PARTNERSHIP Art. 1848.

Nevertheless, Timothy is entitled to monthly sales reports in

connection with the business, a right enshrined in Art. 1851 of the Civil Code.
Contract of Partnership
Q: A, B, and C entered into a partnership to operate a restaurant
Q: Timothy executed a Memorandum of Agreement (MOA) with business. When the restaurant had gone past break-even stage and
Kristopher setting up a business venture covering three (3) fast food started to garner considerable profits, C died. A and B continued the
stores known as "Hungry Toppings" that will be established at Mall business without dissolving the partnership. They in fact opened a
Uno, Mall Dos, and Mall Tres. branch of the restaurant, incurring obligations in the process. Creditors
started demanding for the payment of their obligations.
The pertinent provisions of the MOA provides:
1. Timothy shall be considered a partner with thirty percent (30%) A. Who are liable for the settlement of the partnership’s
share in all of the stores to be set up by Kristopher; obligations? Explain?
2. The proceeds of the business, after deducting expenses, shall
be used to pay the principal amount of P500,000.00 and the B. What are the creditors’ recourse/s? Explain. (2010 BAR)
interest therein which is to be computed based on the bank A:
rate, representing the bank loan secured by Timothy; A. The two remaining partners, A and B, are liable. When any partner dies
3. The net profits, if any, after deducting the expenses and and the business is continued without any settlement of accounts as between
payments of the principal and interest shall be divided as him or his estate, the surviving partners are held liable for continuing the
follows: seventy percent (70%) for Kristopher and thirty percent business provided that A and B had knowledge or notice of the death of C (
(30%) for Timothy; Art. 1841, 1785, par 2, and Art 1833).
4. Kristopher shall have a free hand in running the business
without any interference from Timothy, his agents, B. Creditors can file the appropriate actions, for instance, an action for
representatives, or assigns , and should such interference collection of sum of money against the “partnership at will” and if there are no
happen, Kristopher has the right to buy back the share of sufficient funds, the creditors may go after the private properties of A and B (
Timothy less the amounts already paid on the principal and to Art 1816). Creditors may also sue the estate of C. The estate is not excused
dissolve the MOA; and from the liabilities of the partnership even if C is dead already but only up to
5. Kristopher shall submit his monthly sales report in connection the time that he remained a partner ( Art. 1829, 1835, par 2; Testate Estate
with the business to Timothy. What is the contractual of Mota v. Serra, G.R. No. L-22825, February 14, 1925 ). However, the
relationship between Timothy and Kristopher? (2014) liability of C’s individual properties shall be subject to the prior payment of his
separate debts ( Art. 1835, par 3).
A: ​The contractual relationship between Timothy and Kristopher is a contract
of partnership (Art. 1767) since they have bound themselves to contribute Rights and Obligations of Partnership
money, property or industry to a common fund, with the intention of dividing
the profits of the partnership among themselves. With a seed money of Q: Joe and Rudy formed a partnership to operate a car repair shop in
P500, 000.00 obtained by Timothy through a bank loan, they agreed to divide Quezon City. Joe provided the capital while Rudy contributed his labor
the profits, 70% for Kristopher and 30% for Timothy. and industry. On one side of their shop, Joe opened and operated a
coffee shop, while on the other side, Rudy put up a car accessories
However, to be more specific, theirs is a limited partnership (Art. 1843) store. May they engage in such separate businesses? Why? (2001)
because Timothy does not take part in the control of the business pursuant to
A: ​Joe, the capitalist partner, may engage in the restaurant business started to garner considerable profits, C died. A and B continued the
because it is not the same kind of business the partnership is engaged in. On business without dissolving the partnership. They in fact opened a
the other hand, Rudy may not engage in any other business unless their branch of the restaurant, incurring obligations in the process. Creditors
partnership expressly permits him to do so because as an industrial partner started demanding for the payment of their obligations.
he has to devote his full time to the business of the partnership (Art. 1789). (2010)

Q: A partner cannot demand the return of his share (contribution) a. Who are liable for the settlement of the partnership’s
during the existence of a partnership. Do you agree? Explain your obligations? Explain?
answer. (2012)
A: ​The two remaining partners, A and B, are liable. When any partner dies
A: ​YES I agree, he is not entitled to the return of his contribution to the and the business is continued without any settlement of accounts as between
capital of the partnership, but only to the net profits from the partnership him or his estate, the surviving partners are held liable for continuing the
business during the life of the partnership period. If he is a limited partner, business provided that A and B had knowledge or notice of the death of C
however, he may ask for the return of his contributions as provided in Arts. (Art. 1841, 1785, par 2, and Art 1833).
1856 and 1857.
b. What are the creditors’ recourse/s? Explain.
Q: W, X, Y and Z organized a general partnership with W and X as
industrial partners and Y and Z as capitalist partners. Y contributed A: Creditors can file the appropriate actions, for instance, an action for
P50,000.00 and Z contributed P20,000.00 to the common fund. By a collection of sum of money against the “partnership at will” and if there are no
unanimous vote of the partners, W and X were appointed managing sufficient funds, the creditors may go after the private properties of A and B
partners, without any specification of their respective powers and (Art 1816). Creditors may also sue the estate of C. The estate is not excused
duties. A applied for the position of Secretary and B applied for the from the liabilities of the partnership even if C is dead already but only up to
position of Accountant of the partnership. The hiring of A was decided the time that he remained a partner (Art. 1829, 1835, par 2; Testate Estate of
upon by W and X, but was opposed by Y and Z. The hiring of B was Mota v. Serra, G.R. No. L-22825, February 14, 1925). However, the liability
decided upon by W and Z, but was opposed by X and Y. Who of the of C’s individual properties shall be subject to the prior payment of his
applicants should be hired by the partnership? Explain and give your separate debts (Art. 1835, par 3).
reasons. (1992)
Q: Can two corporations organize a general partnership under the Civil
A: ​A should be hired as Secretary. The decision for the hiring of A prevails Code of the Philippines? (1994 BAR)
because it is an act of administration which can be performed by the duly
appointed managing partners, W and X. B cannot be hired, because in case A: ​No. A corporation is managed by its board of directors. If the corporation
of a tie in the decision of the managing partners, the deadlock must be were to become a partner, co-partners would have the power to make the
decided by the partners owning the controlling interest. In this case, the corporation party to transactions in an irregular manner since the partners
opposition of X and Y prevails because Y owns the controlling Interest (Art. are not agents subject to the control of the Board of Directors. But a
1801). corporation may enter into a joint venture with another corporation as long as
the nature of the venture is in line with the business authorized by its charter.
Obligations of Partnership/Partners to Third Persons (Tuason & Co., Inc. v. Bolano, 95 Phil. 106)

Q: A, B, and C entered into a partnership to operate a restaurant Q: Can a corporation and an individual form a general partnership?
business. When the restaurant had gone past break-even stage and (1994 BAR)
A: ​No. A corporation may not be a general partner because the principle of a. Is the dissolution done by Patricia and Priscilla without the
mutual agency in general partnership allowing the other general partner to consent of Pauline or Philip valid? Explain.
bind the corporation will violate the corporation law principle that only the
board of directors may bind the corporation. A: ​Under Art. 1830 (1) (c), the dissolution by Patricia and Priscilla is valid and
did not violate the contract of partnership even though Pauline and Philip did
Dissolution of Partnership not consent thereto. The consent of Pauline is not necessary because she
had already assigned her interest to Philip. The consent of Philip is not also
Q: Dielle, Karlo and Una are general partners in a merchandising firm. necessary because the assignment to him of Pauline's interest did not make
Having contributed equal amounts to the capital, they also agree on him a partner, under Art. 1813.
equal distribution of whatever net profit is realized per fiscal period.
After two years of operation, however, Una conveys her whole interest b. Does Philip have any right to petition for the dissolution of
in the partnership to Justine, without the knowledge and consent of the partnership before the expiration of its specified term?
Dielle and Karlo. (1995, 1998) Explain. (1995)

a. Is the partnership dissolved? A: ​NO, Philip has no right to petition for dissolution because he does not
have the standing of a partner (Art. 1813).
A: ​NO, a conveyance by a partner of his whole interest in a partnership does
not of itself dissolve the partnership in the absence of an agreement. (Art. Q: A, B and C formed a partnership for the purpose of contracting with
1813) the Government in the construction of one of its bridges. On June 30,
1992, after completion of the project, the bridge was turned over by the
b. What are the rights of Justine, if any, should she desire to partners to the Government. On August 30, 1992, D, a supplier of
participate in the management of the partnership and in the materials used in the project sued A for collection of the indebtedness
distribution of a net profit of P360.000.00 which was realized to him. A moved to dismiss the complaint against him on the ground
after her purchase of Una's interest? that it was the ABC partnership that is liable for the debt. D replied that
ABC partnership was dissolved upon completion of the project for
A: ​Justine cannot interfere or participate in the management or which purpose the partnership was formed. Will you dismiss the
administration of the partnership business or affairs. She may, however, complaint against A If you were the Judge? (1993)
receive the net profits to which Una would have otherwise been entitled. In
this case, P120.000 (Art. 1813). A: NO, as Judge, I would not dismiss the complaint against A because A is
still liable as a general partner for his pro rata share of 1/3 (Art. 1816).
Q: Pauline, Patricia and Priscilla formed a business partnership for the Dissolution of a partnership caused by the termination of the particular
purpose of engaging in neon advertising for a term of five (5) years. undertaking specified in the agreement does not extinguish obligations,
Pauline subsequently assigned to Philip her interest in the partnership. which must be liquidated during the "winding up" of the partnership affairs
When Patricia and Priscilla learned of the assignment, they decided to (Arts. 1829 and 1830, par. 1[a]).
dissolve the partnership before the expiration of its term as they had an
unproductive business relationship with Philip in the past. On the other Q: In 2005, L, M, N, 0 and P formed a partnership. L, M and N were
hand, unaware of the move of Patricia and Priscilla but sensing their capitalist partners who Contributed P500,000 each, while 0, a limited
negative reaction to his acquisition of Pauline's interest, Philip partner, contributed P1 ,000,000. P joined as an industrial partner,
simultaneously petitioned for the dissolution of the partnership. contributing only his services. The Articles of Partnership, registered
with the Securities and Exchange Commission, designated L and 0 as
managing partners; L was liable only to the extent of his capital
contribution; and P was not liable for losses.

In 2006, the partnership earned a net profit of P800,000. In the same

year, P engaged in a different business with the consent of all the
partners. However, in 2007, the partnership incurred a net loss of
P500,000. In 2008,the partners dissolved the partnership. The proceeds
of the sale of partnership assets were insufficient to settle its
obligation. After liquidation, the partnership had an unpaid liability
Of P300,000. (2013)

a. Assuming that the just and equitable share of the industrial

partner, P, in the profit in 2006 amounted to P100,000, how
much is the share of 0, a limited partner, in the P800,000 net
profit?

A: ​P280,000. First, deduct the share of P from the profits. P800,000 less
P100,000 is P700,000. Next, get the share of O by following the proportion
that the shares of L, M, N, O is 1:1:1:2, respectively.

b. In 2007, how much is the share of 0, a limited partner, in the

net loss of P500,000?

A: ​P200,000. A limited partner shall not become liable a s a general partner

unless, in addition to the exercise of his rights and powers as a limited
partner, he takes part in the control of the business (Art. 1848). In the
absence of stipulation as to profits and losses, the share of each partner in
the losses shall be proportionate to what he may have contributed (Art.
1797).

Q: TRUE or FALSE. An oral partnership is valid. (2009)

A: ​TRUE. Partnership is a consensual contract, hence, it is valid even though

not in writing.