G ENERAL P ROVISIONS

Definition

Q: Abby, Barbie and Cassie launched a business venture called “One-Stop

Laundry Shop”. Based on their oral agreement, Abby, being the one to contribute the
initial capital of 300,000 pesos will be receiving 60% of the profits while Barbie and
Cassie will be receiving 20% each for being the one who will personally manage and
market their venture. It was agreed that the weekly profits will be accounted and
remitted to each of them with their corresponding share. Subsequently, Abby filed a
collection suit against Barbie and Cassie, as her employees, alleging that they
misappropriated the funds allotted for the payment of the detergent and fabric
conditioner for their stock replenishment. Is there a partnership valid and existing in
the present case?

A: Yes. There is a valid and existing partnership in the present case. Art. 1767
of the Civil Code, a contract of partnership exists when tow or more persons bind
themselves to contribute money, property, or industry to a common fund with the
intention of dividing profit among themselves. In addition, Art. 1771, it is provided that
partnership may be constituted in any form. In the present case, even if the agreement
of Abby, Barbie and Cassie is only made orally, there is a valid partnership created
because they agreed to contribute money and industry in establishing the laundry shop
and to later divide the profits in their respective percentage share. Hence, Abby cannot
claim that Barbie and Cassie are just her employees.

Elements

Q: Pierre, Jude, Kenneth and Louie, all in the surname of Madrigal inherited
several properties from their deceased parents. They extra-judicially partitioned the
inherited properties among themselves. In 2019, Jude and Kenneth entered into an
agreement that they will provide the needed capital and resources for the Bike Shop
that they will open in Blumentritt, Manila. An “Agreement to Contribute Capital” was
executed which stated that the co-owners, including Pierre and Louie will provide
20,000 pesos each and that the profits will be divided among them equally from the

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 operations of their Blumentritt Bike Shop. In 2020, a pandemic occurred and the bike
retail industry thrived so well since there is a great demand for alternative modes of
transportation in the Metro. Jude and Kenneth opened a new shop in Banawe, QC. In
December 2020, Pierre and Louie filed a suit against Jude and Kenneth for the
accounting of assets and income of the co-ownership and the subsequent partition
and delivery of their respective share. Are they entitled to the share of the assets and
income in both shops?

A: No. In the case of Jarantilla, Jr. v. Jarantilla, the Court ruled that there are
two essential elements in a contract of partnership in accordance with Art. 1767 of the
Civil Code, namely: (a) an agreement to contribute money, property, or industry to a
common fund; and (b) intention to divide profits among the parties. In the present case,
it was provided in the “Agreement to Contribute Capital” that the parties will contribute
20,000 pesos each and will share profits equally in their Blumentritt Bike Shop. Since
it was expressly stipulated that the capital contribution and profit sharing will only be
for their Blumentritt Bike Shop venture, Pierre and Louie cannot claim the same over
the shop in Banawe, QC. Hence, they are only entitled to receive their profit share in
the shop stipulated in the agreement.

Characteristics

Q: San Miguel and Gonzales (SMG) & Co., an accounting firm, entered into a
Renewable Contract of Service with Vicenio Printing Enterprises (VPE) with a rate of
30,000 pesos for every 10 clients of SMG & Co. for 2 years. The latter undertakes to
print all the audited financial statements (AFS) due for BIR and SEC filing every annual
audit conducted by SMG. VPE failed to provide the services under their contract which
resulted to the delay of filing of SMG’s clients’ AFS. San Miguel, as SMG’s managing
partner filed a case against VPE for damages. VPE countered that SMG & Co. must
be included as indispensable party in the complaint. Is the contention of VPE correct?

A: Yes. SMG & Co., being a partnership possesses a separate and distinct
juridical personality from its partners. Art. 1767 of the Civil Code provides that two or
more persons may also form a partnership for the exercise of profession. In addition,
Art. 1783 provides that a particular partnership has for its object determinate things,
their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.
In the present case, SMG & Co. is a constituted partnership in the exercise of

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 accounting profession of its partners and associates. Its creation as a partnership
vested a separate and distinct personality that must be impleaded in the complaint as
part of its rights to sue and be sued. SMG & Co. is an indispensable party in the
damages case.

Partnership Term

Q: Rowell and Red entered into a partnership agreement with the purpose of
raising enough capital to establish an animal foundation which advocates for animal
rescue from abuse and neglect. In order to establish the foundation, they agreed to
enter into this partnership wherein they will contribute a certain amount of capital so
that they can conduct retail business of selling animal clothes and accessories and pet
grooming services. They further consented that the partnership will terminate once
they raised a profit of 500,000 pesos which they are deemed to share equally and they
will subsequently use to establish the said foundation. After 5 years of operating, they
were able to meet their goal. Rowell suggested that they begin with the partnership
dissolution and liquidation so that they can now focus on the commencement of the
animal foundation. Red, seeing that the business has been successful, does not want
to dissolve the partnership and insists on continuing on the ground that it will prejudice
his rights to continue doing business with the clients he already built a good
relationship with. Can the partners validly terminate the partnership?

A: Yes. Art. 1783 provides that a particular partnership has for its object
determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation. In the present case, when the partnership agreement was
created, it expressly provides that it is built for the purpose of raising enough capital
to establish an animal foundation. They consented that the partnership will terminate
once they raised a profit of 500,000 pesos which they are deemed to share equally
and to subsequently use it to establish the foundation. This is a particular partnership
with a specific undertaking and since Rowell already intends to commence with its
dissolution and liquidation after the fulfillment of the partnership’s purpose, Red cannot
compel Rowell to stay in the partnership against his will.

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 Partnership by Estoppel

Q: Bea, Charlene and Danica, childhood friends, established a joint venture of

selling imported items online. They contributed 15,000 pesos each for initial capital
which will serve as payment for stocks and advertising expenses to start-up their
business. All of them actively participate in the management of the business affairs.
They ordered branded items from the US and sell it here in the Philippines under their
venture’s social media account, “Beautiful Imports”. They even regularly promote their
items in their respective social media personal profile. Katrina, also one of their
childhood friends, started sharing their items on her personal profile with the caption
“You may place your orders with me directly for faster transaction or through our
business’ official page @Beatiful Imports”. She even tagged Bea, Charlene and
Danica in her posts and the latter would even comment in a positive note. One day,
Klariza, an online reseller, stumbling upon Katrina’s post, placed an order directly to
her but the money she paid was misappropriated by Katrina and the orders were never
placed under her name. Klariza filed a complaint against Bea, Charlene, Danica, and
Katrina as partners of Beautiful Imports. The respondents contend that Katrina is not
a partner of their business venture and her actions cannot bind them nor the
partnership. Is Katrina considered a partner in this case?

A: Yes. Art. 1825 of the Civil Code provides that when a person, by words
spoken or written or by conduct, represents himself, or consents to another
representing him to anyone, as partner in an existing partnership or with one or more
persons not actual partners, he is liable to any such persons to whom such
representation has been made, who has, on the faith of such representation, given
credit to the actual or apparent partnership. When a person has been thus represented
to be a partner in an existing partnership, or with one or more persons not actual
partners, he is the agent of the persons consenting to such representation to bind them
to the same extent and in the same manner as though he were a partner in fact, with
respect to persons who rely the representation. In the present case, the fact that
Katrina, represented herself as part of the business and even tagged the real partners
who did not even contradict her statements in her posts effectively makes her as a
partner by estoppel. Klariza, an innocent third person, relying on such representation,
cannot be prejudiced by such reliance. Hence, the act of Katrina effectively binds the
partners of Beautiful Imports.

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