PALS

Compiled by KQR

Set 1 Civil Law

1. Which statement best describes the profit sharing relationship of a general partnership where
the partners have agreed only on voting percentage and voting shares are unequal?
a) Partners share in proportion to their voting percentage.
b) Partners share in proportion to their contributions to the capital and assets of the
partnership.
c) Partners share equally.
d) Partners cannot share until they unanimously agree upon a distribution.

2. A conveyance by a partner of his whole interest in the partnership –

a) automatically dissolves the partnership
b) entitles the assignee to immediately interfere in the management of business
c) entitles the assignee to immediately inspect partnership books
d) entitles the assignee to receive the profits to which the assignor would have been
entitled.

3. What is not a proper contribution of a limited partner?

a) a piece of land
b) P500,000 and an office building
c) an expensive sports car
d) engineering expertise

Set 2 Civil Law

4. An industrial partner cannot engage in business for himself,
a) except in a business that the partnership is not engaged in.
b) except if the business is located in another province.
c) unless the partnership expressly permits him to do so.
d) absolutely and without any exception.

5. X, Y and Z formed a general partnership where X contributed 70% of the capital, Y contributed
30% and Z was an industrial partner who would manage the business. After a few months of
operation all the assets of the partnership were exhausted, but one legitimate debt remained
unpaid. The partners who are liable to the unpaid creditor, with their separate property, are –
a) only X and Y, on a 70/ 30 ratio.
b) X, Y and Z, but Z’s liability will be what is just and equitable.
c) all three are liable, each one for 1/3 of the unpaid debt.
d) only Z because he was the manager and caused liability incurred.

6. Pedro is the active partner and Ben is the silent partner in a general partnership engaged in
running a hardware store. After six years of being uninvolved in the management of the
partnership business, Ben purchased 10,000 wheelbarrows for their hardware store. Pedro is
furious because it will probably take years to sell the wheelbarrows. He seek your advice. The
best advice is –
a) Ben can bind the partnership by his act.
b) silent partners are investors only and cannot bind the partnership.
c) unless his name is in the partnership name, third persons are “on notice” that he is unauthorized
to contract for the partnership.
d) Ben, a silent partner, is not authorized to purchase and, therefore, the sale may be set aside.

7. Yla, Ivan and Edwin are partners in a business. One day, they decided to sell the partnership
business to Cria, who promised to continue the business and to pay the debts of the partnership.
From these facts, which among the four statements is the most correct?
a) The Creditors of Yla, Ivan and Edwin are no longer able to make their claims as the partnership
has been dissolved, notwithstanding Cria’s promise.
b) The Creditors of Yla, Ivan and Edwin are still creditors of Yla, Ivan and Edwin.
c) The Creditors of Yla, Ivan and Edwin are also creditors of Cria.
d) The Creditors of Yla, Ivan and Edwin cannot be Creditors of the partnership after its sale.

8. When Kit and Tom agreed to form a partnership, it was agreed that only Kit will manage the
business and make all business decisions and execute all contracts with third persons. Later,
however, Tom entered into a long-term service contract for the partnership with Clara, who does
not know of the internal agreement. The contract of Tom with Clara is –
a) enforceable, as the partners’ agreement cannot prevail over the statutory authority of a general
partner to bind the partnership.
b) enforceable, as Clara has no knowledge of Tom’s lack of authority.
c) unenforceable, as Tom is unauthorized to execute the contract by the partner agreement.
d) unenforceable, as Clara had an obligation to confirm Tom’s authority prior to entering into a
service contract with the partnership.

9. A and B are partners in the pawnshop business. D, a customer, obtained a loan of P20k from
the partnership and gave A, as security, a ring worth P100K. A misappropriated the ring, sold it
for P80K and used the proceeds to go abroad. B had no knowledge of the transaction. A few days
later D went back to the pawnshop to pay the loan and ask for the return of the ring. When he
realized the ring had been stolen, D sued the pawnshop for the value of the ring plus damages.
Will the action prosper?
a) Yes, The partnership is liable because A was acting within his authority when he
received the ring.
b) Yes, because the loss of the ring was not through a fortuitous event.
c) No, the partnership was not liable because A was not acting within his authority when he
received the ring.
d) No, because B had no knowledge of the transaction, hence only A and not the partnership
should be liable.

Set 3 Civil Law

10. A and B are capitalist partners, with C as an industrial partner. A and B contributed P15,000.00
each to the capital of the partnership. A contractual liability of P40,000.00 was incurred by the
partnership in favor of X. If the capital assets have been exhausted to pay X, leaving a contractual
liability of P10,000.00, X can recover the amount from:
a) A and B only
b) A, B and C
c) A, B and C and C can recover for reimbursement from A and B
d) No reimbursement may be recovered by C.

11. A, B and C agreed to establish ABC Co. contributing two thousand pesos each thereto. Such
partnership is created verbally and is not registered under the Office of the Securities and
Exchange Commission. The partnership is –
a) Void for having a capital of more than three thousand pesos and not registered under SEC.
b) Void and cannot bind the partnership to third persons.
c) Valid and third persons to whom the partnership is liable can compel the partners to register it
under the SEC.
d) Valid and A, B, or C can compel each other to register it under SEC.

12. On October 1, X, Y and Z agreed to enter into a partnership. The following day, the parties
signed the document which provides that A will contribute a parcel of land, B will contribute money
worth PHP 10M, and Z will contribute his expertise in management. The same document
contained a provision that the partnership shall commence on October 30. On October 5, the said
document was notarized and registered in the SEC. As among the partners, when did the
partnership begin?
a) The date when the parties agreed to enter into the partnership
b) The date when the partners signed the partnership contract
c) The date when the partnership was registered in SEC
d) The date provided in their contract.

Set 4 Civil Law

13. A, B and C are partners engaged in a retail business. Their contribution is P20,000.00 each.
D is admitted as a new partner with a contribution of P8,000.00. At the time of his admission, the
partnership has an outstanding obligation to E in the amount of P80,000.00. In this case:
a) D is not liable to E for this obligation and his P8,000 contribution shall remain with the
partnership.
b) D is liable to E for this obligation so that after the assets of the partnership amounting
to P68,000.00 will be exhausted leaving a balance of P12,000.00, only A, B and C shall be
liable jointly or pro rata, out of their separate property.
c) D is liable to E for this obligation so that after the assets of the partnership will be exhausted,
leaving a balance of P12,000.00, all the partners shall be liable jointly or pro rata, including D, out
of their separate property.
d) D will be liable only if he knew of the liability of P80,000 at the time he joined the partnership.
14. X is not a partner of A, B and C. Without the consent or knowledge of C but with the implied
consent of A and B, X made T believe that he is a partner of A, B and C. Who shall be liable for
the payment of a debt of P500,000 in favor of T who extended credit on the basis of the
misrepresentation?
a) X, A and B pro rata.
b) X, A and B solidarily.
c) X, A, B and C pro rata.
d) X, A, B and C solidarily.

15. In case of losses, the industrial partner shall,

a) Share in the losses in any event.
b) Shall share in the losses only if there is a stipulation.
c) Shall not share in the losses even if he contributes capital.
d) Shall not share in the losses except if he contributes capital also.

16. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded on the Office of the
Securities and Exchange Commission. Failure to comply with this requirement:
a) Renders the contract of partnership void.
b) Renders the contract of partnership unenforceable.
c) Affects the liability of the partnership to third persons and the partnership has no legal
personality.
d) Does not affect the liability of the partnership to third persons and the partnership still
has a legal personality.

17. A person who is a general partner, and also at the same time a limited partner, in respect to
his contribution shall have the rights against the other members which he would have had if:
a) He were also a general partner
b) He were not also a general partner
c) He were both general and limited partner
d) He were an industrial partner

18. A and B are capitalist partners, with C as an industrial partner. A and B contributed P
15,000.00 each to the capital of the partnership. A contractual liability of P40,000.00 was incurred
by the partnership in favor of X. If the capital assets have been exhausted to pay X, leaving a
contractual liability of P 10,000.00, X can recover the amount from:
a) A and B only
b) A, B and C
c) A, B and C and C can recover for reimbursement from A and B
d) No reimbursement may be recovered by C.

19. Mr Smith, an American, was convinced by Sara Tentadora to contribute capital to a

partnership to engage in the warehousing business. He agreed provided that he only participates
as a limited partner and will not be in any way involved in the management of the business.
Unknown to him, Sara registered their partnership as Tentadora & Smith, Co. to make the
business sound “foreign” and to give it an international luster. What is the consequence to Mr.
Smith?
a) He will not be a general partner with Sara Tentadora nor bound by her obligations
provided that upon learning of what Sara did he promptly renounces all profits which he
has still to receive.
b) He will be liable as a general partner even if he is only a limited partner since his surname
appears in the partnership name contrary to provisions of the law which states that a limited
partner shall not appear in the partnership name.
c) He will be a general partner and a limited partner at the same time in a limited partnership
which is specifically provided in the law.
d) He will not be a general partner simply by exercising any of the rights of a partner but is still a
limited partner and is entitled as such, but he should promptly return any profits which he has
received as a general partner upon learning of the mistake.

20. A, B and C are partners engaged in a retail business. Their contribution if P20,000.00 each.
D is admitted as a new partner with a contribution of P8,000.00. At the time of his admission, the
partnership has an outstanding obligation to E in the amount of P80,000.00. In this case:
a) D is not liable to E for this obligation and his P8,000 contribution shall remain with the
partnership
b) D is liable to E for this obligation so that after the assets of the partnership amounting to
P68,000.00 will be exhausted leaving a balance of P12,000.00, only A, B and C shall be liable
jointly or pro rata, out of their separate property.
c) D is liable to E for this obligation so that after the assets of the partnership will be exhausted,
leaving a balance of P12,000.00, all the partners shall be liable jointly or pro rata, including D,
out of their separate property.
d) D will be liable only if he knew of the liability of P80,000 at the time he joined the
partnership.

21. X is not a partner of A, B and C. Without the consent or knowledge of C but with the implied
consent of A and B, X made T believe that he is a partner of A, B, and C. Who shall be liable for
the payment of a debt of P500,000 in favor of T who extended credit on the basis of the
misrepresentation?
a) X, A and B pro rata.
b) X, A and B pro solidarily.
c) X, A, B and C pro rata.
d) X, A, B and C solidarily.

22. A partner who has undertaken to contribute a sum of money to the general partnership but
fails to do so:
a) is deemed to be not a partner to the partnership and is liable for fraud.
b) becomes a debtor to the partnership for the interest and damages from the time he
should have complied with his obligation.
c) must contribute property in its place, the value which shall be determined by experts to be
chosen by partners.
d) shall remain in the partnership as an industrial partner who cannot engage in business for
himself.

23. In a a limited partnership, can a general partner admit another partner without the consent
of all the limited partners?
a) No, without exception.
b) He can admit a limited partner if the right to do so is stated in the certificate, but he
cannot admit a general partner.
c) Yes, but there be more than one general partner, he cannot do so without the written
consent or ratification of all general partners.
d) He can admit another general partner if the right is so stated in the certificate but he cannot
admit another limited partner.

24. A judgement creditor of a partner applies to a court which entered the judgement against
the said debtor partner to charge the interest of the debtor partner and asks for the
appointment of a receiver for the share of the debtor partner. Which of the following objectives
is allowed by law for the benefit of the judgement creditor?
a) to gain preference over partnership creditors with regards to partnership property.
b) to execute the right to the debtor partner against specific partnership property.
c) redemption of the interest to be sold without thereby causing dissolution of the partnership
with partnership property.
d) prevent non-debtor partners from making any further payments to the debtor partner
and instead to pay the judgement creditor.

25. X, Y, and Z are partners in XYZ Partnership, Ltd. Y as limited partner. After five years of
operations, the partnership incurred debts in favor of third persons totalling P5 million. The
total partnership assets is P3 million. Who among the partners shall be liable with their separate
property in favor of creditors?
a) X and Z for P1.5 million each because they are general partners
b) X, Y and Z for P1 million each
c) X, Y, and Z depending upon their capital contribution.

TEST II - 10 points each

1) Facts: A and B are co-workers of inherited properties. They agreed to use the said common
properties and the income derived therefrom as a common fund with the intention to produce
profits for them in proportion to their respective shares in the inheritance as determined in a project
of partition.
Issue: What is the effect of such agreement on the existing co-ownership? Explain.

Held:
The co-ownership is automatically converted into a partnership. From the moment of
partition, A and B, as heirs, are entitled already to their respective definite shares of the
estate and the income thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and, accordingly, he becomes liable
individually for all taxes in connection therewith.

If, after such partition, an heir allows his shares to be held in common with his co-heirs
under a single management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no document or instrument
were executed for the purpose, for tax purposes, at least, an unregistered partnership is
formed. (Ona vs. Commissioner of Internal Revenue, 45 SCRA 74 [1972].)

2) Facts: A and B were partners in the operation of a cinema business. The theatre was
mortgaged to C who foreclosed the mortgaged debt. A, in his own behalf, redeemed the property
with his own private funds.

Subsequently, A filed a petition for the cancellation of the old title of the partnership and the
issuance of another title in his name alone.

Issue: Did A become the absolute owner of the property? Explain.

Held:
No. In this case, when A redeemed the property in question he became a trustee for the
benefit of his co-partner, B, subject to his right to demand from the latter his contribution
to the price of redemption plus legal interest. (Catalan vs. Gatchalian, 105 Phil. 1270
[1959].)

3) X company, a general partnership, purchased from A a motor vehicle on installment basis.

Upon failure of the partnership to pay an installment, A sued it and the five (5) partners, B, C, D,
E and F. B failed to file an answer and was declared in default. Subsequently on motion of A, the
complaint was dismissed insofar as F was concerned. The rest of defendants failed to appear at
the hearing and were declared in default.

Judgment was rendered against the partnership and the four (4) partners, B, C, D and E. B and
C moved to reconsider, saying that since there were five (5) general partners, the joint and
subsidiary liability of each partner should not exceed 1/5 of the obligations of the company. The
lower court denied the motion, hence the appeal.

Issue: Should B, C, D and E alone be held liable for the obligation of the company in view of the
dismissal of the complaint with respect to F? Explain.
Held:
No. In the instant case, there were five general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners are pro rata, the liability of each partner shall be limited to only one fifth of the
obligations of X company. The fact that the complaint against F was dismissed, upon
motion of A, does not unmake F as a general partner in the defendant company. (Island
Sales, Inc. vs. United Pioneers General Construction Company, 65 SCRA 554 [1975]; see
Dietrich vs. Freeman, 18 Phil. 341 [1911]; CoPitco vs. Yulo, 8 Phil. 544 [1907].)

4) C, a bank, has unsatisfied judgment against A and B, partners in Partnership X. C procured

the appointment of D as receiver of all rights and interests of A and B in and to the partnership,
and also got an order sharing their interest in the firm with payment of the judgment debt. C and
D brought action to annul certain mortgages encumbering livestock, farm equipment, and other
specific chattels executed in favor of E not by or for the firm but by A and B, individually.

It is claimed for plaintiffs that the mortgages in question are void. The principal argument for
defendants is that, whatever the status of the mortgages, neither plaintiff can question them.

Issue: Is the argument of the defendants tenable? Explain.

Held:
No. (1) Partner’s interest, not in specific partnership property, but in partnership itself. —
Tenancy in partnership is a restricted adaptation of the common-law joint tenancy to the
particular needs of the partnership relation. One of those needs arose from the formerly
conflicting claims to specific partnership property of (1) separate creditors of a partner,
and (2) assignees of a partner’s share in an aliquot part of the firm assets.

To meet that need, two simple “incidents” have been attached to the tenancy of the
partnership: (1) expressly, the interest of each tenant or partner in specific partnership
property is put beyond reach of his separate creditors; and (2) it has been made non-
assignable. This means simply that the partner-owner is deprived of all power of separate
disposition even by will.

All a partner has now, subject to his power of individual disposition, and all that is subject
to the claims of his separate creditors, is his interest, not in specific partnership property,
but in the partnership itself. Plain is the purpose that all partnership property is to be kept
intact for partnership purposes and creditors.

5) Facts: A withdrew as partner from Partnership X. It was the intention and understanding of the
parties that A was relinquishing all his rights and interests in the partnership upon the return of all
his investment, subject to the condition that A was to be repaid within three (3) days from the date
the settlement was agreed upon. The partnership was dissolved on the date of the settlement.
This condition was fulfilled when on the following day, A was reimbursed the amount due him
under the agreement.

Issue: Is A entitled to profits of the Partnership at the time of dissolution? Explain.

Held:
No liquidation was called for because there was already a settlement as to what A should
receive. It appeared that the settlement was agreed upon the very day the partnership was
dissolved. The acceptance by A of his investment was understood and intended as a final
settlement of whatever right or claim A might have in the dissolved partnership. A was
precluded from claiming any share in the profits should there be any, at the time of
dissolution. (Bonnevie vs. Hernandez, 95 Phil. 175 [1954].)

—-------------------------------------------Part 2—----------------------------------------------------------------------

9. X, Y, and Z are partners in XYZ Partnership, Ltd. Y as limited partner. After five years of
operations, the partnership incurred debts in favor of third persons totalling P5 million. The total
partnership assets is P3 million. Who among the partners shall be liable with their separate
property in favor of creditors?
A. X and Z for P1.5 million each because they are general partners
B. X, Y and Z for P1 million each
C. X, Y, and Z depending upon their capital contribution.

10. A judgement creditor of a partner applies to a court which entered the judgement against the
said debtor partner to charge the interest of the
debtor partner and asks for the appointment of a receiver for the share of the debtor partner.
Which of the following objectives is allowed by law for the benefit of the judgement creditor?
A. to gain preference over partnership creditors with regards to partnership property.
B. to execute the right to the debtor partner against specific partnership property.
C. redemption of the interest to be sold without thereby causing dissolution of the partnership with
partnership property.
D. prevent non-debtor partners from making any further payments to the debtor partner
and instead to pay the judgement creditor.

11. In a a limited partnership, can a general partner admit another partner without the consent of
all the limited partners?
A. No, without exception.
B. He can admit a limited partner if the right to do so is stated in the certificate, but he
cannot admit a general partner.
C. Yes, but there be more than one general partner, he cannot do so without the written consent
or ratification of all general partners.
D. He can admit another general partner if the right is so stated in the certificate but he cannot
admit another limited partner.
12. Mr Smith, an American, was convinced by Sara Tentadora to contribute capital to a
partnership to engage in the warehousing business. He agreed provided that he only participates
as a limited partner and will not be in any way involved in the management of the
business. Unknown to him, Sara registered their partnership as Tentadora & Smith, Co. to make
the business sound “foreign” and to give it an international luster. What is the consequence to Mr.
Smith?
A. He will not be a general partner with Sara Tentadora nor bound by her obligations
provided that upon learning of what Sara did he promptly renounces all profits which he
has still to receive.
B. He will be liable as a general partner even if he is only a limited partner since his surname
appears in the partnership name contrary to provisions of the law which states that a limited
partner shall not appear in the partnership name.
C. He will be a general partner and a limited partner at the same time in a limited partnership
which is specifically provided in the law.
D. He will not be a general partner simply by exercising any of the rights of a partner but is still a
limited partner and is entitled as such, but he should promptly return any profits which he has
received as a general partner upon learning of the mistake.

13. A partner who has undertaken to contribute a sum of money to the general partnership but
fails to do so:
A. is deemed to be not a partner to the partnership and is liable for fraud.
B. becomes a debtor to the partnership for the interest and damages from the time he
should have complied with his obligation.
C. must contribute property in its place, the value which shall be determined by experts to be
chosen by partners.
D. shall remain in the partnership as an industrial partner who cannot engage in business for
himself.

14. X company is a partnership formed by A, B, and C. A, acting within the scope of his apparent
authority transacted without turning over the 800,000 to the partnership, misapplies or
misappropriates the money for his own gain. Who is liable?
A. A, B and C only because X Company did not benefit therefrom
B. A and X Company only because B and C did not benefit therefrom
C. A alone because X Company, as well as B and C did not benefit therefrom
D. A, B, C and X Company because in case of crimes and torts committed by an individual with
apparent authority, the partnership and all the partners are solidary liable thereto

15. X is not a partner of A, B and C. Without the consent or knowledge of C but with the implied
consent of A and B, X made T believe that he is a partner of A, B and C. Who shall be liable for
the payment of a debt of P500,000 in favor of T who extended credit on the basis of the
misrepresentation?
A. X, A and B pro rata.
B. X, A and B solidarily.
C. X, A, B and C pro rata.
D. X, A, B and C solidarily.

16. A, B and C are partners engaged in a retail business. Their contribution if P20,000.00 each.
D is admitted as a new partner with a contribution of P8,000.00. At the time of his admission, the
partnership has an outstanding obligation to E in the amount of P80,000.00. In this case:
A. D is not liable to E for this obligation and his P8,000 contribution shall remain with the
partnership
B. D is liable to E for this obligation so that after the assets of the partnership amounting to
P68,000.00 will be exhausted leaving a balance of P12,000.00, only A, B and C shall be liable
jointly or pro rata, out of their separate property.
C. D is liable to E for this obligation so that after the assets of the partnership will be exhausted,
leaving a balance of P12,000.00, all the partners shall be liable jointly or pro rata, including D, out
of their separate property.
D. D will be liable only if he knew of the liability of P80,000 at the time he joined the partnership.

17. A and B are capitalist partners, with C as an industrial partner. A and B contributed P15,000.00
each to the capital of the partnership. A contractual liability of P40,000.00 was incurred by the
partnership in favor of X. If the capital assets have been exhausted to pay X, leaving a contractual
liability of P10,000.00, X can recover the amount from:
A. A and B only
B. A, B and C
C. A, B and C and C can recover for reimbursement from A and B
D. No reimbursement may be recovered by C.

18. A person who is a general partner, and also at the same time a limited partner, in respect to
his contribution shall have the rights against the other members which he would have had if:
A. He were also a general partner
B. He were not also a general partner
C. He were both general and limited partner
D. He were an industrial partner

19. In case of losses, the industrial partner shall

A. Share in the losses in any event.
B. Shall share in the losses only if there is a stipulation.
C. Shall not share in the losses even if he contributes capital.
D. Shall not share in the losses except if he contributes capital also.

20. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded on the Office of the
Securities and Exchange Commission. Failure to comply with this requirement:
A. Renders the contract of partnership void.
B. Renders the contract of partnership unenforceable.
C. Affects the liability of the partnership to third persons and the partnership has no legal
personality.
D. Does not affect the liability of the partnership to third persons and the partnership still has a
legal Personality.

21. On October 1, X, Y and Z agreed to enter into a partnership. The following day, the parties
signed the document which provides that A will contribute a parcel of land, B will contribute money
worth PHP 10M, and Z will contribute his expertise in management. The same document
contained a provision that the partnership shall commence on October 30. On October 5, the said
document was notarized and registered in the SEC. As among the partners, when did the
partnership begin?
A. The date when the parties agreed to enter into the partnership
B. The date when the partners signed the partnership contract
C. The date when the partnership was registered in SEC
D. The date provided in their contract.

22. A, B and C agreed to establish ABC Co. contributing two thousand pesos each thereto. Such
partnership is created verbally and is not registered under the Office of the Securities and
Exchange Commission. The partnership is –
A. Void for having a capital of more than three thousand pesos and not registered under SEC.
B. Void and cannot bind the partnership to third persons.
C. Valid and third persons to whom the partnership is liable can compel the partners to register it
under the SEC.
D. Valid and A, B, or C can compel each other to register it under SEC.

23. A and B are partners in the pawnshop business. D, a customer, obtained a loan of P20k from
the partnership and gave A, as security, a ring worth P100K. A misappropriated the ring, sold it
for P80K and used the proceeds to go abroad. B had no knowledge of the transaction. A few days
later D went back to the pawnshop to pay the loan and ask for the return of the ring. When he
realized the ring had been stolen, D sued the pawnshop for the value of the ring plus damages.
Will the action prosper?
A. Yes, The partnership is liable because A was acting within his authority when he received the
ring.
B. Yes, because the loss of the ring was not through a fortuitous event.
C. No, the partnership was not liable because A was not acting within his authority when he
received the ring.
D. No, because B had no knowledge of the transaction, hence only A and not the partnership
should be liable.

24. When Kit and Tom agreed to form a partnership, it was agreed that only Kit will manage the
business and make all business decisions and execute all contracts with third persons. Later,
however, Tom entered into a long-term service contract for the partnership with Clara, who does
not know of the internal agreement. The contract of Tom with
Clara is –
A. enforceable, as the partners’ agreement cannot prevail over the statutory authority of a general
partner to bind the partnership.
B. enforceable, as Clara has no knowledge of Tom’s lack of authority.
C. unenforceable, as Tom is unauthorized to execute the contract by the partner agreement.
D. unenforceable, as Clara had an obligation to confirm Tom’s authority prior to entering into a
service contract with the partnership.

25. An industrial partner cannot engage in business for himself,

A. except in a business that the partnership is not engaged in.
B. except if the business is located in another province.
C. unless the partnership expressly permits him to do so.
D. absolutely and without any exception.

26. Yla, Ivan and Edwin are partners in a business. One day, they decided to sell the partnership
business to Cria, who promised to continue the business and to pay the debts of the partnership.
From these facts, which among the four statements is the most correct?
A. The Creditors of Yla, Ivan and Edwin are no longer able to make their claims as the partnership
has been dissolved, notwithstanding Cria’s promise.
B. The Creditors of Yla, Ivan and Edwin are still creditors of Yla, Ivan and Edwin.
C. The Creditors of Yla, Ivan and Edwin are also creditors of Cria.
D. The Creditors of Yla, Ivan and Edwin cannot be Creditors of the partnership after its sale.

27. Pedro is the active partner and Ben is the silent partner in a general partnership engaged in
running a hardware store. After six years of being uninvolved in the management of the
partnership business, Ben purchased 10,000 wheelbarrows for their hardware store. Pedro is
furious because it will probably take years to sell the wheelbarrows. He seek your advice. The
best advice is –
A. Ben can bind the partnership by his act.
B. silent partners are investors only and cannot bind the partnership.
C. unless his name is in the partnership name, third persons are “on notice” that he is
unauthorized to contract for the partnership.
D. Ben, a silent partner, is not authorized to purchase and, therefore, the sale may be set aside.

28. X, Y and Z formed a general partnership where X contributed 70% of the capital, Y contributed
30% and Z was an industrial partner who would manage the business. After a few months of
operation all the assets of the partnership were exhausted, but one legitimate debt remained
unpaid. The partners who are liable to the unpaid creditor, with their separate property, are –
A. only X and Y, on a 70/ 30 ratio.
B. X, Y and Z, but Z’s liability will be what is just and equitable.
C. all three are liable, each one for ⅓ of the unpaid debt.
D. only Z because he was the manager and caused liability incurred.

29. What is not a proper contribution of a limited partner?

A. a piece of land
B. P500,000 and an office building
C. an expensive sports car
D. engineering expertise

30. Which statement best describes the profit sharing relationship of a general partnership where
the partners have agreed only on voting percentage and voting shares are unequal?
A. Partners share in proportion to their voting percentage.
B. Partners share in proportion to their contributions to the capital and assets of the
partnership.
C. Partners share equally.
D. Partners cannot share until they unanimously agree upon a distribution.

Essay
1. Michael Curle and Steven Shelley were partners doing business under the name C & S Roofing.
When the partnership dissolved, Curle agreed to complete one unfinished project (the Bishop
house) and left Shelley to wind up the other partnership business. Shelley canceled the
partnership’s general liability insurance policy without telling Curle. While painting the Bishop
house, Dennis Whitsett fell through a hole in the roof that the partnership had left covered only
with tar paper. When Whitsett sought to recover from the partnership for his serious injuries, Curle
and Shelley asked the insurance company to pay the claim. The trial court found the policy
canceled as to Steven Shelley, individually, but in full force and effect as to the partnership and
Michael Curle, individually. The insurance company appealed. Was the partnership bound by
Shelley’s decision during the winding-up process to cancel the policy, even though he had not
told Curle? (10 pts)
2. Tom Gentry and John Marsh were partners in a business that bought and sold racehorses. The
partnership paid $155,000 for Champagne Woman, who subsequently had a foal named
Excitable Lady. The partners decided to sell Champagne Woman at the annual Keeneland
auction, the world’s premier thoroughbred horse auction. On the day of the auction, Gentry
decided to bid on the horse personally, without telling Marsh. Gentry bought Champagne Woman
for $135,000. Later, he told Marsh that someone from California had approached him about
buying Excitable Lady. Marsh agreed to the sale. Although he repeatedly asked Gentry the name
of the purchaser, Gentry refused to tell him. Not until 11 months later, when Excitable Lady won
a race at Churchill Downs, did Marsh learn that Gentry had been the purchaser. Marsh became
the Excitable Man. Did Gentry violate his fiduciary duty when he bought partnership property
without telling his partner? (10 pts)
3. Charles Hooper owned Lako, a scrap metal business. He offered his brother William a
partnership in the business. The two brothers never discussed salary or compensation. Instead,
they agreed they would each be entitled to 50 percent of the profits of the partnership, but they
would take out only what was necessary to live and the remainder would stay in the business.
Lako began purchasing real estate. The two brothers also agreed that Lako would hold and
manage real estate and stocks they had inherited from their grandfather. These inherited holdings
generated most of the partnership’s income.
Ten years after forming the partnership, Charles and William were both injured in a car accident.
William’s injuries were more serious and required two major surgeries. He could no longer drive
a car and had to depend upon Charles for information about the partnership.
Charles took over management responsibility. Although William never returned to office, he did
do some partnership work at home, such as reviewing leases and researching the metal market.
A Lako Building was destroyed. William was willing to accept the settlement offer from the insurer
but Charles wanted to hold out for more. Charles became so angry that he refused to speak with
William and thenceforth, all communication between them went through Charles’ girlfriend.
Charles refused to give William any information about the partnership. William filed suit, asking
the court to order an accounting and to dissolve the partnership. Charles alleged that he was
entitled to payment for the services that he performed for the partnership after William’s accident.
The lower court found for William and Charles appealed. Is a partner entitled to compensation for
the services he provides the partnership? (10 pts)
MCQ Questions: CIVIL LAW Set 1

3. Which among the following must be in writing to be valid?

a. A sale of land
b. Every donation of personal or movable property
c. A contract of partnership with a contribution of an immovable
d. An authority by the principal to an agent to sell movables.
45. Which statement best describes the profit sharing relationship of a general partnership where
the partners have agreed only on voting percentage and the voting shares are unequal?
a. Partners share in proportion to their voting percentage.
b. Partners share in proportion to their contribution to the capital and assets of the
partnerships.
c. Partners share equally.
d. Partners cannot share until they unanimously agree upon a distribution.

67. Alfonso and Associates, Inc. A general partnership organized for the practice of accounting
borrowed money from Vic, Alfonso and Associates Inc. secured his obligation by mortgaging a
parcel of land it owned. The due date of the obligation fell due and passed without Viv being paid.
Vic foreclosed the mortgage. The sale of the property was registered on the title of the same on
15 April 2003. The winning bidder at the sale was Jeff. Alfonso and Associated then offered to
pay the full redemption price on 15 March 2004. Can Jeff refuse to allow the redemption.?
a. No, because the creditor is an individual
b. No because the debtor is a juridical entity.
c. Yes, because 3 months have lapsed since the sale.
d. Yes, because the foreclosure was properly done.

CIVIL LAW Set 2

34. An industrial partner cannot engage in business for himself,
a. Except in a business that the partnership is not engaged in.
b. Except if the business is located in another province
c. Unless the partnership expressly permits him to do so
d. Absolutely and without any exception
—----------------------------------------------------------------mcq page 52 beyond—-----------------------------

Set 2
72. Reggie, one of the partners of a detective/security agency, owned a special trained police dog
which he would lend to the agency when conducting risky nighttime operations. During one of the
operations, the dog was killed by robbers. The risk of the highly priced police dog should be
governed by this principle - .
a. The principle of just compensation
b. The principle of delectus personae
c. The principle of res perit domino
d. The principle of estoppel

73. X, Y, and Z formed a general partnership where X contributed 70% of the capital, Y contributed
30% and Z was an industrial partner who would manage the business. After a few months of
operation all the assets of the partnership were exhausted, but one legitimate debt remained
unpaid. The partners who are liable to the unpaid creditor, with their separate property are -
a. Only X and Y, on a 70/30 ratio.
b. X,y, and Z, but Z’s liability will be what is just and equitable.
c. All three are liable, each one for ⅓ of the unpaid debt.
 d. Only Z because he was the manager and caused the liability incurred.

74. Pedro is the active partner and Ben is the silent partner in a general partnership engaged in
running a hardware store. After 6 years of being uninvolved in the management of the partnership
business, Ben purchases 10,000 wheelbarrows for their hardware store. Pedro is furious because
it will probably take years to sell the wheelbarrows. He seeks your advice. The best advice is -
a. Ben can bind the partnership by his act.
b. Silent partners are investors only and cannot bind the partnership
c. Unless his name is in the partnership name, third persons are “on notice” that he is
unauthorized to contract for the partnership.
d. Ben, as a silent partners, is not authorized to purchase and, therefore the sale may be set
aside.

75.Yla, Ivan and Edwin are partners in a business. One day, they decided to sell the partnership
business to Cria, who promised to continue the business and to pay for the debts of the
partnership. From these facts, which among the four statements is the most correct?
a. The creditors of Yla, Ivan and Edwin are no longer able to make their claims as the
partnership has been dissolved, notwithstanding Cria’s promise.
b. The creditors of Yla, Ivan and Edwin are still the creditors of Yla, Ivan and Edwin.
c. The Creditors of Yla, Ivan and Edwin are also the Creditors of Cria
d. The Creditors of Yla, Ivan and Edwin cannot be creditors of the partnership after its sale.

98. When Kit and Tom agreed to form a partnership, it was agreed that only Kit will manage the
business and make all business decisions and execute all contracts with 3rd person. Later,
however, Tom entered into a long-term service contract for the partnership with Clara, who does
not know of the internal agreement. The contract of Tom with Clara is -
a. enforceable , as the partners’ agreement cannot prevail over the statutory authority of a
general partner to bind the partnership.
b. Enforceable, as Clara has no knowledge of Tom’s lack of authority.
c. Unenforceable, as Tom is unauthorized to execute the contract by the partnership
agreement.
d. Unenforceable, as Clara had an obligation confirm Tom’s authority prior to entering into a
service contract with the partnership.

99. A and B are partners in the pawnshop business. D, a customer obtained a loan of P20k from
the partnership and gave A, as security, a ring worth P100k. A misappropriated the ring, old it for
80k and used the proceeds to go abroad. B had no knowledge of the transaction. A few days later
D went back to the the pawnshop to pay the loan and ask for the return of the ring. When he
realized the ring had been stolen, D sued the pawnshop for the value of the ring plus damages.
Will the action prosper?
a. Yes. The partnership is liable because was acting within his authority when he
received the ring.
b. Yes, because the loss of the ring was not through a fortuitous event.
 c. No, the partnership was not liable because A was not acting within his authority when he
received the ring.
d. No, because B had no knowledge of the transaction, hence only A and not the partnership
should be liable.

CIVIL LAW SET 3

87. A and B are capitalist partners, with C as an industrial partner. A and B contributed 15k each
to the capital of the partnership. A contractual liability of 40k was incurred by the partnership in
favor of X. IF the capital assets have been exhausted to pay X, leaving a contractual liability of
10k, X can recover the amount from:
a. A and B only
b. A, B, and C
c. A, B, and C and C can recover for reimbursement from A and B.
d. No reimbursement may be recovered from C.

96. A, B and C agreed to establish ABC Co. contributing 2k each thereto. Such partnership is
created verbally and is not registered under the office of SEC. The partnership is
a. Void for having a capital of more than 3k and not registered under SEC.
b. Void and cannot bind the partnership to 3rd persons
c. Valid and 3rd person to whom the partnership is liable can compel the partners to register
it under the SEC.
d. Valid and A, B, or C can compel each other to register it under SEC.

98. On oct.1 x, y and Z agreed to enter into a partnership. The following day, the parties signed a
document which provides that A will contribute a parcel of land, B will contribute money worth
10M and Z will contribute his expertise in management. The same document contained a
provision that the partnership shall commence on oct. 30. On oct. 5, the said document was
notarized and registered in the SEC. AS among the partners, when did the partnership begin?
a. The date when the parties agreed to enter into the partnership.
b. The date when the partners signed the partnership contract
c. The date when the partnership was registered in the SEC.
d. The date provided in their contract.

CIVIL LAW SET 4

85. A, B and C, are partners engaged in a retail business. Their contribution is 20k each. D is
admitted as a new partner with a contribution of 8k. At the time of his admission, the partnership
has an outstanding obligation to E in the amount of 80k in this case:
a. D is not liable to E for this obligation and his 8k contribution shall remain with the
partnership.
b. D is liable to E for this obligation so that after the assets of the partnership
amounting to 68k will be exhausted leaving a balance of 12k only A, B and C shall
be liable jointly or pro rata, out of their separate property.
 c. D is liable to E for this obligation so that after the assets of the partnership will be
exhausted, leaving a balance of 12k. All the partners shall be liable jointly or pro rata,
including D, out of their separate property.
d. D will be liable only if he knew of the liability of 80l, at the time he joined the partnership.

90. X is not a partner of A, B, and C. Without the consent or knowledge of C but with the implied
consent of A and B, X made T believe that he is a partner of A, B, and C. Who shall be liable for
the payment of a debt of 500k in favor of T who extended credit on the basis of the
misrepresentation?
a. X, A and B pro rata
b. X, A and B solidarily
c. X, A, B and C pro rata.
d. X, A, B, and C solidarily.

CIVIL LAW SET 5

4. Being a mere limited partner his interest is:
(a) Assignable
(b) Not assignable
(c) Waivable
(d) Non Waivable

17. In case of losses, the industrial partner shall.

a. Share the losses in any event
b. Shall share in the losses only if there is a stipulation
c. Shall not share in the losses even if he contributes capital
d. Shall not share in the losses except if he contributes capital also.

35. Every contract of partnership having a capital of 3k or more, in money or property, shall appear
in a public instrument, which must be recorded in the office of the SEC. Failure to comply with
this requirements.
a. Renders the contract of partnership void;
b. Renders the contract of partnership unenforceable
c. Affects the liability of the partnership to 3rd persons and the partnership has no legal
personality.
d. Does not affect the liability of the partnership to 3rd persons and the partnership
still has a legal personality.

37. A person who is a general partners, and also at the same time a limited partner, in respect to
his contribution shall have the rights against the other members which would have had if:
a. He were also a general partner.
b. He were not also a general partner.
c. He was both general and limited partner
d. He were an industrial partner
77. A and B are capitalist partners, with C as an industrial partner. A and B contributed 15k each
to the capital of the partnership. A contractual liability of 40k was incurred by the partnership in
favor of X. If the capital assets have been exhausted to pay X, leaving a contractual liability of
10k, X can recover the amount from:
a. A and B only
b. A, B and C
c. A, b and C and C can recover for reimbursement from A and B
d. No reimbursement may be recovered by C.

79. A, B and C are partners engaged in a retail business. Their Contribution is 20k each. D is
admitted as a new partner with a contribution of 8k. At the time of his admission, the partnership
has an outstanding obligation to E in the amount of 80k. In this case:
a. D is not liable to E for this obligation and his 8k contribution shall remain with the
partnership.
b. D is liable to E for this obligation so that after the assets of the partnership
amounting to 68k will be exhausted leaving a balance of 12k, only A, B and C shall
be liable jointly or pro rata, out of their separate property.
c. D is liable to E for this obligation so that after the assets of the partnership will be
exhausted, leaving a balance of 12k, all the partners shall be liable jointly or pro rata
including D, out of their separate property.
d. D will be liable only if he knew of the liability of 80k, at the time he joined the partnership.

86. X is not a partner of A, B, and C. Without consent or knowledge of C but with the implied
consent of A and C, X made T believe that he is a partner of A, B and C. Who shall be liable for
the payment of a debt of 500k in favor of T who extended credit on the basis of the
misrepresentation?
a. X, A and B pro rata
b. X, A and B solidarily
c. X, A, B and C pro rata
d. X, A, B and C solidarily

Civil law Set 6

Civil Law Set 7

100. X Company is a partnership formed by A, B, and C acting within the scope of his apparent
authority receives P800,000 from a third person M and A, without turing over the 800k to the
partnership, misapplies or misappropriates the money for his own personal use. Who is/are liable
to M for the money misappropriated?
a. A, B, C and X Company because in case of crimes and torts committed by an
individual act of a partner, acting within the scope of his apparent authority, the
partnership and all the partners are solidarily liable thereto.
b. A alone because X company, as well as B and C did not benefit therefrom.
c. A, B and C only because X company did not benefit therefrom.
d. A and X Company only because B and C did not benefit therefrom.
Civil Law Set 8
27. A partner who has undertaken to contribute a sum of money to the general partnership but
fails to do so:
a. Is deemed to be not a partner to the partnership and is liable for fraud.
b. Becomes a debtor to the partnership for the interest and damages from the time he
should have complied with his obligation
c. Must contribute property in its place, the value of which shall be determined by experts to
be chosen by partners.
d. Shall remain in the partnership as an industrial partner who engage in business for himself.

28. Let us say a partner takes money from the coffers of the partnership and upon demand of the
other partners, he refuses to return the money in which case this partner:
a. Shall become a debtor to the partnership for interest and damages from the time he
has converted the money for his own use.
b. Shall be excluded from the benefits of the partnership until the funds taken are received
or accounted for.
c. Cannot be held liable for refusal if there is an agreement appointing him as the manager
of the partnership, unless there is fraud.
d. Shall be required to sell his share to the other partner, regardless of whether or not he is
a capitalist partner.

29. In a limited partnership, can a general partner admit another partner without the consent of all
limited partners?
a. No, without exception
b. He can admit a limited partner if the right to do is so stated in the certificate, but he
cannot admit a general partner.
c. Yes, but if there be more than one general partner, he cannot do so without the written
consent or ratification of all the general partners.
d. He can admit another general partner if the right is so stated in the certificate but he cannot
admit another limited partner.

40. Alfred Has was able to purchase rights to a commercial building. He enters into a lease
contract with Jay Fan a budding entrepreneur for a portion of the ground floor of the building for
a restaurant business. The lease contract states that Jay Fan will pay a rent of 50k a month or
25% of the gross revenues of the restaurant, whichever is higher. Can a partnership or joint
venture be deduced from the sharing of 25% of the gross revenues?
a. Yes, because the sharing of profits of a business is prima facie evidence of a partnership.
b. Yes, because the contract in this instance is in reality not a contract of lease but a
collaboration of association constitution a joint venture exists between the contracting
parties.
c. No, because there is no statement in the contract that establishes that the 25% share is
by way of distribution of profits of a partnership.
d. No, because the sharing of gross returns does not by itself establish a partnership.
43. A judgment creditor of a partner applies to a court which entered the judgment against the
said debtor partner to charge the interest of the debtor partner and asks for the appointment of a
receiver for the share of the debtor partner. Which of the following objectives is allowed by law for
the benefit of the judgment creditor?
a. To gain preference over partnership creditors with regards to partnership property
b. To execute the right of the debtor partner against the specific partnership property.
c. Redemption of the interest to be sold without thereby causing dissolution of the
partnership with partnership property.
d. Prevent non-debtor partners from making any further payments to the debtor
partners and instead to pay the judgment creditor.

45. Mr. Smith, an American, was convinced by Sara Tentadora to contribute capital to a
partnership to engage in the warehousing business. He agreed provided that he only participates
as a limited partner and will not be in any way involved in the management of the business.
Unknown to him, Sara registered their partnership as Tentadora and Smith, Co. to make the
business sound foreign and to give in an international luster. What is the consequence to Mr.
Smith?
a. He will not be a general partner with Sara Tentadora nor bound by her obligations
provided that upon learning of what Sara did he promptly renounces all profits
which he has still to receive.
b. He will be liable as a general partner even if he is only a limited partner since his surname
appears in the partnership since his surname appears in the partnership name contrary to
the provisions of the law which states that a limited partner shall not appear in the
partnership name.
c. He will be a general partner and a limited partner at the same time in a limited partnership
which is specifically provided in the law.
d. He will not be a general partner simply by exercising any of the rights of a partner but is
still a limited partner and is entitled as such, but he should promptly return any profits
which he has received as a general partner upon learning of the mistake.

74. X, Y, and Z are partners in XYZ partnership, LT. Y as limited partner. After 5 years of
operations, the partnership incurred debts in favor of third persons totalling 5m. The total
partnership assets is 3M. Who among the partners shall be liable with their separate property in
favor of creditors?
a. X and Z for P1.5M each because they are general partners.
b. X, Y and Z for P1M each
c. X, Y, and Z depending upon their capital contribution.

PROBLEMS/ESSAY (from De Leon)

1. TOPIC: Action to compel the execution of a partnership contract

Facts: A and B entered into an agreement to form a partnership. Because of A’s refusal
to comply with the agreement, B brought an action to compel the execution of a
partnership contract.
Question: May A be compelled against his will to carry out the agreement or execute the
partnership papers?
Ans: No. Under Art. 1167, A has an obligation to do, not to give. The law recognizes the
individual’s freedom or liberty to do an act as he has promised to do, or not to do it, as he
pleases. It falls within what the Spanish commentators call a very personal act (acto
personalismo), of which courts may not compel compliance, as it is considered an act of
violence to do so. Woodhouse vs. Halili (1953)

2. TOPIC: 3 persons decided to form a corporation which was not legally formed, and 1 did
not directly act on behalf of the corporation but reaped the benefits of the contract entered
by the other 2.

Facts: On behalf of F corporation, Chua and Yao entered into a contract for the purchase
of fishing nets and floats from G Corporation, claiming that they were engaged in a
business venture (fishing business) with petitioner Lim who, however, was not a signatory
to the agreement. A suit was filed by G Corporation against the 3 (Chua, Yao, Lim) in
their capacities as general partners, on the allegation that F Corporation was a non-
existent corporation as shown by a certification from SEC.

Question: Was Lim a partner of Chua and Yao in the fishing business and may thus be
held liable as such for the fishing nets and float purchased by them for the use of the
partnership?

Ans:
Yes: Partnership exists between Chua, Yao, and Lim. It is clear that Chua, Yao, and Lim
decided to engage in a fishing business. And because of such business, they bought
boats, fishing nets and floats necessary for fishing business. These boats fell under the
term “common fund” under Art. 1767. The contribution to such fund need not be cash or
fixed assets; it could be an intangible like credit or industry. The partnership extended not
only to the purchase of the boat but also to that of nets and the floats. Fishing nets and
the floats, both essential to fishing, were obviously acquired in furtherance of their
business. It would have been inconceivable for Lim to involve himself so much in buying
the boat but not in the acquisition of the nets and floats, without which the business could
not have proceeded. Given these facts, it is clear that there was a partnership engaged
in the fishing business. They purchased the boats, which constituted the main assets of
the partnership.
There is no dispute that G Corporation is entitled to be paid for the nets it sold.
The only question here is whether Lim should be held jointly liable with Chua and Yao.
Although the corporation was never legally formed, this fact alone does not preclude the
 liabilities of the Lim, Chua, and Yao as contracting parties in representation of it. Under
the law on estoppel, on behalf of a corporation and those benefited by it, knowing it to be
those acting on behalf of a corporation and those benefited by it, knowing it to be without
valid existence, are held liable as general partners. In this case, if Lim benefited from the
business transactions or fishing activities in relation brought about from the boats, nets
and floats the three of them bought, then Lim is liable as a general partner. Even if Lim
did not directly act on behalf of the non-existent corporation, having reap the benefits of
the contract entered into by persons with whom he previously had an existing relationship,
Lim is still deemed to be part of said association and is covered by the scope of the
doctrine of corporation by estoppel. (Lim Tong Lim vs. Philippine Fishing Gear
Industries, Inc 317 SCRA 728 [1999])

3. TOPIC: Heirs, co-ownership of inherited properties

Facts: A and B are co-owners of inherited properties. They agreed to use the said
common properties and the income derived therefrom as a common fund with the intention
to produce profits for them in proportion to their respective shares in the inheritance as
determined in a project of partition

Question: What is the effect of such agreement on the existing co-ownership?

Ans: The co-ownership is automatically converted into a partnership. From the moment
of partition, A and B as heirs, are entitled already to their respective definite shares of the
estate and the income thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and accordingly, he becomes liable
individually for all taxes in connection therewith.
If, after such partition, an heir allows his shares to be held in common with his co-
heirs under a single management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no document or instrument
were executed for the purpose, for tax purposes, at least, an unregistered partnership is
formed. (Ona vs. CIR, 45 SCRA 74 [1972])

4. TOPIC: 2 persons contributed to buy sweepstakes ticket with intention to split prize

Facts: A and B put up money to buy a sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win as they did in fact the amount of P50,000. If a
partnership had been formed by A and B, then it was liable for income tax pursuant to law
in force; if merely a community of property, then such co-ownership was not liable, not
having a legal personality of its own.

Question: Did A and B form a partnership or merely a community property?

Ans: A and B formed a partnership. The partnership was not only formed, but upon the
organization thereof and the winning of the prize, it appeared that B personally appeared
in the office of the PCSO, in his capacity as co-partner, and as such collected the prize.
All these circumstances repel the idea that A and B organized and formed a community
of property only. (Gatchalian vs. CIR, 67 Phil. 666 [1939])