Group 1

PARTNERSHIP

GENERAL PROVISIONS (Arts. 1767-1783)

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

Characteristics of Partnership
1. Consensual
2. Nominate
3. Bilateral
4. Onerous
5. Commutative
6. Principal
7. Preparatory

Essential Features of Partnership

1. There must be a valid contract.
2. parties (two or more persons) have legal capacity to enter into the contract
3. There must be a mutual contribution of money, property, or industry to a common fund.
4. The object must be lawful.
5. The primary purpose must be to obtain profits and to divide the same among the parties.

Legal capacity of the parties to enter into the contract

1. Individuals
GR: any person may be a partner who is capable of entering into contractual relations
The following cannot give their consent to a contract of partnership:
a. Unemancipated minors
b. Insane or demented persons
c. Deaf-mutes who do not know how to write
d. Persons who are suffering from civil interdiction
e. Incompetents who are under guardianship
2. Partnerships
Rule: no prohibition against a partnership being a partner in another partnership
3. Corporations
Rule: unless authorized by statute or by its charter, a corporation is without capacity or
power to enter into a contract of partnership.

* A partnership duly formed under the law is a juridical person to which the law grants a
juridical personality separate and distinct from that of each of the partners. (Art. 1768)
* To organize a corporation or a partnership, is not a matter of absolute right but a privilege
which may be enjoyed only under such terms as the State may deem necessary to impose.

Rules to determine the existence of partnership

1. Persons who are not partners as to each other are not partners as to third persons
XPN: as provided by Art. 1825
2. Co-ownership or co-possession does not of itself establish a partnership
3. sharing of gross returns does not of itself establish a partnership
4. receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business

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XPN: if profits were received in payment:

a. as a debt by installments or otherwise
b. as wages of an employee or rent to a landlord
c. as an annuity to a widow or representative of a deceased partner
d. as interest on a loan, though the amount of payment vary with the profits of the
business
e. as the consideration for the sale of a goodwill of a business or other property by
installments or otherwise

Essential Characteristics of Partnership

1. there was an intention to create a partnership
2. there was a common fund obtained from contributions
3. there was a joint interest in the profits

Partnership Co-ownership
Creation
created by contract only (express or implied) created by contract, law and other things
Juridical
has legal or juridical personality has no juridical personality
Purpose
for profit collective enjoyment; not necessarily for profit)
Transfer of Interest
cannot substitute another as partner in his place, can dispose of his share without the consent of the
without unanimous consent others
Length of Existence if Created by Contract
must not be for more than 10 years (although
no term limit is set by the law
agreement after Termination
Profits
may be stipulated upon profits must always depend on proportionate
shares; any stipulation to the contrary is VOID
Dissolution
not dissolved by the death or incapacity of co-
dissolved by death or incapacity of a partner
owner
Form
may be made in any form except when real
no public instrument needed even if real property is
property is contributed; here, a public instrument is
the object of the co-ownership
required.

GR: Sharing of NET profits is prima facie evidence that one is a partner.
XPNS: Art. 1764 Par. (4)
a. As a debt by installments or otherwise
b. As wages of an employee or rent to a landlord
c. As an annuity to a widow or representative of a deceased partner
d. As interest on a loan, though the amount of payment vary with the profits of the business
e. As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise

Consequences of Unlawful Partnership

a. if the firm is also guilty of a crime, the RPC governs both the criminal liability and the
forfeiture of the proceeds of the crime and the instruments or tools with which it was
committed
b. partners forfeit the proceeds or profits, but NOT their contributions

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i. If the contributions have already been made, they can be RETURNED

ii. if the contributions have not yet been made, the partners cannot be made to make the
contribution
c. no legal personality

Formalities required in constituting a partnership

GR: a partnership may be constituted in any form (Art. 1771)
XPNS:
1. immovable property or real rights are contributed thereto, in which case a public
instrument shall be necessary
2. in cases where the personal property is contributed:
a. capital is less than P3,000.00, no special form is required
b. capital of P3,000.00 pesos or more, in money or property, the same shall appear in a
public instrument and must be recorded in the Office of the Securities and Exchange
Commission
* Purpose of Registration:
> to set a condition for the issuance of licenses to engage in business trade
* In case of failure to comply with this requirement, it does not prevent the formation
of the partnership or affects its liability and that of the partners to third persons.
3. real property is contributed, regardless of value
a. it must be in writing in a public instrument
b. an inventory of said property should be made, signed by the parties, and attached to
the public instrument
* Importance of Inventory
> to show how much is due from each partner to complete his share in the
common fund and how much is due to each of them in case of liquidation
c. it must be recorded with the Register of Deeds where the immovable is located to bind
third persons
d. where the contracts falls within the Statute of Frauds, the contract itself must be in
writing

Classifications of Partnership
As to the extent of its subject matter:
o Universal partnership (Art. 1777)
> one which refers to all the present property or to all profits
> has two kinds:
Universal partnership of all present property (Art. 1778)
comprises the following:
1. property which belonged to each of the partners at the time of the
constitution of the partnership
2. profits which they may acquire from all property contributed
Universal partnership of profits (Art. 1780)
comprises all that the partners may acquire by their industry or work during
the existence of the partnership
* Profits acquired by the partners through chance are NOT included.
o Particular partnership (Art. 1783)
> one which has for its object, determinate things, their use and fruits, or a specific
undertaking or the exercise of a profession or a vocation

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Universal Partnership Particular Partnership

As to Object
vague and indefinite, contemplating a general limited and well-defined, being confined to an
business with some degree of continuity undertaking of a single, temporary, or ad hoc
nature

As to the liability of the partners:

o General Partnership
> one consisting of general partners who are liable pro rata and subsidiarily and
sometimes solidarily with their separate property for partnership debts
o 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

GENERAL LIMITED
Extent of Liability
Personally liable for partnership obligations Liability extends only to his capital contributions
Right in Management
When manner of management is not agreed upon,
all general partners have an equal right in the No participation in management
management of the business
Contribution
Contribute cash, property or industry Contribute cash or property only, not industry
Effect of Death, Insolvency, Retirement, Insanity
Retirement, death, insolvency, insanity of general Does not have same effect; rights are transferred
partner dissolves partnership to legal representative
Creation
Created by the members after substantial
As a rule, it maybe constituted in any form, by
compliance in good faith of the requirements set
contract or conduct of the partnership
forth by law
Composition / Membership
Composed of one or more general partners and
Composed only of general partners
one or more limited partners

As to its duration
o Partnership at will
> for a particular undertaking or venture which may be terminated anytime by mutual
agreement
o Partnership with a fixed term
> term for which the partnership is to exist is fixed or agreed upon or one formed for a
particular undertaking

As to the legality of its existence

o De jure partnership
> has complied with all the legal requirements for its establishment
o De facto partnership
> has failed to comply with all the legal requirements for its establishment

As to representation to others
o Ordinary or real partnership
> actually exists among the partners and also as to third persons

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o Ostensible partnership or partnership by estoppel

> one which in reality is not a partnership, but is considered a partnership only in
relation to those who, by their conduct or admission, are precluded to deny or
disprove its existence

As to publicity
o Secret partnership
> the existence of certain persons as partners is not made known to the public by any
of the partners
o Open or notorious partnership
> existence is made known to the public by the members of the firm

As to purpose
o Commercial or trading partnership
> formed for the transaction of business
o Professional or non-trading partnership
> formed for the exercise of a profession

Classifications of Partners

Under the Civil Code

o Capitalist
> contributes money or property to the common fund
o Industrial
> contributes only his industry or personal service
o General
> liability to 3rd persons extends to his separate or personal property
o Limited
> liability to 3rd persons is limited to his capital contribution
o Managing
> manages the affairs or business of the partnership
o Liquidating
> takes charge of the winding up of partnership affairs upon dissolution
o Partner by estoppel
> not really a partner but is liable as a partner for the protection of innocent 3rd
persons
o Continuing partner
> continues the business of a partnership after it has been dissolved by reason of the
admission of a new partner, retirement death or expulsion of one of the partners
o Surviving partner
> remains after a partnership has been dissolved by death of any partner
o Subpartner
> not a member of the partnership
> contracts with a partner with reference to the latter's share in the partnership

Other Classifications
o Ostensible
> takes active part and known to the public as partner in the business
o Secret
> takes active part in the business but is not known to be a partner by outside parties

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o Silent
> does not take any active part in the business although he may be known to be a
partner
o Dormant
> does not take active part in the business and is not known or held out as a partner
o Original partner
> one who is a member of the partnership from the time of its organization
o Incoming partner
> a person lately, or about to be, taken into an existing partnership as a member
o Retiring partner
> one withdrawn from the partnership

Limitations upon the right to form a partnership

ART. 1782. Persons who are prohibited from giving each other any donation or advantage
cannot enter into a universal partnership.

Parties not allowed to form a partnership:

between the spouses during the marriage
between persons who were guilty of adultery or concubinage at the time of the donation
those made between persons found guilty of the same criminal offense, in consideration
thereof
those made to a public officer or his wife, descendants and ascendants, by reason of his
office

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