business organization i 1st exam

BUSINESS ORGANIZATION 1 - TSN From the lectures of Atty. Cathy Guerzo-Barrion

Ateneo de Davao College of Law | Tres Manresa SY 2015 2016

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June 23, 2015 (AC)

CHAPTER 1: GENERAL PROVISIONS

Question: How do you define a general partnership?

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.

What are the essential characteristics of a contract of partnership?

Why is it consensual? Because it is perfected by mere consent.

Is form essential in the validity of a contract of partnership? Take note, it is a contract. Form is not essential.

Except when? When there is a contribution of an immovable property or real right.

If there is a contribution of an immovable property or a real right, what is the requirement under the law?

That such agreement would be in a public instrument and an inventory of the said immovable property shall be made. You have to comply with these requirements and the two are essential for the contract of partnership.

We mentioned a while ago that first and foremost, a contract of partnership is a consensual contract because it is perfected by mere consent. Now my question is: Are persons who are not partners to one another may become partners? Where is that consensuality there if persons who are not partners to each other may become partners? Again, my premise is that persons who are not partners to one another can become partners? Consent is essential.

Can a person who is not a partner become a partner in an existing partnership? Is that possible? No.

Can you join a partnership without the consent of all the partners in that partnership? No, you cannot.

First of all, their CONSENT is required. Based on the definition under Article 1767, a partnership is a contract. So if it is a contract, it has certain essential elements. First, we have consent.

What principle applies here? Principle of delectus personae. This simply means that: You cannot become a member of the partnership without all the members giving their consent to the same.

Based on this principle, assume that there is already a partnership and this partner A wants to assign his interest in that particular partnership to a 3rd person, will that 3rd person a member of that partnership to which A belongs? Necessarily, all the members of the partnership should give their consent to the same.

What is the effect if the new member is taken into the partnership? Assume that they consented, what is the effect to that original partnership? There would arise a new partnership.

Why? Because the addition of a party would necessarily arise to the dissolution of the new partnership.

What is the next element? OBJECT which are the contributions of the partners – money, property or industry.

How about, for example, there are three partners in a partnership that is about to be formed. A gave P5,000; B gave P10,000 and C issued a check in the amount of P15,000. Is that considered as a valid contribution? Can you contribute a check in a partnership? Is that to be considered as a valid contribution? Can you contribute a check in a partnership? Is that considered as a legal tender in the Philippines? No. The rule is that it is not considered as a legal tender unless encashed.

How about properties? What are the properties that can be contributed? Movable or immovable.

How about intangible assets? Can these be valid contributions in partnerships? Yes. So you can contribute any kind of property as long as it is lawful – meaning movable, immovable, tangible or intangible.

How about industry? What kind of industry can you contribute to a general partnership? Services.

Note:

Money – Legal tender in the Philippines.

Property – Real or personal, corporeal or incorporeal.

Industry – Active cooperation, the work of the party associated.

First essential feature of a partnership is that there must be consent in order to have a contract. Second, there must be an object which consists of contribution of money, properties or industry to a common fund.

What is the next feature? LEGAL CAPACITY OF THE PARTIES. That is the capacity to bind the partnership.

How about minors? Can they enter into contract of partnership? The rule is that no unless he is represented by a legal guardian.

How about an accused in a criminal case?

He is one already charged in court. He can still enter because he still has the legal capacity to bind himself.

How about the husband and wife when they enter into a general partnership? Is that allowed by law?

Can a partnership enter into another contract of partnership? Yes, why?

How about a partnership entering into another partnership with another corporation? Is a corporation allowed to enter into a contract of partnership? Is the corporation absolutely prohibited? No, there are certain exemptions.

A corporation can enter into partnership provided that these requisites concur:

1. It must be expressly stipulated in their articles of partnership.

2. The articles of partnership must provide that all the partners will manage the partnership.

3. The articles of partnership must stipulate that all the partners are and shall be jointly and severally liable for all the obligations of the partnership.

How about the primary purpose of the contract of partnership? To carry on the business of the partnership and TO DIVIDE PROFITS AND LOSSES among themselves.



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What if there is a stipulation in the contract of partnership that includes a party from sharing in the profits and losses, is that allowed? Is that considered a valid stipulation?

It is a void stipulation because it runs counter the purpose of a general partnership which is to enter to business to obtain profits and to divide the profits and losses among themselves.

We said that in a partnership, the partners share in the profits as well as the losses. There is a provision in the law which provides that the partners cannot stipulate that they will not share in the profits and losses.

How are profits and losses shared? Based on the agreement of the parties. In the absence of such agreement (assuming the partners are all capitalist partners), based on the capital contributed. If one of the partners is an industrial partner (one which does not contribute money or property but only industry), the sharing will be based on quantum meruit.

GR: Based on agreement of the parties.

If no agreement:

o All capitalist partners: Based on capital contribution

o If one is an industrial partner: Based on quantum meruit.

Now, based on Article 1767:

A general partnership is one that is formed for the purpose of entering into a business.

Can there be a partnership if its business is not for obtaining profit? Yes, there can be a partnership for the exercise of profession which is called a general professional partnership.

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners even in case of failure to comply with the requirements of Art. 1772, 1st paragraph.

Under this article, the partnership has a juridical personality. Can you explain this?

What are the consequences of being a juridical person?

1. It can sue and be sued.

2. It can acquire properties under its own name.

3. The insolvency of the partners does not mean the insolvency of the partnership.

Under Article 1768, we said the partnership has a separate juridical personality from the partners which comprise it.

Can a case filed against the partnership can be dissolved by reason of the death of one of the parties? The real party in interest in the case is the partnership itself and not the parties.

Art. 1769. In determining whether a partnership exists, these rules shall apply:

1.) Except as provided by art. 1825, persons who are not partners as to each other are not partners as to 3rd persons; x x x

If they are not partners between themselves, they cannot be partners as to third persons. This is again because of the principle of delectus personae.

2.) Co-ownership or co-possession does not of itself

establish a partnership, whether such co-ownership or co-possessors do or do not share any profits made by the use of the property; x x x

In order for you to say that there is indeed a partnership, there must be a clear intention to derive profits from the operations of the business.

Second, there must be an existence of a fiduciary relationship. Again, this is the principle of delectus personae.

3.) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; x x x

The mere sharing of gross returns alone does not even constitute prima facie evidence of partnership, since in a partnership, the partners share profits after satisfying all of the partnership’s liabilities.

4.) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

a.) As a debt by installments or otherwise;

b.) As wages of an employee or rent to a landlord;

c.) As an annuity to a widow or representative of a deceased partner;

d.) As interest on a loan, though the amount of payment vary with the profits of the business;

e.) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

The GR here is that this creates a strong presumption as to the existence of the partnership except these instances:

As a debt by installments or otherwise;

As wages of an employee or rent to a landlord;

As an annuity to a widow or representative of a deceased partner;

As interest on a loan, though the amount of payment vary with the profits of the business;

As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

When does Article 1769 apply? Only in case of doubt as to the existence of the partnership.

Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime.

This refers to the object or purpose of the partnership – that it must have a LAWFUL OBJECT OR PURPOSE.

What does lawful object pertain to? It refers to the capital contributed. When we speak of lawful purpose, this refers to the business itself. What are the effects of unlawful partnership?

1. The contract is deemed void ab initio.



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2. The profit shall be confiscated in favor of the government.

3. The instruments or tools shall be forfeited in favor of the government.

4. The contributions of the partners, as a rule, shall not be confiscated.

Is a judicial decree necessary to dissolve an unlawful partnership? The partnership is dissolved by operation by law.

Another question: Is a partner entitled to receive profits where the partnership is unlawful? We are not entitled to receive any profit.

Assume that you contributed money to that unlawful partnership. What is your cause of action against that partnership? You can file a case against the said unlawful partnership and recover whatever you have contributed in the partnership to avoid unjust enrichment.

June 26, 2015 (AC)

As a review, based on 1767 of the Civil Code, it defines business partnership. Based on the definition of a business partnership, what are its essential features? There must be a MUTUAL CONTRIBUTION OF MONEY, PROPERTY OR INDUSTRY TO A COMMON FUND which will represent the partners’ proprietary interest in the partnership.

May a partnership be formed for the exercise of a profession? Yes. The primary objective of that partnership, is it for gaining profits?

Article 1767. x x x Two or more persons may also form a partnership for the exercise of a profession.

Under Article 1769, it provides for the rules on determining the existence of a partnership. We said last meeting that the said provision will only apply when there exists a doubt in the existence of the partnership. My question is: What are the tests to determine WON there is partnership –

1. WON there is an agreement between the parties to contribute money, property or industry to a common fund

2. That there must be an intention to divide profits and loses between them.

Give me some of the typical incidents of partnership.

If there is co-ownership, it does not follow that there is partnership.

The partners share in the profits and losses.

How about the management of the partnership? If there is no agreement, then all of the partners will manage. How about if there is a limited partner in the partnership, will he participate in the partnership?

How about principle of mutual agency, does it apply in agency? Yes, the partners are all agents of each other with regards to the business.

o Assume that you give a notice to partner A regarding a partnership matter, is it necessary for you to give notice to B and C? No. Notice to one partner is official notice to all the partners, including that of the partnership.

How about the principle of limited liability in a general partnership? The partners are personally liable

for the obligations of the partnership after the partnership assets have been exhausted.

How about the delectus personae principle, does it apply? Is this fatal in a partnership?

How about some burden of proofs and presumptions with regard to partnership?

The existence of partnership must be proven, not presumed

Burden of proving the existence of a partnership rests on the party having the affirmative on such issue

The law presumes that those acting as partners have entered into contract of partnership. Where the law presumes existence of partnership, the burden of proving is on the party denying such existence

Merely using the term “partner” does not prove partnership. Its non-usage however is entitled to weight.

Can a corporation enter into a contract of partnership? As a general rule, no. Who represents the corporation? Assume that a corporation enters into a contract, it can act through its board. How about in a partnership?

How do you distinguish a partnership from a corporation?

How about liability, who is liable in a partnership? In a corporation?

Partnership: Partners (except limited partners) are liable personally and subsidiarily (sometimes solidarily) for partnership debts to 3rd persons

o Take note that in partnership, the liability is unlimited so the partners will be liable in all the obligations of the partnership.

Corporation: Stockholders liable only to extent of the shares subscribed by them.

Regarding the term of the existence of the partnership and corporation?

Partnership: Any period of time stipulated by the partners.

Corporation: 50 years max. Extendible to another 50.

As a review, can you explain the effects if the partnership is declared unlawful?

1. The contract is void ab initio and the partnership never existed in the eyes of the law.

2. The profits shall be confiscated in favor of the government.

3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government.

4. The contributions of the partners shall not be confiscated unless they fall under #3.

Take note that when a partnership is unlawful because its object or cause is unlawful.

When an unlawful partnership is dissolved by a judicial decree, the profits are forfeited in favor of the government without prejudice.

Article 1770. x x x When an unlawful partnership is dissolved by ua jdicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime.



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Cross-reference with this provision under the Revised Penal Code:

Art. 45. Confiscation and forfeiture of the proceeds or instruments of the crime. Every penalty imposed for the commission of a felony shall carry with it the forfeiture of the proceeds of the crime and the instruments or tools with which it was committed.

Such proceeds and instruments or tools shall be confiscated and forfeited in favor of the Government, unless they be property of a third person not liable for the offense, but those articles which are not subject of lawful commerce shall be destroyed.

Is a contract of partnership covered by the Statute of Frauds? When you say Statute of Frauds, it is for the enforceability of the contracts.

As a GR, no because it can be constituted in any form. In fact, it can be entered orally. Exception: When there is an agreement to enter into a partnership at a future time, which by its terms is not to be performed within a year from its making.

Article 1403 (2a). x x x An agreement that by its terms is not to be performed within a year from the making thereof.

We said that the partnership can be constituted in any form. So how will you prove its existence? Assume that you file a civil case in court, what will you file as an actionable instrument? What is the best evidence if the contract of partnership was constituted orally?

You will make an inference from the acts and conducts of the parties. You can use the incidents of the contract of partnership or the basic tests:

1. Mutual contribution to a common fund;

2. Intention among and between the parties of dividing the profits and losses among themselves).

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

We said that under Article 1771, a partnership can be constituted in any form. What are the formalities required in constituting a partnership? Assume that the law requires it to be in a particular form?

First, if what is contributed to the common fund is an immovable property or a real right, it must be in a public instrument. This is necessary to affect third parties. Is this for the validity or enforceability of the contract? It is necessary for enforceability. Public instrument + inventory – these are necessary for the validity of the contract.

So we have to distinguish. The requirement of public instrument is only necessary for the enforceability of the partnership with regard to third person. Public instrument of a real property contributed, regardless of its value, plus inventory of the property (signed by the parties and attached to the public instrument), it is necessary for the validity of the instrument.

Note:

Public instrument requirement – enforceability

Public instrument + Inventory requirement – validity

How about if a personal property is contributed in a partnership? If the personal property has a capital of P3,000

or more, then it shall appear in a public instrument. How about if less than P3,000, is form necessary? No.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons.

What is the effect of the non-registration of the partnership before the Securities and Exchange Commission? It shall not affect the liability of the partnership.

Is the execution of the Articles of Partnership necessary for the existence of a partnership? It is only proof of the existence of the partnership. It is not necessary for the existence of a partnership.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a)

Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. (n)

Question: What is a secret partnership?

Art. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership.

What law will govern this type of partnerships? They will be governed by the rules on co-ownership.

What is the effect if the partner transacts business for the secret partnership using his own name? He will be personally liable to the third person to whom he contracts.

Secret partnerships have no juridical personality under Article 1775.

Can that secret partnership, by itself, be held liable? Under your Civil Procedure, how will you sue an entity without a juridical personality?

Rule 3; Section 15. Entity without juridical personality as defendant. When two or more persons not organized as an entity with juridical personality enter into a transaction, they may be sued under the name by which they are generally or commonly known.

In the answer of such defendant, the name and addresses of the persons composing said entity must all be revealed. (15a)

Secret partnerships cannot sue because they do not have juridical personality. But they can be sued under the common name rule.

Art. 1776. As to its object, a partnership is either universal or particular.

As regards the liability of the partners, a partnership may be general or limited.



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Art. 1777. A universal partnership may refer to all the present property or to all the profits. (1672)

How do you define a universal partnership? Under Article 1777, it may refer to all the present property of the partners or to all the profits of the partners.

Art. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. (1673)

Question: How do you define a universal partnership of all present property?

Art. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith.

A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. (1674a)

Here, all the present properties of the partners become the common property of the parties and the partnership.

How about the fruits coming from the present properties? Will it become the property of the partnership? Yes.

How about subsequently acquired properties?

Subsequently acquired properties acquired through inheritance, legacy or devise cannot be part of the universal partnership of all present property.

Why are future properties not included here? At the time of the constitution of the contract, the future properties are not yet in existence.

Take note that when we speak of universal partnership of all present properties, this constitutes a donation of a property. As a review on your law of property, can you donate something which does not exist? No, you can only donate present properties.

As a reiteration, when you say universal partnership of present properties, it comprises of everything the partners own at the time of the constitution of the said partnership. Future properties cannot be made part of that kind of partnership.

How about the usufruct over the properties acquired through donation, legacy or inheritance? Can that be made part of the universal partnership of present properties?

We said that future properties cannot be made part of the universal partnership of present property except when there is stipulation only with regard to usufruct donated, inherited.

Question: How about a universal partnership of profits?

Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership.

Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675)

Which is more onerous: a universal partnership of all properties or a universal partnership of all profits?

The former is more onerous because the ownership of all properties passes to the partnership and become common fund of the partners and the partnership. Whereas, in a universal partnership of all profits, what passes?

Assume that one of the partners wins a lotto. Will that prize form part of the universal partnership of profits? No, because it is not derived through his work or industry.

Under Article 1780, here, the property which the partners own at the time of the constitution of the partnership belong to them. It will not pass to the partnership and to the partners.

What is contributed here is only the profits – what they acquire through work or industry. Except the usufruct which becomes the common property.

Question: What is the reason for Article 1781?

Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. (1676)

Because a universal partnership of present property is more onerous.

Question: How about a particular partnership, how do you define it?

Art. 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. (1678)

As distinguished from universal property, it has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation.

Who are those persons who are prohibited from entering into a universal partnership?

Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. (1677)

Who are these persons?

Art. 87. Donations between spouses during marriage void, except moderate gifts on occasion of family rejoicing. Also applies to those living together as husband and wife w/o valid marriage.

Art. 739. The following donations are void:

a.) Those made between persons who are guilty of adultery or concubinage at the time of the donation (no need for conviction; preponderance of evidence only required)

b.) Those made between persons found guilty of the same criminal offense, in consideration thereof;

c.) Those made to a public officer or his wife, descendants and ascendants, by reason of his office.

Assume that these persons prohibited by law and they entered into a contract of partnership, what is the effect?

The partnership is void. As a consequence, it has no juridical personality. The action to declare it void is imprescriptible.



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Question: How do you define a joint venture agreement? Is it deemed a partnership? No. Why is it not considered as a partnership? It has no legal personality.

It is generally concerned with isolated transactions or projects as opposed to partnerships which contemplates a general business with some continuity. Moreover, a joint venture does not have a separate juridical personality and it has no mutual agency.

Note: Joint venture – While a joint venture is not a formal partnership in the legal or technical sense, both are governed, subject to certain qualifications, practically by the same rules or principles of partnership. This is logical since in a joint venture, like in a partnership, there is a community of interest in the business and a mutual right of control and an agreement to share jointly in profits and losses.

Fernandez vs. Dela Rosa (1903)

The tests are:

There is a mutual contribution of money, property and industry to a common fund and

With the intention of dividing the profits among themselves. There is a partnership here between the two parties.

Supreme Court: “As regards the first element, the Supreme Court found that money was indeed furnished by Fernandez and received by Dela Rosa with the understanding that it was to be used for the purchase of the cascoes in question. As regards the second element, namely, the intention to share profits, appears to be an unavoidable deduction from the fact of the purchase of the cascoes in common, in the absence of any other explanation of the object of the parties in making the purchase in that form, and, it may be added, in view of the admitted fact that prior to the purchase of the first casco the formation of a partnership had been a subject of negotiation between them.

While the SC was unable to find that there was any specific verbal agreement of partnership, the same may be implied from the fact as to the purchase of the casco. It is thus apparent that a complete and perfect contract of partnership was entered into by the parties.

The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of partnership as a civil contract, the contributions of the partners not having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)”

Yu vs. NLRC

Is the new partnership liable to Yu here? Who is liable to this Benjamin Yu? Diba he was the manager of the old partnership and later on, it was sold to another person and to other partners. Will the fact of the dissolution of the old partnership dissolve its liability to Yu? The old partnership is still liable because of the separate juridical personality principle.

SC: “Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-à-vis any claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain.”

Council of Red Men vs. Veteran’s Army

Is that society considered a partnership? It is not a business partnership, why? Was it organized for the main purpose of gaining profit?

SC: “We therefore, hold, that no contract, such as the one in question, is binding on the Veteran Army of the Philippines unless it was authorized at a meeting of the department. No evidence was offered to show that the department had never taken any such action.

In fact, the proof shows that the transaction in question was entirely between Apache Tribe, No. 1, and the Lawton Post, and there is nothing to show that any member of the department ever knew anything about it, or had anything to do with it.

Whether a fraternal society, such as the Veteran Army of the Philippines, is a civil partnership is not decided.”

Pascual vs. CIR

There is no partnership in this case because the mere sharing of returns does not, by itself, mean that there is a partnership. There must always be a clear intent to form partnership.

SC: “The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby.

Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.”

Estanislao vs. Estanislao

The court took into consideration what? Based on the testimonies of the respondent Remedios and Atty. Angeles, there was in fact an agreement for partnership because:

1. Petitioner submitted a periodic accounting of the business.

2. Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their "common business.

3. Respondent Remedios assisted in the running of the business.

Meron ba talagang partnership agreement dito? There was only a joint affidavit of the parties. The court took into consideration the incidents of the partnership. All those enumerated above are incidents of partnership. So these circumstances show that the parties intended that a partnership exists among them.

SC: “Further, evidence in the record shows that there was in fact such partnership agreement between the parties:

1. This is attested by the testimonies of private respondent



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Remedios Estanislao and Atty. Angeles.

2. Petitioner submitted to private respondents periodic accounting of the business.

3. Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their "common business'.

4. Respondent Remedios assisted in the running of the business.

There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the intention of dividing the profits among themselves.

The sole dealership by the petitioner and the issuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products.”

Obillos vs. CIR

There was no partnership in this case. It was not the intention of the parties, diba?

SC: “It is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. Their original purpose was to divide the lots for residential purposes. The division of the profit was merely incidental to the dissolution of the co-ownership.

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.

All co-ownerships are not deemed unregistered partnership.—Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation.”

Lim Tong Lim vs. Philippine Fishing

What was contributed in this case? The boats and the repairs of which made by the borrowed money fall under the common fund under Article 1667 of the Civil Code.

SC: “Partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business.

The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.”

Aguila vs. CA & Vda. De Abrogar

Mr. Aguila was not the real party in interest but the partnership itself.

SC: “Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that of each of the partners." The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes.

In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was executed between private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be impleaded in any litigation involving property registered in its name.”

Ona & Heirs of Bunales vs. CIR

Was there a registered partnership here? The principle here is that mere co-ownership by itself does not establish partnership. In this case, there was already a partition of the co-ownership and thereafter, they decided to invest the partitioned properties to a common fund. For this purpose, it is considered as an unregistered partnership.

SC: “Petitioners did not merely limit themselves to holding the properties inherited by them. Some of the said properties were sold at considerable profit, and from the said profit were the purchase and sale of corporate securities. All the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance.

From the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the provisions of the Tax Code.

In cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws. Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as co-owners continues until the inheritance is actually and physically distributed among the heirs.

After knowing their respective shares in the partition, they might decide to continue holding said shares under the common management of the administrator or executor or of anyone chosen by them and engage in business on that basis. Co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived



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therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.

IAC vs. Estate of Hibberd

According to the SC: Although the existence of a partnership cannot be established by a general recognition, rumor or hearsay, nonetheless a verbal partnership is valid and may be proven by competent evidence and the intention of the parties to form the partnership may be gathered from the facts and ascertained from their language and conduct. Once so established, should be given effect.”

Alicdusan vs. CA (259 S 336)

The SC ruled that the issue as to whether there is a partnership between the parties is a factual matter.

Yulo vs. Yang Chiao Seng

Was there a partnership in this case? No, there is only a lessee-lessor partnership.

“The agreement was a sublease not a partnership.

The following are the requisites of partnership:

Two or more persons who bind themselves to contribute money, property or industry to a common fund;

The intention on the part of the partners to divide the profits among themselves (Article 1761, CC)

Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any help or intervention in the management of the theatre. Neither has she demanded from defendant any accounting of the expenses and earnings of the business. She was absolutely silent with respect to any of the acts that a partner should have done; all she did was to receive her share of P3,000 a month which cannot be interpreted in any manner than a payment for the use of premises which she had leased from the owners.”

Gatchalian vs. CIR

Here, there was a partnership because there was a common contribution of money and the intention to divide the profits among themselves.

SC said: “According to the stipulation facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000.

The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only.

Having organized and constituted a partnership, the entity is bound to pay the income tax Act No. 2833. Being the partnership liable to the income tax, the tax must be paid collectively by the partnership and not by the plaintiffs individually.”

Evangelista vs. CIR

The SC upheld the ruling of the CTA against the Evangelistas because the two elements of a partnership were present:

1. There was an agreement to contribute money, property or industry to a common fund.

The presence of the first element is undisputed because the sister pooled their own money and even borrowed money from their father. The funds they used to buy the properties were not something they found already in existence. They created it purposely.

2. They had the intent to divide the profits among the contracting parties.

a. They invested the money in numerous properties and entered into numerous transactions - strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired; instead, the Court was convinced of the “habitual character” peculiar to business transactions engaged in the purpose of gain.

b. The loots they purchased were not residential, but were leased to tenants.

c. Appointment of Simeon as manager – Simeon’s appointment and his functions indicate that the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit.

d. The aforementioned conditions have existed for over 10 years.

e. The Evangelistas did not present nor explain their purpose in creating the set up or the causes for its continued existence.

In one case, the SC ruled that mere co-ownership or co-possession of a property does not constitute the co-owners or co-possessors as partners in the absence to enter into a partnership.

Biglangawa and Espiritu vs. Constantino

Does the sharing of the gross return constitute contract of partnership? Does it create a presumption of the existence of a partnership? It does not constitute a prima facie of partnership. Mere sharing of gross returns does not create a presumption that there is a partnership

SC: “There is no word nor expression in the contract that suggests any idea of partnership. On the contrary, Constantino expressly avers in his complaint that Biglangawa and Espiritu “appointed him as their EXCLUSIVE AGENT to develop xxx”. Categorically, he referred to himself as agent, not a partner, entitled to compensation in the form of commission and/or fee, not participation and not in the form of share.

It is true that he made advances for the expenses incurred in the development and administration of the property but this was never considered as “contributions to business” as to make him a partner, otherwise, he would have stated that in his complaint. In fact, after a liquidation of these advances and the commissions due to appellant at the time of the termination of the agency, the whole balance was considered as Biglangawa and Espiritu’s indebtedness.

Hence, the lower court was right. His civil action was not one affecting the title of right of possession of the real property nor one to recover possession of real estate, or to quiet title, or to remove cloud upon title, or for partition, or any similar action affecting the title, use and occupation of the real



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estate and its buildings. Hence LP cannot lie.”

Heirs of Jose Lim vs. Lim

It is Elfledo Lim based on the evidence presented regardless of Jimmy Yu’s testimony in court that Jose Lim was the partner. If Jose Lim was the partner, then the partnership would have been dissolved upon his death . A partnership is dissolved upon the death of the partner. Further, no evidence was presented as to the articles of partnership or contract of partnership between Jose, Norberto and Jimmy. Unfortunately, there is none in this case, because the alleged partnership was never formally organized.

But at any rate, the Supreme Court noted that based on the functions performed by Elfledo, he is the actual partner.

The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto:

1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership;

2.) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein;

3.) all of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo;

4.) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business; and

5.) none of the heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime.

June 30, 2015 (DMS)

Tacao vs. CA 365 SCRA 463

The receipt of profits does not create presumption of partnership.

One without any right to participate in the profits, cannot be deemed as partner since the essence of partnership is that the partners share in the profits and losses. (From De Leon, pg 25)

Sardane vs. CA

Why was he not considered as partner as partnership? Because he received the profits in another capacity and not as partner of the partnership. The contract was a mere contract of employment.

Arbes vs. Polistico

What is the business of the partnership here? It was engaged in a lottery business.

Why the SC ruled that it is an unlawful partnership?

Under Article 1770, what are the effects of an unlawful partnership?

1.) The contract is void ab initio and the partnership never existed in the eyes of the law;

2.) The profits shall be confiscated in favor of the government;

3.) The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government;

4.) The contributions of the partners shall not be confiscated

unless they fall under #3.

The cause of action in case of unlawful partnership is for the recovery of the amounts made by the members based on the fact that they have contributed money to the partnership capital to avoid unjust enrichment.

De Luao vs. Casteel

The partnership entered into here is the operation of a fishpond.

Was there a partnership in this case? There was no partnership created in this case because a partnership cannot be formed for an illegal purpose or one contrary to public policy and that where the object of the partnership is the prosecution of an illegal business or one contrary to public policy, then that partnership is void.

Is a judicial declaration that the said partnership is void necessary? It is not necessary because the said partnership if it has unlawful object or purpose, it is void from the beginning.

Sunga-Chan case

What is the effect of non-registration among the members of the said partnership? (Note: See De Leon page 66)

Torres vs. CA

Was there a partnership? OR was there was a joint venture agreement (JVA)?

Is a JV deemed a partnership?

Under the Philippine Civil Code, a joint venture is a form of partnership with a legal personality separate and distinct from the parties composing it, and should thus be governed by the law of partnership. (From De Leon, page 84)

Under Article 1773, if what is contributed to the partnership is immovable property, what is required by law?

1.) The contract must be in a public instrument; and

2.) An inventory of the property contributed must be made, signed by the parties, and attached to the public instrument.

So those requirements by the law are for the what?

It is essential for the validity of the partnership. Please remember that. General rule form is not essential except under Articles 1771 and 1773. Under Article 1771, it is necessary for the enforceability of the partnership contract with third persons while under Article 1773, it is necessary for the validity. So in this case there was no inventory so obviously the partnership is void. However the SC made exception. So as a rule, you have to comply with the requirements under Article 1773 except when there is no third party involved.

Secuya vs. De Salma

Was there a partnership? They were mere co-owners.

Lintojua, Jr. vs. Lintojua, Sr.

What is the actionable document here? The Joint Venture Agreement (JVA)

Here, there was no contract of partnership?

Here the JVA was not regarded as partnership because there was no…?

Was the JV registered in SEC?

There was immovable property contributed in this case.



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Were the parties able to meet the requirements of the law? What was the requirement of the law if what were contributed are immovable properties?

First requirement, there must be an inventory of the real property which should be made, signed by the parties and attached to the public instrument. First and foremost, there must be a writing in public instrument and the same should be registered in the Registry of Deeds where the immovable is located.

So these requirements are for what? For the validity.

July 3, 2015 (DMS)

As a review:

Litonjua Jr. Vs. Litonjua Jr

Was there a partnership in the case?

Why no partnership?

What other documentary evidence presented by the parties?

How about the memorandum presented by the brothers?

How about the letter made? There were two documents that were presented here – the letter as well as the memorandum. What was the probative value of those two documents?

Why were those two not regarded as evidence that there was a partnership?

Because the letter here is unsigned and undated. The 1973 letter from Eduardo on its face, contains typewritten entries personal on its own but unsigned and undated. So if it is unsigned document, it does not meet the public instrumentation requirements under Article 1771 of the Civil Code.

How about the memorandum? Was it regarded as a public instrument? Because if you will make immovable contribution to the partnership, it must be made in a public instrument and an inventory of the said property must be attached to the said public instrument.

Aurbach vs. Sanitary Wares

The corporation entered into Joint Venture Agreement and not Partnership because as a rule, a corporation cannot enter into a partnership subject to the three requisites.

How will you distinguish partnership from a JV?

JVs are generally concerned with an isolated transaction or project as opposed to a partnership which contemplates a general business with some continuity. Take note that partnership has a character of continuity while joint venture refers to isolated transactions. Moreover, a joint venture does not have a firm name. There is no mutual agency and it does not have a separate juridical personality. (2014 TSN)

Heirs of Tan Eng Kee vs. CA

What is the best evidence to prove contract of partnership? Articles of Partnership.

Was he a partner? Only an employee.

The SC ruled that registration of the partnership is the best evidence of the partnership among the partners.

Pioneer Insurance vs. CA

What if corporate ventures failed to formally incorporate, do incorporators become partner?

Was there an agreement to form a corporation?

The rule is if corporate venture fails to formally incorporate, the incorporators become de facto partners by fiction of law.

How will you distinguish this case from Ling Ting Lim?

Were the two partners sued in their capacity as partners here? They were acting on behalf of Ocean Quest Fishing Corporation. Here, they were sued in their own names because the said corporation is alleged to be non- existing.

What was the ruling of the SC (in Ling Tong Lim)? Was there a partnership?

In the case of Pioneer Insurance, there was agreement to incorporate a corporation but it did not materialize.

Was there a de facto partnership here (in Ling Tong Lim)? Because the SC held that they were liable but is it based on the contract that there was de facto partnership? So if corporate ventures failed to formally incorporate, do incorporators become partner like in this case?

Take note in Ling Tong Lim case, the three partners decided to form a corporation although it was not legally formed for no known reason, it does not preclude the liabilities of the three as contracting parties in representation of the said corporation. Here, the SC applied the principle of estoppel. Those acting on behalf of a corporation or those benefited by it knowing it to be without valid existence is liable as general partners. Be sure to distinguish the case of Pioneer Insurance from Ling Ting Lim.

The issue involved in both cases is if corporate ventures failed to formally incorporate, do incorporators become partner.

In the case of Pioneer, the SC said NO but in the case of Ling Tong Lim, yes because of the principle of estoppel. Take note, estoppel does not create relationship but merely creates liability.

Tan vs. Del Rosario

The petitioners here are who?

What was the ruling of the SC because here they questioned the validity of the SNIT, in relation to that what was the ruling?

A partnership is a taxable as a what?

A business partnership is taxable as a corporate taxpayer. This is one of the consequences of the partnership being a juridical person in the eyes of the law.

Stonehill vs. Diokno

Is partnership entitled to its constitutional rights? Can it invoke Article III under the Bill of Rights? OR only the natural person can invoke the Bill of Rights?

How about the right to due process, can it be invoked by the partnership?

Yes, as a consequence of that separate juridical personality, it is entitled to be accorded the constitutional rights against unreasonable searches and seizures.

How about the right to due process? It can.

How about against right against right against self-incrimination as it is only available to natural person.

July 7 and July 10, 2015 (KVT)



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CHAPTER 2: OBLIGATIONS OF THE PARTNERS Section 1: Obligations of the partners among themselves

Question: What are the different relations created by the contract of partnership?

Relations among the partners

Relations of the partners with the partnership

Relations of the partnership with third persons

Relations of the partners with third persons.

Question: The law provides that a partnership relationship is substantially based on mutual trust and confidence. Why? Each partner is a trustee and a cestui que trust at the same time. He is a:

Trustee to the trustee to the extent that his duties bind him, and

A cestui que trust as far as the duties that rest on his co-partners.

Question: So when does this fiduciary relationship begin and terminate? The relation of trust applies also to matters concerned with the formation of the partnership. The fiduciary obligation of the partner remains until the relationship is terminated and the equities between the partners addjusted and satisfied.

Question: That fiduciary relationship—when does it precisely begin? Is it upon the constitution of that partnership?

ARTICLE 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679)

It begins when there is mutual consent. So meaning, it begins upon the execution of the partnership contract? So assume that there was an oral agreement to constitute a partnership, so you mean to say that the fiduciary relationship begins at that time?

It was said that fiduciary relationship commenced from when the partnership agreement is constituted. Do you agree? From the formation? So is it upon the constitution? It is synonymous. So when you say that the partnership is formed, there is already agreement na na-form. Upon the execution of the contract.

Is it not that the said fiduciary relationship begins even if there is no partnership agreement yet? You know, nag-agree pa lang kayo?

Question: What is a partnership at will?

ARTICLE 1785. When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will.

A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. (n)

It is created by implied agreement, the continued existence of which will depend upon the mutual desire and consent of the partners.

So there was an agreement between partners? So it may be expressed or implied that the partnership is continued. So a partnership at will is born?

What are the rights and obligations of the partners in case of a partnership at will? Partnership may be extended or renewed by the partners by express agreement, written or oral, or impliedly, by the mere continuation of the business after the termination of such term or particular undertaking without any settlement or liquidation. In such case, the duties remain the same.

What happened to the previous partnership? It is automatically dissolved.

It is automatically dissolved upon the? Agreement of the parties to...

But the law provides that there can be even without any express agreement?

So when we say partnership at will, it arises upon what? Upon the expiration of the particular undertaking or the period for which the original partnership is established. And it is continued with or without the express agreement of the partners.

So based on the definition? By mutual desire of the partners to continue.

So is that by express agreement of the partners to continue the said partnership? It may be implied. So implied from the agreement of the partners to continue the said partnership.

How do you define a partnership with a fixed term? A partnership with a fixed term is one which the term of its existence has been agreed upon expressly (definite period) or impliedly (particular enterprise or transaction). The expiration of such term or accomplishment of undertaking will cause automatic dissolution.

So there is an agreement among the partners.

Can that partnership with a fixed term be terminated even before the arrival of the said term? Take note, it is constituted for a fixed term. Yes.

Why? They may agree to terminate the partnership even if the said partnership is constituted for a fixed term.

Question: Again, what is a partnership at will? So the parties agreed to continue the business for the purpose of the said partnership.

Take note class of:

Art. 1785. x x x

A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. (n)

There is a prima facie evidence of a continuation of the partnership if after the termination of its period or upon the accomplishment of its purpose there is actual continuation of the affairs of the partnership by the mutual (manager?). So said resulting partnership is termed as a partnership at will.

Take note that the rights and duties of the partners remain the same as that of the original partnership.

Question: What are the obligations of the partner with regard to the contribution of a property?

ARTICLE 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.

He shall also be bound for warranty in case of eviction with



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regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a)

1. To contribute at the beginning of the partnership or at the stipulated time the money, property, or industry he had promised;

2. To answer for eviction in case the partnership is deprived of the determinate property contributed;

3. To answer to the partnership for the fruits of the property for contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery;

4. To preserve said property with the diligence of a good father of a family pending delivery to the partnership; and

5. To indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its contribution.

So under the first paragraph:

Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. x x x

Based on this, is there already a delivery of the thing which he promised to contribute?

Is demand necessary to make him a debtor to the partnership? No.

Why? The law makes him a debtor of the partnership even in the absence of any demand.

So what is the remedy of the other partners in case he does not fulfil of contributing the property to the said partnership? Take note diba that demand is not required because he is ipso jure the debtor of the partnership. So assuming that the partners want to enforce the right against said partner, what is their remedy? An action for specific performance with damages and interest. It is not an action for rescission. Take note that the filing of a case in court is deemed a demand.

How about under the second paragraph?

Art. 1786. x x x

He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership x x x

The law provides that he shall also be bound for warranty in case of eviction with regard to the specific and determinate things he may have contributed to the partnership. Why?

The partner is bound in the same cases and in the same manner as the vendor is bound with respect to the vendee with regard to specific and determinate things which he may have contributed. This matter is governed by the law on sales. (Article 1548 of the New Civil Code).

So the liability of that contributing partner as a warrantor is only enforceable when there is a final judgment? Why? What is your basis for saying that? Is it not automatic? Ka-hago pud. You filed a case in court.

You said that there should be a final judgment. How will you enforce that? Sabi mo to enforce that warranty against eviction. Why is that necessary—yung warranty against

eviction if the said partner contributes specific and determinate things? Bakit kailangan yang warranty against eviction na yan?

Because the nature of a partnership is an onerous contract, like a contract of sale. So when a thing is delivered to a partnership, *** from the kind of its delivery has the right to enjoy the legal and his peaceful possession of the said thing contributed.

Regarding on what you said about the enforceability after a final judgment, what is your legal basis for saying that? Hindi ba pwedeng i-evict mo na lang agad-agad, diba? Because of:

Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased. The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. The contracting parties, however may increase, diminish, or suppress this legal obligation of the vendor.

So that is the basis for saying that there should be a final judgment before eviction. Otherwise, you will be liable for damages.

How about the liability of the partner in case he promised to contribute his services to the partnership and he fails to contribute the said services?

Unless there is a special agreement to that effect, the partners are not entitled to charge each other, or the partnership, for their services in the firm business. However, if a partner neglects or refuses, without reasonable cause, to render the service which he agreed to perform by reason of which the partnership suffered loss, he should be responsible for this breach.

Question: What is the rule when a partner contributes goods as capital?

ARTICLE 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n)

Why is it important—the appraisal? Appraisal is necessary to determine how much has been contributed by the partners. In the absence of stipulation, the share of each partner in the profits or losses is in proportion to what he may have contributed.

How should the appraisal of the goods contributed be made?

Appraisal is made:

1. In the manner prescribed by the contract of partnership;

2. If no stipulation, by experts chosen by the partners and according to current prices.

Question: What are the obligations of a partner with regard to the contribution of money?

ARTICLE 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation.

The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from



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the time he converted the amount to his own use. (1682)

1. To contribute on the date due the amount he has undertaken;

2. To reimburse any amount he may have taken from the partnership coffers and converted to his own use;

3. To pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any amount from the common fund and converts it to his own use;

4. To indemnify the partnership for the damages caused to it by the delay in the contribution or for the conversion of any sum for his personal benefit.

What kind of partner does Article 1788 refer to? A capitalist partner.

Can a capitalist partner be at the same time an industrialist partner? Pwede ba yon? Diba for capitalist partners, there is that provision to engage in competitive business. If industrial partner, absolutely prohibited in engaging in any kind of business. So can a capitalist partner be at the same time an industrial partner? Yes.

When is a capitalist partner liable for interest and damages?

The guilty partner is liable for interest and damages not from the time judicial or extrajudicial demand is made but from the time he should have complied with his obligation or from the time he converted the amount to his own use. The obligation to contribute arises from the commencement of the partnership.

With regard the liability for interest and damages, is demand necessary to make him liable?

No. Because of his duty as a capitalist partner. Remember diba, they are regarded as debtors of the partnership for whatever they promised to contribute to the same.

Question: Who is an industrial partner? An Industrial partner is one who contributes his industry, labor, or services to the partnership. He is considered the owner of his services, which is his contribution to the common fund.

We said that if he is an industrial partner, he is prohibited from what?

ARTICLE 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. (n)

What kind of prohibition is that? It is an absolute prohibition and covers all kinds of business outside of the partnership.

Why? Bakit absolute yung prohibition? The reasons are:

1. To prevent conflict of interest between the industrial partner and the partnership. So to avoid conflicts of interest;

2. To ensure faithful compliance by the said partner with his obligation.

So take note class. If it is an industrial partner, it is an absolute prohibition.

What are the sanctions kung matigas ang ulo ng industrial partner?

Art. 1789. x x x …and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in

violation of this provision, with a right to damages in either case.

Let’s go to:

ARTICLE 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. (n)

That is a self- explanatory provision.

Take note class. Article 1790 refers to capitalist partners ha.

What happens in case na yung mga capitalist partners is unequal yung kanilang contribution? Partners can stipulate contribution of unequal funds to the common fund, but in the absence of such stipulation, the presumption is that their contribution shall be in equal shares.

So the sharing of the profits and losses shall be based on their contributions.

Question: Are capitalist partners obliged to make additional capital contribution?

ARTICLE 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he obliged to sell his interest to the other partners. (n)

As a general rule, a capitalist partner is not bound to contribte more than what he agreed to. Except in case of imminent loss of the business, and tehre is no agreement to the contrary, he is under the obligation to contribute an additional share to save the venture. If he refuses to contribute, he shall be obliged to sell his intrest to the other partners.

What does that mean—imminent loss? How do you define that?

Does the rule apply to an industrial partner? No. It does not apply to an industrial partner.

What is the reason for this rule? That the capitalist partner to make an additional contribution?

Take note class. Under Article 1791, the general rule is that a capitalist partner is not bound to contribute to the firm more than what he had committed to contribute. Again, the general rule is that he is not bound to contribute more than what he had committed to contribute, unless there is an agreement to the contrary.

So if there is an agreement, the said capitalist partner is obliged to make additional contribution in accordance with the said agreement.

So if there is is no agreement, then the rule is that—based on Article 1971—it case of impending loss, a capitalist partner is required to make an additional contribution to save the business.

So what if you are a capitalist partner. And sabi ng law kapag may impending loss, maoobliga ka na mag-make ng additional contribution. Ngayon, ayaw mong mag-make ng additional contribution. If he refuses to contributed, he shall be obliged to sell his interest to the other partners.

Why? Refusal of partner to contribute additional share reflects the lack of interest in the continuance of the partnership.

Question: What obligation does the law impose under Article 1792 upon the managing partners who collect debts?



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ARTICLE 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter.

The provisions of this article are understood to be without prejudice to the right granted to the other debtor by article 1252, but only if the personal credit of the partner should be more onerous to him. (1684)

What if he issued a receipt in the name of the partnership, what does the law impose?

What are the requisites for the application of Article 1792?

1. There exists at least 2 debts, one where the collecting partner is a creditor, and the other, where the partnership is a creditor;

2. both debts are demandable;

3. the partner who collects is authorized to manage and actually manages the partnership.

So it applies to managing partners.

So if he issues a receipt in the name of the partnership, what is the rule? Saan nya i-apply yun? Diba if he collects a debt tapos hindi siya nag-issue ng receipt in the name of the partnership, then it will be applied to his personal debt and that of the partnership. So my question is, what if he issues a receipt in the name of the partnership?

It will be applied to the account of the partnership. Of course.

Take note class. This refers to the right to the debtor to application of payment which is found under Article 1252 of your Civil Code. This is a mode of extinguishment of obligations.

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.

This simply means that a debtor is allowed to specify which debt he is paying. Basta sabi ng law, both debts must be due and demandable.

Question: What obligation does the law impose on a partner under who receives share of the partnership credit?

ARTICLE 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. (1685a)

Why? The debt becomes a bad debt. It would be unjust for that one partner not to share in the loss. Provision is based on community of interest among the partners.

Question: Can you please explain Article 1794?

Article 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized.

Why is that so? That he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. You mean to say, legal compensation cannot take place?

Take note class. This cannot apply because a partner is a debtor and it is his duty to secure profits and benefits for the partnership. Again, legal compensation cannot apply because a partner is a debtor and is his duty to secure profits and benefits for the partnership. Also, it is a partner's duty to observe diligence in the performance if his obligation.

Another reason why legal compensation cannot take place is that in compensation, it is required that the two persons in their own rights are debtors and creditors of each other under your law on obligations and contracts.

What if unusual profits are earned?

If unusual profits are realized through the extraordinary efforts of the partner at fault, the courts may equitably mitigate or lessen his liability for damages. This rule rests on equity.

So in case unusual profits that are earned, then the courts may mitigate the liability of the faulting partner. That is allowed by law.

Question: Who bears the loss of the things contributed?

Article 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them. x x x

You said that if specific and determinate things are fungible, who bears the loss? Who bears the risk of loss of things contributed? What is the rule?

x x x If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised.

If it is not fungible and only the use contributed, it is the partner who bears the loss. Why? Because of the principle of res peruit domino.

What if it is a specific and determinate thing that is contributed to the partnership and the ownership is transferred to the partnership?

Take note. Under Article 1795, here there is already the delivery of the thing that is contributed to the partnership.


You said that it is responsible for the amounts disbursed by the partner in behalf of the partnership, what does it refer to? What are these amounts disbursed in behalf of the partnership? It refers to a loan extended by a partner. Yung first:



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Article 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership and for the corresponding interest, from the time the expense are made; x x x

This refers to the advances extended by a partner in behalf of the partnership. Plus interest from the time the expenses were made. Including interest.

So yung regarding interest, saan mo sya i-reckon? Kasi sabi dito including interest. Is demand necessary in order for that interest to run?

No need for that demand because the rule on agency applies to said partnership.

Second:

x x x ...it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business, x x x

Take note. It is contracted in good faith in the interest of the partnership business. Here, included ang personal obligations incurred by a partner in the ordinary course of the business of the partnership.

So please take note ha. This includes obligations contracted by a partner in the ordinary course of the business of the partnership affairs.

And third:

x x x and for risks in consequence of its management.

May reimbursement be made by a partnership in case of a losing business? For the expenses made by a partner? What if the business is losing? Can you compel a partner to make that reimbusement under Article 1796?

There will be reimbursement. Of course. To avoid unjust enrichment on the part of the partnership. Even in case of failure of the business entered into by the partnership with third persons, reimbursement must be made to the paying partner as long as that paying partner is not at fault.

Can the paying partner exercise his right of retention of things which are the objects of the partnership if he is not reimbursed? No. It is not applicable in contracts of partnership unlike that of agency.

Question: Can you please state the rules on the distribution of the profits and losses?

Article 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

So take note class under Article 1797. A capitalist partner can be an industrialist partner at the same time.

Why is it that an industrial partner is not liable? Or he does not share the losses sustained by the partnership?

Question: Please explain Article 1798.

Article 1798. If the partners have agreed to entrust to a third person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision.

The designation of losses and profits cannot be entrusted to one of the partners.

Why 3-months period?

So take note. When do you question the inequitable designation of the person?

1. You should question that within the 3-month period;

2. If he has already begun to execute the designation, he cannot impugn such designation anymore.

Article 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void.

Why? Because the essence of the partnership is to share profits as well as losses.

Take note. This is what is known as Leonine Partnership.

How about a stipulation exempting a partner from the losses? Is that valid? What is void under Article 1799 is only the stipulation, but the partnership subsists.


Article 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power.

A power granted after the partnership has been constituted may be revoked at any time.

What are the main distinctions with regard to the manager named/appointed in the articles of partnership and who was appointed after the constitution of the partnership? So with regard to the manager appointed at the time of the constitution of the partnership, the rule is that...what kinds of acts can he execute? Can he execute acts of strict dominion vis-a-vis a partnership?

He can perform all administrative acts pertaining to the ordinary course of business of the partnership and his power is irrevocable unless tehre is just and lawful cause and the vote of the partners with a controlling interest.

Why? Bakit irrevocable ang power ng manager when he is appointed during the constitution of the partnership? If there is a change in the terms of the contract of partnership, what will happen?

So with regard to the second who is named after the constitution of the partnership, his power may be revoked with or without cause.

Article 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent



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of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest.

So it refers to where the respective duties of two or more managing partners are not specified and when the unanimity of such action is not stipulated, so Article 1801 applies in such cases. So the opposite of Article 1801 is Article 1802.

Question: What if no partner is named as a manager at the time of the constitution of the partnership? Who will be the manager of said partnership?

Article 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership.

Why does the law require unanimous consent in case of alteration? Because when you do an act of alteration, it is an act of strict dominion. That is why, unanimous consent of all the partners is required.

What is a contract of sub-partnership? The partnership formed between a member of a partnership and a 3rd person for a division of the profits coming to him from the partnership enterprise.

It is a partnership within a partnership.

Does the associate or the partner of a sub-partnership become a member of the main partnership? No. Based on the principle of delectus personae.

And if that sub-partner becomes a member of that original partnership, what will happen to that original partnership?

It will be considered as dissolved. There will be a dissolution of the original partnership because there is now a change in the relationship among the partners.

Article 1803. When the manner of management has not been agreed upon, the following rules shall be observed:

(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of article 1801.

(2) None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. (1695a)

Article 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. (1696)

Question: Explain Article 1805.

Article 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them.

So it shall be kept in the principal place of business. But when can you inspect the books? At any reasonable hour of business.

Question: Article 1806 provides that:

Article 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability.

So this is the partner's obligation to render true and full information.

Question: Explain Article 1807.

Article 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.

When does that duty begin? At the start and is continuous until the termination of the partnership.

Question: Article 1808 provides that:

Article 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary.

Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses.

Take note that the prohibition here against the capitalist partner is only relative, unlike in an industrial partner wherein such prohibition is absolute, unless there is an agreement to the contrary. And any capitalist partner violating this prohibition shall bring to the common funds accruing to him from his transactions, and shall personally bear all the losses.

Question: Please explain Article 1809.

Article 1809. Any partner shall have the right to a formal account as to partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstances render it just and reasonable. (n)

This right to formal accounting—is it available to a partner during the existence of the partnership?

During the existence of partnership, a partner is not entitled to a formal account of partnership affairs for these are already propected in Articles 1805 and 1806.

Ortega vs. CA

Was there a partnership at will here? Yes.

You cannot compel a partner diba to stay in a partnership even if the partnership is constituted with a fixed period or with a particular undertaking. So anytime, you can withdraw provided that you do it good faith. Because if you do it in bad



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faith, you can be held liable.

Moran vs CA

Regarding that unrealized profits, diba here the court awarded unrealized profits. Was that award proper? So take note class that the principle here is that the partners are entitled only to share the profits actually realized and not speculative profits.

Evangelista vs Santos

Here, Evangelista was one of the capitalist partners. So in line with that?

What kind of partner is Estrella Abad Santos here? She is an industrial partner. Tapos, if she is an industrial partner, under the law, she is absolutely prohibited from engaging in any kind of business. What was the work of this Abad-Santos? She is a judge and at the same time a law school professor. Does that prohibition apply to her? No.

Martinez vs Ong Pong Co and Ong Lay

What is the applicable provision here in the case of Ong Pong Co? Is Article 1796 applicable here regarding the obligation of the partnership to refund/reimburse made by a partner in behalf of the partnership? No.

So here, there was no loan extended by any of the partners to the partnership. That is why, there is no amount that should be refunded by the partnership to herein partners.

Fortis vs Hermanos

So his salary is based on what? It is based on the net profits of the business of the defendants for the said year. Before you determine the net profits, you have to deduct all the expenses as well as the losses. So his salary is based on what? 5% of the net profits. So he is not a partner of the partnership but merely an employee of the said partnership.

Tai Tong Chua Che vs Insurance Commission

What power does a partner who is appointed as manager in the articles of partnership perform? He can perform all acts of administration. Here, the manager is Chua. So he was named as manager in the Articles of partnership of Tai Tong. So he can perform all acts of administration including the right to sue the debtors of the partnership.

Bachrach vs la Protectora

So they are solidarily liable here as partners. So when you say solidary liability, what does it mean? Meaning, if you are 3 partners in that said partnership, anyone of you can be sued and is obliged to pay the whole amount of debt.

Was the manager here able to bind the partnership? Yes.

Galvez vs Lo Seng

What knowledge did Pang Lim acquire here? They were partners here right and later on he sued. He filed an action for unlawful detainer against Lo Seng. What knowledge did Pang Lim acquire when he was still a partner of the partnership and which he used against Lo Seng?

There was bad faith. Why?

What duty did this partner violate? The duty to act for the common benefit. A partner cannot use and apply exclusively to his own benefit partnership assets or knowledge.

Lim Tan Hu vs Judge Ramolete

Does that duty to account apply here? No. She is not a partner. Apart from that that she is not a partner? There was knowledge. That's why this duty to account does not apply.

Dan Fue Leung vs IAC

Regarding to the right to accounting, was he entitled to the same? Yes. He filed it 22 years after. But it has not prescribed because dissolution of the partnership happens when the final accounting has already been done. So he is entitled.

Emnace vs CA

Has it already prescribed? No. Why?

SC: Contrary to petitioner’s protestations that respondents’ right to inquire into the business affairs of the partnership accrued in 1986, prescribing 4 years thereafter, prescription had not even begun to run in the absence of a final accounting. Article 1842 of the Civil Code provides:

‘The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary.’

Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited provision states that the right to demand an accounting accrues at the date of dissolution in the absence of any agreement to the contrary.

Ornum vs Lasala

Was Mr. Lasala here entitled to further accounting? No. Why? Here, take note, diba they already received their shares? So they were already precluded from demanding further accounting. This approval precludes any right on the part of the Lasalas to a further liquidation. Because here, a formal accounting is a necessary incident to the dissolution of the partnership.

With regards to the other cases not discussed in class, please read them. I will include them in the exam.

July 18, 2015 (RM)

Section 1: Property Rights of a Partner

Question: What are the property rights of a partner?

Article 1810. The property rights of a partner are:

(1) His rights in specific partnership property;

(2) His interest in the partnership; and

(3) His right to participate in the management. (n)

Why are these considered as property rights of a partner? Because these constitutes property being susceptible of appropriation by the owner.

Question: With regard over the right over specific partnership property, explain article 1811:

Article 1811. A partner is co-owner with his partners of specific partnership property.

The incidents of this co-ownership are such that:



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(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners;

(2) A partner's right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property;

(3) A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws;

(4) A partner's right in specific partnership property is not subject to legal support under article 291. (n)

As a rule right to specific partnership property cannot be assigned because he is not the sole owner of the partnership property. He only co owns it with other partners.

How about during the liquidation stage of the partnership, can that be assigned? Yes after the liquidation before dissolution it can be assigned.

Another reason for its non-assignability.

Take note that during the existence of the partnership it cannot be assigned, why? Assume Partnership of partners A, B and C owns a building, during the partnership partner A cannot assign that building, why?

Because the extent of a partner’s interest over that specific partnership property cannot yet be determined during the existence of a partnership. Diba he is clearly a co owner of the whole property together with the other partners. So that is the reason why as a general rule it is not assignable. So other than that the said specific property during the existence of the partnership does not belong to a specific partner. Diba partnership property rights this constitute property susceptible of appropriation.

So he cannot appropriate it during the existence of the partnership. So as a general rule during the existence of a partnership, any of the partners cannot assign over that specific property, what is the exception to that general rule?

Except if all of the partners assign their rights. So it is not subject to attachment, execution as well as legal support because the said specific partnership property does not belong to that specific partner during the existence of the partnership.

Take note when we say attachment, execution or legal support it pertains to the personal debtor of the partner, that is why hindi pwede during the existence of the partnership but take note ang preferred ng law yung mga partnership debtors that is why sabi nga natin if all the partners assign their rights over that specific partnership property it pertains to that preferred debtor of the partnership and not to the personal debtor of that partner. So the right of a partner in a specific partnership property, as a general rule, is not assignable during the existence of the partnership.

Question: Under 1812, this partners interest in the partnership, is this assignable during the existence of the partnership?

Article 1812. A partner's interest in the partnership is his share of the profits and surplus. (n)

Take note ang kaibahan ng Article 1811 and 1812 is that under 1812 that is assignable (generally assignable) even during the existence of the partnership because partners interest in the partnership, it belongs to him na that’s why he can convey the same even during the existence of the partnership.

Take note, what is the nature of the partner’s interest in the partnership? This consists of his share in the undistributed profit during the life of the partnership as a going concern and his share in the undistributed surplus after its dissolution. So it is assignable.

How about, can it be attached or subject to execution or legal support? Yes because to belongs na to the said partner. Please take note of those distinctions.

Question: Explain Article 1813. Diba a partner’s interest is assignable. What are the rights of that assignee? Yung share in the undistributed profits ba pwede mo i0assign sa ibang tao, because you are granted by law to right, the right to assign the same. Pwede yun, that is your right to associate with another person in terms of profits.

Article 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. (n)

Rights of assignee of partner’s interest:

1.) To receive in accordance w/ his contract the profits accruing to the assigning partner;

2.) To avail himself of the usual remedies provided by law in the event of fraud in the management;

3.) To receive the assignor’s interest in case of dissolution;

4.) To require an account of partnership affairs, but only in case the partnership is dissolved, and such account shall cover the period from the date only of the last account agreed to by all partners.

Will that assignment divest that partner if his status as a partner in that partnership?

It will not divest him of his status as a partner, nor will that assignee become a member of that partnership because of the principle of delectus personae.

Take note the assignee will not become a member if the partnership because of the principle of delectus personae and if he will be admitted as a new partner of the new partnership, what will happen to the partner of that old partnership? A partner’s conveyance of his interest in the partnership operates as a dissolution of the partnership only when it is clear that the parties contemplated and intended the entire withdrawal from the partnership of such partner and the termination of the partnership as between the partners.



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Okay so the rule is that it will not cause the dissolution of the partnership unless there is a contrary intention and unless they allow the assignee to become a member of the old partnership because in that case if a new member becomes a member of that old partnership, that is now a change in the relation among the partners.

Question: Explain 1814.

Article 1814. Without prejudice to the preferred rights of partnership creditors under article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require.

The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution:

(1) With separate property, by any one or more of the partners; or

(2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold.

Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. (n)

So discharging order is the remedy granted to the personal creditor of that partner.

So assume that one of the partners he incurred personal obligation and his personal creditor filed a case against him and there is already a final order or judgment kasi sabi natin it presupposes that there is already a judgment that is final and executor and the writ of execution is returned unsatisfied, kasi hindi nabayaran ni partner ang buong amount of debt.

If you are the separate creditor, what is your remedy? Your remedy is found under Article 1814, you apply in court a charging order.

Should there be a separate action? There is no need to file a separate action, you can file a motion in court in relation to sec 14 of Rule 39:

Sec. 14. Return of writ of execution.

The writ of execution shall be returnable to the court issuing it immediately after the judgment has been satisfied in part or in full. If the judgment cannot be satisfied in full within thirty (30) days after his receipt of the writ, the officer shall report to the court and state the reason therefor. Such writ shall continue in effect during the period within which the judgment may be enforced by motion. The officer shall make a report to the court every thirty (30) days on the proceedings taken thereon until the judgment is satisfied in full, or its effectivity expires. The returns or periodic reports shall set forth the whole of the proceedings taken, and shall be filed with the court and copies thereof promptly furnished the parties.

Another section is Sec 40 of Rule 39, this is similar to charging order.

Sec. 40. Order for application of property and income to satisfaction of judgment.

The court may order any property of the judgment obligor, or money due him, not exempt from execution, in the hands of either himself or another person, or of a corporation or other juridical entity, to be applied to the satisfaction of the judgment, subject to any prior rights over such property. If, upon investigation of his current income and expenses, it appears that the earnings of the judgment obligor for his personal services are more than necessary for the support of his family, the court may order that he pay the judgment in fixed monthly installments, and upon his failure to pay any such installment when due without good excuse, may punish him for indirect contempt.

So take note of section 40 of Rule 39, similar sya to this remedy of charging order.

Question: Is it mandatory for a partnership to operate under a firm name? Yes.

Article 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.

Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. (n)

But is it necessary for its existence? No, because a partnership is consensual in nature.

How about fictitious name can they use that? No, the partners cannot use a name that is identical or deceptively confusingly similar to that of any existing partnership or corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws, as to mislead the public by passing itself off as another partnership or corporation, or its goods or services as those of such other company.

So those are the limitations imposed by law that they cannot use misleading name.

How about the name of a deceased partner, can they use that? Yes. Rule 3.02 of the Code of Professional Responsibility provides that the continued use of the name of a deceased partner is permissible provided that the firm indicates in all its communications that said partner is deceased.

How about if the partnership included in the firm name the name of the stranger, is that allowed? What is the liability of the stranger? So he will be liable under the doctrine of estoppel, partner by estoppel.

Question: Explain 1816. State the liability of partners for contractual obligations of the partnership.

Article 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract.

So the rule is that the partners are liable pro rata for partnership debts.



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What is pro rata? So it is based on the number of partners and not based on their capital contribution. So the general rule is that they are liable pro rata.

When are they liable solidarily? If they agreed to a solidary liaibility. So:

1st exception - if the partners agree to a solidary liability

2nd - exception under 1822 liability for torts

3rd - under 1823 for misappropriation.

Under 1816, sabi dito all partners including industrial partners, why? Diba sabi natin industrial partners hindi sya mag share ng liabilities ng partnership because he only contributes his industry, why is he liable here?

So here because 1816 speaks about the inability of the partnership to pay a debt to a 3rd person at a particular time. Take note of that class, that’s why included di industrial partner because the partnership is unable to pay a debt to a 3rd party at a particular time that’s why all the partners are liable pro rata or the said partnership debts.

Under 1817, Any stipulation against the liability laid down in the preceding article shall be void, except as among partners. Okay that is self explanatory provision.


Article 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.

An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners.

Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:

(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership;

(2) Dispose of the good-will of the business;

(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;

(4) Confess a judgment;

(5) Enter into a compromise concerning a partnership claim or liability;

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

(7) Renounce a claim of the partnership.

No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. (n)

The rule is that every partner is regarded as an agent of the partnership as well as of the partners. So when the manner of management has not been agreed upon, all the partners shall be considered agent and whatever anyone of them shall do will bind the partnership that’s why notice to anyone of partners is notice to the partnership and vice versa.

What are the 2 kinds of acts contemplated under 1818.

1.) Acts for apparently carrying on in the usual way the business of the partnership.

Under this, acts in the usual course of business refers to acts of administration. It will bind the partnership unless the partner had in fact no authority and the sad 3rd person dealing with him with knowledge of those facts.

2.) Acts in numbers 1 to 7 of ART. 1818 refers to acts of strict dominion.

Can anyone of the partners execute acts 1 – 7? Will it bind the partnership? The partnership, as a general rule, will not be bound unless there is authorization by all other partners or unless they have abandoned the business.

So please take note of that. Acts of administration v acts of dominion. If acts of administration, it will bind the partnership as a general rule and anyone of the partners can perform the same because each of the partners are regarded as agents of the partnership. If acts of strict dominion as enumerated under 1-7, the rule is that it will not bind the partnership unless the said partner was authorized by his co partners.

Question: Explain 1819. (This was only read)

ARTICLE 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority.

Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of article 1818.

Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of the first paragraph of article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge.

Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of article 1818.

Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property. (n)

Question: A1820 provides:

ARTICLE 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership. (n)

Why? So the general rule is that it is inadmissible in evidence because it constitutes hearsay, that is found under Rule 130, sec 28 of Rules of court, the right of a party cannot be



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prejudiced by acts, declaration or omission of another except admission by a copartner by an agent, why? Or what must be proved before the partnership is liable by admission by a partner?

There must be:

An admission or representation made in connection with the partnership affairs.

It is within the scope of the partners authority.

It is made during the existence of a partnership.

How about if you made an admission after dissolution of the partnership, wll that be binding upon the partnership? Halimbawa na-dissolve na and kinasuhan si partnership, na put on witness stand si partner and he made an admission against the dissolved partnership.

The rule is that it will be binding upon the partnership only if said admission is connected with the winding up of the affairs of the firm. Why? Bakit siya bound by the admission made by the partner? Because sabi nga natin diba, every partner is regarded as an agent of the partnership.

Question: What is the liability under 1822?

ARTICLE 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. (n)

The solidary liability of the partners and the partnership to 3rd persons for the wrongful act or omission or breach of trust of a partner acting within the scope of the firm’s business or with the authority of his co-partners.

Why solidary liability? To protect 3rd persons that’s why solidary liability.

Is a court action necessary to enforce this solidary liability rule under 1822? It depends upon the grieved person. Take note under 1822 it pertains to liability for tort (crimes and quasi-delict). Take note this is a solidary liability under 1822.


ARTICLE 1823. The partnership is bound to make good the loss:

(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)

The article applies for liability for money or property, here the property is delivered and received by a partner acting within the scope of his authority and he misapplied what he received.

You said misappropriation, my question is that synonymous to misapplication? No. In misappropriation there is intention to use it for another purpose whereas misapplication is merely the misuse of that money or property for another or separate purpose so it is not synonymous.

The liability here is that it is solidary liability take note the partnership here is solidarily liable with the misappropriating partner.

What is meant by solidary liability? The 3rd person can claim from any of the partners the amount.

ARTICLE 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under articles 1822 and 1823. (n)

Diba sabi natin general rule, ang liability ng partners is it is only not solidary, solidary lang if tort, misaapropriation and when they agreed to a solidary liability.

Question: What is the main distinction when you say partner by estoppel and partnership by estoppel?

ARTICLE 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:

(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;

(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.

When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n)

He is a partner by estoppel if the representation is made by one person only that he is a partner “kuno”. There is partnership by estoppel where the representation involves several persons pretending to be a firm.

In order for estoppel to apply, what must be the nature of the said representation or admission?

It must be plain and clear to the 3rd person who relied on the same or who received the admission or representation.

Here we are talking about estoppel, what kind of estoppel is this?

This is estoppel in pais because a person by words spoken or written or by his conduct so the kind of estoppel is estoppel in pais.

What are the requisites to make a person a partner by estoppel?

Elements to establish liability as a partner on ground of estoppel are the following:

1.) Proof by plaintiff that he was individually aware of the defendant’s representations as to his being a partner or that such representations were made by others and not denied or refuted by the defendant;



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2.) Reliance on such representations by the plaintiff; and

3.) Lack of any denial or refutation of the statements by the defendant.

Who has the burden of proving estoppel? Whoever alleges the existence of a partner or partnership by estoppel has the burden of proving the same, so it is the 3rd person because it is the 3rd person who extended credit or who made that representation.

Does estoppel create relationship? No. Estoppel only creates liability and not relationship.

Question: Why is the newly admitted partner liable for the existing obligation of the partnership?

ARTICLE 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. (n)

He is liable for the existing obligation of the partnership but his liability (newly admitted partner) is limited to what he has contributed t the partnership unless there is contrary stipulation but the said new partner will be liable for his separate property when the obligation was incurred when he was already a partner.


ARTICLE 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets. (n)

(Recited but this is the only part na marinig ko) the creditors of each partner may ask for the attachment and public sale of the share of the latter in the partnership assets after the liquidation of the partnership.

July 21, 2015 (AC)

Deluao vs. Deluao

So there were two contracts of partnership here? What was the basis of the Supreme Court in saying that there was a contract of partnership? How about the contract of services executed between the parties? That contract of service, was that not the partnership agreement? Diba they executed a contract of service? How did the Supreme Court construe that agreement?

Take note that there was a contract of partnership in this case. The contract of service is the memorandum of their partnership agreement. Here, it is how the Supreme Court construed the contents of the contract of service. There was an intention here between the parties to divide the fishpond.

In relation to the property rights of the partners, what was the ruling of the Supreme Court? Can you compel Deluao here to execute the formal transfer of the fishpond? Diba it was declared unlawful kay the purpose was unlawful?

Supreme Court Ruling: It was held that the second part of the contract of partnership between the parties to divide the fishpond between them after the award was illegal and therefore no rights or obligations could have arisen therefrom. Inescapably, no trust could have resulted because trust is founded on equity and can never result from an act

violative of the law.

Art. 1452 of the Civil Code does not support the Deluaos' stand because it contemplates an agreement between two or more persons to purchase property — capable of private ownership — the legal title of which is to be taken in the name of one of them for the benefit of all. In the case at bar, the parties did not agree to purchase the fishpond, and even if they did, such is prohibited by law, a fishpond of the public domain not being susceptible of private ownership.

Lozana vs. Depakakibo

The act of selling, what is that kind of act? It is an act of strict dominion. Diba sabi natin na if acts of strict dominion, it requires the consent of all the partners for it to be a valid transaction.

SC: As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein that there bas been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel Engine on October 15, 1955, and since the court below had found that the plaintiff had actually contributed one engine and 70 posts to the partnership, it necessarily follows that the Buda diesel engine contributed by the plaintiff had become the property of the partnership. As properties of the partnership, the same could not be disposed of by the party contributing the same without the consent or approval of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).

Navarro vs. Escobido

What is the basis of the Supreme Court in saying that the said business is conjugal? Here, the SC applied the provision of the Family Code (Article 124). Bakit hindi community of property? Bakit conjugal? Diba under the Family Code, kung hindi nag-stipulate property relations what will govern, diba it is absolute community of property? What proof did the wife present here?

In relation to partnership, anong ruling ng Supreme Court dito? As partners, they have equal right to possess, including the right to sue in court.

SC: Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property.

Article 124 of the Family Code, on the administration of the conjugal property, provides:

Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. xxx

This provision, by its terms, allows either Karen or Glenn Go to speak and act with authority in managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain the consent of the other before performing an act of administration or any act that does not dispose of or encumber their conjugal property.

Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or by the spouses in their marriage settlements. In other words, the property relations of the husband and wife shall be governed primarily by



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Chapter 4 on Conjugal Partnership of Gains of the Family Code and, suppletorily, by the spouses’ marriage settlement and by the rules on partnership under the Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go, we look at the Civil Code provision on partnership for guidance.

A rule on partnership applicable to the spouses’ circumstances is Article 1811 of the Civil Code, which states:

Art. 1811. A partner is a co-owner with the other partners of specific partnership property.

The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; xxx

Under this provision, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the properties registered under this name; hence, both have an equal right to seek possession of these properties. Applying Article 484 of the Civil Code, which states that "in default of contracts, or special provisions, co-ownership shall be governed by the provisions of this Title," we find further support in Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with respect to the co-owned property.

Mendiola vs. CA

Here, there was no partnership that existed between the petitioner and respondent although they shared in the profits.

SC: We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-ownership exists between the parties. In a partnership, the members become co-owners of what is contributed to the firm capital and of all property that may be acquired thereby and through the efforts of the members. The property or stock of the partnership forms a community of goods, a common fund, in which each party has a proprietary interest.

In fact, the New Civil Code regards a partner as a co-owner of specific partnership property. Each partner possesses a joint interest in the whole of partnership property. If the relation does not have this feature, it is not one of partnership. This essential element, the community of interest, or co-ownership of, or joint interest in partnership property is absent in the relations between petitioner and private respondent Pacfor.

Petitioner is not a part-owner of Pacfor Phils. William Gleason, private respondent Pacfors President established this fact when he said that Pacfor Phils. is simply a theoretical company for the purpose of dividing the income 50-50. He stressed that petitioner knew of this arrangement from the very start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and not a branch office in the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not make a partnership.

Realubit vs. Jaso

So an assignee of a partner’s sole interest is entitled to right of accounting? Remember that the assignee does not become a partner. So as a general rule, he is not entitled. He is only entitled upon the dissolution of the partnership and only from the time of the last accounting of the partnership.

SC: “Generally understood to mean an organization formed

for some temporary purpose, a joint venture is likened to a particular partnership or one which has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.

The rule is settled that joint ventures are governed by the law on partnerships which are, in turn, based on mutual agency or delectus personae. Insofar as a partners conveyance of the entirety of his interest in the partnership is concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contracts the profits to which the assigning partners would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his assignors interest and may require an account from the date only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that (t)he transfer by a partner of his partnership interest does not make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignees profits. The assignment does not purport to transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital.

Since a partners interest in the partnership includes his share in the profits, we find that the CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondos share in the profits, despite Juanitas lack of consent to the assignment of said Frenchmans interest in the joint venture. Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the joint venture conformably with the right granted to the purchaser of a partners interest under Article 1831 of the Civil Code.”

July 24, 2015 - Cutie

In re: Sycip

What is the limitation with regard to the use of the firm name? The name of a deceased partner in a general professional partnership cannot be used by the surviving partners. Why? How about if it is not a general professional partnership? Assume that we have a law firm and they still include in their name the name of a deceased partner, is that allowed? They have to indicate in all their communication that the said partner is already deceased.

How about if it is a business partnership? Assume that there are three partners in the partnership with name “ABC”. Now partner C died. Can that partner still continue and use the name of the partnership “ABC”? Will the death of C cause the



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dissolution of the original partnership? Can they still continue to use the name of “ABC”? Assume that they still continue to use the name “ABC” and a partnership liability is incurred, what is the limitation imposed by law? This is commercial partnership ha.

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.

Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability, of a partner.

SC: “It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and. in the case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including his name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers.

The public relations value of the use of an old firm name can tend to create undue advantages and disadvantages in the practice of the profession. An able lawyer without connections will have to make a name for himself starting from scratch. Another able lawyer, who can join an old firm, can initially ride on that old firm's reputation established by deceased partners.

Article 1840 treats more of a commercial partnership with a good will to protect rather than of a professional partnership, with no saleable good will but whose reputation depends on the personal qualifications of its individual members. As a general rule, upon the dissolution of a commercial partnership the succeeding partners or parties have the right to carry on the business under the old name, in the absence of a stipulation forbidding it, (s)ince the name of a commercial partnership is a partnership asset inseparable from the good will of the firm.

On the other hand, ... a professional partnership the reputation of which depends or; the individual skill of the members, such as partnerships of attorneys or physicians, has no good win to be distributed as a firm asset on its dissolution, however intrinsically valuable such skill and reputation may be, especially where there is no provision in the partnership agreement relating to good will as an asset.

A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a particular purpose. ... It is not a partnership formed for the purpose of carrying on trade or business or of holding property." Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law practice is improper.

xxx

It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or former partner's name in the firm names of law partnerships. Firm names, under our custom, Identify the more active and/or more senior members or partners of the law firm. A glimpse at the history of the firms of petitioners and of other law firms in this country would show how their firm names have evolved and changed from time to time as the composition of the partnership changed. The continued use of a firm name after the death of one or more of the partners designated by it is proper only where sustained by local custom and not where by custom this purports to Identify the active members.”

Teck Seing vs. Pacific Commercial

There is a general partnership here instead of a limited partnership so there is an unlimited liability.

The legal intention deducible from the acts of the parties controls in determining the existence of a partnership. If they intend to do a thing which in law constitutes a partnership, they are partners, although their purpose was to avoid the creation of such relation. Here, the intention of the persons making up Teck Seing & co., Ltd. was to establish a partnership which they erroneously denominated a limited partnership. If this was their purpose, all subterfuges resorted to in order to evade liability for possible losses, while assuming their enjoyment of the advantages to be derived from the relation, must be disregarded. The partners who have disguised their identity under a designation distinct from that of any of the members of the firm should be penalized, and not the creditors who presumably have dealt with the partnership in good faith.

PNB vs. LO

What is their liability? What is the general rule under Article 1816? As a general rule, they are liable pro-rata but subject to objections.

SC: The defendant association formed by the defendants is a general partnership, as defined in article 126 of the Code Commerce and was even registered in the mercantile registry of Iloilo. The only anomaly noted in its organization is that instead of adopting for their firm name the names of all of the partners, of several of them, or only one of them to be followed in the last two cases, by the words "and company" the partners agreed upon "Tai Sing & Co." as the firm name. The Supreme Court held that the anomalous adoption of the firm name above noted does not affect the liability of the general partners to third parties under article 127 of the Code of Commerce. Therefore, the defendants cannot invoke in their defense the anomaly in the firm name which they themselves adopted.

The judgment against the appellants is in accordance with article 127 of the Code of Commerce which provides that all the members of a general partnership, be they managing partners thereof or not, shall be personally and solidarily liable with all their property, for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person authorized to use it.

Co-Pitco vs. Yulo

What is meant by pro rata liability? Is it based on what? On Article 1816. It based on the number of the partners and not based on their capital contribution. So they are partners here?

SC: Being a civil partnership, the partners are not liable each for the whole debt of the partnership. The liability isPro ratA and in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country can not increase the liability of Pedro Yulo. The judgment of the court below is reversed and judgment is ordered in favor of the plaintiff and against the defendant, Pedro Yulo, for the sum of P819.20 pesos, Philippine Currency, with interest thereon at the rate of 6 per cent per annum from the 12th day of January, 1905, and the costs of the Court of First Instance. No costs will be allowed to either party in this court. So ordered.

Munasque vs. CA

So Munasque and Galan here were partners? Yes. What is



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the liability of the partners here? Solidary. Is the third party required in this case?

SC: While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 and 1823.The obligation is solidary because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent.

Tropical had every reason to believe that a partnership existed between Munasque and Galan and no fault or error can be imputed against it for making payments to “Galan and Associates” because as far as it was concerned, Galan was a true partner with real authority to transact in behalf of the partnership it was dealing with (because in the first place they entered into a duly registered partnership name and secondly, Munasque endorsed the first check payment to Galan). This is even more true in the cases of the intervenors who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole.

However, as between Munasque and Galan, Galan must reimburse Munasque for the payments made to the intervenors as it was satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner

Island Sales vs. United

There is partners in this case who transacted with Island Sales. They purchased water vehicles. They failed to pay so they were sued by Island Sales.

SC: In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff.

Tiosejo vs. Ang

The general rule again is that there is a pro rata liability. There are exceptions when:

1. There is a contrary stipulation

2. Liability for tort

3. Liability for misappropriation

SC: Moreover, a joint venture is considered in this jurisdiction as a form of partnership and is, accordingly, governed by the law of partnerships. Under Article 1824 of the Civil Code of the Philippines, all partners are solidarily liable with the partnership for everything chargeable to the partnership, including loss or injury caused to a third person or penalties incurred due to any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co- partners. Whether innocent or guilty, all the partners are solidarily liable with the partnership itself.

Section 3: Dissolution and Winding Up

Question: How do you define dissolution of partnership? It refers simply to any change to the relationship of the parties.

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.

Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.

How do you define winding up of partnership? The process of settling the biz or partnership affairs after dissolution.

How about termination of the partnership? That point in time when all the affairs are completely wound up and finally settled.

What are the effects of dissolution of the partnership as to partners?

Partnership is not yet terminated It continues for a limited purpose Generally, transaction of new business is prohibited

How about the obligations obtained by the party prior to the dissolution?

Who is liable for the previous obligation?

How about with regard to new obligations? As a general rule, it is prohibited except when the new obligations are essential to the winding up of the partnership affairs.

Question: How about the effects of the dissolution of the membership of the partnership?

Art.1830. Dissolution is caused:

1.) Without violation of the agreement between the partners:

a.) By the termination of the definite term or particular undertaking specified in the agreement;

b.) By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified;

c.) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking;

d.) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners;

2.) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;

3.) By any event which makes it unlawful for the business of the partnership to be carried out on or for the members to carry it on in partnership;

4.) When a specific thing, a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the



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loss of the thing when it occurs after the partnership has acquired the ownership thereof;

5.) By the death of any partner;

6.) By the insolvency of any partner or of the partnership;

7.) By the civil interdiction of any partner;

8.) By decree of court under the following article.

Under Article 1830, there are generally eight grounds for the dissolution of the partnership.

Loss of a specific thing is a ground for the dissolution of the partnership. When is there deemed lost of a specific theme?

What if there is a lost of a determinate thing prior to the delivery of a thing? It is the owner pursuant to the principle of res perit domino.

What if what is delivered is a general thing?

What if only the usufruct of that thing is contributed to the partnership?

What if there is civil interdiction of one of the parties? Will it cause dissolution?

What if the person is accused is charged of rape and the evidence against him is strong?

Art. 1831. On application by or for a partner, the court shall decree a dissolution whenever:

1.) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;

2.) A partner becomes in any other way incapable of performing his part of the partnership contract;

3.) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

4.) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;

5.) The business of the partnership can only be carried on at a loss;

6.) Other circumstances render a dissolution equitable;

On the application of the purchaser of a partner’s interest under Article 1813 or 1814:

1.) After the termination of the specified term or particular undertaking;

2.) At any time if the partnership was aa partnership at will when the interest was assigned or when the charging order was issued.

Assume that today the court rendered a decision declaring that the said partnership is dissolved, when do you reckon the time of dissolution? Is it immediately effective? No, after the judgment has become final and executory which is 15 days from the time of judgment.

Art. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership:

1.) With respect to the partners,

a.) When the dissolution is not by theact, insolvency or death

of a partner; or

b.) When the dissolution is by such act,insolvency or death or a partner, in cases where Article 1833 so requires;

2.) With respect to persons not partners, as declared in Article 1834.

Question: What if the dissolution is by an act of insolvency or death of a partner?

Art. 1833. Where the dissolution is caused by the act, death or insolvency of partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless:

1.) The dissolution being the act of any partner, the partner acting for the partnership had knowledge of the dissolution; or

2.) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency.

If a partner has knowledge of the death or insolvency, what is the rule? The rule is that the partnership is dissolved by an act, death or insolvency of a partner. In such a case, despite dissolution, a partner remains liable to his co-partners for his share in any liability incurred by a partner in a partnership as if there is no dissolution.

Exceptions: The partner is not bound if:

1. He has knowledge of the fact of the death, insolvency or acts

2. He has notice of the same

Art. 1834. After dissolution, a partner can bind the partnership except as provided in the third paragraph of this article:

1.) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution; or

2.) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction:

a.) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or

b.) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on.

The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution:

1.) Unknown as a partner to the person with whom the contract is made; and

2.) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it.

The partnership is in no case bound by any act of a partner after dissolution:

1.) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or



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2.) Where the partner has become insolvent; or

3.) Where the partner has no authority to wind up partnership affairs, except by a transaction with one who –

a.) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or

b.) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2.

Nothing in this article shall effect the liability under Article 1825 of any person who after dissolution represents himself or consents to another representing him as a partner in a partnership engaged in carrying in business.

Under number 1 and 2, the partnership is liable. When is it no longer liable?

What is the liability of a person who pretends to be a partner in a dissolved partnership and he enters into a transaction later? He is liable of a partner by estoppel.

Art. 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner.

A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business.

The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts.

Question: How about the estate of the partner who has been dead?

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court.

Question: How about the filing of the collection cases in court?

ART 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of article 1835, he shall receive in cash only the net amount due him from the partnership.

When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows:

(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and

(b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement.

(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities.

(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article.

(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered. (n)

Under Article 1837, what ar the rights of the innocent parties? When you speak of innocent parties, who are they? They are those who have caused the dissolution of the partnership. What are the rights of a guilty party?

Question: What is goodwill?

Art. 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled:

1.) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to 3rd persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him;

2.) To stand, after all liabilities to 3rd persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and

3.) To be indemnified by the person guilty of fraud or making the representation against all debts and liabilities of the partnership.

Under Article 1838, what are the rights of the parties who are entitled to annul the marital contracts?



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1.) Right of lien on, or retention of, the surplus of partnership property after satisfying partnership liabilities for any sum of money paid or contributed by him;

2.) Right to subrogation in place of partnership creditors after payment of partnership liabilities; and

3.) Right of indemnification by the guilty partner against all debts and liabilities of the partnership.

This article speaks of annulment of a partnership contract, why not rescission? Rescission applies to rescissible contracts and not voidable contract.

ARTICLE 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary:

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.

(2) The liabilities of the partnership shall rank in order of payment, as follows:

(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and profits,

(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.

(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities.

(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.

(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number.

(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has paid in excess of his share of the liability.

(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.

(8) When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors.

(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order:

(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribution. (n)

But the general rule is that: What will govern the process of liquidation – the agreement of the parties. Except under Article 1839.

What if the assets of the partnership are not sufficient to satisfy the liabilities of the partnership? They will be required to make additional contribution because of the principle that they are all general liability.

August 8, 2015 (RM)

[A 1839] This speaks of the preferences of payment of the partnership liabilities. The general rule is that, sabi natin the rule is that, the process of liquidation or the preference with regard to payment of partnership liabilities is based on the agreement of the parties so in the absence of agreement of the parties, Article 1839 will apply.

So what is the order of preference, so based on Article 1839:

1st, those owing to creditors other than partners of the partnership.

2nd, those owing to partners other than for capital and profits. No. 2 refers to the loans and advances made by the partners to the partnership.

3rd, those owing to partners in respect of capital,

4th, those owing to partners in respect of profits.

Based on the order of preference in Article 1839, no. 1 the creditors of the partners re preferred over them, why? Or why are the partners not preferred over the creditors of the partnership? Diba sabi natin the loans of the partners to the partnership will be paid after the creditors of the partnership are paid, why?

So the outside creditors are preferred so that if the partners are preferred, the outside creditors are defrauded. Imagine if the partners will be paid first they will obviously protect their own interest to the prejudice of the outside creditors. So the principle to be remembered is that the return of the partner’s share is dependent on the discharge of the outside creditors (note: this is a bar Q, regarding the order of preference)

So the principle there is the return of partner’s share is dependent on the discharge of the creditors.

Now assume that the assets of the partnership are insufficient to pay off the creditor, what is the remedy?

So the rule is that the partners are required to make additional contribution to satisfy the partnership’s liability and if the further refuse, the proper remedy is to file a petition in court for its enforcement.

Question: So when does article 1840 apply?

ARTICLE 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;

(3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or



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more third persons who promise to pay the debts and who continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud.

The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. (n)

[It applies] when there is dissolution of the old partnership but the remaining partners continue the business of the partnership without liquidation or without the proper liquidation.

What are those 6 situations when there is dissolution when there is change in the membership of the partnership, based on Article 1840.

1.) New partner is admitted;

2.) Partner retires and assign their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs;

3.) Partner dies and the business of the old partnership is continued;

4.) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;

5.) When any partner wrongfully causes a dissolution and the remaining partners continue the business

6.) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs.

So what is the rule with regard to creditors of the new partnership under Article 1840? What will happen now to the creditors of the old partnership? Diba sabi natin there was an old partnership that was dissolved because of the grounds

under Article 1840, now the question is diba nag-continue ng business without stipulation, what will happen now to the creditors of that old partnership?

The creditors of the old partnership are still the creditors of the new partnership, so they are preferred creditors.

How about the liability of the new partner? Nag continue ng business ang dissolved partnership, what is the liability of the new partner?

The liability of the new partner, based on the article, shall be satisfied out of the partnership property, unless otherwise stated.

Why is his liability taken out of partnership, property, diba sabi natin the liability of the new partner shall be satisfied out of the partnership property only?

New partner is liable to partnership’s old creditor but the liability is limited to capital contribution unless otherwise stated.

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

Article 1841 applies when a partner retires or dies and the business of the partnership is continued without any settlement of the accounts.

So the rights are:

1.) To have the value of the interest of the retiring partner or deceased partner in the partnership ascertained as of the date of dissolution and

2.) To receive thereafter, as an ordinary creditor, an amount equal to the value of his share in the dissolved partnership with interest, or, at his option, in lieu of interest, the profits attributable to the use of his right.

So with regard to the right mentioned, does this pertain to settlement of accounts? Sabi kasi natin in 1841 the partner dies without any settlement of accounts (nag-continue ang business ng partnership) so there are certain rights provided under 1841, with regard to the 1st right to have the value of the interest of the retiring or deceased partner ascertained as of the date of the dissolution (and take note the 2nd right provides, to receive thereafter the amount equal to the value of his share), does that refer to settlement of accounts?

Yes, part of the settlement/liquidation process/aspect of the partnership. Even if in the said article it said that it is continued without liquidated but it provides that he has the right to ascertain his interest in the partnership as of the date of dissolution.

ARTICLE 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against



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the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary.

Under Article 1842, when can a partner demand an accounting of his interest?

It is on the date of dissolution of the partnership unless otherwise agreed upon, so that if they agreed that it will be a yearly accounting, that agreement prevails.

Under 1809 on the right to demand accounting, can you please distinguish between the 2 provisions. Diba sabi natin during the existence of the partnership, can you demand for an accounting of your interest?

As a GR, you cannot demand accounting of your interest during the existence of the partnership. An exception to this is under 1809 is you can demand accounting:

1. If you are wrongfully excluded from the partnership business or

2. Such right to demand accounting exists in the articles of the partnership or

3. As provided in Article 1807 where every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other and

4. Whenever other circumstances render it just and reasonable.

So to demand accounting during the existence of the partnership is not a matter of right except under the 4 mentioned circumstances, however upon dissolution of the partnership the right to demand an accounting is a matter of right and it begins on the date of the dissolution.

How about the prescription of this right to demand accounting, when? How many years? We start counting the prescription if there is already final accounting. How many years?

So the general law on prescription under the Civil Code will apply.

If there is written contract or when there is Articles of Partnership – 10 years from the time of final accounting, otherwise it is 6 years.

Be sure to know the distinction between 1809 and 1842.

Idos vs. CA

So the check issued here was not in payment for Alarilla’s (partner) share but merely evidence of share or interest in the partnership.

Estate of Mota v Serra

So in other words, even during the dissolution stage, based n this case , until the winding up there is no dissolution and until that time the liabilities of the partners is not extinguished. So here they were obliged to make the 150,000 contribution.

Tocao v CA

This is a partnership at will. However any one of the partners cannot in bad faith … He can unilaterally with draw but it should be done in goodfaith otherwise he will be liable for damages. So here it was dissolved, so what was the best evidence here to show that it was still in the dissolution stage? Based on the case of Idos v CA the best evidence that it is still in the dissolution stage is there were unaccounted and unremitted stocks, diba here. So based on the Idos case

the best evidence on the existence of the partnership which was not yet terminated were the unsold goods and uncollected receivables which were presented to the trial court. So here there were unremitted stocks of Gimenese Enterprise amounting to 280,000.

Goquiolay vs. Sycip

So there was no dissolution in this case because it was expressly provided in the article of partnership (They expressly stipulated in the Articles of Partnership that in case of death of either partner "the co-partnership ... will have to be continued" with the heirs or assigns). So the widow became a general partner of the partnership and no a mere agent so she could execute acts of administration.

Primelink vs. Lazatin

So was entitled to wind up the partnership affairs in this case? Based on this case it is the innocent parties who has the right to wind up the partnership affairs. However under the law who is entitled to wind up the affairs? As a general rule it is based on the agreement of the parties, otherwise those innocent partners who have not wrongfully cause d the dissolution of the partnership.

Magdusa vs. Albaran

So again with regard to the order of preference regarding the share of the partner, it cannot be retuned 1t without liquidation because the return is dependent upon the discharge of the partnership creditors. Diba sabi natin 1st you have to pay the outside creditors and after the partners other thatn their capital and profits, next those owing to the partners in respect of capital and finally those owing to them in respect of their profits.

Ng Cho Cio vs. Ng Diong

So here was the managing partner named in the articles of partnership? Diba the general rule is that sabi natin in the absence of an agreement as to who is the managing partners, all the partners in a general partnership are the managing partners in the said partnership. So here was he named in the articles of partnership? Yes he have the necessary authority to liquidate its affairs under its articles of co-partnership.

YU vs. NLRC

So who was obliged here to pay for the wages of this Mr. Yu (employee of the old partnership)? The new partnership because under article 1840 we said that the old creditors are preferred.

De la Rosa vs Ortega

So it is possible to determine the profits if there is no liquidation? In this case that is what happened because of accounts were already destroyed because there was no liquidation for the period of years so what the court did was they got the average profit for the years that was liquidated and applied it to the years that could not be liquidated. So based on this they are able to determine profits although there was no liquidation of the partnership.



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CHAPTER 4. LIMITED PARTNERSHIP

Question: Define limited partnership.

ARTICLE 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership.

So the definition is provide for under 1843 of the Civil Code. In a limited partnership there are general partners as well as limited partners.

Why is it called limited partnership?

Because some of the partners do not have general liability or their liability to the partnership is limited to their capital contribution or investment to the partnership and their personal property is not liable unlike general partners they have unlimited liability. Meaning their liability even extends to their own property.

What happens to a limited partnership that has not complied with the law of its creation?

The limited partnership will be considered a general partnership with regard to 3rd persons but as to the partners themselves they are still limited partners. So it is only regarded by law as a general partnership.

Can a limited partnership be created orally?

No, because the Requirements for formation of a limited partnership are as follows:

1.) The certificate or articles of the limited partnership which states the matters enumerated in the article, must be signed and sworn to; and

2.) Such certificate must be filed for record in the Office of the SEC.

So there must be a written *** unlike a general partnership.

General partner Limited partner

Personally liable for partnership obligations.

Liability extends only to his capital contribution.

When the manner of mgt has not been agreed upon, all of the general partners have an equal right in the mgt of the business.

No share in the mgt of a limited partnership. He becomes liable as a general partner if he takes part in control of business.

May contribute money, property, or industry.

Must contribute cash or property. Not services.

Proper party to proceedings by or against partnership.

NOT a proper party in such proceedings.

His interest cannot be assigned as to make the assignee a new partner w/o the consent of the other partners.

His interest is freely assignable, with the assignee acquiring all the rights of a limited partner subject to certain qualifications.

His name may appear in the firm name.

Generally, his name must not.

Prohibited from engaging in a business which is of the

No such prohibition.

kind of business in which the partnership is engaged (if capitalist) or any business for himself (if industrial).

His retirement, death, insanity, or insolvency dissolves the partnership.

His retirement, death, insanity, insolvency does not.

The above also indicate the differences between a general partnership and a limited partnership. The other differences are:

General partnership Limited Partnership

May be constituted in any form by contract or conduct of the parties.

Created by the members after compliance with the requirements set forth by law.

Composed only of general partners.

Composed both of general and limited partners.

Any firm name desired as long as not same, confusingly similar.

Must operate under a firm name followed by the word “Limited.”

Question: What is the significance of the combination of limited and general partners in a limited partnership? Bakit kailangan ng general partner in a general partnership?

Because general partners have unlimited liability and they are regarded as managers of that limited partnership whereas those limited partners are only the financers, they only invest the capital in that limited partnership.

Question: Under Article 1844 the general rule is that a partnership transacting business with the public is presumed to be a general partnership. That is the presumption provided for by law. Under 1844 what are the requirements in order to establish a limited partnership.

ARTICLE 1844. Two or more persons desiring to form a limited partnership shall:

(1) Sign and swear to a certificate, which shall state —

(a) The name of the partnership, adding thereto the word "Limited";

(b) The character of the business;

(c) The location of the principal place of business;

(d) The name and place of residence of each member, general and limited partners being respectively designated;

(e) The term for which the partnership is to exist;

( f ) The amount of cash and a description of and the agreed value of the other property contributed by each limited partner;

(g) The additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made;

(h) The time, if agreed upon, when the contribution of each limited partner is to be returned;

(i) The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution;



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(j) The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution;

(k) The right, if given, of the partners to admit additional limited partners;

(l) The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority;

(m) The 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; and

(n) The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.

(2) File for record the certificate in the Office of the Securities and Exchange Commission.

A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.

Okay, what are the basic requirements for formation of a limited partnership?

1.) The certificate or articles of the limited partnership which states the matters enumerated in the article, must be signed and sworn to; and

2.) Such certificate must be filed for record in the Office of the SEC.

So what is this substantial compliance in good faith rule?

Strict compliance with 1844 is not necessary, it is sufficient that there is substantial compliance in good faith and if there is no substantial compliance with these requirements the partnership shall become a general partnership as 3rd persons are concerned in which all members are liable as general partners. Okay so take note of the substantial compliance in good faith rule which is found in the last paragraph of the said article.

Question: Under 1845 the law provides:

ARTICLE 1845. The contributions of a limited partner may be cash or property, but not services.

Why? Because if a limited partner contributed services he will be liable as an industrial and general partner at the same time and he will be personally liable.

So what is the reason why a limited partner may not be an industrial partner? So sabi natin he will be personally liable diba, other than that if he becomes an industrial partner that limited partner?

Because if he is an industrial partner he will take active part in the management of the partnership and that is prohibited by law because if he does so he will have some degree of control of the affairs of the limited partnership.

Question: Under 1846:

ARTICLE 1846. The surname of a limited partner shall not appear in the partnership name unless:

(1) It is also the surname of a general partner, or

(2) Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared.

A limited partner whose surname appears in a partnership name contrary to the provisions of the first paragraph is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

Why it that the surname of limited partner not allowed to appear in partnership name?

Because he will be liable as a general partner to 3rd persons that’s why his name should not appear in the limited partnership’s name. Aside from that he is exempted fro general liability.

Question: Explain article 1847.

ARTICLE 1847. If the certificate contains a false statement, one who suffers loss by reliance on such statement may hold liable any party to the certificate who knew the statement to be false:

(1) At the time he signed the certificate, or

(2) Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in article 1865.

If the certificate contains false statements, one who suffers loss by reliance on such statement may hold liable any party to the certificate who knew the statement to be false provided that:

1.) At the time he signed the certificate; or

2.) Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in Article 1865.

So this provides for the liability for false statement in the certificate. There are actually requisites for this:

1.) He knew the statement to be false at the time he signed the certificate, or subsequently, but having sufficient time to cancel or amend it or file a petition for its cancellation or amendment, he failed to do so;

2.) The person seeking to enforce liability has relied upon the false statement in transacting business with the partnership; and

3.) The person suffered loss as a result of reliance upon such false statement.

Question: Explain article 1848

ARTICLE 1848. A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business.

A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business.

So a limited partner has limited liabilities, he is not personally liable to any obligation of the partnership for this protection to be *** he is does not take part in the management (note so sure of this, recording unclear) and as stated in the previous provision a limited partner can contribute only money or property so that’s why he cannot take active part in the management of the affairs of the partnership.



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Question: What is the requisite for the admission of additional limited partner?

ARTICLE 1849. After the formation of a lifted partnership, additional limited partners may be admitted upon filing an amendment to the original certificate in accordance with the requirements of article 1865.

After a limited partnership has been formed, additional limited partners may be admitted, provided there is proper amendment to the certificate which must be signed and sworn to by all the partners, including the new limited partners, and filed with the SEC.

Okay So please take note of Article 1849, After the formation of a limited partnership, additional limited partners may be admitted upon filing an amendment to the original certificate in accordance with the requirements of Article 1865

Question: What are those acts which a general partner or all general partners cannot do?

ARTICLE 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to:

(1) Do any act in contravention of the certificate;

(2) Do any act which would make it impossible to carry on the ordinary business of the partnership;

(3) Confess a judgment against the partnership;

(4) Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose;

(5) Admit a person as a general partner;

(6) Admit a person as a limited partner, unless the right so to do is given in the certificate;

(7) Continue the business with partnership property on the death, retirement, insanity, civil interdiction or insolvency of a general partner, unless the right so to do is given in the certificate.

Okay so these are acts which a general or all general partners in a limited partnership cannot do unless there is written consent or ratification, take note, by all limited partners, why?

With regard to the 7 acts, bakit kailangan ng ratification ng all limited partners para maging valid or ma-validate ang acts ng limited partners?

Because these are beyond the scope of the authority of the general partners as these acts are acts of strict dominion.

Question: What are the common rights of a limited partner and a general partner?

ARTICLE 1851. A limited partner shall have the same rights as a general partner to:

(1) Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them;

(2) Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable; and

(3) Have dissolution and winding up by decree of court. A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in articles 1856 and 1857.

Common rights of limited partner and general partner are the following:

1.) To demand that the partnership books be kept at the principal place of business; (found in 1805)

2.) To inspect and copy any book (found in 1806)

3.) To demand true and full information of all things affecting the partnership and demand formal accounting (found in 1809)

4.) To resort to court for dissolution of partnership

5.) To receive a share of the profits and surplus (found in 1812)

6.) To demand for the return of his contribution provided that the partnership assets are more than the liabilities of the partnership.

Question: Explain article 1852.

ARTICLE 1852. Without prejudice to the provisions of article 1848, a person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income.

So please take note of Article 1852. Here a contributor erroneously believes that he is limited partner when in fact he is not, so in order for him to be exempt from liability he should immediately renounce his interest in the profits of the business or other compensation by way of income and that his name should not appear in the partnership’s name otherwise he shall be liable as a general partner.

May a person be both a general partner and a limited partner at the same time? He can be provided that such fact is provided in the certificate or articles of partnership.

Now if he is a limited and general partner at the same time, what are his rights?

He shall have all the rights and powers but subject to all restrictions of a general partner so he shall have all the rights and powers and subject to all restrictions of a general partner

Does he have that unlimited liability, meaning can he be held personally liable for partnership obligations?

So he will have that unlimited liability meaning he will be liable with his personal property to the creditor of the partnership.

With regard to his contribution what is the rule?

He will have the rights of a limited partner as against other members.

So if he will be ordered to party a 3rd person, what is his recourse?

He is entitled to recover the amount that he pay.



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How about during the settling of the accounts, what are his rights?

So he will have the priority over general partners in the return of their respective contribution.

August 7, 2015 (DMS)

Question: Under Article 1854:

ARTICLE 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim:

(1) Receive or hold as collateral security any partnership property, or

(2) Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.

The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership.

Why is a limited partner allowed to loan money and transact business with the partnership?

He is allowed because he is merely contributor and his relation with that of the limited partnership is not based on trust and confidence unlike the relationship of the general partner with the partnership. Likewise, he does not take active part in the management there is no conflict of interest.

What are the prohibited transactions provided under Article 1854?

a) Receiving or holding as collateral security any partnership property; or

b) Receiving any payment, conveyance, or release from liability if it will prejudice the right of third persons.

Any violation of the prohibition will give rise to the presumption that it has been made to defraud partnership creditors.

ARTICLE 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing.

There must be stated in the certificate or Articles of Partnership an agreement of all the members.

In the absence of stipulation, what is the rule? They will be treated in equal footing.

The preference is with regard to what?

1) Return of their contributions;

2) Their compensation by way of income; or

3) Any other matter.

ARTICLE 1856. A limited partner may receive from the

partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided, that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners.

What is the general rule? Is limited entitled to his compensation as a matter of right?

It is not a matter of right because it is subject to the resolutory condition that the partnership assets are in excess of all the liabilities to the limited partners as part of their condition and to the general partners.

Question: Under Art. 1857:

ARTICLE 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions until:

(1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them;

(2) The consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragraph; and

(3) The certificate is cancelled or so amended as to set forth the withdrawal or reduction.

Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution:

(1) On the dissolution of a partnership; or

(2) When the date specified in the certificate for its return has arrived, or

(3) After he has six months' notice in writing to all other members, if no time is specified in the certificate, either for the return of the contribution or for the dissolution of the partnership.

In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution.

A limited partner may have the partnership dissolved and its affairs wound up when:

(1) He rightfully but unsuccessfully demands the return of his contribution, or

(2) The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of his contribution.

What are the conditions for the return of the limited partner’s contribution?

When can he demand for the return of his contribution as a matter of right?

Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution:

1.) On the dissolution of a partnership; or



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2.) When the date specified in the certificate for its return has arrived; or 3.) After he has given six months’ notice in writing to all other members, if no time is specified in the certificate, either for the return of the contribution or for the dissolution of the partnership.

Why 6 months? What is this 6-month period? Why not 2 months?

Can a limited partner be denied for the return of the property he contributed, for instance he contributed property to the limited partnership, can he be denied for the return?

The general rule is that he has only the right to demand and return cash. Exceptions: 1.) When there is stipulation to the contrary in the certificate; or 2.) Where all the partners (general and limited) consent to the return other than in the form of cash.

Take note in the last paragraph the limited partner may petition for the dissolution of the partnership.

ARTICLE 1858. A limited partner is liable to the partnership:

(1) For the difference between his contribution as actually made and that stated in the certificate as having been made, and

(2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.

A limited partner holds as trustee for the partnership:

(1) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and

(2) Money or other property wrongfully paid or conveyed to him on account of his contribution.

The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities.

When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return.

What is the general rule? Is the limited partner bound to the liabilities of the partnership?

The general rule is he is not liable to the liabilities.

Why? He is not principal to the transaction of the partnership.

What are the exceptions to the general rule?

With regard to the other provision, when is he liable for the obligation of the partnership?

A limited partner is liable for partnership obligations when:

1.) Contributes services;

2.) Allows his surname to appear in name of firm;

3.) Fails to have false statement in certificate corrected when he knew it to be false;

4.) Takes part in control of business;

5.) Receives partnership property as collateral security, payment, conveyance, or release in fraud of partnership creditors;

6.) Failure to substantially comply with legal requirements of formation of limited partnership.

Take note the general rule is limited partner is not bound to the obligation of the partnership to third persons subject to exceptions. Under 1858, it also provides for the liabilities of a limited partner to the partnership, what are those?

A limited partner is liable to the partnership:

1.) For the difference between his contribution as having been made, and

2.) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.

May the liabilities of the limited partner be waived by the partnership?

Yes, provided:

1.) Waiver or compromise is made with the consent of all the partners; and

2.) The waiver or compromise does not prejudice partnership creditors who extended credit or whose claims arose before the cancellation or amendment of the certificate.

So it depends. If one or some of the partners do not consent, no waiver can be effected.

What is the limitation provided by law with regard to waiver?

It will not include the right of creditor of the partnership who extended credit or whose claims arose after the filing and before a cancellation or amendment of the certificate is made.

ARTICLE 1859. A limited partner's interest is assignable.

A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership.

An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to inspect the partnership books; he is only entitled to receive the share of the profits or other compensation by way of income, or the return of his contribution, to which his assignor would otherwise be entitled.

An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.

An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with article 1865.

The substituted limited partner has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate.

The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under articles 1847 and 1858.

Who is a substituted limited partner?



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He is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership. Under Article 1859, it expressly allows assignment of the limited partner’s interest in the partnership.

When can an assignee of a limited partner become a substituted limited partner?

Requisites:

1.) All the members must consent to the assignee becoming a substituted limited partner or the limited partner, being empowered by the certificate, must give the assignee the right to become a limited partner;

Take note, this is the substantial requirement.

2.) The certificate must be amended;

3.) The certificate as amended must be registered in the SEC.

These are the formal requirements.

What are the rights of a substituted limited partner?

He is entitled to receive the share of the profits or other compensation by way of income or the return of the contribution to which the assignor would otherwise be entitled. He has also the right to require any information or account of the partnership transactions or to inspect partnership books.

How about the liabilities of a substituted limited partner?

Substituted limited partner is liable for all the liabilities of his assignor except only those of which he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate or in the Articles of the Partnership.

Under Article 1859, the fact that the assignee has become a substituted limited partner, it will not relieve the limited partners (assignor) of all their liabilities to the partnership. Why? Because you have to relate that to Article 1847 in relation to Article 1847.

Under Article 1847, he will be sole liable to third persons who relied on false statement in the certificate of partnership and under Article 1847 which states that the liabilities of all the partners especially to creditors who extended credit to the partnership or whose claims arose before the return of the capital, that is why there is still that liabilities of those limited partners to the partnership.

What is the status of an assignee who did not become a substituted limited partner?

Assignee is only entitled to receive the share of the profits or other compensation by way of income or the return of the contribution to which the assignor would otherwise be entitled.

How about to require any information or account of the partnership transactions or to inspect partnership books, is he entitled to that?

He has no right.

ARTICLE 1860. The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partners:

(1) Under a right so to do stated in the certificate, or (2) With the consent of all members.

How about death, retirement, insolvency, civil interdiction of a limited partner, will that dissolve the limited partnership? NO Why? There is no dissolution but the certificate is only amended.

Question: What are the rights of executor or administrator of the estate of the deceased limited partner?

ARTICLE 1861. On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner.

The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.

1.) All the rights for purposes of settling the affairs of the limited partner; and

2.) The right to constitute the deceased’s assignee as substituted limited partner (if deceased was empowered to so assign under certificate).

How about the liability of the estate of a deceased limited partner? It shall be liable.

Question: What are the rights of the creditors of the limited partner under Article 1862?

ARTICLE 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the circumstances of the case may require.

The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property.

The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.

Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption.

To charge the interest of the indebted limited partner. Take note this is similar to Art. 1812 yung sa general partnership yung mag charge ka.

Is that charged interest redeemable? It is redeemable but using the separate property of any general partner and it cannot be redeemed using the partnership property as a general rule unless with the consent of all partners whose interests are not so charged.

Question: Under Article 1863, it refers to the liquidation of a limited partnership. What are the causes of the dissolution of a limited partnership?

ARTICLE 1863. In settling accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order:

(1) Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners; (2) Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions;

(3) Those to limited partners in respect to the capital of their contributions;



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(4) Those to general partners other than for capital and profits;

(5) Those to general partners in respect to profits;

(6) Those to general partners in respect to capital.

Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on their contribution respectively, in proportion to the respective amounts of such claims.

1.) Misconduct of a general partner;

2.) Fraud practiced on the limited partner by the general partner;

3.) Retirement, death, etc. of a general partner;

4.) When all the limited partners ceased to be such;

5.) Expiration of the term for which partnership was to exist; or

6.) Mutual consent of the partners before the expiration of the firm’s original term.

How about other grounds? The other grounds are found in Article 1830 and Article 1831 of the Civil Code.

ARTICLE 1830. Dissolution is caused:

(1) Without violation of the agreement between the partners:

(a) By the termination of the definite term or particular undertaking specified in the agreement;

(b) By the express will of any partner, who must act in good faith, when no definite term or particular is specified;

(c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking;

(d) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners;

(2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; (3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership;

(4) When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;

(5) By the death of any partner;

(6) By the insolvency of any partner or of the partnership;

(7) By the civil interdiction of any partner;

(8) By decree of court under the following article. (1700a and 1701a)

ARTICLE 1831. On application by or for a partner the court shall decree a dissolution whenever:

(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;

(2) A partner becomes in any other way incapable of performing his part of the partnership contract;

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

(4) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;

(5) The business of the partnership can only be carried on at a loss;

(6) Other circumstances render a dissolution equitable.

On the application of the purchaser of a partner's interest under article 1813 or 1814:

(1) After the termination of the specified term or particular undertaking;

(2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. (n)

Who is authorized to wind up the affairs of a limited partnership? The general partners of the said partnership.

Order of preference in the payment of partnership liabilities; The partnership liabilities shall be settled in the following order:

1.) Those due to creditors, including limited partners, except those on account of their contributions, in the order of priority as provided by law;

2.) Those due to limited partners in respect to their share of the profits and other compensation by way of income on their contributions;

3.) Those due to limited partners for the return of the capital contributed;

4.) Those due to general partners other than that for capital and profits;

5.) Those due to general partners in respect to profits; and

6.) Those due to general partners for the return of the capital contributed.

Ma’am: Be sure to distinguish the order of preference in general partnership from a limited partnership. Mas mahaba pag limited partnership kasi sa general apat lang, ito anim. Please take note of that.

Question: Under Article 1864, when do you cancel a certificate or Articles of Partnership and not merely amended?

ARTICLE 1864. The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such.

A certificate shall be amended when:

(1) There is a change in the name of the partnership or in the amount or character of the contribution of any limited partner;

(2) A person is substituted as a limited partner;

(3) An additional limited partner is admitted;

(4) A person is admitted as a general partner;



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(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued under article 1860;

(6) There is a change in the character of the business of the partnership;

(7) There is a false or erroneous statement in the certificate;

(8) There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution;

(9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate, or

(10) The members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agreement among them.

The certificate shall be cancelled, not merely amended:

1.) When the partnership is dissolved other than by reason of the expiration of the term of the partnership; or

2.) When all the limited partners cease to be such. A limited partnership cannot exist as such if there are no more limited partners.

In all other cases, only an amendment of the certificate is required. (Art. 1864, Nos. 1-10)

Question: What are the requisites under Art. 1865 for the amendment of the certificate or Articles of Partnership?

ARTICLE 1865. The writing to amend a certificate shall: (1) Conform to the requirements of article 1844 as far as necessary to set forth clearly the change in the certificate which it is desired to make; and

(2) Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner.

The writing to cancel a certificate shall be signed by all members.

A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof.

If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment.

A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate is recorded:

(1) A writing in accordance with the provisions of the first or second paragraph, or

(2) A certified copy of the order of the court in accordance with the provisions of the fourth paragraph;

(3) After the certificate is duly amended in accordance with

this article, the amended certified shall thereafter be for all purposes the certificate provided for in this Chapter.

Requirements to amend:

1.) Amendment must be in writing;

2.) It must be signed and sworn to by all the members; and

3.) The certificate, as amended, must be filed for record in the SEC.

When is a certificate deemed amended or cancelled?

A certificate is deemed amended or cancelled from the moment such certificate granting the petition is filed for record in the Office of the Securities and Exchange Commission. After the certificate is duly amended, the amended certificate shall thereafter be for all purposes.

Under Article 1865, it provides for the rules in case the person designated to institute the amendment or cancellation refuses to perform of his duties, what is your remedy under Art. 1865?

A person desiring the cancellation or amendment of a certificate, if any person designated as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof.

If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment.

Question: When can a limited partner be a proper party?

ARTICLE 1866. A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership.

1.) Where the object is to enforce limited partner’s individual rights against the partnership, and to recover damages for violation of such right;

2.) When it’s a proceeding to enforce his liability to the partnership;

3.) Creditors may go against him if he had withdrawn sums from the capital of the firm with outstanding debts on a voluntary dissolution.

ARTICLE 1867. A limited partnership formed under the law prior to the effectivity of this Code, may become a limited partnership under this Chapter by complying with the provisions of article 1844, provided the certificate sets forth:

(1) The amount of the original contribution of each limited partner, and the time when the contribution was made; and

(2) That the property of the partnership exceeds the amount sufficient to discharge its liabilities to persons not claiming as general or limited partners by an amount greater than the sum of the contributions of its limited partners.

A limited partnership formed under the law prior to the effectivity of this Code, until or unless it becomes a limited partnership under this Chapter, shall continue to be governed by the provisions of the old law.

END OF DISCUSSION ON PARTNERSHIP. KJ

business organization i 1st exam

Documents

contract of partnership

new partnership

general partnership

existing partnership

original partnership

particular partnership

consensual contract

partners money