Art.

1767 Definition: Partnership a contract whereby two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves, or in order to exercise profession. Profession a group of men pursuing a learned art as a common calling in the spirit of public service no less a public service because it may incidentally be a means of livelihood. Characteristics of Partnership 1. Consensual 2. Nominate 3. Bilateral 4. Onerous 5. Commutative 6. Principal 7. Preparatory 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5. a partnership contract, in its essence, is a contract of agency Elements consensual; There must be a contribution of money, property or industry to a common fund; The subject must be a lawful one; There must be an intention of dividing the profit among the partners; There must be a desire to formulate an active union (affectio societatis); A new personality, that of the firm must arise, distinct from the separate personality of each of the members Essential Features of Partnership There must be a valid contract; The parties must have legal capacity to enter into the contract; There must be a mutual contribution of money, property, or industry to a common fund; The object must be lawful; and The primary purpose must be to obtain profits and to divide the same among the parties

g.

h. i.

CO must not be for more that 10 years (although agreement after termination may be renewed) (hence, if more than 10 years, the excess is VOID) 20 years is the maximum if imposed by the testator or donee of the common property profits P- may be stipulated upon CO profits must always depend on proportionate shares (any stipulation to the contrary is VOID) dissolution P dissolved by death or incapacity of a partner CO not dissolved by the death or incapacity of co-owner form P may be made in any form except when real property is contributed (here, a public instrument is required) CO no public instrument needed even if real property is the object of the co-ownership

Partnership (P) vs. Co-Ownership (Community of property Tenancy in Common) (CO) a. creation P created by contract only (express or implied) CO created by contract, law and other things b. juridical P has juridical or legal personality CO has none, hence, it cannot sue or be sued as such c. purpose P for profit CO collective enjoyment (hence, not necessarily for profit) d. agency or representation P as a rule, there is mutual representation CO as a rule, there is no mutual representation (although it is enough for one co-owner to bring an action for ejectment against a stranger) e. transfer of interest P cannot substitute another as partner in his place, without unanimous consent CO can dispose of his share without the consent of the others f. length of existence if created by contract P no term limit is set by law

Partnership (P) vs. Voluntary Association (V) a. juridical personality P has juridical personality V - none b. purpose P always organized for pecuniary profit V such objective is lacking c. contribution of members P there is contribution of capital, either in the form of money, property, or services V for social purposes, although fees are usually collected from the members to maintain the organization, there is no contribution of capital d. liability of members P the partnership, as a rule, is the one liable in the first place for the debts of the firm V the members are individually liable for the debts of the association, authorized by them either expressly or impliedly, or subsequently ratified by them Partnership vs. Business Trusts - When certain persons entrust their property or money to others who will manage the same for the former, a business trust is created. The investors are called cestui que trust; the managers are the trustees. In a true business trust, the cestui que trust (beneficiaries) does not at all participate in the management; hence, they are exempted from personal liability, in that they can be bound only to the extent of their contribution. Partnership vs. Tenancy a. a partner acts as agent for the partnership whom he represents; the tenant does not represent the landlord. b. a partnership is a legal person; no such person is created in the relationship between landlord and tenant. Partnership vs. Agency a. agency may in one sense be considered the broader term because: partnership is only a form of agency. b. an agent never acts for himself but only for his principal; a partner is both a principal (for his own interest) and an agent (for the firm and the others). Partnership vs. Joint Adventure (joint accounts) a. a joint adventure is a sort of informal partnership, with no firm name and no legal personality. In a joint account, the participating merchants can transact business under their own name, and can be individually liable therefore.

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usually but not necessarily, a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing it to a successful termination may continue for a number of years; a partnership generally relates to a continuing business of various transactions of a certain kind. Partnership vs. Labor Union - a labor union is any association of employees which exists in whole or in part for the purpose of collective bargaining or of dealing with employers concerning terms and conditions of employment. - partnerships and labor unions have some characteristics in common, but the purpose of partnership is essentially to enable its members, as principals, to conduct a lawful business, trade, or profession for pecuniary gain of partners, and no one may become a partner without consent of all partners Partnership vs. Syndicate - a syndicate is usually a particular partnership, that is, it may have been organized to carry out a particular undertaking or for some temporary objective Art. 1768 Partnership is a juridical person separate and distinct from each of the partners. Consequences: 1. Its juridical personality is separate and distinct from that of each of the partners. 2. The partnership can: acquire and possess property of all kinds; incur obligations; bring civil or criminal actions; can be adjudged insolvent even if the individual members be each financially solvent 3. A partner has no right to make a separate appearance in court, if the partnership being sued is already represented, unless he is personally sued. Limitations on Alien Partnership - Secs. 2, 7, 10 and 11 of Art. 12 of the 1987 the Philippine Constitution Rules in case of Associations now lawfully organized as Partnerships 1. If an association is not lawfully organized as a partnership, it possesses no legal personality. Therefore, it cannot sue. However, the partners, in their individual capacity can. 2. One who enters into 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 it indeed had no personality. Art. 1769 Determinants for the Existence of a Partnership Purpose: - to indicate some test to determine if what may seem to be a partnership really is one, or it is not 1. 2. 3. Requisites for Existence of Partnership intention to create a partnership; common fund obtained from contributions; there was joint interest in the profits; Therefore: mere co-ownership or co-possession; mere profit sharing or GROSS returns do not establish a partnership Sharing of net profits

a prima facie evidence that one is a partner except in the 5 instances under Art. 1769 Art. 1770 Lawful Object or Purpose 1. Must be within the commerce of man, possible and not contrary to law, morals, good customs, public order or public policy 2. 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 purpose Judicial decree is not necessary to dissolve an unlawful partnership. The contract is void and therefore never existed from the viewpoint of the law Consequences of Unlawful Partnerships 1. Art. 45, RPC 2. The partners forfeit the proceeds or profits, but not their contributions, provided no criminal prosecution has been instituted. if the contributions have already been made, they can be returned; if the contributions have not yet been made, the parties cannot be made to make the contributions 3. An unlawful partnership has no legal personality. Art. 1771 Formalities of Partnership 1. General Rule: -for the validity of the contract, as well as for enforceability, no form is required, regardless of the value of the contributions Exception - Whenever real properties or real rights in real properties are contributed regardless of the value a public instrument is needed. Moreover, an inventory of the immovable is needed. This must be signed by the parties and attached to the public instrument 1. For effectivity of the partnership contract insofar as innocent third persons are concerned, the same must be registered if real properties are involved. Art. 1772 Partnership with capital of Php 3,000 or more Registration with the SEC Purpose of the registration with the office of the SEC to set a condition for the issuance of licenses to engage in business or trade Effect of non-registration 1. Even if not registered, the partnership having a capital of Php 3,000.00 or more is still a valid one, and therefore has legal personality; 2. if registration is needed, or desired, any of the partners of a valid partnership can compel the others to execute the needed public instrument, and to subsequently cause its registration. Art. 1773 Where real property is contributed Requirements where real property is contributed 1. There must be a public instrument regarding the partnership; 2. The inventory of the realty must be made, signed by the parties, and attached to the public instrument Applicability 1. applies regardless of the value of the property; 2. applies even if only real rights over real property are contributed; 3. applies also if cash or personal property is contributed Registration transfer of the land to the partnership must be duly recorded in the Registration of Property to make the transfer effective insofar as third persons are concerned

Art. 1774 Acquisition of property under the Partnership name applicable to immovable as well as personalty because the partnership is a juridical entity, capable of owning and possessing property alien partners must comply with the requirements as provided for in Sec. 7, Art 12 of the 1987 Constitution Limitations on Acquisition a partnership, even if entirely of Filipino capital may not: 1. acquire, lease or hold public agricultural lands in excess of 1,024 hectares; 2. lease public lands adapted to grazing in excess of 2,000 Art. 1775 Secret Partnership If articles are kept secret 1. The association here is certainly not a partnership and therefore not a legal person, because anyone of the members may contract in his own name with third persons and not in the name of the firm; 2. Although not a juridical entity, it may be sued by third persons under the common name it uses, otherwise, said innocent third parties may be prejudiced; 3. However, it cannot sue as such, because it has no legal personality and therefore, cannot ordinarily be a party to a civil action; 4. Therefore, insofar as innocent third parties are concerned, the partners can be considered as members of a partnership; but as between themselves, or insofar as third persons are prejudiced, only the rules on co-ownership must apply. Same rule applies in the case of a partnership by estoppel Note: Contracts entered into by a partner in his own name may be sued upon still by him in his own individual capacity, notwithstanding the absence of partnership Partnership needs publicity to prevent fraud/deceit Art. 1776 Classification of Partnership a. as to object/subject matter 1. Universal Partnership - may refer to all the present property or to all the profits a. universal of all present property - that which the partners contribute all the property which actually belongs to them to a common b. universal of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership 2. Particular Partnership - object are determinate things, their use or fruits; a specific undertaking or the exercise of a profession or occupation b. as to liability of partners 1. General - they are liable even with respect to their individual properties, in pro rata after the assets of the partnership have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership 2. Limited formed by two or more persons having as members one or more general partners and one or more limited partners.

The limited partners as such shall not be bound by the obligations of the partnership A limited partner is one whose liability is limited only up to the extent of his contribution c. as to duration 1. at will 2. at a fixed term the term of existence has been agreed upon expressly or impliedly the expiration of the term thus fixed or the accomplishment of the particular undertaking specified will cause the automatic dissolution of the partnership d. as to legality of existence 1. de jure 2. de facto e. as to representation 1. ordinary/real 2. ostensible/ partnership by estoppel f. as to publicity 1. secret 2. open or notorious g. as to purpose 1. commercial 2. professional Kinds of Partners 1. Capitalist Partners one who furnishes capital; not exempted from losses; can engage in other business provided there is no competition between the partner and his business 2. Industrial one who furnishes industry or labor; can be a general partner but never a limited partner; exempted from losses as between the partner; cannot engage in any other business without express consent of the partners, otherwise - he can be excluded from the firm (plus damage) - or the benefits he obtains from the other business can be availed of by the other partners (plus damages) 3. General/Real one who is liable beyond the extent of his contribution 4. Managing one who manages actively the firms affairs 5. Liquidating one who liquidates or winds up the affairs of the firm after it has been dishonored 6. Partner by estoppel/Quasi-partner one who is not really a partner but who may become liable as such insofar as third persons are concerned 7. Continuing 8. Surviving 9. Subpartner Other classifications a. ostensible partner one whose connection with the firm is public and open b. secret one whose connection with the firm is concealed or kept a secret c. silent one who does not participate in the management, though he shares in the profits or losses

d. e. f. g.

dormant/sleeping one who is both a secret and silent partner (not managing) original incoming retiring

Arts. 1778-80 Universal Partnership 2 kinds of Universal Partnership A. Universal property of all present property one which comprises all that the partners may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract. The following become common property of all the partners: 1. property which belonged to each of them at the time of the construction of the partnership 2. profits which they may acquire from the property contributed Property which the partners may acquire subsequently by inheritance, legacy or donation cannot be included for the stipulation for common enjoyment Fruits thereof may be included B. All profits comprises all that the partners may acquire by their industry or work during the existence of the partnership Distinction between all profits and all present property All profits only the usufruct of the properties of the partners become common property; naked ownership is retained by each of the partners all profits required by the industry or work of the partners become common property All present property all the property actually belonging to the partners are contributed- and said properties become common properties as a rule, aside from the properties, only the profits of the said contributed common property Note: profits from other sources may become common, but only if there is a stipulation to such effect. Properties subsequently acquired by inheritance, legacy or donation, cannot be included in the stipulation, but the fruits thereof can be included in the stipulation Art. 1781 Presumption in favor of partnership of profits applicable only when a universal partnership has been entered into

Art. 1782 Persons prohibited by law to give donation- cannot enter into Universal Partnership Reason: they should not be allowed to do indirectly what the law forbids directly Art. 1783 Particular Partnership - it has for its object determinate things, their use of fruits, or specific undertaking, or the exercise of a profession or vocation Doctrine: If two (2) individuals form a particular partnership for a deal in reality, it does not necessarily follow that all deals are for the benefit of the partnership. In the absence of agreement, each particular deal results in a particular partnership. If one of them, on his account, and using his own funds, should make transactions in the same business, it is his own undertaking II. Obligations of the Partners among themselves Art. 1784 When partnership begins General Rule: begins from the moment of the execution of the contract Exception: unless it is otherwise stipulated Intent to create a future partnership Art 1784 presupposes that there can be a future partnership which at the moment has no juridical existence yet The agreement for a future partnership does not itself result in a partnership. The intent must be later on actualized by the formation of the intended partnership Rule if contributions have not yet been actually made - generally, even if contributions have not yet been made, the firm already exists, for partnership is a consensual contract (all requisites for such consent must be present) Art. 1785 Duration of Partnership Duration: unlimited in the sense that no time limit is fixed by law; may be agreed upon (expressly or impliedly) Partnership at will - 2 kinds a. when there is no term, express or implied b. when continued by habitual managers note: It is called at will because its continued existence really depends upon the will of the partners or even on the will of any of them. Art. 1786 Duties of Parties 3 Important Duties of a partner 1. to contribute what has been promised; 2. to deliver the fruits of what should have been delivered; and 3. to warrant Obligations with respect to contribution of property 1. to contribute at the beginning of the partnership or at the stipulated time the money, property or industry which he may have promised to contribute; 2. to answer for eviction in case the partnership is deprived of the determinate property contributed; and 3. to answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery in addition, the partner has the obligation:

note: future property cannot be included in the stipulation regarding universal partnership of all present property Reasons: 1. contracts regarding successions rights cannot be made; 2. partnership demands that the contributed things be determinate, known and certain; 3. universal partnership of all present properties really implies a donation and future property cannot be donated

4. to preserve said property with the diligence of a good father of a family pending delivery to the partnership; and 5. to indemnify the partnership for any damage caused to it by the retention of the sane or by the delay in its contribution Effects of failure to contribute property promised The mutual contribution to a common fund being of the essence of the contract of partnership, for without the contributions the partnership is useless, it is but logical that the failure to contribute is to make the partner ipso jure a debtor of the partnership even in the absence of any demand. The remedy of the partner is not rescission but an action for specific performance with damages and interest from the defaulting partner from the time he should have complied with his obligation. Art. 1787 Appraisal of Goods manner prescribed by the contract of partnership in the absence of stipulation, appraisal shall be made by experts chosen by the partners and according to current prices A. When contribution consist of goods - appraisal of value is needed to determine how much has been contributed B. How appraisal is made - as prescribed by the contract - in default of the first, experts chosen by the partners, and at current prices C. Necessity of the Inventory Appraisal - proof is needed to determine how much goods or money had been contributed. An inventory is useful D. Risk of loss - after goods have been contributed, the partnership bears the risk of subsequent changes in their value Art. 1788- Obligations with respect to contribution of money 1. to contribute on the date due the amount he has undertaken to contribute to the partnership; 2. to reimburse any amount he may have taken from the partnership coffers and converted to his own use; 3. to pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any amount from the common fund and converts it for his own use; and 4. to indemnify the partnership for the damages caused to it by the delay in the contribution or the conversion of any sum for his personal benefit Liability of guilty partner for interest and damages the guilty partner is liable for interest and damages not from the time judicial or extrajudicial demand is made but from the time he should have complied with his obligation or from the time he converted the amount to his own use, as the case may be. Unless there is a stipulation fixing a different time, this obligation of a partner to give his promised contribution arises from the commencement of the partnership, that is, upon perfection of the contract. Cases covered by the article: a. when money promised is not given on time; b. when partnership money is converted to the personal use of the partner a. b. Coverage of liability interest at the agreed rate (if none, the legal interest) damages that may be suffered by the partnership

Why no demand is needed to put partners in default: contribution a partnership is formed precisely to make use of contributions, and this use should start from its formation, unless a different period has been set; otherwise the firm is necessarily deprived of the benefits thereof - injury is constant - time is of the essence b. conversion the form is deprived of the benefits of the money, from the very moment of conversion note: even if no actual injury results, the liability exists because Art. 1788 is absolute Art. 1789 Obligations of an Industrial Partner Remedies where industrial partner engages in business if the industrial partner engages in business for himself, without the express permission of the partnership, the capitalist partners have the right to exclude him from the firm or to avail themselves of the benefits which he may have obtained. In either case, the capitalist partners have the right to damages note: the permission given must be express; hence, mere toleration by the partnership will not exempt the industrial partner from liability Distinction between Capitalist Partner and Industrial Partner a. as to contribution CP contributes money or property IP contributes industry (mental or physical) b. as to prohibition to engage in other business CP cannot generally engage in the same or similar enterprise as that of his firm (possibility of unfair competition) IP cannot engage in any business for himself (all his industry is supposed to be contributed to the firm) c. as to profits CP shares in the profits according to the agreement thereon; if none, pro rata to his contribution IP receives a just and equitable share as to losses d. CP stipulation; if no stipulation, the agreement as to the profits; if none, pro rata contribution IP exempted as to losses (as between the partners0; but is liable to strangers without prejudice to reimbursement from capitalist partners a. -