AGENCY_FINALS
THE LAW ON PARTNERSHIP Failure to comply with the requirements of the preceding paragraph shall
WEEK 1
I. Nature; Creation
A. DEFINITION; ESSENTIAL FEATURES
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. CREATION
Art. 1770. A partnership must have a lawful object or purpose, and must
be 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.
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.
Art. 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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not affect the liability of the partnership and the members thereof to
third persons.
Art. 1784. A partnership begins from the moment of the execution of
the contract, unless it is otherwise stipulated.
Art. 1815. Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names
in the firm name, shall be subject to the liability of a partner.
CPR Rule 3.02 - In the choice of a firm name, no false, misleading or
assumed name shall be used. The continued use of the name of a
deceased partner is permissible provided that the firm indicates in all its
communications that said partner is deceased.
Art. 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription.
Agad v. Mabato, 23 SCRA 1223
FACTS: Mauricio Agad and Severino Mabato executed a public
instrument to form a partnership engaged in a fishpond business. Agad
Contributed P1,000.00 with the right to receive 50% of the profits.
Mabato handled the partnership funds and rendered accounts of the
operations of the partnership. However, for the years 1957 to 1963,
Mabato failed to render accounts and pay Agad his share in the profits.
Thus, Agad filed a complaint for the recovery of the amount. However,
Mabato contended that no partnership had ever existed since the
contract was not perfected because Agad allegedly failed to contribute
his P1,000.00 contribution. The court dismissed the complaint since the
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contract was void for being in violation of Art. 1773 in because no
inventory of the fishpond had been attached with the instrument.
ISSUE: Does the provision on Art. 1773 of the Civil Code apply?
HELD: No. The Court held that Art. 1773 cannot apply. The public
instrument forming the supposed partnership indicated that it was
established “to operate a fishpond” and not to “engage in a fishpond
business.” Moreover, no fishpond or a real right to any was contributed,
even if a fishpond or a real right thereto could become part of its assets,
and that contributions merely consisted of P1, 000.00 each from both
parties. Thus, Art. 1773 and 1771 are inapplicable as a basis for the
dismissal of the complaint since no immovable property or real rights
were contributed.
Torres v. CA, 320 SCRA 428
Facts: Petitioners Torres and Baring entered into a “joint venture
agreement” with Respondent Torres for the development of a parcel of
land into a subdivision. They executed a Deed of Sale covering the said
parcel of land in favor of respondent Manual Torres, who then had it
registered in his name. By mortgaging the property, respondent Manuel
Torres obtained from Equitable Bank a loan of P40,000, which was
supposed to be used for the development of subdivision as per the JVA.
However, the project did not push through and the land was
subsequently foreclosed by the bank.
Petitioners Antonia Torres alleged that it was due to respondent’s lack
of funds/skills that caused the project to fail, and that respondent use
the loan in the furtherance of his own company. On the otherhand,
respondent Manuel Torres alleged that he used the loan to implement
the JVA – surveying and subdivision of lots, approval of the project,
advertisement, and construction of roads and the likes, and that he did
all of these for a total of P85,000.
Petitioners filed a case for estafa against respondent but failed. They
then instituted a civil case. CA held that the two parties formed a
partnership for the development of subdivision and as such, they must
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bear the loss suffered by the partnership in the same proportion as their
share in profits. Hence, the petition.
Issue:
1. Whether or not the transaction between petitioner and
respondent was that of joint venture/partnership.
2. Whether or not the deed of sale between the two was
valid.
Held:
1. Yes. There formed a partnership between the two on the basis of
joint-venture agreement and deed of sale. A reading of the terms of
agreement shows the existence of partnership pursuant to Art 1767
of Civil Code, which states “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.” In the agreement, petitioners would contribute
property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general expenses
and other costs. Furthermore, the income from the said project
would be divided according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form a
partnership.
2. No. Petitioners were wrong in contending that the JVA is void under
Article 1422[14] of the Civil Code, because it is the direct result of
an earlier illegal contract, which was for the sale of the land without
valid consideration.
The Joint Venture Agreement clearly states that the consideration for
the sale was the expectation of profits from the subdivision project.
Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration,
more properly denominated as cause, can take different forms, such
as the prestation or promise of a thing or service by another.
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In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the
subdivision project, for which the land was intended to be used. As
explained by the trial court, the land was in effect given to the
partnership as petitioners participation therein. There was therefore a
consideration for the sale, the petitioners acting in the expectation that,
should the venture come into fruition, they would get sixty percent of
the net profits.
Arbes v. Polistico, 53 Phil. 489
FACTS: This is an action to bring about liquidation of the funds and
property of the association called "Turnuhan Polistico & Co." The
plaintiffs were members or shareholders, and the defendants were
designated as president-treasurer, directors and secretary of said
association.
By agreement of the parties, the court appointed a commissioner to
examine all the books, documents, and accounts of "Turnuhan Polistico
& Co. The commissioner rendered his report, showing a balance of the
cash on hand in the amount of P24,607.80. The trial court in
accepting the report, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the
defendants jointly and severally to return the amount of P24,607.80, as
well as the documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the rest of
the members of the said association represented by said plaintiffs.
There is no question that "Turnuhan Polistico & Co." is an
unlawful partnership, but the appellants allege that because it
is so, some charitable institution to whom the partnership funds may
be ordered to be turned over, should be included, as a party defendant.
The appellants refer to article 1666 of the Civil Code, particularly the
second paragraph, which provides: “When the dissolution of an
unlawful partnership is decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in default of such, to
those of the province.”
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ISSUE: WHETHER OR NOT A CHARITABLE INSTITUTION
IS A NECESSARY PARTY IN THIS
CASE.
RULING: NO, no charitable institution is a necessary party
in the present case of determination of the rights of the parties.
The action which may arise from said article, in the case of unlawful
partnership, is that for the recovery of the amounts paid by the member
from those in charge of the administration of said partnership, and it is
not necessary for the said parties to base their action to the existence
of the partnership, but on the fact that of having contributed
some money to the partnership capital. Hence, the charitable
institution of the domicile of the partnership, and in the default
thereof, those of the province are not necessary parties in this case.
In so ruling, the court had the occasion of explaining the scope and spirit
of the provision of Article 1666 of the Civil Code (now Article 1770 of
the New Civil Code).
With regard to Contributions of an Illegal Partnership: the
court holds that –
(1) The partner who limits himself to demanding only the amount
contributed by him need not resort to the partnership contract on which
to base his action since said contract does not exist in the eyes of the
law, the purpose from which the contribution was made has not come
into existence, and the administrator of the partnership holding said
contribution retains what belongs to others, without any consideration;
for which reason he is not bound to return it and he who has paid in his
share is entitled to recover it.
(2) Our Code does not state whether, upon the dissolution
of the unlawful partnership, the amounts contributed are to be
returned by the partners, because it only deals with the disposition of
the profits; but the fact that said contributions are not included in the
disposal prescribed profits, shows that in consequences of said
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exclusion, the general law must be followed, and hence the
partners should reimburse the amount of their respective contributions.
(3) Any other solution is immoral, and the law will not
consent to the latter remaining in the possession of the manager or
administrator who has refused to return them, by denying to the
partners the action to demand them.
With regard to Profits of an Illegal Partnership: the court holds
that –
(1) The article cited above permits no action for the purpose
of obtaining the earnings made by the unlawful partnership, during
its existence as result of the business in which it was engaged, because
for the purpose, the partner will have to base his action upon the
partnership contract, which is to annul and without legal existence by
reason of its unlawful object; and it is self evident that what does not
exist cannot be a cause of action.
(2) Profits earned in the course of the partnership, because they do not
constitute or represent the partner's contribution but are the result of
the industry, business or speculation which is the object of the
partnership, and therefor, in order to demand the proportional part of
the said profits, the partner would have to base his action on the
contract which is null and void, since this partition or distribution
of the profits is one of the juridical effects thereof.
(3) Furthermore, it would be immoral and unjust for the law to permit a
profit from an industry prohibited by it.
Tocao v. CA, 342 SCRA 20
FACTS: Private respondent Nenita A. Anay met petitioner William T.
Belo, then the vice-president for operations of Ultra Clean Water Purifier,
through her former employer in Bangkok. Belo introduced Anay to
petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen
cookwares
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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. 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.
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.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letteraddressed to the Cubao sales office to the effect that she was no
longer the vice-president of Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8, 1988 to February 5,
1988 and the audit of the company to determine her share in the net
profits.
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 P
13,300,360.00.
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On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages against Marjorie D. Tocao and William
Belo before the Regional Trial Court of Makati, Branch 140
The trial court held that there was indeed an "oral partnership
agreement between the plaintiff and the defendants. The Court of
Appeals affirmed the lower court’s decision.
ISSUE:
Whether the parties formed a partnership
HELD: Yes, the parties involved in this case formed a partnership. The
Supreme Court held that to be considered a juridical personality, a
partnership must fulfill these requisites:
(1) two or more persons bind themselves to contribute money, property
or industry to a common fund; and
(2) intention on the part of the partners to divide the profits among
themselves. It may be constituted in any form; a public instrument is necessary
only where immovable property or real rights are contributed thereto.
This implies that since a contract of partnership is consensual, an oral
contract of partnership is as good as a written one.
In the case at hand, Belo acted as capitalist while Tocao as president
and general manager, and Anay as head of the marketing department
and later, vice-president for sales. Furthermore, Anay was entitled to a
percentage of the net profits of the business.
Therefore, the parties formed a partnership.
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C. SEPARATE JURIDICAL PERSONALITY
Art. 1768. The partnership has a judicial 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.
Art. 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.
NIRC Sec 22 (b). The term "corporation" shall include partnerships, no
matter how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), association, or insurance companies, but does
not include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction projects or
engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating consortium agreement under a service contract
with the Government "General professional partnerships" are partnerships
formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any
trade or business
NIRC Sec 26. Tax Liability of Members of General Professional
Partnerships. - A general professional partnership as such shall not be
subject to the income tax imposed under this Chapter.
Persons engaging in business as partners in a general professional
partnership shall be liable for income tax only in their separate and
individual capacities. cralaw
For purposes of computing the distributive share of the partners, the net
income of the partnership shall be computed in the same manner as a
corporation.
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Each partner shall report as gross income his distributive share, actually or
constructively received, in the net income of the partnership.
Art. 1811 (par 2). A partner's right in specific partnership property is not
assignable except in connection with the assignment of rights of all the
partners in the same property;
Aguila v. CA, 319 S 246 (1999)
Facts: Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C.
Aguila & Sons, Co., a partnership engaged in lending activities. Felicidad S.
Vda. de Abrogar (private respondent) and her late husband, Ruben M.
Abrogar, were the registered owners of a house and lot, covered by
Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April
18, 1991, private respondent, with the consent of her late husband, and
A.C. Aguila & Sons, Co., represented by petitioner, entered into a
Memorandum of Agreement which provided that A.C. Aguila & Sons, Co.
shall buy the property from private respondent for P200,000 subject to an
option to repurchase for P230,000 (valid for 90 days), etc. On the same
day, the parties likewise executed a deed of absolute sale, dated June 11,
1991, wherein private respondent, with the consent of her late husband,
sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000,00. In a special power of attorney dated the same
day, April 18, 1991, private respondent authorized petitioner to cause the
cancellation of TCT No. 195101 and the issuance of a new certificate of title
in the name of A.C. Aguila and Sons, Co., in the event she failed to redeem
the subject property as provided in the Memorandum of Agreement.
Private respondent failed to redeem the property. Pursuant to the special
power of attorney mentioned above, petitioner caused the cancellation of
TCT No. 195101 and the issuance of a new certificate of title in the name
of A.C. Aguila and Sons, Co. Private respondent then received a letter dated
August 10, 1991 from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila &
Sons, Co., demanding that she vacate the premises within 15 days after
receipt of the letter and surrender its possession peacefully to A.C. Aguila
& Sons, Co. Otherwise, the latter would bring the appropriate action in
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court. Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case against her in the
Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. MeTC,
Marikina, MM (April 3, 1992): Ruled in favor of A.C. Aguila & Sons, Co.
Private respondent appealed to RTC Pasig, CA, and then SC but she still
lost. Private respondent then filed a petition for declaration of nullity of a
deed of sale filed by Felicidad S. Vda. de Abrogar against Alfredo N. Aguila,
Jr. She alleged that the signature of her husband on the deed of sale was
a forgery because he was already dead when the deed was supposed to
have been executed on June 11, 1991.
•RTC,Marikina,MM(April11,1995):Dismissed.
•CA(November29,1990):Reversed ruling of the RTC.
Hence, this petition for review on certiorari.
Petitioner now contends that:
(1) he is not the real party in interest but A.C. Aguila & Co., against which
this case should have been brought;
(2) the judgment in the ejectment case is a bar to the filing of the complaint
for declaration of nullity of a deed of sale in this case; and
(3) the contract between A.C. Aguila & Sons, Co. and private respondent is
a pacto de retro sale and not an equitable mortgage as held by the appellate
court.
Issue: Whether the real party in interest is A.C. Aguila & Co.
and not petitioner. – YES
Ratio: Under Art. 1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the partners." The
partners cannot be held liable for the obligations of the partnership unless
it is shown that the legal fiction of a different juridical personality is being
used for fraudulent, unfair, or illegal purposes. In this case, private
respondent has not shown that A.C. Aguila & Sons, Co., as a separate
juridical entity, is being used for fraudulent, unfair, or illegal purposes.
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Moreover, the title to the subject property is in the name of A.C. Aguila &
Sons, Co. and the Memorandum of Agreement was executed between
private respondent, with the consent of her late husband, and A.C. Aguila
& Sons, Co., represented by petitioner. Hence, it is the partnership, not its
officers or agents, which should be impleaded in any litigation involving
property registered in its name. A violation of this rule will result in the
dismissal of the complaint.
Tan v. Del Rosario, 237 SCRA 324 (1994)
Facts:
Petitioners challenge the constitutionality of RA 7496 or the
simplified income taxation scheme (SNIT) under Arts (26) and
(28) and III (1). The SNIT contained changes in the tax schedules
and different treatment in the professionals which petitioners
assail as unconstitutional for being isolative of the equal
protection clause in the constitution.
RA 7496 : Simplified Net Income Taxation Scheme for the Self-
Employed and Professionals Engaged in the Practice of their profession
Revenue Regulations No. 2-93 : “Sec 6. General Professional
Partnership—the general professional partners (GPP) and the partners
comprising the GPP are covered by RA 7496. Thus, in determining the net
profit of the partnership, only the direct costs mentioned in said law are to
be deducted from partnership income. Also, the expenses paid or incurred
by partners in their individual capacities in the practice of their profession
which are not reimbursed or paid by the partnership but are not considered
as direct cost, are not deductible from his gross income.”
Petitioners assails RA 7496 and corresponding regulations as violative of
the constitutional requirement that taxation shall be uniform and equitable.
Issue: WON RA 7496 and the corresponding regulations are
violative of the constitutional requirement that taxation shall be
uniform and equitable.
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Ruling: Petition denied.
Ratio Decidendi: Uniformity of taxation means that
(1) the standards that are used therefore are substantial and not arbitrary,
(2) the categorization is germane to achieve legislative purpose,
(3) the law applies, all things being equal, to both present and future
conditions and
(4) the classification applies equally well to all those belonging to the same
class. Deliberations during the hearing for the bill show that the income tax
is imposed not on the professional partnership, which is tax exempt, but on
partners themselves in their individual capacity computed on their
distributive shares of partnership profits.
There is no distinction in income tax liability between a person who practices
his profession alone or individually and one who does it through partnership
with others in the exercise of a common profession
PARTNERSHIP RELEVANT
ISSUE: W/N the SNIT applies to partners in general professional
partnerships.
HELD: YES. There is no distinction in income tax liability between a person
who practices his profession alone or individually and one who does it
through a partnership (whether registered or not) with others in the
exercise of a common profession. Under the present income tax system, all
individuals deriving income from any source whatsoever are treated in
almost invariably the same manner and under a common set of rules.
Although the general professional partnership is exempt from the payment
of taxes (but it still has an obligation to file an income tax return mainly for
administration and data), the partners themselves are liable for the
payment of income tax in their individual capacity computed on their
respective and distributive shares of profits.
Notes: Differences between general professional partnerships and ordinary
business partnerships:
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a. A general professional partnership, unlike an ordinary business
partnership (which is treated as a corporation for income tax purposes and
so subject to the corporate income tax), is not itself an income taxpayer.
The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity
computed on their distributive shares of partnership profits.
b. Ordinary business partnerships, no matter how created or
organized, are ‘taxable partnerships.´ General professional partnerships are
‘exempt partnerships.´ Under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism
or a flow-through entity in the generation of income by, and the ultimate
distribution of such income to, respectively, each of the individual partners.
Mendiola v. CA, 497 SCRA 346
Facts:
Petitioner Mendiola (ATM) entered into a Side Agreement with Pacfor (USA)
who will set up a representative office in the Philippines. They named said
office as Pacfor Phils in which petitioner is president. In the agreement,
petitioner’s base salary and the company’s overhead expenditures shall be
borne by the representative office and shall be funded by Pacfor/ATM being
equally owned on 50-50 equity by ATM and Pacfor-USA.
The Side Agreement was later amended through a Revised Operating and
Profit Sharing Agreement where petitioner’s salary was increased.
However, both agreements show that the operational expenses will be
borne by the representative office and funded by all parties “as equal
partners,” while the profits and commissions will be shared among them.
Years later, petitioner wrote Pacfor’s VP for Asia seeking confirmation of his
50% equity of Pacfor Phils to which Pacfor’s President replied that petitioner
is not a part-owner, his office being just a representative office, a
“theoretical company with the purpose of dividing the income 50-50.” He
even stressed that the petitioner knew of this arrangement from beginning,
having been the one to propose to them the setting up of a representative
office, instead of a branch office, to save on taxes.
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Issue:
Whether or not a partnership or co-ownership exists between the
parties.
Held: Petitioner is an employee of Pacfor and no partnership or co-
ownership 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. The property or stock of the
partnership forms a community of goods, a common fund, in which each
party has a proprietary interest. In fact, the New Civil Code regards a
partner as a co-owner of specific partnership property. 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.
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 part-owner of
Pacfor Phils. Pacfor's President established this fact when he said that
Pacfor Phils. is simply a "theoretical company" for the purpose of dividing
the income 50-50. 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.
Besides, a corporation cannot become a member of a partnership in the
absence of express authorization by statute or charter.
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
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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. No such authorization has been
proved in the case at bar.
Angeles v. Secretary of Justice, 465 SCRA 106
FACTS: On 19 November 1996, the Angeles spouses filed a criminal
complaint for estafa against Mercado, the brother-in-law of the Angeles
spouses, being married to Emerita Angeles’ sister Laura.
Angeles spouses claimed that in November 1992, Mercado convinced them
to enter into a contract of antichresis, colloquially known as sanglaang-
perde, covering eight parcels of land planted with fruit-bearing lanzones
trees located in Nagcarlan, Laguna and owned by Juana Suazo. The
contract of antichresis was to last for five years with P210,000 as
consideration. As the Angeles spouses stay in Manila during weekdays and
go to Laguna only on weekends, the parties agreed that Mercado would
administer the lands and complete the necessary paperwork. After three
years, the Angeles spouses asked for an accounting from
Mercado. Mercado explained that the subject land earned P46,210 in 1993,
which he used to buy more lanzones trees. Mercado also reported that the
trees bore no fruit in 1994. Mercado gave no accounting for 1995. The
Angeles spouses claim that only after this demand for an accounting did
they discover that Mercado had put the contract of sanglaang-perde over
the subject land under Mercado and his spouse’s names.
On the other hand, Mercado claimed that there exists an industrial
partnership, colloquially known as sosyo industrial, between him and his
spouse as industrial partners and the Angeles spouses as the financiers.
This industrial partnership had existed since 1991, before the contract of
antichresis over the subject land. As the years passed, Mercado used his
and his spouse’s earnings as part of the capital in the business transactions
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which he entered into in behalf of the Angeles spouses. It was their practice
to enter into business transactions with other people under the name of
Mercado because the Angeles spouses did not want to be identified as the
financiers.
ISSUES:
1. Whether a partnership existed between the Angeles spouses
and Mercado
HELD:
1. YES. The Angeles spouses’ position that there is no partnership because
of the lack of a public instrument indicating the same and a lack of
registration with the Securities and Exchange Commission (“SEC”) holds no
water. First, the Angeles spouses contributed money to the partnership
and not immovable property. Second, mere failure to register the contract
of partnership with the SEC does not invalidate a contract that has the
essential requisites of a partnership. The purpose of registration of the
contract of partnership is to give notice to third parties. Failure to register
the contract of partnership does not affect the liability of the partnership
and of the partners to third persons. Neither does such failure to register
affect the partnership’s juridical personality. A partnership may exist even
if the partners do not use the words “partner” or “partnership.”
Indeed, the Angeles spouses admit to facts that prove the existence of a
partnership: a contract showing a sosyo industrial or industrial partnership,
contribution of money and industry to a common fund, and division of
profits between the Angeles spouses and Mercado.
D. MUTUAL AGENCY
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 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.
Art. 1818. Every partner is an agent of the partnership for the purpose of
its business, and the act of every partner, including the execution in the
partnership name of any instrument, for apparently carrying on in the usual
way the business of the partnership of which he is a member binds the
partnership, 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:
(1) Assign the partnership property in trust for creditors or on the assignee's
promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary
business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) 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.
Art. 1819. Where title to real property is in the partnership name, any
partner may convey title to such property by a conveyance executed in the
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partnership name; but the partnership may recover such property unless
the partner's act binds the partnership under the provisions of the first
paragraph of article 1818, or unless such property has been conveyed by
the grantee or a person claiming through such grantee to a holder for value
without knowledge that the partner, in making the conveyance, has
exceeded his authority.
Where title to real property is in the name of the partnership, a conveyance
executed by a partner, in his own name, passes the equitable interest of
the partnership, provided the act is one within the authority of the partner
under the provisions of the first paragraph of Article 1818.
Where title to real property is in the name of one or more but not all the
partners, and the record does not disclose the right of the partnership, the
partners in whose name the title stands may convey title to such property,
but the partnership may recover such property if the partners' act does not
bind the partnership under the provisions of the first paragraph of Article
1818, unless the purchaser or his assignee, is a holder for value, without
knowledge.
Where the title to real property is in the name of one or more or all the
partners, or in a third person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or in his own name, passes
the equitable interest of the partnership, provided the act is one within the
authority of the partner under the provisions of the first paragraph of Article
1818.
Where the title to real property is in the name of all the partners a
conveyance executed by all the partners passes all their rights in such
property.
Art. 1820. An admission or representation made by any partner concerning
partnership affairs within the scope of his authority in accordance with this
Title is evidence against the partnership.
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Art. 1821. Notice to any partner of any matter relating to partnership
affairs, and the knowledge of the partner acting in the particular matter,
acquired while a partner or then present to his mind, and the knowledge of
any other partner who reasonably could and should have communicated it
to the acting partner, operate as notice to or knowledge of the partnership,
except in the case of fraud on the partnership, committed by or with the
consent of that partner.
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 co-partners, loss or injury is caused to any person, not being a
partner in the partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to
act.
Art. 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:
(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
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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.
RULE 130 Sec. 29 . Admission by co-partner or agent. — The act or
declaration of a partner or agent of the party within the scope of his
authority and during the existence of the partnership or agency, may be
given in evidence against such party after the partnership or agency is
shown by evidence other than such act or declaration. The same rule
applies to the act or declaration of a joint owner, joint debtor, or other
person jointly interested with the party.
RULE 14 Sec. 11. Service upon domestic private juridical entity.
When the defendant is a corporation, partnership or association organized
under the laws of the Philippines with a juridical personality, service may
be made on the president, managing partner, general manager, corporate
secretary, treasurer, or in-house counsel.
Art. 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.
Art. 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
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decision of the majority shall prevail. In case of a tie, the matter shall be
decided by the partners owning the controlling interest.
Art. 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.
Art. 1832. Except so far as may be necessary to wind up partnership affairs
or to complete transactions begun but not then finished, dissolution
terminates all authority of any partner to act for the partnership:
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or death of a
partner; or
(b) When the dissolution is by such act, insolvency or death of a partner,
in cases where article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834.
Art. 1833. Where the dissolution is caused by the act, death or insolvency
of a partner, each partner is liable to his co-partners for his share of any
liability created by any partner acting for the partnership as if the
partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the
partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the
partner acting for the partnership had knowledge or notice of the death or
insolvency.
Art. 1834. After dissolution, a partner can bind the partnership, except as
provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing
transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had
not taken place, provided the other party to the transaction:
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(a) Had extended credit to the partnership prior to dissolution and had
no knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of
the partnership prior to dissolution, and, having no knowledge or notice of
dissolution, the fact of dissolution had not been advertised in a newspaper
of general circulation in the place (or in each place if more than one) at
which the partnership business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied
out of partnership assets alone when such partner had been prior to
dissolution:
(1) Unknown as a partner to the person with whom the contract is made;
and
(2) So far unknown and inactive in partnership affairs that the business
reputation of the partnership could not be said to have been in any degree
due to his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the
business, unless the act is appropriate for winding up partnership affairs;
or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs;
except by a transaction with one who:
(a) Had extended credit to the partnership prior to dissolution and had
no knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and,
having no knowledge or notice of his want of authority, the fact of his want
of authority has not been advertised in the manner provided for advertising
the fact of dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under Article 1825 of any
person who, after dissolution, represents himself or consents to another
representing him as a partner in a partnership engaged in carrying business.