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It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article
1842 states: The right to an account of his interest shall accrue to any partner, or his legal representative
as against the winding up partners or the surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any agreement to the contrary. Regarding the
prescriptive period within which the private respondent may demand an accounting, Articles 1806,
1807, and 1809 show that the right to demand an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership when the final accounting is
done. Considering the facts of this case, the Court may decree a dissolution of the partnership under
Article 1831 of the Civil Code which, in part, provides: Art. 1831. On application by or for a partner the
court shall decree a dissolution whenever: xxx xxx xxx (3) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of the business; (4) A partner willfully 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; xxx xxx xxx (6) Other circumstances render a dissolution equitable. There shall be a liquidation and
winding up of partnership affairs, return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.

2.) HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY, respondents. G.R. No. 126881 October 3, 2000

DE LEON, JR., J.: FACTS: After the second World War, Tan Eng Kee and Tan Eng Lay, pooling their
resources and industry together, entered into a partnership engaged in the business of selling lumber
and hardware and construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business prospered due
to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and
his children caused the conversion of the partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his
heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the
net assets of Benguet Lumber. ISSUE: whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber HELD: Thus, in order to constitute a partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or industry to a common fund, and (2) they
intend to divide the profits among themselves. The agreement need not be formally reduced into
writing, since statute allows the oral constitution of a
partnership, save in two instances: (1) when immovable property or real rights are contributed, and (2)
when the partnership has a capital of three thousand pesos or more. In both cases, a public instrument
is required. An inventory to be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable property is contributed to the
partnership. The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership. A particular partnership is distinguished from a
joint adventure, to wit: (a) A joint adventure (an American concept similar to our joint accounts) is a sort
of informal partnership, with no firm name and no legal personality. In a joint account, the participating
merchants can transact business under their own name, and can be individually liable therefor. (b)
Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a certain kind. A joint venture
"presupposes generally a parity of standing between the joint co-ventures or partners, in which each
party has an equal proprietary interest in the capital or property contributed, and where each party
exercises equal 0rights in the conduct of the business." Tan Eng Kee never asked for an accounting. The
essence of a partnership is that the partners share in the profits and losses. Each has the right to
demand an accounting as long as the partnership exists. We have allowed a scenario wherein "[i]f
excellent relations exist among the partners at the start of the business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible." But in the situation in the case at bar, the deferment, if any, had gone on
too long to be plausible. A person is presumed to take ordinary care of his concerns. In determining
whether a partnership exists, these rules shall apply: (1) Except as provided by Article 1825, persons
who are not partners as to each other are not partners as to third persons; (2) Co-ownership or co-
possession does not of itself establish a partnership, whether such co-owners or copossessors do or do
not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived; (4) The receipt by a person of a share of the
profits of a business is a prima facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment: (a) As a debt by installment or otherwise; (b) As
wages of an employee or rent to a landlord; (c) As an annuity to a widow or representative of a
deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the
business; (e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise. In the light of the aforequoted legal provision, we conclude that Tan Eng Kee
was only an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not present and offer evidence that would show
that Tan Eng Kee received amounts of money allegedly representing his share in the profits of the
enterprise. Petitioners failed to show how much their father, Tan Eng Kee,
received, if any, as his share in the profits of Benguet Lumber Company for any particular period. Hence,
they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business
between themselves, which is one of the essential features of a partnership. There being no partnership,
it follows that there is no dissolution, winding up or liquidation to speak of.

3.) MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs.THE COMMISSIONER OF INTERNAL
REVENUE and COURT OF TAX APPEALS, respondents. G.R. No. 78133 October 18, 1988 GANCAYCO, J.:
FACTS: On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and
on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels
of land were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of
land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized
a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in
1973 and 1974 by availing of the tax amnesties granted in the said years. However, in a letter dated
March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required
to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968
and 1970. respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners
as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable
as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section
24, both of the National Internal Revenue Code 1 that the unregistered partnership was subject to
corporate income tax as distinguished from profits derived from the partnership by them which is
subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended,
by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from
the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the
deficiency income tax assessed. ISSUE: whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real estate dealers' fixed tax.
HELD: Article 1767 of the Civil Code of the Philippines provides: By the contract of partnership two or
more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves. Pursuant to this article, the essential elements of a
partnership are two, namely: (a) an agreement to contribute money, property or industry to a common
fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and then divide the same among
themselves, because: 1. Said common fund was not something they found already in existence. It was
not a property inherited by them pro indiviso. They created it purposely. What is more they jointly
borrowed a substantial portion thereof in order to establish said common fund. 2. They invested the
same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a
lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This
was soon followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5)
days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and
transcations undertaken, as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not limited to the conservation
and preservation of the aforementioned common fund or even of the property acquired by petitioners
in February, 1943. In other words, one cannot but perceive a character of habituality peculiar to
business transactions engaged in for purposes of gain. 3. The aforesaid lots were not devoted to
residential purposes or to other personal uses, of petitioners herein. The properties were leased
separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by
way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof. 4. Since August, 1945, the properties have been under
the management of one person, namely, Simeon Evangelists, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks.
Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation
or business enterprise operated for profit. 5. The foregoing conditions have existed for more than ten
(10) years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve
(12) years, since Simeon Evangelists became the manager. 6. Petitioners have not testified or introduced
any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein, and, hence, those cases are not in point. 5

In the present case, there is no evidence that petitioners entered into an agreement to contribute
money, property or industry to a common fund, and that they intended to divide the profits among
themselves. Respondent commissioner and/ or his representative just assumed these conditions to be
present on the basis of the fact that petitioners purchased certain parcels of land and became co-
owners thereof. 4.) EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners, vs. ESTRELLA ABAD SANTOS, respondent. G.R. No. L-
31684 June 28, 1973 MAKALINTAL, J.: FACTS: On October 9, 1954 a co-partnership was formed under
the name of "Evangelista & Co." On June 7, 1955 the Articles of Copartnership was amended as to
include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo
C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a contribution of P17,500 each. The amended Articles
provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry being an
industrial partner", and that the profits and losses "shall be divided and distributed among the partners
... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro
and Leonardo Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner
Estrella Abad Santos." On December 17, 1963 herein respondent filed suit against the three other
partners in the Court of First Instance of Manila, alleging that the partnership, which was also made a
party-defendant, had been paying dividends to the partners except to her; and that notwithstanding her
demands the defendants had refused and continued to refuse and let her examine the partnership
books or to give her information regarding the partnership affairs to pay her any share in the dividends
declared
by the partnership. She therefore prayed that the defendants be ordered to render accounting to her of
the partnership business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs.

ISSUE: whether the plaintiff-appellee (respondent here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from
June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as
claimed by appellants (herein petitioners). HELD: One cannot read appellee's testimony just quoted
without gaining the very definite impression that, even as she was and still is a Judge of the City Court of
Manila, she has rendered services for appellants without which they would not have had the
wherewithal to operate the business for which appellant company was organized. Article 1767 of the
New Civil Code which provides that "By contract of partnership two or more persons bind themselves, to
contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves, 'does not specify the kind of industry that a partner may thus contribute, hence the
said services may legitimately be considered as appellee's contribution to the common fund. Another
article of the same Code relied upon appellants reads: 'ART. 1789. An industrial partner cannot engage
in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail themselves of the benefits which he
may have obtained in violation of this provision, with a right to damages in either case.' It is not disputed
that the provision against the industrial partner engaging in business for himself seeks to prevent any
conflict of interest between the industrial partner and the partnership, and to insure faithful compliance
by said partner with this prestation. There is no pretense, however, even on the part of the appellee is
engaged in any business antagonistic to that of appellant company, since being a Judge of one of the
branches of the City Court of Manila can hardly be characterized as a business. That appellee has
faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it was
only after filing of the complaint in this case and the answer thereto appellants exercised their right of
exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29,
1964 — or after around nine (9) years from June 7, 1955 — subsequent to the filing of defendants'
answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded
from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in
the defendant partnership and/or in its net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she has been and still is a judge of the City Court
(formerly Municipal Court) of the City of Manila, devoting her time to performance of her duties as such
judge and enjoying the privilege and emoluments appertaining to the said office, aside from teaching in
law school in Manila, without the express consent of the herein defendants' (Record On Appeal, pp. 24-
25). Having always knows as a appellee as a City judge even before she joined appellant company on
June 7, 1955 as an industrial partner, why did it take appellants many yearn before excluding her from
said company as aforequoted allegations? And how can they reconcile such exclusive with their main
theory that appellee has never been such a partner because "The real agreement evidenced by Exhibit
"A" was to grant the appellee a share of 30% of the net profits which the appellant partnership may
realize from June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance
Corporal shall have been fully paid." (Appellants Brief, p. 38). What has gone before persuades us to
hold with the lower Court that appellee is an industrial partner of appellant company, with the right to
demand for a formal accounting and to receive her share in the net profit that may result from such an
accounting, which right appellants take exception under their second assigned error. Our said holding is
based on the following article of the New Civil Code: 'ART. 1899. Any partner shall have the right to a
formal account as to partnership affairs: (1) If he is wrongfully excluded from the partnership business or
possession of its property by his copartners;
(2) If the right exists under the terms of any agreement; (3) As provided by article 1807; (4) Whenever
other circumstance render it just and reasonable. We find no reason in this case to depart from the rule
which limits this Court's appellate jurisdiction to reviewing only errors of law, accepting as conclusive
the factual findings of the lower court upon its own assessment of the evidence.

5.) LA COMPAÑIA MARITIMA, plaintiff-appellant, vs. FRANCISCO MUÑOZ, ET AL., defendants-appellees.

G.R. No. L-3704 December 12, 1907 WILLARD, J.:

FACTS:

On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Muñoz, and Rafael Naval
formed on ordinary general mercantile partnership under the name of Francisco Muñoz & Sons for the
purpose of carrying on the mercantile business in the Province of Albay which had formerly been carried
on by Francisco Muñoz. Francisco Muñoz was a capitalist partner and Emilio Muñoz and Rafael Naval
were industrial partners. The claim of the appellees that Emilio Muñoz contributed nothing to the
partnership, either in property, money, or industry, can not be sustained. He contributed as much as did
the other industrial partner, Rafael Naval, the difference between the two being that Rafael Naval was
entitled by the articles of agreement to a fixed salary of P2,500 as long as he was in charge of the branch
office established at Ligao. If he had left that branch office soon after the partnership was organized, he
would have been in the same condition then that Emilio Muñoz was from the beginning. Such a change
would have deprived him of the salary P2,500, but would not have affected in any way the partnership
nor have produced the effect of relieving him from liability as a partner. The argument of the appellees
seems to be that, because no yearly or monthly salary was assigned to Emilio Muñoz, he contributed
nothing to the partnership and received nothing from it. By the articles themselves he was to receive at
the end of five years one-eighth of the profits. It can not be said, therefore, that he received nothing
from the partnership. The fact that the receipt of this money was postponed for five years is not
important. If the contention of the appellees were sound, it would result that, where the articles of
partnership provided for a distribution of profits at the end of each year, but did not assign any specific
salary to an industrial partner during that time, he would not be a member of the partnership. Industrial
partners, by signing the articles, agree to contribute their work to the partnership and article 138 of the
Code of Commerce prohibits them from engaging in other work except by the express consent of the
partnership. With reference to civil partnerships, section 1683 of the Civil Code relates to the same
manner. It is also said in the brief of the appellees that Emilio Muñoz was entirely excluded from the
management of the business. It rather should be said that he excluded himself from such management,
for he signed the articles of partnership by the terms of which the management was expressly conferred
by him and the others upon the persons therein named. That partners in their articles can do this,
admits of no doubt. Article 125 of the Code of Commerce requires them to state the partners to whom
the management is intrusted. This right is recognized also in article 132
ISSUE: HELD:

Emilio Muñoz was, therefore, a general partner, and the important question in the case is whether, as
such general partner, he is liable to third persons for the obligations contracted by the partnership, or
whether he relieved from such liability, either because he is an industrial partner or because he was so
relieved by the express terms of the articles of partnership. Paragraph 12 of the articles of partnership is
as follows:
Twelfth. All profits arising from mercantile transactions carried on, as well as such as may be obtained
from the sale of property and other assets which constitute the corporate capital, shall be distributed,
on completion of the term of five years agreed to for the continuation of the partnership, in the
following manner: Three-fourths thereof for the capitalist partner Francisco Muñoz de Bustillo and one-
eighth thereof for the industrial partner Emilio Muñoz de Bustillo y Carpiso, and the remaining one-
eighth thereof for the partner Rafael Naval y Garcia. If, in lieu of profits, losses should result in the
winding up of the partnership, the same shall be for the sole and exclusive account of the capitalist
partner Francisco Muñoz de Bustillo, without either of the two industrial partners participating in such
losses. In limited partnership the Code of Commerce recognizes a difference between general and
special partners, but in a general partnership there is no such distinction-- all the members are general
partners. The fact that some may be industrial and some capitalist partners does not make the members
of either of these classes alone such general partners. There is nothing in the code which says that the
industrial partners shall be the only general partners, nor is there anything which says that the capitalist
partners shall be the only general partners. Article 127 of the Code of Commerce is as follows: All the
members of the general copartnership, be they or be they not managing partners of the same, are liable
personally and in solidum with all their property for the results of the transactions made in the name
and for the account of the partnership, under the signature of the latter, and by a person authorized to
make use thereof. Do the words "all the partners" found in this article include industrial partners? The
same expression is found in other articles of the code. In article 129 it is said that, if the management of
the partnership has not been limited by special act to one of the partners, all shall have the right to
participate in the management. Does this mean that the capitalist partners are the only ones who have
that right, or does it include also industrial partners? Article 132 provides that, when in the articles of
partnership the management has been intrusted to a particular person, he can not be deprived of such
management, but that in certain cases the remaining partners may appoint a comanager. Does the
phrase "remaining partners" include industrial partners, or is it limited to capitalist partners, and do
industrial partners have no right to participate in the selection of the comanager? Article 133 provides
that all the partners shall have the right to examine the books of the partnership. Under this article are
the capitalist partners the only ones who have such right? Article 135 provides that the partners can not
use the firm name in their private business. Does this limitation apply only to capitalist partners or does
it extend also to industrial partners? Article 222 provides that a general partnership shall be dissolve by
the death of one of the general partners unless it is otherwise provided in the articles. Would such a
partnership continue if all the industrial partners should die? Article 229 provides that upon a
dissolution of a general partnership it shall be liquidated by the former managers, but, if all the partners
do not agree to this, a general meeting shall be called, which shall determine to whom the settlement of
the affairs shall be intrusted. Does this phrase "all the partners" include industrial partners, or are the
capitalist partners the only ones who have a voice in the selection of a manager during a period of
liquidation? Article 237 provides that the private property of the general partners shall not be taken in
payment of the obligations of the partnership until its property has been exhausted. Does the phrase
"the general partners" include industrial partners? In all of these articles the industrial partners must be
included. It can not have been intended that, in such a partnership as the one in question, where there
were two industrial and only one capitalist partner, the industrial partners should have no voice in the
management of the business when the articles of partnership were silent on that subject; that when the
manager appointed mismanages the business the industrial partners should have no right to appoint a
comanager; that they should have no right to examine the books; that they might use the firm name in
their private business; or that they have no voice in the liquidation of the business after dissolution. To
give a person who contributed no more than, say, P500, these rights and to take them away from a
person who contributed his services, worth, perhaps, infinitely more than P500, would be discriminate
unfairly against industrial partners. If the phrase "all the partners" as found in the articles other than
article 127 includes industrial partners, then article 127 must include them and they are liable by the
terms thereof for the debts of the firm. But it is said that article 141 expressly declares to the contrary. It
is to be noticed in the first place that this article does not say that they shall not be liable for losses.
Article 140 declares how the profits shall be divided amongthe partners. This article simply declares how
the losses shall be divided among the partners. The use of the words se imputaran is significant. The
verb means abonar una partida a alguno en su cuenta o deducirla de su debito. Article 141 says nothing
about third persons and nothing about the obligations of the partnership. While in this section the word
"losses" stand's alone, yet in other articles of the code, where it is clearly intended to impose the liability
to third persons, it is not considered sufficient, but the word "obligations" is added. Thus article 148, in
speaking of the liability of limited partners, uses the phrase las obligaciones y perdidas. There is the
same use of the two same words in article 153, relating to anonymous partnership. In article 237 the
word "obligations" is used and not the word "losses."
The claim of the appellees is that this article 141 fixes the liability of the industrial partners to third
persons for the obligations of the company. If it does, then it also fixes the liability of the capitalist
partners to the same persons for the same obligations. If this article says that industrial partners are not
liable for the debts of the concern, it also says that the capitalist partners shall be only liable for such
debts in proportion to the amount of the money which they have contributed to the partnership; that is
to say, that if there are only two capitalist partners, one of whom has contributed two-thirds of the
capital and the other one-third, the latter is liable to a creditor of the company for only one-third of the
debt and the former for only two-thirds. It is apparent that, when given this construction, article 141 is
directly in conflict with article 127. It is not disputed by the appellees that by the terms of article 127
each one of the capitalist partners is liable for all of the debts, regardless of the amount of his
contribution, but the construction which they put upon article 141 makes such capitalist partners liable
for only a proportionate part of the debts. There is no injustice in imposing this liability upon the
industrial partners. They have a voice in the management of the business, if no manager has been
named in the articles; they share in the profits and as to third persons it is no more than right that they
should share in the obligations. It is admitted that if in this case there had been a capitalist partner who
had contributed only P100 he would be liable for this entire debt of P26,000. Our construction of the
article is that it relates exclusively to the settlement of the partnership affairs among the partners
themselves and has nothing to do with the liability of the partners to third persons; that each one of the
industrial partners is liable to third persons for the debts of the firm; that if he has paid such debts out
of his private property during the life of the partnership, when its affairs are settled he is entitled to
credit for the amount so paid, and if it results that there is not enough property in the partnership to
pay him, then the capitalist partners must pay him. In this particular case that view is strengthened by
the provisions of article 12, above quoted. There it is stated that if, when the affairs of the partnership
are liquidated — that is, at the end of five years — it turns out that there had been losses instead of
gains, then the capitalist partner, Francisco Muñoz, shall pay such losses — that is, pay them to the
industrial partners if they have been compelled to disburse their own money in payment of the debts of
the partnership. While this is a commercial partnership and must be governed therefore by the rules of
the Code of Commerce, yet an examination of the provisions of the Civil Code in reference to
partnerships may throw some light upon the question here to be resolved. Articles 1689 and 1691
contain, in substance, the provisions of articles 140 and 141 of the Code of Commerce. It is to be noticed
that these articles are found in section 1 of Chapter II [Title VIII] of Book IV. That section treats of the
obligations of the partners between themselves. The liability of the partners as to third persons is
treated in a distinct section, namely, section 2, comprising articles from 1697 to 1699. If industrial
partners in commercial partnerships are not responsible to third persons for the debts of the firm, then
industrial partners in civil partnerships are not. Waiving the question as to whether there can be a
commercial partnership composed entirely of industrial partners, it seems clear that there can be such
civil partnership, for article 1678 of the Civil Code provides as follows: A particular partnership has for its
object specified things only, their use of profits, or a specified undertaking, or the exercise of a
profession or art. It might very easily happen, therefor, that a civil partnership could be composed
entirely of industrial partners. If it were, according to the claim of the appellees, there would be no
personal responsibility whatever for the debts of the partnership. Creditors could rely only upon the
property which the partnership had, which in the case of a partnership organized for the practice of any
art or profession would be practically nothing. In the case of Agustin vs. Inocencio, 1 just decided by this
court, it was alleged in the complaint, and admitted by the answer — That is partnership has been
formed without articles of association or capital other than the personal work of each one of the
partners, whose profits are to be equally divided among themselves. Article 1675 of the Civil Code is as
follows: General partnership of profits include all that the partners may acquire by their by their industry
or work during the continuation of the partnership. Personal or real property which each of the partners
may possess at the time of the celebration of the agreement shall continue to be their private property,
the usufruct only passing to the partnership. It might very well happen in partnership of this kind that no
one of the partners would have any private property and that if they did the usufruct thereof would be
inconsiderable.
Having in mind these different cases which may arise in the practice, that construction of the law should
be avoided which would enable two persons, each with a large amount of private property, to form and
carry on a partnership and, upon the bankruptcy of the latter, to say to its creditors that they
contributed no capital to the company but only their services, and that their private property is not,
therefore, liable for its debts. But little light is thrown upon this question by the authorities. No
judgment of the supreme court of Spain has been called to our attention, and we have been able to find
none which refers in any way to this question. There is, therefore, no authority from the tribunal for
saying that an industrial partner is not liable to third persons for the debts of the partnership. In a work
published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil) it is said that industrial partners
are not liable for debts. The author, at page 127, divides general partnership into ordinary and irregular.
The irregular partnership are those which include one or more industrial partners. It may be said in
passing that his views can not apply to this case because the articles of partnership directly state that it
is an ordinary partnership and do not state that it is an irregular one. But his view of the law seems to be
derived from something other than the Code of Commerce now in force. He says: . . . but it has not been
very fortunate in sketching the characters of a regular collective partnership (since it says nothing
conclusive in reference to the irregular partnership) . . . . (p. 127.) And again: This article would not need
to be commented upon were it not because the writer entirely overlooked the fact that there might
exist industrial partners who did not contribute with capital in money, credits, or goods, which partners
generally participate in the profits but not in the losses, and whose position must also be determined in
the articles of copartnership. (p. 128.) And again:

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The only defect that can be pointed out in this article is the fact that it has been forgotten that in
collective partnerships there are industrial partners who, not being jointly liable for the obligations of
the copartnership, should not include their names in that of the firm. (p. 129.) As a logical result of his
theory he says that an industrial partner has no right to participate in the administration of the
partnership and that his name can not appear in the firm name. In this last respect his view is opposed
to that of Manresa, who says (Commentaries on the Spanish Civil Code, vol. 11, p. 330): It only remains
to us to state that a partner who contributes his industry to the concern can also confer upon it the
name or the corporate name under which such industry should be carried on. In this case, so long as the
copartnership lasts, it can enjoy the credit, reputation, and name or corporate name under which such
industry is carried on; but upon dissolution thereof the aforesaid name or corporate name pertains to
the partner who contributed the same, and he alone is entitled to use it, because such a name or style is
an accessory to the work of industrial partner, and upon recovering his work or his industry he also
recovers his name or the style under which he exercised his activity. It has thus been decided by the
French court of cassation in a decision dated June 6, 1859. In speaking of limited partnerships Benito
says (p. 144) that here are found two kinds of partners, one with unlimited responsibility and the other
with limited responsibility, but adopting his view as to industrial partners, it should be said that there
are three kinds of partners, one with unlimited responsibility, another with limited responsibility, and
the third, the industrial partner, with no responsibility at all. In Estasen's recent publication on
mercantile partnerships (Tratado de las Sociedades Mercantiles) he quotes from the work of Benito, but
we do not understand that he commits himself to the doctrines therein laid down. In fact, in his former
treatise, Instituciones de Derecho Mercantil (vol. 3, pp. 1-99), we find nothing which recognizes the
existence of these irregular general partnerships, or the exemption from the liability to third persons of
the industrial partners. He says in his latter work (p. 186) that according to Dr. Benito the irregular
general partner originated from the desire of the partnership to associate with itself some old clerk or
employee as a reward for his services and the interest which he had shown in the affairs of the
partnership, giving him in place of a fixed salary a proportionate part of the profits of the business.
Article 269 of the Code of Commerce of 1829 relates to this subject and apparently provides that such
partners shall not be liable for debts. If this article was the basis for Dr. Benito's view, it can be so no
longer, for it does not appear in the present code. We held in the case of Fortis vs. Gutirrez Hermanos (6
Phil. Rep., 100) that a mere agreement of that kind does not make the employee a partner. An
examination of the works of Manresa and Sanchez Roman on the Civil Code, and of Blanco's Mercantile
Law, will shows that no one of these mentions in any way the irregular general partnership spoken of by
Dr. Benito, nor is there anything
found in any one of these commentaries which in any way indicates that an industrial partner is not
liable to third persons for the debts of the partnership. An examination of the French law will also show
that no distinction of that kind is therein anywhere made and nothing can be found therein which
indicates that the industrial partners are not liable for the debts of the partnership. (Fuzier-Herman,
Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510, and 512.) Our conclusion is upon this branch of
the case that neither on principle nor on authority can the industrial partner be relieved from liability to
third persons for the debts of the partnership. It is apparently claimed by the appellee in his brief that
one action can not be maintained against the partnership and the individual partners, this claim being
based upon the provisions of article 237 of the Code of Commerce which provides that the private
property of the partners shall not be taken until the partnership property has been exhausted. But this
article furnishes to argument in support of the appellee's claim. An action can be maintained against the
partnership and partners, but the judgment should recognize the rights of the individual partners which
are secured by said article 237.

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6.) E. M. BACHRACH, plaintiff-appellee, vs."LA PROTECTORA", ET AL., defendants-appellants. G.R. No. L-

11624 January 21, 1918

STREET, J.: FACTS: In the year 1913, the individuals named as defendants in this action formed a civil
partnership, called "La Protectora," for the purpose of engaging in the business of transporting
passengers and freight at Laoag, Ilocos Norte. In order to provide the enterprise with means of
transportation, Marcelo Barba, acting as manager, came to Manila and upon June 23, 1913, negotiated
the purchase of two automobile trucks from the plaintiff, E. M. Bachrach, for the agree price of P16,500.
He paid the sum of 3,000 in cash, and for the balance executed promissory notes representing the
deferred payments. These notes provided for the payment of interest from June 23, 1913, the date of
the notes, at the rate of 10 per cent per annum. Provision was also made in the notes for the payment
of 25 per cent of the amount due if it should be necessary to place the notes in the hands of an attorney
for collection. Three of these notes, for the sum of P3,375 each, have been made the subject of the
present action, and there are exhibited with the complaint in the cause. One was signed by Marcelo
Barba in the following manner: P. P. La Protectora By Marcelo Barba Marcelo Barba. The other two
notes are signed in the same way with the word "By" omitted before the name of Marcelo Barba in the
second line of the signature. It is obvious that in thus signing the notes Marcelo Barba intended to bind
both the partnership and himself. In the body of the note the word "I" (yo) instead of "we" (nosotros) is
used before the words "promise to pay" (prometemos) used in the printed form. It is plain that the
singular pronoun here has all the force of the plural. As preliminary to the purchase of these trucks, the
defendants Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon June 12, 1913,
executed in due form a document in which they declared that they were members of the firm "La
Protectora" and that they had granted to its president full authority "in the name and representation of
said partnership to contract for the purchase of two automobiles" (en nombre y representacion de la
mencionada sociedad contratante la compra de dos automoviles). This document was apparently
executed in obedience to the requirements of subsection 2 of article 1697 of the Civil Code, for the
purpose of evidencing the authority of Marcelo Barba to bind the partnership by the purchase. The
document in question was delivered by him to Bachrach at the time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba purchased of the plaintiff various
automobile effects and accessories to be used in the business of "La Protectora." Upon May 21, 1914,
the indebtedness resulting from these additional purchases amounted to the sum of P2,916.57 In May,
1914, the plaintiff foreclosed a chattel mortgage which he had retained on the trucks in order to secure
the purchase price. The amount realized from this sale was P1,000. This was credited unpaid. To recover
this balance, together with the sum due for additional purchases, the present action was instituted in
the Court of First Instance of the city of Manila, upon May 29, 1914, against "La Protectora" and the five
individuals Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano. No
question has been made as to the propriety of impleading "La Protectora" as if it were a
legal entity. At the hearing, judgment was rendered against all of the defendants. From this judgment no
appeal was taken in behalf either of "La Protectora" or Marcelo Barba; and their liability is not here
under consideration. The four individuals who signed the document to which reference has been made,
authorizing Barba to purchase the two trucks have, however, appealed and assigned errors. The
question here to be determined is whether or not these individuals are liable for the firm debts and if so
to what extent. The amount of indebtedness owing to the plaintiff is not in dispute, as the principal of
the debt is agreed to be P7,037. Of this amount it must now be assumed, in view of the finding of the
trial court, from which no appeal has been taken by the plaintiff, that the unpaid balance of the notes
amounts to P4,121, while the remainder (P2,916) represents the amount due for automobile supplies
and accessories.

ISSUE: WON Barba has the authority to bind the partnership? HELD: The business conducted under the
name of "La Protectora" was evidently that of a civil partnership; and the liability of the partners to this
association must be determined under the provisions of the Civil Code. The authority of Marcelo Barba
to bind the partnership, in the purchase of the trucks, is fully established by the document executed by
the four appellants upon June 12, 1913. The transaction by which Barba secured these trucks was in
conformity with the tenor of this document. The promissory notes constitute the obligation exclusively
of "La Protectora" and of Marcelo Barba; and they do not in any sense constitute an obligation directly
binding on the four appellants. Their liability is based on the fact that they are members of the civil
partnership and as such are liable for its debts. It is true that article 1698 of the Civil Code declares that
a member of a civil partnership is not liable in solidum (solidariamente) with his fellows for its entire
indebtedness; but it results from this article, in connection with article 1137 of the Civil Code, that each
is liable with the others (mancomunadamente) for his aliquot part of such indebtedness. And so it has
been held by this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.) As to so much of the indebtedness as is
based upon the claim for automobile supplies and accessories, it is obvious that the document of June
12, 1913, affords no authority for holding the appellants liable. Their liability upon this account is,
however, no less obvious than upon the debt incurred by the purchase of the trucks; and such liability is
derived from the fact that the debt was lawfully incurred in the prosecution of the partnership
enterprise. There is no proof in the record showing what the agreement, if any, was made with regard to
the form of management. Under these circumstances it is declared in article 1695 of the Civil Code that
all the partners are considered agents of the partnership. Barba therefore must be held to have had
authority to incur these expenses. But in addition to this he is shown to have been in fact the president
or manager, and there can be no doubt that he had actual authority to incur this obligation. 7.) ELMO
MUÑASQUE, petitioner, vs. COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY
and RAMON PONS,respondents. G.R. No. L-39780 November 11, 1985 GUTTIERREZ, JR., J.:

FACTS: Petitioner Elmo Muñasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging or expecting any consideration from Galan
although the latter was casually named as partner in the contract; that by virtue of his having introduced
the petitioner to the employing company (Tropical). Galan would receive some kind of compensation in
the form of some percentages or commission; that Tropical, under the terms of the contract, agreed to
give petitioner the amount of P7,000.00 soon after the construction began and thereafter, the amount
of P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00; that on
January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a
stranger to the contract, Galan, who succeeded in getting petitioner's indorsement on the same check
persuading the latter that the same be deposited in a joint account; that on January 26, 1967 when the
second check for P6,000.00 was due, petitioner refused to indorse said cheek presented to him by Galan
but through later manipulations, respondent Pons succeeded in changing the payee's name from Elmo
Muñasque to Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the
Philippine Commercial and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of creditors to pay' for construction materials, the
payment of which should have been made from the P13,000.00 received by Galan; that petitioner
undertook the construction at his own expense completing it prior to the March 16, 1967 deadline;that
because of the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00
to Galan petitioner demanded that said amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent company. ISSUE: Whether or not there existed
a partners between Celestino Galan and Elmo Muñasque HELD: While it is true that under Article 1816
of the Civil Code,"All partners, including industrial ones, shall be liable prorate with all their property and
after all the partnership assets have been exhausted, for the contracts which may be entered into the
name and fm the account cd the partnership, under its signature and by a person authorized to act for
the partner-ship. ...". this provision should be construed together with Article 1824 which provides that:
"All partners are liable solidarily with the partnership for everything chargeable to the partnership under
Articles 1822 and 1823." In short, while the liability of the partners are merely joint in transactions
entered into by the partnership, a third person who transacted with said partnership can hold the
partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822
or 1823. Articles 1822 and 1823 of the Civil Code provide: Art. 1822. Where, by any wrongful act or
omission of any partner acting in the ordinary course of the business of the partner-ship or with the
authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership
or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting
or omitting to act. Art. 1823. The partnership is bound to make good: (1) Where one partner acting
within the scope of his apparent authority receives money or property of a third person and misapplies
it; and (2) Where the partnership in the course of its business receives money or property of a third
person and t he money or property so received is misapplied by any partner while it is in the custody of
the partnership. The obligation is solidary, because the law protects him, who in good faith relied upon
the authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of
the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable. In the case at bar the respondent Tropical had every reason to believe
that a partnership existed between the petitioner and Galan and no fault or error can be imputed
against it for making payments to "Galan and Associates" and delivering the same to Galan because as
far as it was concerned, Galan was a true partner with real authority to transact on behalf of the
partnership with which it was dealing. This is even more true in the cases of Cebu Southern Hardware
and Blue Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair
that the consequences of any wrongful act committed by any of the partners therein should be
answered solidarily by all the partners and the partnership as a whole However. as between the
partners Muñasque and Galan,justice also dictates that Muñasque be reimbursed by Galan for the
payments made by the former representing the liability of their partnership to herein intervenors, as it
was satisfactorily established that Galan acted in bad faith in his dealings with Muñasque as a partner.
8.) LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. G.R. No.
136448 November 3, 1999 PANGANIBAN, J.:
FACTS:

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract
dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets
amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.
4 The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed
a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on the
allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. 5 On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. Instead of
answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable
time within which to pay. He also turned over to respondent some of the nets which were in his
possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-
examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. 6The trial court maintained the Writ, and upon motion
of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds of P900,000. 7 On
November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly
liable to pay respondent. 8 The trial court ruled that a partnership among Lim, Chua and Yao existed
based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed
by the three. In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a
fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and
for the use of the partnership.

ISSUE: HELD:

whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly
showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil
Code which provides: Art. 1767 — By the contract of partnership, two or more persons bind themselves
to contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves. Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings: 15 (1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while Antonio Chua was already Yao's partner; (2) That
after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million; (3) That they borrowed P3.25 million from Jesus
Lim, brother of Petitioner Lim Tong Lim, to finance the venture. (4) That they bought the boats from
CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner
Lim Tong Lim only to serve as security for the loan extended by Jesus Lim; (5) That Lim, Chua and Yao
agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the boats
would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in
the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim. (7) That in
pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent
Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua
and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the
partieslitigants the terms of which are already enumerated above. From the factual findings of both
lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay
the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed with borrowed money, fell under the
term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets;
it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the
sale and op