PARTNERSHIP

I. Contract of partnership
A. Definition
By the contract of partnership two or more persons bind themselves to contribute
money, property or industry to a common fund, with the intention of dividing the profits
among themselves.
Two or more persons may also form a partnership for the exercise of a profession.
B. Elements
1. Consensual;
2. Contribution of money, property or industry to a common fund;
3. Subject must be a lawful one;
4. An intention of dividing the profit among the partners;
5. A desire to formulate an active union;
6. A new personality, that of the firm must arise, distinct from the separate
personality of each of the members.
C. Rules to determine existence

General rule:

Persons who are not partners as to each other are not partners as to third
persons.
Exception:
Partnership by estoppel
2. 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.
3. 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.
4. Receipt of 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:
(a)
(b)
(c)
(d)

as a debt by installments or otherwise;

as wages of an employee or 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; and

(e) as the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
D. How partnership is formed
General rule:
No special form is required for the validity or existence of the contract of
partnership.
Exceptions:
1. Where immovable property or real rights are contributed, the partnership
contract shall be void unless:

It is reduced to writing in a public instrument .

b. An inventory of the property contributed is made, signed by the parties and

attached to the public instrument.
2. Where the contract is by its terms not to be performed within a year from the
making thereof, such partnership contract is covered by the statute of frauds and thus
requires a written agreement to be enforceable.
3. Where the contract of partnership has a capital of 3,000 pesos or more, in
money or property, it shall appear in a public instrument and must be recorded in the
Office of the Securities and Exchange Commission. However, a partnership has a
juridical personality even in case of failure to comply with this requirement.
E. Partnership term
Unlimited in the sense that no time limit is fixed by law; may be agreed upon.
F. Universal vs. Particular; General vs. Limited
Universal partnership of all present
property

Particular partnership

The partners contribute all the property

which actually belong to them to a
common fund, with the intention of
dividing the same among themselves, as
well as all the profits which they may
acquire therewith.

One which has for its object determinate

things, their use and fruits, or a specific
undertaking, or the exercise of a profession
or vocation.

Universal partnership of profits

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.

General partnership
Consist of general partners who are liable
pro rata and subsidiarily and sometimes
solidarily with their separate property for
partnership debts.

Limited partnership
One formed by two or more persons having
as members one or more general partners
and one or more limited partners, the latter
not being personally liable for the
obligations of the partnership.

G. Partnership by estoppel
Arises when a person, by words spoken or written or by conduct, represents
himself or consents to another representing him to anyone, as partner in an existing
partnership, or with one or more persons not actual partners; he is liable to any such
person to whom such representation has been made, who has, on the faith of such
representation given credit to the actual or apparent partnership.
H. Partnership v. Joint Venture
Partnership

Joint Venture

Contemplates a general business with some Formed for the execution of a single
degree of continuity
transaction and is thus of temporary nature
It is hardly distinguishable from partnership, since their elements are similar, i.e.
community of interest in the business, sharing of profits and losses, and a mutual right of
control.

I. Professional partnership
Partnerships formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any trade or
business.
J. Management
A. When the manner of management has been provided for in the partnership
agreement
When a managing partner has been appointed:
1. Appointment in the articles of partnership
a. Power is irrevocable without just or lawful cause

i. to remove him for just cause, vote of partners

representing controlling interest is necessary
ii. to remove him without just cause or for an unjust cause,
there must be unanimity including his own vote
b. Extent of power
i. if he acts in good faith, he may do all acts of
administration, despite opposition of his partners
ii. if in bad faith, he cannot.
2. Appointment other than in the articles of partnership
cause

a. Power to act may be revoked at any time, with or without just

b. 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

When two or more managing partners have been entrusted with the
management of partnership:
1. Without specification of their respective duties and without stipulation
requiring unanimity of action
General rule: Each managing partner may execute all acts of
administration
Exception: If any of the managing partners should oppose,

a. Decision of the majority of the managing partners shall prevail

b. In case of a tie, decision of the partners representing the
controlling interest shall prevail
2. With stipulation requiring unanimity of action
General rule: Unanimous consent of all the managing partners shall be
necessary for the validity of the acts and absence or inability of any managing
partner cannot be alleged
Exception: When there is an imminent danger of grave or irreparable
injury to the partnership, partner may act alone without the consent of the partner
who is absent or under disability

B. When manner of management has not been agreed upon

a. All partners shall be considered managers and agents
b. Unanimous consent required for alteration of immovable property

II. Rights and obligations of partnership

The partnership can, in general:
a) enter into contracts
b) acquire and possess property of all kinds
c) incur obligations
d) bring civil and criminal actions
e) be adjudged insolvent even if the individual members be each
financially solvent
f) bear risk of loss
g) reimburse
h) operate under firm name
i) bound by partners admission
j) bound by notice to partner
k) liable for wrongful act of partner
III. Rights and obligations of partners among themselves
Rights:
1. Property rights
a) His rights in the specific partnership property
b) His interest in the partnership

c) His right to participate in the management

2. Right to reimbursement for amounts advanced to the partnership and to
indemnification for risks in consequence of management
3. Right to associate with another person in his share
4. Right of access and inspection of partnership books
5. Right to true and full information of all things affecting the partnership
6. Right to a formal account of partnership affairs under certain circumstances
7. Right to have partnership dissolved under certain conditions.
Obligations:
1.

Obligation with respect to contribution of property

To contribute what had been promised

To answer for eviction in case the partnership is deprived of determinate
property contributed

To answer to the partnership for the fruits of the property the contribution
of which is delayed, from the date they should have been contributed to
the time of actual delivery

To preserve the property with the diligence of a good father of a family

pending delivery to the partnership

To indemnify the partners for any damages caused to it by the retention of

the same or by delay in its contribution.

2. Obligations with respect to contribution of money and money converted to

personal use
a) To contribute on the date due the amount he has undertaken to
contribute to the partnership

b) To reimburse any amount he may have taken from the partnership

coffers and converted to his own personal use
c) 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 converted to his
own personal use
d) 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.
3. Obligation Not to Engage in Other Business for Himself

Industrial partner- cannot engage in any business for himself unless the
partnership expressly permits him to do so. The other partners have the remedy of either
excluding the erring partner from the firm or of availing themselves of the benefits which
he may have obtained.
Capitalist partner- The prohibition extends only to any operation which is of the
same kind of business in which the partnership is engaged unless there is a stipulation to
the contrary.

4. Obligation to Contribute Additional Capital

As a general rule, a capitalist partner is not bound to contribute to the partnership
more than what he agreed to contribute but in case of an imminent loss of the business,
and there is no agreement to the contrary, he is under obligation to contribute an
additional share to save the venture. If he refuses to contribute, he shall be obliged to sell
his interest in the partnership to other partners.
5. Obligation of Managing Partner who Collects Debt
Where a person is separately indebted to the partnership and to the managing
partner at the same time, any sum received by the managing partner shall be applied to
the two credits in proportion to their amounts, except where he received it entirely for the
account of the partnership, in which case the whole sum shall be applied to the
partnership credit only.
6. Obligation of Partner Who Receives Share in Partnership Credit
A partner who receives, in whole or in part, his share in the partnership, when the
others have not collected theirs, shall be obliged, if the debtor should thereafter become
insolvent, to bring to the partnership capital what he received even though he may have
given receipt for his share only.
7. Obligation of Partner for Damages to Partnership
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.
8. Duty to Render Information
Partners shall render on demand true and full information of all things affecting
the partnership to any partner or the legal representative of any deceased partner of any
partner under legal disability.
profits

9. Obligation to account for any benefit and hold as trustee unauthorized personal

Every partner must account to the partnership for any benefit, and hold as trustee
for it any profits derived by him without the consent of the other partners from any
transaction connected with the formation, conduct, liquidation of the partnership or form
any use by him of its property.

IV. Obligations of Partnership/Partners to Third Persons

Liability for contractual obligations
All partners, including industrial partners, are personally liable with all their
property. Their individual liability is pro rata and subsidiary, unless otherwise stipulated
Liability of partnership for acts of partners

Acts for apparently carrying on in the usual way the business of the
partnership
General rule: Act binds the partnership.
Exception: Partnership is not bound if:

i. acting partner has in fact no authority and

ii. the third person knows that the acting partner has no authority
Acts of Strict Dominion or Ownership
General rule: Act does not bind the partnership.
Exception: Partnership is bound if:

the act is authorized by all the partners; or

they have abandoned the business

Acts in contravention of a restriction on authority

Partnership is not liable to third persons having actual or presumptive

knowledge of the restrictions
Liability arising from partners tort or breach of trust
a. Where, by any wrongful act or omission of any partner acting in the
ordinary course of business of the partnership or with authority of his co-partners,
loss or injury is caused to any person, not being a partner in the partnership
b. Where one partner, acting within the scope of his apparent authority,
receives money or property of a third person and misapplies it
c. Where the partnership, in the course of its business, receives money or
property and it is misapplied by any partner while it is in the custody of the
partnership
V. Dissolution
Change in the relation of the partners caused by any partner ceasing to be
associated in carrying on the business.
It is the point in time when the partners cease to carry on the business together. It

represents the demise of a partnership.

Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking
specified in the agreement;
(b) By the express will of any partner, who must act in good faith, when
no definite term or particular is specified;
(c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts, either before or
after the termination of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement between the partners;
(2) In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this article, by the
express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing, when the
partner who contributed it having reserved the ownership thereof, has only transferred to
the partnership the use or enjoyment of the same; but the partnership shall not be
dissolved by the loss of the thing when it occurs after the partnership has acquired the
ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article.
VI. Limited partnership
A. Definition
One formed by two or more persons having as members one or more general
partners and one or more limited partners, the latter not being personally liable for the
obligations of the partnership.
B. How limited partnership is formed/amended

Formation

Amendment

1. Certificate of articles of the limited 1. Change in name of partnership,

partnership must state the ff. matters:
amount/character of contribution of ltd.
Partner
a. Name of partnership + word
1. Substitution of limited partner
"ltd."
1. Admission of additional limited partner
b. Character of business
c. Location of principal place of 1. Admission of general partner
business
insolvency, insanity, civil
a. Name/place of residence of 1. Death,
interdiction
of general partner &
members
business is continued
a. Term for partnership is to exist
1. Change in character of business
b. Amount of cash/value of
property contributed
1. False/erroneous statement in certificate
1. Change in time as stated in the
a. Additional contributions
certificate
for
dissolution
of
b. Time agreed upon to return
partnership/return
of
contribution
contribution of limited partner
is fixed for dissolution of
a. Sharing
of
profits/other 1. Time
partnership.
Return of contribution if no
compensation
orig. time specified
a. Right of limited partner (if 1. Change in other statement in certificate
given) to substitute an assignee
a. Right to admit additional
partners
2. Such certificate must be filed for record
in the Office of the Securities and
Exchange Commission.
C. Rights and obligations of a limited partner
Rights:
1. To have the partnership books kept at the principal place of business of the
partnership
2. To inspect, at a reasonable hour, partnership books and copy any of them
3. To demand true and full information of the things affecting the partnership
4. To demand a formal account of the partnership affairs whenever circumstances
render it just and reasonable
5. To ask for dissolution and winding up by decree of court
6. To receive a share in the profits or other compensation by way of income
provided that the partnership assets are in excess of partnership liabilities after such
payment

7. To receive the return of his contribution provided:

All the liabilities of the partnership have been paid or the partnership
assets are sufficient to pay partnership liabilities

The consent of all the members has been obtained

The certificate is cancelled or so amended as to set forth the
withdrawal or reduction

Obligation:
To contribute cash or property to the partnership but not services.