BUS ORG 1. LAW ON PARTNERSHIPSJUNE 11 INTRODUCTIONBUSINESS ORGANIZATIONJune 14, 2013 (Part 1), Friday

So we will formally start our classes tonight.Q: Can you please explain the historical background on the law of partnership?Q: So it started during the Roman times? Actually it existed even before the Roman times. Q: So you mean to say is that there existed a special court for that matter?Q: How about the governing law in our jurisdiction? Can you explain its history before the Civil Code?Q: Was there not distinction as to what law will govern?Before the New Civil Code, commercial or mercantile partnerships were governed by the Code of Commerce while non-commercial or civil partnerships were governed by the old Spanish Civil Code. So in our jurisdiction, there was a distinction as to what law will govern.So the sources of our law on partnership are taken from the Old Civil Code and from the US Uniform Partnership Act and from the Uniform Limited Partnership Act. Take note that some provisions are taken from the Code of Commerce as well as from the opinions of civilians.Q: What is a contract of partnership?Q: So the definition under Article 1767 is from what viewpoint?From the viewpoint of partnership as a contract.Q: So a partnership can also be defined as?Take note that under Article 1767, it gives us the legal definition of a partnership as a contract. However, partnership can also be defined as an association, a legal relation, a status, an organization, an entity, or a joint undertaking. Take note that partnership is a legal concept but the determination of the existence of a partnership may involve inferences drawn from the circumstances attending its creation and operation.Q: How will you distinguish the civil law concept from the American concept of partnership?Q: What is a general professional partnership?Q: What is a partnership for the practice of law?Take note that a partnership for the practice of law is a mere association for nonbusiness purpose as distinguished from business. The primary characteristics of which are as follows:1. It is a duty of public service;2. The relation as an officer of court to the administration of justice;3. It is highly fiduciary relation to the clients; and4. The relation to the colleagues at bar is characterized by candor and fairness.Q: What are the characteristic elements of a partnership?Q: What are the essential features of partnership?Q: The first essential feature of a contract of partnership is that the existence of a valid contract. Can you please explain?Q: Is form an essential requisite for the validity of a partnership contract?Q: As a review, what are the essential requisites of a valid contract?Q: Explain that a partnership is a relation which is fiduciary in nature.Q: The second essential requisite for a contract of partnership is the legal capacity of a partner to enter into a contract. How do you define legal capacity?Q: Who can be a partner?Q: Who cannot be a partner?Q: Can a partnership enter into another partnership?Q: how about the corporation, can it enter into a partnership?Take note that if it is a partnership, there is no prohibition for it to enter into another partnership. But if it is a corporation, the general rule is that unless authorized by a statute or its charter, a corporation is without capacity or power to enter into a contract of partnership. That is the general rule and it is subject to exceptions like:1. In joint ventures (JV) where the nature of the JV is in line with the business authorized by its charter ;2. Partnership agreement which provides that two partners will manage the partnership so that the management of the corporate interest is not surrendered; and 3. Entry of a foreign corporation as a limited partner in a limited partnership mainly for investment purposes.Q: Explain the third essential characteristic of a contract of partnership: contribution of money, property or industry to a common fund.In addition to property, real or personal property, including corporeal property.Q:Explain the characteristic of partnership: the purpose of which is to obtain profit.Q: Should it not be an exclusive purpose?Take note that the purpose to obtain profit need only be the principal purpose and not the exclusive purpose.Q: Should the profits be equally shared by the partners?So it depends upon the stipulation of the contract of partnership. Take note that stipulation which excludes the partner from any participation in the profits is void and a stipulation which excludes one or more of the partners from any of the losses is void.Q: What is the consequence of a partnership being a juridical entity separate from its partners?Q: Can partners be liable for the obligation of the partnership?Take note that the partners are not liable for the obligations of the partnership as a general rule unless it is shown that the legal fiction of a separate legal personality is being used for a fraudulent, unfair or illegal purpose.What are the different relations created by a contract of partnership?A contract of partnership creates relations among the partners themselves, second is relation between partners to the partnership, third is the relation of the partnership as to third persons with whom it contracts and lastly relation of partners with such third persons. Describe the kind of relation that exists among the partners themselves.The partners among themselves, is one of fiduciary relationship. It is essentially one of mutual trust and confidence. Each partner is a what- an agent and he is deemed a trustee and a cestui que trust at the same time. How about the relationship of a partner to the partnership. Eventhough the partnership is not yet terminated there is still a fiduciary relationship and until it is terminated there is still mutual trust and confidence. When is the birthdate of a partnership? It is at the moment of the execution of the contract between the partners.It is moment of the registration at the SEC. For how long the term of a contract of partnership? It depends upon the agreement as well as the consent of the parties. Can the parties enter into a contract of partnership in the future? Yes Maam, they can agree to enter into a future partnership, however, it is only inchoate. What is limitation? Theres no juridical personality therefore it cannot enter into any contract. However, take note of the Statute of Frauds ha, if it is not to be performed within a year of making the contract- it must be in whatin writing, in order for it to be enforceable. It must be in writing and evidenced by a memorandum in order for it to be enforceable. Meaning you can file now a case in court if that is in writing kaya nga yuna ng ibig sabihin ng enforceability. So Art. 1784.- A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. This provision is self-explanatory. Article 1785. What is a partnership with a fixed term? It is that the parties lay down a specific term or its life span or it can be that of a partnership with a specific undertaking. It is with a specific lifespan. What is the effect if the said partnership with a fixed term is continued beyond its term? If it is continued beyond its term and is not liquidated, or there is no sign that the parties intend to end the partnership then it is meant to be a partnership at will. What is a partnership at will? It is a partnership that continues based on the consent of the parties and its existence is terminable at the will of anyone of them. A partnership at will is a partnership that is designed to continue for a fixed period of time and is to last only during the mutual consent or at the pleasure of the parties and its existence is terminable at the will of anyone of them. Art 1785. When a partnership for a fix term or a 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 a continuation of the partnership. For example, the partnership is for a fixed period and it is now converted to a partnership at will, state the rights and obligation of the parties.As a default, the rights and obligations in the partnership will go on unless the partners agreed to other rights and obligations. The stipulations provided for in the previous partnership will continue and in default of that, the provisions of Civil Code on partnership.

What happened to the partnership with a fixed period kasi nagcontinue na ang partnership? It is deemed dissolved and converted into a partnership at will. Take note with such continuation, the old partnership is dissolved and a new one is created by implied agreement, the continued existence of which will depend upon the mutual desire and consent of the partners. Another one, even if a partnership is for a fixed term, it can be terminated. Diba originally they have agreed, oh fixed na tayo, it can be terminated anytime by the express will of any partner before the time previously agreed upon arises. It can still be dissolved upon the express term of any partner because, why, there is no such thing as an idissoluble partnership. State the obligation of the partner with respect to contribution of property. The obligations of the parties with respect to the contribution of property 1. to contribute at the beginning of the partnership or at the stipulated time the money, property, or industry which he may have promised to contribute and, 2. to answer for eviction in case the partnership is deprived of the determinate property contributed, 3. To answer to the partnership for the fruits of the property the contribution of which he delayed, 4. To preserve said property with the diligence of a good father of a family pending delivery to the partnership, and 5. To indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its contribution. What is the effect if the said partner failed to contribute the property he promised? The said party is considered a debtor of a partnership. State the liability of the partner in case of eviction. The partner is bound in the same cases and in the same manner as the vendor is bound with respect to the vendee with regard to specific and determinate thing which he may have contributed to the partnership. How about his liability if the said partner failed to perform the service stipulated. Take note Article 1786. Every partner Bus OrgJune 18, 2013TSN by Sonny

As a review of what we have discussed last week, what is a contract of partnership?

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

So can you please give me the facts of Lim Tong Lim v. Philippine Fishing?

Facts: On behalf of F Corporation, Chua and Yao entered into a contract for the purchase of fishing nets and floats from G Corporation, claiming that they were engaged in a business venture (fishing business) with petitioner Lim who, however, was not a signatory to the agreement. A suit was filed by G Corporation against the three in their capacities as general partners, on the allegation that F Corporation was a non-existent corporation as shown by a certification from the Securities and Exchange Commission.

Issue: Was Lim a partner of Chua and Yao in the fishing business and may thus be held liable as such for the fishing nets and floats purchased by them for the use of the partnership?

Held: Yes: Partnership formed by Chua, Yao, and Lim. From the factual findings of both lower courts [Regional Trial Court and Court of Appeals], it is clear that Chua, Yao, and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently revealed 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, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Article 1767.

Take note: The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded. Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them.

Last week, we said that, "the existence of a co-ownership or co-possession does not of itself establish a partnership." Can you please tell me the case of Pascual v. CIR?

Facts:On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.

Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax.

Issue: Whether or not a contract of partnership was entered into among them

Ruling: None.the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative 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.

The sharing of returns does not in 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.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership p. 7 However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

How about the case of Lorenzo Ona v. CIR? Can you tell me the facts of the case?

Facts:Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed administrator of the estate of said deceased.

instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceed from the sales thereof in real properties and securities," as a result of which said properties and investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the profits of their common business as reported by the said Lorenzo T. Oa.

Issue: whether or not a contract of partnership was entered into among the parties

Ruling:it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamonut 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.

Last week, we discussed that, "the sharing of gross returns does not of itself es- tablish a partnership." Again, "the sharing of gross returns does not of itself es- tablish a partnership." So what happened in the case of Obillos v. CIR?

Facts: O, after completing payment to S on two lots, transferred his rights to his four children, C, etc. to enable them to build their residences. S sold the two lots for P178,708.12 to C, etc. who resold them more than a year later to T for P313,050, treating the profit of P134,341.88 as capital gains and paying an income tax on one-half of their respective shares (or P33,584) of the profit. Issue: Did C, etc. form a partnership under Article 1767? Held: No. (1) Division of profits was merely incidental. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. C, etc. were not engaged in any joint venture by reason of that isolated transaction.18 The original purpose was to divide the lots for residential purposes. If later on they found it not feasible to do so because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. TAKE NOTE: The division of the profits was merely incidental to the dissolution of the co-ownership which was, in the nature of things, a temporary state. It has to be terminated sooner or later. There must be an unmistakable intention to form a partnership. Article 1769(3) 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 orinterest in any property from which the returns are derived. There must be an unmistakable intention to form a partnership or joint venture.

Such intent was present in the Gatchalian case (supra.) where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize. The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership. The instant case is distinguishable from the case where the parties engaged in joint ventures of profit. Thus, in the Ona case (supra.), where after an extrajudicial settlement the co- heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership. It is likewise different from Reyes vs. Commissioner of Internal Revenue (24 SCRA 198 [1968]) where father and son purchased a lot and building, entrusted the administration of the building to an administrator, and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue (102 Phil. 140 [1957]) where three sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership.

Can you please reiterate the meaning of the law, that "the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner." Again, "the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner." and what are its exceptions:

The sharing of profits and losses is prima facie evidence of an intention to form a partnership but not a conclusive evidence. The presumption of partnership arising from such profit- sharing agreement may be rebutted and outweighed by other circumstances.

The exceptions are:

(a) As a debt by installments or otherwise;(b)As wages of an employee or rent to a land- lord;(c) As an annuity to a widow or representative of a deceased partner;(d) As interest on a loan, though the amount of payment vary with the profits of the business;(e) As the consideration for the sale of a good- will of a business or other property by installments or otherwise.

So what happened in the case of Sardane v. CA?

Ruling:As manager of the basnig Sarcado naturally some degree of control over the operations and maintenance thereof had to be exercised by herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the private respondent herein. TAKE NOTE: Article 1769(4) of the Civil Code is explicit that while 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, no such inference shall be drawn if such profits were received in payment as wages of an employee. Furthermore, herein petitioner had no voice in the management of the affairs of the basnig.

So there is no partnership here in the case of Sardane v. CA.

My question is, what are the effects of an unlawful partnership? State the effects of an unlawful partnership.

The following are the consequences of a partnership formed for an unlawful purpose:

(1) The contract is void ab initio and the partnership never existed in the eyes of the law (Art. 1409[1].);

(2) The profits shall be confiscated in favor of the government;

(3) The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government;22 and

(4) The contributions of the partners shall not be confiscated unless they fall under No. 3

So what happened in the case in Arbes v. Polistico? Give the ruling na lang.

A partnership must have a lawful object, and must be established for the common benefit of the partners.

When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

Are the partners entitled to the profits?

No.Article 1770 permits no action for the purpose of obtaining the earnings made by an unlawful partnership, during its existence.

My question is, what must be done when a partnership has a capital of P3k or more?

(a) The contract must appear in a public instrument; and (b) It must be recorded or registered with the Securities and Exchange Commission.

What is the purpose of that registration requirement?

The requirement of public instrument is imposed as a prerequisite to registration, and registration is necessary as a condition for the issuance of licenses to engage in business or trade.

However, failure to comply with the above requirements does not prevent the formation of the partnership (Art. 1768.) or affect its liability and that of the partners to third persons.

So what happened in the case of Sunga-Chan v. Chua?

Ruling: A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in which case a public instrument shall necessary.6 Hence, based on the intention of the parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract of partnership may arise.7 The essential profits that must be proven to that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in the profits.8 Understandably so, in view of the absence of the written contract of partnership between respondent and Jacinto, respondent resorted to the introduction of documentary and testimonial evidence to prove said partnership.

Petitioners maintain that said partnership that had initial capital of P200,000.00 should have been registered with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical personality even if it fails to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so long as the contract has the essential requisites, because the main 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.26 In the case at bar, non-compliance with this directory provision of the law will not invalidate the partnership considering that the totality of the evidence proves that respondent and Jacinto indeed forged the partnership in question.

My question is, is an inventory of property contributed to partnershipalways required? State the rules and its effects.

An inventory is required only whenever immovable property is contributed. Hence, Article 1773 does not apply in the case of immovable property which may be possessed or even owned by the partnership but not contributed by any of the partners.

So what is the importance of this inventory?

An inventory is very important in a partnership to show how much is due from each partner to complete his share in the common fund and how much is due to each of them in case of liquidation.

So what happened in the case of Torres v. CA? What is the ruling in this case? Was there a partnership?

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership.

The SC said that there was partnership but it was void. But here, the SC said that the JVA was considered as an ordinary contract from which rights may be enforced.

My question is, what is a secret partnership? What law will govern such partnerships?

These are associations whose articles or agreements are kept secret among the members (i.e., known to some members only but withheld from the rest) and wherein anyone of them may contract in his own name with third persons.

As among themselves, they shall be governed by the provisions relating to co-ownership.

State the effect of a partner who transacts for the secret partnership in his own name.

A member who transacts business for the secret partnership in his own name becomes personally bound to third persons who are unaware of the existence of such association, in the same way and for the same reason that an agent who acts in his own name when dealing with third persons is directly bound in favor of such persons who may only sue or be sued by the agent and not his principal.

My last question is, can the secret partnership by itself be held liable?

As a general rule no, except when they are deemed as partnership in estoppel.

My question is, what is a universal partnership and how will you distinguish that for a particular partnership? What is the main distinction between the two?

Take note: the fundamental difference between a universal partnership and a particular partnership lies in the scope of their subject matter or object, ha. If it is a general partnership, the object is vague and indefinite, contemplating a general business with some degree of continuity, while if it is particular partnership, it is limited and well-defined, being confined to an undertaking of a single, temporary, or ad hoc nature.

Last question for tonight, what happened in the case of CIR v. Suter? Was there a universal or particular partnership in this case? What was contributed by the partners?

What existed was a particular partnership since the contributions of the partners were fixed sums of money and neither of them were industrial partners.

Business OrganizationJune 21, 2013 Part 1 (Friday)

Q: As a review, what is a universal partnership as distinguished from a particular partnership?Q: So what is the ruling of the Supreme Court in the case of CIR vs. Sutter? So what kind of partnership was constituted in that case?So what was contributed by the partners was fixed amount of money. That is why what existed was a particular partnership.Q: What are the different kinds of partners under the Civil Code?Q: How will you distinguish a partnership at will with a partnership with a fixed period?Q: How will you distinguish a de jure partnership from a de facto partnership?Q: How will you distinguish a secret partnership from an open or notorious partnership?Q: How will you distinguish a commercial or trading partnership from a professional or nontrading partnership?Article 1777 provides that A universal partnership may refer to all the present property or to all the profits. Art. 1778 provides that 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 all the profits which they may acquire therewith. Q: How do you define a universal partnership of all present property?So take note ha, what properties become the common properties of all the partners:1. Property which belongs to any of them (partners ) at the time of the constitution of the partnership; and 2. The profits which they may acquire from the properties contributed. Q: Can future property be contributed to a partnership?Q: Why cant future properties be contributed to the partnership?Take note the very essence of a contract of partnership is that the properties contributed be included in the partnership, it requires that said properties are things that are determinate. Q: What are the exceptions?Q: How about properties to be acquired by inheritance?Actually the right of the said partner in that is merely inchoate. So hindi pwede inheritance, legacy or donation. Donation cannot be included by stipulation except the fruits thereof.Q: How about the usufruct of properties acquired by inheritance, legacy or donation, can that be contributed?Take note the usufruct of the property acquired by inheritance, legacy or donation may be stipulated. It has to be stipulated so that it can be contributed to the common fund.Q: Does ownership of property donated to the partnership pass on to the partnership in a universal partnership of profits.Article 1780 provides that " 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. Take note ha, what passes to the partnership are the profits, or income, as well as the use or the usufruct of the same if it is a universal partnership of profits.Q:How about profits acquired through chance?Article 1781 provides that Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. Why is there such a presumption in favor of a universal partnership of profits?So take note that in case of doubt, the presumption is that it is a universal partnership of profits.Q: Who are the persons prohibited from entering into a universal partnership of property?Take note that the following are prohibited from making donations:1. Article 87 of the Family Code, donations between spouses during marriage is void except moderate gifts on the occasion of family rejoicing. The prohibition also applies to common law spouses, those living together as husband and wife without the benefit of a valid marriage;2. Those made between persons who are guilty of adultery or concubinage at the time of the donation. Take note that there is no need for a conviction. So mali yung sabi na guilty of adultery or concubinage because there is no need for a conviction. What is only needed here is merely a preponderance of evidence;3. Those made between persons found guilty of the dame criminal offense in consideration thereof; and4. Those made to a public officer or his wife, descendants r ascendants, by reason of his office.Q: So what is the reason again for Article 1782 for the said prohibition?The prohibition is founded on the theory that a contract of universal partnership is for all purposes a donation, thus seeks to prevent persons disqualified from making donations from doing it indirectly what the law prohibits them from doing directly.Q: Please reiterate the facts in the case of CIR vs. William Sutter.Q: is there a partnership if the business is only for a single transaction?Q: what is a particular partnership?Take note that the business of the partnership need not be continuing in nature ha. The business of the partnership or the carrying on of the business of partnership is not essential to constitute a partnership because there can be an agreement to undertake a particular piece of work. So pwede sya single transaction. So it really depends upon the intention of the parties.Q: What is a Joint Venture (JV)?Q: So you mean to say that a JV is a preparatory to form a partnership?Q: Tell me about the case of Auerbach vs. Sanitary Wares.Q: So you mean to say that a JV is synonymous to a partnership? Limited partnership?Q: Can you please define again what is a JV?Q: is a JV deemed a partnership?Q: Can a corporation enter into a partnership based on the ruling in Auerbach?General Rule:Take note as a general rule, a corporation cannot ordinarily enter into a contract of partnership. The limitation is founded on public policy since in a partnership, a corporation will be bound by the acts of persons who are not duly appointed and authorized agents and officers which would be entirely inconsistent with the policy of the law that a corporation shall manage its own affairs separately and exclusively. Another reason: in entering into a partnership, the identity of the corporation is lost or merged with that of another. Take note ha that a corporation can only act through its duly authorized agents and not bound by the acts of anyone else. Exceptions: (based on SEC Opinion, dated February 29, 1980)1. Provided the following conditions are met: The Articles Of Incorporation of the corporation must expressly authorize the corporation to enter into contracts of partnership with others in the pursuit of its business; The Articles Of Partnership must provide that all the partners will manage the partnership; AND The Articles Of Partnership must stipulate that all the partners are and shall be jointly and severally liable for all the obligations of the partnership.So take note ha that all these conditions must be present. Moreover, two or more corporations may enter into a JV if the nature of the venture is in line with the business authorized by its charter. But take note, even if two corporations enter into a JV, there is no independent and separate legal entity that is created out of the said relationship. And the same need not be registered with the SEC.So what is a JV? As ruled in the case of Auerbach, as well as in the case of Tan Eng Kee, JVs are usually concerned with an isolated transaction or project as opposed to a partnership which contemplates a general business with some continuity. In a JV, it does not have a firm name kaya nga no separate legal entity, there is no mutual agency and it does not have a separate juridical personality. So in effect, a JV is not a partnership.Q: If it will be asked in a bar, how will you distinguish a JV from a joint account? What is a joint account?A joint account is similar to a partnership. But that is provided under the Law On Commerce. So Commercial Law ito sya. It is provided under the Law On Commerce where merchants may interest themselves in the transaction of other merchants contributing thereto the part of the capital they may agree upon and participating in the favorable or unfavorable results thereof in the proportion they may determine. So Joint Account based on that definition is like a partnership kaya lang it is under the Law On Commerce.Q: In relation to Article 1780, does ownership of property contributed pass on to the partnership in a universal partnership of profits?So in relation to Article 1780 on the rule on the universal partnership of profits, take note, all that the partners may acquire jointly or severally through their physical or intellectual efforts, whether it be on a pursuit of trade or in the exercise of their profession or otherwise, it pertains to the partnerhip and are subject to division among the partners upon its termination. So what it excludes are the following:1. Acquisitions of partnership through any means not requiring the exertion of human efforts or intelligence; and2. Properties which each partner acquires before the celebration of the contract (Take note here that only the usufruct of the property passes to the partnership).Q: So what are the different relations created by a contract of partnership?Q: Can you please discuss the relationship that exists among the partners themselves?It is essentially one of a mutual trust and confidence. Each partner is an agent and deemed a trustee and cestui que trust.Q: How about the relationship of a partner to a partnership, can you please describe that?Q: When is the birthdate of the partnership?Q: For how long will it exist (the term of the contract of a partnership)?What are the different relations created by a contract of partnership?A contract of partnership creates relations among the partners themselves, second is relation between partners to the partnership, third is the relation of the partnership as to third persons with whom it contracts and lastly relation of partners with such third persons. Describe the kind of relation that exists among the partners themselves.The partners among themselves, is one of fiduciary relationship. It is essentially one of mutual trust and confidence. Each partner is a what- an agent and he is deemed a trustee and a cestui que trust at the same time. How about the relationship of a partner to the partnership. Eventhough the partnership is not yet terminated there is still a fiduciary relationship and until it is terminated there is still mutual trust and confidence. When is the birthdate of a partnership? It is at the moment of the execution of the contract between the partners.It is moment of the registration at the SEC. For how long the term of a contract of partnership? It depends upon the agreement as well as the consent of the parties. Can the parties enter into a contract of partnership in the future? Yes Maam, they can agree to enter into a future partnership, however, it is only inchoate. What is limitation? Theres no juridical personality therefore it cannot enter into any contract. However, take note of the Statute of Frauds ha, if it is not to be performed within a year of making the contract- it must be in whatin writing, in order for it to be enforceable. It must be in writing and evidenced by a memorandum in order for it to be enforceable. Meaning you can file now a case in court if that is in writing kaya nga yuna ng ibig sabihin ng enforceability. So Art. 1784.- A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. This provision is self-explanatory. Article 1785. What is a partnership with a fixed term? It is that the parties lay down a specific term or its life span or it can be that of a partnership with a specific undertaking. It is with a specific lifespan. What is the effect if the said partnership with a fixed term is continued beyond its term? If it is continued beyond its term and is not liquidated, or there is no sign that the parties intend to end the partnership then it is meant to be a partnership at will. What is a partnership at will? It is a partnership that continues based on the consent of the parties and its existence is terminable at the will of anyone of them. A partnership at will is a partnership that is designed to continue for a fixed period of time and is to last only during the mutual consent or at the pleasure of the parties and its existence is terminable at the will of anyone of them. Art 1785. When a partnership for a fix term or a 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 a continuation of the partnership. For example, the partnership is for a fixed period and it is now converted to a partnership at will, state the rights and obligation of the parties.As a default, the rights and obligations in the partnership will go on unless the partners agreed to other rights and obligations. The stipulations provided for in the previous partnership will continue and in default of that, the provisions of Civil Code on partnership.

What happened to the partnership with a fixed period kasi nagcontinue na ang partnership? It is deemed dissolved and converted into a partnership at will. Take note with such continuation, the old partnership is dissolved and a new one is created by implied agreement, the continued existence of which will depend upon the mutual desire and consent of the partners. Another one, even if a partnership is for a fixed term, it can be terminated. Diba originally they have agreed, oh fixed na tayo, it can be terminated anytime by the express will of any partner before the time previously agreed upon arises. It can still be dissolved upon the express term of any partner because, why, there is no such thing as an idissoluble partnership. State the obligation of the partner with respect to contribution of property. The obligations of the parties with respect to the contribution of property 1. to contribute at the beginning of the partnership or at the stipulated time the money, property, or industry which he may have promised to contribute and, 2. to answer for eviction in case the partnership is deprived of the determinate property contributed, 3. To answer to the partnership for the fruits of the property the contribution of which he delayed, 4. To preserve said property with the diligence of a good father of a family pending delivery to the partnership, and 5. To indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its contribution. What is the effect if the said partner failed to contribute the property he promised? The said party is considered a debtor of a partnership. State the liability of the partner in case of eviction. The partner is bound in the same cases and in the same manner as the vendor is bound with respect to the vendee with regard to specific and determinate thing which he may have contributed to the partnership. How about his liability if the said partner failed to perform the service stipulated. Take note Article 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. Take note, under 1786 sabi niya, specific and determinate things- this refers to non-fungible things. Sabi pa dito in the same cases and in the same manner as the vendor is bound with respect to the vendee. So, Art 1786 talks about warranty against eviction. Remember your law on Sales, sabi dito warranty against eviction. What are the warranties that are included under 1786? The other warranties include: 1. Warranty against hidden defects- take note that warranties in a contract of sale applies to Article 1786. 2. Warranty for (merchantility ).What are the obligations of a partner with respect to contribution of property? Take note the article speaks about every partner. So number one, to contribute at the beginning of the partnership whatever he may have promised. Number two, to answer for eviction in case the partnership is deprived of the determinate property contributed. Three, to answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery. Number four, to preserve said property with diligence of a good father of a family pending delivery to the partnership and number five, to indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its contribution. How is appraisal of goods contributed to a partnership made?Appraisal is necessary for determining how much each partner contributed. As to goods, as stipulated under 1787, the first must be that which was expressly stipulated in the contract and in the absence of such stipulation it will be with appraisal. It must be done by experts chosen by the parties themselves according to current prices. Again number one, based on agreement of the parties. The value of the properties based on what? On what was stipulated by the parties on the agreement. If there is no stipulation as to prices, it will be determined by the experts who will then be determining based on current prices. Take note that number one, if there is agreement by the parties as prescribed by the contract of partnership, the value of the properties is based on their agreement. If there is no stipulation, it will be determined by appraisal of experts chosen by the parties based on current prices. That is under Art 1787. State the obligations of a partner with respect to the contribution of money. Under Art 1767. A partner may contribute money, property or industry to a common fund. Under Art 1788 it contemplates contribution of a partner for a sum of money. It actually speaks of two types of contribution. One is a contribution which the partner fails to contribute to the partnership and the second is a misappropriation of the money from the coffers of the partnership. Now the obligation of such partner is first, to contribute the amount to the partnership. Second, the amount that the partner took from the coffers of the partnership and which he may have misappropriated. Third is to pay the damages that the partnership may have incurred by virtue of misappropriation of the funds and failed contribution of the money and fourth is to indemnify the partnership for damages. To what kind of partner does 1788 apply? 1788 contemplates capital partner. It refers to capitalist partner. Regarding the liability of the guilty partner for interest and damages. When do you reckon obligation for interests and damages. It is reckoned from the time he should have complied with the obligation and not from demand, whether judicial or extrajudicial. Take note if there is mere failure to return the said money there is no estafa. Your remedy there is to file a civil action for liquidation of the partnership and levy the assets. Again, if there is mere failure to return the money there is no estafa. Who is an industrial partner? An industrial partner is a partner who does not contribute money but his skills or talent in the partnership. What are the obligations of the industrial partner? They are the following: 1. He is prohibited from engaging in business for himself unless the partnership expressly expressly permits him to do so. What kind of business? Any kind of business because the prohibition is absolute. What are the remedies if the said industrial partner engages in business? The capitalist partner may exclude the industrial partner or the benefits acquired by the industrial partner from the business, then the partnership may be benefited also. Then, in either case, a complaint for damages. So the remedies are the following: to exclude the industrial partner from the firm, or to avail themselves of the benefits he may have obtained, and in either case, a right to damages. Take note, the industrial partner contributes industry, labor or services to the partnership. Article 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. Take note Art 1790, it applies to capitalist partner. How about an industrial partner does the provision apply? As a general rule, NO. Because the industrial partner contributes industry, labor, or services. Unless the industrial partner also contributes capital if there is a stipulation in their contract. Take note that partners may stipulate equal contribution to the common fund. General rule, kahit ano pwede sila mag stipulate. They can even stipulate contribution of unequal funds but in the absence of such stipulation, their contribution shall be in equal shares. State the obligation of capitalist partner to contribute additional capital. A capitalist partner is required to contribute additional capital if the partnership is in imminent loss of the business. When you say imminent loss is it not impending loss only? Take note 1791, it does also refers to total loss of the business such that the partnership can no longer continue to pursue its purpose. What are the requisites for this rule to apply? First, there is an imminent loss of the business, second if the majority of the partners are of the opinion that there is imminent loss of the business, the third is that the capitalist partner refuses deliberately to contribute additional shares, and there is no agreement that in case of imminent loss the parties are not obliged to contribute. Is the industrial partner obliged to contribute in the capital in case of imminent loss of the business? No, the industrial partner is not required because as said earlier an industrial partner is only required to contribute industry, labor or services. Article 1791 provides that: If there is no agreement to the contrary, in case of imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner. Not only imminent loss ha, mag apply pa rin into in case of total loss of the business such that the partnership can no longer continue to pursue its purpose. So what must be done? First, halimbawa there is imminent loss or total loss. The following must be done: 1, there must be a capital call;2. there must be an agreement for everyone to contribute to continue the business; 3. after such agreement, the failure to contribute gives the right to buy out the interest of the uncontributing partner. Article 1791 imposes a mandate to the capitalist partners. What obligation does the law impose upon the managing partner who collects debt?Regarding managing partner who collects debt, to collect the debt demanded from the debtor and there is also a creditor-debtor relationship between that debtor and the partnership as a whole. Should he collect the sum of money, the proceeds shall be divided between himself and to the partnership even if it was only the managing partner who received it. When does this article apply? What are the requisites?This article will apply subject to the following requisites:1. There exists at least two debts, one where the collecting partner is creditor, and the other, where the partnership is the creditor;2. Both debts are demandable, and;3. The partner who collects is authorized to manage and actually manages the partnership. Article 1792 provides that: If a partner authorized 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 this collected shall be applied to the two credits in proportion to their amounts, even thought 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. The provisions of this article are understood to be without prejudice to the right granted to the debtor by Article 1252 but only if the personal credit of the partner should be more onerous to him. So briefly, what obligation is mandated under 1792 to the managing partner? To apply the sum collected. So the obligation imposed upon the managing partners is for him to apply the sum collected. Article 1252 Civil Code: it is a mode of extinguishment of obligation regarding application of payments. It provides that: He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. What obligation does the law impose on the partner who receives share of partnership credit? The partner who receives part or whole of the credit is obliged to return it so that the partners who did not received the payment for that credit can also share it. What is the reason of the article for imposing the obligation? As we have already discussed, in partnership, the partners share the profits and the loss. Here, if the partner who received the payment and the debtor becomes insolvent, the loss is not shared proportionately. And so the partner who received the payment shall distribute it to other partners. Will the article apply if the credit is collected upon dissolution of the partnership? In the book, it discussed two answers. Some of the commentators say that it should be in the affirmative. However, according to Manresa and Ricci, upon the dissolution of the partnership, their obligation to the other partners are also are also dissolved so in effect, their obligation to divide the losses would also be not present. In effect, article 1793 applies only during the existence of the partnership and not upon its dissolution. State the rule regarding the obligation of the partner for the damages done to the partnership. If it is the partner at fault, he is liable for the damages. How about the profits earned by the said partnership? Can that stand as compensation for the damages? Pwede ba iyon? As a general rule, set-off cannot be made sot the profits cannot be applied. Why is it not subject to set-off? The main reason is that for compensation to be applied, the negligent partner must be both a creditor and a debtor of the partnership. Why is he not deemed a creditor? What is his obligation? It is to pay the debt, and the profits that he earned are currently not owned by him and owned by the partnership. Take note, damages are not generally subject to set-off because the partners has the obligation to secure benefits for the partnerships. Profits which he may have earned are owned by the partnership. Partnership as a matter of law or right. In fact a partner has the obligation to exercise due diligence. General rule, not subject to set off, unless there are unusual profits realized through the extraordinary efforts of the partner at fault. So, it is allowed on ground of equity. Who bears the loss of things contributed? Please state the rule. A partnership can be held responsible for the partner for the amounts he may have disbursed for the partnership and for corresponding expenses made. He shall also enter for each partner the obligation he may have conducted for interest of the business. Please state Article 1795. Article 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 risks 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. What are the rules in relation to that article, if there is specific and determinate thing not fungible. If it is a specific and determinate thing, the risk of loss shall be for the account of the partnership (partner who owns it). For fungible things, or things which cannot be kept without deteriorating, the risk of loss is borne by the partnership. For things contributed to be sold, the partnership also bears the loss. And for things brought and appraised in the inventory, the partnership bears the loss.Take note, Article 1795, presupposes that there has already been delivery whether actually or constructively. Before delivery, who bears the loss? It is the partner because he is the owner of the property and under Article 1786 he is debtor of the partnership for whatever he promised to contribute. Again, regarding the risk of loss of things contributed, if it is specific and determinate thing not fungible or only the use is contributed, the risk of loss is borne by the partner because he is still the owner of the thing. This is based on res sperit domino. Number two, if it is specific and determinate things, the ownership of which is transferred to the partnership, the risk of loss is for the account of the partnership because in that instance, the partnership is the owner of the property. Number three, if its fungible things or things contributed without deteriorating, the risk of loss is borne by the partnership. Number four, if things contributed are to be sold, the partnership bears the risk of loss and. Number five, if the things brought and appraised in the inventory, it is the partnership who bears the risk of loss.Take note in relation to Article 1785, the risk of loss is transferable by stipulation. So general rule, mag base tayo sa number 1-5 unless there is a stipulation to the contrary.

Bus OrgJune 25, 2013TSN by Sonny

Again, what is an industrial partner?

An industrial partner is one who contributes only his industry or personal service to the partnership (Arts. 1789, 1767.); He is considered the owner of his services, which is his contribution to the common fund.

So regarding the provision to engage in business, what are the rules?

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.

So what happened in the case of Evangelista v. Abad Santos?

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners, vs.ESTRELLA ABAD SANTOS, respondent.

Facts:On December 17, 1963 respondent filed a suit against the three other partners alleging that the partnership had been paying dividends to the partners except to her; and the defendants had refused and continued to refuse to let her examine the partnership books or to give her information regarding the partnership.

She therefore prayed that the defendants be ordered to render accounting of the partnership business and to pay her corresponding share in the partnership profits after such accounting.

The defendants claimed among others that Estrella was not an industrial partner; that she has been, and up to the present time still is, one of the judges of the City Court of Manila, devoting all her time to the performance of the duties of her public office, thus it was never contemplated between the parties, for she could not lawfully contribute her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil Code.

ISSUE: Whether the Estrella is an industrial partner.

Ruling:Yes. Even as she was and still is a Judge of the City Court of Manila, she has rendered services for appellants without which they would not have had the wherewithal to operate the business for which appellant company was organized.

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.'It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful compliance by said partner with this prestation.

There is no pretense, however, even on the part of the appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of one of the branches of the City Court of Manila can hardly be characterized as a business.

That appellee has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it was only after filing of the complaint in this case and the answer thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29, 1964 or after around nine (9) years from June 7, 1955 subsequent to the filing of defendants' answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the defendant partnership and/or in its net profits or income, on the ground plaintiff has never contributed her industry to the partnership, instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to performance of her duties as such judge and enjoying the privilege and emoluments appertaining to the said office, aside from teaching in law school in Manila, without the express consent of the herein defendants'.

So you mean to say that even if she is an industrial partner, she is not prohibited to engage in other business? Remember that the prohibition is absolute unlike for capitalist partners which is just relative.

Take note, the SC said in this case that Judge Abad Santos is not engaged in any industry as being a judge can hardly be characterized as a business. Being a judge is a profession.

Okay. Can you please state the responsibility of the partnership to the partners under Article 1796?

The partnership has the obligation to:

(1) refund amounts disbursed by the partner in behalf of the partnership plus the corresponding interest from the time the expenses are made (not from the date of demand). Here, the law refers to loans or advances made by a partner to the partnership other than capital contributed by him;

(2) answer for the obligations the partner may have contracted in good faith in the interest of the partnership business; and

(3) answer for risks in consequence of its management.

Can you please explain the case of Martinez v. Ong Pong Co?

PEDRO MARTINEZ, plaintiff-appellee, vs.ONG PONG CO and ONG LAY, defendants.ONG PONG CO., appellant.

FACTS:On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a private document, acknowledged that they had received the same with the agreement, as stated by them, "that we are to invest the amount in a store, the profits or losses of which we are to divide with the former, in equal shares."

The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to render him an accounting of the partnership as agreed to, OR else to refund him the P1,500 that he had given them for the said purpose.Ong Pong Co alone appeared to answer the complaint; he admitted the fact of the agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid, but he alleged that Ong Lay, who was then deceased, was the one who had managed the business, and that nothing had resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff agreed.

CFI: ordered Ong Pong Co to return to the plaintiff one-half of the said capital of P1,500 which, together with Ong Lay, he had received from the plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated at the rate of 12 per cent per annum for the six months that the store was supposed to have been open, both sums in Philippine currency, making a total of P840, with legal interest thereon at the rate of 6 per cent per annum, from the 12th of June, 1901, when the business terminated and on which date he ought to have returned the said amount to the plaintiff, until the full payment thereof with costs.

ISSUE: WON Ong Pong Co is liable to return the of capital received from Martinez and of profit.

RULING: YES as to the capital but NOT with profit.As to the first assignment of error, the fact that the store was closed by virtue of ejectment proceedings is of no importance for the effects of the suit. The whole action is based upon the fact that the defendants received certain capital from the plaintiff for the purpose of organizing a company; they, according to the agreement, were to handle the said money and invest it in a store which was the object of the association; they, in the absence of a special agreement vesting in one sole person the management of the business, were the actual administrators thereof; as such administrators they were the agent of the company and incurred the liabilities peculiar to every agent, among which is that of rendering account to the principal of their transactions, and paying him everything they may have received by virtue of the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of them has rendered such account nor proven the losses referred to by Ong Pong Co; they are therefore obliged to refund the money that they received for the purpose of establishing the said store the OBJECT of the association. This was the principal pronouncement of the judgment.

With regard to the second and third assignments of error, this court, like the court below, finds no evidence that the entire capital or any part thereof was lost. It is no evidence of such loss to aver, without proof, that the effects of the store were ejected. Even though this were proven, it could not be inferred therefrom that the ejectment was due to the fact that no rents were paid, and that the rent was not paid on account of the loss of the capital belonging to the enterprise.

With regard to the possible profits, the finding of the court below are based on the statements of the defendant Ong Pong Co, to the effect that "there were some profits, but not large ones." This court, however, does not find that the amount thereof has been proven, nor deem it possible to estimate them to be a certain sum, and for a given period of time; hence, it can not admit the estimate, made in the judgment, of 12 per cent per annum for the period of six months.

Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part of a partner who acted as agent in receiving money for a given purpose, for which he has rendered no accounting, such agent is responsible ONLY for the losses which, by a violation of the provisions of the law, he incurred. This being an OBLIGATION TO PAY IN CASH, there are no other losses than the legal interest, which interest is NOT due except from the time of the judicial demand, or, in the present case, from the filing of the complaint. (Arts. 1108 and 1100, Civil Code.)We do NOT consider that article 1688 is applicable in this case, in so far as it provides "that the partnership is liable to every partner for the amounts he may have disbursed on account of the same and for the proper interest," for the reason that no other money than that contributed as is involved.

As in the partnership there were two administrators or agents liable for the above-named amount, article 1138 of the Civil Code has been invoked; this latter deals with debts of a partnership where the obligation is not a joint one, as is likewise provided by article 1723 of said code with respect to the liability of two or more agents with respect to the return of the money that they received from their principal. Therefore, the other errors assigned have not been committed.

What is the rationale behind 1796 on the obligation of the partnership to reimburse and answer for all the obligations contracted by its partners?

Diba, every partner is an agent of the partnership? Then the partner is not personally liable, provided, however, that he is free from all fault (see Art. 1912.)

Again, under Article 1796, the partnership has the obligation to:

(1) refund amounts disbursed by the partner in behalf of the partnership plus the corresponding interest, take note, from the time the expenses are made and not from the date of demand. Now why? Because the rule on agency applies to the said partner.

(2) answer for the obligations the partner may have contracted, take note that it should be in good faith and In the interest of the partnership business; take note, the second obligation includes personal obligation incurred by partner in the course of ordinary partnership affairs.

(3) answer for risks in consequence of its management. Under the third obligation, it includes the risks and losses incurred by the partner for the partnership in good faith.

In addition, a partner has no obligation to loan or advance money to the partnership firm. He may do this, provided there is no contrary agreement. If a partner advances money to the partnership, then he becomes a. creditor and he becomes are preferred creditor at that which means his credit must be satisfied first before the distribution of profits. Any voluntary contribution given beyond that in state in the partnership agreement is deemed an advancement of money.

Can you please recite the case of Machuca v. Chuidian?

JOSE MACHUCA vs. CHUIDIAN, BUENAVENTURA & CO., May 13, 1903

Facts: In 1882, defendants are organized as a regular general partnership in Manila; it was a continuation of a prior partnership of the same name. It was stipulated that the partners liability should be "LIMITED TO THE AMOUNTS BROUGHT in by them. Thereafter, partners contributed additional amounts. In 1888, the partnership went into liquidation, and it does not appear that the liquidation had been terminated. During liquidation, the accounts-current of Telesforo Chuidian and Candelaria Chuidian had diminished while Mariano Buenaventuras acct had increased. In 1894, Mariano Buenaventura died and his estate passed to his children (among whom was Vicente Buenaventura). In 1898, Vicente Buenaventura executed a public instrument wherein he "assigns to Jose Garcia 25% share in all that may be obtained by whatever right in whatever form from the liquidation of the partnership of Chuidian, Buenaventura & Co. xxx Garcia now asks to have the credit assigned to him to be recorded in the books of the partnership. Likewise, to receive immediately 25% of the amount representing Vicente Buenaventuras share in the account-current.

Issue: Whether Garcia is entitled to 25% of D. Vicente Buenaventura's share in the partnership's assets.

Held/Ratio: NO. Garcia is NOT entitled.

Under clause 19 of the partnership agreement of the parties, the partnership would be liquidated: liabilities to non partners are to be discharged first; claims of the Chuidian minors are to be next satisfied (does not appear how they acquired such); advances made by a partner; leaving the ultimate residue (if any) to be distributed, among the partners in the proportions they may be entitled. Hence, Vicente Buenaventura (rights are those of his decesead father, Mariano) is NOT entitled to receive any part of the assets until the creditors who are nonpartners and the Chuidian minors are paid. Whatever rights Vicente had either as creditor or partner, he could only transfer SUBJECT TO THIS CONDITION.

Vicente CANNOT transfer the partnership's assets to 3rd person but may transfer/assign a partner's interest (share in profits & losses) on the partnership By that instrument he undertakes to assign to Garcia not a present interest in the assets of the partnership but an interest in whatever "may be obtained from the liquidation of the partnership," which Garcia is to receive "in the same form in which it may be obtained from said partnership," and "on the date when Messrs. Chuidian, Buenaventura & Co., in liquidation, shall have effected the operations necessary in order to satisfy" the claims of D. Vicente Buenaventura.Decision: CFI decision (w/c favoured Garcia) REVERSED and SET ASIDE. Case is REMANDED to the court a quo. The plaintiff will be entitled to receive from the assets of the partnership, if any remain, at the termination of the liquidation. Court did not discuss how would the partners share in the remaining assets, if there is any, in proportion to their contributions.

Actually, what happened in the case of Machuca, is that, they contributed in the first partnership they contributed in addition to the capital contribution so mag apply ang article 1796. In article 1796, before mag share ng profits, dapat bayaran muna ang mga utang. Kasi nga in this case may advance money na na contribute.

Sorry nag skip ako class. So what happened in the case of Ortega v. Court of Appeals?

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs.HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.

FACTS:

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO, its name, was changed to BITO, MISA & LOZADA on June 7, 1977.On 19 December 1980, (Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners withrespondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership. On 31 March 1989, the hearing officer rendered a decision against their favour/ petitioner (for the DISSOLUTION).

On appeal, the SEC en banc REVERSED the decision of the Hearing Officer.

The Court of Appeals, finding NO reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision.

ISSUES:1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will. NO.2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith. NO.

Ruling:

(1) A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. The partnership agreement does NOT provide for a specified period or undertaking. The "DURATION" clause simply states, "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."

The "PURPOSE" of the partnership is NOT the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of completion.

(2) 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 foundation and essence of that partnership. Its continued existence is, in turn, 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 provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, NOT that the attendance of bad faith can prevent the dissolution of the partnership 4 but that it can RESULT in a liability for DAMAGES. 5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have the POWER, although NOT necessarily the right, to dissolve the partnership. An UNJUSTIFIED dissolution by the partner can subject him to a possible action for DAMAGES.

The DISSOLUTION of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be DISTINGUISHED from the WINDING UP of, the business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.

How did he dictate the dissolution of the partnership at will? Diba, he withdrew? Yes.

So as a review, under Article 1785, a partnership at will is one in which no time is specified and is not formed for a particular undertaking or venture and which may be terminated at anytime by mutual agreement of the partners, or by the will of any one partner alone; or one for a fixed term or particular undertaking which is continued by the partners after the termination of such term or particular undertaking without express agreement.

Sabi dito, verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, how- ever, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages. So, the principle is, regardless of the good faith or bad faith of the party, as long as he dictates the dissolution of the partnership, the partnership will be dissolved.

So even if the partnership is with a fixed period, pwede. Now, bakit? Because of the principle of delectus personae. Because among partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership.

Can you please state the rules on the distribution of profits under 1797?

Distribution of profits:

(a) The partners share the profits according to their agreement subject to Article 1799.

(b) If there is no such agreement:

1)The share of each capitalist partner shall be in proportion to his capital contribution. This rule is based on the presumed will of the partners.

2) The industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as may be just and equitable under the circumstances.

How about the rules on the distribution of losses?

Distribution of losses:

(a) The losses shall be distributed according to their agreement subject to Article 1799.

(b) If there is no such agreement, but the contract provides for the share of the partners in the profits, the share of each in the losses shall be in accordance with the profit-sharing ratio, but the industrial partner shall not be liable for losses. The profits or losses of the partnership cannot be determined by taking into account the result of one particular transaction but of all the transactions had.

(c) If there is also no profit-sharing stipulated in the contract, then losses shall be borne by the partners in proportion to their capital contributions, but the purely industrial partner shall not be liable for the losses.

Does the industrial partners share in the distribution of losses?

General rule: noExcept: When there is an express agreement making him liable

So what happened in the case of Moran Jr. v. CA?

Doctrine: The essence of partnership is the sharing of profits and losses.

Facts: Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters featuring the delegates of the 1971 Constitutional Convention. Moran would act as a managing partner. According to the agreement, Pecson would receive a commission of P1000 a month from April to December (8 months). Pecson gave Moran P10,000 as part of his share. Only 2,000 posters were printed. The printing cost P4,000. Pecson gave another P7000 for the printing of The Voice of the Veteran Magazine which they also agreed upon. Moran gave Pecson a promissory note amounting to P20,000 in consideration of Pecsons contributions and commission for 3 months. Pecson filed a case for an action of recovery of sum of money based on the alleged partnership agreement, whereby he seeks the return of his 10K contribution, and based on the promissory note. The CFI held that, there is indeed a partnership agreement, and that based on this Pecson gave 10K, and gave another 7K for the Voice of the Veteran Magazine. The CFI ruled that because Pecson also failed to give the full amount of 15 thousand for the posters, both Moran and Pecson is entitled to rescind the contract. Moran was asked to return to Pecson the 17K received by him. Both parties appealed to the CA. The CA ruled against Moran. He was ordered to pay:

P 47,500 the amount which, according to the CA, would have accrued in favor of Pecson if the agreement was honored; P 8000 , as commission from April to December; P 7000, as return of Pecsons investment for the Voice of the Veterans because the project never took off.From this judgment, Moran appealed to the Supreme Court.

Issue:1. W/N the CA erred in ordering Moran to pay the abovementioned amounts. YES2. W/N Moran is liable to pay the promissory note executed by him. NO

Held:1. YES. (As to the P47,500 and the P8000) Law: When 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 contribute and for interests and damages from the time he should have complied with his obligation.In the case at bar, there was NO evidence that the partnership would have been a profitable venture, in fact it was a failure doomed from the start. Therefore there is NO basis for the award of speculative damages. Moreover, BOTH parties were in breach of their duties as Pecson also failed to pay in full his obligation to the partnership.

Art 1797 provides that the shares and losses shall be governed by the AGREEMENT, in the ABSENCE of an agreement regarding the losses, it shall be borne PROPORTIONATELY.

Being a contract of partnership, each partner must bear the losses and profits of the venture that is the ESSENCE of partnership. Even under the assurance of the other party that the venture would become successful, in the absence of fraud, the other party has NO right to claim highly speculative profits. Hidden risks such as the failure of the COMELEC to proclaim the candidates in the ConCon on time, etc. should be considered.

(As to the P 7000) The fact that respondent presented in Court as EVIDENCE the book Voice of the Veterans is sufficient proof that the project took off and therefore, the assertion of the CA in awarding the P7000 in favor of Pecson is BASELESS.

2. NO. Because of the circumstances mentioned above, Moran should only pay Pecson 6K representing the unused balance of his 10K share (4k was for the printing), and another 3K representing 12 of the profits earned from the sale of the printed posters. (NOTE THAT THE 20K WAS FOR: P10,000 CONTRIBUTION OF PECSON FOR THE POSTERS, P7000 CONTRIBUTION FOR THE VETERANS MAGAZINE, P3000 FOR 3 MONTHS WORTH OF COMMISSION)

So the principle in the Moran case is that, a partner is only entitled to his share of profits actually realized by the venture. So even if an assurance is made by a partner that they would earn a huge amount of profits, in the absence of fraud, the others cannot claim a right to recover profits promised where the business is highly speculative of a failure.

Regarding the distribution of profits,

(a) The partners share the profits according to their agreement subject to Article 1799.

(b) If there is no such agreement:

1)The share of each capitalist partner shall be in proportion to his capital contribution.

2) The industrial partner shall receive su