CLV PARTNERSHIP NOTES
Art. 1767
PARTNERSHIP: A contract whereby 2 or more persons bind
themselves:
 To contribute money, property, and industry to
common fund
 With the intention to divide the profits and losses
(business enterprise)
For the exercise of a profession. (quasi-public service)
Difference bw contract of service?
Partnership is NOT a contract of service because industry is
more than what is included.
Essential characteristics:
1. Principal and nominate – whenever the essence of
the agreement b/w 2 persons is to contribute money
and property, then that is the agreement, whether they
know it or not.
2. Consensual – contract comes into being the moment
2 persons come into an agreement that they will
contribute money, property to a common fund. It is
mutual in character – all of them agree to put together
in a common fund.
3. Onerous – requires valuable consideration – to agree
to give money property, or industry
4. Multi-lateral – all of them are bound
5. Preparatory and progressive – It is a means to an
end. The greater end: the pursuit of business.
a. That's why it is preparatory. Although it has a
house in which the parties are bound,
nevertheless, it does not exist for itself. The
parties come together to pursue a public end -
the pursuit of a business.
b. Partnership as a contract is only a means to
pursue a business.
c. The means always gives in to the end.
d. They have to agree on a path
Partnership v co-ownership
Partnership is an agreement between 2 or more
persons to bind themselves to contribute to a common
fund for a BUSINESS VENTURE together. It goes
beyond contracts of disposition to alienate/dispose of
property (i.e. donation, sale). It encompasses it
because it is the pursuance of a business venture
together (not just disposition / contribution of profit).
The moment they agree, it arises.
Characteristic of commercial law:
Universal in character – food, clothing, money is
important. All your needs in life, which are provided by
commercial transactions, have the same value. It cuts
across regardless of race.
Equitable in character – exchange in value, whether
youre dealing w a criminal or a priest, and youre buying
burgers from them, it's the same. It’s just the same
burger.
ELEMENTS:
Consent: Meeting of the minds
Object: Contribute money, property
Consideration: contribution
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Tri-level existence in Partnership:
1. Contract – Art. 1767 (quasi-public service)
2. Juridical Person – Art. 1768 (it is only an add-on, as
a necessary consequence of the consensual
nature)
3. Business enterprise level
a. The common fund where 2 or more persons
contribute to the common fund
b. Enterprise for profi t
c. Activity or undertaking for profit
d. Is a going concern – it operates for profit for
a period of time
Whether u refer to partnership as a contract or juridical
person or business, they have essential attributes:
1. First and foremost, a contractual relationship – no
matter how you look at it, they are all contractual
relationships b/w the parties.
2. Second, a “weak juridical personality” - it is weak
b/c of the next 2 items. No way that a business can
operate unless it goes into the world. Owner of the
beauty parlor is the one who hires. It doesn't run on its
own; it runs on assets and people. It doesn't have arms
to do the work, a mouth to do the negotiation.
3. The principal of mutual agency –
a. duty of diligence,
b. loyalty to one another and the partnership (the
person whom they represent),
c. but no obedience (you cannot be obedient if
you have a top dog) – every partner is a
principal or an equity owner. Therefore, if it is
your business together with others, you cannot
have the duty of obedience kasi pare-parehas
kayong owners. -> same w/ trust. Trustee
doesn't owe obedience to beneficiary.
4. Delectus personae
When a partner sells his interest in the partnership,
Why is partnership given the close personality? It is so
personal of the highest degree. It is so close that it has a
weak personality. When a partner dies, the bond id broken.
Almost like fiduciary relationship between principal or
agent – it is revocable.
I have the power to terminate. WHY? Because it goes into
the concept of the right to pursuit the happiness of one’s
sustenance. So those that limit the power to pursuit
livelihood is frowned upon. Therefor partnership is pursuit
of business. And therefore you should not put people who
have come together when there is a breakdown in the
relationship.
Purely intramural, governs relationship BETWEEN
PARTNERS
5. There is unlimited liability
As a general rule, the liability of partners in a partnership
organization is unlimited in the sense that the partnership
creditors may run after them for any and all of their assets and
property in payment of the partnership debts. Should one of
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the partners defray all liabilities of the partnership, he is
entitled to be reimbursed by the other partners for their
respective shares therein.
In the case, however, of limited partnerships, the law allows
the limitation of the liability of certain partners to the extent of
the amount contributed to the partnership.
Best way to understand unlimited liability is to compare with
other doctrine : doctrine of LIMITED liability.
GR: Partners are unlimitedly liable. In corporation law, there is
doctrine of LIMITED Liability, a centralized management.
Partnership, unlimited liability and mutual agency.
LIMITED LIABILTY: as the holder does not become liable for
debts and obligations of corp, except to the extent of what he
promised to invest. Sounds like doctrine of agency – agent not
liable to contracts he entered into scope of his authority. Why
not personally liable? Doctrine of relativity – he never gave his
consent ; he gave principals consent. SAME AS
STOCKHOLDERS – they don't participate in contracts so they
cant be liable for contracts.
UNLIMITED LIABILITY: partners are liable w their other
porperties for the debts of partnerships beyond what they
invested or poromised to invest. One attributes of partners is
preparatory and progressive – it exists and operates as a
medium. Two relationship: inter-se partnership, and dealing w
third persons. And all of this affects relationship between them.
PURELY EXTRAMURAL: creates liability with respect to those
they deal with. Therefore, do not mistake it with intramural
(division of profits and losses). Intramural dealings do not bind
the outside. THIS IS DIFFERENT FROM UNLIMITED
LIABILITY.
But purely intramural with respect to how they decide to split
profts/losses – creditors don't give a damn kung ano pinag-
usapan nila.
GR of relativity: they don't become liable for partnership debts.
Therefore WHY does the law provide unlimited liability for
partners? B/c it was the norm then. Why? Because partnership
juridical personality was just added on later on. Before there
wasn't aany juriedical personality before in parnterships
(France or Spain olden times). Why did the evolution of
partnership grant a separate juridical personality? Because it
makes dealings easier. Imagine if there were 100 partners,
when they sell land they all have to give SPA’s. right? Thru
this attribute, a juridical personality has made transactions
easier. Everyone represents that business enterprise.
Therefore, go back to the days when there was no juridical
entity. There was just co-ownership. But aren’t co-ownerships
unlimitedly liable? Diba that’s the rule.
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In sole proprietorship, owner is liable for all obligations he
incurred. So without juridical entitity they are just co-owners so
they remain solidarily liable for all partnership debts.
ALL THIS IS AN ADD ON. SEPARATE JURIDICAL
PERSONALITY IS MERELY AN ADD ON TO PARTNERSHIP
FRAMEWORK BUT NOT MEANT TO OVERCOME
GENERAL PRINCIPLES. They are still co-owners. They still
continued to be co-owners and they have powers so they
continue to act as sole proprietors. Can exercise prerogatives
of ownership and is therfore liable for all obligations contracted
by them.
5. MUTUAL AGENCY:
Any person who deals w an agent has 2 obligations:
1. Ascertain whether agent, 2. and extent of authority,
THIS IS NOT APPLICABLE TO PARTNERSHIPS.
When dealing w partners, you don't have to ascertain whether
he is a partner. You don't have the obligation to determine the
power of authority because every partner has the authority to
bind others. They make dealings easier.
WHEN MUST IT BE IN A PUBLIC DOCUMENT?
1771. -When it involves immovable, then it must be in a public
document.
ART 1772: every contract of partnership having a capital of
3000 pesos or more must be in a public document, and must
be registered. (n) – not found in the old Civil Code, adopted
from Commercial Code
Failure to comply doesn't undermine the partnership. So
what are the consequences?
Mensi v. Bastida: stronger partnership compared to Oliva
Anton v. Oliva: Spouses Oliva didn't get to participate in
the management
Is the doctrine correct? That there is a stipulation to exclude
a partner from management? Is he still a partner? NOT
CORRECT.
--he is not a partner because a partner is an equity holder.
--If a person is left out from the management, he cant be a
partner -> FALSE because of the concept of mutual agency. I
still manage to the acts of the others. Although I may be
prohibited from managing, they are still delegates. Each one of
the partners have the power to bind / act for the firm.
If the power to manage was given to one person at the
start?
->It’s irrevocable. If it's in the articles of partnership.
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Is it lawful for all the partners to say that the power to manage/
sayo na? YES BUT REVOCABLE AGENCY if not constituted
in the start.
If they say you can’t bind the partnership, if he (partner)
pursues a contract in the name of the partnership, does he still
bind the partnership and the others? -> YES. All partners are
of equal footing. No obedience. Each partner is an equity
holder = equal rights.
Can a partner decide to deprive one partner of the share?
No because the only person who can do that is the owner itself.
(just abutendi)
PARTNERS ARE EQUITY HOLDERS, as distinguished
from Debt Holders.
THREE RIGHTS OF AN EQUITY HOLDER:
1. right to co-own the partnership: they can actually
dispose of partnership oroperty in the ordinary course
of business, w/n it’s in the name of partnership
2. right to manage the partnership: equity holder. But if
the right to manage is only in one partner, then the
others cease to be a partner - >
3. right to profits: equity holder
these are the greatest indication of partnership
-> Dominion
Woodhouse v. Halili: (CLV SAYS BAD DOCTRINE)
Did not annul the contract b/c it’s incidental fraud, not causal
fraud. Voidable contract: valid until annulled.
Goes against the consensual nature of partnership.
Is it true that you cannot compel the execution of a public
document?
1385: value of 1358 is for greater efficacy. gives a cause of
action that when the law req that must be in a public document,
you can go to court to demand that that public instrument be
executed.
Halili is wrong! You can actually compel the other party to
execute a public instrument. But other party refuses, what
now? Judge can direct clerk of court to execute
Fernandez v. Dela Rosa:
1767: does not crystallize what a contract of partnership is.
The true elements are actually found in the agreement to
pursue business
ABCDE entered into a contract whereby they would all donate
land as their contribution and they shook hands, without any
agreement on how to divide the profits. Is there a partnership?
YES. They can agree later on how to divide the profits. These
are only accidental matters. Even if they don't agree, the law
provides for a default.
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VALUE OF REGISTRATION:
If there is an agreement already between the parties, the
defaults cannot set in.
Torres v. CA
UNIVERSAL – they agree to put together all that they earn
and all that they have. Don't actually exist anymore. All
partnerships are particular whether for limited or
indefinite time whether for whole business or any
business. Its still particular – because it doesn't involve
other properties they haven’t contributed.
PARTICULAR PARTNERSHIP – every partnership does
not include everything that they own.
DISTINGUISHMENT: only for discussions. Only good for
partnerships
PARTNESHIPS
LIMITED PARTNERSHIP: liable only to the extent of what
they contributed, only appears in a limited partnership. By def,
a limited partnership (one general partner and one or more
limited partners) – this is the only solemn type of partnership.
IT must state in the articles of incorporations “LIMITED
PARTERS” the ff persons are limited partners- they are only
liable for their contribution. Msut be registered w/ SEC. you
must describe them who are limited and who are general. AND
MUST BE REGISTERED. If you don't follow formalities, limited
partners become general partners
PARTNERSHIP WILL:
PARTNERSHIP BY PERIOD: joint venture
GENERAL PARTNERSHIP: all partners are GENERAL
PARTNERS (those who have all of the powers of
maangemetn co ownership and are unlimitedly liable for
partnership debts w their own property
DISSOLUTION
Right to net assets will always be yours to take. However, if
you have caused the dissolution of partnership in bad faith, the
others who are not in bad faith can choose to continue
partnership under new privity and you cant stop them. They
can also choose to dissolve – partner in breach cannot be in
charge of liquidations. Only good faith partners. And you will
pay for damages for the breach.
ROXAS v. MAGLANA
In case of doubt, what they have registered in the SEC is
binding, not what they have agreed upon.
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 CLV PARTNERSHIP NOTES
PROPRIETARY RIGHTS OF PARTNERS – EQUITY
HOLDERS (intangible right over business concern)
1. right to manage – aspect of ownership. Every owner has a
right to manage and dispose of his property.
2. co-ownership interest – exists in distinction from separate
juridical capacity.
3. Equity rights – the rights to profits and obligastion to share
in the losses. This is AMONG THEMSELVES – not as to
creditors (pro-rata) pag ubos na property. When theres still
assets, this should be applied. PAG UBOS NA, UNLIMITED
LIABILITY
how to distribute?
-stipulation
-if no stipulation as to profits, then the default rule is they
will share in proportion to their capital
-although industrial partner shall be entitled to profits that are
JUST AND EQUITABLE , nothing prevents partners from
saying 1/3, 1/3 1/3 – Maglana. Only danger of giving industrial
partner is baka tamarin si industrial partners since he only
contributes industry.
A stipulation precluding partners from sharing in the
losses= void;
except: industrial partner ;
reason – industry is only thing he gives. The moment he
doesn't receive anything, he has already lost. (PWEDE HINDI
MAG SHARE SA LOSS SI INDUSTRIAL)
But nothing prevents from stipulating that he can share in case
of loss. Pwede yun. Because relationship is contractual in
character.
In the absence of stipulation, he doesn't share in losses
If he engages in another industry = breach of duty of
loyalty
4. Dissolution rights – the right to proportional share in the
net assets of the partnership
5. Right to Accounting – you wont know how much equity
rights you will be able to obtain
DUTIES AND OBLIGATIONS OF PARNTERS
1. Fiduciary Duty of Diligence – every partner in managing
the affairs and pursuing business must exercise due diligence
of good father of a family. Every person who by negligence or
fraud are liable for damages. In case of gross negligence, BF
or fraud, and causes damages, he becomes personally liable.
If I was sole proprietor, I can be as reckless as I want – jus
abutendi. There is no duty of diligence.
2. Duty of Loyalty – hard to define loyalty.
3. Duty of Obedience – presupposes master-servant
relationship. But partners are equal. They act as equal. No
subservience.
4. Obligation to Account – aspect of the duty of loyalty.
5. Doctrine of Unlimited Liability – joint and subsidiary
because it arises only after exhaustion of all partnership
assets. Every partner, including industrial partner, is liable to
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ALL partnership debts. PRO-RATA (per head). Not their

respective shares.
The firm as it appears to 3rd parties is more binding than the
formal requirements because partnership is consensual.
Those dealing with the partnership has no obligation to be
Sharing of profits and losses: bound by registered partnership.
50 EXCEPT: even if your name is used in the firm name, you cant
be liable if it is a name always used by the firm and you were
30 not a parter. If your name is not in the firm name, but partners
10 say you’re a partner, partnership by estoppel. The belief itself
manifests partnership.
5

suppose there are unpaid 100,000 unpaid debts. How to

share? ALL EQUAL (pro rata) DISSOLUTION WINDING UP TERMINATION

1. UNLIMITED LIABILITY DOCTRINE – joint, pro-rata, 5

partners (20% each). Not only joint or pro-rata, it is also
if they agree w profits and losses (equity sharing), do they subsidiary. Unlimited liability only arises after the
also agree w/ UNLIMITED LIABILITY? Not really. But you partnership assets have been exhausted. It will not
can agree. arise if there are enough partnership assets. It is not an
extraordinary aspect – that's just the way things are.
You can AGREE. But UNLIMITED LIABILITY IS Whether sole proprretor, or a partner with others. You
DIFFRENET FROM EQUITY SHARING are unlimitedly liable. Nadagdagan lang ng tao. Add on
lang ang juridical personality. But it doesn't undermine
PARTNERSHIP BY ESTOPPEL: the liability.
2. ASPECTS OF TRUST FUND DOCTRINE- after
Meant to emphasize that a partnership is a medium more than
exhausting properties, I still have payables, you cannot
a contractual relation. Presented to third parties by which the
attach on my other businesses. The business itself
means is pursued. 3rd parties dealing in good faith with a
doesn't obtain obligations. I am primarily liable. Every
purported corporation has a right to expect. PUBLIC
owner is primarily liable for his obligations w his
EXPECTATION OF OBLIGATORY FORCE.

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properties. Assets are first in line. (SOLE winding down is TERMINATION. Affects the business
PROPRTIETOR) ENTERPRISE – should not be carried on.

Must first apply trust fund to payment of liabilities before

the owners. You cannot allow during the life of businese
nterprise for the owners or stock holders to be first in line. TERMINATION – all three. Point in time where all the winding
You can do that upon dissolution. Unlimited liability downs have happened. There is no longer a contractual
happens upon DISSOLUTION. Reckoning is relationship so no more juridical relation or no more business
DISSOLUTION. Distribution of profits during life of enterprise left. All attributes of partnership delecrtuspersonae,
business is conditional. If the end of it all, not enough mutual agency, wala nay un. POINT IN TIME WHERE
assets, then youre bound. WINDING DOWN HAS ENDED.

If partnership is 20 years, do you have to wait for 20 years It is at dissolution that other contingency rgiths of the parrners
before you can earn? No. distribute profits every year, and begin to take hold (manage, co-ownership, equity rights – to
then at the end of it all when business is insolvent, the participate in cincome and losses as stipulated, residual right –
rule is that they become liable pro-rata. Equal. Do they proprtionaelty share in assers upon dissolution)
have to give back what they receive? Do they have to
return everything first?
NO STIPULATION TO LOSSES, SAME AS TO PROFITS.
BUT IF NOT STIPULATION AT ALL, THEN IN
DISSOLUTION – technical legal term w/c pertains to contract ACCORDANCE W THEIR CAPITAL CONTRIBUTION.
of partnership. Point in time where privity among partners is
deemed broken (detah withdrawal insolvency) breaks
vinculum juris. One partner dies, it breaks ALL relationship. Distribution of profits and losses is important for going-
BUT Partnership does not cease to exist. Continues to exist in concern.
order to wind down and to complete business. This does not
affect the enterprise, but only changes the relationship b/w
partners.
TRUST FUND DOCTRINE SAYS –
WINDING DOWN - partnership business enterprise. All the
assets and apply them to payment of all liabilities. The end of 1. what are considered to be partnership assets

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2. what is the order of priority w respect to DISSOLUTION, WINDING UP, TERMINATION

partnership assets?
a. Those owing to creditors other than
partners
b. Those owing to partners other than capital Ipso Jure Dissolution – by operation of low
or share in the profits
c. Those owing to partners as a return of Doesn't require court decision
capital
d. Those owing to partners as their share in
the profits 1. Without Breach of Partnership Agreement
a. End of partnership agreement (e.g. 10 years)
Assume: remaining assets are 100M. Debts of 80M. of the b. Fulfillment of the business or purpose
100M, third parties stand in line first, they take the whole c. Partnership ofor particular purpose
d. Partnership at will (Demand for dissolution
by one of the partners ) – Rojas v. Maglana
100M assets e. Expulsion of parter based on power
provided for in the articles of partnership
60 debts (deemed to be a guilty partner so he cant
participate ni winding down. He can only
20 M debts owed to demand for cash value of asset)
2. With breach of Partnership Agreement
50M capital
3. Force Majeure -
20M a. Unlawful Purposes – partners cannot
choose to continue to business because it
is ipso jure dissolved.
b. Loss of property – when the property is lost,
Equals 150 the vinculum is broken. For ex they agreed
to give his particular property and it
becomes lost. Vinculum is broken but they
can agree on something else.
c. Dies, Insolvent, - ipso jure

BY COURT DECREE.

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1. insanity of partner whether judicial decree ir - does ORIDNATY CORPORATION – stated that there are 5
he lose ownerhisp? Of course not. He still has directors. Only directors are allowed to conduct business
equity rights. (centralized management). Stockholders get to vote.
2. incapacity of partner (doesn't have to be judicial Cumulative voting. (multiply number of shares to number
decree) of directors to be voted for)
3. a. Partners guilty conduct that affects the liability
of the partnership
4. b. Partner’s willful violation w/c makes ourisuit of
parnteship not viable anymore JVA CORPORATIONS – voting, etc are already contained
5. Partnership at loss in a JVA. Yo ucan create rules as to the voting or
6. Other similar directorship. Whatever is in JVA will prevail. Since no
indication, GR is cumulative voting. If nothing is stated,
JOINT VENTURES voting is cumulative and not straight,

TORRES v. CA

-A JV cannot be null and void even if not registered and

even if no inventory of the land contributed. In all
instances? NO – if it prejudices third parties

-always answer with Civil Code on Partnerships

PHILEX MINING v. CIR

Corporation are not allowed to enter in to Partnership? –

they do not have delectus personae

TRUE except if JVA

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