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2.

Commercial Partnership — governed by the code of


PArTNERships commerce
3. Industrial Partnership — have the characteristics of
commercial or civil partnerships
CHAPTER I — HISTORICAL BACKGROUND OF
PHILIPPINE PARTNERSHIP LAW
Civil Partnership Commercial Partnership
I. Sources of Philippine Law on Partnership
Mere meeting of the minds brought about the Registration was essential for the comin
separate juridical personality of the partnership existence of the Partnership
A. Notion of Partnership is of Ancient Origin

Early as 2300 B.C. — the famous king of Babylon, Hammurabi,


provided for the regulation of the relation called partnership
(Commercial partnerships for single transactions or undertakings) Partners were jointly liable for partnership Partners were solidarily liable for partn
debts debts, albeit in a subsidiary manne
therefore had the benefit of excussion
Jewish Law — partnership was concerned with the holding of
title to land by 2 or more persons

B. Civil and Common Law Bases of Partnership Laws


Not deemed to be merchants Deemed to be merchants, subject to Cod
Chief Justice Lord Mansfield — English Commercial courts were Commerce provisions for merchants
integrated into the common law system

Latter years of 18th century — partnership began to assume both


form and substance
B. Significance of the Historical Distinctions Between Civil
and Commercial Partnerships
1914 — In the US, the Uniform Partnerships Act was endorsed
which had many points of similarity with the English Partnership
Present law on Partnerships — no more distinction between civil
Act of 1890; they observed that modern partnership law consisted
and commercial partnerships, and they are both governed by a
of principles and concepts developed from 3 sources: Roman
common set of laws, i.e. relevant provisions of the new civil code
Law, Law on Merchant and Equity, and Common Law courts
Reason: Distinction was critical under the old set-up because it
C. Particular Bases of the Philippine Law on Partnerships
determined the applicable rules for registration, liability, and rights
and manner of dissolution
Origin — American Origin, i.e. based on the US’ Uniform
Partnership Act and Uniform Limited Partnership Act
CHAPTER II — TRI-LEVEL EXISTENCE OF THE
PARTNERSHIP
Before New Civil Code — partnership laws distinguished civil
partnerships from commercial paetnerships
I. Interplay of the Tri-Level Existence of the Partnership
Present Phil Law on Partnerships — abolished the distinction
1. Primarily as a Contractual Relationship between and among
between civil and commercial partnerships; provided under Title
the partners;
IX, Book V of the New Civil Code
2. A Medium of Doing Business, through a separate juridical
personality, as the basis of creating multi-leveled contractual
D. Significance of Historical Background of Philippine
relations among various partners;
Partnership Law
3. A Business Enterprise, or what is termed in other disciplines a
‘a going concern
Partnership as a medium of doing business can be drawn from the
following characteristics:
Importance: To determine the legal significance of the various
provisions of the New Civil Code regulating partnerships
1. Nominate and Principal — would-be partners rely upon the
default legal rules with the assurance of the backings of the
Mr Yu could not recover his claims through the medium of the
State by which to enforce such default rules;
separate juridical personality of the company where he was
2. Contractual in Nature — assures would-be partners of the
employed as assitant general manager because the partnership was
expedience of contractual stipulation, or party-autonomy, to be
extinguished with the withdrawal of the original partners who were
able to tailor-fit their commercial arrangement in a way that
his employers. But pursuant to the Succession of Liability Rule, he
would best address their individual needs as well as the
could recover his claims against the new partnership on the basis
working relationships
that it was handling exactly the same business enterprise that
remain unchaned with the transfer of ownership from the old
I. Old Branches of Philippine Partnership Law
partners to the new investors. The new partnership simply
continued the old partnership without the latter undergoing
A. Distinguishing Between Civil and Commercial
procedures relating to the dissolution and winding up of its business
Partnerships
affairs (Yu v NLRC, 224 SCRA 75, 1993)
Before New Civil Code:
1. Civil Partnership —governed by the old civil code
The action that lies with the partner who furnished the capital for 2. Partnerships and associations for private interest or purpose to
the revovery of his money, arising from the failure of his co- which the law grants a juridical personality, separate and
partners to deliver to him his half of the profits from the partnership distinct from that of each partner or member;
venture, is not a criminal action for estafa, but a civil one arising 3. Partnerships may acquire and possess properties of all kinds
from the partnership contract for a liquidation of partnership and a 4. Partnerships incur obligations and may bring civil and criminal
levy of its assets, if any. Estafa does not include money received action
for a partnership (US v Clarin, 17 Phil 84, 1910)
B. Underlying Business Ends of the Partnership Juridical
When money or property have been received by a partner for a Person
specific purpose and he later misappropriated, such partner is guilty
of estafa (People v De la Cruz, GR 21732, 1957; Liwanag v CA, Importance of the Grant of Separate Juridical Personality — to
281 SCRA 225, 230, 1997) make the partnership medium an efficient means by which several
persons can collectively pursue business
Registration of the contract of partnership with the SEC has the
legal effect of binding the partners, as to the contractual Business purpose — like acquiring or coveying real property only
obligations, rights and duties of the partners, and which has in the partnership name
effective force even as the partnership undergoes changes within
its constitution by the acceptance or withdrawal of the partners into Partnership treated as ‘Person’ before the law — does not occupy
the venture (Rojas v Maglana, 192 SCRA 110, 1990) the same hierarchical level as the ‘person’ of an individual because
the ‘person’ of a partnership is a fiction created by law not for the
II. Partnership is Primarily a Contractual Relationship (Arts benefit of the juridical person, but precisely as a means by which
1767, 1770, 1771, 1784) individuals in society may achieve certain business or commercial
ends
Contract of Partnership — one where 2 or more persons bind
themselves to contribute money, property, or industry to a common 1. The Case for ‘Secret Associations’ — associations and
fund, with the intention of dividing the profits among themselves, societies whose articles are kept in secret among the members,
and includes in its coverage the joint exercise of profession and wherein any one of the members may contract in his own
name w/ third persons are denied juridical personality (Art
Before there can be a partnership enterprise, it is necessary that 1775)
there must have been a meeting of minds to constitute contract of
partnership. Hence, the fact that Lyons had used as security for the Governed by the provisions relating to co-ownership
acquisition of the San Juan estate one of the partnership properties
but which his co-partner refused to join in the venture did not make Reason: To prevent from defrauding the partnership or any other
Lyons a partner in the San Juan Venture since there was no meeting members but there is no prohibition of secret stipulations which are
of minds to constitute such partnership (Lyons v Rosentock, 56 Phil not designed to produce this result
632, 1932)
Secret Stipulations — cannot be invoked against third parties by
Contractual Relationship — partnership is subject to the rules, the partners entering into such secret stipulations in consonance
principles, and doctrines pertaining to contracts in general, but with the principles tgat a party should not be allowed to take
modified in the sense that a partnership is at the same time a advantage of a nullity which he himself has caused
medium of doing business
2. Jurisprudential Application of the Doctrine of Separate
Essence of Partnership as a Contract: Juridical Personality of the Partnership
1. Consensuality — partnership may be constituted in any form
except where immovable property or real rights are constituted Death of either of the 2 partners is not a ground for the dismissal of
thereto, in which case a public instrument is necessary (Art a pending suit against the partnership, as a partnership possesses a
1771); personality distinct from any of the partners (Ngo Tian Tek v Phil
2. Provisions of Law Deemed Incorporated — partnership must Education Co, 78 Phil 275, 1947)
have a lawful object or purpose (Art 1770)
Summons need not be served upon each of the partners because
Implication — Law on Partnerships must balance between the summons being served solely on the managing agent or other
principles governing the relationship of the partners amoung officialof the company by the section of the code of civil procedure
themselves as contractual parties, and also their rights and is sufficient (Vargas v Chan, 29 Phil 446, 448, 1915)
obligations with respect to the business venture or undertaking that
brought them together The juridical personality of a limited partnership being different
from that of its members must answer for and suffer the
III. Partnership is a Medium of Doing Business, Through the consequence of its acts as such an entity capable of being the
Partnership Juridical Person (Arts 1768, 44, 45, 46, 1774) subject of rights and obligations (Campos Rueda & Co v Pacific
Commercial Co, 44 Phil 916, 1923)
A. Legal Basis of the Partnership Juridical Personality
C. Applicability of the Doctrine of Piercing the Veil of
Contract of Partnership: Separate Juridical Fiction
1. Perfection of the contract brings about the constitution ipso jure
of a separate juridical person notwithstanding the failure to
comply with the registration requirements;
Doctrine of Piercing the Veil of Corporate Fiction — has less Failure to comply — does not affect the liability of
application in Partnership Law because the partners are unlimitedly partnership and members thereof to 3rd persons
liable for partnership debts
2. Where immovable property or real rights are contributed,
When it is shown that the juridical personality of the partnership is public instrument is necessary, and if an inventory of said
but a means to evade the law or a sham, the court will pierce the property is not made, signed by the parties and attached to
veil of its separate juridical personality to treat the partners directly a public instrument, the contract of partnership is void;
liable for the consequences of the acts or contracts done in the 3. Particular provisions describing limited partners in the
partnership name (CIR v Suter, 27 SCRA 152, 158-159, 1969) articles of limited partnership must be formally registered
with the SEC
Partners cannot be held liable for the obligations of the partnership
unless it is shown that the legal fiction of a different juridical Reason: Limited liability to the owners of a business enterprise
personality is being used for fradaulent, unfair or illegal purpose is unusual and it is to exist to bind the public, it myst be
(Aguila v CA, 319 SCRA 246, 1999) reflected in a formal manner

D. Entitlement to Constitutional Rights and Guarantees E. Weak Juridical Personality

Corporations and Partnerships) — entitled to the constitutional Why? Because accordingly partnership may be dissolved w/o need
guarantees to due process and equal protection, rights against of formal dissolution process, and by the will of any of the partners
unreasonable searches and seizures, but not to the rights against or all of them (Art 1830)
self-incrimination
Everyting is personal in a partnership set-up and best exemplified
IV. Partnership as a Business Enterprise by the attributes of mutual agency and delectus personae

Partnership — may constitute a business enterprise (or as ‘ a going Mutual Agency (Arts 1801, 1803, 1818)
on concern’)
Default rule: Every partner is an agent of the partnership and
Partners — are essentially ‘owners’ or ‘equity holders’ of the whatever any one of them may di alone shall bind the partnership
business (Art 1770), as distinguished from creditors who advance
mony to the partnership as debt holders Principle of mutual agency — Partners are not only investors but
exercise the prerogatives of ownership and control into the
CHAPTER III — ATTRIBUTES OF THE PARTNERSHIP partnership business

Essential Attributes of Partnership: Delectus Personae (Selection of Persons)


1. Informal/Consesual Juridical personality;
2. Mutual Agency; Delectus Personae — one selects hispartners on the basis of their
3. Delectus Personae; personal qualifications and qualities such as solvency, ability,
4. Partners Burdened with Unlimited Liability honesty and trustworthiness, among others (Prof Bautista);

I. Non-Solemn (Informal) or Consensual Juridical Unjustified dissolution by a partner can subject him to action for
Personality (Arts 1771, 1772, 1773, 1785, 1843, 1844) damages because by mutual agency, the doctrine of delcetus
personae allows partners to have the power although not
Juridical personality of Partnership — described as informal or necessarily the right to dissolve the partnership (Tocao v CA, 342
consensual (that such juridical personality can be extended beyond SCRA 20, 37, 2000)
the original fixed term or particular under taking by the mere
continuation of the business by the partners or such of them as 1. It is the embodiment of the principle or relativity or privity in
habitually acted therein during the term, w/o any settlement or contracts — the privity thatis created between and among the
liquidation of the partnership affairs) partners at the point of perfection of the partnership
arrangement, and such privity cannot be extended beyond the
Rationale: Providing a partnership with separete juridical original partners w/o the consent of all other parties to the
personality from the partners is meant to add to the commercial contract of partnership; the moment one partner is gone, the
efficiency of the partnership both as a medium of association and privity is broken and the partnership contract is terminated
as a medium of doing business. Unlike, if the manner by which to 2. The relationship established is of the most fiduciary character
achieve juridical personality be more formal and regorous, it makes — one trust or confidence Is lost, the contract is deemed
the patnership a more expensive proposition and commercially breached or at least at an end
unattractive
II. Partners Bound to Unlimited Liability (Arts 1816, 1817)
General Rule: Contract of partnership may be constituted in any
form General Rule: Every partner is liable personally for his other
Exceptions: property not contributed to the partnership for partnership debts
1. Every contract of partnership having a capital of 3, 000 or (Pro rata)
more shall appear in a public instrument, which must be
recorded with the SEC; Reason: Despite the separate juridical personality of the
partnership properties, the partnership is still wholly owned,
managed and controlled by the partners as collective proprietors of
the business enterprise, and they benefit fully and personally from
the partnership’s profitable operations
C. Distinguished from Joint Account (Sociedad de Cuentas en
III. Partners Distinguished From the Other Business Media Participacion/ Art 239 of Code of Commerce)

A. Distinguished from Joint Venture (Art 1767) Joint Account — a partnership constituted which its existence is
only known to those who had an interest in the same, there being
Joint venture is an association of persons or companies jointly no mutual agreement between the partners, and w/o a corporate
undertaking some commercial enterprise; generally all contribute name indicating to the public in some way that there are other
assets and share risks (Kilosbayan Inc v Guingona Jr, 232 SCRA people beside the one who ostensibly managed and conducted the
110, 143, 1994) business

Partnership Joint Venture Third persons — only have a right of action against person
contracted under such partnership of cuentas en participacion, and
Though it may exist for a single transaction, it Ordinarily limited to a single not againstand
transaction the other persons interested
usually contemplates the undertaking of a not intended to pursue a continuous business
general and continuous business of a particular Perons interested — no right of action against the third person
kind which necessarily involves a series of unless such person contracted by the third person formally transfers
transaction his right to them

D. Distinguished from Agency

Property, as a rule, becomes the property of the Property used remains undivided property of Partnership Agency
business entity, and hence of all the partners its contributor
Partners make them mutual agents of one Merely a legal extension of the persona
another the principal

A partner, when acting in pursuance of the None of the co-venturers can bind The the
control
jointthat a principal has over his agent Agent is under the complete control
firm, binds not only himself as a principal but adventure or his co-adventurers does not pertain between and among the principal
partners
as their agent as well, also the partnership and
his co-partners

Partner binds not only the other partners and Agent who acts within the scope
the partnership, but also himself in the pursuit authority does not bind himself to the co
of the partnershio enterprise or transaction he enters into
Required to operate under a firm name (But no Has no firm name
firm name does not make it void as a contract
or a partnership)

The action that lies with the partner who Cannot escape liability of estafa for conv
furnished the capital for the revovery of his of the funds given to him by his principa
money, arising from the failure of his co-
partners to deliver to him his half of the profits
B. Distinguished from Co-ownership (Art 1767) from the partnership venture, is not a criminal
action for estafa, but a civil one
Partnership Co-Ownership

Partners have co-owbership interest in the Co-ownership contitutes merely a property


partnership propertis relation whereby 2 or more persons own pro-
indiviso a propety

It comes with a contractual intent to pursue No contractual intent to pursue Distinguishing


business Agency Principles from the Doctrine of
business venture in common venture through a common fund even when co- Mutual Agency in Partnership Law
owners happen to share in the profits that may
be produced by the co-owned property Partnership Agency

Partners, other than industrial partners, are Agent earns the commission or remune
entitled to participate in the profits of the agreed upon only when he is able to rend
venture, not by reason of the service they the service contracted
render, but by reason of their equity standing
Has separate juridical personality No separate juridical personality from
in thea venture
purely
co-ownership relationship
Partnership Agency Partnership Corporation

Even when a partner enters into a contract in Agent must enter into contracts Althoughand a partner has the power to sell or Every stockholder has the right to trans
his own name but in the pursuit of partnership transactions in the name of the principal
disposeforofthehis capital interest or proprietary shares in the corporation, and the bu
business, the other partners and the partnership latter to be bound thereby interest, the buyer or transferee does not transferee assumes the role of stockhol
itself would still be bound thereby assume transferor’s position as partner, but said shares when the transfer has been
merely has a right to demand accounting or registered in the corporate books
distribution of the profits pertaining thereto

E. Distinguished the Business Trust


Inherently not transferable Freely transferable
Business trust — centered upon the splitting in the properties
contributed (the corpus) of the legal or naked titile in the trustee
who then manages and control the properties, and beneficial or
equitable title in the beneficiary and for whose benefit the trustee Does a Defective Incorporation Process Result into a
shall manage and control the properties of the corpus Partnership?

Partnership Business trustAnswer: No, for ordinarily persons cannot be made to assume the
relation of partners as between themselves when their purpose is
Bounded by some legal requirements like the thatisno
Constituted by deed of trust which patnership
easier and shall exist (See Page 436-442, Villaneuva 2018
registration requirements for partnerships less expensive to constitute Ed.)for it is not
where the real property or more than 3, 000 bounded by legal requirements like
worth of property is contributed to the registration Exception: When there was clearly the meeting of the minds among
partnership them to create partnership but used a business name that pretends
there is a corporation

Corporation by Estoppel Doctrine Effects—


1. It makes liable as general partners, not only those who acted
Gives rise to a separate juridical personality Does not give rise to a separate juridical
personality for the ostensible corporation, but also all passive parties who
knowing there is no such corporation sat back and benefited
There is mutual agency between and among No element of mutual agency or co-ownership
from the venture;
the partners 2. A third party who, knowing an association to be unincoporated,
nonetheless treated it as a corporation and received benefits
from it, may be barred from denyingits corporate existence in
a suit brought against the alleged corporation (Lim Tong Lim
v Philippine Fishing Gear Industries Inc, 317 SCRA 728, 1999)
F. Distinguished from the Corporation
G. Distinguished from Cooperatives
Partnership Corporation
Cooperative — duly registered association of persons, with a
The withdrawal, death, incapacity or With the right of succession, common corporationbond
has of interest, who have voluntarily joined together to
achieve
insolvency of any partner would automatically strong legal personality enabling lawful common social or economic end, making equitable
it to continue
bring about the dissolution of the partnership despite death, incapacity, contributions
withdrawal orto the capital required and accepting a fair share of
the risks and
insolvency of any of its stockholders or benefits of the undertaking in accordance with
members universally accepted cooperative principles (Art 3, Cooperatives
Development Authority Act, RA 6938)

Partnership Cooperatives
Partners are liable personally for partnership Limited liability
debts not only to what they have invested in the Organized for profit Organized primarily for self-help or prot
partnership but even as to their properties to its members (like cooperative provin
strong social and economic organizat
ensur that tenant farmer will enjoy on a
basis the benefits of agrarian reforms - C
v Grospe, 333 SCRA 425, 2000)
Every partner is an agent of the partnership, Only the board of directors or its duly
and by his sole act, he can bind the partnership authorized agents can bind the corporation
Partnership Cooperatives 3. Meeting of Minds on the Establishing a Common Fund is the
Essence of a Partnership Contract — must be established for
the distinct
Has juridical personality separate and distinct Has juridical personality separate and common benefit or interest of the partners; And under our
from its members from its members Tax Laws, a partnership is treated like a corporate taxpayer and
liable separately for income tax for its operations apart from
the individual income tax liabilities of each of the partners
Partners are liable personally for partnership Limited liability
debts not only to what they have invested in the Note: A demand for periodic accounting is evidence of a
partnership but even as to their properties partnership (Eng Kee v CA, 341 SCRA 740, 2000)

4. Existence of a Going Concern May Support the Existence of a


Partnership — unsold goods and uncollected receivables are
best evidence of the existence of the partnership which was not
yet terminated though in the winding up stage (Idos v CA, 296
SCRA 194, 206, 1998)
CHAPTER IV — THE CONTRACT OF PARTNERSHIP
5. Doctrine of ‘Attributes of Proprietorship’ as a Means to Prove
I. Essential Elements of the Contract of Partnership (Art the Existence of a Partnership — parties had exercised rights
1767, 1770, 1771, 1784) of proprietorship on the business venture, while at the same
time as agents to one another (Tocao v CA, 342 SCRA 20,
A. Consent — meeting of the minds between 2 or more persons 2000) but exercising prerogatives of proprietorship or
to form partnership (Art 1769) participating in the management of the business enterprise
should be viewed as merely collaborative evidence of
1. Consent to Pursue a Business Jointly is the Nexus of the parternship and cannot on their own be weighty evidence to
Partnership Relationship — no person can find himself a prove the existence of partnership because, it is logical,
partner in a partnership unless he previously consented to be in whether operated as a partnership or single proprietorship, to
such contractual relationship actually appoint a manager or other agents authorized to
2. Legal Capacity to Contract — parties to a contract must have exercise acts of management without being owners or partners
legal capacity to contract (See Art 1782; 87 of the Famil Code) to the business
3. Admission of New Partner into an Existing Partnership — no
person shall be admitted into a partnership, or become a party 6. When the Subject Matter (the Business Venture) is Unlawful
to the partnership arrangement, w/o the consent of all the or Against Public Policy —contract is void and the prorfits that
partners (Art 1804) may have earned by the partnership enterprise shall be
confiscated in favor of the State (Art 1770), however, the
B. Subject Matter — joint pursuit of a business enterprise partners had a right to recover their respective contributions
(Arbes v Polistico, 53 Phil 489, 498, 1929)
1. Co-ownership or Co-possession Does Not Necessarily
Constitute a Partnership — mere co-ownership or co- F. Consideration
possession of property does not necessarily constitute the co-
owners or co-possessors as partners, regardless of whether or Cause or consideration — the undertaking of the others to
not they share any profits derived from the use of the property, contributee money, property or industry to a common fund (Arts
when no indication is shown that the parties had intended to 1786, 1787, 1789, 1790, 1830-4)
enter into a partnership (Navarro v CA, 222 SCRA 675, 1993)
like when the pursuit of profits was the original intention Intangible things, rights and chooses of action — Credit such as
(Reyes v CIR, 24 SCRA 198, 1968) promissory note, or other evidence of obligation or even goodwill
may be contributed into the partnership (City of Manila v Cumbe,
2. Receipt by a Person of a Share of the Net Profit 13 Phil 677, 1909)

General Rule: Receipt by a person of a share of the net profits of a G. Other Essential Elements of Partnership
business is prima facie evidence that he is a partner in the business
(always based upon the assumption of equity interest or proprietry 1. Purpose of partnership must be to engage in some business
interest in the business) enterprise — Professional partnerships is pursued as part of
the livelihood undertaking of the partners (In the Matter of the
Exceptions: Where there is no legal and contractual basis for the Petition for Authority to Continue Use of Firm Name ‘SyCip
receipt of the profits other than as equity holder, there is no Salazar, et.al. v Ozaeta Romulo, etc., 92 SCRA 1, 1979)
partnership: 2. Element of joint control —a specified property right of a
a. As installment payment of a debt and/or interests thereof partner to participate in the management (Art 1810) as well as
(Pastor v Gaspar, 2 Phil 592, 1903); the confirmation of the attribute of mutual agency (Art 1818)
b. As wages of an employee (Fortis v Guttierrez Hermanos, 6 Phil
100, 1906; Sardane v CA, 167 SCRA 524, 1998; Bastida v II. Essential Characteristic of the Partnership Contracts
Menzi & Co, 58 Phil ;
c. As rentals paid to a landlord; a. Nominate and Principal — nominate because it has been given
d. As annuity to a widow or representative of a deceased partner; a specific name and that it is a principal contract and can exists
e. As consideration of sale of goodwill or other property on its own upon essential elements (mutual contribution to a
common fund and a joint ineterest in the profits) coming
together at perfection; minor details of which parties failed to b. Partnership is considered void if it is necessary to protect the
reach an agreement is of no importance as these details pertain rights of the partnership creditors (Torres v CA, 320 SCRA
to the accidental part of the contract (Fernandez v Dela Rosa, 428, 1999) but when no third party interests are involved,
1 Phil 671, 675-676, 1903) neither the partnership nor any of the partners can invoke
failure to comply with such requirements, to gain any
b. Consensual — perfected upon meeting of the minds of the advantage or to avoid liability consequences of being a partner
parties of the subject matter to undertake a business venture,
and the consideration which the obligation to contribute to a 2. Contract of partnership having a capital of 3, 000 pesos or
common fund (Art 1772); an oral contract of partnership is as more, in money or property, shall appear in a public instrument,
good as a written one where no immovable property or real which must be recorded in the SEC (Art 1772)
rights are involved (Tocao v CA, 342 SCRA 20, 2000)
Failure to comply, effect — partnership not void but unenforceable;
Failure to comply to deliver the promised contribution — contract failure to comply shall not affect the liability of the partnership and
of partnership is not void, but merely gives a ground for its the members thereof to 3rd persons
dissolution
Rationale: To prevent evasion tax liabilites by big partnerships and
c. Onerous and Bilateral — all partners are bound to contibute to to protect the public by enabling those who deal with partnerships
the common fund, or to the partnership, including even the to determine more accurately the membership and capital
industrial partner who is bound to contribute his service (Art contributions; purpose of registration is to give notice to third
1786) parties (Angels v Sec of Justic, 465 SCRA 106, 115, 2005)

d. Preparatory and Progressive — the inter-partnership Duly registered articles of co-partnership shall serve to bind the
relationship continues to evolve as the underlying business partners as to their contractual intent, and the default rules provided
enterprise itself evolves and progresses, or that other for under the law cannot apply to overcome the provisions of the
contractual relationships are expected to flow from the contract articles of co-partnership that is duly registered, except by another
of partnership as a matter of course; all incidents arising instrument that seeks to amend or modify the same and duly
therefrom automatically engendered even if the parties have registered also (Rojas v Maglana, 192 SCRA 110, 1990)
not yet decided upon the details of their relationship
(Fernandez v De La Rosa, 1 Phil 671, 680-681, 1903) II. Requirements Tied to Capital Partnerships

CHAPTER V — FORMAL REQUIREMENTS FOR Partnership shall operate under a firm name, which may or may
PARTNERSHIPS not include the name of one or more of the partners (Art 1815)

I. Partnership Essentially Consensual in Character Those who not being members include their names in the firm,
effect — subject to the liability of a partner, even when under the
General Rule: No form required terms of the articles of partnership he is not listed as one of the
Exceptions: partners of the partnership
1. Where immovable property or real rights are contributed
thereto, in which case a public instrument is required (Arts Note: Articles of partnership, when reigistered provides for the
1771, 1173) listing of the partners of the partnership enterprise

Controlling element — When immovable property is contributed A. SEC Rules on Partnership Names ( See SEC MC No. 5, s.
into the capital of the partnership 2008)

The fact that the partnership was expressly organized to operate Only instance when a domestic partnership name may be recorded
fishpond did not necessarily mean that either fishpond or a real in the SEC without the use of the word ‘Compnay’ is when the
right to any fishpond was contributed into the venture, since the primary purpose for which the partnership is organized is to engage
articles of partnership indicated that the partners were going to in the practice of profession of a particular discipline(SEC 1984
contribute cash into the venture (Agad v Mabato, 23 SCRA 1223, Opinion)
1968)
III. Registration of Little Usefulness in Partnership Law
Just because the partnership venture owns or operates immovables
does not mean it comes into the operation of Art 1773, as when A. Intra-Partnership Relationship — unless there is meeting of
such movables were not contributed by the partners, but were minds as to the elements of common fund and distribution of
purchased during the operation of the business. profits, no contract of partnership is perfercted
B. Dealings with Third Parties — member of the public who
Rationale — to protect third persons (creditors) deals in good faith with a purported partner or partnership in
the ordinary course of business, has a right to expect that his
Failure to comply, effects: contract can be enforced (See Arts 1818, 1834)
a. PD 1459 will prevail, in case of sale of land appearing in a C. Value of Statutory Rules on Form and Registration —
private deed, as to who has a better claim, right or lien on the contracting parties may compel each other to observe the form
property since registration in good faith or for value is the required once the contract has been perfected (Art 1357; Thung
operative rule under the Torrens Title (Secuya v Vda de Selma, Chui v Que Bentec, 2 Phil 561, 1903)
325 SCRA 244, 2000; See Art 1839-8&9);
CHAPTER VI — CLASSES OF PARTNERS AND Automatically dissolved upon the expirat
PARTNERSHIPS For a Particular the stipulated term or the achievement
Undertaking — specific particular undertaking stipulated in the cont
undertaking or project partnership
I. Kinds of Partnerships
which has a definite or
definable period of — Mutual agency and the doctrine of de
Category Kinds Nature completion personae allows the partners to have the p
although not necessarily a right, to dissol
As to its Object
partnership (Ortega v CA, 245 SCRA 529,
Universal One where the contract of partnership
or Purpose — unjustified dissolution by a partner can s
encompasses either all the present properties of
him to damages
Exception: Art 1782 — the partners or to all of the profits (Art 1777)
Persons who are prohibited
from giving each other any 1. All present property — partners contribute all
donation or advantage the property which actually belongs to them
cannot enter into universal to a common fund w/ the intention of dividing
partnership (See Art 187) the same among themselves, as well as the
profits them may acquire therewith (Arts
1778, 1779)

Exception: Property which the partners may At Will Partnership has an indifinite term and it wo
acquire subsequently by inheritance, legacy or dissolved only when an act or cause of disso
donation cannot be included, except the fruits happens or arises
thereof
— predicated on the mutual desire and con
2. All of the profits — all that the partners may the partners
acquire by their industry or work during the — designation of the purpose in the artic
existence of the partnership as well as the partnership does not prevent it from be
usufruct of all property which each of the partnership at will
partners may possess at the time of the — not the attendance of bad faith can preve
celebration of the contract (Art 1780) dissolution of the partnership but that it can
in a libility for damages (Ortega v CA)
Default rule in case articles of universal
partnership are entered into w/o specification of
its nature (Art 1781)

II. Kinds of Partners

Kinds of Partners

Managing Partner Who has been given the management of the partnership enterpris

Liquidating Partner Who takes charge of the liquidating and winding-up of partnershi
affairs

Retiring Partner Who ceases to be part of the partnership which is continued after
Particular (Default rule — Has for its object determinate things, their use or dissolution
see Lyons v Rosentock, 56 fruits, or a specific undertaking, or the exercise of
Phil 632, 1932) a profession or vocation (like joint Partner by Estoppel
venture Who is not a formal partner in an existing partnership, but his act
arrangement or professional partnership) led third parties dealing with the partnership to believe that he is
partner, and thereby becomes liable as a regular partner as to sucl
relying creditors

As to Duration w/ Fixed Term or


Category Kinds Nature Category Kinds Nature

As regards the General All partners are unlimitedly liable (Art 1816) Industrial Contributes only his industry or his service
Liability

Solidarily liable (Lim Tong Lim v Phil Fishing Gear — not liable for losses of the partnership venture
Industries Inc., 317 SCRA 728, 1999): — cannot engage in any other form of business
1. Where by a wrongful act or omission of any partner — not bound to make additional contributions to
acting in the ordinary course of the business of the partnership in case of an imminent loss of the bus
partnership or w/ the authority of his co-partners, of the partnership
loss or injury is caused to any person, not being a
partner, or any penalty is incurred, partnership is
liable to the same extent as the partner so acting or
omitting to act;

2. Where one partner acting within the scope of his


apparent authority receives money or property to the
third person and the money or property so received
is misapplied by any partner while it is in the
custody of the partnership — consistently
III. Whowith May
the Validly Become Partners
rules on the nature of civil liability in delicts and
quasi-delicts A. May Spouses Validly Enter into a Partnership Relation?

i. Spouses Cannot Enter into a Universal Partnership (Art 1782;


Arts 75, 76, 77, 87, 124, 145 Family Code)

General Rule: Whatever the regime of the property relations


prevails in the marriage, spouses are disqualified from entering into
any sort of universal partnership during the marriage

Effect, when parntership is entered into — contract of partnership


is void

Rationale: Universal Partnership is for all purposes a donation;


Partnership law under the Civil Code should be considered general
provisions and hence cannot overcome the more specific
provisions on the law on Marriages under the Family Code
Limited There is one or more general partner who are
unlimitedly liable, w/ one or more limited partners, who
are liable for partnership debts only to the extent of their
ii. Professional
stipulated contributions under the registered articles of Partnerships (Art 1783; Art 73, Family Code)
partnership
Spouses between themselves or together with other professionals
may enter validly into a contact of professional partnership — it
does not primarily bind actual community or conjugal propertuies,
and are not really pursued for profit but more for civic or vocational
Subsequent or Liability with respect to the partnership ends
obligations
and therefore does not address proprietary ends but rather the
Incoming which were incurred prior to his admission into theof profession, even in the parntership medium.
exercise
partnership shall be satisfied only out of partnership
property, unless it is otherwise stipulated
B. May Corporations Validly Qualify to Become Partners?

i. Jurisprudential Rule

As to the Nature Capitalist Contributes money and/or property to the partnership


General Rule: A corporation has no power to enter into a
of their
Contributions partnership — may expose the corp to any and various liabilities
— liable for the losses sustanined by theand
business
risksand
which cannot be evaluated and anticipated by the board
any stipulation to the contrary is void of directors
— may not engage in business or commercial
undertaking which is competing with that of the
Exception: May enter into a joint venture agreement where the
partnership debts
— bound to make additional contributions nature
to theof that venture is in line with the business authorized by its
charter (Tuason v Bolanos, 95 Phil 106, 109, 1954) — not the name
partnership in case of an imminent loss of the business
of the partnership or nomeclature given to the undertaking is controlling, but the very
nature or essence of the undertaking that limits it to a particular
project which allows the board od directors of the participating corp
to properly evaluate all the consequences and likely liabilities to
which the corp would be held liable for
Joint venture — essentially a partnership, although of a special General Rule: Special management arrangement do not mind or
type, since it pertains to a particular project or undertaking (Torres prejudice third parties who deal with the partnership business w/o
v CA, 278 SCRA 793, 1999) knowledge of such special arrangement.

ii. SEC Rules The public need not make inquiries as to the agreements had
between the partners. Its knowledge is enought that it is contracting
General Rule: A corp cannot enter into a contract of partnership with the partnership which is represented by one of the managing
with an individual or another corp — it would be bound by the acts partners (Litton v Holl & Ceron, 67 Phil 509, 1935)
of the persons who are not its duly appointed and authorized agents,
which is incosistent with the policy that the corp shall manage its The regular course of business procedure does not require that each
own affiars separately and exclusively time a third person contracts with one of the managing partners, he
should inquire as to the latter’s authority to do so, or that he should
Exceptions: Authority to enter into a partnership relation is first ascertain whether or not the other partners had given their
expressly conferred by the charter or the articles of incorporation consent thereto (Goquiolay v Sycip, 108 Phil 947, 957, 1960; See
of the corp, and the nature of the business venture to be undertaken Arts 129 and 130 of Code of Commerce)
by the partnership is in line with the business authorized by the
charter of the corp involved — general or limited partnership C. Transaction Not in the Ordinary Course of Partnership
Business (Art 1818)
CHAPERT VII — RIGHTS, POWER AND AUTHORITY
OF PARTNERS Not apparently for the carrying on of the business of the partnership
in the usual way:
I. Property Rights of Every Partner (Art 1810)
1. Assigning of partnership property in trust for creditors or on
Three-Fold role of every partner: the assignee’s promis to pay the debts of the partnership;
1. Management power — right to participate; as an agent of the 2. Disposition of the goodwill of the business;
partnership and of the other partners; 3. Do any other act which would make it impossible to carry on
2. Co-ownership power — right to participate in specific the ordinary business of the partnership;
partnership property; 4. Confession of a judgment;
3. Equity interest — right to profits (and share the losses) 5. Entering into a compromise agreement or submitting to
arbitration a partnership claim or liability;
II. Partnership’s Right to Manage the Partnership (Arts 1801, 6. Renouncing a partnership claim
1803, 1820, 1821, 1822, 1823, 1824)
Note: Doctrine of apparent authority does not apply to the above
A. Default Rule enumeration, rather they require the concurrence of all the partners
who are collectively deemed to be the owners of the partnership
GR: Every partner has a right to manage and its business enterprise

On admissions and representations made by the partners — Art D. Specific Modifications on the Power of Management (Arts
1820 1800, 1801, 1802)
On notice received by partners — Art 1821
On torts committed by patners — Art 1822 Note: These are intramural rules that govern the realtionship between and among the
partners (and breach of which can bring a cause of action againt the breachng partners),
On the fraudulent acts of the partners — Art 1823/1824 and these do not bind nor apply to invalidate the contract and transacations had w/
third parties acting in good faith and under the doctrine of apparent authority (Art
Doctrine of Apparent Authority (Art 1818) — a presumption exist 1818)
that each partner is an authorized agent for the partnership and that
he has authority to bind it in all that is apparently for the carrying Managing Partner Appointed in the Articles of Partnership — may
on of the business of the partnership in the usual way (Muñasque v execute all acts of administration despite opposition of his partners
CA, 139 SCRA 533, 1985) and his power is irrevocable

Old Ruling (Council of Red Men v Veterans Army) — specific provisions Exception to the Irrevocability: when based on just or lawful
in the articles in the partnership is binding inter se among the partners cause and vote of partners representing the controlling interest
and also binding on the public or at least on every person dealing with shall be necessary
the partnership
Designated Managing Partner After Partnership has been
Overturning the Council of Red Men — contract of partnership and the
arising of the partnership juridical person as being merely consensual Constituted — designation is revocable any time
w/ no specific formalities being required in general; thus, even when the
articles of partnership has been formally executed and registered with W/o specification of respective duties, or w/o stipulation that one
the SEC, the same is not considered a public document binding on the of them shall not act w/o the consent of all the others — each one
public; it does not prejudice the rights of a third party who deals in good of partners entrusted with the managemnet of the partnership
faith w/ the partners w/o actual knowledge of the contents of the articles affairs may separately execute all acts of administration
of partnership
Exception: If any of them should oppose the acts of the others,
B. Effect of Internal and Non-Public Arrangement of decision of majority shall prevail (in case of a tie, decision of
Partnership Arrangement the partners owning the controlling interest)
Stipulation that none of the managing partners shall act w/o the
consent of the others — concurrence of all shall be necessary for 4. Where title is in the Name of All of the Partners
the validity of the acts, and absence or disability of any one of them
canno be alleged — conveyance executed by all the partners in whose ever name so
coveyed passes all their rights in such property
Exception: there is imminent danger of grave or irreparable
injury to the partnership III. Partner’s Right to Specific Partnership Property (Art
1807, 1811)
E. Specific Rules on Dealings with Immovable Properties of
the Partnership (Arts 1774, 1803, 1818(1), 1819) A. Partner’s Specific Right to Partnership Property Limited to
Pursuing the Partnership Business

Immovable property or an interest therein may be acquired in the Right of every partner in specific partnership property is merely an
partnership name — can be conveyed only in the partnership name extension of his right to participate in the management of the
(but partnership title is not rendered void if the registration thereof partnership affairs, and bears no proprietary title to himself
is not in the name of the partnership, but in 1 or more, or all, of the personally apart from pursuing the partnership affairs
partner’s name, or for that matter in the name of a third-party who
holds it in trust for the partnership) They hold naked title to the partnership properties, w/ full poer to
manage and control the same for the benefit of the partnership
Alteration in the immovable property of the partnership — none of venture
the partners may do so w/o the consent of the others even if it may
be useful to the partnership Redemption of partnership real proeprty by any of the partners,
even when using his separate funds, does not allow such
Exception: When refusal of consent by other partners is redemption to be in his sole favor. Under the general principle of
manifestly prejudicial to the interest of the partnership, court’s law, a partner is an agent of the partnership. And every partner
intervention may be sought becomes a trustee for his co-partner w/ regard to any benefits or
profits derived from his act as a partner, subject to his right to
Rules on How Partners May Bind Real Parties Pertaining to the demand contribution to the amount of redemption (Catalan v
Partnership: Gatchalian, 105 Phil 1270, 1271, 1959)
1. Where titile is in the Partnership Name:
General Rule: Partner’s right in specific partnership property is not
— any partner may convey title to such property by a converance assignable
in the partnership name
— partnership may recover such property only when the partner so Reasons:
1. It would effectively allow a third party to paticipate in the affairs of the
conveying has no such authority to so convey BUT not against a partnership;
transferee in good faith and for value 2. It would interfere with the rights of the other partners and partnership
— partner who conveys the property in his name passess the creditors to the payment of partnership debts
equitable interest of the partnership only when the partner so 3. It would indirectly go against Arts 1811(3) and 1811(4)
conveying acted w/ authority, otherwise no title to the immovable
property passes to the transferee (See Art 1774) Exception: When in connection with the assignment of rights of all
the partners in the same property

2. Where titile is Not in the Partnership Name (rather in the name B. Partner’s Contributed Property to the Partnership Can be
of 1 or more, or all partners or third person in trust for the Dealth With Only for Partnership Purposes
partnership):
Once a specific property is contributed, it no longer is subject to
— coveyance executed by a partner in the partnership name or in the sole will and discretion of the contributing partner who ceases
his own name does not pass anyting, not even equitable interest of to be the sole owner thereof — they would belong to the partnership
the partnership, when the partner coveying acting w/o authority as a separate juridical personality, even when the partnership
ceased to be operation (Clemente v Galvan, 67 Phil 565, 1939;
3. Where title is in the Name of One or More But Not All the Lozana v Depakakibo, 107 Phil 728, 732, 1960)
Partners
IV. Equity Rights of Partners (Arts 1812, 1813, 1814. 1827)
When records disclose the partnership interests:
— the partners in whose name the title stands may convey title to Partner’s interest or his equity position in the partnership — his
scuh property; and share of the profit and surplus
— the partnership may recover only when the partners so coveying
acting w/o authority but not against purchaser in good faith and for Profits: excess of receipts over expenses or the excess of the value
value of returns over the value of advances
Surplus: excess of assets over liabilites
When the records do not disclose the right of the partnership:
— the partners in whose name the title stands may convey title to A. Assignment of a Partner’s Equity Right
such property; and
— the partnership may recover against any transferee when the Party’s equity interest — a present, existing, and not mere
partners so coveyng acted w/o authority contingent, right
General Rule: transferable or assignable, but:
1. It does not make the transferee or assignee step into the shoes Rule When Partners Entrusted to a Third Person the Designation
of the partners in his personal capacity in relation to the other of Profits and Losses, Designation may be impugned only:
partners; 1. When it is manifestly equitable; and
2. It does not dissolve the partnership; 2. In no case may a partnership who has begun to execute the
3. What is conveyed is sole right to receive profits and surplus decision of third person; or
assets to which the assigning partner would otherwise be 3. Who has not impugned the same within 3 months from the time
entitled; he had knowledge thereof complain of such decision.
4. In the absence of agreement of the partners, assignee cannot
interfere in the management or administration of the C. No Guarantee As to Profits
partnership affairs, nor to require any information or account
of partnership transactions, nor to inspect the partnership Any stipulation guaranteeing to a partner the receipt of profits
books; but would be against public polic since it would exempt such partner
5. In case of fraud in the management of partnership, the from participating in losses;
transferee or assignee may avail the usual remedies afforded to
a partner In the absence of fraud, the partner cannot claim a right to recover
the highly speculative profits assured by one of the partners to him;
Exception: Partners may agree that one of them cannot sell or
assign his interest w/o the consent of the other or others (Chaiken Provision in the articles of partnership giving the partner a montly
v ECC, 274 A.2d 707, 1971; Pokryzwnicki v Kozak, 47 A.2d 144, commission could not enforced if they were guaranteed beyond the
1946) point of profitability (Moran v CA, 133 SCRA 88, 95, 1984)

Preference: D. When the Right to Profits Accrues


Partnership creditors — have preference over the personal creditors
of the partners with regard to the partnership property Right to share in the Profit — refers to ‘net profit’ which means
only when there has been a proper accounting of the income and
Remedy of the Personal Creditor: expenses pertaining to the business
— apply to the court to charge the partner’s equity interests for the
payment of his share in the profits or any other money due from the Exception: Outside of dissolution and liquidation proceedings and
partnership (Art 1814) Stipulation on periodic distribution of profits under the articles of
— such interest charges may be redeemed at any time before partnership
foreclosure by the other partners or by the partnership itself
Receipt by a partner of his partnership contribution and no
B. Right to Participate in Profits and Obligation to Share in indication of termination of partnership or a withdrawal therefrom
Losses (Arts 1797, 1798, 1799) — does not extinguish the right of receiving partner to the profits
earned by the partnership or his right to accounting; remaining
One who merely participate in the sharing of gross returns of an interest in the partnership can be determined upon final liquidation
enterprise (Art 1769-3) — does not necessarily mean that he is an (Fernandex v Dela Rosa)
equity holder for he does not expose himself to the expenses and
losses of the business Where there has been accounting and liquidation and partners
received such accounting w/o objecting including receipt of their
One who shares in the net profits (Art 1769-4) — prima facie share in the profits — no longer entitled to demand further
evidence that he is a partner in the business, if such participation is liquidation unless he is able to prove there there has been fraud,
not linked to some other clear contractual arrangement deceit, error or mistake in giving such approval (Ornum v Lasala,
74 Phil 242, 1943)
A stipulation in the contract of partnership which excludes one or
more of the partners from any share in the profits or lossess — void When partnership book of account are kept by a partner in his
but partnership arrangement remains subsisting custody — he is bound by the entries in such book (Behn Meyer &
Co v Rosatzin, 5 Phil 660, 1906; Garrido v Asencio, 10 Phil 691,
Rules governing the Distribution of Profts and Losses in the 1908)
partnership:
1. Profits and losses shall be distributed in conformity w/ the V. Other Rights of a Partner
agreement between partners;
2. When only the shares of each partner has been agreed upon, 1. Right to be Reimbursed for Expenses Incurred on Behalf
the share in the losses shall be in the same proportion; of the Partnership (Art 1796, 1912) — expenses and for the
3. In the absence of agreement, the share of each partner in the corresponding interest from the time the expenses are made
profits and losses shall be in proportionn to what he may have 2. Right to Inspect (Art 1805) — every partner shall at any
contributed. reasonable hour have access to and may inspect and copy any
of the partnership books
Rule for Industrial Partner: 3. Right to Demand True and Full Information (Art 1806) —
1. Not liable for the losses; every partner or his legal representative may demand true and
2. He shall receive share of the profits as may be just and full information from other partners of all things affecting
equitable under the circumstances; partnership
3. If he contributed also capital, he shall also receive share in the 4. Right to Demand Accounting (Art 1807, 1809) — a partner’s
profits in proportion to his capital right to accounting exists as long as the partnership exists, and
that prescirption begis to run only upon the dissolution of the B. When Promised Contribution is Property — In General
partnership and final accounting is done (Fue Leung v IAC, (Arts 1786, 1795)
169 SCRA 746, 1989); accounting for partnership properties
that are in the custody or control of the other partners shall Contribution of a Specific or determinate thing — partner assumes
apply only when there is proof tha such properties, registered the obligation of being a seller of determinate property contributed
in the individual names of the partners; have been acquired into the partnership in that he is liable for:
from the use of the partnership funds (Lim Tanhu v Remolete, 1. A breach of the warranty against eviction;
66 SCRA 425, 477, 1975) 2. The fruits from the time he was obliged to deliver the
5. Righ to Dissolve Partnership (Art 1830-2) — in consonance determinate thing, and w/o need of demand
w/ the doctrine of delectus personae that establishes a fiduciary
relationship between and among the partners (See Chapter IX) Who Assumes the Rish of Specific and Determinate Things
Contributed:
VI. Obligation of the Partnership to Third Parties (Art 1768, 1. If not funjible so That only their use and fruits may be for the
1815, 1818, 1796) common benefit — risk shall be borne by the partner who owns
them;
1. Libaility Arising from the Firm Name — those not being a 2. If fungible or cannot be kept w/o deteriorating or contributed
member of the partneship include their names in the firm name to be sold — risk shall be borne by the partnership;
shall be subject to the liability of a partner 3. If things brought and appraised in the invetory — risk shall be
borne by the partnership in the absence of stipulation, and in
Firm Name (including name of members) — identifies the person such case the claim shall be limited to the value at which they
of the partnership; conclusive presumption to the public who deals were appraised
in good faith with the firm that he is a partner thereto
Who Assumes Risk of loss of Determinate Things Promised to be
2. Liability Arising from the Acts of the Agent (Art 1818) — Contributed but Prior to Actual Delivery — partner who owns it
default rule would be referring to every partner (mutual agent) and consequently, it dissolves the partnership

A third party who knows of the lack of authority of the partner C. When Contribution in Goods (Art 1787)
acting in a partnership transactions generally has no claim against
the partnership Goods — appraisal must be made in the manner prescribed in the
contract of partnership, and in the absence of stipulation, it shall be
CHAPTER VIII — DUTIES AND OBLIGATIONS OF made by experts chosen by the partners, and according to the
PARTNERS current prices, the subsequent changes thereof being for the account
of the partnership
I. Obligation to Contribute to the Common Fund (Arts 1786,
1790, 1788, 1790, 1830-4) Reason: To ensure that the capital amount of a partner is properly
credited w/ the correct value of a property contributed
Rule: Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto D. When Contribution in Real Property (Arts 1773, 1771,
1772, 1789, 1797)
Reason — the promise or obligation to contribute to the common
fund is of the essence of the contract of partnership and binds the When inventory is not made, signed by parties and attached to
partners to one another as the very privity of their relationship, and public intstrument (and filed w/ the SEC because it would always
breach of which would break the contractual bond (delectus mean a capital of more than 3, 0000 — contract of partnership is
personae) void

Remedy available to the partnership and other partners in case of E. Contribution of Industry; Industrial Partner (Arts 1789,
failure or refusal to comply with contribution — interest and 1797)
damages including compensatory damages (not speculative
though) constituting his shares of the profits that were not realized Rule: An industrial partner who does not contribute the services
but which clearly could have been earned for the company (Uy v promised cannot be compelled to do so because essentially
Puzon, 79 SCRA 598, 1977; Moran v CA, 133 SCRA 88, 1986); involves a personal obligation to do and would violate the public
Or in addition to when there is no desire to dissolve partnership, policy against involuntary servitude
remedy to other partners is specific performance, not rescission
Consequence of Non-compliance — he can be made liable for
A. When Promised Constribution is a Sum of Money (Art damages sustained by the partnership business for such failure; and
1788) as for profits, he shall receive such share as may be just and
equitable (no share?!)
When the sum of money is not given — becomes a debtor for the
interest and damages including loss opportunity to have been Non-Industrial Partner — also contribute their servicese for which
sustained by reason of failure to do so from the time he should have they do not obtain a compensation therefor, unless otherwise
complied w/ his obligation stipulated

Interest — rate stipulated or in default thereof, the legal interest F. Remedies When There is Default in Obligation to
Contribute
Rescission — NOT available because this refers to resolution of a partner but liability shall be satisfied only out of the partnership
obligations in general and Arts 1786 and 1788 specifically refer to property
contract of partnership; special provisions prevail over general
provisions (Sancho v Lizarraga, 55 Phil 601, 1931) Exception: A stipulation to the contrary

Correct Remedies: C. Obligations of Non-Partners for Partnership Debts (Arts


1. Seek a Collection of the Promised Contribution w/ recovery of 1815, 1825,
interest and damages;
2. Seek the dissolution of the partnership — has a prospective Instrance When Non-Partners Become Liable for Partnership debts
effect because partnership is a preparatory and progressive and Obligations:
contract which changes the nature and content of things that 1. Estoppel; or
have been contributed thereto, such that it becomes nearly 2. Public is made to believe that one person is a partner of the
impossible to return the parties back to their original position; partnership when in fact he is not
also because once a partner gives a contribution, he loses
ownership over said property and it is integrated to the III. Fiduciary Duties of Partners
partnership business; By application of the TRUST FUND
Doctrine, partnership creditors shall first have priority over the General Rule: Partners have the duty to act for the common benefit
partnership creditors before any partner can be entitled to of all the partners in a partnership setting
recover from the net assets
After the termination (as distinguished from mere dissolution) of
G. Obligation for Additional Contribution (Art 1791) the partnership, each of the parties is free to act in his own interest
provided he has done nothing during the continuance of the relation
General Rule: No obligation for any partner to contribute beyond to lay a foundation for an undue advantage to himself (Hanlon v
what was originally stipulated in the articles of partnership Haussermann, 40 Phil 796, 1920)

In case of imminent loss of the business of the partnership Former partners have no obligation to account for how they
— partner cannot be compelled to give additional acquired properties in their names, when such acquisition were
contribution to the capital effected long after the partnership had been automatically
dissolved as a result of the death of the primary managing partner
Consequence — The partner refusing to contribute shall be (Lim Tanhu v Ramolete, 66 SCRA 425, 476, 1975)
obliged to sell his interest to the other partners
1. Duty of Diligence (Arts 1794, 1800)
Not Covered: Industrial Partner (Not obliged in any way)
Every partner — responsible to the partnership for damages
Exception: Stipulation providing for additional contributions suffered by it through his fault, and he cannot compensate them w/
the profits and benefits which he may have earned for the
II. Personal Obligation for Partnership Debts (Doctrine of partnership by his industry
Unlimited Liability)
Courts — may equitably lessen this responsibility if through the
A. Unlimited Liability of Existing Partners (Arts 1816, 1817) partner’s extraordinary efforts in other activities of the partnership,
unusual profits have been realized
Existing Partners (including industrial partner) — personally liable
for partnership debts, notwithstanding the separate juridical entity Duly Designated Managing Partner:
of the partnership 1. When he acts in bad faith — his particular exercise of power
administration may effectively be opposed by the other
Triggering Effect — Only if the partnership is insolvent (but not partners;
necessarily would trigger its dissolution, partner may have pursued 2. When he acts w/o just or lawful cause — his power may be
in the hope that there may still be a turnaround) revoked except when he has been appointed the managing
partner under the terms of the articles of partnership
Extent of Liability — pro rate with all their property and after all
the partnership assets have been exhausted (for contracts which 2. Duty of Loyalty (Arts 1789, 1792, 1252, 1793)
may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act i. Partner collecting of Demandable Sum
for partnership)
General Rule: When a partner authorized to manage collects a
Liability = Joint (not based proportionately in relation demandable sum which was owed to him in his own name, but from
to their contributions in the partnership) a person who owed the partnership another sum also demandable
— sum collected shall be applied to the two credits (but should the
Stipulation against liability — void, except as among the partners partner have given it for the account of the partnership credit, the
amount shall be fully applied for the account of the partnership)
B. Obligation of Subsequently Admitted Partners (Art 1826)
Exception: right of the debtor to stipulate the application of
General Rule: Limited Liability — liable for all the obligations of payment but only if the personal credit of the partner should be
the partnership arising before his admission as though he had been more onerous to him
ii. Partner Receiving in Whole or in Part his share of a partnership
credit, When the other Partners have not Collected theirs I. Introduction and Definition of Terms (Arts 1828, 1829)

He shall be obliged to bring to the partnership capital what he First Step: Dissolution — change in the relation of the partners
received even though he may have given a receipt for his share caused by any partner ceasing to be associated in the carrying on;
only, IF the debtor should thereafter become insolvent likened to the terms ‘rescission’ and ‘extinguishment’ of contract
in the law on Contracts
3. Duty to Account (Arts 1806, 1807, 1831)
Second Step: Winding-Up — the process which ic commenced by
Partners — obliged to render a full accounting on matters they the dissolution of the contract of partnership between and among
undertake for the partnership affairs and are prohibited from the partners, and is concluded upon termination or complete
obtaining secret benefits for themselves liquidation of the partnership affairs

To Whom — to any partner or the legal representative of any Third Step: Termination — the point in time after all the
deceased partner or of any partner under disability partnership affairs (like completion of pending contracts, payment
of all obligations and distribution, of the net assets of the
Profits Derived by a Partner from Partnership Affairs or from any partnership to the partners) have been wound up
use by him of its property— the partner holds as trustee for it any
profits derived w/o consent of the other partners; may recover the Note: Dissolution does not necessarily give rise to winding-up or termination, as the
dissolution of existing partnership contract may lead to the constitution of a new
same and/or seek dissolution of the partnership (See Art 1831) partnership contract among the partners who choose to proceed w/ the partnership
business
4. Specific Fiduciary Duties of Industrial Partner (Art 1789)
II. Dissolution
General Rule: Prohibited from engaging in business for himself
(even when it is different line of business not in competition w/ that A. Causes of Dissolution (Arts 1830, 1831)
of the partnership) or an activity that is essentially for profit (but
not prohibited if the activity is non-business in character — 1. Dissolution Ipso Jure WITHOUT Court Decree
Evangelista v Abad Santos, 51 SCRA 416, 197)
Note: In relation to terms linked to principles of obligatory force and relativity
Reason: to prevent conflict of interest and ensure faithful pertaining to contracts, namely, the remedy of rescission, breach of contract and
happening of resolutory condition or term, and other modes of extinguishment of
compliance by said partner w/ his prestation (Evangelista v Abad contracts
Santos)
a. Dissolution effected w/o violation of the partnership
Exception: Partnership expressly permits him to do so agreement:

In case of Breach of the Prohibition: Capitalist partners may either: Note: There is no breach or contravention of the partnership agreement and the
1. Exclude him from the firm (w/ a right to damages); or dissolution of the partnership does not give rise to a liability for damages for breach
of contract.
2. Avail themselves of the benefits which the industrial partner
may have obtained in violation of such duty (w/ right to
i. Termination of the term of partnernship — qualified from
damages)
participating in the winding-up of the affairs of the
partnership there being no partner at fault;
Even when an Industrial partner fails to live-up to the commitment
ii. Termination of the specific undertaking for which the
service he obliged himself, the matter must be raised within a
partnership was constituted — qualified from participating
reasonable period by the other partners as the basis for the remedies
in the winding-up of the affairs of the partnership there
of exclusion or forfeiture of benefits, otherwise such grounds are
being no partner at fault;
deemed waived by reason of estoppel by laches (Evanglista v Abad
iii. In a partnership will, dissolution effected by the will of any
Santos)
partner exercised in good faith — qualified from
participating in the winding-up of the affairs of the
5. Specific Duty of Loyalty of Capitalist Partners (Art 1808)
partnership there being no partner at fault;
iv. By mutual withrawal by all the partners — qualified from
General Rule: Capitalist partners cannot engage for their own
participating in the winding-up of the affairs of the
account in any operation which is of the kind of business in which
partnership there being no partner at fault;
the partnership is engaged
v. Expulsion of a partner bona fide under powers granted in the
partnership agreement — in accordance with exercising an
Exception: A stipulation to the contrary
extrajudicial right to rescind or cancel a contract, and is not
a breach; partner was expelled for cause, and he would be
In case of Breach of the prohibition — capitalist partner shall bring
disqualified from participating in the winding-up
to the coomon funds any profits accruing to him from his
transactions, and shall personally bear all the losses LEGAL EFFECT AMONG THE PARTNERS INTER SE:
General Rule:
CHAPTER IX — DISSOLUTION, WINDING- UP AND — each partner may have as against his co-partners and all persons
TERMINATION claiming through them in respect of their interest in the partnership,
the partnership property applied to discharge its liability; AND
RULE: There is no legal remedy allowed to the other partners to compel the — the surplus applied to pay in cash the net amount owing to the
withdrawing partner to remain w/ the partnership agreement within the remaining term respective partners;
provided in its articles of partnership
Exception: agreement to the contrary ascertaining the value of the partner’s interest the value of the
goodwill of the business shall not be considered.
— every partner has a right to insist upon the winding-down of
partnership affairs c. Dissolution caused by force majeure or outside the will of the
— remaining partners have no option to continue the partnership
business enterprise when the ‘withdrawing partner’ insist on the partners:
winding-up the partnership affairs (OTHER OPTION? Settlement of
the liquidation of the withdrawing partner’s equity interests in the Note: Force majeure excuses a contracting party from his obligations, and would
partnership, if the withdrawing partner agrees) not make him liable for damages for the occasion does not constitute a breach
of contract
AS FOR Dissolution caused by the Bona Fide Expulsion of a Parter:
— If the expelled partner is discharged from all partnership liabilities i. Loss of the specific thing promised to be contributed —
either by payment or express agreement between himself, creditor and whether receiving back by a partner of his contribution to the
reamining partners, such expelled partner shall receive cash only the partnership amount to have effected dissolution thereof, see
net amount due him from the partnership
— expelled partner is w/o power to insist upon the formal winding-up Fernandez v Dela Rosa, 1 Phil 671, 1902);
and liquidation of the partnership business ii. Partnership business becoming unlawful;
— the choice to continue with the business or formally wind-up and iii. death, insolvency or civil interdiction of any partner;
terminate partnership is w/ the remaining partners iv. Insolvency of the partnership

b. Dissolution effected in contravention of the partnership 2. Dissolution Effected Through a Court Decree
agreement, effected by the will of any partner:
Note: Intevention of the Court is required to establish the factual basis of the breach
Note: Partner seeking the dissolution would be liable for damages, and he is w/o a of contract, or the radical change of the circumstances that had bound the partners
right to continue to pursue the partnership business together into the contract of partnership

i. When partnership term has not expired; a. When a partner has been judicially declared insane or is shown
ii. When particular undertaking for which the partnership has to be of unsound mind — requires a formal petition in court for
been constituted has not yet terminated; the dissolution, otherwise, partnership remains unaffected by
iii. At any time, in a partnership at will, when effected in bad the judicial declaration of insanity of a partner (WHY? Insane
faith — breach of contract for which he becomes personally partner still has an estate that has a right to benefit from the
liable for damages, and for which he losses the right to wind- properties and rights to which a partner is entitiled to); but
up its affairs insanity would render the partner w/o legal capacity to
iv. Expulsion of a partner effected in bad faith — the partner contract;
excluded wrongfully from a partnership is an innocent b. When a partner becomes incapacitated in performing the
partner and the guilty partner must give him his due upo the partnership contract — same with letter ‘a’;
dissolutin of the partnership as well as damages or share in c. When a partner is guilty of such conduct as tends to affect
the profits realized from the appropriation of the partnership prejudicially the carrying on of the partnership business —
business and goodwill. The innocent partner possesses primary rationale for partnership agreement is to operate a
pecuniary interest in every existing contract that was business venture for the benefit of all the partners;
incomplete and in the trade name of the co-partnership and d. When a partner willfully or persistently commits a breach of
assets at the time he was wrongfully expelled (Tocao v CA, the partnership agreement, or otherwise so conducts himself in
342 SCRA 20, 2000) matters relating to the partnership business that it is not
reasonably practicable to carry on the business in the
LEGAL EFFECT AMONG THE PARTNERS INTER SE: partnership with him — same with letter ‘d’;
When dissolution is caused in contravention of the Partnership e. When partnership business can only be carried on at a loss —
Agreement:
— No formal breach of contract and the rights or liabilities of the
it is considered lawful for the managing partner to close down
partners are as follows: a partnership venture when the prospects were that it would
1. Each partner who has not caused the dissolution wrongfully shall only sustain losses (Moran v CA); same with letter ‘d’
have the right — to participate in the net assets of the partnership f. Other circumstances that render dissolution equitable — same
after discharge of all partnership liabilites; to damages for breach with letter ‘d’;
of agreement, as against partner who wrongfully caused the
dissolution;
g. On the application of the purchaser (or assignee) of partner’s
2. The partners who have not wrongfully caused the dissolution, if interest in the partnership:
they so desire — continue the business in the same name either by (i) After termination of specified term of the partnership;
themselves or jointly w/ others, during the rest of the agreed term (ii) After termination of the particular undertaking for which
for the partnership; and for that purpos e may possess the the partnership was constituted;
partnership proeprty, provided they secure the payment by bond
approved by the court, or pay to any partner who has caused the
(iii) At any time, in a partnership will
dissolution wrongfully, the value of his interest in the partnership
at the dissolution, less any damages for breach of the agreement B. Legal Effects of Dissolution — In General (Arts 1825, 1832,
and indemnify him against all present or future partnership 1833, 1834, 1845, 1836, 1837, 1838)
liabilities;
3. A partner who has wrongfully caused the dissolution shall only
have — (if the business is not continued), all the rights of a partner
1. Effect of dissolution on the Partnership contract and the
for share in the net assets of the partnership after payment of all juridical personality
its liabilites, subject to liability for damages incurred due to such
wrongful dissolution; (If the business is continued), the right as Dissoution stage — contract of partnership reamins but only in the
against his co-partner and all claiming through them in respect of conceppt of an association to pursue liquidation process
their partnership interest, less any damage caused to his co-
partners by the dissolution, ascertained and paid to him in cash, or
the payment secured by bond approved by the court, and to be
released from all existing liabilities of the partnership BUT in
Direct effect of Dissolution — extinguishes the right and power of
the partners to represent one another to pursue the partnership as a D. Effects of Dissolution on Partnership Liabilities Contracted
going concern or Incurred After Dissolution

Exception: In so far as may be necessary to wind up (A) Liabilites incurred to Wind-up Partnership (Arts 1829, 1832,
partnership affairs or existing contracts begun but not 1834-1)
finished
— Until the winding-up of the partnership affairs is completed,
2. Effect on the Partnership Business Enterprise partnership is not terminated on dissolution
— partner authorized to wind-up partnership affairs has full
The force of the original contract of partnership between them as authority to enter into any contract or transaction that is consistent
to being mutual agents, as well as the enforceability of the doctrine with the winding up (valid and binding upon the partnership and
of delectus personae are terminated, w/o prejudice to a new the partners)
partnership arrangement being constituted among the remaining
partners When Partnership Not Bound Even for Winding-Up Liabilities

Business Enterprise — cease to exist as ‘a going concern’ but only Partnership is not bound by any act of a partner after dissolution
if the partners remaining do not wish to continue the business, where the partner has no authority to wind-up partnership affairs
whenever they are entitiled under the law the option to continue
Exception: Except by a transaction with one who:
3. Effects on Contracts Entered Into with Third Parties 1. Had extended credit to the partnership prior to dissolution and
had no knowledge or notice of the acting partner’s want of
All contracts entered into with third parties who deal in good faith authority; or
w/ the partnership venture are not void
— actual knowledge or notice of dissolution would place him in
4. Effect on Determining Liability of Partners for Damages to bad faith
One Another
2. Had not extended credit to the partnership prior to dissolution,
Entitlement of a Partner for Damages — a liquidation of the and, having no knowledge or notice of his want of authority,
partnership business must be made first to the end that the profit the fact of his want of authority has not been advertised in a
and losses may be known and the causes of the latter and the newspaper of general circulation in the place at which
responsibility of the partners as well as the damages which each partnership was regulary carried on
partner may have suffered may be determined (Soncuya v De Luna,
67 Phil 646, 1939) — mere notice of dissolution published in a newspaper would
transform him into a third party acting in bad faith
5. When Dissolution Caused by Rescission of the Partnership
Agreement Due to Fraud or Misrepresentation (like by judicial (B) Liabilities Incurred Constituting New Business During the
decree) Winding-up Process (Art 1832)

Party entitiled to rescind or seek the dissolution of the partnership General Rule: every liability incurred in the name of the partnership
shall be entitiled: as ‘new business’ is done w/o lawful authority, and is non-binding
i. To a lien on, or right of retention of, the surplus of the on the partnership and other partners
partnership property after satisfying the partnership liabilities
for any sum of money paid by him for the purchase of an — liability incurred by the acting partner shall be for his sole
interest in the partnership and for any capital or advances account
contributed by him;
ii. To stand, after all liabilites to third persons have been satisfied, Requisite: Acting partner acts with knowledge of the fact of the
in the place of the creditors of the partnership for any payment dissolution of the partnership
made by him in respect of the partnership liabilities; and
iii. To be indemnified by the person guilty of fraud or making the Exception: A partner acting in good faith in behalf of the
representation against all debts and liabilites of the partnership partnership after dissolution binds the partnership

C. Effects of Dissolution on Partnership Liabilities Existing or When Dissolution is By the Act, Insolvency, or Death of a Partner
Accrued at the Time (AID)

General Rule: Dissolutionof the partnership does not of itself Acting partner who acts w/o knowledge of the AID of another
discharge the existing liability of any of the partners partners (w/o knowledge of the dissolution by such) — legally bind
the partners to any liability created for the partnership as if the
Deceased partner — his individual property shall be liable for all partnership had not been dissolved
obligations of the partnershipincurred while he was a partner, but
subject to prior payment of his separate debts effect, when acting partner knew of the dissolution — solely liable
for the liability entered into in behalf of the partnership
Exception: By an agreement to that effect between himself,
partnership creditor, and the person or partnership continuing the When Dissolution is NOT by Act, Insolvency, or Death of a
business (Art 1835) Partner (AID)
a. The partners who have not wrongfully dissolved the
Dissolution other than AID — knowledge of the fact of dissolution partnership or the legal representative of the last surviving
is presumed to have reached every partner and therefore, as partner, but not insolvent;
between and among them, a partner incurs a liability in the name b. However, any partner or his legal representative or
of partnership is deemed to be acting w/o aithority or in bad faith assignee, upon cause shown, may obtain winding-uo by
/solely liable the courts.

As to Third Party Creditors B. Rules and Procedures for Winding-Up and Liquidation of
Partnership Affairs (Art 1839)
Whatever the cause of the dissolution — contract or transaction
entered into by and between third party in good faith and the What constitutes Partnership property?
partnership through any of the partners is valid and binding against 1. Partnership property;
the partnership 2. Contributions of the partners necessary for the payment of all
the liabilities of the partnership
Particular Rule of ‘Limited Liability’ — liability of a partner
incurred with third parties who act in good faith is limited and shall Priority Rules Against Partnership Property (In order):
be satisfied out of the partnership assets alone when such partner 1. Those owing to creditors other than partners;
had been prior to dissolution: 2. Those owing to partners other than for capital and profits;
3. Those owing to partners in respect of capital;
1. Unknown as a partner to the person with whom the contract is 4. Those owing to partners in respect of profits.
made; and
2. So far unknown and inactive in partnership affairs that the Enforcing Contributions from Partners to Cover Partnership
business reputation of the partnership could not be said to have Debts
been in any degree due to his connection with.

When Creditors Not Deemed to be in Good Faith — third parties


enter into a ‘new business’ or transaction w/ the partnership w/o Priority Rules Between Partner’s Creditors and Partnership
actual knowledge or notice of the fact of its dissolution still will not Creditors
be considered to be third party acting in good faith, and partnership
is not bound by any act of the partner after dissolution: Priority Rules When Partner is Insolvent
1. Where the partnership is dissolved because it is unlawful to
carry on the business, unless the act is appropriate for winding Partner May Demand Share in Net Assets Only After Settlement
up partnership affairs; of Claims of Partnership Creditors
2. Where the acting partner has become insolvent
CHAPTER X — LIMITED PARTNERSHIPS
Particular Rule on Partner by Estoppel — Liability of ANY person
who after dissolution represents himself or consents to another I. Essence of the Medium of Limited Partnership (Art 1843)
representing him as a partner in a partnership engaged in carrying
on business, shall be: Limited Partnership — one formed by 2 or more persons, having
1. Liable to any such persons to whom such representation has as members one or more general partner and one or more limited
been made, who has, on the faith of such representation, given partners
credit to the actual or apparent partnership; And
2. If he has made such representation or consented to its being Limited liability — not bound by the obligations of the partnership;
made in a public manner, he is liable to such person whether partners do assume liability pertaining to contributions and
the representation has or has not been made or communicated partnerships assets (see Art 1858)
to such person so giving the credit or the knowldge of the
latter: Form — no limited partnership is constituted unless the formalities
i. When a partnership liability results, he is liable as though provided under the law are complied with; failure to comply with
he were an actual member of the partnership; the formalities only brings about the creation of a general
ii. When no partnership liability results, he is liable pro rata partnership
with the other persons, if any, so consenting to the
contract or representation as to incur liability, otherwise II. Key features of a Partnerships Not Present in a Limited
separately (Art 1826) Partnership

(C) Liabilites incurred when the partnership enterprise has been Mutual agency
continued and no winding-up process have been pursued Delectus personae
Right to manage partnership affairs
III. Winding-Up of Partnership Affairs
III. Requirements for the Formation of a Limited Partnership
A. Who has Authority to Wind-Up? (Art 1836) (Art 1844)

1. If there is an agreement on this matter, it is the partner or Reason: to acquaint third persons dealing with the partnership with
partners so provided to have such authority; the essential features of the partnership arrangement
2. In the absence of such agreement:
1. Sign and swear to a certificate of limited partnership which
shall contain provisions describing or designating the:

Note: Limited partners cannot claim the benefits of limited


liability unless they find themselves expressly classified as such
in the duly filed and registered Certificate (Chung Chang v Pacific
Commercial Co., 45 Phil, 142, 1923)

i. Partnership name, adding thereto ‘limited’


ii. Character of the business;
iii. Principal place of business;
iv. Term of existence;
v. Name and residence of each of the partners, w/ clear
designation of who are the general and limited
partner; and the right, if given, of partners to admit
additional limited partners;
vi. Contributions to the partnership, and the terms under
which additional contribution are to be made by the
limited partners;
vii. Right, if given, of a limited partner to substitute an
assignee in his place;
viii. time, if agreed upon, when the contributions of
limited partners shall be returned, and the right, if
given, to demand and receive property other than cash
in return for such contributions;
ix. share of the profits or the other compensation by way
of income which each limited partner shall receive by
reason of his contribution, and the right, if given, of
one or more of the limited partners to priority over
other limited partners;
x. right, if given, of the remaining general partner or
partners to continue the business on the death,
retirement, civil interdiction, insanity or insolvency of
a general partner;

‘if given’ — the right alluded to does not exist if not expressly
provided for in the Certificate of Limited Partnership or by another
provision of the Civil Code

2. File such certificate with the SEC

— constitutes the

IV. Doctrine of Substantial Compliance

Doctrine of Substantial Compliance — a limited partnership is


formed if there has been substantial compliance in good faith with
the foregoing requirements

Q: Which of the enumerated contents of the Certificate are a must


to reach the level of substantial compliance?