Trusts

Beneficiary
• The person for whose benefit the trust is created is the beneficiary
• For express trusts, acceptance by the beneficiary is necessary. However, if the
trust imposes no onerous condition upon the beneficiary, his acceptance shall
be presumed unless the contrary is proven.

Gov't of the Phil v. Abadilla

Facts:

Luis Palad, a school teacher, obtained title to a certain land (partitioned into 3) by
composition gratuita. He executed a holographic will saying that, after his death, the
said land shall be used after by his wife until she dies or until she marries, and in
such event, it shall be delivered to the Ayutamiento of the town or Governor of the
province, in order for a secondary college to be erected on it.

Luis died and his wife, Dorotea, soon married another.

A few years later, the collateral heirs of Luis filed an action against Dorotea for the
partition of the said property. The municipality of Tayabas intervened claiming the
said land under the will.

Issue:
Who is the rightful owner of the lands?

Held:
2 of the lands rightfully belong to the Municipality of Tayabas.

First, statutory construction provides that testamentary dispositions must be

liberally construed to give effect to the intention of the testator as revealed by the
will. Applying this, the will evidently shows that Luis intended to create a trust in
favor of a secondary school as beneficiary, the trustee being the Ayutamiento or the
Governor.

Second, in order that a trust may be effective, there must be a trustee and a
beneficiary. Although there is currently no ayuntamiento or gobernador civil, there
exists its counterpart, the Governor of Tayabas. Also, in regard to private trusts, it is
not always necessary that the beneficiary is named, or even be in esse at the time the
trust is created in his favor.
Thirdly, the collateral heirs are not entitled to the income of the land, pending the
existence of the beneficiary. This is because since the legal title is now with the
trustee, the heirs no longer have any interest in said land.

Lastly, the remaining lot should remain with Dorotea because she has acquired it
through prescription. This is because, although prescription does not run between
the trustee and the beneficiary, it runs between the former and third persons.

Cristobal v. Gomez

Facts:

Epifanio Gomez sold his property with pact de retro to Yangco, redeemable in 5
years, remaining as lessee. The land was not redeemed. Nevertheless, Yangco
conceded the privilege of repurchasing. However, Epifanio did not have the money,
so he asked the assistance of Banas, who said that he will only grant the loan if his
siblings Marcelino and Telesfora will also be liable to him for the loan.

The latter two agreed so all of them met up in the home of Telefora wherein they all
agreed that Banas will advance the P7k needed for the repurchase, and that the
property will be titled to the siblings who shall hold it until they are paid by
Epifanio. The agreement was made in writing. The siblings also created a
partnership for the purpose of redeeming the property, which had a capital of P7k,
P1.5k by Marcelino and P5.5k by Telefora, Marcelino being the manager. The
agreement, in writing, contained a provision that, in order for the property to be
returned to Epifanio, it is essential that he shall manifest good behavior in the
opinion of the siblings.

The repurchase took place. A year after, Epifanio died leaving a widow Paulina and
four children.

Telesfora, desiring to free herself from the loan to Banas, with the consent of
Marcelino and Banas, had the partnership dissolved, with Marcelino assuming the
entire obligation

Eventually, Marcelino paid out the debt. The heirs of Epifano now come to court
seeking to recover the land and the income received by the property.

Issue:
W/N Marcelino should reconvey the lands to the heirs - Yes

Held:
Yes. First, there was an express trust created in favor of Epifanio, the partnership of
the siblings being the trustee, not a donation.
Second, the contention that the trust agreement was kept secret from Epifanio
therefore he could not have accepted it is belied by the testimony of Banas himself
that Epifanio was present when the agreements were made, and that his signature
appeared in such agreement.

Third, on the argument that Epifanio "misbehaved" by selling salt lots to various
persons and by attending cockfights, activities distasteful to the siblings, those
cannot be taken against him because Marcelino never took any steps to defeat
Epifanio’s rights to the trust on account of his bad behavior.

Lastly, prescription also won’t run in Marcelino’s favor because he didn’t hold it in
the concept on an adverse owner. He held it merely in the concept of a trustee and
prescription can’t run in such capacity.

DBP v. COA

Facts:

The BOD of DBP created a DBP Gratuity Plan which was designed to set up a
retirement fund to cover the benefits due to DBP retiring officials. The BOT of the
Gratuity Plan Fund (GPF) was given control and administration over the fund. The
trustee appointed DBP Trust Services Department (DBP-TSD) as the investment
manager to make the income of the fund sufficient to meant the liabilities of the GPF.

DBP established a Special Loan Program which gave the prospective retirees the
option to advance a portion of his retirement benefit, but it on the condition that it
shall be invested in an profitable investment.

Pursuant to this scheme, DBP-TSD paid to its investor-members a total of P11.6M,

which were disallowed by COA on the ground that the distribution of the income
from such investment was an irregular use of public funds which is prohibited by
law.

Issue:
W/N the disallowance was proper - Yes.

Held:
Yes. First, the income from the GPF is not part of public funds. It is actually the object
of an express trust: the truster DBP, the beneficiaries being the prospective retirees
and the trustees, DBP-TSD. The Agreement clearly transferred legal title over the
Fund to the Fund’s trustees. Consequently, the COA’s directive to record the Fund’s
income in DBP’s books is wrong because such income from the Fund doesn’t form
part of DBP’s revenues. Such income of the Funds constituting the subject matter of
the trust.

Lastly, although the funds are not public funds, the disallowance is still proper
because the rights of the prospective retirees (beneficiaries) to the income is still
inchoate because they haven't retired yet. This is pursuant to a law which prohibits
the employees to receive their benefits before they retire.

5. How express trust are terminated

1. Where the trust fails
2. Upon death of the trustee
3. When trustee acquires the res through prescription by repudiating the trust,
such repudiation is made known to the beneficiary, and the evidence thereon
is clear and conclusive.
• Old Rule: Express trusts are absolutely imprescriptible

III. Implied Trusts

1. Listing of implied trusts not exclusive: Founded on equity.

A. Resulting Trust
• is a trust which is raised or created by the construction of law, it is raised by
implication of law and presumed always to have been contemplated by the
parties, the intention as to which is to be found in the nature of their
transaction but not expressed in the deed of conveyance.
• is based on the equitable doctrine that it is the more valuable consideration
than the legal title that determines the equitable interests in property

Ramos v. Ramos

Facts:

Martin Ramos and Candida were survived by their three legitimate children, Jose,
Agustin and Granada. Martin was also survived by seven natural children which
includes Emiliano.

In the settlement of their estate, Rafael, Martin's brother, was appointed

administrator. A partition, signed by the legit children and two of the natural
children in representation of the other 5 which where still minors, was created and
approved by the court. Said partition gave all the land to the legit children
proportionate to their shares, and gave the natural children cash to be paid by the
legit children.

Eventually, a report was sent to the judge who handled the estate case confirming
the delivery of the shares pursuant to the partition. Said report was signed by the
legit children, the two natural children, and Timoteo Zayco, the guardian of the
minor natural children.

Later, a cadastral court ordered the lands covering Hacienda Calaza, which was
inherited by Jose, be surveyed. Emiliano didn’t file any claim anymore in the
cadastral case, relying instead on Jose who promised to have Titles issued in his and
the other co-heirs name.

Afterwards, Emiliano discovered that Jose in fact had the Title issued in his wife’s
name instead, Gregoria. Further, Emiliano discovered there was in fact an earlier
partition of her father’s estate and the fact she didn’t receive her rightful share.
Emiliano then filed suit to recover Hacienda Calaza and their share in the partition,
claiming that Jose was holding the properties in trust for the natural children.

Issue:
W/N Emiliano can still claim his share - No.

Held:
No. First, the existence of an express trust is negated by the intestate proceeding and
project of partition. Also, a trust must be proven by clear and convincing evidence
based on writing, and cannot be proven by parol evidence.

Second, implied trusts are those which, without being expressed, are deducible from
the nature of the transaction as matters of intent, or which are superinduced on the
transaction by operation of law as matters of equity, independently of the particular
intention of the parties. However, there is no implied trust here because Emiliano
has failed to prove the existence of such by clear and convincing evidence.

Third, Assuming there was a trust, evidence shows that after the cadastral
proceedings, the hacienda was leased to a certain Yulo in 1932. This transaction is a
repudiation by the Ramoses. Being such, the action which was instituted in 1957 (43
years later) is already barred by prescription.

Lastly, although there were alleged irregularities in the intestate proceedings such
as, that some of the "minors" then were not really anymore minors, that Zayco, the
guardian, did not really protect the interests of the natural children, that Atanacia
(the representative natural child) signed the receipt of delivery without
understanding the same because it was in spanish, and others; They are still barred
by laches because they slept on their rights for more than 40 years.

B. Constructive Trusts
• is a trust arising by operation of law, not created by any words, but by the
construction of equity in order to satisfy the demands of justice. It does not
arise by intention but by operation of law.
Diaz v. Gorricho

Facts:

Francisco Diaz and Maria owned 2 parcels of land. Francisco died leaving Maria and
3 children, Manuel, Lolita and Constancia.

Later, Gorricho obtained a judgment against Maria, the lands eventually being sold in
auction to Gorricho. Maria failed to redeem the lands, hence the sheriff executed a
final deed of sale in Gorricho's favor. However, the deed conveyed all the lots instead
of only Maria's half interest therein.

15 years later, Maria having already died, the children filed this action to recover the
1/2 interest of Maria over the lots, contending that the Gorrichos were holding it in
trust for them. Gorrichos allege that the action has already prescribed.

Issue:
W/N the children can recover the 1/2 interest - No.

Held:
No. First, this a case of constructive trust because the Gorrichos obtained the legal
title to the land through the mistake of the sheriff therefore they are holding it in
trust for the Diaz siblings who are the beneficiaries.

However, the siblings are barred by prescription of 10 years and not by laches. This
is because, unlike express and resulting trusts which are imprescriptible unless
repudiated by the trustee, in constructive trusts, prescription applies without need
of repudiation.

The reason for this distinction is that in express and resulting trusts, the delay of the
beneficiary is attributable to the trustee who undertakes to hold the res in favor of
the former. The possession is therefore not adverse. There is a confidential or
fiduciary relationship.

But in constructive trusts, there is no fiduciary relation. The trustee does not
recognize the trust and has no intent to hold it for the beneficiary. the possession is
adverse. Therefore, the beneficiary is not justified in delaying action to recover his
property.

Vda. de Ouano v. Republic of the Philippines

Facts:
In 1949, The National Airport Corporation (NAC), Mactan-Cebu International
Airport Authority’s (MCIAA) predecessor agency, pursued a program to expand the
Lahug Airport in Cebu City. The government negotiated with the landowners who
will be affected by such expansion that they could repurchase their respective lands
should the Lahug Airport expansion project not push through or once the Lahug
Airport closes or its operations transferred to Mactan-Cebu Airport. Some of the
landowners (including the Ouanos and Inocians) accepted the assurance and
executed deeds of sale with a right of repurchase. Others, however, refused to sell
because the purchase price offered was way below market. This forced the Republic
to file a complaint for expropriation, which was granted by the court. In view of the
adverted buy-back assurance made by the government, the owners of the lots no
longer appealed the decision of the trial court.

However, at the end of 1991, Lahug Airport completely ceased operations as

Mactan Airport opened to accommodate incoming and outgoing commercial flights.
The expropriated lots were never utilized for the purpose they were taken as no
expansion of Lahug Airport was undertaken. This prompted the former lot owners
to formally demand from the government that they be allowed to exercise their
promised right to repurchase. The demands went unheeded. Civil suits followed.

Ruling of RTC in Inocian Case: Reconvey the lots back to the landowners
Ruling of CA in Ouano Case: Republic won and case was dismissed – CA reasoned
that the Ouanos, parted with their property not through expropriation but via a sale
and purchase transaction

Issue:
W/N the Ouanos are entitled to the land - Yes.

Held:
Yes. The Ouanos and the Inocians’ right to repurchase is what in the case of Heirs of
Moreno was referred to as constructive trust, one that is akin to the implied trust
expressed in Art. 1454 of the Civil Code, the purpose of which is to prevent unjust
enrichment.

In the case at bench, the Ouanos and the Inocians parted with their respective lots in
favor of the MCIAA, the latter obliging itself to use the realties for the expansion of
Lahug Airport; failing to keep its end of the bargain, MCIAA can be compelled by the
former landowners to reconvey the parcels of land to them, otherwise, they would
be denied the use of their properties upon a state of affairs that was not conceived
nor contemplated when the expropriation was authorized.

In effect, the government merely held the properties condemned in trust until the
proposed public use or purpose for which the lots were condemned was actually
consummated by the government. Since the government failed to perform the
obligation that is the basis of the transfer of the property, then the lot owners
Ouanos and Inocians can demand the reconveyance of their old properties after the
payment of the condemnation price.

Constructive trusts are fictions of equity that courts use as devices to remedy any
situation in which the holder of the legal title, MCIAA in this case, may not, in good
conscience, retain the beneficial interest. We add, however, as in Heirs of Moreno,
that the party seeking the aid of equity––the landowners in this instance, in
establishing the trust––must himself do equity in a manner as the court may deem
just and reasonable.

Equity and justice demand the reconveyance by MCIAA of the litigated lands in
question to the Ouanos and Inocians. In the same token, justice and fair play also
dictate that the Ouanos and Inocian return to MCIAA what they received as just
compensation for the expropriation of their respective properties plus legal
interest.

C. Distinction between resulting trust and constructive trust

Lopez v. CA

Facts:

Juliana Lopez owned several properties. She died leaving his husband Jose, and no
children. In her will, she appointed Jose as trustee of the properties and that if he
were to die or renounce the obligation, her nephew Enrique was to become the new
trustee. The trust was created in favor of education of deserving but needy honor
students.

When she died, 1/2 of the properties were titled to Jose pursuant to law as his share
and the other half (disputed) titled also to him but as trustee in accordance with the
will.

When Jose died, the res was transferred to the heirs of Jose (respondents). Also,
Enrique Lopez (petitioner's father) assumed the trusteeship Juliana's estate.

In 1984, Richard Lopez (petitioner) filed a complaint for reconveyance of said lands
from the heirs of Jose.

RTC and CA ruled that the action has already prescribed

Issue:
W/N the action for reconveyance has prescribed - Yes.

Held:
Yes. First, the disputed properties were excluded from the trust as approved by the
probate court. Assuming a mistake was made where the DP should have been
included in the trust, the registration in the name of Jose would have been erroneous
and therefore a constructive trust has been made.

Second, assuming so, the action is barred by prescription of 10 years because the
period began in 1969 when Jose registered the DP in his name. There is no need of
repudiation because that only applies in express and resulting trusts.

Resulting trusts are based on the equitable doctrine that valuable consideration and
not legal title determines the equitable title and are presumed always to have been
contemplated by the parties. They arise from the nature of circumstances of the
consideration involved whereby one is given legal title but is obligated in equity to
hold it for the benefit of another.

Constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention
against one who by fraud, duress, or abuse of confidence, obtains or holds the legal
right to property which he should not, in equity and good conscience, hold.

D. An implied trust may be proved by parole evidence

Salao v. Salao

Facts:

This litigation is about a 47 hectare fishpond (Calunuran fishpond). Manuel Salao

and Valentina Ignacio had 4 children (Patricio, Alejandra, Juan(Banli), and
Ambrosia).

Manuel Salao died first, followed by the eldest son, Patricio. After some time,
Valentina also died and her estate was administered by Ambrosia.

There were 4 legal heirs (Alejandra, Juan(Banli), Ambrosia and, the son of Patricio,
Valentin). Basically, the lands that were adjudicated were mostly fishponds and
ricelands. After the partition of the estate, it was shown that Banli and Ambrosia
were able to obtain new fishponds which were both registered under the Torrens
System. One of those fishponds is the Calunuran fishpond.

Take note that the person bringing this suit is the daughter of Valentin, named
Benita. This was after Valentin had died. His estate was partitioned between his two
daughters, Benita and Victorina.
Benita is claiming that in obtaining the Calunuran fishpond, funds from the estate of
Manuel Salao were used and as such, Valentin Salao and Alejandra Salao were also
included in that venture/acquisition of the Calunuran fishpond.

There was no documentary evidence to support this claim by Benita. Also, there
were no mention of such interest made in the extrajudicial partition of Valentin’s
estate. Another thing to take into account is that, Ambrosia donated the fishpond in
contention to Banli’s son Juan Salao Jr.

So to recap, the parties in this case is Benita (daughter of Valentin) against Juan Jr.
(Son of Banli and Nephew of Ambrosia). Benita is claiming a share in the Calunuran
fishpond because it claims that her father had a share in acquiring the said
Calunuran fishpond. Juan Jr, disagrees and contends that the sole owner is his father
and aunt, Ambrosia as clearly indicated in the certificate of title.

There was an action for the annulment of the donation to Juan Jr and for the
reconveyance of their share in the Calunuran fishpond. Juan Jr subsequently died
and was substituted by his widow and six children.

Trial Court dismissed the complaint. It found that there were no community of
property among Juan Salao Sr., Ambrosia, and Valentin when the Calunuran fishpond
was acquired. It said that Valentin’s omission during his lifetime to assail the Torrent
titles of Juan and Ambrosia signified that he was not a co-owner of the fishponds. No
strong evidence supported the contentions of Benita.

Both appealed. Benita, because the reconveyance was denied. Juan Jr., because the
claim for damages was denied.

Issue:
W/N the Calunuran fishpond was held in trust for Valentin Salao by Juan Salao Sr.
and Ambrosia.

Held:

NO. Trusts are either express or implied. Express trusts are created by the intention
of the trustor or of the parties. Implied trusts come into being by operation of law.
Express trusts cannot be proven using parol evidence. Implied trusts may be proven
by oral evidence.

In this case, plaintiff’s pleadings and evidence cannot be relied upon to prove an
implied trust. The trial court’s firm conclusion that there was no community of
property between the parties is substantiated by documentary evidence. The fact
that Valentin Salao and his successors-in-interest never bothered for a period of
nearly forty years to procure any documentary evidence to establish his supposed
interest of participation in the two fishponds is very suggestive of the absence of
such interest. There was also no evidence that shows Valentin’s participation in the
Calunuran fishpond.

All in all, the plaintiffs utterly failed to measure up to the yardstick that a trust must
be proven by clear, satisfactory and convincing evidence. It cannot rest on vague and
uncertain evidence or on loose, equivocal or indefinite declarations. A trust cannot
be established, contrary to the recitals of a Torrens title, upon vague and
inconclusive proof.

There was no resulting trust because there was never any intention on the part of
Juan Sr., Ambrosia and Valentin to create any trust. There was no constructive trust
because the registration of the fishpond in the names of Juan and Ambrosia was not
vitiated by fraud or mistake.

This is not a case where to satisfy the demands of justice it is necessary to consider
the Calunuran fishpond as being held in trust by the heirs of Juan Y Salao, Sr. for the
heirs of Valentin Salao. And EVEN IF there was an implied trust, it was clearly barred
by prescription or laches -- the fishpond was registered in 1911, the extrajudicial
demand was made in 1951 (40years).

Municipality of Victorias v. CA

Facts:

Norma Leuenberger inherited a certain lot from her grandmother. She donated a
portion of it to the municipality for a certain high school, another portion she
converted into a subdivision, the rest she cultivated.

Later, she discovered upon survey that part of the land that she was cultivating
included a cemetery owned by the Municipality since more than 30 years ago. She
notified the Mayor and demanded past rentals and reconveyance of the said land.
The Mayor refused and contended that the said property was bought from Simeona
Ditching (grandmother of Norma), but he could not produce a deed of sale and was
only able to produce secondary evidence.

Issue:
W/N the municipality can prove the sale by means of secondary evidence - yes.

Held:
Yes. The record shows that the land was sold to the municipality by Simeona,
however, the municipality failed to register the sale. Because of this, when Simeona
died, Norma was able to claim the property as part of her inheritance.
Because of this, a constructive trust is made wherein Norma holds the disputed
property in trust for the Municipality of Victorias

Although the Municipality could not present the original Deed of Sale covering the
said lot, they produced however a notarial report which showed the following:
• Nature of the instrument – a deed of sale
• Subject of the sale – two parcels of land (Lot 140-A and 140-B)
• Parties of the contract – Simeona and the Mayor of the Municpality
• Consideration - P750

The municipality presented a certificate of the archives division of the bureau of

records management in manila which shows that Simeona indeed sold the land to
the municipality

This is allowed because

"Sec. 4. Secondary evidence when original is lost or destroyed— When the original
writing has been lost or destroyed, or cannot be produced in court, upon proof of its
execution and loss or destruction or unavailability, its contents may be proved by a
copy, or by a recital of its contents in some authentic document, or by the
recollection of witnesses." (Rule 130, Rules of Court).

E. Distinguished from quasi-contracts

PNB v. CA

Facts:

Mata is a manning/crewing agent of several firms, one of which is Star Kist. As part
of their agreement, Mata makes advances for the crew's necessary expenses such as
medical expenses, Seaman’s Welfare Fund, etc. Mata bills Star Kist, who reimburses
it for the same.

One day, Security Pacific National Bank (SEPAC) of Los Angeles, under the orders of
Star Kist, transmitted a cable message to the International Department of PNB to
pay the amount of US$14,000 to Mata by crediting the latter's account with the
Insular Bank of Asia and America (IBAA). Upon receipt, PNB noticed an error and
messaged SEPAC. The latter replied acknowledging that the amount should be
$1,400 for the crew’s expenses instead of $14,000.

PNB followed the instructions and credited the same. However, 14 days later or on
March 11, 1975, PNB credited another payment of $14,000. Six years later or on
May 13, 1981, PNB requested Mata for the refund of the said amount. On February
4, 1982, PNB filed a case to collect the amount.
PNB alleges that the case is a trust therefore the action has not yet prescribed
(10year prescription)

RTC dismissed the case holding that it was a case of solution indebiti. Being a quasi-
contract, the action on it has already prescribed (6 years).

CA affirmed in toto.

Issue:
w/n the case is one of solution indebiti or constructive trust – can be both
w/n PNB can still collect the refund – No.

Held:

(1) SC held that solution indebiti is also applicable in the case at bar, however, since
PNB cannot choose that “path” anymore as the action will have prescribed (6years),
it is forced to choose the option of “constructive trust”.

Constructive Trust
Article 1456 reveals that it is not a trust in the technical sense for in a typical trust,
confidence is reposed in one person who is named a trustee for the benefit of
another who is called the cestui que trust, respecting property which is held by the
trustee for the benefit of the cestui que trust. A constructive trust, unlike an express
trust, does not emanate from, or generate a fiduciary relation. While in an express
trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a
constructive trust, there is neither a promise nor any fiduciary relation to speak of
and the so-called trustee neither accepts any trust nor intends holding the property
for the beneficiary.

In this case, Mata, in receiving the US$14,000 in its account, had no intent of holding
the same for a supposed beneficiary or cestui que trust, namely PNB. But under
Article 1456, the law construes a trust, namely a constructive trust, for the benefit of
the person from whom the property comes, in this case PNB, for reasons of justice
and equity.

(2) No. Although only 7 years has passed, being well within the 10 year prescriptive
period, PNB still cannot claim because it is barred by laches.

While prescription is concerned with the fact of delay, laches deals with the effect of
unreasonable delay. It is amazing that it took PNB almost seven years before it
discovered that it had erroneously paid private respondent. PNB would attribute its
mistake to the heavy volume of international transactions handled by the Cable and
Remittance Division of the International Department of PNB. Such specious
reasoning is not persuasive. It is unbelievable for a bank, and a government bank at
that, which regularly publishes its balanced financial statements annually or more
frequently, by the quarter, to notice its error only seven years later. As a universal
bank with worldwide operations, PNB cannot afford to commit such costly mistakes.
Moreover, as between parties where negligence is imputable to one and not to the
other, the former must perforce bear the consequences of its neglect. Hence, PNB
should bear the cost of its own negligence.

2. When there is a purchase of property where beneficial title is in one person,

but price paid by another person, there is a trust. however if the trustee is a
child of the trustor, no trust is implied by law, it being disputably presumed
that there is a gift in favor of the child.

3. Purchase of property where title is placed in the name of person who loaned
the purchase price - equitable mortgage.

Paringit v. Bajit

Facts:

Spouses Paringit leased a lot from Terocel Realty. After occupying the same for years,
Terocel offered to sell it to the spouses. However, since they had no money Julian
(husband) sought the financial assistance of his children. Of the 5 children, only
Felipe lent the money. Eventually Julian assigned his right to buy the lot to Felipe and
his wife, the lot was sold in favor of the spouses.

Due to issues among the children regarding the ownership of the lot, Julian executed
an affidavit clarifying the nature of Felipe's ownership over it. Said document said
that, upon his death the lot shall be divided equally among the siblings provided that
they reimburse Felipe the proportional amount paid by the latter and that Julian was
waiving his conjugal share. All signed except Florencio. Josefa, Felipe's wife, signed
on his behalf since he was in Saudi at that time.

Later, the lot was registered in Felipe's name. Nevertheless, the spouses moved to
another house on the same street while the siblings remained in the lot without
paying rent.

Later on, Felipe demanded that the siblings pay rental arrearages. Believing that
they had the right to occupy the lot based on inheritance, the siblings refused.

Felipe successfully ejected the siblings hence this petition by the siblings for the
annulment of Felipe's title over the lot.
Issue:
W/N the lot was held by Felipe in favor of the siblings - Yes.

Held:
Yes. First, an implied trust exists where Felipe and his wife bought the lot for the
benefit of the siblings as shown by the following evidence:
1. Felipe and the siblings co-own the lot because of the their mother's share. As
such, if Julian really intended to assign the rights to the lot to Felipe and his
wife, he would have arranged for the siblings to consent being co-owners.
Also, if Felipe intended to buy the lot for themselves, they would have taken
steps to secure the siblings' conformity to the purchase. None of these
happened.
2. The affidavit shows that Julian and his wife bought the land on behalf of the
children, that because they did not have money then Felipe and his wife
advanced the money. Felipe, through his wife, signed this affidavit.
3. If Felipe and his wife really believed that they were the absolute owners of
the lot, then their moving out of the house and letting the siblings remain
there did not make sense.
4. Felipe and his wife did not demand rent for 10 years which shows that they
respected the right of the siblings to reside in the property.
Lastly, the action is not barred by prescription because the 10year period started
only in 1995 when the demand letter was sent. The action was filed 1996. Even
assuming that the period started upon the registration of the property in 1987, they
were still well within the 10 year period.

4. When absolute conveyance of property effected only as a means to secure

performance of obligation of the grantor - equitable mortgage

5. Several persons jointly purchase property, but title is placed in only one of
them

6. Property conveyed to person merely as holder thereof

Heirs of Emilio Candelaria v. Romero

Facts:

Plaintiffs allege that Emilio and Lucas each bought a lot in the Solokan Subdivision
on installment. Lucas eventually sold his interest to Emilio because he could not pay
the installments due to his sickness. The lots were eventually sold and titled to
Emilio, " that the subsequent installments were paid by Emilio in the name of Lucas,
with the understanding that the necessary documents of transfer will be made later,
the transaction being brother to brother"
Later, a TCT was issued in the name of Lucas who held the lot in trust for Emilio, that
this was acknowledged by the heirs of Lucas.

The heirs of emilio filed a complaint for reconveyance of the lot. Defendants allege
that the action is unenforceable and has already prescribed.

Issue:
W/N the action is unenforceable - No.
W/N the heirs are barred by laches or prescription - No.

Held:
(1) No. Based on the allegations, what is created is an implied trust which can be
proven by parole evidence.

(2) No. The lapse of time will only bar the action in a resulting trust if the trustee has
repudiated the trust. It being alleged that the heirs have continuously acknowledged
not only by Lucas but also by the heirs, laches nor prescription cannot be said to
have run barred the action.

remanded.

7. Donation of property to a donee who shall have no beneficial title

Adaza v. CA

Facts:

Victor Adaza and Rosario had 6 children including Horacio and Violeta. Victor
donated a parcel of land to Violeta. Being then part of public land, Horacio and
Violeta applied for a homestead patent which was granted and issued in her name.

A few years later, Horacio became a provincial fiscal and returned to their hometown
for the town fiesta. He invited his siblings for a gathering in his house. During the
meeting, Horacio asked violet to sign a deed of waiver over the land stating that
Violeta and Horacio co-owned the property although the title was issued only in her
name, and that she transfers 1/2 ownership to him. This was signed by both parties
and was duly notarized.

Later, Violeta and her husband Lino filed to annul the waiver claiming that they were
the absolute owners of the land and that her consent was obtained through fraud
and undue influence.
Horacio contends that her ownership was subject to Horacio's rights as co-owner
and to the obligation to keep or use the property for the benefit of the parents while
they were still alive.

RTC held for Horacio finding no vitiated consent. CA, although having the same
finding, reversed based on the fact that the deed of waiver was a donation not in
accordance with the formal requirements of a donation

Issue:
W/N Horacio is a co-owner of said land - yes

Held:
Yes. First, the deed of donation by their father shows a crossed-out provision that
says "that the donee shall share 1/2 of the property with one of her brothers or
sisters after the death of the donor". Horacio testified that the father intended the
land to be donated to him and Violeta, that he himself crossed-out the provision with
the consent of the father to make it appear that the only donee was Violeta in order
to facilitate the issuance of the title in her name.

There being an ambiguity due to the crossed-out provision, the intent of the donor
must be ascertained. The evidence shows that the real intent of the donor was to
donate the land to both Horacio and Violeta. This is shown by the following
evidence:
1. Violeta acknowledged this intention through the Deed of waiver which she
signed voluntarily
2. Testimonial evidence of 2 of their siblings confirming this intention
3. Their parents owned a lot of properties, and made it a practice to have them
transferred to one or another of the siblings.
4. Violeta wrote 2 letters to Horacio acknowledging the latter's co-ownership
It may be noted that this is not a case of an older brother exploiting or cheating his
younger sister. On the contrary, the evidence showed that petitioner Horacio had
taken care of his father and mother and of his sister Violeta, that petitioner Horacio
had been quite relaxed and unworried about the title remaining in the name of his
sister alone until Violeta had gotten married and her husband began to show what
petitioner thought was undue and indelicate interest in the land in Sinonok.

Finally, the Deed of Donation created an implied trust in favor of Horacio

“Art. 1449. There is also an implied trust when a donation is made to a person but it
appears that although the legal estate is transmitted to the donee, he nevertheless is
either to have no beneficial interest or only a part thereof.”

and he is not barred by laches because the latest letter of Violeta acknowledging the
share of Horacio was sent in 1971, the same year the action was filed.
8. Land passes by succession but heir places the title in a trustee

9. When trust fund used to purchase property which is registered in trustee's

name

Sing Juco v. Sunyatong

Facts:

Juco and Bengco (petitioners) obtained an option contract to from Maria Gay
offering a certain Estate. The option will expire at 12nn on a certain date.

Sunyatong was an employee of the petitioners. On an early morning on the day of

expiry, Sunyatong went to Maria and offered to buy the land according to the terms
offered to the petitioners. Respecting its option contract with petitioners, Maria
contacted petitioners asking for a categorical answer to the offer, but the petitioners
remarked that if she did care to wait until 12nn then "bahala siya" or ambut sa iya.

Interpreting the remark that they have waived their option to buy, the land was sold
to Sunyatong hence the suit by petitioners.

Issue:
W/N there was an implied trust between Sunyatong and petitioners over the
property - Yes

Held:
Yes. Sunyatong obtained the property through disloyalty as evidenced by the
following:
1. In one of petitioners' meetings regarding the purchase of the land, Sunyatong
advised to let some days lapse before accepting the offer so that Maria won't
think that they were coveting the property.
2. Sunyatong told Alipio, the person sent by petitioners to inspect the land and
who found it favorable, not report that it was valuable and a good buy
because if it proved a failure, he might be blamed
3. He offered to buy the land knowing that the option has not yet expired

His disloyalty to his principals ultimately resulted to an end in the negotiations over
the land. Without such intervention, it may be reasonably presumed that the sale
would have been consummated.

Applying the provisions on code of commerce and principles of equitable trusts, by

virtue of which the property acquired by an employee is deemed to have been
acquired not for his own benefit but for his principal and held in trust for the latter.
10. when property is acquired through mistake or fraud

Figuracion v. Figuracion-Gerilla

Facts:

Eulalio owned a certain parcel of land. He had 2 daughters, 1 with Marcela named
Agripina, and the other with Faustina named Carolina.

Later, Agripina executed a Deed of Quitclaim over the eastern portion of said land
in favor of Carolina's daughter, Emilia.

Later, Carolina executed an Affidavit of Self-Adjudication adjudicating unto herself

the entire land as the sole heir of Eulalio and Faustina. She later sold the said land to
her daughters Hilaria and Felipa who later registered the lot in their name.

Eventually, relying on the DQ, Emila built a house on the eastern half of the said land.
However, when Hilaria and Felipa found out, they threatened to demolish her house
claiming they were the owners. Hence this case filed by Emilia for the annulment of
the Affidavit of Self Adjudication and Deed of Sale executed by Carolina, and/or the
partition of the lot

Issue:
W/N Emilia has a right to the land and can compel partition - Yes

Held:
Yes.

OWNERSHIP. First, Emilia is the owner of the eastern portion of Lot 707 by virtue of
the quitclaim. It can’t be rendered ineffective by the TCT in the name of Felipa and
Hilaria. Mere issuance of certificate of title in the name of any person does not
foreclose the possibility that the real property may be under co-ownership with
person not named in the certificate or that the registrant may only be a trustee or
that other parties may have acquired interest over the property subsequent to the
issuance of the certificate of title. Co-ownership was successfully established by
Emilia.

The Affidavit of Self Adjudication did not prejudice the share of Agripina because it
not legally possible for one to adjudicate unto himself an entire property he was not
the sole owner of. Each of them only had the right to alienate the lot but only in so
far as the extent of her portion was affected. Being the successor in interest of
Agripina’s share in Lot 707, Emilia took the former’s place in the co-ownership and
as such, has the right to compel partition anytime.

PRESCRIPTION. Second, Co-heirs and co-owners can’t acquire by acquisitive

prescription the share of the other co-heirs or co-owners absent a clear repudiation
of the co-ownership. The act of repudiation, as a mode of terminating co-ownership
is subject to certain conditions: 1.) co-owner repudiates the co-ownership; 2.) such
an act of repudiation is clearly made known to the other co-owners; 3.) the evidence
thereon is clear and conclusive; and 4.) he has been in possession through open,
continuous, exclusive and notorious possession of the property required by law. In
this case this was not proven.

IMPLIED TRUST. Third, Implied trust by force of law was created when Hilaria and
Felipa registered the lot in their names to the exclusion of Emilia and the two of
them were considered a trustee of Emilia’s undivided share. As trustees they can’t be
permitted to repudiate the trust by merely relying on the registration. Prescription
can only produce all of its effects when acts of ownership, or in this case, possession,
do not evince any doubts as to ouster of the rights of the other co-owners. The
express disavowal of co-ownership did not happen during the issuance of the TCT
but happened in 1994 when the sisters attempted to demolish Emilia’s house. On
the same year, Emilia instituted the action for partition thus the period required by
law for acquisitive period to set in was not met.

OWNERSHIP OF LOT 707. Under the Old Civil Code (when Eulalio and Marcela
married), the lot was their conjugal property. When Marcela died, ½ of the lot was
reserved to Eulalio and the other half to Agripina and Eulalio. Eulalio was entitled
only to the usufruct while the naked ownership belonged to Agripina. When he
remarried, his half portion of the lot and his usufructuary right over the other half
were brought into his second marriage with Faustina.
When Eulalio died ¼ of the lot was reserved for Faustina. The remaining ¼ were
transmitted equally to Faustina, Carolina and Agripina. The usufructuary of Eulaiio
was then merged with Agripina’s naked ownership. Upon death of Faustina, her
conjugal share and usufructuary rights were merged with Carolina’s naked
ownership. Hence Agripina is entitled to 5/8 portion of the lot while the remaining
3/8 pertains to Carolina. Thus when Carolina sold Lot 707 to Hilaria and Felipa, the
sale only affected only that portion. Since the quitclaim only bequeathed only half of
the eastern portion of the lot in favour of Emilia, the remaining 1/8 of the lot shall be
inherited by Carolina, her closest collateral relative.

Pasino v. Monterroyo

Facts:
In 1952, Laureano Pasino applied for a Homestead patent over a 2 pieces of land,
lot 2138 and 2139. Later, after his death, the patent was granted but his heirs did not
receive the order so they were not able to register the land under their name.

Eventually, Jose, the son of Laureano, was able to secure a title in his name for lot
2138. He also sold lot 2139 to his children, the petitioners here, and eventually were
able to secure a title in their names. They allege that the Monterroyos forcibly took
possession of their property lot 2139.

The Monterroyos on the other hand contend that, lot 2139 was sold to them by a
certain Arturo, tracing his title to a certain Larumbe who sold the said land to a
certain Teves in 1949. All these transactions were evidenced by Deeds of Sale which
were shown in court. Hence this case to compel reconveyance of the land to
Monterroyos.

Issue:
W/N the Pasinos have a right to lot 2139 - No.

Held:
No. First, the records show that in 1947, before the application for the patent,
Laureano sold lot 2139 to Larumbe from whom the Monterroyos trace their title to.

Second, although the Pasinos were granted a patent, the non-registration thereof
had rendered it functus officio (having no more legal efficacy).

Finally, although a decree of registration is incontrovertible, an action for

reconveyance would prosper if it is shown that title to such registration was
obtained through fraud or mistake. In this case, there was a constructive trust over
the land held by the Pasinos as trustee in favor of the Monterroyos because the
Pasinos were able to obtain title thereto through mistake/fraud, therefore, former
can have the reconveyance in their favor.

In Contrast:

Gayondato v. Treasurer

Facts:

Domingo Gayondato owned 3 parcels of land. Domingo later married Adela and
bore a daughter, plaintiff Rosario Gayondato.

Later, after Domingo's death, Gabino Gasataya, Adela's father, took charge of the
land and later turned them over to Adela and his second spouse, Domingo Cuachon.
Later, a cadastral survey erroneously decreed the title of the lands in favor of Adela
alone, despite the Answer made by Cuachon that the land was owned by both Adela
and Rosario. Subsequently, they were mortgaged to PNB and sold to the defendant,
Rodriguez.

Later, when Rosario came of age, she filed this case against Adela, Cuachon,
Rodriguez and the Insular Treasurer for damages due to the erroneous registration
of the land.

The RTC absolved the Insular Treasurer and Rodriguez, but held the others liable

Issue:
W/N the treasurer and rodriguez should also be liable - Yes.

Held:
Yes. First, the Land Registration Act provides that "any person who is wrongfully
deprived of any land or any interest therein, without negligence on his part, through
the bringing of the same under the provisions of this Act or by the registration of any
other person as owner of such land..and who by the provisions of this Act is barred
or in any way precluded from bringing an action for the recovery of such land or
interest therein, or claim upon the same, may bring in any court of competent
jurisdiction an action against the Treasurer of the Philippine Archipelago for the
recovery of damages to be paid out of the assurance fund."

It also provides that when the damage was due to the acts or omissions of the clerk,
or of the register of deeds, or of any examiner of titles, or of any deputy or clerk of
the register, then the sole defendant will be the Treasurer. However, if any other
person caused or contributed to the damage, then such person shall be impleaded
along with the Treasurer.

Second, although the Land Registration Act that the assurance fund shall not be
liable to pay for any loss or damage or deprivation occasioned by a breach of trust,
express, implied, or constructive, the term constructive trust must be understood in
its technical sense, not in its broadest sense.

In its technical sense, trust is a right of property, real or personal, held by one party
for the benefit of another. (Bouvier) In this case, there is no such trust because
although Adela was the guardian of Rosario at the time, such guardianship did not
extend to the minor's property. And being a minor then, she could not create a trust
in a technical sense.

Escobar v. Locsin
Facts:

Eusebia Escobar alleges that she is the owner of the disputed land and that during
the cadastral proceedings, as she was illiterate, she asked Domingo Sumangil to
claim the said land for her, but Sumangil instead claimed it for himself and was
eventually adjudicated in his favor.

When Sumangil died, the said land was transferred to Juana Ringor, the defendant
in this case, represented by Ramon Locsin as administrator. Hence this action for
reconveyance.

The CFI, while recognizing the equitable title of Eusebia, nevertheless dismissed the
complaint on the ground that the 1 year period to review a decree has already
lapsed.

Issue:
W/N Eusebia can have the reconveyance of the property - Yes.

Held:
Yes. First, what is being prayed for here is the enforcement of the trust, not the
review of a decree.

Second, there is a constructive trust here over the land held by the estate of
Sumangil in favor of Eusebia, because the former obtained title thereto through
fraud.

Finally, the Land Registration Act was not intended to cut off the equitable rights or
remedies of the aggrieved plaintiff. This is recognized by the same law itself which
provides that, "nothing in this act shall in anyway be construed to… change or affect
in any way any other rights or liabilities created by law and applicable to
unregistered land, except as otherwise expressly provided in this Act or in the
amendments hereof." The Torrens system was not intended to foment betrayal in the
performance of a trust. A trust is sacred and inviolable.

Cavile v. Litania-Hong

Facts:

The heirs of spouses Cavile and Galon, through a Deed of Partition, partitioned
several parcels of land. 2 of the lands here are the subject of this case, lot 7421 and
7956. These lots were later sold to another co-heir, Castor, thus making him the sole
owner of said lands.
Later, Castor and Susana (his sister) executed a Confirmation of Extrajudicial
Partition which recognized and confirmed that lots 2039 and 2040 were the lawful
shares of Susana in the properties left by their parents.

The descriptions of lots 7421 and 7956 were exactly the same as those of lots 2039
and 2040.

14 years later, the heirs of Susana, Justina and Genova, filed a case for reconveyance
of lots 2039 and 2040 against the daughter of Castor, Perfecta.

Issue:
who is the rightful owner of the said lots - Perfecta

Held:
Perfecta. Lots 2039 and 2040 are the same lots as 7421 and 7956.

First, the preponderance of evidence is in favor of Perfecta. It has been shown that
Castor was able to become the owner thereof through a sale by his co-heirs to him.
On the other hand, Justina and Genova only present the Confirmation of
Extrajudicial Partition which does not explain how the properties were transferred
to Susana but only expresses Castor's acknowledgment that Susana owns them.

Second, although the incontrovertibility of a Torrens title can be defeated by an

action to enforce a constructive trust through reconveyance, the action of
reconveyance however should be filed within 10 years from the time the cause of
action accrued - In this case, from the time the title to the property was issued in
favor of Perfecta. Because 12 years have already lapsed from the time the properties
were titled to Perfecta, the action is barred by prescription.

Estrella Yared v. Tiongco

Facts:

Lots 3244 and 1404 were titled in the name of co-owners Matilde, Jose, Vicente and
Felipe, all children of Maria Luis de Tiongco.

Lot 3246 was titled under the name Heirs of Maria Luis de Tiongco.

Petitioner Estrella, daughter of Jose, built a house on lot 1404. She was collecting on
rentals from lots 3244 and 3246. She filed an adverse claim on all the lots but it was
annotated only on lots 3244 and 1404.
Later, respondent Jose (son of Carmelo who is the brother of petitioner Estrella)
filed a case to recover possession of lots 3244 and 3246, he also filed a case of
unlawful detainer against Estrella on lots 1404.

Estrella later discovered that even before the action, Jose already had the titles over
all the lands registered in his name by executing an Affidavit of Self Adjudication,
alleging that he was the only surviving heir of the registered owners.

She also discovered that Jose had already sold the lands to 3rd persons, which Jose
was eventually able to buy back.

Hence this case to annul the Affidavit of Adjudication, and to revert the titles under
the original owners.

RTC held that the action had already prescribed because 16 years has already lapsed
since the titles were registered under Jose's name

CA affirmed.

Issue:
W/N the action has already prescribed - No.

Held:
No. First, although an action for reconveyance based on a constructive trust
prescribes in 10 years, the exception is when the plaintiff is in possession of the land
to be reconveyed. This is because the action of reconveyance becomes an action to
quiet title which is not subject to prescription.

In this case, Estrella's possession was disturbed in 1983 when Jose filed an action for
recovery of possession against her. In that case, RTC ruled in favor of respondent,
but CA ruled in favor Estrella therefore she never lost possession of the property.

Also, the sale to 3rd persons of the land did not cleanse Jose's title over the same as
they were not innocent purchasers for value. This is because although every person
dealing with a Torrens title has a right to rely on the face of the title thus making
them in good faith, the exception is when the party has "actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such
inquiry or when the purchaser has some knowledge of a defect or the lack of title in
his vendor or of sufficient facts to induce a reasonably prudent man to inquire into
the status of the title of the property in litigation".

In this case, the 3rd party buyers should been put on guard by the fact the vendor,
Jose, was not in possession of said properties.
Side note: Respondent Jose Tiongco is a lawyer, and SC in this case ordered him to
show cause why he should not be sanctioned for executing the Affidavit of
Adjudication.

PNB v. Circiaco Jumamoy

Facts:

An RTC decision held that the 2 hectares out of the 13 hectare land of Antonio Pace,
actually belongs to Sesinando Jumamoy, Circiaco's father. Said decision ruled the
conveyance of such portion to Circiaco.

The decision became final and executory but the Deed of Conveyance in favor of
Circiaco Jumamoy could not be annotated on the title because it had already been
cancelled pursuant to a foreclosure in favor of PNB, the current owners of the said
land. The land was apparently mortgaged in 1971 to PNB. The annotation could not
be made because PNB was not impleaded in the case against Antonio.

Hence this case against PNB for the reconveyance of the 2 hectares.

RTC ruled in favor Circiaco by finding that PNB was not a mortgagee/purchaser in
good faith because, although the mortgage was made in 1971 and the lis pendens
was annotated only in 1988, it failed to take the necessary steps to protect its
interest such as sending a field inspector to the area to determine the real owner, its
occupants, its improvements and its boundaries.

CA affirmed

Issue:
W/N the 2 hectares should be reconveyed to Circiaco - Yes.

Held:
Yes.

First, PNB is not an innocent purchaser/mortgagee for value because a bank has the
duty to ascertain the status or condition of a property offered to it as security for a
loan. Because of this, it should have taken the necessary steps to protect its interest
such as sending a field inspector to the area to determine the real owner, its
occupants, its improvements and its boundaries.

Also, PNB is not in good faith because at the time the mortgage was made, the land
was still not registered. It was annotated only 5 months later when the OCT came
out. This shows with more reason that PNB should have verified the status of the
property before granting the loan.
Lastly, although an action for reconveyance based on a constructive trust prescribes
in 10 years, the exception is when the plaintiff is in possession of the land to be
reconveyed. This is because the action of reconveyance becomes an action to quiet
title which is not subject to prescription.

In this case, it has been judicially established that Circiaco is in actual possession of
the property he claims as his and that he has a better right to the disputed portion,
his suit for reconveyance is in effect an action for quieting of title which is
imprescriptible.

Partnership

1. Definition

Art. 1767. By the contract of partnership, 2 or more persons bind themselves to

contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

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

2. Tri-level existence / Legal relationship in a partnership setting

1. Primarily a contractual relationship
◦ Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary.
◦ Art. 1784. A partnership begins from the moment of the execution of
the said contract, unless it is otherwise stipulated.
◦
2. Separate juridical personality as the medium to pursue business
◦ Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of Art. 1772 1st par.
◦
3. Underlying business enterprise as the primary objective

Yu v. NLRC
Facts:

Benjamin Yu was the Assistant GM of Jade Mountain Ltd., a partnership engaged in

the exploitation of marble deposit on land owned by the spouses Cruz.

Yu however received only half of his stipulated salary, but the partners promised
that the balance would be paid when the firm shall have secured additional
operating funds from abroad.

Later, the partners Bendal sold their interest to Co and Zapanta, who eventually
terminated Yu's services without paying his unpaid salaries. hence this case of illegal
dismissal and recovery of unpaid salaries.

The Labor Arbiter ruled for Yu. NLRC reversed holding that there was no law
requiring the new partnership to absorb the employees of the old partnership.
Benjamin Yu, therefore, had not been illegally dismissed by the new partnership
which had simply declined to retain him in his former managerial position or any
other position. It also held that Yu should claim his unpaid wages from the original
partners, not the new partners.

Issue:
w/n Co and Zapanta should be liable to Yu for illegal dismissal and unpaid salaries -
only for unpaid salaries, not for illegal dismissal.

Held:
Yes. First, in this case, the old partnership was dissolved and a new one was created
but still working under the same name, Jade Mountain. However, although the
partnership was dissolved, it has not yet terminated because the partnership "has
not yet completed the winding up of its affairs".

Art. 1829. On dissolution, the partnership is not terminated, but continues until the
winding up the partnership affairs have been completed.

Because of this situation, Art. 1840 applies. It provides that the creditors of the old
partnership shall be the creditors of the new partnership if the business is
continued without liquidation of the partnership affairs. Therefore, in this case, both
the old partners and the new are liable to Uy.

Second, there is no illegal dismissal. This is because the termination was due to
redundancy. The new partnership had Co as its GM. Also, the position of GM or
Assistant GM belongs to the most senior ranks of management and a new
partnership is entitled to appoint a top manager of its own choice and confidence.
However, Yu is also entitled to moral damages due to the fact that the treatment
given to him was so summary and cavalier as to amount to arbitrary, bad faith
treatment.

3. Essential elements and purpose of the partnership

1. Consent
1. Persons who are not partners to one another are not partners as
to third persons
▪ Except: Partnership by estoppel
▪ Art. 1825. When a person, by words spoken or written
or by conduct, represents himself, or consents to
another representing him to anyone, as a partner in an
existing partnership or with one or more persons not
actual partners, he is liable to any such persons to
whom such representation has been made, who has, on
the faith of such representation, given credit to the
actual or apparent partnership, and if he has made such
representation or consented to its being made in a
public manner he is liable to such person whether the
representation has or has not been made or
communicated to such person so giving credit by or
with the knowledge of the apparent partner making the
representation or consenting to its being made:
1. when a partnership liability results, he is liable
as though he were an actual member of the
partnership
2. when no partnership liability results, he is liable
pro rata with the other persons, if any, so
consenting to the contract or representation as
to incur liability, otherwise separately.
3. When a person has been thus represented to be a
partner in an existing partnership, or with one or
more persons not actual partners, he is an agent
of the persons so consenting to such
representation to bind them to the same extent
and in the same manner as though he were a
partner in fact, with respect to persons who rely
upon the representation. When all members of
the existing partnership consent to the
representation, a partnership act or obligation
results' but in all other cases, it is the joint act or
obligation of the person acting and persons
consenting to the representation.
2. Subject Matter
 1. Seeking the joint pursuit of a business venture or enterprise as
indicated by an agreement to contribute to a common fund, and
to intention to divide the profits and losses.
▪ Except: joint pursuit of a profession
▪ Art. 1770. Partnership must be established for the common
benefit or interest of the parties
▪ Art. 1799. A stipulation excluding a partner from participation
in the profits and losses is void
3. Consideration
1. Undertaking to contribute money, property or industry to a
common fund
4. Rules on perfected partnership
1. Art. 1769. In determining whether a partnership exists, these rules
shall apply:
2. Except as provided in Art. 1825 (partnership by estoppel), persons
who are not partners as to each other are not partners as to 3rd
person
3. Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property
4. The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common
right or interest in any property which the returns are derived
5. The receipt by a person of a share of the profits of a business is prima
facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(DWARIC)
▪ as a debt by installments or otherwise
▪ as wages of an employee or rent to a landlord
▪ as annuity to a widow or representative of a deceased partner
▪ as interest on a loan, though the amount of payment vary with
the profits of the business
▪ as the consideration for the sale of a goodwill of a business
or other property by installments or otherwise
5.

Except as provided in Art. 1825 (partnership by estoppel), persons who are

not partners as to each other are not partners as to 3rd person

Estanislao Jr. v. CA

Facts:
Petitioner Eligio, and the respondents Remedios, Emilio and Leocadio are
siblings. They were co-owners of certain lots being leased to Shell. Later, they agreed
to open and operate a gas station (Estanislao Shell) with an initial investment of
P15k to be taken from the advance rentals due them from Shell. They executed a
Joint Affidavit to embody this.

They also agreed that Eligio will operate and manage the gas station for the family,
and that he will be the sole dealer, in accordance with Shell's one dealer policy.
Remedios helped in co-managing for 1 year.

Later, they all executed an Additional Cash Pledge Agreement which reiterated
that the P15k advance rentals shall be deposited with Shell to cover advances of fuel
to Eligio as dealer, with a proviso that said agreement "cancels and supersedes the
Joint Affidavit previously executed"

Initially, Eligio rendered an accounting of the business to his siblings, but eventually
he did not do so anymore. Because of this, his siblings filed an action to compel
Eligio to execute a public instrument embodying the partnership, to render an
accounting of the business, and to pay them their shares in the profits.

RTC held for respondents after reversing itself.

CA affirmed

Issue:
W/N there was a partnership established between the siblings - Yes

Held:
Yes.

The JA states that the P15k advance rentals due them shall be added to their capital,
crediting them as monthly rent. In the ACPA, the parties assigned to Shell P15k
worth of rentals which would be a cash deposit in favor of Shell to increase the
credit limit of Eligio, their dealer. Said document also contained a proviso that it will
cancel and supersede the JA.

First, Eligio's reliance on said proviso that whatever partnership may have been
created in the JA has already been abrogated by the ACPA, is wrong. The canceling
provision only cancels the P15k to be credited as monthly rent, now making it a cash
deposit to increase the credit limit of the Eligio the dealer.

Second, although the ACPA is silent as to the P15k as capital, and even mentions
Eligio as sole dealer, this is as it should be because as Shell was a signatory in the
ACPA, it would be contrary to its policy if the ACPA stated that business is a
partnership with Eligio's siblings and not his sole proprietorship.
Third, the following evidence show that a partnership was created:
1. Eligio rendered an accounting of the business to his siblings
2. He also gave a written authority for Remedios to examine and audit the books
of their business
3. Remedios co-managed the business
There is no doubt that the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the intention of dividing the
profits among themselves.

The sole dealership by Eligio and the issuance of all government permits and
licenses in his name was in compliance with the aforestated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.

Yulo v. Yang Chiao Seng

Facts:

Yang wrote a letter to Yulo proposing a partnership between them to operate a

certain theater in Manila, under the condition that:
(1) Yang guarantees Yulo monthly participation of P3k
(2) the partnership will be terminated after 2yrs and 6months, unless it is
terminated through:
a. expropriation or the land is rendered impracticable for the business
b. the construction of a permanent building thereon by the owner, or
c. the termination of Yulo's right of lease by the owner
(3) Yulo can conduct business in the lobby of the theater as long as it does not
obstruct the ingress and egress of the customers
(4) that after the period of the partnership has lapsed, all the improvements therein
shall belong to Yulo. But if the partnership is terminated in any other manner in (2),
Yang shall own them

Yulo agreed so they executed a partnership agreement forming "Yang and Company",
the capital of which is P100k, 80k from Yang, 20k from Yulo. The profits to be shared
proportionately.

Later, they executed a supplemental agreement extending the period of the

partnership for another 3 years, indicating therein that the profit sharing will be 50-
50

Later, through legal action, the lease by Yulo of the land was terminated by its
owners pursuant to their lease contract.

Pending that case and around 2 months before the expiry of the partnership, Yulo
demanded from Yang her share of the profits. But Yang said that, as he was a
sublessee of Yulo, he was refusing to pay the rental on the ground that Yulo was not
paying rent during the litigation.

Because of this, Yulo filed this action to compel Yang to give her her share, alleging
that a partnership existed between her and Yang.

Yang denies the existence of the partnership and contends that the real agreement
between them was one of lease, that the partnership was a subterfuge to evade the
prohibition on sublease by the owners of the land.

Issue:
W/N there was a partnership - None.

Held:
There is no partnership, only a sublease.

The requisites of a partnership are: (1) 2 or more persons bind themselves to

contribute money, industry, or property to a common fund, and (2) intention of the
parties to divide the profit among themselves.

First, Yulo did not give her P20k share for the capital

Second, she did not help or intervene in the management of the theater.

Third, she never demanded an accounting of the expenses and earnings of the
business.

If she was really a partner, her first concern would be to find out how the business
was going, etc, but she did not do anything but receive her P3k a month which can
only be interpreted as payment for the use of the premises Yulo leased from the
owners.

Lastly, Yulo was clearly acting in accordance with their first agreement and because
of this, she claims P41k representing her 3k per month starting in 1949. However,
pursuant to the same contract, her right to the 3k ceased on the day she lost her
right to the lease.

i. Co-ownership or co-possession does not of itself establish a partnership,

whether such co-owners or co-possessors do or do not share any profits made
by the use of the property

Evangelista v. CIR
Facts:

Petitioners are the Evangelista siblings. They gathered P60k together and from
their father for the purpose of buying real properties. They bought 4 parcels of land
and leased them to various tenants. They appointed Simeon Evangelista to manage
the properties, and empowered him to sue in their behalf against defaulting tenants.

CIR demanded the payment of corporation income taxes from them amounting to
P6.8k total for the past 5 years.

Issue:
W/N the Evangelista siblings are subject to the corporation tax - Yes

Held:
Yes. First, NIRC defines a corporation therein to include "partnerships, no matter
how created or organized". Also, based on the civil code, the elements of a
partnership are (1) 2 or more persons bind themselves to contribute money,
industry, or property to a common fund, and (2) intention of the parties to divide the
profit among themselves.

In this case, both elements are present. The first element is undoubtedly present
because they contributed to a common fund. The second element is also present as
shown by the following evidence:
1. The common fund was not something they found or inherited it. They
intentionally created it themselves and even borrowed a portion of it to
establish it.
2. They invested the same, not in one transaction, but in a series of transaction.
There was a character of habituality peculiar to business transactions
engaged in for purposes of gain.
3. The lots were not used for residential purposes but for leasing purposes.
4. The appointment of 1 sibling as a manager with powers to lease, sue, collect,
etc, are similar to that of a business enterprise operated for profit.
5. These conditions have existed for more than 15 years

Second, they argue that they are merely co-owners because no independent
personality was created therefore they cannot be taxed. This is wrong because the
NIRC specifically says that a corporation includes partnerships "no matter how
created or organized, joint accounts and associations, except general partnerships".
It should be noted that joint accounts and associations do not also have a separate
juridical entity. This means that the law does not make the existence of such
separate entity as a condition essential to partnerships for taxation purposes.

Finally, they are also liable for the residence tax and real estate dealers' tax
Note: concurring opinion observes that although Art. 1679 provides that:

1. Co-ownership or co-possession does not of itself establish a partnership,

whether such co-owners or co-possessors do or do not share any profits made by
the use of the property
2. The sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any
property which the returns are derived

This should be interpreted such that, co-ownership or profit sharing, by themselves,

do not establish a partnership. The 2 elements must still be present, the
contribution to a common fund of money, industry or property, and the intention of
the parties to divide the profit among themselves.

Ona v. CIR

Facts:

When his wife died, Lorenzo Ona became the administrator of her estate. In the
settlement of the estate, Lorenzo was appointed as the guardian of his then minor
children. Lorenzo submitted and was granted the project of partition over their
properties that he asked for, but it was never pursued.

The properties remained in the care of Lorenzo, the shares instead of being
distributed to the heirs as their share of the estate, were used, through a series of
transactions, to further make the properties grow and more valuable, all these with
their consent. Eventually, the value of the properties and the incomes grew. The
incomes were distributed to the heirs in proportion to their share of the estate.

Based on these facts, the CIR decided that the Onas had formed and unregistered
partnership and therefore it assessed and subjected them to the corporate income
tax.

Issue:
W/N the Onas had formed an unregistered partnership which is subject to the
corporate income tax - Yes.

Held:
Yes. From the moment the heirs allowed the incomes from their respective shares
and the inherited properties themselves to be used by their father as a common fund
in undertaking several transactions or business, with the intention of deriving profit
and sharing them proportionately, such act was tantamount to actually contributing
such incomes to a common fund and, in effect, they thereby formed an unregistered
partnership within the purview of the above mentioned provisions of the Tax Code.
Second, before the partition and distribution of the properties, the heirs are
co-owners of such inheritance and are not to be considered unregistered co-
partners. However, this is not absolute for it could easily be used to circumvent
the tax provisions of the NIRC on partnerships. The exception is when a
reasonable time has passed and the heirs have not yet partitioned or
distributed the properties and the elements of a partnership exist, there exists
a partnership.

Third, although Art. 1769 provides that "The sharing of gross returns does not of
itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns are derived", for
tax purposes, a partnership includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on.

Lastly, the partnership profits distributable to the heirs must be reduced by the
amounts of income tax assessed agains the partnership. The heirs are barred by
prescription from recovering the excess tax payments they made.

Pascual v. CIR

Facts:

Pascual and Dragon bought 2 parcels of land from a certain Bernardino, and 3
parcels of land from a certain Roque. They later sold all the land at a profit of P200k
in 1968 and 1970. They paid the corresponding capital gains tax in 1973 and 1974
by availing the tax amnesties granted in said years.

Later, the BIR assessed and required them to pay P100k for deficiency in corporate
income taxes since 1968 and 1970.

Issue:
W/N Pascual and Dragon formed an unregistered partnership and are therefore
liable for the corporate income tax - No.

Held:
No. First, the Evangelista ruling does not apply because there is no clear showing
that the petitioners entered into an agreement to contribute money, property or
industry to a common fund with the intention of dividing the profit amongst
themselves. BIR just assumed these conditions to be present on the basis of the fact
that petitioners purchased certain parcels of land and became co-owners thereof.
Second, in the Evangelista ruling, the case hinged upon the "series of
transactions" entered into that created the character of habituality peculiar to
business transactions engaged in for the purpose of gain.

In this case however, the petitioners bought 2 parcels of land in 1965 which they
did not sell or improve. The next year, they bought 3 more parcels of land. It was
only years after that they sold the parcels of land. The transactions were isolated
and cannot be characterized by a habituality peculiar to business transactions
engaged in for the purpose of gain.

Third, the sharing of returns does not by itself establish a partnership whether or
not the persons sharing therein have a joint or common right or interest in the
property. There must be a clear intent to form a partnership, the existence of a
juridical personality different from the individual partners, and the freedom of each
party to transfer or assign the whole property.

Lastly, assuming that they have indeed formed an unregistered partnership

therefore making them liable as partners for the tax since they did not form any
separate juridical entity, they have been relieved from this duty by availing of the
benefits of the tax amnesty.

Sharing of gross return does not create a partnership

Receipt by a person of a share in the profits of a business

Bastida vs Menzi and Co.

Facts:

Menzi and Co was a corporation engaged in the business of importing and selling
fertilizer.

Bastida, having a contract with Philippine Sugar Centrals Agency for 1,250 tons of
fertilizer but without the resources to produce such amount, offered to Menzi the
assignment of such contract and to offer Menzi other contracts it has on the
condition that he gets 35%? of the net profit and that he supervises mixing of the
fertilizer. Menzi agreed so they execute a contract.

During the course of their business together, audits of the business were made and
presented to Batisda who did not object to the findings.
Later, Batisda was paid his share of around P230k. Eventually, they entered into
another contract, the Vastago contract, wherein Bastida was to supply stems and
scraps of tobacco.

However, prior to the expiration of the contract, Menzi said that it will not renew it
with Batisda anymore.

After its expiry, Menzi started to close down its fertilizer business. During the
liquidation phase, Menzi, to determine its net profit, prepared a balance sheet of
profits and loss as basis as basis for the profit it will share to Batisda, who refused it
hence this action.

Issue:
W/N there was a partnership between Bastida and Menzi Co - None, it was an
employer-employee relationship.

Held:
None. The relationship was one of employment whereby Bastida was to receive 35%
of the net profits. Their contract was in effect a continuation of the verbal agreement
between the parties, whereby the plaintiff worked for the defendant corporation for
one half of the net profits derived by the corporation from certain fertilizer
contracts.

For years, Bastida, without objection, was paid his share from the profits after Menzi
had deducted the same expenses he is protesting now. It is only now that he objects
because of Menzi's refusal to renew the contract

First, there is no partnership because there was no common fund that belongs to
both parties. The business belonged to Menzi and Bastida was working for it was not
on a fixed salary but on a percentage of profit basis. This is also supported by the
Vastago contract where Bastida recognized that the fertilizer was solely owned by
Menzi.

Second, there was no provision in the agreement for reimbursing Menzi in case
there would be no profits at the end of the year

Third, the fertilizer business was just one of the many lines of business of Menzi and
there were no separate books and bank accounts kept for that particular line of
business.

Provision in the contract that allowed Bastida to take leave after asking for
permission from Menzi or something to that effect.

Anton vs Oliva
Facts:

The Olivas and the Antons entered into 3 Memoranda of Agreement wherein they
formed a business partnership known as Pinoy Toppings and they created 1 store
in 3 SM malls. The MOAs gave the Olivas 30%, 20%, and 20% share of the net profits
for the 3 branches. In all these, the Antons were the absolute and sole
administrators, the profit sharing will be computed only after the principal capital
has been recovered, and the Antons had a right to buy back the shares of the Olivas
and to dissolve the partnership agreement.

Later, the Olivas filed an action for accounting and specific performance against the
Antons claiming that they did not receive their share from 1 of the 3 stores and that
no accounting was ever rendered them and because of this the Antons terminated
their partnership agreements.

The Antons claim that there was no partnership between them, that the Olivas only
lent them money for the opening of the 3 stores.

RTC and CA held that there was no partnership but held the Antons liable for the
loan they obtained and the shares they agreed upon.

Issue:
W/N the Antons should pay the Olivas their shares despite the absence of a
partnership - Yes.

Held:
Yes. The relationship between the parties is not partnership, but one of debtor-
creditor.

First, although the Olivas are not partners, they are entitled to their shares from the
MOAs because there is nothing illegal/immoral with this compensation/payment
scheme for the risk the Olivas assumed by granting the loan without security. It
doesn't matter whether the amount they received from the loans were already paid.

Second, although not being partners the Olivas do not have a right to demand
accounting, the MOAs clearly give them this right and obligate the Antons to render a
monthly sales report. There is nothing wrong with this for this is a consequence of
the profit sharing scheme of the parties.

When receipt of profit does not create presumption of partnership

1. As installment payments of debt or interest thereof

Tocao vs. CA

Facts:

Tocao and Belo filed an MR of the SC decision ruled against them. They contend that
there was no partnership between Belo and respondent Anay, and that Anay was
merely an employee of Tocao.

Issue:
W/N there was a partnership - No

Held:
No. Belo was merely a guarantor of Geminesse Enterprise.

First, this is supported by Anay's own witness, Bantilan, who categorically stated
that a certain Peter Lo was the financier and Belo was merely the guarantor.

Also, there is no showing that Belo ever received any share from the profits of the
enterprise. With no participation in the profits, Belo cannot be deemed a partner
since the essence of a partnership is that the partners share in the profits and losses.

2. As wages of an employee
3. As rent payments to a landlord
4. As annuity to a widow or representative of deceased partner
5. Consideration of sale of goodwill or other property

4. Essential Characteristics of the Partnership:

1. Primarily a contractual relationship
1. Art.1767. By the contract of partnership, two or more persons bind
themselves to contribute money, industry, or property to a common
fund, with the intention of dividing the profits among themselves. Two
or more persons may also form a partnership for the exercise of a
profession
2. Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which
case a public instrument is necessary.
3. Art. 1784. A partnership begins from the moment of the execution of
the contract, unless it is otherwise stipulated.
2. Informal/Consensual and weak juridical personality
1. Art. 44. The following are juridical persons: xxx (3) Corporations,
partnerships and associations for private interest or purpose to which
 the law grants a juridical personality, separate and distinct from that
of each shareholder, partner or member.
2. Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of Art. 1772 par. 1.
1. Art. 1772. Every contract of partnership having a capital of at
least P3,000, in money or property, shall appear in a public
instrument which must be recorded in the SEC.
3. Art. 1774. Any immovable property or an interest therein may be
acquired in the partnership name. Title so acquired can be conveyed
only in the partnership name.
3. Delectus Personae
1. Assignment of a partner of his share does not make assignee a
partner
1. Art. 1804. Every partner may associate another person with
him in his share, but the associate shall not be admitted into
the partnership without the consent of all the other partners,
even if the partner having an associate should be a manager.
2. Art. 1813. A conveyance by a partner of his whole interest in
the partnership does not of itself dissolve the partnership, or,
as against the other partners in the absence of agreement,
entitle the assignee, during the continuance of the partnership,
to interfere in the management or administration of the
partnership business or affairs, or to require any information
or account of partnership transaction, or to inspect the
partnership books; but it merely entitles the assignee to
receive in accordance with his contracts the profits to which
the assigning partners would otherwise be entitled. However,
in case of fraud in the management of the partnership, the
assignee may avail himself of the usual remedies. In case of
dissolution of the partnership, the assignee is entitled to
receive his assignor's interest and may require an account from
the date only of the last account agreed to by all partners.
4. Mutual Agency
1. Art. 1803. When the manner of management has not been agreed
upon, the following rules shall be observed:
1. All the partners shall be considered agents and whatever any
one of them may do alone shall bind the partnership, without
prejudice to the provisions of Art. 1801
1. Art. 1801. If two or more partners have been intrusted
with the management of the partnership without
specification of their respective duties, or without
stipulation that one of them shall not act without the
consent of all the others, each one may separately
execute all acts of administration, but if any of them
 should oppose the acts of the others, the decision of the
majority shall prevail. In case of a tie, the matter shall be
decided by the partners owning the controlling interest.
2. None of the partners may, without the consent of the others,
make any important alteration in the immovable property of
the partnership, even if it may be useful to the partnership. But
if the refusal of consent by the other partners is manifestly
prejudicial to the interest of the partnership, the court's
intervention may be sought.
2. Art. 1818. Every partner is an agent of the partnership for the purpose
of its business, and the act of every partner, including the execution in
the partnership name of any instrument, for apparently carrying on
in the usual way of the business of the partnership of which he is
a member binds the partnership, unless the partner so acting has
in fact no authority to act for the partnership in the particular matter,
and the person with whom he is dealing has knowledge of the
fact that he has no such authority. And an act of a partner
which is not apparently for the carrying on of business of the
partnership in the usual way does not bind the partnership unless
authorized by the other partners. Except when authorized by
the other partners or unless they have abandoned the business, one or
more but less than all partners have no authority to: (ADDCRES)
1. Assign the partnership property in trust for creditors or on
the assignee's promise to pay the debts of the partnership
2. Dispose of the goodwill of the business
3. Do any other act which would make it impossible to carry on
the ordinary business of a partnership
4. Confess a judgment
5. Enter into a compromise concerning a partnership claim or
liability
6. Submit a partnership claim or liability to arbitration
7. Renounce a claim of the partnership
8. No act of a partner in contravention of a restriction on
authority shall bind the partnership t persons having
knowledge of the restriction.
3. Art. 1819. Where the title to real property is in the partnership
name, any partner may convey title to such property by a
conveyance executed in the partnership name; but the partnership
may recover such property unless the partner's act binds the
partnership under Art. 1818(1), or unless such property has been
conveyed by the grantee or a person claiming through such grantee to
a holder for value without knowledge that the partner, in making the
conveyance, has exceeded his authority. Where title to real
property is in the name of the partnership, a conveyance
executed by a partner in his own name, passes the equitable
 interest of the partnership, provided the act is one within authority
of the partner under the provisions of Art. 1818. Where title to
the property is in the name of one or more but not all the
partners, and the record does not disclose the right of the
partnership, the partners in whose name the title stands may convey
title to such property, but the partnership may recover such property
if the partners' act does not bind the partnership under the Art. 1818,
unless the purchaser or his assignee is an innocent holder for value.
Where the title to real property is in the name of one or more
or all partners, or in a third person in trust for the partnership, a
conveyance executed by a partner in the partnership name, or in his
own name, passes the equitable interest of the partnership, provided
that act is within authority under Art. 1818. Where the title to
real property is in the names of all partners, a conveyance
executed by all the partners passes all their rights in such
property.
4. Art. 1821. Notice to any partner of any matter relating to
partnership affairs, and the knowledge of the partner acting in
the particular matter, acquired while a partner or then present to
his mind, and the knowledge of any other partner who reasonably
could and should have communicated it to the acting partner, operate
as notice to or knowledge of the partnership, except in the case of
fraud on the partnership committed by or with the consent of
that partner.
5. Art. 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership,
or with the authority of his co-partners, loss or injury is caused to
any non-partner, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or
omitting to act.
6. Art. 1823. The partnership is bound to make good the loss:
1. Where one partner acting within the scope of his apparent
authority receives money or property of a third person
and misapplies it.
2. Where the partnership in the course of its business receives
money or property of a 3rd person and the money or property
is misapplied by any partner while it is in the custody of the
partnership.
5. Unlimited liability for partners
1. Art. 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets
have been exhausted, for the contracts which may be entered into
in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership.
 However, any partner may enter into a separate obligation to perform
a partnership contract.
2. Art. 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners.
3. Art. 1824. All partners are solidarily liable with the partnership for
everything chargeable to the partnership under Art. 1822 and 1823.
4. Art. 1839. In settling accounts between the partners after dissolution,
the following rules shall be observed, subject to any agreement to the
contrary: xxx (4) The partners shall contribute, as provided by Art.
1797, the amount necessary to satisfy the liabilities, xxx (7) The
individual property of a deceased partner shall be liable for the
contributions specified in (4)

Ortega vs. CA

Facts:

ROSS, LAWRENCE, SELPH and CARRASCOSO, a law firm duly registered in the
Mercantile Registry was reconstituted with the Security and Exchange Commission
(SEC). Its articles of partnership underwent several subsequent amendments until
its name came to be BITO, MISA & LOZADA. Joaquin Misa, Jesus Bito and Mariano
Lozada then associated themselves together, as senior partners, with Gregorio
Ortega, Tomas del Castillo and Benjamin Bacerro, as junior partners.

After a few years, Joaquin Misa wrote the partners several letters that he is
withdrawing and retiring from the firm on the ground that the partnership has
ceased to be mutually satisfactory because of the working conditions of the
employees including the assisting attorneys (other partners refuse to give them
increases and even attorneys are reprimanded in a loud voice publicly in a manner
depriving them of their self-respect). He then filed with SEC a petition for
dissolution and liquidation of partnership.

The Hearing Officer held that the withdrawal of Attorney Misa did not dissolve the
partnership, but the SEC en banc reversed and ruled that the partnership, being a
partnership at will, law firm could be dissolved by any partner anytime, regardless
of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. CA affirmed.

Issue:
W/N the partnership is a partnership at will which can be dissolved by the
withdrawal of one of the partners - Yes

Held:
Yes. First, a partnership that does not fix its term is a partnership at will. This is
exactly what the partnership in this case is as shown by the Partnership Agreement
which says that "the partnership shall continue so long as mutually satisfactory and
upon the death or legal incapacity of one of the partners, shall be continued by the
surviving partners.

Also, the birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to associate
himself is the very essence of that partnership. Its continued existence is dependent
on the constancy of that mutual resolve, along with each partner's capability to give
it, and the absence of a cause for dissolution as provided by the law itself.

Lastly, mutual agency arises among partners and the doctrine of delectus personae
gives any of them the power (not necessarily a right) to dissolve the partnership.
However, it must be done in good faith. But acting in bad faith does not prevent the
dissolution but only gives rise to liability for damages. (In this case Attorney Misa’s
withdrawal is not done in bad faith since it was grounded on an interpersonal
conflict among the partners and partners cannot be forced to remain in a
partnership under such an atmosphere of animosity and certainly not against their
will.)

III. Kinds of Partnerships

1. Art. 1776. As to its object, a partnership is either universal or particular. As
regards the liability of the partners, a partnership may be general or limited.
1. Universal partnership
▪ Art. 1777. A universal partnership may refer to all the present
property or to all the profits
▪ All present property
▪ Art. 1778. A partnership of all present property
is that in which the partners contribute all the
property which actually belongs to them to a
common fund, with the intention of dividing the
same among themselves, as well as the profits
they may acquire therewith.
▪ Art. 1779. In a universal partnership of all
present property, the property which belonged
to each of the partners at the time of the
constitution of the partnership, becomes the
common property of all the partners, as well
as all the profits which they may acquire
therewith. A stipulation for the common
enjoyment of any other profits may also be
made; but the property which the partners
may acquire subsequently by inheritance,
legacy, or donation cannot be included in
such stipulations, except the fruits thereof.
 ▪All profits
▪ Art. 1780. A universal partnership of profits
comprises all that the partners may acquire
by their industry or work during the
existence of the partnership. Movable or
immovable property which each of the
partners may possess at the time of the
celebration of the contract shall continue to
pertain exclusively to each, only the usufruct
passing to the partnership.
▪ Art. 1781. Articles of universal partnership, entered into
without specification of its nature, only constitute a universal
partnership of profits.
▪ Art. 1782. Persons who are prohibited from giving each other
any donation or advantage cannot enter into a universal
partnership.
2. Particular partnership
▪ Art. 1783. A particular partnership has for its object
determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation.

Lyons vs. Rosenstock

Facts:

Elser and Lyons were partners engaged in the buying and selling of real estate
property. Later, Lyons went to the US so he gave Elser authority to manage and
dispose of the properties as he may see fit.

During Lyons' absence, 2 of the 3 properties were sold, leaving the Carriedo
property.

Later, Elser became interested in the San Juan Estate. After some time, Elser was
able to acquire the Estate through his own means, and with a loan granted by a
certain Uy. However, in obtaining this loan, Uy required it to be guaranteed by
Fidelity and Surety company who required a mortgage from Elser. Because of this,
Elser mortgaged the Carriedo property to Fidelity and Surety.

During these negotiations, Elser formed the partnership JK Pickering Co to handle

the planned business of the Estate. Elser offered Lyons to join the partnership but he
refused. After knowing of such refusal, Elser substituted the mortgage of the
Carriedo property for one consisting of his personal properties and certain shares
from JK Pickering. The cancellation of the old mortgage and the creation of the new
one were not registered because Lyons told Elser to let the mortgage on the Carriedo
property remain.
Upon Elser’s death, Lyons claimed that he was a part owner of the Carriedo Street
property that was mortgaged, and because of that, he became an involuntary owner
of the San Juan Estate. He filed a case against defendant Rosenstock as executor of
Elser’s estate, saying that he was entitled to 446 shares of J.K. Pickering stock,
together with P125,000 worth of dividends.

Issue:
W/N Lyons can claim against the estate of Elser - No.

Held:
No.

First, there was no general relationship of partnership between the Lyons and Elser.
It was clear that the purchase and development of the San Juan Estate was done by
the formed partnership of J.K Pickering and Company. Since Lyons had turned down
Elser’s offer to join the venture, he cannot claim to be entitled to the proceeds. Just
because Elser had used as security one of the partnership properties in anticipation
of Elser’s acceptance, it doesn’t mean that Lyons became a partner, since there was
never any meeting of minds to constitute said partnership.

Also, since Lyons had allowed the mortgage to remain on the property, he cannot
claim that there was bad faith on the part of Elser, nor fraud on the latter’s part in
securing Lyons’ consent.

Finally, although Elser and Lyons had been partners in several transactions
concerning other real estate, those transactions were in each case a particular
partnership. With regard to the San Juan Estate however, Esler was not acting for
any partnership between him and Lyons. In this case, no money of Lyons was ever
used, the Carriedo property was mortgaged only to get Fidelity as a surety of its loan
form Uy.

2. As to duration:
1. Partnership with fixed term
2. Partnership for a particular undertaking
3. Partnership at will
• Art. 1785. When a partnership for a fixed term or particular undertaking is
continued after the termination of such term or particular undertaking
without any express agreement, the rights and duties of the partners remain
the same as they were at such termination, so far as is consistent with a
partnership at will. A continuation of the business by the partners or
such of them as habitually acted therein during the term, without any
 settlement or liquidation of the partnership affairs, is prima facie evidence of
the continuation of the partnership.

3. As to the nature of the liabilities of partners:

1. General partnership
2. Limited partnership

4. Compared with other media of doing business

1. Co-ownership
◦ Creation
◦ Purpose / Intent
2. Sole proprietorship
◦ Sole proprietorship does not possess a juridical personality separate
from the owners of the enterprise
◦ Risk of loss, control, return, duration
3. Business Trust
◦ BT no need to register, etc, and has no juridical personality. Governed
by law on trusts
◦ where you convey property to be trusted by trustees for the benefit of
everybody
◦ only liable up to their contribution
4. Agency
◦ Agent extension of principal
◦ Partners are agents of each other
5. Job contracting or subcontracting
◦ No contribution of funds and intent to divide the profits
6. Corporations
◦ A corporation is an artificial being created by operation of law, having
the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence.
◦ transferability
7. Cooperatives
◦ A cooperative is a duly registered association of persons, with a
common bond of interest, who have voluntarily joined together to
achieve lawful common social or economic end, making equitable
contributions to the capital required and accepting a fair share of the
risks and benefits of the undertaking in accordance with universally
accepted cooperative principles.
▪ the primary objective of every cooperative is self-help: "to
provide goods and services to its members and thus enable
them to attain increased income and savings, investments,
productivity, and purchasing power and promote among them
equitable distribution of net surplus through maximum
utilization of economies of scale, cost- sharing and risk-sharing
 without conducting the affairs of the cooperative for
eleemosynary or charitable purposes.

IV. Partnership as primarily a contractual relationship

1. Essential characteristics of the contract of partnership
1. Nominate and Principal
▪ Art. 1770. A partnership must have a lawful object or purpose,
and must be established for the common benefit or interest of
the partners. When an unlawful partnership is dissolved by
judicial decree, the profits shall be confiscated in favor of the
State, without prejudice to the provisions of the RPC governing
confiscation of the instruments and effects of a crime.
2. Consensual
3. Onerous and Commutative
4. Bilateral and Reciprocal
5. Preparatory and Progressive

Fernandez vs Dela Rosa

Facts:

Fernandez alleges that he entered into a verbal agreement with Dela Rosa to form
a partnership for the purchase of cascoes and to have the same rented. Dela Rosa
was to buy the cascoes with the money to be furnished by both of them, and they
were to divide the profits proportionately.

Later, Dela Rosa bought 2 cascoes which were placed under his name. Subsequently,
both of them intended to draw the articles of their partnership, however the draft
proposed by Dela Rosa differed from their original verbal agreement. Because of this
disagreement, no written agreement was executed. In the meantime, Dela Rosa had
control and management over the 2 cascoes. Fernandez demanded an accounting
from Dela Rosa who refused and denied the existence of the partnership.

Issue:
W/N there was a partnership - Yes.

Held:
Yes.

First, the weight of the evidence shows that Dela Rosa received money from
Fernandez for the purpose of buying cascoes and having the same rented to others.
This establishes the relation of partnership between them.

Second, a partnership may be in any form, except when immovables are contributed,
in which case it should be contained in a public instrument. In this case, the
execution of a written agreement was not necessary in order to give efficacy to the
verbal contract of partnership because the contributions of the partners were only
movables.

Also, in determining the existence of the partnership, it is not important that the
parties have failed to agree on the minor details of the contract which are merely
accidental to the partnership, as long as the essential requisites of a partnership are
shown.

Woodhouse vs. Halili

Facts:

Woodhouse and Halili entered into an agreement:

1. that they shall organize a partnership of the bottling and distribution of
Mission soft drinks, Woodhouse as industrial partner or manager and Halili
as capitalist
2. that Halili was to decide matters of general policy regarding the business, and
Woodhouse was to attend to the operation and development of the bottling
plant
3. that Woodhouse was to secure the Mission soft Drinks franchise for and in
behalf of the proposed partnership
4. that Woodhouse was to receive 30% of the net profits of the business
Prior to the agreement, Woodhouse was able to obtain an option from Mission Dry
for the franchise of Mission bottles.

Later after the agreement, the partners obtained a franchise from Mission Dry
Corporation giving Halili the exclusive right, license, and authority to produce,
bottle, distribute, and sell Mission beverages in the Philippines.

So operations began and later Woodhouse demanded that the partnership papers be
executed but Halili refused hence this case for the execution of the contract of
partnership, an accounting of the profits, and a share thereof of 30 per cent

Halili contends that his consent to the agreement was secured by the representation
of Woodhouse that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that he did not secure the
franchise, but was given to Halili himself

Issue:
W/N Woodhouse can compel the execution of the contract of partnership, an
accounting, and a share of 30% - No

Held:
No. First, the first draft of the agreement said that Woodhouse was the exclusive
grantee of the franchise. thus bolstering the fact the he misrepresented himself to
already be the grantee of the franchise.

Second, the evidence shows that Halili told Woodhouse to come back to him when
he already has the authority or franchise. When Woodhouse was given the option, it
is highly improbable that he was able to induce Halili to enter into the partnership
with only an option that will expire in 30 days, and more improbable that he would
tell Halili that the option had already expired at the time of the signing of the
agreement.

Third, however, despite this misrepresentation, the agreement to enter into a

partnership is not made voidable for vitiated consent, because the causal
consideration for Halili was the ownership of the franchise which he got. But the
agreement to 30% share was obtained through this misrepresentation

Lastly, Halili cannot be compelled against his will to carry out the agreement nor
execute the partnership papers because this involves an obligation to do which
cannot be compelled by specific performance because it would amount to
involuntary servitude. But Woodhouse is entitled to damages tempered by the
courts due to his misrepresentation.

V. Formalities required for the contract of partnership

1. Commencement and Form Required

Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument
shall be necessary.

Art. 1772. Every contract of partnership having a capital of at least P3,000, in money
or property, shall appear in a public instrument, which must be recorded in SEC.

Failure to comply with this requirement shall not affect the liability of the
partnership and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.

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

2. Registration Requirements
 1. When capital is at least P3,000 must appear in a public instrument and
recorded in the SEC
2. When immovable property is contributed, must appear in a public
instrument
◦ If immovable is contributed, an inventory thereof must be made,
signed by the parties, and attached to the public instrument,
otherwise the partnership is void.
3. Legal value of the formal requirements for partnerships

Angeles vs. Secretary of Justice

Facts:

The Angeles spouses filed a complaint against their brother-in-law Mercado for
estafa. The spouses claim that Mercado convinced them to enter into a contract of
antichresis over 8 parcels of Lanzones land in Laguna. The contract was to last for 5
years with P210k as consideration.

After 3 years, the Angeles spouses asked for an accounting and later found out that
Mercado put the antichresis contract under Mercado and his spouse's names,
instead of under the Angeles spouses' names.

Mercado claims that there was an industrial partnership between him and the
Angeles spouses, where Mercado was the industrial partner and the spouses the
financiers. Mercado claims that this partnership existed even before the contract of
antichresis. He claims that he used his and his wife's earnings as part of the capital
in the business transactions he entered into with the Angeles spouses, and that it
was their practice to transact under Mercado's name alone because the Angeles
spouses did not want to be identified as the financiers because they might be
kidnapped by the NPA or they might be questioned by the BIR because Oscar
Angeles was working with the Government.

He supported this by presenting a written "sosyo industrial" agreement wherein

capital would come from the Angeles spouses while the profits would be shared
between the Angeles spouses and Mercado.

The PPO and the SOJ dismissed the complaint finding that there was no deceit and
misappropriation, but only a management dispute among partners.

Issue:
W/N there was a partnership between the Angeles spouses and Mercado - Yes

Held:
Yes. The Angeles spouses argue that there was no partnership because:
 1. Immovable property was contributed but the agreement was not contained
in a public instrument.
2. The capital was at least P3k but the partnership was not registered with the
SEC
3. Immovable property was contributed thereto but no inventory was made,
signed by the parities and attached to the public instrument.

First, the Angeles spouses contributed money to the partnership, not immovable
property.

Second, failure to register the partnership with the SEC does not invalidate the
partnership which has the essential requisites of a partnership. The purpose of
registration is to give notice to third parties. Failure to register does not affect the
liability of the partnership and its partners to third persons, neither does such
failure affect the partnership's juridical personality.

Lastly, there was no deceit and misappropriation because it was their practice to
transact under Mercado's name alone because the Angeles spouses did not want to
be identified as the financiers because they might be kidnapped by the NPA or they
might be questioned by the BIR because Oscar Angeles was working with the
Government.

Ma vs Fernandez

Facts:

Balgamelo, Felix Jr, Valeriano, Lechi Ann, Arcelo, Nicolas, and Isidro, the Ma
siblings, are the children of Felix, a Taiwanese, and Dolores, a Filipina.

Felix Jr, Balgamelo and Valeriano were born under the 1935 Constitution and have
resided here for almost 60 years.

During their minority, they secured Alien Certificates of Registration from the
Bureau of Immigration (BOI). When they reached 21 years old, they claimed
Philippine citizenship pursuant to law and took their oaths of allegiance. However,
they only registered the necessary documents with the civil registry as required by
law, only 30 years later, except for Valeriano.

Before their registration, Catral filed a complaint to the BOI alleging that Felix and
his children are undesirable and overstaying aliens. BOI held that they were
undocumented or improperly documented aliens because they failed to follow the
procedural requirements required by law.

CA affirmed
Issue:
W/N petitioners are Filipino citizens - Yes.

Held:
Yes. The statutory formalities of electing Philippine citizenship are: (1) a statement
of election under oath, (2) an oath of allegiance, and (3) registration of the statement
and oath with the nearest civil registry.

In this case, petitioners have complied with (1) and (2) promptly. Their non-
registration cannot deprive them of their citizenship, but it is still required. The
purpose of registration is to give notice to all persons. Registration or its failure does
not affect the validity of the instrument to be registered.

Similar to a contract of partnership, the failure to register the contract does not
affect the liability of the partnership and its partners to third persons, and neither
does it affect the partnership's juridical personality. An unregistered partnership is
valid among the partners, as long as it has the essential requisites, because the
purpose of registration is to give notice to third parties and it can be assumed that
the members themselves knew of the contents of their contract.

Registration does not affect validity and is also not a mode of acquiring a right.

Same as in donation, land ownership, fact of birth of child, and in marriage.

Petitioners are now natural-born citizens pursuant to 1973 and 1987 Constitution.
SC orders them to register within 90 days.

Torres vs. CA

Facts:

Sisters Antonia and Emeteria entered in to a joint venture agreement with Manuel
for the development of a parcel of land into a subdivision.

Pursuant to their contract, the sisters sold the said land to Manuel who mortgaged
the said property to obtain a loan of P40k from Equitable which was to be used for
the development of the subdivision. All 3 of them agreed to share the proceeds from
the sale of the subdivided lots.

Later, the project failed and the bank foreclosed on the land.
The sisters claim that the failure was due to Manuel's lack of funds or skills, that he
did not use the funds for the subdivision but for his own company, Universal
Umbrella Company.

Manuel denies this by claiming that he had the land surveyed and subdivided, that
he caused the construction of roads etc on the land, and that he spent a total of P85k.
He also claims that the failure was because the sisters and their relatives caused the
annotations of adverse claims on the title to the land which scared the prospective
buyers, and that because the sisters refused to cause the clearing of the claims, he
was forced to give up on the project.

The sisters filed case of estafa against Manuel who was acquitted and the sisters
subsequently filed this case against Manuel.

RTC held that the parties should bear the loss EQUALLY because they formed a joint
venture.

CA reversed, holding that Manuel and the sisters had formed a partnership and that
they must suffer the loss proportionately

Issue:
W/N there was a partnership between the parties that would oblige them to share
the losses proportionately - Yes.

Held:
Yes.

First, based on their written agreement, there is a partnership between the parties
wherein the sisters would contribute the said land and Manuel would give the
money and industry, all for the purpose of developing the land into a subdivision
wherein they will share the profits 60% for the sisters and 40% for Manuel.

Second, the sisters argue that since the contract involved a contribution of
immovable property, their failure to make an inventory of said property signed by
the parties and attached to the public instrument made the contract void.

They are wrong. The said provision was intended to protect third persons and is a
complement of Art. 1771 which requires a public instrument for partnerships where
immovable property or real rights are contributed thereto. Since this case does not
involve third persons who may be prejudiced, the contract is not void.

Also, the sisters claim damages amounting representing their share of 60% of the
contract, which conflicts with their claim that the contract is void. They cannot have
the contract declared null and make a claim based on it.
Finally, the sale of the land to Manuel is valid. the consideration was the expectation
of profits from the business.

Secuya vs Vda. de Selma

Facts:

The Secuyas filed an action for quieting of title of a certain land against Vda. de
Selma. The Secuyas claim that the said land was originally part of a larger lot owned
by a certain Maxima who, through an Agreement of Partition, partitioned and
transferred the said land to a certain Sabellona who sold the said lot to Dalmacio
Secuya. That the sale to Dalamacio Secuya, predecessor of the plaintiffs, was
confirmed by the sole heir of Sabellona in a Confirmation of Sale.

Vda. de Selma on the other hand claims that she bought the lot from Cesaria, who
was the widow of a certain Aro who originally owned the larger lot which the said
lot was a part of. She presented the deeds evidencing these transactions.

Issue:
Who owns the lot - Vda. de Selma

Held:
Vda. de Selma.

First, the Agreement of Partition is actually a trust agreement wherein Maxima

bound herself to give the lot to Sabellona upon the approval of the patent application
of Maxima over the lot. After the application was granted, no transfer was made to
Sabellona and, instead, Maxima's heirs sold the lot to Aro and the lot eventually was
transferred to Vda. de Selma.

Sabellona and her heirs never asserted their proprietary rights over the lot, they did
not even register the agreement with the RD nor paid the taxes.

Second, the sale of the lot to Aro and the subsequent sales must be upheld because
they were not bound by the Agreement of Partition due to its non-registration. The
non-registration of the deed could not bind third persons.The Property Registration
Decree provides that registration in good faith is the operative act. Also, the express
trust was repudiated when the heirs of Maxima sold the lot to Aro.

Third, assuming that the express trust subsists, the Secuyas fail to prove the sale by
Paciencia to Dalmacio Secuya. The Confirmation of Sale created by Sabellona's sole
heir is insufficient because it was merely an assertion that the sale took place and
the deed evidencing it was destroyed.
Fourth, the Secuya's claim that Selma was in bad faith because she knew that the
Secuya's possessed the lot. However, the evidence shows that Cesaria, the vendor,
told Selma that the Secuya's were only tenants of the lot, therefore she cannot be
held in bad faith.

Aurelio Litonjua vs Eduardo Litonjua

Facts:

Aurelio and Eduardo are brothers.

Aurelio and Eduardo entered into a joint venture / partnership agreement for the
continuation of their family business. This agreement was contained in a
memorandum addressed by Eduardo to his siblings and other relatives. Aurelio and
Eduardo agreed that Aurelio will be given P1M or 10% equity in the family business
for his retaining his share in the family business and for contributing his industry
thereto.

Later, the relationship between the brothers turned sour so Aurelio requested for an
accounting and liquidation of his share, but this was unheeded. Also, Aurelio
suspected that Eduardo and Yang were transferring the assets of the corporation to
other parties, to defraud him. Because of this, he caused an annotation of notice of
lis pendens on the titles.

Aurelio sued Eduardo, Yang and several corporations for specific performance and
accounting, claiming that he and Eduardo entered into a joint venture / partnership
agreement in the Odeon Theater business which had expanded through investment
in many corporations.

Eduardo denied having entered into a partnership with him, and claims that the
partnership agreement did not create a partnership because it was not in a public
instrument

Issue:
W/N there was a partnership between the brothers - No.

Held:
No.

First, a partnership exists when 2 or more persons bind themselves to contribute

money, property, industry to a common fund with the intention of dividing the profit
among themselves. A joint venture is a form of partnership.
Second, the joint venture / partnership agreement is unsigned, undated, and
contained in a private document. This document cannot be presented for
notarization, neither can it be registered with the SEC. Also, the partnership had for
its common fund immovable properties therefore the agreement should have been
put on a public instrument and should have been accompanied with an inventory of
it signed by the parties.

Third, on the argument that assuming there was no partnership there was
nevertheless an innominate contract wherein he has demandable rights, the
agreement is unenforceable because it is a promise which is not to be performed
within 1 year from its execution. As such, it is covered by the Statute of Frauds which
can only be enforced if there has been a sufficient memoranda subscribed to by the
party charged. None of these are present.

Rojas vs. Maglana

Facts:

Maglana and Rojas executed their Articles of Partnership called Eastcoast

Development Enterprises (EDE), for the purpose of to operate and develop forest
rights and concessions. EDE, having an indefinite term of existence, was registered
with the SEC.

Under the Articles of Partnership, Maglana shall manage the business affairs
(marketing, accounting, and paper work) while Rojas shall be the logging
superintendent and shall manage the logging operations, and they were to divide the
share and losses "share and share alike".

Because of certain difficulties encountered, they availed the services of Pahamotang

as industrial partner. So they executed their 2nd Articles of Partnership to include
Pahamotang.

Later, the partners executed a "Conditional sale of interest in the partnership"

agreeing that Maglana and Rojas shall purchase the share of Pahamotang in the
partnership, and Maglana and Rojas shall own all the equipment contributed by
Pahamotang and EDE, EDE being dissolved.

The partnership was continued by Maglana and Rojas without any written
agreement or reconstitution of their Articles of Partnership. Later, Rojas entered into
a management contract with another logging enterprise, CMS Estate, abandoning
the partnership. Because of this, Rojas withdrew his equipment from the
partnership and transferred them to CMS.
Later, Maglana sent Rojas a letter reminding him of his obligations. Rojas told
Maglana of the changes and Maglana told Rojas that his share will only be 20% of the
net profits. Rojas did not object or complain.

Later, Rojas withdrew funds from the partnership more than his contribution, so
Maglana notified Rojas of the dissolution of their partnership. Rojas filed a case to
recover properties, accounting and damages against Maglana.

Rojas contends that the first partnership was not superseded by the second
partnership with Pahamotang.

RTC held that after Pahamotang left, Rojas and Maglana formed a partnership de
facto which was at will. Therefore the sharing in this de facto partnership should be
based on their contributions 80% Rojas and 20% Maglana, instead of equally,
pursuant to the 1st Articles of Partnership.

Issue:
W/N the first Articles of Partnership still governed Rojas and Maglana after
Pahamotang left - Yes.

Held:
Yes. First, throughout the partnership, nothing changed except for the fact that they
took in Pahamotang and fixed the term of the partnership to 30 years. Everything
else remained the same:
1. Name
2. Purpose
In short, the 2nd Articles of Partnership which was never registered, merely
amended the 1st Articles of Partnership. And the dissolution of the 2nd partnership
resulted to a reversion back to the 1st partnership. This is supported by the fact that
Maglana reminded Rojas of his obligations and Rojas replied that he cannot comply.

Second, it was only when Maglana notified Rojas of the dissolution that the
partnership was dissolved through the withdrawal of Maglana. The accounting and
dissolution must be pursuant to the 1st Articles of Partnership which provides the
sharing to be "share and share alike" / equally.

3. When corporate venture fails to formally incorporate, do the incorporators

become partners?

Pioneer Insurance vs. CA

Facts:

2 cases are consolidated here.

Jacob Lim, owner of a single proprietorship Southern Air Lines (SAL), bought 2
Aircrafts and 1 spare part from Japan Domestic Airlines (JDA), with Pioneer
Insurance as surety.

It appears that Bormacheco, the Cervanteses, and Maglana (different person from
previous case) contributed funds for the purchase of the said aircrafts and spare
parts. The funds were supposed to be their contribution to a new corporation
proposed by Lim to expand his airline business.

They signed 2 indemnity agreements in favor of Pioneer. 1 signed by Maglana, and

the other signed by Lim, Bormacheco and the Cervanteses.

Later, Lim mortgaged the 2 aircrafts to Pioneer as security for the suretyship. The
mortgage was registered.

Later, Lim defaulted on the payment to JDA, so Pioneer paid JDA around P300k.
Pioneer filed to foreclose the mortgage on the aircrafts and to have a preliminary
attachment against the Cervanteses, Bormacheco and Maglana. The respondents
filed a cross-claim against Lim.

RTC held Lim liable and absolved the respondents.

Lim argues that because he and the respondents contributed money to a common
fund for the purpose of purchasing aircraft, their failure to incorporate resulted to a
de facto partnership therefore all of them must share in the loss in favor of Pioneer.

Issue:
W/N a de facto partnership resulted as a consequence of their failure to incorporate
- No.

Held:
No. First, jurisprudence holds that the general rule is that when persons
associate themselves together under articles to purchase property to carry on
a business but their organisation is so defective as to fail to create a
corporation, they become in legal effect partners. However, the exception is
when their purpose is that no partnership should exist.

In this case, the evidence shows that Lim never intended to form a corporation
despite his representations to the respondents. It is shown that respondents were
induced into contributing the fund on the premise that Lim would incorporate his
business. This clearly shows that the respondents had no intention that a
partnership should exist, therefore, there cannot be a partnership de facto between
them and only Lim should bear the loss.

Lim Tong Lim vs Philippine Fishing Gear Industries

Facts:

Chua and Yao bought fishing nets from Philippine Fishing Gear Industries (PFGI)
on behalf of Ocean Quest Fishing Corp. They claim that they were engaged in a
business venture with Lim Tong Lim, who however was not a signatory to the
purchase.

Chua and Yao failed to pay so PFGI filed a case against Chua, Yao and Lim in their
capacities as general partners, alleging that Ocean Quest was a nonexistent
corporation as shown by the certification from the SEC.

RTC held Chua, Yao and Lim liable as general partners based on the Compromise
Agreement by the three which stated that:
◦ all 3 of them agree to sell the fishing net and certain boats for P5.75M
to pay CMF Fishing, and if they are able to sell them at a higher price,
they shall divide the excess equally. If it should be sold lower than said
amount, they shall shoulder the deficiency equally as well.
CA affirmed.

Issue:
W/N there was a partnership among the 3 - Yes.

Held:
Yes.

The lower courts ruled that there was a partnership based on the following factual
findings:
1. Lim requested Yao who was engaged in commercial fishing to join him, while
Chua was already Yao's partner
2. All 3 of them verbally agreed to acquire 2 fishing boats for P3.35M
3. They borrowed the money from Lim's brother
4. They bought the boats from CMF Fishing, who executed the deed of sale in
favor of Lim only for security
5. All 3 of them agreed that expenses for the boats would be shouldered by
Chua and Yao
6. That because of financial difficulty, Lim's brother lent the partnership money,
because of which Yao and Chua entrusted the ownership papers of the boats
to Lim
 7. Yao and Chua bought the fishing nets on behalf of Ocean Quest
8. Yao and Chua filed a case against Lim for reformation, declaration of
ownership of fishing boats, etc
9. The case was settled through a Compromise Agreement

First, from these findings, it is clear that all of them decided to engage in a fishing
business. The Compromise Agreement reveals that their intention to pay the loan
with the proceeds of the sale of the boats and to divide equally among them the
excess or loss. These boats fell under the term common fund. They also agreed that
the proceeds from the sales and operations thereof would be divided among them.

Second, on the argument that Lim was merely a lessor of the boats to Chua and Yao
as supported by a contract of lease, this cannot be. This stand is illogical because it
will appear that he consented to the sale of the boats to pay a debt of Chua and Yao
with the excess of the proceeds to be divided among the 3 of them. No lessor would
do that.

Third, on the argument that a corporation by estoppel was formed therefore

only Chua and Yao should be liable, this cannot stand. Although an association
who represented itself to be a corporation is estopped from denying its
corporate capacity in a suit against it, a third party (in this case Lim) who,
knowing that an association is unincorporated, nonetheless treated it as a
corporation and received benefits therefrom is estopped from denying its
corporate existence in a suit brought against the alleged corporation.

4. Other rules on constitution of a partnership

1. Art. 1775. Associations and societies, whose articles are kept secret among
the members, and wherein any one of the members may contract in his own
name with third persons, shall have no juridical personality and shall be
governed by the provisions on co-ownership
2. Rules on the partnership name
1. Art. 1815. Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
▪ Those who, not being members of the partnership, include
their names in the firm name, shall be subject to the liability of
a partner.
2. SEC Memo Circular No. 5
3. Rule 3.02, Code of Professional Responsibility
▪ The continued use of the name of a deceased partner is
permissible provided that the firm indicates in all its
communication that said partner is deceased.

VI. Partnership as a juridical person

• Art. 44. The following are juridical persons: xxx (3) Corporations,
partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member.
• Art. 45. xxx Partnerships and associations for private interest of purpose are
governed by the provisions of this Code concerning partnerships.
• Art. 1768. The partnership has a juridical personality separate and distinct
from that of each of the partners, even in case of failure to comply with the
requirements of Art. 1772 first par.
• Art. 1784. A partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated.
1. Consequences as a juridical person:
1. Legal capacity to enter into contracts and incur obligations
▪ Art. 46. Juridical persons may acquire and possess property of
all kinds, as well as incur obligations and bring civil or criminal
actions, in conformity with the laws and regulations of their
organization
2. May acquire properties in its own name
▪ Art. 1774. Any immovable property or an interest therein may
be acquired in the partnership name. Title so acquired can be
conveyed only in the partnership name.
3. May sue and be sued in its firm name
4. Has domicile: Place where their legal representation is
established or where they exercise their principal functions
▪ Art. 51. When the law creating or recognizing them, or any
other provision does not fix the domicile of juridical persons,
the same shall be understood to be the place where their legal
representation is established or where they exercise their
principal functions.
5. Taxable as a corporate taxpayer
6. May be declared insolvent even if its partners are not
7. Entitled to constitutional rights (except against self-incrimination?)
2. Provisions contravening principle of separate juridical personality
1. Partners are co-owners of partnership properties
▪ Art. 1811. A partner is a co-owner with his partners of specific
partnership property. The incidents of this co-ownership are
such that:
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
 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
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 representative of a deceased partner,
cannot claim any right under the homestead or
exemption laws
4. A partner's right in specific partnership property is not
subject to legal support
2. Partners may individually dispose of real property of the
partnership even when in the partnership name
▪ Art. 1819. When title to real property is in the partnership
name, any partner may convey title to such property by a
conveyance executed in the partnership name; but the
partnership may recover such property unless the
partner's acts bind the partnership under Art. 1818, or
unless such property has passed to an innocent purchaser
for value
1. Where title to real property is in the name of the
partnership, a conveyance executed by a partner in
his own name, passes the equitable interest of the
property, provided the act is one under Art. 1818
2. Where title to real property is in the name of one or
more but not all the partners, and the record does
not disclose the right of the partnership, the
partners in whose name the title stands may convey
title to such property, but the partnership may
recover such property if the partners' act does not
bind the partnership under Art. 1818 unless the
purchaser is an innocent purchase for value.
3. Where the title to real property is in the name of one
or more or all partners, or in a third person in trust
for the partnership, a conveyance executed by a
partner in the partnership name or in his own name
passes the equitable interest of the partnership,
provided the act is one with authority under Art. 1818.
4. Where the title to real property is in the names of all
the partners, a conveyance executed by all partners
passes all their rights in such property.
3. Partners are personally liable for partnership debts after
exhaustion of the partnership assets
 ▪ Art. 1816. All partners including industrial ones, shall be liable
pro rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may be
entered into in the name and for the account of the
partnership, under its signature and by a person authorised to
act for the partnership.
▪ Art. 1817. Any stipulation against the liability laid down in the
preceding article shall be void except as among the partners
▪ Art. 1824. All partners are liable solidarily with the partnership
for everything chargeable under Art. 1822 and 1823
▪ Art. 1839. xxx (4) The partners shall contribute, as provided in
Art. 1797, the amount necessary to satisfy the liabilities. xxx
(7) The individual property of a deceased partner shall be
liable for the contributions specified in (4)

VII. The Partners

1. The kinds of partners:
1. General and Limited
2. Industrial and Capitalist
3. Ostensible, nominal, and dormant
4. Original and incoming
5. Managing and liquidating
6. Retiring, surviving and continuing
2. Property rights of partners
1. Rights to specific partnership property
1. Art. 1810. The property rights of a partner are:
1. His rights in specific partnership property
2. His interest in the partnership, and
3. His right to participate in the management
2. Art. 1811. A partner is a co-owner with his partners of specific
partnership property. The incidents of this co-ownership are
such that:
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
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
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 representative of a deceased partner,
cannot claim any right under the homestead or
exemption laws
4. A partner's right in specific partnership property is not
subject to legal support
3. Equal right to possess, but for partnership purpose only
4. Non-assignable act
5. Not subject to attachment or execution or legal support
6. Remedy of partner's separate creditors
1. Art. 1814. Without prejudice to the preferred rights of
partnership creditors under Art. 1827, on due
application to a competent court by any judgment
creditor of a partner, the court may charge the interest
of the debtor partner with payment of the unsatisfied
amount such judgment debt with interest thereon; and
may then or later appoint a receiver of his share of the
profits, and of any other money due or to fall due to him
in respect of the partnership, and make all other orders,
directions, accounts and inquiries which the debtor
partner might have made, or which the circumstances of
the case may require.
2. Art. 1827. The creditors of the partnership shall be
preferred to those of each partner as regards the
partnership property. Without prejudice to this right,
the private creditors of each partner may ask the
attachment and public sale of the share of the latter in
the partnership assets.
2. Mutual agency: Right to participate in the management of the
partnership
1. General rule on agency
1. Art. 1803. When the manner of management has not
been agreed upon, the following rules shall be observed:
▪ All the partners shall be considered agents and
whatever any one of them may do alone shall
bind the partnership, without prejudice to Art.
1801. xxx
2. Art. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of every
partner for apparently carrying on in the usual way the
business of the partnership binds the partnership,
unless the partner so acting has in fact no authority
and the person he is dealing with has knowledge of
such fact.
▪ An act of a partner which is not apparently for
the carrying on of business of the partnership in
 the usual way does not bind the partnership
unless authorised by the other partners.
▪ Except when authorized but the other partners
or unless they have abandoned the business, one
or more but less than all partners have no
authority to: (ADDCRES)
1. assign partnership property in trust for
creditors or on the assignee's promise to
pay the debts of the partnership
2. dispose of the goodwill of the business
3. do any other act which would make it
impossible to carry on the ordinary
business of a partnership
4. confess a judgment
5. enter into a compromise concerning a
partnership claim or liability
6. submit a partnership claim or liability to
arbitration
7. renounce a claim of the partnership
8. No act of a partner in contravention of a
restriction on authority shall bind the
partnership to persons having knowledge
of the restriction.
3. (Litton vs Hill below)
2. Acts requiring unanimous consent
1. Art. 1818. xxx authority to: assign property in trust for
creditors or on an assignee's promise to pay the debt of
the partnership, dispose of the goodwill of the business,
do any act which would render it impossible to carry on
the ordinary business of the partnership, confess a
judgment, compromise a partnership claim or liability,
submit a partnership claim or liability for arbitration,
and renounce a claim of the partnership
3. Required consent in making alterations on immovable
property
1. Art. 1803. When the manner of management has not
been agreed upon, the following rules shall be observed:
xxx (2) None of the partners may, without the consent of
the others, make any important alteration in the
immovable property of the partnership, even if it may
be useful to the partnership. But if the refusal of consent
by the other partners is manifestly prejudicial to the
interest of the partnership, the court's intervention may
be sought.
4. When there is designation of manager or management
prerogatives
1. Art. 1800. The partner who has been appointed
manager in the articles of partnership may execute all
acts of administration despite the opposition of his
partners, unless he should act in bad faith; and his
power is irrevocable without just or lawful cause.
▪ The vote of the partners representing the
controlling interest shall be necessary for such
revocation of power.
▪ A power granted after the partnership has been
constituted may be revoked at any time.
2. Art. 1801. If two or more partners have been entrusted
with the management of the partnership without
specification of their respective duties, or without
stipulation that one of them shall not act without the
consent of all the others, each one may separately
execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the
majority (of the managing partners) shall prevail. In
case of a tie, the matter shall be decided by the partners
owning the controlling interest.
3. Art. 1802. In case it should have been stipulated that
none of the managing partners shall act without the
consent of the others, the concurrence of all shall be
necessary for the validity of the acts, and the absence or
disability of any one of them cannot be alleged, unless
there is imminent danger of grave or irreparable injury
to the partnership.
5. Specified powers of partners:
1. Can dispose of partnership property even when in
the partnership name
▪ Art. 1819
2. Admission or representation made by any partner
concerning partnership affairs is evidence against
the partnership
▪ Art. 1820. An admission or representation made
by any partner concerning partnership affairs
within the scope of his authority with this Title is
evidence against the partnership
3. Notice to any partner of any matter relating to
partnership affairs is notice to the partnership
▪ Art. 1821. Notice to any partner of any matter
relating to partnership affairs, and the
knowledge of the partner acting in the particular
 matter, acquired while a partner or then present
to his mind, and the knowledge of any other
partner who reasonably could and should have
communicated it to the acting partner, operate as
notice to the partnership, except in the case of
fraud of the partnership committed by or with
the consent of that partner.
4. Wrongful act or omission of any partner acting for
partnership affairs makes the partnership liable
▪ Art. 1822. Where, by any wrongful act or
omission of any partner acting in the ordinary
course of the business of the partnership or with
the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the
partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent
as the parter so acting or omitting to act.
5. Partnership bound to make good losses for acts or
misapplication of partners
▪ Art. 1823. The partnership is bound to make
good the loss:
1. Where one partner acting within the
scope of his apparent authority receives
money or property of a third person and
misapplies it, and
2. Where the partnership in the course of its
business receives money or property of a
third person and the money or property
so received is misapplied by any partner
while it is in the custody of the
partnership.
6. Full information and accounting to other partners
▪ Art. 1806. Partners shall render on demand true
and full information of all things affecting the
partnership to any partner or the legal
representative of any deceased partner or of any
partner under legal disability.
3. Equity interest in the partnership venture
1. Art. 1810. The property rights of a partner are:
1. His rights in the specific partnership property
2. His interest in the partnership
3. His right to participate in the management
2. Art. 1812. A partner's interest in the partnership is his share of
the profits and surplus.
3. Participation in the profits and losses
 1. A stipulation excluding a partner from any share in
the profits or loss is void
2. Distribution of profits and losses
▪ Art. 1797. The losses and profit shall be
distributed in conformity with the agreement. If
only the share of each partner in the profits has
been agreed upon, the share of each in the losses
shall be in the same proportion.
1. In the absence of stipulation, the share of
each partner in the profits and losses
shall be in proportion to what he may
have contributed, but the industrial
partner shall not be liable for losses. As
for the profits, the industrial partner shall
receive such share as may be just and
equitable under the circumstances. If,
besides his services he has contributed
capital, he shall also receive a share in the
profits in proportion to his capital.
3. When third-party designated to share
▪ Art. 1798. If the partners have agreed to intrust
to a third person the designation of the share of
each one in the profits and losses, such
designation may be impugned only when it is
manifestly inequitable. In no case may a
partner who has begun to execute the decision
of the third person, or who has not impugned
the same within a period of 3 months from
the time he had knowledge thereof, complain
of such decision.
4. Right to dispose of such interest
1. Art. 1813. A conveyance by a partner of his whole
interest in the partnership does not of itself dissolve the
partnership, or, as against the other partners in the
absence of agreement, entitle the assignee to interfere
in the management or administration of the partnership
business or affairs, or to require any information or
account of partnership transactions, or to inspect the
partnership books; it merely entitles the assignee to
receive the profits to which the assignor is entitled to.
However, in case of fraud, the assignee may avail himself
of the usual remedies.
▪ In case of a dissolution, the assignee is entitled to
receive his assignor's interest and may require
 an account from the date only of the last account
agreed to by all partners.
5. Right of partners's creditors to execute upon it
1. Art. 1814. xxx. The court may charge the interest of the
debtor partner with payment of his debt. The interest
charged may be redeemed at any time before
foreclosure, or in case of a judicial sale, may be
purchased without causing a dissolution:
▪ with separate property of any partner
▪ with partnership property with the consent of all
the other partners
6. Other proprietary rights of partners
1. Right to reimbursement for advances and
indemnification for risks
▪ Art. 1795. The risk of specific and determinate
things, which are not fungible, contributed to the
partnership so that only their use and fruits may
be for the common benefit, shall be borne by the
partner who owns them
1. If the things contributed are fungible, or
cannot be kept without deteriorating, or if
they were contributed to be sold, the risk
shall be borne by the partnership. In the
absence of stipulation, the risk of things
brought and appraised in the inventory,
shall also be borne by the partnership and
in such case, the claim shall be limited to
the value at which they were appraised.
▪ Art. 1796. The partnership shall be responsible
to every partner for the amounts he may have
disbursed on behalf of the partnership and for
the corresponding interest, from the time the
expenses are made; it shall also answer to each
partner for the obligations he may have
contracted in good faith in the interest of the
partnership business, and for risks in
consequence of its management.
2. Access to partnership books and records
▪ Art. 1805.The partnership books shall be kept,
subject to any agreement between the partners,
at the principal business of the partnership, and
every partner shall at any reasonable hour have
access to and may inspect and copy any of them.
3. Right to formal accounting
 ▪ Art. 1809. The partner shall have the right to a
formal account as to partnership affairs:
1. If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners
2. If the right exists under the terms of any
agreement
3. As provided in Art. 1807 (any benefit to
the partnership)
4. Whenever other circumstances render it
just and reasonable
4. Right to dissolve the partnership
▪ Art. 1830. Dissolution is caused: xxx (2) In
contravention of the agreement between the
partners, where the circumstance do not permit
a dissolution under any other provision, by the
express will of any partner at any time.

Litton vs Hill & Ceron

Facts:

Litton sold to Ceron, one of the managing partners of Hill & Ceron, a certain
number of mining claims (shares of stock), and Ceron gave Litton a document
evidencing the sale.

Ceron paid Litton P1,150 worth of Big Wedge shares leaving a balance of P720.

Unable to collect the balance from Hill & Ceron or from its surety Visayan Surety,
Litton filed a case against them for the recovery of the balance.

RTC held Ceron personally liable and absolved the partnership and Visayan.

CA affirmed holding that Ceron did not intend to represent the partnership.

Issue:
W/N the purchase by Ceron bound the partnership Hill & Ceron - Yes

Held:
Yes.

First, Hill testified that he and Ceron had the same power to buy and sell, that Hill
and Ceron made transactions as partners in equal parts, and that on the date of the
transaction with Litton, the partnership was in existence. He also testified that prior
to the transaction, Hill advised Ceron not to deliver the Big Wedge shares because
the partnership was about to be dissolved.

Art. 226 of the Code of Commerce provides that the dissolution of a commercial
association shall not prejudice third parties until it has been recorded in the
Commercial Registry.

Second, although the articles of their partnership provide that the management of
the business is entrusted to both partners but 1 partner can only bind the firm in a
written contract with the consent of the other partner, Litton is not bound to
ascertain whether or not his Ceron obtained the consent of Hill.

The public is not bound to make such inquiries. It is enough that Litton knew that he
was contracting with the partnership which is represented by 1 of the managing
partners. This is because there is a general presumption that each partner is
an authorized agent of the partnership and that he has authority to bind it on
partnership transactions in the ordinary course of business. The purpose of the
partnership here is to engage in the business of brokerage in general.

Also, under the Code of Commerce, neither of the 2 partners can legally engage in
the business of brokerage, therefore, Ceron could not have entered into a sale with
Litton in his private capacity but as a partner of Hill & Ceron.

Hill MR-ed contending that it was not established that Ceron got his consent,
therefore he could not have bound the partnership.

The obligation of the partners to obtain the other partner's consent is not imposed
upon a third person. A third person doesn't need to ascertain if the managing
partner with whom he contract has previously obtained the consent of the other.
This is because a third person has a right to presume that the partner with whom he
contracts has, in the ordinary and natural course of business, the consent of his
partner.

Therefore, unless it is shown that Hill did not consent and that Litton knew of this
non-consenting, the presumption prevails.

Even assuming that Ceron contracted against the will of Hill, Litton is protected by
the Code of Commerce as a third party in good faith. If we hold that third parties
have a duty to inquire whether the managing partner has obtained the consent of his
co-partner, this would hinder transactions and commerce.

Goquiolay vs Sycip
Facts:

Goquiolay and Tan entered into a general commercial partnership "Tan and
Goquiolay" (TG), having a P30k capital, P18k from Goquiolay and P12k from Tan.

Accoring to the agreement, Tan was the sole managing partner, and had the power to
delegate the entire management of the affairs by irrevocable power of attorney to
any person he may select. Goquiolay shall have no voice or participation in the
management but he may examine its accounts once every 6 months.

The partnership's life was fixed at 10 years despite death of the partners, in which
case, it shall be continued by their heirs. However, it can be dissolved at any time
upon mutual agreement of the partners. Goquiolay made a general power in favor of
Tan to manage his interests in the partnership.

Later, TG bought 3 lots and assumed the mortgages thereon in favor of "La Urbana".
Tan bought 46 lots in his individual capacity and assumed the mortgages thereon
which were advanced by Yutivo for TG. Later, the 2 obligations were consolidated in
1 instrument whereby all the lots were mortgaged to La Urbana.

Later, Tan died and his widow Kong was appointed as administratrix. Later, Yutivo
was demanding payment from TG and Tan, but Sing Yee and Cuan Co paid the debt
so the mortgage was cancelled.

Yutivo and Sing Yee filed their claims on the intestate proceedings of Tan as alleged
obligations of TG. Kong admitted the claims so she filed a petition for authority to
sell the 49 lots to settle the debts which was granted. She sold the lots to
Washington Sycip and Lee who later transferred them all to Insular.

Learning of the sale, Goquiolay filed a case to annul the sale of the 3 lots owned by
TG.

Issue:
W/N consent of the other partners is necessary (co-heirs of Kong and Goquiolay) to
perfect the sale to Sycip and Lee - No.

Held:
No.

First, the power given to Tan to manage the business was premised on trust and
confidence. The provision in their agreement that "upon death, the heirs will
represent the deceased partner" cannot not have referred to the managerial right of
Tan but only to his proprietary interest. However, Goquiolay's act of allowing Kong
to manage the partnership for 7 years has estopped him from denying her legal
representation.

Second, third persons are not bound to ascertain whether the partner they are
transacting with has obtained the consent of the other partner. There is a general
presumption that each partner is an authorized agent of the firm in carrying on the
partnership transactions in the ordinary course of business.

Third, Art. 129 of the Code of Commerce provides that "if the management of the
general partnership has not been limited to any of the members, all shall have the
power to manage, and the members present shall come to an agreement for all
contract or obligations which may concern the association." But this obligation is
imposed on the partners among themselves and does not affect the validity of the
acts of the partner to third persons in the ordinary course of business. The third
person can presume that the contracting partner is authorised. The third person is
not required to inquire on the partner's authority.

Fourth, the Civil Code provides that if the manner of management has not been
agreed upon, all the partners shall be considered agents, and whatever they do shall
bind the partnership, but each one may oppose any act before it has become legally
binding.

US vs. Clarin

Facts:

Larin delivered P172 to Tarug so that Tarug, in company with Clarin and De
Guzman, can buy and sell mangoes. Believing that Larin could make a profit, he
agreed with the 3 men to divide the profits equally.

Tarug, Clarin, and De Guzman traded mangoes and obtained P203 from the business
but did not deliver to Larin his half of the profits, neither did they render any
account.

Larin charged them with estafa, but the provincial fiscal filed an information only
against Clarin for appropriating to himself both the P172 and the P15.50 share of
Larn.

CFI convicted Clarin.

Issue:
W/N Clarin is guilty of estafa - No.

Held:
No.

First, all 4 of them were partners. When Larin contributed P172 into the
partnership, the obligation to return that capital to Larin did not devolve upon the 3
partners but upon the partnership.

Second, the proper action of Larin is not an action for estafa but a civil action to
liquidate the partnership and levy its assets.

Estafa does not include money received for a partnership. To hold otherwise would
mean that if the partnership, instead of obtaining profit suffers loss, it could not only
be civilly liable but also criminally liable for the share of the capitalist partner.

Goquiolay vs. Sycip (MR)

Facts:

Goquiolay contends that Kong became only a limited partner, incapacitated by law to
manage the affairs of the partnership. Or assuming she can manage the affairs, she
did not have the authority to sell the land pursuant to law on agency.

Issue:
W/N the sale to Sycip of the 3 lots should be annulled - No.

Held:
No.

First, the evidence shows that Goquiolay consented to the management of Kong

Second, on the argument that the power to manage excludes the power to alienate
pursuant to Agency provisions, they don't apply because provisions on partnership
have special application.

Third, their articles of partnership state that upon death of either partner, the
partnership shall be continued by their heirs. This cannot mean that the heirs would
only be limited partners because if both partners die, the partnership cannot be
continued. therefore, they became general partners.

Fourth, even assuming that Kong was merely a limited partner that cannot manage
the property even as an agent of the managing partners, the fact that Goquiolay
authorised Kong to manage the properties puts him in estoppel.

Lastly, on the argument that Kong had no authority to sell the lots of the firm
because they do not pertain to the ordinary business of the firm, this cannot stand
because the firm TG's business was engaged in the buying and selling of real estate,
therefore, the purchase and sale of real properties are included in the ordinary
course of business of the firm.

Moran vs. CA

Facts:

Pecson and Moran entered into an agreement whereby both would contribute P15k
each for the purpose of printing 95k posters featuring the delegates of the 1971
Constitutional Convention, with Moran actually supervising the work, and that
Pecson would receive a monthly commission of P1k.

Later, Pecson gave P10k, but only a few posters were printed. Moran executed a
promissory note worth P20k but Moran defaulted.

Pecson filed a case to collect the P10k he contributed, the P20k promissory note, and
P47.5k for his share of the unrealised profits.

Issue:
W/N Pecson is entitled to the P47.5k representing the unrealised profits - No.

Held:
No. First, the rule is when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever he may
have promised to do so, and for interests and damages from the time he should have
complied with his obligation.

This is why, in Uy vs. Puzon, the SC allowed P200k damages based on the given set of
facts there that, the innocent partner contributed much more than what he
promised and the partnership there earned profit. The basis for damages there were
the contracts entered into by the partnership and were not speculative.

In this case however, there is no basis for the award of speculative damages.

Second, NCC provides that the losses and profits shall be distributed according to
the agreement, if only the share of each partner has been agreed upon, the share of
each shall be in the same proportion. Being a contract of partnership, each partner
must share in the profits and losses of the venture.

3. Obligations of partners to the partnership

1. Obligation to contribute to common fund
1. Art. 1786. Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto.
▪ He shall also be bound for warranty in case of eviction with
regard to specific and determinate things which he may have
contributed to the partnership, in the same cases and in the
same manner as the vendor is bound with respect to the
vendee.
▪ He shall also be civilly liable for the fruits thereof from the time
they should have been delivered, without the need of any
demand.
2. When sum of money
▪ Art. 1788. A partner who has undertaken to contribute a sum
of money and fails to do so becomes a debtor for the interest
and damages from the time he should have complied with his
obligation.
▪ The same rule applies of any amount he may have taken
from the partnership coffers, and his liability shall begin
from the time he converted the amount to his own use.
3. When property in general
▪ Art. 1795. The risk of specific and determinate things, which
are not fungible, contributed to the partnership so that only
their use and fruits may be for the common benefit, shall be
borne by the partner who owns them.
▪ If the things contributed are fungible, or cannot be kept
without deteriorating, or if they were contributed to be
sold, the risk shall be borne by the partnership. In the
absence of stipulation, the risk of things brought and
appraised in the inventory, shall also be borne by the
partnership, and in such case the claim shall be limited
to the value at which they were appraised.
▪ Who bears risk of loss for determinate thing
▪ Art. 1830. Dissolution is caused: xxx (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, 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 the partnership shall not be dissolved by
the loss of the thing when it occurs after the partnership
has acquired ownership thereof;
4. When contribution in goods
▪ Art. 1787. When the partner binds himself to contribute goods,
their appraisal must be made in the manner prescribed in the
contract of partnership, and in the absence of stipulation, it
shall be made by experts chosen by the partners, and according
 to the current prices, the subsequent changes thereof being for
the account of the partnership.
5. When real property
▪ Formalities Art. 1772 and 1773
6. When in service
▪ Art. 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.
7. Presumption as to percentage of capital
▪ Art. 1790. Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of the
partnership
8. Additional contribution, in case of imminent loss
▪ Art. 1791. If there is no agreement to the contrary, in case of an
imminent loss of the business of the partnership, any partner
who refuses to contribute an additional share to the capital,
except an industrial partner, to save the venture, shall be
obliged to sell his interest to the other partners.
2. On recovery of demandable sum
1. Art. 1792. If a partner, authorised to manage, collects a demandable
sum which was owed to him in his own name, from a person who
owed the partnership another sum also demandable, the sum thus
collected shall be applied to the two credits in proportion to their
amounts, even though he may have given a receipt for his own credit
only; but should he have given it for the account of the partnership
credit, the amount shall be fully applied to the latter.
▪ If the debtor's debt to the partner is more onerous than the
debt to the partnership, he can apply it solely to the former.
3. On receiving partnership credits
1. Art. 1793. A partner who has received, in whole or in part, his share of
a partnership credit, when the other partners have not collected
theirs, shall be obliged, if the debtor should become insolvent, to bring
to the partnership capital what he received even though he may have
given receipt for his share only.
4. As to third persons dealing with the partnership

4. fiduciary duties of partners

1. Duty of diligence
◦ Art. 1794. Every partner is responsible to the partnership for damages
suffered by it through his fault, and he cannot compensate with the
profits and benefit which he may have earned for the partnership by
his industry. However, the court may equitably lessen this
 responsibility if through the partner's extraordinary efforts in other
activities of the partnership, unusual profits have been realised.
2. Duty to account
◦ Art. 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without
the consent of the other partners from any transaction connected with
the formation, conduct, or liquidation of the partnership or from any
use by him of its property.
3. Duty of loyalty
◦ Capitalist partners cannot engage for their own account in
similar partnership business
▪ Art. 1808. The capitalist partners cannot engage for their own
account in any operation which is of the kind of business in
which the partnership is engaged, unless there is a stipulation
to the contrary.
▪ Any capitalist partner violating this prohibition shall
bring to the common funds any profits accruing to him
from his transaction and shall personally bear all the
losses.
◦ Industrial partner cannot engage in any form of business
▪ Art. 1789. An industrial partner cannot engage in any 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.
◦ Partners in general cannot engage in competitive business

Evangelista & Co vs Abad Santos

Facts:

Evangelista and Abad entered into a partnership named Evangelista & Co. wherein
Abad was the industrial partner, and Evangelista and 2 others were capitalist
partners. The share of profits was stipulated at 70% for the 3 capitalists, and 30%
for abad. These stipulations were written in the Articles of Partnership.

Later, Abad filed a case against the 3 capitalists and the partnership to pay her
corresponding share in the profits and to render an accounting to her.

The capitalists claim that Abad is not an industrial partner but a profit sharer of
30% which can only be realised after the loan to Rehabilitation Finance Corporation
has been paid.
One of the capitalists' arguments that Abad was not an industrial partner is that
since Abad is Judge of the City Court of Manila from the time the partnership was
executed until the present, it was never contemplated by the parties for her to be an
industrial partner because she could not lawfully contribute her time and industry
which is the obligation of an industrial partner pursuant to Art. 1789. Also,
assuming that she was indeed an industrial partner, the capitalists could exclude her
from the firm.

CA held that Abad did not violate such prohibition because being a judge is not a
business.

Issue:
W/N Abad was an industrial partner

Held:
Yes. SC affirmed in toto.

First, the prohibition is to prevent any conflict of interest between the industrial
partner and the partnership. Being a judge is not a business which runs antagonistic
to the partnership.

Second, the weight of the evidence is in favor of the conclusion that Abad was an
industrial partner. Also, having known Abad to be a judge even before the
partnership was formed, why did it take the capitalists so long before excluding her
from the company based on the prohibition

Third, Abad can demand a formal accounting and receive her share based on Art.
1899 which provides that any partner shall have the right to a formal account:
1. If he is wrongfully excluded from the partnership business or possession of
its property by his co-partners
2. If the right exists under the terms of any agreement
3. As provided by Art. 1807.
4. Whenever other circumstances render it just and reasonable.

5. Partner's Unlimited Liability

1. Partners liable pro-rata with their separate properties after
partnership assets have been exhausted for all partnership debts.
◦ Art. 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after the partnership assets have been
exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a
person authorised to act for the partnership. However, any partner
may enter into a separate obligation to perform a partnership
contract.
 ◦ Art. 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except among partners.

Island Sales Inc vs. United Pioneers General Construction Co

Facts:

United Pioneers, a partnership, purchased a car from Island Sales. Having failed to
fully pay for the car, United Pioneers was sued by Island Sales for the balance.

Island Sales impleaded the partners in their capacity as general partners.

Upon motion of Island Sales, RTC dropped 1 of the partners, Benjamin, from the
complaint, and held the remaining 4 partners liable, but 2 of the 5 partners moved to
reconsider claiming that the liability of each partner should not exceed 1/5 of the
entire obligation. RTC denied hence this appeal.

Issue:
W/N the dismissal of the complaint in favor of 1 of the partners increases the joint
and subsidiary liability of the remaining partners

Held:
No.

Art. 1816 provides that all partners shall be liable pro rata with their property and
after all the partnership assets have been exhausted for the obligations of the
partnership.

In this case, since the liability of the partners is pro rata, the liability of Benjamin
shall be limited to 1/5 of the obligations of the partnership. The fact that the
complaint against him was dismissed does not unmake him as a general partner of
the company. It only condoned Benjamin's individual liability to Island Sales.

2. All partners liable solidarily with partnership for everything chargeable

to the partnership caused by:
1. Wrongful act or omission of any partner acting:
1. in the ordinary course of business of the partnership, or
2. with authority from the other partners
2. Partner's act or misapplication of properties
1. Art. 1824. All partners are liable solidarily with the partnership
for everything chargeable to the partnership under 1822 and
1823
3. Newly admitted partner into an existing partnership is liable only out of
partnership property shares and contributions, for all obligations of the
partnership arising before his admission
 • Art. 1826. A person admitted as a partner into an existing partnership is
liable for all the obligations of the partnership arising before his admission as
though he had been a partner when such obligations were incurred, except
that this liability shall be satisfied only out of partnership property, unless
there is a stipulation to the contrary.

4. Partnership credits are preferred to those of each of the partners as

regard the partnership property
• Art. 1827. The creditors of the partnership shall be preferred to those of each
partner as regards the partnership property. Without prejudice to this right,
the private creditors of each partner may ask the attachment and public sale
of the share of the latter in the partnership assets.

6. Relations and dealings with third persons

• Representation as a parter to third parties
◦ Art. 1825. When a person represents himself or consents to being
represented as a partner in an existing partnership or with one or
more persons not actual partners, he is liable to any person who,
relying on such representation, has given credit to the actual or
apparent partnership, and if such representation is made in a public
manner, he is liable to such person whether the representation has or
has not been made or communicated to such person:
1. When a partnership liability results, he is liable as though he
were an actual member of the partnership
2. When no partnership liability results, he is liable pro rata with
the other persons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.
◦ When a person has been so represented to be a partner in a
partnership or a partner of other persons not actual partners, he is an
agent of the persons consenting to such representation to bind them
to the same extent and in the same manner as though he were a
partner in fact, with respect to persons who rely upon such
representation.
◦ When all the members of the existing partnership consent to the
representation, a partnership act or obligation results, but in all other
cases, it is the joint act or obligation of the person acting and persons
consenting to the representation.

IX. Dissolution, winding-up, and termination of partnership

1. Nature and effects of dissolution

Idos vs. CA

Facts:
The complainant Eddie supplied chemicals and rawhide to Irma Idos for her use in
her business of manufacturing leather. Later, he joined that business and they
formed a partnership "Tagumpay Manufacturing"

A year later, they terminated their partnership. Idos issued 4 checks worth P900k to
Eddie as his share of the P1.8M receivables and stocks. However, 1 of the checks was
dishonored, so Eddie filed a case of BP22 against her.

Idos claims that the checks were issued merely for assurance of or as evidence of
Eddie's share and were not intended to be encashed.

RTC convicted her.

CA affirmed

While the case was pending in the SC, they executed a compromise agreement as to
the civil aspect of the case.

Issue:
W/N Idos should be convicted of violating BP22 - No.

Held:
No.

The elements of BP22 are:

1. the making, drawing and issuance of any check to apply to account or for
value
2. knowledge that at the time of issue, he does not have sufficient funds
3. subsequent dishonor due to insufficiency of funds or due to a stop payment
order without valid cause

First, the evidence shows that the checks were to be funded from the receivables to
be collected by the partnership. This is supported by 2 facts:
1. 3 of the 4 checks were successfully encashed, and the 1 which bounced was
redeemed by Idos.
2. There was no consideration for the issuance of the check whose funding
depended on the future collection of the receivables
Second, although they agreed to dissolve the partnership, they still had to collect the
receivables of the partnership from its debtors. They were still in the process of
"winding up" the partnership affairs. There are 3 final stages of a partnership:
1. Dissolution - the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the business
2. Winding up - the process of settling business affairs after dissolution, such as
paying its remaining obligations and collecting its outstanding receivables
 3. Termination - the point in time after all the partnership affairs have been
wound up
These stages are recognized by the NCC in Art. 1828 which provides that 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 as distinguished from the
winding up of the business. And Art. 1829 which provides that On dissolution, the
partnership is not terminated, but continues until the winding up of partnership
affairs is completed.

In this case, since the partnership still has uncollected receivables, it was still in its
winding up stage thus, they were still partners and the checks were issued by a
partner to a copartner, not by a debtor to a creditor. The evidence shows that the
checks were issued merely as evidence of Eddie's share and were drawn without
consideration. This negates the existence of the first element of BP22, therefore she
should be acquitted.

Third, on the argument that violation of BP22 is a malum prohibitum which means
that malice or intent is immaterial, this is not an absolute rule, for if a kidnap victim
issued a worthless check to his kidnapper for ransom, it would be absurd to hold
him liable for BP22.

Fourth, on the argument that when Idos was notified of the dishonor she still failed
to make good the check thus violating BP22, the failure to make good the check only
created a rebuttable presumption that she had knowledge of insufficiency of funds.
In this case, such presumption was rebutted by the evidence showing that she was
not given notice of dishonor and showing that she had funds at the time of issue.

1. As to the relationship of the partners

◦ Art. 1828. 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 as distinguished form the winding up of the
business.
◦ Art. 1832. Except as far as may be necessary to wind up partnership
affairs or to complete unfinished transactions, dissolution terminates
all authority of any partner to act for the partnership:
1. With respect to partners,
1. when the dissolution is not by the act, insolvency or
death of a partner, or
2. when the dissolution is by such act, insolvency or death
of a partner, in cases where 1833 requires
▪ unless the acting partner knew of act, insolvency,
or death
2. With respect to persons not partners, as declared by 1834
Villareal vs Ramirez

Facts:

Luzviminda Villareal, Carmelito and Jesus formed a partnership for the operation of
a restaurant under the name "Aquarius Food House and Catering Services". Villareal
was the GM and Carmelito was the Operations Manager.

Ramirez later joined the partnership, his contribution being paid by his parents.
Later, Jesus withdrew from the partnership and his contribution was refunded to
him by the partners.

In the same month, Villareal and Carmelito closed the restaurant due to increased
rental without the knowledge of Ramirez. The furniture and equipment were
deposited in Ramirez' house for storage.

Later, Ramirez expressed that he wanted to withdraw from the partnership and
requested for the refund of his contribution. The request was unheeded so Ramirez
filed a case against Luz and Carmelito for the collection of a sum of money.

Issue:
W/N Villareal and Carmelito are liable to Ramirez for his share in the partnership -
No.

Held:
No.

First, Ramirez has no right to demand the return of his contribution from Villareal
and Carmelito. His action should be directed against the Partnership because the
capital was contributed to the partnership, not to Villareal et al.

Second, although the partnership must refund the shares of the partners, it is limited
by the resources it has. Before the partners can be paid, the creditor of the
partnership must first be paid. Whatever is left is to be used to pay the partners.

In this case, the amount of refund, which is 1/3, is still undetermined because all the
partnership assets have not yet been liquidated and not all partnership creditors
have been paid.

2. On the partnership itself

◦ Art. 1829. On dissolution, the partnership is not terminated, but
continues until the winding up of partnership affairs is completed.
Claudio vs Zandueta

Facts:

Claudio et al formed "Cotabato & Cagayan Mining Association" with M.W. Rice and
Zandueta et al and other members totaling to around 279 members all in all.

Claiming that the organization is a sham because of several reasons such as non-
registration with the Bureau of Commerce, non-ownership of any mining claim
despite the partnership's purpose of exploiting mining claims, and the squandering
of the partnership funds by Claudio et al, Zandueta et al, filed a case, allegedly on
behalf of the other members, to dissolve the partnership, compel Claudio et al to
render accounting, and to appoint a receiver to take charge of the properties of the
partnership until the court decides otherwise.

Issue:
W/N a receiver should be appointed - No

Held:
No.

The members must be impleaded because Zandueta et al claim to be acting on their

behalf.

Also, the partnership "Cotabato & Cagayan Mining" should be impleaded in matters
affecting its existence as well as the appointment of a receiver applied for.

3. On the authority of the partners

◦ Art. 1833. Where the dissolution is caused by the act, death, or
insolvency of a partner, each partner is liable to his co-partners for his
share of any liability created by any partner acting for the partnership
as if had not been dissolved, unless:
▪ The dissolution being by act of any partner, the partner acting
for the partnership had knowledge of the dissolution
▪ The dissolution being by the death, or insolvency of a partner,
the partner acting for the partnership had knowledge of such
death or insolvency
◦ Art. 1834. (1) After dissolution, a partner can bind the partnership
except as provided in par. 3 of this article:
▪ By any act appropriate for winding up partnership affairs or
completing unfinished transactions
▪ By any transaction which would bind the partnership if
dissolution had not taken place, provided the other party to the
transaction:
 1. (a) had extended credit to the partnership prior to
dissolution and had no knowledge or notice of
dissolution
2. (b) though he had not so extended credit, had
nevertheless known of the partnership prior to
dissolution, and, having no knowledge or notice of
dissolution, the fact of dissolution had not been
advertised in a newspaper of general circulation in the
place (or in each place if more than one) at which the
partnership business was regularly carried on
▪ (2) The liability of a partner under the 1st par. (2) shall be
satisfied out of partnership assets alone when such partner
had been prior to dissolution:
1. unknown as a partner to the person with whom the
contract is made, and
2. so far unknown and inactive in partnership affairs that
the business reputation of the partnership could not be
said to have been in any degree due to his connection
with it.
▪ (3) The partnership is in no case bound by any act of a partner
after dissolution:
1. Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is
appropriate for winding up business affairs, or
2. Where the partner has become insolvent, or
3. Where the partner has no authority to wind up
partnership affairs; except by a transaction with one
who:
1. (a) had extended credit to the partnership prior
to dissolution and had no knowledge or notice
of his want of authority, or
2. (b) had not extended credit to the partnership
prior to dissolution, and, having no knowledge
or notice of his want of authority, the fact of
his want of authority has not been advertised in
the manner provided for advertising the fact of
dissolution in 1st par. (2)b
▪ Nothing in this article shall affect the liability under Article
1825 of any person who after dissolution represents himself or
consents to another representing himself as partner in a
partnership engaged in carrying on business
4. On the liabilities of the partners
◦ Art. 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
 ▪ A partner is discharged from any existing liability upon the
dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or
partnership continuing the business; and such agreement may
be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or
partnership continuing the business.
▪ The individual property of a deceased partner shall be liable
for all obligations of the partnership incurred while he was a
partner, but subject to the prior payment of his separate debts.
◦ Upon dissolution of the partnership, partners shall contribute
the amounts necessary to satisfy the partnership liabilities.
▪ Art. 1839. In settling the account between the partners after
dissolution, the following rules shall be observed, subject to
any agreement to the contrary: xxx (4) The partners shall
contribute, as provided by Article 1797, the amount necessary
to satisfy the liabilities. xxx (7) The individual property of a
deceased partner shall be liable for the contributions specified
in (4)

2. Types (causes) of dissolution

◦ Art. 1830. Dissolution is caused:
1. Without violation of the agreement between the partners:
1. By the termination of the definite term or particular
undertaking specified
2. By the express will of any partner acting in good faith,
when no definite term or particular undertaking is
specified
3. 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 before or after the
termination of any specified term or particular
undertaking
4. By the expulsion of any partner from the business in
good faith in accordance with such a power conferred
by the agreement between the partners
2. In contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under any
other provision of this article, by the express will of any
partner at any time
3. By any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on
in partnership
4. When a specific thing, which a partner had promised to
contribute, perishes before the delivery; in any case by the loss
 of the thing, 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 the
partnership shall not be dissolved by the loss of the thing when
it occurs after the partnership has acquired ownership thereof
5. By the death of any partner
6. By the insolvency of any partner or of the partnership
7. By the civil interdiction of any partner
8. By decree of court under the following article
◦ Art. 1840. In the following cases, creditors of the dissolved
partnership are also creditors of the person or partnership continuing
the business:
1. When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in
the partnership property to at least 1 of the partners and to
any person(s), if the business is continued without liquidation
of the partnership affairs
2. When all but one of the partners retire and assign their
rights in partnership property to the remaining partner, who
continues the business without liquidation of partnership
affairs, either alone or with others
3. When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in (1) and (2),
with the consent of the retired partners or the representative
of the deceased partner, but without any assignment of his
right in the property
4. When all the partners or their representatives assign their
rights in the partnership property to 1 or more third persons
who promise to pay the debts and who continue the business
of the dissolved partnership
5. When any partner wrongfully causes a dissolution and the
remaining partners continue the business under the provisions
of 1837 par 2(2), either alone or with others, and without
liquidation of the partnership affairs
6. When a partner is expelled and the remaining partners
continue the business either alone or with others without
liquidation of the partnership affairs
7. The liability of third persons becoming a partner in the
partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of
the partnership property only, unless there is a stipulation to
the contrary.
8. When the business of partnership after dissolution is
continued under any conditions set forth in this article, the
 creditors of the dissolved partnership as against the separate
creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to
any claim of the retired partner or the representative of the
deceased partner against the person or partnership continuing
the business, on account of the retired or deceased partner's
interest in the dissolved partnership or on account of any
consideration promised for such interest or for his right in
partnership property.
9. Nothing in this article shall be held to modify any right of
creditors to set aside any assignment based on fraud
10. The use by the person or partnership continuing the business
of the partnership name, or the name of a deceased partner as
part thereof, shall not of itself make the individual property of
the deceased partner liable for any debts contracted by such
persons or partnership.
◦ Non-judicial dissolution
1. Without violation of the partnership agreement:
1. Expiration of term or undertaking
2. By the express will of a partner in a partnership at
will
3. Mutual assent of the partners
4. Expulsion of a partner pursuant to an agreement
granting such right
2. In contravention of agreement
1. Art. 1826. A person admitted as a partner into an
existing partnership is liable for all the obligations of
the partnership arising before his admission as though
he had been a partner when such obligations were
incurred, except that this liability shall be satisfied only
out of partnership property, unless there is a stipulation
to the contrary.

Munaque vs CA

Facts:

Munñ asque, on behalf of the partnership of "Galan and Munñ asque" as Contractor,
entered into a written contract with respondent Tropical for remodelling the latter’s
Cebu branch building. The price for the work was P25,000 to be paid in installments.

The first payment made by respondent Tropical was in the form of a check for
P7,000.00 in the name of the Munasque. He, however, indorsed the check in favor of
respondent Galan to enable the latter to deposit it in the bank and pay for the
materials and labor used in the project.
Galan spent it for his personal use so that when the second check in the amount of
P6,000.00 came and Galan asked Munasque to indorse it again, Munasque refused.
The check was withheld from the Munasque.

Since Galan informed the Cebu branch of Tropical that there was a
"misunderstanding" between him and Munasque, Tropical changed the name of the
payee in the second check from Munñ asque to "Galan and Associates" which was the
duly registered name of the partnership between Galan and Munasque.

This enabled Galan to encash the second check.

Meanwhile, as alleged by the Munasque, the construction continued through his sole
efforts and expenses.

The two remaining checks, each in the amount of P6,000.00, were subsequently
given to the Munasque alone with the last check being given pursuant to a court
order.

Munasque filed this case to collect the first and second checks which fell in the
hands of Galan. Creditors Blue Diamond Glass and Cebu Southern Hardware of the
partnership intervened in the case wanting to recover the amounts due them.

Issue:
(1) W/N Munasque can recover the value of the first 2 checks from Tropical – No,
but he can collect from Galan.
(2) W/N Munasque is solidarily liable to the other creditors – Yes, but he can collect
whatever he pays in excess of his share of liabilities from Galan.

Held:
1. No.

First, there is a partnership between Galan and Munasque as to Tropical. The

records show that the Munasque entered into a contract with Tropical for the
renovation of the latter's building on behalf of the partnership of "Galan and
Munñ asque." This is readily seen in contract.

If there was a falling out or misunderstanding between the partners, such does not
convert the partnership into a sham organization, as claimed by Munasque, since a
partnership is created and dissolved under the law.

Also, when Munñ asque received the first check of Tropical made out in his name, he
indorsed it in favor of Galan. Tropical therefore, had every right to presume that the
Munasque and Galan were true partners. If they were not partners as Munasque
claims, then he has only himself to blame for making the relationship appear
otherwise, not only to Tropical but to their other creditors as well. The payments
made to the partnership were, therefore, valid payments.

2. Yes.

First, there is a general presumption that each individual partner is an authorized

agent for the firm and that he has authority to bind the firm in carrying on the
partnership transactions. This presumption is sufficient to allow third persons to
hold the firm liable on transactions entered into by one of members of the firm
acting apparently in its behalf and within the scope of his authority.

In this case, since the two were partners when the debts were incurred, they are also
both liable to third persons who extended credit to their partnership.

Also, although Art. 1816 provides that shall be liable prorate to the liabilities of the
partnership, this should be read with Art. 1824 which provides that all partners are
solidarily liable for liabilities of the partnership under Arts. 1822 and 1823, which
both apply in this case because Galan malversed the money of the partnership.
Because of this, Munasque is solidarily liable to all the partnership’s creditors but
can recover from Galan what he pays in excess of his share.

3. By operation of law
◦ Supervening illegality
◦ Loss of the specific thing contributed
◦ Death, insolvency or civil interdiction of any partner or of the
partnership
2. Judicial Dissolution
1. When unlawful object or purpose Art. 1770
2. Art. 1831. On application by a partner, the court shall decree a
dissolution whenever:
▪ A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind
▪ A partner becomes in any other way incapable of
performing his part of the partnership contract
▪ A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business
▪ A partner wilfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself
in matters relating to the partnership business that it is
not reasonably practicable to carry on the business in
partnership with him
▪ The business of the partnership can only be carried on at a
loss
▪ Other circumstances render a dissolution equitable.
 ▪ On the application of the purchaser of a partner's interests
under 1813 and 1814:
1. After the termination of the specified term or particular
undertaking
2. At any time if the partnership was a partnership at will
when the interest was assigned or when the charging
order was issued.

Realubit vs Jaso

Facts:

Josefina Realubit entered into a joint venture agreement with Biondo, a french
national, for the operation of an ice manufacturing business. Josefina is the
industrial partner and Biondo is the capitalist. They agreed that they would each
receive 40% of the net profit and the remaining 20% is to be used for the payment of
the ice making machine which was purchased for the business.

Later, Biondo sold all his rights to Eden Jaso, who eventually demanded her share
from the profits from Josefina who refused hence the case for specific performance,
dissolution, etc.

Josefina claims that the assignment was forged, that the venture had already
stopped operations and the current ice business is now the sole proprietorship of
Josefina

Issue:
W/N Jaso has any right in the joint venture and in the separate ice business of
Josefina

Held:
Yes.

First, since the deed of assignment is notarized, it enjoys the presumption of its due
execution which has not been rebutted by Josefina.

Second, NCC provides that a conveyance by a partner of his whole interest in the
partnership does not dissolve the partnership and it only entitles the assignee to
receive the profits due to the assignor. However, in case of fraud, he may avail of the
usual remedies. In this case, Jaso is entitled to the share in the profits because of
Biondo's sale of his share to her.

Third, although Jaso did not become a partner because of the assignment, she could
indeed ask the court for the dissolution of the venture pursuant to Article 1831
which provides that the assignee may ask the court for dissolution at any time if the
partnership is a partnership at will when the interest was assigned or when the
charging order was issued.

3. Winding up of the partnership business enterprise

1. Binding authority of partners after dissolution
◦ Art. 1834. (1) After dissolution, a partner can bind the partnership
except as provided in par. 3 of this article:
▪ By any act appropriate for winding up partnership affairs or
completing unfinished transactions
▪ By any transaction which would bind the partnership if
dissolution had not taken place, provided the other party to the
transaction:
1. (a) had extended credit to the partnership prior to
dissolution and had no knowledge or notice of
dissolution (actual knowledge)
2. (b) though he had not so extended credit, had
nevertheless known of the partnership prior to
dissolution, and, having no knowledge or notice of
dissolution (actual or constructive), the fact of
dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more
than one) at which the partnership business was
regularly carried on
▪ (2) The liability of a partner under the 1st par. (2) shall be
satisfied out of partnership assets alone when such partner
had been prior to dissolution:
1. unknown as a partner to the person with whom the
contract is made, and
2. so far unknown and inactive in partnership affairs that
the business reputation of the partnership could not be
said to have been in any degree due to his connection
with it.
▪ (3) The partnership is in no case bound by any act of a partner
after dissolution:
1. Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is
appropriate for winding up business affairs, or
2. Where the partner has become insolvent, or
3. Where the partner has no authority to wind up
partnership affairs; except by a transaction with one
who:
1. (a) had extended credit to the partnership prior
to dissolution and had no knowledge or notice
 of his want of authority (actual knowledge),
or
2. (b) had not extended credit to the partnership
prior to dissolution, and, having no knowledge
or notice of his want of authority (actual or
constructive), the fact of his want of authority
has not been advertised in the manner provided
for advertising the fact of dissolution in 1st par.
(2)b
▪ Nothing in this article shall affect the liability under Article
1825 of any person who after dissolution represents himself or
consents to another representing himself as partner in a
partnership engaged in carrying on business
2. Who has authority to wind up
◦ Art. 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal representative of the
last surviving partner, not insolvent, has the right to wind up the
partnership affairs. However, any partner, his legal representative or
his assignee, may obtain winding up by the court upon cause shown.
3. Discharge liabilities
◦ Art. 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
▪ A partner is discharged from any existing liability upon the
dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or
partnership continuing the business; and such agreement may
be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or
partnership continuing the business.
▪ The individual property of a deceased partner shall be liable
for all obligations of the partnership incurred while he was a
partner, but subject to the prior payment of his separate debts.
◦ Art. 1837. (1) When dissolution is caused in any way, except in
contravention of the partnership agreement, each partner or their
assignees, may have the partnership property applied to
discharge its liabilities, and the surplus applied to pay in cash the
net amount owing to the respective partners, unless otherwise
agreed. But if dissolution is caused by expulsion of a partner, bona
fide under the partnership agreement and if the expelled partner is
discharged from all partnership liabilities, either by payment or
agreement under the second paragraph of 1835, he shall receive in
cash only the net amount due him from the partnership
▪ (2) When dissolution is caused in contravention of the
partnership agreement, the rights of the partners shall be as
follows:
 1. Each partner who has not cause the dissolution
wrongfully shall have:
1. (a) All the rights specified in par. 1, and
2. (b) The right, as against each partner who has
caused the dissolution wrongfully, to damages
for breach
2. The partners who have not caused the dissolution
wrongfully, if they all desire to continue the business in
the same name either by themselves or jointly with
others, may do so, during the agreed term for the
partnership and for that purpose may possess the
partnership property, provided they secure the payment
by bond approved by the court, or pay to any partner
who has caused the dissolution wrongfully, the value of
his interest in the partnership at the dissolution, less
any damages recoverable under par. 2, 1(b), and in like
manner indemnify him against all present or future
partnership liabilities
3. A partner who has caused the dissolution wrongfully
shall have:
1. If the business is not continued under the
provisions of par. 2, no. 2, all the rights of a
partner under par. 1, subject to liability for
damages
2. If the business is continued, the right as against
his co-partners and all claiming through them in
respect of their interests in the partnership, to
have the value of his interest in the partnership,
less any damage caused to his co-partners by the
dissolution, ascertained and paid to him in cash,
or the payment secured by a bond approved by
the court, and to be released from all existing
liabilities of the partnership; but in ascertaining
the value of the partner's interest, the value of
the goodwill of the business shall not be
considered.
4. When there is fraud or misrepresentation
◦ Art. 1838. When a partnership contract is rescinded on the ground of
fraud or misrepresentation of one of the parties thereto, the party
entitled to rescind is, without prejudice to any other right, entitled:
1. To a lien on or right of retention of, the surplus of the
partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership
and for any capital or advances contributed by him
 2. To stand, after all liabilities to third persons have been
satisfied, in the place of the creditors of the partnership
for any payments made by him in respect of the
partnership liabilities, and
3. To be indemnified by the person guilty of the fraud or
making the representation against all debts and
liabilities of the partnership
5. Manner of settling accounts among the partners
◦ Art. 1839. In settling accounts between the partners after dissolution,
the following rules shall be observed, subject to any agreement to the
contrary:
▪ The assets of the partnership are:
1. The partnership property
2. The contributions of the partners necessary for the
payment of all the liabilities specified in No. 2
▪ The liabilities of the partnership shall rank in order of payment
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
▪ The assets shall be applied in the order of their declaration in
No. 1 of this article to the satisfaction of the liabilities.
▪ The partners shall contribute, as provided by Article 1797, the
amount necessary to satisfy the liabilities.
▪ An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number
▪ Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability
▪ The individual property of a deceased partner shall be liable
for the contributions specified in No. 4
▪ When partnership property and the individual properties of
the partners are in possession of a court for distributions,
partnership creditors shall have priority on partnership
property and separate creditors on individual property, saving
the rights of lien or secured creditors.
▪ Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall rank in
the following order:
1. Those owing to separate creditors
2. This owing to partnership creditors
3. Those owing to partners by way of contribution.
6. Claim of creditors
◦ Art. 1840. In the following cases, creditors of the dissolved
partnership are also creditors of the person or partnership continuing
the business:
▪ When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in
the partnership property to at least 1 of the partners and to
any person(s), if the business is continued without liquidation
of the partnership affairs
▪ When all but one of the partners retire and assign their rights
in partnership property to the remaining partner, who
continues the business without liquidation of partnership
affairs, either alone or with others
▪ When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in (1) and (2),
with the consent of the retired partners or the representative
of the deceased partner, but without any assignment of his
right in the property
▪ When all the partners or their representatives assign their
rights in the partnership property to 1 or more third persons
who promise to pay the debts and who continue the business
of the dissolved partnership
▪ When any partner wrongfully causes a dissolution and the
remaining partners continue the business under the provisions
of 1837 par 2(2), either alone or with others, and without
liquidation of the partnership affairs
▪ When a partner is expelled and the remaining partners
continue the business either alone or with others without
liquidation of the partnership affairs
▪ The liability of third persons becoming a partner in the
partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of
the partnership property only, unless there is a stipulation to
the contrary.
▪ When the business of partnership after dissolution is
continued under any conditions set forth in this article, the
creditors of the dissolved partnership as against the separate
creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to
any claim of the retired partner or the representative of the
deceased partner against the person or partnership continuing
the business, on account of the retired or deceased partner's
interest in the dissolved partnership or on account of any
 consideration promised for such interest or for his right in
partnership property.
▪ Nothing in this article shall be held to modify any right of
creditors to set aside any assignment based on fraud
▪ The use by the person or partnership continuing the business
of the partnership name, or the name of a deceased partner as
part thereof, shall not of itself make the individual property of
the deceased partner liable for any debts contracted by such
persons or partnership.
7. Effect on deceased or retiring partner when partnership business
continued after dissolution
◦ Art. 1841. When any partner retires or dies, and the business is
continued under any of the conditions in the preceding article, or in
Article 1837 par. 2 (2), without any settlement of accounts as
between him or his estate and the person or partnership
continuing the business, unless otherwise agreed, he or his legal
representative may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor
an amount equal to the value of his interest in the dissolved
partnership with interest, or at his option or at the option of his
legal representative, in lieu of interest, the profits attributable to
the use of his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership as against
the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under
this article, as provided by Article 1840 par. 3.
◦ Right of expelled partner
▪ Art. 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
1. A partner is discharged from any existing liability upon
the dissolution of the partnership by an agreement to
that effect between himself, the partnership creditor
and the person or partnership continuing the business;
and such agreement may be inferred from the course of
dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing
the business.
2. The individual property of a deceased partner shall be
liable for all obligations of the partnership incurred
while he was a partner, but subject to the prior payment
of his separate debts.
8. Right to receive proper account for partnership interest
◦ Art. 1842. The right to an account of his interest shall accrue to any
partner, or his legal representative as against the winding up partners
or the surviving partners or the person or partnership continuing the
 business, at the date of dissolution, in the absence of any agreement to
the contrary.
9. Right to continue business when partnership wrongfully dissolved
◦ Art. 1837 (2) - Partners who did not wrongfully dissolve the
partnership can continue the business, provided they secure the
payment by bond approved by the court, or pay to any partner who
has caused the dissolution wrongfully, the value of his interest in the
partnership at the dissolution, less any damages recoverable

Singson vs Isabella Sawmill

Facts:

Leon, Margarita and Timoteo formed a partnership "Isabela Sawmill"

Later, Isabela Sawmill bought a truck and 2 tractors from Oppen Esteban Inc. To pay
for these, Isabel arranged that International Harvester Company would sell farm
machined to Oppen Esteban, with the understanding that the price would be paid by
Isabela.

Later, Margarita had the partnership judicially dissolved and by virtue of a MOA, she
allowed the old partners to continue Isabela Sawmill.

Later, the old partners mortgaged several partnership properties to Margarita.

Eventually, Margarita foreclosed these mortgages and she acquired them as highest
bidder. She later sold these properties to Pan Oriental Lumber.

As it turns out, Isabela Sawmill owed many creditors and had no more cash to pay
them. So, all its creditors filed this case to annul the Contract of Mortgage of the
properties to Margarita.

Issue:
W/N the contract of chattel mortgage should be annulled - Yes

Held:
Yes.

First, in this case, Isabela Sawmill was dissolved but was however continued by the
remaining partners without liquidation and winding up. The properties mortgaged
to Margarita were owned by the Partnership.

Since the withdrawal of Margarita was not published in the newspapers, Isabela's
creditors had the right to expect that they could enforce against the properties of the
partnership.
Although Margarita may be in good faith, the creditors were also in good faith. and
the rule is that "Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the consequences."

In this case, because Margarita consented to the continuing of the business, the
creditors were misled into thinking that they were still dealing with Isabel Sawmill.

X. Limited Partnerships
1. Origin, concept and purpose
◦ Art. 1843. A limited partnership is one formed by 2 or more persons
under the provisions of the following article, having as members at
least 1 general partner and at least 1 limited partner. The limited
partners shall not be bound by the obligations of the partnership.
2. Formation and statutory requirements
◦ Requirements of formation
1. Art. 1844. 2 or more persons desiring to form a limited
partnership shall:
1. Sign and swear to a certificate which shall state….
2. File and record the certificate in the SEC
3. A limited partnership is formed if there has been
substantial compliance in good faith with the foregoing
requirements.
2. Art. 1867. A limited partnership formed prior to the effectivity
of this Code may become a limited partnership under this code
by complying with Article 1844, provided that the certificate
sets forth:
1. The amount of the original contribution of each limited
partner, and the time when the contribution was made
2. That the property of the partnership exceeds the
amount sufficient to discharge its liabilities to non-
partners by an amount greater than the sum of the
contributions of the limited partners
3. A limited partnership formed under the law prior to this
Code, shall be governed by the provisions of the old law
unless they have become a limited partnership under
this chapter.

Commissioner of Internal Revenue vs. Suter

Facts:
A partnership was formed by Suter, as general partner, and Julia and Carlson as
limited partners. The partnership was registered in the SEC. The partnership was
engaged in the importing and distribution of TVs, radios, phonographs.

Later, Suter and Julia married each other and Carlson sold his share to both of them.

Later, the CIR assessed both Suter and Julia with a deficiency of income tax. CTA
reversed CIR decision. hence this case.

CIR contends that the marriage of Suter and Julia dissolved the limited partnership
as provided for by Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into a universal partnership.

Issue:
W/N the marriage dissolved the limited partnership - No.

Held:
No.

First, the prohibition on persons who are prohibited from giving donations to each
other from forming a partnership refers only to a universal partnership. In this case,
the partnership is a particular one. It was not a universal partnership because the
contributions of the partners were in fixed sums of money, not "all the present
property of the partners" nor "all that the partners may acquire by their industry or
work"

Second, neither did the marriage convert the partnership to a sole proprietorship
because their contributions were made before the marriage, which means that they
separately owned the contributions then and until now.

◦ 2. Sworn certificate of limited partnership filed with SEC

▪ Partnership name added the word "Limited"
▪ The name of the limited partner cannot appear in
the partnership name
▪ Art. 1846. The surname of a limited partner shall
not appear in the partnership unless:
1. It is also the surname of a general partner,
or
2. Prior to the time when the limited partner
became such, the business had been
carried on under a name in which his
surname appeared.
3. A limited partner whose surname appear
in a partnership contrary to the foregoing
 is liable as a general partner to
partnership credits who extend credit to
the partnership without actual knowledge
that he is not a general partner.
▪ Character and location of business
▪ On the partners:
1. Name and residence of all partners and
their designation
2. Amount/description of their
contributions, details of future
contributions if any to be made by
limited partners, and when
contributions should be returned
3. Shares of profit, and compensation by
way of income of limited partners
4. Right of substitution or assignment by
limited partners
5. Admission of additional limited
partners
6. Priority over other limited partners
7. Right of remaining general partners to
continue business upon death,
retirement, civil interdiction, insanity
or insolvency of a general partner
8. Right of limited partners to
demand/receive property other than
cash in return for his contribution
◦ 3. Doctrine of substantial compliance
◦ 4. Effects of failure to comply with registration requirements
▪ A limited partnership that does not comply with the
registration requirements shall be treated as a general
partnership
◦ 5. Effects of falls statement in certificate
▪ Art. 1847. If the certificate contains a false statement, one who
suffers loss by reliance on such statement may hold liable any
party to the certificate who knew the statement to be false:
▪ At the time he signed the certificate
▪ Subsequently, but within a sufficient time before the
statement was relied upon to enable him to cancel or
amend the certificate, or to file a petition for its
cancellation or amendment.
◦ 6. Amendment of certificate
▪ Art. 1864. The certificate shall be cancelled when the
partnership is dissolved or all limited partners cease to be
such.
 ▪ A certificate shall be amended when:
▪ Change in name of partnership or
amount/character of contribution of limited
partner
▪ Substitution of limited partner
▪ Admission of additional limited partner
▪ Admission of additional general partner
▪ General partner dies, retires, becomes insolvent,
sentenced to civil interdiction and the business is
continued under Article 1860
▪ Art. 1860. The retirement, death, insolvency, or civil
interdiction of a general partner dissolves the partnership,
unless the business is continued by the remaining general
partners:
▪ Under a right to do so, stated in the certificate, or
▪ With the consent of all members
▪ Art. 1865. The writing to amend a certificate shall:
▪ Conform to the requirements of 1844 as far as
necessary to set forth clearly the change in the
certificate it desires to make
▪ Be signed and sworn to by all members, and an
amendment substituting a limited partner or adding a
new partner shall be signed by the member so added or
substituted, the amendment shall also be signed by the
assigning limited partner.
▪ The writing to cancel a certificate shall be signed by all
members.
▪ A person desiring the cancellation or amendment of a
certificate may petition the court to order a cancellation
of amendment thereof.
▪ If the court finds that the petitioner has a right to have
the writing executed by a person who refuses to do so, it
shall order the SEC to record the cancellation or
amendment of the certificate; and when the certificate is
to be amended, the court shall cause to be filed for
record in the SEC a certified copy of its decree.
▪ A certificate is amended or cancelled when there is filed
for record in the SEC:
▪ A writing in accordance with the first or second
paragraph.
▪ A certified copy of the order of court
▪ After the certificate is duly amended in
accordance with this article, the amended
certificate shall thereafter be for all purposes the
certificate provided for in this chapter.
3. Rights, powers, restrictions and liabilities on partners
1. General partner
◦ Art. 1850. A general partner shall have all the rights and powers and
be subject to all the restrictions and liabilities of a partnership
without limited partners. However, without the written consent or
ratification of the specific act by all the limited partners, a general
partner or all of the general partners have no authority to:
▪ Do any act in contravention of the certificate
▪ Do any act which would make it impossible to carry on the
ordinary business of the partnership
▪ Confess a judgment against the partnership
▪ Possess partnership property, or assign their rights in specific
partnership property, for other than a partnership purpose
▪ Admit a person as a general partner
▪ Admit a person as a limited partner, unless the right to do so is
given in the certificate
▪ Continue the business with the partnership property on the
DRICI of a general partner, unless the right to do so is given in
the certificate.
2. Limited partners at formation
◦ Art. 1848. A limited partner shall not become liable as a general
partner unless, in addition to the exercise of his right and powers as a
limited partner, he takes part in the control of the business.
◦ Art. 1851. A limited partner shall have the same rights as a general
partner to:
▪ Have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to
inspect and copy them
▪ Have on demand true and full information of all things affecting
the partnership, and a formal account of partnership affairs
whenever just and reasonable, and
▪ Have dissolution or winding up by decree of court
▪ A limited partner shall have the right to receive a share of the
profits or other compensation by way of income, and to the
return of his contribution as provided in 1856 and 1857.
◦ Contributions may be cash/property but not services
▪ Art. 1845. The contributions of a limited partner may be cash
or other property, but not services.
◦ Priority agreements among limited partners
▪ Art. 1855. Where there are several limited partners, the
members may agree that one or more of the limited partners
shall have a priority over other limited partners as to the
return of their contributions, as to their compensation by way
of such income, or as to any other matter. If such an agreement
is made, it shall be stated in the certificate, and in the absence
 of such a statement all the limited partners shall stand on equal
footing.
◦ Stipulation on profits and compensation
▪ Art. 1856. A limited partner may receive from the partnership
the share of the profits or the compensation by way of income
stipulated for in the certificate; provided, that after such
payment is made, whether from the property of the
partnership or that of a general partner, the partnership assets
are in excess of all liabilities of the partnership except liabilities
to limited partners on account of their contributions and to
general partners.
◦ Stipulation on when contribution received
▪ Art. 1857. A limited partner shall not receive from a general
partner or out of partnership property any part of his
contribution until:
▪ All liabilities of the partnership, except liabilities to the
partners on account of their contributions, have been
paid or there remains property of the partnership
sufficient to pay them
▪ The consent of all members is had unless the return of
the contribution may be rightfully demanded under par.
2, and
▪ The certificate is cancelled or so amended as to set forth
the withdrawal or reduction
▪ Subject to the provisions of the first paragraph, a limited
partner may rightfully demand the return of his
contribution:
1. On the dissolution of the partnership
2. When the date specified in the certificate for its
return has arrived, or
3. After he has given 6 months' notice in writing to
all members if no time is specified for its return,
either for the return of the contribution or for
the dissolution of the partnership.
▪ In the absence of any stipulation to the contrary or the
consent of all members, a limited partner, only has the
right to demand and receive cash in return for his
contributions
▪ A limited partner may have the partnership dissolved
and its affairs wound up when:
1. He rightfully but unsuccessfully demands the
return of his contribution, or
2. The other liabilities of the partnership have not
been paid, or the partnership property is
insufficient for their payment as require by par. 1
 (1) and the limited partner would otherwise be
entitled to the return of his contribution
◦ Liabilities to the partnership
▪ Art. 1858. A limited partner is liable to the partnership:
▪ For the difference between his contribution as actually
made and that stated in the certificate as having been
made, and
▪ For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the
conditions stated in the certificate.
▪ A limited partner holds as trustee for the partnership:
1. Specific property stated in the certificate as
contributed by him, but which was not
contributed or which has been wrongfully
returned, and
2. Money or other property wrongfully paid or
conveyed to him on account of his contribution
▪ The liabilities of a limited partner herein can be waived
or compromised only by the consent of all members; but
a waiver or compromise shall not affect the right of a
partnership creditor whose claim arose after the filing
and before the cancellation or amendment of the
certificate, to enforce such liabilities.
▪ When a contributor has rightfully received the return of
his contribution, he is nevertheless liable to the
partnership for any sum, not in excess of such return
with interest, necessary to discharge its liabilities to all
creditors whose claims arose before such return.
◦ Additional limited partners
◦ Assignability of rights
◦ No standing to sue for partnership
3. Liability of one believing himself to be a limited partner
4. General partner also as limited partner