AGENCY, TRUST, AND PARTNERSHIP LAW

1st Exam Coverage

From the discussions of Atty. Zyra Montefolca and consolidated digests of 2M

DISCUSSION
First, it is consensual by nature. Meaning it is perfected by mere
PARTNERSHIP (TITLE IX) consent. But there are certain cases wherein form is essential,
1767 - 1783 especially for its validity.

Next element is a nominate contract, because it is given by law a

Chapter 1 - General Provisions (1767 - 1783)
special name.

INTRODUCTION Third, it is onerous, because the partners are duty-bound to

contribute to the partnership in money, property, or industry, and in
HOW PARTNERSHIP IS CREATED return expect a certain benefit out of it, which is the profit. That is
Several persons may contribute money, property, or only their skill. why it is onerous, rather than gratuitous which is the opposite.
Their agreement is that they will have mutual contributions as they
undertake a business, profits will be divided among ourselves. At Next, it is also cumulative in nature, since the undertaking of each of
least, if you have capital only but do not have knowledge on the the partners is equivalent to that of the others.
business, you can rely on an industrial partner who can furnish their
services or skills in running the business. Next it is a principal contract, its existence does not depend on
another contract, it can stand on its own.
As to the losses, you will not shoulder the losses alone. All the
partners will shoulder the losses just like how they would share in the Next it is a preparatory contract, because it is entered into as a means
profits of the business. to an end.

Under our jurisdiction, partnership was previously governed by the You do not enter into a partnership just to enter into a partnership.
Code of Commerce, but it was repealed by the Civil Code. Now our Of course, the drive there is profit. Essentially the purpose of a
discussion revolves around the provisions of the Civil Code. 1767 to partnership is to enter into other contracts. In conducting a business,
1867. you will definitely enter into a contract with third persons.

There are authors who have a lengthy discussion on the background ESSENTIAL FEATURES OF A PARTNERSHIP
or history on how a partnership is created. Yung iba, Roman pa, 1. There must be a valid contract
Babylonian pa, but I want to cut it short. I hold you responsible for 2. The parties must have legal capacity to enter into the
knowing the history, I doubt it will be asked in the bar. contract
3. There is mutual contribution of money, property, or
Let’s focus on the provisions. industry
4. The object must be lawful
5. The purpose must be to carry on business for profits and to
Civil Code, Article 1767.
divide the same among the parties.
By the contract of partnership two or more persons
bind themselves to contribute money, property, or
1. There must be a Valid Contract.
industry to a common fund, with the intention of
dividing the profits among themselves. To review, in your obligations and contracts, we have the essential
elements of a contract.
Two or more persons may also form a partnership for
the exercise of a profession. (1665a) Elements of a Contract:
1. Consent
2. Object or Subject matter
DISCUSSION 3. Cause and Consideration
This gives us the legal definition of a contract of partnership. There
are commentators who give many definitions. For Bar purposes, you These elements must also be present in a contract of partnership.
can always answer this, as this is the definition given by law. 1. Consent
Obviously, a person cannot create a partnership by himself.
ELEMENTS OF A CONTRACT OF PARTNERSHIP The requirement is at least two persons who must enter
1. Consensual into the contract of partnership. Because there are two
2. Nominate persons, there must be consent. The consent must be
3. Onerous voluntarily given.
4. Cumulative
5. Principal There is no such thing as a partnership created by law
6. Preparatory because it always has to be voluntarily agreed upon by the
parties.

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Q: What about conjugal partnerships? Is that a partnership? the capital contribution given is P 3,000.00 or more— you have to
A: Strictly speaking, under the Civil Code, no. register it to the SEC and have it embodied in a public instrument.
Conjugal partnership is the default property regime of spouses whose
marriage was celebrated before the effectivity of the Family Code. But later on, you will all know that the formal requirement is not
indispensable. But when it comes to a real property, real immovable
Therefore, that is a partnership created by law. That is not the kind of property, or real rights, and that is contributed to the partnership,
partnership that is being contemplated by the Civil Code. Besides, the form is essential for its validity. It is an indispensable requirement.
governing law is different. Now, we have the Family Code. But in Hence, mandatory.
Partnerships, we have the Civil Code.
GR: Form is not essential to create a contract of partnership.
2. Object or Subject Matter XPN:
In a partnership, the parties will contribute money, 1. Those covered by the Statute of Frauds.
property, or industry. For as long as it is not illegal. 2. Articles 1771 to 1773 under the Civil Code.
Q: Can any person be a partner?
3. Cause or Consideration A: No. Partnership is a relationship that is fiduciary in nature.
The main purpose is to generate profits which will be
divided among the partners. DISCUSSION
When we say fiduciary in nature, it must be based on mutual trust and
Also as discussed, the Contract of Partnership is consensual in nature. confidence. That’s why you cannot compel a person to join a
partnership, and neither can you compel a person to stay in a
Essentially, it does not have to be embodied in writing for it to be partnership.
valid. But it has to be considered, that there are certain contracts, in
your Obligations and Contracts, that are unenforceable if they are not Also, when they don’t want to be partners anymore then, they can
embodied in writing under the Statute of Frauds. There’s a list of always apply or move for the dissolution of the partnership.
cases there wherein, these agreements must be embodied in writing.
Form is essential for its enforceability. 2. The parties must have the legal capacity to enter into the
contract.
Civil Code, Article 1771. It is stated in the provision “Persons.”
A partnership may be constituted in any form, except
where immovable property or real rights are Q: What kind of person? Is it a natural person or a juridical person?
contributed thereto, in which case a public instrument Can a Juridical Person enter into a contract of partnership?
shall be necessary. (1667a) A: First, an individual or a natural person can enter into a contract of
partnership, provided that he/she has the legal capacity to contract.

Civil Code, Article 1772. Q: Who is incapacitated to enter into a contract? Who cannot give
Every contract of partnership having a capital of three their consent?
thousand pesos or more, in money or property, shall A: Under the Obligations and Contracts, we have Article 1327.
appear in a public instrument, which must be recorded
in the Office of the Securities and Exchange Civil Code, Article 1327.
Commission. The following cannot give consent to a contract:
Failure to comply with the requirements of the (1) Unemancipated minors;
preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons. (2) Insane or demented persons, and deaf-mutes who
(n) do not know how to write. (1263a)

Civil Code, Article 1773. DISCUSSION

A contract of partnership is void, whenever immovable These persons cannot give their consent.
property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and I know that you know in your Obligations and Contracts that it will not
attached to the public instrument. (1668a) make the contract void because of the reason that these persons
cannot give their consent.

Q: What’s the status of the contract?

A: Voidable. If one of the parties is incapacitated to consent, the
contract is voidable, valid until annulled. In addition, we have persons
who are under civil interdiction; these persons cannot manage their
properties, let alone give their consent.
DISCUSSION
Also, note that persons prohibited from donating to each other
Also, under Article 1771 to 1773, there are certain formalities which cannot enter into a contract of partnership. Examples are: husbands
are required for a contract of partnership to be valid. Such as, when and wives, husbands and wives cannot enter into contracts of

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partnership basta Universal Partnership ha, specific yan. We will learn Meaning it must not be contrary to law, morals, public order and
that later on. policy.

Next let’s go to juridical persons. Q: For instance, you created a partnership to trade shabu, buying
and selling shabu. Is that considered lawful?
Q: Who are juridical persons? A: Of course not because the object is unlawful, it is contrary to law.
A: You can check your codal under Article 44: The state, its political
subdivisions, corporations, partnerships and associations for private Also, there is an example in the book, a partnership cannot engage in
interests, there's a list there. A partnership as a juridical person can the business of banking under the general banking law because only
enter into a contract of partnership with another individual, or stock corporations are allowed to venture into such business.
another partnership.
5. The purpose must be to carry on business for profits and to
Q: But, can a corporation be allowed to enter into a contract of divide the same among the parties.
partnership?
A: No. Because a corporation is made up of a group of persons that The main goal of a partnership is to generate income and that profit
manages its affairs exclusively, if it enters into a partnership, the will be divided among the partners. It could also be that the purposes
corporation would be bound by the acts of persons who are not of partnership are incidentally moral, social but actually, the main
authorized, representatives. That's why corporations are not allowed purpose is to generate profit.
to enter into partnerships.
As to division of profits among the partners, it is not necessary that
Q: Can a corporation enter into a joint venture or JVA? shares are equal because they can always stipulate in their agreement
A: Yes. that this is your share (30% profit, yours 20%) or it may be that the
profit is in proportion to your contribution.
Q: What’s the legal definition of a joint venture?
A: I saw one legal definition of joint venture in one case. It says: the NOTE
legal concept of a joint venture is of common law origin; it has no When it comes to sharing of profits, we say that there is
precise legal definition but it has been generally understood to mean- partnership if there is sharing of profits. But actually, there are
an organization formed for some temporary purpose. instances where the parties share returns but they are not
actually partners.
A joint venture is akin to a partnership, the essential elements of
which are as follows: But for now, take note that the sharing of profits raises a presumption
(1) an agreement to contribute money, property, or that there is a contract of partnership.
industry to a common fund;
(2) an intent to divide the profits among the contracting Q: What if the partnership instead of making profit, incurred losses?
parties. A: When it comes to partnership, they will not only share in the
profits, but they will likewise share in the losses. Losses will be
Under Philippine law, a joint venture is a form of partnership. distributed among the parties.

Q: Why cannot a corporation enter into a partnership, but enter into DISCUSSION
a joint venture? If you read Article 1767, it does not state anything about losses. But
A: The submission of some authors is that, in a JVA, it is a temporary actually, as a consequence of the partnership business, there really
undertaking, an isolated transaction. Once the JVA is done, the are losses, so it will also be distributed.
corporation has no longer any obligation with the other contracting
parties and vice versa. However, in a partnership, there is a degree of 2nd paragraph of Art 1767: Two or more persons may also form a
continuity in the business that’s why corporations are allowed to partnership for the exercise of a profession.
enter into JVAs.
This is what we call “General Profession Partnership or GDP”. You
3. There is mutual contribution of money, property, or industry will encounter that again in your Tax next year.
First, money. It must be legal tender. When you give documents
representing money like checks, that will not be considered legal In GDP, like us, we have a law firm, 3 lawyers, 3 partners and we
tender, but once it is encashed, it becomes legal tender. created a general professional partnership in the form of a law firm
BUT, the main goal of our partnership is not profit. The main goal is
Next, property. It could be movable or immovable; real (e.g., land, to practice your profession. Because in your Legal Ethics, lawyering is
building) or personal property (e.g., machine, table, chair); corporeal not a money-making business venture, it is not a business. It is a
or incorporeal. profession. It could be that the main purpose of your partnership is
not profit.
Lastly, Industry. It may be in the form of services, skills or expertise,
if he assists in carrying out the business of partnership, that is also
considered a contribution.
Estanislao, Jr., vs. CA
4. The object must be lawful G.R. No. L-49982 | Apr 27, 1988

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DOCTRINE: A Partnership is formed when persons agree to bind

That is where the conflict started. SHELL only wanted to deal with one
themselves to contribute money to a common fund with the
person. In this case, even if the document only reflects one person, it
intention of dividing the profits among themselves.
can still be a partnership.
FACTS:
The parties in this case are siblings who are co-owners of certain Leung vs. LAC
lots in Quezon City which were then being leased to the SHELL. G.R. No. 70926 | Jan 31, 1989

They agreed to open and operate a gas station there, to be known FACTS:
as Estanislao Shell Service Station with an initial investment of The case involves a complaint to recover a sum of money
P15.000.00 to be taken from the advance rentals due to them from amounting to 22.0% of the annual profits derived from the
SHELL for the occupancy of the said lots owned by them. operation of Sun Wah Pancitera.

In order not to run counter to the company's policy of appointing The complainant, Leung Yiu (Leung), alleges that he contributed
only one dealer, it was agreed through a Joint Affidavit that the capital amounting to P4,000.00 to its initial establishment, as
franchise would be under ELIGIO’s name (petitioner). evidenced by a receipt wherein Dan Fue Leung (Dan)
Thereafter, Eligio failed to render subsequent accounting. acknowledged the acceptance of the amount by affixing his
signature at said receipt.
A demand was made for him to render an accounting of the profits,
to execute a public document embodying all the provisions of the On the other hand, Dan responded that the amount was mere
partnership agreement, and to pay his siblings their lawful shares financial assistance. He further alleges that the Pancitera is, and
and participation in the net profits of the business. has always been, a single proprietorship, as evidenced by
government permits and licenses.
Eligio contends that since all the documents were under his name,
there is no partnership agreement, but a sole proprietorship. ISSUE: Whether or not Sun Wah Pancitera is a partnership. YES.

ISSUE: Whether or not a partnership was formed when members RULING: Yes, it is a partnership. In the case at bar, it is clear that
of the same family bind themselves to contribute money to a Leung provided the P4,000.00 with the understanding that he
common fund with the intention of dividing the profits among would be entitled to 22.0% of the annual profits derived from the
themselves. YES. Pancitera. As such, this would make Leung and Dan partners in the
establishment of the Pancitera, as provided by Article 1767 of the
RULING: YES. The Joint Affidavit clearly stipulated by the members Civil Code, which states:
of the same family that the P15,000.00 advance rental due to them
from SHELL shall augment their "capital investment" in the A partnership is contracted when:
operation of the gasoline station. As for Eligio's claim that he is the 1. Two (2) or more persons bind themselves to contribute
sole dealer, this is the way it should be, since it would be against money, property, or industry to a common fund; and
SHELL’s policy for the agreement to say that the business is a 2. With the intention to divide the profits amongst
partnership with private respondents and not the petitioner's themselves.
single proprietorship. (SHELL deals with only 1 person) other
evidence in the record: To add, Dan's response that the P4,000.00 provided by Leung is
➔ ELIGIO submitted to private respondents periodic mere financial assistance also has no merit. Given its ordinary
accounting of the business. meaning, financial assistance is giving money to another without
➔ ELIGIO gave written authority to private respondent expecting any returns, which is the complete opposite of what
Remedios Estanislao, his sister, to examine and audit the Leung understood, as provided in his complaint.
books of their "common business" (aming negosyo).
➔ Respondent Remedios assisted in the running of the DISCUSSION
business.
In this case, what happened was, there was a certain person who
wanted to start a panciteria, but he does not have money, so this one
DISCUSSION Chinese gave money to him. The Chinese gave capital. Now, the
In this case, there is a co-ownership amongst the siblings. However, agreement was that the financier will have a share in the profits. At
instead of dividing the proceeds (rental) among themselves, they the start, his shares were given, but later on did not. So, the allegation
decided to invest it in opening another SHELL station. Here, members of the panciteria manager here was that he is a sole proprietor. Leung
of the same family who have a joint-ownership over a certain merely loaned him money, and that will not make him a partner.
property can also create a partnership.
Now, the Supreme Court evaluated it. The SC saw that the Chinese
Why? Because their aim is for profit and for it to be divided amongst man did not only contribute to the capital but he also suffered the
themselves. losses of the business. SC held that there is an agreement, there is a
document stating that he contributed this money. That is why the SC
Estanislao however, had an allegation of sole-proprietorship because was able to arrive at this decision that there is this partnership among
of all the documents they have with SHELL, his name is the only one them. But, Leung is not active in the business. He is a capitalist
reflected. partner. He contributed money. The manager of the panciteria
contributed his services.

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Article 1767 of the Civil Code provides: By the contract of

So, the SC said Leung as a partner share not only in the profits but also
partnership, two or more persons bind themselves to contribute
in the losses. That is why he did not get his share.
money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.
Q: What kind of share is that?
A: Net Profit share. There is a difference between Gross and Net.
A partnership is said to exist between CYL because it is clear that
When we say Gross, it is something you earn without deducting
CYL had decided to engage in a fishing business, by buying FB
liabilities and expenses, that’s why it is called gross profit. But once
Lourdes and FB Nelson worth P3.35 million, financed by a loan
the partnership liabilities are paid, debts are paid, whatever remains
secured from Jesus Lim who was Lim's brother.
is the net profit. And that will be the profit that will be divided among
the parties.
In their Compromise Agreement, CYL revealed their intention to
pay the loan with the proceeds of the sale of the boats, and to
Now, we proceed to the case of Lim vs PFGII.
divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed
Lim vs. PFGII money, fell under the term "common fund" under Article 1767.
G.R. No. 136448 | Nov 03, 1999 The contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. CYL mutually agreed
DOCTRINE: A partnership may be deemed to exist among parties that any loss or profit from the sale and operation of the boats
who agree to borrow money to pursue a business and to divide the would be divided equally among them, which shows that they had
profits or losses that may arise therefrom, even if it is shown that indeed formed a partnership.
they have not contributed any capital of their own to a "common
fund." Their contribution may be in the form of credit or industry, The boats constitute as the main assets of the partnership. Thus,
not necessarily cash or fixed assets. Being partner, they are all the partnership existed on the purchase of the boat, and thus
liable for debts incurred by or on behalf of the partnership. The extended to the purchase of nets and floats. The purchase of the
liability for a contract entered into on behalf of an unincorporated nets and floats, all essential to commercial fishing, were acquired
association or ostensible corporation may lie in a person who may for the furtherance of the business.
not have directly transacted on its behalf, but reaped benefits from
that contract. Lim Was a Partner, Not a Lessor
Lim’s argument: Merely a lessor, not a partner, of the boats to
FACTS: Chua and Yao Lim Tong Lim entered into a business agreement
Antonio Chua and Peter Yao in behalf of Ocean Quest Fishing with Chua and Yao, in which debts were undertaken to finance the
Corporation (OQFC), entered into a Contract with Philippine acquisition and the upgrading of the vessels, which would be used
Fishing Gear Industries Incorporated (PFGII) for the purchase of in the commercial fishing business. The sale of the boats, as well as
fishing nets of various sizes. They claimed they were in a business the division among the three of the balance remaining after the
venture with Lim Tong Lim, but Lim is not a signatory to the payment of their loans, proves that F/B Lourdes, though registered
agreement. The nets altogether amounted to P532,045, along with in his name, was not his own property but an asset of the
400 pieces of floats for P68,000, was sold to OQFC. 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
OQFC were unable to pay for the fishing nets and floats, thus, PFGII case is Lim himself. After all, he is the brother of the creditor, Jesus
sent a collection suit to Chua, Yao, and Lim (CYL), along with a Lim.
prayer for preliminary attachment. The writ was issued and
enforced on the fishing nets on F/B Lourdes. We stress that it is unreasonable — indeed, it is absurd — for Lim
to sell his property to pay a debt he did not incur, if the relationship
Chua- admitted liability, requested time to pay. among the three of them was merely that of lessor-lessee, instead
Yao- filed an answer but failed to appear on the hearings of partners.
Lim- moved for the lifting of the writ and; he also claimed that no
such partnership existed between him, Chua, and Yao Technically, it is true that Lim did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract
RTC: Maintained the writ and upon motion of PFGII, sold the nets entered into by persons with whom he previously had an existing
at a public auction whereby PFGII won the bidding and deposited relationship, he is deemed to be part of said association and is
P900,000 proceeds to the court. The court also decided that CYL as covered by the scope of the doctrine of corporation by estoppel.
general partners were jointly liable to pay PFGII
The contribution to the common fund need not be in cash, it can
CA: Affirmed RTC just be an intangible thing in a credit industry. The common fund,
it was money that was loaned by the brother of Lim which is 3.5
ISSUE: WON by their acts, CYL could be deemed to have entered million. They used the loan to buy two ships. To further their
into a partnership? YES. business they used the money to buy additional nets and floaters.

RULING: Yes, it is a partnership. Lim is not a mere lessor but a partner because of the intent to split
the profit and the risk. Moreover , there was a partnership when
Existence of a Partnership and Lim's Liability they bought the boats with the loan money because they both
agreed to do the act (there is consent).

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Q: The partnership files a case, who will sign and process the
DISCUSSION documents?
They wanted to enter into a fishing business so they bought a fishing A: The partners will authorize a person to do those things on its
vessel. They did not have money, so they had to obtain a loan from behalf. Just like a corporation, the partnership cannot walk, or talk,
Lim’s brother. The brother alleged that he was merely lessor of the but the warm bodies inside the partnership can act on its behalf, so
boats, the boats were in his name. It was registered in his name long as that person is authorized by the partners.
because the boats were his security for the loans they obtained. It
was also agreed by the parties that the repairs will be shouldered by We previously discussed that the partnership assets will have to be
the other two partners (Chua and Yao). first exhausted if the partnership has debts. The partnership will pay
for its liabilities. If its assets are not enough, the individual partners
They purchased a net but failed to pay for it. There were will be held liable for their separate and individual properties.
disagreements between the parties and the partners decided to file a
case. They entered into a compromise agreement because they Now, we can say that the separate juridical personality is a shield
wanted to settle the problem. What happened was, the vessels that against liability, in favor of the respective partners. But, we can say
were registered in his name were sold. It was agreed that if the vessel that the juridical personality of the partnership will be set aside if
was sold they would divide the profit if there was one. there is fraud. If it is used as a shield to evade responsibility, and
against fraudulent activity. This is the time when the separate juridical
The SC ruled that the parties intended to enter into a contract of personality is scratched off, the partnership properties will not be
partnership. An intangible object can be contributed in a partnership, exhausted.
what Lim contributed here was credit. They were able to obtain funds
through a credit. Guy vs. Atty. Gacott
G.R. No. 206147 | Jan 13, 2016
Civil Code, Article 1768.
The partnership has a juridical personality separate FACTS:
and distinct from that of each of the partners, even in Atty. Gacott bought 2 brand new transreceivers from Quantech
case of failure to comply with the requirements of Systems Corporation (QSC) for P8,000. However, due to major
article 1772, first paragraph. (n) defects, Gacott personally returned the transreceivers to QSC and
requested that they be replaced. The employee of QSC received
them and promised to send the replacement units within 2 weeks.
DISCUSSION However, this was not done despite the numerous demands
A partnership has a separate and distinct personality from the coming from Gacott which made him incur expenses in the total
persons compressing it. It’s an intangible concept. amount of P40,936.44.

Example: A Partnership enters into a contract with a third person. The This prompted Atty Gacott in filing a complaint for damages.
contracting party is the partnership and not the individual partners, Gacott learned that QSC was a general partnership registered with
because it enjoys a separate and distinct legal personality. the SEC, and that Guy was the General Manager of QSC, and had
several vehicles registered in his name. Gacott instructed the
If the partnership wants to acquire a property it should be registered sheriff to proceed with the attachment of one of the motor
to the partnership. vehicles. Sheriff Felizarte then attached the vehicle of Guy.

Properties will be conveyed and registered in its name, because it is a ISSUE: Is Guy solidarily liable along with QSC?
person in itself, separate and distinct from the partners. They agreed
that they will provide the money together and split the profits that RULING: Yes, it is a partnership.
they will have. No. He is not solidarily liable with QSC since Guy wasn’t properly
impleaded in the suit against QSC. Hence, the subsequent
Q: What if due to contracts entered into by the partnership, it attachment of his property as satisfaction for the debt of Gacott
incurred obligations, who will answer for those obligations? was wrong.
A: Partnership obligations will also be answered by partnership
assets. A PARTNERSHIP HAS A SEPARATE AND DISTINCT PERSONALITY
Although a partnership is based on delectus personae or mutual
Later on, we will learn that the individual liabilities of the partners agency, whereby any partner can generally represent the
with respect to third persons, will not yet be held liable, because the partnership in its business affairs, it is non sequitur that a suit
third persons would prioritize the partnership assets. The liabilities of against the partnership is necessarily a suit impleading each and
the partnership are liabilities of the partnership only, unless the every partner. It must be remembered that a partnership is a
assets are insufficient to answer or to satisfy the obligation, then that juridical entity that has a distinct and separate personality from the
will be the time that the individual partners will be held liable for persons composing it.
partnership obligations.
Q: What if a partnership is sued, or it wants to file a case? Here, Guy was never a party to the case. What happened was that
A: The partnership, because it is a separate entity with its own Guy’s vehicle was attached without him even being impleaded in
juridical personality, can sue and be sued in its own name. the first place.

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enough, then that would only be the time that the individual
In the spirit of fair play, it is a better rule that a partner must first
properties of the partners can be claimed.
be impleaded before he could be prejudiced by the judgment
against the partnership. A partner may raise several defenses
Now, the Supreme Court held that the partnership has a separate and
during the trial to avoid or mitigate his obligation to the
distinct personality from its partners. If you file a case against a
partnership liability.
partnership, expect that your claim will be satisfied by the
partnership.
There was an argument that under Article 1821 of the NCC there is
no need to implead a partner. However, Article 1821 of the NCC
Here, because he did not implead the other partner and what he did
does not state that there is no need to implead a partner.
was to include the partner even if he did not implead. The Supreme
…
Court said that you cannot go and file a case against the partnership
Article 1821 says:
without impleading the partners. If you want them to be subsidiarily
Notice to any partner of any matter relating to partnership affairs,
liable, you need to implead them because due process would require.
and the knowledge of the partner acting in the particular matter,
The Supreme Court held that he was not impleaded, so why would his
acquired while a partner or then present to his mind, and the
properties be used to satisfy the obligation. In fact, it held that it was
knowledge of any other partner who reasonably could and should
not shown that the partnership assets were exhausted. So why would
have communicated it to the acting partner, operate as notice to
you include the partner when one, you did not implead him, and two,
or knowledge of the partnership, except in the case of fraud on the
there is no evidence that you exhausted all assets of the partnership.
partnership, committed by or with the consent of that partner.

… Saludo, Jr. vs. PNB

Article 1821 of the NCC only contemplates a situation wherein a G.R. No. 193138 | Aug 20, 2018
partner is notified, this notice then operates as notice to the
partnership. It doesn’t provide for the reverse situation, i.e., notice FACTS:
to the partnership is notice to the partners. As stated in the Record, SAFA Law Office entered into a
contract of lease with Philippines National Bank on June 11,
A PARTNER’S LIABILITY IS SUBSIDIARY 1998. PNB agreed to lease 632 square meters of the second floor
Article 1816. All partners, including industrial ones, shall be liable of their Financial Center Building in Quezon City for three years and
pro rata with all their property and after all the partnership assets for a monthly rental fee of P189,600.
have been exhausted, for the contracts which may be entered into
in the name and for the account of the partnership, under its SAFA Law Office then occupied the leased premises and paid
signature and by a person authorized to act for the partnership. advance rental fees and security deposit in the total amount of
However, any partner may enter into a separate obligation to P1,137,600.
perform a partnership contract.
Subsidiary liability means that one’s liability merely becomes According to PNB, SAFA Law Office continued to occupy the leased
secondary and only arises if the one primarily liable fails to premises until February 2005 (which is way beyond the expiration
sufficiently satisfy the obligation. of the Contract of Lease, but discontinued paying its monthly rental
obligations after December 2002. Consequently, PNB sent a
Article 1816 clearly states that the liability of a partner with respect demand letter, and sent another demand letter demanding the
to the partnership is subsidiary in nature. This subsidiary nature of payment of unpaid rents in the amount of ₱5,856,803.53 which
a partner is a valid defense against a premature execution of was received by SAFA Law Office on November 10, 2003.
judgment directed to a partner.
In a letter, SAFA Law Office expressed its intention to negotiate. In
In this case, no genuine efforts were made to locate the properties February 2005, SAFA Law Office vacated the leased premises. PNB
of QSC that could have been attached to satisfy the judgment. sent a demand letter dated July 7, 2005 requiring the firm to pay
What happened was that Gacott immediately instructed the sheriff its rental arrears in the total amount of ₱l0,951,948.32. In
to proceed with the attachment of one of the motor vehicles of response, SAFA Law Office sent a letter proposing a settlement.
Guy. Therefore, Guy couldn’t be made to answer for the debts of PNB, however, declined the settlement proposal in a letter, stating
the QSC unless it is clear that all of the assets QSC have been that it was not amenable to the settlement’s term. PNB then made
exhausted. a final demand for SAFA Law Office to pay its outstanding rental
obligations in the amount of ₱25,587,838.09.
DISCUSSION
Saludo, in his capacity as managing partner of SAFA Law Office,
Just to summarize, a certain person ordered equipment and then it filed an amended complaint for accounting and/or recomputation
turned out to be defective so he filed a case against the partnership of unpaid rentals and damages against PNB in relation to the
only. At the time he thought that it was a corporation but when he Contract of Lease.
checked the records it was actually a partnership.
PNB filed a motion to include an indispensable party as plaintiff,
Here, he learned that Guy is one of the partners in the partnership. praying that Saludo be ordered to amend his complaint to include
So, Guy’s property was taken so that this person wanted to be paid SAFA Law Office as principal plaintiff.
out of the separate or individual property of the partner. But we said
that liabilities of a partnership are liabilities of the partnership, unless PNB argued that the lessee in the Contract of Lease is not Saludo
the asset of the partnership is fully exhausted. If the assets are not but SAFA Law Office, and that Saludo merely signed the Contract

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of Lease as the managing partner of the law firm. Thus, SAFA Law Jarantilla, Jr. vs. Jarantilla
Office must be joined as a plaintiff in the complaint because it is G.R. No. 154486 | Dec 01, 2010
considered an indispensable party under the Rules of Court.
FACTS:
ISSUE: In relation to our topic, Article 1768, the issue in this case is Jarantilla heirs executed an extrajudicial partition among
whether or not SAFA Law Office is a juridical entity. Yes. themselves over the real properties of their deceased parents
except the share adjudicated to Pacita Jarantilla.
RULING:
We hold that it acquired juridical personality by operation of law. They also agreed to allot the produce of the said real properties for
the studies of Rafael and Antonietta Jarantilla.
Art. 1768 of the Civil Code: The partnership has a juridical
personality separate and distinct from that of each of the partners, The spouses Rosita Jarantilla and Vivencio Deocampo entered into
even in case of failure to comply with the requirements of Article an agreement with the spouses Buenaventura and Conchita
1772. Jarantilla.

Art. 44 of the Civil Code: The following are juridical persons: xx “To provide mutual assistance to each other by way of financial
partnerships. support to any commercial and agricultural activity on a joint
business arrangement.”
SAFA Law Office entered into a contract of lease with PNB as a Their agreement had a contribution of assets that came from the
juridical person to pursue the objectives of the partnership. The extrajudicial partition.
terms of the contract and the manner in which the parties
implemented it are a glaring recognition of SAFA Law Office's Their business relationship turned out successful as they have
juridical personality. Thus, the contract stated that it is being acquired a lot of assets. The parties voluntarily agreed to dissolve
executed by PNB as the lessor and "SALUDO AGPALO FERNANDEZ their "joint business relationship/arrangement."
& AQUINO, a partnership organized and existing under the laws of
the Republic of the Philippines," as the lessee. The spouses Buenaventura and Conchita Remotigue executed a
document wherein they acknowledged that they were not the only
So SAFA Law Office acquired juridical capacity. owners of the capital of the businesses and stated the participating
capital of their co-owners.
DISCUSSION
The Acknowledgement of Participating Capital.
In this case, the Law Firm was not able to pay the amount. This SAFA “ THAT ANTONIETA HAS A SHARE OF 8,000PHP IN THE
Law Office entered into a Contract of Lease with PNB. Later on, they Manila Athletic Supply, and equipment, and general
were not able to pay and that started the controversy. merchandise.”

Saludo actually entered into an Agreement with the other partners of Antonieta Jarantilla, their aunt, filed a complaint against Federico
the firm wherein they agreed that the other partners will not be held Jarantilla jr., [Link], for the accounting of assets and income of the
liable for obligations arising from contracts entered into by the co- ownership, for its partition and the delivery of her share. She
partnerships with third persons. Saludo insisted that it was a sole claimed that she had an agreement with spouses Remotigue,
proprietorship – that he is a sole proprietor because he does not want Rafael Jarantilla, and spouses Deocampo to engage in business.
to implicate his partners. The Supreme Court took into account their
Articles of Partnership and there it was stated that there really was She alleged that the initial contribution of property and money
one. came from the heirs’ inheritance, and that she had helped the
business without receiving salary.
In relation to the separate and distinct juridical personality of the
SAFA Law Offices Partnership, remember that once a partnership has Antonieta further claimed co-ownership of certain properties in
a separate juridical personality, it can enter into contracts in its own the name of the defendants since the only way the defendants
name. Saludo, the partner, insisted that there was no partnership, but could have purchased these properties were through the
if you look at the Lease Contract, the lessee is listed as SAFA Law partnership as they had no other source of income.
Office. This is actually an obligation incurred by the partnership- it is
a Partnership Debt. Federico Jarantilla Jr., Et. al. denied having formed a partnership
with Antonieta.
In this case, SAFA Law should have been impleaded; but what
happened was, Saludo was trying to file a case alone. He did not ISSUE: Is Anonietta considered a partner in the partnership? YES
implead SAFA Law office when in fact, based on their contract, SAFA
LAW office was the lessee. RULING: Yes. Anonietta is a partner.
She had a contribution which came from her inheritance.
So, SAFA Law office, even if it is a juridical person, is an indispensable
party because the partnership was a contracting party to the contract Under Article 1767 of the Civil Code, there are two essential
being questioned. elements in a contract of partnership:

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partnership. His share is only limited to what businesses were

(a) an agreement to contribute money, property, or industry to a
enumerated because a partnership has a distinct personality from
common fund; and
another partnership. This is what happened in this case.
(b) intent to divide the profits among the contracting parties.
Article 1768 of the Civil Code mentions Article 1772.
It is not denied that all the parties in this case have agreed to
contribute capital to a common fund to be able to share its profits Civil Code, Article 1772.
later. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall
They have admitted this fact, agreed to its veracity, and even appear in a public instrument, which must be recorded
submitted one common documentary evidence to prove such in the Office of the Securities and Exchange
partnership - the Acknowledgement of Participating Capital. Commission.

In this case, Jarantilla Jr. [Link]., did not dispute its contents and is Failure to comply with the requirements of the
actually relying on it to prove his participation in the partnership. preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
Therefore, Antonieta Jarantilla is a partner, because all the parties (n)
in this case have agreed to contribute capital to a common fund to
be able to share its profits later.
DISCUSSION
Even if the requirement under 1772 as to form is not complied with,
DISCUSSION it was not embodied in a public instrument, that will not affect nor
This case involves a family and shows us that there is a partnership, prevent the separate and distinct juridical personality of a
even if only the acknowledgment receipt was shown. As we go along, partnership. So it is not essential to acquire a juridical personality of
we will learn that there is no need for evidence. Mere meeting of the partnership. But how about Articles 1773 and 1775?
minds is enough for a partnership.
Civil Code, Article 1773.
In the case of Jarantilla v. Jarantilla, although not necessary, the
A contract of partnership is void, whenever immovable
acknowledgement of capital was made as evidence to prove that
property is contributed thereto, if an inventory of said
there is a partnership. If you look at the definition of partnership
property is not made, signed by the parties, and
under the Civil Code, it does not have to be in a document. It is
attached to the public instrument. (1668a)
manifested through the intention of the parties. We judge them with
what is available in manifestation of the intention. In this case, it was
manifested through the document entitled “Acknowledgement of
Participating Capital.” Civil Code, Article 1775.
Associations and societies, whose articles are kept
This shows us that what a partner gives as a capital, that's the only secret among the members, and wherein any one of
thing that she gets. It is the partners share only. A partnership has a the members may contract in his own name with third
distinct Juridical personality that of those of the other partner. persons, shall have no juridical personality, and shall
Whatever share that a partner gives, that's the only share he will get. be governed by the provisions relating to co-
ownership. (1669)
Essentially, in this case, they are all family members. Now, their
inheritance was used as capital in the business. Clearly there was a DISCUSSION
partnership. There’s no issue with that. A partnership enjoys a separate and distinct juridical personality even
if the form was not complied with under Article 1772. But the story is
But the issue is, in the document entitled “Acknowledgment of different if it is under Articles 1773 and 1775.
Participating Capital”, here the partner wanted to claim 6% of the
entire business because the partnership owned some properties. REQUIREMENTS OF ARTICLE 1773 AND 1775:
1. Immovable property and real rights are involved.
Now, in this document, it enumerated the businesses being run by 2. Inventory signed by the parties.
the partnership. So now, this particular partner had claims against the 3. The agreement must be embodied in a public instrument.
other properties that were not included in the businesses run by the The inventory shall be attached in the public instrument.
partnership. 4. Register it with the SEC
The SC ruled that whatever share has been taken by the partner, it So in those cases, you really need to comply with the formal
will be taken from the asset of the partnership, which is from the
requirements. Otherwise, the partnership will not acquire a separate
partnership coffers. That is the principle that the partnership has
and distinct juridical personality.
separate and distinct juridical personality. The partner can only get
his share from whatever resources the partnership owns. Another instance where a partnership does not need to acquire
juridical personality is if the articles of the partnership are being kept
If a particular partner is interested in a property and he wants to have from the members. If it were not shown to them, that is a ground for
a share in it, but it is owned by another partnership, of course that the partnership to not acquire a juridical personality.
partner cannot claim a share in the partnership property of another

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If they are not partners amongst themselves, with respect to third

persons, they are also not partners.
Civil Code, Article 1769.
In determining whether a partnership exists, these
HOWEVER, this is merely the general rule:
rules shall apply:
GR: Persons who are not partners as between themselves are not
(1) Except as provided by article 1825, persons who are
partners with respect to third persons.
not partners as to each other are not partners as to
XPN: Partnership by estoppel under Article 1825.
third persons;
The gist of Article 1825 is that a person represents himself as a
(2) Co-ownership or co-possession does not of itself
partner, or he allows another person to represent him that he is a
establish a partnership, whether such co-owners or co-
partner in a partnership, when in truth, he is not.
possessors do or do not share any profits made by the
use of the property;
There is a misrepresentation of a partnership but actually there is
none. What happens here, by operation of law, they are considered
(3) The sharing of gross returns does not of itself
partners, especially if third persons are involved such that they cannot
establish a partnership, whether or not the persons
run from their liability because the law will create a partnership
sharing them have a joint or common right or interest
among them.
in any property from which the returns are derived;
Example: X & Y are not partners between themselves. General rule,
(4) The receipt by a person of a share of the profits of
they are not partners as to third persons, for instance, Z. In other
a business is prima facie evidence that he is a partner
words, no partnership. However, if X, with the consent of Y, will say
in the business, but no such inference shall be drawn if
that they are “partners” with Z. In that case, there might be a
such profits were received in payment:
partnership by estoppel because of that misrepresentation.
(a) As a debt by installments or otherwise;
The rule for X & Y is that they really are not partners. It is just with
respect to the third person that they are considered as partners, for
(b) As wages of an employee or rent to a
purposes of satisfying their liability. And then, this partnership by
landlord;
estoppel only applies to third persons because this is for the
protection of third persons.
(c) As an annuity to a widow or
representative of a deceased partner;
Now, the rule again, between X and Y is that they are not partners,
but only just with respect between the 3rd person that they
(d) As interest on a loan, though the amount
considered as partners for purposes in satisfying their liability.
of payment vary with the profits of the
business;
(2) Co-ownership or co-possession does not of itself establish a
(e) As the consideration for the sale of a partnership, whether such co-owners or co-possessors do or do not
goodwill of a business or other property by share any profits made by the use of the property;
installments or otherwise. (n) Essentially, the mere presence of co-ownership does not mean that
there is partnership. It is not a determining factor in ascertaining
DISCUSSION whether there is a partnership or not.
We discussed before the essential features of a contract of When we say partnership, the partners are co-owners of the
partnership. If all of those features are present, then there is a BUSINESS.
partnership, and there is no problem if there is a written contract-
there are articles of partnership. You can always see the essential EXAMPLE: X while alive, assets. Upon his death, his children
features, such as their obligations, how much the division of their succeeded him, Y and Z. now, they continue their father’s business.
profit is, and contribution of each partner. There is no doubt if there The rental proceeds were divided between them. They continue the
is an agreement in writing, one can easily determine if there is a business.
partnership or none.
Q: Is there a partnership?
Now, Article 1769 presents a situation where the existence of a A: The profit was derived from the property. The mere fact that they
partnership among parties is doubtful. So in case of doubt, we apply are co-owners only says that they only have shares. It does not mean
the rules given here under Article 1769. that they are partners.
THEY MUST HAVE A CLEAR INTENT THAT THEY WILL BE
(1) Except as provided by article 1825, persons who are not
PARTNERS IN THE BUSINESS in a BUSINESS UNDERTAKING.
partners as to each other are not partners as to third persons;
We discussed before that a partnership is a consensual contract. So if
One of the essential features in the contract of partnership is that it
a person did not consent to enter into a contract of partnership, then must be fiduciary. In this case, their co-ownership only derived by the
he is not a partner. operation of law, which is, the inheritance they had. If they executed
If there is no intention to create a partnership, these persons cannot a partition of the inheritance and subsequently continued the
be considered as partners and the same thing goes with third persons.

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 Manresa ATP | 11

business, that’s partnership. Because they partitioned it already, they

have their own shares.
RULING:
No. They did not form an unregistered partnership. The court cited
(3) The sharing of gross returns does not of itself establish a Article 1767 wherein it states that by the contract of partnership,
partnership, whether or not the persons sharing them have a joint two or more persons contribute money, property, and industry to
or common right or interest in any property from which the returns a common fund with the intention of dividing profits amongst
are derived; themselves.
The mere sharing of gross returns alone does not indicate
partnership, since, in a partnership, the partners share net profits There are two essential elements here:
after satisfying all the liabilities. 1. Contributing money, property, and industry to a common fund
2. Intent
This is opposed to the rule that sharing of profits is presumptive
evidence of a partnership. The sharing of gross return has been held According to the court, in the present case, there is no evidence
not to constitute even prima facie evidence of the relation. It can be that Pascual and Dragon entered into an agreement to contribute
possible if it was shared as net returns. money, property, and industry to a common fund and had the
intent to divide the profits amongst themselves.
Supplemental: Net profit is also not conclusive. It is only a strong
indication that there is partnership. The court also cited Article 1769, specifically paragraphs 2 and 3.
Wherein it states that:
Once the liabilities have been paid, that’s the only time that the
partners can claim their share in the profit. They cannot claim their Paragraph 2: Co-ownership or co-possession does not in itself
share unless they are able to pay the creditors in the partnership. establish a partnership. Whether such co-owners or co-possessors
Because, if what is divided among themselves is the gross return, that do or do not share any profits made by the use of the property.
does not indicate that the contract entered into by the parties was a
partnership. Paragraph 3: the sharing of the gross returns does not itself
establish a partnership.
Q: What if they shared in the net profit and then losses. Is it
indicative that there is partnership? As the courts stated here, just because they are co-owners and just
A: There is strong presumptive evidence that there is partnership but because they share profit does not mean that they have formed a
it is not conclusive because it might be that it is not a payment for partnership.
respective shares of the partners like the payment of debt, wages,
interest. It may be a payment of some other obligation. Profit sharing First, there must be a clear intent that the petitioners here, Pascual
by itself is not sufficient evidence to conclude that there is and Dragon, intended to form a partnership. A joint purchase of
partnership. land by two people does not constitute a partnership nor does an
agreement to share the profits and the losses on the sale of a land
create a partnership.
Pascual vs. CIR
G.R. No. 78133 | Oct 18, 1988 The court cited here three things you must remember if there is
a partnership:
FACTS:
In the case of Pascual vs. CIR, we have petitioners here Pascual and 1. Intent to form a partnership
Dragon. In 1965, they bought 2 parcels of land. In the year 1966, 2. Generally participating in both profits and losses
they bought 3 parcels of land. 3. Such a community of interest as far as third persons
are concerned, as it enables the parties to make a
In 1968, they were able to sell the 2 parcels of land and contract, manage the business, and dispose of the whole
subsequently in 1970, they sold the remaining 3 parcels of land. So property
of course, they were able to make profit. In 1973, they paid their
capital gains taxes. Here, even if there is a common ownership with the purposes of
making gain, does not mean that they are partners. They can do
In 1974 they availed of a tax remedy granted in the said dates. So this even without becoming partners. The sharing of returns also
here, the BIR Commissioner assessed the petitioners Dragon and does not necessarily mean that you have become partners.
Pascual and said that they allegedly have deficiencies in their
capital income tax, but according to the petitioners here, they According to the court in the present case of Pascual, there's clear
stated that they’ve availed of the tax amnesty way back in 1974 evidence of co-ownership between the petitioners and there is no
but the BIR Commissioner argued that they were co-owners in basis to the proposition that they formed an unregistered
their real estate transactions that formed an unregistered partnership.
partnership, therefore, they are subject to taxes.
When you are an unregistered partnership, you’re subject to The transactions of the two parcels of land and the three parcels
corporate income tax. of land were isolated transactions, wherein they purchased the
properties, they sold the properties, after a few years later they
ISSUE: Whether or not the petitioners formed an unregistered paid the capital gain taxes and availed of the tax amnesty.
partnership? NO.

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 Manresa ATP | 12

because what the Supreme Court looks at is the legal intention to

Under these circumstances of Pascual, they cannot be considered
enter into a Contract of Partnership.
to have formed an unregistered partnership.
Ok, let’s proceed to the incidents of partnership.
DISCUSSION
In this case, two persons, bought land and they did not nothing to the INCIDENTS OF PARTNERSHIP
property. After a few years, the value of the lot increased, so they sold 1. The partners share in the profits and losses.
it. What happened was, they divided the proceeds of the sale. 2. There is mutual management and control in the business.
3. Every partner is an agent of the partnership.
Then CIR, now BIR, said, you are an unregistered partnership. 4. All partners are personally liable for their separate and
Remember the elements of partnership, you contribute money, individual properties, if and only if the partnership assets
property, industry, then divide profit among yourselves. That’s what are not enough to satisfy partnership debts and liabilities.
they did. Do you know why BIR said this? Because the tax is bigger if 5. The books of the partnership shall be kept in the principal
they are an unregistered partnership. They would have to pay place of business, unless there is a stipulation to the
Corporate Tax instead of individual income tax. So that’s what contrary.
happened. 6. The partners have a fiduciary relationship based on mutual
trust and confidence
The Supreme Court said, the contract between the parties are mere 7. A capitalist partner cannot engage in the same kind of
co-ownership. Just because they are co-owners, does not necessarily business being engaged in the partnership
mean that there is already a partnership. They are also not considered 8. During dissolution, the partnership is not terminated. It
a partnership just because they shared in the profit in the sale of land, continues until the winding up process of the partnership.
the proceeds, gross receipts (without liabilities - because the land was
not touched, so there was no business undertaking). DISCUSSION
All partners are personally liable for their separate and individual
The Supreme Court said that it was an isolated transaction, there is properties, if and only if the partnership assets are not enough to
no element of continuity and habituality. This is not a partnership but satisfy partnership debts and liabilities. But, if it is a limited partner,
a mere isolated transaction. he will really not be liable. But we will discuss that later.

A capitalist partner cannot engage in the same kind of business being

(4) The receipt by a person of a share of the profits of a business is
engaged by the partnership, so prohibition is relative. But when it
prima facie evidence that he is a partner in the business, but no
comes to an industrial partner, he is absolutely prohibited from
such inference shall be drawn if such profits were received in
engaging in any kind of business.
payment:
Last, during dissolution, the partnership is not terminated. It
(a) As a debt by installments or otherwise;
continues until the winding up process of the partnership. Winding
up—partnership affairs are finally settled. The assets and liabilities
(b) As wages of an employee or rent to a landlord;
are paid, their capital contribution is returned, and their profit will.
(c) As an annuity to a widow or representative of a deceased
Let’s go to the case of Philex Mining Corporation v. CIR.
partner;

(d) As interest on a loan, though the amount of payment vary with Philex Mining Corporation vs. CIR
the profits of the business; G.R. No. 148187 | Apr 16, 2008

(e) As the consideration for the sale of a goodwill of a business or FACTS:

other property by installments or otherwise. (n) On April 16, 1971, Philex Mining Corporation, entered into an
agreement with Baguio Gold Mining Company for the former to
In other words, if the person does not have an interest in the profits manage and operate the latter’s mining claim, known as the Sto.
and losses in the business, they are not considered as partners. Nino mine. The parties’ agreement was denominated as “Power of
Attorney”. However, the mine suffered continuous losses over the
Q: Who has the burden to prove that a partnership really exists? years which resulted in Philex Mining’s withdrawal as manager of
A: Of course, the person, alleging the partnership. But, it could be that the mine on January 28, 1982 and in the eventual cessation of mine
by their conduct or declaration, the persons act as partners, then it operations on February 20, 1982.
can be presumed that there really is a partnership. Take note, conduct
or declaration. In its 1982 annual income tax return, Philex Mining deducted from
its gross income the amount of P112,136,000 as “loss on
As to the nomenclature of the agreement, the title of the agreement settlement of recievables from Baguio Gold against reserves and
is not controlling that there exists a partnership. Just because the title allowances. However, the Bureau of Internal Revenue disallowed
of the document says “partnership” does not mean that the the amount as deduction for bad debt and assessed petitioner a
agreement or the legal intention is for there to be a partnership. deficiency income tax of P62,811,161.39. Philex Mining
emphasized that the debt arose out of a valid management
Also, the beliefs of the parties are not relevant. If they believe that contract it entered into with Baguio Gold. The bad debt deduction
they have a partnership or the other way around, that is irrelevant, represented advances made by Philex Mining which, pursuant to

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 Manresa ATP | 13

The Supreme Court said “this is not a loan, because you do not have
the management contract, formed part of Baguio Gold’s
a contract of loan.
“pecuniary obligations” to Philex Mining.
First, this involves big companies in the business of mining. These are
The Court of Tax Appeals held that the “Power of Attorney”
not small businesses. If you want to do a loan, you want it in writing
executed by Philex Mining and Baguio Gold was actually a
for your protection.
partnership agreement. Since the advanced amount partook of is
in the nature of an investment, it could not be deducted as a bad
Second, the loan was unsecured. If it involves a big amount in the
debt from Philex Mining’s gross income.
loan, you will ask for a mortgage or a security, in case there is no
payment then there is foreclosure of property.”
ISSUE: Whether or not the “Power of Attorney” executed by Philex
Mining and Baguio Gold is a partnership agreement. YES, Philex
The Supreme Court said from that, “there is no way to determine
Mining is a partner of Baguio Gold.
when the obligation is due and demandable because there is no
maturity date.” It is clear here that this is in fact a contract of
RULING:
partnership.
An examination of the “Power of Attorney” reveals that a
partnership or joint venture was indeed intended by the parties.
Philex contributed money, and they are experts on mining operations.
Under a contract of partnership, two or more persons bind
The other party had contributed a mining claim and money. It is clear
themselves to contribute money, property, or industry to a
from the JVA that they had a profit sharing agreement. That goes to
common fund, with the intention of dividing the profits among
show that it is a partnership. They share not just the profits but also
themselves.
the losses.
While a corporation, like Philex Mining, cannot generally enter into
The Supreme Court said that it was not shown in this case that Baguio
a contract of partnership unless authorized by law or its charter, it
was unconditionally obliged to pay the bad debt in favor of Philex
has been held that it may enter into a joint venture which is akin
because if that is a loan, then Baguio would really be obligated to pay.
to a particular partnership. The agreement which provided for a
But in this case, it was not shown that they were obligated to pay
distribution of assets of the Sto. Nino mine upon termination is a
Philex.
provision that is more consistent with a partnership than that of a
creditor-debtor relationship.
Here, they saw the contribution of money, property, and industry.
Then there was also an agreement to divide among themselves the
The Court of Tax Appeals correctly observed that it was unlikely for
profit, as well as the losses. Clearly, there was a contract of
a business corporation to lend hundreds of millions of pesos to
partnership.
another corporation with neither security, or collateral, nor a
specific deed evidencing the terms and conditions of such loans.
Next, why is it not considered wages? Can you imagine a big company
The parties also did not provide for a specific maturity date for the
being an employee? That is not the compensation or wages
advances to become due and demandable, and the manner of
contemplated by the law on partnership. Compensation here is his
payment was unclear.
share, the Philex share in the profit of the joint venture. If it were
wages, it is a small amount compared to the millions earned from the
All the points stated, lead to the conclusion that the advances were
venture.
not loans but capital contributions to a partnership. The strongest
indication that petitioner was a partner in the Sto. Nino mine is the
The Supreme Court said “Verily, the receipt by a person of the profits
fact that it would receive 50% of the net profits as “compensation”
of the business is prima facie evidence that he is a partner of the
under paragraph 12 of the agreement. The stipulation leads to the
business.”
conclusion that Philex Mining’s “compensation” is actually its share
in the income of the joint venture. Moreover, Article 1769 (4) of
Let’s proceed to the case of Heirs of Jose Lim v Lim:
the Civil code explicitly provides that the “receipt by a person of a
share in the profits of a business is prima facie evidence that he is
a partner in the business.” Heirs of Jose Lim vs. Lim
G.R. No. 172690 | Mar 03. 2010
DISCUSSION
FACTS:
In short, in this case, there were two corporations. They wanted to In this case there were 3 friends who formed a partnership for the
enter into the mining business. So, Philex, as the General Manager, purpose of starting a business. They each initially contributed
contributed as an expert in managing a mining operation. There is 50,000.00 pesos. With that they bought a truck for hauling and
money and industry. Now, Baguio has a mining claim, thus it also has transport of lumber. Out of the 3, Jose managed the operations of
money. Now, the business did not prosper and it incurred liabilities. the business until his death in 1981, where his eldest son Elfledo
What Philex did was to pass all liability to Baguio. They said that it was continued managing the business. Under his management, the
a loan. business fostered. They went from 1 truck to 9 trucks. On May 18,
1981 Elfledo died naming his widow Juliet, the respondent in this
Because, what was written in the contract was “loan”, so that he case, as his heir. The petitioners here, the heirs of Jose, are
could advance funds. Philex insists that he is merely an employee, a claiming that they are the heirs of the properties. They required
manager; thus it could either be loan or wage. Philex says, “if its not Juliet to submit an accounting of all income, profits, and rentals
a loan, it may be a wage.” received from the estate of Elfledo and to surrender the

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 Manresa ATP | 14

But here, it was sufficiently shown that what Elfredo was receiving
administration thereof. Juliet refused, and that’s why they filed this
were not wages contrary to the heirs’ claim that Elfredo was a mere
case.
employee. The Supreme Court found and took into account the
circumstance to show that he is indeed a partner and not an
The Heirs are contending that Elfledo was never a partner or
employee and that he receives not wages, but his share in the profit.
investor in the business, and that he was merely hired help.
First, he has a capital contribution which was given by his father.
ISSUE: Whether Elfledo was a partner in the partnership formed
Second, he manages the business. He has absolute control of the
by the 3 friends. YES.
business while the heirs do not even have equipment.
Third, all properties were registered in the name of Elfredo as the
RULING:
active partner.
The Court ruled in the affirmative.
Fourth, what he was actually receiving were not wages but a share in
the profits.
A partnership exists when two or more persons agree to place their
Lastly, just like in their reports, none of the heirs demanded an
money, effects, labor, and skill in lawful commerce or business,
accounting. This is an indication that Elfredo was not necessarily a
with the understanding that there shall be a proportionate sharing
mere employee, he was a partner. In this case, the exception on the
of the profits and losses among them.
enumeration of debts, etc. is not applied. He is not covered because
he is a partner.
In determining whether a partnership exists, Article 1769 of the
Civil Code provides the rules to be applied. It specifically provides
Last case for tonight, Dusol vs. Lazo.
under Paragraph 4 that the receipts by a person of a share of the
profits of a business is a prima facie evidence that he is a partner
in the business, but not such inference shall be drawn if such Dusol vs. Lazo
profits were received in payment: G.R. No. 200555 | Jan 20, 2021
(a) as a debt by installment or otherwise;
(b) as wages of an employee or rent to a landlord; FACTS:
(c) as an annuity to a widow or representative of a This case arose from a complaint for illegal dismissal,
deceased partner; underpayment of benefits, a claim for damages, and attorney's
(d) as interest on a loan, though the amount of payment fees filed by Sps. Pedro and Maricel Dusol against Emmarck A. Lazo
vary with the profits of the business; and, as the owner of Ralco Beach.
(e) as the consideration for the sale of a goodwill of a
business or other property by installments or otherwise. Pedro started working as the caretaker of Ralco Beach. As
caretaker and the only employee, Pedro cleaned, watched, and
Applying the legal provision above-mentioned, it was clearly secured the beach area, cottages, rest house, store, and other
established that Elfedo himself was the partner of Jimmy and properties in the resort. He also entertained guests and occupants
Norberto through the following circumstances: of the cottages. He worked from 5 a.m. to 9 p.m. every day,
(1) Jose gave Elfedo ₱ 50,000.00 as share in the including weekends and holidays, and was given an allowance of
partnership; P100.00 per week, which was later increased to P239.00 in 2001.
(2) Elfedeo ran the affairs of the partnership, having
absolute control, power, and authority without any Pedro later got married to Maricel, who was then employed by
intervention from the Petitioners; Emmarck to manage the store in the resort.
(3) all of the properties of the partnership were
registered under the name of Elfedo; For her services, she was paid P1,000 a month and entitled to 15%
(4) Elfedo did not receive wages or salaries from the commission on the rentals collected from the cottages and rest
partnership, indicating that he was actually receiving house. Like Pedro, she also worked from 5 a.m. to 9 p.m. every day.
shares of the profits of the business; and
(5) None of the Petitioners demanded periodic In 2008, Emmarck notified Pedro and Maricel that he would be
accounting from Elfedo during his lifetime. Thus, there is leasing out Ralco Beach because the business was not profitable.
no denying that Elfedo was a partner and not merely Thus, their services are no longer needed. Due to this, Pedro and
hired in the partnership of the trucking business. Maricel no longer reported for work. Subsequently, they filed a
complaint asserting that they were illegally dismissed and deprived
of procedural due process. For his part, Emmarck denied the
employment relationship with Pedro and Maricel and asserted that
they were his industrial partners.

ISSUE: WON Pedro and Maricel Dusol were employees or partners

DISCUSSION
of Emmarck Lazo. EMPLOYEES.
The issue here is whether Elfredo is a partner. What happened was
that his father was a partner before and then he gave Elfredo capital
to join the partnership. After his father’s death, the heirs of his father RULING:
claimed that Elfredo is not a partner. They insist that whatever he They were employees. There is no proof that a partnership existed
earns with the partnership is part of the estate of the father because between Sps. Dusol and Lazo. No documentary evidence was
they wanted a share from the hard work of Elfredo. submitted by Emmarck to even suggest a partnership.

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 Manresa ATP | 15

have for its object a particular service of another under a

Emmarck failed to prove the existence of partnership. It is undertaking contract for hire, express, or
undisputed that Pedro and Maricel rendered their services in Ralco implied, oral or written
Beach and received compensation sourced from rentals and sales
of the resort. He relied solely on his own statements that Pedro Elements
and Maricel did not receive wages but merely allowances and
commission from the profits of their partnership. 1. two or more persons bind 1. the selection and engagement
themselves to contribute
of the employee;
However, it is beyond dispute that receipt by a person of share in money, property, or industry to
2. the payment of wages;
the profits of a business does not by itself establish the existence a common fund; 3. the power of dismissal; and
of a partnership, if the amounts are received as wages of an 4. the employer's power to
employee. Neither does the sharing of gross returns establish a 2. they intend to divide the control the employee's conduct.
partnership, most especially, in light of the absence of any other profits among themselves
The most important element is the
evidence to establish the existence of the partnership. The records
employer's control of the employee's
show that all the elements of an employer-employee relationship conduct, not only as to the result of
are present. the work to be done, but also as to
the means and methods to
Undoubtedly, the best evidence to prove the existence of a accomplish it.
partnership is the contract or articles of partnership. Nevertheless,
in its absence, its existence can be established by circumstantial Requirement
evidence. Under Article 1769 of the Civil Code, "the receipt by a
person of a share of the profits of a business is a prima facie Generally, it is not required that No particular form of evidence is
evidence that he is a partner in the business, but no such inference the agreement be in writing or in required to prove the existence
shall be drawn if such profits were received in payment as wages a public instrument. of an er-ee relationship.
of an employee [or rent to a landlord]."
However, when immovable However, a finding that such a
In addition, "the sharing of gross returns does not of itself establish properties or real rights are relationship exists must still rest
a partnership, whether or not the persons sharing them have a contributed to the partnership, on some substantial evidence.
joint or common right or interest in any property from which the it is required that an inventory of
returns are derived." the real properties or rights
contributed be prepared and
signed by the parties, and
DISCUSSION attached to the public
In this case, the Sps. were employed on the beach. Their instrument, otherwise, the
compensation will be taken out of the rent, the proceeds of the rent agreement is void.
of the cottages, and proceeds from the sales of the store. They are
now saying that they were illegally dismissed by their employer, Lazo.
The employer insisted that they are partners because they share
profit in the form of compensation from the cottage rent and store
profit. He was insisting that the Sps were not employees and actually
there’s been payment in their share in the partnership.

Remember as a general rule, sharing of profit is a prima facie evidence

that there is partnership. But, it does not apply in certain cases like in
the payment of wages or compensation. So here, it was definitely
shown that they were sharing the gross returns and not the net profit.
Sharing of gross returns does not establish the existence of a
partnership.

Here, there was no showing that the Sps shared in the net profit and
obviously they are mere employees. It’s just the wages were paid in
some other way that instead of giving it directly to them, wages were
deducted from income of the resort from rentals and store income.
Thus, the Supreme Court said that the exception applies here. There
is no partnership. They are mere employees because what was paid
to them were wages and not the share of the net profit.
DISTINCTIONS BETWEEN PARTNERSHIP FROM
Proof of Partnership Proof of Employment OTHER CONTRACTS

Object/Subject
PARTNERSHIP v CO-OWNERSHIP
a particular partnership may an employee is any person in the

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 Manresa ATP | 16

Co-ownership Partnership Husband and wife Minimum two persons,

regardless of sec
As to Creation
As to governing law
Generally created by law Created by contract, express or Family Code Stipulations of the contract; in
implied the absence of contract: Civil
Code
As to juridical personality
As to juridical personality
No separate juridical personality Separate and distinct juridical
personality No separate juridical personality Separate and distinct personality
As to purpose As to commencement
Common enjoyment of the thing For profit From celebration of marriage From the moment of execution
owned in common. of the contract; unless there is a
stipulation by the parties that the
As to duration
partnership will commence at a
Cannot stipulate that the thing No limitation future date
shall remain undivided for more
As to purpose
than 10 years.
To regulate property relations of Profit
As to disposal of interest
spouses during subsistence of
The Co-owner may dispose of his Interest can be disposed of but marriage
share (spiritual or ideal) in the the one who received such
As to distribution of profits
thing owned in common, even interest if the disposing partner
without consent of the other co- WILL NOT become a partner. Equal sharing between husband Depends on agreement.
owners. (based on mutual trust and and wife
confidence) Parties can stipulate as to the
sharing of profits and losses; but
As to power to act with third persons
in the absence of such
Co-owner cannot represent co- Partners are agents of the agreement, it will be
ownership partnership. They can bind the proportionate to their capital
partnership with third persons contributions.

As to effect of death As to management

Death of co-owner does not Death of partner will result in Belongs to both the husband and There is mutual management
dissolve co-ownership dissolution of partnership wife; and in case of among the partners.
disagreement, the husband’s
decision shall prevail They equally share the
management of partnership
business; unless they appointed
a manager who may be a
managing partner
As to disposition of shares
Shares of spouse cannot be It may be disposed but the
disposed of during the marriage, assignee cannot be a partner
even with the consent of the unless it is with consent of the
other spouse other partners.

PARTNERSHIP v CONJUGAL PARTNERSHIP OF GAINS

PURPOSE / OBJECT OF PARTNERSHIP

CPG Partnership Civil Code, ART. 1770.

As to parties

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 Manresa ATP | 17

A: As to profit, they can claim the profit arising from the legal aspect
A partnership must have a lawful object or purpose, and
of the business. But, as to the illegal business, No.
must be established for the common benefit or interest
of the partners.
Q: If the profit of the lawful business is increased due to the illegal
acts of some of the partners, what is the effect?
When an unlawful partnership is dissolved by a judicial
A: The partners who have no knowledge of the illegality can recover
decree, the profits shall be confiscated in favor of the
their share in the profits from the guilty partners.
State, without prejudice to the provisions of the Penal
Code governing the confiscation of the instruments and
Q: What if the partnership is previously formed for a lawful purpose
effects of a crime. (1666a)
and then later on it becomes unlawful?
A: The effect is there would have to be an accounting in order to
DISCUSSION account the profits derived during the time that the business was still
This provision discusses one of the essential features of a contract of lawful. The profits derived from the lawful business of partnership will
partnership. We said before that the object of a contract of be returned to the partners but as to the profits from when business
partnership must be lawful. were illegal, it should not be returned.

Art. 1770 provides for the effects in case that partnership becomes Q: Why should there be community of interest between the
unlawful. partners?
A: They are co-owners in the business, so it is not necessarily as to
EFFECTS OF AN UNLAWFUL PARTNERSHIP what the properties contribute. It always depends on what they
1. The contract of partnership is considered VOID. It never contributed, ex. Usufruct or property. But, they are co-owners as to
existed in the eyes of the law; the business itself. They have mutual management and control of the
2. The profits shall be confiscated by the State. business unless they appointed a managing partner.
3. The State will forfeit the instrument or tools used in the
crime. Anyway, let’s move on to Article 1771.
4. The contributions of the partners will be returned to them.
It will not be confiscated. Unless, the instrument or tools ATTRIBUTES OF PARTNERSHIP
are used in the crime.

DISCUSSION Civil Code, Article 1771.

(1) The contract of partnership is considered void. It never existed in A partnership may be constituted in any form, except
the eyes of the law; no need for a judicial decree to dissolve that where immovable property or real rights are contributed
unlawful partnership. (correlate with Article 1830 —Dissolution). thereto, in which case a public instrument shall be
necessary.
(2) The profits shall be confiscated by the State.
DISCUSSION
Q: Why is it confiscated?
A: Because if the partners will claim their respective shares in the We discussed before that a contract of partnership is consensual.
profit of the partnership, they will have to base their claim in the Hence, mere meeting of the minds will result in the perfection of the
contract of partnership, which in the eyes of the law is VOID and non- contract. However, we also discussed before that there are certain
existent. That is why the profits cannot be returned to the partners. instances when form is essential and 1771 is one of those provisions.

(4) The contributions of the partners will be returned to them. It will Q: If in case the partner contributed an immovable property or real
not be confiscated. Unless, the instrument or tools are used in the rights, what are the requisites?
crime. (1) It needs to be embodied in a public instrument; and
(2) It must be registered with the Registry of Deeds (ROD)
In which case, the capital contribution in the form of property, will be
forfeited by the State. The ROD is the repository of all registered lands, all titles are in the
ROD. You can find out who are registered owners or who sold the
Q: Why is the capital returned to the partners, except for the profits? property. That’s the reason why registration with ROD is important.
A: In the eyes of the law, an unlawful partnership is void and non-
existent. If the contributions will not be returned, it will be unfair. But if you look at Article 1771, it does not provide for the effect. If in
In the first place, there’s no contract. So, there is no obligation on the case there is non-compliance of the formal requirements.
part of the partners to contribute anything to a non-existent
partnership. Q: What is the status of the contract?
A: We have Article 1773.
That is precisely the reason why the contributions in the capital are
returned to the partners, except for the profits.
Civil Code, Article 1773.
Q: What if the illegality is partly legal and partly illegal? What is the A contract of partnership is void, whenever immovable
effect? property is contributed thereto, if an inventory of said

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 Manresa ATP | 18

property is not made, signed by the parties, and attached All three of them also agreed to share the proceeds from the sale
to the public instrument. of the subdivided lots.

The project did not push through, and the land was subsequently
DISCUSSION
foreclosed by the bank.
Now we have the effect, this provision shows that the formal
requirements are indispensable. It is mandatory. Otherwise, the According to petitioners, the project failed because of
partnership will be considered void. Note that Article 1773 is not "respondent's lack of funds or means and skills." They add that
required if the immovable is owned by the partnership and not by the respondent used the loan not for the development of the
individual partners. Because here, it presupposes that the property is subdivision, but in furtherance of his own company, Universal
owned by the partner and that partner contributed that property to Umbrella Company.
the partnership.
Respondent alleged that he used the loan to implement the
Q: What are some formalities required? Agreement. With the said amount, he was able to effect the survey
A: and the subdivision of the lots.
1. It must be embodied in a public instrument. He secured the Lapu Lapu City Council's approval of the
2. This is important, an inventory signed by the parties to be subdivision project which he advertised in a local newspaper. He
attached to the public instrument also caused the construction of roads, curbs and gutters.
3. The public instrument with the inventory is registered with
the ROD. Likewise, he entered into a contract with an engineering firm for
the building of sixty low-cost housing units and actually even set
Q: Why are these formalities required? Why is registration required? up a model house on one of the subdivision lots. He did all of these
A: This is to protect third persons because these days maraming for a total expense of P85,000.
nanggagancho. Besides, if a partner contributes his land to a
partnership and then suddenly he decides that he wants to sell it, Respondent claimed that the subdivision project failed, however,
then the buyer can look at the Certificate of Title and look if there is because petitioners and their relatives had separately caused the
a memorandum of encumbrance at the back of the title. You can annotations of adverse claims on the title to the land, which
definitely see if the property is under litigation, if it is contributed to eventually scared away prospective buyers. Despite his requests,
the partnership. Third persons will be apprised as to the status of the petitioners refused to cause the clearing of the claims, thereby
land. That is the importance of registration, to protect third persons forcing him to give up on the project
who might deal with the property subject to the contribution of the
partner. Issue: Whether or not the transaction between the petitioners and
respondent was that of a joint venture/partnership
Q: Can the partnership be considered valid if it is in a public
instrument but no inventory? Held:
A: NO, because you cannot register that public instrument with the
Registry of Deeds (ROD) without the inventory. They must go hand in Alleged Nullity of the Partnership Agreement
hand. Petitioners argue that the Joint Venture Agreement is void under
Article 1773 of the Civil Code, which provides:
Q: Why is the inventory required?
A: For liquidation purposes, the partners can easily receive what is Art. 1773. A contract of partnership is void, whenever immovable
due them and the contributing partner can easily recover his property is contributed thereto, if an inventory of said property is
property. not made, signed by the parties, and attached to the public
instrument.
Okay, let’s go to the case of Torres vs. CA.
They contend that since the parties did not make, sign or attach to
Torres v CA the public instrument an inventory of the real property
G.R. No. 134559 | December 9, 1999 contributed, the partnership is void.

FACTS: We clarify. First, Article 1773 was intended primarily to protect

Sisters Antonia Torres and Emeteria Baring, herein petitioners, third persons. Thus, the eminent Arturo M. Tolentino states that
entered into a "joint venture agreement" with Respondent Manuel under the aforecited provision which is a complement of Article
Torres for the development of a parcel of land into a subdivision. 1771, 12 "The execution of a public instrument would be useless if
there is no inventory of the property contributed, because without
Pursuant to the contract, they executed a Deed of Sale covering its designation and description, they cannot be subject to
the said parcel of land in favor of respondent, who then had it inscription in the Registry of Property, and their contribution
registered in his name. By mortgaging the property, respondent cannot prejudice third persons. This will result in fraud to those
obtained from Equitable Bank a loan of P40,000 which, under the who contract with the partnership in the belief [in] the efficacy of
Joint Venture Agreement, was to be used for the development of the guaranty in which the immovables may consist. Thus, the
the subdivision. 4 contract is declared void by the law when no such inventory is
made." The case at bar does not involve third parties who may be
prejudiced.

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 Manresa ATP | 19

by the law on partnership.

DISCUSSION
If immovable property or real rights are contributed to the FORMAL REQUISITES
partnership then the requirements under 1771 and 1773 must be The underlying issue that necessarily comes to mind in this
complied with. proceedings is whether or not petitioner and respondent Eduardo
are partners in the theatre, shipping and realty business, as one
Otherwise, the partnership is VOID. claims but which the other denies. And the issue bearing on the
first assigned error relates to the question of what legal provision
However, in the case of Torres, a third person is not involved. Article is applicable under the premises, petitioner seeking, as it were, to
1771 and 1773 will only apply if 3rd persons are affected. enforce the actionable document - Annex "A-1" - which he depicts
in his complaint to be the contract of partnership/joint venture
So, the Supreme Court said in this case, the case at bar does not between himself and Eduardo. Clearly, then, a look at the legal
involve 3rd parties who may be prejudiced. The partnership is provisions determinative of the existence, or defining the formal
therefore, NOT VOID. requisites, of a partnership is indicated. Foremost of these are the
following provisions of the Civil Code:
Lintonjua v Litonjua
G.R. No. 166299-300 | December 13, 2005 Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto,
FACTS: in which case a public instrument shall be necessary.
Aurelio and Eduardo Litonjua are brothers. Aurelio alleged that,
since 1973, he and Eduardo are into a joint venture/partnership Art. 1772. Every contract of partnership having a capital of three
arrangement in various businesses, mostly movie theaters, thousand pesos or more, in money or property, shall appear in a
shipping, land development, among other businesses. public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
This alleged joint venture/partnership agreement was contained in
a memorandum addressed by Eduardo to his siblings, parents and Failure to comply with the requirement of the preceding paragraph
other relatives. shall not affect the liability of the partnership and the members
thereof to third persons.
According to the said document, EDUARDO PROMISED AURELIO
that in consideration of Aurelio’s retaining his share in the Art. 1773. A contract of partnership is void, whenever immovable
remaining family businesses (mostly, movie theaters, shipping and property is contributed thereto, if an inventory of said property is
land development) and contributing his industry Aurelio will be not made, signed by the parties, and attached to the public
given P1 Million or 10% equity in all these businesses and those to instrument.
be subsequently acquired by them whichever is greater…
Annex "A-1", on its face, contains typewritten entries, personal in
Eventually, the relations between Aurelio and Eduardo turned sour. tone, but is unsigned and undated. As an unsigned document, there
Aurelio requested for an accounting and liquidation of his share in can be no quibbling that Annex "A-1" does not meet the public
the joint venture/partnership but these demands were not heeded. instrumentation requirements exacted under Article 1771 of the
Civil Code. Moreover, being unsigned and doubtless referring to a
On the other hand, Eduardo denied that he and Aurelio entered partnership involving more than P3,000.00 in money or property,
into a contract of partnership since the document in question is Annex "A-1" cannot be presented for notarization, let alone
void under the terms of Article 1767 in relation to Article 1773 of registered with the Securities and Exchange Commission (SEC), as
the Civil Code. called for under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into
ISSUE: Whether or not there was a contract of partnership between the matter of validity when immovable property is contributed to
Aurelio and Eduardo (NO) the partnership, the next logical point of inquiry turns on the nature
of petitioner’s contribution, if any, to the supposed partnership.
HELD:
PARTNERSHIP AND JOINT VENTURE The CA, addressing the foregoing query, correctly stated that
ARTICLE 1767 defines the contract of partnership petitioner’s contribution consisted of immovables and real rights.
Wrote that court:
ARTICLE 1767. By the contract of partnership two or more persons
bind themselves to contribute money, property, or industry to a A further examination of the allegations in the complaint would
common fund, with the intention of dividing the profits among show that [petitioner’s] contribution to the so-called
themselves. "partnership/joint venture" was his supposed share in the family
business that is consisting of movie theaters, shipping and land
A joint venture, on the other hand, is hardly distinguishable from, development under paragraph 3.02 of the complaint. In other
and may be likened to, a partnership since their elements are words, his contribution as a partner in the alleged partnership/joint
similar, i.e.,community of interests in the business and sharing of venture consisted of immovable properties and real rights. ….
profits and losses.
Considering thus the value and nature of petitioner’s alleged
Being a form of partnership, a joint venture is generally governed contribution to the purported partnership, the Court, even if so

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A: Well, here, it is not indispensable. But if you have a business, and

disposed, cannot plausibly extend Annex "A-1" the legal effects
you are not a sole proprietorship, you have partners, of course you
that petitioner so desires and pleads to be given. Annex "A-1", in
have to apply for a business permit, and the government offices will
fine, cannot support the existence of the partnership sued upon
require you to present documents to prove that you are indeed a
and sought to be enforced. The legal and factual milieu of the case
partnership. This is for convenience when you apply for a business
calls for this disposition. A partnership may be constituted in any
permit.
form, save when immovable property or real rights are contributed
thereto or when the partnership has a capital of at least ₱3,000.00,
in which case a public instrument shall be necessary.25 And if only NOTE:
to stress what has repeatedly been articulated, an inventory to be Registration is not the operative act for the partnership to
signed by the parties and attached to the public instrument is also acquire a separate and distinct personality. Registration is just a
indispensable to the validity of the partnership whenever constructive notice for third persons, if in case there will be
immovable property is contributed to it. litigation in the future.

DISCUSSION
LILIBETH SUNGA-CHAN v. LAMBERTO T. CHUA
Earlier in Torres, if third persons are not involved, it is okay if 1771 G.R. No. 143340| 2001-08-15
and 1773 are not complied with. It will not result in a void partnership.
FACTS:
In this case, third persons were also not involved here. Almost the Chua alleged that in 1977, he verbally entered into a partnership
same facts where both 1771 and 1773 were not complied with. Here with Jacinto in the distribution of Shellane Liquefied Petroleum Gas
there is no partnership creditor. The Supreme Court ruled that the (LPG) in Manila. For business convenience, respondent and Jacinto
partnership is void. allegedly agreed to register the business name of their partnership,
SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the
[Maam]: How do we reconcile this? Litonjua and Torres were both name of Jacinto as a sole proprietorship.
decided by the third division, not en banc. But, as to the date, Torres
was decided in 1999 while Litonjua was decided on 2005. Hence, it is Chua and Jacinto allegedly delivered his initial capital contribution
my submission that we follow the doctrine under Litonjua. of P100,000.00 to Jacinto while the latter in turn produced
P100,000.00 as his counterpart contribution, with the intention
Again, the formal requisites under 1771 and 1773 are indispensable. that the profits would be equally divided between them. The
Otherwise the partnership is considered void. partnership allegedly had Jacinto as manager, assisted by Josephine
Sy (hereafter Josephine), a sister of the wife of respondent, Erlinda
Now we move on to 1772. Sy. As compensation, Jacinto would receive a manager's fee or
remuneration of 10% of the gross profit and Josephine would
Civil Code, Article 1772. receive 10% of the net profits, in addition to her wages and other
Every contract of partnership having a capital of three remuneration from the business.
thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded Allegedly, from the time that Shellite opened for business on July
in the Office of the Securities and Exchange Commission. 8, 1977, its business operation went quite well and was profitable.

Failure to comply with the requirements of the preceding While Jacinto furnished respondent with the merchandise
paragraph shall not affect the liability of the partnership inventories, balance sheets and net worth of Shellite from 1977 to
and the members thereof to third persons. (n) 1989, respondent however suspected that the amount indicated in
these documents were understated and undervalued by Jacinto
and Josephine for their own selfish reasons and for tax avoidance.
DISCUSSION
Q: What are the formalities? Upon Jacinto's death in the later part of 1989, his surviving wife,
A: petitioner Cecilia and particularly his daughter, petitioner Lilibeth,
1. It must be embodied in writing and in a public instrument. took over the operations, control, custody, disposition and
(notarized) management of Shellite without respondent's consent.
2. Must be recorded in the SEC.
Despite respondent's repeated demands upon petitioners for
accounting, inventory, appraisal, winding up and restitution of his
EFFECT IF NOT FOLLOWED: net shares in the partnership, petitioners failed to comply.
(This presupposes that there is no immovable being contributed, not Petitioner Lilibeth allegedly continued the operations of Shellite,
even one.) converting to her own use and advantage of its properties.
It will not affect the rights and liabilities of the parties. The
partnership will subsist. It is not void, unlike in 1771 and 1773. Even if On March 31, 1991, respondent claimed that after petitioner
there is no compliance, the partnership will still acquire a separate Lilibeth ran out of alibis and reasons to evade respondent's
and distinct juridical personality. demands, she disbursed out of the partnership funds the amount
of P200,000.00 and partially paid the same to respondent.
Q: Why do we need to follow the formalities? Petitioner Lilibeth allegedly informed respondent that the
P200,000.00 represented partial payment of the latter's share in

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 Manresa ATP | 21

the partnership, with a promise that the former would make the Civil Code, Article 1774.
complete inventory and winding up of the properties of the Any immovable property or an interest therein may be
business establishment. Despite such commitment, petitioners acquired in the partnership name. Title so acquired can
allegedly failed to comply with their duty to account, and continued be conveyed only in the partnership name. (n)
to benefit from the assets and income of Shellite to the damage
and prejudice of the respondent.
DISCUSSION
On October 7, 1997, the trial court rendered its Decision ruling for As discussed before a partnership can acquire juridical personality,
respondent. separate and distinct from its members. Meaning, it can own property
in its own name. If the partnership has sufficient funds to buy a
On January 31, 2000, the Court of Appeals dismissed the appeal. property, they can do so. However, the property will be registered
under the partnership. It will not be registered in the name of an
Issue: individual partner, it will be registered in the name of the partnership
as a separate juridical personality. And if for example, they want to
Whether a partnership existed between respondent and Jacinto dispose of the property, it will be conveyed in the name of the
from 1977 until Jacinto's death. partnership, not in the name of the individual partner.

Ruling: In the deed of the sale, partnership X as the vendor, not partner A as
Yes. A partnership may be constituted in any form, except where the vendor, kasi registered in the partnership.
immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary. Hence, based on the Now let's go to 1775.
intention of the parties, as gathered from the facts and ascertained
from their language and conduct, a verbal contract of partnership Civil Code, Article 1775.
may arise. Associations and societies, whose articles are kept secret
among the members, and wherein any one of the
The essential points that must be proven to show that a partnership members may contract in his own name with third
was agreed upon are persons, shall have no juridical personality, and shall be
(1) mutual contribution to a common stock, and governed by the provisions relating to co-ownership.
(2) a joint interest in the profits. (1669)
Understandably so, in view of the absence of a written contract of
partnership between respondent and Jacinto, respondent resorted DISCUSSION
to the introduction of documentary and testimonial evidence to What is the situation in this article?
prove said partnership. 1. The articles of partnership are kept secret among the
partners.
A partnership was established between the respondent and 2. The partner deals with a third person in his own name.
Jacinto. Based not only on the testimonial evidence, but the
documentary evidence as well, the trial court and the Court of Q: What is the effect?
Appeals considered the evidence for respondent as sufficient to A: We said earlier that a partnership has its own juridical personality.
prove the formation of a partnership, albeit an informal one. It will now be set aside and disregarded. The relationship of the
partners will be considered as co-ownership instead of a partnership.
DISCUSSION
We discussed the distinction between a co-ownership and a
Their capital is more than 3 thousand.
partnership.
If they did not apply the requirements what would have happened?
Co-ownership has no separate juridical personality because one of
The SC affirmed 1772, it is not indispensable, it is not mandatory. The
the partners contracted with a third person in his own name and the
contract of partnership is consensual in nature, except when it
articles are being kept secret. That third person has no way of
involves immovable property, because it needs to be registered. The
knowing the contribution of the partners. The third person is left in
reason is because there might be third persons that will be affected.
the dark. This is why the Civil Code made a way to protect those third
persons who are kept groping in the dark.
Note that 1771 and 1773 should be understood together.
Q: What is the effect on the acting partner?
Follow 1771 and 1773 since mag uyab sila, 1772 is single so it does
A: He will be personally liable to the third person. When the third
not need to be followed.
person files a case, he will not file against the partnership but on the
individual acting partner.
Civil Code, Article 1773.
A contract of partnership is void, whenever immovable Let's go to 1776.
property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached CLASSIFICATION OF PARTNERSHIPS
to the public instrument. (1668a)

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but does not necessarily have the right to manage or voice

Civil Code, Article 1776.
out in the business.
As to its object, a partnership is either universal or
particular.
There are a lot of classifications of partnership but to not make it
confusing, what I mentioned are those being repeated in the Civil
As regards the liability of the partners, a partnership may
Code and the cases.
be general or limited. (1671a)
UNIVERSAL PARTNERSHIP
DISCUSSION Q: What is universal partnership?
In this article, they provided different kinds of partnerships. But there A: We have 1777
are actually many kinds of partnerships and are not limited to the Civil Code, Article 1777.
ones listed in Article 1776. A universal partnership may refer to all the present
property or to all the profits. (1672)
As to subject matter Universal Partnership
Particular Partnership
TWO KINDS OF UNIVERSAL PARTNERSHIP
As to liabilities of the partners General 1. Universal partnership of properties
Limited 2. Universal partnership of profits

As to duration Partnership in the Fixed Term

Universal Partnership of Properties
Partnership at Will
As to legality of existence De Jure (complied with all requisites)
De Facto Civil Code, Article 1778.
A partnership of all present property is that in which the
As to representation to others Ordinary or Real partners contribute all the property which actually
Ostensible or Partnership by belongs to them to a common fund, with the intention of
Estoppel dividing the same among themselves, as well as al; the
profits which they may acquire therewith. (1673)
As to publicity Secret
Open or Notorious
As to purpose Commercial or Trading
Professional or Non-Trading Civil Code, Article 1779.
In a universal partnership of all present property, the
property which belonged to each of the partners at the
time of the constitution of the partnership, becomes the
TYPES OF PARTNERS
common property of all the partners, as well as all the
1. General Partner - manages business affairs of partnership; profits which they may acquire therewith.
personally liable for the debts of partnership. Liabilities
extend to a general partner’s separate and individual A stipulation for the common enjoyment of any other
property profits may also be made; but the property which the
a. Industrial - contributes industry or services partners may acquire subsequently by inheritance,
b. Capitalist - contributes money or property legacy, or donation cannot be included in such
2. Limited Partner - liability is only limited to his capital stipulation, except the fruits thereof. (1674a)
contribution, as opposed to a general partner.
3. Managing Partner - manages the affairs of the partnership DISCUSSION
business.
The partnership will contribute all their present properties to a
4. Liquidating partner - takes charge of the winding up of
common fund of the partnership and that property contributed will
partnership affairs after the dissolution.
be considered a common property of not just the contributing partner
5. Partners by estoppel - also called nominal or quasi-partner.
but all of the partners because the intention is to divide not just the
He represents himself to be a partner in a partnership,
profits, which is their right to the business, but also the properties
when in truth, he is not. By implication, the law provides
that they contributed to the partnership.
that said so-called “partner” will be considered a partner to
protect third persons. That is why he is called a partner by
The book gave an illustration, for instance Mr. Daza and Miss delos
implication or partner by estoppel.
Santos are partners. Mr. Daza has agricultural land which he
6. Continuing partner - partners who continue the business
contributed to the common fund. Miss delos Santos has farm
even after the partnership has been dissolved.
equipment and contributed it to the common fund, including cash.
7. Surviving partner - partners who remain after the
Under this Article, the property contributed by Mr. Daza is not just
dissolution of the partnership because of the death of a
owned by him but is also owned by Miss Delos Santos because it is
partner
common property. Same goes with the farm equipment given and
8. Sub-partner - not a partner per se, but there might be a
contributed by Delos Santos.
partner who disposed of his interest in favor of a sub-
partner. That partner now has an interest in the partnership

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In other words, the partner, for example Mr. Daza who contributed A: The cash contributed by Miss Delos Santos will be paid to her as a
the land, does not retain absolute ownership of his property because loan to the partnership.
if there is Universal Partnership of present property, the effect is that
it will be a common property of the partners. If Universal Partnership Properties not contributed to the partnership, whether present or
of all present property, you do not only divide the profits but likewise future, will exclusively belong to the partner-owner.
divide the properties contributed to the partnership.
AS TO FUTURE PROPERTY
Exception: Properties acquired by inheritance, donation, legacy. It is not allowed. That's what it was said that legacy is prohibited, as
Those acquired gratuitously, even if there is a stipulation, it is not well as donation, and inheritance because that is future property.
allowed. Which you will acquire during the existence of the partnership.

But as to the fruits, the partnership can claim the fruits, provided that In sum, in a universal partnership of present property, the partners
there is a stipulation. If there is no stipulation, what happens? The will not retain absolute ownership of the property they contributed
fruits will not go to the partnership. to the partnership because that property will form part of the
common fund and is considered as a common property of all the
Example: Mr. Daza and Miss Delos Santos as partners. If Mr. Daza’s partners.
father dies leaving behind a commercial building which generates
income through rents, that commercial building will not pertain to the If it's a universal partnership of present property, you divide the profit
partnership. It will not belong to the common property of the and the PROPERTY BEING CONTRIBUTED.
partnership. But, as to the rentals, that can pertain to the common
fund of the partnership provided that there is stipulation. In universal partnership of present property, only usufruct was given,
which is the right to use the property being contributed by the other
Universal Partnership of Profits partner. What is only divided is the profit incurred during the
partnership business.

Civil Code, Article 1780. Civil Code, Article 1781.

A universal partnership of profits comprises all that the Articles of universal partnership, entered into without
partners may acquire by their industry or work during the specification of its nature, only constitute a universal
existence of the partnership. partnership of profits. (1676)

Movable or immovable property which each of the

partners may possess at the time of the celebration of DISCUSSION
the contract shall continue to pertain exclusively to each, In case of doubt as to the kind of universal partnership entered into
only the usufruct passing to the partnership. (1675) by the parties, the presumption is that they entered into a universal
partnership of profits.
DISCUSSION
Unlike in the Universal Partnership Of All Present Property, here in Civil Code, Article 1782.
the universal partnership of profits, what is divided are only the Persons who are prohibited from giving each other any
profits. The properties contributed by the partners in the partnership donation or advantage cannot enter into universal
will not be a common property of the partners because it is only a partnership. (1677)
universal partnership profit. Anyway, what is contributed to the
partnership is not the property itself. In the Universal Partnership of
DISCUSSION
Profits, the partner who contributed that property will retain
ownership of that property. What is merely given or contributed to Partnership may be used to circumvent the law. What the parties
the partnership is just the usufruct. There is no co-ownership because cannot do directly they cannot also do it indirectly.
there is no property and only usufruct.
Q: Who are prohibited to donate with each other?
Usufruct is when you allow someone to enjoy your property and you A: Article 87 of the Family Code; Article 739 of the Civil Code
allow someone to use your property for free. The contributing partner
retains ownership. So in case of liquidation, the property will be Article 739 provides that donations made between persons who were
returned to that partner who contributed it. What they will distribute guilty of adultery or concubinage at the time of the donation; those
is the net profits of the partnership business. made between persons found guilty of the same criminal offense; and
Example: Mr. Daza contributed agricultural land; Miss Delos Santos those made to a public officer or his wife, descendants and
contributed cash and farm equipment. Mr. Daza, under Universal ascendants, by reason of his office, shall be void.
Partnership of Profits, retains ownership over the property. Miss
Delos Santos will not be a co-owner or co-partner in any way from the Q: Do we need conviction for Article 739 to take effect?
property that has been given by Mr. Daza. In the same vein, the farm A: No because in civil cases, the only proof needed is the quantum of
equipment given by Ms delos Santos to the partnership, will pertain proof of evidence and not proof beyond reasonable doubt.
only to Ms, Delos Santos because there's retention of ownership. It
was only usufruct that was given. AS TO THE EFFECT OF A PERSON PROHIBITED FROM DONATING
FROM EACH OTHER ENTERING INTO A UNIVERSAL PARTNERSHIP
Q: What about the cash?

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VOID. and the partnership will not acquire separate juridical General Rights and Obligations of Partners, what are these? As we’ve
personality. said, partnerships are fiduciary in nature, so there must be mutual
trust and confidence. Each partner is a trustee and at the same time,
PARTICULAR PARTNERSHIP a beneficiary of the trust, which is the partnership. Also, like I’ve said
It is a partnership which is neither a universal partnership of present before, the partners are considered as agents and the partnership is
property nor universal partnership of profits. The difference lies in the considered as the principal.
scope of their subject matter and object.
PARTNERSHIP RELATIONSHIP IS ESSENTIALLY ONE OF MUTUAL
TRUST AND CONFIDENCE
Civil Code, Article 1783.
The law imposes upon the partners highest standards of integrity and
A particular partnership has for its object determinate
good faith in their dealings with each other for the benefit of
things, their use or fruits, or a specific undertaking, or the
partnership. It is said that each partner is a trustee and at the same
exercise of a profession or vocation. (1678)
time a cestui que trust.

DISCUSSION He is a trustee to the extent that the duties bind him with respect to
We have here the definition of a particular partnership. According to his co-partnership, and a cestui que trust as far as the duties that rest
the book, it is neither universal partnership of all present property, his co-partners.
nor universal partnership of all profits.
FIDUCIARY RELATIONSHIP REMAINS UNTIL PARTNERSHIP
How do we distinguish? An author once said that if it is a universal TERMINATES
partnership, there is a degree of continuity as opposed to a particular The fiduciary relationship of a partnership remains until the
partnership which may be temporary in nature or only for a particular dissolution and/or termination of the partnership. This means that
undertaking. Let’s read it. the partnership affairs will be completely wiped out; it is as if the
partnership was liquidated.
UNIVERSAL PARTNERSHIP
The object is vague and indefinite, contemplating a general business The relation of trust and confidence applies also to matters concerned
with some degree of continuity. Particular partnership, on the other with the formation, and when a partnership is dissolved, the assets
hand, the object is limited and well-defined, being confined to an of the partnership must still be managed according to the Fiduciary
undertaking of a single, temporary, or ad-hoc nature. Principle.

Q: How will we know if it is a particular partnership? The obligations of the partners to act with the utmost candor and
A: There are examples like a partnership created for the purpose of good faith in their dealing between themselves is not lessened by the
practicing a profession or vocation like law firms, those general existence of strained relations between them or the existence of any
professional partnerships like a firm of engineers or accountants. That condition which might in and of itself justify the dissolution. The
is a kind of a particular partnership. fiduciary obligation of a partner remains until the relationship
terminates.

Particular Partnership Universal Partnership Q: As we’ve said, based on mutual trust and confidence, is this
always applicable in a partnership?
It is limited and well-defined, The object is vague and
A: NO! Because there is this what we call a LIMITED PARTNER. This
being confined to an indefinite, contemplating a
kind of partner gives only money or property. He has no right to
undertaking of a single, general business
interfere with the management of the business. He is not allowed to
temporary or ad hoc nature.
manage the said business; he is like a mere financer.

DISCUSSION
NOTE:
Another example is acquisition of an immovable property for the The relationship between a limited partner and other limited
purpose of reselling it, buy and sell of land, house and lot, etc. One partnership does not involve the element of trust and
more example is for specific enterprises like a construction project of confidence. Moreover, the same applies between the limited
a building. Like what they said, it is temporary in nature. Once the partner and the general partnership.
construction project is finished, everything is done.

Okay, let’s proceed to the OBLIGATION OF THE PARTNERS.

SECTION 1.
Chapter 2 - OBLIGATIONS OF PARTNERS OBLIGATIONS OF THE PARTNERS THEMSELVES
(Art 1784 - 1809)
OBLIGATIONS OF THE PARTNERS
In a contract of a partnership, there are 4 relationships:
1. Relationship among the partners themselves
2. Relationship of the partner with the partnership. Civil Code, Article 1784.
3. Relationship of the partnership with 3rd persons. A partnership begins from the moment of the execution
4. Relationship of the partners with such 3rd persons of the contract, unless it is otherwise stipulated. (1679)

DISCUSSION

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DISCUSSION
COMMENCEMENT AND TERM OF PARTNERSHIP The Articles of Partnership must be embodied in writing for it to be
As we’ve said, partnerships are consensual in nature. But, in general, enforceable, otherwise, it is unenforceable and cannot be proven in
it is perfected by mere consent. In the same vein, at the moment of court.
the execution of the contract wherein they agreed to enter into a
partnership, a partnership was already created. It acquires a separate Civil Code, Article 1785.
and distinct personality from the moment of the execution of the When a partnership for a fixed term or particular
contract. undertaking is continued after the termination of such
term or particular undertaking without any express
Execution of the contract does not necessarily mean commencement agreement, the rights and duties of the partners remain
of the business in order to create a separate juridical personality ang the same as they were at such termination, so far as is
partnership, it only means that for as long as the essential requisites consistent with a partnership at will.
in the contract of partnership are present, even if the business has
not yet begun, nor agreed upon the sharing of profits and losses, as A continuation of the business by the partners or such of
long as they agree to enter into a contract of partnership, the them as habitually acted therein during the term,
partnership is already created and there is already a juridical without any settlement or liquidation of the partnership
personality for the partnership. affairs, is prima facie evidence of a continuation of the
partnership. (n)
GR: Partnership begins from the moment of the execution of the
contract.
XPN: Future Partnerships - whereby the parties can agree and DISCUSSION
stipulate in their contract that the partnership will be created at a The provision talks about a partnership with a fixed term. The parties
later date in the future. Or maybe that the partnership shall be can expressly agree that there is a definite period, or that they can
created based on the happening of a contingency. They do not impliedly agree that it is for particular undertaking only. But, the
necessarily become partners at the moment that they agree to create period is indefinite which depends also when the undertaking expires.
the partnership, the reckoning point does not begin there. It only
starts upon the arrival of the date that they stipulated in the future, GR: the expiration of the term, or the completion of that particular
or the contingency has already happened. This is the only time that undertaking, will result in automatic dissolution of the partnership.
the parties to the contract will be considered as partners, the XPN: when the partners extend or renew the partnership.
partnership is created, and there is already a juridical personality.
They continued the business by express agreement or impliedly
Relate this to the Statute of Frauds Article 1403, 2(a): continued such business.

As to the effect of the (dissolve na sana) partnership but the partners,

Civil Code, Statute of Frauds. Article 1403, 2(a) express or impliedly continue the business.
(2) Those that do not comply with the Statute of Frauds THE RIGHTS AND DUTIES OF THE PARTNER REMAINS THE SAME. And
as set forth in this number. In the following cases an the partnership will become a partnership at will.
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, The period will not be renewed. In partnership at will, such will
thereof, be in writing, and subscribed by the party dissolve anytime subject to good faith of the dissolving partner.
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a The continuation here, is the term of the partnership which is not
secondary evidence of its contents: expressly fixed, but the agreement of the parties may evidenced
understanding that their relationship continues until the
(a) An agreement that by its terms is not to be performed accomplishment of a particular undertaking.
within a year from the making thereof; xx

DIRA V. TANEGA
DISCUSSION G.R. No. L-23232 | June 17, 1970
What if the parties agree that they will start the partnership, more
than a year after pa sa agreement? Facts:
In March 1946, Dira and Tanega together with Francisco Pagulayan
For purposes of enforceability, we follow the Statute of Frauds: entered into a partnership for the purpose of engaging in the
● It must be embodied in writing. – For example, there is printing business in the City of Tacloban. The terms of the said
already a case, can you claim on a contract of partnership partnership was for a period of five (5) years from the organization
that is not in writing? Of course not, because you agreed thereof. Dira was designated as President and he was also
that the partnership will only commence more than a year designated as editor of the Leyte-Samar Tribune, a periodical
after and pasok siya sa Statute of Frauds. It will only be established by the partnership.
performed a year after the making thereof.

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Dira obtained a personal loan from Francisco Pagulayan in the Also, it is an incontrovertible fact that the plaintiff had filed this
amount of P1,100.00 and he pledged his share in the said action against the defendant on February 10, 1961, nearly ten
equipment to pay the same. years after the expiration of the contract of partnership between
them in March 1951. For his failure to demand accounting five
Upon Dira’s request, Tanega paid Pagulayan for the said debt, and years before February 10, 1961, from the Tanega, Dira had
now Dira is indebted to Tanega. This time, Dira pledged his share forfeited his right by prescription.
in the partnership as a security for his loan.
xxx
In June of the same year, Pagulayan sold his shares in the Other provisions discussed:
partnership to Tanega, making him the owner of ⅔ of the total Article 1132 of the Civil Code provides that the ownership of
shares. Tanega issued a demand letter to Dira to settle his debt but movables prescribes through uninterrupted possession of eight
the latter was not able to do so. years, without need of any condition.

Subsequently, Tanega assumed full ownership of the business and Article 1153 of the Civil Code, among other things, provides that
changed its name and location. the period for prescription of actions to demand accounting runs
from the day the persons who should render the same cease in
In 1961, Dira filed an action for accounting of a share in an alleged their functions.
partnership, payment of salaries and other money claims against
Tanega. He contended that both as his partner and as pledgee of Article 1149 of the Civil Code provides that "all other actions whose
his share, the Tanega became his trustee, in legal contemplation, periods are not fixed in this Code or in other laws within five years
or that, in the eyes of the law, a relationship of trusteeship arose from the time the right of action accrues."
between him and Tanega, hence his actions against him are
imprescriptible.
DISCUSSION
Issue: The full text is pretty confusing if you would go directly to 1785. Here’s
WON a trusteeship arose between Dira and Tanega in 1947, when what happened in this case:
the latter took the business for himself and even after 1951, the
expiry date of the agreements. There were three partners, one of the partners purchased the share
of one of the partners, thus making his total share to ⅔ of the total
Ruling: partnership, until such time that he was the only partner left
No. managing the business. What he did was he changed his trade name
and in effect the business somewhat became a sole proprietorship.
The provisions of Article 1785 to the effect that:
When a partnership for a fixed term or particular undertaking is Now, one of the partners that were left out filed a complaint to get
continued after the termination of such term or particular his share. Accounting of the partnership was necessary because some
undertaking without any express agreement, the rights and duties of the equipment owned by the partnership were also used in the sole
of the partners remain the same as they were at such termination, proprietorship business of that partner.
so far as is consistent with a partnership at will.
The partner who wanted to get his share alleged that his action did
A continuation of the business by the partners or such of them as not prescribe yet. He used the provisions of the partnership law so
habitually acted therein during the term, without any settlement or that his prescriptive period will not apply, therefore escaping
liquidation of the partnership affairs, is prima facie evidence of a prescription. He further stated that as partners, he is also a trustee of
continuation of the partnership the properties of the partnership, thus prescription is not applicable.

and Article 1829 thus: Here, the Supreme Court held that it is clear that one of the partners
repudiated the partnership and even built his own business.
On dissolution the partnership is not terminated, but continues Accordingly, the partner who wants to claim took him many years
until the winding up of partnership affairs is completed. before he took an action for accounting.

are clearly inapplicable here, for the simple reason that those Article 1785 is therefore not applicable because there was no
articles are premised on a continuation of the partnership as partnership in the business which was continued. Art. 1785
such, which is not the case, because here Tanega repudiated the presupposes that a partnership was dissolved but it was continued
partnership as early as 1947 with either actual or presumed because there was a fixed term. When the fixed term expires and the
knowledge of Dira. By analogy, at least, with the rule as to a co- particular undertaking is finished, they choose to continue to business
ownership, which a partnership essentially is, prescription does is the kind of situation that Article 1785 presupposes.
not run in favor of any of the co-owners only as long as the co-
owner claiming against the others "expressly or impliedly The Supreme Court held that it is not applicable in this case because
recognizes the co-ownership," a circumstance irreconcilably the partnership is already dissolved. What is applicable is the general
inconsistent with Tanega’s conduct of transferring the place of provision on prescription: acquisitive prescription for movable which
business, changing its name and not paying appellant any of the is 8 years—it has already lapsed in this case.
salaries agreed upon in the articles of partnership.

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The Supreme Court further held that the partner who made his own Q: What is the reckoning point? How much should be paid as to the
business as sole proprietor already acquired by acquisitive fruits?
prescription the share of that claiming partner. A: The reckoning point is, from the time the property should have
been contributed or delivered to the partnership until actual delivery
of the property. That is the gauge on how to account for the fruits.
Civil Code, Article 1786.
Every partner is a debtor of the partnership for whatever
If there is delay, he is liable for the damages as well as the fruits.
he may have promised to contribute thereto.
Q: Once they contributed, the partner then suddenly wants to
He shall also be bound for warranty in case of eviction
withdraw. Is this allowed?
with regard to specific and determinate things which he
A: No, it needs the unanimous consent of the other partners.
may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound
Q: What happens if the partner never gave his contribution to the
with respect to the vendee. He shall also be liable for the
partnership?
fruits thereof from the time they should have been
A: Under the article you read a while ago, that partner may be
delivered, without the need of any demand. (1681a)
considered a debtor of the partnership, without need of demand.

This provision talks about the obligation to contribute money or Q: What is the remedy in order to charge or get the contribution of
property to the common fund, so it enumerates the obligations of a the partner?
partner. A: Specific performance with damages and interest.
So anong remedy para masingil natin yung contribution ni partner?
OBLIGATIONS OF A PARTNER: Specific performance with damages and interest.
1. The partner has the obligation to contribute money,
property or industry Q: What about services maam? If the industrial partner did not give
2. Partner is obliged to preserve the property to be the services he promised, what is the effect? Is he liable for the value
contributed to the partnership before it is delivered. of the services?
3. He has the duty to warrant against eviction. A: Remember, in partnership, you are not compensated for being a
4. Obligation to indemnify the partnership or the damages partner. Even industrial partners are not compensated like an
which may be the cause of the delay. employee. The partners are not entitled to charge each other or the
partnership for the service in the business.
1. The partner has the obligation to contribute money, property or
GR: The partners are not entitled to compensation for their services.
industry.
XPN: When a partner neglects or refuses without reasonable cause to
But, if there is an agreement, pay at the specified time. If there is a render the service which he promised to perform and the partnership
stipulation as to the date in which contribution should be made, that suffered loss.
should be followed.
Q: The erring partner will be liable for damages. How much?
Q: What if before delivery he contributed a property? Before he A: It is the value of the services lawfully withheld.
delivers to the partnership what is his obligation?
If the erring partner made profit because he engaged in another
2. Partner is obliged to preserve the property to be contributed to business in violation of a contract, he must account for profits he
the partnership before it is delivered. acquired from such business undertaking.
Preservation should be in the diligence of a good father of a family.
Civil Code, Article 1787.
Q: Once the property is contributed, delivered to the partnership, When the capital or a part thereof which a partner is
what are his other obligations? bound to contribute consists of goods, their appraisal
must be made in the manner prescribed in the contract
3. He has the duty to warrant against eviction. of partnership, and in the absence of stipulation, it shall
be made by experts chosen by the partners, and
The vendor has to warrant against eviction of the vendee from according to current prices, the subsequent changes
possible deprivation of the property sold. thereof being for account of the partnership. (n)
In the same vein, the contributing partner who contributed the
DISCUSSION
property, he has to warrant eviction so that the partnership will not
be dispossessed. So that the partnership will not be deprived of the This Article provides for the appraisal of the goods contributed to the
property he contributed. common fund. Why is there a need for appraisal? This is in order to
determine how much a partner really contributed.
Q: In case of delay in giving or in contributing, what is the effect?
Q: How do we determine the value?
A: First, ang appraisal must be done in the manner as prescribed in
4. Indemnify the partnership or the damages which may be the their agreement. In the contract or Articles of Partnership.
cause of the delay. If there is no stipulation, the second way is that the experts shall
He is liable for the fruits of the property. appraise. These appraisers will be chosen by the partners, and the
appraisal will be according to the current partners.

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Civil Code, Article 1789.

Q: "Maam, may goods kasi na fluctuating ang value, depende lang
An industrial partner cannot engage in business for
sa market. Anong effect if may subsequent changes sa value ng
himself, unless the partnership expressly permits him to
goods after contribution sa partnership?"
do so; and if he should do so, the capitalist partners may
A: Ang effect is that the decrease or increase in the value of the goods
either exclude him from the firm or avail themselves of
will be for the account of the partnership. Binigay mo na sa
the benefits which he may have obtained in violation of
partnership eh. After na yun ng pag deliver ng property sa
this provision, with a right to damages in either case. (n)
partnership.

Kung nalugi ang value, si partnership ang mag bear ng loss; if may DISCUSSION
increase, of course favorable siya sa partnership. This provision talks about an industrial partner who contributes his
services to the partnership.
[Maam]: How about immovable property? Diba meron na tayong
inventory sa immovable property under Article 1773? Pero wala General rule, an industrial partner cannot engage in business on his
namang sinabi na 1787 cannot apply to immovable property, so I own, by himself. He is not allowed to engage in other businesses and
guess pwede naman. But usually sa inventory, may appraisal na yan. should focus only on the partnership. Why? Because an industrial
That would suffice. partner only contributed his services. He did not contribute capital,
so the partnership has the exclusive right to avail of your industry
Civil Code, Article 1788. which is why industrial partners cannot engage in other business
A partner who has undertaken to contribute a sum of because that would cause prejudice. That might be prejudicial to the
money and fails to do so becomes a debtor for the partnership business. That is why it is absolutely prohibited.
interest and damages from the time he should have
complied with his obligation. Q: What if the business is not of the same kind as what is engaged
in the partnership?
The same rule applies to any amount he may have taken A: Still not allowed. The prohibition of the industrial partner to engage
from the partnership coffers, and his liability shall begin in business by himself is absolute, regardless of whether it is in the
from the time he converted the amount to his own use. same kind of business or not, an industrial partner is prohibited.
(1682)
Q: What about capitalist partners? Can they engage in any business?
A: They can engage as long as it is not the same kind of business
DISCUSSION engaged by the partnership. Example, one is farming, the other is
This Article gives two scenarios. A partner will be considered a debtor fishing, then that is okay. The prohibition with respect to industrial
of the partnership if: partners is absolute, but for capitalist partners, it is relative. Depends
1. Contribution of his money or property to the common on the line of industry.
fund is delayed;
2. He converted the partnership funds for his personal Q: What if the industrial partner engages in another business, can
benefit. the capitalist partners file a case for specific performance to compel
him, the industrial partner, to stop his line of business and make him
In both cases, that guilty partner will be liable for damages and focus only on their business in the partnership?
interest. What kind of interest? Legal interest. That will run from the A: Of course, not! Remember, we have this constitutional prohibition
time the property should have contributed or from the time of against involuntary servitude. It would tantamount to involuntary
misappropriation until such time is able to pay it. servitude if you file a case for specific performance. The article
provides us with the remedies.
Q: Is demand necessary for legal interest to run?
A: No. Interest immediately runs upon the misappropriation or upon 1. Exclude the partners
delay of the contribution promised. 2. Avail themselves of the benefits which the partner may
have acquired in violation

They can exclude the partners from the partnership or if they see that
the other business of the partner is profitable, they may avail of the
Q: What if the partners did not agree to the time when the benefits. So, the profits that were derived from the business of the
contribution should be made? What is the effect? industrial partner will be for the account of the partnership.
A: The obligation of the partners to give their contributions arises
from the commencement of the partnership. Upon perfection of the Q: If the capitalist partner, engaged in the same kind of business as
contract. that of the partnership, what is the remedy of the industrial partner?
A: According to one author, the same remedy. So, exclude, or avail
Q: Apart from interest and damages, what are other liabilities that the benefits. Relate that to 1808 which we will discuss soon. It only
can be imputed to the guilty partner? compels the capitalist partner to bring to the partnership common
A: He will also be held criminally liable for estafa. Interest and funds whatever he may have received from that business.
damages are mere civil liabilities. GR: Industrial partners are absolutely prohibited in engaging in any
kind of business.
XPN: If the other partners expressly allowed it.

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If the permission to engage in other business is expressed, then, it can

the two credits in proportion to their amounts, even
engage in another business. But, it cannot be implied, the consent
though he may have given a receipt for his own credit
must be EXPRESSLY given.
only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to
Civil Code, Article 1790. the latter.
Unless there is a stipulation to the contrary, the partners
shall contribute equal shares to the capital of the The provisions of this article are understood to be
partnership. (n) 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)
DISCUSSION
This article gives us the presumption that the partners equally
contributed their capital to the partnership. Unless, the contribution DISCUSSION
is really different, for example, one contributed 20%, the other 50%, This article talks about when a third person is indebted, not just to the
others 10%. The parties can stipulate in their contract that the partnership, but to a managing partner. It has to be a managing
contribution is not equal. partner.

In case the third person pays, he gives the money to the managing
NOTE:
partner and that payment is not sufficient to satisfy the debts of both
Provision is not applicable to Industrial Partners because what
the credit of the partnership and the creditor partner - then what
he contributes is his services and not capital.
happens here if the managing partner issues a receipt in his own
name, the effect is that the payment given by the third person will be
Unless of course they contributed money, so he can become a proportionately applied to the credit of the partnership and credit of
capitalist partner. the partner. So, proportionate application of payment.
Let’s proceed to 1791. Q: But what if the managing partner issues a receipt in the name of
Civil Code, Article 1791. the partnership?
If there is no agreement to the contrary, in case of an A: The entire payment of the third person debtor will be applied to
imminent loss of the business of the partnership, any the partnership credit.
partner who refuses to contribute an additional share to
the capital, except an industrial partner, to save the Why is it like this? The rationale of this rule is to protect and to
venture, shall be obliged to sell his interest to the other safeguard the rights of the other partners. Why? Because the
partners. (n) managing partner may subordinate the interest of his co-partners.
That is why the law always favors the partnership because there will
always be that possibility that the managing partner may be greedy.
GR: Capitalist partners cannot be compelled to contribute more than Of course, there is also a conflict of interest, sometimes a partner
what is promised or agreed upon in the contract. favors his own interests over the partnership.
XPN: In case of imminent loss of the business and in order to save the
partnership venture. Q: Does 1792 apply to a partner who is not authorized to manage
the business? What if he is just a capitalist partner and not a
Q: What if the capitalist partner does not want to give additional managing partner?
capital, what is the effect? A: Of course not, the danger that is prevented by this Article is with
A: He is obliged to sell his interests in the partnership to his other respect to a partner who manages the partnership affairs. Of course,
partners because he does not want to give. But the refusal here is if you are only a capitalist partner, you do not manage, you are not
deliberate, not necessarily due to financial incapability. always seen in the place of business, there is no danger if you are the
creditor. The managing partner is always the one upfront in all of the
transactions. That is the difference between the two. Hence, it will
REQUISITES IN ORDER TO APPLY ARTICLE 1791: not apply other than managing partners.
1. Imminent loss of business of the partnership; Also we have 1252:
2. Majority of the capitalist partners are of the view that an
additional contribution will save the business;
3. Capitalist partner refuses to contribute; Civil Code, Article 1252.
4. There is no express agreement that in case of an imminent He who has various debts of the same kind in favor of
loss of business, partners are not obliged to contribute one and the same creditor, may declare at the time of
additional capital. making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the
Let’s proceed to 1792, application of payment is made by the party for whose
benefit the term has been constituted, application shall
Civil Code, Article 1792. not be made as to debts which are not yet due.
If a partner authorized to manage collects a demandable
sum which was owed to him in his own name, from a If the debtor accepts from the creditor a receipt in which
person who owed the partnership another sum also an application of the payment is made, the former
demandable, the sum thus collected shall be applied to

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cannot complain of the same, unless there is a cause for efforts in other activities of the partnership, unusual
invalidating the contract. (1172a) profits have been realized. (1686a)

DISCUSSION DISCUSSION
Article 1252 talks about the application of payments in various debts. A partner is required to exercise due diligence in the performance of
There are various debts, now the debtor has the right to prefer the their duties as partner. If due to their fault, the partnership suffered
payment of the more onerous obligation. For instance: damages, then the partner themselves will be liable.
● Debt to the partnership has an interest of 3%,
● Debt to the partner has an interest of 6%, GR: The partner at fault cannot set-off the damages by applying the
profits or benefits that he earned from the partnership.
Which is more onerous? Of course the one with 6% interest. So, the
third person debtor can prefer payment in favor of the partner- Why not? This is because the profits earned by the partner in the
creditor. partnership pertain to and belong to the partnership.

XPN: Unusual profits have been realized by the partnership through

Civil Code, Article 1793.
the partner at fault’s extraordinary efforts.
A partner who has received, in whole or in part, his share
of a partnership credit, when the other partners have not
In this case, damages can be lessened. The word “unusual” is very
collected theirs, shall be obliged, if the debtor should
vague, even I am not sure what it means. Until it is defined by
thereafter become insolvent, to bring to the partnership
jurisprudence then it remains in limbo.
capital what he received even though he may have given
receipt for his share only. (1685a)
Civil Code, Article 1795.
The risk of specific and determinate things, which are not
DISCUSSION
fungible, contributed to the partnership so that only
The situation here is different from Art 1792. Here, there is only one their use and fruits may be for the common benefit, shall
debt which is in favor of the partnership. be borne by the partner who owns them.

Recall in the previous article we discussed two: (1) in favor of the If the things contributed are fungible, or cannot be kept
partner, (2) in favor of the partnership. without deteriorating, or if they were contributed to be
sold, the risk shall be borne by the partnership. In the
In Article 1792, we only have one. Here, the third person paid the absence of stipulation, the risk of the things brought and
partnership, then one diligent partner gets his share in the payment appraised in the inventory, shall also be borne by the
of the third person debtor to the partnership-credit. However, the partnership, and in such case the claim shall be limited
third person debtor subsequently becomes insolvent, without the to the value at which they were appraised. (1687)
other creditors getting their share to the credit. So ang pinaka abtik
na naningil na partner maoy hayahay, diba?
DISCUSSION
We said a while ago that the relationship is fiduciary in nature, it is The article speaks of the scenario on who will bear the risk of loss
based on mutual trust and confidence, so Article 1793 says that the when property is contributed to the partnership common fund. The
partner who received his share in the partnership credit MUST bring contribution may be the property itself, or maybe the use, such as in
to the capital of the partnership what he has received. He must return usufruct where ownership is retained by the contributing partner.
the partnership capital because it would be unfair for the other
partners. Since that debt becomes a bad debt (debt that can no longer
be collected), it would be unfair if the other partners share the losses
while the other partner who was diligent enough to get his share,
does not share the losses. Since the essence of a partnership is on
mutual trust and confidence, there must be a commonality of
interest. The losses must also be shared.
Q: Will this apply to all partners? 1st scenario:
A: The thing contributed is specific and determinate which are not
➔ Art. 1792 - only applies to a managing partner fungible and only the use is contributed.
➔ Art. 1793 - applies to ALL partners
EFFECT: The contributing partner will bear the risk of loss.

Civil Code, Article 1794.

WHY: The contributing partner retained ownership over the
Every partner is responsible to the partnership for
property. What was merely contributed was the use of
damages suffered by it through his fault, and he cannot
the property.
compensate them with the profits and benefits which he
may have earned for the partnership by his industry. Example: There’s a truck and that truck is supposed to be used by
However, the courts may equitably lessen this the partnership. But it is registered in the name of the
responsibility if through the partner's extraordinary contributing partner.

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partnership being the owner thereof.

In this scenario, who will bear the risk of loss? Of Q: So before the thing is delivered to the partnership. Who bears the
course, the contributing partner because he is still the risk of loss?
owner of the property and only the use of the truck was A: The partner because ownership is not yet transferred to the
contributed to the partnership. partnership.
2nd scenario:
The thing contributed is specific and determinate and ownership In your Obligations and Contracts and Sales, it was already discussed
of which is transferred to the partnership. that delivery is the mode of transferring ownership. Here, unless and
until there is delivery, ownership will not be transferred to the
EFFECT: The partnership shall bear the risk of loss and partnership. So, the person who will bear the risk of loss before
deterioration delivery is the partner.
WHY: The contributing partner retained ownership over the
property. What was merely contributed was the use of Civil Code, Article 1796.
the property. 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; it shall also answer to each
Example: The truck is registered in the name of the partnership
partner for the obligations he may have contracted in
instead of the name of the partner. So, in this case, the
good faith in the interest of the partnership business,
risk of loss or deterioration will be borne by the
and for risks in consequence of its management. (1688a)
partnership being the owner thereof.
3rd scenario: DISCUSSION
The thing contributed is fungible and it is contributed only for the
use of the partnership. This article talks about the obligation of the partnership to the
partners. Here, the partner advanced funds for the partnership.
EFFECT: The partnership bears the risk of loss
Q: What is the obligation of the partnership?
WHY: The thing is fungible and therefore it will be consumed. A:
It cannot be used without consuming it. Essentially and 1. The partnership must reimburse the partner, WITH interest
consequently, ownership is transferred to the from the time the expenses were made.
partnership. 2. The partnership will answer for the obligations a partner
Example: Fuel for the truck. It is fungible. It will be consumed. may have conducted in good faith in the interest of the
partnership business.
3. The partnership will answer also for the risk and
4th scenario: The thing contributed is intended to be sold. consequence of management.
EFFECT: The partnership will bear the risk of loss and
We discussed before that one of the incidents of the partnership is
deterioration.
that every partner is deemed an agent of the partnership. Being an
WHY: The intention here is to make the partnership as the agent, a partner is not personally liable for partnership liabilities as
owner of the thing. long as he performed his duties within the scope of his authority.

Example: Stocks are given by the partner to the partnership. They For instance, A, B, and C are partners.
have a convenience store which is their partnership
business. Those stocks will be sold at the partnership’s They agreed that any purchase in excess of 5000 pesos of their stocks
convenience store. In which case, who will bear the risk should be with the consent of their partners. C, without the consent
of loss? Of course, the partnership. of his partners, bought in excess of 5,000. That means she acted
beyond the scope of her authority. If she did so without getting the
consent of the partners then she acted beyond the scope of her
authority.
5th scenario:
The thing contributed is brought and appraised in the inventory.
EFFECT: The partnership bears the risk of loss.
WHY: The intention of the parties was to contribute the price
of the thing contributed. So there is an implied sale
making the partnership owner of the thing. The price is
represented by the appraised value.
Example: The truck is registered in the name of the partnership
instead of the name of the partner. So, in this case, the
risk of loss or deterioration will be borne by the

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Later on, you will learn that an industrial partner can be held liable
Civil Code, Article 1797.
pro-rata with the other partners in case of contractual liabilities.
The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in
Let’s go to the case of Marsman vs. Phil Geoanalytics Inc.
the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.
MARSMAN DRYSDALE LAND, INC vs.
In the absence of stipulation, the share of each partner PHILIPPINE GEOANALYTICS, INC.
in the profits and losses shall be in proportion to what he G.R. No. 183374 | June 29, 2010
may have contributed, but the industrial partner shall
not be liable for the losses. As for the profits, the FACTS:
industrial partner shall receive such share as may be just Marsman Drysdale, Inc. (Marsman) and Gotesco Properties, Inc.
and equitable under the circumstances. If besides his (Gotesco) entered into a joint venture agreement for the
services he has contributed capital, he shall also receive construction and development of an office building on land
a share in the profits in proportion to his capital. (1689a) owned by Marsman.

DISCUSSION They agreed on a 50-50 ratio on the proceeds of the project, but
did not agree on how losses would be divided. The joint venture
This article talks about profit and loss sharing. engaged the services of Philippine Geoanalytics, Inc. (PGI) to
provide subsurface soil exploration, seismic study and
PROFIT geotechnical engineering.
Q: What is profit sharing?
A: The default is you look at the agreement of the parties. It can be PGI completed its seismic study but failed to complete its
found within the articles of partnership. subsurface soil exploration because the area where drilling was
to be made had not been cleared.
Q: What if there is no stipulation?
A: The building project was subsequently shelved due to
➔ Capitalist partners - profit sharing in proportion to their unfavorable economic conditions. PGI billed the joint venture for
capital contribution work done, but was not paid despite its repeated demands. PGI,
➔ Industrial partner (only contributed services) - according to thus, filed a collection case against Marsman and Gotesco.
justice and equity
Marsman passed the obligation to Gotesco because under the
Anyway, remember that an industrial partner’s share in the profits joint venture agreement, Gotesco was solely liable for the
must first be satisfied before the capitalist partner’s share may be monetary expenses of the project, and Marsman’s participation
distributed to them. was limited to the land.

Q: What if the partner is a hybrid partner? A capitalist and at the Gotesco, on the other hand, asserted that PGI had no cause of
same time industrial partner. action against it as PGI had yet to complete the services in its
A: As an industrial partner, you will have a share on the profit based contract, and it was Marsman’s failure to clear the property of
on justice and equity. As a capitalist partner, based on his debris which prevented PGI from completing its work.
contribution. In proportion to his capital contribution but there are
books there na may annotations on how to compute (I will leave that ISSUE:
to you) Who between Marsman and Gotesco was liable to pay PGI its
unpaid claims?
LOSSES
Let proceed with losses, so first (same rule with profits) RULING: Marsman and Gotesco are jointly liable to PGI.
1. Follow the agreement of parties (if stipulated) PGI was never a party to the joint venture agreement. While the
2. Profit sharing ratio (if there’s no stipulation as to losses only joint venture agreement clearly spelled out the capital
to profit, then the losses will be based on this ratio) contributions of Marsman (land) and Gotesco (cash) and the
3. Based on capital contribution of partners funding mechanism, it cannot be used to defeat the lawful claim
of PGI against the two joint venturers-partners. PGI’s contract
Q: In the absence of profit sharing ratio agreement, what shall be clearly listed the joint venturers Marsman and Gotesco as the
the rule? beneficial owner of the project, and all billing invoices indicated
A: Based on capital contribution of partners the consortium as the client.

NOTE: When there are two or more debtors, the obligation is presumed
A purely industrial partner cannot be held liable for the losses. to be joint unless the law or the obligation expressly states that
Because the capitalist partner can withdraw anytime his capital the liability is solidary, or unless the nature of the obligation
contribution. But an industrial partner, he cannot withdraw the requires solidary liability (Articles 1207 and 1208, Civil Code). In
services he already rendered. That’s why an industrial partner this case, since solidary liability was not required by law, or the
shall not bear the losses. contract, or by the nature of the obligation, the obligation to PGI
was presumed to be joint between Marsman and Gotesco.

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 Manresa ATP | 33

A joint venture being a form of partnership, it is to be governed The petitioner himself claims his share to be 6%, as stated in the
by the laws on partnership. Under the laws on partnership, Acknowledgement of Participating Capital. However, petitioner
particularly Article 1797 of the Civil Code, the losses and profits fails to realize that this document specifically enumerated the
shall be distributed in accordance with the agreement; if only the businesses covered by the partnership: Manila Athletic Supply,
share of each partner in the profits has been agreed upon, the Remotigue Trading in Iloilo City and Remotigue Trading in
share of each in the losses shall be in the same Proportion. Cotabato City.

In the joint venture agreement, Marsman and Gotesco agreed Since there was a clear agreement that the capital the partners
on a 50-50 ratio on the proceeds of the project, but did not contributed went to the three businesses, then there is no
provide for the splitting of losses. Applying Article 1797, the reason to deviate from such agreement and go beyond the
same ratio applies in splitting the obligation-loss of the joint stipulations in the document. Therefore, the Court of Appeals
venture to PGI. did not err in limiting petitioner's share to the assets of the
businesses enumerated in the Acknowledgement of
Participating Capital.
DISCUSSION
In this case, they did not have an agreement as to the losses but they
had an agreement as to the profit sharing. The Supreme Court applied DISCUSSION
the PROFIT SHARING RATIO. The losses will be shared in the same So here, application of the rules. Their shares in the profit is based on
proportion as to the profit. the agreement, if there is no agreement, then you look at the capital
contribution. The court here said that it is clear that the partner is
So, if your profit sharing is 50:50 then the losses will also be shared entitled only to the share as agreed upon, or in the absence of any
50:50. such stipulation, then to the share in proportion to his contribution to
the partnership. But of course, this is only for the capitalist partner.
JARANTILLA v JARANTILLA
The rule is different for the industrialist partner.
G.R. No. 154486| December 1, 2010
Let’s proceed to article 1798.
FACTS:
Antonieta Jarantilla filed complaint against Buenaventura and
Cynthia Remotigue and the Jarantillas - Federico Jr., Doroteo and Civil Code, Article 1798.
Tomas for the accounting of assets and income of the co- If the partners have agreed to intrust to a third person
ownership, for partition, delivery of her share of 8% with the designation of the share of each one in the profits
damages. She claims that in 1946, she entered into agreement and losses, such designation may be impugned only
with Conchita and Buenaventura Remotigue, Rafael Jarantilla when it is manifestly inequitable. In no case may a
and Rosita and Vivencio Deocampo to engage in business. partner who has begun to execute the decision of the
Antonieta here alleges that the initial contribution of property third person, or who has not impugned the same within
and of money came from the heirs’ inheritance. a period of three months from the time he had
knowledge thereof, complain of such decision.
She claimed co-ownership of certain properties in the name of
the defendants since the only way they could have purchased The designation of losses and profits cannot be intrusted
such properties were through the partnership as they had no to one of the partners. (1690)
other choice of income. She finds support in a 1957 document
called Acknowledgment of Participating Capital where the Sps.
DISCUSSION
Remotigue acknowledged that while registered only in
Buenaventura’s name, they were not the only owners of the In case the partners cannot agree as to the sharing of the profits and
capital of the businesses. They stated the participating capital of losses, Article 1798 provides for the solution. They can intrust the
Antonieta was P8K and Federico, Jr as P5K. designation of their share to the third person. But the condition is it
must be with the unanimous consent of the partners.
ISSUE: Whether the shares of Federico and Antonieta should be
limited to those stated in the Acknowledgment. – Yes. Q: Why is it that a partner cannot be appointed to designate the
shares? Why must it be a third person?
RULING: A: There may be conflict of interest. Of course, you will favor yourself.
The Acknowledgement of Participating Capital is a duly notarized That is the danger which this provision aims to prevent.
document voluntarily executed by Conchita Jarantilla-
Remotigue and Buenaventura Remotigue in 1957. Petitioner GR: The designation given to the third person is binding. It binds all
does not dispute its contents and is actually relying on it to prove the partners.
his participation in the partnership. XPN: When the designation is manifestly inequitable.

(3) Article 1797 provides that losses and profits shall be In which case, they can impugn the designation. But just in case the
distributed in conformity with the agreement. - It is clear from designation was given but they followed it for at least 3 months, the
the foregoing that a partner is entitled only to his share as partners can no longer contest that designation anymore.
agreed upon, or in the absence of any such stipulations, then to
his share in proportion to his contribution to the partnership.

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Q: How do we know that these partners represent the controlling

Civil Code, Article 1799.
interest of the partnership?
A stipulation which excludes one or more partners from
A: You look at the capital contribution. If 50% or more than 50%, the
any share in the profits or losses is void. (1691)
capital contribution is owned by those partners.

DISCUSSION APPOINTMENT AFTER THE CONSTITUTION OF THE PARTNERSHIP

GR: Stipulation excluding a partner from profits or losses is void. It's not stated in the AOP (Articles of Appointment) ang kanyang
Note: The stipulation is void, not the partner. appointment. Here the managing partner's power if he was appointed
after the constitution of the partnership may be revoked at any time,
Q: When is the stipulation considered valid? by the vote of a majority of the partners representing controlling
A: First, if there is no partnership, it can be. Second, when the interests.
partners have no intention to admit the excluded partner. So, if you
are not a partner, you are not included in the partner-sharing. Third, DISCUSSION
when it is a purely industrial partner who by the law cannot bear the The rules as to revocation of appointment of a partner appointed
loss. under the AOP is more stringent as to a partner appointed after the
constitution of the partnership.
Can the parties stipulate that a partner be exempted from losses?
● One author stated that it is allowed. Some people have the Why? Because the appointment of that partner as manager based on
industry, the knowledge, the expertise to form the the AOP is in a contract. The contract is the law between the parties
partnership and the partnership business. However, they and if you revoke that person from being a manager, the effect is you
don’t have the necessary funds to operate the business. are changing the terms of the contract. That is why, the requirements
What they'll do is to encourage those with sufficient funds in revoking the appointment of a managing partner under AOP is very
to invest in their business. Their negotiation is that one will strict. It needs a just and lawful cause apart from the majority vote of
not bear the losses. the controlling partners representing the controlling interest of the
● There is also a comment where “this article restricts the partnership.
creation of a co-partnership.”
SCOPE OF A MANAGING PARTNER’S POWER
1. The powers of a general agent
NOTE: 2. Incidental powers
as between the partners, they can stipulate that their liability will
be limited. Examples:
➔ Issue ng receipt
➔ Hire and remove person e.g. dismissal of an employee, and
Civil Code, Article 1800. hire ng bookkeeper
The partner who has been appointed manager in the ➔ Acts of Administration
articles of partnership may execute all acts of
administration despite the opposition of his partners, XPN:
unless he should act in bad faith; and his power is ➔ when the powers are expressly withheld in the AOP.
irrevocable without just or lawful cause. ➔ A managing partner cannot exercise powers which are not
necessary or incidental to the partnership,
The vote of the partners representing the controlling e.g. selling the properties of the partnership, but
interest shall be necessary for such revocation of power. the partnership is not engaged in the buying and
A power granted after the partnership has been selling of properties.
constituted may be revoked at any time. (1692a) ➔ A managing partner cannot use the properties of the
partnership for his personal benefit
This article speaks of a partner that has been appointed as a manager e.g. acquiring a loan using the properties of the
of the partnership business. partnership as collateral.
➔ Those are not necessary or incidental to the partnership
TWO WAYS TO APPOINT A MANAGER business
1. Based on the article of partnership.
2. He can also be appointed after the articles of partnership Q: Should the managing partner be compensated?
have been submitted. A:
GR: No. Because he is a partner, that is his job, he agreed to be
APPOINTMENT BASED ON THE ARTICLES OF PARTNERSHIP appointed based on the AOP.
GR: A managing partner appointed in the AOP may execute all acts of XPN: He can be compensated if all partners agree. The agreement /
administration, despite the opposition of the other partners. consent must be made expressly or impliedly, and must be
XPN: when the managing partner acted in bad faith. unanimous.
XPN to the XPN: the managing partner is entitled to compensation
Q: How do you revoke a managing partner's appointment? when:
A: You need a just and lawful cause, 1. The managing partner performed services which are not
You need the majority vote of the partners representing the within his scope and he performed it not as a partner, but
controlling interest in the partnership. in some other capacity. (eg. clerical work)

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2. If there is a partner that has a duty to the partnership but DISCUSSION

extraordinarily neglects said duty and the remaining Absence or disability of any one of the partners cannot be used as an
partners are burdened to perform such duty. excuse to dispense the unanimous consent requirement.
3. A partner employing another partner to do work which is
not relevant to the partnership (ie. there is an er-ee relationship GR: Unanimous consent of partners is required.
between the two said partners) XPN: If there is imminent danger of grave or irreparable injury to the
4. A partner who is exempted from rendering services based partnership.
on the AOP
5. When the managing partner devotes his time and effort to In this case, a managing partner can act alone even without the
the partnership business, while other partners have their consent of the other managing partners without prejudice to his
own business, they are not able to give time and effort to liability for damages.
the partnership. In which case, the managing partner can
demand compensation.
NOTE:
The exception is not applicable if a managing partner opposes.
Civil Code, 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 Q: What if a third person is involved? For example, the partners
of them shall not act without the consent of all the agreed that the managing partners must obtain the unanimous
others, each one may separately execute all acts of consent of all managing partners before entering into a contract
administration, but if any of them should oppose the acts with a third person. Now, one managing partner contracted with a
of the others, the decision of the majority shall prevail. third person, and that contract is without the unanimous consent of
In case of a tie, the matter shall be decided by the the other managing partners. What is the rule?
partners owning the controlling interest. (1693a) A: As between the partners, the act of the acting partner/ managing
partner is invalid because there is no consent. But with regard to the
3rd person – it’s different – it’s binding on the partners as well as on
DISCUSSION the partnership.
This term presupposes the term two managing partners were
appointed. The point of view of the partners as between them is different from
the point of view of the third person. For the partners - they have
If there is no stipulation as to their specific duties and that none of knowledge as to the rule of unanimous consent; hence, it is not valid.
them can act without the consent of the managing partners, what is But with regard to third persons - those have no knowledge as to the
the rule? private arrangement; hence the effect is different.
Each of them can separately execute all acts of administration.
Q: What about Routine Transactions?
RULES IN CASE A MANAGING PARTNER OPPOSES THE ACTS OF What if your partnership is engaged in the business of buying and
ANOTHER MANAGING PARTNER selling, and it is customary for a managing partner to purchase and to
1. The decision of the majority of all managing partners shall sell on credit the goods that are contemplated in the partnership. Do
prevail; they need the consent of the other managing partners, even if the
2. If in case of a tie, the partners with the controlling interest transaction is already routinary?
of the partnership shall be consulted. Their decision will
prevail; A: No need because it is already customary.
3. If in case of another tie, the partners with controlling
interest.
Civil Code, Article 1803.
When the manner of management has not been agreed
The provision does not provide what to do in case of a tie, but a
upon, the following rules shall be observed:
commentator has submitted that those who voted against the act of
a managing partner shall prevail.
(1) All the partners shall be considered agents and
whatever any one of them may do alone shall bind the
Q: What is the remedy in case of misunderstanding?
partnership, without prejudice to the provisions of
A: They can apply for the dissolution of the partnership. In case the
article 1801.
respective duties of managing partners are specified, the decision of
the partner concerned will prevail, provided he did so in good faith.
(2) None of the partners may, without the consent of the
others, make any important alteration in the immovable
Civil Code, Article 1802. property of the partnership, even if it may be useful to
In case it should have been stipulated that none of the the partnership. But if the refusal of consent by the other
managing partners shall act without the consent of the partners is manifestly prejudicial to the interest of the
others, the concurrence of all shall be necessary for the partnership, the court's intervention may be sought.
validity of the acts, and the absence or disability of any (1695a)
one of them cannot be alleged, unless there is imminent
danger of grave or irreparable injury to the partnership.
(1694)

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 Manresa ATP | 36

DISCUSSION
any reasonable hour have access to and may inspect and
In this article, there is no appointed managing partner either based copy any of them. (n)
on the AOP or after the constitution of the partnership.

What is the effect?

1. Article 1803, all partners have equal rights in the DISCUSSION
management of partnership affairs. So, all of them are GR: The partnership books must be kept at the principal business of
automatically managers, and all of them are agents of the the partnership and it should not be removed
partnership. So even if 1 partner acts alone on behalf of the
partnership, his acts will bind the partnership. XPN: Unless it is with the consent of all the partners. When the
partners agree that the partnership moves to a place other than the
But in case a partner opposes – what is the Rule? place of principal business of the partnership.
You go back to Article 1801 – voting based on the majority vote of
partnership. Or in case of a tie, the vote of the persons representing Every partner, at every reasonable hour has the right to access,
and controlling the interest of the partnership. inspect, and even copy the partnership books. So that is the first right.

2. Unanimous consent is required if you alter an immovable

property owned by the partnership. Why? Because this is Civil Code, Article 1806.
an act of strict dominion. Partners shall render on demand true and full
information of all things affecting the partnership to any
That’s why it’s not allowed. It must still be with the unanimous partner or the legal representative of any deceased
consent of all the partners. How about if the alteration is necessary partner or of any partner under legal disability. (n)
to preserve the immoveable property? In which case it is an act of
administration. So unanimous consent is not required. DISCUSSION
The partners have the duty to disclose all the information relevant to
Civil Code, Article 1804. the partnership affairs. Why are they obliged to make full disclosure?
Every partner may associate another person with him in Because their relationship is based on mutual trust and confidence,
his share, but the associate shall not be admitted into the so obviously, there is transparency and concealment is not allowed
partnership without the consent of all the other especially if it affects the partnership.
partners, even if the partner having an associate should
be a manager. (1696) The article says that the partner shall render on demand. But actually,
the obligation to give voluntary disclosure is also imperative.

DISCUSSION Ex. Cansancio and Cansinos are partners and they are engaged in the
This article introduces a new partner in the form of a sub partner. A real estate business. Now, Cansancio heard that a 3rd person is willing
partner wants or desires to divide his share in the profits with another to purchase a real property from the partnership at a higher price. But
person. Who is this other person? The subpartner. In effect, the sub Cansancio did not disclose this to Cansinos. So what happened was
partner is a creditor of the assigned partner. This is what we call Cansancio purchased the property for himself at a lower price, then
subpartnership. in turn, he sold the property to the 3rd person at a higher price. Now,
Cansancio earned a profit from the transaction. Of course, if you will
A subpartnership is different from the main partnership. The effect of see from here, Cansancio was dishonest because he did not disclose
this subpartner will not become a partner unless all of the partners to his partner the intention of the 3rd person to acquire the property
consent to his admission as a partner. Of course, since he is not a at a higher price. Supposedly, it was the partnership that should have
partner, he will not acquire the rights of the partners. earned the profit from the sale, not Cansancio only. In which case,
each partner also has the obligation to voluntarily disclose relevant
What are these rights? We will discuss later that they can demand the information.
disclosure of information relevant to partnership affairs, demand
accounting, etc. Those rights are the rights that cannot be afforded by But, for example, the information that a partner wants to receive can
a subpartner. Moreover, he is also not liable to partnership debts in be found in the books. Remember, they have the right to inspect, to
case the partnership assets are not enough to satisfy the obligations access, and even to copy the partnership books. In which case, there
in favor of the partnership creditors. is no obligation on the partner to give full information if it is readily
available in the books.
Q: Why can’t the partner be admitted as a partner without the
consent of the other partners? Civil Code, Article 1807.
A: Delectus Personae: based on mutual trust and confidence. 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
Civil Code, Article 1805. transaction connected with the formation, conduct, or
The partnership books shall be kept, subject to any liquidation of the partnership or from any use by him of
agreement between the partners, at the principal place its property. (n)
of business of the partnership, and every partner shall at

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DISCUSSION conduct, or liquidation of the partnership or from any use by him of

A partner has the duty to act for the common benefit of all the his property.
partners, not just during the existence of the partnership but even
during the formation until the dissolution and termination of the If it is as to the other consent of the partners, there is no need to hold
partnership. This is the Principle of Utmost Good Faith. those profits in trust for the partnership. That is his, he is not a trustee
1. The duty to act for the common benefit of all partners because the other partners consented to the transaction and even if
must be done during the formation of the partnership. in a way, it is adverse to the interest of the partnership.

Maybe in the course of acquiring partnership property, a However, one has to take note that the consent given by the other
partner was able to earn kickbacks, discounts, and partners should be an informed consent. Such that those partners
undisclosed profits. This is contrary to his obligation to his who consented to the transaction that was favorable to one partner
partners. He needs to take into account for the partnership must be able to know all of the surrounding facts and circumstances
all the profits that he has earned. of that transaction. There must be full disclosure, no more no less. In
that case, he has informed consent, such that he knows everything
2. The duty continues even after the dissolution. that involves the transaction.

This is self-explanatory. In the example given earlier: if the partner of Cansancio told him of
his intention of wanting to earn and that partner consents, there is no
3. The duty to account for secret or similar profits. problem. Cansancio will not hold the profits he derived as a trustee.
Sa kanya na talaga yun.
That is what happened earlier with Cansancio, he did not
inform that a third person was willing to purchase the Civil Code, Article 1808.
property at a higher price and he took the transaction so The capitalist partners cannot engage for their own
that he could get the money for himself and not the account in any operation which is of the kind of business
partnership. This is what you call a secret profit, and so, he in which the partnership is engaged, unless there is a
has to account that secret profit in the partnership. stipulation to the contrary.

4. The duty to account for earnings accruing even after the Any capitalist partner violating this prohibition shall
termination of the partnership bring to the common funds any profits accruing to him
from his transactions, and shall personally bear all the
The partnership has been terminated but there is still losses. (n)
liquidation because the partnership wants to sell their
partnership properties, but in the end, a partner cheated
the transaction. He said, I will be the one to sell the DISCUSSION
properties, and he knows at the back of his mind that there We discussed before that industrial partners are absolutely
is already a person willing to acquire the property at a prohibited from engaging in another business since they have to focus
higher price. In a way, this partner has violated his duty to solely on the partnership business.
act in the utmost good faith.
But how about capitalist partners? Since there’s absolute prohibition
Earlier we had the example where Cansancio did not in industrial partners, what about capitalist partners? The prohibition
disclose that there was already a third person seeking to is merely relative. It will depend on the type of business being
acquire the property. Now, the profit he derived from engaged by the capitalist partner. So if the same line of business,
selling the property at a higher price, he holds that as a same kind of business partnership of the personal business of the
trustee with the partnership. He becomes the trustee of the capitalist partner, then that is not allowed.
profit derived from the said transaction.
If competing and the same kind of business, it is not allowed. But if
5. Duty to make full disclosure of information belonging to different business with the business of the partnership, then it is
the partnership. allowed and if it is not competing.

This duty has already been discussed in relation to Article Again in industrial partners, the prohibition to engage in another
1806. business is absolute. If capital partner, that would depend on the kind
of business being engaged by the capitalist partner, thus relative
6. Duty not to acquire interest or rights adverse to the prohibition.
partnership
Of course, there should be no conflict of interest to the Q: What is the effect if a capitalist partner engaged in the same kind
partnership. These duties must be observed by the of business as that engaged by the partnership?
partners. A: The effect is he must bring to the common fund to the partnership,
the profits he may have derived from the said business. And
But, Article 1807 provides for an exception: Article 1807. Every moreover, he is personally held liable for the losses of the said
partner must account to the partnership for any benefit, and hold as business. Thus, the one who will reap the benefits of the business will
trustee for it any profits derived from him without the consent of the be the partnership, but the losses will be borne by the capitalist
partners from any transaction connected with the formation, partner.

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 Manresa ATP | 38

GR: Capitalist partner is prohibited from exercising the same kind of

business with the partnership. SECTION 2.
XPN: When he is expressly authorized by the agreement of the PROPERTY RIGHTS OF A PARTNER
partners. (Art 1810 - 1814)

Civil Code, Article 1809.

Any partner shall have the right to a formal account as to Civil Code, Article 1810.
partnership affairs: The property rights of a partner are:
(1) His rights in specific partnership property;
(1) If he is wrongfully excluded from the partnership (2) His interest in the partnership; and
business or possession of its property by his co-partners; (3) His right to participate in the management (n)

(2) If the right exists under the terms of any agreement; DISCUSSION
This article provides for the principal rights of the partner, but there
(3) As provided by article 1807;
are rights related to the principal rights of a partner. These related
rights are related to those principal rights enumerated in 1810.
(4) Whenever other circumstances render it just and
reasonable. (n)
RELATED RIGHTS:
1. the right to reimbursement for amounts advanced to the
GR: A partner is not entitled to the formal accounting during the partnership and indemnification for risks in consequence of
existence of the partnership management
2. the right of access and inspection of partnership books
Why? Because they have a right to full disclosure, inspect, assess, and 3. the right to true and full disclosure of all things affecting the
copy the partnership books. Those rights are sufficient to protect the partnership
partners. 4. the right to a formal account, as discussed earlier, of
partnership affairs under certain circumstances
XPN: Article 1809. 5. the right to have the partnership dissolved also under
➔ If he is wrongfully excluded from the partnership business certain conditions.
or possession of property by his co-partners.
➔ if the right exists under the terms of any agreement Let’s look at partnership property first, you have to bear in mind that
➔ as provided by article 1807 partnership property is different from partnership capital. As to the
aspect of change in value, if you say partnership capital, that is fixed.
➔ whenever other circumstances render it just and
The increase or decrease of the capital will depend on the agreement
reasonable.
of the partners.
DISCUSSION
Q: How about partnership property?
Usually the formal accounting is done upon liquidation of the A: It will increase or decrease based on the market. As to assets
partnership, thus this right to formal account is generally not included, if partnership capital, that is limited to the contributions of
practiced except if you have a ground. the partners but if its partnership property, it includes not only those
contributed by the partners but also the properties acquired during
Example: One of the partners is abroad for a partnership business. Of the partnership and that includes goodwill.
course, he cannot inspect the partnership books.
Q: So how do we know that a property is a partnership property?
Of course he cannot expect the partnership votes kasi nasa abroad A: Is the use of the property by the partnership a badge of ownership?
siya. In which case, pwede sya makademand ng formal account. Just because a property is being used by the partnership does not
automatically mean that that is considered as partnership property
Q: What’s the ground? because it is possible that a partner contributed the usufruct of his
A: That it is just and reasonable. property. Meaning, he only gave the right to use but did not surrender
ownership over the property. So, even if the property is used by the
The right to demand accounting exists as long as the partnership lasts. partnership, that is not an indication that that is a partnership
property.
Q: Who has the duty to account?
A: The managing partners or acting partners, if its liquidation, the Q: What if the property was acquired using partnership funds?
liquidating partner or the surviving partners. A: That can be considered as a partnership property. There is a
presumption because the partnership funds were used.
So let’s proceed to the obligations of the partners.
Q: What if the property was acquired using partnership funds but
the transaction took place after the dissolution but after the winding
up? Partnership already dissolved, what is the effect?
A: The property belongs to the partner even if he used the
partnership funds. But he must also account for the partnership funds
used.

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Q: What if yung property nakalagay sa partnership book? If your possession is not for partnership purposes, like for your
A: There is a strong inference that that is considered a partnership personal benefit, then that is not allowed. In which case, you need
property. Moreso if it can be seen that there is still a balance in the the consent of all partners if you’re going to use it for a purpose other
payment for that particular property, so that is a strong indication than partnership purpose.
that the particular property is a partnership property.
Q: What if a partner loses partnership property for his personal
So other factors tending to indicate property ownership: benefit without the consent of other partners?
If the income of one property is for the account of the partnership
and that real property taxes is being paid by the partnership, that is a First, he must account for the profits that he earned. He must account
strong indication that it is partnership property. for the profits that he earned or for the value of his wrongful
possession, like rent. Natulog siya didto kay wala siya’y balay, of
Q: But if the property is repaired using partnership funds, will that course, mu-bayad siyag rent.
be considered as partnership property?
No, it is not automatic in case of repairs. Second, the right to formal account; and third, the other partners can
also apply for dissolution of the partnership.
Civil Code, Article 1811.
Q: What if the partner dies? Who has the right to its specific
A partner is co-owner with his partners of specific
partnership property?
partnership property.
A: Of course, the surviving partners.
The incidents of this co-ownership are such that:
GR: Every partner has an equal right to possess specific partnership
property for partnership purposes.
(1) A partner, subject to the provisions of this Title and
to any agreement between the partners, has an equal
XPN: Unless all the other partners agreed. They agreed that the right
right with his partners to possess specific partnership
to possess specific partnership property is vested to one or some of
property for partnership purposes; but he has no right to
the partners.
possess such property for any other purpose without the
consent of his partners; (2) They have the right to specific partnership property but this
cannot be assigned.
(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; Q: A partner cannot on his own assign his right in specific
partnership property. Why?
(3) A partner's right in specific partnership property is not A: Remember that his interest in that specific partnership property
subject to attachment or execution, except on a claim can only be determined once liquidation is made.
against the partnership. When partnership property is
attached for a partnership debt the partners, or any of Also, this is to protect third persons. Why? If you assign his right to a
them, or the representatives of a deceased partner, specific partnership property, what if konti nalang naiwan, then here
cannot claim any right under the homestead or comes a partnership creditor asking to be paid, what will happen? Of
exemption laws; course, his assignment will prejudice the third person.

(4) A partner's right in specific partnership property is not So, it is not just for the protection of the partners, but also with
subject to legal support under article 291. (n) respect to third persons, the partnership creditors.

A partner who contributed his property to the common fund and

DISCUSSION agreed that ownership thereof be transferred to the partnership
Disabuse yourself that the interest of a partnership is the same as a cannot convey or mortgage the property without the consent of all
partner’s right to specific, tangible, immovable property. The the partners.
partnership interest of one partner is different from his right over the
partnership property. Here the specific words are: “specific GR: a partner cannot assign his right in specific partnership property
partnership property”. XPN: when all of the partners assign their respective rights in specific
partnership property, then that is allowed.
With respect to a specific partnership property, all of the partners are
considered co-owners. Art. 1811 provides the incidents of so-called (3) Right in specific property cannot be the subject of attachment
co ownership. or execution.

(1) xx all of the partners have an equal right to possess specific Q: What is “attachment” or “execution”?
partnership property xx A: In simple terms, there is a judgment and the judgment debtor has
no sufficient funds to satisfy the judgment. What happens is the
As a co-owner, they have the right to possess, but you have to look at judgment creditor will attach or execute the properties owned by that
the limitation. Ang limitation is ang possession should be for the judgment debtor and those properties will be sold at an auction. The
partnership purposes. proceeds of that auction will satisfy or will be used to satisfy the
judgment debt. That is essentially attachment or execution.

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Q: Why is a partner’s right to specific partnership property not

CARANDANG VS HEIRS OF DE GUZMAN
subject to attachment or execution?
GR No. 160347 | November 29, 2006
A: The scenario here is the partner has liabilities. It is the personal
liabilities of an individual partner; in which case the judgment creditor
Facts:
is not allowed to attach or execute the right of the debtor-partner in
[Quirino de Guzman] and [the Spouses Carandang] are
the specific partnership property.
stockholders as well as corporate officers of Mabuhay
Broadcasting System (MBS for brevity), with equities at fifty four
Because he is merely a co-owner and there is no liquidation and
percent (54%) and forty six percent (46%) respectively.
besides, his interest in the partnership property, that specific
partnership property is merely “inchoate”. A mere expectancy.
On November 26, 1983, the capital stock of MBS was increased,
from ₱500,000 to P1.5 million and ₱345,000 of this increase was
Unless and until the partnership is dissolved and the assets are
subscribed by [the spouses Carandang]. Thereafter, on March 3,
liquidated, there is no way of determining how much really is the
1989, MBS again increased its capital stock, from ₱1.5 million to ₱3
share. And besides, during the existence of the partnership, that
million, [the spouses Carandang] yet again subscribed to the
specific partnership property is not owned by the partner. It is owned
increase. They subscribed to ₱93,750 worth of newly issued capital
by the partnership. That is why it cannot be executed for the liabilities
stock.
of the partners because the owner is the partnership.
[De Guzman] claims that, part of the payment for these
Illustration: There is a judgment and the debtor has no sufficient
subscriptions were paid by him, ₱293,250 for the November 26,
funds to satisfy the judgment. So, the creditor will attach or execute
1983 capital stock increase and ₱43,125 for the March 3, 1989
the properties owned by that debtor and those properties will be sold
Capital Stock increase or a total of ₱336,375. Thus, on March 31,
at an auction. The proceeds of that auction will satisfy the debt.
1992, [de Guzman] sent a demand letter to [the spouses
Carandang] for the payment of said total amount.
Q: Why is a partner’s right to a specific partnership property not
subject to attachment or execution?
[The spouses Carandang] refused to pay the amount, contending
A: The partner has liabilities in his own “personal” capacity and not as
that a pre-incorporation agreement was executed between
a partner of the partnership, hence, the partner’s “personal” liability
[Arcadio Carandang] and [de Guzman], whereby the latter
is not the liability of the partnership. Therefore, the creditor cannot
promised to pay for the stock subscriptions of the former without
attach or execute the partnership of the properties to satisfy the debt
cost, in consideration for [Arcadio Carandang’s] technical
of the partner debtor.
expertise, his newly purchased equipment, and his skill in repairing
and upgrading radio/communication equipment therefore, there
The partner debtor is merely a co-owner. His interest is merely
is no indebtedness on their part [sic].
inchoate until the partnership is dissolved and assets are liquidated.
On June 5, 1992, [de Guzman] filed his complaint, seeking to
Further, that specific partnership property is not owned by the
recover the ₱336,375 together with damages.
partner, it is owned by the partnership hence cannot be executed or
attached.
Issue:
Whether or not the RTC should have dismissed the case for failure
GR: A partner’s right in specific partnership property is not subject to
to state a cause of action, considering that Milagros de Guzman,
attachment or execution.
allegedly an indispensable party, was not included as a party-
XPN: When the claim is against the partnership itself.
plaintiff? No.
Since the property belongs to the partnership, the same can be
Ruling:
attached for partnership debt.
Quirino and Milagros de Guzman were married before the
effectivity of the Family Code on 3 August 1988. As they did not
NOTE: execute any marriage settlement, the regime of conjugal
In this case, the partners cannot claim any exemption laws. You partnership of gains governed their property relations.
will learn in other subjects that there is a list of properties that
cannot be subject to attachment or execution. Further, the All property acquired during the marriage, whether the acquisition
partners cannot also claim exemption because the properties appears to have been made, contracted or registered in the name
are owned by the partnership and not by them. of one or both spouses, is presumed to be conjugal unless the
contrary is proved. Credits are personal properties, acquired
during the time the loan or other credit transaction was executed.
(4) A partner's right in specific partnership property is not subject Therefore, credits loaned during the time of the marriage are
to legal support under article 291. presumed to be conjugal property.
Q: Why not subject to legal support?
A: Again, the properties belong to the partnership. Consequently, assuming that the four checks created a debt for
which the spouses Carandang are liable, such credits are presumed
Illustration: If a partner has a wife and a daughter and he was ordered to be conjugal property. There being no evidence to the contrary,
by the court to give support, will the partnership be liable for it? Of such presumption subsists.
course, no. It is the liability of the partner and not the partnership.
Article 108 of the Family Code provides:

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Art. 108. The conjugal partnership shall be governed by the rules writs of replevin for the seizure of two (2) motor vehicles in
on the contract of partnership in all that is not in conflict with what Navarro’s possession. The first complaint stated:
is expressly determined in this Chapter or by the spouses in their
marriage settlements. 1. That plaintiff KAREN T. GO is a Filipino, of legal age,
married to GLENN O. GO, doing business under the trade
In this connection, Article 1811 of the Civil Code provides that "[a] name KARGO ENTERPRISES
partner is a co-owner with the other partners of specific
partnership property." Taken with the presumption of the conjugal 2. the NAVARRO leased [from] KAREN T GO a certain motor
nature of the funds used to finance the four checks used to pay for vehicle as evidenced by a LEASE AGREEMENT WITH
petitioners’ stock subscriptions, and with the presumption that the OPTION TO PURCHASE entered into by and between
credits themselves are part of conjugal funds, Article 1811 makes KARGO ENTERPRISES, then represented by its Manager,
Quirino and Milagros de Guzman co-owners of the alleged credit. who is the husband, GLENN O. GO, in the amount
P66,333.33 and that the same were dishonored and/or
Being co-owners of the alleged credit, Quirino and Milagros de returned by the drawee bank because it did not have
Guzman may separately bring an action for the recovery thereof. sufficient funds to cover the amounts thereof.
We therefore hold that Milagros de Guzman is not an That KAREN GO applies for and for the immediate delivery of the
indispensable party in the action for the recovery of the allegedly motor vehicle from NAVARRO.
loaned money to the spouses Carandang. As such, she need not
have been impleaded in said suit, and dismissal of the suit is not In his Answers, Navarro stated that the two complaints stated no
warranted by her not being a party thereto. cause of action, since Karen Go was not a party to the Lease
Agreements with Option to Purchase.
DISCUSSION
Issue: Is Glenn Go, the husband, and manager, a co-owner of the
The issue here is whether or not the wife must be impleaded as co- property?
plaintiff, because the one who filed the case is the husband without
including his wife as a co-plaintiff. Here, he lent money to other Ruling: Yes, he is. The business name KARGO ENTERPRISES is
parties and then wanted to demand payment from them. Now, he registered in the name of a married woman, a fact material to the
died while the case is still pending and so he was substituted by his side issue of whether Kargo Enterprises and its properties are
wife. Here, the court said that the case must be dismissed because paraphernal or conjugal properties.
the wife is an indispensable party.
The registration of the trade name in the name of one person-a
The Supreme Court looked at the provisions of the Family Code. The woman-does not necessarily lead to the conclusion that the trade
Family Code provides that if the marriage was solemnized before the name as a property is hers alone, particularly when the woman is
effectivity of the Family Code, the default property regime is Conjugal married.
Partnership of Gains. It provides that the Conjugal Partnership shall
be governed by the Rules of the Contract of Partnership. The Supreme By law, all property acquired during the marriage, whether the
Court referred to the provisions of partnership. Article 1811 says: acquisition appears to have been made, contracted, or registered
in the name of one or both spouses, is presumed to be conjugal
A partner is co-owner with his partners of specific unless the contrary is proved.
partnership property.
As a conjugal property, the property relations of the husband and
After that, we refer to the Rules on Co-ownership. Essentially, the wife shall be governed primarily by Chapter 4 on Conjugal
Supreme Court said that the wife need not be impleaded because she Partnership of Gains of the Family Code and, suppletory, by the
is a co-owner. The presumption is that once a co-owner files a case spouses marriage settlement and by the rules on partnership
against third persons for the benefit of the co-ownership, he is acting under the Civil Code. In the absence of any evidence of a marriage
for the co-ownership. The Co-owner need not implead his other co- settlement between the spouses Go, we look at the Civil Code
owners. provision on partnership for guidance.

What is stated was main co-owners of the alleged credit, Quirino and It is provided in Article 1811:
Milagros De Guzman may separately bring an action for the recovery
thereof without the necessity of joining all the other co-owners as co- Art. 1811. A partner is a co-owner with the other partners of
plaintiff because the suit is presumed to have been filed for the specific partnership property.
benefit of the co-owners. The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to
Navarro vs Judge Escobido any agreement between the partners, has an equal right
G.R. No. 153788 | Nov 27, 2009 with his partners to possess specific partnership property
for partnership purposes;
Facts:
Karen T. Go filed two complaints before the RTC for Under this provision, Glenn and Karen Go are effectively co-owners
replevin/seizure and/or sum of money with damages against of Kargo Enterprises and the properties registered under this
Navarro. In these complaints, Karen Go prayed that the RTC issue name; hence, both have an equal right to seek possession of these
properties

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Q: How can we determine the extent of a partner’s interest in the

Therefore, Under this ruling, either of the spouses Go may bring an
partnership itself, especially the surplus?
action against Navarro to recover possession of the Kargo
A: Because the surplus, that is after dissolution and liquidation of the
Enterprises-leased vehicles that they co-own. This conclusion is
partnership. The profit, since the business is still ongoing, they can
consistent with Article 124 of the Family Code, supporting as it
easily see how much the interest of their profit is. But surplus is
does the position that either spouse may act on behalf of the
different – only after liquidation; what is left that will be surplus; after
conjugal partnership, so long as they do not dispose of or
all liabilities are paid.
encumber the property in question without the other spouse's
consent.
Here, the value of the surplus can be determined only through
liquidation.
DISCUSSION
Same issue as Carandang, actually, the Carandang case was also cited Q: But remember, the partnership cannot be considered a debtor of
in this case of Navarro vs Judge Escobido, so here the wife of the the partner. Why?
party, she was not a signature to the contract of lease. It was her A: Because the partnership is still ongoing. When we say surplus, we
husband, so the wife filed a case because the 3rd person did not pay; can only claim surplus after dissolution and liquidation. So meaning
but anyway, the allegation again is you have no cause of action to say, the obligation of the partnership to give the surplus is still not
against me because you are not a party to the contract of lease. due and demandable

The Supreme Court said, let’s first check the nature of the business, Let’s proceed to Article 1813.
sole proprietorship, and because it is sole proprietorship, no separate
juridical personality. What will happen is this sole proprietorship Civil Code, Article 1813.
which is owned by the husband is considered as conjugal property. A conveyance by a partner of his whole interest in the
They checked the Family Code which states that marriage settlement partnership does not of itself dissolve the partnership,
governs the property relations of the husband and wife, and if there or, as against the other partners in the absence of
is no marriage settlement, we go to the Family Code provisions of the agreement, entitle the assignee, during the continuance
conjugal partnership and supplementarily apply the Civil Code, of the partnership, to interfere in the management or
specifically the Law on Partnership. administration of the partnership business or affairs, or
to require any information or account of partnership
Here, the Supreme Court said that under Art 1811, the incidents of transactions, or to inspect the partnership books; but it
co-ownership with respect to specific property is that they have equal merely entitles the assignee to receive in accordance
right to possess. The Supreme Court said, the wife has an equal right with his contract the profits to which the assigning
to recover possession of the vehicle because the vehicle is the object. partner would otherwise be entitled. However, in case of
fraud in the management of the partnership, the
So it cited the case of Carandang, so same lang ang ruling niya so assignee may avail himself of the usual remedies.
medyo confusing lang kasi from Family Code, refer to Civil Code, law
on partnership, and then Civil Code co-ownership so bear in mind that In case of a dissolution of the partnership, the assignee
simplify lang natin, okay? Based lang siya sa incidents of co- is entitled to receive his assignor's interest and may
ownership, yun lang. require an account from the date only of the last account
agreed to by all the partners. (n)
Anyway, please read 1812.

DISCUSSION
Civil Code, Article 1812.
As discussed before, a partner cannot assign his right to specific
A partner's interest in the partnership is his share of the
partnership property; but in partnership interest, he can assign it
profits and surplus. (n)
based on Article 1813. Even if there is no consent by the other
partners, he is still allowed.
DISCUSSION
We have discussed specific partnership properties, now we discuss a Q: Why?
partner’s interest in the partnership itself. A: Because in partnership property, it is owned by the partnership
itself. It is the property of the partnership. Of course, you cannot
Q. So, ano ba itong sinasabi na interest in the partnership itself? assign your right over it. But, when we say interest of a partner in the
A. A partner has an interest in the undistributed profits and partnership itself, it does not mean specific partnership property that
undistributed na surplus is owned by the partner.

Q. So ano ba ang profit, ano ba ang Surplus? Again, if interest in the partnership itself, the owner is the partner. If
A. So when we say profit, of course, gross profit, less expenses we specific partnership property, the owner is the partnership and not
have then net income profit. In other words, excess of returns over the partner. That is why assignment is allowed when it comes to the
expenditure. interest of the partner in the partnership itself. Meaning, interest as
to the surplus and profits. That is why he can assign it.
When we say Surplus, this means partnership assets less partnership
liabilities. In other words, excess of assets over liabilities. You can relate this to Article 1804 on sub-partnership.

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What are the rights of the Assignee? We discussed that once he

the profits to which the assigning partners would otherwise be
becomes an assignee (he was sold the interest of a partner in a
entitled. However, in case of fraud in the management of the
partnership), that assignee cannot automatically become a partner.
partnership, the assignee may avail himself of the usual
remedies.
Q: Ano ang mga rights na na-withhold sa kanya?
A: RIGHTS WITHHELD FROM ASSIGNEE
In the case of a dissolution of the partnership, the assignee is
1. To interfere in the management of the partnership business
entitled to receive his assignor’s interest and may require an
2. To demand full disclosure of information, formal accounting
account from the date only of the last account agreed to by all
3. To inspect, access, or copy the partnership books
the partners.
Because he is not a partner. Those rights must pertain to a partner
From the foregoing provision, it is evident that "(t)he transfer by
alone. Okay?
a partner of his partnership interest does not make the assignee
of such interest a partner of the firm, nor entitle the assignee to
Q: Why are these rights withheld?
interfere in the management of the partnership business or to
A: Again, principle of delectus personae. An assignee cannot become
receive anything except the assignee’s profits. The assignment
a partner unless it is with a unanimous consent of all the partners.
does not purport to transfer an interest in the partnership, but
only a future contingent right to a portion of the ultimate residue
Q: What are the rights of the assignee?
as the assignor may become entitled to receive by virtue of his
proportionate interest in the capital."
A: RIGHTS OF ASSIGNEE OF PARTNER’S INTEREST
1. To receive the profits pertaining to the assigning partner
Since a partner’s interest in the partnership includes his share in
2. Right to receive the surplus after dissolution
the profits, Spouses Jaso, although they did not become
3. To require accounting upon dissolution
partners, are entitled to Biondo’s share in the profits, despite
4. To avail of the usual legal remedies in case of fraud in the
Juanita’s lack of consent to the assignment of said Frenchman’s
management of partnership
interest in the joint venture.
Q: So, what are the remedies of the other partners who did not
assign their rights or interest in the partnership?
Although Eden Jaso did not, moreover, become a partner as a
A: They can ask for dissolution.
consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA
Can we proceed with the case of Realubit v. Jaso?
correctly granted her prayer for dissolution of the joint venture
conformably with the right granted to the purchaser of a
REALUBIT v. JASO partner’s interest under Article 1813 of the Civil Code.
G.R. No. 178782 | September 21, 2011

FACTS: Josefina Realubit (Josefina) entered into a Joint Venture

DISCUSSION
Agreement (JVA) with Francis Eric Amaury Biondo (Biondo), a
French national, so that they can operate an ice manufacturing So, in this case, you will later on learn that a purchaser with an
business. After 3 years that the ice manufacturing business interest of a partner’s interest in the partnership can actually ask and
became operational, the French national decided to transfer all apply for a petition to dissolve the partnership. So, ito ang nangyari
his rights and interests in favor of Spouses Jaso, respondent dito.
spouses in this case, through a Deed of Assignment.
When we say that you are an assignee, you do not have the right to
Spouses Jaso, then, instructed their lawyer to apprise the demand for an accounting. That is a right specifically withheld from
original part in the JVA for petitioner Realubit. Also, they the assignee. But here, Spouses Jaso asked for a dissolution and at the
demanded that an accounting of the business must be same time, formal accounting. Remember we said that an assignee
surrendered to them, and an inventory and remittance of their can only ask and demand for accounting if the partnership is already
portion of its profits must be surrendered, and they also moved dissolved? That is why the court allowed even if he is merely an
for the dissolution of the joint venture. assignee, because he also asked for the dissolution of the partnership.

ISSUE: WON Spouses Jaso became partners in the JVA by virtue

of the Deed of Assignment.
Civil Code, Article 1814.
RULING: NO. Without prejudice to the preferred rights of partnership
creditors under article 1827, on due application to a
Art. 1813. A conveyance by a partner of his whole interest in the competent court by any judgment creditor of a partner,
partnership does not itself dissolve the partnership, or, as against the court which entered the judgment, or any other
the other partners in the absence of agreement, entitle the court, may charge the interest of the debtor partner with
assignee, during the continuance of the partnership, to interfere payment of the unsatisfied amount of such judgment
in the management or administration of the partnership business debt with interest thereon; and may then or later
or affairs, or to require any information or account of partnership appoint a receiver of his share of the profits, and of any
transactions, or to inspect the partnership books; but it merely other money due or to fall due to him in respect of the
entitles the assignee to receive in accordance with his contracts

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Q: What is the effect if the partner redeemed using his separate

partnership, and make all other orders, directions,
property, will he become the owner of the interest that he
accounts and inquiries which the debtor partner might
redeemed?
have made, or which the circumstances of the case may
A: No. Remember that the relationship of the partners here is based
require.
on mutual trust and confidence. He will just hold it in trust. He will
not become the owner of the interest.
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 NOTE
dissolution: 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
(1) With separate property, by any one or more of the partnership
partners; or

(2) With partnership property, by any one or more of the We discussed before with respect to partnership assets, the partners
partners with the consent of all the partners whose themselves cannot avail of the exemption laws. It means you cannot
interests are not so charged or sold. attach or make that partnership property liable for the debt because
it is exempted from execution under this law.
Nothing in this Title shall be held to deprive a partner of
his right, if any, under the exemption laws, as regards his But here, if the interest of the partner is charged, the partner can raise
interest in the partnership. (n) his right under the exemption laws because this defense is a personal
right.
DISCUSSION
Of course, if it is a partnership property it’s not the partner who is the
This article discusses what we call a CHARGING ORDER. We discussed
owner. It is the partnership so, the partner cannot invoke on behalf
that the partnership assets are owned by the partnership. The
of the partnership.
partnership assets will only answer for partnership debts and
liabilities.
In this article, the liability is with respect to the partner only, who has SECTION 3.
his own creditor. It is a debt of the partner and not the partnership.
OBLIGATIONS OF THE PARTNERS WITH REGARD TO
SUBJECT OF CHARGING ORDER THIRD PERSONS
It is the partner’s interest in the partnership itself. (Art 1815 - 1827)

When we say interest, we refer to his share in the profit, the surplus
in the event of liquidation, which is distributed amongst the partners. Civil Code, Article 1815.
Interest is the surplus of the debtor-partner. Every partnership shall operate under a firm name,
which may or may not include the name of one or more
The situation here is the creditor of the partner applied for a charging of the partners.
order, because there is a judgment rendered in favor of the partner’s
creditor. That creditor can apply for a charging order, in case that Those who, not being members of the partnership,
there is profit or a surplus share, this will not be given to the debtor include their names in the firm name, shall be subject to
partner. Instead it will be turned over to the creditor. That is how the the liability of a partner. (n)
creditor will collect from the partner.

As to partnership assets? Of course, not. Remember he is not a Q: What is the importance of the firm name?
partnership creditor. He is a creditor to the partner themselves. A: To distinguish that partnership from the partners comprising it, as
well as, other partnerships and entities like corporations.
Q: Who is preferred? Partnership creditor, or creditor of the
individual partner? GR: The partners can decide or adopt any firm name they desire.
A: Of course, the Partnership creditor is preferred. Before the e.g. The firm name of a partnership may be that of an individual partner, the
liabilities or claims of the Partner creditor can be paid, there is a need surnames of all the partners, or the surname of one or more of the members
to satisfy first the credit or the claims of the Partnership creditors. with the addition of “and Company,

REDEMPTION OF INTEREST CHARGED XPN:

Q: So who can redeem? And what is the source for it to be 1. Use of misleading names.
redeemed? Ex. “Nike Corporation” and the partnership “Nike and
A: First, It could be a partner of the partnership using his separate or Company” are confusingly similar. Third persons might
individual property. Or it could also be the partnership property but think that your partnership is affiliated with that company.
it must be with the unanimous consent of all the partners. That is why it is prohibited.

Q: How much is the redemption price? 2. Name of a deceased partner is not allowed.
A: That would depend on the unsatisfied debt. Generally, only living persons must be included in a firm
name; but you shall learn that a third person who is a

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 Manresa ATP | 45

stranger to the firm is added to the firm name, he may be

The retention of a disbarred lawyer's name in the firm name may
considered a partner in estoppel.
mislead the public into believing that the lawyer is still authorized
to practice law.
GR: Deceased partners may not be placed in firm names.
XPN: In case of a lawyer, under the code of professional responsibility,
Article 1815 of the Civil Code shows that the partners in a
the deceased lawyer may have their name used by the surviving
partnership should be "living persons, who can be subjected to
partners.
liability."
For instance, have you heard of ACRA law? Among all of the partners
Further, the use of a deceased partner's name is not a custom in
there, they are all deceased except one. On their website, if you
the Philippines. On the contrary, the local custom shows that the
check, the founding partners are all there. You will see that they put
firm name usually identifies the senior members or partners of a
a cross beside the name. Under the code of professional
law firm.
responsibility, you can use the name of a deceased partner, as long as
you put an indication that the person is already deceased.
The use of the name of a person who is not authorized to practice
law constitutes contempt of court.
What about disbarred lawyers? Can they use their name in the firm
name? Check the case of Kimteng v Young.
From the time Revilla was disbarred in 2009, it appears that no
efforts were exerted to remove his name from the firm name.
Kimteng, et al. vs. Atty. Young Thus, Atty. Young and Atty. Magat are held liable for contempt of
GR No. 210554 court, and meted a fine of P30,000.00 each.

Facts: SC refrained from ruling upon Revilla's liability since Revilla was not
David Yu Kimteng, et al. are the majority stockholders of Ruby served with copies of the Petition, subsequent pleadings, and
Industrial Corporation. Resolutions upon him.

Atty. Young, Atty. Gambol, Atty. Magat are lawyers practicing Atty. Gambol’s complaint against him was dismissed, because of
under the firm, Young Revilla Gambol & Magat. They entered their his efforts to avoid misleading the public by removing Revilla's
appearance in the liquidation proceedings as counsels for the name in the pleadings he filed in several courts.
liquidator of Ruby Industrial Corporation on its liquidation
proceedings.
DISCUSSION
An Opposition (from Balgos Law Firm) was filed against the As a general rule a deceased partner is not allowed because persons
appearance of Young, Revilla, Gambol, & Magat on the ground that whose names are indicated in the firm name must be living persons
Revilla was already disbarred in 2009. who can be subjected to liability.

Young Revilla Gambol & Magat: XPN: Code of Professional Responsibility (if you indicate that the
1. The firm opted to retain Revilla's name in the firm name even partner is already deceased)
after he had been disbarred, with the retention serving as an act of
charity. But, here in Kim Teng, the lawyer was already disbarred but they still
2. They did not intend to deceive the public and that in any case, included the name of the lawyer.
the retention of Revilla's name does not give added value to the
law firm]nor does it enhance the standing of the member lawyers The SC said, a deceased partner is different from a disbarred
thereof. partner. For a deceased partner, at the time that he died, he can still
3. The non-deletion of Revilla's name in the firm's name is no more practice law, and of course there is no deception because if he is
misleading than including the names of dead or retired partners in already dead there is a cross (+) or symbol which indicates that he is
a law firm's name. It is more for sentimental reasons. deceased, so there is no third person on its name.

Judge Calo’s Ruling: overruled the opposition; Atty. Young could Anyway, this disbarred person is not allowed because it is also
still appear for the liquidator as long as his appearance was under contempt of court. Why would you include in the firm name a person
the Young Law Firm and not under Young Revilla Gambol & Magat. who is not authorized to practice law? He is barred from practicing
(Young Law Firm does not exist.) law. So of course, the Supreme Court disallowed that.

Issue: Civil Code, Article 1816.

Is the continued use of Revilla, Jr.’s name in the law firm’s name All partners, including industrial ones, shall be liable pro
even after his disbarment allowed under Article 1815 of the New rata with all their property and after all the partnership
Civil Code? NO. assets have been exhausted, for the contracts which may
be entered into in the name and for the account of the
Ruling: A disbarred lawyer's name cannot be part of a firm's name. partnership, under its signature and by a person
A lawyer who appears under a firm name that contains a disbarred authorized to act for the partnership. However, any
lawyer's name commits indirect contempt of court. partner may enter into a separate obligation to perform
a partnership contract. (n)

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Profit / Loss (60,000)

DISCUSSION
This article involved partnership contractual liabilities. Generally, a Since exhausted na ang partnership asset, this 60,000 will be
partner has a right to make all partners liable for contracts he entered shouldered by the partners. Sabi natin pro rata ang sharing diba, this
into in the name and the account of the partnership (as long as he is with respect to liability. Liability as discussed is with respect to third
authorized). persons.

The authority may be EXPRESSED (written under the Articles of So, from the point of view of F, si F here is partnership creditor, dapat
Partnership), or IMPLIED (the transactions were carried on in the equally mag divide si A, B, C, D, and E.
usual way the business of the partnership).
From F’s Point of View
The Article provides a partners individual liability to partnership
creditors:
Percent Share Amount Share
1. Pro rata sharing A 20% (12,000)
2. Subsidiary
B 20% (12,000)
PRO RATA: This doesn't mean that the bigger the contribution, the C 20% (12,000)
bigger the liability. If there are 5 partners, and 50,000 is the amount
D 20% (12,000)
of liability. That will be equally divided among the five partners
(10,000 each). E 20% (12,000)

SUBSIDIARY/SECONDARY: This means before the partners can be

60,000/ 5 = 12,000.
held liable for partnership debts with respect to their individual
properties, the creditors must first exhaust the partnership assets.
Pag losses, lahi ang sharing. A, as an industrial partner, cannot be held
liable for losses. So, how much ang kanya here sa liability? Zero.
When there are no more partnership assets, thats the time they can
claim the separate property of the individual partners.
But now, nag shell out sya ng money, he can collect 12, 000 from the
other capitalist partners. So, he can recover 3,000 each from B, C, D,
Q: Can it be SOLIDARY LIABILITY?
and E. (12,000/4=3,000)
A: If the partner wants then he can bind himself as solidarily liable. He
can be held liable for the partnership for the entire obligation. The Recovery of A’s debt payment from other partners
other partners will be out of the equation. However, the DEFAULT rule
is PRO RATA AND SUBSIDARY LIABILITY. Percent Share Amount to be Recovered

B 25% 3,000
We discussed before that an industrial partner cannot be held liable
for losses. How can we reconcile this? Because under 1816, an C 25% 3,000
industrial partner should share the contractual liabilities. But what D 25% 3,000
about losses? Can it not be shared?
E 25% 3,000
Lets distinguish LOSSES and LIABILITIES. TOTAL 12,000

LIABILITIES: This is with respect to third persons. In which case, the

Since A shelled out money he can collect 12 thousand from the other
industrial partner can be NOT LIABLE pro rata.
capitalist partners. He can recover 3 thousand each from B, C, D, and
E. Therefore B. C, D, and E, will now be liable for 15 thousand each.
LOSSES: This is with respect to the partners among themselves. So,
for example, A, B, C, D, E are partners. The company is Y partnership.
Debt: 120, 000
A – industrial partner
B, C, D, and E – capitalist partner Asset: 60, 000

Now, ang asset sa partnership 60,000 while the partnership debt or Liability Losses Total
liability to F is 120,000. Under the provision, the liability of the A 12,000 0 12, 000 (F’s POV)
partners is subsidiary. So all partnership assets must first be
exhausted before the individual partners can be held personally B 12,000 3,000 15, 000
liable. C 12,000 3,000 15, 000

So, first we apply the asset, the remaining balance is 60,000. D 12,000 3,000 15, 000

E 12,000 3,000 15, 000

Asset of the Partnership 60,000

Liability to F 120,000

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That’s how we distinguish liability from losses. Without prejudice to

the industrial partners' right to recover from the other capitalist How the partners divide the debt of the partnership is of no matter
partners. to the third person so long as they are paid the total amount. It is up
to the partners kung paano nila i-divide amongst themselves ang debt
to pay the third person.
Civil Code, Article 1817.
Any stipulation against the liability laid down in the
preceding article shall be void, except as among the SALUDO v PNB
partners. (n) G.R. No. 193138 | August 20, 2018

FACTS:
DISCUSSION
The partners among themselves can agree that liability can be On June 11, 1998, SAFA Law Office entered into a Contract of
limited. However, for instance, in this scenario, if they say that A Lease5 with PNB of the PNB Financial Center Building in Quezon
cannot be held liable, it is valid as to the partners. With respect to F City for a period of three years and for a monthly rental fee of
who is a third person , the sharing is still Pro Rata, it's not prevailed ₱l89,600.00. The rental fee is subject to a yearly escalation rate of
by the agreement. The agreement here is void when it comes to the 10%.
third person.
Example: B, C, D, and E are capitalist partners. On August 1, 2001, the Contract of Lease expired. According to
Partners Capital Contribution PNB, SAFA Law Office continued to occupy the leased premises
until February 2005, but discontinued paying its monthly rental
B 18, 000
obligations after December 2002.
C 18, 000
In a letter to PNB dated June 9, 2004, SAFA Law Office expressed
D 18, 000 its intention to negotiate. It claimed that it was enticed by the
E 6, 000 former management of PNB into renting the leased premises by
promising to:
The partnership agreed among themselves that the liability of E will
only be limited to his capital contribution.
(1) give it a special rate due to the large area of the place;
Is that valid?
(2) endorse PNB's cases to the firm with rents to be paid out of
As between the partners, that is a valid arrangement.
attorney's fees; and
What is this arrangement na 6,000 kutob ang liability ni E, valid as
to F? Dili, that’s void, kay from the perspective of F, the sharing will (3) retain the firm as one of PNB's external counsels. When new
always be pro rata okay? management took over, it allegedly agreed to uphold this
agreement to facilitate rental payments. However, not a single
So for instance: case of significance was referred to the firm.
Debt - 120,000
Asset - 60,000 On October 4, 2006, PNB filed a motion to include an indispensable
Balance - 60,000 from F’s perspective, pro rata ang sharing, 15,000 party as plaintiff,praying that Saludo be ordered to amend anew
each partner. his complaint to include SAFA Law Office as principal plaintiff.

But we said, E’s liability is only limited to his capital contribution. PNB: lessee in the Contract of Lease is not Saludo but SAFA Law
Office, and that Saludo merely signed the Contract of Lease as the
Q: So what will be the effect? managing partner of the law firm. Thus, SAFA Law Office must be
A: Diba na-exhaust na ang capital contribution ni E? joined as a plaintiff in the complaint because it is considered an
indispensable party under Section 7, Rule 3 of the Rules of Court.
So in short, E, whose share of the debt is 15,000 is over and above his
capital contribution of 6,000, can claim his contribution to the Saludo: filed his motion to dismiss counterclaims, mainly arguing
payment of the debt from partners [D, C, B, and A]. that SAFA Law Office is neither a legal entity nor party litigant. As
it is only a relationship or association of lawyers in the practice of
So ang mangyayari diyan, instead of 3,000, ang liability will be 0, and law and a single proprietorship which may only be sued through its
he can claim his share of the liability from the other partners. owner or proprietor, no valid counterclaims may be asserted
against it.
So ano ang mangyari diyan? His 15,000 share of the debt will be
distributed among the other partners. In short, each partner will have Saludo asserts that SAFA Law Office is a sole proprietorship on the
their 15,000 debt share, plus a share of E’s 15,000 debt, in this case is basis of the MOU executed by the partners of the firm.
5,000. So each partner will pay 20,000 total.
MEMORANDUM OF UNDERSTANDING
Again, the provision in the articles of partnership limiting the liability WHEREAS, the undersigned executed and filed with the SEC the
of E is valid as between the partners, but that is void with respect to Articles of Incorporation of SALUDO, AGPALO, FERNANDEZ and
third persons. AQUINO on March 13, 1997;

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 Manresa ATP | 48

a) That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall dealing has knowledge of the fact that he has no such
not in any way be liable for any loss or liability that may be incurred authority.
by the law firm in the course of its operation;
An act of a partner which is not apparently for the
b) That all remaining assets upon dissolution shall accrue carrying on of business of the partnership in the usual
exclusively to A. G. Saluda, Jr. and all liabilities shall be solely for his way does not bind the partnership unless authorized by
account. the other partners.

ISSUE: WoN the MOU binds 3rd parties, such as PNB? NO Except when authorized by the other partners or unless
RULING: they have abandoned the business, one or more but less
The law, in its wisdom, recognized the possibility that partners in a than all the partners have no authority to:
partnership may decide to place a limit on their individual
accountability. Consequently, to protect third persons dealing with (1) Assign the partnership property in trust for creditors
the partnership, the law provides a rule, embodied in Article 1816 or on the assignee's promise to pay the debts of the
of the Civil Code, which states: partnership;

Art. 1816. All partners, including industrial ones, shall be liable pro (2) Dispose of the good-will of the business;
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the (3) Do any other act which would make it impossible to
name and for the account of the partnership, under its signature carry on the ordinary business of a partnership;
and by a person authorized to act for the partnership. However,
any partner may enter into a separate obligation to perform a (4) Confess a judgment;
partnership contract.
(5) Enter into a compromise concerning a partnership
The foregoing provision does not prevent partners from agreeing claim or liability;
to limit their liability, but such agreement may only be valid as
among them. Thus, Article 1817 of the Civil Code provides: (6) Submit a partnership claim or liability to arbitration;

Art. 1817. Any stipulation against the liability laid down in the (7) Renounce a claim of the partnership.
preceding article shall be void, except as among the partners.
No act of a partner in contravention of a restriction on
authority shall bind the partnership to persons having
The MOU is an agreement forged under the foregoing provision.
knowledge of the restriction. (n)
Consequently, the sole liability being undertaken by Saludo serves
to bind only the parties to the MOU, but never third persons like
PNB. DISCUSSION
Paragraph 1 of Article 1818 refers to Acts of Administration.
Considering that the MOU is sanctioned by the law on partnership, Paragraphs 2 and 3 of Article 1818 refers to Acts of Strict Dominion or
it cannot change the nature of a duly-constituted partnership. Acts of Ownership.
Hence, we cannot sustain Saludo's position that SAFA Law Office is
a sole proprietorship. Let’s discuss first the power of a partner as an AGENT of the
partnership.
DISCUSSION
Every partner is considered an agent of the partnership. When he
So here again Saludo na law office, in this case, the partners had a enters into a contract in the name of and for the account of the
memorandum of understanding. Based on that memorandum the partnership, he is not entering as a principal. Remember every
other partners will not be held liable, only Saludo. That is their partner is considered an agent of the partnership. When he enters
agreement. As between them that is valid but here there is a third into a contract in the name of and for the account of the partnership,
person, that’s PNB. As to PNB, that agreement as to the limitation of he is not entering as a principal only but also as an agent of the
the liability of the partners is not valid because again, under 1816 on partnership.
the point of view of third persons, the liability should always be pro
rata. As to third persons, if you are a GENERAL PARTNER (meaning you are
taking charge of the business of the partnership), the third person can
Civil Code, Article 1818. assume that you are authorized especially when you refer to Acts Of
Every partner is an agent of the partnership for the Administration. So they presume that you are acting within the scope
purpose of its business, and the act of every partner, of your authority and you have the power to bind the partnership.
including the execution in the partnership name of any
instrument, for apparently carrying on in the usual way But in terms of Acts Of Strict Dominion or Acts Of Ownership, third
the business of the partnership of which he is a member persons must always investigate and inquire as to the extent of a
binds the partnership, unless the partner so acting has in partner’s power to bind the partnership, kasi maybe he’s not
fact no authority to act for the partnership in the authorized. So third persons must be vigilant when it comes to acts of
particular matter, and the person with whom he is ownership.

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ACTS OF ADMINISTRATION knowledge or not, that will not bind the partnership. I will put this in
When we say acts of administration, what does this mean? the matrix.
These are transactions that are apparently for the carrying on of the
usual way of the business of the partnership. A partner, because he is Distinguish the effects of the acts of an authorized partner without
an agent, in acts of administration, the tasks he performs will bind the the 3rd persons knowledge of such lack of authority.
partnership. Even if he has no authority, for as long as it is an act of EFFECTS OF ACTS OF AN AUTHORIZED PARTNER WITHOUT
administration, he can definitely bind the partnership. KNOWLEDGE OF 3RD PERSONS ON THE LACK OF AUTHORITY

What are the exceptions where the partnership is not liable? Acts of Administration Act of Ownership
1. Partner has no authority
2. The third person whom that partner is dealing with or Binds the partnership; Will not bind the ownership as
contracted with had knowledge of that acting partner’s lack long as the active partner is
of authority. third person cannot assume that the unauthorized and regardless of
person is authorized because it is in the whether or not the 3rd person
usual way of doing business has knowledge.
Example: A and B are partners. They are engaged in the business of
selling jewelry. A is not authorized, only B is authorized to sell jewelry.
Now here comes C, 3rd person. A who is unauthorized, sold the
jewelry to C, will that sale bind the partnership? 3rd person’s knowledge under par. 4. The partnership will not be
held liable for 3rd persons if the 3rd persons had actual or
A: It depends. If C does not have knowledge of A’s lack of authority, presumptive knowledge of the restriction, regardless of whether or
of course, the sale will bind the partnership. But if C has knowledge, not the acts are acts of administration or acts of strict dominion.
then indeed A has no authority, what is the effect then? If the third
person has knowledge, the partnership is not bound. ACTS OF ADMINISTRATION
SITUATION EFFECT
Q: But attorney, both A and B are already in the business of selling
jewelry, so the sale of A is in the ordinary course of business. Acting partner has authority It would bind the partnership.
A: Yes, you are correct. It is an act of administration. But that will regardless of whether or not the
entirely depend on the knowledge of the third person. If that third third person has knowledge of the
person has knowledge on the lack of authority of the acting partner, scope of authority of the acting
that will not bind the partnership. partner.

But if the third person has no knowledge, of course the presumption Acting partner has no authority The partnership is bound
is an act of administration. If he has no idea that A is not authorized, and the third person has no because the third person can
that will definitely bind the partnership because that is an act of knowledge of the acting partner’s assume that the acting partner
administration, the usual way of doing business. lack of authority. has authority because the
transaction was done in the
ACTS OF STRICT DOMINION (par 2 and 3) usual way that the business has
These are acts that are apparently not for the carrying on the usual been conducted.
way of business of the partnership.
Acting partner has no authority Partnership would not be bound.
GR: Act of strict dominion will not bind the partnership. but the third person has Why? Because the third person is
knowledge. already aware of the restriction or
XPN: limitation of the authority of the
acting partner. That is why, instead
1. The partner is authorized to perform that act even if it is an
of the partnership being bound, this
act of strict dominion. acting partner can be held liable to
2. The partners abandoned their business the third person.

Again, acts of strict dominion is listed under Art. 1818. If the partner
is unauthorized, he cannot bind the partnership if it requires acts of
strict dominion.
ACTS OF OWNERSHIP
For instance, same example, A and B are engaged in the business of
jewelry and A is not authorized to sell. But instead of selling jewelry, SITUATION EFFECT
what he sold to C was the jewelry shop itself, the very property where
the shop was erected. Is that an act of administration or act of Acting partner has authority and Partnership is bound.
ownership? Of course, that is an ACT OF OWNERSHIP. In which case, regardless of the knowledge of
if and only if C has no idea and no authority, that will not bind the the third person.
partnership.

If C had knowledge, what is the effect? Of course, if A was not duly

authorized, then it will not bind the partnership. You will learn later
on that in cases of acts of strict dominion, for as long as the active
agent is not authorized, regardless of whether the 3rd person has

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 Manresa ATP | 50

Acting partner has no authority Partnership not bound. Where title to real property is in the name of one or more
but the third person has no Why? Because for as long as the but not all the partners, and the record does not disclose
knowledge of the lack of acting partner is not authorized, the
the right of the partnership, the partners in whose name
authority. partnership would not be bound.
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
Acting partner has no authority With more reason that the
the first paragraph of article 1818, unless the purchaser
but the third person has partnership is not bound.
or his assignee, is a holder for value, without knowledge.
knowledge.
Where the title to real property is in the name of one or
The third person’s knowledge as to the authority of the acting partner more or all the partners, or in a third person in trust for
is only relevant when it comes to acts of administration. As you can the partnership, a conveyance executed by a partner in
see, the effects differ depending if there is knowledge or none. the partnership name, or in his own name, passes the
equitable interest of the partnership, provided the act is
But in acts of ownership, regardless of the knowledge of the third one within the authority of the partner under the
person, that will not bind the partnership for as long as the acting provisions of the first paragraph of article 1818.
partner has no authority.
Where the title to real property is in the name of all the
ACTS OF ADMINISTRATION partners a conveyance executed by all the partners
Authority of Knowledge of Would it bind the passes all their rights in such property. (n)
acting partner 3rd person on partnership?
scope of
authority DISCUSSION
1. - YES Very lengthy provision. It took you 3 minutes to read the entire
provision. This article, although very lengthy, pwede siya ma-
2. YES
summarize.
3. NO
This article, although very lengthy, may be summarized. This article
ACTS OF OWNERSHIP talks about the effects of disposition of partnership property which is
Authority of Knowledge of Would it bind the registered in the partnership’s name, in the name of a partner, some
acting partner 3rd person on partnership? of the partners, all of the partners, or even in the name of a third
scope of person held in trust.
authority
1. - YES First paragraph: Where title to real property is in the partnership
2. NO name, any partner may convey title to such property by a
3. NO 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
If it's an act of administration, check if the third person has knowledge
1818, or unless such property has been conveyed by the grantee or
or none. But in acts of ownership, check if the partner is authorized
a person claiming through such grantee to a holder for value
or not.
without knowledge that the partner, in making the conveyance,
has exceeded his authority.
Civil Code, Article 1819.
Where title to real property is in the partnership name, “Title to the real property is registered in the name of the
any partner may convey title to such property by a partnership’s name, conveyed to another in the name of the
conveyance executed in the partnership name; but the partnership”
partnership may recover such property unless the
partner's act binds the partnership under the provisions Example: A and B are partners, with the partnership name as Y
of the first paragraph of article 1818, or unless such Partnership. Y Partnership has a land, and it is registered – take note:
property has been conveyed by the grantee or a person look at the registration, under whose name the property is registered
claiming through such grantee to a holder for value and under whose name the title/property is conveyed.
without knowledge that the partner, in making the
conveyance, has exceeded his authority. Situation: Under paragraph 1, Y Partnership owns a land and it is
registered in Y’s name. A, who is unauthorized, he conveyed the
Where title to real property is in the name of the property to C. And the conveyance is in the name of Y Partnership.
partnership, a conveyance executed by a partner, in his
own name, passes the equitable interest of the EFFECT OF THE CONVEYANCE, UNDER PARAGRAPH 1
partnership, provided the act is one within the authority Look at the registration and conveyance. It is consistent, the
of the partner under the provisions of the first paragraph partnership is the owner. It was conveyed in the name of the
of article 1818. partnership.

In which case, it PASSES TO C.

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unenforceable at law but which, under well- recognized equitable

Papertrail wise, the registration of the property is consistent, ang principles, should be and is convertible into a legal right or title.
titulo sa property and ang conveyance.
Based on a paper trail lahi, dili magmatch ang registration ug ang
Even A is unauthorized, based on the documents, partnership conveyance, in which case equitable interest lang ang ma acquire ni
property siya registered in the name of the partnership and conveyed C if act of administration ang pagsell sa property sa iyaha and he has
in the name of the partnership. no knowledge na walay authority si A but, ngayon same again ang
principle:
Based on this consistency alone, C will acquire ownership over the
property. Q: When can C not acquire equitable interest?
A: First, pag strict dominion, actually same tanan ang effect kung
BUT because unauthorized is A, may Y partnership may recover from kanus-a dili magka equitable interest ang third person or kung kanus-
C the land? When is the partnership not bound? Take a look at the a dili pwede makarecover si partnership. When we say kung
matrix. title passes to the third person, ang partner ana always is when can
the partnership recover but if equitable interest lang nakuha niya, the
FIRST, If an act of strict dominion, for as long as unauthorized, in both partner there is when can the third person not acquire equitable
cases, regardless whether or not may knowledge si 3rd person o wala, interest.
the partnership is NOT bound. In which case, Y Partnership may
recover on the basis that it was an act of dominion. Q: So here, kanus-a dili maka acquire ug equitable interest si C?
A: Look at the matrix again, pag act of strict dominion and walang
Q: Based on the facts, paano natin malaman na strict dominion? authority, partnership is not bound, in which case walang equitable
For instance, jewelry business parin. Pero, ang property na gi-sell, interest si C. Act of administration but C had knowledge that A has the
registered in the name of the partnership kay ang shop nila. In which authority, partnership is not bound, in which case hindi din maka
case, usual ba na to sell real estate when in fact you are in engaged in acquire ng equitable interest si C.
the selling of jewelry business? Of course not. That is why it is an act
of strict dominion. Third paragraph: Where title to real property is in the name of one
or more but not all the partners, and the record does not disclose
So based on the matrix, for as long as the acting partner is the right of the partnership, the partners in whose name the title
unauthorized, the partnership can recover the property. stands may convey title to such property, but the partnership may
recover such property if the partners' act does not bind the
SECOND, In case of acts of administration. For instance, real estate partnership under the provisions of the first paragraph of article
ang business ni A and B, engaged in the selling of real property. So of 1818, unless the purchaser or his assignee, is a holder for value,
course, that is an act of administration. Because in line naman sa pag without knowledge.
sell nila ng real estate. Now pag act of administration, kailan hindi
bound ang partnership? Take a look at the last one.
Title to the real property is registered in the name of one or more
Pag ang third person had knowledge na walang authority si acting partners and conveyed to another in the name of partner or partners
partner. In which case, the partnership can recover the property. in whose name the title is registered.

Q: What if in the same example, acquired na ni C, binenta niya kay For instance, kay A nakaregister, the conveyance is also in the name
D. What is the effect? of A. Here, partnership property siya, pero naka register lang kay A
A: From C, dinispose nya kay D. If D walang knowledge, na wala palang and there was no annotation whatsoever in the title that it is actually
authority si A na idespose ang property kay C, the effect would be, he a partnership property. Kasi pwede yan sa titulo na lagyan ko ng
would be protected because he has no knowledge. He is considered annotation that this is held in trust, that he is really not the owner. So
an innocent purchaser for value. here, it is as if A is the owner, with respect to the third person. Based
on the papertrail, A is the owner and ang conveyance was done also
in his name.
Second paragraph: Where title to real property is in the name of
the partnership, a conveyance executed by a partner, in his own Q: What is the effect?
name, passes the equitable interest of the partnership, provided A: Even without authority of A, the effect is that the title would pass
the act is one within the authority of the partner under the to C. Kasi consistent registration and conveyance.
provisions of the first paragraph of article 1818.
Title to the real property in the name of the partnership, and Q: When can the partnership recover its property?
conveyed to another in the name of a partner. A: We go back.

So for instance, here, eto sa first, second paragraph. Naka register ng Act of Strict Dominion, regardless whether or not the third person
name ng partnership. Y. But the conveyance was made in the name of has knowledge of the authority of the acting partner, partnership is
a partner. So name ni A. Consistent ba? Y and A? Diba hindi. The effect not bound by the transaction. Hence, the partnership can recover.
would be, title would not pass to C. He would only acquire equitable
interest. So, what is that? Act of Administration, see if the third person has knowledge or not.
If a third person has knowledge of the acting partners’ lack of
Equitable interest is one not duly recognized by law, but in equity authority, of course the partnership can recover their property
alone. It is a right or interest in property which is imperfect and because partnership is not bound.

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A: If a third person has no knowledge that the acting partner has no

Fourth paragraph: Title to the real property is registered in the authority, the law will protect him because he is an innocent
name of one or more partners or a third person in trust for the purchaser for value. Do not forget that.
partnership and conveyed to another in the name of the
partnership or in the name of a partner. Knowledge is important in acts of administration.

For instance, A holds the partnership property in trust. The property RATIFICATION
is registered in his name and it is really shown that he holds the There are instances where the partnership is not bound. So the
property in trust. partnership can recover the property. But there are instance wherein
the partners themselves who did not consent or did not authorize the
Now, A conveys the property to C in the name of the partnership, acting partner can ratify the transaction
what is the effect? Of course the paper trail will be inconsistent. What 1. Ratification is presumed if the partners did not consent to
is the effect if inconsistent? You’ll only acquire equitable interest. the sale after many years;
2. There is ratification if the other partners are present at the
Q: When can C not acquire equitable interest? time of execution of the deed or sale or at the time of the
A: If acts of ownership with lack of authority. delivery of the property;
3. There is ratification if the partner receives the benefits of
In acts of strict dominion or ownership, regardless of whether or not the sale.
the third person has knowledge or not, what matters is the acting
partner has no knowledge, in which case the partnership is not
bound. So, the partnership remains the owner. What will be acquired Civil Code, Article 1820.
will only be equitable interest. But in unauthorized acts of strict An admission or representation made by any partner
dominion, the third person has no equitable interest. But, in case of concerning partnership affairs within the scope of his
an act of administration and the third person has knowledge of the authority in accordance with this Title is evidence against
lack of partner’s authority, the effect is that no equitable interest is the partnership. (n)
acquired.
DISCUSSION
Fifth paragraph: Title to the real properties registered in the name Generally, a person is not bound by the act, admission or
of all partners and conveyed to another in the name of all the representation of another for as long as it is without his knowledge or
partners. consent. Walay damayay.

Registration A and B. Then, the conveyance is also in the name of A But Article 1820 provides for the rule the admission or representation
and B, what is the effect? of a partner with respect to partnership affairs and done within the
scope of his authority, will bind the partnership. In short, those
Of course, the title will pass to the third person, C. Even if it is an act admissions and representations can be used in evidence against the
of strict dominion, there is no need to distinguish because all the partnership.
partners consented. All of the partners conveyed the property.
Example: A was authorized by X partnership to borrow money. A
borrowed money from Y. A declared that he was acting as a partner
So, as you will notice in these paragraphs, there are variables that of X partnership and that the money was to be used by X partnership.
need to be checked. In this case, A’s declaration or statement which was done within his
scope of authority is to borrow money, binds the partnership and that
1. In whose name is the property registered? Is it in the name his declaration or admission may be used against the partnership.
of the partnership or the partner? Is it in trust?
2. Look in whose name the partnership property is conveyed GUIDELINES IN THE APPLICATION OF ART 1820.
3. Determine if it is an ACT OF STRICT DOMINION or ACT OF 1. The admission or representation must be about
ADMINISTRATION partnership affairs.
○ Strict dominion - look at authority of the acting
partner; as long as acting partner is not Dapat relevant siya sa partnership business. Otherwise,
authorized, it will not bind the partnership those statements will not bind the partnership.
○ Administration - determine if the third person
has knowledge of the acting partner’s lack of 2. The existence of the partnership must first be proved
authority. before Art 1820 can be applied.

So return to the matrix. Do not forget. Admission or representations made by a partner in the
presence of other partners can be used as evidence that a
Q: What is the effect if a third person has no knowledge of the lack partnership exists. Even if they are silent as long as they did
of authority of the acting partner, and then what he does is an act not contest that can be used as evidence.
of administration? Example it is a real estate business, the sale of a
property is an act of administration. 3. The admission or representation must be made while a
person is still a partner.

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acquired the knowledge that such property was subject to a pending

In case of dissolution, kasi umalis na siya sa partnership, of litigation?
course, any admission or representations he made after he
left the partnership will not bind the partnership.
DISCUSSION
Now when he became a partner, siya ang pina-negotiate. So acting
Civil Code, Article 1821.
partner siya. Ngayon, he withheld that information sa kanyang
Notice to any partner of any matter relating to partners na may pending litigation.
partnership affairs, and the knowledge of the partner
acting in the particular matter, acquired while a partner Q: What is the effect?
or then present to his mind, and the knowledge of any A: Under the second type of knowledge: “Knowledge of the partner
other partner who reasonably could and should have acting in the particular matter then present to his mind”. So at that
communicated it to the acting partner, operate as notice time na nag-negotiate siya, and even before naging partner siya, it
to or knowledge of the partnership, except in the case of
was already present in his mind. Alam na niya na may litigation na
fraud on the partnership, committed by or with the nag-involve ng property na gusto i-acquire ng partnership. So, may
consent of that partner. (n) imputation din of knowledge.

DISCUSSION Knowledge of the acting partner is also knowledge of the partnership.

This article provides that notice to or knowledge of a partner is In those first two instances ha, “knowledge of the acting partner in
considered notice to or knowledge of a partnership. There is an the particular matter acquired while a partner”; and ang second,
implication, notice to or knowledge of the partnership. “then present to his mind”. Take note, the person involved here is not
just a partner but an acting partner.

Rationale: Partnership is based on fiduciary relationship. They are Q: Ngayon, what if hindi siya acting partner? By-stander lang siya.
presumed to give full information or disclosure of facts relevant to Anong effect?
their partnership affairs. It is the right of a partner to demand
information. What if meron silang additional partner:
A, B, and then E.
The law presumes that once a partner receives notice to knowledge,
he will communicate it to his partners. Hence, gives rise to the Si A parin ang acting partner. Ngayon, E, who was already a partner
presumption that notice or knowledge to a partner is also a notice to at the time of the transaction, duon pa niya nalaman na may pending
or knowledge of the partnership. litigation pala between C and D involving the property. But E did not
As a consequence, a third person or a creditor does not need to disclose such fact to A and B. What is the effect?
inform all of the partners. A notice to a partner is deemed notice to
the partnership. The non-acting partner acquired the knowledge while he was a
partner, in which case, notice or knowledge of the partner is also
Illustration: A, B, and C are partners. D is a creditor of the notice or knowledge of the partnership.
partnership. D served a complaint to A. Then A did not communicate
such a fact to his partners (B and C) that they have a pending case. Ngayon, what if before siya naging partner naka-acquire siya ng
knowledge na may pending litigation pala, pero nung naging partner
na siya, hindi niya dinisclose kay A and B. What is the effect?
What is the effect?
It is not notice to the partnership. Hindi siya considered as notice to
According to this Article, notice to A is also a notice to the partnership. the partnership.
Article 1821 provides for three cases of knowledge:
If knowledge or notice was obtained while being a partner, that
operates as knowledge or notice to the partnership. But, if the
1. Knowledge of the partner acting in the particular manner,
knowledge or notice was obtained before becoming a partner, you
have to distinguish if that partner is an acting partner or a non-acting
Illustration: A wanted to buy a property for the partnership with partner.
partnership funds as agreed by his partner, B. C is the seller.
However, while under negotiation, A learned that the property If acting partner, that is considered as notice to the partnership.
being negotiated is under litigation and someone is claiming
ownership. A did not communicate such fact to B. If non-acting partner, hindi siya considered notice.

So, the law distinguishes the knowledge of an acting partner and a

acquired while a partner non-acting partner.
Under this, knowledge of the partner acting in the particular manner,
acquired while a partner, notice to A is notice to the partnership. (The However, take note, in case of fraud, hindi mag-aapply ang
knowledge here was acquired while A is a partner). imputation of knowledge sa partnership.

Illustration:
Let’s change the facts: What if A was not yet a partner while he

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For instance, si A, alam niya na may litigation, enter siya into

transaction with C, si C naman, sinabihan niya si A, bigyan kita ng There was an argument that under Article 1821 of the NCC there is
porsyento ng kung ano ang maearn ko from this sale, basta, ipapush no need to implead a partner. However, Article 1821 of the NCC
through mo talaga, ipaconsummate mo talaga ang sale, does not state that there is no need to implead a partner.
magbinayranay ta. So A, of course, gusto niya makaincome na hindi
alam ng kanyang partners, hindi nya dinisclose na may litigation …
pala. In which case, there is fraud. Ngayon, ang mangyayari, Article 1821 says:
knowledge of A, will not be considered as knowledge of the
partnership, because there is fraud. Notice to any partner of any matter relating to partnership
affairs, and the knowledge of the partner acting in the particular
Q: What about notice of the partnership? Will that operate also as matter, acquired while a partner or then present to his mind, and
a notice to the partners? So, parang reverse situation? the knowledge of any other partner who reasonably could and
should have communicated it to the acting partner, operate as
Let’s discuss the case of Guy v. Atty. Gacott. notice to or knowledge of the partnership, except in the case of
fraud on the partnership, committed by or with the consent of that
partner.
MICHAEL C. GUY v. ATTY. GLENN C. GACOTT …
G.R. No. 206147 | January 13, 2016
Article 1821 of the NCC only contemplates a situation wherein a
Facts: Atty Gacott bought 2 brand new transreceivers from partner is notified, this notice then operates as notice to the
Quantech Systems Corporation (QSC) for P8,000. However, due to partnership. It doesn’t provide for the reverse situation, i.e., notice
major defects, Gacott personally returned the transreceivers to to the partnership is notice to the partners.
QSC and requested that they be replaced. The employee of QSC
received them and promised to send the replacement units within A PARTNER’S LIABILITY IS SUBSIDIARY
2 weeks. However, this was not done despite the numerous
demands coming from Gacott which made him incur expenses in Article 1816. All partners, including industrial ones, shall be liable
the total amount of P40,936.44. pro rata with all their property and after all the partnership assets
have been exhausted, for the contracts which may be entered into
This prompted Atty. Gacott in filing a complaint for damages. in the name and for the account of the partnership, under its
Gacott learned that QSC was a general partnership registered with signature and by a person authorized to act for the partnership.
the SEC, and that Guy was the General Manager of QSC, and had However, any partner may enter into a separate obligation to
several vehicles registered in his name. Gacott immediately perform a partnership contract.
instructed the sheriff to proceed with the attachment of one of the
motor vehicles of Guy. Sheriff Felizarte then attached the vehicle Subsidiary liability means that one’s liability merely becomes
of Guy. secondary and only arises if the one primarily liable fails to
sufficiently satisfy the obligation.
Issue: Is Guy solidarily liable along with QSC?
Article 1816 clearly states that the liability of a partner with respect
Ruling: No. He is not solidarily liable with QSC since Guy wasn’t to the partnership is subsidiary in nature. This subsidiary nature of
properly impleaded in the suit against QSC. Hence, the subsequent a partner is a valid defense against a premature execution of
attachment of his property as satisfaction for the debt of Gacott judgment directed to a partner.
was wrong.
In this case, no genuine efforts were made to locate the properties
A PARTNERSHIP HAS A SEPARATE AND DISTINCT PERSONALITY of QSC that could have been attached to satisfy the judgment.
What happened was that Gacott immediately instructed the sheriff
Although a partnership is based on delectus personae or mutual to proceed with the attachment of one of the motor vehicles of
agency, whereby any partner can generally represent the Guy. Therefore, Guy couldn’t be made to answer for the debts of
partnership in its business affairs, it is non sequitur that a suit the QSC unless it is clear that all of the assets QSC have been
against the partnership is necessarily a suit impleading each and exhausted.
every partner. It must be remembered that a partnership is a
juridical entity that has a distinct and separate personality from the
persons composing it. DISCUSSION
It was discussed here if party was solidarily liable or not. But actually
Here, Guy was never a party to the case. What happened was that there is a discussion of the Supreme Court as to the notice
Guy’s vehicle was attached without him even being impleaded in requirement. Remember under the article we discussed a while ago,
the first place. notice to a partner operates as a notice to the partnership. But here,
the partnership was notified but the partners wasn’t.
In the spirit of fair play, it is a better rule that a partner must first
be impleaded before he could be prejudiced by the judgment The Supreme Court said, Art 1821 provides that notice to any partner
against the partnership. A partner may raise several defenses under any circumstances operate as notice to or knowledge to the
during the trial to avoid or mitigate his obligation to the partnership only. Evidently, it does not provide for the reverse
partnership liability. situation, or that notice to the partnership is notice to the partners.

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Please read 1822, 1823, and 1824.

Civil Code, Article 2176.
Whoever by act or omission causes damage to another,
Civil Code, Article 1822. there being fault or negligence, is obliged to pay for the
Where, by any wrongful act or omission of any partner damage done. Such fault or negligence, if there is no pre-
acting in the ordinary course of the business of the existing contractual relation between the parties, is
partnership or with the authority of his co-partners, loss called a quasi-delict and is governed by the provisions of
or injury is caused to any person, not being a partner in this Chapter. (1902a)
the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the
DISCUSSION
partner so acting or omitting to act. (n)
To make you understand, let’s make a scenario. For instance, we have
a partnership. A, B, and C - Partnership Y.
Civil Code, Article 1823.
The partnership is bound to make good the loss: A has a water refilling station and of course not all people cannot go
to the water refilling station, so there is delivery. A, within the scope
(1) Where one partner acting within the scope of his of his authority, drove their car to deliver the water to the clients.
apparent authority receives money or property of a third Meanwhile, in the ordinary course of business, while conversing along
person and misapplies it; and Matina Pangi Road, he figured a vehicular accident with D. There was
a collision. Later on, it was discovered that A drove at an
(2) Where the partnership in the course of its business unreasonable speed. Meaning A was negligent.
receives money or property of a third person and the
money or property so received is misapplied by any Now, is there an existing contractual relationship between A and D?
partner while it is in the custody of the partnership. (n) None. That’s why Article 2176, there is no pre-existing contractual
relationship and negligence is involved. The obligation here of A,
together with B, C and the partnership is solidary. In which case, D can
sue A for the entire obligation. He can also sue B or C even if they are
Civil Code, Article 1824.
innocent. That is the nature of solidary liability.
All partners are liable solidarily with the partnership for
everything chargeable to the partnership under articles
It could also be D filing a case against the partnership because A was
1822 and 1823. (n)
performing an act in accordance with the ordinary course of business.
That is why, in case of quasi-delict under 1822, solidary ang liability
DISCUSSION under 1824.
Article 1822 talks about a wrongful act or omission, or what we call
quasi-delict. REQUISITES
1. First, the partner must be guilty of a wrongful act or
Article 1823 talks about breach of trust because money or property omission.
of a 3rd person is misapplied or misappropriated.
In which case, driving at an unreasonable speed -
Article 1824 talks about the solidary liability of the partners together overspeeding.
with the partnership for obligations arising from 1823 and 1822.

The acting partner in both Articles 1823 and 1822 acted within the
scope of their authority or with the authority of the co partners. 2. Second, he must be acting in the ordinary course of
business or with the authority of his co-partners.
We discussed in Article 1816 that sharing is pro rata; but why is it
solidary here? The liabilities are different, under Art 1816, the source Of course, the business is water refilling. Pursuant to their
of obligation is a contract. It is a contractual obligation. While in business, he delivered water to the clients. So, 1822 can be
Articles 1822 and 1823, it is quasi-delict or breach of trust. The applied there.
partner is at fault, not necessarily because he has no money to satisfy
his obligation. That’s why the sharing of liability is more burdensome However, 1822 would not be applied if:
here. ➔ If it is not in the ordinary course of business - for instance,
if A drove the car not to deliver water, or in his personal
But, it is not actually sharing, when we say solidary liability, a third capacity. Of course the partners cannot be liabile solidarily,
person can go against anybody, it can be a partnership, one partner, including the partnership.
partners, or even an innocent partner can be sued for the entire ➔ If the tort was committed after the partnership was
obligation. dissolved - of course if he is not a partner, the partnership
will not be held liable BUT if there is liquidation, even if
ARTICLE 1822 - wrongful act or omission partnership is already dissolved, the partners and
Q. What is a quasi delict or tort? partnership can be held solidarily liable.
➔ Criminal liability - when we say quasi-delict, that is a civil
case, source of obligation, that will not prevent from filing

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 Manresa ATP | 56

a criminal case (anong criminal case? reckless imprudence Q: If he was properly impleaded, what is the nature of his liability,
resulting to damage to property) is it joint? Or is it solidary? Is it under Article 1816? Or Articles 1822,
1823, and 1824?
There are different kinds of liabilities, civil, criminal. In criminal cases,
if the penalty is merely a fine, partnership can be held liable. But if the DISCUSSION
penalty is imprisonment, that is personal, you cannot imprison a The Supreme Court discussed here, the basis of his cause of action is
partnership. actually the defective transreceivers. It was a Contract of Sale right?
Because it was sold to him. Which means it is a Contractual Breach.
Take note also of the breach of trust under Article 1823 must be We have warranties under Sales. So, there is a breach of warranty
connected with the partnership’s ordinary course of business. here. The Supreme Court held that Articles 1822, 1823, and 1824
cannot be applied in this case.
Example: A, B, and C are partners in a partnership. They are engaged
in the pawnshop business. Nagsangla si D ng diamond ring para Article 1822 applies to Quasi-delict or tort where there is no pre-
makautang siya, of course, the possession of the diamond ring is existing contractual obligation. Here, we have a contract. The
turned over to A. For instance, A misappropriated the ring; he stole it. Supreme Court held that Article 1816 instead applies in this case. It
In this situation, all of the partners are solidarily liable for the loss with should be pro-rata sharing.
the partnership even if other partners were innocent. In both 1822
and 1823, the innocent partners are made personally liable since the Thus, Guy cannot be held liable under Article 1822 because there’s no
liability here is solidary, BUT this is without prejudice to the right of tort or under Article 1823 because there’s no breach of trust.
the innocent partners to recover from the guilty partner. So for
instance D filed a case to B and C and paid on behalf of A. Then B and Q: The Supreme Court said that granting for the sake of argument
C can also file a case against A to recover what they have paid to D. that Article 1816 is applicable, what is the effect based on the facts
of this case?
We’re done with 1822, 1823, 1824. A: The Supreme Court held that it was not shown that the properties
of the partnership were fully exhausted and because it was not really
To refresh your memory, when we say 1816, that refers to the exhausted, under Article 1816, the liability of the partner is only
contractual liabilities of the partners. In which case the liability will be subsidiary.
shared by the partners pro rata, i.e. Joint liability.
In this case, because it was not shown that the properties were
Also, the nature of that liability means it is secondary and subsidiary. exhausted in order to pay for the obligation, Gacott cannot invoke the
The partnership assets must first be exhausted before the partnership liability against Guy because
creditors can go after the separate individual properties of the 1) he was not impleaded
partners. 2) he’s only liable if the partnership assets were fully exhausted.

We talked about, under article 1822, that we have quasi-delict or tort.

This means wrongful act or omission. We gave an illustration for this, DR. RESTITUTO C. BUENVIAJE vs. SPOUSES JOVITO R. and LYDIA
and you will encounter this in an entirely different subject. B. SALONGA, JEBSON HOLDINGS CORPORATION and FERDINAND
JUAT BAÑEZ
Next, under 1823, is what we call breach of trust. A Partner
misappropriated the property or money given by a third person to the Facts:
partnership.
Jebson, an entity engaged in the real estate business, through its
Under 1824, it provides for the solidary liability, meaning that a third Executive Vice President, Bañez, entered into a Joint Venture
peson can go after anyone of the partners for the entire obligation. Agreement (JVA) with Sps. Salonga.
They can also go after the partnership itself.
The JVA between Jebson and Sps. Salonga was limited to the
Let’s proceed to the cases under the case of 1822, 1823, 1824. Guy v construction of the residential units under the Brentwoods Project
Gacott? (Case was already discussed last session, reporter absent) and that Jebson had the sole hand in marketing the units allocated
to it to third persons.
Atty reiterates Guy v Gacott: In this case, Gacott purchased
transceivers or whatever from QSC which were found to be defective, Under the express terms of the JVA, Jebson, as the developer, had
which is why he filed a case. If you can remember, he only impleaded even stipulated to hold Sps. Salonga free from any liability to third
the entity but didn’t implead the partner. At the time of execution, he parties for non-compliance with HLURB rules and regulations.
found out QSC is a partnership with Gacott as partner. He wanted to
also execute the separate property of Gacott. Here, Gacott argued he Sps. Salonga, who owned three (3) parcels of land in Tagaytay City
should not be held liable for the obligation because he was not agreed for Jebson to construct thereon ten (10) high-end single
impleaded. Diba, notice to a partner serves as notice to a partnership? detached residential units, to be known as Brentwoods Tagaytay
It was held, if you can remember, that notice to the partnership does Villas (Brentwoods)
not operate as notice to the partner. He has to be impleaded as a
partner to be held liable for the obligation. Jebson entered into a Contract to Sell with Dr. Buenviaje. However,
it was paid through a “swapping arrangement,” whereby Dr.
Buenviaje conveyed to Jebson a house and lot located in Garden
Villas, Tagaytay. Swapping arrangement are those non-cash assets

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Manresa ATP | 57

as suitable payments for the said units. The purchase price should As there was no partnership privy to any obligation to which
be at 7.8M, the swapped house amounts to 5.8M, so because of Buenviaje is a creditor, Articles 1822 and 1824 of the Civil Code do
the swapping arrangement the remaining purchase price would be not apply.
2M which would be paid periodically.
DISCUSSION
Despite full payment by Dr. Buenviaje, Jebson was unable to
complete the unit for him. So, Dr. Buenviaje instituted an action In this case, we have a JVA. Diba a JVA is akin to a partnership? Now
against against Jebson, Bañez, and Sps. Salonga si Buenviaje kaning doctor he bought several units so nag swapping
sila.
Jebson and Bañez, in their defense, claimed that they were ready
to comply with all their contractual obligations but were not able What is the point here is that he entered in a Contract to Sell with
to secure the necessary government permits because Sps. Salonga Jebson. Ang arrangement kasi nila Jebson and nila Sps. Salonga. Sila
stubbornly refused to cause the consolidation of the parcels of land Sps. Salonga will give the land, they owned the land. In a JVA with the
and their partition into ten (10) individual lots. land owner and the developer usually the developer has so many
obligations. I’ve seen a contract kasi nag check ako ng contract.
Sps. Salonga averred that they were not liable to the complainants Usually the obligation of the land owner is to protect the developer
since there was no privity of contract between them, adding that from being dispossessed, warranty against eviction, mga ana usually
the contracts to sell were unenforceable against them as they were ang provisions or duties imposed on the land owner. The rest:
entered into by Jebson without their conformity, in violation of the paperworks with the government, etc. will be shouldered by the
JVA. developer kana ang obligation ni developer. As to the selling and
marketing also obligation din ni developer.
Issue: Now in this case, the contract to sell was entered into by Jebson and
Whether Sps. Salonga are solidarily liable with Jebson Dr. Buenviaje. Okay, we said that in case of contractual obligations we
and Bañez to Buenviaje. apply Article 1816. I don’t know why they were insisting on solidary
liability in this case, Article 1822, 1823, and 1824. But, the Supreme
Ruling: Court did not say the rule that 1816 is not applicable, but the point is
the Supreme Court just said that the Sps. Salonga are not parties to
No, because Articles 1822 and 1824 of the Civil Code the contract.
pertain to the obligations of a copartner in the event that the
partnership to which he belongs is held liable and the subject Q: What did the Supreme Court apply?
Contract to Sell, which was the source of the obligations relative to A: Article 1191, you already discussed that in your ObliCon, the
the completion and delivery of Unit 5, solely devolved upon the principle of relativity of contracts. Contracts are binding between the
person of Jebson. contracting parties, their assigns, heirs and interests.

In this case, Buenviaje never dealt with any partnership constituted Dahil wala dito ang name ng spouses, of course hindi sila liable. Yan
by and between Jebson and Sps. Salonga. It is undisputed that Sps. ang sabi ng Supreme Court. Nalito din ako bakit hindi Article 1816.
Salonga were not parties to the above-mentioned contract.
Contracts can only bind the parties who had entered into it and it Now we proceed to another kilometric provision Article 1825.
cannot favor or prejudice third persons. Thus, absent any privity of
contract as to them, there is no basis to hold Sps. Salonga liable for
any of the obligations stated under the said contract to sell.

While Jebson, as developer, and Sps. Salonga, as land owner, it

should be pointed out that the JVA between Jebson and Sps.
Salonga was limited to the construction of the residential units
under the Brentwoods Project and that Jebson had the sole hand
in marketing the units allocated to it to third persons, such as
Buenviaje. In fact, under the express terms of the JVA, Jebson, as
the developer, had even stipulated to hold Sps. Salonga free from
any liability to third parties for non-compliance with HLURB rules
and regulations. As things stand, only Jebson should be held liable
for its obligations to Buenviaje under the subject Contract to Sell.

In this case, records are bereft of any showing that Sps. Salonga
had direct or indirect control over Jebson throughout the course of
the entire Brentwoods Project. In fact, even if it is assumed that
they had some sort of control over Jebson, it was not shown that
they acted in bad faith and had a hand in inducing Jebson's acts
from which Buenviaje's cause of action arose. As such, the
foregoing provision cannot be invoked to hold Sps. Salonga
solidarily liable with Jebson.

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be a partner by estoppel. As such, he is liable to the third person as

Article 1825. When a person, by words spoken or written or by
if he is an actual partner.
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 LIABILITY OF
persons to whom such representation has been made, who has, on EXISTENCE OF CONSENT
Scenario THE
the faith of such representation, given credit to the actual or PARTNERSHIP OF THE PARTNERS
PARTNERS
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
ALL actual All actual
communicated to such person so giving credit by or with the
partnership partners,
knowledge of the apparent partner making the representation or 1 EXISTING
consented to the plus Partner
consenting to its being made:
representation by Estoppel
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership;
No
(2) When no partnership liability results, he is liable pro rata with Partnership
the other persons, if any, so consenting to the contract or Liability
representation as to incur liability, otherwise separately. (due to non-
existence)
When a person has been thus represented to be a partner in an ALL of the persons
existing partnership, or with one or more persons not actual represented as Who will be
NON-
partners, he is an agent of the persons consenting to such 2 partners liable?
EXISTING
representation to bind them to the same extent and in the same consented to the All who
manner as though he were a partner in fact, with respect to representation represented
persons who rely upon the representation. When all the members as partners
of the existing partnership consent to the representation, a who
partnership act or obligation results; but in all other cases it is the CONSENTED
joint act or obligation of the person acting and the persons + Partner by
consenting to the representation. (n) Estoppel

This provision talks about partnership by estoppel. All partners

who
GR: Persons who are not partners to each other are also not partners consented +
Not All Partners
to 3rd persons. 3 EXISTING Partner by
Consented
XPN: Article 1825 estoppel.
(Joint
Q: Is partnership by estoppel a real partnership? Liability)
A: Of course not.
Actual
DISCUSSION partners
We discussed before that partnership is a consensual contract. So it who
is created by the agreement of the parties. NON- Not all actual consented +
4
Itong “partnership by estoppel” is merely created by law for the EXISTING partners partner by
protection of 3rd persons who were misled by misrepresentation. estoppel =
Now, you have to bear in mind that “partners by estoppel” do not Joint
acquire the rights of a partner, they only acquire the liabilities as Liability
though they are a partner (parang actual partner.)
Persons who
A person who is not a partner may become a partner by estoppel in consented
an existing partnership or non-existing partnership as if he was really and the
a partner when by words or conduct, he directly or indirectly None of the Actual
5 EXISTING partner by
represents himself. Partners
estoppel
(Separate
DIRECTLY: He himself represented himself as a PARTNER of an
Liability)
EXISTING or an NON-EXISTING Partnership.
INDIRECTLY: He consented to be represented as a partner.

General Scenario
D (a stranger): Represented himself to be a partner to E who in the
faith of such representation lent money to D. D is now considered to

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Manresa ATP | 59

Scenario 1 Scenario 4
Partners si A, B, and C. D represented himself to E as a partner of
A,B, and C: Partners. A, B, and C when in fact there is no partnership. Now E let D borrow
D: Stranger who represented himself to be a partner to E. money. What is the liability of A, B, and C to E? When you look at
E: Third person. the illustration the liability is separate, only the ones who
consented will be liable.
What is the liability according to the first example?
ALL will be held liable to E. Here A did not consent, B, C, and D will be separately liable to E
(as long as A, B, and C consented to the representation of D) since they consented. Separate liability of the person who made
the representation, as well as the partners who consented to be
PARTNERSHIP LIABILITY: All of the actual partners and the person represented as a partner.
who represented himself to be a partner (partner by estoppel) will
be held liable to the third person.
Scenario 5
In this scenario, the liability will only be borne by the third party or
Scenario 2 the stranger who represented himself to be a partner.

A,B, and C: Partners. A, B, and C are partners in an actual and real partnership. D is a
D: Stranger who represented himself to be a partner to E. stranger and he represented to E that he is a partner of A, B, and C
E: Third person. when in fact he’s not a partner. None of the actual partners
consented to this representation. Since no one consented, only D
D represented to E that he along with A, B and C are partners. Kahit will be liable to E. There is a separate liability.
wala naman talagang partnership. So nagpa-utang si E sa non-
existing partnership. The representation was with the consent of
Requisites to establish the liability of a person as a partner on the
A, B, and C.
ground of estoppel:
1. The third person must prove that he was individually aware
Who will be held liable?
that the partner by estoppel’s representation as to his being
It will not result in a partnership liability because there is no
a partner or that such representation were conveyed by
partnership in the first place.
others and not denied or refuted by the partner by
estoppel.
However,
2. The third person relied on the representation.
All the persons who represented as partners (D), and who
3. The person who represented himself were consented to be
consented to be represented as partners (A, B, C) will be liable
represented as a partner did not deny or refute the
together with the partner by estoppel, the one who made the
representation.
representation.
Let’s go to the case of Bendecio vs. Bautista
Scenario 3:
[ Bendecio vs. Bautista ] ← Yo! Hindi ko mahanap ang digest nito :(
Existing partnership, but not all of the partners consented to the
:( :(
misrepresentation. Only some of the actual partners consented to
the misrepresentation.
DISCUSSION
Who is liable? In this case, personally, I’m not even sure if tama ang pag-apply.
Those who consented. Actual partners who consented plus the
partner by estoppel. Ang nangyari is nangutang ang partners, diba? So ngayon, under
1825, they cannot deny that they are not partners, because nag-
What is the nature of liability here? represet na si Bendecio that they are partners: “itong business
Joint liability. partner ko ang babayad.”

For instance, there is an existing partnership. A, B, and C are Then after that, nag issue pa ng promissory note si Mascarinas, yung
partners. D, represented to E that he is a partner together with A, business partner. So based on their conduct, business partners talaga
B, and C. So, nagpa utang si E sa ilaha. Now, A did not consent, only sila. Now the issue is, I’m not very sure, kasi contract of loan ang basis
B and C. ng cause of action ni Bautista, nangutang sa iyaha, sunod wala siya na
bayran.
Of course, who are liable? B and C, the one who consented to be
represented and D the one who actually represented himself to be So, if you stop to analyze, 1816 should be applied. Kay kung
a partner. So, the liability of B, C, and D to E is joint. mangutang ka sunod wala ka nibayad, tort ba na? Diba may pre-
existing obligation? And then, hindi naman siya breach of trust, loan
nga eh. The money was not entrusted to them for their safe-keeping,
it was used as a capital for their business. So ngayon under 1822 and
1823, it appears these articles should not be applied.

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 Manresa ATP | 60

So, technically, kung codal lang, 1816, pro rata ang liability, hindi separate assets on a pro rata basis as they were already partners
solidarily. But you know what? You will encounter in your torts that when the partnership entered acquired the liability.
contractual breaches are quasi-delict. But in this case, ang gi-ingon
lang sa Supreme Court kay wrongful omission ang non-payment of Q: Now Ma’am, unsa na na liability? (among the old partners)
loan kaya quasi-delict siya, which I don’t think swak siya, pero dili man A: Sige daw be, unsa daw? Makulbaan na ko ani? Pro Rata! Per head.
ko Supreme Court no? Hilas ra pud kaayo. Pero academically Pag sure mo diha ha?
speaking, 1816 should be applied.
Obligations of outgoing partners as to contracts entered into while
Anyway, let’s move on to 1826. he was still a partner.

DISCUSSION
Civil Code, Article 1826.
A person admitted as a partner into an existing Of course, kung pahuwa-ay na ka, you are also liable for the contracts
partnership is liable for all the obligations of the entered into while still a partner. Even if ang performance kay after
partnership arising before his admission as though he pa sa imong paghawa sa partnership, okay?
had been a partner when such obligations were incurred,
except that this liability shall be satisfied only out of Not only that, not only existing liabilities, also included here are the
partnership property, unless there is a stipulation to the unfinished transactions, liable parin si outgoing partner. As long as it
contrary. (n) was contracted / entered into while he was still a partner, he will be
held liable. Okay?

DISCUSSION Q:What about those entered into na nihawa na sya sa partnership?

This article limits the liability of a newly admitted partner to a A: Of course hindi na sya liable because he was no longer a partner
partnership. So these refer to liabilities or obligations existing at the when the contract was entered into.
time he was admitted to the partnership. So kung kunwari 2011 siya
(yung new partner) na admit, 2010 nag enter [ang partnership] into a Q: How about ang incoming and outgoing?
contract, so may liability na. Will that newly admitted partner be Sa 2010, partner A is an out going partner. He told his partners: “I will
liable for the obligation entered by the partnership before he became only resign upon the end of 2010. After 2010, sa 2011 January wala
a partner? Yes. But limited only to his share in the partnership na gyud ko.”
property.
At that time when A was still a partner, nag enter sila ng contract with
GR: A newly admitted partner’s liability, as to the obligations incurred a third person.
before his admission, is limited to his share in the partnership
property. So ang contract was entered into in 2010 but ang performance, diri
pa sa 2011.
Q: Ma’am, what about yung mga partners na, are their liabilities
limited to their share in the partnership property only? So at the time na the contract was entered into, A was still a partner.
A: Of course not. You are already a partner at the time of entering Pero Pag performance gani resign naman sya. Dili na sya partner sa
into the contract. In which case, you are not only liable for your share performance.
in the partnership property, but also to your personal and separate
property. Now we have also B, si B incoming partner. 2011 mag start ang
iyahang membership sa partnership.
XPN: Ang newly admitted partner, pwede siya maging liable for more
than his share in the partnership property. Meaning, it will also affect Pero diba ma’am, di pa sya partner at the time the contract was
his separate and personal properties, IF it is expressly stipulated in entered into? Correct! pero sa performance, yes partner na sya at
the partnership’s Articles of Partnership. the time ng performance so, kung ikaw si third person, who will you
sue?
Illustration:
A: Apart from the partners na nagpadayon from 2010 to 2011. Of
Partnership Assets Partnership Liabilities P190,000.00 course the third person can sue the outgoing partner because he was
A - P40,000.00 P. Assets - P160,000.00 a partner at the time the contract was entered into. The third person
B - P40,000.00 (P30,000.00) can also sue B, the incoming partner because he was already a partner
C - P40,000.00 at the time of the performance of the contract.
D (New) - P40,000.00 The remaining P30,000.00 deficit will
Total P160,000.00 be shouldered by the “old” partners So in effect, pwede nyang I-sue ang out going and incoming partners.
A, B, and C on a pro rata basis, i.e.
P10,000.00 for each old partner Let's proceed to 1827

DISCUSSION Civil Code, Article 1827.

As per 1826, D is still liable for the partnership liabilities entered into The creditors of the partnership shall be preferred to
before his admission into the partnership, but only up to his share in those of each partner as regards the partnership
the partnership assets. In this example, there is still a deficit of property. Without prejudice to this right, the private
P30,000.00, the “old” partners will have to shoulder it using their creditors of each partner may ask the attachment and

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 Manresa ATP | 61

I: Insolvency
public sale of the share of the latter in the partnership
D: Death
assets.
Q: What if ang mga remaining partners gusto nila mag continue ng
DISCUSSION business? Wa mi labot kung namatay ka, gusto namo magpadayon
So this article discusses the preference of partnership creditors over kay kwarta na ni.
private creditors of the partners. So, ang partnership creditors, A: Now, effect is dissolution does not cause the dessation of the
preferred sila na bayaran out of the partnership assets. Ok? Priority partnership business. Naa lang jud change in the relation of the
of payment. Creditors of each partner however, pwede sila mag ask parties, but that does not necessarily mean that the partnership
ng attachment or public sale ng share ng kanilang debtor partner out business will cease.
of the partnership assets.
So from the provision, you can already see that different ang
EXAMPLE dissolution and winding up.
A, B, and C are partners. They contributed equally to the partnership.
When we say dissolution, it means change in the relations of the
As there was no stipulation as to the share of each partner in the
parties. Pwede rin may newly admitted partner, diba? As in nag bago
profit, they share equally in the partnership assets. So 1/3 each. After
talaga ang composition ng mga partners.
a year of operation, the assets of the partnership amounted to
P50,000. The partnership is indebted to D in the amount of P20,000.
Now when we say winding up, the partnership debts and obligations
E is the separate creditor of A in the amount of 15,000.
are paid, the surplus will be distributed to the partners, the
partnership affairs is terminated. Ang value of the partner's interest
So ang claims mao ni siya ang pag-settle:
will be determined upon liquidation. Mao na siya ang winding up. Dira
na mag bayranay then mag hati-ay. Distribution and liquidation of the
Partnership Asset: P50,000
assets kung naay mabilin. Now, winding up is the process of settling
Partnership Creditor: P20,000
the partnership affairs after dissolution.
Credit in favor of Private Creditor ni Debtor-Partner A: P15,000
Now, termination, done na ang winding up sa partnership affairs.
So we said that partnership creditors are are preferred over private
Complete na sya.
creditors of the partners with respect to partnership assets.
Now, 1829.
Application of the payment:
P50,000 (Asset)
Civil Code, Article 1829.
(P20,000) in favor of a partnership creditor.
On dissolution, the partnership is not terminated, but
P30,000 Total
continues until the winding up of partnership affairs is
completed.
Ang P30,000 will be divided equally between the partners (diba 1/3
ang share). So tag-pila sila each? P10,000. DISCUSSION
Diba, we said that partnership enjoys separate and distinct legal
Isa lang ka partner ang debtor ni Private Creditor E. personality. Now, under this article, it only shows, just because there
So out of P10,000, kulang pa siya kay iyang utang kay E is P15,000. is dissolution, does not mean na materminate pud ang legal
Naa pa P5,000 na remaining. personality ng partnership. It continues during the winding up of the
partnership affairs. Even during liquidation and distribution sa ilang
Q: How can the private creditor E collect from A? mga surplus. Therefore, it is only upon the completion of the winding
A: Separate and Personal Property of E up stage that the partnership’s existence is terminated.

Q: Kung naay Purchaser sa share ni Partner sa partnership property, Okay, 1830.

will he be considered also a partner? (referring to the Purchaser)
A: NO. Because partnership is based on mutual trust and confidence; Civil Code, Article 1830.
remember also the principle of delectus personnae.
Dissolution is caused:
Civil Code, Art. 1828.
The dissolution of a partnership is the change in the (1) Without violation of the agreement between the
relation of the partners caused by any partner ceasing partners:
to be associated in the carrying on as distinguished from
the winding up of the business. (n) (a) By the termination of the definite term or particular
undertaking specified in the agreement;
DISCUSSION (b) By the express will of any partner, who must act in
So this article is the legal definition of Dissolution. So there is a the good faith, when no definite term or particular
change in the relation of the parties. It might be naay nag retire, naay undertaking is specified;
ni-resign, naay namatay, pwede pud na naay nagging insolvent. (c) By the express will of all the partners who have not
AIDs: assigned their interests or suffered them to be charged
A: by the Act of the partner

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 Manresa ATP | 62

expired. In which case, that will be considered a partnership

for their separate debts, either before or after the
at will. They do not even have to execute another
termination of any specified term or par-ticular
agreement for them to continue.
undertaking;
(d) By the expulsion of any partner from the business
2. Termination by express will of any partner.
bona fi de in accordance with such a power conferred by
the agreement between the partners;
Each partner can cause the dissolution of the partnership.
Ang importante, it should be done in good faith but not if
(2) In contravention of the agreement between the
done in bad faith.
partners, where the circumstances do not permit a dis-
solution under any other provision of this article, by the
Q: Will that prevent the dissolution of the partnership?
express will of any partner at any time;
No, you cannot compel the partners to stay or remain in the
partnership because it is based in trust and confidence.
(3) By any event which makes it unlawful for the business
Once you lose the trust and confidence of your partners,
of the partnership to be carried on or for the members
para san pa nag parters kayo, then that will cause the
to carry it on in partnership;
dissolution of the partnership.
(4) When a specific thing, a partner had promised to
If it is done in bad faith, the person who caused the
contribute to the partnership, perishes before the deliv-
wrongful dissolution of the partnership will be held liable
ery; in any case by the loss of the thing, when the part-
for damages.
ner who contributed it having reserved the ownership
thereof, has only transferred to the partnership the use
3. By the express will of all the partners who have not
or enjoyment of the same; but the partnership shall not
assigned their interests or suffered them to be charged for
be dissolved by the loss of the thing when it occurs af-ter
their separate debts, either before or after the
the partnership has acquired the ownership thereof;
termination of any specified term or par-ticular
undertaking;
(5) By the death of any partner;
4. By the expulsion of any partner from the business bona fi
(6) By the insolvency of any partner or of the part-
de in accordance with such a power conferred by the
nership;
agreement between the partners;
(7) By the civil interdiction of any partner;
EXAMPLES OF TERMINATION WITH EXPRESS WILL OF PARTNERS:
(3I-3E-3D-L)
(8) By decree of court under the following article. (1700a 1. Interpersonal Conflict among the partners
and 1701a) No understanding at all
2. A partner who used to be managing the business is now
DISCUSSION excluded from management of the business
He can ask that partnership be dissolved
Article 1830 provides for the grounds for the automatic dissolution of
3. Express will of ALL the partners
the partnership. This is not an exclusive list or ground for dissolution.
○ Not immediately “all” of the partners;
We also have Article 1831 and 1840. But for now let’s discuss Article
○ Have to check on who is entitled to vote
1830.
i. Those whose interests were not
assigned
The causes of dissolution, in general, can be categorized into four:
ii. Those whose interests were not
1. By the acts of the parties not in violation of their
suffered by a charging order
agreement;
These two are the only ones who can vote. Those whose
2. By the acts of the partners in violation of their agreement;
interests are assigned or subject to a charging order, they
3. By operation of law; and
CANNOT vote for the dissolution of the partnership.
4. By court decree
So, they are eligible to vote, the decision to dissolve the
DISSOLUTION EFFECTED WITHOUT VIOLATION OF THE
partnership must be a unanimous decision. All eligible to
PARTNERSHIP AGREEMENT
vote has to be in agreement to dissolve the partnership.
1. Termination of the definite term or particular
4. By expulsion of any member
undertaking.
○ Requisites
i. The expulsion must be embodied or
We discussed before that a partnership can be a
conferred by the Articles of
partnership at will or partnership for a fixed term or
Partnership. The power to expel must
partnership for a particular undertaking.
be expressly given by the AOP.
ii. Good faith: What if the partner was
So now, once a term expires, or the particular undertaking
included in bad faith? Of course, if they
is accomplished, automatically, the partnership dissolves.
do not want you to be a partner
Automatic dissolution under Article 1830. But the partners
anymore, you cannot force them
can still decide to continue even if the particular
because they don’t trust you anymore
undertaking has been accomplished or the term has

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Manresa ATP | 63

and partnership is based on mutual AFTER delivery. Here, the ownership was already
trust and confidence. The remedy is to transferred to the partnership. In which case, as the owner,
ask for damages. the partnership shall bear the loss. The partnership
5. Dissolution Effected in Violation of a Partnership therefore, will not dissolve.
Agreement
○ Ex: The partnership is fixed term or there is a Now, what is usufruct lang. the owner is still the
particular undertaking and before that term contributing partner. Now what if nawala.
expires or that particular undertaking is
accomplished, you asked for dissolution in Regardless of whether it was lost before or after the
violation of a partnership agreement. delivery, because the contributing partner retains
○ But here, the partner for any cause can ask for the ownership over the property contributed for usufruct, He
dissolution of the partnership as long as it is will bear the loss. Within which, the effect is dissolution of
coupled in good faith. But, as long as the the partnership.
dissolution is unjustified or in bad faith, you may
be held liable for damages. 8. Death of a partner
6. Dissolution On The Ground That The Business Becomes
Unlawful The death of a partner by operation of law, DISSOLVES THE
○ We discussed before that one of the essential PARTNERSHIP. The heirs of the deceased partner WILL NOT
features of a contract of partnership is that the BECOME PARTNERS. Again, REMEMBER DELICTUS
object of the partnership must be lawful. PERSONAE.
○ Once it becomes unlawful, it will result in the
automatic dissolution of the partnership. Now, what they will inherit is only the share of the deceased
Although at the time it was constituted, it was still partner in the partnership interest, surplus, etc. So here,
lawful. once you die, that person will leave an estate. When we say
○ Ex. An Attorney was a partner in the partnership. estate, those are properties whether real or personal and
Subsequently, he became a judge. Now as a judge, that estate is a separate entity. The estate is technically the
you cannot engage in the private practice of law. owner of the shares and that estate will be distributed
Now, by law, that cannot be. So automatically, among the heir of the deceased partner.
the partnership is dissolved because it is unlawful
for the judge to engage in the private practice of Q: Who will liquidate in partnership?
law. Now his appointment dissolves a partnership A: Not the administrator of the estate. Pending delivery to
that he is a member of. the heirs, there is an administrator because what if there is
7. Loss of a specific thing. a property that needs safekeeping, maintenance, otherwise
○ Specific - things which cannot be substituted property will deteriorate. That’s the role of the
○ Generic - things which can be substituted administrator. So now the administrator/executor of the
In this sub paragraph, he promised to contribute a specific estate will not liquidate the partnership because he is a
thing. Now, once the thing is lost, it shall be considered as a stranger.
ground to dissolve the partnership. Actually, automatic
dissolution. So, the surviving partners or liquidating partners will
liquidate.
However, WE HAVE TO DISTINGUISH.
1. When was the delivery made?
2. When did the specific thing get lost? Q: Can the surviving partners continue the business?
3. And what is being contributed. A: They can stipulate to continue the partnership despite
4. Is it the ownership of the thing or only a usufruct. the death of any one of them. It could also be a stipulation
where in case any one of them dies, the heir becomes a
Ok, first, let's just say that the partner is contributing the partner. A contractual stipulation that is binding. But, if
property itself. The ownership itself will be contributed to there is no stipulation, then it cannot be done. To admit a
the partnership. new partner, there must be unanimous consent of all
surviving partners.
Now, the specific thing was lost before the delivery to the
partnership and you will remember in your oblicon that 9. Insolvency of any partner or of the partnership
before the delivery it was lost. So, he cannot substitute it The insolvency must be judicially declared by the court. It
because it is a specific thing man. Under the law, a specific cannot be projectural, there must be a judicial decree
thing cannot be substituted. declaring that the person or the partnership is insolvent.

So what is the effect? Dissolution of partnership. Because, Q: Why is the insolvency of a partner a cause for the
before the delivery to the partnership, that contributing dissolution of the partnership?
partner is the owner. And until there is no delivery, because A: Once a partner is insolvent that means he also has his
he is the owner, he will bear the losses. So that is why that own creditors and remember that the partnership also has
will result in the dissolution of the partnership. its own creditors it would be difficult to settle with
partnership creditors.
Next, what if the specific thing being contributed was lost

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Once a partnership no longer has assets, it has no capital

and can no longer operate business. So necessarily, if it
Ruling: Yes.
cannot operate, the business will shut down. There will no
Dissolution, defined:
longer be affairs that need to be done, in which case there
It is the change in the relation of the parties caused by any partner
is no other choice but to dissolve partnership.
ceasing to be associated in the carrying on, as distinguished from
the winding up of the business.
10. Civil Interdiction of partner
We discussed before that one of the essential features of a
Main issue:
contract of partnership is the legal capacity of the parties to
A partnership that does not fix its term is a partnership at will.
enter into a contract. Now, if the partner is under civil
Here, the amended articles of partnership do not provide a specific
interdiction, they cannot give consent.
period or undertaking. Hence, in the case at bar, the partnership is
one of partnership at will.
Now, if a person is under civil interdiction, they cannot give
consent.
The hearing officer however, opined that the partnership was one
for a specified undertaking and not a partnership at will, citing Par.
Kung nakakulong ka, you cannot manage your property
2 of the Amended Articles of Partnership, which provided that the
outside. You cannot even dispose, cannot execute a deed of
purpose of the partnership is to act as legal adviser, among others.
sale while in prison. The effect is, once one of the parties is
in civil interdiction, he can no longer manage the
However, the “purpose” of a partnership is not the specific
partnership property also. The effect is this can cause the
undertaking referred to in the law, otherwise, all partnerships,
dissolution of the partnership.
which must necessarily have a purpose, would all be considered as
partnerships for a definite undertaking. What the law
Q: Do the partners have the right to expel any partner?
contemplates is a specific undertaking or “project” which has a
A: No. The power to expel must be embodied in the Articles of
definite or define-able period of completion.
Partnership. Even if there is unanimous consent to remove the
partner, that cannot do if there is no provision granting that power to
The birth and life of a partnership at will is predicated on the
the partners.
mutual desire and consent of the partners. Furthermore, the right
to choose with whom a person wishes to associate himself with is
But remember, the law provides a ground, if you can still remember
the very foundation of that partnership. Hence, its continued
industrial partners. They are absolutely prohibited from engaging in
existence is therefore dependent on the constancy of that mutual
business for themselves, regardless of whether or not it is in line with
resolve, along with each partner's capability to give it.
the business engaged by the partnership. Now if the industrial partner
engages business for himself, that can be a ground for other partners
Therefore, any one of the partners may, at his sole pleasure,
to expel him.
dictate a dissolution of the partnership at will, provided that he
acts in good faith, not that the attendance of bad faith can prevent
The option, if you can still remember, they can still expel or they can
the dissolution of the partnership, but that it can result in a liability
avail of the business of the industrial partner.
for damages.
Let us proceed to the case of Ortega vs Court of Appeals.
The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil Code;
Ortega vs. Court of Appeals however, an agreement of the partners, like any other contract, is
GR No 109248 binding among them and normally takes precedence to the extent
applicable over the Code's general provisions.
Facts: This case concerns the law firm of Ross, Lawrence, Selph,
and Carrascoso. Due to several subsequent amendments to the In this case, the SC found that paragraph 8 of the amended articles
articles of partnership, the firm name eventually became Misa, of partnership provide that in the event of the death or
Bito, and Lozada law firm. retirement of any partner, his interest in the partnership shall be
liquidated in accordance with the existing agreements. The term
On Feb 17, 1988, Misa wrote a letter to his partners Bito and "retirement" must have been used in a generic sense, to mean the
Lozada, informing them of his retirement and his withdrawal from dissociation of a partner, either by resignation or withdrawal, that
the firm, and reminded the partners of the proper liquidation of dissolves it.
his participation in the firm. Hence, he filed a petition for the
dissolution and liquidation of the partnership before the SEC's Therefore, the decision of the CA is affirmed.
Securities Investigation and Clearing Department.
Issue as to whether Misa acted in bad faith:
The hearing officer ruled that Misa's withdrawal from the firm did No. The CA correctly viewed his withdrawal to have been spurred
not dissolve the law partnership. On appeal, however, the SEC by interpersonal conflict among the partners. It would not be right
reversed the decision of the hearing officer, which was affirmed by to let any of the partners remain in the partnership under such an
the Court of Appeals. atmosphere of animosity against their will.

Issue: W/N the withdrawal of petitioner Misa dissolved the Thus, for as long as the reason for the withdrawal of a partner is
partnership. not contrary to the dictates of justice and fairness, bad faith

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cannot be said to characterize the act. (6) Other circumstances render a dissolution equitable.

Bad faith, defined: On the application of the purchaser of a partner's

conscious and intention design to do a wrongful act for a dishonest interest under article 1813 or 1814:
purpose or moral obliquity.
(1) After the termination of the specified term or
particular undertaking;
DISCUSSION
Atty Misa is very upright, di siya ganahan nga saba ang mga abogado, (2) At any time if the partnership was a partnership at
dili siya ganahan nga dili mao ang suot, dili siya ganahan na wala will when the interest was assigned or when the charging
gitagaan ug raise ang mga employees kay gamay lagi daw kaayo ug order was issued.
sweldo.

The Supreme Court said, a partner can cause the dissolution of a DISCUSSION
partnership without any violation of the agreement by their express Under Art. 1831 the dissolution here must be with a court decree. You
will but that must be coupled with good faith. have to file a case to dissolve the partnership based on Art. 1831’s
grounds. As you can see there are 2 paragraphs here. The 1st
That was the reason why he wanted to withdraw from the paragraph are dissolutions that can be applied by a partner while the
partnership. 2nd paragraph can be applied by the purchaser or assignee of the
interest of a partner.
The Supreme Court said he did not act in bad faith when he wanted
to resign or withdraw from the partnership. Any one of the partners, (1) A partner has been declared insane in any judicial proceeding or
may at his sole pleasure dictate a dissolution of the partnership at is shown to be of unsound mind;
will. He must however act in good faith not that the attendance of Again we discussed that one of the essential elements of a
bad faith can prevent the dissolution of the partnership, but that it partnership is the legal capacity to enter legal contracts. So if the
can result in a liability for damages. partner is insane or in an unsound mind he can no longer give his
consent.
The Supreme Court said what happened was an interpersonal
conflict, the partners were not in understanding of each other (2) A partner becomes in any other way incapable of performing his
anymore. So, the Supreme Court said, it is not right that he should be part of the partnership contract.
forced to stay in the partnership, he can ask for the dissolution of the Here the incapacity is other than insanity or of an unsound mind.
partnership because he does not want to stay there. There is no more
trust and confidence. What if a partner got into an accident and was paralyzed and cannot
talk. That is an example of incapacity because he cannot give his
But here, he cannot be held liable for damages, because he was not consent.
in bad faith. You will know in rules in Evidence that good faith is
actually presumed, and until and unless is shown otherwise, the But if the incapacity is temporary in nature, this will not be a sufficient
presumption will govern, good faith. ground for application of judicial dissolution of the partnership.

(3) A partner has been guilty of such conduct as tends to affect

Civil Code, Article 1831. prejudicially the carrying on of the business.
On application by or for a partner the court shall decree Example palahubog ang partner. Mo sulod ug opisina hubog and
a dissolution whenever: sabog. That is an example of misconduct.
(4) A partner wilfully or persistently commits a breach of the
(1) A partner has been declared insane in any judicial partnership agreement, or otherwise so conducts himself in matters
proceeding or is shown to be of unsound mind; relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him.
(2) A partner becomes in any other way incapable of Example: nag himo himo ug mga records. Ang liquidation mali mali.
performing his part of the partnership contract; Of course that can be a cause to ask the court for the dissolution of
partnership.
(3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business; What if disagreements lang? That will not suffice. But once the
disagreement already affects the trust and confidence between and
(4) A partner wilfully or persistently commits a breach of among the partners it will be a sufficient ground to ask for judicial
the partnership agreement, or otherwise so conducts dissolution of the partnership.
himself in matters relating to the partnership business
that it is not reasonably practicable to carry on the (5) The business of the partnership can only be carried on at a loss;
business in partnership with him; Again you go back to the purpose of a partnership. The primary
purpose is to generate profit. If it is carried on in a loss, the
(5) The business of the partnership can only be carried partnership business can be then dissolved.
on at a loss;
(6) Other circumstances render a dissolution equitable.
Example: Fraud in the management of the business,abandonment of

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the business, refusal without justifiable cause to render accounting.

technically pwede na magdissolve, the purchaser or assignee, can
ask for judicial dissolution,
Leung v IAC: In this case if you recall that involves 2 china men 1 is a
capitalist partner and the other is industrial partner. Naa silay
pansiteria which became a very big business. Here the capitalist
What about partnership at will? Etong partnership at will, wala
partner wanted his share of the 22% of the net profit. The SC ruled
naming specific date kung kailan siya dapat mag end, kasi nga “at
that art. 1831 par. 3 can be a ground for their dissolution because of
will”. So the purchaser or assignee can ask for the judicial dissolution
the refusal of the industrial partner to give the share to the capitalist
of the partnership at any time.
partner.
In the same example, if partnership at will na yun, the purchaser of
CASE DISCUSSION
the interest can ask for the dissolution, pwede sa third year, fifth year,
If you remembered the case na nagdinalo si Industrial Partner. Mao
sixth year, etc. for as long as partnership at will, pwede siya mag ask
na ni sya. Now, the SC told the Industrial Partner that you have to give
for the dissolution.
him 22% percent of these years (71 and so on), and then once na
mabayaran mo yan, the period after that bayaran gihapon nimo sya
Let’s proceed to Art. 1832.
22%, why? Because it is a partnership at will, it was not a partnership
based on a fixed term. That is why the SC said magpadayon kag bayad
sa iyag 22% na share in a partnership but the Industrial Partner did Civil Code, Article 1832.
not want to do that, so the SC gave a solution, you can ask for the Except so far as may be necessary to wind up partnership
dissolution of a partnership, so as reported 1831 was applied. affairs or to complete transactions begun but not then
finished, dissolution terminates all authority of any
Now, that ground is Number 3: Misconduct of a partner who willfully partner to act for the partnership:
or persistently commits a breach of the partnership agreement and
the last one is because dissolution is equitable. So in this case, the SC (1) With respect to the partners,
said there shall be liquidation and winding up of partnership affairs, ..
the court ordered the dissolution of the partnership based on equity. (a) When the dissolution is not by the act, insolvency or
Kase ang continuation ng partnership business will become death of a partner; or
inequitable on the part of the Industrial Partner.
(b) When the dissolution is by such act, insolvency or
Second paragraph: On the application of the purchaser of a death of a partner, in cases where article 1833 so
partner's interest under article 1813 or 1814: requires;

Dissolution by the purchaser or assignee of a partner’s interest, we (2) With respect to persons not partners, as declared in
already discussed this under 1813 and 1814. article 1834. (n)

A purchaser or an assignee does not become a partner. His right is

DISCUSSION
merely limited to receiving the share of the debtor partner’s interest
(profit and surplus). So, instead of giving it to the debtor partner, Immediately you will know that Art. 1833 is related to Art. 1834.
such interest is given to the purchaser or assignee. AIDS - Dissolution by the:
- Act of a partner;
Q: How about if the purchaser or assignee is given the power to - Insolvency; and
dissolve the partnership? - Death.
A: The question is when. Under the first sub-paragraph, if the
partnership is with a term or specified undertaking, only after the So that will be governed by a different provision. What provision? Art
expiration of the term or the accomplishment of the specified 1833.
undertaking.
Example: a partnership is with a fixed term. Na dissolve na siya kay
nag expire na ang term. Here comes a partner. He entered into a
Illustration: contract with a third person. That contract is unrelated to the winding
A, B and C formed a partnership, for a term of five years. In the up of the partnership affairs.
third year, C sold his interest, his entire interest to a third person,
D. Q: What is the effect?
A: Dahil wala siyang authority, he will be liable. He alone will be
Under 1813, the conveyance will not dissolve the partnership, and liable. Hindi siya binding sa partnership.
the assignee or purchaser will not become a partner, ang right nIya
is with respect to the profits, na otherwise entitled si C yung nag Now, (under Art. 1834) with respect to third persons, the partnership
assign. is bound by the new contracts, even if as between partners, they are
no longer authorized to act on the partnership.
Hence, during the term of the partnership with a fixed term, he
cannot ask for the dissolution of the partnership. However, after Proceed muna tayo sa 1833
na-expire yung period, nagpadayon man ning mga partners
magconduct ug business, in which case because nag expire na,

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subparagraph, knowledge or notice.

Civil Code, Article 1833.
Where the dissolution is caused by the act, death or
So, pag ACT ni partner, knowledge. Pag INSOLVENCY or DEATH,
insolvency of a partner, each partner is liable to his co-
knowledge or notice. Remember that.
partners for his share of any liability created by any
partner acting for the partnership as if the partnership
had not been dissolved unless: Example: A, B, and C, are partners.

(1) The dissolution being by act of any partner, the A - informed all of his partners - B and C - that he was resigning.
partner acting for the partnership had knowledge of the
dissolution; or C, who knew fully well that the partnership is dissolved by the acts
of A, still entered into a contract that is not related to the winding
(2) The dissolution being by the death or insolvency of a up of the partnership business.
partner, the partner acting for the partnership had
knowledge or notice of the death or insolvency. What is the effect? He has knowledge because he was informed
directly by A of the dissolution. Here, because he had knowledge
DISCUSSION of the dissolution by the act of A, C, by entering into a contract,
despite the dissolution and despite knowledge of the dissolution,
If you can remember, again in Article 1832, the liability there is
C will shoulder the entire obligation.
shouldered only by the active partner.

There the cause of dissolution is not under AIDS. If the reason for Q: What if the partnership was dissolved by a partner, but the acting
dissolution is AID, Article 1833 will govern. Now, the situation here is partner has no knowledge, only notice. What is the difference
that the partnership was already dissolved because of the act of a between notice and knowledge?
partner, insolvency of a partner, or due to the death of a partner. But, A:
one of the partners here, the acting partner, entered into a new
KNOWLEDGE NOTICE
contract that is unrelated to the winding up of the partnership affairs.
ACTUAL KNOWLEDGE, the person Letters, communication, or
Now, he knows that the partnership was already dissolved but he still
is really informed hearsay
entered into a contract, in which case the liability will depend on
whether the acting partner has knowledge or notice.
Example: A, B, C are partners.
IN GENERAL: in effect, if the acting partner has no knowledge or
A - informed B that he is resigning or withdrawing from the
notice, you will not be liable for the entire obligation. Here, the
partnership.
liability will be shared by the partners as if the partnership was not
resolved.
B told C, “Huy muhawa na si A” - nagmarites si B kay C. C, despite
notice that A will leave the partnership, still entered into a contract
Example: A, B, C are partners. with a third person.
A - informed B that he is resigning or withdrawing from the
partnership. The effect is that A and B must contribute together with C.

The partnership was dissolved by AID because he is withdrawing.

We said earlier if the dissolution is by the act of a partner, there is a
C, with no knowledge of the resignation of A, entered into a new
need for knowledge. In this case, what was given was merely notice
contract despite the dissolution.
because it was not A who directly informed C. It was B who informed
C. That’s only notice. In which case, A, B, and C will share the liability.
The effect is that all of them: A,B, and C will contribute to the
liability (shared liability). It is as if the partnership was not dissolved
because the acting partner has no knowledge of the withdrawal of (2) The dissolution being by the death or insolvency of a partner,
one partner, that there was dissolution. In which case, the liability the partner acting for the partnership had knowledge or notice of
is shared. the death or insolvency.

Let's go to paragraphs 1 and 2, instances when an acting partner will Example: A, B, C are partners.
assume the entirety of obligation or liability. Earlier, under 1832, only A - died, B heard of A’s death and confirmed it.
one partner was liable, the acting partner. In Article 1833, if there is
no knowledge, the acting partners of the dissolution will share B informed C of A’s death. C, despite notice of A’s death, entered
liability. into a contract with a third person.

Now, let’s go to cases where there is no shared liability. C will assume the sole liability. If the cause of dissolution is
(1) The dissolution being by act of any partner, the partner acting insolvency or death, knowledge or notice will suffice.
for the partnership had knowledge of the dissolution;

Take note in the first subparagraph, knowledge. In the second Remember:

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Cause of Dissolution Requirement Effect if acting (b) Had not extended credit to the partnership prior to
partner enters into dissolution, and, having no knowledge or notice of his
contract with third want of authority, the fact of his want of authority has
person despite k/n not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph,
Act of Partner Knowledge Sole liability
No. 2 (b).
Insolvency or Death Knowledge or Notice Sole liability
Nothing in this article shall affect the liability under
article 1825 of any person who after dissolution
Civil Code, Article 1834. represents himself or consents to another representing
After dissolution, a partner can bind the partnership, him as a partner in a partnership engaged in carrying on
except as provided in the third paragraph of this article: business. (n)

(1) By any act appropriate for winding up partnership

affairs or completing transactions unfinished at DISCUSSION
dissolution; As to third persons, the approach is different. As to third persons, the
presumption is that the partnership still exists. That is why if there is
(2) By any transaction which would bind the partnership a partner that acts for the partnership after it is dissolved, the third
if dissolution had not taken place, provided the other person can say that “I do not have knowledge that the partnership is
party to the transaction: already dissolved”, because the presumption is that the partnership
still exists.
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of the Now let's proceed to the first paragraph, along with the
dissolution; or subparagraphs that are enumerated, providing for instances where a
partner can bind the partnership.
(b) Though he had not so extended credit, had
nevertheless known of the partnership prior to After dissolution, a partner can bind the partnership, except as
dissolution, and, having no knowledge or notice of provided in the third paragraph of this article:
dissolution, the fact of dissolution had not been
advertised in a newspaper of general circulation in the (1) By any act appropriate for winding up partnership affairs or
place (or in each place if more than one) at which the completing transactions unfinished at dissolution;
partnership business was regularly carried on.
Acts that are relevant or related to the winding up of the partnership
affairs, as well as acts which complete pending transactions, that is
The liability of a partner under the first paragraph, No. 2,
allowed. The acts of the partner relating to those purposes will bind
shall be satisfied out of partnership assets alone when
the partnership.
such partner had been prior to dissolution:

(1) Unknown as a partner to the person with whom the 2) By any transaction which would bind the partnership if dissolution
contract is made; and had not taken place, provided the other party to the transaction:

(2) So far unknown and inactive in partnership affairs (a) Had extended credit to the partnership prior to dissolution and
that the business reputation of the partnership could not had no knowledge or notice of the dis- solution; or
be said to have been in any degree due to his connection Under number 2, we have to look at the third persons involved here.
with it. Who are being contracted with the acting partner after the
dissolution? It can be a prior or former dealer, or one who is not a
The partnership is in no case bound by any act of a prior or former dealer.
partner after dissolution:
In 2(a) we have a prior or former dealer.
(1) Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is This is a third person, who extended credit to the partnership before
appropriate for winding up partnership affairs; or it was dissolved. Now the acting partner after dissolution contracted
with this third person, and this third person had no knowledge or
(2) Where the partner has become insolvent; or notice that the partnership was already dissolved. In this case, the
partnership will be bound by the act of the partner.
(3) Where the partner has no authority to wind up
partnership affairs; except by a transaction with one who But what if the third person, the prior or former dealer, had
- knowledge or notice of dissolution of the partnership, but
notwithstanding that knowledge, entered a contract with the acting
(a) Had extended credit to the partnership prior to partner?
dissolution and had no knowledge or notice of his want
of authority; or The repercussion here is that the partnership will be relieved from
liability.

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 Manresa ATP | 69

in any degree due to his connection with it.

To repeat, a prior or former dealer is one who has extended credit on
the faith of the partnership through confidence in the solvency and
probity of the firm. Here, we take a look at the acting partner. The acting partner here is
an unknown, inactive or dormant partner.
So now, what if that 3rd person extends credit, but it was only after
the dissolution of the partnership? Now, we discussed before under Article 1816 the pro-rata or
subsidiary liability of the partners when it comes to contractual
Q: After the dissolution of the partnership, will it be considered to be liabilities. We have said that once the partnership assets or
a prior or former dealer? properties have already been exhausted, that’s the only time that
A: No. The credit should have been extended before the dissolution the partners will be held liable and the creditor may go after the
for that person to be considered a prior dealer or former dealer. partners’ separate and individual properties.

2) By any transaction which would bind the partnership if dissolution But this is an exception to that rule. Why? Because under this
had not taken place, provided the other party to the transaction: paragraph, if the dormant, unknown, or inactive partner entered into
xxx a contract with a prior or former dealer or with a person who did not
extend credit but knew the partnership before it was dissolved, and
(b) Though he had not so extended credit, had nevertheless known both of those third persons have no knowledge or notice of
of the partnership prior to dissolution, and having no knowledge or dissolution of partnership. Here, once the liabilities of the partnership
notice of dissolution, the fact of dissolution had not been are exhausted it will end there. If there is still a remaining balance to
advertised in a newspaper of general circulation in the place (or in the liability with regard to that former or prior dealer or that person
each place if more than one) at which the partnership was who did not extend credit, they cannot collect from the separate and
regularly carried on. individual properties of the partners. That is, I think an exception to
Article 1816. Again, take note, unknown, dormant or inactive
In 2(b), the other party to the transaction did not extend credit. But
partner.
he already knew about the partnership before it was dissolved. So, he
has knowledge of the existence of the partnership.
INSTANCES WHERE PARTNERSHIP IS NOT BOUND BY THE ACT OF
It’s just that at the time he entered into a contract with the acting
ACTING PARTNER AFTER DISSOLUTION OF PARTNERSHIP
partner, he did not have any knowledge that at that time the
3rd paragraph these are the instances when the partnership is not
partnership was already dissolved.
bound by the act of the acting partner after the dissolution of the
partnership.
NOTICE OF PUBLICATION REQUIREMENT
You will also see here that there was a notice of publication
requirement. There’s a need for an advertisement in a newspaper of The partnership is in no case bound by any act of a partner after
general circulation. dissolution:

You will immediately notice that here when it comes to a third person (1) Where the partnership is dissolved because it is unlawful to carry
who did not extend credit, notice by publication is enough even if they on the business, unless the act is appropriate for winding up
have not read the newspaper containing the notice. Still, as long as partnership affairs; or XXX
the notice of dissolution was published. Then in which case, the
partnership cannot be bound and is relieved from the liability. First, when the partnership becomes unlawful. If the partnership is
unlawful, we discussed before that it will automatically dissolve that
It’s like, in a way, a constructive notice to the world that the partnership. Here, once the partnership is dissolved on that ground,
partnership is already dissolved. But you have to distinguish the the partners can no longer act for the partnership, except if it is for
notice requirement with respect to a prior or former dealer. the purpose of winding up the partnership affairs or to complete the
payment of liabilities to the partnership creditors.
Notice by publication when it comes to a prior or former dealer is not
enough to conclude that he or she has knowledge. What is required The partnership is in no case bound by any act of a partner after
is ACTUAL notice. So, for example, if you send a letter, see to it that dissolution:
the prior or former dealer really received it or directly inform him or xx
her. So that’s the notice requirement. (2) Where the partner has become insolvent; or

The liability of a partner under the first paragraph, No. 2, shall be Second, where the partner becomes insolvent. When you
satisfied out of partnership assets alone when such partner had been immediately know that once a partner becomes insolvent, he cannot
prior to dissolution: act on behalf of the partnership, especially if the partnership is
dissolved. So, if the acting partner has become insolvent, the act of
(1) Unknown as a partner to the person with whom the contract is the partner will not bind the partnership.
made; and
WHY? Because the law seeks to protect innocent partners.
(2) So far unknown and inactive in partnership affairs that the
business reputation of the partnership could not be said to have been

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

dissolution: So, let’s proceed to Article 1836.
xx
(3) Where the partner has no authority to wind up partnership Civil Code, Article 1836.
affairs; except by a transaction with one who - Unless otherwise agreed, the partners who have not
Three, here, the acting partner had no authority to wind up the wrongfully dissolved the partnership or the legal
partnership affairs. representative of the last surviving partner, not
insolvent, has the right to wind up the partnership
GR: Once an acting partner who has no authority to liquidate, acts to affairs, provided, however, that any partner, his legal
liquidate the partnership, it will not bind the partnership. representative or his assignee, upon cause shown, may
XPN: Take a look at the persons with whom that acting partner obtain winding up by the court. (n)
contracted with:
1. Prior or former dealer
2. Person who had not extended credit DISCUSSION
It talks about the person who is authorized to wind up the partnership
But now these third persons do not have knowledge or notice of the affairs. So to refresh your memory, ang nangyayari sa winding up na
acting partner’s want of authority. Under this paragraph, notice that stage are:
the acting partner has no authority to wind up partnership affairs. - Pay the liabilities and obligations of the partnership
- Surplus or profit will be distributed among the partners
Once the person extended credit, before the dissolution, had - Interest fo the partner in the partnership will be
knowledge or notice that the acting partner does not have authority determined
to wind up the partnership affairs then the partnership will be
relieved from liability. In short, all partnership affairs will be liquidated.
Who are the authorized persons to wind up the partnership
Notice requirement, we already discussed that. Notice of Prior of
affairs?
Former Dealer and Notice by Publication are different. Notice by
Publication will only apply to those who did not extend credit.
1. Appointed partners in the Articles of Partnership
2. Innocent partners (if partnership was wrongfully
Now in the last paragraph, we already discussed that 1825
dissolved and not written under the AoP)
(Partnership by Estoppel). Now we proceed with 1835.
3. Legal representative of the last surviving partner who is
not insolvent (those who are insolvent are not allowed to
Civil Code, Article 1835. wind up)
The dissolution of the partnership does not of itself
discharge the existing liability of any partner. Explanation (#3):

We discussed before that a legal representative, executor,

DISCUSSION administrator of the estate of the partner is not authorized to wind
GR: Under this provision existing liabilities of any partner will not be up the business because there are still surviving partners so he
discharged just because the partnership was already dissolved. So cannot liquidate.
existing pa rin yan, dissolution will not discharge the liabilities of the
partner. So who will wind up? The surviving partners.

XPN: We have here Novation (meaning nag-agree si Debtor-Partner, BUT In this case (ALL THE PARTNERS ARE DEAD)
si partnership creditors and all remaining partners to discharge ang
liability ni Debtor-Partner.) The situation is different. THIS IS AN EXCEPTION. Here, we can see
WHEN the legal representative is allowed to wind up. Therefore,
Take Note: Unanimous consent pa rin ang kailangan ng mga partners. the last surviving partner who is NOT INSOLVENT, his legal
Here, the agreement relieved the Debtor-partner from liability may representative, executor, and administrator can be authorized to
be given: wind up the partnership affairs.
● expressed (in writing or verbal, as long as may consent ng
lahat ng parties) or 4. Court (winding up can be done judicially and
● Implied (pwede natin tingnan ang contemporaneous acts extrajudicially without court intervention)
ng parties or conduct)

The last paragraph here deals with a deceased partner. Once may
liability is deceased partner, death will not discharge him of his Q: What are the powers of the liquidating partner?
obligation 1. No power to enter into new contracts (as this is not
important to the winding up of the partnership affairs and
Who will be liable here? His estate. The estate will be the one who the partnership will incur new liability)
will pay for his liabilities. BUT, take note, kapag separate property na
ng estate ng decease partnerd, sino ang preferred? Personal
creditors ng deceased partner.

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The partnership of winding up is to finish everything so it is

and the surplus applied to pay in cash the net amount
contrary to the winding up process if they enter into new
owing to the respective partners. But if dissolution is
contracts unless the partners agree then that is fine.
caused by expulsion of a partner, bona fide under the
partnership agreement and if the expelled partner is
2. He can incur obligations to complete the existing
discharged from all partnership liabilities, either by
unfinished transactions.
payment or agreement under the second paragraph of
article 1835, he shall receive in cash only the net amount
3. They can also incur debts and obligations to preserve the
due him from the partnership.
property partnership.
When dissolution is caused in contravention of the
Sayang naman din noh if there is a commercial building and
partnership agreement the rights of the partners shall be
then wala ng maintenance, nag dilapidate na, deteriorated
as follows:
na kaayo. Of course the value of that asset will decrease. So
here, sabi dito, pwede mag gasto para ma preserve ang
(1) Each partner who has not caused dissolution
property.
wrongfully shall have:
4. The liquidating party can borrow money to pay their
(a) All the rights specified in the first paragraph of this
liabilities.
article, and
In fact, pwede niya ibenta ang mga partnership assets nila
(b) The right, as against each partner who has caused the
as to satisfy the partnership obligations.
dissolution wrongfully, to damages breach of the
agreement.
5. Employ a lawyer.
(2) The partners who have not caused the dissolution
Pwede din sya mag employ ng lawyer, kasi pag mag wind
wrongfully, if they all desire to continue the business in
up na ang partnership, there is always a possibility that
the same name either by themselves or jointly with
some of the creditors will file a case, or si partnership may
others, may do so, during the agreed term for the
collectible sya sa iba, so to defend or to file a case against
partnership and for that purpose may possess the
other persons kailangan nila ng lawyer.
partnership property, provided they secure the payment
by bond approved by the court, or pay any partner who
Q: Is the liquidating partner entitled to compensation?
has caused the dissolution wrongfully, the value of his
A: Generally, no. He is only entitled to reasonable compensation.
interest in the partnership at the dissolution, less any
Quantum meruit, perhaps. Reasonable compensation in exceptional
damages recoverable under the second paragraph, No. 1
situations. So, his services were rendered extraordinarily or
(b) of this article, and in like manner indemnify him
substantially.
against all present or future partnership liabilities.
In Article 1837, this article provides for the rights of partners upon
(3) A partner who has caused the dissolution wrongfully
dissolution. The dissolution here may either be a contravention to the
shall have:
partnership agreement or not.
(a) If the business is not continued under the provisions
In the first paragraph, the dissolution here is NOT IN
of the second paragraph, No. 2, all the rights of a partner
CONTRAVENTION to the partnership agreement.
under the first paragraph, subject to liability for damages
in the second paragraph, No. 1 (b), of this article.
While the second paragraph, along with the succeeding paragraphs
that are enumerated are IN CONTRAVENTION of the partnership
(b) If the business is continued under the second
agreement.
paragraph, No. 2, of this article, the right as against his
co-partners and all claiming through them in respect of
However, remember that the provisions of the civil code in case of
their interests in the partnership, to have the value of his
partnership are only general provisions. So, these are only applicable
interest in the partnership, less any damage caused to his
in the absence of agreement between the parties.
co-partners by the dissolution, ascertained and paid to
him in cash, or the payment secured by a bond approved
If they have agreement, the contract is the law between the parties.
by the court, and to be released from all existing liabilities
It must be respected. That should be followed.
of the partnership; but in ascertaining the value of the
partner's interest the value of the good-will of the
But in case that there is none, then we have this article.
business shall not be considered. (n)
Civil Code, Article 1837.
When dissolution is caused in any way, except in
contravention of the partnership agreement, each
DISCUSSION
partner, as against his co-partners and all persons
claiming through them in respect of their interests in the It talks about a partner's lien. A partner’s lien is the partners right to
partnership, unless otherwise agreed, may have the have partnership property applied to partnership liabilities, and
partnership property applied to discharge its liabilities, whatever is left in the surplus will be distributed between and among
the partners.

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IF BUSINESS CONTINUES:
Q: What is the mode of giving surplus?
Value of the Interest of the Guilty Partner - Damages to the
A: According to 1837 it should be in cash. However, the partners can
Innocent Partners
agree that it is the property itself that will be divided.

FIRST PARAGRAPH OF 1837 Q: Ma’am, is goodwill of the business included in the disposal or
It provides for the rights of the partners when dissolution is not in does it need to be accounted to the value of interest of the guilty
contravention with the agreement. The following are the said rights: partner?
1. Basic right to apply partnership property for the payment of A: Good will of a business may be defined to be the advantage which
partnership liability. WHatever is left is the surplus. it has from its establishment or from the patronage of its customers
over and above the arrear and value of its capital.
GENERAL FORMULA
For instance, Magic Kebab has opened, masarap, talagang masarap
Partnership Property - liabilities = Surplus
ang Persian cuisine. Now, word of mouth, marami nang parokyano si
magic and people keep going back to eat their food, so may regular
RIGHTS OF EXPELLED PARTNER: customers. That is good will. Pag value ng interest ng guilty partner
● Right to receive interest in cash, as long as his liabilities are ang pag uusapan, we do not include goodwill because goodwill is
paid. Expelled partner has to pay his liabilities first before actually a subject matter na pwedeng gawing thing na i-dispose in a
he can receive his share. Liability should be paid first before contract of sale. Pwede syang ibenta but here, hindi sya pwedeng I-
surplus. include sa value ng interest ng guilty partner. But of course kung
ibebenta ang goodwill, that will only apply to commercial
Q: When will the liabilities of the expelled partner be discharged? partnerships. For GPP or general professional partnerships, it won’t
A: apply kasi very personal naman ang skills ng lawyers. So wala paring
● Upon Payment; good will dyan kasi individualistic pa rin ang approach pag may firm.
● Novation
Now let’s go to the case of Ortega versus the Court of Appeals.
SECOND PARAGRAPH OF 1837
Rights of the partners when dissolution is in contradiction to the
Ortega vs. Court of Appeals
partnership agreement. Now, there is an innocent partner and there
GR No 109248
is a guilty partner.
Facts: This case concerns the law firm of Ross, Lawrence, Selph,
RIGHTS OF THE INNOCENT PARTNER
and Carrascoso. Due to several subsequent amendments to the
● Again, generally, partnership property applies to liabilities,
articles of partnership, the firm name eventually became Misa,
then distributes the surplus to them, in cash. Still the same
Bito, and Lozada law firm.
type, but because the dissolution was wrongful because it
was in contravention to the agreement, they could be
On Feb 17, 1988, Misa wrote a letter to his partners Bito and
indemnified for damages.
Lozada, informing them of his retirement and his withdrawal from
the firm, and reminded the partners of the proper liquidation of
Second scenario, still the same, surplus plus damages. Who will pay
his participation in the firm. Hence, he filed a petition for the
for damages? The guilty partner. Anyway, apart from those rights, the
dissolution and liquidation of the partnership before the SEC's
innocent partners may also continue the business, they can even use
Securities Investigation and Clearing Department.
the same partnership name. Also, they can possess the partnership
property. So it is as if the guilty partner were simply removed.
The hearing officer ruled that Misa's withdrawal from the firm did
not dissolve the law partnership. On appeal, however, the SEC
What are the rights of the guilty partner? Reverse, so meron parin.
reversed the decision of the hearing officer, which was affirmed by
the Court of Appeals.
Partnership properties apply to the liabilities. And if there is surplus,
minus the damages because the guilty partner will pay the innocent
Issue: W/N the withdrawal of petitioner Misa dissolved the
partner the damages.
partnership.
Now, if the business is continued, the guilty partner has the right to
Ruling: Yes.
receive his interest in the partnership at the time of dissolution. Of
Dissolution, defined:
course, you subtract the damages, because he is liable for said
It is the change in the relation of the parties caused by any partner
damages. What is the mode, in what form? In cash, or bond (approved
ceasing to be associated in the carrying on, as distinguished from
by the board).
the winding up of the business.
If the guilty partner is out of the business, he can no longer be held
Main issue:
liable for the other partnership obligations. It is as if there is a buyout
A partnership that does not fix its term is a partnership at will.
by the innocent partners. That is why he is not liable because he is out
Here, the amended articles of partnership do not provide a specific
of the partnership.
period or undertaking. Hence, in the case at bar, the partnership is
one of partnership at will.
Again, the formula is:

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 Manresa ATP | 73

look at the articles of partnerships. So sa Articles of Partnership nila,

The hearing officer however, opined that the partnership was one
nakalagay dun paano mag liquidate. Kailangan ng mga independent
for a specified undertaking and not a partnership at will, citing Par.
appraisers, so etcetera. Very specific ang manner ng liquidating.
2 of the Amended Articles of Partnership, which provided that the
purpose of the partnership is to act as legal adviser, among others.
In which case sabi ng Supreme Court, we follow the agreement. Kasi
yun ang contract ng parties. That is the law between the parties. The
However, the “purpose” of a partnership is not the specific
Civil Code provisions will only apply in default of an agreement.
undertaking referred to in the law, otherwise, all partnerships,
which must necessarily have a purpose, would all be considered as
partnerships for a definite undertaking. What the law Civil Code, Article 1838.
contemplates is a specific undertaking or “project” which has a Where a partnership contract is rescinded on the ground
definite or define-able period of completion. of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without
The birth and life of a partnership at will is predicated on the prejudice to any other right, entitled:
mutual desire and consent of the partners. Furthermore, the right
to choose with whom a person wishes to associate himself with is (1) To a lien on, or right of retention of, the surplus of the
the very foundation of that partnership. Hence, its continued partnership property after satisfying the partnership
existence is therefore dependent on the constancy of that mutual liabilities to third persons for any sum of money paid by
resolve, along with each partner's capability to give it. him for the purchase of an interest in the partnership and
for any capital or advances contributed by him;
Therefore, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will, provided that he (2) To stand, after all liabilities to third persons have been
acts in good faith, not that the attendance of bad faith can prevent satisfied, in the place of the creditors of the partnership
the dissolution of the partnership, but that it can result in a liability for any payments made by him in respect of the
for damages. partnership liabilities; and

The liquidation of the assets of the partnership following its (3) To be indemnified by the person guilty of the fraud or
dissolution is governed by various provisions of the Civil Code; making the representation against all debts and liabilities
however, an agreement of the partners, like any other contract, is of the partnership. (n)
binding among them and normally takes precedence to the extent
applicable over the Code's general provisions.
DISCUSSION
In this case, the SC found that paragraph 8 of the amended articles The first sentence tells us that the partnership contract can be
of partnership provide that in the event of the death or rescinded based on fraud. Fraud can vitiate consent under Article
retirement of any partner, his interest in the partnership shall be 1390. So in which case, your remedy is Annulment because it is
liquidated in accordance with the existing agreements. The term voidable. But here, it talks about rescission. When we say rescission,
"retirement" must have been used in a generic sense, to mean the we have Article 1191 and Article 1381. Article 1191 pag reciprocal
dissociation of a partner, either by resignation or withdrawal, that Obligation, Article 1381 based on lesion. So a different decision for
dissolves it. Annulment. So here, the codal said Rescission, so sa name Rescission.
But actually that should be an Annulment kasi based on fraud.
Therefore, the decision of the CA is affirmed.
Q: What are the rights of the injured party here? He entered into the
Issue as to whether Misa acted in bad faith: contract of partnership and then later on he learned that it was due
No. The CA correctly viewed his withdrawal to have been spurred to the fraudulent acts of his partners, in fraud ang pag entice sa kanya
by interpersonal conflict among the partners. It would not be right to enter into the partnership kaya naconvince siya.
to let any of the partners remain in the partnership under such an A: L-S-I
atmosphere of animosity against their will. 1. Lien: Right to a lien on, or right of retention of, the surplus
of the partnership property after satisfying partnership
Thus, for as long as the reason for the withdrawal of a partner is liabilities for any sum of money paid or contributed by him.
not contrary to the dictates of justice and fairness, bad faith 2. Subrogation: Right to subrogate, in place of the partnership
cannot be said to characterize the act. creditors after payment of partnership liabilities;
3. Indemnification: Right of be indemnification against all
Bad faith, defined: debts and liabilities of the partnership
conscious and intention design to do a wrongful act for a dishonest Civil Code, Article 1839.
purpose or moral obliquity. In settling accounts between the partners after
dissolution, the following rules shall be observed, subject
DISCUSSION to any agreement to the contrary:
I just want to emphasize the issue when it comes to litigation. So here, (1) The assets of the partnership are:
gusto ipa liquidate ng isa sa mga lawyers ng partnership ang kanilang
partnership. Now, he wanted the tribunal to appoint a receiver para (a) The partnership property,
mag-liquidate daw ng kanilang partnership. Sabi ng Supreme Court,
default lang naman ang rules ng Civil Code as to liquidation. Take a

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

(2) The liabilities of the partnership shall rank in order of Let’s discuss the estate of Rim and estate of Parson. The issue here is
payment, as follows: whether or not the certificate of the golf club is part of the assets of
the partnership.
(a) Those owing to creditors other than partners,
Baldonado Case
(b) Those owing to partners other than for capital and
profits,
DISCUSSION
(c) Those owing to partners in respect of capital, In this case, you will see this membership certificate acquired by a
partner from the first partnership. Now, one of the partners died and
(d) Those owing to partners in respect of profits. the partnership dissolved. That property was carried on to the books
of the succeeding partnerships made. Actually, he had a lot of
(3) The assets shall be applied in the order of their partnerships composed of different persons, but some partners
declaration in No. 1 of this article to the satisfaction of remained as partners in the partnership.
the liabilities.
Now, the Estate of Vrim wanted to collect the MC, as the Estate owns
(4) The partners shall contribute, as provided by article that; that is not a partnership property. The partnership said it is a
1797, the amount necessary to satisfy the liabilities. partnership property because it was put in the books. So, the SC
traced the ownership of the membership certificate. At the time that
(5) An assignee for the benefit of creditors or any person the membership certificate was acquired, it was impossible for the
appointed by the court shall have the right to enforce the present partnership to acquire it because the membership certificate
contributions specified in the preceding number. was acquired a couple of years ago before the partnership was
created.
(6) Any partner or his legal representative shall have the
right to enforce the contributions specified in No. 4, to Also, the Supreme Court said that if it really is a partnership property,
the extent of the amount which he has paid in excess of it is not the partnership property of the new partnership because this
his share of the liability. partnership has a different juridical personality compared to the
previous one.
(7) The individual property of a deceased partner shall be
liable for the contributions specified in No. 4. It was ultimately found by the supreme court in this case that it was
not really a partnership of a party. Yung membership certificate
(8) When partnership property and the individual pinangalan lang sa iba because they want to accommodate a certain
properties of the partners are in possession of a court for japanese national para maka avail ng amenities ng club. The supreme
distribution, partnership creditors shall have priority on court said that the previous partnership has been dissolved, so the
partnership property and separate creditors on partnership now existing is different although they have an almost
individual property, saving the rights of lien or secured same name. Kung ano yung partnership property before just because
creditors. it is stated in partnership books will not automatically be part of the
partnership siya.
(9) Where a partner has become insolvent or his estate
is insolvent, the claims against his separate property shall 1. Order of payment of Liabilities
rank in the following order: First you pay those owing to the partnership creditors,
Second, you pay those owing to the partners other than for
(a) Those owing to separate creditors; capital and profits such as advances or loans. Third, you
return the capital to the partners. Pag na satisfy mo na yung
(b) Those owing to partnership creditors; dalawa thats the time you go to the capital. And lastly,
those owing to partners in respect of profit.
(c) Those owing to partners by way of contribution. (n)
That's the order of how the property is disposed.
DISCUSSION How about with respect to the industrial partner?
Here we have the rules on Liquidation and Distribution of the assets Of course his capital is services. Services cannot be
of the partnership after dissolution. In the absence of an agreement, returned, so he is the very least in the priority. Sa profit lang
we apply this. But if there is an agreement, then the agreement siya.
should be followed.
B contributed P200,000. C and D, each of them, contributed
(1) The assets of the partnership are: P100,000. The total capital contribution is P800,000. Now, as the
business went along, they earned profit and the business flourished.
(a) The partnership property, So, when they decided to dissolve the partnership, they already had

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 Manresa ATP | 75

assets. Now, the assets from the capital contribution amounted to Example: what if instead of 80,000, their partnership liability
P1,500,000. becomes P1.6M. Remember that the total partnership assets earlier
was P1.5M, then the liabilities became P1.6M. Subtracting this, we
Now, they also had debts and liabilities: E,F, and G. have a remaining liability of P100,000.
● E - P50,000.
● F - P20,000. Remember that we have to first go to the partnership creditor, but
● G - P10,000. here, it appears that it is not enough to satisfy the capital, the loan
from A. So now, in accordance with 3(m), the partners shall contribute
So, total liability is P80,000. Now, let us follow the rule. for the loss. In the absence of an agreement, in accordance with their
capital contribution. Anyway, we will get there.
Of course, we have to [inaudible] this one, other than the capital.
Maybe during the business, A, daghan man siyag kwarta, nag- So number 4 sa ta. Under number 4., take no of the sharing in 1797,
advance siya para sa partnership. So, nagpautang siya. Si A, if you can still remember.
nagpautang ng P20,000.
You will recall under 1797 on sharing of profits and losses, it must be
Now, let’s apply. based on the agreements between the parties. IF THERE IS AN
AGREEMENT.
First, pay the partnership creditor.
TOTAL partnership assets - P1.5M If there is no agreement, as to the losses sa profit, so , the basis shall
be in the same proportion as to the profit sharing, if there is no profit
SO: sharing provision, then, in accordance to their capital contribution.
P1.5M minus (first, sa partnership creditors) P80,000 = P1,420,000.
Q: Consequently, how do you divide the 100,000?
Next, the liability of the partner. Magkano? P20,000. A: A - 50,000
SO: B - 25,000
P1,420,000 - (20,000) = P1,400,000. C and D - 12,500.

Next, capital. That is how you divide. This, on application, is the absence of an
agreement, plus the profit sharing na proportion nila. This is the
A - 400,000 (.5) Distribute to the partners in proportion. default capital contribution.
B - 200,000 (.25)
C - 100,000 (.125) The profit is 600,000. How do you divide? In (5) An assignee for the benefit of creditors or any person appointed
D - 100,000 (.125) proportion to their capital contribution. by the court shall have the right to enforce the contributions
specified in the preceding number.
The capital is P800,000.
Last, profit (6) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
A - 300,000 -> (600 x .5)
amount which he has paid in excess of his share of the liability.
B- 150,000 -> (600 x .25)
C- 75,000 -> (600 x .125) These refers to the rights of a partner or assignee where assets are
D- 75,000 -> (600 x .125) insufficient.
To compute, you just take a look at the sharing here.
So again, same thing, insufficient ang assets to pay for the partnership
liabilities. Any partner here can contribute actually in excess of his
First, partnership creditors. share from the loss. For instance, B cannot pay or C or D, then one of
Second, those going to the partners other than capital and profit. them will shoulder. Si A man ang hawod, si A man ang dato.
Third, capital and
Last, profit. Scenario:
Q: What if A shoulders the 100,000? What will happen?
Do not forget the order of applying the assets of the partnership. A: A has the right to enforce their sharing. He can recover from the
other partners their respective shares sa loss. So D, he can cover
Okay so again, there is another rule for those insolvent. But, we will 25,000, and 12,500s. It is as if D is reimbursed for his payment.
get there.
The right of the partner who shouldered the share in the loss which is
Ok, now we go now to number 3, — Application of asset to order to more than his actual share, he can enforce his right under Article
payment, 1797. He can recover from the other partners who did not pay their
respective shares in the losses.
The partnership property must be exhausted first before the other
partner would be held liable with their separate and individual
property. (7) The individual property of a deceased partner shall be liable for
the contributions specified in No. 4.
That presupposes a situation when the partnership assets are not
What if one of the partners is deceased. Again, the partnership assets
enough to satisfy the partnership liability.
are not enough to satisfy the partnership liabilities. So, the creditors

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or partnership creditors can go to the separate property of the Una jud maka collect sa separate and individual property ang
partners. partnership creditor.

Even if the partner is dead, his estate can still be held liable for the Now we proceed to number 9.
partnership obligations. However, you have to consider, to be Claims against separate property of an insolvent partner or
discussed later, Doctrine of Marshalling of Assets. In the asset of the insolvent estate of a deceased partner.
partnership, preferred are the partnership creditors. They are the
priority in the partnership assets. But, when it comes to the separate Under number 9, we don’t follow this rule, kay partnership assets
properties of the partners, of course, their personal creditors, not the man ni.
partnership creditors.
(9) Where a partner has become insolvent or his estate is insolvent,
For instance, D is dead. There is a liability of P25,000. Ang the claims against his separate property shall rank in the following
magbabayad jan, kunwari walang ibang personal creditors, his estate order:
will pay for the P25,000.
(a) Those owing to separate creditors;
(8) When partnership property and the individual properties of the
partners are in possession of a court for distribution, partnership (b) Those owing to partnership creditors;
creditors shall have priority on partnership property and separate
creditors on individual property, saving the rights of lien or secured (c) Those owing to partners by way of contribution.
creditors. This is with respect to his separate property.

DOCTRINE OF MARSHALING OF ASSETS First, we said, the personal creditors are preferred if separate or
Again, to emphasize, partnership assets should be applied to individual property. So here, for the separate or individual property
partnership liabilities and the individual and separate properties of of the deceased partner, his separate creditors will be the first to
the partners will have to be applied to his debts, his personal debts. claim.

That’s the order of priority. Second, those owing to the partnership creditors, we already applied
that earlier.
Under rule number 8, if the partnership property is not enough to
satisfy the obligations in favor of the partnership creditors, the Then third, those owing to partners by way of contribution, so last na
partnership creditors cannot claim over the debtor-partners’ ang mga partners.
individual properties until the liabilities of the personal creditors are
paid. Again, so if Doctrine of Marshaling of Assets: partnership assets
prefer partnership creditors; if personal property prefer personal
In the same example, what if D has liability of P80,000 in favor of H. property. Do not forget that.
What if H is a personal creditor of D.
So lets go to the case of Villareal vs Ramirez
How do you divide the assets of the partnership?
So again, we follow the same thing. Now, for example, P75,000 lang
ang ang pera ni D. But the collectible of H is P80,000, so of course dili
Villareal vs Ramirez
enough noh? The remaining balance, each must go after the other
separate properties of D. P1.6M napud.
FACTS: In July 1984, Luzviminda J. Villareal, Carmelito Jose and
Jesus Jose formed a partnership with a capital of P750,000 for the
Q: What if hindi the partnership assets are not enough to pay for
operation of a restaurant and catering business under the name
their liabilities?
Aquarius Food House and Catering Services.

Assets = P1.5M What if D’s separate property amounts to September 1984, Donaldo Efren C. Ramirez joined as a partner in
Liabilities = P1.6M 85,000? the business with a capital contribution of P250,000.
Balance = 100,000
H has a collectible of 80,000 from D. In January 1987 Jesus Jose withdrew from the partnership and his
His liability to the partners is 12,500. capital contribution of P250,000 was refunded to him in cash.
Based on this provision, which should be applied first?
First, apply the 85,000 to the personal creditor. Personal creditors are In the same month, without prior knowledge of Ramirez, Villareal
prioritized in the separate or individual property. Since the 85,000 is closed down the restaurant, allegedly because of increased rental.
separate property and not included in the partnership, then the The restaurant furniture and equipment were deposited in the
personal creditor is preferred. Ramirez house for storage.

So, what is left in the assets is 5,000, then he becomes insolvent, this On May 1, 1987 Ramirez sent a letter to Villareal, saying that they
5,000 will apply to the partnership creditor. So, if there is still a were no longer interested in continuing their partnership or in
balance, goodbye, wala na siyay kwarta. reopening the restaurant, and that they were demanding the
return of their capital contribution. Despite oral and written

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requests, such demands were ignored. (Primelink) is a domestic corporation engaged in real estate
development. The Lazatin siblings are co-owners of a parcel of lot
Ramirez filed a complaint before the Regional Trial Court for the in Tagaytay.
collection of a sum of money from Villareal.
In 1994, Primelink and the Lazatins entered into a Joint Venture
In their answer, Villareal contended that Ramirez had expressed a Agreement wherein the siblings would contribute their land and
desire to withdraw from the partnership and had called for its Primelink undertook to contribute money, property and industry
dissolution under Articles 1830 and 1831 of the Civil Code; and that to develop the said property into a subdivision called Tagaytay
the latter had no right to demand a return of their equity because Garden Villas.
their share, together with the rest of the capital of the partnership,
had been spent as a result of irreversible business losses. After sending the issue to arbitration and sending demand letters
in 1998, the Lazatins filed a complaint to rescind the JVA. In said
ISSUE: Whether or not the partnership was dissolved? case, Primelink was declared in default or failing to file an answer
and for asking multiple motions for extension. The LAZATINs were
HELD: Yes. Both the trial and the appellate courts found that a able to establish fraud on the part of PRIMELINK of what appears
partnership had indeed existed, and that it was dissolved on March to be a scheme or plot to reduce and eventually blot out the net
1, 1987. They found that the dissolution took place when Ramirez incomes generated from sales of housing units by the defendants.
informed Villareal of their intention to discontinue it because of
the formers dissatisfaction with, and loss of trust in, the Ramirez The trial court ruled in favor of the Lazatins and it ordered
management of the partnership affairs. These findings were amply Primelink to return the possession of said land to the Lazatins as
supported by the evidence on record. Ramirez consequently well as some improvements which Primelink had so far over the
demanded from Villareal the return of their one-third equity in the property without the Lazatins paying for said improvements
partnership.
Primelink is now assailing the order; that turning over
improvements to the Lazatins without reimbursement is unjust;
We held that Ramirez have no right to demand from Villareal the that the Lazatins did not ask the properties to be placed under their
return of their equity share. Except as managers of the partnership, possession but they merely asked for rescission.
Villareal did not personally hold its equity or assets. The
partnership has a juridical personality separate and distinct from ISSUE
that of each of the partners. Since the capital was contributed to Whether or not the Lazatins are entitled to the possession of the
the partnership, not to Villareal, it is the partnership that must parcels of land covered by the JVA and the improvements thereon
refund the equity of the retiring partners. introduced by Primelink as their contribution to the JVA

However, before the partners can be paid their shares, the HELD
creditors of the partnership must first be compensated. Yes, because the parcels of land, as well as the improvements
made thereon, were contributed by the parties to the joint venture
Therefore, the exact amount of refund equivalent to Ramirez' one- under the JVA, hence, formed part of the assets of the joint
third share in the partnership cannot be determined until all the venture.
partnership assets will be liquidated and all partnership creditors
have been paid. As a general rule, the relation of the parties in joint ventures is
governed by their agreement. When the agreement is silent on any
particular issue, the general principles of partnership may be
DISCUSSION resorted to.
In this case, one of the partners wanted to get his share. But the
Supreme Court said that his share from the partnership cannot still be When the RTC rescinded the JVA on complaint of respondents
determined. First, the debts or liabilities of the partnership must be based on the evidence on record that petitioners willfully and
paid. The Supreme Court discussed the order of application of assets. persistently committed a breach of the JVA, the court thereby
You have to first liquidate before you can demand your share in the dissolved/cancelled the partnership.
partnership because it is only through liquidation that the partner’s
interest can be determined. With the rescission of the JVA on account of petitioners' fraudulent
acts, all authority of any partner to act for the partnership is
The Supreme Court said; “Bayaran mo na ang utang and then if may terminated except so far as may be necessary to wind up the
partner na nagpa-utang, bayaran pa siya, usa pa ibalik ang capital partnership affairs or to complete transactions begun but not yet
and ang profit.” finished.

The Supreme Court said you cannot ask for your share without On dissolution, the partnership is not terminated but continues
liquidating the partnership. That’s the point. until the winding up of partnership affairs is [Link] up
means the administration of the assets of the partnership for the
purpose of terminating the business and discharging the
Primelink Properties vs. Lazatin obligations of the partnership.
The transfer of the possession of the parcels of land and the
FACTS: Primelink Properties and Development Corporation improvements thereon to respondents was only for a specific

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purpose: the winding up of partnership affairs, and the partition (2) When all but one partner retire and assign (or the
and distribution of the net partnership assets as provided by law. representative of a deceased partner assigns) their rights
in partnership property to the remaining partner, who
After all, Article 1836 of the New Civil Code provides that unless continues the business without liquidation of
otherwise agreed by the parties in their JVA, respondents have the partnership affairs, either alone or with others;
right to wind up the partnership affairs:
(3) When any partner retires or dies and the business of
Art. 1836. Unless otherwise agreed, the partners who have not the dissolved partnership is continued as set forth in Nos.
wrongfully dissolved the partnership or the legal representative of 1 and 2 of this article, with the consent of the retired
the last surviving partner, not insolvent, has the right to wind up partners or the representative of the deceased partner,
the partnership affairs, provided, however, that any partner, his but without any assignment of his right in partnership
legal representative or his assignee, upon cause shown, may obtain property;
winding up by the court.
(4) When all the partners or their representatives assign
It must be stressed, too, that although respondents acquired their rights in partnership property to one or more third
possession of the lands and the improvements thereon, the said persons who promise to pay the debts and who continue
lands and improvements remained partnership property, subject the business of the dissolved partnership;
to the rights and obligations of the parties, inter se, of the creditors
and of third parties under Articles 1837 and 1838 of the New Civil (5) When any partner wrongfully causes a dissolution
Code, and subject to the outcome of the settlement of the and the remaining partners continue the business under
accounts between the parties as provided in Article 1839 of the the provisions of article 1837, second paragraph, No. 2,
New Civil Code, absent any agreement of the parties in their JVA to either alone or with others, and without liquidation of
the contrary. Until the partnership accounts are determined, it the partnership affairs;
cannot be ascertained how much any of the parties is entitled to,
if at all. (6) When a partner is expelled and the remaining
partners continue the business either alone or with
It was thus premature for petitioner Primelink to be demanding others without liquidation of the partnership affairs.
that it be indemnified for the value of the improvements on the
parcels of land owned by the joint venture/partnership. 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
DISCUSSION
satisfied out of the partnership property only, unless
Here, the developer and the owner, nag-away. there is a stipulation to the contrary.

Now, the court had an order that the possession of the land must be When the business of a partnership after dissolution is
returned to the landowner. Here, the developer contended that it is continued under any conditions set forth in this article
unfair because it was not reimbursed, that they have put the creditors of the dissolved partnership, as against the
developments to the land. The Supreme Court said, how can you ask separate creditors of the retiring or deceased partner or
for actual value of reimbursement when in fact you do not have a the representative of the deceased partner, have a prior
liquidation? right to any claim of the retired partner or the
representative of the deceased partner against the
The Supreme Court said, settle first the account of the parties. You person or partnership continuing the business, on
pay first all liabilities before you demand reimbursement. That’s the account of the retired or deceased partner's interest in
only time you will see how much you’re really entitled. Liquidation the dissolved partnership or on account of any
before claiming. consideration promised for such interest or for his right
in partnership property.
Now, we proceed to 1840, another lengthy provision.
Nothing in this article shall be held to modify any right of
Civil Code, Article 1840. creditors to set aside any assignment on the ground of
In the following cases creditors of the dissolved fraud.
partnership are also creditors of the person or
partnership continuing the business: The use by the person or partnership continuing the
business of the partnership name, or the name of a
(1) When any new partner is admitted into an existing deceased partner as part thereof, shall not of itself make
partnership, or when any partner retires and assigns (or the individual property of the deceased partner liable for
the representative of the deceased partner assigns) his any debts contracted by such person or partnership. (n)
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
(1) When any new partner is admitted into an existing partnership,
more third persons, if the business is continued without
or when any partner retires and assigns (or the representative of the
liquidation of the partnership affairs;
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

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 Manresa ATP | 79

or more third persons, if the business is continued without liquidation Number 4 under paragraph 1, in case all partners assign their interest
of the partnership affairs; in the partnership to third persons, what is the effect?
1. The creditor in the dissolved partnership can raise claims
Because there is a change in the relation of the parties, maybe he from the 3rd person the 3rd person promises to pay his
retired, died, etc. Here, the enumeration given under paragraph 1 are liability; or
the instances when the creditors have dissolved the partnership and 2. In case of fraud of creditors - he deliberately sold his
the creditors of the new partnership are given equal rights. In interest in the partnership to the partners to escape
partnership property. liability. In which case, the new partnership or the 3rd
person will be held liable.
(2) When all but one partner retire and assign (or the representative
of a deceased partner assigns) their rights in partnership property to Xx The use by the person or partnership continuing the business of
the remaining partner, who continues the business without the partnership name, or the name of a deceased partner as part
liquidation of partnership affairs, either alone or with others; thereof, shall not of itself make the individual property of the
deceased partner liable for any debts contracted by such person or
Paragraph 2 on the other hand is with the newly admitted partner, I
partnership.
think we already discussed this.
Last paragraph, this refers to a deceased partner.
Generally, the newly admitted partner is not liable with respect to his
separate or individual property to the existing liabilities of the The situation: the partner died and there is no liquidation. They
partnership. His liability will only be limited to his share in the entered into a new contract, even if the partnership was already
partnership property, that's the general rule, except if there is a dissolved, a new partnership. Now, in their firm name, the deceased
stipulation that for existing liabilities we have contracted before partner is still included. Will the estate of the deceased partner be
entering the partnership, the separate or individual properties are held liable? The fact alone that the name of the deceased partner is
also liable, in which case, the stipulation shall govern. included does not mean that his liability will extend to his separate
and individual properties. The deceased partner’s liabilities are
But general rule, the liability of the limited partner is limited to his limited to his share in the partnership property.
share in partnership property.
Civil Code, Article 1840.
Q: What is the effect if it is stipulated that the newly admitted When any partner retires or dies, and the business is
partner would also be liable to the partnership liabilities, that the continued under any of the conditions set forth in the
partnership liabilities would extend to his separate and individual preceding article, or in article 1837, second paragraph,
properties? No. 2, without any settlement of accounts as between
A: So his properties would be equally liable to the new creditors and him or his estate and the person or partnership
to the old creditors before he became a partner. continuing the business, unless otherwise agreed, he or
his legal representative as against such person or
(3) When any partner retires or dies and the business of the dissolved partnership may have the value of his interest at the date
partnership is continued as set forth in Nos. 1 and 2 of this article, of dissolution ascertained, and shall receive as an
with the consent of the retired partners or the representative of the ordinary creditor an amount equal to the value of his
deceased partner, but without any assignment of his right in interest in the dissolved partnership with interest, or, at
partnership property; his option or at the option of his legal representative, in
We have an equitable lien of dissolved partnership creditors. The lieu of interest, the profits attributable to the use of his
retiring or deceased partner here sold his interest to a 3rd person, right in the property of the dissolved partnership;
now, the partnership has been dissolved but the business continued provided that the creditors of the dissolved partnership
without liquidation. The retiring partner has a claim against the as against the separate creditors, or the representative
partnership. Now, which partnership? The dissolved or the of the retired or deceased partner, shall have priority on
continuing? The continuing partnership. any claim arising under this article, as provided article
1840, third paragraph. (n)
The claim may be his interest in the partnership, or the compensation,
meaning he bought out his interest in the partnership, or his right in
the partnership property. So, the creditors of the dissolved DISCUSSION
partnership have an equitable lien over the retiring or deceased This talks about the rights of a retiring partner and a deceased partner
partner’s interest in the partnership property. Of course, this is in the when the business is continued without settlement of accounts.
new partnership.
First, to have the value of his interest ascertained. What is the
They have a lien and this lien is prioritiezed over the separate reckoning point, value as of the date of the dissolution.
creditors ng deceased partner or retiring partner.
Second, to receive the value of his share, of course, with interest or
(4) When all the partners or their representatives assign their rights at his option, or it could be profits for the usage of his rights to the
in partnership property to one or more third persons who promise to property. So the profits attributable to the use of his right in the
pay the debts and who continue the business of the dissolved property of the dissolved partnership.
partnership;

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So again, Doctrine of Marshalling of Assets. The creditors of the

dissolved partnership have a priority on any claim of the retired or the
deceased partner as against his personal creditors.

Civil Code, Article 1842.

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. (n)

DISCUSSION
This provides for a partner’s right to demand an accounting for the
value of his interest. If there is an agreement as to when a partner can
demand an accounting, that should be followed. If there is no
agreement as to when accounting can be demanded, we have this
provision. This right accrues after dissolution, after the file of
accounting is done, unless there is an agreement to the contrary.

Q: Who must render an account?

1. Winding up partner - in charge with liquidation
2. Surviving partners
3. Person or partnership continuing the business

If a partner files a case for dissolution and liquidation, it should

include all partners, not only the managing partner. Because it is not
only the managing partner who has interest in the partnership. All the
partners have an interest, and so you have to implead everybody. In
case of doubt, sue everyone.

GR: Upon dissolution a partner is entitled to the payment of what may

be due after liquidation.
XPN: When there is already a settlement or an agreement as to what
a partner shall receive, liquidation may no longer be necessary.

So for instance, in the Articles of Partnership (AOP), it was placed

there that upon liquidation, these are to be received by the partners,
and if a partner leaves, he gets this specific amount - that will be
followed. Anyway, let’s go to the cases.

Leung v. IAC, so here, yung panciteria, can you remember? Yes, that
case. The allegation of Leung is, Yu cannot file an action for accounting
because it has already prescribed. The basis is 10 years for a written
contract. The SC said, the action to demand accounting has not yet
prescribed. Why? Prescription begins to run only when the final
accounting is done. So final accounting before filing an action. The
prescriptive period will not run unless there is a final accounting.

Same goes with this case of Ignase (?). He said the prescriptive period
is only 4 years (maybe his basis is the general provision on
prescription). He said that since 4 years have passed, it has already
prescribed. The SC said that the prescriptive period to ask for
accounting will not start unless and until there is a final accounting.
So the final accounting should be done first before prescriptive period
will run.

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