Civil Law Review II

I. PARTNERSHIP - March 23, 2021

Cases:
1. Agad vs. Mabato, L-24193, June 28, 1968

MAURICIO AGAD vs. SEVERINO MABATO and MABATO and AGAD COMPANY

FACTS

-Alleging that he and defendant Severino Mabato are partners in a fishpond business pursuant to
a public instrument dated August 29, 1952, to the capital of which Agad contributed P1,000, with
the right to receive 50% of the profits;

-that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and

-that, despite repeated demands, Mabato had failed and refused to render accounts for the years
1957 to 1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed
on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of
P14,000, as his share in the profits of the partnership for the period from 1957 to 1963, in
addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as well as the
winding up of its affairs by a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence
of said partnership, upon the ground that the contract therefor had not been perfected.

ISSUE

WON "immovable property or real rights" have been contributed to the partnership under
consideration.

RULING

Mabato alleged and the lower court held that the answer should be in the affirmative, because "it
is really inconceivable how a partnership engaged in the fishpond business could exist without
said fishpond property (being) contributed to the partnership." It should be noted, however, that,
as stated in Annex "A" the partnership was established "to operate a fishpond", not to "engage in
a fishpond business". Moreover, none of the partners contributed either a fishpond or a real right
to any fishpond. Their contributions were limited to the sum of P1,000 each.

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be constituted in any form, except where immovable property or
real rights are contributed thereto, in which case a public instrument shall be necessary.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto,
if inventory of said property is not made, signed by the parties; and attached to the public
instrument

The operation of the fishpond was the purpose of the partnership. Neither said fishpond nor a real
right thereto was contributed to the partnership or became part of the capital thereof, even if a
fishpond or a real right thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for

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further proceedings, with the costs of this instance against defendant-appellee, Severino Mabato.
It is so ordered.

2. Estanislao Jr. vs CA – GR No. 49982, April 27, 1988

By this petition for certiorari the Court is asked to determine if a partnership exists between
members of the same family arising from their joint ownership of certain properties.

Facts:

Petitioner Estanislao & private respondents are siblings. They co-own a lot which was leased by
SHELL. The family has agreed through a joint affidavit that they will open and operate
Estanislao Shell Service and that it will be operated and managed solely by the petitioner to keep
with SHELL’s policy of appointing only one dealer.

Said affidavit also stipulates that the advanced rental of Php 15, 0000.00 from SHELL shall be
used to augment their capital investment in the operation of the gasoline stationand that said
rental shall be credited until the monthly rentals accumulate to Php15, 000.00.

Subsequently, the parties entered into another agreement entitled Additional Cash Pledge
Agreement assigning to SHELL the same Php 15, 000.00 advance rentals that shall be credited
until the monthly rentals accumulate to Php 15, 000.00 which the private respondents have agreed
to consider as cash deposit of petitioner to SHELL to increase his credit limit as dealer. This
subsequent agreement stated that it “cancels and supersedes” the jo int affidavit earlier made.

For some time, petitioner submitted financial statements pertaining to their business operation but
later failed to render subsequent accounting. Hence, the complaint of private respondents praying
among others that they be paid of their lawful shares and participation in the net profits of the
business.

Issue:

Whether or not a partnership exists between members of the same family arising from their joint
ownership of certain properties.

Held:

What the subsequent agreement cancels and supersedes is the duplication of reference to the
Php15,000.00 advance rentals and not the partnership agreement they had in the joint affidavit.
SHELL is a signatory to said subsequent agreement and it will go against its policy if in the
agreement it should state that that the business is not a sole proprietorship of the petitioner but a
partnership with the
private respondents.

The parties formed a partnership when they bound themselves to contribute money to a common
fund with the intention of dividing the profits among themselves. The petitioner’s sole dealership
was a result of SHELL’s policy and the understanding of the parties of having only one dealer of
the SHELL products.

3. Michael Guy vs. Atty. Glenn Gacott – GR No. 206147, Jan. 13, 2016

FACTS:

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Atty. Gacott from Palawan purchased two (2) brand new transreceivers from Quantech Systems
Corporation (QSC) in Manila through its employee Rey Medestomas. After some time, he
returned it due to major defects. But time passed, he was not able to get the replacement units and
he was informed that there were no available units and he cannot refund the purchase price.

He filed a complaint for damages. But during execution, he learned that QSC was not a
corporation but, a general partnership with Mr. Guy as a partner and its general manager. Because
of that, Gacott instructed the sheriff to proceed with the attachment of one of the motor vehicles
of Guy. After that, Guy filed a Motion to lift Attachment Upon Personalty arguing that he was
not a judgment debtor and, therefore, his vehicle could not be attached but it has been denied by
the RTC and CA stating that he is solidarily liable to the liability of the partnership since he is the
general manager.

ISSUE:

Whether or not Guy is solidarily liable with the partnership for damages arising from the breach
of contract of sale with Gacott.

RULING:

The Supreme Court stated that a partner must be separately and distinctly impleaded before he
can be bound by a judgment. It is not conclusive that a suit against a partnership will also be a
suit impleading each partner unless it was shown that the legal fiction of a different juridical
personality was being used for fraudulent, unfair, or illegal purposes.

Since a partnership has a separate legal personality from the partners, the partners' obligation with
respect to partnership liabilities is joint and subsidiary in nature which means all partners shall be
liable pro rata with all their property and partners shall only be liable with their property after the
partnership assets have been exhausted. Therefore, since Guy did not act maliciously, he and his
personal properties cannot be made directly and solely accountable for the liability of QSC and
that he was not the judgment debtor in the case before the RTC, with that, his levied vehicle was
released.

4. Aniceto G. Saludo Jr. vs PNB – GR No. 193138, Aug. 20, 2018

Article 1767 of the Civil Code provides that by a 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. Two or more persons may also form a partnership for
the exercise of a profession.

Here, absent evidence of an earlier agreement, SAFA Law Office was constituted as a partnership
at the time its partners signed the Articles of Partnership. The subsequent registration of the
Articles of Partnership with the SEC was made in compliance with Article 1772 of the Civil
Code, since the initial capital of the partnership was P500,000.00. The other provisions of the
Articles of Partnership also positively identify SAFA Law Office as a partnership. It also
provided for the term of the partnership, distribution of net profits and losses, and management of
the firm in which "the partners shall have equal interest in the conduct of [its] affairs." Moreover,
it provided for the cause and manner of dissolution of the partnership. These provisions would
not have been necessary if what had been established was a sole proprietorship.

FACTS:
SAFA Law Office entered into a Contract of Lease with PNB, whereby the latter agreed to lease
the second floor of the PNB Financial Center Building in Quezon City for a period of three years.
The Contract of Lease expired in 2001, but it was only in 2005 when SAFA Law Office finally

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vacated the leased premises. Consequently, PNB then made a final demand for SAFA Law Office
to pay its outstanding rental obligations in the amount of P25,587,838.09.

Saludo, in his capacity as managing partner of SAFA Law Office, then filed an amended
complaint for accounting and/or recomputation of unpaid rentals and damages against PNB.
PNB filed a motion to include SAFA Law Office as principal plaintiff. Thereafter, PNB filed its
answer. By way of compulsory counterclaim, it sought payment from SAFA Law Office in the
sum representing overdue rentals.

Saludo filed his motion to dismiss counterclaims, mainly arguing that SAFA Law Office is
neither a legal entity nor party litigant. As it is only a relationship or association of lawyers in the
practice of law and a single proprietorship which may only be sued through its owner or
proprietor, no valid counterclaims may be asserted against it.

RTC issued an Omnibus Order denying PNB's motion to include an indispensable party as
plaintiff and granting Saludo's motion to dismiss counterclaims. PNB filed its motion for
reconsideration, which the RTC denied. Consequently, PNB filed a petition for certiorari with
the CA. CA held that Saludo is estopped from claiming that SAFA Law Office is a single
proprietorship since SAFA Law Office was the one that entered into the lease contract and not
Saludo. Hence, this petition.

ISSUES:

(1) Whether or not SAFA Law Office is a sole proprietorship? (NO)

(2) If not, whether or not the MOU converted SAFA Law Office into one? (NO)

(3) Whether or not SAFA Law Office acquired juridical personality? (YES)

RULING:

(1) Contrary to Saludo's submission, SAFA Law Office is a partnership and not a single
proprietorship. Article 1767 of the Civil Code provides that by a 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. Two or more persons may also form a
partnership for the exercise of a profession.

Under Article 1771, a partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall be
necessary. Article 1784, on the other hand, provides that a partnership begins from the moment of
the execution of the contract, unless it is otherwise stipulated.

Here, absent evidence of an earlier agreement, SAFA Law Office was constituted as a partnership
at the time its partners signed the Articles of Partnership. The subsequent registration of the
Articles of Partnership with the SEC was made in compliance with Article 1772 of the Civil
Code, since the initial capital of the partnership was P500,000.00.The other provisions of the
Articles of Partnership also positively identify SAFA Law Office as a partnership. It also
provided for the term of the partnership, distribution of net profits and losses, and management of
the firm in which "the partners shall have equal interest in the conduct of [its] affairs." Moreover,
it provided for the cause and manner of dissolution of the partnership. These provisions would
not have been necessary if what had been established was a sole proprietorship.

(2) Saludo asserts that SAFA Law Office is a sole proprietorship on the basis of the MOU
executed by the partners of the firm. The MOU evinces the parties' intention to entirely shift any
liability that may be incurred by SAFA Law Office in the course of its operation to Saludo, who
shall also receive all the remaining assets of the firm upon its dissolution. This MOU, however,
does not serve to convert SAFA Law Office into a sole proprietorship. As discussed, SAFA Law
Office was manifestly established as a partnership based on the Articles of Partnership.

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(3) Having settled that SAFA Law Office is a partnership, the Court held that it acquired juridical
personality by operation of law. The perfection and validity of a contract of partnership brings
about the creation of a juridical person separate and distinct from the individuals comprising the
partnership, pursuant to Article 1768 of the Civil Code. Article 44 of the Civil Code likewise
provides that partnerships are juridical persons. It is this juridical personality that allows a
partnership to enter into business transactions to fulfill its purposes, pursuant to Article 46 of the
Civil Code.

In view of the above, there is nothing to support the position of the RTC and the CA, as well as
Saludo, that SAFA Law Office is not a partnership and a legal entity. In holding that SAFA Law
Office, a partnership for the practice of law, is not a legal entity, the CA cited the case of Petition
for Authority to Continue Use of the Firm Name "Sycip, Salazar, Feliciano, Hernandez &
Castillo" (Sycip case) wherein the Court held that "[a] partnership for the practice of law is not a
legal entity. It is a mere relationship or association for a particular purpose. It is not a partnership
formed for the purpose of carrying on trade or business or of holding property." These are direct
quotes from the US case of In re Crawford's Estate. The Court held, however, that its reference to
this US case is an obiter dictum which cannot serve as a binding precedent for the following
reasons:

First, the Court thus cannot hold that a partnership for the practice of law is not a legal entity
without running into conflict with Articles 44 and 1768 of the Civil Code which

provide that a partnership has a juridical personality separate and distinct from that of each of the
partners.

Second, Philippine law on partnership does not exclude partnerships for the practice of law from
its coverage. Article 1767 of the Civil Code provides that "[t]wo or more persons may also form a
partnership for the exercise of a profession." Article 1783, on the other hand, states 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." Since the law uses the word
"profession" in the general sense, and does not distinguish which professional partnerships are
covered by its provisions and which are not, then no valid distinction may be made.

Finally, the Court stresses that unlike Philippine law, American law does not treat of partnerships
as forming a separate juridical personality for all purposes.

Jurisprudence has long recognized that American common law does not treat of partnerships as a
separate juridical entity unlike Philippine law. Indeed, under the old and new Civil Codes,
Philippine law has consistently treated partnerships as having a juridical personality separate
from its partners.