a CORPORATION cannot become a partner on grounds
PARTNERSHIP
 It is a CONTRACT whereby two or more
persons (1) bind themselves to CONTRIBUTE money,
property, or industry to a COMMON FUND (2) with the
intention of dividing the PROFITS among themselves or
in order to EXERCISE a PROFESSION
 a STATUS and a FIDUCIARY RELATION subsisting
between persons carrying on a business in common
with a view on profit
CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP
[C, C, L, I, AS, NP]
1. CONSENSUAL
 perfected by mere consent
2. CONTRIBUTION of money, property or industry to a
COMMON FUND
3. object must be a LAWFUL one
4. INTENTION of DIVIDING the PROFIT among the
PARTNERS
5. “AFFECTIO SOCIETATIS”
 the desire to formulate an ACTIVE UNION, with
people among whom there exist a mutual
CONFIDENCE and TRUSTS
6. NEW PERSONALITY
 the object must be for profit and not merely for the
common enjoyment otherwise only a co-ownership has
been formed. HOWEVER, pecuniary profit need not be
the only aim, it is enough that it is the principal purpose
BUSINESS TRUSTS
 when certain persons entrust their property
or money to others who will manage the same for the
former
RULES ON CAPACITY TO BECOME A PARTNER
a person capacitated to enter into contractual relations
may become a partner
an UNEMANCIPATED MINOR CANNOT become a
partner UNLESS his parent or guardian consents
a MARRIED WOMAN, cannot contribute conjugal funds
as her contribution to the partnership UNLESS she is
permitted to do so by her husband OR UNLESS she is
the administrator of the conjugal partnership, in which
the COURT must give its consent authority
a PARTNERSHIP being a juridical person by itself can
form another partnership
of public policy
 a partner shares not only in profits but also in the
losses of the firm
RULE:
 the partnership has a PERSONALITY SEPARATE
and DISTINCT from that of each partner
CONSEQUENCES OF THE PARTNERSHIP BEING A
JURIDICAL ENTITY
its juridical personality is SEPARATE and DISTINCT from
that of each partner
the partnership CAN in GENERAL:
acquire and possess property of all kinds
incur obligations
bring civil and criminal actions
can be adjudged insolvent even if the individual
members be each financially solvent
unless he is generally sued, a partner has no right to
make a separate appearance in court, if the partnership
being sued is already represented
LIMITATIONS ON ALIEN PARTNERSHIP
1) if 60% capital is not owned by Filipinos
 the firm cannot acquire by purchase or otherwise
AGRICULTURAL Philippine lands
2) foreign partnership may “lease” lands provided the
period does not exceed 99 years
3) foreign partnership may be “MORTGAGEES” of land
 period of 5 years, renewable for another 5
years
 they cannot purchase it in a foreclosure sale
RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY
ORGANIZED AS PARTNERSHIP
it possesses NO LEGAL PERSONALITY
 it cannot sue as such HOWEVER, the partners in their
individual capacity CAN
one who enters into a contract with a partnership as
such cannot when sued later on for recovery of the
debt, allege the lack of legal personality on the part of
the firm, even if indeed it had no personality
 ESTOPPEL
 whether a partnership has a juridical
personality or not depends on its PERSONAL LAW of the
partnership or the law of the place where the
partnership was organized
REQUISITES FOR EXISTENCE OF PARTNERSHIP [I, CF, JI]
INTENTION to create a partnership
COMMON FUND obtained from contributions
JOINT INTERESTS in the PROFITS
WHAT DO NOT ESTABLISH A PARTNERSHIP
mere co-ownership or co-possession
 even with profit sharing
mere sharing of GROSS returns
 even with joint ownership of the properties involved
RULES TO DETERMINE THE EXISTENCE OF A
PARTNERSHIP
persons who are not partners to each other are not
partners as to third persons
EXCEPTION:
 PARTNERSHIP BY ESTOPPEL
CO-OWNERSHIP of a property does not itself establish a
partnership, even though the co-owners share in the
profits derived from the incident of joint ownership
SHARING OF GROSS RETURNS ALONE does not indicate
a partnership whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived
the receipt of the share in the profits is a strong
presumptive evidence of partnership HOWEVER, no
such inference will be drawn if such profits were
received in payment
as a DEBT by installments or otherwise
as WAGES of an employee
as RENT to a landlord
as an ANNUITY to a widow or representative of a
deceased partner
as INTEREST on a LOAN, though the amount of payment
vary with the profits of the business
as the CONSIDERATION for the sale of a GOOD WILL of a
business or other property or otherwise
 creditors are not partners, for their only interest in
the sharing of profits is the receipt or payment of their
credits
 in a partnership, the partners are supposed to trust
and have confidence in all the partners
PARTNERSHIP BY ESTOPPEL
 IF 2 persons not partners represent
themselves as partners to strangers, a partnership by
estoppel results
 WHEN 2 persons, who are partners, in
connivance with a friend who is not a partner inform a
stranger that said friend is their partner, a partnership
by estoppel also result to the end that the stranger
should not be prejudiced
RULE: LAWFUL OBJECT or PURPOSE
 a partnership must have LAWFUL OBJECT or
PURPOSE, and must be established for the common
benefit or interest of the partners
 it must be within the commence of man,
possible and not contrary to law, morals, good customs,
public order or public policy
 IF a partnership has SEVERAL PURPOSES, one
of which is UNLAWFUL, the partnership can still validly
exist so long as the illegal purpose can be separated
from the legal purposes
 NO need for JUDICIAL DECREE to dissolve an
unlawful partnership
 VOID AB INITIO
 one of the causes for the dissolution of a
partnership is “any event which makes it unlawful for
the business of the partnership to be carried on”
RULE:
 when an UNLAWFUL PARTNERSHIP is dissolved by a
judicial decree, the PROFITS shall be CONFISCATED in
FAVOR of the STATE
G. R.
 a partnership may be constituted in any form
EXCEPTION: PUBLIC INSTRUMENT
IMMOVABLE PROPERTY is contributed
REAL RIGHTS are contributed
* need for INVENTORY of IMMOVABLES
** for EFFECTIVITY of the partnership contract insofar
as innocent third persons are concerned the same must
be REGISTERED if REAL PROPERTIES are INVOLVED
 a partnership contract is NOT CONVERED by the
STATUTE of FRAUDS
  an AGREEMENT TO FORM a partnership does
not itself create a partnership
 when there are conditions to be fulfilled or
when a certain period is to lapse, the partnership is not
created till after the fulfillment of the conditions or the
arrival of the term and this is true even if one of the
parties has already advanced his agreed share of the
capital
RULE: if CAPITAL is P3,000 or more
REQUIRED:
1. PUBLIC INSTRUMENT
2. RECORDED – S.E.C.
*  FAILURE TO COMPLY – shall not effect the liability of
the partnership and its members to third persons
lease of public lands (GRAZING) – 2000 HAS.
RULES IF A) articles are kept secret among the
members
B) any one of the members may contract in his “own”
name with third persons
NOT a partnership – NOT a LEGAL PERSON
it may be sued by third person under the common
name it uses
it cannot sue as such and cannot be ordinarily be a
party to a civil action
insofar as innocent third parties are concerned
 the parities can be considered as members of a
partnership
as between themselves or insofar as third persons are
prejudiced
 only the rules of co-ownership must apply

**  IF REAL PROPERTIES have been contributed, EFFECT OF CERTAIN TRANSACTIONS

REGARDLESS of the VALUE, a public instrument is contracts entered into by a “partner” in his own name
needed for the attainment of legal personality may be sued upon still by him in his individual capacity,
not withstanding the absence of a partnership
REQUIREMENTS WHERE IMMOVABLE / REAL when two or more individuals, having a common
PROPERTY IS CONTRIBUTED interests in a business bring a court action, it should be
PUBLIC INSTRUMENT presumed that they prosecute the same in their
INVENTORY – signed and attached to the P.I. individual capacity as co-owners and not in behalf of a
*  applies regardless of the value of the real property partnership which does not exist in legal contemplation
*  applies even if only real rights over the real
property are CLASSIFICATION OF PARTNERSHIPS
contributed A) ACCORDING TO MANNER OF CREATION
*  applies if aside from real property, cash or ORALLY constituted
personal property is constituted in a PRIVATE INSTRUMENT
contributed constituted in a PUBLIC INSTRUMENT
REGISTERED – S.E.C.
 TRANSFER of land to the partnership must be duly B) ACCORDING TO OBJECT
“recorded” in the ROD to make the transfer effective UNIVERSAL
insofar as third persons are concerned PARTICULAR
C) ACCORDING TO LIABILITY
RULE: LIMITED PARTNERSHIP
 any immovable property or an interest therein maybe GENERAL PARTNERSHIP
acquired in the partnership name D) ACCORDING TO LEGALITY
 title so acquired can be conveyed only in the LAWFUL OR LEGAL
partnership name UNLAWFUL OR ILLEGAL
E) ACCORDING TO DURATION
IF the partnership has ALIENS, it CANNOT OWN for a SPECIFIC PEIOD or FIXED PERIOD
LANDS, whether public or private or whether PARTNERSHIP AT WILL
agricultural or commercial EXCEPT through HEREDITARY F) ACCORDING TO REPRESENTATION TO OTHERS
SUCCESSION ORDINARY PARTNERSHIP
PARTNERSHIP BY ETOPPEL
G) AS TO LEGALITY OF EXISTENCE
DE JURE PARTNERSHIP
LIMITATIONS ON ACQUISITION DE FACTO PARTNERSHIP
AGRICULTURAL LANDS – 1024 HECTARES H) AS TO PUBLICITY
SECRET PARTNERSHIP RULE:
NOTORIOUS / OPEN PARTNERSHIP  persons who are prohibited from giving each other
I) AS TO PURPSE any donation or advantage cannot enter into universal
COMMERCIAL / TRADING partnership
PROFESSIONAL / NON-TRADING WHO:
HUSBAND and WIFE
those guilty of ADULTERY or CONCUBINAGE
GENERAL PARTNERSHIP those guilty of the same criminal offense if the
 one where all the partners are general partners partnership was entered into in consideration of the
 they are LIABLE even with respect to their individual same
properties, after the assets of the partnership has been
exhausted  while spouses cannot enter into a universal
partnership, they can enter into a particular partnership
LIMITED PATNERSHIP or be members thereof
 one where at least one partner is a general partner
and the others are limited partners  a universal partnership is virtually a donation to each
 one whose liability is limited only up to the extent of other of the partners properties or at least their
his contribution usufruct

 a partnership where all the partners are limited

partners cannot exist as a limited partnership
 REFUSED REGISTRATION PARTICULAR PARTNERSHIP
 IF it continuous as such, it will be considered as a  a particular partnership has for its OBJECT:
general partnership and all the partners will be DETERNMINATE THINGS – their use or fruits
general partners SPECIFIC UNDERTAKING
EXERCISE of a PROFESSION or VOCATION
KINDS OF UNIVERSAL PARTNERSHIP
PARTNERSHIP OF ALL PRESENT PROPERTY OBLIGATIONS OF THE PARTNERS
PARTNERSHIP OF ALL PROFITS RULE:
 a PARTNERSHIP BEGINS from the moment of the
EXECUTION of the CONTRACT
*UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY
 CONTRIBUTION of *  even if contributions have not yet been made the
ALL the properties actually belonging to the partners firm already exists, for partnership is a consensual
the PROFITS acquired with said property contract
 BECOMES COMMON PROPERTY
 EXCEPT all FUTURE PROPERTY DURATION OF PARTNERSHIP
 FRUITS of FUTURE PROPERTY – INCLUDED IF  UNLIMITED
STIPULATED UPON *  MAY BE AGREED UPON
EXPRESSLY – definite period
IMPLIEDLY – upon achievement of its purpose
*UNIVERSAL PARTNERSHIP OF PROFITS
 comprises all that the partners may acquire by the PARTNERSHIP AT WILL
INDUSTRY or WORK of the partners become common  a partnership wherein its continued existence really
property regardless of within said profits were obtained depends upon the will of the partners or even on the
through the usufruct contributed will of any of them
 EXCEPT PRIZES and GIFTS 2 KINDS:
when there is no term, express or implied
RULE: when it is continued by the habitual managers although
 articles of universal partnership, entered without the period has ended or the purpose has been
specification of its nature, only constitute a universal accomplished
partnership of PROFITS
3 IMPORTANT DUTIES OF EVERY PARTNER [C, D-F, W]
duty to CONTRIBUTE what had been promised
duty to DELIVER the FRUITS of what should have been
delivered
duty to WARRANT
RIULES ON THE DUTY TO CONTRIBUTE
the contribution must be made at the time the
partnership is entered into UNLESS a different period is
stipulated
no demand is needed to put the partner in default
the partner must exercise due diligence in preserving
the property to be contributed before he actually
contributes the same
a partner who promises to contribute to the
partnership becomes a promissory debtor of the
partnership
RULES ON THE DUTY TO DELIVER THE FRUITS
IF property has been promised, the fruits thereof should
also be given
the fruits referred to are those arising from the time
they should have been delivered, without a need of any
demand
IF the partner is in BAD FAITH, he is liable not only for
the fruits actually produced, BUT also for those that
could have been produced
IF MONEY HAS BEEN PROMISED, INTEREST and
DAMAGES from the time he should have complied with
his obligation should be given
NO DEMAND is needed to put the partner in default
it is DELIVERY, actual or constructive that TRANSFERS
OWNERSHIP
RULES ON THE DUTY TO WARRANT
the warranty in case of eviction refers to specific and
determinate things already contributed
there is EVICTION whenever by a final judgment based
on a right prior to the sale or an act imputable to the
partner, the partnership is deprived of the whole or a
part of the thing purchased
RULE WHEN CONTRIBUTION CONSISTS OF GOODS
 APPRAISAL of VALUE is needed to determine how
much was contributed
HOW APPRAISAL MADE
as PRESCRIBED in the CONTRACT
in default, by EXPERTS chosen by the partners, and at
CURRENT PRICES
* necessity of the INVENTORY – APPRAISAL
RULE on RISK of LOSS
 after goods have been contributed, the partnership
bears the risk of subsequent changes in the value
RULE:
 a partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the
interest and damages from the time he should have
complied with his obligation
CAPITALIST PARTNER
 one who FURNISHES CAPITAL
* NOT EXEMPTED from LOSSES
* he can engage in other business PROVIDED there is
no competition between the partnership and his
business
* share in the profits according to agreements
INDUSTRIAL PARTNER
 one who FURNISHES INDUSTRY or LABOR
* he is EXEMPTED from LOSSES as between the
partner BUT liable to strangers without prejudice to
reimbursement from the capitalist partner
* he CANNOT engage in any other BUSINESS
WITHOUT the express CONSENT of the other partners,
OTHERWISE
he can be EXCLUDED from the firm
- plus damages OR
the BENEFITS he obtains from the other businesses CAN
BE AVAILED of by the other partners
plus damages
 whether or not there is COMPETITION
* in computing always look for ----- NET PROFITS
----- NET LOSSES
CAPITALIST – INDUSTRIALIST PARTNER
 one who contributes BOTH CAPITAL and INDUSTRY
GENERAL PARTNER
 one who is liable “beyond” the extent of his
contribution
LIMITED PARTNER
 one who is liable “only” to the extent of his
contribution
*** an industrial partner can only be a general
partner, never a limited partner
MANAGING PARTNER
 one who manages actively the firms affairs
SILENT PARTNER
 one who does not participate in the management,
though he shares in the PROFITS or LOSSES
LIQUIDATING PARTNER
 one who winds up or liquidates the affairs of the firm
after it has been dissolved
OSTENSIBLE PARTNER
 one whose connection with the firm is public and
open
SECRET PARTNER
 one whose connection with the firm is concealed or
kept secret
DORMANT PARTNER
 one who is both a secret (hidden) and silent (not
managing) partner
NOMINAL PARTNER
 one who is not really a partner BUT who may become
liable as such insofar as third persons are concerned
RULE:
 partners shall CONTRIBUTE EQUAL SHARES to the
capital of the partnership
* it is permissible to contribute UNEQUAL SHARES IF
there is a stipulation to this effect
* in the absence of proof, the shares are presumed
to be equal
CONDITIONS before a capitalist partner is obliged to
sell his shares / interest to the other partners [IL, RC,
NA]
if there is IMMINENT LOSS of the BUSINESS of the
partnership
he REFUSES to CONTRIBUTE an ADDITIONAL SHARE to
the CAPITAL
there is no agreement to the contrary
* INDUSTRIAL PARTNER IS EXEMPTED
*RULE if MANAGING PARTNER COLLECTS A CREDIT
REQUISITES:
existence of at least 2 debts ---- PARTNERSHIP
---- PARTNER
both sums are demandable
the collecting partner is the managing partner
* the sum thus collected shall be applied to the two
credits in
proportion to their amounts
RULE:
* where a partner receives his share in the partnership
credit
CONDITIONS:
a partner has received his share in the partnership
credit – in whole or in part
the other partners have not collected their part of the
credit
the debtor subsequently becomes INSOLVENT
RULE: - the partner shall be obliged to bring to the
partnership
capital what he received even though he may have
given receipt for
his share only
* DOES NOT APPLY when debt was collected after
dissolution of the partnership
RULE:
* every partner is responsible to the partnership for
damages suffered by it through his fault
* he cannot compensate them with the profits
and benefits, which he may have earned for the
partnership by his industry
* the courts may equitably lessen his
responsibility
“RES PERIT DOMINO”
*RULES ON WHO BEARS THE RISK OF LOSS
if SPECIFIC and DETERMINATE THINGS NOT FUNGIBLE
whose USUFRUCT is enjoyed by a firm
 the PARTNER who OWNS it bears the loss for
ownership was never transferred to the firm

FUNGIBLE or DETERIORABLE
 FIRM bears the loss for it is evident ownership was
transferred
THINGS CONTRIBUTED to be SOLD
FIRM bears the loss for evidently the firm was
intended to be the owner
CONTRIBUTED under APPRAISAL
 FIRM bears the loss because this has the effect of
an implied sale
RULE on RESPONSIBILITY of the FIRM
to REFUND amounts disbursed on behalf of the firm
plus legal interest from the time expenses where made
to ANSWER to each partner for OBLIGATIONS he may
have entered into in good faith in the interest of the
partnership, as well as the risks in consequence of its
management
* REFUND must be made even in case of failure of the
enterprise entered into, provided the partner is not at
fault
* AMOUNT DISBURSED – does not refer to the
ORIGINAL CAPITAL
*HOW PROFITS ARE DISTRIBUTED
according to AGREEMENT
IF NONE, according to amount of CONTRIBUTION
*HOW LOSSES are DISTRIBUTED
according to AGREEMENT as to losses
IF NONE, according to agreement as to PROFITS
IF NONE, according to amount of CONTRIBUTION
* an INDUSTRIAL PARTNER shall receive a JUST and
EQUITABLE share in the profits
*RULE on INDUSTRIAL PARTNERS’ LIABILITIES
- may be held liable by third persons BUT he may
recover what he has paid from the other capitalist
partners
*RULE on DESIGNATION by THIRD PERSON of SHARES
in PROFITS and LOSSES
* third person is NOT a PARTNER -- appointed to only
distribute shares
* the designation of shares by third persons may be
IMPUGNED, IF it is MANIFESTLY INEQUITABLE
* the designation of shares by third persons CANNOT
be IMPUGNED EVEN IF MANIFESTLY INEQUITABLE IF:
the aggrieved partner has already BEGUN to EXECUTE
the decision
the aggrieved partner has not IMPUGNED the
distribution within 3 months he had knowledge
*RULE IF APPOINTMENT OTHER THAN in the ARTICLES
of PARTNERSHIP
power to act may be REVOKED at ANY TIME with or
without just cause
 REMOVAL should be done by the controlling interest
EXTENT of POWER
 as long as he remains manager, he can perform all
acts of administration
BUT – if others oppose and he persists, he can be
removed
*RULE WHEN there are 2 or MORE MANAGERS
CONDITIONS:
2 or more partners are managers
there is no specification of respective duties
there is no stipulation requiring UNANIMITY
SPECIFIC RULES:
each may separately execute all acts of administration
 UNLIMITED POWER to ADMINISTER
IF any of the managers OPPOSE
 MAJORITY RULE
 IN CASE OF A TIE
- persons owning controlling interest prevail
provided they are also managers
* right to oppose is not given to NON-MANAGERS
* OPPOSITION should be done BEFORE the acts
produce legal effects insofar as third persons are
concerned
RULE WHEN UNANIMITY is REQUIRED
the CONCURRENCE of all shall be necessary for the
validity of the acts
the ABSENCE or DISABILITY of ANYONE of them
CANNOT BE ALLEGED UNLESS there is imminent danger
of grave or irreparable injury to the partnership
RULE ON DUTY of THIRD PERSONS
 third persons are not required to inquire as to
whether or not a partner with whom he transacts has
the consent of all the managers
*RULES to be observed when the manner of
management has not been agreed upon:
all the partners are considered AGENTS
 whatever any one of them may do alone shall not
bind the partnership
IF the acts of one are opposed by the rest, the majority
shall prevail
when a partner acts in his OWN NAME, he does not
bind the partnership
authority to bind the firm does not apply if somebody
else has been given authority to manage in the articles
of organization or through some other means
ALTERATIONS REQUIRE UNANIMITY
- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is
prejudicial to the interest of the partnership
- COURTS INTERVENTION may be sought
RULES on ASSOCIATE of PARTNER
every partner may associate another person with him in
his share
for a partner to have an associate in his share
 consent of all the other partners is NOT REQUIRED
for the associate to become a partner
 ALL MUST CONSENT
RULES on PARTNERSHIP BOOKS
kept at the principal place of business of the
partnership
at any reasonable hour, every partner shall have access
to and may inspect and copy any of them
DUTY of PARTNERS TO GIVE INFORMATION
 good faith not only requires that a partner should not
make any FALSE CONCEALMENT, BUT he should abstain
from all concealment
DUTY to ACCOUNT [B, P, U-P]
 every partner must account to the partnership
any benefit acquired
any profits received
any use of partnership property
RIGHT TO DEMAND a FORMAL ACCOUNT
 any partner shall have the right to a formal account
as to partnership affairs
if wrongfully excluded from partnership BUSINESS
if wrongfully excluded from partnership PROPERTY by
his co-partners
if the right exists under the terms of agreement
if the other partner receives other benefits, profits or
uses partnership property
whenever other circumstances render it just and
reasonable
* 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
PROPERTY RIGHTS OF PARTNERS [P, I, M]
rights in specific PARTNERSHIP PROPERTIES
INTERESTS in the PARTNERSHIP
right to PARTICIPATE in the MANAGEMENT
RULE:
* a partner is CO-OWNER with his partners of SPECIFIC
PARTNERSHIP PROPERTY
* RIGHTS of a PARTNER in SPECIFIC PARTNERSHIP
PROPERTY
he has equal rights with his partners to POSSESS the
property BUT only for PARTNERSHIP PURPOSES
 he may possess such property for other purposes
PROVIDED the other partners expressly or impliedly
gives their CONSENT
he CANNOT ASSIGN his right to the property EXCEPT if
all the other partners assign their rights in the same
property
his right to the property is NOT SUBJECT to
ATTACHMENT or EXECUTION, EXCEPT on a claim against
partnership
his right to the property is NOT SUBJECT to LEGAL
SUPPORT
* if there is PARTNERSHIP DEBT, the specific property
can be attached

RULE:
* a PARTNERS INTEREST in the partnership is his
SHARE of the PROFITS and SURPLUS
IT CAN BE: [A, A, LS]
ASSIGNED
ATTACHED
be subject to LEGAL SUPPORT
*EFFECTS of CONVEYANCE by PARTNER of his
INTEREST in the PARTNERSHIP
IF he conveys his WHOLE INTEREST
partnership may still remain
partnership may be dissolved
* mere conveyance does not dissolve the partnership
the ASSIGNEE does not necessarily become a partner
 the ASSIGNOR is still the partner, with a right to
demand accounting and settlement
the ASSIGNEE CANNOT interfere in the MANAGEMENT
or ADMINISTRATION of the firm
 the ASSIGNEE CANNOT also DEMAND [I, A, I]
INFORMATION
ACCOUNTING
INSPECTION of partnership books
*** while a partners INTEREST in the firm may be
CHARGED or LEVIED upon, his INTEREST in a specific
firm PROPERTY CANNOT be attached.
RIGHTS of the ASSIGNEE
to get whatever profits the assignor-partner would have
obtained
to avail himself of the usual remedies in case of fraud in
the management
to ask for ANNULMENT of the contract of assignment IF:
A) he was induced to enter into it through any of the
vices of consent OR
B) he himself was incapacitated to give consent
to demand an accounting BUT only if the partnership is
dissolved
PREFERENTIAL RIGHTS of PARTNERSHIP CREDITORS
* partnership creditors are entitled to PRIORITY over
partnership assets, including the partners interest in the
profits
** SEPARATE or INDIVIDUAL creditors have
PREFERENCE in separate or individual properties
* when the CHARGING ORDER is applied for and
granted, the court may appoint a receiver of the
partners share in the profits
 the receiver appointed is entitled to any relief
necessary to conserve the partnership assets for
partnership purposes
* interest charged may be redeemed at any time
before foreclosure
* AFTER FORECLOSURE the interest may still be
redeemed by (without causing dissolution)
1. with separate property, by any one or more of the
partners OR
2. with partnership property, by any one or more
partners with the consent of all the partners whose
interests are not so charged or sold
* consent of the delinquent partner not needed
RULE:
 every partnership shall operate under a FIRM NAME
* the firm name may or may not include the name of
one or more of the partners
** STRANGERS who include their names in the firm are
liable as partners because of ESTOPPEL, BUT do NOT
have the RIGHTS of partners
** IF a LIMITED PARTNER includes his name in the firm
name, he has obligations BUT not the rights of a general
partner
RULE on LIABILITY for CONTRACTUAL OBLIGATIONS
* all partners, including industrial ones, shall be liable
pro-rata with all their property and after all the
partnership assets have been exhausted
* NOT APPLICABLE for TORTS or CRIMES ----- LOSS
----- INJURY
-----
MISAPPROPRIATION
** while an INDUSTRIAL PARTNER is exempted by law
from LOSSES as between the partners, he is NOT
EXEMPTED from liability insofar as third persons are
concerned
 he may recover what he has paid from the
CAPITALIST partners
* under the law the liability of the partners is
subsidiary and joint NOT principal and solidary
*RULE on LIABILITY of a PARTNER who has
WITHDRAWN
a partner who withdraws is not liable for liabilities
contracted after he has withdrawn
if his interest has not yet been paid him
 his right to the same is that of a mere creditor
** a stipulation exempting liability to third persons is
VOID
* any partner may enter into a separate obligation to
perform a partnership contract
RULE:
* every partner is an “agent” of the partnership for the
purpose of its business
G.R.- the act of every partner for apparently carrying on
in the USUAL WAY the business of the partnership of
which he is member binds the partnership
EXCEPT:
1. if he has NO AUTHORITY and
2. the person with whom he was dealing with HAS
KNOWLEDGE of the fact that he has no such authority
RULE:
 an act of a partner which is not apparently for the
carrying on of business of the partnership in the usual
way does not bind the partnership UNLESS authorized
by the other partners
* a partnership is a CONTARCT of MUTUAL AGENCY,
each partner acting as a principal on his own behalf and
as an agent for his co-partners or the firm
REQUISITES on WHEN can a partner BIND the
partnership
expressly or impliedly AUTHORIZED
when he acts in BEHALF AND IN THE NAME of the
partnership
INSTANCES of IMPLIED AUTHORIZATION
when the other partners DO NOT OBJECT, although they
have knowledge of the act
when the act is for “apparently carrying on in the usual
way the business of the partnership
* this is binding on the firm even if the partner was
not really authorized PROVIDED that the third party is in
GOOD FAITH
RULE on UNUSUAL ACTS
 one or more but less than all the partners HAVE NO
AUTHORITY TO:
[AP, DG, AI, CJ, EC, SA, RC]
ASSIGN the PARTNERS PROPERTY
DISPOSE of GOODWILL
do any other act which would make it impossible to
carry on the ordinary business of the partnership
CONFESS a judgment
ENTER into a COMPROMISE
SUBMIT to ARBITRATION
RENOUNCE to CLAIM
*RULES on CONVEYANCE of REAL PROPERTY
where title to real property is in the partnership name
 any partner may convey title to such property by a
conveyance executed in the partnership name
* PARTNERSHIP MAY RECOVER SUCH PROPERTY
EXCEPT:
if the firm is engaged in the buying and selling of land
(USUAL BUSINESS)
if property was conveyed to a HOLDER for VALUE and
who had NO KNOWLEDGE of the partners LACK of
AUTHORITY
2. where title is in the name of the partnership and
partner sold in his OWN NAME
 IF DONE IN USUAL BUSINESS
 buyer does not become owner BUT ACQUIRES
EQUITABLE INTEREST
 IF NOT DONE IN USUAL BUSINESS
 buyer does not become owner and is not even
entitled to equitable interest
3. where title is in the name of one or more BUT not all
the partners
 partners in whose name the title is named MAY
CONVEY BUT the PARTNERSHIP may RECOVER such
property IF done not in its USUAL BUSINESS EXCEPT if
he had transferred it to a Holder for value
4. when property “held in trust” by partner
 a sale only conveys EQUITABLE INTEREST
when title is in the name of all partners
  conveyance executed by all partners possess all
rights of such property
EQUITABLE INTEREST
-BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP
*RULE on ADMISSION or REPRESENTATION MADE by a
PARTNER
 an admission by a partner is an admission against the
partnersip,under the following conditions:
the admissions must concern partnership affairs
must be within the scope of his authority
RESTRICTIONS ON THE RULE:
admissions made BEFORE DISSOLUTION are binding
only when the partner has authority to act on the
particular matter
admissions made AFTER DISSOLUTION are binding only
if the admissions were necessary to WIND UP the
business
an admission made by a former partner made after he
has RETIRED from the partnership is not evidence
against the firm
EFFECT of NOTICE to a PARTNER
 notice to a partner is notice to the partnership
*notice to a partner, given while already a partner is
a notice to the partnership PROVIDED it relates to
partnership affairs
EFFECT of KNOWLEDGE ALTHOUGH NO NOTICE WAS
GIVEN:
* knowledge of the partner is also knowledge of the
firm PROVIDED THAT:
the knowledge was acquired by a partner who is acting
in the particular matter involved;and
the partner having knowledge, had reason to believe
that the fact related to a matter which had some
possibility of being the subject of the partnership
business AND he was so situated that he could
communicate it to the partner acting on that particular
matter
* SERVICE of PLEADINGS on the partner in a law firm
is also service on the whole firm and the other partners
LOSS OR INJURY
RULE on WRONGFUL ACT or OMISSION of a PARTNER
(SOLIDARY LIABILITY)
* the partnership is solidarily liable with the partner if
the wrongful act or omission
the partner is acting in the ordinary course of business
of the partnership OR
with authority of his co-partners
* innocent partners have right to recover from the
guilty partner
* When the firm and other partners not liable:
if the wrongful act or omission was NOT DONE
within scope of partnership business
with authority of the other co-partners
if the act or omission is NOT WRONGFUL
if the act or omission, although wrongful did not make
the partner concern liable
- DAMNUN ABSQUE INSURIA
if the wrongful act or omission was committed after the
firm had been dissolved and the same was not in
connection with the process of winding up.
LIABILITY of PARTNERSHIP for MISAPPROPRIATION –
(SOLIDARY LIABILITY)
RECEIVING PARTY MISAPPROPRIATES
ANY PARTNER MISAPPPROPRIATES
money or property in custody of partnership
PARTNER BY ESTOPPEL
 a person who represents himself or consents to
another / others representing him to anyone as a
partner either in an existing partnership or in one that is
fictitious or apparent
PARTNERSHIP BY ESTOPPEL
 when all the members of the existing partnership
consent to such representation of a partner by estoppel
RULES AND SITUATIONS:
if a third person is misled and acts because of such
misrepresentation
 the deceiver is a partner by estoppel
if the partnership consented to such misrepresentation
 partnership liability results
if the firm had not consented
 no partnership liability results BUT the deceiver is
considered still as a “partner by estoppel” with all the
obligations but not the rights of a partner
when a person represents himself as a partner of a
NON-EXISTENT partnership
 NO partnership liability results BUT the deceiver and
all persons who may have aided him in the
misrepresentation are still liable
 liability would be JOINT or PRO-RATA
* when although there is misrepresentation, if the
third party is not deceived, the doctrine of estoppel
does not apply
BURDEN of PROOF
 the creditor or whoever alleges the existence of a
partner or partnership by estoppel has the burden of
proving the existence of the MISREPRESENTATION AND
INNOCENT RELIANCE on it
ENTRY OF A NEW PARTNER into an EXISTING
PARTNERSHIP
RULE:
* he shall be liable for all the obligations of the
partnership BUT his liability will extend only to his share
in the partnership property
* his own individual property shall be excluded
* same liability of a limited partner
PREFERENCE of PARTNERSHIP CREDITORS
RULE:
* the creditors of the partnership shall be preferred
to those of such partner as regards the partnership
property
without prejudice to this right
 the private creditors of each partner may ask the
attachment and public sale of the share of the latter in
the partnership assets
**IF a partner sells his share to a third party, BUT the
firm itself still remains SOLVENT, partnership creditors
CANNOT assail the validity of the sale by alleging that it
is made in fraud of them, since they have not really
been prejudiced
DISSOLUTION AND WINDING UP
 the change in the relation of the partners caused by
any partner causing to be associated in the carrying on
of the business
 it is the point of time the partners cease to carry on
the business together
WINDING UP
 the process settling business affairs after dissolution
TERMINATION
 the point in time after all the partnership affairs have
been wound up
RULE ON DISSOLUTION
* on dissolution the partnership is not terminated
BUT continues until the winding up of partnership
affairs is completed
*EFFECT on OBLIGATIONS
just because a partnership is dissolved this does not
necessarily mean that a partner can evade previous
obligations entered into by the partnership
dissolution saves the former partners from new
obligations to which they have not expressly or
impliedly consented UNLESS the same be essential for
winding up
*CAUSES OF DISSOLUTION
without VIOLATION of the AGREEMENT between the
partners
TERMINATION of the DEFINITE TERM or PARTICULAR
UNDERTAKING
EXPRESS WILL or ANY PARTY in GOOD FAITH
(PARTNERSHIP by WILL)
EXPRESS WILL of ALL of the PARTNERS except those
who have (interests) ASSIGNED or whose interests have
been (separate debts) CHARGED
EXPULSION in good faith of a member
in CONTRAVENTION of the agreement between the
partners
 by the EXPRESS WILL of ANY PARTNER at any time
UNLAWFULNESS of the BUSINESS
LOSS – thing promised
SPECIFIC THING – PERISHES before delivery
USUFRUCT is lost EXCEPT if ownership had been
transferred to the partnership
DEATH of ANY partner
INSOLVENCY of any partner or of the partnership
CIVIL INTERDICTION of any partner
DECREE of COURT
*** if the cause is not justified or no cause was given,
the withdrawing partner is liable for DAMAGES BUT in
no case can he be compelled to remain in the firm
* the insolvency need not be judicially declared, it is
enough that the assets be less than the liabilities
DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:
(I, UM, I-PP, C, PB, BL, OC)
partner declared “insane” in any judicial proceeding or
is shown to be of UNSOUND MIND
partner becomes INCAPABLE of performing his part of
the partnership contract
partner has been guilty of such CONDUCT as tends to
affect prejudicially the business
partners PERSISTENT BREACH of agreement
the business of the partnership can only be denied on at
a loss
other circumstances which render dissolution equitable
IN CASE OF PURCHASER of PARTNERS INTEREST
after the termination of the specified term or particular
undertaking
AT ANY TIME, if the partnership was a “partnership at
will” when the interest was assigned or when the
charging ordered was issued
* proof as to the existence of the firm must first be
given
* even if a partner has not yet been previously
declared insane by the court, dissolution may be asked,
as long as the insanity is duly proved in court
* in a suit for dissolution, the court may appoint a
RECEIVER at its discretion
EFFECTS OF DISSOLUTION
RULE:
* when the firm is dissolved, a partner can no longer
bind the partnership
* a dissolved partnership still has the personality for
the winding up of its affairs
 the firm is still allowed to collect previously
acquired credits
 the firm is still bound to pay of its debts
DISSOLUTION CAUSED by A-I-D
RULE: (STILL BOUND) – as to each partners
G.R. where the dissolution is caused by the ACT,
INSOLVENCY or DEATH of a partner, each partner is
liable to his co-partners for his share of any liability
created by any partner acting for the partnership
EXCEPTION: - individual liabilities
if dissolution by ACT
 the partner acting for the partnership HAD
KNOWLEDGE of the dissolution OR
if dissolution by DEATH or INSOLVENCY
 the partner acting for the partnership HAD
“knowledge or notice” of the death or insolvency
* only the partner acting assumes liability
*AFTER DISSOLUTION, a partner can still “bind” the
PARTNERSHIP
(WU, UT, TB)
By any ACT appropriate for WINDING UP partnership
affairs
By COMPLETING transactions UNFINISHED at
dissolution
By any TRANSACTION which could bind the partnership
IF dissolution had not taken place PROVIDED the other
party is:
PREVIOUS CREDITOR and had NO KNOWLEDGE or
NOTICE of the dissolution OR
NOT a PREVIOUS CREDITOR, had NO KNOWLEDGE or
NOTICE and dissolution was NOT PUBLISHED
* if there was publication of the dissolution it is
presumed he already knows, regardless of actual
knowledge on non knowledge
WHEN is the PARTNERSHIP NOT BOUND
new business with third parties who are in bad faith
firm dissolved because UNLAWFUL except for acts of
winding up
partner who acted became INSOLVENT
partner not authorized to wind up EXCEPT if customer
in good faith
* if after dissolution, if a stranger will represent
himself as a partner although he is not one he will be a
partner by estoppel
RULE:
* the dissolution of the partnership does not itself
discharge the “existing liability” of any partner
 NEED for an AGREEMENT BETWEEN
partner concerned
other partners
creditors

RULE:
* the INDIVIDUAL PROPERTY of a DECEASED PARTNER
shall be liable for all obligations of the partnership
incurred while he was a partner BUT subject to prior
payments of his separate debts
* IF there be a NOVATION of the OLD PARTNERSHIP
DEBTS and such novation is done after one of the
partners has “retired” and without the consent of such
partner
 said partner cannot be held liable by creditors
who made the novation with knowledge of the firms
dissolution
EXTRAJUDUCIAL AND JUDICIAL WINDING-UP
EXTRAJUDICIAL:
by the partners who have not wrongfully dissolved the
partnership
by the legal representative of the last surviving partners
JUDICIAL:
 under the control and direction of the court, upon
proper cause that is shown to the court
* profits that will actually enter the firm after
dissolution as a consequence of transactions already
made before dissolution are included because they are
considered as profits existing at the time of dissolution
* any other income earned after the time, like
interest or dividends on stock owned by the partners or
partnership at the time of dissolution should not be
distributed as profits BUT as merely additional income
to the capital
BETTER RIGHTS of INNOCENT PARTNERS
 innocent partners have better rights than guilty
partners and that the guilty partners are required to
indemnify for the damages caused
* RIGHT of INOCENT PARTNERS TO CONTINUE the
BUSINESS
 in essence this is a new partnership
 can use the same firm name
 can ask new members to join
BUT shall: for protection of guilty partners
give a BOND approved by the court
to PAY guilty partners his interests at the time of
dissolution MINUS DAMAGES
* a guilty partner who is EXCLUDED will be
indemnified against all present or future partnership
liabilities
RIGHT TO GET CASH
 in case on non-continuance of the business, the
interest of the partner should if he desires be given in
cash
 assets may be sold
 a guilty partner, in ascertaining the value of his
interest is not entitled to a proportional share of the
value of GOOD WIL
RIGHTS OF INNOCENT PARTNERS IN CASE of
RESCISSION based on FRAUD AND
MISREPRESENTATION
1. Right to LIEN or RETENTION  SURPLUS
 CAPITAL
 ADVANCES
2. Right of SUBROGATION – as creditor
3. Right of INDEMNIFICATION
*ORDER of PAYMENT in WINDING-UP of PARTNERSHIP
LIABILITIES
GENERAL PARTNERSHIP: [C, R, C, P]
those owing to “creditors” other than partners
those owing to “partners” other than for capital or
profits – REIMBURSEMENTS
those owing to partners in respect to CAPITAL
those owing to partners in respect to PROFITS
* IF the partnership assets are insufficient, the other
partners must contribute more money or property
PREFERENCE with RESPECT to the ASSETS
regarding partnership property
 partnership creditors have preference
regarding individual properties of partners
 individual creditors are preferred
RULE if PARTNER is INSOLVENT
- How INDIVIDUAL PROPERTY is DISTRIBUTED
ORDER OF PREFERENCE:
INDIVIDUAL or SEPARATE CREDITORS
PARTNERSHIP CREDITORS
those owing to other partners by way of contribution
*When creditors of the dissolved partnership are also
creditors of the partnership continuing business:
new partner is admitted without liquidation
a partner retires and assigns his rights IF the business is
continued without liquidation of the partnership affairs
all but one partner retire without liquidation
when all partner assign their right to a person who will
assume their debt
after wrongful dissolution, remaining partners continue
the business without liquidation
when partner expelled and remaining partners continue
the business without liquidation
* liability of third person becoming a partner in the
partnership continuing the business to the creditors of
the dissolved partnership shall be satisfied out of the
partnership property ONLY
G.R. – when a partner retires, he is entitled what is due
him after liquidation BUT no liquidation is needed if
there is already a settlement at the date of dissolution
JURISPRUDENCE
BASTIDA vs. MENZI
* articles of association by which 2 or more persons
obligate themselves to place in a common fund any
property, industry, or any of these things, in order to
obtain profit, shall be COMMERCIAL
BORJA vs. ADDISON
* a surviving husband may form a partnership with
the heirs of the deceased wife for the management and
control of the community property
 BUT in the absence of the formalities prescribed by
the Civil Code, knowledge of the existence of the new
partnership or community of property must at least be
brought home to third persons dealing with the
surviving husband in regard to the community real
property in order to bind them by the community
agreement
KIEL vs. SABERT
* the declarations of one partner, not made in the
presence of his co-partner, are not competent to prove
the existence of a partnership between them as against
such partner
* the existence of a partnership cannot be
established by general reputation, rumor or hearsay
EVENGELISTA vs. C.I.R.
* By the contract of partnership 2 or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves
ESSENTIAL ELEMENTS of a PARTNERSHIP
an agreement to CONTRIBUTE money, property, or
industry to a COMMON FUND
intent to divide the profits among the contracting
parties
* when our internal Revenue Code includes
“partnerships” among the entities subject to the tax on
“corporations”, said code which are not necessarily
“partnerships” in the technical sense of the term
* PARTNERSHIPS – includes a SYNDICATE, GROUP,
POOL, JOINT VENTURE, or other unincorporated
organization, through or by the means of which any
business, financial operation, or venture is carried on
* a joint venture need not be undertaken in any of
the standard forms,
or in conformity with the usual requirements of the law
on partnerships, in order that one could be deemed
constituted for purposes of the TAX on corporations
PASCUAL vs. C.I.R.
* co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property
* the sharing of gross returns does not itself establish
a partnership, within the persons sharing them have a
joint or common right or interest in any property from
which the returns are derived
* aside from the circumstances of profit, the presence
of other elements constituting partnership is necessary,
such as:
the clear intent to form a partnership
the existence of a juridical personality different from
that of the individual partners AND
the freedom to transfer or assign any interest in the
property by one with the consent of the others
* an isolated transaction whereby 2 or more persons
contribute funds to buy certain real estate for profit in
the absence of other circumstances showing a contrary
intention cannot be considered a partnership
* persons who contribute property or funds for a
common enterprise and agree to share the gross
returns of that enterprise in proportion to their
contribution, BUT who severally retain the title to their
respective contribution, are not thereby rendered
partners
 they have no common stock or capital and no
community of interest as principal proprietors in the
business itself which the proceeds derived
* a joint purchase of land, by two does not constitute
a co-partnership in respect thereto, NOR does an
agreement to share the profits and losses on the sale of
land create a partnership
* in order to constitute a PARTNERSHIP INTER SESE
there must be:
an intent to form the same
generally participating in both profits and losses
AND
such a community of interest, as far as third persons are
concerned as enables each party to make a contract,
manage the business, and dispose of the whole
property
* the common ownership of property does not itself
create a partnership between the owners, though they
may use it for the purpose of making gains AND they
may without becoming partners, agree among
themselves as to the management and use of such
property and the application of the proceeds therefrom
* the sharing of returns does not in itself establish a
partnership within the persons sharing therein have a
joint or common right or interest in the property
 there must be:
clear intent to form a partnership
the existence of a juridical personality different from
the individual partners AND
the freedom of each party to transfer or assign the
whole property
DUTERTE vs. RALLOS
* an agreement between 2 persons to operate a
cockpit, by which one is to contribute his services and
the other to provide the capital, the profits to be
divided between them, constitutes a partnership
DELUAO vs. CASTEEL
* a contract of partnership to exploit a fishpond
pending its award to any qualified party or applicant is
VALID BUT a contract of partnership to divide the
fishpond after such award is ILLEGAL
* one of the causes of dissolution is – any event
which make it unlawful for the business of the
partnership to be carried on or for the members to
carry it on in partnership
C.I.R. vs. SUTER
* a UNIVERSAL PARTNERSHIP requires either that the
object of the association be:
all the present property of the partners as contributed
by them to the common fund OR
all that the partners may acquire by their industry or
work during the existence of the partnership
* the subsequent marriage of the partners could not
operate to dissolve the partnership because it is not one
of the causes provided for dissolution by law with
regards to limited partnerships
* partnership has distinct and separate personality
from that of its partners
* a husband and wife may not enter into a contract of
general co-partnership/ UNIVERSAL partnership
ACOAD vs. MABATO
* 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
* 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
EVANGELISTA vs. ABAD SANTOS
* an INDUSTRIAL PARTNER cannot engage in
BUSINESS FOR HIMSELF, UNLESS the partnership
expressly permits him to do so
 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
* the prohibition against an industrial partner
engaging in business for himself seeks to prevent any
conflict of interest between the industrial partner and
the partnership and to ensure faithful compliance by
said partner with his prostation
 CORPORATION
(B.P. Blg.68)
May 1, 1980
Title I: General Provisions
“The Congress shall not, except by general provision,
provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporation may be created or established by special
charters in the interest of the common good and to the
test of viability.”
Scope of the Code:
1. Incorporation, organization, and regulation of
PRIVATE corporation, both stock and non-stock,
including educational and religious
corporations;
2. Powers and dissolution;
3. Duties and liabilities of directors and trustees
and other officers;
4. Rights and liabilities of stockholders or
members;
5. Prescribes conditions under which corporation
including foreign may transact
6. Penalties for violations
7. Repeals all laws and parts of laws in conflict and
inconsistent
Corporation- is an artificial being created by the
operation of law having the right of succession and the
powers, attributes and properties expressly authorized
by law or incident to its existence.
Consequences of separate personality:
1. The stockholders are not liable for the debts of
the corporation (only to the extent of their
investments), vice versa even the president.
2. It may have property of all kinds and incur
obligations and bring civil and criminal actions
in its own name.
3. Property conveyed to or acquired by the
corporation is its property not of the
stockholders or members.
4. All contracts in its name by its regular officers
and agents are those of the corporation.
5. A tax exemption granted to the corporation
cannot be extended by dividends paid to its
stockholders if such is not exempt.
6. Corporation cannot bring an action for and in
behalf of its stockholders for the purpose of
recovering property which belongs to
stockholders in their personal capacity.
7. Corporation can’t be affected by changes in
members. It exist even all stockholders die.
Doctrine of piercing the veil or doctrine of corporate
alter ego - when the corporation is used to cover fraud
or illegality, the separate entity will be disregarded. The
creditors can now go after the assets of stockholders.
INSTANCES:
1. Corporation functions for the benefit of one
person who is the sole owner. (alter ego)
2. Corporation is mere instrumentality of the
individual stockholders. (stockholders will be
liable to corporate obligation)
3. Philippine corporation is controlled by aliens
(nationality will be deemed that of the
controlling stockholder during wartime)
4. Corporation is organized by insolvent debtors to
defraud the creditors.
5. Subsidiary company is created by parent
company as mere agency.
6. Corporation is formed to evade individual
contract.
7. Corporation is dissolved and its assets are
transferred to another corporation to avoid a
financial liability of the first corporation to its
employees.
Corporation by prescription- not necessary to have
legislature grant in creation (i.e. Catholic Church)
Distinctions between partnership and corporation:
1. Manner of creation (agreement; law)
2. Number of incorporators(2; 5-15)
3. Commencement of juridical personality
4. Powers
5. Management
6. Effects o mismanagement
7. Right of succession
8. Extent of liability to third persons
9. Transferability of interest
10. Term of existence
11. Firm name
12. Dissolution (partners consent; State’s consent)
13. Laws which govern (Civil Code; Corp. Code)
Classes of corporations
1. Stock Corporation
2. Non-stock Corporation
3. Corporate aggregate
4. Corporate sole
5. Ecclesiastical corporation
6. Lay corporation
7. Eleemosynary corporation
 8. Civil corporation Capital- all assets of a corporation
9. Domestic corporation
10. Foreign corporation Share of Stock
11. De jure corporation  Distinct undivided share of interest in the
12. De facto corporation common property of the corporation
13. Close corporation  Incorporeal in nature (personal property)
14. Open corporation  Do not constitute an indebtedness of the
15. Parent or holding corporation corporation to the stockholder
16. Subsidiary corporation
17. True corporation Classes:
18. Quasi-corporation 1. Par value share- amount is fixed in the AOI; for
a. Corporation by prescription protection of creditor
b. Corporation by estoppels 2. No par value share
19. Public corporation (municipal corporation or 3. Voting share- Preferred shares and redeemable
local government) share have voting right unless stated in the AOI
20. Private corporation 4. Non-voting share
a. Government-owned corporation 5. Common share- residual owners
b. Quasi-public corporations (public utilities) 6. Preferred share- with preference:
a. As to dividends
Charter of a corporation- the law under which it is b. As to assets in liquidation
created 7. Promotion share- issued to promoters
8. Share in escrow- kept by depository for a
Components of a corporation: suspensive condition
1. Corporators 9. Convertible share- can be converted at
2. Incorporators stockholders demand, unless restricted in AOI
3. Stockholders
4. Members Par value- represents the amount of money or property
5. Others contributed by the stockholders to the capital stock of
a. Promoters- taga-anyaya the corporation
b. Subscribers- Book value- determined by dividing the net value of the
c. Underwriter- tagabenta total corporate assets by the number of shares issued
Market value- price a seller would sell and willing buyer
Classification of Shares would buy.
 A corporation must have at least one class of
stock with voting rights. Restrictions in issuing No Par Share:
 If the BOD and stockholders changes or restricts 1. Bank , trust, insurance companies, building and
the right of any class of shares or authorizes loan association are not permitted to issue NPS
preference, any stockholders shall have the 2. Preferred share must be issued with par value
right to dissent and demand payment of the FV 3. No par share shall be deemed fully paid
of his share. 4. Must not be issued for less than P5.00
Doctrine of equality of shares: “Except otherwise 5. Proceeds shall be deemed as capital
provided by the AOI and stated in the stock certificate,
each share is deemed equal to every other share.” Founders’ share- shares issued to the organizers and
promoters; may have preference as to dividends; can
Capital Stock- the amount fixed in the AOI; the equity of vote and be voted for not more than 5 years
the stockholders in the corporate assets
(a) Authorized share- authorized by SEC for issue Redeemable share- shares redeemable at fixed date or
(b) Subscribed share- at the option of the corporation or holder in certain
(c) Outstanding share- issued and subscribed, and redemption price even without unrestricted retained
not reacquired earnings
(d) Paid-up capital stock- paid
(e) Unissued share- not issued or subscribed Treasury share- issued, reacquired but not cancelled;
(f) Legal capital- par value no voting rights; no right as to dividend

Title II
Incorporation and Organization
of Private Corporation
Steps in Creation of Corporation:
1. Promotion
2. Incorporation
3. Formal Organization and Commencement
Steps in Incorporation
1. Drafting and execution of AOI by incorporator.
Chosen temporary treasurer must execute an
affidavit of the capital subscribed and paid up.
2. Filing AOI to SEC together with:
a. Treasurer’s affidavit showing 25%-25%
rule has been complied
b. In case of governed by special law, a
favorable recommendation of
appropriate government agency
3. Payment of filing and publication fees
4. Issuance of SEC of certificate of incorporation
Characteristics of Incorporators
1. 5-15 Natural persons (except in cooperatives)
2. Majority are residents of the Philippines.
3. Filipino citizens
4. Owners or subscribers of at least 1 share.
 Stockholders can be below minimum required
number of incorporators after incorporation.
Corporate term
 The term specified in the AOI must not exceed
to 50 years. It may be reduced or extended by
amendment of AOI before 3 –year liquidation for
the dissolution but not earlier than 5 years.
 Extension must not exceed to 50 years
 There is no minimum authorized capital stock but
the paid up capital must not be less than P5, 000.
Filipino percentage Ownership requirement:
1. Corporation for depletion of natural resources-
at least 60% of capital
2. Public service - at least 60% of capital
3. Educational corporation- at least 60% of capital
4. Banking corporation- t least 60% of capital
5. Corporation engaged in retail trade- whole
6. Rural banks- at least 60% of capital
7. Coastwise shipping- at least 60% of capital
8. Pawnshop- at least 70% of voting capital stock
9. Under flag law- at least 75% of capital
Minimum subscription and paid up capital
 25%-25% rule- at least 25% of the authorized share
must be subscribed and 25% of subscribed must be
paid. It is also required after incorporation, in case
of increase of authorized share.
 The call by BOD for payment for the balance of
subscriptions is required only when there is no fixed
date for payment in contract of subscription.
Articles of Incorporation (AOI) – document prepared by
the persons establishing a corporation and filed to SEC
 Corporation created by the special law has no AOI.
Contents of AOI
1.) Incorporators may include other matters not
inconsistent with law and which they deem
necessary and convenient.
2.) Accompanied by sworn statement of the
treasurer elected by subscribers showing 25%-
25% rule compliance.
Forms of AOI
1.) Affidavit of treasurer
2.) The AOI must written in official language
 A corporation cannot be formed for the practice of
profession unless expressly authorized by law.
 Purpose/s of corporation should not be stated
indefinitely.
 Primary purpose should be stated.
 Purpose must be capable of being lawfully
combined
Principal office of the corporation
 City or municipality within the Philippines
 Place where corporate books are kept and its
officers meet
 Change of address
Incorporating directors or trustees - hold the office
until their successors are duly elected and qualified
 The statement of the nationalities will enable the
SEC to determine prima facie compliance with
constitutional or legal percentage of Filipino citizen.
Power to amend
 Amendment may be effected by written assent of
stockholders representing at least 2/3 of
outstanding capital stock or 2/3 of its members
 The original articles and amended one shall contain
all provision required by law to be set out in AOI
 The articles, as amended shall be indicated by
stressing the change/s made, and a copy certified
under oath by corporate secretary and holders
 If not acted upon within 6 months from the date of
filing, the amendment is deemed approved by SEC
 In corporations governed by special law, the
amendment must be accompanied by favourable
recommendation of government agency that such
are in accordance with the law.
 For foreign corporations, they are required to file an
authenticated copy of AOI within 60 days after
amendment becomes effective.
Rejection of AOI or amendments
 The incorporators will be given reasonable time to
correct or modify the objectionable portions of AOI
or amendment.
Suspension or Revocation of Certificate of Registration
1.) Fraud in procuring COI
2.) Serious misrepresentation of operations
3.) Refusal to comply with lawful order of SEC
4.) Continuous inoperation for at least 5 years
5.) Failure to file by-laws within required period
6.) Failure to file required reports in required forms
Corporate name
 Must not be identical or deceptively or confusingly
similar to that of any existing corporation or
unincorporated or natural person or contrary to law
 The SEC must issue an amended AOI when the
change of name is approved.
Corporation by Estoppel
 The stockholders of an ostensible corporation who
denied corporate existence are generally estopped
to deny its corporate existence to escape liability.
 One induced by fraud to deal with an apparent
corporation will not be estopped to deny corporate
existence.
 All persons not stockholders or members who
assume to act as a corporation knowing to be
without authority shall be liable as general partners
for all debts, liabilities and damages incurred.
 If not all associates consented to the representation
the doctrine of estoppel will not apply.
Mandatory provision- prescribes formalities for
incorporation to protect the public.
a. Condition Precedent
 Filing of articles of incorporation with SEC
 Issuance of certificate of incorporation
 Compliance to minimum of 5 incorporators
b. Condition Subsequent
 Keeping of books and records
Direct provision- is relatively inconsequential so that
failure to comply is not fatal valid incorporation.
Title III
Board of Directors/Trustees/Officers

Acquisition of Juridical Personality

1.) Issuance of Certificate of Incorporation by SEC
2.) In religious corporations, upon filing of AOI
3.) Registration of cooperative to CDA
NOTE: Corporation must organize and commence the
transaction within 2 years from incorporation,
otherwise, its powers shall cease and deemed dissolved.

De facto Corporation- exists for all practical purposes

but has no legal right against the State. It complied, not
all, but sufficient requirement to be a corporation.

De facto corporation must have:

1.) A valid law under which the corporation with
assumed powers might be incorporated.
2.) A bona fide attempt to organize a corporation.
3.) Actual user or exercise in good faith of powers
 The State can bring direct attack/proceedings
against de facto corporation only through Solicitor
General by quo warranto.
 The question of corporate existence collaterally in
some incidental proceedings cannot be allowed.