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Title IX (2) ​With regard to liability of members —​Partners are usually liable to

partnership creditors not only to the extent of their capital contribution to the
PARTNERSHIP (Arts. 1767-1867) firm but even with their own private property, whereas the stockholders of a
corporation, after they have paid for their shares, are not subject to any
1​. What is a contract of partnership and what are its requisites? further liability, unless otherwise provided by law.

ANS: By the contract of partnership, two (2) or more persons bind themselves to (3) ​With regard to effect of transfer of interest —​Because of the rule of
contribute money, property, or industry to a common fund, with the intention of “​delectus personarum,” ​the third person to whom a partner has transferred
dividing the profits among themselves. Two (2) or more persons may also form a his interest in the partnership does not become a partner without the consent
partnership for the exercise of a profession. ​(Art. 1767, NCC.) of all the other partners, whereas the third person to whom a stockholder has
transferred his shares becomes automatically a stockholder even without the
The essential requisites of a contract of partnership are: consent of the other stockholders.

(1) There must be a valid contract. (4) ​With regard to effect o f death or bankruptcy o f members — ​The death or
bankruptcy of a partner usually causes the dissolution of the firm, whereas
(2) There must be a contribution of money, property, or industry to a common the death or bankruptcy of a stockholder does not result in such dissolution.
fund.
(5) ​With regard to effect of acts of members — A ​ s a general rule, the partners
are the agents of the partnership; hence, acts of the partners done for the
(3) The partnership must be organized for gain or profit. account of the partnership are binding not only on the partnership but also on
the members. On the other hand, whatever acts the stockholders might
execute for the account of the corporation, either individually or collectively,
(4) The partnership should have a lawful object or purpose, and must be are not binding on the corporation. ​(1 Fletcher, Cyc​. ​Corp., Sec. 20.)
established for the common benefit or interest of the partners.
3. What is meant by the “Common Law” and “Mercantile views of the nature of
2. Distinguish between a partnership and a private corporation. a partnership? Which of these views prevails in this jurisdiction?

ANS: There are five (5) essential differences between a partnership and a private ANS: The “Common Law” view of a partnership is that it is not a juridical or legal
corporation. They are: person, while the “Mercantile” view is that it is a juridical or legal person. ​(Crane on
Partnership, 8-16.) ​The latter view prevails in this jurisdiction. ​(Art. 1768, NCC.)
(1) ​With regard to creation — ​A partnership is created by voluntary
agreement of the partners, whereas a corporation is always created by some 4. ​What are the tests or indicia to determine the existence of a partnership?
express legislative authority either in the form of a special law or of a general
law. ANS: There are always two (2) tests which must be applied in order to determine
whether or not a partnership exists. The first test is to determine whether or not there
is an agreement to contribute money, property, or industry to a common fund, and
the second test is to determine whether or not there is an intent of the contracting As ​to liability of the partners​, partnerships may be general or limited. A general
parties to divide the profits among themselves. Once it can be shown that there was partnership is one where one of the partners are general partners, while a limited
an agreement to contribute money, property, or industry to a common fund and that partnership is one where there is at least one general and one limited partner.
there was an intent to divide the profits among themselves, then a partnership
contract exists. ​(Art. 1769, NCC; Evangelista vs. Coll. ofInt. Revenue, 54 Off. Gaz. 7. What are the different kinds of partners?
996; Negado vs. Makabenta, 54 Off Gaz.​ ​4082; Yulo vs. Yang Chiaco Seng,
L-12541, August 28, 1959.) ANS: Partners may be classified as follows:

5. Assuming that there is mutual contribution of money, property, or industry (1) ​As to liability:
to a common fund, is the receipt by a person of a share of the profits of a
business conclusive evidence that he is a partner in the business? (a) General partners, or those who can be held liable for partnership
obligations even to the extent of their private property.
ANS: No, it is not conclusive evidence that he is a partner in the business. According
to the NCC, it is merely ​prima facie ​evidence that he is a partner. This inference, (b) Limited partners, or those who cannot be held liable for
however, cannot be drawn if such profits are payments for the following: (a) Debt partnership obligations.
payable by installments or otherwise; (b) wages of an employee or rent to a landlord;
(c) annuity to a widow or to a legal representative of a deceased partner; (d) interest (2) ​As to contribution:
on a loan; or (e) sale of the goodwill of a business or other property by installments
or otherwise. ​(Art. 1769, NCC.) (a) Capitalist partners, or those who contribute money or property to
the common fund.
6​. What are the different kinds of partnership? Define each of them.
(b) Industrial partners, or those who contribute only their skill or
ANS: There are two (2) classifications recognized in the NCC — according to object industry to the common fund.
and according to liability of the partners.
(3) As ​to management:
As to object, ​partnership may be universal or particular. A universal partnership may
​ artnership of
refer to all the present property or to all the profits. ​(Art. 1777, NCC.) A p (a) Managing partners, or those who manage or administer
all present property is that in which the parties contribute all property which actually partnership affairs.
belongs to them to a common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire therewith. ​(Art 1778, (b) Silent partners, or those who have no voice in the management of
NCC.) A u ​ niversal partnership of profits comprises all that the partners may acquire partnership affairs.
by their industry or work during the existence of the partnership. ​(Art 1780, NCC.) A
particular partnership, on the other hand, is that which has for its object determinate (4) ​As to third persons:
things, their use of fruits, or a specific undertaking, or the exercise of a profession or
vocation. ​(Art, 1783, NCC,) (a) Ostensible partners, or those publicly known as such.
(b) Secret partners, or those whose connection with the partnership is brings about the dissolution of a pre-existing partnership.” ​(1 Guy de Montella 58.)
not known. They are also known as dormant partners. What the Commissioner has evidently failed to observe is the fact that the
partnership in the case at bar is a limited and, at the same time, particular
(c) Partners by estoppel, or those who represent themselves, or partnership, and not a universal partnership, such as the one that has for its object
consent to another or others representing them to anyone as partners all the present property of the partners as contributed by them to the common fund,
either in an existing partnership or in one that is fictitious or apparent. or else all that the partners may acquire by their industry or work during the
They are also known as ​de facto p​ artners. existence of the partnership.

8​. (a) Can a husband and wife enter into a contract of partnership? Nor could the subsequent marriage of the partners operate to dissolve the
partnership, such marriage not being one of the causes provided for that purpose
(b) A organized a limited partnership with himself as general partner and his either by the NCC or by the Code of Commerce.
two friends, B and C, as limited partners. One year later, A and B got married,
and thereafter the two bought the interest of C for a nominal amount. The It being a basic tenet of the Spanish and Philippine law that the partnership has a
Commissioner of Internal Revenue now maintains that the marriage of A and B juridical personality of its own, distinct and separate from that of its partners, the .by
and their subsequent acquisition of the interest of C in the partnership passing of the existence of the limited partnership as a taxpayer can only be done by
dissolved the limited partnership, and if there was no dissolution, the fiction of ignoring or disregarding clear statutory mandates and basic principles of our law.
The limited partnership’s separate individuality makes it impossible to equate its
juridicalpersonalityofthepartnershipshouldbedisregarded for income tax income with that ofthe component members. True, Section 24 of the Internal
purposes because the spouses have exclusive ownership and control of the Revenue Code merges registered general co-partnership with the personality of the
business. Consequently, the income tax returns of A and his wife B should individual partners for income tax purposes. But this rule is exceptional, and cannot
have included his and his wife’s individual incomes and that of the limited be extended by mere implication to limited partnerships. ​(Commissioner o f Internal
partnership. Is this correct? Reasons. Revenue vs. Suter, 27 SCRA 152.)

ANS: (a) If the partnership is a universal partnership, a husband and a wife cannot 9. What are the formalities required by law for the organization or constitution
enter into such contract. This is so because under the NCC ​(Art. 1782.), ​persons of a partnership?
prohibited from making donations to each other are prohibited from entering into
universal partnerships. However, if the partnership is a particular partnership or a ANS: If the partnership is general, it may be constituted in any form, except where
limited partnership, they can. immovable property or real rights are contributed to the common fund, in which case
a public instrument, to which is attached an inventory of said property, signed by any
(b) The Commissioner of Internal Revenue rests his thesis upon the opinion of of the partners, shall be necessary for validity. ​(Arts. 1771, 1773, NCC.)
Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Furthermore, if it has a capital of P3,000 or more, it must appear in a public
Philippines, Vol. 1,4th Ed., page 58, that: “A husband and a wife may not enter into a instrument, which shall be recorded in the Office of the Securities and Exchange
contract of general co-partnership, because under the NCC, which applies in the Commission. However, this is not necessary for validity. ​(Art. 1772, NCC.)
absence of express provision in the Code of Commerce, persons prohibited from
making donations to each other are prohibited from entering into universal If the partnership is limited, it is required that the contracting parties, in addition to the
partnerships. ​(2 Echavarri,​ ​196.) ​It follows that the marriage of partners necessarily formalities prescribed for the organization of a general partnership, shall execute a
certificate o f limited partnership which must be recorded in the Office of the ANS: No, they may not. According to Art. 1799 of the NCC, such an agreement
Securities and Exchange Commission. ​(Art. 1843, NCC.) T ​ hese formalities must be would be void.
complied with; otherwise, the partnership is not limited but general.
12. Can an industrial partner engage in a business other than that of the
10. How shall the profits and losses of a partnership be distributed? partnership?

ANS: We must distinguish between a case where there is an agreement and one ANS: An industrial partner cannot engage in business for himself, unless the
where there is no agreement. Thus — 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
If there is an agreement — ​The profits and losses shall be distributed in conformity which he may have obtained in violation of this provision, with a right to damages in
with such agreement. If the agreement is only with respect to the profits, the share of either case. ​(Art 1789, NCC.)
the partners in the losses shall be in the same proportion as their share in the profits.
(Art, 1797, CC.) 13. Can a capitalist partner engage in a business other than that of the
partnership?
If there is no agreement — ​The profits and losses shall be distributed as follows:
ANS: The capitalist partners cannot engage for their own account in any operation
(1) ​Profits: which is of the kind of business in which the partnership is engaged, unless there is a
stipulation to the contrary.
(a) Capitalist partners — The share of a capitalist partner shall be in
proportion to what he may have contributed to the common fund. Any capitalist partner violating this prohibition shall bring to the common funds any
profits accruing to him from his transactions, and shall personally bear all the losses.
(b) Industrial partners — The share of an industrial partner shall be (Art. 1808, NCC.)
that which is just and equitable under the circumstances.
14. Jinggoy and Philip formed a partnership to operate a car repair shop in
(2) ​Losses: Quezon City. Jinggoy provided the capital while Philip contributed his labor
and industry. On one side of their shop, Jinggoy opened and operated a coffee
(a) Capitalist partners — The share of a capitalist partner shall be in shop, while on the side, Philip put up a car accessories store. May they engage
proportion to what he may have contributed to the common fund. in such separate businesses? Why? (2001)

(b) Industrial partners — An industrial partner shall not be liable for ANS: Jinggoy, the capitalist partner, may engage in the restaurant business because
the losses. ​(Ibid.) it is not the same kind of business the partnership is engaged in. On the other hand,
Philip may not engage in any other business unless their partnership expressly
11. Under our law, may the partners enter into an agreement whereby one or permits him to do so because as an industrial partner he has to devote his full time to
more of them shall not share in the profits and losses? the business of the partnership. ​(Art. 1789, NCC.)
15. X and Y are partners in a certain business, X being the managing partner. Z dismiss X, but this was opposed by B. How can the conflict between the two
owes X P5,000.00 and the partnership P10,000.00, and both credits are (2) be resolved?
demandable. Z pays X P3,000.00 and the latter issues a receipt in his name.
Should X collect the entire amount? Would the result be the same if the receipt (b) Suppose that in the above problem, nobody was appointed managing
is in the name of the partnership? Explain (1973) partner of the firm, how shall the
conflict between A and B be resolved?
ANS: X should not collect the entire amount of P3,000.00. He should collect only
PI,000.00 for himself and apply the balance of P2,000.00 to the partnership credit. ANS: (a) According to Art. 1801 of the NCC, the conflict shall be resolved by the
True, a receipt of payment was issued in his name. Under Art. 1792 of the NGC, decision of the majority of the managing partners, and in case of a tie, it shall be
however, whether the receipt is issued by X or by the debtor Z, the sum collected decided by the partners owning the controlling interest. It is clear that, in the instant
shall be applied to the two (2) credits in proportion to their amounts, which in this case, there is a tie; consequently, the matter must now be decided by C who owns
case is one is to 2, or 1/3 for X and 2/3 for the partnership. This rule is applicable the controlling interest. If he casts his vote in favor of A, X is out of a job; if he casts
even if the debtor Z actually applied the payment to X’s credit. The debtor’s right to his vote in favor of B, X still has a job.
make on application of payment is available to him only if the managing partner’s
credit is more onerous to him than the partnership credit. ​(Art. 1792, last paragraph.) (b) According to Art. 1803 of the NCC, when the manner of management has not
In the instant case, it is clear that X’s credit is not more onerous to Z than the been agreed upon, all the partners shall be considered agents and whatever any one
partnership credit. of them may do alone shall bind the partnership, without prejudice to the provisions
of Art. 1801. According to Art. 1801, the decision of the majority shall prevail, and in
However, if the receipt is in the name of the partnership, the result would be different. case of a tie, the matter shall be decided by the partners owning the controlling
By explicit mandate of the first paragraph of Art. 1792 of the NCC, the entire amount interest. Consequently, the conflict between A and B shall be resolved by putting the
paid by Z to X shall be applied to the partnership credit. question to a vote of all of the partners. In case of a tie, C, who owns the controlling
interest in the partnership, shall decide.
16. Who shall manage the partnership?
18. (a) What is meant by the principle of ​“delectus personae” ​in partnership
ANS: The management of the partnership may be vested by agreement in one, or relations?
some, or all of the partners, or even in a third person, either in the articles of
partnership or after the partnership had already been constituted. ​(Arts. 1800, 1801, (b) Suppose that a partner assigns his whole interest in the partnership to a
1802, NCC.) ​If there is no agreement, it is vested in all of the partners. ​(Art. 1803, third person, shall such an assignment result in the latter becoming a
NCC.) substitute partner?

17. (a) A, B, C, and D organized a general partnership, with A and B as (c) May a partner form a sub-partnership with a third person with respect to his
industrial partners and C, who contributed P30,000 to the common fund, and interest in the partnership?
D, who contributed PI0,000 to the common fund, as capitalist partners. A and B
were both appointed managing partners without any specification of their ANS: (a) The principle of ​delectus personae i​ n partnership relations refers to the rule
respective duties. When the firm commenced business operations, the two which is inherent in every partnership that no one can become a member of the
appointed X as accountant of the company. One year later, A decided to partnership association without the consent of all of the partners. Consequently,
even if a partner will associate another person in his share in the partnership, the the loan, C foreclosed the mortgage and as a result, the mortgaged property
associate shall not be admitted into the partnership without the consent of all the was sold at public auction to the mortgagee himself. A few days before the
partners, even if the partner having an associate, should be a manager. ​(Art. 1804​, expiration of the one-year period of redemption, A redeemed the property with
NCC.) his own private funds. A corresponding certificate of redemption was then
issued to him. Soon thereafter, he filed a petition asking that the original title
(b) If a partner conveys or assigns his whole interest in the partnership to a third of the partnership be cancelled and that another one be issued in his name
person, such conveyance or assignment does not result in the latter becoming a alone. This was opposed by B. Has A become the absolute owner of the
substitute partner. This is clear from the provisions of Art. 1813 of the NCC. property on the theory that, in redeeming them from C, he is now subrogated
to all of the rights of the latter?
(c) Yes, a partner may form a sub-partnership wit third person with respect to his
interest in the partnership even without the consent of the other partners. According ANS: Under general principles of law, a partner is an agent of the partnership. This is
to Manresa, this does not fall within the purview of the rule enunciated in Art. sanctioned by Art. 1818 of the NCC.
Furthermore, every partner becomes a trustee for his co-partner with regard to any
1804. There is no modification or alteration of the original contract of partnership. benefit or profit derived from his act as partner in accordance with Art. 1807 of the
The third person sub-partner remains a stranger to the partnership. ​(11 Manresa NCC. Consequently, when A redeemed the property in question, he became a
399.) trustee and held the same in trust for his co-partner B, subject to his right to demand
from the latter his contribution to the price of the redemption plus legal interest.
19. When may a partner demand for a formal accounting of partnership affairs? Another aspect of the case which rules out the application of the theory of
subrogation, is that C never became the absolute owner of the property in question.
ANS: Any partner may demand for a formal accounting of partnership affairs: Naturally, there was no title which he could convey to A as redemptioner. Hence, the
redemption can be viewed merely as having removed the lien of mortgage and
(1) If he is wrongfully excluded from the partnership business or possession restoring the property to their original status as partnership property free from any
of its property by his co-partners; encumbrance. ​(Catalan vs. Gatchalian, 105 Phil. 1270.)

(2) If the right exists under the terms of any agreement; 21. (a) What are the property rights of a partner? Are these rights assignable?

(3) If a partner has derived profits from any transaction connected with the (b) What is meant by a partner’s interest in the partnership?
formation, conduct, or liquidation of the partnership or from any use by him of
its property; or (c) What is the effect of a conveyance made by a partner of his whole interest
in the partnership to a third person?
(4) Whenever other circumstances render it just and reasonable. ​(Arts. 1809,
1807, NCC.) (d) What is meant by a “charging order” upon a partner’s interest in the
partnership?
20. A and B, as partners, operated a theatre in Tacloban City. Needing funds,
the partnership mortgaged to C a lot covered by a transfer certificate of title in ANS: (a) The property rights of partner are: (1) His rights in specific partnership
the name of the partnership. Because of the failure of the partnership to pay property, (2) his interest in the partnership; and (3) his right to participate in the
management. ​(Art. 1810, NCC.) ​Only the 2nd is assignable ​(Art. 1813, NCC.), b
​ ut or an obligation arising from a criminal offense or a ​quasi-delict.​ ​(Arts. 1822, 1823,
not the others. ​(Art 1811, NCC.) 1824, NCC.) ​In the case of a contractual obligation, the following requisites must
concur ​1st, t​ he contract must be entered into in the name and for the account of the
(b) A partner's interest in the partnership is his share of the profits and surplus. ​(Art. partnership and under its signature; and ​2nd, ​the partner must be authorized to act
1812, NCC.) for the partnership. ​(Art. 1816, NCC.) ​In the case of an obligation arising from a
criminal offense or a ​quasi-delict​, the only requisite prescribed by the law is that the
(c) The effects o f the conveyance by a partner o f his whole interest in the act must be performed by a partner in the ordinary course of the business of the
partnership are as follows: partnership with the authority of his co-partners. ​(Art. 1822, NCC.)

(1) It does not dissolve the partnership; 23. Can the partners be held liable for a partnership obligation? If so, what is
the nature of their liability?

(2) It does not entitle the assignee to interfere in the management of the ANS: Yes, In the case of a partnership obligation arising from contracts, all general
business, or to require an accounting of partnership transaction, or to inspect partners, including industrial ones, shall be liable ​pro rata w​ ith all their property and
the partnership books; however, in case of fraud in the management of the after all the partnership assets have been exhausted; in other words, the liability of
partnership, he may avail himself of the usual remedies; the partners is joint and subsidiary. ​(Art. 1816,​ ​NCC.) I​ n the case of a partnership
obligation arising from a criminal offense or a ​quasi delict, a ​ ll partners are liable
(3) It entitles the assignee to receive in accordance with his contract the solidarily with the partnership. ​(Art. 1824, NCC.) I​ n the case of a partnership
profits to which the assignor would otherwise be entitled; and obligation under the Workmen’s Compensation Act, all partners are also liable
solidarily with the partnership. ​(Liwanag vs. Workmen’s Compensation Commission,
(4) Upon dissolution of the partnership, the assignee is entitled to receive his 105 Phil. 741.)
assignor’s interest and may then demand for an accounting. ​(Art. 1813,
NCC.) 24. A, B and C formed a general partnership with the following contributions to
the common fund: A, P2,000; B, P4,000; C, P6,000. There was no agreement on
(d) A “charging order” upon a partner’s interest in partnership refers to the remedy the division of profits or apportionment of losses. After some years of
available to a judgment creditor of a debtor, partner to charge the interest of the latter business operations, the assets of the partnership dwindled to P3,000; so the
in the partnership by means of a court order for the purpose of satisfying the amount partners agreed to stop their business. The partnership is indebted to Corpuz
of the judgment. A receiver of the debtor partner’s share of the profits may even be for a loan of P12,000. Under the circumstances, from whom can Corpuz
appointed. This charging order, however, is always subject to the preferred rights or demand satisfaction of his credit, and to what extent? (1974)
partnership creditors. ​(Art. 1814, NCC.)
ANS: Since the obligation of P12,000 in the instant case is a partnership obligation
22. ​What are the requisites prescribed by law in order that a partnership may arising from a contract, what is applicable here is the rule enunciated in the NCC that
be held liable to a third person for the act of one of the partners? all of the partners shall be liable ​pro rata w ​ ith all their property after all of the
partnership assets have been exhausted. ​(Art. 1816, NCC.) ​Consequently, Corpuz
ANS: It must be observed that the act of one of the partners, for which a partnership may demand payment o f the remaining P3,000 from the partnership. He can then
may be held liable, may constitute either a contractual obligation ​(Art. 1816, NCC.) compel A, B and C to pay the balance of P9,000 still unpaid in the proportion of I is to
2 is to 3 (1:2:3). In other words, A shall be liable for 1/6 of P9,000, or PI,500; B for one or more partners in the profits or loses is void, is applicable only to capitalist
2/6, or 1/3 of P9,000, or P3,000: and C, for 3/6, or 1/2 of P9,000, or P4,5000. partners, not to industrial partners. However, as far as third persons are concerned,
the rule is different. An industrial partner can be held personally liable. Of course, this
25. “A,” “B,” and “C” formed a partnership under the following terms and is without prejudice to his right to hold his co-partners proportionately liable for what
conditions: he paid to partnership creditors.

Thus, in the instant case, the liability of “A,” “B” and “C” is joint ​(pro rata​) and
A. Participation: “A” - 40%; “B” - 40%; “C” - 20%. subsidiary. The facts merely state that their participation is: “A” — 40%; “B” — 40%;
B. “A” and “B” would supply the entire capital. “C” would contribute his “C” — 20%. Therefore, since by agreement “C” is excluded from any participation in
management expertise and be manager for the first five years without the losses, the agreement that “C’s” participation is 20% applies only to his
compensation. participation in the profits. In the case of “A” and “B,” the agreement applies to both
C. “C” shall not be liable for losses. profits and losses. Despite the exclusion of “C” in the losses, such agreement is not
applicable insofar as partnership creditors are concerned. Consequently, the liability
The partnership became bankrupt. of the three partners for partnership debts shall also be: 40% for “A”; 40% for

(1) Could “A” alone, opposed by “B” and “C,” have “C” removed as manager? “B”; and 20% for “C.” Hence, “C” can now be compelled to pay 20% of the
Explain. (1981) partnership debts. After payment, he can then proceed against his co-partners “A”
and “B” for reimbursement of the amount paid by him.
ANS: “A,” alone, opposed by “B” and “C,” cannot have “C” removed as manager of
the partnership. According to the NCC, the vote of the partners representing the ​ he above answer is based on Art. 1816 of the NCC in relation to Arts. 1797
(Note: T
controlling interest shall be necessary for such revocation of power. Under the and 1799.)
partnership agreement, it is crystal clear that the vote of “A” does not represent the
controlling interest. 26. A and B are partners of Liwanag Auto Supply, a commercial establishment.
X, who was employed by them as security guard, was killed in line of duty. His
(Note: ​The above answer is based on Art. 1800 of the NCC.) widow and minor children in due time filed a claim for compensation with the
Workmen’s Compensation Commission, which ordered the partners to pay to
(2) Could “C” be personally held liable for debts of the partnership not them jointly and severally the amount fixed by the referee. Decide whether or
satisfied with the assets of the partnership? Amplify. (1981) not the Commission erred in declaring the obligation of the partners as
solidary.
ANS: Yes, “C” can be held liable personally, although jointly, liable for debts of the
partnership not satisfied with the assets of the partnership. ANS: Ordinarily, the liability of the partners in a partnership is not solidary, but the
laws governing the liability of partners is not applicable to the case at bar wherein a
Under our partnership law, as among themselves, the industrial partner is always claim for compensation by dependents of an employee who died in line of duty is
excluded from any participation in the losses in the absence of an agreement to the involved. Although the Workmen’s Compensation Act does not contain any provision
contrary. Hence, the agreement that “C,” the industrial partner, shall not be liable for expressly declaring the obligation of business partners as solidary, Arts. 1711 and
losses is valid. It merely affirms the law. The rule that a stipulation which excludes 1712 of the NCC taken together with Sec. 2 of the Workmen’s Compensation Act,
reasonably indicate that in compensation cases, the liability of business partners have given credit to such partnership shall depend upon whether a partnership
should be solidary, otherwise, the right of the employee may be defeated, or at least obligation has been created or not. ​If ​a partnership obligation has been created, he is
crippled. If the responsibility of the partners were joint and not solidary and one of liable as though he were an actual member of the partnership. However, when no
them happens to be insolvent, the amount awarded to the employee would only be partnership obligation has been created, such as when there is actually no
partially satisfied, which is evidently contrary to the intent and purpose of the Act. partnership or even where there is, not all of the members thereof had given their
Since the Workmen’s Compensation Act was enacted to give full protection to the consent to the representation, he is merely liable ​pro rata w ​ ith the other persons
employees, reason demands that the nature of the obligation of the employers to pay consenting to the representation. ​(Art. 1825, NCC.)
compensation to the heirs of the employee who died in line of duty should be
solidary; otherwise, the purpose of the law could not be attained. ​(Liwanag vs. 28. What are the three (3) final stages of a partnership? Discuss?
Workmen’s Compensation Commission, supra.)
ANS: The three (3) final stages of a partnership are: (1) dissolution; (2) winding up;
27. (a) What is meant by a partner by estoppel? (1970) and (3) termination. The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the carrying on of the
(b) When is an existing or actual partnership bound by the representation business. ​(Art. 1828, NCC.) ​The winding up refers to the process of liquidating
made by or in behalf of a person (partner by estoppel) that he is a member of partnership affairs. Termination, in point of time, refers to that moment when
the partnership? (c) What is the character of the liability of a partner by partnership affairs are wound up. The partnership, although dissolved continues to
estoppel to persons who, relying on the representa exist and its legal personality is retained at which time it completes the winding-up of
tion that the former is a partner in an actual or apparent partnership, have its affairs, including the partitioning and distribution of the net partnership assets to
given credit to such partnership? the partners.

ANS: (a) A partner by estoppel refers to a person who represents himself, or 29. When does the four (4) years prescription period of the right of a partner to
consents to another or others representing him to any one, as a partner either in an demand an accounting of the partnership business start to run?
existing partnership or in one that is fictitious or apparent. ​(Art. 1825, NCC.)
ANS: As long as the partnership exists, any of the partners may demand an
(b) The only instance under our law when an existing partnership is bound by the accounting of the partnership business. Prescription of the said right starts to run
representation made by or in behalf of a partner by estoppel is when all of the only upon the dissolution of the partnership when the final accounting is done.
partners had given their consent to such representation. It will be only then that a (Emnace vs. Court of Appeals, G.R. No. 126334, November 23, 2001.)
partnership obligation shall result. ​(Art. 1825, NCC.) I​ n such a case, any third person
who, relying on such representations, gave credit to the partnership, can hold the 30. What are the causes for the dissolution of a partnership?
partnership as well as all of the partners, including the partner by estoppel, liable in
accordance with Art. 1816 of the NCC. A good example of this would be those who, ANS: Dissolution is caused:
not being members of the partnership, include their names in the firm name. ​(Art.
1815, NCC.) (1) Without violation of the agreement between the partners:

(c) The character of the liability of a partner by estoppel to a person who, relying on (a) By the termination of the definite term or particular undertaking
the representation that the former is a partner in an actual or apparent partnership, specified in the agreement;
(b) By the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified; (8) By the decree of court under the following article. ​(Art 1830​, ​NCC.)

(c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts either On application by or for a partner the court shall decree a dissolution whenever:
before or after the termination of any specified term or particular
undertaking; (1) A partner has been declared insane in any judicial proceeding or is shown
to be of unsound mind;
(d) By the expulsion of any partner from the business ​bona fide i​ n
accordance with such a power conferred by the agreement between (2) A partner becomes in any other way incapable o f performing his part of
the partners. the partnership contract;

(2) In contravention of the agreement between the partners where the (3) A partner has been guilty of such conduct as tends to affect prejudicially
circumstances do not permit a dissolution under any other provision of this the carrying on of the business;
article, by the express will of any partner at any time.
(4) A partner willfully or persistently commits breach of the partnership
(3) By any event which makes it unlawful for the business of the partnership agreement, or otherwise so conducts himself in matters relating to the
to be carried on or for the members to carry it on in partnership. partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
(4) When a specific thing, which a partner had promised to contribute to the
partnership, perishes before the delivery, in any case by the loss of the thing, (5) The business of the partnership can only be carried on at a loss;
when the partner who contributed it having reserved the ownership thereof,
has only transferred to the partnership the use or enjoyment of the same; but (6) Other circumstances rendering a dissolution equitable.
the partnership shall not be dissolved by the loss of the thing when it occurs
after the partnership has acquired the ownership thereof: On the application of the purchaser of a partner’s interest under Article 1813 or 1814:

(1) At the termination of the specific term or particular undertaking;


(5) By the death of any partner;
(2) At any time if the partnership was a partnership at will when the interest
was assigned or when the charging order was issued. ​(Art. 1831, NCC.)
(6) By the insolvency of any partner or of the partnership;
31. Does dissolution of the partnership terminate all authority of the managing
partner, if one had been appointed, or of any partner, if no manager had been
(7) By the civil interdiction of any partner; appointed, to act for the partnership?
ANS: The dissolution of the partnership terminates all authority of the managing
partner or of any partner, as the case may be, to act for the partnership. This rule, (a) Had extended credit to the partnership prior to dissolution and had
however is subject to the following exceptions: no knowledge or notice of his want of authority, or

(b) Had not extended credit to the partnership prior to dissolution and,
(1) Acts necessary to wind up partnership affairs; having no knowledge or notice of his want of authority, the fact of his
want of authority had not been advertised in a newspaper of general
circulation in the place at which the business was regularly carried on.
(2) Acts necessary to complete transactions begun but not then finished; and (Art. 1834, NCC.)

(3) Acts or transactions which would bind the partnership if dissolution had 33. Who has the right or duty to wind up or liquidate partnership affairs?
not taken place, provided the other party to such transactions:
ANS: If the winding up or liquidation of partnership affairs is judicial, the right or duty
(a) Had extended credit to the partnership prior to dissolution and had to wind up or liquidate partnership affairs devolves upon the partner or legal
no knowledge or notice of such dissolution; or representative or assignee designated by the court. ​(Art. 1836, NCC.) ​If it is
extrajudicial, the right or duty devolves upon the managing partner. ​(Aldecoa & Co.
(b) Although he had not so extended credit, had nevertheless known vs. Warner, Barnes & Co., 16 Phil. 423; Po Yeng Cheo vs. him Ka Yan, 44 Phil. 172;
of the partnership prior to dissolution, and, having no knowledge or Guidote vs. Borja, 53 Phil. 900.) B ​ ut where there is no managing partner, or even
notice of dissolution, the fact of dissolution had not been advertised in where there is, he dies, then the right or duty devolves upon the partners who have
a newspaper of general circulation in the place at which the business not wrongfully dissolved the partnership or the legal representative of the last
was regularly carried on. ​(Arts. 1832,1834, NCC.) surviving partner, not insolvent. ​(Art. 1836, NCC.)

32. Are the above exceptions absolute in character? 34. Distinguish between a general partnership and a limited partnership.

ANS: The above exceptions are not absolute in character. According to the third ANS: The two (2) may be distinguished from each other in the following ways:
paragraph of Art. 1834 of the NCC, the partnership is in no case bound by the act of
a partner after dissolution: ​ general partnership is composed only of general
(1) ​As to composition: A
partners, whereas a limited partnership is composed of at least one general
(1) Where it is dissolved because it is unlawful to carry on the business, partner and one limited partner.
unless the act is appropriate for winding up partnership affairs;
​ general partnership, as a general rule, may be
(2) ​As to constitution: A
(2) Where the partner acting is insolvent; or constituted in any form, whereas a limited partnership must be contained in a
certificate of limited partnership, duly signed and sworn to by all of the
partners, and recorded in the Office of the Securities and Exchange
(3) Where the partner has no authority to wind up partnership affairs, except Commission.
by a transaction with one who —
​ general partnership must operate under a firm name,
(3) As ​to firm name: A he participates in the management or control of the business, he can be held liable.
which may or may not include the name of one or more of the partners, (Arts. 1846​, ​1848, NCC)
whereas a limited partnership must also operate under a firm name, followed
by the word “Limited.” 37. (a) Is the interest of limited partner assignable?

​ here are also differences, formal and


(4) As ​to dissolution and winding up: T (b) what is a substituted limited partner?
procedural, between the dissolution and winding up of a general partnership
and that of a limited partnership. (c) When does an assignee of the interest of a limited partner become a
substituted limited partner?
35. Distinguish between a general partner and a limited partner.
(d) What are the rights and obligations of a substituted limited partner?
ANS: The two (2) may be distinguished from each other in the following ways:
ANS: (a) Yes, the interest of a limited partner is assignable.
(1) A general partner can be held personally liable for partnership obligations
after all of the assets of the partnership have been exhausted, whereas a (b) A substituted limited partner is a person admitted ? to all the rights of a limited
limited partner cannot be held liable. partner who has died or has assigned his interest in a partnership. ​(Ibid.)

(2) A general partner may participate in the management of the partnership, (c) An assignee shall have the right to become a substituted limited partner if all the
whereas a limited partner does not. members consent thereto or if the assignor, being thereunto empowered by the
certificate of limited partnership, gives the assignee that right. ​(Ibid.) ​However, he
(3) A general partner may contribute money, property, or industry to the becomes a substituted limited partner only from the moment that the certificate is
common fund, whereas a limited partner, as such, can contribute money or appropriately amended in accordance with Art. 1866. ​(Ibid.)
other property only.
(d) The substituted limited partner has all the rights and powers, and is subject to all
(4) The name of a general partner may appear in the firm name, whereas that the restrictions and liabilities of his assignor, except those liabilities of which he was
of a limited partner does not. ignorant at the time he became a limited partner and which could not be ascertained
from the certificate. ​(Ibid.)
(5) There is a limitation on the right of a general partner to engage in another
business or in the same kind of business as that in which the partnership is 38. What is the order of payment in the winding up of partnership liabilities?
engaged, whereas there is no such limitation in the case of a limited partner.
ANS: We must distinguish between the order of payment if the partnership is a
36. Can a limited partner be held liable for partnership obligations? general partnership and the order of payment if the partnership is a limited
partnership.
ANS: A limited partner as such cannot be held liable for partnership obligations. ​(Art.
1843, NCC.) ​However, if his surname appears in the partnership or firm name or if If the partnership is a general partnership, the order of payment is as follows:
(1) Those owing to creditors other than partners.

(2) Those owing to partners other than for capital and profits.

(3) Those owing to partners in respect of capital.

(4) Those owing to partners in respect of profits. ​(Art. 1839​, ​NCC.)

If the partnership is a limited partnership, the order of payment is as follows:

(1) Those to creditors, in the order of priority as provided by law, except those
to limited partners on account o f their contributions, and to general partners.

(2) Those to limited partners in respect to their share of the profits and other
compensation by way of income on their contributions.

(3) Those to limited partners in respect to the capital of their contributions.

(4) Those to general partners other than for capital and profits.

(5) Those to general partners in respect to profits.

(6) Those to general partners in respect to capital. ​(Art. 18631 NCC.)

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