PARTNERSHIP,

PART

NOTES:
ONE:

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AGENCY AND TRUST LAWS

PARTNERSHIP LAW

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I.

HISTORICAL
A. The

1. Development of
- Earliest form
entrepreneur.
- To
permit
and
by
costs
of
partnership
develop.
- Can
be

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CONSIDERATIONS
Evolution of Partnership

Partnership
of conducting

business:

single

combinations of capital, or capital

experience, and to secure economy
eliminating some of the overhead
individual
enterprises,
the
plan of business association was
traced back to ancient history

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2. Ancient origin of
organization
a. Romans:
of
two
or
combined to
b. Babylonian
Babylon)

regulation of
(single
c. Jewish Law:
concerned
two or more
o

3. The
relative
- Partnership
established
- Disputes
considered
(Courts
Courts
of
a. The law of
- Special
moved more
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partnership

as

business

capitals, good, talents, and credit

more individuals might best be
carry on trade or business.
period: Hammurabi (King of
2300 B.C., provided for the
the relation called partnership
transactions or undertakings).
partnership
as
bus.
org.
with the holding of title to land by
persons.
hutolin joint ownership of land

newness of the law of partnership

had been well and generally
in British commerce.
between
merchants
were
and disposed of by special courts
Staple, Admiralty Courts and
Piepoudre).
merchants:
courts established- the merchants
rapidly than the law and they

required that justice be more speedy and that it

be in accord with their custom,
b. English law of partnership
- Special courts was discontinued and their
function were taken over by the law courts (Chief
Justice Lord Mansfield)
- Establish common law for commercial matters.
c. Beginning of law of partnership: the increased use
of the partnership as bus. org., together with the
increase in the complexity of business, generally
has brought forth a rapid succession of decisions
involving partnership.

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4. America Uniform Act

Purpose: to achieve uniformity of decisions in this
field of law (partnership).
a. Uniform Partnership Act (enacted: 1914)
b. Uniform Limited Partnership Act

B. Sources of Philippine Partnership Law

1. Code of Commerce (Arts. 116-238) Commercial and

mercantile partnerships deal with mercantile
transactions.
2. Old Spanish Civil Code (Arts. 1665-1708) noncommercial or civil partnerships engaged in civil
purposes; difference was in the desired purpose not
the manner of organization.
3. New Civil Code (Title IX, Arts. 1767-1867) no more
distinction
between
commercial
and
civil
partnerships; govern all transactions of all
partnership whether the object be civil or mercantile
a. Uniform Partnership Act (Sources of Arts.
1769, 1774, 1785, 1805 to 1907, 1809, 1810
to 1814, 1819 to 1826)
b. Uniform Limited Partnership Act

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II.

NATURE AND ATTRIBUTES

A. Concept
Art. 1767, 1st par, CC established by a contract but the law fixes the conditions under
which it shall operate once established.

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

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

B. Partnership as a Contractual Relation

Art. 1769 In determining whether a partnership exists, these rules shall apply:
1. Except as otherwise provided by Art. 1825, persons who are not partners as to each other
are not partners as to third persons;
2. Co-ownership or co-possession does not of itself establish a partnership, whether such coowners or co-possessors do or do not share any profits made by the use of the property;
3. The sharing of gross returns does not of itself establish a partnership, WON the persons
sharing them have a joint or common right or interest in any property from which the returns
are derived;
4. The receipt by a person of a share of the profits of a business is prima facie evidence that
he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:
a. As a debt by installment of otherwise;
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b. As wages of an employee or rent to a

landlord;
c. As an annuity to a widow or representative
of a deceased partner;
d. As interest on a loan, though the amount of
payment vary with the profits of the business;
e. As the consideration for the sale of a
goodwill of a business or other property by
instalments or otherwise.
1. Essential Elements Art.1767
- Valid contract
- Parties (two or more persons)
- Mutual contribution (money, property or industry)
- Profit
- Lawful

a. Necessity of Contract
Art. 1318 There is no contract unless the following
requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract;
3. Cause of the obligation which is established.

b. Parties who may become a partner

UNEMANCIPATED AND INSANE

Art. 1327 The following cannot give consent to a
contract:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who
do not know how to read or write;
Art. 1329 The incapacity declared in Art. 1327 is
subject to the modifications determined by law, and is
understood to be without prejudice to special
disqualifications established in the laws.
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Art. 234 FC Emancipation takes place by the

attainment of majority. Unless otherwise provided,
majority commences at the age of 18 y/o.
Art. 34 RPC Civil Interdiction Civil interdiction
shall deprive the offender during the time of his
sentence of the right of parental authority, or
guardianship, either as to the person or property of
any ward, or marital authority, of the right to manage
his property, and of the right to dispose of such
property by any act or any conveyance inter vivos.
Rule 93 - Appointment of Guardians Rule 94 Bonds
of Guardians
DONATION

NOTES:
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Art. 1782 Persons who are prohibited from giving

each other any donation or advantage cannot enter
into universal partnership.

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ARTICLE 739. The following donations shall be void:

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(1) Those made between persons who were guilty of

adultery or concubinage at the time of the donation;

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(2) Those made between persons found guilty of the

same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife,
descendants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence
in the same action. (n)

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c. Consent or Intention to become a partner 1769 (1)

1804
Art. 1769 In determining whether a partnership
exists, these rules shall apply:

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1. Except as otherwise provided by Art. 1825, persons

who are not partners as to each other are not partners
as to third persons;
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NOTES:

ARTICLE 1825. When a person, by words spoken or

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

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(1) When a partnership liability results, he is liable as

though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable
pro rata with the other persons, if any, so consenting
to the contract or representation as to incur liability,
otherwise separately.
When a person has been thus represented to be a
partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the
persons consenting to such representation to bind
them to the same extent and in the same manner as
though he were a partner in fact, with respect to
persons who rely upon the representation. When all
the members of the existing partnership consent to the
representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of
the person acting and the persons consenting to the
representation. (n)
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)
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NOTES:
d. Lawful subject matter and Cause 1347, 1348, 1770

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Art. 1306 The contracting parties may establish

such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or
public policy.

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Art. 1347 All things which are not outside the

commerce of men, including future things, may be the
object of a contract. All rights which are not
intransmissible may also be the object of contracts.

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No contract may be entered into upon future

inheritance except in case expressly authorized by
law.
Art. 1348 Impossible things or services cannot be
the object of contracts.
Art. 1349 The object of every contract must be
determinate as to its kind. The fact that the quantity
is not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to
determine the same, without the need of a new
contract between the parties.
Art. 1409 The following contracts are inexistent and
void from the beginning:
1. Those whose cause, object of purpose is contrary
to law, morals, good customs, public order or
public policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the
time of the transaction;
4. Those whose object is outside the commerce of
men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to
the principal object of the contract cannot be
ascertained
7. Those expressly prohibited or declared void by
law;

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These contracts cannot be ratified. Neither can the

right to set up the defense of illegality be waived.
Art. 1770 A partnership must have a lawful object of
purpose, and must established for the common benefit
or interest of the partners.
When an unlawful partnership is dissolved by a
judicial decree, the profits shall be confiscated in favor
of the State, without prejudice to the provisions of the
Penal Code governing the confiscation of the
instruments and effects of a crime.
The pursuit of a particular business for profit; except
where the law requires a specific form of business
organization such as banking or insurance which only
corporations can undertake.

NOTES:
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e. Contribution to a common fund 1767

(1) Existence of proprietary interest must contribute
MPI
a. Money currency which is legal tender in the
PH.
- Nego. Ints.: no contribution until encashed.
b. Property real or personal, corporeal or
incorporeal.
- Promissory note, evidence of obligation or goodwill
may be contributed.
c. Industry means active cooperation, the work of
the party associated, which may be either
personal ir manual efforts or intellectual, and for
which he receives a share in the profits.

(2) Proof of contribution necessary in partnership.

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f.

Purpose: Business or profession - 1767

Cause of obligation Art. 1350 for each contracting

party, the prestation or promise of a thing or service by
the other; the undertaking of the other to contribute
money, property or industry.
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Art. 1350 In onerous contracts the cause is understood to

be, for each contracting party, the prestation or promise of
a thing or service by the other, in remuneratory ones, the
service of benefit which is remunerated; and in contracts
of pure beneficence, the mere liberality of the benefactor

NOTES:
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PURPOSE:
(1) The very reason for existence of partnership
- A partnership is formed to carry on a business.
The idea of obtaining pecuniary profit or gain
directly through or as a result of the business to
be carrid on is the very reason for the existence of
a partnership.
(2) Need only be principal, not exclusive aim.
- It is sufficient that the principal purpose of the
partnership is sharing
of profits in certain
proportions even if there are incidentally, moral,
social or spiritual ends.
- Sharing of profits:
o Not necessarily in equal shares
o Not conclusive evidence of partnership
- Sharing of losses:
o Necessary corollary of sharing in profits
o Agreement not necessary
-sharing of profit shall be in the same
proportion as the sharing of losses.

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g. Community of Interest 1767, 1770, 1769 (3), (4)

i.
co-ownership of capital or property
ii.
Joint management and control
iii.
Co-ownership of profits and participation in
profits and losses

Art. 1770 A partnership must have a lawful object of

purpose, and must established for the common benefit
or interest of the partners.

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When an unlawful partnership is dissolved by a

judicial decree, the profits shall be confiscated in favor
of the State, without prejudice to the provisions of the
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Penal Code governing the confiscation

instruments and effects of a crime.

of

the

NOTES:
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Art. 1769. xxx

3. The sharing of gross returns does not of itself
establish a partnership, WON the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived;
4. The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if
such profits were received in payment:

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a. As a debt by installment of otherwise;

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

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c. As an annuity to a widow or representative of

a deceased partner;

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d. As interest on a loan, though the amount of

payment vary with the profits of the business;

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e. As the consideration for the sale of a goodwill

of a business or other property by instalments or
otherwise.

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2. Principles Governing Partnership

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a. Contractual in nature 1767, 1784

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Art. 1784 A partnership begins from the moment of

execution of the contract, unless it is otherwise
stipulated.

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b. Separate Juridical Personality 1768, 46, 51, 1775

NOTES:
Article 1768. The partnership has a juridical personality
separate and distinct from that of each of the partners,
even in case of failure to comply with the requirements of
article 1772, first paragraph.

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Article 1772. Every contract of partnership having a

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

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Failure to comply with the requirements of the preceding

paragraph shall not affect the liability of the partnership
and the members thereof to third persons.

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ARTICLE 46. Juridical persons may acquire and

possess property of all kinds, as well as incur
obligations and bring civil or criminal actions, in
conformity with the laws and regulations of their
organization. (38a)

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ARTICLE 51. When the law creating or recognizing them,

or any other provision does not fix the domicile of
juridical persons, the same shall be understood to be the
place where their legal representation is established or
where they exercise their principal functions. (41a)

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ARTICLE 1775.
Associations and societies, whose
articles are kept secret among the members, and
wherein any one of the members may contract in his
own name with third persons, shall have no juridical
personality, and shall be governed by the provisions
relating to co-ownership. (1669)

c. Delectus Personae 1804, 1813

-

Means choice of the person or choice of the persons.

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Partnership relation fiduciary in nature. Partnership is a form of voluntary association

entered into by the associates. It is a personal relation in which the element of delectus
personae exists, involving as it does trust and confidence between the partners.

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)

ARTICLE 1813.
A conveyance by a partner of his whole interest in the partnership does
not of itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to interfere in the
management or administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the partnership books; but it
merely entitles the assignee to receive in accordance with his contract the profits to which
the assigning partner would otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's
interest and may require an account from the date only of the last account agreed to by all
the partners. (n)

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NOTES:

CASE:

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ORTEGA vs. CA

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G.R. No. 109248, July 3, 1995, Vitug, J;p

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FACTS:
Ortega, then a senior partner in the law firm Bito, Misa,
and Lozada withdrew in said firm. He filed with SEC a
petition for dissolution and liquidation of partnership.
SEC en banc ruled that withdrawal of Misa from the
firm had dissolved the partnership. Reason: since it is
partnership at will, the law firm could be dissolved by
any partner at anytime, such as by withdrawal there
from, regardless of good faith or bad faith, since no
partner can be forced to continue in the partnership
against his will.

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ISSUE:

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1. WON the partnership of Bito, Misa & Lozada (now

Bito, Lozada, Ortega & Castillo) is a partnership at will;

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2. WON the withdrawal of Misa dissolved

partnership regardless of his good or bad faith;

the

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HELD:

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1. Yes. The partnership agreement of the firm provides

that [t]he partnership shall continue so long as
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by
the surviving partners.

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2. Yes. Any one of the partners may, at his sole

pleasure, dictate a dissolution of the partnership at will
(e.g. by way of withdrawal of a partner). He must,
however, act in good faith, not that the attendance of

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bad faith can prevent the dissolution of the partnership

but that it can result in a liability for damages.

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d. Mutual Agency 1803, 1818, 1822

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

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(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.

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(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)

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ARTICLE 1818.
Every partner is an agent of the
partnership for the purpose of its business, and the act of
every partner, including the execution in the partnership
name of any instrument, for apparently carrying on in
the usual way the business of the partnership of which
he is a member binds the partnership, unless the partner
so acting has in fact no authority to act for the
partnership in the particular matter, and the person with
whom he is dealing has knowledge of the fact that he
has no such authority.
An act of a partner which is not apparently for the
carrying on of business of the partnership in the usual
way does not bind the partnership unless authorized by
the other partners.
Except when authorized by the other partners or unless
they have abandoned the business, one or more but less
than all the partners have no authority to:

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

NOTES:

(2)

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Dispose of the good-will of the business;

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

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(4)

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Confess a judgment;

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

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(6)
Submit
arbitration;

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(7)

partnership

claim

or

liability

to

Renounce a claim of the partnership.

No act of a partner in contravention of a restriction on

authority shall bind the partnership to persons having
knowledge of the restriction. (n)

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

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e. Unlimited Liability 1816, 1817, 1824, 1826, 1827,

1839 (4), (7)

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

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15 | P a g e

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ARTICLE 1817.
Any stipulation against the liability
laid down in the preceding article shall be void, except
as among the partners. (n)

NOTES:

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

_______________________________

ARTICLE 1826.
A person admitted as a partner into
an existing partnership is liable for all the obligations of
the partnership arising before his admission as though
he had been a partner when such obligations were
incurred, except that this liability shall be satisfied only
out of partnership property, unless there is a stipulation
to the contrary. (n)
ARTICLE 1827.
The creditors of the partnership
shall be preferred to those of each partner as regards the
partnership property. Without prejudice to this right, the
private creditors of each partner may ask the attachment
and public sale of the share of the latter in the
partnership assets. (n)

_______________________________

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

_______________________________

(1)

The assets of the partnership are:

_______________________________

(a)

The partnership property,

_______________________________

_______________________________
_______________________________

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

_______________________________

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

_______________________________

(a)

Those owing to creditors other than partners,

_______________________________

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

_______________________________

(c)

Those owing to partners in respect of capital,

(d)

Those owing to partners in respect of profits.

_______________________________

_______________________________

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16 | P a g e

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

NOTES:

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

_______________________________

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

_______________________________

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

_______________________________

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

_______________________________

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

_______________________________

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

_______________________________

(a)

Those owing to separate creditors;

(b)

Those owing to partnership creditors;

(c)
(n)

Those owing to partners by way of contribution.

_______________________________
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_______________________________

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3. Distinguished from other combinations and relations

a. Joint Venture
- A commercial undertaking by two or more persons,
differing from a partnership in that it relates to the
disposition of a single lot of goods or the completion
of a single project. Its duration is limited to a period
in which the goods are sold or the project is carried
on.
17 | P a g e

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A corporation may enter into joint venture

partnership with another where the nature of the
venture is in line with the business authorized by its
charter.

NOTES:
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CASE(S):

_______________________________
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Aurbach vs. Sanitary Wares

180 scra 130 (1989)

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Facts:

_______________________________

This consolidated petition assailed the decision of the CA

directing a certain MANNER OF ELECTION OFOFFICERS
IN THE BOARD OF DIRECTORS. (Noted: There was a
disagreement about the election of Board of Members,
wherein the no. of nominees exceeded to the prescribe no.
that should have been nominated. For foreigner,3 nominees
only, while the Filipino group shall have a 6 nominees.
During the election, there are 3 nominees from the foreign
group while the Filipino group have 8 nominees. The
Chairman ruled that the first 9 nominees will be the
winner in the said election *There are two groups in this
case, theLagdameo group composed of Filipino investors
and the American Standard Inc. (ASI) composed of foreign
investors.The ASI Group and petitioner Salazar (G.R. Nos.
75975-76) contend that the actual intention of theparties
should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly statedthat the parties'
intention was to form a corporation and not a joint venture.

_______________________________

Issue:

_______________________________

The main issue hinges on who were the duly elected

directors of Saniwares for the year 1983 during itsannual
stockholders' meeting held on March 8, 1983.

_______________________________

Ruling:
While certain provisions of the Agreement would make it
appear that the parties theretodisclaim being partners or
joint venturers such disclaimer is directed at third parties
and is notinconsistent with, and does not preclude, the
existence of two distinct groups of stockholders
18 | P a g e

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inSaniwares one of which (the Philippine Investors) shall

constitute the majority, and the other ASIshall constitute
the minority stockholder. In any event, the evident
intention of the PhilippineInvestors and ASI in entering
into the
Agreement is to enter into a joint venture
enterprise

NOTES:

An examination of the Agreement shows that certain

provisions were included to protect theinterests of ASI as
the minority. For example, the vote of 7 out of 9 directors is
required incertain enumerated corporate acts. ASI is
contractually entitled to designate a member of
theExecutive Committee and the vote of this member is
required for certain transactions

_______________________________

The Agreement also requires a 75% super-majority vote for

the amendment of the articles andby-laws of Saniwares.
ASI is also given the right to designate the president and
plant manager.The Agreement further provides that the
sales policy of Saniwares shall be that which isnormally
followed by ASI and that Saniwares should not export
"Standard" products otherwisethan through ASI's Export
Marketing Services. Under the Agreement, ASI agreed to
providetechnology and know-how to Saniwares and the
latter paid royalties for the same.
The legal concept of a joint venture is of common law
origin. It has no precise legal definitionbut it has been
generally understood to mean an organization formed for
some temporary
purpose. It is in fact hardly
distinguishable from the partnership, since their elements
are similar community of interest in the business, sharing
of profits and losses, and a mutual right of control.
The main distinction cited by most opinions in common
law jurisdictions is that the partnershipcontemplates a
general business with some degree of continuity , while the
joint venture is formedfor the execution of a single
transaction, and is thus of a temporary nature

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HEIRS OF TAN ENG KEE vs.CA

341 SCRA 740, G.R. No. 126881, October 3, 2000, De
Leon, Jr.:p

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FACTS:
19 | P a g e

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The complaint alleged that after the second World War, Tan EngKee and Tan Eng Lay, pooling
their resources and industry together, entered into a partnership engaged in the business of
selling lumber and hardware and construction supplies. They named their enterprise
"Benguet Lumber" which they jointly managed until Tan EngKee's death. Petitioners claimed
that Tan Eng Lay and his children caused the conversion of the partnership "Benguet
Lumber" into a corporation called "Benguet Lumber Company" allegedly to deprive Tan Eng
Kee and his heirs of their rightful participation in the profits of the business. After Tang Eng
Kees death petitioners prayed for accounting of the partnership assets, and the dissolution,
winding up and liquidation thereof, and the equal division of the net assets of Benguet
Lumber. The RTC ruled in favor of petitioners, declaring that Benguet Lumber is a joint
venture which is akin to a particular partnership. The Court of Appeals rendered the assailed
decision reversing the judgment of the trial court.

ISSUE:
Whether or not Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber.

HELD:

20 | P a g e

NO. The trial court determined that Tan EngKee and Tan
Eng Lay had entered into a joint venture, which it said is
akin to a particular partnership. A particular partnership
is distinguished from a joint adventure, to wit:(a) A joint
adventure (an American concept similar to our joint
accounts) is a sort of informal partnership, with no firm
name and no legal personality. In a joint account, the
participating merchants can transact business under their
own name, and can be individually liable therefor.(b)
Usually, but not necessarily a joint adventure is limited to a
SINGLE TRANSACTION, although the business of pursuing
to a successful termination may continue for a number of
years; a partnership generally relates to a continuing
business of various transactions of a certain kind. A joint
venture "presupposes generally a parity of standing
between the joint co-ventures or partners, in which each
party has an equal proprietary interest in the capital or
property contributed, and where each party exercises equal
rights in the conduct of the business. The evidence
presented by petitioners falls short of the quantum of proof
required to establish a partnership. In the absence of
evidence, we cannot accept as an established fact that Tan
Eng Kee allegedly contributed his resources to a common
fund for the purpose of establishing a partnership. Besides,
it is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan Eng
Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and
losses. Each has the right to demand an accounting as long
as the partnership exists. A demand for periodic
accounting is evidence of a partnership. During his lifetime,
Tan Eng Kee appeared never to have made any such
demand for accounting from hisbrother, Tang Eng Lay. We
conclude that Tan Eng Kee was only an employee, not a
partner since they did not present and offer evidence that
would show that Tan Eng Kee received amounts of money
allegedly representing his share in the profits of the
enterprise.

NOTES:
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There being no partnership, it follows that there is no

dissolution, winding up or liquidation to speak of. Hence,
the petition must fail.

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21 | P a g e

_______________________________

b. Agency
ARTICLE 1868. By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. (1709a)

NOTES:
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c. Employment
CASE(S):

_______________________________
_______________________________
_______________________________

RUGA VS. NLRC

G.R. No. 72654-81 January 22, 1990

_______________________________

FACTS:
Private respondent's regular business of "trawl" fishing,
petitioners were paid on percentage commission basis in
cash by one Mrs. Pilar de Guzman, cashier of private
respondent. As agreed upon, they received thirteen
percent (13%) of the proceeds of the sale of the fishcatch if the total proceeds exceeded the cost of crude oil
consumed during the fishing trip, otherwise, they
received ten percent (10%) of the total proceeds of the
sale. The patron/pilot, chief engineer and master
fisherman received a minimum income of P350.00 per
week while the assistant engineer, second fisherman,
and fisherman-winchman received a minimum income of
P260.00 per week.

_______________________________

ISSUE:
Whether or not the fishermen-crew members of the trawl
fishing vessel are employees of its owner-operator, De
Guzman Fishing Enterprises.
HELD:
The hiring of petitioners to perform work which is
necessary or desirable in the usual business or trade of
private respondent for a period of 8-15 years since 1968
22 | P a g e

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qualify them as regular employees within the meaning of

Article 281 of the Labor Code as they were indeed
engaged to perform activities usually necessary or
desirable in the usual fishing business or occupation of
private respondent.

NOTES:
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_______________________________

1. LABOR LAW; EMPLOYER-EMPLOYEE RELATIONSHIP;

ELEMENTS IN DETERMINING EXISTENCE THEREOF.
We have consistently ruled that in determining the
existence of an employer-employee relationship, the
elements that are generally considered are the following
(a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee with respect to
the means and methods by which the work is to be
accomplished. The employment relation arises from
contract of hire, express or implied. In the absence of
hiring, no actual employer-employee relation could exist.

_______________________________

2. ID.; ID.; PRESENT IN THE CASE AT BAR. To stress

that there is an employer-employee relationship between
them and private respondent, petitioners invite attention
to the following: that they were directly hired by private
respondent through its general manager, Arsenio de
Guzman, and its operations manager, Conrado de
Guzman; that, except for Laurente Bautu, they had been
employed by private respondent from 8 to 15 years in
various capacities; that private respondent, through its
operations manager, supervised and controlled the
conduct of their fishing operations as to the fixing of the
schedule of the fishing trips, the direction of the fishing
vessel, the volume or number of tubes of the fish-catch,
the time to return to the fishing port, which were
communicated to the patron/pilot by radio (single side
band) that they were not allowed to join other outfits
even the other vessels owned by private respondent
without the permission of the operations manager; that
they were compensated on percentage commission basis
of the gross sales of the fish-catch which were delivered
to them in cash by private respondent's cashier, Mrs.
Pilar de Guzman; and that they have to follow company
policies, rules and regulations imposed on them by
private respondent. Furthermore, the fact that on mere
suspicion based on the reports that petitioners allegedly
sold their fish-catch at midsea without the knowledge
and consent of private respondent, petitioners were

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23 | P a g e

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unjustifiably not allowed to board the fishing vessel on

September 11, 1983 to resume their activities without
giving them the opportunity to air their side on the
accusation against them unmistakably reveals the
disciplinary power exercised by private respondent over
them and the corresponding sanction imposed in case of
violation of any of its rules and regulations.
3. ID.; ID.; REGULAR EMPLOYEE, CONSTRUED.
While tenure or length of employment is not considered
as the test of employment, nevertheless the hiring of
petitioners to perform work which is necessary or
desirable in the usual business or trade of private
respondent for a period of 8-15 years since 1968 qualify
them as regular employees within the meaning of Article
281 of the Labor Code as they were indeed engaged to
perform activities usually necessary or desirable in the
usual fishing business or occupation of private
respondent.
4. ID.; WAGE, DEFINED; COMPENSATION ON A
PERCENTAGE COMMISSION BASED ON THE GROSS
SALE OF THE FISH-CATCH TANTAMOUNT TO WAGE.
Aside from performing activities usually necessary and
desirable in the business of private respondent, it must
be noted that petitioners received compensation on a
percentage commission based on the gross sale of the
fish-catch, i.e. 13% of the proceeds of the sale if the total
proceeds exceeded the cost of the crude oil consumed
during the fishing trip, otherwise only 10% of the
proceeds of the sale. Such compensation falls within the
scope and meaning of the term "wage" as defined under
Article 97(f) of the Labor Code, thus: "(f) 'Wage' paid to
any employee shall mean the remuneration or earnings,
however designated, capable of being expressed in terms
of money, whether fixed or ascertained on a time, task,
piece or commission basis, or other method of
calculating the same, which is payable by an employer to
an employee under a written or unwritten contract of
employment for work done or to be done, or for services
rendered or to be rendered, and included the fair and
reasonable value, as determined by the Secretary of
Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee. . . . "

NOTES:
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24 | P a g e

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ARSENIO T. MENDIOLA, petitioner,

vs.
COURT
OF
APPEALS,
NATIONAL
RELATIONS

COMMISSION,

PACIFIC

NOTES:
LABOR
FOREST

RESOURCES, PHILS., INC. and/or CELLMARK AB,

respondents

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_______________________________

Facts:
Private respondent Pacific Forest Resources, Phils.,
Inc. (Pacfor) is a corporation organized and existing
under the laws of California, USA. Private respondent
Pacfor entered into
a "Side Agreement
on
Representative Office known as Pacific Forest
Resources (Phils.), Inc."5 with petitioner Arsenio T.
Mendiola (ATM), effective May 1, 1995, "assuming that
Pacfor-Phils. is already approved by the Securities and
Exchange Commission [SEC] on the said date. etitioner
is not a part-owner of Pacfor Phils. because the latter
is merely Pacfor-USA's representative office and not an
entity separate and distinct from Pacfor-USA. "It's
simply a 'theoretical company' with the purpose of
dividing the income 50-50."11 Petitioner presumably
knew of this arrangement from the start, having been
the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch
office" in the Philippines to save on taxes.12On
November 27, 2000, private respondent Pacfor,
through counsel, ordered petitioner to turn over to it
all papers, documents, files, records, and other
materials in his or ATM Marketing Corporation's
possession that belong to Pacfor or Pacfor Phils.
Petitioner construed these directives as a severance of
the "unregistered partnership" between him and
Pacfor, and the termination of his employment as
resident manager of Pacfor Phils private respondent
Pacfor placed petitioner on preventive suspension and
ordered him to show cause why no disciplinary action
should be taken against him. Petioner was dismissed.
ISSUE
WON there is
relationship?
Held:

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partnership

or

employer-employee

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25 | P a g e

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We hold that petitioner is an employee of private

respondent Pacfor and that no partnership or coownership exists between the parties.
In a partnership, the members become co-owners of
what is contributed to the firm capital and of all
property that may be acquired thereby and through
the efforts of the members.36 The property or stock of
the partnership forms a community of goods, a
common fund, in which each party has a proprietary
interest.37 In fact, the New Civil Code regards a
partner as a co-owner of specific partnership
property.38 Each partner possesses a joint interest in
the whole of partnership property. If the relation does
not have this feature, it is not one of partnership.39
This essential element, the community of interest, or
co-ownership of, or joint interest in partnership
property is absent in the relations between petitioner
and private respondent Pacfor. Petitioner is not a partowner of Pacfor Phils. William Gleason, private
respondent Pacfor's President established this fact
when he said that Pacfor Phils. is simply a "theoretical
company" for the purpose of dividing the income 5050. He stressed that petitioner knew of this
arrangement from the very start, having been the one
to propose to private respondent Pacfor the setting up
of a representative office, and "not a branch office" in
the Philippines to save on taxes. Thus, the parties in
this case, merely shared profits. This alone does not
make a partnership.40
Besides, a corporation cannot become a member of a
partnership in the absence of express authorization by
statute or charter.41 This doctrine is based on the
following considerations: (1) that the mutual agency
between the partners, whereby the corporation would
be bound by the acts of persons who are not its duly
appointed and authorized agents and officers, would
be inconsistent with the policy of the law that the
corporation shall manage its own affairs separately
and exclusively; and, (2) that such an arrangement
would improperly allow corporate property to become
subject to risks not contemplated by the stockholders
when they originally invested in the corporation.42 No
such authorization has been proved in the case at bar.

NOTES:
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d. Co-ownership
26 | P a g e

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There is a co-ownership whenever the ownership of an

undivided thing or right belongs to different persons.
(Art. 484.) It is the right of common dominion which two
or more persons have in a spiritual part of a thing which
is not physically divided.
The following are the distinctions between a partnership
and a co-ownership:
(1) Creation. Co-ownership is generally created by
law.
It may exist even without a contract, but partnership is
always created by a contract (Art. 1767.), either express
or implied;
(2) Juridical personality. A partnership has a juridical
personality separate and distinct from that of each
partner (Art.1768.), while a co-ownership has none;
(3) Purpose. The purpose of a partnership is the
realization of profits (Art. 1767.), while in co-ownership,
it is the common enjoyment of a thing or right (see Art.
486.) which does not necessarily involve the sharing of
profits;

NOTES:
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(4) Duration. Under the law, there is no limitation upon

the duration of a partnership (see Arts. 1767, 1785.)
while in co-ownership, an agreement to keep the thing
undivided for more than ten years is not allowed (see
Art. 494.);

_______________________________

(5) Disposal of interests. A partner may not dispose of

his individual interest in the partnership (Art. 1812.) so
as to make the assignee a partner unless agreed upon
by all of the partners;

_______________________________

(6) Power to act with third persons. In the absence of

any stipulation to the contrary (Art. 1803.), a partner
may bind the partnership, while a co-owner cannot
represent the co-ownership; and
(7) Effect of death. The death of a partner results in
the
dissolution of the partnership (Art. 1830[5].), but the
death of a co-owner does not necessarily dissolve the coownership.
27 | P a g e

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e. Corporation

i.

Manner of Creation Art. 1787 vs. Sec. 2 Corporation Code

Art. 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 if stipulation, it shall be made by experts chosen by the partners, and
according to current prices, the subsequent changes thereof being for the account of
partnership.

Sec. 2 Corp. Code - Corporation defined. - A corporation is an artificial being created by

operation of law, having the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence.

ii. Number of Incorporators Art. 1767 vs. Sec 10 Corp Code

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

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

Sec. 10 Corp. Code

iii. Start of Existence Art. 1784 vs. Sec. 19 Corp Code

Art. 1784 A partnership begins from the moment of execution of the contract, unless it is
otherwise stipulated.

Sec. 19 Corp Code Commencement of corporate existence. - A private corporation formed or

organized under this Code commences to have corporate existence and juridical personality and
is deemed incorporated from the date the Securities and Exchange Commission issues a
certificate of incorporation under its official seal; and thereupon the incorporators,
stockholders/members and their successors shall constitute a body politic and corporate under
28 | P a g e

the name stated in the articles of incorporation for the

period of time mentioned therein, unless said period is
extended or the corporation is sooner dissolved in
accordance with law.

NOTES:
NOTES:
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iv. Powers Art. 1306 vs. Sec 2, 36 Corp. Code

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Art. 1306 The contracting parties may establish such

stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.

Sec 2 Corp Code - Corporation defined. - A corporation is

an artificial being created by operation of law, having the
right of succession and the powers, attributes and
properties expressly authorized by law or incident to its
existence.

Sec. 36 Corp. Code - Corporate powers and capacity. Every corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;

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2. Of succession by its corporate name for the period of

time stated in the articles of incorporation and the
certificate of incorporation;

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3. To adopt and use a corporate seal;

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4. To amend its articles of incorporation in accordance

with the provisions of this Code;

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5. To adopt by-laws, not contrary to law, morals, or public

policy, and to amend or repeal the same in accordance
with this Code;

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29 | P a g e

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6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to
subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to
admit members to the corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations,
as the transaction of the lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic
or foreign, shall give donations in aid of any political party or candidate or for purposes of
partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and 11. To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in the articles of incorporation.

v. Name Art. 1844 (l,a) vs. Sec. 11 Corp Code

(Limited Partnerships)
Art. 1844 Two or more persons desiring to form a limited partnership shall:

I.

Sign and swear to a certificate, which shall state

a. The name of the partnership, adding thereto the word Limited;

30 | P a g e

Sec. 11 Corp Code - Corporate term. - A corporation shall

exist for a period not exceeding fifty (50) years from the
date of incorporation unless sooner dissolved or unless
said period is extended. The corporate term as originally
stated in the articles of incorporation may be extended for
periods not exceeding fifty (50) years in any single
instance by an amendment of the articles of incorporation,
in accordance with this Code; Provided, That no extension
can be made earlier than five (5) years prior to the original
or subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension as may be determined by
the Securities and Exchange Commission

NOTES:
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vi. Term of existence Art. 1767 vs. Sec. 11 Corp Code

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Art. 1767 - By the contract of partnership two or more

persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
the profits among themselves.
Two or more persons may also form a partnership for the
exercise of a profession.

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Sec. 11 Corp Code- A corporation shall exist for a period

not exceeding fifty (50) years from the date of incorporation
unless sooner dissolved or unless said period is extended.
The corporate term as originally stated in the articles of
incorporation may be extended for periods not exceeding
fifty (50) years in any single instance by an amendment of
the articles of incorporation, in accordance with this Code;
Provided, That no extension can be made earlier than five
(5) years prior to the original or subsequent expiry date(s)
unless there are justifiable reasons for an earlier extension
as may be determined by the Securities and Exchange
Commission.

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vii. Liability to third parties Art. 1816, 1822-1824 vs. Sec.

64. 37 Corp

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Art. 1816 All partners, including industrial ones, shall be

liable pro rata with all their property and after all
partnership assets have been exhausted, for the contracts
which may be entered into the name and for the
partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.

Art. 1822 Where, by any wrongful act or omission of any

partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or
injury is caused to any person, bot being a partner in the
partnership , or any penalty incurred, the partnership is
liable therefor to the same extent as the partner so acting or
omitting to act.
Art. 1823 The partnership is bound to make good the loss:

NOTES:
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1. Where one partner acting within the scope of his

apparent authority receives money or property of a third
person and misapplies it; and

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2. Where the partnership in the course of its business

receives money or property of a third person and the money
or property so received is misapplied by any partner where
it is in the custody of the partnership.

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Art. 1824 All partners are liable solidarily with the

partnership for everything chargeable to the partnership
under Articles 1822 and 1823.

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Sec. 64. Corp Code - Issuance of stock certificates. - No

certificate of stock shall be issued to a subscriber until the
full amount of his subscription together with interest and
expenses (in case of delinquent shares), if any is due, has
been paid.

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Sec. 37 Corp Code- Power to extend or shorten corporate

term. - A private corporation may extend or shorten its term
as stated in the articles of incorporation when approved by
a majority vote of the board of directors or trustees and
32 | P a g e

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ratified at a meeting by the stockholders representing at

least two-thirds (2/3) of the outstanding capital stock or by
at least two-thirds (2/3) of the members in case of nonstock corporations. Written notice of the proposed action
and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That in case of
extension of corporate term, any dissenting stockholder
may exercise his appraisal right under the conditions
provided in this code.

NOTES:
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viii.
Transferability of Interest Art. 1767, 1804 vs.
Sec. 63 Corp Code

Art. 1767 (supra)

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Art. 1804 Every partner may associate another person

with him in his share, but the associate shall not be
admitted into the partnership without the consent of all the
other partners, even if the partner having an associate
should be a manager.

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Sec. 63 Corp Code - Certificate of stock and transfer of

shares. - The capital stock of stock corporations shall be
divided into shares for which certificates signed by the
president or vice president, countersigned by the secretary
or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or
certificates endorsed by the owner or his attorney-in-fact
or other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred.
33 | P a g e

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NOTES:
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. (

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ix. Management Art. 1803 vs. Sec. 23 Corp Code

Art. 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 Art.
1801.

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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 courts intervention may be sought.

Sec. 23 Corp Code - The board of directors or trustees. Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year until their
successors are elected and qualified.

Every director must own at least one (1) share of the capital
stock of the corporation of which he is a director, which
share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of at
least one (1) share of the capital stock of the corporation of
which he is a director shall thereby cease to be a director.
Trustees of non-stock corporations must be members
34 | P a g e

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thereof. a majority of the directors or trustees of all

corporations organized under this Code must be residents of
the Philippines.

NOTES:
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x. Dissolution Art. 1830 (1), (2) vs. Sec. 117-122 Corp

Code Art. 1830 Dissolution Is caused:

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1. Without violation of the agreement between the partners;

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a. By the termination of the definite term or particular

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

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c. By the express will of all the partners who have not

signed their interests or suffered them to be charged for
their separate debts, either before or after the termination of
any specified term or particular undertaking.

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d. By the expulsion of any partner form the business bona

fide in accordance with such a power conferred by the
agreement between the partners;

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2. In contravention of the agreement between the partners,

where the circumstances do not permit a dissolution under
any other provision of this article, by the express will of any
partners at any time.

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Sec. 117-122 Corp Code

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Sec. 117. Methods of dissolution. - A corporation formed or

organized under the provisions of this Code may be
dissolved voluntarily or involuntarily. (n) Sec. 118. Voluntary
dissolution where no creditors are affected. - If dissolution
of a corporation does not prejudice the rights of any creditor
having a claim against it, the dissolution may be effected by
35 | P a g e

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majority vote of the board of directors or trustees, and by a resolution duly adopted by the
affirmative vote of the stockholders owning at least twothirds (2/3) of the outstanding capital
stock or of at least two-thirds (2/3) of the members of a meeting to be held upon call of the
directors or trustees after publication of the notice of time, place and object of the meeting for
three (3) consecutive weeks in a newspaper published in the place where the principal office of
said corporation is located; and if no newspaper is published in such place, then in a
newspaper of general circulation in the Philippines, after sending such notice to each
stockholder or member either by registered mail or by personal delivery at least thirty (30) days
prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified by a
majority of the board of directors or trustees and countersigned by the secretary of the
corporation. The Securities and Exchange Commission shall thereupon issue the certificate of
dissolution. (62a)

36 | P a g e

Sec. 119. Voluntary dissolution where creditors are affected.

- Where the dissolution of a corporation may prejudice the
rights of any creditor, the petition for dissolution shall be
filed with the Securities and Exchange Commission. The
petition shall be signed by a majority of its board of directors
or trustees or other officers having the management of its
affairs, verified by its president or secretary or one of its
directors or trustees, and shall set forth all claims and
demands against it, and that its dissolution was resolved
upon by the affirmative vote of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock or
by at least two-thirds (2/3) of the members at a meeting of
its stockholders or members called for that purpose. If the
petition is sufficient in form and substance, the Commission
shall, by an order reciting the purpose of the petition, fix a
date on or before which objections thereto may be filed by
any person, which date shall not be less than thirty (30)
days nor more than sixty (60) days after the entry of the
order. Before such date, a copy of the order shall be
published at least once a week for three (3) consecutive
weeks in a newspaper of general circulation published in the
municipality or city where the principal office of the
corporation is situated, or if there be no such newspaper,
then in a newspaper of general circulation in the Philippines,
and a similar copy shall be posted for three (3) consecutive
weeks in three (3) public places in such municipality or city.
Upon five (5) day's notice, given after the date on which the
right to file objections as fixed in the order has expired, the
Commission shall proceed to hear the petition and try any
issue made by the objections filed; and if no such objection
is sufficient, and the material allegations of the petition are
true, it shall render judgment dissolving the corporation and
directing such disposition of its assets as justice requires,
and may appoint a receiver to collect such assets and pay
the debts of the corporation. (Rule 104,RCa)

NOTES:
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Sec. 120. Dissolution by shortening corporate term. - A

voluntary dissolution may be effected by amending the
articles of incorporation to shorten the corporate term
pursuant to the provisions of this Code. A copy of the
amended articles of incorporation shall be submitted to the
Securities and Exchange Commission in accordance with
this Code.

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Upon approval of the amended articles of incorporation of the

expiration of the shortened term, as the case may be, the
corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of this Code on
liquidation. (n)

NOTES:
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Sec. 121. Involuntary dissolution. - A corporation may be

dissolved by the Securities and Exchange Commission upon
filing of a verified complaint and after proper notice and
hearing on the grounds provided by existing laws, rules and
regulations. (n)

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Sec. 122. Corporate liquidation. - Every corporation whose

charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three (3)
years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, to
dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for
which it was established.

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At any time during said three (3) years, the corporation is

authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors,
and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or
other persons in interest. Upon the winding up of the
corporate affairs, any asset distributable to any creditor or
stockholder or member who is unknown or cannot be found
shall be escheated to the city or municipality where such
assets are located.

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Except by decrease of capital stock and as otherwise

allowed by this Code, no corporation shall distribute any of
38 | P a g e

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its assets or property except upon lawful dissolution and

after payment of all its debts and liabilities.

xi. Governing Law Civil Code vs. Corporation Code

NOTES:
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e. Art. 1769 In determining whether a partnership exists,

these rules shall apply:

1. Except as otherwise provided by Art. 1825, persons who

are not partners as to each other are not partners as to third
persons;

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

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

3. The sharing of gross returns does not of itself establish

a partnership, WON the persons sharing them have a joint
or common right or interest in any property from which the
returns are derived;
4. The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such
profits were received in payment:

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a. As a debt by installment of otherwise;

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

c. As an annuity to a widow or representative of a

deceased partner;

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d. As interest on a loan, though the amount of payment

vary with the profits of the business;

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

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f.

Lease
YULO V. YANG CHIAO SENG
Facts:
Yang Chiao Seng proposed to form a partnership with
Rosario Yulo to run and operate a theatre on the
premises occupied by Cine Oro, PlazaSta. Cruz,
Manila, the principal conditions of the offer being (1)
Yang guarantees Yulo a monthly participation of
P3,000 (2) partnership shall be for a period of 2 years
and 6 months with the condition that if the land is
expropriated, rendered impracticable for business,
owner constructs a permanent building, then Yulos
right to lease and partnership even if period agreed
upon has not yet expired; (3) Yulo is authorized to
personally conduct business in the lobby of the
building; and (4) after Dec 31, 1947, all improvements
placed by partnership shall belong to Yulo but if
partnership is terminated before lapse of 1 and
years, Yang shall have right to remove improvements.
Parties established, Yang and Co. Ltd., to exist from
July 1,1945 Dec 31, 1947.
In June 1946, they executed a supplementary
agreement extending the partnership for 3 years
beginning Jan.1, 1948 to Dec. 31, 1950.
The land on which the theater was constructed was
leased by Yulo from owners, Emilia Carrion and Maria
Carrion Santa Marina for an indefinite period but that
after 1 year, such lease may be cancelled by either
party upon 90-day notice.
In Apr 1949, the owners notified Yulo of their desire to
cancel the lease contract come July.

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Yulo and husband brought a civil action to declare the

lease for a indefinite period. Owners brought their own
civil action for ejectment upon Yulo and Yang.
CFI: Two cases were heard jointly; Complaint of
Yuloand Yang dismissed declaring contract of lease
terminated.
CA: Affirmed the judgment. In 1950, Yulo demanded
from Yang her share in the profits of the business.
Yang answered saying he had to suspend payment
because of pending ejectment suit. Yulo filed present
action in 1954, alleging the existence of a partnership
between them and that Yang has refused to pay her
shares.
Defendants Position: The real agreement between
plaintiff and defendant was one of lease and not of
partnership; that the partnership was adopted as a
subterfuge to get around the prohibition contained in
the contract of lease between the owners and the
plaintiff against the sublease of the property.
Trial Court: Dismissal. It is not true that a
partnership was created between them because
defendant has not actually contributed the sum
mentioned in the Articles of Partnership or any other
amount. The agreement is a lease because plaintiff
didnt share either in the profits or in the losses of the
business as required by Art 1769 (CC) and because
plaintiff was granted a guaranteed participation in
the profits belies the supposed existence of a
partnership.
Issue:
Was the agreement
partnership?

NOTES:
NOTES:
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contract

lease

or

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Ruling:
Dismissed. The agreement was a sublease not a
partnership.

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The following are the requisites of partnership:

(1) two or more persons who bind themselves to
contribute money, property or industry to a common
fund;

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41 | P a g e

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(2) the intention on the part of the partners to divide the profits among themselves (Article
1761, CC). Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any
help or intervention in the management of the theatre. Neither has she demanded from
defendant any accounting of the expenses and earnings of the business. She was
absolutely silent with respect to any of the acts that a partner should have done; all she
did was to receive her share of P3,000 a month which cannot be interpreted in any
manner than a payment for the use of premises which she had leased from the owners.
We find no error in the judgment of the court below and we affirm it in toto, with costs
against plaintiff-appellant.

42 | P a g e