OVERVIEW
1. What is a partnership? Commercial: partnership and partners may be
Art. 1767 – By the contract of partnership two or
more persons bind themselves to contribute
money, property, or industry to a common fund,
with the intention of dividing the profits among
themselves.
Two or more persons may also form a
partnership for the exercise of a profession.
2. Distinguish Civil partnership from
Commercial partnership
Civil Partnerships
-not pursued in mercantile manner;
-not habitual or not in the regular pursuit of
business
Commercial Partnerships
-in pursuit of industry or commerce
-characterized by habituality or in the regular
pursuit of business
-undertaken by merchants
Significance of Distinction
Commercial partnerships were deemed to be,
and subject to Code of Commerce provisions
for, merchants;
Registration was the key element for coming
into existence of a commercial partnership and
its acquiring of a juridical personality; whereas,
it was the perfection of a contract of partnership
which brought about the separate juridical
personality of a civil partnership
Commercial partners were solidarily liable for
partnership debts albeit in a subsidiary manner,
while civil partners were primarily but only
jointly liable for partnersip debts.
More on Significance of Distinction
joined in one action BUT the private property of
the partners could be taken in payment of the
partnership debts only after the common
property of the partnership had been exhausted.
- it is a more solemn affair
-failure to register—no juridical personality
-requirements not complied with—no legal
existence individual members may sue jointly as
individuals, and persons dealing with them in
their joint capacity will not be permitted to deny
their right to do so.
Civil: partnership existed as a separate juridical
person even when no formal partnership
agreement was entered into and registered, thus,
the obligations of the partners for partnership
debts were held to be pro rata.
Compania Agricola De Ultramar v. Reyes
Facts: Compañia Agricola de Ultramar, a
partnership legally organized in Madrid, Spain,
domiciled in the city of Manila, presented a
complaint in the justice's court of the town of
Quingua, Province of Bulacan, against Anacleto
Reyes and others, setting forth that the
defendants were tenants of the estate called
Tabang, San Marcos, and Dampol, the property
of the plaintiff company located in the said town
of Quingua, each one of whom were occupying
the quantity of land expressed therein without
having paid the rent for the years 1899, 1900,
and 1901, notwithstanding the fact that said
payment had been demanded several times at the
end of each year. CFI declared plaintiffs as a
commercial partnership and therefore registry in
the commercial register was necessary to
institute an action.
Issue: W/N petitioner is a commercial
partnership?
Held: No, they are a civil partnership; hence
there is no need for registration in the register.
From the articles of association it will be seen
that the plaintiff company was organized
expressly under the provisions of the Civil Code,
on the 6th day of February, 1893.
From the petition of the plaintiff and the bill of
exceptions it appears that the defendants failed
and refused to pay the rent for any of the years
previous to 1899. Assuming, without finding it
to be a fact, that the defendants had paid the
rents for previous years, then they thereby
recognized the plaintiff company as an entity
and are thereby now estopped from setting up
the contrary.
While conditions precedent must always be
performed, in order that a corporation may have
a legal existence, it does not by any means
follow that objection to the existence of a
corporation on this ground alone can be raised
by any and every person, and in every
proceeding. This objection can always, with few
exceptions, be raised by the State.
The defendants having recognized the existence
of the plaintiff as an entity capable of dealing
with private persons, they are thereby estopped
from denying that fact.
The plaintiff company, having complied with the
forms required for the organization of
associations of its class under the Civil Code, is
a juristic person recognized by law, and has
capacity to maintain the present action.
Note: The distinction between Civil and
Commercial partnership has been abolished by
the enactment of the New Civil Code.
3. Tri-level existence of Partnership
The Law on Partnerships under the New Civil
Code treats of the partnership in three “levels of
existence,” namely:
(a) As a contractual relationship between and
among the partners;
(b) As a means or medium of doing business,
through the structure of separate juridical
personality, or as the basis of creating multi-
leveled contractual relations among various
parties; and
(c) As a business enterprise, or a business
venture, or what is termed in other disciplines as
”a going concern.”
4. Attributes of Partnership
Every partnership existing under the Law on
Partnerships of the Civil Code is endowed with
the following essential attributes:
(a) Informal/Consensual and Weak Juridical
Personality (See Art 1830 dissolution on why it
is weak);
(b) Mutual agency;
(c) Delectus personae;
(d) Partners Burdened with Unlimited Liability
(except for limited partners in a limited
partnership).
Informal/Consensual nature
Mere meeting of minds of both parties can
constitute a partnership. A partnership has a
separate juridical personality distinct from each
of its partners.
Exceptions to the rule of the Consensual
Nature of Partnership
(a)Under Article 1772, that every contract of
partnership having a capital of P3,000 or more
shall appear in a public instrument, which must
be recorded with the Securities and Exchange
Commission (SEC).
(b) Under Articles 1771 and 1773, where
immovable property or real rights are
contributed to the partnership:
(i) in which case a public instrument shall be
necessary; and
(ii) the contract of partnership is void, if an
inventory of said property is not made, signed by
the parties and attached to the public instrument;
(c) Under Articles 1843 and 1844, this requires
particular provisions describing limited partners
in the articles of limited partnership, and which
must be formally registered with the SEC.
Mutual Agency
Art 1803. Each of the partners is an agent of the
partnership and all of the other partners in the
pursuit of partnership affairs.
When the manner of management has not been
agreed upon, all the partners shall be considered
agents and whatever any one of them may do
alone shall bind the partnership.
Art. 1818. Every partner is an agent of the
partnership for the purpose of its business, and
the act of every partner, including the execution
in the partnership name of any instrument, for
apparently carrying on in the usual way the
business of the partnership of which he is a
member binds the partnership.
Principle of Mutual Agency: it defines the
prerogative of every partner to participate in the
management of the partnership business.
Delectus Personae
Selection of Persons
One selects his partners on the basis of their
personal qualifications and qualities (solvency,
ability, honesty, trustworthiness)
Mutual representation: act of one is considered
the act and responsibility of the others as well.
Contract of Partnership creates the most
personal relationship between and among the
partners which when broken, also breaks the
bond of the partnership.
Art 1770. Partnership must be established for the
common benefit or interest of the partners.
Most Fiduciary in Character
-Most confidential manner
-Once that trust or confidence is lost, the
contract is deemed breached or at least at an end
Unlimited Liability
Even without any express provision of law and
despite the separate juridical personality of the
partnership, unlimited liability would be the rule
for partners in a partnership setting for the basic
reason that partners essentially occupy the
position of sole proprietors albeit associated
with other sole proprietors; the basic rule is that
sole proprietors are always unlimitedly liable for
business debts and obligations even as to their
properties not used nor devoted for the business
enterprise. The reason why a sole proprietor is
liable with his non-business assets for debts and
liabilities arising from a business venture is
because he controls the business enterprise, and
all profits go to him whom he can devote into
non-business matters, and thereby he must also
absorb the losses from the business. Therefore if
his business goes bankrupt, he cannot insist that
his business creditors are limited only to the
business assets for the satisfaction of their
claims, and as all benefits and profits can be
channeled to his personal non-business affairs,
then his non-business properties must also be
held liable for the satisfaction of those claims; to
rule otherwise would mean that the owner
benefits fully on the profits, but lets his creditors
absorb the losses from the business. It is a
commercial law truism that it is the owner or
equity holders of the business enterprise, and not
the creditors, who must stand ready to absorb the
losses of the enterprise.
5. What are the essential requisites of
Partnership?
- Agreement to contribute money, property or
industry to a common fund (mutual contribution
to a common stock); and
-Intention to divide the profits among the
contracting parties (joint interest in the profits)
Pascual v. CIR
Facts: Petitioners bought two (2) parcels of land
and a year after, they bought another three (3)
parcels of land. Petitioners subsequently sold the
said lots in 1968 and 1970, and realized net
profits. The corresponding capital gains taxes
were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said
years. However, the Acting BIR Commissioner
assessed and required Petitioners to pay a total
amount of P107,101.70 as alleged deficiency
corporate income taxes for the years 1968 and
1970. Petitioners protested the said assessment
asserting that they had availed of tax amnesties
way back in 1974. In a reply, respondent
Commissioner informed petitioners that in the
years 1968 and 1970, petitioners as co-owners in
the real estate transactions formed an
unregistered partnership or joint venture taxable
as a corporation under Section 20(b) and its
income was subject to the taxes prescribed under
Section 24, both of the National Internal
Revenue Code that the unregistered partnership
was subject to corporate income tax as
distinguished from profits derived from the
partnership by them which is subject to
individual income tax; and that the availment of
tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual
income tax liabilities but did not relieve them
from the tax liability of the unregistered
partnership. Hence, the petitioners were required
to pay the deficiency income tax assessed
Issue: Whether the Petitioners should be treated
as an unregistered partnership or a co-ownership
for the purposes of income tax.
Held: The Petitioners are simply under the
regime of co-ownership and not under
unregistered partnership.
By the contract of partnership two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among
themselves (Art. 1767, Civil Code of the
Philippines). In the present case, there is no
evidence that petitioners entered into an
agreement to contribute money, property or
industry to a common fund, and that they
intended to divide the profits among themselves.
The sharing of returns does not in itself establish
a partnership whether or not the persons sharing
therein have a joint or common right or interest
in the property. There must be a clear intent to
form a partnership, the existence of a juridical
personality different from the individual
partners, and the freedom of each party to
transfer or assign the whole property. Hence,
there is no adequate basis to support the
proposition that they thereby formed an
unregistered partnership. The two isolated
transactions whereby they purchased properties
and sold the same a few years thereafter did not
thereby make them partners. They shared in the
gross profits as co- owners and paid their capital
gains taxes on their net profits and availed of the
tax amnesty thereby. Under the circumstances,
they cannot be considered to have formed an
unregistered partnership which is thereby liable
for corporate income tax, as the respondent
commissioner proposes.
6. What are the Characteristics of
Partnership?
a. Nominate and Principal
-given a specific name
-can exist on its own
-set of rules governing the contract
-if the contract contains these two elements (1.
mutual contribution to a common stock, and 2.
joint interest in the profits), the partnership
relation results, and the law itself fixes the
incidents of this relation if the parties fail to do
so.
b. Consensual
-Perfected upon meeting of the minds (undertake
a business venture, obligation to contribute)
-Failure to comply with the undertaking to
deliver the promised contribution does not make
a contract of partnership void, but merely gives a
ground for dissolution.
-even when formal articles of partnership are
drawn-up between the parties, when it fact the
evidence shows that they never intended to enter
into a partnership, the article of partnership
cannot create a partnership when in fact there
has never been a meeting of minds to constitute
one.
c. Onerous and Bilateral
Art. 1786: a partner becomes by its very
constitution, a debtor of the partnership for
whatever he may have promised to contribute
thereto.
-existence of partnership requires an agreement
for the creation of a common fund from the
contributions of the partners (money, industry
property).
-all partners are bound to contribute to the
common fund, or to the partnership.
d. Preparatory and Progressive
-contract of partnership is simply the base upon
which other contracts and various other
transactions are to be pursued with the public,
and for which the partners shall continually
adjust their working relationships.
e. Bilateral and Reciprocal
Pioneer Insurance v. CA
Facts: Lim is an owner-operator of Southern
Airlines (SAL). Japan Domestic Airlines (JDA)
and Lim entered into a sales contract. Pioneer
Insurance and Surety Corp. as surety executed
its surety bond in favor of JDA on behalf of its
principal Lim. Border Machinery and Heacy
Equipment Co, Inc., Francisco and Modesto
Cervantes, and Constancio Maglana contributed
funds based on the misrepresentation of Lim that
they will form a new corporation to expand his
business. They executed two separate indemnity
agreements in favor of Pioneer, one signed by
Maglana and the other jointly signed by Lim for
SAL, Bormaheco and the Cervanteses. The
indemnity agreements stipulated that the
indemnitors principally agree and bind
themselves jointly and severally to indemnify
and hold and save Pioneer from and against
any/all damages, losses, etc. of whatever kind
and nature may incur in consequence of having
become surety.
Lim executed in favor of Pioneer a deed
of chattel mortgage as security. Upon default on
the payments, Pioneer paid for him and filed a
petition for the foreclosure of chattel mortgage
as security. Maglana, Bormaheco and the
Cervantes’s filed cross-claims against Lim
alleging that they were not privies to the
contracts signed by Lim and for recovery of the
sum of money they advanced to Lim for the
purchase of the aircrafts. The decision was
rendered holding Lim liable to pay.
Issue: Whether failure to incorporate
automatically resulted to de facto partnership?
Held: NO. Partnership inter se does not
necessarily exist, for ordinarily persons cannot
be made to assume the relation of partners as
between themselves, when their purpose is that
no partnership shall exist and it should be
implied only when necessary to do justice
between the parties; thus, one who takes no part
except to subscribe for stock in a proposed
corporation which is never legally formed does
not become a partner with other subscribers who
engage in business under the name of the
pretended corporation, so as to be liable as such
in an action for settlement of the alleged
partnership and contribution.
Ortega v. CA
Facts: On December 19, 1980, respondent Misa
associated himself together, as senior partner
with petitioners Ortega, del Castillo, Jr., and
Bacorro, as junior partners. On Feb. 17, 1988,
respondent Misa wrote a letter stating that he is
withdrawing and retiring from the firm and
asking for a meeting with the petitioners to
discuss the mechanics of the liquidation. On
June 30, 1988, petitioner filed a petition to the
Commision's Securities Investigation and
Clearing Department for the formal dissolution
and liquidation of the partnership. On March 31,
1989, the hearing officer rendered a decision
ruling that the withdrawal of the petitioner has
not dissolved the partnership. On appeal, the
SEC en banc reversed the decision and was
affirmed by the Court of Appeals. Hence, this
petition.
Issue: Whether or not the Court of Appeals has
erred in holding that the partnership is a
partnership at will and whether or not the Court
of Appeals has erred in holding that the
withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith
Held: No. The SC upheld the ruling of the CA
regarding the nature of the partnership. The SC
further stated that a partnership that does not fix
its term is a partnership at will. The birth and life
of a partnership at will is predicated on the
mutual desire and consent of the partners. The
right to choose with whom a person wishes to
associate himself is the very foundation and
essence of that partnership. Its continued
existence is, in turn, dependent on the constancy
of that mutual resolve, along with each partner's
capability to give it, and the absence of a cause
for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure,
dictate dissolution of the partnership at will. He
must, however, act in good faith, not that the
attendance of bad faith can prevent the
dissolution of the partnership but that it can
result in a liability for damages.
7. What are the Formalities needed for
the creation of Partnership?
Art. 1771. A partnership may be constituted
in any form, except where immovable
property or real rights are contributed
thereto, in which case a public instrument
shall be necessary.
Art. 1784. A partnership begins from the
moment of the execution of the contract,
unless it is otherwise stipulated.
The forms and registration requirement for
partnerships under the Civil Code are meant
more to regulate the relationship of the
partners among themselves and with the
partnership, but do not really bear into the
rights of creditors who deal with the
business enterprise.
a. When Capital Contributions Total 3k or
more
Art. 1772. Every contract of partnership having
a capital of three thousand pesos or more, in
money or property, shall appear in a public
instrument, which must be recorded in the
Office of the Securities and Exchange
Commission.
Failure to comply with the requirements
of the preceding paragraph shall not affect the
liability of the partnership and the members
thereof to third persons. .
Requirement: 1) public document and 2)
registered with the SEC
BUT the law does not declare the partnership
void when the twin requirements are not met,
nor is the non-compliance meted any adverse
legal consequence.
Purpose of Registration
-to give notice to third parties
-failure to register does not affect the liability of
the partnership, partners to third persons, and the
juridical personality. A partnership may exist
even if the partners do not use the words
‘partner’ or ‘partnership’.
-to prevent evasion of tax liabilities by big
partnership
-to safeguard the public by enabling it to
determine more accurately the membership and
capital of partnerships before dealing with them.
-if the motivation is to go below the government
radar, and to operate within the underground
economy as a means of avoiding tax and
administrative burdens, then non-registration
with the SEC and other government agencies
would be the likely scheme to be followed.
b. When Immovable Property Contributed
Art. 1771. A partnership may be constituted in
any form, except where immovable property or
real rights are contributed thereto, in which case
a public instrument shall be necessary.
Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to the
public instrument.
Importance of Immovable Property in the
Partnership Scheme
Art. 1774. Any immovable property or an
interest therein may be acquired in the
partnership name. Title so acquired can be
conveyed only in the partnership name.
Art. 1819. Scenarios under which real property
owned by the partnership may be legally dealt
with, under various circumstances where title is
not registered in the name of the partnership.
Jo Chung Cang v. Pacific Commercial Co.
Facts: Pacific Commercial Company, et al., as
creditors to Teck Seing & Co., Ltd., filed a
motion in which the Court was ordered was
prayed to enter an order to:
a. Declare the individual partners as parties
to this proceeding;
b. Require each of the said partners to file
an inventory of his property pursuant to the
provisions of Section 51 of Act No. 1956; and
c. Adjudicate as insolvent debtors, each of
the said partners in the proceeding.
The said motion was filed by the creditors
following Teck Seing & Co., Ltd.’s application
to be adjudged insolvent. The trial judge first
granted the motion, but following the renewal of
the opposition, denied it. The creditors now
appeal from the order of the trial judge denying
their motion. The counsel for petitioners argues
that Teck Seing & Co., Ltd. is not a corporation
but a sociedad en comandita or a limited
partnership basing on the provisions of the
articles of partnership. On the other hand, the
creditor-appellants contend that the partnership
contract established a general partnership.
It appears that the basis of the trial court judge’s
order to deny creditors’ motion is the revised
contention of the counsel for petitioners stating
that Teck Seing & Co., Ltd. is only a de facto
commercial association and that the SC decision
in Hung Man Yoc vs. Kieng Chiong Seng is
controlling.
Issue: WN Teck Seing & Co., Ltd., should be
treated as a general partnership notwithstanding
the failure of the firm name to include the name
of one of the partners
Held: NO. The contract of partnership
established a general partnership. By process of
elimination, Teck Seing & Co., Ltd. Is not a
corporation or an accidental partnership (joint
account association).
To establish a limited partnership, there must be,
at least, one general partner and the name of at
least one of the general partners must appear in
the firm name. This requirement has not been
fulfilled. Those who seek to avail themselves of
the protection of laws permitting the creation of
limited partnerships must the show a
substantially full compliance with such laws. It
must be noted that all the requirements of the
Code have been met w/ the sole exception of
that relating to the composition of the firm
name.
The legal intention deducible from the acts of
the parties controls in determining the existence
of a partnership. If they intend to do a thing w/c
in law constitutes a partnership, they are partners
although their very purpose was to avoid the
creation of such relation. Here the intention of
the persons making up, Teck Seing & Co., Ltd.
was to establish partnership w/c they
erroneously denominated as a limited
partnership.
SEC RULES ON PARTNERSHIP NAME
(See SEC MEMO Cir. No. 5 series 2008 for
the full version)
a) The corporate name shall contain the
word “Corporation” or “Incorporated”
or the abbreviations “Corp.” or “Inc.”
respectively
b) The partnership name shall bear the
word “Company” or “Co.” and if it is a
limited partnership, the word “Limited”
or “Ltd.” A professional partnership
name may bear the word “Company”,
“Associates”, or “Partners”, or other
similar discriptions
c) The Corporate name of a foundation
shall use the word “Foundation”
Only one business or trade name may be
registered for each corporate or partnership
name.
The full name or surname of person may be used
in a corporate or partnership name if he or she is
a stockholder, member or partner of the said
entity and has consented to such use; if the
person is already deceased, the consent shall be
given by his or her estate;
The Commission may require a registrant to
explain to its satisfaction the reason for the use
of a person’s name;
The meaning of initials used in a name shall be
stated by the registrant in the Articles of
Incorporation, Articles of Partnership or in a
separate document signed by an incorporator,
director or partner as the case may be.
In the choice of a firm name, no false,
misleading or assumed name shall be used. The
continued use of the name of a deceased partner
is permissible provided that the firm indicates in
all its communications that said partner is
deceased.
Heirs of Tan Eng Kee v. CA
Facts: After the second World War, Tan
EngKee and Tan Eng Lay, pooling their
resources and industry together, entered into a
partnership engaged in the business of selling
lumber and hardware and construction supplies.
They named their enterprise "Benguet Lumber"
which they jointly managed until Tan EngKee's
death. Petitioners herein averred that the
business prospered due to the hard work and
thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the
partnership "Benguet Lumber" into a
corporation called "Benguet Lumber Company."
The incorporation was purportedly a ruse to
deprive Tan EngKee and his heirs of their
rightful participation in the profits of the
business. Petitioners prayed for accounting of
the partnership assets, and the dissolution,
winding up and liquidation thereof, and the
equal division of the net assets of Benguet
Lumber. The RTC ruled in favor of petitioners,
declaring that Benguet Lumber is a joint venture
which is akin to a particular partnership. The
Court of Appeals rendered the assailed decision
reversing the judgment of the trial court.
Issue: Whether the deceased Tan EngKee and
Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular
partnership called Benguet Lumber and as such
should share in the profits and/or losses of the
business venture or particular partnership
Held: There was no partnership whatsoever.
Except for a firm name, there was no firm
account, no firm letterheads submitted as
evidence, no certificate of partnership, no
agreement as to profits and losses, and no time
fixed for the duration of the partnership. There
was even no attempt to submit an accounting
corresponding to the period after the war until
Kee's death in 1984. It had no business book, no
written account nor any memorandum for that
matter and no license mentioning the existence
of a partnership. Also, the trial court determined
that Tan EngKee and Tan Eng Lay had entered
into a joint venture, which it said is akin to a
particular partnership. A particular partnership is
distinguished from a joint adventure, to wit:(a)
A joint adventure (an American concept similar
to our joint accounts) is a sort of informal
partnership, with no firm name and no legal
personality. In a joint account, the participating
merchants can transact business under their own
name, and can be individually liable therefor. (b)
Usually, but not necessarily a joint adventure is
limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful
termination may continue for a number of years;
a partnership generally relates to a continuing
business of various transactions of a certain
kind. A joint venture "presupposes generally a
parity of standing between the joint co-ventures
or partners, in which each party has an equal
proprietary interest in the capital or property
contributed, and where each party exercises
equal rights in the conduct of the business. The
evidence presented by petitioners falls short of
the quantum of proof required to establish a
partnership. In the absence of evidence, we
cannot accept as an established fact that Tan
EngKee allegedly contributed his resources to a
common fund for the purpose of establishing a
partnership. Besides, it is indeed odd, if not
unnatural, that despite the forty years the
partnership was allegedly in existence, Tan
EngKee never asked for an accounting. The
essence of a partnership is that the partners share
in the profits and losses .Each has the right to
demand an accounting as long as the partnership
exists. A demand for periodic accounting is
evidence of a partnership. During his lifetime,
Tan EngKee appeared never to have made any
such demand for accounting from his brother,
Tang Eng Lay. We conclude that Tan EngKee
was only an employee, not a partner since they
did not present and offer evidence that would
show that Tan EngKee received amounts of
money allegedly representing his share in the
profits of the enterprise. There being no
partnership, it follows that there is no
dissolution, winding up or liquidation to speak
of.
Heirs of Jose Lim v. Lim
Facts: In 1980, the heirs of Jose Lim alleged
that Jose Lim entered into a partnership
agreement with Jimmy Yu and Norberto Uy.
The three contributed P50,000.00 each and used
the funds to purchase a truck to start their
trucking business. A year later however, Jose
Lim died. The eldest son of Jose Lim, Elfledo
Lim, took over the trucking business and under
his management, the trucking business
prospered. Elfledo was able to but real
properties in his name. From one truck, he
increased it to 9 trucks, all trucks were in his
name however. He also acquired other motor
vehicles in his name.
In 1993, Norberto Uy was killed. In 1995,
Elfledo Lim died of a heart attack. Elfledo’s
wife, Juliet Lim, took over the properties but she
intimated to Jimmy and the heirs of Norberto
that she could not go on with the business. So
the properties in the partnership were divided
among them.
Now the other heirs of Jose Lim, represented by
Elenito Lim, required Juliet to do an accounting
of all income, profits, and properties from the
estate of Elfledo Lim as they claimed that they
are co-owners thereof. Juliet refused hence they
sued her.
The heirs of Jose Lim argued that Elfledo Lim
acquired his properties from the partnership that
Jose Lim formed with Norberto and Jimmy. In
court, Jimmy Yu testified that Jose Lim was the
partner and not Elfledo Lim. The heirs testified
that Elfledo was merely the driver of Jose Lim.
Issue: Who is the “partner” between Jose Lim
and Elfledo Lim?
Held: It is Elfledo Lim based on the evidence
presented regardless of Jimmy Yu’s testimony in
court that Jose Lim was the partner. If Jose Lim
was the partner, then the partnership would have
been dissolved upon his death (in fact, though
the SC did not say so, I believe it should have
been dissolved upon Norberto’s death in 1993).
A partnership is dissolved upon the death of the
partner. Further, no evidence was presented as
to the articles of partnership or contract of
partnership between Jose, Norberto and Jimmy.
Unfortunately, there is none in this case, because
the alleged partnership was never formally
organized.
But at any rate, the Supreme Court noted that
based on the functions performed by Elfledo, he
is the actual partner.
The following circumstances tend to prove that
Elfledo was himself the partner of Jimmy and
Norberto:
1.) Cresencia testified that Jose gave Elfledo
P50,000.00, as share in the partnership, on a date
that coincided with the payment of the initial
capital in the partnership;
2.) Elfledo ran the affairs of the partnership,
wielding absolute control, power and authority,
without any intervention or opposition
whatsoever from any of petitioners herein;
3.) all of the properties, particularly the nine
trucks of the partnership, were registered in the
name of Elfledo;
4.) Jimmy testified that Elfledo did not receive
wages or salaries from the partnership,
indicating that what he actually received were
shares of the profits of the business; and
5.) None of the heirs of Jose, the alleged partner,
demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in the
case of Heirs of Tan Eng Kee, a demand for
periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any
evidence to show that the real and personal
properties acquired and registered in the names
of Elfledo and Juliet formed part of the estate of
Jose, having been derived from Jose’s alleged
partnership with Jimmy and Norberto.
Elfledo was not just a hired help but one of the merely has a right to buyer or transferee
partners in the trucking business, active and demand for accounting assumes the role of
visible in the running of its affairs from day one or distribution o the stockholder.
until this ceased operations upon his demise. profits. not transferable.
The extent of his control, administration and transferable.
management of the partnership and its business,
the fact that its properties were placed in his Personal relationship Perhaps does not even
name, and that he was not paid salary or other care about the
compensation by the partners, are indicative of personality of the other
the fact that Elfledo was a partner and a co-venturers
controlling one at that. It is apparent that the
Unlimited liability, Limited liability,
other partners only contributed in the initial
mutual agency, centralized
capital but had no say thereafter on how the
delectus personae management, easy
business was ran. Evidently it was through
transferability
Elfredo’s efforts and hard work that the
partnership was able to acquire more trucks and
otherwise prosper. Even the appellant
participated in the affairs of the partnership by Cooperative
acting as the bookkeeper sans salary.
-A duly registered association of persons, with a
What are the distinction between Partnership common bond of interest, who have voluntarily
and Corporation and Cooperatives? joined together to achieve lawful common social
or economic end, making equitable contributions
Partnership Corporation to the capital required and accepting a fair share
of the risks and benefits of the undertaking in
Weak juridical stronger legal
accordance with universally accepted
personality-- Death, personality—continue
cooperative principles.
incapacity, withdrawal it to continue despite
or insolvency of any the death, incapacity, -has a juridical personality separate and distinct
partner would withdrawal or from its members, and has limited liability
automatically dissolve insolvency of any of its feature.
the partnership stockholders or
members -money collected from among themselves and
solely for their own protection and not for profit.
Unlimited liability Limited liability
-governed by principles of democratic control
Every partner is an Only the Board of where the members in primary cooperatives
agent of partnership, Directors or its duly shall have equal voting rights on a one-member-
and by his sole act, he authorized agents can one-vote principle.
can bind the bind the corporation.
partnership -primary objective: self-help – to provide goods
and services to its members and thus enable
The buyer or Every stockholder has them to attain increased income and savings,
transferee does not the right to transfer his investment, productivity, and purchasing power
assume transferor’s shares in the and promote among them equitable distribution
position as partner, but corporation, and the of net surplus though maximum utilization of
economic scale, cost sharing, and risk sharing other by way of financial support to any
without conducting the affairs of the cooperative commercial and agricultural activity on a joint
for charitable purposes. business arrangement. This proved to be
successful as they were able to establish a
Distinguish a partnership from a co- manufacturing and trading business, acquire real
ownership. properties, and construct buildings, among other
things. The same ended in 1973 upon their
Partnership Co-ownership
voluntary dissolution.
A business relation Constitutes merely a
The spouses Buenaventura and Conchita
whereby two or more property relation
Remotigue executed a document
persons own a common whereby two or more
Acknowledgement of Participating Capital
fund with intention to persons own pro-
stating the participating capital of their co-
divide profits indiviso a property
owners as of the year 1952, with Antonieta
Pursuit of a business Does not seek the Jarantillas stated as eight thousand pesos
venture business venture (P8,000.00) and Federico Jarantilla, Jr.s as five
thousand pesos (P5,000.00).
With separate juridical No separate juridical
personality personality The controversy started when Antonieta filed a
complaint against Buenaventura, Cynthia,
Doroteo and Tomas, for the accounting of the
assets and income of the co-ownership, for its
Federico Jarantilla v. Jarantilla partition and the delivery of her share
Facts: The spouses Andres Jarantilla and Felisa corresponding to eight percent (8%), and for
Jaleco were survived by eight children: Federico damages. She alleged that the initial contribution
Sr., Delfin, Benjamin, Conchita, Rosita, Pacita, of property and money came from the heirs
Rafael and Antonieta. Petitioner Federico inheritance, and her subsequent annual
Jarantilla, Jr. is the grandchild of the late investment of seven thousand five hundred
Jarantilla spouses by their son Federico pesos (P7,500.00) as additional capital came
Jarantilla, Sr. and his wife Leda Jamili. from the proceeds of her farm.
Petitioner also has two other brothers: Doroteo
Respondents denied having formed a
and Tomas Jarantilla.
partnership. They did not deny the existence and
The Jarantilla heirs extrajudicially partitioned validity of the "Acknowledgement of
amongst themselves the real properties of their Participating Capital" and in fact used this as
deceased parents. With the exception of the real evidence to support their claim that Antonietas
property adjudicated to PacitaJarantilla, the heirs 8% share was limited to the businesses
also agreed to allot the produce of the said real enumerated therein. Petitioner Federico Jr joined
properties for the years 1947-1949 for the his aunt Antonieta and likewise asserted his
studies of Rafael and AntonietaJarantilla. share in the supposed partnership.

Sps. Rosita Jarantilla and Vivencio Deocampo The RTC rendered judgment in favor of
entered into an agreement with the spouses Antonieta and Federico. On appeal, the CA set
Buenaventura Remotigue and Conchita the RTC Decision. Petitioner filed a petition for
Jarantilla to provide mutual assistance to each review to the SC.
Issue: Did the CA err in ruling that petitioners
are not entitled to profits over the businesses not
listed in the Acknowledgement?
Held: There is a co-ownership when an
undivided thing or right belongs to different
persons. It is a partnership when two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among
themselves.
The common ownership of property does not
itself create a partnership between the owners,
though they may use it for the purpose of
making gains; and they may, without becoming
partners, agree among themselves as to the
management, and use of such property and the
application of the proceeds therefrom.
Under Article 1767 of the Civil Code, there are
two essential elements in a contract of
partnership: (a) an agreement to contribute
money, property or industry to a common fund;
and (b) intent to divide the profits among the
contracting parties.
It is not denied that all the parties in this case
have agreed to contribute capital to a common
fund to be able to later on share its profits. They
have admitted this fact, agreed to its veracity,
and even submitted one common documentary
evidence to prove such partnership - the
Acknowledgement of Participating Capital.
The Acknowledgement of Participating Capital
is a duly notarized document voluntarily
executed by Conchita Jarantilla-Remotigue and
Buenaventura Remotigue in 1957. Petitioner
does not dispute its contents and is actually
relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code
provides:
Art. 1797. The losses and profits shall be
distributed in conformity with the agreement. If
only the share of each partner in the profits has
been agreed upon, the share of each in the losses
shall be in the same proportion.
In the absence of stipulation, the share of each
partner in the profits and losses shall be in
proportion to what he may have contributed, but
the industrial partner shall not be liable for the
losses.
The petitioner himself claims his share to be 6%,
as stated in the Acknowledgement of
Participating Capital. However, petitioner fails
to realize that this document specifically
enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue
Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear
agreement that the capital the partners
contributed went to the three businesses, then
there is no reason to deviate from such
agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did
not err in limiting petitioners share to the assets
of the businesses enumerated in the
Acknowledgement of Participating Capital.
In Villareal v. Ramirez, the Court held that since
a partnership is a separate juridical entity, the
share to be paid out to the partners is necessarily
limited only to its total resources.
The petitioner further asserts that he is entitled
to respondents properties based on the concept
of trust. He claims that since the subject real
properties were purchased using funds of the
partnership, wherein he has a 6% share, then
"law and equity mandates that he should be
considered as a co-owner of those properties in
such proportion."
As a rule, the burden of proving the existence of
a trust is on the party asserting its existence, and
such proof must be clear and satisfactorily show
the existence of the trust and its elements. While
implied trusts may be proved by oral evidence,
the evidence must be trustworthy and received
by the courts with extreme caution, and should
not be made to rest on loose, equivocal or
indefinite declarations. Trustworthy evidence is
required because oral evidence can easily be
fabricated.
The petitioner has failed to prove that there
exists a trust over the subject real properties.
Aside from his bare allegations, he has failed to
show that the respondents used the partnerships
money to purchase the said properties. Even
assuming arguendo that some partnership
income was used to acquire these properties, the
petitioner should have successfully shown that
these funds came from his share in the
partnership profits. After all, by his own
admission, and as stated in the
Acknowledgement of Participating Capital, he
owned a mere 6% equity in the partnership.
May a corporation enter into a Partnership?
The SEC, in a number of opinions, has
recognized the general rule that a corporation
cannot enter into a contract of partnership with
an individual or another corporation on the
premise that it would be bound by the acts of the
persons who are not its duly appointed and
authorized agents and officers, which is
inconsistent with the policy of the law that the
corporation shall manage its own affairs
separately and exclusively. (SEC Opinion, 22
December 1966, SEC FOLIO 1960-1976, at p.
278; citing 13 Am. Jr. Sec. 823 (1938); 6
Fletcher Cyc. Corp., Perm. Ed. Rev. Repl. 1950,
at p. 2520).
However, the SEC has on special occasions
allowed exceptions to the general rule when the
following conditions are complied with:
(a) The authority to enter into a partnership
relation is expressly conferred by the charter or
the articles of incorporation of the corporation,
and the nature of the business venture to be
undertaken by the partnership is in line with the
business authorized by the charter or articles of
incorporation of the corporation involved (SEC
Opinion, 29 February 1980);
(b) The agreement on the articles of partnership
must provide that all the partners shall manage
the partnership, and the articles of partnership
must stipulate that all the partners shall be
jointly and severally liable for all the obligations
of the partnership. (Ibid)
Tuason v. Bolanos
Facts: Plaintiff’s complaint against defendant
was to recover possession of a registered land. In
the complaint, the plaintiff is represented by its
Managing Partner, Gregorio Araneta, Inc.,
another corporation. Defendant, in his answer,
sets up prescription and title in himself thru
"open, continuous, exclusive and public and
notorious possession under claim of ownership,
adverse to the entire world by defendant and his
predecessors in interest" from "time
immemorial". After trial, the lower court
rendered judgment for plaintiff, declaring
defendant to be without any right to the land in
question and ordering him to restore possession
thereof to plaintiff and to pay the latter a
monthly rent. Defendant appealed directly to the
Supreme Court and contended, among others,
that Gregorio Araneta, Inc. can not act as
managing partner for plaintiff on the theory that
it is illegal for two corporations to enter into a
partnership
Issue: Whether or not a corporation may enter
into a joint venture with another corporation.
Ruling: It is true that the complaint states that
the plaintiff is "represented herein by its
Managing Partner Gregorio Araneta, Inc.",
another corporation, but there is nothing against
one corporation being represented by another
person, natural or juridical, in a suit in court.
The contention that Gregorio Araneta, Inc.
cannot act as managing partner for plaintiff on what the law says it is, not how the parties wish
the theory that it is illegal for two corporations to call it. Therefore, it may agreed when five or
to enter into a partnership is without merit, for more persons come together to contribute money
the true rule is that "though a corporation has no or property to a common venture or fund, with
power to enter into a partnership, it may the intention of dividing the profits among
nevertheless enter into a joint venture with themselves, the parties may wish to call it
another where the nature of that venture is in otherwise, however, under the definition of the
line with the business authorized by its charter." Article 1767 of the Civil Code, it would still be a
There is nothing in the record to indicate that the partnership, even if the parties had intended a
venture in which plaintiff is represented by corporation but did not materialize because of
Gregorio Araneta, Inc. as "its managing partner" certain registration deficiencies.
is not in line with the corporate business of
either of them. May a corporation enter into a Joint
Venture?
Does a defective incorporation result into
partnership? Yes. It may enter into a joint venture with
another where the nature of that venture is in
This question is best answered by the case of line with the business authorized by its charter.
Pioneers Insurance v. Ca wherein the SC held (Aurbach v. Sanitary Wares Manufacturing
that, when parties come together intending to Corporation, G.R. No. 75875, Dec. 15, 1989)
form a corporation, but no corporation is formed
due to some legal cause, then: Distinguish between Joint venture, Joint
account and Partnership
(a) Parties who had intended to participate or
actually participated in the business affairs of the Partnership Joint Venture
proposed corporation would be considered as
Usually contemplates Limited to a single
partners under a de facto partnership, and would
the undertaking of a transaction, not
be liable as such in an action for settlement of
general and continuous intended to pursue a
partnership obligations;
business of a particular continuous business
- Whereas, - kind which necessarily
involves a series of
(b) Parties who took no part except to subscribe transactions.
to shares of stockin a proposed corporation, do
not become partners with other subscribers who Property of the Property used remains
engaged in business under the name of the contributor becomes the undivided property
pretended corporation, and are not liable for the property of the of its contributor
action for settlement of the alleged partnership business entity and
contribution. hence, of all partners

It is a legal principle that when parties come Binds not only himself None of the co-
together and all the elements of a particular as a principal but, as venturers can bind the
contract are present, although the parties may their agent as well, also joint adventure or his
have nominated it otherwise, the law will the partnership and his co-adventurers.
impose such contractual relationship upon them. co-partners.
In other words, the contract or relationship is
Required to operate No firm name
under a firm name.
Joint Account or “Cuentas en participacion”
Under the Code of Commerce, “cuentas en
participacion” means a sort of an accidental
partnership constituted in such a manner that its
existence was only known to those who had an
interest in the same, there being no mutual
agreement between the partners, and without a
corporate name indicating to the public in some
way that there were other people besides the one
who ostensibly managed and conducted the
business, governed under Article 239 of the
Code of Commerce.
Kilosbayan v. Guingona
Facts: Pursuant to Section 1 of the charter of the
PCSO (R.A. No. 1169, as amended by B.P. Blg.
42) which grants it the authority to hold and
conduct “charity sweepstakes races, lotteries and
other similar activities,” the PCSO decided to
establish an on-line lottery system for the
purpose of increasing its revenue base and
diversifying its sources of funds. Sometime
before March 1993, after learning that the PCSO
was interested in operating an on-line lottery
system, the Berjaya Group Berhad, “a
multinational company and one of the ten largest
public companies in Malaysia,” “became
interested to offer its services and resources to
PCSO.” As an initial step, Berjaya Group
Berhad (through its individual nominees)
organized with some Filipino investors in March
1993 a Philippine corporation known as the
Philippine Gaming Management Corporation
(PGMC), which “was intended to be the medium
through which the technical and management
services required for the project would be
offered and delivered to PCSO.”
Before August 1993, the PCSO formally issued
a Request for Proposal (RFP) for the Lease
Contract of an on-line lottery system for the
PCSO. On 15 August 1993, PGMC submitted its
bid to the PCSO. On 21 October 1993, the
Office of the President announced that it had
given the respondent PGMC the go-signal to
operate the country’s on-line lottery system and
that the corresponding implementing contract
would be submitted not later than 8 November
1993 “for final clearance and approval by the
Chief Executive.”
On 4 November 1993, KILOSBAYAN sent an
open letter to President Fidel V. Ramos strongly
opposing the setting up of the on-line lottery
system on the basis of serious moral and ethical
considerations. Considering the denial by the
Office of the President of its protest and the
statement of Assistant Executive Secretary
Renato Corona that “only a court injunction can
stop Malacañang,” and the imminent
implementation of the Contract of Lease in
February 1994, KILOSBAYAN, with its co-
petitioners, filed on 28 January 1994 this
petition.
Petitioner claims that it is a non-stock domestic
corporation composed of civic-spirited citizens,
pastors, priests, nuns, and lay leaders. The rest
of the petitioners, except Senators Freddie Webb
and Wigberto Tañada and Representative Joker
P. Arroyo, are suing in their capacities as
members of the Board of Trustees of
KILOSBAYAN and as taxpayers and concerned
citizens. Senators Webb and Tañada and
Representative Arroyo are suing in their
capacities as members of Congress and as
taxpayers and concerned citizens of the
Philippines. The public respondents, meanwhile
allege that the petitioners have no standing to
maintain the instant suit, citing the Court’s
resolution in Valmonte vs. Philippine Charity
Sweepstakes Office.
Issues: Whether or the Contract of Lease in
the light of Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, which prohibits
the PCSO from holding and conducting
lotteries “in collaboration, association or
joint venture with any person, association,
company or entity, whether domestic or
foreign.” is legal and valid.
Held: The language of Section 1 of R.A. No.
1169 is indisputably clear. The PCSO cannot
share its franchise with another by way of
collaboration, association or joint venture.
Neither can it assign, transfer, or lease such
franchise. Whether the contract in question is
one of lease or whether the PGMC is merely an
independent contractor should not be decided on
the basis of the title or designation of the
contract but by the intent of the parties, which
may be gathered from the provisions of the
contract itself. Animus hominisest anima scripti.
The intention of the party is the soul of the
instrument.
Undoubtedly, from the very inception, the PCSO
and the PGMC mutually understood that any
arrangement between them would necessarily
leave to the PGMC the technical, operations, and
management aspects of the on-line lottery
system while the PSCO would, primarily,
provide the franchise. The so-called Contract of
Lease is not, therefore, what it purports to be.
Woven therein are provisions which negate its
title and betray the true intention of the parties to
be in or to have a joint venture for a period of
eight years in the operation and maintenance of
the on-line lottery system.
We thus declare that the challenged Contract of
Lease violates the exception provided for in
paragraph B, Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, and is, therefore,
invalid for being contrary to law. This
conclusion renders unnecessary further
discussion on the other issues raised by the
petitioners
Narra Nickel Mining v. Redmont
Consolidated Mines
Facts: Sometime in December 2006, respondent
Redmont Consolidated Mines Corp. (Redmont),
a domestic corporation organized and existing
under Philippine laws, took interest in mining
and exploring certain areas of the province of
Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it
learned that the areas where it wanted to
undertake exploration and mining activities
where already covered by Mineral Production
Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
Petitioner McArthur Narra and Tesoro, filed an
application for an MPSA and Exploration Permit
(EP) which was subsequently issued.
On January 2, 2007, Redmont filed before the
Panel of Arbitrators (POA) of the DENR three
(3) separate petitions for the denial of
petitioners’ applications for MPSA.
Redmont alleged that at least 60% of the capital
stock of McArthur, Tesoro and Narra are owned
and controlled by MBMI Resources, Inc.
(MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was
the driving force behind petitioners’ filing of the
MPSAs over the areas covered by applications
since it knows that it can only participate in
mining activities through corporations which are
deemed Filipino citizens. Redmont argued that
given that petitioners’ capital stocks were mostly
owned by MBMI, they were likewise
disqualified from engaging in mining activities
through MPSAs, which are reserved only for
Filipino citizens.
Petitioners averred that they were qualified
persons under Section 3(aq) of Republic Act No.
(RA) 7942 or the Philippine Mining Act of
1995. They stated that their nationality as
applicants is immaterial because they also
applied for Financial or Technical Assistance
Agreements (FTAA) denominated as AFTA-
IVB-09 for McArthur, AFTA-IVB-08 for
Tesoro and AFTA-IVB-07 for Narra, which are
granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine
Nationals as 60% of their capital is owned by
citizens of the Philippines.
On December 14, 2007, the POA issued a
Resolution disqualifying petitioners from
gaining MPSAs. The POA considered
petitioners as foreign corporations being
"effectively controlled" by MBMI, a 100%
Canadian company and declared their MPSAs
null and void.
Pending the resolution of the appeal filed by
petitioners with the MAB, Redmont filed a
Complaint with the Securities and Exchange
Commission (SEC), seeking the revocation of
the certificates for registration of petitioners on
the ground that they are foreign-owned or
controlled corporations engaged in mining in
violation of Philippine laws.
CA found that there was doubt as to the
nationality of petitioners when it realized that
petitioners had a common major investor,
MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ)
Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the
requirement of the Constitution and other laws
pertaining to the exploitation of natural
resources, the CA used the "grandfather rule" to
determine the nationality of petitioners.
In determining the nationality of petitioners, the
CA looked into their corporate structures and
their corresponding common shareholders.
Using the grandfather rule, the CA discovered
that MBMI in effect owned majority of the
common stocks of the petitioners as well as at
least 60% equity interest of other majority
shareholders of petitioners through joint venture
agreements. The CA found that through a "web
of corporate layering, it is clear that one
common controlling investor in all mining
corporations involved x x x is MBMI." Thus, it
concluded that petitioners McArthur, Tesoro and
Narra are also in partnership with, or privies-in-
interest of, MBMI
Issue: WON there is a contract of partnership
between petitioners and MBMI?
Held: Yes there is a partnership agreement.
Petitioners claim that the CA erred in applying
Sec. 29, Rule 130 of the Rules by stating that
“by entering into a joint venture, MBMI have a
joint interest” with Narra, Tesoro and McArthur.
They challenged the conclusion of the CA which
pertains to the close characteristics of
“partnerships” and “joint venture agreements.”
Further, they asserted that before this particular
partnership can be formed, it should have been
formally reduced into writing since the capital
involved is more than three thousand pesos
(Php3,000). Being that there is no evidence of
written agreement to form a partnership between
petitioners and MBMI, no partnership was
created.
This Court Disagrees.
A partnership is defined as two or more persons
who bind themselves to contribute money,
property, or industry to a common fund with the
intention of dividing the profits among
themselves. On the other hand, joint ventures
have been deemed to be “akin” to partnerships
since it is difficult to distinguish between joint
ventures and partnerships. Though some claim
that partnerships and joint ventures are totally
different animals, there are very few rules that
differentiate one from the other; thus, joint
ventures are deemed “akin” or similar to a
partnership. In fact, in joint venture agreements,
rules and legal incidents governing partnerships
are applied. Accordingly, culled from the
incidents and records of this case, it can be
assumed that the relationships entered between
and among petitioners and MBMI are no simple
“joint venture agreements.” As a rule,
corporations are prohibited from entering
into partnership agreements; consequently,
corporations enter into joint venture
agreements with other corporations or
partnerships for certain transactions in order
to form “pseudo partnerships.” Obviously, as
the intricate web of “ventures” entered into by
and among petitioners and MBMI was executed
to circumvent the legal prohibition against
corporations entering into partnerships, then the
relationship created should be deemed as
“partnerships,” and the laws on partnership
should be applied. Thus, a joint venture
agreement between and among corporations
may be seen as similar to partnerships since
the elements of partnership are present.
Considering that the relationships found
between petitioners and MBMI are
considered to be partnerships, then the CA is
justified in applying Sec. 29, Rule 130 of the
Rules by stating that “by entering into a joint
venture, MBMI have a joint interest” with
Narra, Tesoro and McArthur.
8. What are the effects of Unlawful
Partnerships?
When the subject matter of a contract of
partnership is unlawful, Article 1770 of the Civil
Code provides that the contract is void; and
being void the purported partners have no right
to participate in any profits that may have been
earned by the partnership enterprise. Thus, the
article provides that “the profits shall be
confiscated in favor of the State.”
Arbes v. Polistico
Facts: This is an action to bring about
liquidation of the funds and property of the
association called "Turnuhan Polistico & Co."
The plaintiffs were members or shareholders,
and the defendants were designated as president-
treasurer, directors and secretary of said
association. This case is brought for 2nd time.
In the 1st one, the court held then that in an
action against the officers of a voluntary
association to wind up its affairs and enforce an
accounting for money and property in their
possessions, it is not necessary that all members
of the association be made parties to the action.
The court appointed commissioner of Insular
Auditor's Office, to examine all the books,
documents, and accounts of "Turnuhan Polistico
& Co.," and to receive whatever evidence.
Commissioner's report show a balance of P24,
607.80 cash on hand. Despite defendant’s
objection to the report, the trial court rendered
judgment holding said association is unlawful.
And sentenced defendants jointly and severally
to return the amount and documents to the
plaintiffs and members of the association.
The Appellant alleged that the association being
unlawful, some charitable institution to whom
the partnership funds may be ordered to be
turned over, should be included, as a party
defendant. Referring to article 1666 of the Civil
Code, which provides:“ A partnership must have
a lawful object, and must be established for the
common benefit of the partners. When the
dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or,
in default of such, to those of the province.”
Issue: Whether or not charitable institution is a
necessary party to this case.
Held: No. No charitable institution is a
necessary party in the present case of
determination of the rights of the parties. The
action which may arise from said article, in the
case of unlawful partnership, is that for the
recovery of the amounts paid by the member
from those in charge of the administration of
said partnership, and it is not necessary for the
said parties to base their action to the existence
of the partnership, but on the fact that of having
contributed some money to the partnership
capital. And hence, the charitable institution of
the domicile of the partnership, and in the
default thereof, those of the province are not
necessary parties in this case. The article cited
above permits no action for the purpose of
obtaining the earnings made by the unlawful
partnership, during its existence as result of the
business in which it was engaged, because for
the purpose, as Manresa remarks, the partner
will have to base his action upon the partnership
contract, which is to annul and without legal
existence by reason of its unlawful object; and it
is self evident that what does not exist cannot be
a cause of action. Hence, paragraph 2 of the
same article provides that when the
dissolution of the unlawful partnership is
decreed, the profits cannot inure to the
benefit of the partners, but must be given to
some charitable institution. The profits are so
applied, and not the contributions, because
this would be an excessive and unjust
sanction for, as we have seen, there is no
reason, in such a case, for depriving the
partner of the portion of the capital that he
contributed, the circumstances of the two
cases being entirely different.
(Note: with the NCC in effect the proceeds of
such unlawful partnership will be forfeited in
favor of the state (Article 1770))
9. What are the classifications of
Partnership?
1. Object
a. Universal partnership
i. Of all present property (NCC, Art. 1778) –
The partners contribute all the property which
actually belongs to them to a common fund, with
the intention of dividing the same among
themselves, as well as all profits they may
acquire therewith. The following become the
common fund of all the partners:
Property which belonged to each of the partners
at the time of the constitution of the partnership
Profits which they may acquire from all property
contributed
ii. Of all profits (NCC, Art. 1780) – Comprises
all that the partners may acquire by their
industry or work during the existence of the
partnership
b. Particular partnership – It is one which has
for its object, determinate things, their use and
fruits, or a specific undertaking or the exercise
of a profession or a vocation (NCC, Art. 1783).
2. Liability of partners
a. General partnership – One where all
partners are general partners who are liable even
with respect to their individual properties, after
the assets of the partnership have been exhausted
(Paras, 1969).
b. Limited partnership – One formed by two
or more persons having as members one or more
general partners and one or more limited
partners, the latter not being personally liable for
the obligations of the partnership (NCC, Art.
1843).
3. Duration
a. Partnership at will – Partnership for a
particular undertaking or venture which may be
terminated anytime by mutual agreement; one
for a fixed term or particular undertaking which
is continued by the partners after the termination
of such term or particular undertaking without
express agreement.
b. Partnership with a fixed period – The term
for which the partnership is to exist is fixed or
agreed upon or one formed for a particular
undertaking.
NOTE: The presence of a period, duration or
statement of a particular purpose for its
creation may not prevent the dissolution of
any partnership by an act or will of a partner.
The “mutual agency” and the “doctrine of
delectus personae” allows them to dissolve the
partnership. However, an unjustified
dissolution by a partner can subject him to a
possible action for damages.
4. Legality of existence
a. De jure partnership – One which has
complied with all the requirements for its
establishment.
b. De facto partnership – One which has failed
to comply with all the legal requirements for its
establishment.
5. Representation to others
a. Ordinary or real partnership – One which
actually exists among the partners and also as to
third person.
b. Ostensible or partnership by estoppel –
When two or more persons attempt to create a
partnership but fail to comply with the legal
personalities essential for juridical personality,
the law considers them as partners, and the
association is a partnership insofar as it is
favorable to third persons, by reason of the
equitable principle of estoppel (MacDonald et.
al. v. Nat’l. City Bank of New York, G.R. No.
L-7991, May 21, 1956).
6. Publicity
a. Secret partnership – Partnership that is not
known to many but only as to its partners.
b. Notorious or open partnership – It is known
not only to the partners, but to the public as well.
7. Purpose
a. Commercial or trading – One formed for the
transaction of business.
b. Professional or non-trading – One formed
for the exercise of a profession (De Leon, 2014).
Evangelista & Co. v Santos
Facts: On October 9, 1954 a co-partnership was
formed under the name of "Evangelista & Co."
On June 7, 1955 the Articles of Co-partnership
were amended so as to include herein
respondent, Estrella Abad Santos, as industrial
partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonarda Atienza Abad Santos
and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a
contribution of P17,500 each
On December 17, 1963 herein respondent
filed suit against the three other partners,
alleging that the partnership, which was also
made a party-defendant, had been paying
dividends to the partners except to her; and that
notwithstanding her demands the defendants had
refused and continued to refuse to let her
examine the partnership books or to give her
information regarding the partnership affairs or
to pay her any share in the dividends declared by
the partnership
The defendants, in their answer, denied
ever having declared dividends or distributed
profits of the partnership; denied likewise that
the plaintiff ever demanded that she be allowed
to examine the partnership books; and by way of
affirmative defense alleged that the amended
Articles of Co-partnership did not express the
true agreement of the parties, which was that the
plaintiff was not an industrial partner; that she
did not in fact contribute industry to the
partnership.
Issue: Whether Abad Santos is entitled to see
the partnership books because she is an
industrial partner in the partnership
Held: Yes, Abad Santos is entitled to see the
partnership books because she is an industrial
partner. The Court held that despite the
genuineness of the Articles of Co-partnership
the same did not express the true intent and
agreement of the parties, however, as the
subsequent events and testimonial evidences
indicate otherwise, the Court upheld that
respondent is an industrial partner of the
company.

Article 1789 provides that ‘An industrial partner
cannot engage in business for himself, unless the
partnership expressly permits him to do so; and
if he should do so, the capitalist partners may
either exclude him from the firm or avail
themselves of the benefits which he may have
obtained in violation of this provision, with a
right to damages in either case.’ Since 1954 and
until after the promulgation of the decision of
the appellate court, Abad Santos has served as a
judge of the City Court of Manila and had been
paid for services rendered allegedly contributed
by her to the partnership. Though being a judge
of the City Court of Manila cannot be
characterized a business and/or may be
considered an antagonistic business to the
partnership, the petitioners reached the decision
that respondent be excluded from and deprived
of her alleged share in the interest or
participation as an alleged industrial partner in
the net profits or income of the partnership.
Having always known the respondent is a City
Judge even before she joined the partnership,
why did it take petitioners so many years before
excluding her from said company? Furthermore,
the act of exclusion is premised on the ground
that respondent has always been a partner, an
industrial partner. In addition, the Court further
held that with the consideration of Article 1767
that ‘By a contract of partnership two or more
persons bind themselves, to contribute money,
property, or industry to a common fund, with the
intention of dividing profits among themselves’,
the services rendered by respondent may
legitimately be considered the respondent’s
contribution to the common fund.
10. Who may be Partner?
GR: Any person capacitated to contract may
enter into a contract of partnership.
XPNs: 1. Persons who are prohibited from
giving each other any donation or advantage
cannot enter into a universal partnership (NCC,
Art. 1782).
NOTE: A husband and wife, however, may
enter into a particular partnership or be
members thereof. (De Leon, 2010).
2. Persons suffering from civil interdiction
3. Persons who cannot give consent to a
contract:
a. Minors
b. Insane persons
c. Deaf-mutes who do not know how to write
CIR v. Suter
Facts: A limited partnership named William J.
Suter 'Morcoin' Co., Ltd was formed 30
September 1947 by William J. Suter as the
general partner, and Julia Spirig and Gustav
Carlson. They contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00. It was
also duly registered with the SEC.
On 1948 Suter and Spirig got married and in
effect Carlson sold his share to the couple, the
same was also registered with the SEC. The
limited partnership had been filing its income
tax returns as a corporation, without objection
by the herein petitioner, Commissioner of
Internal Revenue, until in 1959 when the latter,
in an assessment, consolidated the income of the
firm and the individual incomes of the partners-
spouses Suter and Spirig resulting in a
determination of a deficiency income tax against
respondent Suter in the amount of P2,678.06 for
1954 and P4,567.00 for 1955.
Issue: Whether or not the limited partnership has
been dissolved after the marriage of Suter and
Spirig and buying the interest of limited partner
Carlson.
Held: No, the limited partnership was not
dissolved
“A husband and a wife may not enter into a
contract of general co-partnership, because
under the Civil Code, which applies in the
absence of express provision in the Code of
Commerce, persons prohibited from making
donations to each other are prohibited from
entering into universal partnerships. It
follows that the marriage of partners
necessarily brings about the dissolution of a
pre-existing partnership. “What the law
prohibits was when the spouses entered into a
general partnership. In the case at bar, the
partnership was limited (or particular)
The petitioner-appellant has evidently failed to
observe the fact that William J. Suter "Morcoin"
Co., Ltd. was not a universal partnership, but a
particular one. As appears from Articles 1674
and 1675 of the Spanish Civil Code, of 1889
(which was the law in force when the subject
firm was organized in 1947), a universal
partnership requires either that the object of the
association be all the present property of the
partners, as contributed by them to the common
fund, or else "all that the partners may acquire
by their industry or work during the existence of
the partnership". William J. Suter "Morcoin"
Co., Ltd. was not such a universal partnership,
since the contributions of the partners were fixed
sums of money, P20,000.00 by William Suter
and P18,000.00 by Julia Spirig and neither one
of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter
by Article 1677 of the Civil Code of 1889.
11. Who are the different kinds of
Partners?
Kinds of Partners
1. As to the extent of liability
a. Capitalist- contributes either money or
property to the common fund; he can also
contribute an intangible like credit, such as
promissory note or other evidence of obligation,
or even goodwill.
b. Industrial- contributes only his industry (Skill
or services)
2. As to the time of entry
a. Original- one who became a partner at the
time of the constitution of the partnership
b. Incoming- one who became a partner as a
new member of an existing partnership.
3. Other kinds:
a. Managing- one entrusted with the
management of the partnership
b. Liquidating- one who takes charge of the
liquidation and winding up of the partnership
affairs
c. Retiring- those who cease to be part of the
partnership
d. Continuing- one who continues the business
of a partnership after it has been dissolved by
reason of the admission of a new partner, or the
retirement, death, or expulsion of one or more
partners
e. Dormant, Silent, Secret- one whose
connection to the partnership is concealed and
who does not take any active part in it
f. Partner by Estoppel- although not an actual
partner, he has made himself liable as such by
holding himself out as a partner of allowing
himself to be so held out.
NOTE: A corporation cannot become a member
of a partnership in the absence of express
authorization by statute or charter (Mendiola vs
CA, GR. No. 159333, July 31, 2006).
RATIO:
1. Mutual Agency between the partners
2. Such arrangement would improperly allow
corporate property to become subject to risks not
contemplated by the stockholders when they
originally invested in the corporation
Partnership by Estoppel
Goquilolay v. Sycip
Facts: Tan Sin An and Goquiolay entered into
a general commercial partnership under the
partnership name “Tan Sin An and Antonio
Goquiolay” for the purpose of dealing in real
estate. The agreement lodged upon Tan Sin An
the sole management of the partnership affairs.
The lifetime of the partnership was fixed at ten
years and the Articles of Co-partnership
stipulated that in the event of death of any of the
partners before the expiration of the term, the
partnership will not be dissolved but will be
continued by the heirs or assigns of the deceased
partner. But the partnership could be dissolved
upon mutual agreement in writing of the
partners.
Goquiolay executed a GPA in favor of Tan Sin
An. The plaintiff partnership purchased 3 parcels
of land which was mortgaged to “La Urbana” as
payment of P25,000. Another 46 parcels of land
were purchased by Tan Sin An in his individual
capacity which he assumed payment of a
mortgage debt for P35K. A down payment and
the amortization were advanced by Yutivo and
Co.
The two obligations were consolidated in an
instrument executed by the partnership and Tan
Sin An, whereby the entire 49 lots were
mortgaged in favor of “Banco Hipotecario”
Tan
Sin An died leaving his widow, Kong Chai Pin
and four minor children. The widow
subsequently became the administratrix of the
estate.
Kong Chai Pin filed a petition with the probate
court for authority to sell all the 49 parcels of
land. She then sold it to Sycip and Lee in
consideration of P37K and of the vendees
assuming payment of the claims filed by Yutivo
Sons and Sing Yee.
Later, Sycip and Lee executed in favor of Insular
Development a deed of transfer covering the 49
parcels of land.
When Goquiolay learned about
the sale to Sycip and Lee, he filed a petition in
the intestate proceedings to set aside the order of
the probate court approving the sale in so far as
his interest over the parcels of land sold was
concerned.
Probate court annulled the sale executed by the
administratrix w/ respect to the 60% interest of
Goquiolay over the properties Administratrix
appealed.
The decision of probate court was set
aside for failure to include the indispensable
parties. New pleadings were filed The second
amended complaint prays for the annulment of
the sale in favor of Sycip and Lee and their
subsequent conveyance to Insular Development.
The complaint was dismissed by the lower court
hence this appeal.
Issue: Whether or not a widow or substitute
becomes also a general partner or only a limited
partner?
Held: Kong Chai Pin became a mere general
partner.
By seeking authority to manage partnership
property, Tan Sin An’s widow showed that she
desired to be considered a general partner. By
authorizing the widow to manage partnership
property (which a limited partner could not
be authorized to do), Goqulay recognized her
as such partner, and is now in estoppel to
deny her position as a general partner, with
authority to administer and alienate
partnership property.
The articles did not provide that the heirs of the
deceased would be merely limited partners; on
the contrary, they expressly stipulated that in
case of death of either partner, “the co
partnership will have to be continued” with the
heirs or assignees. It certainly could not be
continued if it were to be converted from a
general partnership into a limited partnership
since the difference between the two kinds of
associations is fundamental, and especially
because the conversion into a limited association
would leave the heirs of the deceased partner
without a share in the management. Hence, the
contractual stipulation actually contemplated
that the heirs would become general partners
rather than limited ones.
Industrial Partner - Tocao v. CA
Facts: Nenita Anay, a former marketing adviser
of Technolux Bangkok, accepted an offer from
William Belo and Marjorie Tocao, to become an
industrial partner to a business
venture/partnership. Geminese Enterprises, a
sole-proprietorship registered in Tocao’s name,
would be a distributorship of cookware, and
would benefit from Anay’s expertise and
knowledge and her connection with a
kitchenware manufacturer in the US. The
partnership also agreed to use her name in
securing distributorship of cookware from such
manufacturer. Anay eventually became Vice-
President for sales. She organized administrative
staff and sales force. Tocao was the president
and general manager of Geminise while Belo
was the capitalist partner. Anay accepted the
invitation of their manufacturer to attend a
distributor/dealer meeting in Wisconsin. Upon
her return, Anay learned that Tocao had written
a letter to the Cubao sales office to the effect
that she was no longer the vice-president of
Geminese, and was now barred from holding
office and conducting demonstrations in the
offices. Anay, failing to get a response from
Belo, demanded for the commission due her and
an audit of the company, to determine her share
in the net profits.
Issue: Whether or not the plaintiff was an
employee or partner of Marjorie Tocao and Belo
Held: Yes, even though it was not reduced to
writing, for a partnership can be instituted in any
form. The fact that it was registered as a sole
proprietorship is of no moment for such
registration was only for the company’s trade
name.
The Supreme Court held that to be considered a
juridical personality, a partnership must fulfill
these requisites:
(1) two or more persons bind themselves to
contribute money, property or industry to a
common fund; and
(2) intention on the part of the partners to divide
the profits among themselves. It may be
constituted in any form; a public instrument is
necessary only where immovable property or
real rights are contributed thereto.
This implies that since a contract of partnership
is consensual, an oral contract of partnership is
as good as a written one.
Anay was not even an employee because when
they ventured into the agreement, they explicitly
agreed to profit sharing this is even though Anay
was receiving commissions because this is only
incidental to her efforts as a head marketer.
The Supreme Court also noted that a partner
who is excluded wrongfully from a partnership
is an innocent partner. Hence, the guilty partner
must give him his due upon the dissolution of
the partnership as well as damages or share in
the profits “realized from the appropriation of
the partnership business and goodwill.” An
innocent partner thus possesses “pecuniary
interest in every existing contract that was
incomplete and in the trade name of the co-
partnership and assets at the time he was
wrongfully expelled.”
An unjustified dissolution by a partner can
subject him to action for damages because by
the mutual agency that arises in a partnership,
the doctrine of delectus personae allows the
partners to have the power, although not
necessarily the right to dissolve the partnership.
Tocao’s unilateral exclusion of Anay from the
partnership is shown by her memo to the Cubao
office plainly stating that Anay was, as of
October 9, 1987, no longer the vice-president for
sales of Geminesse Enterprise. By that memo,
petitioner Tocao effected her own withdrawal
from the partnership and considered herself as
having ceased to be associated with the
partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the
business. Also the fact that there appears to be
no record in the Securities and Exchange
Commission of a public instrument embodying
the partnership agreement pursuant to Article
1772 of the Civil Code did not cause the
nullification of the partnership.
Note: An Industrial Partner is a partner
whose contribution to the partnership is in
the form of skill or services. In this case it was
briefly discussed by the SC in this case that In
a partnership, each partner must share in the
profits and losses of the venture, except that
the industrial partner shall not be liable for
the losses. As an industrial partner, private
respondent had the right to demand for a
formal accounting of the business and to
receive her share in the net profit.
. Held: Both the trial and the appellate courts
Equity Partner - Villareal v. Ramirez
Facts: In 1984, Villareal, Carmelito Jose and
Jesus Jose, formed a partnership for the purpose
of operating a restaurant. Each contributed
P250,000.00. In 1984, Ramirez was added as a
partner after he contributed P250,000.00. In
1987, Jesus withdrew from the partnership and
his capital share of P250k was returned to him as
agreed upon by the other partners.
Thereafter, the restaurant suffered losses.
Without informing Ramirez, Villareal and
Carmelito shut down the restaurant. They then
turned over the restaurant equipments to
Ramirez.
Later, Ramirez sent a letter to Villareal and
Carmelito telling them he’s no longer interested
in being a partner and that he’s demanding his
shares in the partnership. Villareal and
Carmelito ignored the request of Ramirez hence
the latter sued them.
In their defense, Villareal and Carmelito said
that the restaurant equipments served as
payment to Ramirez when they were delivered
to them; that Ramirez cannot ask for share in
equity because the restaurant incurred debts
(P240,658.00) and irreversible business losses.
Ramirez argued by saying that the equipments
were merely placed in their house for storage as
the two partners allegedly searched for a better
restaurant location; that he was not aware of any
losses or any indebtedness because he never
took part in the management of the restaurant.
The trial court ruled in favor of Ramirez. The
Court of Appeals affirmed the trial court and it
further ordered Villareal and Carmelito to pay
Ramirez P253,114.00. The computation was
done as follows: (Original Partnership Capital –
Partnership Debt = Partnership Asset) ÷ Number
of partners; hence: (P1,000,000.00 – paid. The CA’s computation of the amount to
P240,658.00 = P759,342.00) ÷ 3 = P253,114.00.
Issue: Whether petitioners are liable to
respondents for the latter's share in the
partnership?
found that a partnership had indeed existed, and
that it was dissolved on March 1, 1987. They
found that the dissolution took place when
respondents informed petitioners of the intention
to discontinue it because of the former’s
dissatisfaction with, and loss of trust in, the
latter’s management of the partnership affairs.
These findings were amply supported by the
evidence on record. Respondents consequently
demanded from petitioners the return of their
one-third equity in the partnership.
We hold that respondents have no right to
demand from petitioners the return of their
equity share. Except as managers of the
partnership, petitioners did not personally hold
its equity or assets. “The partnership has a
juridical personality separate and distinct from
that of each of the partners.” Since the capital
was contributed to the partnership, not to
petitioners, it is the partnership that must refund
the equity of the retiring partners.
Since it is the partnership, as a separate and
distinct entity, that must refund the shares of the
partners, the amount to be refunded is
necessarily limited to its total resources. In
other words, it can only pay out what it has in its
coffers, which consists of all its assets.
However, before the partners can be paid their
shares, the creditors of the partnership must first
be compensated. After all the creditors have
been paid, whatever is left of the partnership
assets becomes available for the payment of the
partners’ shares.
Evidently, in the present case, the exact amount
of refund equivalent to respondents’ one-third
share in the partnership cannot be determined
until all the partnership assets will have been
liquidated — in other words, sold and converted
to cash — and all partnership creditors, if any,
be refunded to respondents as their share was
thus erroneous.
 12. What are the distinctions between the partners and
universal partnership of all present the partnership)
property and of all profits?

Universal Partnership: one where the contract

of partnership encompasses expressly or
impliedly either all the present properties of the
partners or just covering all of the profits.
As to profits All profits As to profits
acquired by the from other
Universal Partnership of All Present as common industry of the sources:
Property: one where the partners contribute all property partners become
the property which actually belongs to them to a common property GR: Aside from
common fund, with the intention of dividing the (whether or not the contributed
they were properties, the
same among themselves, as well as the profits
obtained through profits of said
they may acquire therewith. the usufruct property become
contributed) common
Private property becomes common property, property.
plus profits XPN: Profits
from other
sources may
Universal Partnership of Profits: all that the become common
partners may acquire by their industry or work if there is a
during the existence of the partnership, as well stipulation to
as the usufruct of all movable or immovable such effect
property, which each of the partner may possess
As to properties
at the time of the celebration of the contract of subsequently
partnership, shall all pertain to the partnership. acquired:

Default Rule: universal partnership of profits GR: Properties

subsequently
acquired by
When is a partnership agreement deemed to inheritance,
be even a “universal partnership” for the legacy or
default rule under Art 1781 to apply? donation, cannot
be included in the
stipulation
Persons who are prohibited from giving each XPN: Only fruits
other donation or advantage cannot enter into thereof can be
universal partnership. (Art 1782) included in the
stipulation
(NCC, Art.
Every professional partnership and joint venture 1779).
arrangement would constitute particular
partnerships.
Presumption of universal partnership of
profits
All Profits All Present
Property When the Articles of Universal Partnership fail
All properties
actually
to specify whether it is one of all present
What property or of profits, it only constitutes a
belonging to the
Constitutes Only usufruct of
the properties of
partners are universal partnership of profits (NCC, Art.
Common contributed – 1781), because it imposes lesser obligations on
the partners
Property? become common
they become
the partners since they preserve the ownership of
common property
property their separate property.
(owned by all of

Persons disqualified from entering into
universal partnership
a. Legally married spouses (Family Code, Art.
87).
However they can enter into particular
partnership.
b. Common law spouses.
c. Parties guilty of adultery or concubinage.
d. Criminals convicted for the same offense in
consideration of the same [NCC, Art. 739 (2)].
e. A person and a public officer (or his wife,
ascendant or descendants) by reason of his office
[NCC, Art. 739 (3)].
13. What is Particular Partnership?
Art. 1783: Particular partnership has for its
object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a
profession or vacation.
CIR vs Suter (Digest from De Leon)
In a particular partnership composed of three
members, two of the partners got married and
the third partner subsequently sold, for a
nominal amount, his share to them.
Facts:
A, B, and C formed a limited partnership to
engage, among other activities, in the
importation, marketing and operation of
automatic phonographs, radios, television sets
and amusement machines, their parts and
accessories, with B and C as limited partners.
Subsequently, A and B got married and,
thereafter, C sold his share to A and B. For a
taxable year, A and B filed a separate income
return for the limited partnership and a
consolidated return for them as spouses.
The Commissioner of Internal Revenue
consolidated the income of the firm and the
individual income of the partners resulting in the
determination of a deficiency income tax. A and
B protested the assessment.
Issues:
(1) Whether or not the separate personality of
the partnership should be disregarded for income
tax purposes considering that A and B actually
formed a single taxable unit; and
(2) Whether or not the partnership was dissolved
after the marriage of A and B and the subsequent
sale to them by C of the latter’s participation for
the amount of P1.00.
Held: (1) Partners retained their separate
interests. — The view that by the marriage of A
and B the company became a single
proprietorship is erroneous. Their capital
contributions were separately owned and
contributed by them before their marriage; and
after they were joined in wedlock, such
contributions remained their respective separate
property. Thus, the individual interest of A and
B did not become common property of both
after their marriage. The change in the
membership of the firm is no ground for
withdrawing the partnership from the coverage
of
Section 24 of the National Internal Revenue
Code requiring it to pay income tax. A and B did
not enter into matrimony and thereafter buy the
interests of C with the premeditated scheme or
design to use the partnership as a business
conduit to dodge the tax laws.
(2) Partnership, a particular one. — The firm
was not a universal partnership, but a particular
one. It follows that the partnership was not one
that A and B were forbidden to enter
under Article 1677. (now Art. 1782.) Nor could
the subsequent marriage of the partners operate
to dissolve it, such marriage not being one of the
causes provided for that purpose by law.
14. What is a Contract of Sub-Partnership?
ART. 1804. Every partner may associate another
person with him in his share, but the associate
shall not be admitted into the partnership
without the consent of all the other partners,
even if the partner having an associate should be
a manager.

(parang ung mga associate ng isang MG,
nakikihati sa shares nung Partner sa profit na
nakuha nung partner mula sa partnership). This
is called Subpartnership.
In effect, a subpartnership is a partnership within
a partnership and is distinct and separate from
the main or principal partnership.
Subpartnership agreements do not in any wise
affect the composition, existence, or operations
of the fi rm. The sub-partners are partners inter
se, but, in the absence of the mutual assent of all
the parties, a subpartner does not become a
member of the partnership, even though the
agreement is known to the other members of the
firm.
15. What is the principle of Delectus
Personarum? (Latin of - choice of the person
or choice of the persons.)
Among partners, mutual agency arises and the
doctrine of delectus personae allows them to
have the power, although not necessarily the
right, to dissolve the partnership. Verily, any one
of the partners may, at his sole pleasure, dictate
a dissolution of the partnership at will. He must,
however, act in good faith, not that the
attendance of bad faith can prevent the
dissolution of the partnership but that it can
result in a liability for damages. (Art 1830 (2))
JG Summit Holdings Inc. v. CA
Facts: On 27 January 1977, the National
Investment and Development Corporation
(NIDC), a government corporation, entered into
a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. of Kobe, Japan
(Kawasaki) for the construction, operation, and
management of the Subic National Shipyard,
Inc. (SNS), which subsequently became the
Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA,
NIDC and Kawasaki would maintain a
shareholding proportion of 60% - 40%,
respectively. One of the provisions of the JVA
accorded the parties the right of first refusal
should either party sell, assign or transfer its
interest in the joint venture. On 25 November
1986, NIDC transferred all its rights, title and
interest in PHILSECO to the Philippine National
Bank (PNB).
More than two months later or on 3 February
1987, by virtue of Administrative Order 14,
PNB's interest in PHILSECO was transferred to
the National Government. Meanwhile, on 8
December 1986, President Corazon C. Aquino
issued Proclamation 50 establishing the
Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to and
possession of, conserve, manage and dispose of
non-performing assets of the National
Government. On 27 February 1987, a trust
agreement was entered into between the
National Government and the APT by virtue of
which the latter was named the trustee of the
National Government's share in PHILSECO. In
1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to
PNB, the National Government's shareholdings
in PHILSECO increased to 97.41% thereby
reducing Kawasaki's shareholdings to 2.59%.
Exercising their discretion, the COP and the
APT deemed it in the best interest of the national
economy and the government to privatize
PHILSECO by selling 87.67% of its total
outstanding capital stock to private entities.
After a series of negotiations between the APT
and Kasawaki, they agreed that the latter's right
of first refusal under the JVA be "exchanged"
for the right to top by 5% the highest bid for said
shares. They further agreed that Kawasaki would
be entitled to name a company in which it was a
stockholder, which could exercise the right to
top. On 7 September 1990, Kawasaki informed
APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top by 5%. At the pre-
bidding conference held on 28 September 1993,
interested bidders were given copies of the JVA
between NIDC and Kawasaki, and of the Asset
Specific Bidding Rules (ASBR) drafted for the
87.67% equity (sic) in PHILSECO of the
National Government. The provisions of the
ASBR were explained to the interested bidders
who were notified that bidding would be held on
2 December 1993. At the public bidding on said
date, the consortium composed of JG Summit
Holdings, Inc. (JGSMI), Sembawang Shipyard
Ltd. of Singapore (Sembawang), and Jurong
Shipyard Limited of Malaysia (Jurong), was
declared the highest bidder at P2.03 billion. The
following day, the COP approved the sale of
87.67% National Government shares of stock in
PHILSECO to said consortium. It notified
JGSMI of said approval "subject to the right of
Kawasaki Heavy Industries, Inc./Philyards
Holdings, Inc. to top JGSMI's bid by 5% as
specified in the bidding rules."
On 29 December 1993, JGSMI informed the
APT that it was protesting the offer of PHI to
top its bid on the grounds that: (a) the
Kawasaki/PHI consortium composed of
Kawasaki, Philyards, Mitsui, Keppel, SM
Group, ICTSI and Insular Life violated the
ASBR because the last four (4) companies were
the losing bidders (for P1.528 billion) thereby
circumventing the law and prejudicing the weak
winning bidder; (b) only Kawasaki could
exercise the right to top; (c) giving the same
option to top to PHI constituted unwarranted
benefit to a third party; (d) no right of first
refusal can be exercised in a public bidding or
auction sale, and (e) the JG Summit Consortium
was not estopped from questioning the
proceedings. On 2 February 1994, JGSMI was
notified that PHI had fully paid the balance of
the purchase price of the subject bidding. On 7
February 1994, the APT notified JGSMI that
PHI had exercised its option to top the highest
bid and that the COP had approved the same on
6 January 1994. On 24 February 1994, the APT
and PHI executed a Stock Purchase Agreement.
Consequently, JGSMI filed with the Supreme
Court a petition for mandamus under GR
114057. On 11 May 1994, said petition was
referred to the Court of Appeals. On 18 July
1995, the Court of Appeals "denied" for lack of
merit the petition for mandamus. JGSMI filed a
motion for the reconsideration of said Decision
which was denied on 15 March 1996. JGSMI
filed the petition for review on certiorari
Issue: Whether under the 1977 Joint Venture
Agreement, KAWASAKI can purchase only a
maximum of 40% of PHILSECOs total
capitalization.
Held: A careful reading of the 1977 Joint
Venture Agreement reveals that there is nothing
that prevents KAWASAKI from acquiring more
than 40% of PHILSECOs total capitalization.
Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco
shall be P330 million. The parties shall
thereafter increase their subscription in Philseco
as may be necessary and as called by the Board
of Directors, maintaining a proportion of 60%-
40% for NIDC and KAWASAKI respectively,
up to a total subscribed and paid-up capital stock
of P312 million.
1.4 Neither party shall sell, transfer or assign all
or any part of its interest in SNS [renamed
PHILSECO] to any third party without giving
the other under the same terms the right of first
refusal. This provision shall not apply if the
transferee is a corporation owned and controlled
by the GOVERMENT [of the Philippines] or by
a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall
grant the parties preemptive rights to unissued
shares of SNS [PHILSECO].
Under section 1.3, the parties agreed to the
amount of P330 million as the total
capitalization of their joint venture. There was
no mention of the amount of their initial
subscription. What is clear is that they are to
infuse the needed capital from time to time until
the total subscribed and paid-up capital reaches
P312 million. The phrase maintaining a
proportion of 60%-40% refers to their respective
share of the burden each time the Board of
Directors decides to increase the subscription to
reach the target paid-up capital of P312 million.
It does not bind the parties to maintain the
sharing scheme all throughout the existence of
their partnership.
The parties likewise agreed to arm themselves
with protective mechanisms to preserve their
respective interests in the partnership in the
event that (a) one party decides to sell its shares
to third parties; and (b) new Philseco shares are
issued. Anent the first situation, the non-selling
party is given the right of first refusal under
section 1.4 to have a preferential right to buy or
to refuse the selling partys shares. The right of
first refusal is meant to protect the original or
remaining joint venturer(s) or shareholder(s)
from the entry of third persons who are not
acceptable to it as co-venturer(s) or co-
shareholder(s). The joint venture between the
Philippine Government and KAWASAKI is
in the nature of a partnership which, unlike
[36]
an ordinary corporation, is based on delectus
personae. No one can become a member of the
partnership association without the consent
of all the other associates. The right of first
refusal thus ensures that the parties are given
control over who may become a new partner
in substitution of or in addition to the original
partners. Should the selling partner decide to
dispose all its shares, the non-selling partner
may acquire all these shares and terminate
the partnership. No person or corporation
can be compelled to remain or to continue the
partnership. Of course, this presupposes that
there are no other restrictions in the maximum
allowable share that the non-selling partner may
acquire such as the constitutional restriction on
foreign ownership in public utility. The theory
that KAWASAKI can acquire, as a maximum,
only 40% of PHILSECOs shares is correct only
if a shipyard is a public utility. In such instance,
the non-selling partner who is an alien can
acquire only a maximum of 40% of the total
capitalization of a public utility despite the grant
of first refusal. The partners cannot, by mere
agreement, avoid the constitutional proscription.
But as afore-discussed, PHILSECO is not a
public utility and no other restriction is present
that would limit the right of KAWASAKI to
purchase the Governments share to 40% of
Philsecos total capitalization.
Furthermore, the phrase under the same terms in
section 1.4 cannot be given an interpretation that
would limit the right of KAWASAKI to
purchase PHILSECO shares only to the extent of
its original proportionate contribution of 40% to
the total capitalization of the PHILSECO. Taken
together with the whole of section 1.4, the
phrase under the same terms means that a
partner to the joint venture that decides to sell its
shares to a third party shall make a similar offer
to the non-selling partner. The selling partner
cannot make a different or a more onerous offer
to the non-selling partner.
The exercise of first refusal presupposes that the
non-selling partner is aware of the terms of the
conditions attendant to the sale for it to have a
guided choice. While the right of first refusal
protects the non-selling partner from the entry of
third persons, it cannot also deprive the other
partner the right to sell its shares to third persons
if, under the same offer, it does not buy the
shares.
Apart from the right of first refusal, the parties
also have preemptive rights under section 1.5 in
the unissued shares of Philseco. Unlike the
former, this situation does not contemplate
transfer of a partners shares to third parties but
the issuance of new Philseco shares. The grant
of preemptive rights preserves the proportionate
shares of the original partners so as not to dilute
their respective interests with the issuance of the
new shares. Unlike the right of first refusal, a
preemptive right gives a partner a preferential
right over the newly issued shares only to the
extent that it retains its original proportionate
share in the joint venture.
The case at bar does not concern the issuance of
new shares but the transfer of a partners share in
the joint venture. Verily, the operative protective
mechanism is the right of first refusal which
does not impose any limitation in the maximum
shares that the non-selling partner may acquire.
16. When does a partner bind the
partnership?
Art. 1784. A partnership begins from the
moment of the execution of the contract, unless
it is otherwise stipulated.
NOTE: In other words, by mere agreement since
consensual contract, unless may immovable
property.
Information Technology Foundation v
COMELEC (& Mega Pacific Consortium and
Mega Pacific eSolutions, Inc.)
FACTS: Republic Act 8436 was enacted
authorizing Comelec to use an automated
election system (AES) for the process of voting
for the national elections. Comelec adopted a
modernization program for the 2004 elections. It
invited filipino sole proprietors, partnerships and
corporations, among others, for biddings as to
operate on the AES.
The Bids and Awards Committee (BAC) found
Mega Pacific Consortium (MPC) eligible;
however, the DOST said that MPC had obtained
a number of failed marks in the technical
evaluation. Despite the findings of the DOST,
the COMELEC awarded the project to MPC.
Furthermore, the COMELEC signed an
automation Contract with Mega Pacific
eSolutions, Inc. (MPEI), a company that joined
the bidding but had not met the eligibility
requirements.
Petitioner Information Technology Foundation
of the Philippines, among other entities,
protested the award of the Contract to
Respondent MPC which did not participate in
the bidding. However, according to the
respondents, the bidder was MPC, of which
MPEI was but a part. As proof thereof, they
point to a letter of intent to bid, signed by the
president of MPEI allegedly for and on behalf of
MPC. They also call attention to the official
receipt issued to MPC, acknowledging payment
for the bidding documents, as proof that it was
the "consortium" that participated in the bidding
process.
ISSUE: Whether or not there was an existence
of a consortium which validly participated in the
bidding.
HELD: NO. There was no documentary or other
basis for Comelec to conclude that a consortium
had actually been formed amongst MPEI, SK
C&C and WeSolv, along with Election.com and
ePLDT. The president of MPEI signing for
allegedly in behalf of MPC without any further
proof, did not by itself prove the existence of the
consortium. It did not show that MPEI or its
president have been duly pre-authorized by the
other members of the putative consortium to
represent them, to bid on their collective behalf
and, more important, to commit them jointly and
severally to the bid undertakings. The letter is
purely self-serving and uncorroborated.
HELD;PARTNERSHIP: Moreover, the liability
of the "consortium" members under the Civil
Code provisions on partnership cannot be
applied. First, it must be recalled that SK C&C,
WeSolv, Election.com and ePLDT never
represented themselves as partners and members
of MPC, whether for purposes of bidding or for
something else. It was MPEI alone that
represented them to be members of a
"consortium" it supposedly headed. Thus, its
acts may not necessarily be held against the
other "members."
Furthermore, said law might possibly be applied
in the absence of a joint venture agreement or
some other writing that discloses the relationship
of the "members" with one another. However, in
this case, the above mentioned letter taken in
conjunction with the several memorandums for
each company mentioned, it states therein the
limits of their liabilities which falls short of
being a partnership.
Thus, having no intention to form a partnership
in the first place, the act of MPEI cannot serve to
bind the companies mentioned therein.
Lim Tong Lim v Philippine Fishing Gear
Industries
FACTS: Lim Tong Lim requested Peter Yao to
engage in commercial fishing with him and one
Antonio Chua. The three agreed to purchase two
fishing boats but since they do not have the
money they borrowed from one Jesus Lim
(brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase
fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting
in behalf of “Ocean Quest Fishing Corporation”
(OQFC) they contracted with Philippine Fishing
Gear Industries (PFGI) for the purchase of
fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so
they were sued in their own names because
apparently OQFC is a non-existent corporation.
Chua admitted liability and asked for some time
to pay. Yao waived his rights. Lim Tong Lim
however argued that he’s not liable because he
was not aware that Chua and Yao represented
themselves as a corporation; that the two acted
without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both
lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business,
which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus
Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the
loan with the proceeds of the sale of the boats,
and to divide equally among them the excess or
loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell
under the term “common fund” under Article
1767. The contribution to such fund need not be
cash or fixed assets; it could be an intangible
like credit or industry. That the parties agreed
that any loss or profit from the sale and
operation of the boats would be divided equally
among them also shows that they had indeed
formed a partnership.
Lim Tong Lim cannot argue that the principle of
corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim
benefited from the use of the nets found in his
boats, the boat which has earlier been proven to
be an asset of the partnership. Lim, Chua and
Yao decided to form a corporation. Although it
was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of
the three as contracting parties in representation
of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those
benefited by it, knowing it to be without valid
existence, are held liable as general partners.
17. What are the instances of partnership
tort?
As a general rule, the partnership assets shall
primarily answer for any contracts the
partnership entered into. Subsidiarily, after the
partnership assets have been exhausted, the
partners will be held liable (Art. 1816).
As an exception, the partners will be held
solidarily liable with the partnership under the
following instances of partnership tort:
1. Any wrongful act or omission of any
partner acting in the ordinary course of
the business of the partnership or with
the authority of co-partners, loss or
injury is caused to any person, not being
a partner in the partnership, or any
penalty is incurred, the partnership is
liable therefor to the same extent as the
partner so acting or omitting to act (Art.
1822).
2. Where one partner acting within the
scope of his apparent authority receives
money or property of a third person and
misapplies it (Art. 1823 [1]).
3. Where the partnership in the course of
its business receives money or property
of a third person and the money or
property so received is misapplied by
any partner while it is in the custody of
the partnership (Art. 1823 [2]).
Guy v. Gacott
FACTS: Atty. Glenn Gacott (Gacott) purchased
two transreceivers from Quantech Systems
Corporation (QSC) through its employee Rey
Medestomas (Medestomas). Afterwards, Gacott
asked the transreceivers be returned and
replaced. Medestomas received the
transreceivers and promised to return the
replacements. Despite several demands, Gacott
was never given a replacement or a refund.
Thus, Gacott filed a complaint for damages. The
RTC ruled in favor of Gacott.
During the execution of the judgment, Gacott
learned that QSC was not a corporation, but was
in fact a registered general partnership. In the
articles of partnership, Guy (petitioner) was
appointed as General Manager of QSC. Gacott
instructed the sheriff to proceed with the
attachment of one of the motor vehicles of Guy.
Thereafter, Guy argued that he was not a
judgment debtor and, therefore, his vehicle
could not be attached.
The lower court ruled against Guy, as affirmed
by the appellate court, rationalizing:
“QSC was not a corporation, but a
registered partnership, Guy should be
treated as a general partner pursuant to
Section 21 of the Corporation Code, and
he may be held jointly and severally
liable with QSC and Medestomas”.
Guy argues that he is not solidarily liable with
the partnership because the solidary liability of
the partners under Articles 1822, 1823 and 1824
of the Civil Code only applies when it stemmed
from the act of a partner. In this case, the alleged
lapses were not attributable to any of the
partners. Guy further invokes Article 1816 of the
Civil Code which states that the liability of the
partners to the partnership is merely joint and
subsidiary in nature.
ISSUE: WON Guy is solidarily liable with QSC
and Medestomas
HELD: NO, he is not.
First, under Article 1816, the partners’
obligation with respect to the partnership
liabilities is subsidiary in nature. It provides that
the partners shall only be liable with their
property after all the partnership assets have
been exhausted. It is merely secondary and only
arises if the one primarily liable fails to
sufficiently satisfy the obligation. Resort to the
properties of a partner may be made only after
efforts in exhausting partnership assets have
failed or that such partnership assets are
insufficient to cover the entire obligation. The
subsidiary nature of the partners’ liability with
the partnership is one of the valid defenses
against a premature execution of judgment
directed to a partner.
In this case, no genuine efforts were made to
locate the properties of QSC that could have
been attached to satisfy the judgment. Being
subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after
all partnership assets had been exhausted.
Second, Article 1816 provides that the partners’
obligation to third persons with respect to the
partnership liability is pro rata or joint. Only in
exceptional circumstances shall the partners’
liability be solidary in nature as stated in articles
1822, 1823 and 1824. These provisions
articulate that it is the act of a partner which
caused loss or injury to a third person that makes
all other partners solidarily liable with the
partnership. The reason for being a solidary
obligation is for the protection of the third
person, who in good faith relied upon the
authority of a partner, whether such authority is
real or apparent.
In this case, it was not shown that Guy or the
other partners committed those acts enumerated
in the above given articles. Moreover, the act in
question was for a breach of warranty in a
contractual obligation entered into in the name
and for the account of QSC, not due to the acts
of any of the partners.
Lastly, Section 21 of the Corporation Code,
cannot be applied to sustain Guy's liability. It
merely states that a general partner shall be
liable for all debts, liabilities and damages
incurred by an ostensible corporation. It must be
read in conjunction with Article 1816 of the
Civil Code, which governs the liabilities of
partners against third persons. Accordingly,
whether QSC was an alleged ostensible
corporation or a duly registered partnership, the
liability of Guy, if any, would remain to be joint
and subsidiary because, as previously stated, all
partners shall be liable pro rata with all their
property and after all the partnership assets have
been exhausted for the contracts which may be
entered into in the name and for the account of
the partnership.
LIMITED PARTNERSHIP
18. What are the characteristics of a limited
partnership?
a.) It is formed by compliance with
the statutory requirements (Art. 1844).
No limited partnership is formed unless
the formalities under Article 1844 are
 complied with and failure to comply
with the formalities will bring about a
general partnership.
Formal requisites of a limited
partnership:
(1) Sign and swear to a
certificate, which shall state:
(a) The name of the
partnership, adding
thereto the word
"Limited";
(b) The character of the
business;
(c) The location of the
principal place of
business;
(d) The name and place
of residence of each
member, general and
limited partners being
respectively designated;
(e) The term for which
the partnership is to exist;
(f) The amount of cash
and a description of and
the agreed value of the
other property
contributed by each
limited partner;
(g) The additional
contributions, if any, to
be made by each limited
partner and the times at
which or events on the
happening of which
they shall be made;
(h) The time, if agreed
upon, when the
contribution of each
limited partner is to be
returned;
(i) The share of the
profits or the other
compensation by way of
income which each
limited partner shall
receive by reason of his
contribution;
(j) The right, if given, of
a limited partner to
substitute an assignee as
contributor in his place,
and the terms and
conditions of the
substitution;
(k) The right, if given,
of the partners to admit
additional limited
partners;
(l) The right, if given, of
one or more of the
limited partners to
priority over other
limited partners, as to
contributions or as to
compensation by way of
income, and the nature
of such priority;
(m) The right, if given,
of the remaining general
partner or partners to
continue the business on
the death, retirement,
civil interdiction,
insanity or insolvency
of a general partner; and
(n) The right, if given,
of a limited partner to
demand and receive
property other than cash
in return for his
contribution.
(2) File for record the
certificate in the Office of the
Securities and Exchange
Commission (Art. 1844).
b.) One or more general partners who
control the business and are
personally liable to the creditors.
(Arts. 1848, 1850)
General partners are treated much like a
partner in an ordinary partnership. They
are those who know how to manage the
business.
c.) One or more limited partners who
contribute to the capital and share in
the profits but do not participate in
the management of the business and
are not personally liable for
 partnership obligations beyond the
amount of their capital contributions
(Arts. 1845, 1848, 1856)
The limited partner in such shall not be
bound by the obligations of the
partnership. However, limited partners
do assume liability pertaining to their
contributions and partnership assets
under Article 1858 (cf: question 21).
Thus, it could be said that the doctrine
of “no liability” is not the proper
doctrine to be applied in this case;
instead, “limited liability” is more the
appropriate one.
Such limited liability is further achieved
by taking away from the limited partners
the key features of mutual agency,
delectus personae and the right to
manage partnership affairs.
d.) Limited partners may ask for the
return of their capital contributions
under the conditions prescribed by
law (Arts. 1844[h], 1857)
e.) Partnership debts are paid out of
the common fund and the individual
properties of the general partners.
CIR vs. ISASI
4 partners including isasi formed a partnership
known as Aldecoa, Zuloaga e Isasi" organized
principally for the exploitation, development and
utilization of Haciendas Manucao and Conchita,
located in the municipalities of Binalbagan and
Hinigaran, Negros, Occidental.
The records show that for the tax years 1948 and
1949, the firm Aldecoa, Zuloaga e Isasi filed its
income tax returns and the Collector of Internal
Revenue assessed the sum of P26,873.66 against
said partnership which the latter paid.
Believing that the partnership "Aldecoa, Zuloaga
e Isasi" was a duly registered general co-
partnership (sociedad colectiva) and therefore
not subject to income tax under Section 24 of the
National Internal Revenue Code, plaintiffs filed
with defendant on July 16, 1951, a claim for the
refund of P26,873.66 which the partnership had
paid as income tax.
The claim for refund not having been acted upon
by defendant, a complaint was filed with the
Court of First Instance of Negros Occidental on
August 4, 1951, praying the defendant be
ordered to return to plaintiffs the aforementioned
sum with costs, and for such other remedies as
may be just and equitable in the premises.
Provincial fiscal answered the complaint in
saying that they were not exempt because their
partnership is classified as a limited partnership
and not a general one.
CTA ordered the CIR to refund
Hence this appeal.
ISSUE: WON the partnership is exempt from
tax.
RULING: yes. The partnership is exempt.
ART. 122. As a general rule commercial
associations shall be established by the adoption
of any of the following forms:
1. The regular general co-partnership in which
all the partners, under a collective commercial
name, bind themselves participate, in the
proportion they establish in the same rights and
obligations.
2. The limited co-partnership to which one or
more persons contribute a specific amount of
capital to a common fund, to become liable for
the business transactions of the firm executed
exclusively by others under a collective name.
Even a casual scrutiny of the partnership
agreement executed by the respondent partners
would reveal that they followed the pattern set
for the pattern set for the regular co-partnership
(Arts. 122, No. 2, 125, 126, 131, 133 and 136 of
the Code of Commerce). They have a firm name
— Aldecoa, Zuloaga e Isasi; that firm name was
composed of all the surnames of the partners —
to which the words "and company" (to indicate
the limited partnership — Art. 146 of the Code
of Commerce) is not added; the management of
the firm was entrusted to a partner, Don Juan 19. What are the distinctions between a
Isasi; the contribution of all the partners was general and limited partner?
expressly provided therein — there being no
person Contributing a specific amount of capital
to a common fund to become liable for the Distinctions General Limited Partner
business transactions of the firm executed Partner
exclusively by others under a collective name, as
As to their A general A limited partner
is the case in limited partnerships (Art. 122, No. partner is is liable only to
liability
2, Code of Commerce); the duration of the personally the extent of the
partnership was made to last until June 30, 1952; liable for capital
and it allowed its manager, Don Juan Isasi to partnership contribution (Arts.
engage in the same kind of undertaking. obligations 1845, 1848, 1856)
We agree with the Court of Tax Appeals when it (Art. 1816)
stated:
As to the When the A limited partner
To establish a limited partnership there must be manner of manner of has no share in the
at least one general partner and the name of at managemen managemen management of a
least one of the general partners must appear in t t has not limited
the firm name. (Articles 122(2), 146, 148, Code been agreed partnership. Such
of Commerce). If these requisites are not upon, all partner’s rights
complied with, the partnership, notwithstanding general are limited to
the fact that the articles of association are partners those enumerated
entitled "limited partnership" (Jo Chung Cang have an in Article 1851.
vs. Pacific Commercial Co., 45 Phil. 142). An equal right
examination of the firm name of the partnership in By way of
"Aldecoa, Zuloaga e Isasi" will readily show managemen exception, if the
that neither of this requirements have been t of the limited partner
fulfilled; instead it operated under the name of business, takes part in the
all its members of some of them, or of only one whether the control of the
(without necessarily adding to the name of such partner business, then said
names stated in last two cases, the words "and has partner will be
company" (par. 1, Art. 126, Code of contributed liable as a general
Commerce). A limited partnership that has not to the partner (Art.
complied with the law of its creation is not capital or 1848).
considered a limited partnership at all, but a not (Arts.
general partnership in which all the members are 1803,
liable (Hechen, Elements of Partnership, p. 412; 1810[3]).
Gilmore, Partnership, p. 499; 20 R.C.L. 1064).
Moreover, a limited partnership cannot perform As to the A general A limited partner
any act in the management of the partner contributio partner may must contribute
interests and cannot even examine the condition n contribute money or property
and state of partnership administration except at money, to the partnership
stated times. (Articles 122 (2), 148 and 150, property, or but never an
Code of Commerce), unlike the partnership industry to industry (Art
Aldecoa, Zuloaga e Isasi, wherein all the the 1845).
partners exercised powers of management and partnership
administration. (Art. 1767).

As to being A general A limited partner

a party in partner is is not a party
proceedings party thereto. the firm a general rule
against the thereto. name (Art. (Art. 1846)
partnership By way of 1815).
exception, a
limited partner As to A general A limited partner
may be a party in engaging in partner is may engage in
such proceedings businesses prohibited other businesses
if: from since he is
i.) he is entering a considered as a
also a business mere contributor
general which the only (Art. 1866).
partner partnership
(Art. is engaged
1853); in, if he is a
ii.) the capitalist
object of partner
the (Art. 1808),
proceedin or in any
g is to other
enforce a business if
limited he is an
partner’s industrial
right partner
against, or (Art. 1789).
liability
to, the As to the A general A limited
partnershi dissolution partner’s partner’s death,
p (Art. death, etc. does not have
1866) insanity, or the same effect,
insolvency for his executor or
As to the A general A limited dissolves administrator shall
assignment partner’s partner’s interest the have the rights of
of interest interest in is freely partnership. a limited partner
in the the assignable to third for the purpose of
partnership partnership persons, with the selling his estate
may not be assignee acquiring (Art. 1861).
assigned as all the rights of
to make the the limited 20. What transactions are allowed or
assignee a partner, subject to prohibited in a Limited Partnership?
new partner certain
without the qualifications
a.) Allowed:
consent of (Art. 1859). i.) Granting loans to partnership
the other
ii.) Transacting business with
partners
partnership
(Art. 1813) iii.) Receiving pro rata share of
partnership assets with general
As to the A general A limited
partner’s partner’s name creditors if he is not also a
firm name
name may must not appear in general partner
appear in the firm name, as
b.) Prohibited
 i.)Receiving/holding partnership
property as collateral security
ii.) Receiving any payment,
conveyance, release from
liability if it will prejudice the
rights of third persons
NOTE: The prohibition is not absolute
because there is no prohibition if the
assets are sufficient to discharge
partnership liabilities to persons not
claiming as general or limited partners.
21. What are the liabilities of a limited
partner?
1858
A. On original contributions
The limited partner is liable to the partnership
for the difference for any unpaid contribution
which he agreed in the certificate to make in the
future at the time and on the conditions stated
therein.
B. On additional contributions
The limited partner may be obliged during the
lifetime of the partnership to give additional
contribution if such obligation is stipulated in
the contract of partnership.
The question now is whether 1791 or the
obligation of a partner to sell to other partners
his share in case he refuses to contribute
additional contributions apply to limited
partners?
No. This would run counter to their assurance
that for as long as they continue as their passive
role as investors, they cannot be made to assume
greater risk or additional loss arising from the
operations of the partnership business beyond
what they have contractually committed to
contribute.
C. On returned contributions
Under 1858, When a contributor has rightfully
received the return in whole or in part of the
capital of his contribution he is nevertheless
liable to the partnership for any sum, not in
excess of such return with interest, necessary to
discharge its liabilities to all creditors who
extebded credit or whose claims arose before
such return
D. Liable as trustee of the partnership
Under 1858, aside from the fact that a limited
partner is liable to the partnership for his unpaid
contributions when it has become due under the
terms of the certificate, he would become liable
as a trustee for the partnership for:
a. Specific property stated in the
certificate as contributed by him, which has not
been delivered or wrongfully returned to him.
b. Money or other property
wrongfully paid or conveyed to him on account
of his contribution
E. Fiduciary duties of limited partners
Limited partners do not and cannot participate in
the management of the partnership affairs and
therefore do not act as agents for one another,
for the general partners and not for the limited
partners unlike general partners.
F. General lack of standing in
partnership suits.
Under article 1866, a contributor, unless he is a
general partner, is not the proper party to
proceedings by or against a partnership, except
where the object is to enforce a limited partner's
right against or liability to the partnership
22. When may a limited partner have the
partnership dissolved?
1857. A limited partner shall not receive from a
general partner or out of partnership property
any part of his contributions until:
(1) All liabilities of the partnership, except
liabilities to general partners and to limited
partners on account of their contributions, have
been paid or there remains property of the
partnership sufficient to pay them;
(2) The consent of all members is had, unless the
return of the contribution may be rightfully
demanded under the provisions of the second
paragraph; and
(3) The certificate is cancelled or so amended as
to set forth the withdrawal or reduction.
Subject to the provisions of the first paragraph, a
limited partner may rightfully demand the return
of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for
its return has arrived, or
(3) After he has six months' notice in writing to
all other members, if no time is specified in the
certificate, either for the return of the
contribution or for the dissolution of the
partnership.
In the absence of any statement in the certificate
to the contrary or the consent of all members, a
limited partner, irrespective of the nature of his
contribution, has only the right to demand and
receive cash in return for his contribution.
A limited partner may have the partnership
dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands the
return of his contribution, or
(2) The other liabilities of the partnership have
not been paid, or the partnership property is
insufficient for their payment as required by the
first paragraph, No. 1, and the limited partner
would otherwise be entitled to the return of his
contribution.
23. What is the order of priority in the
distribution of assets in the dissolution of
partbership?
1863. In settling accounts after dissolution the
liabilities of the partnership shall be entitled to
payment in the following order:
(1) Those to creditors, in the order of priority as
provided by law, except those to limited partners
on account of their contributions, and to general
partners;
(2) Those to limited partners in respect to their
share of the profits and other compensation by
way of income on their contributions;
(3) Those to limited partners in respect to the
capital of their contributions;
(4) Those to general partners other than for
capital and profits;
(5) Those to general partners in respect to
profits;
(6) Those to general partners in respect to
capital.
Subject to any statement in the certificate or to
subsequent agreement, limited partners share in
the partnership assets in respect to their claims
for capital, and in respect to their claims for
profits or for compensation by way of income on
their contribution respectively, in proportion to
the respective amounts of such claim
Magdusa vs. Albaran
Facts:
Respondents Appellant and appellees, together
with various other persons, had verbally formed
a partnership de facto, for the sale of general
merchandise to which appellant contributed
P2,000 as capital, and the others contributed
their labor, under the condition that out of the
net profits of the business, 25% would be added
to the original capital, and the remaining 75%
would be divided among the members in
proportion to the length of service of each.
Sometime in 1953 and 1954, the appellee’s
expressed their desire to withdraw from the
partnership, and appellant thereupon made a
computation to determine the value of the
partnership shares to that date. The results of the
computation were embodied in the document
drawn in the handwriting of appellant.
Appellee’s thereafter made demands upon
appellant for payment, but appellant having
refused, they filed the initial complaint in the
court below. Appellant defended by denying any
partnership with appellees, whom he claimed to
be mere employees of his. The court of first
instance of bohol dismissed the complaint on the
ground that the other were indispensable parties
but had not been impleaded.
Upon appeal, the Court of Appeals reversed the
decision, ruling that it is not an action for a
dissolution of a partnership and winding up of
its affairs or liquidation of its assets in which the
interest of other partners who are not brought
into the case may be affected. The action of the
plaintiffs is one for the recovery of a sum of
money with Gregorio Magdusa as the principal
defendant. The partnership, with Gregorio
Magdusa as managing partner, was brought into
the case as an alternative defendant only.
Issue:
Whether or not appellees’ action can be
entertained, because in the distribution of all or
part of a partnership’s assets, all the partners
have no interest and are indispensable parties
without whose intervention no decree of
distribution can be validly entered.
Held:
It cannot be entertained. A partner's share cannot
be returned without first dissolving and
liquidating the partnership, for the return is
dependent on the discharge of the creditors,
whose claims enjoy preference over those of the
partner's and it is self evident that all members
of the partnership are interested in his assets and
business, and are entitled to be heard in the
matter of the firm's liquidation and the
distribution of its property. The liquidation
drawn by appellant is not signed by the other
members of the partnership besides appellee’s
and appellant's. It does not appear that they have
approved, authorized, or ratified the same, and,
therefore, it is not binding upon them. At the
very least, they are entitled to be heard upon its
correctness. In addition, unless a proper
accounting and liquidation of the partnership
affairs is first had, the capital shares of the
appellees, as retiring partners, cannot be repaid,
for the firm’s outside creditors have preference
over the assets of the enterprise, and the firm's
property can not be diminished to their
prejudice. Finally, the appellant cannot be held
liable in his personal capacity for the payment of
partners' shares for he does not hold them except
as manager of, or trustee for, the partnership. It
is the latter that must refund their shares to the
retiring partners. Since not all the members of
the partnership have been impleaded, no
judgment for refund can be rendered.
24. What are the effects when a dissolved
partnership is continued?
1840. In the following cases creditors of the
dissolved partnership are also creditors of the
person or partnership continuing the business:
(1) When any new partner is admitted into an
existing partnership, or when any partner retires
and assigns (or the representative of the
deceased partner assigns) his rights in
partnership property to two or more of the
partners, or to one or more of the partners and
one or more third persons, if the business is
continued without liquidation of the partnership
affairs;
(2) When all but one partner retire and assign (or
the representative of a deceased partner assigns)
their rights in partnership property to the
remaining partner, who continues the business
without liquidation of partnership affairs, either
alone or with others;
(3) When any partner retires or dies and the
business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this
article, with the consent of the retired partners or
the representative of the deceased partner, but
without any assignment of his right in
partnership property;
(4) When all the partners or their representatives
assign their rights in partnership property to one
or more third persons who promise to pay the
debts and who continue the business of the
dissolved partnership;
(5) When any partner wrongfully causes a
dissolution and the remaining partners continue
the business under the provisions of article 1837,
second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership
affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or
with others without liquidation of the
partnership affairs.
The liability of a third person becoming a
partner in the partnership continuing the
business, under this article, to the creditors of
the dissolved partnership shall be satisfied out of
the partnership property only, unless there is a
stipulation to the contrary.
When the business of a partnership after
dissolution is continued under any conditions set
forth in this article the creditors of the dissolved
partnership, as against the separate creditors of
the retiring or deceased partner or the
representative of the deceased partner, have a
prior right to any claim of the retired partner or
the representative of the deceased partner
against the person or partnership continuing the
business, on account of the retired or deceased
partner's interest in the dissolved partnership or
on account of any consideration promised for
such interest or for his right in partnership
property.
Nothing in this article shall be held to modify
any right of creditors to set aside any assignment
on the ground of fraud.
The use by the person or partnership continuing
the business of the partnership name, or the
name of a deceased partner as part thereof, shall
not of itself make the individual property of the
deceased partner liable for any debts contracted
by such person or partnership.
EMNACE vs. CA
Facts: Emilio Emnace, Jacinto Divinagracia and
Vicente Tabanao formed a partnership engaged
in the fishing industry. In 1986, Jacinto decided
to leave the partnership hence they agreed to
dissolve the partnership. At that time, the
partnership has an estimated asset amounting to
P30,000,000.00.
HOWEVER, until the death of Vicente Tabanao
in 1994, Emnace never rendered an accounting
either to Vicente or his heirs. Emnace reneged
on his promise to turn over Tabanao’s share
which is 1/3 of the P30M. The heirs of Tabanao
then sued Emnace. Emnace argued, among
others, that the heirs are barred by prescription
hence they can no longer demand an accounting.
He contends that the partnership was dissolved
in 1986 and that was the time when Tabanao’s
(and his heirs’) right to inquire into the business
affairs accrued; that said right has expired in
1990 or 4 years after. So beyond 1990, they can
no longer inquire.
ISSUE: Whether or not Emnace is correct.
HELD: No. Prescription has not run in this case,
it has never begun. The three final stages of
partnership are: a) dissolution, b) winding up,
and c) termination. In this case, Emnace and his
partners dissolved their partnership but such did
not perfect the dissolution because no
accounting took place. The partnership, although
dissolved, continues to exist and its legal
personality is retained, at which time it
completes the winding up of its affairs,
including the partitioning and distribution of the
net partnership assets to the partners. For as long
as the partnership exists, any of the partners (or
legal representative – in this case the heirs of
Tabanao) may demand an accounting of the
partnership’s business. Prescription of the said
right starts to run only upon the dissolution of
the partnership when the final accounting is
done.
When a final accounting is made, it is only then
that prescription begins to run. In the case at
bar, no final accounting has been made, and that
is precisely what the heirs are seeking in their
action before the trial court, since Emnace has
failed or refused to render an accounting of the
partnership’s business and assets. Hence, the
said action is not barred by prescription.

25. Who are the persons required to render
an accounting?
ARTICLE 1806. Partners shall render on
demand true and full information of all things
affecting the partnership to any partner or the
legal representative of any deceased partner or
of any partner under legal disability. (n)
ARTICLE 1807. Every partner must account to
the partnership for any benefit, and hold as
trustee for it any profits derived by him without
the consent of the other partners from any
transaction connected with the formation,
conduct, or liquidation of the partnership or
from any use by him of its property. (n)
LIM TANHU vs. RAMOLETE
FACTS:
Tan alleged that she is the widow of Tee Hoon
Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial
Company with Antonio Lim Tanhu and Alfonso
Ng Sua".
Defendant Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan, and Eng
Chong Leonardo, through fraud and
machination, took actual and active management
of the partnership and although Tee Hoon Lim
Po Chuan was the manager of Glory
Commercial Company, defendants managed to
use the funds of the partnership to purchase
lands and buildings in the cities of Cebu,
Lapulapu, Mandaue, and the municipalities of
Talisay and Minglanilla.
She alleged in her complaint that after the death
of Tee Hoon Lim Po Chuan, the defendants,
without liquidation, continued the business of
Glory Commercial Company, by purportedly
organizing a corporation known as the Glory
Commercial Company, Incorporated and
sometime in the month of November, 1967,
defendants, particularly Antonio Lim Tanhu, by
means of fraud deceit, and misrepresentations
did then and there, induce and convince her to
execute a quitclaim of all her rights and
interests, in the assets of the partnership of Glory
Commercial Company.
Thereafter, in the year 1968-69, the defendants
who had earlier promised to liquidate the
aforesaid properties and assets in favor, among
others of plaintiff and until the middle of the
year 1970 when the plaintiff formally demanded
from the defendants the accounting of real and
personal properties of the Glory Commercial
Company, defendants refused and stated that
they would not give the share of the plaintiff.
ISSUE: Whether Tan has a right over the
liquidated properties of the partnership
HELD:
No, Tan has no right over the liquidated
properties of the partnership
The Supreme Court held that there is no
alternative but to hold that plaintiff Tan Put's
allegation that she is the widow of Tee Hoon
Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the
evidence on record convincingly shows that her
relation with said deceased was that of a
common-law wife.
Moreover, the Supreme Court said that the lower
courts committed an error by awarding 1/3 of
the partnership properties to Tan because there
has been no liquidation proceedings yet. And if
there has not yet been any liquidation of the
partnership, the only right plaintiff could have
would be to what might result after much
liquidation to belong to the deceased partner (her
alleged husband) and before this is finished, it is
impossible to determine, what rights or interest,
if any the deceased had.
In other words, no specific amounts or
properties may be adjudicated to the heir or legal
representative of the deceased partner without
the liquidation being first terminated.
26. Will the death of a partner terminate the
partnership?
The effect of the death of a partner will depend
on whether it is under a general partnership or a
limited partnership.
In a general partnership, the death of a general
partner will ordinarily result in the dissolution of
the partnership, unless the business is continues
by the remaining general partners under a right
so to do stated in the certificate or with the
consent of all the partners. (see Art. 1960)
On the other hand, the death of a partner in a
limited partnership will not result in the
termination of the partnership except if the one
who died is the only limited partner in which
case the requirement under the law that there
must be at least ome limited partner in a limited
partnership is no longer complied with. (see Art.
1843, 1864)
YU vs. NLRC
Facts:
Benjamin Yu used to be the Assistant General
Manager of Jade Mountain, a partnership
engaged in marble quarrying and export
business. The majority of the founding partners
sold their interests in said partnership to Willy
Co and Emmanuel Zapanta without Yu’s
knowledge. Said new partnership continued
operating under the same name and continued
the business’s operations. However, it
transferred its main office from Makati to
Mandaluyong. The new partnership did not
anymore availed of the services of Yu. Thus, he
filed a complaint for illegal dismissal, recovery
of unpaid wages and damages.
Issues:
1. Whether the partnership which had hired
the petitioner as Asst. General Manager had
been extinguished and replaced by a new
partnership composed of Willy Co and
Emmanuel Zapanta.
2. Whether petitioner could assert his rights
under his employment contract as against the
new partnership
Held:
1. Yes. The legal effect of the changes in the
membership of the partnership was the
dissolution of the old partnership which had
hired the petitioner in 1984 and the emergence
of the new firm composed of Willy Co and
Emmanuel Zapanta in 1988. This is based on the
following provisions:
Art. 1828. The dissolution of partnership is the
change in the relation of the partners caused by
any partner ceasing to be associated in the
carrying on as a distinguished from the winding
up of the business.
Art. 1830. Dissolution is caused:
1. without violation of the agreement
between the partners;
b. by the express will of any partner, who
must act in good faith, when no definite term or
particular undertaking is specified.
2. in contravention of the agreement
between the partners, where the circumstances
do not permit a dissolution under any other
provision of this article, by the express will of
any partner at any time;
However, the legal consequence of dissolution
of a partnership do not automatically result in
the termination of the legal personality of the old
partnership as according to Art. 1829, “ on
dissolution of the partnership is not terminated,
but continues until the winding up of the
partnership affairs is completed. The new
partnership simply continued the operations of
the old partnership under its old firm name
without winding up the business affairs of the
old partnership.
2. Yes. Under Art. 1840, creditors of the old
partnership are also creditors of the new
partnership which continued the business of
former without liquidation of the partnership
affairs. Thus, creditor of the old Jade Mountain,
such as the petitioner is entitled to enforce his
claim for unpaid salaries, as well as other claims
relating to his employment with the old
partnership against the new Jade Mountain.