June 18, 2011

Q: what did you discover, what a corporation is?

A: a corporation is composed of at least 5 incorporators. Created by the law;
governed by the corporation code.

i.

2.

Q: what is partnership?
A: article 1767. By the contract of partnership, two or more persons bind
themselves to contribute money, property and industry in a common fund,
with the intention of dividing the profits among themselves.
Q: what is it? What is a partnership?
A: it is a type of business organization. But most importantly, it is a contract
resulting to a legal relationship.
Partnership is a contract which establishes a legal relationship among
partners.
Q: can you be a partner to the contract?
A: yes, because i have the legal capacity and i do not possess any of the
disqualifications.
Q: why do you say you have legal capacity?
A: 18 years of age and above.

3.

Q: In a contract you learned there are elements, what are these?

A: Consent (freely given), Object, Cause/Consideration
Q: in that contract of partnership, what is the object?
A: the object or the subject matter is the contributions of the partners
Q: what is the cause/consideration?
A: it is the expected benefit that the parties would like to obtain --- why you
entered into the contract--- distribution of sharing of profits
Q: how about the consent?
A: that the parties intend to be bound by the agreement.
Q: if the three of you decide to buy a property in colon, all of you contributed
1 million, are you now partners?
A: Not necessarily. Because in the facts, it cannot be inferred that we intend
to gain profit and there was no intention to become partners. Nevertheless,
there is the intention to become co-owners.
There was no agreement that we will be partners. --- thus, it resulted only to
co-ownership.
Review elements of the contract:
cause/consideration --- intent to gain profit
Consent --- intent to bind themselves with the contract of partnership
Object --- contributions of the partners

4.

5.

Q: The partnership which you just defined is only one classification, what is
the other side of partnership?
A: professional partnership. (exercise of profession)
6.
Q: what is professional partnership?
A: a group of learned men pursuing a learned art as a common calling in the
spirit of public service (sir: remove public service) --- strictly in the exercise of
their profession.
Classification of Partnership
1.
As to the extent of its subject matter
a.
Universal partnership or one which refers to all the
present property or to all profits (art. 1777); has two
kinds:
1

7.

Universal partnership of all present

property (art. 1778)
ii. Universal partnership of profits (art. 1780)
b.
Particular partnership (art. 1783)
As to liability of the partners
a.
General partnership or one consisting of general
partners who are liable pro rata and subsidiarily (art.
1816) and sometimes solidariliy (art. 1822-24) with
their separate property for partnership or debts ;
extends or is responsible for the liabilities which the
partnership cant pay, even those beyond their
contribution; all are general partners
b.
Limited partnership or one formed by two or more
persons having as members one or more general
partners and one or more limited partners, the latter
not being personally liable for the obligations of the
partnership (art. 1843); is responsible only up to the
extent of his contribution in the partnership; at least
one is a general partner
As to its duration
a.
Partnership at will or 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 terms or
particular undertaking which is continued by the
partners after the termination of such term or
particular undertaking without express agreement (art.
1785)
b.
Partnership with a fixed term or one in which the term
for which the partnership is to exist is fixed or agreed
upon or one formed for a particular undertaking, and
upon the expiration of the term or completion of the
particular enterprise, the partnership is dissolved,
unless continued by the partners
As to the legality of its existence
a.
De jure partnership or one which has complied with all
the legal requirements for its establishment (art. 1772
(2); 1773)
b.
De facto partnership or own which has failed to comply
with all the legal requirements for its establishment
As to representation to others
a.
Ordinary or real partnership or one which actually
exists among the partners and also as to third persons
b.
Ostensible partnership or partnership by estoppel or
one which in reality is not a partnership, but is
considered a partnership only in relation to those who,
by their conduct or admission, are precluded to deny
or disprove its existence (art. 1825)
As to publicity
a.
Secret partnership or one wherein the existence of
certain persons as partners is not avowed or made
known to the public by any of the partners
b.
Open or notorious partnership or one whose existence
is avowed or made known to the public by the
members of the firm
As to purpose
a.
Commercial or Trading partnership or one formed for
the transaction of business (art. 1767)
b.
Professional or non-trading partnership or one formed
for the exercise of profession
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: true
Q: here is now the partnership we have owned. We have contributed money,
property, industry for the purpose of dividing the profits. So what happens
once that contract is executed?
A: the moment the contract is executed, the partnership exists. --- As a
general rule, no formalities are requires since it is a consensual contract. It is
perfected by mere consent.
Q: what are the basic principles of contracts?
A:
Consensual --- perfected by mere consent
Liberality of contracts --- parties are free to stipulate as long as it is not
contrary to laws, morals, good customs, public policy and public order. (You
can enter into any kind of contracts.)
Privity of contracts --- binding among the parties who have contracted it
Q: Can you apply these principles to this kind of contract (partnership)?
A: yes for liberality, you stipulate your shares and terms and conditions of
your contributions so long as it is not contrary to laws, etc. privity --- it is
binding among parties only.. if you are partners with each other then you are
considered partners by third persons
Q: If I contributed the property to the partnership, and the property did not
belong to me, can the creditors go against that property?
A: no. because that property belongs to someone else. It does not belong to
the partner. The owner is not a partner thus it shall not be bound by it.

Q: if it were true, why did she say however?

A: so its false
If it says that partnership is a consensual contract, the safest answer is false
A contract of partnership is NOT at all times consensual for there are some
instances when it requires a certain form. But if it states that as a general
rule, then it is true
Q: the law says we can contribute money, property and industry what if
you say you contribute 200 yen? Is that allowed? Is the contract valid?
A: the contract is considered valid. However the stipulation to contribute 200
yen is void because what is contemplated by money in a contract of
partnership is legal tender in the Philippines. There is a need to change such
stipulation to make the whole contract enforceable.
Q: the parents of five children died. The siblings were left with one
apartment unit each. The five decided to have the apartment rented out by
third persons; every end of the month the rentals were collected, placed in a
common fund and was later on divided among them. Are the siblings
considered partners?
A: no. there was no intent to be bound as partners, they are only co-owners

Q: once all these elements of the contract are present, what happens again?
A: the partnership begins to exist.
Q: if it begins to exist, what happens next?
A: the partnership forms another party--- it gains a juridical personality. (it
acquires juridical personality)
Personality is separate and distinct from the parties
Q: do you have to register the partnership to SEC?
A: not at all cases look at article 1772 and 1773 and statute of frauds.
Note in 1772, although you did not register, you are still a juridical entity and
you are still liable for the liabilities.
Q: what is the status of the partnership if it does not appear in public
instrument and not registered in SEC?
A: it remains to be a juridical personality and liable for tax
Q: if it remains to have a juridical personality and its liabilities remain, what
then is the purpose of registering it in SEC?
A: Registering it in SEC is for convenience and protection.. such registration
is to aid the government in regulating the businesses that are existing
The purpose of making it appear in a Public instrument is to protect the
public. It is for the publics notification of the existence of the corporation to
protect them from any fraudulent acts that the partnership may engage in.
Q: when is it required to be in a public instrument?
A: note that being consensual is just a general rule thus it is required to be
in a public instrument if the contribution of partners exceeds 3 thousand and
if it involves immovable property --- it now becomes a FORMAL CONTRACT.
Q: if I contribute my property worth 1,500 in colon street, does it have to be
in a public instrument?
A: yes, because it is still an immovable property. If the contribution is an
immovable property, it has to be in a public instrument regardless of
amount.

June 22, 2011

Q: True or false, partnership is a consensual contract?
2

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

Q: Distinguish partnership from co-ownership.

A:
As to
Partnership
Co-ownership
Creation
always created by a generally created by law, but
contract, either express may exist even without a
or implied
contract
Juridical
has
a
juridical Has no juridical personality
Personality
personality
separate
and distinct from that
of each partner
Purpose
realization of profits
common enjoyment of a thing
or right; does not necessarily
involve sharing of profits
Duration
no limitation upon the an agreement to keep the thing
duration is set by law
undivided for more than 10
years is not allowed
Transfer of a partner may not a co-owner can dispose of his
Interest
dispose of his individual share without the consent of
interest
in
the the others
partnership so as to
make the assignee a
partner
without
unanimous consent
Power to Act in the absence of a co-owner cannot represent
rd
with
3
stipulation
to
the the co-ownership
Persons
contrary, a partner may
bind the partnership
Dissolution
death or incapacity of a death or incapacity of a copartner results in the owner does not necessarily
dissolution
of dissolve the co-ownership
partnership
Agency
of as a rule, there is as a rule, there is no mutual
Representati
mutual agency
representation (although it is
on
enough for a co-owner to bring
an action for ejectment against
a stranger)
Profits
may be stipulated upon
must always depend upon
proportionate shares and any
stipulation to the contrary is
VOID (Art.485)
Form
may be in any from no public instrument is needed
except
when
real even if real property is the
property is contributed object of the co-ownership
(here
a
public
instrument is required)

Q: what if one of the children was tasked to manage the receivables, are they
now considered partners? What if that sibling who was the manager later on
gave up that position and they hired someone else (stranger) to manage the
apartment and the division of the rents, are they now partners? What if the
children placed the rents in a common fund and they paid for salary of
someone who will maintain the apartment, paid the electric bill, security,
other expenses, etc., are they now considered partners?
A: No. they are not partners because there was no UNMISTAKEABLE INTENT
TO BE BOUND AS PARTNERS. They remain to be co-owners
Q: so you can never turn a co-ownership into a partnership. How do you
make them partners then?
A: you comply with the three requisites of a contract of partnership.
Contract, Cause, Consideration
Q: is that all that is required? Do they only have to consent?
A: in this case NO because it involves an immovable property, then the
formalities must be observed.

They have to agree to be partners and register the property because it is an

immovable property. Register it in their individual names or among the
names of all of them. But if they want to enter into a partnership, they have
to transfer the ownership of their apartments to the partnership by
registering it the registry of deeds
They need to have an inventory of the properties, signed by the partners,
and attached to the public instrument.
Q: a public instrument is required when?
A: if the property is an immovable property and If the capital exceeds 3k
pesos in money or property.
Q: why do you think they will have to require all these?
A: the registration is for convenience and protection of the public. So that if
third persons will deal with such properties, they will not be defrauded by
acts of the partners
Q: why should there be an inventory?
A: so that the partners will be aware of their share, whether they have
already contributed the amount which is due to the partnership.
An inventory is needed to know the contribution of each partner (you will
have to indicate the property that each partner has contributed including the
value bec. later on the value is important)
Q: what is the use of knowing the value?
A: in case the partnership is dissolved, you can properly liquidate the
properties. Further, knowing the value of the property through inventory is
necessary to register a business.

Q: what is the purpose of registration with regard to third parties?

A: so that third parties will not be defrauded. It could give third parties a
degree of assurance that partnership owns certain properties as contained in
the registry. To assure third parties that the assets contained or indicated in
the list is indeed or henceforth belongs to the partnership. (public instrument
refers to article of partnership)
Q: In other words it is important that we should be able to distinguish
partnership from any other forms of co-ownership bec. in a partnership,
certain liabilities by the parties are different. And certain rights may be
enjoyed. However, there could be certain occasions where we might have
difficulty determining whether or not relationships among certain persons
are partnership or co-ownership. (some relationships can be mistaken as
partners).. could we mention some of these instances?
GR: Article 1769 (4)
Receipt of share in the profits is a strong presumptive evidence of
partnership (share both profits and losses)
The sharing of profits and losses is PRIMA FACIE evidence of an
intention to form a partnership but NOT a conclusive evidence.
(a), (b), (c), (d), and (e) --- in these cases, sharing of profits is NOT
a prima facie evidence. In these instances, the profits in the
business are not shared as profits of a partner as a partner but in
some other respects or for some other purposes (ex. Wage, to pay
debts, rent)
(4) if somebody shares in the gross profits there is a prima facie presumption
that there is a partnership. (the receipt is prima facie evidence that he is a
partner)
Prima facie meaning It can be rebutted with evidence by the contrary
Q: how do we rebut this?
A: by concrete proof and evidence
Q: when is prima facie evidence not applicable

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: article 1769 (4) a, b, c, d, e

a. Payment of wages and rent to a landlord
b. Payment of a debt by installment
c. Annuities to a widow or representative of the deceased partner
d. Interest on a loan --- negotiation with a bank (in no way can the
bank can be a partner. But example x borrows 100k and x says that he will
pay you in one year (11k a month which will be more that 100k--- the debtor
is not a partner)
e. As to the consideration for the sale of a good will of a business
or other property by installments --- partnership bought a certain property in
installment, the vendor will not be considered as a partner
Q: what will happen if you have a parcel of land and I ask you, are you not
interested to sell your land. You say, Im selling if the price is right. So I go to
the buyer. Buyer will say I will pay 10k each month for a year. You go to him
every month, he gives 10k from the profit of his business. Are you partners?
A: no. the money I receive is considered as a payment or consideration to the
property I acquired.
Q: you ask someone to sell your property and he asks for commission. What
is he to you?
A: agent of the principal
Agent vs. partner
The interest of an agent is to do what is expected of him by the principal
(does something in representation of the principal). The difference between
the two is that there is no mutual interest when we speak of agency (the
principal is more powerful than the agent). In a partner there is an equal
voice and interest from all partners.
Q: If embay change her mind and tells me (agent) not to proceed, can I go
against her will?
A: The agent cannot proceed because you only act in behalf of the principal.
He is only an extension. The authority of the agent is totally dependent from
that of the principal. The only person who can decide about the land is the
owner. But if you are a partner, you can debate with other partners whether
you will continue selling or not because you have a say in decision making.

How about in a case where you receive not as a partner but as a creditor?
Q: how do you distinguish partner to a creditor?
A:
Partner
What they receive is from the
profits (grace)
Contributed money (money is
given to form a partnership:
investing)

Creditor
Payment is not necessarily
from the profits
Lent money (money is given
not to form a partnership)

Q: difference between investor and creditor?

A:
In the case of a creditor, whether the partnership realize profit or loss, he
should get back the money (maningil) he therefore lends with the intention
of getting back such amount plus interest
On the other hand, an investor assumes a risk. So if he contributes
something and it results to a loss, he cannot get back what he contributed.
Partner is an investor but the creditor is not. Partner assumes a risk. Creditor
does not. Partners share both the profits and the losses. Creditor should get
back what he lent regardless of profit or loss of the business of the debtor.
Q: However the definition of the partnership does not specify of losses. It
only specifies the intention of dividing or sharing profits. So wheres the risk?
A: the risk is implied (obtaining profit carries it with the other consequence
of bearing the loss). In a contract of partnership you are still an investor.
A community in losses is a necessary corollary of a participation in
profits
4

It is not necessary for the parties to agree upon a system of

sharing losses, for such obligation is IMPLIED

--- The legislature did not include LOSSES in the definition of partnership
because if they do such will not entice a person to enter into a contract of
partnership. nobody will enter into a business for the purpose of losing.
Note: there is no business when there is no risk.
The funeral parlor is the most flourishing business (mag bantay ra sa
contributions sa silingan and get it as payment hehe)
In addition to 1769 (4) a, b, c, d, e, Co-ownership is also another instance
wherein there is confusion and where prima facie presumption is rebutted.
(basis: article 1769 (2))
Q: if Immoval property is contributed, what is required?
A: it should be in a public instrument, inventory is made, signed by parties,
and registered in the registry where the property is located to bind third
parties
Q: what are immovable properties?
A: they cannot be moved from one place to another
1.
immovable by nature --- land
2.
immovable by incorporation --- a machine which is movable but is
fixed in an immovable property
3.
immovable by destination --- movable which increases the utility
of the immovalbe
4.
immovable by analogy
Q: what about dumb trucks bringing land in construction?
A: movable; they are not land. They are soil.
Immovable as distinguished from movables: Movables are personal
properties. So called movables because they can be moved from one place to
another
Q: classification of movables?
A:
1.
fungibles, non fungible (goods which you can substitute)
2.
consumable, non consumables
Q: what is a consumable property?
A: you can enjoy it. You can only enjoy it by using or consuming it. (ex. Food)
Q: non-consumable?
A: do not consume them or else there is nothing to enjoy anymore. (ex.
Vehicle)
Q: give an Illustration of an immovable which is at the same time
consumable?
A: there is NO such thing because a consumable property is a classification of
a movable. (its considered an inconsistency of terms)
Q: If you contribute in an immovable property, again what is required?
A: (repeat 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.
-

Requirements where immovable property, regardless of value, is

contributed:
It must be in a PUBLIC INSTRUMENT (art. 1771)
An inventory of the property contributed must be
made, signed by the parties, and attached to the public
instrument

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

partnership unless the

management is agreed
upon to the contrary

vested in the board of

directors

Effect of
mismanageme
nt

A partner as such can

sue a co-partner who
mismanages

The suit against a

member of the board of
directors
who
mismanages must be in
the name of the
corporation

Right of
succession

None since when a

partner
dies,
the
partnership will be
dissolved

Has so that even if the

stockholder will die, the
corporation will not be
dissolved
but
the
stockholdings of the
deceased stockholder
will be transmitted to
his heirs

Extent of
liability to third
persons

Partners
(except
limited partners) are
liable personally (may
be severally liable) for
partnership debts to
third persons

Stockholders are only

liable to the extent of
the shares subscribed
by them

Transferability
of interest

Partner
cannot
transfer his interest in
the partnership so as
to
make
the
transferee a partner
without the consent of
all the other partners

Generally, stockholder
has the right to transfer
his shares without the
prior consent of the
other stockholders

Term of
existence

Any period of time as

stipulated by the
partners

May not be formed for a

term in excess of 50
years extendible to not
more than 50 years in
any one instance

Firm name

Limited partnership is
required by the law to
add the word Ltd. to
its name

May adopt any firm

name provided it is not
the same as or similar to
any registered firm
name.

Dissolution

At any time by the will

of any or all of the
partners

Can only be dissolved

with the consent of the
State

Governing law

Civil Code

Corporation Code

Failure to comply with these requirements will render the

partnership contract VOID in so far as the contracting parties are
concerned

Q: what is the effect of non compliance as to third persons?

A: Article 1773 is intended primarily to protect third persons. With regard to
them, a de facto partnership or partnership by estoppels may exist (Art.
1825)
Q: what happens if you do not register in the sec?
A: the partnership remains to have a juridical personality
Partnership is not a creation of a state but a creation of the
parties (thats why you remain to exist as a juridical person)
Unlike corporation, without the certification, you do not acquire
any juridical personality

Q: if juridical personality remains, what then is the purpose of registering it in

SEC?
A: it has something to do with issuance of licenses so that the state can
regulate it. So that society is protected
So why bother?
A: because if you are very big already, it is also to protect the partnership and
the partners. To know the contributions and to use such knowledge in case
of liquidation.
Q: I am not a creation of the state so why bother to register?
A: to enjoy certain privileges such as acquiring license to engage in certain
businesses.
YOU CAN EXIST BUT YOU CANNOT ENGAGE IN BUSINESS (ONE OF THE REQS
IN ENGAGING IN BUSINESS IS SEC REGISTRATION--- NO SEC REGISTRATION,
NO LICENSE)
Registration is necessary only for CONVENIENCE and for ADMINISTRATIVE
PURPOSE-- coz there are contracts (business contracts) entered into only if you have a
valid license from the government.
CLASSIFICATIONS OF PARTNERSHIP (refer above)

PARTNERSHIP VS. CORPORATION

Partnership

Corporation

Manner of
creation

Mere agreement of
the parties

By law or operation of
law

Number of
incorporators

May be organized by
only 2 persons

Requires at
incorporators

Commencemen
t of juridical
personality

From the moment of

the execution of the
contract
of
partnership

From the date of

issuance
of
the
certificate
of
incorporation by the
SEC

Powers

May exercise any

power authorized by
the partners provided
it is not contrary to
law, morals, good
customs, public order
or public policy

Can exercise only the

powers
expressly
granted by law or
implied from those
granted or incident to
its existence

Every partner is an
agent
of
the

Power to do business
and manage its affairs is

Management
5

least

--- all the BOD will be the incharge of the managent. In partnership, you can
designate a manager (third person/stranger) or choose among themselves
who are partners. In the absence of an agreement in the management,
everyone can manage...
When a partner dies, the partnership dies (dissolves). This is because of the
trust and confidence required from all. You must give your consent if
someone wants another person to be a partner. But the remaining partners
can decide to continue but technically that is a new partnership.

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

If the stock holders would die, that share holdings is passed on to the heirs of
that stockholder or he may transfer his shares to anyone who is qualified
without necessarily obtaining the consent of other partners.
This is because trust and consent is not the consideration in a corporation
And shares of stock is transferable to others even if other stockholders does
not know or you are not known to other stockholders (there is no trust
requirement)
Q: if 5 of the stockholders went on a trip and all of them got lost or never
came back, does the corporation continue to exist?
A: yes. It will pass on to their heirs because of the right of succession. Heirs
become automatic stockholders because a stock is a personal property
owned by the stockholders. And at the moment of their death, succession
takes place. (succession takes place at the moment of death of the deceased)

7.

Partners by estoppels one who is not really a partner, not being

a party to a partnership agreement, but is liable as a partner for
the protection of innocent third persons (art. 1825); also known
as partner by implication or nominal partner
8.
Continuing partner who continues the business of a partnership
after it has been dissolved by reason of the admission of a new
partner, or the retirement, death, or expulsion of one or more
partners (art. 1840)
9.
Surviving partner one who remains after partnership has been
dissolved by the death of the partner
10. Subpartner not being a member of the partnership, contracts
with a partner with reference to the latters share in the
partnership (art. 1804)
Note: see other classification of partners in page 73-74 of book.

June 25, 2011

Note: in corporation, succession takes place the moment their parents die.
Q: what if the heir is just 10 yrs old?
A: their guardians will be responsible.
Even if they are minors, they can already act through their appointed
guardians, administrator or executors.
Q: without the inventory what is the effect?
A: the partnership is void, if what was contributed is immovable property.
Q: if car worth 1.5 million, what is required?
A: contained in a public document and registered in sec.
Q: what happens if not registered or in a public instrument?
A: they remain to be a juridical personality.
Q: what if partners engage in a fishpond business and lease the fishpond?
A: No inventory is necessary because they only leased the fishpond. The
fishpond is not a contribution. The partnership did not acquire the fishpond
thus no contribution, no inventory therefore is needed.
Q: so will the partnership still exist?
A: yes. Because there was no need of the inventory
Q: a partner contributed again the same car 1.5 million, is public instrument
still needed?
A: needed because the value is more than 3k.
CLASSIFICATION OF PARTNERSHIP
(refer to previous notes)
Q: how do we classify partners. Kinds of partners
A:
Kinds of Partners (under the Civil Code)
1.
Capitalist partner contributes money or property to the
common fund (art. 1767)
2.
Industrial partner contributes only his industry or personal
service (art. 1789; 1767)
3.
General partner liability to third persons extends to his separate
property; also known as a real partner
4.
Limited partner liability to third persons is limited to his capital
contribution; also known as a special partner
5.
Managing partner one who manages the affairs or business of
the partnership
6.
Liquidating partner one who takes charge of the winding up of
partnership affairs upon dissolution
6

GENERAL vs. LIMITED PARTNERS

Look at the definition
General partners: liability to third party extends to their personal
property
Limited partners: liability to third party extends only to their
contribution to the partnership
Q: On the other hand, what is general partnership?
A: it is a partnership composed of all general partners liable pro rata or
subsidiarily (sometimes solidarily).
On the other hand limited partnership is partnership composed of one or
more general partners and one or more limited partners.
So that partnership further is classified as either
1. Universal the object is all the property of the partners at the time of the
execution of the partnership, as well as the fruits thereof
2. Particular the object of such partnership refers to determinate thing, the
use or fruits, specific undertakings or profession
Universal partnership is further classified as
1.
UP of all present property
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.
-

The kind of partnership where partners contribute all

their present property during the constitution of the
partnership to the common fund
Once it becomes part of the fund, all the profits
derived from such property is likewise included in the
common fund

Q: who becomes the owner of the property?

A: the partnership
(under situation of UP) If A contributed his cow, B carabao, C
horse. If the carabao gives away milk, who will be entitled to
the income of the milk? Who is the owner of the carabao?
A: since there was no clear stipulation that the universal
partnership is that of profit or all present property, then the
assumption will be that of profit. (in the absence of any
express stipulation , then the assumption is that it only
constitutes UP of profits) --- thus, the partner remains to be
the exclusive owner of the carabao.
Q: why do you think the assumption is that of profit?

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: UP profits imposes less obligation on the part of the

partners and results to least transmission of (rights)
ownership
June 29, 2011
Q: what do you mean least transmission of rights?
A: the ownership remains to the partners. In oblicon,
interpretation of contracts: whenever there is absolute
difficulty in determining the true intention of the parties,
that interpretation in so far as gratuitous contracts are
concerned, that which involves least transmission of rights
should be adopted. --- Because you dont really know the
true intention of the parties
Q: but if the intention is clear?
A: you dont need to apply the rule. The rule applies only
when there is doubt.
Q: and if indeed the partners agreed that they execute UP of
all present property and their present property are those
three, who is the owner?
A: the partnership becomes the owner
On the other hand if they only clearly agreed to enter UP of
profits, who becomes the owner?
A: each parter remains to be the owner of the respective
properties.
Q: So if the cow gives milk and sold in the market?
A: the partnership is the owner. For both UP of all present
property and profits, the fruits are acquired by the
partnership
Q: who will be entitled for the rent of the carabao (if asked
to plow field)
A: the partnership will be the owner.
So these circumstances (ownership of products/profits) in
both type of UP the partnership possesses ownership. ALL
PROFITS GO TO THE PARTNERSHIP
Q: what is included in the UP of all present property?
A: (1)In a universal partnership of all present property, the property which
belongs to each of the partners at the time of the constitution of the
partnership, becomes the common property of all the partners,(2) as well as
all the profits which they may acquire therewith.
(3) A stipulation for the common enjoyment of any other profits (on any
other source) may also be made; but the property which the partners may
acquire subsequently by inheritance, legacy, or donation cannot be included
in such stipulation, except the fruits thereof.
2.

UP of all profits
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

Q: if you own the property, what rights do you have?

A: everything which is legal. Use it for anything that is legal.
Q: what are the rights of the owner?
A: right to use (Jus utendi),
Right to dispose(Jus dispodende),
Right to possess(jus possidendi)
7

Q: in a universal partnership of all present property, what are contributed?

A: all their present properties and the profits of such.
Q: are there any other?
A: all other profits from other business sources provided that such is
stipulated
SUMMARY
1. the property which belongs to each of the partners at the time of the
constitution of the partnership
2. all the profits which they may acquire therewith
3. all other profits from other business sources provided that such is
stipulated
Q: what is the difference between the second and the third?
A: the second enumeration pertains to profits derived from the property
given at the time of the constitution of the partnership. The third are profits
from other business sources (apart from those property contributed and
placed in the common fund of the business).
Q: what are the objects in a universal partnership of profits?
A: all that the partners may acquire by their industry or work during the
existence of the partnership
So that in our illustration earlier, A (cow), B (carabao), C (horse) who
becomes the owner of these three?
A: in the absence of specification, we assumed that the partners engaged
into UP of profits. Thus they are owned respectively by the partners. But the
fruits are shared by the partnership.
Q: what do you think the partnership could own?
A: they own the usufruct. And the fruits and products of the property
contributed
Q: the cow, carabao, horse, who owns them?
A: the separate partner
Q: the milk?
A: the partnership
The fruits could be civil, natural and industrial
Q: what kind of fruit is the milk?
A: it is a natural fruit.
Q: what else are the natural fruit of the cow?
A: the calf
Q: how about the meat of the cow? If they slice kilo each morning, and
such is sold, who will be entitled to the proceeds?
A: it will retain to the contributing partner. It doesnt matter if the cow is
dead. Under the UP of profits, only the usufruct/fruits will go to the
partnership. Under the natural fruits, when it comes to animal, only the
young and products are included. But the meat is not a fruit, rather, it is a
part of the cow itself. It is never a fruit (the taking is never a fruit. It is part of
it).
Thus if the meat is sold, it will belong to the contributing partner. The
proceeds should go to the owner. The fact that it was sold, never made the
meat as the fruit. The money derived from it represents the part of the meat
sold.
Q: so that we go now to the situation that the whole cow is sold?
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: the proceeds of the entire cow will benefit the contributing partner.
Because we said, In UP of profits, the ownership remains exclusively to the
contributing partner
Q; what then passes to the partnership in UP of profits?
A: the fruits and the use of the property contributed
Q: if the cow has been sold, and the proceeds will go to the contributing
partner, what happens to the partnership (what happens to that partner with
respect to the partnership)?
A: the contributing partner will be a debtor of the partnership for he used
what he contributed for his own consumption [1786]. The partnership may
demand to the contributing partner who sold the cow for specific
performance (replace the cow), as well as to pay the interest and damages.
He has to contribute another cow, otherwise he will be responsible for the
damages and interest to the partnership.
Q: is he is still a partner of the partnership?
A: yes. He remains to be a partner but is considered as a debtor of the
partnership.
Q: so he brought in a new cow. But the cow was hesitant. The cow did not
want to go to the office of the partnership. But eventually the cow obliged.
So the Cow, Carabao, and Horse are together again. But the carabao gave us
a problem. When it was rented by the neighboring farm to plow their field,
the carabao became lazy. So instead of walking whole day, it does not work.
So the farmer who rented the cow got mad and instead of using a whip, it
used a pipe and hit the cow until the carabao died. Do we have a problem,
what is the problem, why is it a problem?
A; the problem is that the carabao died, thus, the partnership also obtained
loss because there is no carabao to be rented out.
Q: The problem is who will shoulder the loss of the carabao?
A: settle first if UP of all present property --- the partnership is the owner
thus partnership should suffer the loss
If UP of profits the contributing partner is responsible for the loss
But since the lessor is responsible for the death of the carabao, any expenses
made shall be subject to reimbursement from such lessor.
Q: what will happen if UP of profits?
A: what Is transferred to the partnership is the usufruct and fruits of the
property
Q: so if the carabao is dead, who bears the loss?
A: the contributing partner bears the loss
Q: again what should the contributing partner do upon the death of what he
contributed?
A: go after the lessor who caused the death of the carabbao and ask for
damages. But if he wants to remain as a partner, he can bring in another
carabao.
Q: if that contributing partner was able to recover from the farmer, he was
able to get the value of the carabao, who will be entitled to the payment of
the carabao?
A: the contributing partner is entitled to the payment. Since he is the owner,
he has the right of the disposal, and since the owner bears the loss, he has
the right to accept the money. While he has not yet delivered a new carabao
to the partnership, he will just be considered as a debtor to the partnership.
Q: can the partnership hold on to the money and say that since you havent
replaced the carabao yet, the payment made by the farmer will first go to the
partnership, is that correct?
A: no. that is not what the law provides.
The partnership has nothing to do with any amount the farmer has paid
because such payment represents the value of the thing which belongs to
8

the partner. The only responsibility of the contributing (cont.) partner is to

deliver a carabao. Bringing in a new carabao is necessary because we agreed
that you will contribute the use of the carabao. Thus the cont. partner will
just remain as a debtor
Q: if another farmer rents, and there is no carabao yet, so the partnership
was compelled to borrow or rent another carabao from another person,
what do you will happen? What can the partnership demand to the cont.
partner?
A: the cont. partner will be liable for damages. Further he is also to
reimburse the partnership for its incurred expenses by reason of renting out
another carabao. (He is liable for such because the partnership incurred
some expenses)
Q: damages can be in a form of what?
A: actual damages and interest.
Q: more or less how much is the actual damage?
A: whatever amount the partnership spent to have a substituted carabao,
including the loss that was incurred due to the absence of carabao that can
be used for the business
Q: if C contributes horses, who own the baby horses?
A: the partnership will own the baby horse, as well as the profits derived
from selling it
Q: if the baby horse now grows, and always wins in a race. Who will own the
profit of his winnings?
A: the partnership.. because the fruit of the fruit/ profit of the fruit is owned
by the owner of the fruit which is the partnership (bonski)

Salvatierra: if the fruit of the contribution will accrue further fruits naturally,
then the proceeds will result to the partnership.
Q: do you think the harmony of the horse and jockey is acquired by accident?
(do you think that the skill of the horse is acquired by accident?)
A: no, such skill and harmony is not acquired by accident since there was
effort to train the horse and the jockey. Thus it will not be considered as
profit by chance rather it shall be considered as profit by industry or work

NOTE: WE ARE ALREADY WITH THE PROFIT OF THE FRUIT (BABY HORSE WHO
WON)
Q: if the cont. partner was the one who trained the horse, then the winnings
should go to that cont. partner? Is that correct?
A: No because the provision states that A universal partnership of profits
comprises all that the partners may acquire by their industry or work during
the existence of the partnership.
ANSWER: SO WHETHER OR NOT THE TRAINING WAS UNDERGONE BY THE
PARTNERSHIP OR ANY OF THE PARTNERS, THE WINNINGS WILL GO TO THE
PARTNERHIP.
Q: will all winnings go to the partnership or to the cont partner?
A: if obtaining a winning is completely left to fate or chance then it will go to
the partner. Winnings will go to the partnership if the members of the
partnership or the partnership itself have exerted time money or effort to
attain the winnings. But if the winning is left entirely to chance, it will go to
the partner
Note the principle that: the winnings or property acquired through chance or
profit by chance should not be included in the common fund. And thus is
owned by the contributing partner.
it will go to the partner, for those earned from games of chance (acquired
through chance) do not fall under the definition of UP of profits. It is acquired
by chance and winnings (page 77 of book) lucrative title without
employment of any physical or intellectual efforts, are not included
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

Q: if A is always the first to stand in the lotto station. For 12 months

everyday, he was at the lotto station. Dec 30, 2010, he won 2 M. who shall
be entitled to the 2 M?
A: it will pertain to the partner. Because the lotto winning was completely by
chance. Without any work or industry rather with pure luck, he won the 2M.
Q: we have already discussed UP of personal propertery, and UP of profits.
Lets try to distinguish it now
A: UP of present property ownership of all the present property of the
partners at the time of the constitution of the contract are contributed to the
common fund
UP profits only usufruct of the property contributed, as well as it other
fruits and profits are transferred to the partnership.
UP present property profits from the property contributed and those
others specified shall go to the partnership
UP profits profits derived only from the use, work. Profits and fruits shall
go to the partnership

Q: if the partnership is already operational, C was able to acquire 5 more

horses from his deceased parents, who now owns the 5 horses?
A: if UP of present property, only the fruits acquired through inheritance by
stipulation can go to the partnership. The 5 horses remain to the partner
Q: if the 5 horses bare another 5 horses?
A: it now belongs to the partnesrhip
Q: if A who contributed his cow received the entire milk factory of his
deceased parents, what happens to the milk manufacturing company?
A: the company (factory itself) will pertain to A. But those produced or
manufactured by the company will now pertain to the partnership.
Q: why should the factor belong only to A, when in fact they entered into UP
of all present property
A: bec. Accdg. to the law, only those presently possessed properties can be
placed under the common fund. The factory is not a present property thus it
cannot belong to the partnership.
Q: however, when A got married, he gave this factory to his wife. What
happens to the donation?
A: it is void. Because husbands and wife cannot donate to each other
Q: why?
A: because of public policy. Because it can be a scheme that the spouses can
do to defraud their creditors. If it were allowed it will be a source of abuse. It
will be a way to evade valid debts which will run counter to public policy.
Q: So that here, if the husband and the wife entered into a partnership, what
is the effect. Can a husband be a partner of his wife?
A; if the partnership is UP then the partnership is void. But if the partnership
is a particular partnership then it can be allowed.
Q: why?
A: because in UP, it is technically a donation of the properties. According. to
the law, what cant be done directly cant be done indirectly. Allowing such is
another way of circumventing the law.
The law says, those who are not allowed to donate to each other cannot
enter into a universal property
Q; if A and B were still married to their spouses respectively and they entered
into a partnership, can they do that?
A: yes. The prohibition against Husbands and Wives would strictly be limited
between spouses. Thus this is a perfect partnership

Q; however one day, without any intention, their respective spouses died. So
the partners became single (widow), they decided to marry each other --they become husband and wives. What happens to the partnership?
A: the partnership still subsists. The law does not prohibit partners from
marrying each other. (page 79) in this respect there is no donation because
on the time of the commencement of the partnership, the properties pertain
to their own properties.
This is not doing indirectly what the law is trying to prohibit thus the
partnership remains.
At the time they entered in to the partnership there was no prohibition. If
they became husband and wife then it is something that the law cannot
prevent.
Q: define particular partnership?
A: the objects are determinate things, usufruct, specific undertaking or
particular profession.
Q: what are determinate things?
A: those things which are specific. Ex. A contribution of a car

July 6, 2011
Where were we --- quiz
1: all about universal partnership of all present property vs. all profits (who
owns the property); assumption when what is given in the facts is that they
entered into UP.
2: who bears the loss for UP of all present property vs. all profits
3: who pays for the loan obtained by the partnership --- answer: partnership
regardless of what kind of UP
4: Partnership at will originally a partnership with a fixed term but
extended without any express agreement (the sharing of profits remains the
same as if the partnership was never dissolved)

Q: what does the partner owe the partnership? (number 5 question)

A:
o
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 (he owes what he promised to the
partnership)
o
To answer for eviction in case the partnership is deprived of the
determinate property contributed
o
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
o
To preserve the property with diligence of a good father of a
family pending delivery to the partnership
o
To indemnify the partnership for any damage caused to it by the
retention of the same or by the delay in its contribution
Q: so that if he was on his way (partner) to deliver the car which he promised
to contribute to the partnership, and on his way, the car was involved in the
accident, which was resulted to the total loss of the car, what should he owe
to the partnership?
A; he owes the car. In this case, there was no transfer of ownership to the
partnership yet because delivery was not yet consummated. Therefore, since
ownership remains with the contributing partner, he bears the loss and
remains to be obliged to deliver what he promised.
Since it was generic, then he can still give another car as a contribution.

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

Q: this time, he specified what type of car he will contribute as well as the
plate number, what should he owe to the partnership?
A: he is still liable for the car but this time the amount plus damages.
Q: what are the methods or modes of extinguishing obligation?
A:
1. Payment or performance
2. Loss of the thing due
3. Condonation or remission
4. Confusion or merger of the rights of creditor and debtor
5. Compensation
6. Novation
7. Death of a party in personal obligation
8. Annulment or Rescission of contract
9. Arrival of Resolutory period or fulfillment of resolutory conditon
10.Impossibility of fulfillment
11.Prescription
Q: why do you think the obligation is not extinguish?
A: it is not extinguished because ownership of the car has not yet been
transferred. It was still on its way to the partnership. Thus, the owner bears
the loss. In this case, he remains to be a debtor of the partnership.

Q: when we speak of specific performance what does this mean?

A: Performance to comply with the promise. However in this case, since you
can no longer deliver the very same object promised, giving the value of the
property will suffice.
Q: no contribution, no partnership? Is that correct?
A: it is correct
Q: what if there was already delivery then the ownership is transferred, what
then does the partner owe to the partnership if the car gets destroyed?
A: if the ownership is transferred, then the partnership will bear the loss. If
what is transferred is only the usufruct, then the partner bears the loss
Q: what then if the partner bears the loss?
A: then he has to deliver another specific thing.
Lets go back to the cow.
Q: A promised to deliver the cow last july 30. However on August 1, when A
saw his cow that it was pregnant, he decided not to deliver the cow. It was
only after August 15 that he delivered the cow as promised. Was there
delay?
A: Yes
Q: so that, after the cow gave birth, he delivered the cow on August 15. What
happens?
A: since he promised to deliver the cow on july 30, the partnership need not
demand for the cow promised in order to declare the partner in default.
th

In this case, after the 30 of July, the cow delivered the calves --- the
partnership owes the calves because they are natural fruits of the partners
contribution.
Because he is liable to deliver such on the date he promised to deliver the
contribution --- The partnership is entitled to the cow and of its fruits.
Q: and not only did he not deliver the calves. One of the five calves died
before he delivered. Who bears the loss? What will he owe the partnership?
A: in this case the partnership bears the loss because it is the partnership
which owes the calves. (However, since he was the one responsible for the
death as (maybe) he failed to exercise due diligence to preserve the fruit
while it was in his possession, the partner may be liable for damages for the
loss --- (my personal answer))

a. cow
b. the calves
c. the value of the calf that died
Q: so that if A wanted to contribute his car, B his apartment, and C his parcel
of land, how much do you think is their respective shares in the profits?
A: in the absence of any stipulation, the share in profits of the partners is
proportionate to their contribution. In the absence of agreement, the
contribution of the partners will be equal
In this case, there is an appraisal to be made. This is to determine the value
of the contribution of each partner. It is therefore important to know how
much the partners will contribute. It is important to know their shares in
profits, as well as with the losses.
Q: how is the appraisal done?
A: First in the manner prescribed by the contract of partnership
Second in the absence of stipulation, by experts chosen by the partners
and according to current prices (of similar property)
Q; if they cannot agree as regards the expert, who will appraise? Can they
say that they will just entrust the appraisal with A (one of the partners)?
A: if they cannot agree, then there is no partnership. If you cannot agree how
much you actually contributed, then there is no partnership (sir: if you
cannot agree as regards the contribution, how much more in the sharing of
profits). This is because the basic contribution or foundation of partnership is
the mutual trust of the partnership.
Q: is the solution that one of the partners will appraise allowed?
A: NO, because such might lead to conflict of interest.
Q: so there was an appraisal done, they chose an expert; whats next?
A: the property shall be appraised using the current price of the similar
property.
Q: So if Cs apartment is valued at 3 million, after 5 years, what do you think
will happen to the value?
A: the value will depreciate
Q: and so 5 years after, C noticed that his share in the profits was also
reduced. C asked why. What do you think the other parties will say?
A: the other partners will say that because the value of the building
depreciated, then his share will be depreciated.
Q: if you were C, what will be your argument?
A: my share in the profits should not be reduced because the sharing must be
based on the value of the property at the time such property was
contributed. Any depreciation of the property or any change of the value of
the contributed property will be for the account of the partnership.
Q: so you said experts will be chosen and experts will present the valuation.
IF the valuation is presented to the partners, what do you think may the
partners do?
A: the partners may accept or reject or question the decision of the
appraiser.
Q: but all of them agreed unanimously in choosing X, do you think they can
reject the appraisal made by the expert?
A: Yes. The partners agreed on who will appraise, but they never agreed that
what is presented by X is absolute. They can still reserve the right to reject.
However such rejection should be made with the consent of all partners and
should be coupled with good faith.
Q: may any partner object to the appraisal?
A: the appraisal having been done by the expert they chose, should be
binding unless all the partners will reject. Then the expert will have to
appraise again. NO one is higher than the unanimous rejection of the partner

He owes the partnership the following:

10

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

Q: once the appraisal is done, that is the basis establishing the contribution
of each partner. So here, do you think the partner with the least contribution
complain?
A: Yes. The partner with the least contribution has an equal voice with the
rest of the partners. What is diminished is only his shares. (however we still
note the rule that to overrule the appraisal made by the expert, all the
partners must reject it)
Q: another thing that the partner owes is the interest. What should be the
basis of the interest? (when is he liable for interest?)
A: The basis is as follows:
1. the money he promised to contribute (pay the interest from the time you
promised to deliver the contribution until your actual contribution)
2. the money he took from the partnerships coffers (interest from the time
you converted the money for your personal use until the time you repay it)
3. fraudulent conversion of partnership funds
Q: when will damage (or interest) starts to run?
A: from the time he took such money
Q: types of partners?
A: capitalist partner (CP) one who contributes money or property to the
common fund
Industrial partner (IP) - one who contributes his industry, labor or service to
the partnership
Q: CP proposed for car repair business to IP. They started their business in
the land and car shop owned by CP. They started business on a quiet day. But
when CP visited the shop, he didnt find any car being repaired. Instead he
found the IP cooking bananacue. What do you think will happen?
A: There is an express prohibition against the industrial partner from
engaging in any other business aside from that in the contract. The CPs can
either exclude him from the partnership or avail of the benefits IP derived
from the bananacue business + damages in both instances.
The industrial partner is prohibited from engaging in any other business
because it will cause damage to the partnership since what he contributed is
his industry. He is expected to devote his entire industry to the partnership.
It is immaterial if the other business is the same as that of the partnership.
The prohibition is absolute.
Unlike for a CP, the prohibition is for businesses similar to the partnership. If
the business of the CP is in competition with the business of the partnership,
then such is not allowed.
Prohibition against Engaging in Business
1.
As regards and industrial partner the prohibition is ABSOLUTE
and applies whether the industrial partner is t engage in the same
business in which the partnership is engaged or in any kind of
business
2.
As regards capitalist partners the prohibition extends only to
any operation which is of the same kind of business in which the
partnership is engaged unless there is a stipulation to the contrary
(RELATIVE)
Note: The permission given must be EXPRESS; hence, mere toleration by the
partnership will not exempt the industrial partner from liability.

Q: In the absence of contribution?

A: There is no partnership.
SUMMARY OF RULES:
Contribution:
1. agreement
2. absence of agreement equal
Profits:
1. agreement as to profits
2. absence of agreement in proportion to their capital contribution
Losses:
1. agreement as to losses
2. similar to the agreement as regards to profit sharing
3. if no agreement of profits or did not agree with agreement with profits, it
will be in proportion to their capital contribution
Special rule for INDUSTRIAL PARTNER
Contribution: absolute services (his whole industry)
Profits: depends on the circumstances: whatever is just and
equitable; compensated based on equity and just
In case of losses: he is not obliged to share with the liability
(unless he also contributed in the common fund: Industrial
Capitalist Partner/Capitalist Industrial Partner)
Q: Earlier we were trying to distinguish the general partner from a limited
partner, what again are the distinctions?
A: (refer to old notes) General partner liability extends to personal
property; Limited partner liability extends only to his contribution
Q: true or false, a general partner can also be an industrial partner?
A: false. Because a general partner shares in the loss while an industrial
partner does not. (Conflicting concepts)
Q: Why do you think the industrial partner is exempted from losses?
A: he already contributed everything, there is nothing more to lose. If losses
are incurred, it is double punishment from him. He cannot recover the
services he has rendered, its worse if you punish him and require him to be
liable for his properties. Precisely he wanted to remain as an industrial
partner because he has limited resources.
Q: here is a partnership A, B, C, and the business they were in was highly
competitive. They were engaged in the funeral business, and it appears that
many people before they died, specified that their remains shall be brought
in an air conditioned room and on the way to memorial park they should hire
a singer who will be singing songs for them from the church to the cemetery
until they are lowered 6ft to the ground. one of the partners is of the
opinion that if they dont cope with the competition then they will suffer
loss.
Thus the partners agreed that all of them must contribute again. But C does
not like to contribute. What happens to C?
A: first you have to look if there is an imminent loss. That it will suffer
substantial loss if they will not contribute again and C deliberately refuses to
contribute, C must sell his share.
-

Q: how do partners share in the contribution?

A: first, base it on agreement (what is agreed in the contract).In the absence
of agreement, equal contribution.
Q: how do they share in the profit?
A: First, by agreement. Second, in the absence of agreement, profits are in
proportion to their contribution.
11

GR: a capitalist partner is not bound to contribute to the

partnership more than what he agreed to contribute
EXC: in case of imminent loss of the business, and when there is
no agreement to the contrary --- this is to save the venture
Result of Refusing to comply: he shall be obliged to sell his
interest to the other partners
Requisites for application of the rule:

There is an imminent loss of the business

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

The majority of the capitalist partners are of the

opinion that an additional contribution to the common
fund would save the business
The capitalist partner refuses deliberately (not
because of financial inability) to contribute an
additional share to the capital
There is no agreement to the contrary

Note: Industrial partner is EXEMPTED from the requirement to contribute an

additional share. Having contributed his entire industry, he can do nothing
further.
Q: can you apply that concept in this case? (can you apply article 1791 in this
case?)
A: NO. There is still no imminent loss. There was just a desire to compete
with other funeral services.
If there is no imminent loss, the refusal is justified. He cannot be compelled
to sell because there is no imminent loss.
Q: when we say deliberate refusal, what does it mean?
A: not based on his solvency. It is a willful refusal. There is intent not to
contribute even if the contribution would save the partnership from losses.
Refusal based on insolvency is not deliberate.
Q: it may happen that you as a partner is a creditor to a third party, X, who at
the same time is a debtor of your partnership. X owes you 10,000 and X owes
the partnership 30,000. You collected 5k from X, how will you apply the 5k?
A: (remember: qualify your answer especially if the facts are not complete)
Nevertheless, this topic deals with article 1792 --- the sum thus collected
shall be applied to the two credits in proportion to their amounts
Note the There are requisites to follow:
Requisites for the application of the rule:

There exist at least two debts, one where the

collecting partner creditor, and the other, where the
partnership is creditor

Both debts are demandable

The partner who collects is authorized to manage and

actually manages the partnership
The debt must be applied to the debt which is due and demandable. In this
case, there was no mention of whether one or both of the debts are
demandable, thus there is a need to qualify your answer.
It goes to the partner because (due to the incompleteness of the facts)
1. he is not authorized to collect for the partnership (not the managing
partner)
2. the debt is not due and demandable (not sure whether both debts are
due)
(prepare your answer for this question coz this might be asked again)

If the owner bears the loss, there should be another contribution. Otherwise,
if there is no contribution, he shall cease to be a partner.
If the object is generic, if the property is lost, the obligation is not
extinguished because genus does not perish. He has to bring in another
contribution.
Q: so that the requirements for this provision (1792) to apply are the
following:
A:
a.
There is a debtor who is indebted to the partner and partnership
b.
Both debts are due and demandable
c.
The collecting partner is the managing partner
Q: if he is not the managing partner?
A: if no specified managing partner then everyone is a manager.
If he is not a managing partner, the payment of debt will be applied to him.
(the said provision is no longer in applicable)
Q: why wont the rule apply if not managing partner?
A: there is no longer any ground for suspicion that he may have acted
improperly to create an undue advantage to himself.
This provision applies only if the partner is the managing partner. Because it
is only when the partner is the manager that conflict of interest may arise.
If you are not a managing partner, you have no obligation to share what you
receive from the debtor.
Q: Going back to sharing of losses, what is the rule?
A: 1. agreement as to losses
2. similar to the agreement as regards to profit sharing
3. if no agreement of profits or did not agree with agreement with profits, it
will be in proportion to their capital contribution

Q: during December, it was traditional for these partners to have a Christmas

party wherein they share their profits. However one December, they had
profits to share but there was no cash available. Their profits were composed
of collectibles which were already overdue. So that the collectibles came
from X (30T), Y (30T0, and Z (30T). So partners A, B and C, agreed that the
receivables are assigned to each one of them anyway all the receivables are
equal. A collected from X, B to Y, C to Z. A and B were able to collect, but C
was not because Z was never present when he collected. Decide what
happens?
A: apply article 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 thereafter become insolvent, to bring to the
partnership capital what he received even though he may have given
receipt for his share only.

Correction: if they cant agree with the appraisal of the partnership then it
is better if they dont continue with the partnership.

Requisites for application of rule

a partner has received, in whole or in part, his share of

the partnership credit

the other partners have not collected their shares

the partnership debtor has become insolvent

If the property promised by the partner is a specific thing and a determinate

thing and it is lost then the obligation of the partner to the partnership is
extinguished

Note: The above provision is based on the COMMUNITY OF INTEREST among

the partners, which is one of the underlying principles of the contract of
partnership.

Q: If the thing contributed is a specific thing, what did we say?

A: determine first if it was already delivered or not delivered. If not delivered,
the partner bears the loss. If delivered, the partnership bears the loss. If the
usufruct is only what is transferred to the partnership, the partner bears the
loss

Therefore the partner who has not collected is entitled to what A and B has
collected from X and Y

July 9, 2011

12

Q: but X and Y argue that they were diligent in collecting their credits.
Resolve? How will they divide?

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: since one of the debtors became insolvent, the collectibles should be

shared in proportion to the three partners. The partners share will be based
on their profit sharing.

the partnership, and in such case the claim shall be limited to the value at
which they were appraised.
-

Q: this time the partners decided to end their partnership. After 10years,
they decided to dissolve. As a final act, since they were about to distribute
whatever they have, they returned to each one of them what they originally
contributed. After receiving back their shares in the capital, something else
remain. This time, again some receivables. They decided to distribute the
receivables. X, Y, Z, owes partnership 50T each. (same scenario as the one
above) . Decide. A and B worked hard to collect from the debtor. C was very
relaxed only to find out later that Z could no longer pay. What happens this
time?
A: C is no longer entitled to share the collectibles of A and B. Since the
partnership is already dissolved then there is no more obligation to share the
loss. In other words, this requirement for a partner to return into the
partnership fund whatever he collected, if one of them was not able to
collect, applies only if the partnership still exists.
The law says that the partner should return the collectibles to the
partnership fund. If no more partnership, then there is no more partnership
fund where you could return the collectibles.
Q: so what do you suggest if someone consults you? How do we prevent
this?
A: If you have collectibles do not end the partnership first. Collect or gather
all the money first before you dissolve the partnership. (bring in the money
before you say goodbye)
Q: again, who bears the loss when there is loss?
A: GR --- the owner bears the loss... (res perit domino)

5 cases contemplated by this article (1795):

1.
Specific and Determinate things which are NOT
fungible where only the use is contributed
The risk of loss is borne by the PARTNER
because he remains the owner of the things
2.
Specific and Determinate things the ownership of
which is transferred to the partnership
The risk of loss is for the account of the
PARTNERSHIP, being the owner
3.
Fungible things or things which cannot be kept without
deteriorating even if they are contributed only for the
use of the partnership
Risk of loss is borne by the PARTNERSHIP
for evidently the ownership was being
transferred since use is impossible without
the thing being consumed or impaired
4.
Things contributed to be sold
The PARTNERSHIP bears the risk of loss for
there cannot be any doubt that the
partnership was intended to be the owner
5.
Things brought and appraised in the inventory
The PARTNERSHIP bears the risk of loss
because the intention of the parties was to
contribute to the partnership the price of
the things contributed with an appraisal in
the inventory (implied sale)

Q: so when something is contributed, the GR is the owner takes the risk of

loss. The owner bears the loss. However, if you contributed as a partner
(milling business), you contributed 1 ton rice. Then the other partner says
that we will use his equipment. When we sell, we share the profits. However,
before A can deliver his ton of rice, it was destroyed by typhoon?
A: since the rice has not yet been delivered, then contributing partner bears
the loss. However, since it is generic, then he is still obliged to deliver a ton.

Q; if partner A was a salesman. They were engaged in real estate. As a

salesman, you will have to move around. You should not be in the office and
should have good public relation. Every time he goes to sell, he always invites
the prospective customer to go videoke and spends 5T a night. Partner now
seeks reimbursement. He argues, we need to spend. This is PR!
Decide.
A: 1796. He wont be entitled because he acted in bad faith.

NOTE: APPLICATION OF 1795 PRESUPPOSES THAT THE THING

CONTRIBUTED HAVE BEEN DELIVERED ACTUALLY OR CONSTRUCTIVELY TO
THE PARTNERSHIP

Article 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 expense 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.

Q: this time you specify what rice (rice in this farm) and he was able to
deliver. It was already in the warehouse of the partnership. This time, tons of
rats came and destroyed all the rice. What happens?
A: since there was delivery, the partnership is already the owner, the
partnership bears the loss.
Further article 1795 states that If the things contribute are fungible, or
cannot be kept without deteriorating, or if they were contributed to be
sold, the risk shall be borne by the partnership --- since rice is fungible,
then the partnership bears the loss.
Q: this time, partners changed the business that instead of rice, A agreed to
contribute 5 brand new cars. B contributed his warehouse where the cars
will be parked for display. What happens if the cars are lost by fire?
A: if the cars were not yet delivered, A will still be liable and bears the loss. If
delivered to the partnership, the partnership will now bear the loss.
Q: if the thing earlier was appraised?
A: the partnership will now be liable. Because when we talk about appraisal,
there is a presumption, that the value of the thing has been determined and
such value is what is contributed to the partnership. (implied sale to the
partnership)
Article 1795 also states that In the absence of stipulation, the risk of
the things brought and appraised in the inventory, shall also be borne by
13

Responsibility of the Partnership to the Partners:

o
Refund amounts disbursed by the partner in behalf of
the partnership plus the corresponding interest from
the time the expenses are made
o
Answer for the obligations the partner may have
contracted n good faith in the interest of the
partnership business
o
Answer for risks in consequence of its management

July 13, 2011

Q; if partner A was a salesman. They were engaged in real estate. As a
salesman, you will have to move around. You should not be in the office and
should have good public relation. Every time he goes to sell, he always invites
the prospective customer to go videoke and spends 5T a night. Partner now
seeks reimbursement. He argues, we need to spend. This is PR!
Decide.
A: It depends... So long as these are legitimate places, there might be a need
for it. There are occasions when you have to bring potential buyers if only to
finalize a deal.
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

But its different if you go inside and you do something else or you plainly go
there simply to have fun.
Q: So the guide is GOOD FAITH. So long as these expenses are incurred in
good faith, what happens?
A: such obligation will be liable for reimbursement
Q: however after the singing session, perhaps he took a bottle too many and
headed back home. He suddenly heard a sound from his car, only to find out
it was someone who was trying to cross the street. He brought the person to
the hospital and incurred expenses. What happened to the expenses?
A: since we have established that the activity in videoke is not in good faith,
the liability he incurred after driving into someone (car accident) will no
longer be shouldered by the partnership. The risk for the consequences of
the acts of a partner will only be carried by the partnership if it was done in
good faith and in the interest of the partnership.
It is also required that partners should not be negligent with his actions. In
this case, the partner came from the videoke, he may have been intoxicated.
He should have known, with the exercise of diligence, that he should not
drive at that state.
Q: as auditor, which receipts would you allow (videoke and hospital receipts)
A: consider if receipts are obtained in good faith and in the interest of the
partnership, and if the acts were done in due diligence. Check each and every
receipt ask for liquidation report, how those receipts were incurred.
Check if the expenses in the videoke are reasonable. If they are reasonable
and necessary (these are not illegitimate), then I will allow. But the hospital
receipts, you cannot allow.
In other words, we cannot fund somebodys vice. If its a vice, theres no way.
But if it was a necessary cause or expense, then it may be allowed
Q: profits and losses again?
A: look at previous notes.
Q: so that if the parties agreed that one is exempted in the profits?
A; stipulation is void
Q: if losses?
A: then it depends. If one of the capitalist partners is exempted in losses --void. But if industrial partner, it is valid because IP naturally do not share in
the losses of the partnership
Q: so that if indeed there was such an agreement where the partnership of A,
B, C, they agreed that A should be exempted from losses, what will happen?
A: the stipulation is void unless A is an industrial partner.
Q: what happens to the partnership if the stipulation above is present?
A: the partnership continues to exist. What is void is only the stipulation. In
this case, it is as if there were no stipulations on the same.
So only the stipulation is void! The partnership remains valid. And so because
the stipulation is void, in case of losses, what will happen?
A: the partners will still be liable except for the industrial partner
Q: how?
A: follow rules in losses. But pass the agreement. So adopt to the agreement
as to sharing of profits.
Q: what about their agreement as to sharing of losses?
A: because it is void, then it is as if there is no agreement. Thus we apply the
agreement as to profits.
Q: how is a partnership managed?
A; GR if they did not agree/appoint, all partners are considered managers
of the partnership.
14

Q: How do they agree/appoint?

A:
1. they can agree among themselves who will manage in the articles of
partnership
2. they can appoint after the constitution of the partnership
You can appoint any of the partners. Among themselves. One or more
managers can be appointed
If they wont appoint any one of them, they can appoint third persons.
But if they failed to agree on all, then the presumption is that each one of
them is a manager.
Q: so that, if the managing partners are appointed, what can they do?
A: they can do acts of administration.
Q: acts of administration As distinguished from?
A: the act of ownership.
Q: what are acts of administration?
A: administration --- only the acts which involve preservation, management,
and protection
Q:how to conduct acts of ownership?
A: requires the act of all. Ex. Disposal
Right to use (Jus utendi),
Right to dispose(Jus dispodende),
Right to possess(jus possidendi)
Q: may a managing partner sell properties of the partnership?
A: no.
Q: here is a managing partner who decided to change the lobby of the office.
He wanted to put a chair with a design sa arinola.
A: if there was a specific manner of managing which does not include the
changing of the furniture, then he cant. (Note that improving the
appearance of the place is an act of administration)
Q: if the manager wanted to impose the antique furniture, can the other
partners question such decision?
A: depends if the manager was designated in the articles of the partnership
or after.
If designated in the articles of partnership, the rule is:
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.
Requirements for FIRST PARAGRAPH:
1. appointment was made in the articles of partnership
2. the power cannot be revoked without just or lawful
3. if there is just or lawful cause, it can be revoked by partners who has the
controlling interest
Thus in this case, the decision to installs the furniture cannot be revoked.
Everybody should follow as long as there is no bad faith. Installation of
furniture are administrative matter.
Q: how can the decision be revoked?
A:
1. If there is bad faith resulting to lawful cause)
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

2. if the partners with the controlling interest has voted to revoke

--- only then can the partnership revoke the decision to change the furniture
Requirements for SECOND PARAGRAPH:
Can be revoked anytime with or without cause
Still with the controlling interest of the partners
Q: so if there are 5 partners?
A: controlling interest means the partner who has more than 50% of the total
contribution.
Q: so if only one of them says change the seats?
A: depends if he has the controlling interest, then such person can be able
revoke
But if the managing partner, as in this case, is not the partner with controlling
interest, then it cannot be revoked.

Absence UNANIMITY, the decision of one partner should never be carried

out.
It may happen that partners have to agree that on a particular decision,
everybody must conform. Otherwise the decision is an invalid act and cannot
be carried
Q: however, there could be an exception to this?
A: 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.
-

Q: if designation is after the articles?

A: can be revoked anytime by the controlling interest only.
Q; can you designate more than one manager? If there are more than one,
what happens?
A: yes. Then all of them can perform the acts of administration.
Q: so if there are 5 managers, and these managers again were trying to
design the lobby. So the building manager wanted black, so it was changed to
black. But the next day, people can;t find their way to the office. What will
happen?
A:
Article 1801
If two or more partners have been intrusted with the management of
the partnership without specification of their respective duties, or without a
stipulation that one of them shall not act without the consent of all the
others, each one may separately execute all acts of administration, but if
any of them should oppose the acts of the others, the decision of the
majority shall prevail. In case of a tie, the matter shall be decided by the
partners owning the controlling interest.
Note: if there is a specification of the respective duties of the managing
partners, the decision of the partner concerned shall prevail subject only to
the limitation that he should act in good faith. --- APPLY THE PREVIOUS RULE
(CONTROLLING INTEREST RULE)
-

Requisites for application of rule (1801):

o
Two or more partners have been appointed as
managers
o
There is no specification of their respective duties
o
There is no stipulation that one of them shall not act
without the consent of all the others

Q: if there is disagreement?
A: 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.
Q: what if the majority abstained in the decision (if tie?)
A: it should now be resolved by the partner with controlling interest.
Q: what is annonimity?
A: it is being unknown.
Q: how about UNANIMITY? When is it required?
A: Article 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.
15

GR: the partners may stipulate that none of the managing

partners shall act without the consent of the others. In such a
case, the UNANIMOUS CONSENT of all the managing partners
shall be necessary for the validity of their acts
EXC: when there is an IMMINENT DANGER of grave or irreparable
injury to the partnership, in which case, a partner may act alone
without the consent of the partner who is absent or under
disability, without prejudice to his liability for damages under
Article 1794

Important: The EXCEPTION is not applicable when one of the managers, in

the exercise of his right to oppose, objects to the proposed act.
Q: what if it is required by the fire dept that each level should have fire
extinguisher. Thus there is purchase. But there is agreement that any
purchase exceeding 5thou, all partners should conform. But one of the
partner is outside. (the office will be closed tom if you do not comply with
rule). Decide.
A: THE REST OF THE PARTNERS CAN GO ON WITH THE PURCHASE. This is
because of the exception that
when there is an IMMINENT DANGER of grave or irreparable
injury to the partnership, in which case, a partner may act alone
without the consent of the partner who is absent or under
disability, without prejudice to his liability for damages under
Article 1794
-

Article 1794
Every partner is responsible to the partnership for damages
suffered by it through his fault, and he cannot compensate them
with the profits and benefits which he may have earned for the
partnership by his industry. However, the courts may equitably
lessen this responsibility if through the partner's extraordinary
efforts in other activities of the partnership, unusual profits have
been realized.

Note: imminent danger of grave or irreparable injury to the partnership is the

only exception.
Q: however, this coming Sunday, the partners have agreed to have an
anniversary party. And again in their agreement, expense more than 500
must be signed by all partners. One partner is in hongkong. So just the same,
without waiting for his consent and written conformity, the remaining party
paid the catering service. When the vacationing party came home, he was
surprised because he was not there. If you are the catering service, do you
think you can collect?
A: The catering cannot collect because there was no imminent danger of
grave or irreparable injury to the partnership. In this case, the catering can
collect but not from the partnership but only from the partners who were
responsible for asking his service, contracting partners.
He can still collect even if the act was invalid because the acts should not
prejudice third persons
In other workds, the requisite of UNANIMITY is only binding among the
parties. It should not affect or prejudice the rights of third persons.
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

The partners are liable because they contradicted their agreement in the
contract. But if the partnership paid, then the partnership can seek
reimbursement from the partners.
MY ALTERNATIVE ANSWER:
You can collect only if the anniversary practice is routinary
Note: the consent of managing partners is not necessary in routine
transactions. The requirement of written authority refers evidently to formal
and unusual written contracts.
Q: we have discussed one manager designated, and two or more managers
designated. If the partnership fails to designate any managing partner?
A: each of them shall be considered as agents or managers. Thus the act of
each of them is binding to the partnership.
Article 1803
When the manner of management has not been agreed upon, the
following rules shall be observed:
(1) All the partners shall be considered agents and whatever any
one of them may do alone shall bind the partnership, without
prejudice to the provisions of Article 1801.
Article 1801
If two or more partners have been intrusted with the
management of the partnership without specification
of their respective duties, or without a stipulation
that one of them shall not act without the consent of
all the others, each one may separately execute all
acts of administration, but if any of them should
oppose the acts of the others, the 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.
Q: if there are alterations of immovable?
A: all consent is required. Only exception is 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.
here no specific partner was designated, majority will prevail, unless it will
involve alteration of immovable, if majority cant decide, the courts
intervention is necessary.
Q: we said that the partnership may accept or admit new partners. Before a
new partner is admitted, what is required?
A: consent of everyone. All existing partners.
Q: this is because?
A: partnership is based on trust and confidence. Without the consent of all
partners, then we cannot say that the new partner can be trusted

Article 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.
In receiving his profits --- he receives a part of the profits of the partner
which he has associated with.
Q: if I have 1M investment I sell to you half of my investment. You pay me
500T. Whatever profit I get, I share with you. But everyday, this subpartner is
always in the office. This subpartner saw a bulb which was no longer
functioning and changed it, he ordered to purchase the chandelier. So people
were surprised, he said to purchasing dept that he will sign because he is an
associated of one of the partners.
A: he cannot sign. He is A subpartner, not being a member of the
partnership, DOES NOT acquire the rights of a partner (be involved in
management or administration) nor is he liable for its debts.
Q: so December came and I give him of my profits. After he received what I
gave him, the next morning he went to the accounting office and tried to
inquire how much really were distributed to the partners and how much
really is the profit of the partnership. Do you think he can do this?
A: How profits between the members of a subpartnership is immaterial.
You can ask your partner but you cannot go to the accounting office
Q: how will you describe an associate?
A: you do not have any personality or representation in the partnership. He is
merely a contributor but in a purely and private capacity.
Q: you are new partner in the partnership, partnership among your
classmates. One day you called up your classmate and told miss to, you are
also a partner to our partnership and you are incharge with the books of
account. What time do you usually go to bed miss to? Miss to asks why?
Because I am going to inspect the books tonight. I will go and inspect at 2 am
and I will pass by our office to check. What do you think will miss to say?
A: this will be asking miss to in an unreasonable hour which is not allowed by
law
Q: what is allowed by law?
A: it should be done on a reasonable hour. Usual business hour of the
partnership
Q: what do you think miss to will first ask?
A: she will ask for what purpose
Q: so?
A: for purpose is to inspect or copy what transactions we entered into or
what lialbities we have incurred.
Q: what do you think will convince her to show you the books?
A; you dont have to convince coz you you are a partner (IT IS YOUR RIGHT).
The availability is for inspection for the information and guidance of the
partner. Although, it must be for a legitimate purpose pa rin. (but dapat dili
unreasonable hour) YOU ARE ENTITLED TO TRUE AND FULL INFORMATION.
The provisions uses the word SHALL!

Q: my brother in law just came home from US with lots of money to invest.
He asked if he could invest. What is required?
A: the person must be introduced to the partnership. The partner must ask
the other partners if the bro-in-law can join
Q: but what if one of the partners whispered to you that di siya masugot?
A; he cannot be a partner
Q: what is his option?
A: be a subpartner. Be associated to an existing partner
16

Q: again what did we discuss on the capacity of a capitalist partner?

A: relative prohibition to engage in any business except those which will
result to conflict of interest. (as distinguished to an industrial)
If a capitalist partner engage in a competitive business, he is likewise liable to
share with his benefits and for liable. If there is loss, only him will be liable. If
there are profits, share to the partnership (1808)
Q : should you return everything to the partnership?
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: only the profits accruing to him from his transaction.

July 20, 2011
Q: So that if there are two or more managing partners?
A:
Article 1801
If two or more partners have been intrusted with the management of
the partnership without specification of their respective duties, or without a
stipulation that one of them shall not act without the consent of all the
others, each one may separately execute all acts of administration, but if
any of them should oppose the acts of the others, the decision of the
majority shall prevail. In case of a tie, the matter shall be decided by the
partners owning the controlling interest.
More than one managing partners majority unless unanimity is required.
Discussion on Controlling Interest
Q: if there is 5 partners? What is the controlling interest?
A: it does not matter how many partners there are. Even 1 can be a
controlling interest as long as his contribution constitutes more than 50% of
the entire contribution.
Q: what are the rights of the partner?
A:
Article 1810
The property rights of a partner are:
(1) His rights in specific partnership property (Art. 1811);
(2) His interest in the partnership (Art. 1812); and
(3) His right to participate in the management

Article 1812
A partner's interest in the partnership is his share of the profits and
surplus.

Q: how do you distinguish profits and surplus?

A: Profit the excess of returns over expenditure in a transaction or series of
transactions; the net income of the partnership for a given period of time
Surplus assets of the partnership after partnership debts and liabilities are
paid and settled and the rights of the partners among themselves are
adjusted; it is the excess of assets over liabilities
Sir: they differ on the time preference
Profit --- you determine profit within a month or year, etc. Example you say
determine profit every year. Find out how much was the operating cost or
how much you incurred and paid for versus what you earned. Revenue less
operating cost equals the profit
Surplus --- refers to a longer period. you have to determine the assets that
you have versus your liabilities. Assets fluctuate, unlike capital which is stable
which is the amount of contribution. The total contribution is your fix capital.
(although you may acquire assets at any given period). Assets minus liabilities
thus you have the surplus
Q: distinguish liabilities from losses?
A: liabilities does NOT equate to losses. In incurring liabilities, you can have
unliquidated assets which can pay for the debt. However in losses, you
literally do not have anything to pay for your debt, whether liquidated or
uliquidated assets.

Q: in our previous discussions, what are the additional rights?

A: Other related rights:
o
The right to reimbursement for amounts advanced to
the partnership and to indemnification for risks in
consequence of management
o
The right of access and inspection of partnership books
o
The right to true and full information of all things
affecting the partnership
o
The right to a formal account of partnership affairs
under certain circumstances
o
Right to have the partnership dissolved also under
certain conditions

Distinction between a Liability and a Loss

Q: in the partnership of ABC (engage in funeral business), on Monday, all

funeral cars are fixed. But A has a guest so he used one of the funeral cars.
A: He cannot use the car because it was not used for partnership purposes.
His right should be in accordance or would result to the benefits of the
partnership, unless his partners would agree or allow him to use the car.

We are discussing this because it is the only way we can appreciate the
partners interest in the partnership.

Q: if the partners did not agree but insisted and use the car, what will
happen?
A: he is liable to the partnership for whatever expenses he incurred. He is
liable to pay the partnership for any expenses or cost of using the car.

Q: because he has share in the profits and surplus, can the creditor of the
partner go after the share of this partner?
A: note first that the creditor of the partnership is preferred than the
partners creditor. But yes, that creditor can go after the interest of the
partner.

Q: how much do you think will he be required to pay?

A: actual amount of rental of the car; at least the consumption of the
gasoline; salary of the uniformed driver ---- expenses that usually attached to
the said property
In the absence of any accurate measure of expenses, inquire from a rent a
car establishment.
Q: what do you mean by interest of the partnership?
A: this refers to the profits as well as the surplus

Liability inability of a partnership to pay debt to a third party at

a particular time; but the partnership may have outstanding
credits which for the moment may be unavailable for the
payment of debts
The exemption of the industrial partner to pay losses relates
exclusively to the settlement of the partnership affairs among the
partners themselves and has nothing to do with the liabilities of
the partners to third persons
An industrial partner is NOT EXEMPTED from liability to third
persons for the debts of the partnership

Q: what constitute the partners interest is the partnership?

A: the partners share in the profits and the partners share the surplus

Q: if he goes after the interest, what can that creditor do?

A: may charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest thereon;
--- attach --- so that he can get the profits and surplus of the partner.
-

A separate creditor of a partner can secure a judgment on his

credit and then apply to the proper court for a CHARGING ORDER,
subjecting the interest of the debtor partner in the partnership
with the payment of the unsatisfied amount of such judgment
with interest thereon with the least interference with the
partnership business and the rights of the other partners

Q: can a partner assign his interest?

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angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: yes he can assign. The assignee becomes entitled to the share of profits
and surplus of the assignor but he does not become a partner to the
partnership.
Note: partner can assign his interest in the partnership
Q: can the creditor of the partner go after the interest?
A: YES. The interest could be charged.
Q: how about over the specific property?
A: NO, he cannot assign.
Q: can creditor go after specific partnership property?
A: CANNOT because it is owned by the partner
Q: why cant the specific property be assigned?
A: because it is impossible to determine the extent of his beneficial interest
in the property until after the liquidation of partnership affairs. Further such
limitation is to prevent interference by outsiders in partnership affairs
--- you do not know which part of the property belongs to a certain partner
(UNSPECIFIED CO-OWNERSHIP)
IF we allow a partnership creditor to attach, it is as if they are allowed to
distribute the assets of the partnership which will jeopardize the partners
and third parties (creditors of the partnership)
--- in effect we are trying to give preference to
PARTNERS
CREDITORS/PERSONAL CREDITORS OF PARTNERS OVER THE PARTNERSHIPS
CREDITORS

Note: each partner has equal rights over the property of the partnership. --each partner has the right of possession for partnership purposes
Article 1811
A partner is 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
representatives 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 under Article 291.
Q: co-owner in what sense?
A: 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
Q: on the other hand, although personal creditors of these partners cannot
attach, may that property be attached and by whom?
A: only by partnership creditors.--- they attach the partnership property.
(Note: personal creditor cannot attach; only creditors of the partnership may
attach)

Q: what again is the second right?

A: interest in the partnership
Q: namely?
A: share in the profits and share in the surplus
Q: may creditors of the partner (personal creditor) attach this?
A: Yes.
Q: if you allow them to go after the profits, will it jeopardize anyone?
A: no, because you are only after the share of the certain partner
REMEMBER THAT PROFITS HAVE ALREADY BEEN IDENTIFIED. EVEN BEFORE
DISTRIBUTION SO LONG AS THERE IS PROFITS
Q: distribution of losses?
A: look at previous notes (agreement as to losses; in the absence of such,
same with the agreement as to profits; if none, in proportion to the capital
contribution)
If there are shares in the profits get it, if there are none then wala. Because
we know that that is his (a certain determinate portion of the profits goes to
you)
Q: how about surplus?
A: partner is entitled to the surplus thus creditor can go after.
Q: Partner D in the course of his nightly activities met a woman who nine
months after they met gave met who exactly look like d. (for specific
property) --- asking for support
A: NO. 1811
(4) A partner's right in specific partnership property is not subject
to legal support under Article 291.
Q: can he assign his rights over specific property?
A: cannot assign
Q: share in profits, assign?
A: yes. He can assign
Q: what are the RIGHTS OF THE ASSIGNEE?
A: the rights of the assignee are as follows:
1.
to receive in accordance with his contract the profits accruing to
the assigning partner
2.
to avail himself of the usual remedies provided by law in the event
of fraud in the management
3.
to receive the assignors interest in case of dissolution
4.
to require an account of partnership affairs, but only in case the
partnership is dissolved
Q: can a partner assigns his interest? He assigns the entire 25%
A: in whole or in part, it does not result to dissolution of the partnership
upon assigning your interest to another. .
Q: can the assingee now claim that he will now have given the right to
manage becase he acquired the interest of one partner?
A: NO.
Q: so that the assignee assumes all the interest the partner but cannot
exercise the rights of a partner? When can he exercise the right?
A: only when there is fraud, he can now look into the books and when there
is dissolution of the partnership
Q: if the assignee constantly visits the office so that other partners are
irritated. So that here, how do you think the other partners will feel?
A: irritated
Q: so if that is the feeling of other partners, what can they do?
A: Redemption. They can redeem the assigned share.
Q: how is redemption done?

18

angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

A: done through their separate property or property of the partnership.

Provided that the partners who did not incur an obligation to that creditor
express their consent to offer the property of the partnership. (CONSENT OF
ALL THE PARTNERS)

Article 1817
Any stipulation against the liability laid down in the preceding article shall
be void, except as among the partners

Q: MERE assignment of partners interest will not result to dissolution of the

partnership.

Q: so insofar capitalist?
A: no distinction between liabilities and losses.

NAME OF PARTNERSHIP
Q: whats in a name? why are you given a name?
A; to identify

Q: but can they not agree that capitalist partner to be exempt from losses
A: there is an opinion as regards to agreement to enter into the partnership.
If that is the very reason why such partner would invest, then they can be
exempted. (potential partner) --- sir agrees with this opinion.
(q: what is the risk? He is not exempted from liabilities.)

Being a juridical person, the partnership needs to bear its own name
Q: how should that partnership be named?
A: named after one or some or all of the partners consisting the partnership.
May also include the name of another person not a partner and such person
may be made liable to third person who believed that he is a partner
Q: so if you include and you are not a partner?
A: liable as partner by estoppels.
Q: moral lesson?
A: do not agree to allow them to use your name in the partnership
Q: ABI are partners and instead of profits, they suffered losses. If they suffer
losses, what happens to the industrial partner?
A: IP are not liable for losses.
Q: the suppliers of ABI demanded payment of 3M but can only collect 2M. AB
are gone and cannot be found, leaving I in the Philippines. Supplier is
demanding payment of the balance?
A: the supplier can only collect 1/3 of 1M because in cases of liability from
the industrial partner, the IP is not exempt from liability to third person. He is
liable pro rata --- equally and jointly
Q: so the poor industrial partner can be made liable?
A: yes
Q: but he is exempted from losses. But is that not a loss, 2m assets, 3m
liabilities
A: exemption from losses of IP is only among the partners but this is not so as
regards or insofar as third parties concerned --- here he can be compelled to
share in paying the liabilities but he will get reimbursemet from the other
partners.
--- this is how you reconcile (look at kwins notes page 25)
As far as third persons are concerned, the agreement of exemption of losses
does not extend to them. Such exemption will apply only among the partners
Q: how do we again distinguish liabilities from losses? (daghan na tawag); is
loss therefore identical to insolvency?
A: look at above explanation.
Q: is loss therefore identical to insolvency? What is the difference again of
liability and loss?
A:
Liability inability to pay to persons who are not part of the partnerhips.
This is among third person
Loss what you incur after settling your accounts to the third persons. This is
among us partners
There are situations then that industrial partner are exempted from losses.
That is the accurate distinction between liabilities and losses.
Q: so that any greement among the parties exempting anyone from losses,
what is it?
A: void except as regards Except IP.
19

But the other view: If you dont want to be liable with losses then you really
dont have the intention to be a partner because to become a partner entails
sharing with the losses of the partnership.
Q: do you think creditors can be bound by exemption on losses? Can they
compel for payment?
A: yes they can compel payment. That partner who is supposed to be
exempted still has the right for reimbursement.
PARTNER ASSUMES THE RISK BECAUSE THIRD PARTIES ARE ALWAYS
PROTECTED.
July 27, 2011
So that if a partner assigns his entire interest in the partnership?
A: it will not result to the dissolution the partnership. The assignee will only
acquire his rights with regard to his share in the surplus and profits
Q: so that if the partnership incurs losses, what is the liability of the
assignee?
A: he is not liable for losses because he is not considered a partner.
Q: what is he entitled to then?
A: what is assigned is the interest of the partner which includes the partners
share in the profits and the surplus. It never includes liability in the share in
the losses.
Q: so that if there is now a conflict between the assignee of the partner and
the creditors of the partnership, how do you think will that conflict be
resolved?
A: creditors of partnership should be preferred over the assignee only as
regards specific property.
So far as the share in the profits and surplus of that certain partner, the
assignee is given preference. However, if specific property, the creditor of
the partnership is preferred because the property is owned by the
partnership
Q: how is the liabilities settled among the partners?
A: it settled pro rata--- jointly and equally ---- including the industrial partner.
Q: how did we explain the exemption from loss of IP but not in liability?
A: liability is different from loss in such a way that it involves payment to
third persons. It does not necessarily equates to loss
Q: so that if one partner who was driving a partnership car pursuing
partnership deal and along the way he hit a pedestrian and was brought to
the hospital. And the pedestrian incurred hospital expenses, how should the
partners be liable?
A: it should be pro rata. However, when the incident talks about torts then
the liability is solidarily.
Since it was the fault or negligence of the partner then the other partners are
liable solidarily. It is based on public policy.
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

First distinguish where the liability arose.

If it arose from a contractual obligation then pro rata/ joint or equal liability
If it arose from a wrong doing/ tort then the liability is solidarily provided it
is in connection to the interest of partnership.
Five sources of obligation:
A: law, contracts, quasi contracts, delict, quasi delict
Q: what are quasi delicts?
A: article 2176. Whenever there is fault or negligence resulting to damage to
someone, he shall be liable for damages

In selling the building it was not binding because it was an act of dominion
and such act is not in the usual way of the business.
In the chocolate situation, there was no need to acquire consent because it is
in the usual business. (ex. Grocery)
The sale of the building is not binding not only because it is an immmovable
but because it is not in the usual course of the business. So third parties
should be aware whether the partnership is engaged in that business.

Q: what is delict?
A: liability arising from a crime

Q: however, if they are engaged in subdivisions. Can one sell the partnership
and bind the partnership
A: yes because it was in the usual course of his business.

Quasi delict is mere negligence; punished not because of the intention but
due to absence of due care --- reparation for the damages. Crimes are acts or
omissions punishable by law.

It is more of emphasizing the fact that it was a usual course of business. Or if

not usual course, the third person has no knowledge that the partner has no
authority to dispose of said property.

Q: why do you punish quasi delict?

A: what is being punished is not the intention rather the lack of due diligence
required by the circumstance (lack of observance of the standard of care)

GR: acts of partner is binding (usual course and has authority)

EXC:
1. not in the usual course of business
2. or person has no authority
3. and that lack of authority is known to the third person

In crime there is an intention, in quasi crime there is no intention.

Q: what is the distinction again between the liabilities?

A: contractual obligations towards third persons are pro rata
If crime liaibility is solidarily
Q: what is the source of the obligation?
A: in article 1816 the source of obligation is the contract; in article 1824, the
source is the law or public policy
Note: so the distinction of the nature of liability arises in the source of
obligation.

Q: as a matter of fact, we were trying to discuss when unanimity is required?

A: 1818
(1) Assign the partnership property in trust for creditors or on the
assignee's promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on
the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or
liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership

Q: so we have established that in the absence of designated of manager or

how the business is to be managed? How is it managed?
A: all partners can manage the partnership. And therefore every partner is
considered an agent of the partnership. And every act performed by one
binds the other partners. Each act of the partner binds the partnership

Q: in all these seven instances, what is the common denominator?

A: these are acts of dominion or ownership --- and as we have said, if it
involves acts of ownership, unanimity is required to be binding.

Q: so if the partnership sells the administration building, that act of selling is

binding?
A: no. it will only be binding if all the partners will consent to such act

To summarize lets go back to the general rule

In the absence of a managing partner, all partners are considered
managers and therefore their acts can bind the partnership
Unless it is not the usual course of the business, no authority, and
lack of authority is known.

In other words, the authority to act or bind the partnership applies only to
administrative acts. (administrative transactions)
Q: I thought he could act alone and bind the partnership, why does he need
to have the consent of the others?
A: he can only bind the partnership regarding acts of administration. But as
regards acts of ownership or dominion, it cannot bind the partnership
without the consent of everyone (unanimous consent).
Q: this time what he sold was a piece of chocolate, he took one from the jar
and looked at the price and sold it to the public, he did not have consent to
sell the chocolate, can he sell or not?
A: yes if it is in the usual way of business If you are not engaged in selling
properties, then you cannot sell your building unless authorized by all the
partners.
--- look at second paragraph of Art. 1818
An act of a partner outside the usual course of the business does not bind
the partnership absent the consent or abandonment of other partners. The
partner can only act if he act is in the usual way of the business and he has
authority to do so.
20

Q: what do you mean when we say confession of judgment?

A: when you admit liability
Q: what is disposal of goodwill?
A: you use the reputation of the business
Q: as we said ownership involves?
A: the disposition, possession, and use of the property. If you have this you
are an absolute owner
Being an absolute owner, you are given title
Q: as distinguished to naked ownership?
A: you do not have absolute control of the partnership.
It is when you lack possession of the property and you cannot use the
property. (ex. lessor) --- naked ownership is absolute ownership minus
possession and use
Q: Thus full minus naked?
A: you only have the right of disposition of the property.
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

Q: If the lessor is the naked owner, the lessee is?

A: equitable owner or beneficial owner
So three types of owner
1. absolute/full you are entitled to the title to the property as distinguish
from an equitable title (only an interest in the partnership)
2. naked
3. beneficial
Q: what is the meaning of equitable interest?
A: beneficial owner --- right to use, possess and right to the fruits. As
distinguished from naked owner who cannot benefit the use, possession and
fruits.
A partnership property, on the other hand, may be registered in the name of
whom?
-in the partnership name
-in one but not all partners
- In the name of all
Q: what is the ideal way for the partnership to convey the property? What is
the best way to show that intention?
A: IDEAL IF REGISTERED IN THE NAME OF THE PARTNERSHIP AND SELL IT IN
THE NAME OF THE PARTNERSHIP, SIGNED BY ALL THE PARTNERS
HERE THE CONVEYANCE IS VALID
Q: ideal, if conveyed in partnership name, who will sign?
A: it must be signed by the all of the partner (sell in the name of the
partnership signed by all)
Q: IF IN THE NAME OF THE PARTNERSHIP, MAY IT BE CONVEYED IN THE
NAME OF THE PARTNERSHIP SIGNED BY ONE PARTNER?
A: Yes, it is a valid total conveyance. However, It can be revoked if it is not in
the usual course of business, lack of authority and third person has
knowledge of the lack of authority.
Q: IT WAS IN THE NAME OF THE PARTNERSHIP BUT THIS TIME, IT WAS
CONVEYED BY ONE PARTNER BUT NOT ALL, BUT IN HIS NAME. WHAT
HAPPENS?
A: what is conveyed is the equitable interest.
Q: what is transferred?
A: the right of the buyer to compel the other partners to sign the
conveyance. What is transferred so far is the equitable title or beneficial
ownership.
Q: It is defective. it is not a complete transfer. In this case what should be
done?
A: The buyer can go and find the partners and compel them to cure the
defect

THE THIRD SITUATION IS WHEN THE PROPERTY WAS IN THE NAME OF ONE
OR SOME BUT NOT ALL AND IT WAS CONVEYED BY THOSE PARTNERS WHOSE
NAME APPEARS ON THE TITLE --- on its face its valid. Because it signed by all
partners who appeared as owners of the property.
In partnership property what is required to transfer? Unanimity
Thus we note that if the property was in the name of one or some but not all
and it was conveyed also by those whose names appear on the title, then it is
valid because it was signed by all partners who appear as owners of the
property.
In our situation, it was conveyed by partners who appeared as owners, the
law says that we have to honor the conveyance. Unless it was not in the
usual way of business, the partners who conveyed did not have authority and
the person to whom it was transferred had knowledge of lack of authority.
21

Q: It may also be registered in the name of one some or all or in a person

who is not a partner. In what capacity is that person holding the property?
A: As a trustee
Q: Therefore, if he conveys the property, what is transferred?
A: what is transferred is only the equitable interest
subject to the three conditions to validly transfer such interest
Since what is transferred is only the equitable title, the person may compel
the partners to later on perform their part to sign the conveyance so that his
title will be converted to absolute title.
Q: On the other hand, the act of a partner may not only involve disposal or
conveyance of property but in his capacity as an agent of the partnership he
can bind the partnership in some other way.
So that, if a partner, in a case where the partnership was sued in court and
there was a need to present accounting records of the partnership and one
partner testified there, does it bind the partnership?
A: There are three requisites so that his testimony will be binding to the
partnership --(1) such admission was in his scope of authority
(2) admission was made during the existence of partnership and at the time
of admission he was still a partner
(3) the statement made must be in relation to the business of the
partnership
Q: Partner was sued by wife. Another partner was called to testify. There was
an admission made by the partner. Does admission bind the partnership?
Will the partnership be bound to remit the share of partner who was sued?
A: No, because it did not meet the requisites. The issues does not relate to
the course of business of the partnership
Q: If she was an accountant and she testified regarding the accounting in the
partnership?
A: Yes, it will bind the partnership as long as the requisites are complied with
Q: If she testified about an event that happened in 2010 and in 2011 she is
no longer a partner, is that binding?
A: Yes. We just have to remember that the admission must be made while
she is still a partner.
Notice to a partner is notice to the partnership because of the nature of
partnership being fiduciary in nature and founded on trust and confidence,
whatever notice is given to one he or she should communicate it to others
Joint liability of the partners would arise if the transaction was contractual
unlike if the source is crime or quasi-delict where the liability of the
partnership is solidary with the erring partner.
Q: The partner after having fun with barkada, ran over pedestrian using the
partnership car. Judgment was rendered requiring him to pay the hospital
and medical expenses. He said he will pay this but he will involve his partners
because they are solidary. When the parents went after him he was
insolvent. Resolve.
A: Vicarious liability does not apply because the act was not in the usual way
of business of the partnership. It is not sufficient that there was negligence, it
must be established that such act was done while the partner was
performing partnership business.
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

Q: In cases of defalcation, or misappropriation?

A: The partnership is liable for the act of the partner if such fund was already
remitted to the partnership.
The source of obligation here is a crime because there was intention.
Q: when does partner by estoppel occur? Partnership by estoppel?
A: Partner by estoppel happens when a person represents himself as a
partner of an existing partnership, with or without the consent of the
partnership.
Partnership by estoppel when a person claims to be a partner in a
partnership which is inexistent.
When could a partnership be liable?
- When one, some or all consents to the representation of the person
claiming to be a partner.
Q: True or False, if there is a partner by estoppel we have a partnership by
estoppel?
A: not necessarily.
Q: If there is a partnership by estoppel then we have a partner by estoppel?
A: yes because in this case, there are those existing partners who will have to
consent

A: No. In confession of judgment you are confessing to facts and liabilities of

partnership. However in admission, it is not necessary a confession of
judgment. It may be that it is just a narration of what transcribed.
DISSOLUTION
Q: Does this refer to the death of the partnership? Is this the extinguishment
of the partnership?
A: No. You have to go through the winding up. It is only after the winding up
of partnership affairs that termination occurs
Q: when we say therefore dissolution, what do we refer?
A: change in relations of partnership. One partner no longer wants to be
related to the partnership.
Q: when we say that a partnership is dissolved, do we mean that it ceases to
exist?
A: No, it does not cease to exist. However, it only exists for the purpose of
winding up only and to satisfy or complete or settle unfinished business
In short dissolution is merely the change in relation of partners. It is about to
cease but it continues to exist
Q: upon dissolution, can it enter into a new contract?
A: It can enter but only to those contracts which are intended to WIND UP or
to SETTLE UNFINISHED BUSINESS.
Q: can it accept contract of ordering new ships?
A: As a general rule, No. But if the ordering of new ships is for the satisfaction
of old transactions, then it may be permitted. You cannot enter into a
contract which would result to a new obligation.

NEW PARTNER
New partner is admitted only with the consent of all other partners.
Q: what is the Extent of liability of new partners?
A: If the transaction occurred before he became partner, his liability is only
what he contributed. If transaction was after he became partner then liability
would extend to his separate property.

July 30, 2011

Q: how did we define title?
A: absolute ownership of the property (use, dispose, possess)
Q: as distinguished from?
A: naked ownership only the right to dispose
Q: beneficial ownership?
A: only the equitable interest is given to you
Q: title equitable interest = ?
A: naked ownership
Q: naked ownership + equitable = ?
A: full ownership or absolute title

Q: could they hire a new lawyer? New Accountant?

A: if it is intended to wind up, then it is allowed.
Q: so that if dissolution does not extinguish the existence of a partnership,
when do we say that a partnership no longer exists?
A: it is only at the point of termination that the partnership no longer exists
Q: what is winding up?
A: settling the accounts of the partnership and finishing existing obligation
Q: what are the causes of dissolution?
A:
Art. 1830.
Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good
faith, when no definite term or particular is specified;

Q: when you talk of the liability of a new partner before his admission, how
do we describe him?
A: he is a LIMITED PARTNER liable to the extent of his contribution

(c) By the express will of all the partners who have not assigned
their interests or suffered them to be charged for their separate
debts, either before or after the termination of any specified
term or particular undertaking;

Q: After his admission?

A: he will now be considered as a GENERAL PARTNER. Liability extends to his
personal property

(d) By the expulsion of any partner from the business bona fide
in accordance with such a power conferred by the agreement
between the partners;

Q: Admission by a partner is a confession of judgment? Are they one and the

same?

(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;

22

angels notes
BUSINESS ORGANIZATION I
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(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 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 the
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. (1700a and 1701a)
Q: when we talk about a dissolution which is not violative of the agreement,
what are sample instances?
A:
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good
faith, when no definite term or particular is specified;
(c) By the express will of all the partners who have not assigned
their interests or suffered them to be charged for their separate
debts, either before or after the termination of any specified
term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide
in accordance with such a power conferred by the agreement
between the partners;
Q: if there was a term?
A: it will be dissolved automatically.
Q: partnership can also be dissolved in a manner which is violative of the
earlier agreement. What could that be?
A: any act that would violate what is in the articles of partnership. Example is
when a partner withdraws from a partnership when in fact there was a fixed
term or particular undertaking that the partnership should comply or finish -- but only if there is bad faith
Q: if there is bad faith?
A: such partner will be liable for damages
Q: any other cause of dissolution?
A: partner dies or becomes insolvent; the contribution of the partner, who
continues to posses ownership, is lost; Civil interdiction; any event which
would turn the transaction of the partnership unlawful.
Q: what is insolvency?
A: happens when your liabilities are more than your assets.
Q: civil interdiction?
A: someone who cannot enter into contracts. Deprived to exercise your civil
rights.
Q: what are your civil rights?
A: in relation to partnership, to enter into a contract.
Q: so why do you think person suffering from civil interdiction would result
to dissolution?
A: he could no longer exercise his functions as a partner. He has no control
over his properties. His properties cannot be subject to liabilities thus could
prejudice third persons. Further, one who is without capacity to manage his
own property should not be allowed to manage partnership properties.
23

Also there are instances when the consent or unanimity of all the partners is
required. And when unanimity is required he should give his consent, but a
person in civil interdiction cannot freely give his consent.
Q: why can a partners insolvency be a ground for dissolution?
A: because he could no longer comply with subsequent contributions which
are necessary.
Creditors should be protected by the properties of partners. If partners are
insolvent, third parties are no longer protected.
Q: so another ground is when the business of the partnership has become
unlawful. Example?
A: mining business, then congress declares such act as no longer permissible.
Then it has become unlawful
Q: is that not a violation of non impairment of contracts?
A: as long as it is in the course of police power.
August 3, 2011
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
Q: what do you mean by insolvency?
A: you have more liabilities than your assets
Q: do you need a courts declaration for insolvency?
A: NO because it is not provided for in article 1831. Further, because you can
prove it by documentary evidence. A courts declaration is only necessary if
there are facts which are questionable. But if the records are valid and
legitimate then you dont have to go to court.
Q: how do you establish insolvency?
A: your liabilities are greater than your assets; by checking the financial
capacity of such partners. You check the documentary records
Q: when is courts order necessary?
A: Refer to the article below
Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
(1) A partner has been declared INSANE in any judicial
proceeding or is shown to be of unsound mind;
Q: why insanity?
A: because it is a question of fact. You have to proof it to be judged as such.
Q: Lets talk about the stages of being drunkfrom this incident we
distinguish, where court declaration are necessary and when it is not. Among
the instances when court declaration is required is insanity, when a person is
insane, it has to be established. Insanity is very similar to drunkenness.
WHICH OF THE STAGE OF BEING DRUNK WILL CAUSE DISSOLUTION?
A: none of this is a reason for dissolution. Insanity is not equal to
drunkenness. For purposes of dissolution, it will never equate.
Q: insanity in this case speaks of what?
A: when recovery cannot happen soon or there is absence of the possibility
that sanity can still be recovered.

(2) A partner becomes in any other way incapable of performing

his part of the partnership contract;
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

Q: how could no. 2 happen?

A: physical incapacity can be a ground in this case.
Example: you are paralyzed, you cannot give your consent like signing papers
or documents.
Example: you are engaged in repair of automobile, but you entered into a
fight and you loss your hand. You can no longer repair.

A: the law does not provide that it should be actual loss. So long as they can
establish that under the circumstances the loss is imminent. Potential loss is
enough and no need for actual loss.
(6) Other circumstances render a dissolution equitable.
Q: what other grounds are there to cause dissolution?
A: purchase of partnership interest

Note: incapacity must be long lasting and not just temporary. In law when we
talk of incapacity it is when the person is no longer able to perform task in
relation to the usual course of business --- INCAPABILITY

Q: if assigned, does the assignee become a partner?

A: No, the assignor remains to be the partner

Q: When one is incapacitated, what does it connote in law?

A: there is no contract at all. Incapacity or lack of legal capacity is what is
referred by such term (ex. not of legal age, thus incapacitated to enter into a
contract)

Q: we said that as a partner, only the assignor exercises the right of a

partner, including the right to seek dissolution. But here is an instance that
the assignee is given by law a right which is exercised only by a partner. What
right is that?
A: right to seek judicial dissolution.

In here, we talk about incapability. Therefore what is contemplated here, you

cannot perform what you are tasked to perform. You can no longer provide
your time, effort and/or ability which are necessary to perform your
obligation in the partnership.
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
Q: example of this?
A: misappropriation of partnership funds, rendering of false accounts
Q: how can this conduct be prejudicial to the partner?
A: it is a serious misconduct

Q: provided?
A: at the time of assignment, the partnership was a fixed term partnership
but it was continued without liquidation upon expiry of such term. Simply
stated, after the partnership has become converted into a partnership at will
Q: with all this grounds to dissolve, what happens to the partnership this
time?
A: AUTHORITY TO TRANSACT IS TERMINATED but it continues to exist and
can enter only to transactions for winding up or for finishing transactions
already existing
Upon dissolution, the authority of the partner is now terminated.
Q: in short?
A: the partner can no longer act as regards new transactions

--- ANOTHER TOPIC--Q: loss of the thing is said to be a ground for dissolution?
A: Yes. But it will depend on what kind of thing is lost and when it was lost.
If SPECIFIC THING IS LOST BEFORE DELIVERY, it will cause the dissolution of
the partnership. But if it is ALREADY DELIVERED BEFORE IT WAS LOST, then
no dissolution happens because this time, the partnership bears the loss.
If GENERIC THING, there is no dissolution regardless of the period of its loss.
He can always replace that thing. Genus does not perish.

(4) 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;
(5) The business of the partnership can only be carried on at a
loss;
Q: so that if the business of the partnership, although at this time is still
profitable, but in view of the coming in of big competitors, they feel that
somehow they would not survive business anymore, is this a ground for
dissolution?
th

Q: except?
A: related to winding up of partnership affairs, or completion of already
existing transaction.
Q: moreover, there is what we call continuous liability despite dissolution.
Each partners continues to be liable even if already dissolved and the
transaction is not related to winding up or completion. What are these
instances?
A: when the cause of the dissolution is the act, death or insolvency of the
partner, where the partner acting has no knowledge or notice of the
dissolution then transactions are binding as regards the other partner
Act --- knowledge
Death or insolvency --- knowledge or notice
Q: as to third parties, they can still be bound under certain circumstances?
What circumstances?
A:
a. for winding up or completion of existing transaction
b. if the third party has extended credit and such party does not know of the
dissolution
c. no a previous credit was extended, third party knows that the partnership
existed before the dissolution and the fact of dissolution had not been
published in a newspaper of general circulation

REVIEW ON CONTINUING LIABILITY OF THE PARTNERSHIP

GR: upon dissolution the partnership has no longer the authority to enter
into contracts

A: yes, it is a ground based on this 5 provision of article 1831.

Q: but there is no loss yet?

24

EXCEPT :
1.
winding up
2.
for completion of previous transactions
angels notes
BUSINESS ORGANIZATION I
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Addition:
Change in parties may either be the creditor or debtor
3.

4.

rd

3 persons who have extended credit to the partnership prior to

the dissolution and did not know of the dissolution of the
partnership
Such party did not extend credit and he had no knowledge of
dissolution because such fact of dissolution was not advertised or
published in a newspaper of general circulation (but in this case,
he must have knowledge of the existence of the partnership prior
to its dissolution)

Q: partners are liable for obligations, what is the nature again of the
partnership?
A: if contractual --- joint and equally
If crimes and quasi delicts --- solidarily
Q: so that after the dissolution, there remain individual obligations either
arising from a contract or quasi delict or defalcations or fraudulent
transaction, here the liability of the individual party, will this be
extinguished?
A: no it remains.
Q: however it may happen that that liability may be extinguished because of
the dissolution. How could this happen?
A: article 1835 --- if there is an agreement to such
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 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.
Q: upon dissolution partnership still owes X based on a contract. Can x
demand payment?
A: yes.
Q: how much can he demand from A, B, C?
A: the full amount of 3M. 1 M for each because the obligation is contractual
Q: so that C was no longer interested to pursue the partnership. A and B
agreed to continue. So A and B continued without C. can X still go to C later.
A: second paragraph of 1835
So as to remove Cs liability, there should be an agreement among the
partners, the creditor and the old partner, as regards such extinguishment of
liability.
To extinguish Cs liability A, B and C should agree and X and the partnership
itself should agree.
Q: A and B told C to forget his share. But when X demanded from A and B
including the share of C, A and B said we dont have the money. X went to C.
Can X still compel C to pay him?
A: if X did not agree on the agreement, he can still collect. Because there was
no novation. Novation only happens upon the consent of the creditor
Q: what happens in novation?
A: extinguishment of an old obligation, and a creation of a new obligation.
There is a change in the subject matter of the contract and/or the person of
the creditor and the debtor.
25

Q: in this instance, what is novated?

A: change in the person of the debtor. (personal novation)
Q; for a change in debtor to be effective, what is necessary?
A: consent of the creditor, who is x. and the debtors who are A, B, C. (C
(released debtor), X and the partnership should consent (which is A and B))
Q: how is winding up done? (page 246-247)
A: two manners: (liquidation of the partnership)
1. judicially
2. extrajudicialy
Q: who has the authority to wind up?
A: liquidating partner
Q: who is the liquidating partner?
A: any surviving partner. Provided that there is consent
The persons authorized to wind up are:
1. those authorized to the agreement whoever is designated
2. In the absence of such agreement, all the partner who have not wrongfully
dissolved the partnership --- if everybody is still alive, anyone so long as he is
not guilty of the wrongful dissolution
3. The legal representative of the last surviving partner who are not
insolvent--- the last surviving partner (extreme situation) --- if everyone is
dead
In judicial winding up, the court may appoint a receiver for the winding up of
the partnership
Q: what is the function of the receiver?
A: to administer the assets of the properties. He will gather all the assets and
pay all the liabilities.
Q: so once dissolution is done, what are the rights of the partnership after
dissolution?
A:
Rights Where Dissolution is Not in Contravention of Agreement
1.
To have the partnership property applied to discharge the
liabilities of the partnership
2.
To have the surplus, if any, applied to pay in cash the net amount
owing the respective partner
Note: When dissolution is caused by a bon fide expulsion, such expelled
partner may be discharged from all partnership liabilities either by PAYMENT
or by an AGREEMENT between him, the partnership creditors, and the other
partners
Rights Where Dissolution is in Contravention of Agreement --- depends if
you are the innocent party or not
1.
Rights of partner who has not caused the dissolution wrongfully:
a.
to have partnership property applied for the payment
of its liabilities and to receive in cash his share of the
surplus
b.
to be indemnified for damages caused by the partner
guilty of wrongful dissolution
c.
to continue the business in the same name during the
agreed term of the partnership, by themselves or
jointly with others
d.
to possess partnership property should they decide to
continue the business
2.

Rights of a partner who has wrongfully caused the dissolution:

a.
If the business is NOT CONTINUED --- to have the
partnership property applied to discharge its liabilities
angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011

b.

and to receive in cash his share of the surplus less

damages caused by his wrongful dissolution
If the business is CONTINUED
i. To have the value of his interest in the
partnership at the time of the dissolution,
less any damage caused by the dissolution
to his co-partners, ascertained and paid in
cash or secured by bond approved by the
court
ii. To be released from all existing and future
liabilities of the partnership

Note: Guilty partners, in ascertaining the value of their interest, the value of
the GOODWILL of the business is not considered (as penalty for their bad
faith)

Q: Who could be the debtors of the partnership?

A: (nag CR ko, wa ka kuha si ninjo)
Q: what are the liabilities of the partnership and what is the order of
preference in payment of liabilities?
A:
Order of application of the Assets
a.
First, those owing to partnership creditors
b.
Second, those owing to partner other than for capital
and profits such as loans given by the partners or
advances for business expenses
- Loans and advances are not capital; nor are
undivided profits, unless otherwise agreed
c.
Third, those owing for the return of the capital
contributed by the partners
- Capital represents a debt of the firm to the
contributing partners
- The return of the amount equivalent to the
capital contribution of each partner shall be
increased by his share of undistributed
profits or decreased by his share of net
losses
d.
Finally, if any partnership assets remain, they are
distributed as profits to the partners in proportion in
which profits are to be shared
Q: so that, the law seems to discriminate between partner who are guilty and
those who are innocent. Whats the difference in so far as the rights are
concerned?
A: refer to the discussion made above
Q: what did you notice on the rights?
A:
1. Guilty partner has no right on the good will
2. They also have no right to specific partnership property (no right to
possess the partnership property)
3. No right to continue partnership business
4. They are also liablie for damages
Q: how do you pay damages?
A: the value of interest less the damages (deduct from the interest)
The damages should be deducted from the share of the guilty partners
Q: so that in the agreement, the winding up must be done and approved by
2/3 of all the partners holding the controlling interest. Without the 2/3 votes,
can they dissolve? How
A: Since they cannot violate their own agreement as regards the WINDING
UP PROCEDURE (because we said that winding up is first subjected to the
agreement of the parties), then you have to GO TO COURT.

26

Q: WE said that as a contract, it may be rescinded if there was fraud or

misrepresentation. Once rescinded what could be the rights of an innocent
partner?
A: article 1838: LIEN, SUBROGATION, INDEMNIFICATION
(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. (n)
Q: what is a lien?
A: the right of the partner to retain the surplus if there is any
Q: why give him the right to lien and not anyone else?
A: Because it is possible that the partner has made advance contributions for
the partnership, he therefore has a lien so that he can be properly be
refunded or reimbursed
Q; what is the right of subrogation?
A: before partnership is rescinded there have been obligations arising from
innocent partner who may have extended payment to creditors. In that case,
the innocent partner should be subrogated to the rights of the creditors.
Q: what happens in subrogation?
A: you shall take the place of the creditors. Step into the shoes of the
creditor so it is a type of novation, there is a change of creditor
The innocent partner has paid the creditor of the debt of the partnership.
And because he paid the creditor, he should be subrogated to the right of the
creditors --- he is now the new creditor and should ask payment from those
partner who has not paid
Q: what is the right of indemnification?
A: the innocent partner has the right to be indemnified by other partners
against all debts and liabilities of the partnership.
Q: how do we settle the accounts of the partnership
A: article 1839
First, Identify all the partnership assets --Q: what constitute this assets?
A: (1) Properties of the partnership, (2)good will, (3)contribution
of the partnership necessary for the payment of all the liabilities
specified
Q: as partners, as to what extent are they liable?
A: General partners up to the extent of their personal properties. If limited,
only up to their contributions
Q: if there are more liabilities than assets?
A: In this case, the partnership assets shall be exhausted to satisfy these
liabilities. As regards the unpaid balance, the partner shall then contribute to
the loss, in the absence of an agreement to the contrary
Q: now we have all the assets, how do we proceed with the payment, who
gets paid first?
A: repeat 1839 (2)
angels notes
BUSINESS ORGANIZATION I
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Q: there could be a problem if after the dissolution some partners may

decide to continue the business. What happens in this case?
A: Article 1840. Unless settled, old creditors remain to be creditors of the
new partnership

Q: who are the persons liable to render an account?

A:
(1) the winding up partner
(2) the surviving partner
(3) person or partnership continuing the business

Q: if there is a conflict?
A: they will apply for the preferential rights of them as creditors.
Q: what is the extent of claim of a new creditor?
A: the same of that of an old creditor.
Q: in so far as creditor of a deceased partner?
A: you can go after the estate or personal assets of the deceased partner
Q: retirement or death can cause dissolution of the partnership. What would
happen to the share?
A: there should be a liquidation
Q: how is this done?
A: the liquidating partner should conduct the liquidation and not the
executor of the deceased partner
Q: however, even if the partner died, they may agree among themselves as
regards the heir that they can withdraw their shares a little later. They would
allow the partnership to pursue the businesscan this be done?
A: yes
The heirs can say that the interest of their predecessor can remain.
Q: but while being there what will happen?
A: there should be interest for the period that such share remains in the
partnership. Just like a deposit in the bank.
The law requires the partnership to account any interest that that share of
interest of the deceased partner may have acquired
Q: rate of interest?
A: legal interest 12 % per annum
Q: once there is settlement of the properties, and the assets of the
partnership is not sufficient to satisfy debts, we have preference, what again
is the order?
A: 1839
(2) The liabilities of the partnership shall rank in order of
payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and
profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
Q: where does the deceased partner be part?
A: the estate is just an ordinary creditor; part of number 1
The estate of the deceased partner has preference as other partners. But as
regards third person, the third person has preference.
Q: why third person is preferred?
A: because liability to third person creditors has already been fixed before
the share of the deceased partner. In order to know the deceased partners
share you have to have liquidation of the shares which include settlement of
debts to third party creditors.
Q: third party creditor vs. deceased partner insofar as his interest to the
partnership which is preferred?
A: mhealler ycong they have equal standing because the status of the
deceased partner insofar as his interest to the partnership is concerned is
now treated as an ordinary credit.
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angels notes
BUSINESS ORGANIZATION I
Where Were We --- June 18, 2011