1|Page PARTNERSHIP NOTES
and the debtor of the partnership
OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES (1784-
1809)
In summary:
I. Contribute at the beginning of the
partnership money, property or
industry promised.
II. To answer for eviction for losses
suffered by the partnership;
III. To answer for risks in consequence of
its management
IV. To answer for obligations the partner
may have contracted in good faith in
the interest of the partnership business
V. To answer to the partnership for the
fruits of such delayed property
promised to be contributed;
VI. To exercise the diligence of a good
father of a family to such property
promised to be contributed;
VII. To reimburse the partnership for every
amounts he may have disbursed on
behalf of the partnership and for the
corresponding interests
VIII. To indemnify the partnership for any
damage caused to it through his own
fault or negligence (note: offset
principle will not apply)
IX. To indemnify the partnership for the
destruction of the thing promised to be
contributed.
X. To bring to the partnership capital, his
share in the profits, when the other
partners, have not yet received theirs,
thereafter becomes insolvent.
XI. Obligation of the managing partner to
execute acts of administration in behalf
of the partnership
XII. To render on demand true and full
information of all things affecting the
partnership to any partner or to the
legal representative of a deceased or
disabled person
XIII. To account to the partnership and hold
as trustee any benefits received by him
in the course of transactions connected
with the formation, conduct or
liquidation of the partnership.
I. Contribute at the beginning of the
partnership money, property or
industry promised.
(Note: A partner who has undertaken to
contribute a sum of money and fails to do so
becomes a debtor for the interest and damages
from the time he should have complied with his
obligation. Art 1788)
What is the extent of the contribution of the
partners in the partnership?
GENERAL RULE: Dependent on the stipulation
of the parties
EXCEPTION: in the absence of stipulation, they
shall contribute in equal shares. (ART 1790)
Note: This rule does not apply to industrial
partners, unless they have contributed to
common fund either money or property.
 2|Page PARTNERSHIP NOTES
II. To answer for eviction for losses
suffered by the partnership;
What are the consequences in case of an
imminent loss of the business of the
partnership?
 Generally, all capitalist partners shall
contribute an additional share to the
capital, the exception is if there is a
stipulation to the contrary (ART 1791)
Note: However, a stipulation excluding one
or more capitalist partners from any share in
the profits or losses is void. So, by analogy all
the capitalist partners are obliges to share in
the amounts suffered by the partnership (ART
1798).
b. Refusal of a capitalist partner to contribute an
additional share to the capital shall be obliged
to sell his interest to the other partners.
RATIONALE: the refusal of the partner to
contribute his additional share reflects his lack
of interest in the continuance of the partnership
(ART 1791)
c. An industrial partner is not bound to
contribute additional share even in case of
imminent loss, because he already contributed
his services, nothing more nothing less.
Rule for distribution of profits and losses (ART
1797)
 DISTRIBUTION OF PROFITS
RULE 1: In accordance with the agreement of the
partners
RULE 2: If there is no agreement, the share of
each capitalist partner shall be in proportion to
his capital contribution
RULE 3: the share of an industrial partner must
first be satisfied before the capitalist partners.
An industrial partner’s share may be in any
amount as may be just and equitable.
 DISTRIBUTION OF LOSSES
RULE 1: In accordance with the agreement of the
partners
RULE 2: If there is no agreement, the share of
each capitalist partner in the losses shall be in
proportion as profits would have been shared.
RULE 3: if only the share in the profits have been
stipulated then, the share in the losses shall be in
accordance with the profit sharing ratio.
RULE 4: if there is no profit-sharing ratio
stipulated in the contract, their losses shall be
borne by the partners in proportion to their
capital contribution.
III. To answer for risks in consequence
of its management
IV. To answer for obligations the
partner may have contracted in
good faith in the interest of the
partnership business
V. To answer to the partnership for
the fruits of such delayed property
promised to be contributed;
VI. To exercise the diligence of a good
father of a family to such property
promised to be contributed ( ART
1795)
Note: A partner is expunged from all liability
provided that he is free from all fault and he
acted within the scope of his authority.
3|Page PARTNERSHIP NOTES
 When the loss of the thing was through
his own fault but ownership has not
yet transferred to the partnership.
Rule 1: The negligent party may be held liable
for damages because from the moment of the
destruction of the thing to be contributed, he is
already in delay (ART 1788)
Rule 2: The partnership shall not be liable for
the loss of the thing based on the principle of
RES PERIT DOMINO (the thing perishes with the
owner)
Rule 3: dissolution of the partnership (Art 1830
par 4.)
 When the loss of the thing was through
his own fault but ownership has
already transferred to the partnership.
Rule 1: The negligent party shall be liable for
damages
Rule 2: The partnership shall bear the loss of
the property being its owner.
 When the things to be contributed are
consumable and it perishes because it
cannot be kept without the thing
deteriorating
Rule 1: the risk of loss is borne by the
partnership for ownership was being
transferred
Rule 2: if the negligent party acted in fault, he
shall be liable for damages.
 When the things to be contributed are
intended to be sold and not merely for
use and enjoyment
Rule 1: the partnership bears the risk of loss for
there cannot be any doubt that the partnership
was intended to be the owner.
Rule 2: if the negligent party acted in fault, he
shall be liable for damages.
 When things brought are appraised in
the inventory
Rule 1: The partnership bears the risk of loss
because the intention of the parties was to
contribute to the partnership the price of the
things contributed with an appraisal in the
inventory. Hence there was an implied sale,
making the partnership owner of the said
things.
Rule 2: if the negligent party acted in fault, he
shall be liable for damages.
VII. To reimburse the partnership for
every amounts he may have
disbursed on behalf of the
partnership and for the
corresponding interests
 When the amounts are disbursed by a
partner in behalf of the partnership
plus the corresponding interest from
the time the expenses are made
Rule 1: the partnership shall be responsible to
every partner for the amounts he may have
disbursed on behalf of the partnership and for
the corresponding interest. Provided that said
acting partner, was acting within the scope of
his authority and was not negligent in
disbursing partnership funds. (ART 1796)
4|Page PARTNERSHIP NOTES
VIII. To indemnify the partnership for
any damage caused to it through
his own fault or negligence (ART
1794)
(Note: this cannot be subject to the OFFSET
principle, whereby the liable partner will
account his benefits from the partnership to his
debt. However, such debt of the negligent
partner may only be equitably lessened by the
courts if through the negligent party’s
EXTRAORDINARY EFFORTS, unrealized Profits
have been realized)
Example:
A partner cannot say that his share in
the profits or surpluses from the partnership
shall be reduced or expunged just because of
his failure to indemnify the partnership for the
damage caused through his own fault. In other
words, he shall still be personally liable for
payment of debt
IX. To indemnify the partnership for
the destruction of the thing
promised to be contributed.
X. To bring to the partnership capital,
his share in the profits, when the
other partners, have not yet
received theirs, and the debtor of
the partnership thereafter becomes
insolvent (ART 1793)
GENERAL RULE: If there exists 2 debts:
a. debt on the managing partner;
b. debt on the partnership
The amount received by the managing
partner as payment for his own personal credit,
shall still be divided proportionately with the
partnership itself.
In lay man’s term, the managing partner
shall apply the sum received proportionally; the
amount received shall be divided accordingly,
one proportion will accrue for his own and the
other will accrue to the partnership coffers.
EXCEPTION: ART 1252 of the civil code provides
that the debtor is given the right to prefer
payment of the credit of the partner if it should
be more onerous to him
(Note: This does not apply where the partner
who collects for his own credit only is not
authorized to manage, for there can be no
ground of suspicion that he may have acted
improperly to create an undue advantage to
himself)
 If a partner fails to comply with the
aforementioned obligations, the
remedy of the other partners is to file
an action for specific performance, with
damages and interests.
 Under the obligations and contracts, a
demand must be made to put the
person in delay. However, in contract of
partnership no demand is necessary to
put the partner in default.
 A partner shall likewise be liable for
damages with legal interest for any
amounts he may have taken from the
partnership coffers. He can also be held
liable for estafa.
XIV. Obligation of the managing partner
to execute all acts of administration
in behalf of the partnership
RULE WHEN ONLY THERE IS ONLY ONE
MANAGING PARTNER (ART 1800)
 A partner appointed as a managing
partner is obliged to execute acts of
administration regarding the
partnership affairs.
5|Page PARTNERSHIP NOTES
 The managing partner’s power is
irrevocable unless for just or lawful
causes and upon the vote of all of the
partners representing the controlling
interest.
LIMITATIONS OF MANAGING PARTNER’S
POWER
a. He cannot execute such acts
expressly prohibited by the
partners;
b. He cannot execute acts specifically
restricted by the partners;
c. He cannot exercise powers which
are neither necessary nor incidental
to carry out the object of the
partnership
Examples:
1. A partner designated the selling of a
fish in a market, has no authority to
purchase a truck of fish to be sold.
2. A barbershop operated by a
partnership; the managing partner
cannot sell the barbershop to
someone else.
3. A managing partner cannot
mortgage the property he is
managing without the consent of
his partners.
Additional notes:
As a rule, a partner is not entitled to
compensation for his services other than his
share of the profits, it follows that even a
managing partner is generally not entitled to
compensation, other than the profits and
surpluses upon the liquidation of the assets of
the partnership.
EXCEPTION: if there is a stipulation entitling the
managing partner a compensation.
RULE WHEN THERE ARE TWO OR MORE
MANAGING PARTNERS
 When their respective duties are not
specified
When two or more partners have been
appointed as managers and, there is no
specification of their respective duties and
there is no stipulation that one of them shall
not act without the consent of all the others
each one may separately execute all acts of
administration. (ART 1801)
What if one will oppose?
Rule 1: The decision of the majority will prevail.
Rule 2: In case of tie, those with controlling
interest
Rule 3: In case of tie in the controlling interest,
dissolution of the partnership
Note: in case there are two or more managing
partners, only the managing partners have the
right to oppose. But, all the partners are
required to make the vote.
 When there is a stipulation that none
of the managing partners shall not act
without the consent of the others
The unanimous consent of all the managing
partners shall be necessary for the validity
of their acts. Disability or absence is not an
excuse.
 6|Page PARTNERSHIP NOTES
EXCEPTION: if said absence was due to an
imminent danger of grave or irreparable
injury to the partnership.
RULE WHEN THE MANNER OF
MANAGEMENT HAS NOT BEEN AGREED
UPON OR WHEN THERE IS NO MANAGING
PARTNER (ART1803)
Rule 1: GENERAL RULE- all the partners shall be
considered agents and whatever anyone of
them may do alone shall bind the partnership.
EXCEPTION: such act will not bind the
partnership if:
a. The partner has no authority to act for the
partnership; and
b. The person whom he is dealing with has
knowledge of the fact that he has no authority
Also:
c. An act of a partner not apparently for the
carrying on of the business of the partnership
in the usual way.
Rule 2: if one should oppose the act of the
other partner, the majority vote of the partner
shall prevail. In case of tie, in the majority vote,
the vote of the partners representing the
controlling interest shall prevail. In case of tie in
the controlling interest, then it may result to
the dissolution of the partnership.
Rule 3: if what is being managed is an
immovable property, no important alterations
may be made by any partner without the
consent of all of the partners, even if said
alteration is important or useful to the
partnership.
EXCEPTION:
a. No consent is required when such
alteration is so urgent that the consent
can no longer be awaited without the
thing deteriorating;
b. If the refusal of the other partners is
manifestly prejudicial to the
partnership, in which cases the court’s
intervention may be sought. (note: the
court may order either the dissolution
of the partnership or specific
performance)
XV. To render on demand true and full
information of all things affecting
the partnership to any partner or to
the legal representative of a
deceased or disabled person (ART
1806)
 It is the duty of the managing partner or
of any active partner to keep true and
correct books, showing the firm’s
account. It shall at all times at any
reasonable hour be open for inspection
(ART 1805).
 The partnership books subject to any
agreement shall be kept in the principal
place of business of the partnership
(ART 1805).
 Based On The principle of DELECTUS
PERSONAE, there must be no
concealment between them in all
matters affecting the partnership.
 DUTY TO ACCOUNT FOR SECRET AND
SIMILAR PROFITS- Even when there is
no demand from any of the partners, it
shall be the duty of any partner to
“VOLUNTARILY” disclose information
concerning matters affecting the
 7|Page PARTNERSHIP NOTES
partnership. (Note: concealment may
apply- DAMAGES) (ART 1806).
GENERAL RULE: A partner is not entitled to a
formal account of the partnership DURING the
existence of the partnership, because this will
cause to much inconvenience and unnecessary
waste of time; to constantly demand for the
formal account of the partnership affairs when
it is already stated in the book of records by
which a partner may at any reasonable hour
inspect. (NOTE: FORMAL ACCOUNTING is an
action in personam, which is why it causes
delay)
FORMAL ACCOUNTING IS usually done during
the winding up of the partnership affairs.
EXCEPTIONS:
i. If he is wrongfully excluded from the
partnership or possession of its property by
his co-partners;
ii. If the right exists under the terms of the
agreement;
iii. As a matter of obligation when it adversely
affects the partnership affairs (Art 1807);
iv. Whenever other circumstances render it just
and equitable
XVI. To account to the partnership and
hold as trustee any benefits
received by him in the course of
transactions connected with the
formation, conduct or liquidation of
the partnership (ART 1807)
 The law prohibits any partner from
making any transaction involving the
interest of the partnership, of which
said proceeds will accrue exclusively for
his own personal benefit, to the
detriment of the other partners.
 This duty continues from the time of
the birth of the partnership until the
time of the actual termination of the
partnership.
Birth of Partnership (ART 1784)
A partnership begins from the moment of the
execution of the contract, unless it is otherwise
stipulated
GENERAL RULE: A partnership may be perfected
just by mere consent. It is a consensual contract
perfected from the moment of the meeting of
the minds of the parties.
EXCEPTION: if the parties stipulate for some
other date for the commencement of the
partnership. The existence of the partnership is
determinative on the happening of the event.
How do we determine the birth of
partnership?
a. There must be mutual desire and
consent from the parties;
b. All of the essential features of the
contract of partnership must be present
namely:
a. VALID contract;
b. LEGAL CAPACITY of the parties;
c. MUTUAL CONTRIBUTION of
money, property or industry to a
common fund;
d. LAWFUL object;
e. PRIMARY PURPOSE must be to
carry on a business and to divide
the profits among themselves
(Note: this element is not present
in a general profession
partnership)
8|Page PARTNERSHIP NOTES
f. Element of JOINT CONTROL
Continuation of partnership beyond the
fixed term (ART 1785)
GENERAL RULE: A partnership is automatically
dissolved by the termination of the definite
term or particular undertaking specified in the
agreement.
EXCEPTION: However, “partnership at will” is
created by the mere continuation of the
business after such termination of such term
without any settlement or liquidation.
Appraisal of goods or property contributed
(ART 1787)
Procedures when contributing to the
partnership any goods or properties:
1st step:
- When what is contributed in the
partnership are goods there must be an
appraisal in order to determine how
much has been contributed by the
partners. This is also to determine who
has the controlling interest in the
business.
2nd step:
- If the thing contributed was not
appraised, the remedy of the other
partners is to choose an expert who
shall make the appraisal of the thing
according to its current prices.
3rd step:
- If no appraisal at all was made, the
share of each partner in the profits and
losses will be in the proportion to what
he may have contributed.
Can an industrial partner engage in other
businesses for himself?
GENERAL RULE: ART 1789 provides that
industrial partners cannot engage in any
business for himself.
EXCEPTION: if the other partners will allow him.
CONSEQUENCES: should an industrial partner
enter another business without the consent of
the other partners he may be:
a. excluded from the partnership;
b. deprived of such benefits of which he is
entitled to like right to profits and
surplus;
c. held liable for damages
Can capitalist partners engage in other
businesses for himself?
Yes, provided that such business is not
in any way of the same kind of business as that
of the current partnership of which he is a
member. (Exception: Permission from his co-
partners).
ART 1808: A capitalist partner cannot
engage for their own account in any operation
which is of the kind of business in which the
partnership is engaged, unless there is a
stipulation to the contrary.
The reason for the rule is to prevent a
partner from availing himself personally of
information obtained by him in the course of
the transaction of the partnership business.
(ART 1808)
Can an industrial partner be subject to an
action for specific performance?
9|Page PARTNERSHIP NOTES

No. Only damages, otherwise, this will

amount to involuntary servitude, which is a rule PROPERTY RIGHTS OF A PARTNER
prohibited by the constitution. (ART 1810-1814)

Property rights of a partner

Designation of losses and profits to a third
person (ART 1798) I. His rights in specific
partnership property ( Co-
The designation of share and losses on ownership property)
each of the partners may be delegated to a
third person who is not a member of the
partnership. (May refer to the “financial II. His interest in the partnership
advisers or managers of the business). (Right to profits and share in
the losses)
EFFECT: it is binding upon all the partners

EXCEPTION: unless manifestly equitable III. His right to participate in the

management (management
REMEDY: If unconscionable, the same must be power)
impugned within 3 months from date of
knowledge. Otherwise he is estopped. Other related rights:

IV. Right to reimbursement for

Can a partner admit a subpartner in a amounts advanced to the
partnership? partnership;

Yes. ART 1804 provides, every partner V. Right of access and inspection
may associate another person with him in his of partnership books;
share, but the associate shall not be admitted
into the partnership without the consent of all VI. Right to true and full
the other partners, even if the partner having information of all things
an associate should be a manager. affecting the partnership

VII. Right to formal account of

Is a subpartner entitled to the profits of the
partnership affairs under
partnership and to contribute to the losses
certain circumstances;
suffered by the parntership?
VIII. Right to dissolve the partnership
No. Not being a member of the
partnership, he does not acquire the rights of a
partner nor is he liable for debts. He is merely
an investor. The only exception is if he will be
accepted by the other partners as a new
partner. This is based on the principle of mutual
trust and confidence (Delectus Personae).
10 | P a g e PARTNERSHIP NOTES
RIGHT IN SPECIFIC PARTNERSHIP
PROPERTY
 This includes not only the capital
contributions of the partners, but all the
property subsequently acquired on
account of the partnership
 A property acquired through
inheritance, donation or legacy does
not belong to the partnership
 Where there is no express agreement
that the property used by a partnership
constitutes partnership property, such
use does not make it partnership
property (PARTICULAR PARTNERSHIP
PROPERTY)
 A partner may contribute to the
partnership only the use or enjoyment
of property, reserving the ownership
thereof (ART 1830, # 4)
 A partner may hold title to partnership
property in his own name without it
having belong to him
 Property acquired by a partner in his
own name but, with partnership funds
is presumed to be partnership property,
unless a contrary intention appears
 Property acquired after the dissolution
but before the termination will
constitute as the partner’s separate
property.
ART 1811: A partner is a co- owner with his
partners on specific partnership property
RULE 1: A partner, subject to the provisions of
this Title and to any agreement between the
partners, has an equal right with his partners to
possess specific partnership property for
partnership purposes; but he has no right to
possess such property for any other purpose
without the consent of his partners;
DISSCUSION:
i. A partner cannot own a property owned by
the partnership
ii. Specific partnership property only pertains to
Tangible properties like car, truck or piece of
land but not intangible things like RIGHT to
use the land or RIGHT to enjoy the property.
iii. Although, a partner is a co-owner with his
partners on a property, the rule on co-
ownership does not apply.
iv. Properties for partnership, should only be
used for partnership purposes (i.e. A partner
cannot drive the car of the partnership to run
his personal errands)
RULE 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;
DISCUSSION:
I. On the death of a partner, his rights
in specific partnership property
vests in the surviving partners, not
to his heirs;
II. A partner cannot separately assign
his right on a specific partnership
property, because it is impossible to
determine the extent of his
beneficial interest, but all of the
partners can assign their rights in
the same property;
III. The primary reason for the non-
assignability of a partner’s right in a
11 | P a g e PARTNERSHIP NOTES
specific partnership property are
that it prevents interference by
outsiders in partnership affairs.
RULE 3: A partner's right in specific partnership
property is not subject to attachment or
execution, except on a claim against the
partnership. When partnership property is
attached for a partnership debt, the partners, or
any of them, or the representatives of a
deceased partner, cannot claim any right under
the homestead or exemption laws;
RULE 4: A partner's right in specific partnership
property is not subject to legal support under
Article 291.
 This is so because the property belongs
to the partnership and not to the
partners.
INTEREST IN THE PARTNERSHIP
Art. 1812. A partner's interest in the
partnership is his share of the profits and
surplus.
Profits- means the excess of returns over
expenditures in a transaction
Surplus- refers to the assets of the partnership
after partnership debts and liabilities are paid
and settled. It is the excess of assets over
liabilities.
RIGHT TO PARTICIPATE IN
MANAGEMENT
ART 1813: A conveyance by a partner of his
whole interest in the partnership does not of
itself dissolve the partnership WITHOUT the
express agreement of the other partners.
GENERAL RULE: A partner’s conveyance of his
interest in the partnership dissolves the
partnership because there is a change in the
relation between the partners.
EXCEMPTION: It will not be dissolved if the
partners never intended to enter into a new
contract of partnership.
RIGHTS OF THE ASSIGNEE:
A. Receive profits;
B. To file for specific performance or
damages in case of fraud;
C. To receive the assignor’s interest in case
of dissolution;
D. To require an account of partnership
affairs.
LIMITATIONS ON THE RIGHT OF THE ASSIGNEE:
The assignee cannot:
A. Interfere in the management;
B. Require any information or account;
C. Inspect any of the partnership books
NOTE: the assignee does not become a
partner, until he has been accepted by the
other partners. However, even so that the
assignee is not a partner, he cannot be
divested with the rights granted unto him
because of the assignment. Besides if the other
partners refuse to admit the assignee into the
12 | P a g e PARTNERSHIP NOTES

partnership, they can avail of the usual remedy REMEDIES OF SEPARATE JUDGMENT CREDITOR
of dissolution. OF A PARTNER:

A. Apply to the proper court for a charging

order, with the payment of the
Art. 1814. Without prejudice to the preferred
unsatisfied debt, with interest.
rights of partnership creditors under Article
1827, on due application to a competent court
B. Avail of the remedy on the sale of
by any judgment creditor of a partner, the court
interest, if the judgment debt remains
which entered the judgment, or any other
unsatisfied.
court, may charge the interest of the debtor
partner with payment of the unsatisfied amount GENERAL RULE: There can be no any
of such judgment debt with interest thereon; attachment on a specific partnership property
and may then or later appoint a receiver of his for debts personal to one of the partners.
share of the profits, and of any other money
EXEMPTION: However, a partnership property
due or to fall due to him in respect of the
may be subject to an attachment, prior to
partnership, and make all other orders,
transactions made on behalf of the partnership.
directions, accounts and inquiries which the
debtor partner might have made, or which the EXAMPLE:
circumstances of the case may require.
A, B and C are partners of X CORP. If A has his
The interest charged may be redeemed at any personal debt with a creditor, the creditor
time before foreclosure, or in case of a sale cannot attach the X CORP building to satisfy A’s
being directed by the court, may be purchased debt. However, if A’s debt concerns partnership
without thereby causing a dissolution: matters with creditors, X CORP can be subject
to an attachment, with consent of all of
(1) With separate property, by any one or more
of the partners; or NOTE: NEITHER WRIT OF EXECUTION NOR
ATTACHMENT may be made on the specific
(2) With partnership property, by any one or
partnership property for personal debts. It can
more of the partners with the consent of all the
only be made on partnership debts.
partners whose interests are not so charged or
sold.  If a partner conveyed his interest with
an assignee, the conveying partner may
Nothing in this Title shall be held to deprive a
still redeem said interest from the
partner of his right, if any, under the exemption
assignee.
laws, as regards his interest in the partnership.

 If a property of partnership was

foreclosed because of partnership
debts, the same can be redeemed by
any partner.
13 | P a g e PARTNERSHIP NOTES
Related cases:
ARTICLES 1784 TO 180
20. Mauro Lozana vs. Serafin Depakakibo
G.R. No. L-13680 | April 27, 1960
“CONTRIBUTION IN KIND; DISPOSAL BY
CONTRIBUTING PARTIES NOT ALLOWED: An
equipment which was contributed by one of the
partners to the partnership becomes the
property of the partnership and as such cannot
be disposed of by the Party contributing the same
without the consent or approval of the
partnership or of the other partner.”
FACTS: Petitioner Mauro Lozana and respondent
Serafin Depakakibo entered into a contract of
partnership for the purpose of maintaining,
operating and distributing electric light and
power in the Municipality of Dumangas,
Province of Iloilo, under a franchise issued to
Mrs. Piadosa Buenaflor, on November 16, 1954.
Lozana contributed P18,000 of the
30,000 worth of capital and Depakakibo the
remaining P12,000, both of their contributions
the appraised values of the properties they
contributed to the partnership. However, the
franchise or certificate of public necessity and
convenience in favor of the said Mrs. Piadosa
Buenaflor was cancelled and revoked by the
Public Service Commission in 1955. A temporary
certificate of convenience was then issued to
one Olimpia Decolongon instead. Because of the
cancellation of the franchise, Lozano sold his
Buda generator, that which he contributed to
the partnership, to the new grantee,
Decolongon. Depakakibo likewise sold a Crossly
Diesel Engine, which he also contributed to the
partnership, to spouses Felix Jimenea and Felina
Harder. Although prior to Depakakibo’s sale to
spouses Jimenea and Harder, Lozana alleged in
an action against Depakakibo that the latter
detained his Buda generator as well as the 70
wooden posts with the wires connecting the
generator to the different houses supplied by
electric current in the Municipality of Dumangas
and as such, Lozana suffered damages.
Lozana then prayed that said properties,
which he contributed to the partnership, be
returned to him. Depakakibo, however,
contends that the equipments had been
contributed by Lozana to the partnership
entered into between them in the same manner
that Depakakibo had contributed equipments
also, and therefore, he is not unlawfully
detaining them. In his counterclaim, Depakakibo
also alleged that under the partnership
agreement, they were to contribute
equipments—Lozana contributing the generator
and Depakakibo, the wires for the purpose of
installing the main and delivery lines and that
Lozana sold his contribution to the partnership,
in violation of the terms of their agreement.
The lower court ruled that Lozana is the
owner of the equipments and is thus entitled to
its possession, stating that the partnership
contract between Lozana and Depakakibo is
void, them being mere dummies of the
franchiser Mrs. Buenaflor. Having violated the
Anti-Dummy Law, their partnership is void.
Therefore, the properties contributed by Lozana
did not form part of the partnership property.
ISSUES: 1) May a partner dispose of the
partnership properties without the consent of
the other partners? 2) May partners simply claim
back the properties they contributed to the
partnership upon dissolution?
RULING: 1) No. As it is not stated therein that
there has been a liquidation of the partnership
assets at the time plaintiff sold the Buda Diesel
Engine on October 15, 1955, and since the court
below had found that the plaintiff had actually
contributed one engine and 70 posts to the
partnership, it necessarily follows that the Buda
diesel engine contributed by the plaintiff had
become the property of the partnership. As
properties of the partnership, the same could
not be disposed of by the party contributing the
14 | P a g e PARTNERSHIP NOTES
same without the consent or approval of the
partnership or of the other partner.
2) No. The lower court erred in declaring
that the contract was illegal from the beginning
and that parties to the partnership are not bound
therefor, such that the contribution of the
plaintiff to the partnership did not pass to it as its
property. It follows that the claim of the
defendant in his counterclaim that the
partnership be dissolved and its assets liquidated
is the proper remedy, not for each contributing
partner to claim back what he had contributed.
21. MAXIMILIANO SANCHO VS. SEVERIANO
LIZARRAGA
G.R. No. L-33580 | February 6, 1931
FAILURE OF PARTNER TO PAY THE WHOLE
AMOUNT PROMISED; RESPONSIBILITY — Owing
to the defendant’s failure to pay the partnership
the whole amount which he bound himself to
pay, he became indebted to it for the remainder,
with interest and any damages occasioned
thereby, but the plaintiff did not thereby acquire
the right to demand rescission of the partnership
contract under article 1124 of the Civil Code.
FACTS: This petition is preceded by petitioner
Maximiliano Sancho filing an action for the
rescission of a partnership contract between him
and respondent Severiano Lizarraga. Lizarraga,
on the other hand, is asking for the dissolution of
their partnership. The lower court found that
Lizarraga had not contributed all the capital he
had bound himself to invest, and that instead of
liquidating the partnership as requested by
Sancho, he dissolved the same instead, on
account of the expiration of the period for which
it was constituted. The court a quo then ordered
Lizarraga to proceed without delay to liquidate
the partnership in his capacity as the managing
partner. Sancho, however, still appealed the case
to the Supreme Court, alleging that he is entitled
to rescission and not mere liquidation of the
partnership.
ISSUE: May a partnership be rescinded when one
partner fails to contribute all the capital he had
bound himself to invest?
RULING: No. Although Lizarraga failed to pay to
the partnership the whole amount which he
bound himself to pay, he became indebted to it
for the remainder, with interest and any
damages occasioned thereby, Sancho did not
thereby acquire the right to demand rescission
of the partnership contract according to article
1124 of the Code. This article cannot be applied
to the case in question, because it refers to the
resolution of obligations in general, whereas
Article 1681 and 1682 specifically refer to the
contract of partnership in particular.
22. WILLIAM UY V. BARTOLOME PUZON,
SUBSTITUTED BY FRANCO PUZON
GR No. L-19819 | October 26, 1977
“The remedies available to the partnership and
the other partners with respect to the failure or
refusal to comply with contribution obligation
takes the normal remedies of interest and
damages, including compensatory damages
constituting his shares of the profits that were
not realized but which clearly could have been
earned for the company.”
FACTS: Bartolome Puzon had a contract with
the Republic of the Philippines for the
construction of the Ganyangan Bato Section of
the Zamboanga City Road and of five bridges
in the Malangas-Ganyangan Road. Puzon
sought the financial assistance William Uy.
Puzon proposed the creation of a partnership
between them which and the profits to be
divided equally between them. Uy agreed
resulting in the formation of the "U.P.
Construction Company" which was engaged as
subcontractor of the projects. The partners
agreed that the capital of the partnership
would be P100,000 of which each partner shall
contribute the amount of P50,000.
15 | P a g e PARTNERSHIP NOTES
Uy advanced P40,000 while Puzon was
waiting for the approval of his P150,000 PNB
Loan. Upon release of the loan, he promised to
reimburse William Uy of the P40,000, pay his
share of P50,000 and loan of P60,000 to the
partnership. The loan was approved by 1956 and
at the end of 1957, Uy has already contributed
P115,453.
Puzon was busy with his other
projects, so he entrusted the management of
the projects with Uy. When the financial
demands of the projects increased, Uy obligated
Puzon to place his capital contributions to the
partnership. Puzon failed to do so even after
both verbal demands and formal letters. Puzon
terminated the subcontract agreement with the
partnership. Uy was not allowed to hold office in
the Company and his authority to negotiate was
revoked by Puzon. Uy claimed that Puzon had
violated the terms of their partnership
agreement. He sought for the dissolution of the
partnership with damages. The lower court ruled
in favor of Uy and ordered Puzon to pay the
amount of P200,000 for compensatory damages.
ISSUES:
(1) Whether Puzon failed to comply with his
obligation to pay the capital contribution to
the partnership?
(2) Whether Puzon misapplied the partnership
funds by assigning all payments for the
projects to PNB?
(3) Whether the partnership failed to make
profits because of appellant's breach of
contract?
RULING:
(1) Yes. According to the court, there was
failure on the part of Puzon to contribute
capital to the partnership. When his loan
with PNB was approved, he only gave
P60,000 to Uy; P40,000 was for
reimbursement to the payments made by
Uy and the other P20,000 was for the capital
contribution. Thereafter, Puzon never made
additional contribution.
(2) Yes. That the assignment to the Philippine
National Bank prejudicial to the
partnership cannot be denied. The record
show that during the period from March,
1957 to September, 1959, the Puzon
received from the Bureau of Public
highways, in payment of the work
accomplished on the construction
projects, P1,047,181.01, which amount
rightfully belongs to the partnership. The
balance was deposited in Puzon's current
account and only the amount of
P27,820.80 was deposited in the current
account of the partnership. For sure, if
Puzon gave to the partnership all that
were eamed and due it under the
subcontract agreements, the money would
have been used as a safe reserve for the
discharge of all obligations of the firm and
the partnership would have been able to
successfully and profitably prosecute the
projects it subcontracted.
(3) Yes. Puzon received from the Bureau of
Public Highways, in payment of the
construction projects in question,
P1,047,181 and disbursed the amount of
P952,839 leaving an unaccounted balance
of P94,342. Obviously, this amount is also
part of the profits of the partnership. Had
Puzon not been remiss in his obligations
as partner and as prime contractor of the
construction projects in question as he
was bound to perform pursuant to the
partnership and subcontract agreements,
and considering the fact that the total
contract amount of these two projects is
P2,327,335, it is reasonable to expect that
the partnership would have earned much
more than the P334,255. The award,
therefore, made by the trial court of the
amount of P200,000.00, as compensatory
damages, is not speculative, but based on
reasonable estimate.
16 | P a g e PARTNERSHIP NOTES
23. UNITED STATES V EUSEBIO CLARIN
GR No. 5840 | September 17, 1910
“When a partner files estafa charges against his
copartners for the latter's failure to deliver to him
his profits from the partnership venture, the
action that lies with the partner who furnished
the capital for the recovery of his money is
not a criminal action for estafa, but a civil
one arising from the partnership contract for
a liquidation of the partnership and a levy on
its assets if there should be any.”
FACTS: Pedro Larin delivered to Pedro Tarug
P172, in order that the latter, in company with
Eusebio Clarin and Carlos de Guzman, might
buy and sell mangoes. Believing that he could
make some money in this business, Larin made
an agreement with the three men by which
the profits were to be divided equally
between him and them. Tarug, Clarin, and de
Guzman did in fact trade in mangoes and
obtained P203 from the business. But, they did
not comply with the terms of the contract by
delivering to Larin his half of the profits;
neither did they render him any account of
the capital. Larin charged them with the crime
of estafa, but the provincial fiscal filed an
information against Eusebio Clarin in which he
accused him of appropriating to himself not
only the P172 but also the share of the profits
that belonged to Larin, amounting to P15.50.
ISSUE: Whether Larin is guilty of Estafa?
RULING: No. When Larin put the P172 into the
partnership which he formed with Tarug,
Clarin, and Guzman, he invested his capital in
the risks or benefits of the business of the
purchase and sale of mangoes, and, even
though he had reserved the capital and
conveyed only the usufruct of his money, it
would not devolve upon of his three partners
to return his capital to him, but upon the
partnership of which he himself formed part,
or if it were to be done by one of the three
specifically, it would be Tarug, who, according
to the evidence, was the person who received
the money directly from Larin. The P172
having been received by the partnership, the
business commenced and profits accrued, the
action that lies with the partner who furnished
the capital for the recovery of his money is
not a criminal action for estafa, but a civil one
arising from the partnership contract for a
liquidation of the partnership and a levy on
its assets if there should be any.
24. THE PEOPLE OF THE PHILIPPINES vs.
LEONCIO CAMPOS
54 O.G. 681 | October 29, 1957
Digested by: Irah Nadine Garcia
“A partner who fraudulently appropriates
partnership property delivered to him, with
specific directions to apply it to the uses of the
partnership, is guilty of estafa.”
FACTS: Leoncio Campos and Bonifacio Guzman
executed a contract of partnership whereby they
agreed to farm a 47-hectare rice field leased for
75 cavanes from Juan Alonzo, share in the
burden of tilling it up to the harvest season, and
share in the profits.
Campos informed Guzman that the
palay was ready for threshing. Guzman sent his
nephew, Manual Matias to observe the
threshing. Thereafter, the shares of the tenants
and their shares were segregated, including the
75 cavanes as payment of the lease to Juan
Alonzo. When they got their respective shares,
Guzman ordered Matias to deliver the 75
cavanes to Campos who will in turn deliver it to
Juan Alonzo. On that same day, Matias and
Campos fetched Concepcion Alonzo, the
daughter of Juan, and showed her the 75
cavanes. She was advised by Campos to get the
palay, but she instead promised to come back on
the next day to get them. On the next day,
Concepcion returned to the house of Campos
and found out that the palay was no longer there
and Campos pleaded to her not to tell Guzman,
assuring that he would replace or pay for it.
Concepcion informed his father about the loss
17 | P a g e PARTNERSHIP NOTES
who immediately asked Guzman about it.
Guzman wrote a registered letter to Campos but
the latter never replied. Guzman then filed a
complaint for estafa against Campos for
misappropriating and converting goods received
by him in trust.
Campos now contends that he should
not be held liable for estafa since he has been
working on the land without any compensation
even before the contract of partnership was
constituted.
The trial court ruled against Campos,
charging him with estafa.
ISSUE: Whether misappropriation of partnership
property tantamount to the crime of estafa.
RULING: Yes. The 75 cavanes has been
segregated from the partnership for the
payment of rentals to Juan Alonzo. Instead of
complying with his duty, Campos converted and
misappropriated the 75 cavanes to his own
personal use and benefit.
In People v. de la Cruz, (GR No. 21733),
the Supreme Court held that “A partner is guilty
of estafa, if he fraudulently appropriates
partnership property delivered to him, with
specific directions to apply it to the uses of the
partnership”.
25. PEDRO MARTINEZ vs. ONG PONG CO and
ONG LAY
G.R. No. L-5236 | January 10, 1910
“The loans and advances that a partner has
disbursed in behalf of the partnership should be
refunded to him including the corresponding
interest from the time the expenses are made.”
FACTS: Pedro Martinez, Ong Pong Co and Ong
Lay agreed to contribute money to put up a
store. Martinez delivered P1,500 to Co and Lay,
evidenced by a private instrument written with
words “that we are to invest the amount in a
store, the profits or losses of which we are to
divide with the former, in equal shares.”
After seven years, Martinez receives
nothing from the partnership agreed upon by
them. He then filed a complaint against Co and
Lay, demanding for an accounting of the
partnership, or the refund of his P1,500.
Co, alone, answered the complaint. He
admitted their acceptance of the P1,500, but he
said that the business had been managed by Lay,
who was then deceased.
The trial court ordered Co to pay half the
amount they received from Martinez including
profit-share and interest thereon, totaling to
P840.
ISSUE: Whether Martinez is entitled to the
refund of the capital including interest thereon
pursuant to Article 1796 of the Civil Code.
RULING: No. Martinez is entitled to the
reimbursement of his shared capital only.
Inasmuch as in this case nothing appears
other than the failure to fulfill an obligation on
the part of a partner who acted as agent in
receiving money for a given purpose, for which
he has rendered no accounting, such agent is
responsible only for the losses which, by a
violation of the provisions of the law, he
incurred. This being an obligation to pay in cash,
there are no other losses than the legal interest,
which interest is not due except from the time of
the judicial demand, or, in the present case, from
the filing of the complaint.
Article 1796 is NOT applicable in this
case, insofar as it provides "that the partnership
is liable to every partner for the amounts he may
have disbursed on account of the same and for
the proper interest," for the reason that no other
money than that contributed as is involved.
26. SPOUSES ISHWAR JETHMAL RAMNANI AND
SONYA JET RAMNANI vs. THE HONORABLE
18 | P a g e PARTNERSHIP NOTES
COURT OF APPEALS, ORTIGAS & CO., LTD.
PARTNERSHIP, and OVERSEAS HOLDING CO.,
LTD.
G.R. No. 85496 | May 7, 1991
“Article 1789. An industrial partner cannot
engage in business for himself, unless the
partnership expressly permits him to do so; and if
he should do so, the capitalist partners may
either exclude him from the firm or avail
themselves of the benefits which he may have
obtained in violation of this provision, with a
right to damages in either case.”
FACTS: Ishwar, Choithram and Navalrai, all
surnamed Jethmal Ramnani, are brothers of the
full blood. Ishwar and his spouse Sonya had their
main business based in New York. Realizing the
difficulty of managing their investments in the
Philippines they executed a general power of
attorney on January 24, 1966 appointing
Navalrai and Choithram as attorneys-in-fact,
empowering them to manage and conduct their
business concern in the Philippines
On February 1, 1966 and on May 16, 1966,
Choithram entered into two agreements for the
purchase of two parcels of land located in Barrio
Ugong, Pasig, Rizal, from Ortigas & Company,
Ltd. Partnership. A building was constructed
thereon by Choithram in 1966. Three other
buildings were built thereon by Choithram
through a loan of P100,000.00 obtained from the
Merchants Bank as well as the income derived
from the first building.
Sometime in 1970 Ishwar asked
Choithram to account for the income and
expenses relative to these properties during the
period 1967 to 1970. Choithram failed and
refused to render such accounting. Thereafter,
Ishwar revoked the general power of attorney.
Choithram and Ortigas were duly notified of such
revocation on April 1, 1971 and May 24, 1971,
respectively. Said notice was also registered with
the Securities and Exchange Commission on
March 29, 1971 and was published in the April 2,
1971 issue of The Manila Times for the
information of the general public.
Nevertheless, Choithram, transferred all
rights and interests of Ishwar and Sonya in favor
of his daughter-in-law, Nirmla Ramnani, on
February 19, 1973.
On October 6, 1982, Ishwar and Sonya
filed a complaint against Choitram and/or
spouses Nirmla and Moti and Ortigas for
reconveyance of said properties or payment of
their value and damages.
ISSUE: Whether spouses Ishwar and Sonya are
entitled for reconveyance of the disputed
properties or payment of their value and
damages.
RULING: No, because one furnished the capital,
the other contributed his industry and talent.
The Court ruled that justice and equity dictate
that the two share equally the fruit of their joint
investment and efforts.
Spouses Ishwar supplied the capital of
$150,000.00 for the business. They entrusted the
money to Choithram to invest in a profitable
business venture in the Philippines. For this
purpose they appointed Choithram as their
attorney-in-fact.
Choithram in turn decided to invest in
the real estate business. He bought the two (2)
parcels of land in question from Ortigas as
attorney-in-fact of Ishwar- Instead of paying for
the lots in cash, he paid in installments and used
the balance of the capital entrusted to him, plus
a loan, to build two buildings. Although the
buildings were burned later, Choithram was able
to build two other buildings on the property. He
rented them out and collected the rentals.
Through the industry and genius of Choithram,
Ishwar's property was developed and improved
into what it is now—a valuable asset worth
millions of pesos.
However, the Court helf that it cannot
just close its eyes to the devious machinations
and schemes that Choithram employed in
attempting to dispose of, if not dissipate, the
properties to deprive spouses Ishwar of any
possible means to recover any award the Court
19 | P a g e PARTNERSHIP NOTES
may grant in their favor. Since Choithram, et al.
acted with evident bad faith and malice, they
should pay moral and exemplary damages as
well as attorney's fees to spouses Ishwar.
27. ISABELO MORAN, JR. v. THE HON. COURT
OF APPEALS AND MARIANO E. PECSON
G.R. No. L-59956 | October 31, 1984
1. (Art 1786) Every partner is a debtor of the
partnership for whatever he may have promised
to contribute thereto. 19
2. (Art. 1797) Each partner must share in the
profits and the losses of the venture.
FACTS: Moran Jr. and Pecson entered into a
partnership agreement for the distribution of
colored posters of the Constitutional
Commission wherein each would contribute
P15,000.00 as capital, and that Moran Jr. will
print colored posters in the amount of 95,000.
Moreover, Pecson will receive a commission of
P1,000 a month starting April 15, 1971, up to
December 15, 1971, or for 8 months.
Pecson contributed only P10,000.00 of
the P15,000.00 promised.
Moran Jr. failing to contribute any
amount at all and only printing 2,000 copies of
the 95,000.
After the liquidation of accounts, Pecson
filed for an action to recover the payment of his
share in the profits that the partnership would
have earned and payment of unpaid
commission.
The Court of Appeals awarded
P47,500.00 to Pecson for his share in unrealized
profits and P8,000.00 commission. Thus, Moran
Jr. appealed that the award is highly speculative
and should be avoided and that the award of the
commission has no basis in law.
ISSUE: Whether the Court of Appeals’ award for
unrealized profits and commission were proper.
RULING: No. The Court held that while Pecson
does indeed deserve an award for unrealized
profits, the Court agreed that the amount is
highly speculative. In applying Art. 1786 and Art.
2200, the Court held that an assessment should
be made on how profitable the business venture
would be. In the case at hand, there is no
evidence that the partnership would have been
a profitable venture – as in fact it was considered
"doomed from the start."
The payment of the commission could
only have been predicated on relatively
extravagant profits. The parties could not have
intended the giving of a commission inspite of
loss or failure of the venture. Since the venture
was a failure, the private respondent is not
entitled to the P8,000.00 commission.
The Court also made notice of the fact
tha there was a mutual breach of the agreement
because both Pecson and Moran, Jr. did not give
what they promised to contribute.
The Court further applied Art. 1797 and
that each partner must share in the profits and
the losses of the venture. Moreover, even with
the assurance made by one of the partners that
they would earn a huge amount of profits, in the
absence of fraud, a partner cannot recover
highly speculative profits.
Nevertheless, the partnership earned
P6,000.00 as net profit should be divided
between Pecson and Moran, Jr. And since opnly
P4,000.00 was undesirable by the petitioner in
printing the 2,000 copies, the remaining
P6,000.00 should be returned to Pecson.
28. NG YA v. SUGBU COMMERCIAL CO., [CA]
50 O.G. 4913 No. 10318 | 23 April 1954
“A manager of a partnership is presumed to have
all the incidental powers to carry out the object
of the partnership in the transaction of the
business.”
FACTS: Ng Ya was a Chinese merchant who
owned the Sio Eng Store in Surigao, while Sugbu
20 | P a g e PARTNERSHIP NOTES
Commercial Company (Sugbu) was a partnership
doing business in Cebu City. On December of
1949, Ng Ya ordered 1000 sheets of galvanized
iron and aluminum from Sugbu. It was agreed
that the goods are to be shipped on or before
January 5, 1950 but the goods did not arrived of
the said date. Ng Ya went to Cebu and personally
inquired about the goods from Sugbu. Pow Sun
Gee, the managing partner of Sugbu, promised
that the goods will be delivered at the end of
January. Again, no goods arrived. Pow Sun Gee
claimed that the company is yet to receive the
galvanized iron and aluminum sheets by
February and March. On February 28, 1950, Ng
Ya went to Cebu to verify her orders from Sugbu.
Ng Ya also intended to buy cigarettes worth 4000
pesos in Cebu to resale it in Surigao. Pow Sun
Gee again informed Ng Ya that her orders are yet
to arrive.
Pow Sun Gee, upon learning about Ng
Ya’s other reason of going to Cebu, also disclosed
that the company had an order of cigarettes.
Pow Sun Gee added that the said cigarettes will
be sold at a low price provided that a deposit is
given. Ng Ya, learning that the cigarettes were of
“Virginia” and “Red Crown” brands, was
attracted to the proposition and she delivered
4000 pesos as her deposit to the company. Ng Ya
was then promised that the cigarettes will
delivered on July of 1950
When July came neither the galvanized
iron and aluminum sheets nor the cigarettes
reached Ng Ya. Hence, Ng Ya kept going to Sugbu
demanding alternatively the delivery of the
goods or the return of a total sum of 9400 pesos.
However every time that Ng Ya went to inquire
she was challenged by Shih Tiong Chu (the other
partner in Sugbu) to file a complaint. Because of
this, Ng Ya seek the help of the Chinese Chamber
of Commerce for the settlement of her claim but
to no avail. Ng Ya was then forced to file a
complaint with the Court of First Instance (CFI) of
Cebu City against Sugbu.
To avoid liability, Sugbu contended that
it was a well-known fact among some merchants
of Cebu that Pow Sun Gee had a bad reputation.
Likewise, Sugbu added that Pow Sun Gee had no
authority to issue official receipts hence the
receipt issued by him in his transactions with Ng
Ya have no effect.
The CFI of Cebu City ruled in favor of Ng
Ya, ordering Sugbu to pay the sum of 9400 pesos
with legal interest. The lower court also ordered
Pow Sun Gee to reimburse any amount paid by
Sugbu by virtue of the same judgment. Sugbu
appealed the lower court’s decision.
ISSUE: Whether or not Pow Sun Gee, the
managing partner of Sugbu Commercial
Company, was authorized to issue official
receipts.
RULING: The Court of Appeals (CA) ruled that
whether Pow Sun Gee had a bad reputation
among some merchants of Cebu City is of no
importance with respect to the claim of Ng Ya
against Sugbu Commercial Company. The CA
noted that Pow Sun Gee had a different and
distinct personality from the partnership.
The CA also ruled that Sugbu’s
contention that its manager Pow Sun Gee had no
authority to issue official receipts was untenable.
The CA opined that Pow Sun Gee, as the
manager, can be presumed to have all the
incidental powers to carry out the object of the
partnership in the transaction of the business. An
exception to this general rule, is that, when the
powers of a manager are specifically restricted
he could not exercise the powers expressly
limited from him. But when the articles of
association do not specify the powers of the
manager, it is admitted on principles that the
manager has the powers of a general manager,
and even more. When the object of the company
is determined, the manager has all the powers
necessary for the attainment of such object.
The refusal of Sugbu to present the
articles of co-partnership that would show the
limitation upon the powers of its manager is an
indication that there was no such limitation.
Hence, the CA ruled that the minor power of
issuing official receipts is included in the general
powers of the manager.
21 | P a g e PARTNERSHIP NOTES
29. M. TEAGUE v. H. MARTIN, J.T. MADDY and
L.H. GOLUCKE,
53 Phil. 504 G.R. No. 30286 | 12 September
1929
“Powers and duties of partners are limited to
what were specified and defined in the contract
of partnership or articles of partnership.”
FACTS: On December 23, 1926, M. Teague, H.
Martin, J.T. Maddy, and L.H. Golucke formed a
partnership for the operation of a fish business
and other similar commercial transactions which
shall be known as “Malangpaya Fish Company.”
According to Teague the partnership had a
capital of P35,000 of which he paid P25,000,
while Martin paid P5,000, Maddy P2,500, and
Golucke P2,500. However, the other partners
claimed that the capital was P45,000 of which
Teague paid P35,000. All of partners then agreed
that they will share the profits and losses of the
business in proportion to the amount of the
capital which each contributed.
Teague added that he was named as the
general manager to take charge of the business,
with full power to do and perform all acts
necessary to carry out the purpose of the
partnership. However, the other partners
asserted that Teague was never named as the
general manager and in fact the powers and
duties of each partner were specified and
defined in the “plan for formation of a limited
partnership” or in a written plan which each
partners agreed and received a copy of. Martin
specifically denies that Teague was named
general manager of the partnership and he
alleged that all the duties and powers of Teague
were specifically set forth in the written
agreement and that no further or additional
powers were ever given to Teague.
Teague also claimed that the partnership
purchased and now owns “Lapu-Lapu” a lighter
or barge and “Barracuda” a motorship. However,
the other partners insisted that only the
motorship was owned by the partnership and
the barge was owned by Teague purchased out
of the money of the partnership. The other
partners also added that Teague purchased a
Ford truck and adding machine using the money
of the partnership. The barge/lighter, the Ford
truck, and the adding machine are registered
under Teague’s name.
ISSUE: Whether or not Teague was the manager
of the unregistered partnership.
RULING: The Court ruled that all duties of each
partner were specified and defined in the “plans
for formation of a limited partnership,” in which
it is stated that Captain Maddy would have
charge of the Barracuda and its navigation, with
a salary of P300 per month, and that Martin
would have charge of the southern station, cold
stores, commissary and procuring fish, with a
salary of P300 per month, and that Teague would
have charge of selling fish in Manila and
purchasing supplies, without salary until such
time as the business is placed on a paying basis,
when his salary would be the same as that of
Maddy and Martin.
It will thus be noted that the powers and
duties of Maddy, Martin, and Teague are
specifically defined, and that each of them was
more or less the general manager in his
particular part of the business. That is to say,
that Maddy’s power and duties are confined and
limited to the charge of the Barracuda and its
navigation, and Martin’s to the southern station,
cold stores, commissary and procuring fish, and
that Teague’s powers and duties are confined
and limited to selling fish in Manila and the
purchase of supplies.
The Court also ruled about the matter of
the ownership of the Lapu-Lapu, the Ford truck,
and the adding machine. The Court held that the
proof was conclusive that they were purchased
by Teague and paid for by him from and out of
the money of the partnership. Furthermore at
the time of their purchase, the Lapu-Lapu was
purchased in the name of Teague, and that he
personally had it registered in the customs house
in his own name, for which he made an affidavit
22 | P a g e PARTNERSHIP NOTES
that he was its owner. After the purchase, he
also had the Ford truck registered in his own
name. His contention that this was done as a
matter of convenience is not tenable. The record
shows that when the partnership purchased
the Barracuda, it was registered in the customs
house in the name of the partnership, and that it
was a very simple process to have it so
registered.
The Court agreed with the trial court
that the Lapu-Lapu, the Ford truck, and the
adding machine were purchased by Teague and
paid for out of the funds of the partnership.
Under his powers and duties as specified in the
tentative, unsigned written agreement, his
authority was confined and limited to the
“selling of fish in Manila and the purchase of
supplies.” This said power to sell fish and
purchase supplies does not carry with it or
imply the authority to purchase the Lapu-Lapu,
or the Ford truck, or the adding machine. It
follows that Teague had no authority to purchase
them as neither of them can be construed as
supplies for the partnership business.
30. GAVINO SANTOS VS. CENON VILLANUEVA
ET.AL.
[C.A] 50 O.G. 175
“Partnership property cannot be conveyed by any
one of the partners without the consent of all the
other partners. Nor could any of the partners
transfer to another person his interest in the
partnership without consent of his partners.”
FACTS: Gavino Santos, Luisito del Rosario and
Emiliano del Rosario are partners in a tailoring
shop called “Esquire”. The partnership was not
reduced into writing because Luisito and
Emiliano are brother-in-laws of Gavino Santos.
Emiliano applied for the registration of the firm
in the Bureau of Commerce and was duly
registered. It was Emiliano who had been
managing the business. However, Emiliano del
Rosario sold the business to Cenon Vilanueva
and Corazon del Rosario without the consent of
the other partners.
ISSUE: Whether the sale of the tailoring shop
was valid.
RULING: No it was not valid. The tailoring
business being a partnership cannot be validly
conveyed or sold by any one of the partners
without the consent of all the other partners
forming the partnership.Nor could any of the
partners transfer to another person his interest
in the partnership without the previous consent
of his partners.
31. E. M. BACHRACH v "LA PROTECTORA" ET
AL.
[G.R. No. L-11624 | January 21, 1918.]
“A member of a civil partnership is not liable in
solidum (solidariamente) with his fellow for its
entire indebtedness; but each is liable with the
others for his aliquot part of such indebtedness.”
No member of the partnership can bind the
others by a personal act if they have not given
him authority to do so. And in pursuance of the
authority, lawfull obligations were incurred,
liability of partners rests upon the general
principles underlying partnership liability.
FACTS: In 1913, defendants Nicolas Segundo,
Antonio Adiarte, Ignacio Flores and Modesto
Serrano and Marcelo barba formed a civil
partnership called “La Protectora” to engage in a
transportation business. On June 12, 1913, the
other members executed in due form a
document authorizing Marcelo Barba, the acting
manager to puchase two automobiles in the
name and representation of the partnership
inorder to provide means of transportation.
Barba then went to Manila and purchased the
two automobile trucks from E.M Bachrach. The
agreed price was not paid in full hence, for the
balance a promisory note was executed and
signed by Barba intended to bind the partnership
23 | P a g e PARTNERSHIP NOTES
and himself. Subsequent puchases were made
by Barba for the use of the business and
additional indebtedness results, so, E.M
Bachrach retained on the trucks chattel
mortgage to secure the purchase price. The
defendants defaulted in payment thus, E.M.
Bachrach foreclosed the chattel mortgage
however, considerable sum still remained
unpaid. E.M. Bachrach filed a case against La
Protectora and its members to recover the
unpaid debts before the CFI. Judgment was
rendered against the defendants. No appeal was
made by Barba and La protectora but, the other
members who signed the document appealed
the case.
ISSUE: Whether these individuals are liable for
the frim debts and if so to what extent.
RULING: Yes they are liable. Their liability is
based on the fact that they are members of the
civil partnership and as such are liable for its
debts. The Civil Code declares that a member of
a civil partnership is not liable in solidum
(solidariamente) with his fellow for its entire
indebtedness; but each is liable with the others
for his aliquot part of such indebtedness. The
contract which Barba in fact executed in
pursuance of the authority did not by its terms
profess to bind the appellants personally at all,
but only the partnership and himself. It follows
that the four appellants cannot be held to have
been personally obligated by that instrument;
but, to have already seen, their liability rests
upon the general principles underlying
partnership liability.
32. JOSE MACHUCA, vs. CHUIDIAN,
BUENAVENTURA & CO.
G.R. No. 1011 | May 13, 1903
“Where the articles of co-partnership provide
that upon liquidation the claims of outside
persons shall first be satisfied before those of the
partners, the assignment of a partner’s interest
pending liquidation is the assignment of a future
interest which cannot be enforced until the
termination of the liquidation.”
FACTS: CHUIDIAN, BUENAVENTURA & CO was a
regular general partnership. The original
partners were Telesforo Chuidian, Doña
Raymunda Chuidian, Doña Candelaria Chuidian,
and D. Mariano Buenaventura. Each partner had
contributed a certain amount of money to the
partnership capital.
When Buenaventura died, his estate
passed by will to his children, including D.
Vicente Buenaventura. Four years later, Vicente
executed a public instrument in which for a
valuable consideration he assigned to D. Jose
Gervasio Garcia 25% share in all that may be
obtained by whatever right in whatever form
from the liquidation of the partnership in the
part pertaining to Vicente.
Garcia subsequently assigned the same
amount in favor of Jose Machuca, which has
been notified to the liquidator, who declined to
record in the books of the partnership.
The non-partner creditors of the
partnership have not been paid nor were the
claims of the Chuidian minors satisfied. Such
rights as the plaintiff has acquired against the
partnership under the assignment still remain,
therefore, subject to the condition which
attached to them in their origin, a condition
wholly uncertain of realization, since it may be
that the entire assets of the partnership will be
exhausted in the payment of the creditors
entitled to preference under the partnership
agreement, thus extinguishing the plaintiff's
right to receive anything from the liquidation.
ISSUE: WON Machuca is entitled to 25% of
Vicente’s share in the partnership
RULING: YES. A partner shares not only in profits
but also in the losses of the firm. If excellent
relations exist among the partners at the start of
business and all the partners are more interested
in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the
profits is perfectly plausible.
24 | P a g e PARTNERSHIP NOTES
Machuca did not acquire rights under
the assignment which are now enforceable
against the Chuidian. Since the liquidator of
CHuidian was notified of the assignment,
Machuca is entitled to receive from the assets of
the partnership, if any remain, at the termination
of the liquidation, which is 25% of D. Vicente's
resulting interest, both as partner and creditor.
33. DAN FUE LEUNG vs IAC and LEUNG YIU
G.R. No. 70926 | January 31, 1989
“The requisites of a partnership which are 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.”
FACTS: The Sun Wah Panciteria was initially
registered as a single proprietorship. Its licenses
and permits were issued to and in favor of Dan
Fue Leung as the sole proprietor.
Leung Yiu alleged that Sun Wah
Panciteria was actually a partnership and that he
was one of the partners, having contributed P4,
000.00 to its initial establishment. The lower
court ruled in favor of the Leung Yiu. Fue Leung
appealed the trial court's amended decision.
However, the questioned decision was further
affirmed and merely modified by the appellate
court.
Both the trial court and the appellate
court declared that Fue Leung is a partner and is
entitled to a share of the annual profits of the
restaurant. Fue Leung argues that Leung Yiu
extended 'financial assistance' to herein
petitioner at the time of the establishment of the
Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the
profits of the restaurant.
ISSUE: WON the private respondent is a partner
of the petitioner in the establishment of Sun
Wah Panciteria
RULING: YES. When Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner
with the understanding that he would be
entitled to twenty-two percent (22%) of the
annual profit derived from the operation of the
said panciteria. These circumstances would
make the private respondent and the petitioner
partners in the establishment of Sun Wah
Panciteria. A partner shares not only in profits
but also in the losses of the firm. If excellent
relations exist among the partners at the start of
business and all the partners are more interested
in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the
profits is perfectly plausible. It would be
incorrect to state that if a partner does not assert
his rights anytime within ten years from the start
of operations, such rights are irretrievably lost.
34. SISON VS. MCQUAID
G.R. No. L-6304 | December 29, 1953
“Liquidation shall happen before a partner may
claim his share of profit from the partnership.”
FACTS: Sergio V. Sison brought an action in the
Court of First Instance of Manila against Helen J.
Mcquaid, alleging the Mcquaid borrowed from
him P2,210 to enable her to pay her obligation to
the Bureau of Forestry and to add to her capital
in her lumber business. When Mcquaid
defaulted, she proposed to Sergio to make him
partner in her lumber business, to contribute
2,210 pesos due him from Mcquaid.
Before the last World War, the
partnership sold to the United States Army
230,000 board feet of lumber for P13,800, as
partners Sergio was supposedly entitled to get
one-half or P6,900 from the proceeds of the sale,
but Mcquaid refused to deliver. Sergio then filed
an action to compel Mcquaid to pay him half of
the profit from the partnership.
ISSUE: Whether the proceeds from the sale of
the lumber be considered proceeds?
25 | P a g e PARTNERSHIP NOTES
RULING: The proceeds from the sale cannot be
considered profits until costs ans expenses have
been deducted. the profits of a business cannot
be determined by taking into account the result
of one particular transaction instead of all the
transactions had. Hence, the need for a general
liquidation before a member of a partnership
may claim a specific sum as his share of the
profits.
35. ORNUM VS. LASALA
G.R. No. 47823 | July 16, 1943
“An approval of statement of accounts precludes
right to further liquidation, unless the latter can
show the existence of fraud, deceit, error, and
mistake in said appeal.”
Facts: In 1908, Pedro Lasala, father of Mariano
Lasala, formed a partnership with Emerenciano
Ornum. Lasala as the capitalist partner, while
Ornum will be the industrial partner. Lasala
delivered the sum of P1,000 to Ornum who will
conduct the business at his place of residence in
Romblon.
In 1912, when the assets of the
partnership consisted of outstanding accounts
and old stock of merchandise, Ornum, following
the wishes of his wife, asked for the dissolution
of their partnership. Ornum looked for someone
who could take his place and he suggested the
names of the petitioners who accordingly
became the new partners. Upon joining the
business, the petitioners, contributed P505.54 as
their capital. The new partnership Pedro Lasala
had a capital of P1,000 appraised value of the
assets of the former partnership, plus the said
P505.54 invested by the petitioners who, as
industrial partners, were to run the business in
Romblon.
After the death of Pedro Lasala, his
children succeeded to all his rights and interest
in the partnership. The partners knew each other
personally. No formal partnership agreement
was ever executed. The petitioners, as managing
partners, were to receive one-half of the net
gains, and the other one-half was to be divided
among them and the Lasala group in proportion
to the capital put in by each group. The division
occurred and the partners were given the
election as evidenced by the statements of
accounts referred to in the decision of the Court
of Appeals, to invest their respective shares in
such profits as additional capital. The petitioners
accordingly left a greater part of their profits as
additional investment in the partnership.
After 20 years the business had grown to
such an extent that its total value, including
profits, amounted to P44,618,67. Statements of
accounts were periodically prepared by the
petitioners and sent to the respondents who
invariably did not make any objection thereto.
Before the last statement of accounts was made,
the respondent had received P5,387.29 by way
of profits. The last and final statement of
accounts, dated May 27, 1932, and prepared by
the petitioners after the respondents had
announce their desire to dissolve the
partnership.
Pursuant to the request contained in this
letter, the petitioners remitted and paid to the
respondents the total amount corresponding to
them under the above quoted statement of
accounts which, however was not signed by the
latter.
Thereafter, the complaint in this case
was filed by the respondents, praying for an
accounting and final liquidation of the assets of
partnership.
ISSUE: Whether respondent is entitled to a
further liquidation.
RULING: No. After accepting his shares without
any reservation, Respondent virtually confirmed
his approval of the statement of accounts, and
its signing thereby became a mere formality
complied with by Lasala exclusively. His refusal
to sign, after receiving the shares, amounted to
a waiver of that formality in favor of Ornum who
had already performed his obligation. This
approval precludes any right on the part of the
26 | P a g e PARTNERSHIP NOTES
respondent to a further liquidation, unless he
can show there was fraud or mistake in said
approval.
ARTICLES 1810 TO 1814
36. ENRIQUE CLEMENTE vs. DIONISIO GALVAN,
JOSE ECHEVARRIA
G.R. No. L-45662 | April 26, 1939
“A partner has an equal right with his partners to
possess specific partnership property for
partnership purposes; but he has no right to
possess such property for any other purpose
without the consent of his partners. (Art. 1811
(1), NCC)”
FACTS: Enrique Clemente and Dionisio Galvan
organized a civil partnership which they named
Galvan y Compañia to engage in the
manufacture and sale of paper and other
stationery. They agreed to invest a capital of
P100,000, but actually contributed only P10,000
each. Hardly a year after such organization,
Clemente filed a case to ask for the dissolution of
the partnership and to compel Galvan, to whom
the management of the partnership was
entrusted, to submit an accounting of his
administration and to deliver to him his share as
such partner. Galvan agreed to the dissolution of
the partnership and the liquidation of its affairs,
but by way of counterclaim he asked that, having
covered a deficit incurred by the partnership
amounting to P4,000 with his own money,
Clemente reimburse him of one-half of said sum.
On Clemente’s petition, a receiver and liquidator
to take charge of the properties and business for
the partnership while it was not yet definitely
dissolved, was appointed, the person chosen
being Juan D. Mencarini. The latter was already
discharging the duties of his office when the
court, by virtue of a petition ex parte of
Clemente, issued an order requiring said receiver
to deliver to Clemente certain machines which
were then at Nos. 705-707 Ylaya Street, Manila
but authorizing him to charge their value of
P4,500 against the portion which may eventually
be due to Clemente. The receiver then delivered
to Clemente the keys to the place where the
machines were found, which was the same place
where Galvan had his home; but before he could
take actual possession of said machines, upon
the Galvan’s strong opposition, the court, on
Galvan’s motion, suspended the effects of the
court order. Subsequently, judgments were
rendered in 2 cases for the recovery of a sum of
money against Clemente, by reason of which he
agreed with the intervenor Jose Echevarria, who
is his nephew, to mortgage the machines in favor
of Echevarria.
ISSUES:
1. Whether or not Clemente obtained
possession of the machines and could
thus use it for any other purpose other
than for partnership purposes.
2. Whether or not Clemente could
mortgage the machines in question, it
being part of partnership property.
RULING:
1. No. Clemente could not obtain possession of
the machines. The constructive possession
deducible from the fact that he had the keys to
the place where the machines were found (Ylaya
Street Nos. 705-707), as they had been delivered
to him by the receiver, does not help him any
because the lower court suspended the effects
of the other whereby the keys were delivered to
him a few days after its issuance; and thereafter
revoked it entirely in the appealed decision.
Furthermore, when he attempted to take actual
possession of the machines, the defendant did
not allow him to do so. Consequently, if he did
not have actual possession of the machines, he
could not in any manner mortgage them.
2. No. The machines in contention originally
belonged to Galvan and from him were
transferred to the partnership Galvan y
Compania. This being the case, said machines
belong to the partnership and not to him, and
27 | P a g e PARTNERSHIP NOTES
shall belong to it until partition is effected
according to the result thereof after the
liquidation.
37. THE LEYTE-SAMAR SALES CO., and
RAYMUNDO TOMASSI SULPICIO V. CEA, in his
capacity as Judge of the Court of First Instance
of Leyte and OLEGARIO LASTRILLA
G.R. No. L-5963 | May 20, 1953
“The partner of a partnership is not a creditor of
such partnership for the amount of his shares.”A
partner’s interest in the partnership is his share
of the profits and surplus.” (Art. 1812, NCC)”
FACTS: Leyte-Samar Sales Co. (LESSCO) and
Raymond Tomassi filed a suit for damages
against Far Eastern Lumber & Commercial Co.
(unregistered commercial partnership FELCO),
Arnold Hall, Fred Brown and Jean Roxas.
Judgment was rendered in favor of LESSCO for
the amount of P31, 589.14. The decision having
become final, the sheriff sold at auction on June
9, 1951 to Robert Dorfe and Pepito Asturias "all
the rights, interests, titles and participation" of
the defendants in certain buildings and
properties described in the certificate. However,
a few days after such sale Olegario Lastrilla filed
a motion wherein he claimed to be the owner by
purchase on September 29, 1949 of all the shares
and interest of defendant Fred Brown in FELCO
and requested that under the law of preference
of credits" that the sheriff be required to retain
in his possession so much of the deeds of the
auction sale as may be necessary "to pay his
right". Over the plaintiffs' objection the judge in
his order of June 13, 1951, granted Lastrilla's
motion by declaring that Lastrilla was entitled to
17% of the properties sold. LESSCO then filed a
case questioning the declaration on the ground
that it is null and void for lack of jurisdiction.
There are indications that Fred Brown was a
partner of FELCO and that the properties sold at
auction actually belonged to the FELCO
partnership and the partners. The court also
assumed that the sale of Fred Brown’s shares in
the FELCO made to Lastrilla was valid. Hence, the
result is that when the FELCO properties were
sold to Dorfe and Asturias, Lastrilla was already a
partner of FELCO.
ISSUE: Whether or not Lastrilla is entitled to the
delivery of 17% of the proceeds of the auction
sale.
RULING: No. All orders of the respondent judge
requiring delivery of 17% of the proceeds of the
auction sale to Olegario Lastrilla are void.
Lastrilla does not have any proper claim to the
proceeds of the sale, inasmuch as he was a
partner and not a creditor of the partnership.
The partner of a partnership is not a creditor of
such partnership for the amount of his shares.
Granting arguendo that the auction sale had
included the interest or portion of the FELCO
properties corresponding to the shares of
Lastrilla in the same partnership (17%), the
resulting situation would be — at most — that
the purchasers Dorfe and Austrias will have to
recognize dominion of Lastrilla over 17% of the
properties awarded to them. Hence, Lastrilla
acquired no right to demand any part of the
money paid by Dorfe and Austrias to the sheriff
for the benefit of FELCO and Tomassi, the
plaintiffs in that case, for the reason that, as he
says, his shares (acquired from Brown) could not
have been and were not auctioned off to Dorfe
and Austrias.