Professional Documents
Culture Documents
E. Distinguish Partnership from: Art. 1825. When a person, by words spoken or written
1) Co-ownership; Co-possession or by conduct, represents himself, or consents to
- There is no co-ownership in partnership because it is another representing him to anyone, as a partner in an
the partnership which owns the property. existing partnership or with one or more persons not
actual partners, he is liable to any such persons to
2) Tenancy in common; joint tenancy whom such representation has been made, who has,
- Joint tenancy is co-possession, and tenancy in on the faith of such representation, given credit to the
common is co-ownership. actual or apparent partnership, and if he has made
such representation or consented to its being made in
3) Joint Ventures a public manner, he is liable to such person whether
- Joint ventures are generally concerned with an the representation has or has not been made or
isolated transaction or project, as opposed to a communicated to such person so giving credit by or
partnership which contemplates a general business with the knowledge of the apparent partner making the
with some continuity. Moreover, a joint venture does representation or consenting to its being made:
not have a firm name, there is no mutual agency, and (1) When a partnership liability results, he is liable as
it does not have a separate juridical personality. though he were an actual member of the
partnership;
4) Joint Adventures (2) When no partnership liability results, he is liable
5) Joint Accounts; Cuentas en Participacion pro rata with the other persons, if any, so
- A partnership constituted in such a manner, the consenting to the contract or representation as to
existence of which was only known to those who had incur liability, otherwise separately.
an interest in the same, there being no mutual
agreements between the partners, and without a When a person has been thus represented to be a
corporate name indicating to the public in some way partner in an existing partnership, or with one or more
that there were other people besides the one who persons not actual partners, he is an agent of the
ostensibly managed and conducted the business, is persons consenting to such representation to bind
exactly the accidental partnership of cuentas en them to the same extent and in the same manner as
participacion. (Bourns vs. Carman) though he were a partner in fat, with respect to
persons who rely upon the representation. When all
6) Agency the members of the existing partnership consent to the
- There is no mutual agency in that the agent is only representation, a partnership act or obligation results;
the agent, and is not likewise the principal of his but in all other cases it is the joint act or obligation of
principal. There is also no common fund in agency. the person acting and persons consenting to the
representation.
Art. 1769. In determining whether a partnership
exists, these rules shall apply: CODE OF COMMERCE
(1) Excepts as provided by Article 1825, persons who
are not partners as to each other are not partners as to Title II: Joint Accounts
third persons;
Art. 239. Merchants may interest themselves in the
(2) Co-ownership or co-possession does not of itself transaction of other merchants, contributing thereto
establish a partnership, whether such co-owners or co- the part of the capital they may agree upon, and
possessors do or do not share any profits made by the participating in the favorable or unfavorable results
use of the property; thereof in the proportion they may determine.
(3) The sharing of gross returns does not of itself Art. 240. In their formation, joint accounts shall not be
establish a partnership, whether or not the persons subject to any formality, and may be privately
sharing them have a joint or common right or interest contracted orally or in writing, and their existence may
in any property from which the returns are derived; be proved by any of the means recognized by law
(according to the provisions of Article 51).
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in Art. 241. In the transactions referred to by the two
preceding articles, no commercial name common to all
the participants can be adopted, nor can any further dividing equally the prize which they may win, as they
direct credit be used than that of the merchant who in fact, did. Having organized a partnership, it is the
makes and directs them in his name and under his latter which is bound to pay the income tax and not
individual responsibility. the individual partners pro rata.
Art. 242. Those who contract with the merchant who PASCUAL VS. CIR
carries on the business shall have a right of action FACTS: Pascual et al. bought two parcels of land which
against him only and not against the others interested it resold to a third person. They paid the corresponding
therein, who shall also have no right against the third capital gains tax, but are now also being charged with
person who contracted with the manager, unless the corporate income tax on the ground that they formed a
latter formally cedes his rights to them. partnership.
HOLDING: There was no partnership. The character of
Art. 243. The liquidation shall be made by the manager habituality peculiar to business transactions engaged
who, upon the conclusion of the transactions, shall in for the purpose of gain was absent. An isolated
render a verified account of their results. transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the
SEC OPINION [February 29, 1980] absence of other circumstances showing a contrary
intention cannot be considered as a partnership.
[NOTE: This is only a summary of the article, but I
think these are the important parts.=)] OBILLOS VS. CIR
FACTS: Obillos bought a parcel of land and transferred
A corporation cannot ordinarily enter into a his rights thereto to his children. The children resold
contract of partnership with another corporation or the land. They are now being taxed for corporate
individual. income tax on the ground that they formed an
The limitation is based on public policy, since in a unregistered partnership.
partnership the corporation would be bound by the HOLDING: There was no partnership. The sharing of
acts of persons who are not duly appointed and gross returns does not of itself, establish a partnership.
authorized agents and officers, which would be There must be an unmistakable intention to form a
entirely inconsistent with the policy of the law that partnership. In this case, the division of the profits was
a corporation shall manage its own affairs, only incidental to the dissolution of the co-ownership.
separately and exclusively.
In entering into a partnership, the identity of the RIVERA VS. PEOPLES BANK
corporation is lost or merged with that of another. FACTS: Rivera was the Stephensons housekeeper and
Remember that a corporation can act only through they executed a survivorship agreement. Upon
its duly authorized agents and is not bound by the Stephensons death, Rivera tried to claim the amount
acts of anyone else. pursuant to the agreement, but the bank refused.
EXCEPTIONS to the application of this general rule HOLDING: Rivera and Stephenson were joint owners.
may be allowed PROVIDED the following As such, either of them could withdraw any part of the
conditions are met: whole of said account during their lifetime, and the
o The articles of incorporation of the balance, if any, upon the death of either, belonged to
corporations involved must expressly authorize the survivor.
the corporation to enter into contracts of
partnership with others in the pursuit of its
business; TUASON VS. BOLANOS
o The agreement or article of partnership must FACTS: This was an action to recover possession of a
provide that all the partners will manage the parcel of land where the plaintiff was represented by a
partnership; and corporation.
o The articles of partnership must stipulate that HOLDING: There is nothing in the rules which prohibit
a corporation from being represented by another
all the partners are and shall be jointly and
person, natural or juridical. The contention that one
severally liable for all the obligations of the
corporation cannot act as managing partner for
partnership.
another since the two cannot enter into a partnership
Moreover, two or more corporations may enter into
is without merit since they may nevertheless, enter into
a joint venture/consortium if the nature of the
a joint venture where the nature of the venture is in
venture is in line with the business authorized by
line with the business authorized by its charter.
its charter. BUT note that no independent legal
entity is borne out of it and the same need not be
HEIRS OF TAN ENG KEE VS. CA
registered with the Commission.
FACTS: This was a complaint filed by Tan Eng Kee (and
they later continued by his heirs upon his death)
GATCHALIAN VS. CIR
against his brother Tan Eng Lay for accounting ,
FACTS: Gatchalian and company, by pooling together
liquidation and winding up of the alleged partnership
their resources, bought a lotto ticket. They won and are
formed between them.
now being charged by the CIR to pay income tax on the
HOLDING: There was no partnership between the
prize.
brothers. There was no firm account, no firm
HOLDING: A partnership of a civil nature was
letterheads, no certificate of partnership, no agreement
organized because Gatchalian and company put up
as to profits and losses, and no time fixed for the
money to buy a lotto ticket for the sole purpose of
duration of the partnership. Most importantly, for forty personal management. A partnership constituted in
years Tan Eng Kee never demanded for an accounting. such a manner, the existence of which was only known
A demand for periodic accounting is evidence of to those who had an interest in the same, there being
partnership. The evidence support the establishment no mutual agreements between the partners, and
only of a proprietorship. without a corporate name indicating to the public in
some way that there were other people besides the one
The SC also discussed the concept of a joint venture. It who ostensibly managed and conducted the business,
said that a particular partnership is distinguished from is exactly the accidental partnership of cuentas en
a joint adventure in that the latter has no firm name participacion. Those who contract with the person
and no legal personality. Also, a joint venture is under whose name the business of such partnership is
usually limited to a single transaction, while a conducted, shall have a right of action only as against
partnership generally relates to a continuing business. that person, and not against other persons interested,
and the latter shall likewise, have no right of action
On the other hand, in a joint account, the participating against such third persons.
merchants can transact business under their own
name and can be individually liable therefore. SEVILLA VS. CA
FACTS: This was the case where Sevilla had bound
AURBACH VS. SANITARY WARES herself with the corporation to pay for rent. She
FACTS: This was the case where there were essentially managed the business but was subsequently prevented
two groups of shareholders in the company: one from continuing as manager of the branch where she
composed of Filipinos, and the other group of foreign worked.
investors. There was an increase in the latters shares HODLING: There was no partnership or joint venture
in the company so they wanted a proportionate as there was no parity of standing between Sevilla and
increase in their nominees to the companys Board of Tourist World Services, and they did not exercise equal
Directors. rights. The court concluded that there was an agency
HOLDING: Although a corporation cannot enter into a relationship.
partnership, it can nevertheless engage in a joint
venture with others. In this case, taking into PHILEX MINING VS. CIR
consideration their intent and history, the parties FACTS: Baguio Gold and Philex Mining entered into a
formed a joint venture and not a corporation. This contract whereby the latter would operate the formers
becomes relevant because it implies that the argument mining claim. Philex, apart from transferring its own
of ASI (the foreign investors), having been based on the funds for the business, also shelled out money to cover
Corporation Code, will not apply. for the losses incurred by the business. Philex then
attempted to deduct what it purported to be bad loans
A joint venture has been generally understood to mean payable to it from Baguio Gold. The CIR disallowed the
an organization formed for some temporary purpose. It deduction.
is distinguished mainly from a partnership in that the HOLDING: The agreement between the parties created
latter contemplates a general business with some a partnership relationship between them. As such, the
continuity while the former is formed for the execution money contributed was not a loan and cannot be
of a single transaction. deducted from the partnerships taxable income. The
strongest indication of the existence of the partnership
LITONJUA VS. LITONJUA relation was the fact that each of them would receive
FACTS: This was a suit filed by Aurelio against his 50% of the profits. By pegging its compensation as
brother Eduardo for specific performance and profits, Philex stood not to be remunerated in case the
accounting, contending that they had a partnership mine had no income. This is definitely not the nature of
arrangement in the Odeon Theater business. This was a loan, instead, it partakes of the nature of a capital
premised on a letter written by Eduardo, addressed to contribution.
Aurelio.
HOLDING: Eduardo and Aurelio are not partners. The II. KINDS OF PARTNERSHIP
formalities required by law were not complied with, to
wit: A. Universal
o When immovable property or real rights are Art. 1776. As to its object, a partnership is either
contributed, or when the partnership has a universal or particular. As regards the liability of the
capital of at least Php3,000, a public partners, a partnership may be general or limited.
instrument is necessary.
o When immovable property is contributed, an Art. 1777. A universal partnership may refer to all the
inventory, signed by the parties, must be present property or to all the profits.
attached to the public instrument.
i. Universal Partnership of Present Property
BOURNS VS. CARMAN
Art. 1778. A partnership of all present property is that
FACTS: This was an action to recover a sum of money,
in which the partners contribute all the property which
filed against Lo-Chim-Lim and his other co-defendants
actually belongs to them to a common fund, with the
on the ground that they were joint proprietors.
intention of dividing the same among themselves, as
HOLDING: There was a partnership of cuentas en
well as all the profits which they may acquire
participacion. It was a business conducted by Lo-Chim-
therewith.
Lim exclusively, in his own name, and under his
Art. 1779. In a universal partnership of all present donee may be proved by preponderance of evidence in
property, the property which belongs to each of the the same action.
partners at the time of the constitution of the
partnership, becomes the common property of all the The presumption in Art. 1781 is in accordance
partners, as well as all the profits which they may with the rule in interpretation of contracts that, in
acquire therewith. case of doubt, that which involves the least
transmission of rights and interests will be favored.
A stipulation for the common enjoyment of any other The prohibition in Art. 1782 is founded on the
profits may also be made; but the property which the theory that a contract of universal partnership is
partners may acquire subsequently by inheritance, for all purposes a donation and, thus, seeks to
legacy, or donation cannot be included in such prevent persons disqualified from making
stipulation, except the fruits thereof. donations from doing indirectly what the law
prohibits them from doing directly.
The prohibition in Art. 1779, 2 nd par. is in
consonance with the general provision of the Code B. Particular
disallowing contracts upon future inheritance. Art. 1776. As to its object, a partnership is either
But it is believed that the usufruct of property universal or particular. As regards the liability of the
acquired by inheritance, legacy, or donation may partners, a partnership may be general or limited.
be stipulated as contributed to the common fund.
Art. 1783. A particular partnership has for its object
ii. Universal Partnership of Profits determinate things, their use or fruits, or specific
Art. 1780. A universal partnership of profits comprises undertaking, or the exercise of a profession or
all that the partners may acquire by their industry or vocation.
work during the existence of the partnership.
C. General (check Art. 1776)
Movable or immovable property which each of the A general partnership is one where all the
partners may possess at the time of the celebration of partners are liable subsidiarily and pro rata with
the contract shall continue to pertain exclusively to their individual property for partnership
each, only the usufruct passing to the partnership. obligations.
In other words, all that the partners may D. Limited (check Art. 1776)
acquire, jointly or separately, through physical or In a limited partnership, only some partners
intellectual effort whether it be in the pursuit of a are personally liable for partnership obligations;
trade or the exercise of an art or profession or the others are not so liable, their liability being
otherwise pertain to the partnership and are limited to their capital contribution.
subject to division among the partners upon its
termination. E. At Will
It does not cover: (1) acquisitions of the Art. 1785. When a partnership for a fixed term or
partners through any means not requiring the particular undertaking is continued after the
exertion of human effort or intelligence; (2) termination of such term or particular undertaking
property which each of the partners acquired or without any express agreement, the rights and duties
possessed before the celebration of the contract of the partners remain the same as they were at such
(only the usufruct of the property passes). termination, so far as is consistent with a partnership
at will.
iii. Other Rules
A continuation of the business by the partners or such
Art. 1781. Articles of universal partnership, entered of them as habitually acted therein during the term,
into without specification of its nature, only constitute without any settlement or liquidation of the
a universal partnership of profits. partnership affairs, is prima facie evidence of a
continuation of the partnership.
Art. 1782. Persons who are prohibited from giving
each other any donation or advantage cannot enter A partnership which is designed to continue
into universal partnership. for no fixed period of time and is formed to last
only during the mutual consent or pleasure of the
Art. 739. The following donations shall be void: parties, its existence being terminable at the will of
any one or more of them.
(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation; F. For a Term or Undertaking (check Art. 1785)
(2) Those made between persons found guilty of the A partnership where the period of time during
same criminal offense, in consideration thereof; which the partnership shall exist has been
(3) Those made to a public officer or his wife, specified.
descedants and ascendants, by reason of his office. Or a partnership formed to engage in a specific
undertaking without specification of the term but,
In the case referred to in No. 1, the action for owing to the nature of its purpose, with the implied
declaration of nullity may be brought by the spouse of understanding that it shall last only and until the
the donor or donee; and the guilt of the donor and completion of the undertaking.
And such person has given credit to
G. Commercial the representation
Art. 1767. By the contract of partnership two or more o Manner of Representation
persons bind themselves to contribute money, Public
property, or industry to a common fund, with the Personal/Non-public
intention of dividing the profits among themselves. o Liability
Partnership Liability (if
Two or more persons may also form a partnership for there is an existing partnership and
the exercise of a profession. when the act is ratified by the
partnership)
A commercial partnership has for its object the Joint Liability (if there is
realization of some mercantile of commercial act only an apparent partnership)
either as a means or an end
Partnership/Joint Obligor
H. Professional (check Art. 1767) o Requires consent
This is the class of partnerships formed by If all partners consent,
professional for the exercise of the professions they partnership act results
belong to. If only some consent, joint
act results among those who
I. By Estoppel/Apparent consented and the partner by estoppel
Art. 1825. When a person, by words spoken or written o Apparent partner becomes agent
or by conduct, represents himself, or consents to
another representing him to anyone, as a partner in an Ortega vs. CA
existing partnership or with one or more persons not - The birth and life of a partnership at will is
actual partners, he is liable to any such persons to predicated on the mutual desire and consent of the
whom such representation has been made, who has, partners.
on the faith of such representation, given credit to the - Through the doctrine of delectus personae, all
actual or apparent partnership, and if he has made the partners have the power, though not
such representation or consented to its being made in necessarily the right, to dissolve the partnership.
a public manner he is liable to such person, whether - Thus, any of the partners may dissolve the
the representation has or has not been made or partnership at will at his sole pleasure; but he
communicated to such person so giving credit by or must do so in good faith or he will be liable for
with the knowledge of the apparent partner making the damages.
representation or consenting to its being made:
III. KINDS OF PARTNERS
(1) When a partnership liability results, he is liable as
though he were an actual member of the partnership; A. Industrial
(2) When no partnership liability results, he is liable Art. 1789. An industrial partner cannot engage in
pro rata with the other persons, if any, so consenting business for himself, unless the partnership expressly
to the contract or representation as to incur liability, permits him to do so; and if he should do so, the
otherwise separately. capitalist partners may either exclude him from the
firm or avail themselves of the benefits which he may
When a person has been thus represented to be a have obtained in violation of this provision, with a right
partner in an existing partnership, or with one or more to damages in either case.
persons not actual partners, he is an agent of the
persons consenting to such representation to bind Art. 1797. The losses and profits shall be distributed
them to the same extent and in the same manner as in conformity with the agreement. If only the share of
though he were a partner in fact, with respect to each partner in the profits has been agreed upon, the
persons who rely upon the representation. When all share of each in the losses shall be in the same
the members of the existing partnership consent to the proportion.
representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of In the absence of stipulation, the share of each partner
the person acting and the persons consenting to the in the profits and losses shall be in proportion to what
representation. he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the
Partner by Estoppel: industrial partner shall receive such share as may be
o Person who: just and equitable under the circumstances. If besides
By (a) words spoken or written or by his services he has contributed capital, he shall also
(b) conduct receive a share in the profits in proportion to his
Represents himself or consents to capital.
representation
As a partner in an The industrial partners contribution is
existing partnership or based on quantum meruit.
As a partner in an
apparent partnership B. Capitalist
To anyone
Art. 1789. An industrial partner cannot engage in power is irrevocable without just or lawful cause. The
business for himself, unless the partnership expressly vote of the partners representing the controlling
permits him to do so; and if he should do so, the interest shall be necessary for such revocation of
capitalist partners may either exclude him from the power.
firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right A power granted after the partnership has been
to damages in either case. constituted may be revoked at any time.
Art. 1790. Unless there is a stipulation to the Art. 1801. If two or more partners have been intrusted
contrary, the partners shall contribute equal shares to with the management of the partnership without
the capital of the partnership. specification of their respective duties, or without a
stipulation that one of them shall not act without the
Art. 1797. The losses and profits shall be distributed consent of all the others, each one may separately
in conformity with the agreement. If only the share of execute all acts of administration, but if any of them
each partner in the profits has been agreed upon, the should oppose the acts of the others, the decision of
share of each in the losses shall be in the same the majority shall prevail. In case of a tie, the matter
proportion. shall be decided by the partners owning the controlling
interest.
In the absence of stipulation, the share of each partner
in the profits and losses shall be in proportion to what Art. 1802. In case it should have been stipulated that
he may have contributed, but the industrial partner none of the managing partners shall act without the
shall not be liable for the losses. As for the profits, the consent of the others, the concurrence of all shall be
industrial partner shall receive such share as may be necessary for the validity of the acts, and the absence
just and equitable under the circumstances. If besides or disability of any one of them cannot be alleged,
his services he has contributed capital, he shall also unless there is imminent danger of grave or irreparable
receive a share in the profits in proportion to his injury to the partnership.
capital.
Art. 1800 speaks of the managing
Art. 1808. The capitalist partners cannot engage for partner.
their own account in any operation which is of the kind Art. 1801 refers to a situation where
of business in which the partnership is engaged, there is more than one managing partner and there
unless there is a stipulation to the contrary. is solidary management among them.
Art. 1802 speaks of joint management.
Any capitalist partner violating this prohibition shall But, since this relates to the obligations of partners
bring to the common funds any profits accruing to him inter se, the acts of a managing partner in violation
from his transactions, and shall personally bear all the of Art. 1802 may still be binding insofar as third
losses. persons in good faith are concerned.
Art. 1791. If there is no agreement to the contrary, in B. To Apply Sums Collected Pro Rata
case of an imminent loss of the business of the Art. 1792. If a partner authorized to manage collects a
partnership, any partner who refuses to contribute an demandable sum which was owed to him in his own
additional share to the capital, except an industrial name, from a person who owed the partnership
partner, to save the venture, shall he obliged to sell his another sum also demandable, the sum thus collected
interest to the other partners. shall be applied to the two credits in proportion to their
amounts, even though he may have given a receipt for
Art. 1795. The risk of specific and determinate things, his own credit only; but should he have given it for the
which are not fungible, contributed to the partnership account of the partnership credit, the amount shall be
so that only their use and fruits may be for the fully applied to the latter.
common benefit, shall be borne by the partner who
owns them. The provisions of this article are understood to be
without prejudice to the right granted to the other
If the things contribute are fungible, or cannot be kept debtor by Article 1252, but only if the personal credit
without deteriorating, or if they were contributed to be of the partner should be more onerous to him.
sold, the risk shall be borne by the partnership. In the
absence of stipulation, the risk of the things brought C. To Compensate
and appraised in the inventory, shall also be borne by Art. 1794. Every partner is responsible to the
the partnership, and in such case the claim shall be partnership for damages suffered by it through his
limited to the value at which they were appraised. fault, and he cannot compensate them with the profits
and benefits which he may have earned for the
The 2nd sentence of Art. 1786, when it partnership by his industry. However, the courts may
speaks of specific and determinate things, refers to equitably lessen this responsibility if through the
non-fungible things. partner's extraordinary efforts in other activities of the
Art. 1786 only specifically talks about partnership, unusual profits have been realized.
warranty against eviction but Prof. Bautista states This also covers negligence of a partner
that the other warranties of sale (warranty against
hidden defects and warranty for merchantability D. To Be Loyal; Fiduciary Duty
for purpose) should also be made applicable.
Art. 1807. Every partner must account to the
Art. 1786 explicitly does away with the
partnership for any benefit, and hold as trustee for it
need for demand as to the fruits in the last
any profits derived by him without the consent of the
sentence thereof.
other partners from any transaction connected with
The appraisal in Art. 1787 is necessary
the formation, conduct, or liquidation of the
to know the value of the capital contribution of
partnership or from any use by him of its property.
property.
o Valuation is usually done by
agreement because the transfer of property to Basic fiduciary duties of a partner:
the partnership is similar to a sale; or it may o Account for any profit acquired in a
be done by an expert (appraiser). manner injurious to the partnerships interest;
o If its through the former, the value is o Cannot acquire for himself a
based on the agreement. But if its throught he partnership asset nor divert to his own use a
partnership opportunity;
o Must not compete with partnership Quick Facts: Lim, owner-operator of Southern Air
within its scope of business. Lines, purchased 2 aircrafts and set of spare parts
form Japan Domestic Airlines to be paid in
Liwanag vs. CA installments. Pioneer executed a surety bond in favor
Even when a contract of partnership has been entered of JDA for the balance. Bormaheco, Cervanteses and
into, when money or property have been received by a Maglana contributed funds for the formation of a new
partner for a specific purpose and he later corporation proposed by Lim. There was no
misappropriated it, such partner is guilty of estafa. incorporation.
Ratio: Persons who attempt, but fail, to form a
corporation and who carry on business under the
corporate name occupy the position of partners inter
US vs. Clarin se. However, such a relation does not necessarily exist,
- When a partner contributes to the common fund, for ordinarily persons cannot be made to assume the
he invests it in the risks or benefits of the business relation of partners, as between themselves, when their
and, even if only the usufruct over the money has purpose is that no partnership shall exist and it should
been conveyed, the duty to return such capital be implied only when necessary to do justice between
devolves upon the partnership and not any of the the parties. Lim never intended to form a corporation
partners. despite his representations. No de facto partnership
- When money has been received by the partnership, was created.
the business commenced and profits accrued, the
action that lies with the partner who furnished Evangelista & Co. v. Abad Santos
capital for recovery of his money is not a criminal Quick Facts: Judge Abad Santos is an industrial
action for estafa, but a civil one arising from the partner in Evangelista & Co. with 3 petitioners who
partnership contract for a liquidation of the were the capitalist partners. Abad Santos alleged that
partnership and a levy on its assets if there should the other 3 partners were refusing to let her examine
be any. the partnership books and were not paying her share
in the profits. Other 3 are arguing that Abad Santos
Pang Lim vs. Lo Seng could not be an industrial partner since she was a City
- Partners are required to Court judge (Art.1789).
exhibit towards each other the highest degree of Ratio: Abad Santos is not engaged in any business
good faith because the relation is essentially antagonistic to the partnership as being a judge can
fiduciary as each is considered the confidential hardly be characterized as a business.
agent of the other.
- Therefore, one partner cannot, B. To share in the profits/losses
to the detriment of another, apply exclusively to his Art. 1797. The losses and profits shall be distributed
own benefit the results of the knowledge and in conformity with the agreement. If only the share of
information gained in the character of partner. each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same
Catalan vs. Gatchalian proportion.
- The right of redemption
pertains to the owner of the property; as it was the In the absence of stipulation, the share of each partner
partnership which owned the property, in this in the profits and losses shall be in proportion to what
case, it was only the partnership which could he may have contributed, but the industrial partner
properly exercise the right of redemption. shall not be liable for the losses. As for the profits, the
- When Catalan redeemed the industrial partner shall receive such share as may be
properties, he became a trustee and held the same just and equitable under the circumstances. If besides
in trust for his co-partner Gathchalian, subject to his services he has contributed capital, he shall also
his right to demand from the latter his contribution receive a share in the profits in proportion to his
to the amount of redemption. capital. (1689a)
V. PARTNERS OBLIGATION INTER SE Liability for loss refers to loss AFTER liquidation
In case of losses, it can be stipulated that the
A. To bring to collation industrial partner share in the losses
Art. 1793. A partner who has received, in whole or in
part, his share of a partnership credit, when the other Art. 1798. If the partners have agreed to intrust to a
partners have not collected theirs, shall be obliged, if third person the designation of the share of each one in
the debtor should thereafter become insolvent, to bring the profits and losses, such designation may be
to the partnership capital what he received even impugned only when it is manifestly inequitable. In no
though he may have given receipt for his share only. case may a partner who has begun to execute the
(1685a) decision of the third person, or who has not impugned
the same within a period of three months from the time
There is one debtor and one or 2 partners have he had knowledge thereof, complain of such decision.
received their share of debt in their personal
capacity then the debtor becomes insolvent The designation of losses and profits cannot be
intrusted to one of the partners. (1690)
Pioneer Insurance v. CA
The designation of profits and losses may be partnership so Inocencio, in borrowing money and
designated to 2 or more partners, but not to 1 advancing funds, was acting within the scope of his
partner authority as a managing partner. All the partners are
liable for the debt.
Art. 1799. A stipulation which excludes one or more
partners from any share in the profits or losses is void. Soncuya v. De Luna
(1691) Quick Facts: Soncuya, de Luna and deceased Avelino
were members of a partnership, Centro Escolar de
Moran, Jr. v. CA Senoritas. Soncuya filed a complaint praying for
Quick Facts: Pecson and Moran entered into an damages as result of the fraudulent administration by
agreement to print 95,000 posters (featuring the managing partner De Luna.
delegates of the 1971 Con-Con). They agreed each Ratio: For a partner to be able to claim damages
would contribute P15,000 and that Pecson would allegedly suffered by him by reason of the fraudulent
receive P1,000 commission per month. Pecson administration of the managing partner, a previous
contributed P10,00; Moran supervised the work. Only liquidation of the partnership is necessary. A
2,000 posters were printed. Pecson filed an action liquidation of the business is necessary so the following
asking for the return of his contribution, profits he may be determined: profits and losses, causes of the
would have earned and promised commission. losses, responsibility of the defendant and damages
Ratio: There is no basis for the award of speculative each partner may have suffered.
damages in favor of Moran as there was no evidence
that the partnership would be a profitable venture. D. Not to engage in another business
Partners are to share in the profits and the losses. Art. 1789. An industrial partner cannot engage in
However, Pecson is not barred from totally recovering. business for himself, unless the partnership expressly
He is entitled to P6,000 (out of P10,000 only P4,000 permits him to do so; and if he should do so, the
was used in printing) for his contribution which capitalist partners may either exclude him from the
remained unused and P3,000 for share in net profits firm or avail themselves of the benefits which he may
from the sale of 2,000 posters. have obtained in violation of this provision, with a right
(Sir noted that there was an award of unused capital to damages in either case. (n)
even if there was no liquidation.)
Art. 1808. The capitalist partners cannot engage for
C. To render true and full information their own account in any operation which is of the kind
Art. 1806. Partners shall render on demand true and of business in which the partnership is engaged,
full information of all things affecting the partnership unless there is a stipulation to the contrary.
to any partner or the legal representative of any
deceased partner or of any partner under legal VI. PARTNERS OBLIGATIONS TO
disability. (n) PERSONAL AND PARTNERSHIP
CREDITORS; THIRD PARTIES
Martinez v. Ong Pong Co
Quick Facts: Martinez delivered P1,500 to Ong Pong Co A. To have his partnership interest charged for
and Ong Lay to invest in a store. They agreed that the personal debts (primary)
profits and losses would be equally shared by all of
them. Martinez was demanding for the 2 Ongs to
Art. 1814. Without prejudice to the preferred rights of
render an accounting or to refund him the P1,500. Ong
partnership creditors under Article 1827, on due
Pong Co alleged that Ong Lay, now deceased was the
application to a competent court by any judgment
one who managed the business, and the capita of
creditor of a partner, the court which entered the
P1,500 resulted in a loss.
judgment, or any other court, may charge the interest
Ratio: The 2 partners (Ongs) were the administrators
of the debtor partner with payment of the unsatisfied
and obliged to render accounting. Since neither of
amount of such judgment debt with interest thereon;
them rendered an account nor proven the losses, they
and may then or later appoint a receiver of his share of
are obliged to return the capital. Art. 1796 is not
the profits, and of any other money due or to fall due to
applicable because no other money than that
him in respect of the partnership, and make all other
contributed as capital was involved. The liability of the
orders, directions, accounts and inquiries which the
partners is joint. Ong Pong Co shall only pay P750 to
debtor partner might have made, or which the
Martinez.
circumstances of the case may require.
Agustin v. Inocencio
The interest charged may be redeemed at any time
Quick Facts: The parties are all industrial partners.
before foreclosure, or in case of a sale being directed by
For the construction of a casco, profits of the business
the court, may be purchased without thereby causing a
were contributed and money was borrowed from wife of
dissolution:
the managing partner, Inocencio, Inocencio also
advanced funds necessary to complete the work. The
(1) With separate property, by any one or more of the
other partners were not informed of the borrowing and
partners; or
the advancement but the books were always open to
their inspection.
Ratio: The nature of the transaction (construction of
casco) was within the scope of the business of the
(2) With partnership property, by any one or more of
the partners with the consent of all the partners whose liable pro rata with all their property
interests are not so charged or sold. both real and personal
Nothing in this Title shall be held to deprive a partner subsidiarily and pro rata for all partnership
of his right, if any, under the exemption laws, as obligations
regards his interest in the partnership. (n)
- why not solidary liability?
remedy of a judgment creditor against a partner separate juridical personality of the partnership;
This refers to partners interest in the partnership therefore, exhaust partnership assets first
and NOT to his right over a specific partnership
property pro rata
partners interest share of the profits and = proportional
surplus - basis? in proportion to his SHARE in the PROFITS
rights to specific partnership property right NOT capital contribution
of possession for partnership purposes
CHARGING ORDER partnership obligation
1) entered in the firm name, under its signature
- attaches interest of the partner 2) by a person authorized (ex: employee)
1) Directs the partnership to pay any profits that
may be due to the judgment debtor, in favour of when SOLIDARILY liable? last sentence
the judgment creditor in satisfaction of his credit
(including interests) separate obligation to perform a partnership
2) May ask the court to appoint a receiver contract
- to collect money 1) agrees to solidary liability (this provision)
3) may be sold at auction/foreclosure 2) 1822 (tort liability)
remedy: right of redemption 3) 1823 (misappropriation)
a) with separate property
b) with partnership property Art. 1817. Any stipulation against the liability laid
(requires the consent of all partners) down in the preceding article shall be void, except as
among the partners. (n)
Best Choice?
No. 1 first since the payment will be ongoing what if other parties waived?
No. 2 comes second
No. 3 is a poor remedy, single payment; net effect: only VOID as against 3rd parties
sell back to judgment debtor therefore, as to them, pro rata liability applies
except as among partners
Art. 1827. The creditors of the partnership shall be if there is waiver by some parties, those
preferred to those of each partner as regards the benefitted can claim against the other partners
partnership property. Without prejudice to this right, what he paid pro rata
the private creditors of each partner may ask the
attachment and public sale of the share of the latter in Art. 1835. The dissolution of the partnership does not
the partnership assets. (n) of itself discharge the existing liability of any partner.
preference of partnership creditors over personal A partner is discharged from any existing liability upon
creditors (in case of insolvency or liquidation) dissolution of the partnership by an agreement to that
2nd sentence: without prejudice to private creditors effect between himself, the partnership creditor and the
right to ask attachment person or partnership continuing the business; and
such agreement may be inferred from the course of
B. To be liable pro rata for partnership debts dealing between the creditor having knowledge of the
(subsidiary & joint) dissolution and the person or partnership continuing
the business.
Art. 1816. All partners, including industrial ones,
shall be liable pro rata with all their property and after The individual property of a deceased partner shall be
all the partnership assets have been exhausted, for the liable for all obligations of the partnership incurred
contracts which may be entered into in the name and while he was a partner, but subject to the prior
for the account of the partnership, under its signature payment of his separate debts. (n)
and by a person authorized to act for the partnership.
However, any partner may enter into a separate 2nd paragraph
obligation to perform a partnership contract. (n)
discharged
refers to all GENERAL partners 1) agreement
- (3 parties: partner, creditor, and partnership)
- can industrial partners be general partners? YES 2) no agreement
- as a GR, all partners are general partners
exception: stipulation limited partner
- knowledge of the creditor and continues to the representation has or has not been made or
transact with the partnership continuing the communicated to such person so giving credit by or
business with the knowledge of the apparent partner making the
representation or consenting to its being made:
3rd paragraph
(1) When a partnership liability results, he is liable as
estate though he were an actual member of the partnership;
pay personal debts before partnership debts
(2) When no partnership liability results, he is liable
condition: pro rata with the other persons, if any, so consenting
a) dead partner to the contract or representation as to incur liability,
b) no more partnership assets otherwise separately.
C. Tort liability; breach of trust liability (primary When a person has been thus represented to be a
& solidary) partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the
Art. 1822. Where, by any wrongful act or omission of persons consenting to such representation to bind
any partner acting in the ordinary course of the them to the same extent and in the same manner as
business of the partnership or with the authority of co- though he were a partner in fact, with respect to
partners, loss or injury is caused to any person, not persons who rely upon the representation. When all
being a partner in the partnership, or any penalty is the members of the existing partnership consent to the
incurred, the partnership is liable therefor to the same representation, a partnership act or obligation results;
extent as the partner so acting or omitting to act. (n) but in all other cases it is the joint act or obligation of
the person acting and the persons consenting to the
TORT (wrongful act or omission) representation. (n)
Art. 1826. A person admitted as a partner into an Magdusa v. Albaran (in the quiz)
existing partnership is liable for all the obligations of - demanded shares upon withdrawal from the
the partnership arising before his admission as though partnership, suit against capitalist, managing partner
he had been a partner when such obligations were only
incurred, except that this liability shall be satisfied - SC: partners share cannot be returned without first
only out of partnership property, unless there is a dissolving and liquidating because of the preference for
stipulation to the contrary. (n) partnership creditors AND the fact that the others
partners are indispensible parties to the suit
new partnership - since the liquidation document prepared by the
- old partnership ipso jure dissolved BUT: managing partner was not signed by the others, it does
- same assets and same firm name not bind them
- therefore, same liability - moreover, the managing partner could not be held
new partners liability extent: limited to his capital personally liable since as such MP, he merely acts as a
contribution trustee of the partnership