia and Priscilla formed a business partners
term of five (5) years. Pauline subsequently assigned to
Philip her interest  in  the  partnership.  When  Patricia
and  Priscilla learned of the assignment, they decided to
dissolve the partnership before the expiration of its term
as they had an unproductive business relationship with
Philip in the past. On the other hand, unaware of the
move of Patricia and Priscilla but sensing their negative
reaction to his acquisition of Pauline’s interest, Philip
simultaneously petitioned for the dissolution of the
partnership.
1. Is the dissolution done by Patricia and Priscilla
without the consent of Pauline or Philip valid? Explain.
2. Does Philip have any right to petition for
the dissolution of  the  partnership  before  the
expiration  of  its  specified term? Explain.
SUGGESTED ANSWER:
1,  Under Art. 1830 (1) (c) of the NCC,
the dissolution by Patricia and Priscilla is valid and did
not violate the contract of partnership even though
Pauline and Philip did not consent thereto. The consent
of Pauline is not necessary because she had already
assigned her interest to Philip. The consent of Philip is
not also necessary because the assignment to him of
Pauline’s interest did not make him a partner, under Art,
1813 of the NCC.
ALTERNATIVE ANSWER:
Interpreting Art. 1830 (1) (c) to mean that if one of the
partners  had  assigned  his  interest  on  the  partnership
to another the remaining partners may not dissolve the
partnership, the dissolution by Patricia and Priscilla
without the consent of Pauline or Philip is not valid.
SUGGESTED ANSWER:
2. No,  Philip  has  no  right  to  petition
for  dissolution because he does not have the standing of
a partner (Art. 1813 NCC).
Dissolution of Partnership; Termination (1993)
A,  B  and  C  formed  a  partnership  for  the  purpose  o
f contracting with the Government in the construction of
one of its bridges. On June 30, 1992, after completion of
the project, the bridge was turned over by the partners to
the Government.  On  August  30,  1992,  D,  a  supplier
of materials used in the project sued A for collection of
the indebtedness to him. A moved to dismiss the
complaint against him on the ground that it was the ABC
partnership that is liable for the debt. D replied that ABC
partnership was dissolved upon completion of the project
for which purpose the partnership was formed.
Will you dismiss the complaint against A If you were the  the controlling Interest (Art. 1801, Civil Code).
Judge?
SUGGESTED ANSWER:
As Judge, I would not dismiss the complaint against A.
because A is still liable as a general partner for his pro
rata share of 1/3 (Art. 1816, C. C.J. Dissolution of a
partnership caused by the termination of the particular
undertaking specified in the agreement does not
extinguish obligations, which must be liquidated during
the “winding up” of the partnership affairs (Articles
1829 and 1830. par. 1-a, Civil Code).
Effect of Death of Partner (1997)
Stating briefly the thesis to support your answer to each 
of the following cases, will the death – of a partner
terminate the partnership?
SUGGESTED ANSWER:
Yes.  The death of a partner will terminate the
partnership, by express provision of par. 5, Art. 1830 of
the Civil Code.
Obligations of a Partner (1992)
W, X, Y and Z organized a general partnership with W a
nd X as industrial partners and Y and Z
as capitalist partners. Y contributed P50,000.00 and Z
contributed P20,000.00 to the common fund. By a
unanimous vote of the partners, W and X were appointed
managing partners, without any specification of their
respective powers and duties.
A applied for the position of Secretary and B applied for
the position of Accountant of the partnership.
The hiring of A was decided upon by W and X, but was
opposed by Y and Z.
The hiring of B was decided upon by W and Z, but was
opposed by X and Y.
Who of the applicants should be hired by the
partnership? Explain and give your reasons.
SUGGESTED ANSWER:
A should be hired as Secretary. The decision for
the hiring of A prevails because it is an act of
administration which can be performed by the duly
appointed managing partners, W and X.
B cannot be hired, because in case of a tie in the decision
of the managing partners, the deadlock must be decided
by the partners owning the controlling interest. In this
case, the opposition of X and Y prevails because Y owns
Obligations of a Partner; Industrial Partner (2001)
Joe and Rudy formed a partnership to operate a car repai whilst insolvent can be held liable for its debts.
r shop in Quezon City. Joe provided the capital while S260A: Financial assistance. A company cannot give
Rudy contributed his labor and industry. On one side of finance assistance to the acquisition of its own shares,
their shop, Joe opened and operated a coffee shop, while company officers can be held liable.
on the other side, Rudy put up a car accessories store.
 S197: Director’s liability as trustee. Imposes personal
May they engage in such separate businesses? Why?
liability on directors for certain debts incurred by the
SUGGESTED ANSWER: corporate trustee (which manages the trust) (eg: if they
are in breach of the terms of the trust).
Joe, the capitalist partner, may engage in the restaurant
business because it is not the same kind of business the Q10. Explain the impact of s588G of the Corporations
partnership is engaged in. On the other hand, Rudy may Act on the legal principle established in Salomon’s case?
not engage in any other business unless their partnership
s588G: Director’s liability for insolvent trading. Had
expressly permits  him  to do so  because  as  an 
Salomon known that the company was insolvent at the
industrial partner he has to devote his full time to the
time he incurred the debts, the corporate veil would be
business of the partnership (Art. 1789, CC).
lifted and he would have been held liable for its debts
Q6. Why do corporate groups pose special problems
for corporate law?
Tension arises between legal treatment of corporate
groups and the commercial reality. As subsidiaries they
are treated as a separate legal entity however it is not the
economic or commercial reality as it is controlled by the
parent company. Also the control of a parent company
over its subsidiary will not justify lifting of the corporate
veil
.Q7. Why is the test for agency, as advanced by
Atkinson J in Smith, Stone & Knight Ltd v Birmingham
Corp [1939] regarded as controversial?
In Smith, Stone & Knight Ltd v Birmingham Corp
[1939], there was an agency relationship established
upon the six criteria which were met and thus the two
entities were treated as one single legal entity. However
5 out of the 6 criteria were related to control and control
of a company by its parent entity under common law is
insufficient to create an implied agency.
Q8. Identify at least two instances when companies in
corporate groups will be treated as a singleentity under
the Corporations Act?1. Section 588V (Corporations
Act)– group liability for insolvent trading: The corporate
veil islifted when a parent company allows the
subsidiary to trade whilst insolvent, then the parent
company is also liable for its debts.2. Section 296 –
consolidated group accounts: The parent company must
prepare consolidated financial statements for itself and
its subsidiaries. This recognises the economic reality
that the corporate group is performing as one
orgnisation.Q9. Identify at least three instances when the
corporate veil will be disregarded under the Corporations
Act 2001. s588G: Director’s liability for insolvent
trading. A director who allows a company to incur debts