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Business Organization 1
Partnership, Agency, and Trust

Atty. Charlotte F. Gallego

AR LAW Davao del Sur
2F Abadilla Building, Lapu-lapu St., Digos City
Mobile: +63946 762 7910/ email: arlawdavaodelsur@gmail.com
a

Course Outline with List of Cases

Part I- Partnership

I. Partnership- General Provisions

A. Three Levels of Existence of Partnership
Yu vs NLRC 224 Scra 75 (1993)

B. What is a Contract of Partnership?- Art 1767

C. Elements of a Partnership-
1. Consent
a. Consent to Pursue Business- Art 1769
b. Legal Capacity to Contract- Art 1782, Art 87
c. Admission of New Partner- Art 1804

2. Subject Matter: Pursuit of a Business Enterprise

Santos vs Reyes 368 SCRA 261 (2000)
Tocao vs Court of Appeals, 365 Scra 463 (2001)
Moran vs Court of Appeals, 133 Scra 88 (1984)
a. Co-ownership/co-possession do not necessarily constitute a
partnership
Navarro vs Court of Appeals 222 Scra 675 (1993)
Obillos vs Commissioner of Internal Revenue, 139 Scra 675 (1993)
Reyes vs Commissioner of Internal Revenue 24 Scra 198 (1968)
Evangelista vs Collector of Internal Revenue 102 Phil 140 (1957)
b. Receipt by a Person of a Share of the Net Profit – Art 1769 (4)
Pastor vs Haspar, 2 Phil 592 (1903)
Fortis vs Gutierrez Hermanos, 6 Phil 100 (1906)
Bastida vs Menzi, 58 Phil 188 (1993)
c. Meeting of Minds- Art 1770
Estanislao vs Court of Appeals, 160 Scra 830 (1988)
Evangelista vs CIR 102 Phil 140 (1957)
Ona vs Commissioner of Internal Revenue, 45 Scra 74 (1972)
Gatchalian vs Collector of Internal Revenue, 67 Phil 666 (1939)
d. Existence of Business Enterprise
Idos vs Court of Appeals 296 scra 194 (1998)
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e. Doctrine of “Attributes of Proprietorship”

Sy vs Court of Appeals, 398 Scra 301 (2003)

f. Unlawful Subject Matter

Arbes vs Polistico, 53 Phil 489 (1929)
Deluao vs Casteel, 26 Scra 475 (1968)

3. Cause or Consideration- Art 1786, 1787, 1789, 1790, 1830(4)

City of Manila vs Cumbe, 13 Phil 677 (1909)

4. Purpose is to engage in some business enterprise

Fernandez vs dela Rosa, 1 Phil 671 (1903)
Exception: IN the matter of Sycip, Salazar, etc, 92 Scra 1 (1975)

5. Element of joint control- Art 1810(3), Art 1818

D. Characteristics
1. Primarily Contractual – Art 1767, 1770, 1771, 1784
Lyons vs Rosentock, 56 Phil 632 (1932)
2. Nominate and Principal
Fernandez v dela Rosa, 1 Phil 671 (1903)
3. Consensual
Estanislao vs CA, 160 SCRA 830 (1988)
Yulo vs Yang Chiao Seng, 106 Phil 111 (1959)
Tocao vs Court of Appeals, 342 Scra 20 (2000)
4. Onerous and Bilateral
5. Preparatory and Progressive
6. Separate Juridical Personality- Art 1768
Jarantilla vs Jarantilla, G.R. No. 154486 December 1, 2010
7. Delectus Personae
8. Mutual Agency – Art 1803
9. Personal liability of Partners for Partnership debts

E. Partnership as a Juridical Entity

Art 1768, Art 44, Art 45, Art 46, Art 1774, 1767
1. Re: Secret Associations – Art 1775
2. Re: Separate Juridical Personality
Vargas vs Chan, 29 Phil 446 (1915)
Campos Rueda vs Pacific, 44 Phil 916 (1923)
Ngo Tian Tek vs Phil Education Co, 78 Phil 275 (1947)
Tai Tong Chuache vs Insurance Commission, 158 Scra 366 (1988)
3. Doctrine of Piercing the Veil of Separate Juridical Fiction

Commissioner of Internal Revenue vs Suter, 27 Scra 152 (1969)

Aguila vs Court of Appeals, 319 scra 246 (1999)

4. Entitlement to Constitutional Rights and Guarantees

i. Due Process and Equal Protection
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Smith, Bell, Co. vs Natividad, 40 Phil 136 (1919)

ii. Right vs. Unreasonable searches and seizure
Bache &Co. vs Ruiz, 37 Scra 823 (1971)
iii. No right against self-incrimination
Bataan Shipyard & Engineering vs PCGG, 150 SCRA 181 (1987)

F. Partnership as a Business Enterprise

G. Essential Attributes of the Partnership
1. Essential features:
i. There must be a VALID CONTRACT
ii. The parties must have LEGAL CAPACITY
iii. There must be mutual contribution to a COMMON FUND
iv. The purpose is to obtain PROFITS and DIVIDE the same

2. Essential Attributes
a. Consensual and weak juridical personality
ii. Informal nature
Art 1768, 1771
Exceptions: 1772, 1771 and 1773, 1843 and 1844
iii. “Weak” nature
Art 1830
b. Mutual Agency
Art 1803(1), Art 1818
c. Delectus Personae
Ortega vs Court of Appeals, 245 Scra 529 (1995)
d. Unlimited liability
Art 1816, 1817, 44,1768,46, 1770, 1799

H. Partnership VS…
1. Joint Venture
Torres vs Court of Appeals, 320 SCRA 428 (1999)
2. Co-ownership
Art 1811, Art 1769
3. Joint Account
Art 242, Code of Commerce
Bourns vs Carman, 7 Phil 117 (1906)
4. Agency
Binglangawa vs Constantino, 109 Phil 168 (1960)
U.S. vs Muhn, 6 Phil 164 (1906)
5. Business Trust
6. Corporation
i. Legal capacities- Art 1828, 1830
ii. Limited Liability- Art 1816, 1817, 1824,1839
iii. Partner as agent of partner- Art 1803(1), 1818, 1819, 1822, 1823
iv. Rights of Transferor- Art 18014, 1813
v. Effects of Defective Incorporation
Pioneer Insurance vs Court of Appeals, 175 Scra 668 (1989)
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Lim Tong Lim vs Philippine Fishing 317 Scra 728 (1999)

7. Cooperative
Art 3, 5(3), 34,7,2 of R.A. 6938
Republic vs Sunlife Assurance, 473 scra 129 (2005)
**** STOPPED HERE JUL 23/2013 ***

II. CLASSES OF PARTNERSHIPS AND PARTNERS

Art 1776-1783
A. As to Object
1. Universal- Art 1777, 1778, 1779, 1780
Commissioner of Internal Revenue vs Suter, 27 Scra 152 (1969)
Lysin vs Rosentock, 56 Phil 632 (1932)
2. Particular – Art 1783

B. As to Duration

1. Partnership with a fixed term

2. Partnership for a particular undertaking
Note Art 1785
3. Partnership at will
Ortega vs Court of Appeals 245 Scra 529 (1995)

C. As to Extent of Partners’ Liabilities

1. General Partnership
Lim Tong Lim vs Philippine Fishing Gear, 317 Scra 728 (1999)
2. Limited Partnership

D. Other Classes of Partners

1. Capitalist Partner vs Industrial Partner
2. Original Partner and Subsequent or Incoming Partners
3. Managing Partner
4. Liquidating Partner
5. Retiring Partner
6. Continuing Partner
7. Partner by Estoppel

III. Special Issues as to WHO may qualify to become partners

1. May Spouses Validly Enter into a Partnership Relation?
A. Spouses cannot enter into a Universal Partnership. Art 1782, 133, 87
Commissioner vs Suter, 27 scra 152 (1969)
B. Spouses are NOT qualified to enter into other forms of partnership for
gain
C. Professional Partnerships- Art 1783
D. May Corporations become Partners?
Tuason vs Bolabos, 95 Phil 106 (1954)
Torres vs Court of Appeals 278 Scra 793
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*SEC Rules
IV. PARTNERSHIP: FORMAL AND REGISTRATION REQUIREMENTS
1.
2. Art 1771, 1784, 1772
Angeles vs Secretary of Justice, 465 Scra 106 (2005)
Rojas vs MAglana, 192 Scra 110 (1990)
3. When Immovable Property Contributed Art 1771, 1773
Agad vs Mabato, 23 Scra 1223 (1968)
Litonjua Jr. vs Litonjua Sr. 477 Scra 576 (2005)
4. The Partnership Name – Art 1815
Jo Chung Chang vs Pacific Commercial Co. 45 Phil 142 (1923)
Hung-Man-Yoc vs Kieng-Chiong-Seng 6 Phil 498 (1906
Compania Agricola vs Reyes, 4 Phil 2 (1904)
5. Registration
A. Intra-Partnership Relation Art 1771, 1772
B. Dealings with third parties- Art 1815, 1818, 184
Liton vs Hill & Ceron, 67 Phil 509 (1939)
Goquiolay vs Sycip, 108 Phil 947 (1960)
6. Value of Form and Registration
Thunga Chui vs Que Bentec, 2 Phil 561 (1903)
Singson vs Isabela Sawmill 88 Scra 623 (1979)

V. RIGHTS AND POWERS OF PARTNERS

ART 1810

Rights of Partners

1. Right to Manage the Partnership

A. General Rule on Partnership Management
Art 1818: Doctrine of Apparent Authority
Munasque vs Court of Appeals, 139 Scra 533 (1985)
Council of Red Men vs Veterans Army 7 Phil 685 (1907)
Litton vs Hill & Ceron 67 Phil 509 (1935)
Smith, Bell, & Co. vs Aznar 40 O.G. 1881 (1941)
Goquiolay vs Sycip 108 Phil 947 (1960)

Art 1820, 1821, 1822, 1823

B. Transactions NOT in the Ordinary Course of Partnership Business

Art 1818
Goquiolay vs Sycip ibid.

C. Specific Modification on the Power of Management

Art 1800
Smith, Bell vs Aznar 40 O.G. 1881 (1941)
Garcia Ron vs La Compania 12 Phil 130 (1908)
Martinez vs Cordoba & Conde 5 Phil 545 (1906)
Fortis vs Gutierrez Hermanos, 6 Phil 100 (1906)
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Tai Tong Chuache vs Insurance Commission, 158 Scra 366 (1988)

Teague vs Martin 54 Phil 504 (1929)

Art 1801
Art 1802

2. Power of Alteration – Art 1803 (2)

3. Power over Real Properties of the Partnership – Art 1774, 1819
i. Where title is in the Partnership Name
ii. Where title is not in the Partnership Name
iii. Where title is in the Name of One or More but not All the Partners
iv. Where title is in the name of all of the Partners

4. Partner’s Right to Specific Partnership Property Art 1811

CAtlan vs Gatchalian 105 Phil 270 (1959)

5. Equity Rights of Partners Art 1812

i. Profits vs Surplus
ii. Assignability of Partner’s Equity Right- Art 1813, 1814, 1827
Goquiolay vs Sycip 108Phil 947 (1960)
iii. Right to Participate in Profits; the Obligation to Participate in
losses
Art 1797, 1798, 1769, 1767, 1770, 1799

6. Right to Inspect Art 1805

7. Right to Demand True and Full Information Art 1806

8. Right to Demand Accounting- Art 1807, 1809

Fue Leung vs IAC, 169 Scra 746 (1989)
Hanlon vs Haussermann and Beam, 40 Phil 796 (1920)
Lim Tanhu vs Ramolete, 66 Scra 425 (1975)

9. Right to Dissolve Partnership

Rojas vs Maglana, 192 Scra 110 (1990)
REalubit v. Jaso GR 178782 (Sep 21 2011)

Obligations of the Partnership

1. Obligations TO the Partners

A. Amounts disbursed for and in Behalf of the Partnership- Art 1796
B. Contracts Entered into for and In behalf of the Partnership- Art 1797
C. Keeping of the Books- Art 1805

2. Obligations to Third Persons

A. Liability Arising from the Firm Name- Art 1815
B. Liability Arising from the Acts of the Agent- Art 1818
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VI. Duties and Obligations of Partners

1. Obligation To Contribute to the Common Fund

Art 1786
Art 1826

Why is it then necessary for Partnership Law to declare expressly that a partner is
a debtor of the partnership for whatever he may have promised to contribute
thereto?
Art 1788, Art 1790
Uy vs Puzon, 79 Scra 598 (1977)
Moran vs Court of Appeals, 133 Scra 88 (1986)
Sancho vs Lizarraga, 55 Phil 601 (1930)
Lozana vs Depakakibo, 107 Phil 728 (1960)

A. When Promised Contribution is a Sum of Money- Art 1788

B. When Promised Contribution is Property- In General – Art 1795, Art
1829(4)
C. Contribution is Goods- Art 1787
D. Contribution is Real Property- Art 1773, 1771, 1772
E. Contribution of Service or Industry: The Industrial Partner
Art 1797
F. Obligation for “Additional Contribution”
Art 1791
G. Remedies When there is Default in Obligation to Contribute
Sancho vs Lizarraga, 55 Phil 601 (1931)
Art 1786, 1788
H. Personal Obligations for Partnership Debts; Doctrine of Unlimited Liability
Art 1816

2. Fiduciary Duties of Partners

Hanlon vs Haussermann, 40 Phil 796 (1920)
Lim Tanhu vs Remolete, 66 Scra 425 (1975)

A. Duty to Account – Art 1806, 1808

B. Duty of Diligence – Art 1794, Art 1800
C. Duty of Loyalty- Art 1789, 1793
Catalan vs Gatchalian, 105 Phil 1270 (1959)
D. Specific Fiduciary Duties of Industrial Partner- Art 1789
Evangelista vs Abad Santos 51 Scra 416 (1973)
E. Specific Fiduciary Duties of Capitalist Partners- Art 1808

3. Obligation of Subsequently Admitted Partners- Art 1826

4. Obligations of Non-partners: Art 1815, 1825
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VII. DISSOLUTION, WINDING-UP, AND TERMINATION OF THE

PARTNERSHIP

A. Introduction and Definition of Terms

1. Dissolution- Art 1828, 1829
Idos vs CA, 296 Scra 194 (1998)

2. “Winding Up of Partnership Affairs”

B. Legal Effects of Dissolution

1. Effect on the Partnership Contract and Juridical Personality

Republic vs TAncinco, 349 Scra 386 (2002)
Alhambra Cigar vs SEC 24 Scra 269 (1968)
PNB vs CFI Pasig 209 Scra 294 (1992)

Art 1832

2. Effect on the Partnership Business Enterprise- Art 1832

3. Effect on Contracts Entered into with third parties
Singson vs Isabela Sawmill, 88 Scra 623 (1979)
Tocao vs Court of Appeals 342 Scra 20 (2000)
4. Effects on Determining Liability of Partners for Damages to one Another
Soncuya vs De Luna, 67 Phil 646 (1939)

C. Causes of Dissolution- Art 1830

1. Causes which Legally Dissolve IPSO JURE withOUT need of Court Decree:

i. Dissolution Effected Without Violation of The Partnership

Agreement
Art 1830

ii. Dissolution Effected in Contravention of the Partnership

Agreement, Effected by the Will of Any Partner
Art 1830
Tocao vs Couty of Appeals 342 Scra 20 (2000)

iii. Dissolution Caused by force majeure or outside the will of the

Partners
Fernandez vs dela Rosa, 1 Phil 671 (1902)

2. Dissolution by Court Decree- ART 1831

Rojas vs Maglana 192 Scra 110 (1990)

D. Effects of Dissolution Among the Partners Inter se

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1. When Dissolution is Caused in Any way, except in Contravention of the

Partnership Agreement- ART 1837
2. When Dissolution is Caused by the Bona Fide Expulsion of A Partner- Art
1837
3. When Dissolution is Caused in Contravention of the Partnership Agreement
– Art 1837
4. When Dissolution is Caused by the Rescission of the Partnership Agreement
because of fraud or misrepresentation (i.e. by judicial decree) – Art 1838

E. Effects of Dissolution on Partnership Liabilities Existing or Accrued at

that Time

1. General Rule on Existing Partnership Liabilities- Art 1835

2. Discharge of a Partner from Existing Partnership Liabilities- Art 1835
3. Effect of Dissolution on Partnership Liabilities Contracted After Dissolution

i. Liabilities incurred pursuant to winding-up proceedings

Art 1832
Art 1834
ii. Liabilities incurred Constituting “New Business” during winding-up
process
Art 1832
a. When Dissolution is by the act, insolvency, or death of a
partner
Art 1833
b. When Dissolution is NOT by the act, insolvency, or death of a
partner
Art 1832, 1833
c. As to Third Party Creditors
Art 1834

C1. Particular Rule of Limited Liability- Art 1834

C2. When Creditors not deemed to be in good faith- art 1834
C3. Partnership by Estoppel- Art 1825

F. WINDING-UP of PARTNERSHIP AFFAIRS

1. Who has the Authority to Wind-up? Art 1836
2. Rules and Procedures for Winding-up and Liquidation of Partnership affairs
ART 1839

i. What constitutes partnership property?

ii. What are the Priority Rules Against Partnership Property?
a. Enforcing contributions from Partners to Cover Partnership debts
b. Priority rules between partners’ creditors and partnership
creditors
ART 1829 (8)
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c. Priority Rules When Partner is Insolvent

iii. Partner may demand Share in Net assets only after liquidation and
settlement of claims of partnership creditors

Villareal vs Ramirez, 406 Scra 145 (2003)

Martinez vs Ong Pong Co, 14 Phil 726 (1910)
Uy vs Puzon, 79 Scra 598 (1977)

G. CONTINUANCE OF PARTNERSHIP BUSINESS INSTEAD OF

WINDING-UP

1. Who may continue Partnership business and obligations assumed?

ART 1837
2. Disposition of Liabilities when partnership business continued
Art 1840
Singson vs Isabela Sawmill, 88 SCRA 623 (1979)
3. Disposition of Liabilities when Dissolution is caused by Retirement or Death
of a partner- ART 1841, 1840, 1837 (2)

H. PARTNER’S RIGHT TO DEMAND AN ACCOUNTING

Art 1842
Feu Leung vs IAC, 169 SCRA 746 (1989)

VIII. LIMITED PARTNERSHIPS

A. NATURE, FORM, REGISTRATION

1. Essence of the Medium of Limited Partnership

ART 1843
2. Requirements for the Formation of a Limited Partnership
Art 1844

i. Sign and swear to a certificate of LTd Partnership

ii. File Certificate with SEC
ART 1846
Jo Chung Cang vs Pacific Commercial, 45 Phil 142 (1923),

a. False Statement in the SEC Certificate- Art 1847

iii. Name of Limited Partnership
Art 1844, 1846
iv. Contributions to the Limited Partnership- Art 1846, 1844(1)

3. When Certificate Cancelled or Amended

i. When Certificate Cancelled- Art 1864, 1865
ii. When Certificate Amended- Art 1864
iii. Procedure to Amend Certificate- Art 1865
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B. THE GENERAL AND LIMITED PARTNERS

1. GENERAL PARTNER
i. Who is a general partner in a limited partnership? Art 1844
ii. Rights and Powers of General Partners in a Limited Partnership- Art
1850
iii. Duties and Obligations of General Partner- Art 1850, 1789

2. LIMITED PARTNER

i. Who is a limited partner? Art 1844, 1845, 1846

ii. Erroneous but in good faith limited partner- Art 1852

iii. When Limited and General Partner at the Same Time – Art 1853

iv. Rights and Powers of Limited Partner

a. Right to Limited Liability- Art 1843 and 1848
b. Right to the Return of his Contribution- Art 1851
c. Right to receive his share in the profits and compensation by way
of income – Art 1851
d. Right to assign his equity interest- Art 1859
*heirs of deceased general partner succeed generally as limited
partners
e. Right to have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to inspect and
copy any of them- Art 1851(1)
f. Right to have on Demand true and full information of things
affecting the partnership, and a formal account of partnership
affairs whenever circumstances render it just and reasonable- Art
1851 (2), 1854
g. Right to have the dissolution and winding-up by decree of court –
Art 1851(3), 1857

v. Obligations of Limited Partners

a. ON original contributions to the partnership- Art 1845, 1858
b. On Additional contributions- Art 1844 (1)(g)
c. On returned contributions- Art 1858
d. Liable as trustee of Partnership- Art 1858

vi. Fiduciary Duties of Limited Partners

Art 1866

C. DISSOLUTION and Winding-up of Limited Partnership

1. Causes of Dissolution
Art 1860, 1861, 1862
2. Settling of Accounts
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Art 1863

- END OF PARTNERSHIP LECTURE. PART II- AGENCY -