II. Obligations of Partners Amongst Themselves: o Begins at The Execution of The Contract

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II. Obligations of Partners Amongst Themselves


Read:
 Articles 1784 to 1809, Civil Code of the Philippines
 Pineda, 2006 Edition, pages 48-100, p. 1-79
§1784
Article 1784. A partnership begins from the moment of the execution of the contract,
unless it is otherwise stipulated.
 Commencement of Existence of P
o Begins at the execution of the contract
 XPN otherwise stipulated
o Consensual contract, exists from the celebration of the contract
 Even if no contributions have been made
 As long as the elements of a contract are present
 Consent
 Object
 Consideration
 Agreement to establish future partnership
o Parties can stipulate when the date of the contract of partnership shall
begin to exist
o If parties agreed to become partners at a future time
 Do not become partners until the appointed time
o If agreement is subject to a suspensive condition
 P shall begin to exist only from the happening of the condition
o As long as the agreement for a partnership remains inchoate or
unperformed, not consummated
o If future partnership by agreement is not implemented until after 1 year,
 Must be evidenced by some writing pursuant to the Statute of
Frauds
 If not, unenforceable
o If one of the parties died/become insane/incompetent,
 Firm will no longer be established
 Continuance of life or competency of each of the partners is
essential in the formation
 Duration of P
o No fixed period
o If parties failed to agree on the material terms and conditions of future P
 Failure shall prevent the arising on either side of the rights and
obligations for lack of complete contract
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§1785
Article 1785. When a partnership for a fixed term or particular undertaking is continued
after the termination of such term or particular undertaking without any express
agreement, the rights and duties of the partners remain the same as they were at such
termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted
therein during the term, without any settlement or liquidation of the partnership affairs, is
prima facie evidence of a continuation of the partnership. (n)
 Rule on duration of a P
o No fixed period
o Lifetime may be expressly stipulated
 Fixed or
 Implied
 Conduct of partners
 Nature
 Ends of the business undertaken
o Firm is dissolved as soon as its purpose/s have been accomplished
o Dissolution is not termination
 There is still winding up of P affairs authorized by law
 After this, P is terminated
 Applicability
o Applies when P has a fixed term but is continued after the end of term
o Partners have undertaken a particular business but is continued after the
termination or the accomplishment of such business
 Prima facie evidence of continuation of a P; P at will
o Actual continuation of the affairs of P after termination of period and
accomplishment of purposes by habitual managers is prima facie
evidence of its continuation as P
o P at will because existence depends on the will of the partners or the will
in any one of them
 Renewal of P contract
o Agreement to renew is legal
o By oral or tacit agreement
 Rights and duties of partners; same
o Remains the same in continued P
o Same at the time of termination
 Subject to condition that they are not inconsistent with subsequent
agreement
 Express or implied
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§1786
Article 1786. Every partner is a debtor of the partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case of evictiobn with regard to specific and
determinate things which he may have contributed to the partnership, in the same cases
and in the same manner as the vendor is bound with respect to the vendee. He shall
also be liable for the fruits thereof from the time they should have been delivered,
without the need of any demand. (1681a)
 Partner is a debtor
o Debtor of the firm for whatever he promised to contribute
 MPI
o When MPI is contributed, firm is the owner
 Cannot be withdrawn without the consent/approval of the P / others
 Contributing partner is a warrantor
o When specific and determinate things are contributed
 P bound to warrant things against eviction (same vendor-vendee)
 Seller has the right to sell the thing at the time when the
ownership is to pass
 Thing shall be free from any hidden faults or defects or any
charge not declared
o XPN person professing to sell by virtue of authority or
law
 Sheriff
 Mortgagee
 Pledgee
 Vendor shall answer for the eviction even though nothing
has been said in the contract
o Parties may modify legal obligations of vendor
o Eviction shall take place whenever by final judgement
based on the right prior to the sale or an act imputable
to the vendor
o Warranty not applicable to industrial partner
 Personal services
 Liable for damages if he refuses/neglects to render services
without valid justification
o Cannot be compelled by specific performance, it
would be involuntary servitude
 Obligation of warranty may be modified
o By agreement ______ obligation of warranty
 Increase
 Diminish suppress
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 Reason for warranty


o Obligation of warranty against eviction is a necessary consequence of the
nature of the partnership
 Onerous contract
o Partner shall not contribute something that he does not own at the time of
delivery
o When the thing is delivered, the firm shall have the right to enjoy legal and
peaceful possession of the thing
 At the time of delivery
 Enforceability of warranty
o Cannot be enforced until a final judgement has been rendered
 Vendee losses the thing acquired or part thereof
o Partners not obliged to make good the proper warranty
 Unless summoned in the suit for eviction
 Liability of partner for undelivered fruits
o If prop is a fruit-producing property, and fruits not delivered at the time of
execution,
 Contributing party liable for the value of fruits
o No demand is necessary to make the refusing partner liable for the value
of these fruits
 Warranty if the thing delivered is only for the use of firm? (YES)
o Use does not include ownership
o Contributing partner must still warrant against eviction
o Akin to lease agreement
 Rule when credit is contributed
o Only warrant existence, not the solvency of the debtor
 XPN contrary stipulation
 Remedy for breach of warranty
o GR: P may recovery the proper indemnity from partner
o If P would not have been constituted, had it not been for the property
contributed
 Dissolution
 Other duties of contributing partners
o Duties:
 Deliver what he has undertook to contribute
 Answer for breach of warranty
 Answer to the undelivered or delayed fruits
o Must preserve the property
 Diligence of a good father of a family
 While he has it in his possession and after he made a promise
o Liable for damages in case guilty of
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 Fraud
 Negligence
 Delay
 Contravenes the tenor of obligation
§1787
Article 1787. When the capital or a part thereof which a partner is bound to contribute
consists of goods, their appraisal must be made in the manner prescribed in the
contract of partnership, and in the absence of stipulation, it shall be made by experts
chosen by the partners, and according to current prices, the subsequent changes
thereof being for account of the partnership. (n)
 Rule when the contribution is in goods
o Amount determined by proper appraisal of value at the time of contribution
o Comply with mode of appraisal agreed upon
 If none, determined by experts chosen by partners
o Appraisal necessary to determine how much in terms of money had been
contributed
o Inventory is useful
 Subsequent changes in the value
o Account of the firm

§1788
Article 1788. A partner who has undertaken to contribute a sum of money and fails to do
so becomes a debtor for the interest and damages from the time he should have
complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers,
and his liability shall begin from the time he converted the amount to his own use.
(1682)
 Coverage
o 1st – failure of partner to contribute sum of money he has undertaken
o 2nd – conversion of money taken from P’s coffers for personal use of the
partner
 Sanctions
o Partner becomes a debtor of the firm for the interest + damages from
time of
 his failure to contribute or
 conversion
o Payment of 12% interest
 Since partner is a debtor, this is forbearance of money
 Illustrative Cases
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o Partner who used money of the firm for personal should account to his
partners for the money which he used in such purchase
o Mere failure of managing partner to return to other partners their shares in
capital does not automatically constitute estafa
 Civil action for recovery of money
 If fraudulent, estafa
o Managing partner who failed to account for the money received must
return the co-partners’ shares + 6% legal interest
 In absence of any proof of actual loss
§1789
Article 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits which
he may have obtained in violation of this provision, with a right to damages in either
case. (n)
 Industrial partner cannot engage in business for himself; exception
o Capitalist + limited contribute MP they own to P,
 MP become property of P
o Industrial partners contribute I or labor
o P will be prejudiced if the industrial partner will be allowed to engage in
separate business
 Diminution of time needed to render services
o Even if IP contributes MP and I, capitalist-industrial partner, cannot
engage in another business for himself
 Exception
o Express permission to do so
 Reason for prohibition
o Prevent IP from exploiting his services for his own personal benefit without
permission of the firm
o Conflict of interest
o Ensure that IP will faithfully comply with his commitment
 Nature of prohibition
o Absence of permission, the prohibition is absolute
o Covers all kinds of business, even if the firm is only engaged in 1 trade
o IP’s time and expertise are intended exclusively for the firm
 Being a judge can hardly be characterized as business
 Prohibition compared with one against capitalist partners
o Prohibition against capitalist – engaging in business similar to the firm
 Unless stipulation to contrary
o Prevent business competition which may prejudice firm
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 Sanction against industrial partner who violates the prohibition


o Exclude IP from P + damages
o Recover benefits which the IP gained in the business where he engaged
himself without the consent of the firm + damages
§1790
Article 1790. Unless there is a stipulation to the contrary, the partners shall contribute
equal shares to the capital of the partnership. (n)
 Applicability
o Only to capitalist partners
 Equal contribution of General Partners
o GR: equal shares to capital
 XPN: stipulate that some may contribute bigger share than others
o In case of unequal contributions
 Sharing in profits and losses shall be proportionate to the amount of
respective contributions
o IP contribute only labor
 Hard to quantify in terms of money
 If IP contributes capital, he shall share in the profits in proportion to
the amount of his contribution
§1791
Article 1791. If there is no agreement to the contrary, in case of an imminent loss of the
business of the partnership, any partner who refuses to contribute an additional share to
the capital, except an industrial partner, to save the venture, shall he obliged to sell his
interest to the other partners. (n)
 Are capitalist partners obliged to contribute additional capital in case of imminent
loss of business? (YES)
o GR: CP is not bound to contribute more than what he had committed to
contribute
 XPN: there is an arrangement to the contrary
 Obliged to make additional contribution to save business
o Even if there is no arrangement to the contrary, in case of impending loss
of business, gen partners are obliged to make additional contributions to
save business
o If GP refuses for no valid reason, he must sell his interest in P to other
parties
 It is not fair for him to stay in the firm and reap benefits where he
did not extend help
 Lack of cooperation and interest should not be rewarded
 No prejudice because he will be paid by partners the value of
interest
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 IP exempted from the sanction


o IP not required in case of imminent loss
o He already contributes his entire I and labor
 Nothing more he can be required to give
§1792
Article 1792. If a partner authorized to manage collects a demandable sum which was
owed to him in his own name, from a person who owed the partnership another sum
also demandable, the sum thus collected shall be applied to the two credits in
proportion to their amounts, even though he may have given a receipt for his own credit
only; but should he have given it for the account of the partnership credit, the amount
shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted
to the other debtor by article 1252, but only if the personal credit of the partner should
be more onerous to him. (1684)
 Applicability
o Requisites
 2 separate credits which are demandable
 1 credit is owing to Parthership
 Another owing to the collecting Partner
 Must be a managing partner of a firm
o If collecting P is not managing partner, will not apply
 No basis for assuming that the collector will prefer his own interest
against P’s interest
o Rationale: prevent collecting partner from choosing own interest
 Illustration
o 100K debt: 50K and 50K
o If debts are of different amounts, the division of the collection will be
proportionate to respective debt owing to P and partner
 Applicability of 1252
o Debtor with several debts may specify which debt he is paying
o If he pays to the collecting manager, allowed
 Provided that debt is more onerous to him compared to debt owing
to firm
§1793
Article 1793. A partner who has received, in whole or in part, his share of a partnership
credit, when the other partners have not collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring to the partnership capital what he received
even though he may have given receipt for his share only. (1685a)
 Receipt of share in a P credit
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o Debtor made a partial payment to debt to partnership and there is balance


to be paid in the future
 Out of payment, the partner received his share of the P credit in
whole or part
o If debtor cannot pay because of insolvency, the partner who received his
is obliged to bring to P capital what he received
 Even if the receipt he issued only covered his share
o Returned sum shall be shared by all partners
o Balance that cannot be paid by insolvent debtor is bad debt and loss to
the firm
 Illustration
o 90K; only 30K to 1 partner; insolvent
o P will share 30K
o 10K for each of the 3 partners
 Distinguished from § 1792
o Only 1 debt
o P is the creditor
o In previous, there are 2 debts: managing partner and P

§1794
Article 1794. Every partner is responsible to the partnership for damages suffered by it
through his fault, and he cannot compensate them with the profits and benefits which he
may have earned for the partnership by his industry. However, the courts may equitably
lessen this responsibility if through the partner's extraordinary efforts in other activities
of the partnership, unusual profits have been realized. (1686a)
 Liability for damages by reason of fault of partner
o Partner who caused damage to P shall be liable
 Damages cannot be offset with profits and benefits
o Damages cannot be offset or compensated with the profits and benefits he
earned for P by industry
o Compensation cannot apply because
 Partner is a debtor
 In his duty to secure profits and benefits to P
 Duty to observe diligence in the performance of his
obligations as a partner
o In compensation, 2 persons are creditors and debtors of each other
 Requisites for compensation
 Each 1 of the obligors bound principally and that he be at the
same time a principal creditor of the other
 Both debts consist in a sum of money
o If consumable, same kind and quality
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 2 debts be due
 Liquidated and demandable
 Over neither of them, there be any retention or
controversy communicated by 3rd persons
 Liquidation necessary to determine amount of damages
o Previous liquidation of said P is necessary
 Remedy when faulting partner died
o Recovery against estate
 Mitigation of liability allowed
o Extraordinary efforts in other activities in P
 Unusual profits have been realized
 Rules of equity applied
§1795
Article 1795. The risk of specific and determinate things, which are not fungible,
contributed to the partnership so that only their use and fruits may be for the common
benefit, shall be borne by the partner who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating, or if they
were contributed to be sold, the risk shall be borne by the partnership. In the absence of
stipulation, the risk of the things brought and appraised in the inventory, shall also be
borne by the partnership, and in such case the claim shall be limited to the value at
which they were appraised. (1687)
 Who bears the risk of loss
o If only use and fruits of specific and determinate things had been
contributed, ownership is retained by partner-owner
o In case of loss, owner bears the loss (res perit domino)
o If what is contributed is a fungible thing, or one that is contributed to be
sold, the P bears the loss
 There is an impending transfer of ownership of the fungible thing to
the partnership
 Things contributed and appraised in the inventory
o When things are appraised in inventory, there is implied sale to P
o In case of loss, P shall bear
 Claim cannot exceed the appraised value
§1796
Article 1796. The partnership shall be responsible to every partner for the amounts he
may have disbursed on behalf of the partnership and for the corresponding interest,
from the time the expense are made; it shall also answer to each partner for the
obligations he may have contracted in good faith in the interest of the partnership
business, and for risks in consequence of its management. (1688a)
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 Disbursement made for the account of the P


o Person who paid something on behalf of P must be reimbursed by P for
amount + legal interest at the time of payment
o P assets
o If no assets, other partners must reimburse the paying – proportionate
share
o Advances by partners to P are not contributions
 Chargeable to against P with interest
 May reimbursement be made in case of losing business (YES)
o Reimburse paying partner as long as he is not at fault
o Paying partner is a mere agent
 Liable if he expressly binds himself to 3 rd persons or exceeded
authority without sufficient notice of his powers
 Meaning of amounts reimbursed
o Not original capital
o Loans or advances made on behalf of the P
 Obligations contracted in good faith in the interest of P; Risks in consequence of
management
o Liable
o Endeavors and risks as a consequence of management are matters
impliedly acquiesced by partners
 Can the paying partner exercise the right of retention? In case of no refund
o Ordinary agent
 May exercise
o Paying partner
 Cannot exercise
§1797
Article 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be
in proportion to what he may have contributed, but the industrial partner shall not be
liable for the losses. As for the profits, the industrial partner shall receive such share as
may be just and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in proportion to his
capital. (1689a)
 Applicability
o Only to settlement of affairs of the form by and among partners
themselves
o Not to liability of partners and 3rd persons
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 Distribution of profits and losses


o If there is agreement
 Share in profits and losses according to terms
 Cannot stipulate that 1 or more partners be excluded from profits
 Common benefit
 XPN industrial partner
o Once he rendered services, he cannot withdraw (fait
accompli)
o Capitalist partners can withdraw capital
o Suffered loss if he worked in vain
o If no agreement
 Proportion to individual contribution
 Loss= net loss
 XPN to the rule
o Purely industrial partner
 Share in profits not fixed but depends upon what is just and
equitable
 Old law: equivalent to share of 1 who contributed the lowest
o If IP contributed money
 Capitalist industrial partner
 In addition, also receive share in profits in proportion to amount
contributed
o Equity
 Partners entitled only to share in the actual profits realize
o Cannot recover promised profits if business failed
o Hidden risks have to be considered
o Entitled only to share in the profits actually realized
 Profits refer to net profits
o Reduced by income tax assessments against P
o Obligations must first be deducted before net profits determined
§1798
Article 1798. If the partners have agreed to intrust to a third person the designation of
the share of each one in the profits and losses, such designation may be impugned only
when it is manifestly inequitable. In no case may a partner who has begun to execute
the decision of the third person, or who has not impugned the same within a period of
three months from the time he had knowledge thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of the partners. (1690)
 Designation of shares may be intrusted to a 3rd person
o May designate shares on profits and losses to 3 rd person
o Partner cannot be designated because of conflict of interest
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 Designation of shares by appointed 3rd person is binding upon partners


o Appointment of 3rd person as mediator is by common consent
 Designations by him is binding
o XPN: designation is manifestly inequitable or unreasonable
 Not bound
o Partners must impugn or question unacceptable designation
 Period to question inequitable or unconscionable designation
o Can no longer impugn if
 He has begun to execute decision of 3rd person
 Not questioned the decision within 3 months (90 days) from the
time he has knowledge of it or discovery
 Not from the making of designation of shares
o Waived his objections

§1799
Article 1799. A stipulation which excludes one or more partners from any share in the
profits or losses is void. (1691)
 Prohibited stipulation of exclusion; effect
o Does not prohibit stipulation where the shares of partners will not be
proportionate to their contribution
o PROHITS EXCLUSION OF A PARTNER from the profits and losses
 XPN IP
o If there is, void but P may exist
o Existence of P does not depend on the validity of stipulation of exclusion
 Is a stipulation to make an industrial partner liable for losses valid (YES)
o IP exempted from loss
 Right may be WAIVED if there is a stipulation that he shall be liable
 Effect when there is no stipulation on the profits and losses
o In proportion to what they have contributed
o IP share as may be just and equitable under the circumstances

§1800
Article 1800. The partner who has been appointed manager in the articles of partnership
may execute all acts of administration despite the opposition of his partners, unless he
should act in bad faith; and his power is irrevocable without just or lawful cause. The
vote of the partners representing the controlling interest shall be necessary for such
revocation of power.
A power granted after the partnership has been constituted may be revoked at any time.
(1692a)
 Applicability
o Acts of administration
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o Acts of ownership – cannot perform them without the consent of the other
partners
 Power of appointed MP
o Has all the powers pertaining to a general agent
o Incidental powers essential for carrying on the purposes of the firm
 Cannot exercise powers that have been restricted or denied to him
o MP can execute all acts of administration despite opposition
 XPN: he acts in bad faith
o MP’s power us irrevocable without just or lawful cause
o Acts of administration – not acts of strict ownership
o Acts of ownership
 Assigning property rights
 Disposition of good will of the firm
 Confession of judgement
 Compromising a partnership claim or liability
 Submission to arbitration
 Renunciation of claim of the firm
 Any other act which makes it impossible to carry on ordinary
business of a partnership
 Illustrative acts of administration
o Authority to sue debtors of partnership
o Power to appoint and to dismiss an employee for valid reason
o Employ bookkeeper, although the contract is not in writing
o Secure loans to complete construction of a casco for the use of the firm in
its business
 Necessary for carrying on of the express object of the firm
 MAY NOT mortgage a property of the firm to secure debt of
loan of a 3rd person from which the firm has nothing to do
o Issue receipts for accounts delivered to the firm
o Execute a contract for services
o As a manager of a firm engaged in buying and selling, he has the authority
to purchase on credit because it is customary to buy and sell in credit
 Even without the approval of the other partners
 Power of MP is generally irrevocable
o Power of MP appointed in Articles of P = GENERALLY IRREVOCABLE
o Revoked only (XPN)
 Showing of a just and lawful cause
 Vote of the partners representing the controlling interest
 Power granted after constitution of partnership; revocable at any time
o May be revoked at any time and for any cause
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o This power, which is not incorporated in the articles = simple contract of


agency
 May be revoked any time by partners representing controlling
interest
 Is the managing partner entitled to compensation for his services? (GR, NO)
o DEPENDS
o If there is an agreement stipulating that he shall receive compensation =
entitled
 Details fixed in the agreement
o If NO agreement, = not entitled
 Expected to render free service to he P for the common benefit of
all partners
o Each partner in taking care of the joint property, is taking care of his own
interest or managing his own business
o Not entitked to compensation beyond share of his profits for services
o In absence of an agreement, each member of the P assumes duty to give
his time, attention, and skill to the management of its affairs for the
success of the common enterprise
 Share of profits is his only compensation
o XPN
 From a particular circumstance of the case, it may be deduced that
there is an implied commitment to pay the MP some compensation
for his services
§1801
Article 1801. If two or more partners have been intrusted with the management of the
partnership without specification of their respective duties, or without a stipulation that
one of them shall not act without the consent of all the others, each one may separately
execute all acts of administration, but if any of them should oppose the acts of the
others, the decision of the majority shall prevail. In case of a tie, the matter shall be
decided by the partners owning the controlling interest. (1693a)
 Applicability; applies if the ff requisites are present
o 2 or more partners are appointed as managing partner
o In their appointment papers, there is no specification of their respective
duties
o There is no stipulation that one of them shall NOT act without the
unanimous consent of all other partners

o Will not apply if there is a designation of the respective duties


 Effects of the presence of the requisites
o Each one of the MP may separately execute all acts of administration
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o If any of the MP would oppose, the controversy shall be decided by the


majority of MP, that is majority in number
 Not by the controlling interest
 Tie
o Controversy shall be decided by partners owing the controlling interest
o This is a new provision
 Effect when there is specification of the respective duties of the MP
o When the duties have been delineated, the decision of the MP concerned
shall be respected as long as the said partner acted in good faith
o P is bound by the act of said MP
 Time to oppose
o Only the other MP may oppose an act of administration by another MP
o Old law
 Opposition must be pursued before the act has become legally
binding
o Now: opposition may be made EVEN AFTER the act has become legally
binding upon the firm
§1802
Article 1802. In case it should have been stipulated that none of the managing partners
shall act without the consent of the others, the concurrence of all shall be necessary for
the validity of the acts, and the absence or disability of any one of them cannot be
alleged, unless there is imminent danger of grave or irreparable injury to the
partnership. (1694)
 Applicability; joint management
o Applies only if there is a stipulation that none of the MP shall act without
the consent of the others
o Unanimity is required in the execution of the intended act of a MP
o Only MP are supposed to concur
 Absence or disability of a managing partner
o Even if a manager is absent or incapacitated, the rule is still one of
unanimity on the part of all managers
o Absence or incapacity is no excuse
 XPN: there is imminent danger of grave or irreparable injury to the
firm
 rd
3 persons dealing with MP should be cautious
o Should inquire if the act/s of MP require consent of all partners
o If required, then 3rd persons should conclude the transaction by first
securing the unanimous consent of all partners
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o 3rd persons are not required to inquire if there is consent of all because
there is a presumption that he acts with due authority and can bind the
partnership
o APPLIED only when they innocently deal with a partner apparently
carrying on in the usual way of business because it is imperative that
unanimity is required
 Consent of CP not required in routinary transactions
o Requirement of written authority refers obviously to formal and unusual
contracts in writing
o Routine transactions come within the scope of the general authority of the
manager of the business
§1803
Article 1803. When the manner of management has not been agreed upon, the
following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do
alone shall bind the partnership, without prejudice to the provisions of article 1801.
(2) None of the partners may, without the consent of the others, make any important
alteration in the immovable property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other partners is manifestly prejudicial to
the interest of the partnership, the court's intervention may be sought. (1695a)
 Applicability
o Applies only when the articles of partnership made no provision for the
management of the business of the firm
o No managers appointed, all partners are considered as agents of the
partnership
o Each partner is empowered/authorized to contract in the name of the firm
o § does not apply if the partner had been appointed and given the power to
manage the business in articles of P
o GR: all are agents
 Authority if partners as agents, scope
o When no M are designated, authority of partners to represent P applies
only to acts of administration
o Act of the partner is binding to the P without prejudice to § 1801
 Solidary management
o Each one may separately execute acts of administration
 Important alteration in an immovable property of the P requires unanimity
o No important alteration to immovable prop of the firm WITHOUT
unanimous consent of all the partners
 Even if alteration may be an improvement useful to the firm
Page 18 of 40

o Rationale behind prohibition: comparatively greater value of an immovable


than a movable property
o Preservation maintained because the prop may be returned to contributing
partner
o Any substantial alteration constitutes act of strict dominion or ownership
o Consent is necessary
 Judicial intervention, when proper
o When important alteration of the property is necessary and the unanimous
consent cannot be obtained = resort to court may be pursued to obtain
total consent
 To avoid impending prejudice to the P
§1804
Article 1804. Every partner may associate another person with him in his share, but the
associate shall not be admitted into the partnership without the consent of all the other
partners, even if the partner having an associate should be a manager. (1696)
 Subpartnership
o Any partner may form a P with another person with respect to his share
o Terms of subP are immaterial to the og P since the terms are mere
internal arrangements between P and subP
 Relation of the association or subpartnership to the main partnership; rights
o P within an existing P, separate and distinct from og or main P
o Subpartner does not become a member of P
o Relation only to the partner who took him as associate
o Cannot enjoy rights of an assignee of a real partner
 Will not be subjected to liabilities of P
 Requirements before an associate or subpartner may become a partner of the
main P
o Consent of all partners
 Notwithstanding that the person is an associate or subpartner of
MP
o Reason: admission of new member is a modification of the og contract of
P which requires the unanimous consent of all partners
o P is a branch of agency where trust and confidence constitute the basis of
relationship
 Conditions before incoming partners may become original partners without
necessity of registration
o Received by all OG partners of P = partners under OG articles of
partnership without the necessity of registration
o Consent on the admission of a new partner is implied, or provided by the
OG agreement
Page 19 of 40

§1805
Article 1805. The partnership books shall be kept, subject to any agreement between
the partners, at the principal place of business of the partnership, and every partner
shall at any reasonable hour have access to and may inspect and copy any of them. (n)
 Who is in charge of keeping P books
o Primarily rests on MP or active partner
o Partners are presumed to know the contents of the book
 Presumed that the books accurately state the P accounts
 Books are open to inspection to all partners
o To enable them to have true and full information of all things and acts
affecting the partnership affairs
 Place where the books are kept
o Place agreed by partners
o Absence of agreement, principal place of business of firm where each
partner may
 Come
 Have access
 Inspect
 Copy entries in the books for valid purposes
o Books cannot be removed from principal place of business
 Without consent of all partners
 Access to books must be at reasonable hour
o Reasonable hours on business days throughout the year
o Not during some arbitrary period of a few days chosen by MP
 P book useful as evidence
o Books being kept by partners like the book of accounts, constitute
evidence of the facts entered therein against the keeper or maker thereof
o If book contains errors but were not alleged = books considered entirely
correct insofar as the keeper is concerned
 Keeper under estoppel
o Plaintiff partner cannot complain of the alleged inaccuracy of the books if
he made entries and the books are placed in his disposition
 Lack of books
o Absence of formal books does not affect the validity of contract of P nor its
contracts
o Books are more concerned with the internal arrangement of the partners
as regards their finances and related matters
§1806
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)
Page 20 of 40

 Duty to give true and full information


o P is anchored on mutual trust + confidence among partners
o Partner has the duty to render on demand, true and full information
relating to P affairs
o Partner is under duty of voluntary disclosure of material facts even without
demand
o Good faith not only requires a partner not to make false concealment but
that he should also abstain from all concealment
o Every partner is trustee of his own co-partner
o Partners are required to exhibit towards each other highest degree of
good faith
o Fundamental that 1 partner cannot to the detriment of another, apply
exclusively to his own benefit the results of the knowledge and information
gained in the character of partner
 Failure to disclose funds is fraud
o When there is a duty to reveal them
 When the parties are bound by confidential relations
§1807
Article 1807. Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits derived by him without the consent of the other partners
from any transaction connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property. (n)
 Partner’s duty to account for benefits and stand as trustee for profits
o Exhibit to each other, highest degree of good faith
o Fundamental that 1 partner cannot to the detriment of another, apply
exclusively to his own benefit the results of the knowledge and information
gained in the character of partner
o Partner shall hold as trustee for the P, any profits derived by him without
consent of the other partners from the transaction connected with the ___
of the P:
 Formation
 Conduct
 Liquidation
o Partner is an agent of P
 Every partner becomes trustee for his copartner with regard to any
benefits or profits derived from his act as partner
 Inapplicability of §1807
o Not apply when the taking of a partner is with consent of all other parties
 Commencement of fiduciary relations
o Begins from the time of the commencement of the P as a juridical person
Page 21 of 40

o No fiduciary relations existing between persons still negotiation for the


formation of a partnership contract
o After the termination of agency, P, or joint venture, each party is free to act
in his own interest
 Provided that nothing during the continuance of the relation lay a
foundation for an undue advantage to himself
o Principle of good faith covers not only dealings and transactions occurring
during partnership but also those taking place during the negotiations
leading to the formation of P
o If person was induced to enter P through fraud and deceit may file a case
for annulment of the contract
 Termination of fiduciary relations
o Ends at the termination of a contract
o Termination
 Stage when all P affairs are wound up or completed
 Different from dissolution
 Fiduciary relations continue even after dissolution but before termination
o Partner’s duty to act with utmost good faith towards co-partners shall
continue throughout
 Life of P even after dissolution until finally terminated
o Dealings of partners affecting the winding up of P affairs and the
preservation of P assets shall be pursued in good faith for the common
benefit of all partners
o Duty of former partner to share profits with former co-partner may extend
to earnings and acquisitions accruing after termination of P
o Criteria: when a partner wrongfully snatches a seed of opportunity
from the granary of the firm, he cannot thereafter, excuse himself
sharing with his partners, the fruits of its planting
 Even though harvest occurs after the termination of the association
o Liable to account to the P for any benefit he may obtain from the use of
such information
§1808
Article 1808. The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is engaged, unless
there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any
profits accruing to him from his transactions, and shall personally bear all the losses. (n)
 Scope of prohibition to engage in business; limitative
o Capitalist P cannot engage in the business for his own account in a
business which is similar to the business of the P
Page 22 of 40

 Prevent competition which may be damaging


 May be inclined to protect his interest first, P will suffer
o Prevent partner from availing himself personally of information obtained by
him in the course of the transactions of the partnership business or by
reason of his connection with the firm regarding business secrets +
clientele
o CP not prohibited from engaging in business not similar to business of the
firm
 Illustration
o Firm = business of manufacture of cigarettes
o CP can engage in real estate even without consent of other partners
 Exception to the prohibition
o Other partners may agree to stipulate that the CP may engage in the
SAME business as that of P
 Perceived that no destructive competition will arise
 Place of operation is far away from sphere of influence
 Business will enhance healthy competition with P
o The other business shall not use the firm name of the P
 Or office or personnel
 Prohibition against IP is comprehensive
o Linked to prohibition of IP to not engage in any kind of business for
themselves
 XPN: expressly permitted
§1809
Article 1809. Any partner shall have the right to a formal account as to partnership
affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its


property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable. (n)
 General rule on accounting
o GR partner not entitled to formal account
 XPN dissolution of the firm
o Reason: partner has equal rights of access with co-partners to the books
 No reason why the MP should constantly render him accounts in
the formal sense
Page 23 of 40

o Can always check financial standing


 XPN to GR
o 4 circumstances, may demand formal accounting
o Concerned partner should be informed and guided as to the fin standing of
firm to which he has existing demandable property rights
 Illustrative cases
o Profits of the business cannot be determined and there is a need for a
general liquidation before a member of the P may claim a specific sum
 Particular transaction
o Received capital which he contributed
 Can seek accounting if he did not waive right to accounting
o Partner disagrees with the accounting made by the other partner
 Point out the specific erroneous or fraudulent items
 Failure, accurate account
o Partner promised to sign formal accounting prepared after received
shares, accepted the money without reservation
 Approval
 Unless he can show fraud or mistake in said approval
 Is there a duty to account for the acquisition of earnings and property after
termination of P (DEPENDS)
o If earnings and acquisitions are obtained from transactions unrelated to P,
no duty to account
o Otherwise, account
o Principle: former partner’s duty to share profits with former partner may
extend to earnings and acquisitions accruing after the termination of the P
 Criteria: if a member of P avails himself of information obtained
by him in the course of P business which is within the scope
of the firm’s business and thereafter applies it in his own account
without consent or knowledge of co-partner
 Liable to account to the P for any benefit he may obtain from
the use of such information
 Period of prescription of rights to demand an accounting when there is
dissolution
o Right to demand accounting exists as long as P exists
o Period of prescription runs upon dissolution of P when the final
accounting is done
Cases:
1. JG Summit Holdings vs. CA, Sept. 24, 2003, G.R. No. 124293
FACTS: 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
Page 24 of 40

management of the Subic National Shipyard, Inc. [SNS which became Philippine
Shipyard and Engineering Corporation (PHILSECO)]. NIDC and KAWASAKI will
contribute ₱330 million for the capitalization of PHILSECO (60 NIDC/40 KAWASAKI).
Under agreement, neither shall sell or transfer any part of its interest in
PHILSECO to a 3rd party without giving the other under the same terms the right
of first refusal (shall not apply if the transferee is a corporation owned or
controlled by the GOVERNMENT or by a KAWASAKI affiliate). NIDC transferred
rights to PNB. Transferred to national government because of AO14. Committee on
Privitization (COP); Asset Privatization Trust (APT) was named as the trustee of govt.’s
share in PHILSECO.
PHILSECO’s obligations to PNB, the national government’s share increased to 97.4%.
Interest of national economy, government decided to sell PHILSECO to private entities.
After negotiations between APT and KAWASAKI, KAWASAKI’s right of first refusal shall
be exchanged with the right to top by 5% the highest bid for the shares, allowed to
name a company which would exercise its right to top – Philyards Holdings, Inc. (PHI).
During pre-conference bidding, bidders were given copies of the JVA between NIDC
and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the
National Government's 87.6% equity share in PHILSECO (1.3B). The highest qualified
bid will be submitted to the APT Board of Trustees at its regular meeting following the
bidding, for the purpose of determining whether or not it should be endorsed by the APT
Board of Trustees to the COP, and the latter approves the same.
JG Summit was declared the highest bidder, the COP approved the sale on
December 3, 1993 "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." (2.3B)
Protesting the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI
consortium violated the ASBR because the last four (4) companies were the losing
bidders 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. PHI paid in full.
MANDAMUS.
CA – Right to top and right to first refusal are legal
SC - Shipyard like PHILSECO is a public utility whose capitalization must be sixty
percent (60%) Filipino-owned. Consequently, the right to top granted to KAWASAKI
under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity
of the National Government in PHILSECO is ILLEGAL
Page 25 of 40

SC (MR) - PHILSECO is not a public utility, as by nature, a shipyard is not a public


utility4 and that no law declares a shipyard to be a public utility
JG Summit protested, contending that PHILSECO, as a shipyard is a public utility and,
hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of
PHILSECO’s capital stock at bidding, Kawasaki/PHI in effect now owns more than 40%
of the stock, thus violative of the laws.

ISSUE: Whether or not PHILSECO, a shipyard, is a public utility and hence Kawasaki, a
foreign corporation, can acquire only a maximum of 40% of its capital (NO)

RULING: AFFIRMED, DENIED WITH FINALITY


(1) No, a shipyard such as PHILSECO is not considered a public utility. First, because a
shipyard which is a place or enclosure where ships are built or repaired is in its
nature serves a limited clientele and not legally obliged to render its services
indiscriminately to the public. While the business may be regulated for public good, it
does not justify the qualifications for public utility which implies public use and
service to the public hence it must be engaged in regularly supplying the public with
some commodity or service of public consequence.
Second, it is not declared as public utility by law. Based on its legislative history,
since the enactment of Act No. 2307 which created the Public Utility Commision (PUC)
until repealed by Commonwealth Act No. 146 establishing Public Service Commission,
a shipyard was a public utility and should abide by the Filipino citizenship requirement of
60-40 capital of a corporation. Thereafter, Pres. Marcos issued PD No. 666 which
removed the shipbuilding and ship repair industry from the list of public utilities
thereby freeing it from the 60-40 citizenship requirement. Batas Pambansa Blg. 391
repealed the PD No. 666 and reverted shipyards as public utilities. Then Pres. Aquino’s
Executive Order No. 226 repealed the previous laws with no revival of the principle that
shipyards are public utilities.
LAND-HOLDING CONTRACT
Thus absent of such legislation declaring the same, a shipyard reverts back to its status
as a non-public utility. With this, there was nothing preventing Kawasaki from acquiring
more than 40% of PHILSECO’s total capitalization. The JVA should also be interpreted
as 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.
Dispositive Portion: IN VIEW OF THE FOREGOING, the Motion for Reconsideration is
Page 26 of 40

hereby GRANTED. The impugned Decision and Resolution of the Court of Appeals are
AFFIRMED.
No law disqualifies a person from purchasing shares in a landholding corporation
even if the latter will exceed the allowed foreign equity, what the law disqualifies
is the corporation from owning land. To be sure, a lease to an alien for a reasonable
period is valid. So is an option giving an alien the right to buy real property on condition
that he is granted Philippine citizenship. As this Court said in Krivenko vs. Register of
Deeds. But if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of
his property, this to last for 50 years, then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner divests himself in stages not only of the
right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also
of the right to dispose of it (jus disponendi) — rights the sum total of which make up
ownership. It is just as if today the possession is transferred, tomorrow, the use, the
next day, the disposition, and so on, until ultimately all the rights of which ownership
(NOTE: Two motions were filed for resolution of this decision. The decision appealed
from was affirmed upholding the status of non-public utility of shipyards. It held that the
prohibition in the Constitution applies to the ownership of land; the fact that PHILSECO
owns land cannot deprive Kawasaki of its right of first refusal reiterating the basic
corporate law principle that the corporation and its stockholders are separate juridical
entities. In this vein, the right of first refusal over shares pertains to the shareholders
whereas the capacity to own land pertains to the corporation. Hence, no law disqualifies
a person from purchasing shares in a landholding corporation even if the latter will
exceed the allowed foreign equity, what the law disqualifies is the corporation from
owning land. (J.G. Summit Holdings, Inc. vs CA; 450 SCRA 169; January 31, 2005))
There is nothing in the ASBR that bars the losing bidders from joining either the
winning bidder (should the right to top is not exercised) or KAWASAKI/PHI
(should it exercise its right to top as it did), to raise the purchase price. The
petitioner did not allege, nor was it shown by competent evidence, that the participation
of the losing bidders in the public bidding was done with fraudulent intent. Absent any
proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free
enterprise system
2. Tocao, et. al vs. CA, 342 SCRA 20

FACTS: Nenita Anay, marketing adviser of Technolux in Bangkok, met William T. Belo,
VP for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to Marjorie Tocao (CAPITALIST), who conveyed her
desire to enter into a joint venture with her for the importation and local distribution of
kitchen cookwares.
Page 27 of 40

Belo (CAPILTALIST) volunteered to finance the joint venture and assigned to Anay the
job of marketing (INDUSTRIAL); USA West Bend Company. Under the joint venture,
Belo acted as capitalist, Tocao as president and general manager, and Anay as head of
the marketing department and later, vice-president for sales.
The parties agreed that Belo’s name should not appear in any documents relating to
their transactions with West Bend Company. Instead, they agreed to use Anay’s
name in securing distributorship of cookware from that company. The parties
agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net
profits of the business; (2) overriding commission of six percent (6%) of the overall
weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two
percent (2%) for her demonstration services. The agreement was not reduced to writing
on the strength of Belo’s assurances that he was sincere, dependable and honest when
it came to financial commitments. Anay having secured the distributorship of cookware
products from the West Bend Company and organized the administrative staff and the
sales force, the cookware business took off successfully. They operated under the
name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s
name.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to
the Cubao sales office to the effect that she was no longer the VP of Geminesse
Enterprise. Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same commission
although the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damagesagainst Marjorie D. Tocao and William Belo before RTC. In her
complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the
following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as
exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse
Enterprise from the inception of its business operation until she was “illegally dismissed”
to determine her ten percent (10%) share in the net profits. She further prayed that she
be paid the five percent (5%) “overriding commission“ on the remaining 150 West Bend
cookware sets before her “dismissal.”
In their answer,[9] Marjorie Tocao and Belo asserted that the “alleged agreement” with
Anay that was “neither reduced in writing, nor ratified,” was “either unenforceable or
void or inexistent.” As far as Belo was concerned, his only role was to introduce Anay to
Marjorie Tocao. There could not have been a partnership because, as Anay herself
admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed
remuneration.
Page 28 of 40

RTC – PAY. There was indeed an "oral partnership agreement between the plaintiff and
the defendants," based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting
of money and industry, and (c) there was a joint interest in the profits. The testimony
of Elizabeth Bantilan, Anay’s cousin and the administrative officer of Geminesse
Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc.,
buttressed the fact that a partnership existed between the parties.
INNOCENT PARTNER. 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."
CA – AFFIRMED, modified the damages
ISSUE: WON partnership exists between Anay, Tocao and Belo (YES)

HELD: Formal account of partnership affairs.


There was indeed an “oral partnership agreement between the parties.
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. [16] This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what matters is
that the parties have complied with the requisites of a partnership. 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[17] did not cause the nullification of the partnership.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it is
true that the receipt of a percentage of net profits constitutes only prima facie evidence
that the recipient is a partner in the business, [25] the evidence in the case at bar
controverts an employer-employee relationship between the parties. In the first place,
private respondent had a voice in the management of the affairs of the cookware
distributorship,[26] including selection of people who would constitute the administrative
staff and the sales force. Secondly, petitioner Tocao’s admissions militate against an
Page 29 of 40

employer-employee relationship. She admitted that, like her who owned Geminesse
Enterprise,[27] private respondent received only commissions and transportation
and representation allowances and not a fixed salary.
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.[42] In this case, 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. [43]
By that memo,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. The winding up of partnership affairs has not yet been
undertaken by the partnership. This is manifest in Tocao’s claim for stocks that had
been entrusted to Anay in the pursuit of the partnership business.
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court
What was registered with the Bureau of Domestic Trade on August 19, 1987 was
merely the name of that enterprise. While it is true that in her undated application for
renewal of registration of that firm name, petitioner Tocao indicated that it would be
engaged in retail of "kitchenwares, cookwares, utensils, skillet,"34 she also admitted
that the enterprise was only "60% to 70% for the cookware business," while 20% to
30% of its business activity was devoted to the sale of water sterilizer or purifier.35
Indubitably then, the business name Geminesse Enterprise was used only for
practical reasons - it was utilized as the common name for petitioner Tocao’s
various business activities, which included the distributorship of cookware.

3. Teague vs. Martin, 53 Phil. 504


FACTS:
It was alleged, among others, by the plaintiff Teague that he and the defendants Martin,
Maddy and Golucke formed a partnership for the operation of a fish business and
similar commercial transactions, which by mutual consent was called "Malangpaya Fish
Co.," with a capital of P35,000,
Plaintiff Teague paid P25,000, the defendants Martin P5,000, Maddy P2,500, and
Golucke P2,500; that he was named the general partner; that the share in the profits
and losses is in proportion to the amount of contributed capital; P purchased and owns
a lighter (Lapu-Lapu), a motorship (Barracuda), and other properties, which are in
the possession of the defendants who are making use of them.
Page 30 of 40

There was no agreement as to the duration of the partnership; but he wants to dissolve
it, however, the defendants refused to do so; It was alleged that it is the best interest of
the parties to have a receiver appointed pending this litigation, to take possession of the
properties, and he prays that the Philippine Trust Company be appointed receiver,
and for judgment dissolving the partnership, with costs.
Each of the defendants filed a separate answer, but of the same nature. It is then
alleged, among others, that Maddy will have charge of the Barracuda and the
navigating of the same, salary P300 per month; Martin will have charge of the
southern station, cold stores, commissary and procuring fish, salary P300 per month;
Teague will have charge of selling fish in Manila and purchasing supplies. No
salary until business is on paying basis.
CFI: (1) dissolving the partnership and liquidating its assets;
(2) that the barge Lapu-Lapu as well as the Ford truck and adding machine belong
exclusively to Teague, but he must return to and reimburse the partnership the
amount which was taken from its funds for the purchase of the Lapu-Lapu and the Ford
truck.
Defendant Martin specificaly denies the "plaintiff was named general manager of
the partnership," and alleged "that all the duties and powers of the said plaintiff were
specifically set forth in the above quoted written agreement and that no further or
additional powers were ever given the said plaintiff
Upon appeal, the plaintiff further contended that he is the managing partner of the
partnership and the three properties (Lapu-Lapu, Barracuda & Ford truck) are
properties of the partnership since they were paid from the profits of the
partnership thus do not belong to him.

ISSUES:
1. WON the plaintiff was the manager of the unregistered partnership of
Malangpaya Fish Company (YES)
2. WON the three properties are owned by the partnership (NO)

RULING:
1. Yes, the powers and duties of the three partners are specifically defined, and that
each of them was more or less the general manager in his particular part of the
business. The plaintiff’s powers and duties were confined and limited to "selling
fish in Manila and the purchase of supplies."
2. No, the Lapu-Lapu, Barracuda, and the adding machine, although paid for by the
partnership funds, are owned by petitioner for it was registered in his own
Page 31 of 40

name. He is estopped from claiming otherwise. The purchase of the properties in


question are not within the scope of plaintiff’s authority. It is but right that the
plaintiff reimburse the partnership for the use of its funds. However, it noted
that the partnership also made use of the Lapu-Lapu. In the interest of justice,
the plaintiff should be compensated for such use.
And that Maddy and Martin's duties were confined and limited to the catching and
procuring of fish, which were then shipped to the plaintiff who sold them on the Manila
market and received the proceeds of the sales. In other words, Maddy and Martin were
supplying the fish to plaintiff who sold them under an agreement that he would account
for the money.

4. Martinez vs. Ong Pong Co., 14 Phil. 72


FACTS: On the 12th of December, 1900, Pedro Martinez delivered P1,500 to the
defendants Ong Pong Co and Ong Pong Lay with the agreement "that we are to invest
the amount in a store, the profits or losses of which we are to divide with the former, in
equal shares."
The plaintiff Martinez filed a complaint on April 25, 1907, to compel the defendants to
render him an accounting of the partnership as agreed to, or else to refund him the
P1,500 that he had given them for the said purpose. Ong Pong Co alone appeared to
answer the complaint; he admitted the facts but he alleged that Ong Lay, who was then
deceased, was the one who had managed the business, and that nothing had resulted
therefrom. Thus, the loss of the capital of P1,500, to which loss the plaintiff agreed.
CFI - Ordered Ong Pong Co to return to the plaintiff one-half of the said capital of
P1,500 together with Ong Lay. However, Ong Lay was already dead so only P750 will
be given back to the plaintiff. Plus P90 as one-half of the profits, calculated at the rate
of 12 per cent per annum for the six months that the store was supposed to have been
open, making a total of P840.
From this judgment Ong Pong Co appealed to this court asserting that Art 1688 (now
Art 1796 in the NCC) and not Art 1138 (now Art 1208 under Sec. 4 - Join and Soliadary
Obligations).
Ongpongco: They were ejected from the store
ISSUE: WON Ongpongco may be held liable (YES)
1. From what date should the payment of interest be counted?
2. WON the lower court erred for having applied article 1138 of the Civil Code and not
article 1688? (NO)

RULING: AFFIRMED. It should be counted from the filing of the complaint.


Page 32 of 40

In this case, nothing appears other than the failure to fulfill an obligation on the
part of a partner who acted as agent in receiving money for a given purpose, for
which he has rendered no accounting. Thus, such agent is responsible only for the
losses which, by a violation of the provisions of the law, he incurred. This being an
obligation to pay in cash, there are no other losses than the legal interest, which interest
is not due except from the time of the judicial demand (see art 2212), or, in the present
case, from the filing of the complaint.
2. No. We do not consider that article 1688 is applicable in this case, in so far as it
provides "that the partnership is liable to every partner for the amounts he may have
disbursed on account of the same and for the proper interest," for the reason that no
other money from the other partners than that contributed by Martinez was
involved. As in the partnership, there were two administrators or agents liable for the
above-named amount, Article 1138 (NOT 1688)of the Civil Code has been invoked.
This Art deals with debts of a partnership where the obligation is not a joint one, as
is likewise provided by Article 1723 of said code with respect to the liability of two or
more agents with respect to the return of the money that they received from their
principal.
EJECTMENT. Fact that the store was closed by virtue of ejectment proceedings is
of no importance for the effects of the suit. The whole action is based upon the fact
that the defendants received certain capital from the plaintiff for the purpose of
organizing a company; they, according to the agreement

5. Ramnani vs. Court of Appeals, 196 SCRA 731


FACTS:
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full
blood. Ishwar and his spouse Sonya had their main business based in New York.
Realizing the difficulty of managing their investments in the Philippines they executed a
general power of attorney on January 24, 1966 appointing Navalrai and Choithram
as attorneys-in-fact, empowering them to manage and conduct their business concern
in the Philippines

On February 1, 1966 and on May 16, 1966, Choithram entered into two agreements
for the purchase of two parcels of land located in Barrio Ugong, Pasig, Rizal, from
Ortigas & Company, Ltd. Partnership. A building was constructed thereon by
Choithram in 1966. Three other buildings were built thereon by Choithram through a
loan of P100,000.00 obtained from the Merchants Bank as well as the income derived
from the first building.
Sometime in 1970 Ishwar asked Choithram to account for the income and expenses
relative to these properties during the period 1967 to 1970. Choithram failed and
Page 33 of 40

refused to render such accounting. Thereafter, Ishwar revoked the general power of
attorney. Choithram and Ortigas were duly notified of such revocation on April 1, 1971
and May 24, 1971, respectively. Said notice was also registered with the Securities and
Exchange Commission on March 29, 1971 and was published in the April 2, 1971 issue
of The Manila Times for the information of the general public.
Nevertheless, Choithram, transferred all rights and interests of Ishwar and Sonya
in favor of his daughter-in-law, Nirmla Ramnani, on February 19, 1973.
On October 6, 1982, Ishwar and Sonya filed a complaint against Choitram and/or
spouses Nirmla and Moti and Ortigas for reconveyance of said properties or
payment of its value and damages.

ISSUE:
Whether Ishram can recover the entire properties subject in the ligitation (NO)

HELD:
The Supreme Court held that despite the fact that Choithram, et al., have
committed acts which demonstrate their bad faith and scheme to defraud spouses
Ishwar and Sonya of their rightful share in the properties in litigation, the Court cannot
ignore the fact that Choithram must have been motivated by a strong conviction
that as the industrial partner in the acquisition of said assets he has as much
claim to said properties as Ishwar, the capitalist partner in the joint venture.
Choithram in turn decided to invest in the real estate business. He bought the two (2)
parcels of land in question from Ortigas as attorney-in-fact of Ishwar. Instead of paying
for the lots in cash, he paid in installments and used the balance of the capital entrusted
to him, plus a loan, to build two buildings. Although the buildings were burned later,
Choithram was able to build two other buildings on the property. He rented them out
and collected the rentals. Through the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is now.

Justice and equity dictate that the two share equally the fruit of their joint
investment and efforts. Perhaps this Solomonic solution may pave the way
towards their reconciliation. Both would stand to gain. No one would end up the loser.
After all, blood is thicker than water.
6. Moran, Jr. vs. Court of Appeals, 133 SCRA 88
FACTS:
Page 34 of 40

Moran Jr. and Pecson entered into a partnership agreement for the distribution of
colored posters of the Constitutional Commission wherein each would contribute
P15,000.00 as capital, and that Moran Jr. will print colored posters in the amount of
95,000. Moreover, Pecson will receive a commission of P1,000 a month starting April
15, 1971, up to December 15, 1971 (8 months). Ultimately, Pecson contributed only
P10,000.00 of the P15,000.00 promised, with Moran Jr. failing to contribute any amount
at all and only printing 2,000 copies of the 95,000.
After the liquidation of accounts, Pecson filed for an action to recover the payment
of his share in the profits that the partnership would have earned and payment of
unpaid commission.
The CA awarded P47,500.00 to Pecson for his share in unrealized profits and
P8,000.00 commission. Thus, Moran Jr. appealed that the award his highly
speculative and should be avoided and that the award of the commission has no
basis in law.

ISSUES:
Is the amount of the award for unrealized profits proper? (NO)
Is the amount of Pecson’s commission proper? (NO)
HELD:
1. No. The Court held that while Pecson does indeed deserve an award for
unrealized profits, the Court agreed that the amount is highly speculative. In
applying Art. 1786 and Art. 2200, the Court held that an assessment should be made on
how profitable the business venture would be. In the case at hand, there is no evidence
that the partnership would have been a profitable venture – as in fact it was considered
“doomed from the start”.
Furthermore, the Court made notice of the fact that: 1) There was a mutual breach of
the agreement since Pecson merely paid P10,000.00 of the P15,000; 2) The
COMELEC failed to proclaim all 320 Constitutional Commission candidates on time and
3) The existence of hidden risks as with any business venture.

Thus, the Court further applied Art. 1797 and that each partner must share in the
profits and the losses of the venture. Moreover, even with the assurance made by
one of the partners that they would earn a huge amount of profits, in the absence of
fraud, a partner cannot recover highly speculative profits.
Nevertheless, the partnership earned P6,000.00 as net profit should be divided
between Pecson and Moran, Jr. And since only P4,000.00 was undesirable by the
Page 35 of 40

petitioner in printing the 2,000 copies, the remaining P6,000.00 should be returned to
Pecson
2. No. The Court held that while the agreement did indeed stipulate a P1,000.00
commission every month, which would make the P8,000.00 award proper in theory, the
agreement does not state the basis of commission. Thus, the payment of the
commission could only have been predicated on extravagant profits. The
partnership could not have intended the giving of commission despite loss or failure of
the venture. Thus, since the partnership was a failure, Pecson is not entitled to the said
commission.

7. Ng Ya vs. Sugbu Commercial Co., [C.A.] 50 O.G. 4913


Facts
Ng Ya, a Chinese merchant based in Surigao, Surigao ordered from Sugbu Commercial
(based in Cebu) 1,000 galvanized iron and aluminium sheets. It was agreed that the
goods would be delivered in a week’s time, or on or before January 5, 1950. The
amount of these goods is P5,400, which appears to have been paid by Ng Ya in full.
* However, the said goods were not delivered on the said date. And as Ng Ya kept
on inquiring from Sugbu Commercial Co. about the status of the goods, the latter failed
to deliver the same but kept promising that the said goods would be delivered at some
future time.
Sugbu Commercial later found out that Ng Ya is also in need of cigarettes that she
will sell on resale in Surigao. The former then offered the latter cigarettes. Ng Ya was
enticed by the offer and then entered into another contract of sale with Sugbu. She
paid the amount of the cigarettes worth P4,000 with the help of Lana Bakery, with
whom she had an understanding of splitting the profits she hoped to realize from
the buy and sell of cigarettes.
However, after a couple of months, in July, neither the cigarettes nor the galvanized iron
and aluminium sheets reached Ng Ya. Consequently, Tan Chun Pia of Lana Bakery,
from whom she obtained the P4,000 got angry with her and, for this reason, Ng Ya was
forced to reimburse him of the amount. *She then kept coming back to Sugbu to
demand either the delivery of the goods she ordered or the payment of P 9,400.
Unfortunately, every time she dropped there, poor Ng Ya was challenged by Shih
Tiong Chu to file a complaint, and she had to seek the help of the Chinese Chamber of
Commerce for the settlement of her claim.
Ng Ya finally filed a complaint with the CFI Cebu. * Sugbu Commercial then filed a
3rd-party complaint against Pow Sun Gee, alleging that the latter received the
amounts of P5,400 and P4,000 in his capacity as manager of Sugbu Commercial
when he was not authorized to issue official receipts and that only his copartner
Shih Tiong Chu, who was most of the time in Manila, could do so. In this regard, Sugbu
Page 36 of 40

Commercial prayed that Pow Sun gee be ordered to indemnify Sugbu Commercial for
whatever is adjudged against the latter in favor of plaintiff Ng Ya.
TC decided in favor of Ng Ya and sentenced Sugbu to pay plaintiff the sum of P9,400
and condemning Pow Sun Gee to reimburse Sugbu Commercial Company. *
Sugbu Commercial appealed.
Issue W/N Sugbu Commercial should not be held liable because Pow Sun Gee, as the
one who received the payments and issued receipts to Ng Ya, is not authorized to do so
(NO)

Holding No. Ratio Decidendi


A manager of a partnership is presumed to have all the incidental powers to carry
out the object of the partnership in the transaction of the business. There is of
course an exception to the general rule: when the powers of a manager are
specifically restricted, he could not exercise the powers expressly limited of him.
But when the articles of association do not specify the powers of the manager, it
is admitted on principle that a manager has the powers of a general agent, and
even more. When the object of the company is determined, the manager has all the
powers necessary for the attainment of such object. Reasoning Sugbu Commercial
was not able to present articles of co-partnership that would show any limitation
upon the powers of the manager – an indication that there was none. For this
reason, we hold and declare that the minor power of issuing official receipt is included in
the general powers of the manager. Indeed, it would be quite queer that the manager of
any juridical entity would not be authorized to issue official receipts for amounts
delivered to that entity through said manager, and that only his co-partner Shih Tiong
Chu, who was most of the time in Manila, could do so. This is not in keeping with the
present day business dealings, for it is slow and inconvenient to those who transact with
the company.
8. Bachrach vs. “La Protectora,” 37 Phil. 441
FACTS:
In the year 1913, the individuals named as defendants in this action formed a civil
partnership, called "La Protectora," for the purpose of engaging in the business of
transporting passengers and freight at Laoag, Ilocos Norte. In order to provide the
enterprise with means of transportation, Marcelo Barba, acting as manager, came to
Manila and upon June 23, 1913, negotiated the purchase of two automobile trucks
from the plaintiff, E. M. Bachrach, for the agree price of P16,500. He paid the sum
of 3,000 in cash, and for the balance executed promissory notes representing the
deferred payments. These notes provided for the payment of interest from June 23,
1913, the date of the notes, at the rate of 10 per cent per annum.
Page 37 of 40

Provision was also made in the notes for the payment of 25 per cent of the amount due
if it should be necessary to place the notes in the hands of an attorney for
collection. Three of these notes, for the sum of P3,375 each, have been made the
subject of the present action, and there are exhibited with the complaint in the cause.
One was signed by Marcelo Barba in the following manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same way with the word "By" omitted before the
name of Marcelo Barba in the second line of the signature. It is obvious that in thus
signing the notes Marcelo Barba intended to bind both the partnership and himself.
In the body of the note the word "I" (yo) instead of "we" (nosotros) is used before
the words "promise to pay" (prometemos) used in the printed form. It is plain that
the singular pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants Nicolas Segundo,
Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon June 12, 1913, executed in
due form a document in which they declared that they were members of the firm "La
Protectora" and that they had granted to its president full authority "in the name and
representation of said partnership to contract for the purchase of two automobiles" This
document was apparently executed in obedience to the requirements of subsection 2 of
article 1697 of the Civil Code, for the purpose of evidencing the authority of Marcelo
Barba to bind the partnership by the purchase. The document in question was delivered
by him to Bachrach at the time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba purchased of the
plaintiff various automobile effects and accessories to be used in the business of "La
Protectora." Upon May 21, 1914, the indebtedness resulting from these additional
purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had retained on the
trucks in order to secure the purchase price. The amount realized from this sale was
P1,000. This was credited unpaid.
To recover this balance, together with the sum due for additional purchases, the
present action was instituted in the Court of First Instance of the city of Manila,
upon May 29, 1914, against "La Protectora" and the five individuals Marcelo
Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano.
No question has been made as to the propriety of impleading "La Protectora" as if it
were a legal entity. At the hearing, judgment was rendered against all of the defendants.
From this judgment no appeal was taken in behalf either of "La Protectora" or Marcelo
Barba; and their liability is not here under consideration. The four individuals who signed
the document to which reference has been made, authorizing Barba to purchase the
Page 38 of 40

two trucks have, however, appealed and assigned errors. The question here to be
determined is whether or not these individuals are liable for the firm debts and if so to
what extent.
The amount of indebtedness owing to the plaintiff is not in dispute, as the principal of
the debt is agreed to be P7,037. Of this amount it must now be assumed, in view of the
finding of the trial court, from which no appeal has been taken by the plaintiff, that the
unpaid balance of the notes amounts to P4,121, while the remainder (P2,916)
represents the amount due for automobile supplies and accessories.

ISSUE: WON Barba has the authority to bind the partnership? (YES)
HELD:
The business conducted under the name of "La Protectora" was evidently that of a civil
partnership; and the liability of the partners to this association must be determined
under the provisions of the Civil Code. The authority of Marcelo Barba to bind the
partnership, in the purchase of the trucks, is fully established by the document
executed by the four appellants upon June 12, 1913. The transaction by which
Barba secured these trucks was in conformity with the tenor of this document.
The promissory notes constitute the obligation exclusively of "La Protectora" and of
Marcelo Barba; and they do not in any sense constitute an obligation directly binding on
the four appellants. Their liability is based on the fact that they are members of the civil
partnership and as such are liable for its debts. It is true that article 1698 of the Civil
Code declares that a member of a civil partnership is not liable in solidum
(solidariamente) with his fellows for its entire indebtedness; but it results from this
article, in connection with article 1137 of the Civil Code, that each is liable with the
others (mancomunadamente) for his aliquot part of such indebtedness. And so it has
been held by this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)
As to so much of the indebtedness as is based upon the claim for automobile supplies
and accessories, it is obvious that the document of June 12, 1913, affords no authority
for holding the appellants liable. Their liability upon this account is, however, no less
obvious than upon the debt incurred by the purchase of the trucks; and such liability is
derived from the fact that the debt was lawfully incurred in the prosecution of the
partnership enterprise.
There is no proof in the record showing what the agreement, if any, was made with
regard to the form of management. Under these circumstances it is declared in article
1695 of the Civil Code that all the partners are considered agents of the
partnership. Barba therefore must be held to have had authority to incur these
expenses. But in addition to this he is shown to have been in fact the president or
manager, and there can be no doubt that he had actual authority to incur this obligation.
Page 39 of 40

9. Fue Leung vs. Intermediate Appellate Court, 169 SCRA 746


FACTS:
The Sun Wah Panciteria was registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show
that Sun Wah Panciteria was actually a partnership and that he was one of the
partners having contributed P4,000.00 to its initial establishment.
Lower court ruled in favor of the LEUNG YIU. Petitioner appealed the trial court's
amended decision.
However, the questioned decision was further modified and affirmed by the appellate
court.
Both the trial court and the appellate court declared that the private petitioner is a
partner and is entitled to a share of the annual profits of the restaurant. Hence, an
appeal to the SC. The petitioner argues that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun Wah
Panciteria, in return of which private respondent allegedly will receive a share in the
profits of the restaurant.
It was, therefore, error for the Appellate Court to interpretor construe 'financial
assistance' to mean the contribution of capital by a partner to a partnership.

ISSUE:

WON the private respondent is a partner of the petitioner in the establishment of Sun
Wah Panciteria (YES)

HELD:
In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he
would be entitled to twenty-two percent (22%) of the annual profit derived from
the operation of the said panciteria. These allegations, which were proved, make the
private respondent and the petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code provides that "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". Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the petitioner in the
Page 40 of 40

establishment of the Sun Wah Panciteria, notwithstanding the use of the term financial
assistance therein.
SC affirmed appellate court's decision and ordered the dissolution of the partnership.

III. Property Rights of Partners


Read:
 Articles 1810 to 1814, Civil Code of the Philippines
 Pineda, 2006 Edition, pages 100-112
Cases:
1. Leyte-Samar-Sales and K. Tomassi vs. S. Cea and O. Castrilla, 93 Phil. 100
2. Deluso vs. Castiel 29 SCRA 350

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