PARTNERSHIP 2017 (PRE-MID) | Atty.
Victor Niere
GENERAL PROVISIONS
Concepts of Partnership
Contract of Partnership
Contract where 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. (Art. 1767)
General Professional Partnership (Kind of Contract
of Partnership)
Partnership of two or more persons for the exercise of
their profession. (Art. 1767)
Characteristic elements of Partnership (6)
a. Consensual – perfected by consent
b. Nominate – it has special name or designation
c. Onerous
d. Commutative – undertaking of each partner is
considered as equivalent of that of others
e. Principal – existence does not depend on
existence or validity of another contract
f. Preparatory – entered into as means to an end
Partnership vs Practice of Law
Practice of law is a duty of public service; lawyer is an
officer of court; relationship with clients is in the
highest fiduciary degree; and relationship to
colleagues is characterized by candor, fairness, and
unwillingness to resort to current business method.
Partnership by Estoppel
Persons, by their acts or representations, misled third
persons into believing that they are partners, become
subject to liabilities of partners to all who in good faith
deal with them.
Doctrine of Corporation by Estoppel
Those acting on behalf of a corporation and those
benefited by it, even if the corporation is without valid
existence, are held liable as general partners.
Essential Feature of Partnership (5) (VLMLP)
1. Valid contract;
2. Legal capacity to enter into contract by parties
3. Mutual contribution of money, property, or
industry to a common fund;
4. Lawful object (not contrary to law, morals,
good customs, public order, or public policy);
and
5. Primary purpose is to carry on a business for
profits and to divide is among the parties.
Parties/Partners of Partnership
GR: Any person CAPABLE of entering into
contractual relations.
E: (person who cannot give consent)
a. Unemancipated minors;
b. Insane or demented persons;
c. Deaf-mutes who do not how to write;
d. Persons who are suffering from civil
interdiction;
e. Incompetent’s who are under guardianship.
f. Persons prohibited from giving each other any
donation or damages (Art. 1782) – each partner
virtually makes a donation, to allow persons
prohibited to give each other donations to form
a universal partnership will permit indirectly
what the law expressly prohibits.
A partner may be a human; a partnership; a
corporation, authorized by statute or chapter; or a joint
venture.
NB: Corporations is without capacity to enter into
contract of partnership.
E: Unless, authorized by statute or its charter.
Contributions in Partnership
a. Money – legal tender in the Philippines
b. Property – real or personal, incorporeal,
corporeal, and prisons
c. Industry – work of party associated
Sharing of Profits/Losses
GR: Profits and losses shall be distributed in
conformity with the agreement. (Art. 1797)
E:
 If only the share of each partner in the profits
has been agreed upon, share in the losses shall
be in the same proportion.
 If there is no stipulation, the share in profits and
losses shall be in proportion what he may have
contributed.
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 Industrial partner- not liable for losses; just and b.
equitable share under the circumstances for the
profits c.
 Industrial partner who also contributed capital
– share in profits in proportion to his capital d.
Profits – sharing need not be in equal shares
Losses – no need to share (according to Atty.), an e.
agreement between partners not to share losses does
not invalidate partnership.
Wages of an employee or rent to a
landlord;
Annuity to a widow or representative of a
deceased partner
Interest on a loan, though the amount of
payment vary with the profits of the
business;
Consideration for the sale of a goodwill of
a business or other property by installments
or otherwise.

Partnership: A Juridical Person NB:

Partnership has a juridical personality separate and Burden of proving existence of partnership rest on the
distinct from that of each of the partner, even if it does party having the affirmative of that issues.
not appear in a public instrument or registered in SEC. Burden of proof in presumed partnership rest on party
(Art. 1768) denying its existence.
Effect of independent juridical personality Partnership vs Co-ownership
Partnership may enter into contracts, acquire and
Co-ownership Partnership
possess property, incur obligations, and bring civil or 1. Does not need 1. Needs a/ created by
criminal actions. contract; created by contract
law
NB: Partnership cannot be held liable for obligations
of the partnership. Unless, it is shown that the legal
2. Profits are derived 2. Profits must be
fiction of a different juridical personality is being used from property derived from
for a fraudulent, unfair, or illegal purpose. ownership operation of
business of
Rules to Determine Existence of Partnership
undertaking by
(Art. 1769) members of
association
1. Persons who are not partners as to each other
are not partners as to third persons; 3. No fiduciary 3. Fiduciary
E: Partnership by Estoppel relationship relationship
2. Co-ownership or co-possession by itself does between partners
not establish a partnership, whether co-owners/
co-possessors do or do not share any profits 4. Remedy of dispute 4. Remedy for dispute
is action for non- are action actions
made by the use of the property;
performance of for dissolution,
3. Sharing of gross returns does not in itself
contract termination, and/or
establish a partnership; whether or not persons accounting.
sharing them have a joint or common right or
interest in any property from which the returns 5. No separate juridical 5. Juridical personality
are derived; personality separate and distinct
Partners share net profits. from each partner
E: When there is evidence of mutual agreement
4. Receipt of share of profits of a business is prima 6. Purpose is common 6. Purpose is
facie evidence that he is a partner in the enjoyment of thing realization of profits
business. or right
No such inference when profits were received
7. Not more than 10 7. No limitation to
in payment as:
years duration
a. A debt by installment or otherwise;
8. Cannot

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8. Can freely dispose Can sue partner who Suit against

of his individual mismanages mismanaging board
interest member must be in the
9. Partner may bind name of the corporation
9. Co-owner cannot co-ownership
represent co- No right of succession There is
ownership
10. Death dissolves Partners liable solidarily Stockholders a reliable
10. Death does not partnership and subsidiarily only to the extent of the
dissolve co- share subscribed
ownership
Can be transferred

Partnership vs Voluntary Association Right to partnership

cannot be transferred Not in excess of 50
Partnership VA years
Has juridical No JP May be established for
personality any period of time Any firm name
Organized for pecuniary NA Ltd. With consent of state
profit
Can be dissolved any
Contribution of capital No contribution of time
in money, property, or capital, maintenance
services fees only
Object or Purpose of Partnership
Partnership is one liable Members are
for debts of firm individually liable for Partnership must have lawful object or purpose and
debt of associatio0 must be established for the common benefit or interest
of the parties. When unlawful partnership is dissolved
by judicial decree, the profits shall be confiscated in
Partnership vs Corporation favor of the State. (Art. 1770)
Partnership Corporation  Lawful object or purpose
Created by mere By law or operation  Common interest or benefit of parties
agreement of parties thereof
Otherwise, partnership is UNLAWFUL.
May be organized by at Requires at least 5
least 2 persons incorporators Effect of unlawful partnership

Acquires juridical From date of issuance of - contract is void ab initio

personality from certificate of - profits shall be confiscated in favor of
moment of execution of incorporation by SEC government – the basis is a null contract so the
contract cause of action against the profits will be null
and void
Can exercise any power Can only exercise - Instruments or tools and proceeds of the crime
authorized by partners powers granted by law shall be forfeited in favor of government
or implied from those - Contribution shall not be confiscated
granter or incident to its
existence NB:

Every partner is an Power to business is Partnership is dissolved by operation of law upon the
agent of partnership vested with the board of happening of an event which makes it unlawful for the
directors or trustees business of the partnership to be carried on, or for
members to carry it on in partnership.

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Judicial decree is not necessary to dissolve an
unlawful partnership.
Partial illegality of partnership
Innocent partners are not precluded against the guilty
partners from recovering their share of profits.
Subsequent illegality of partnership
Does not nullify the contract.
Form of Partnership
GR: No particular form is required
E:
Agreement to enter into partnership at future time
which is not to be performed within a year from
making thereof – unenforceable unless in writing.
Implied Partnership
Partnership may exist in absence of express
agreement. It can be implied from conduct of parties.
Acquisition by Partnership
Partnership can acquire any immovable property or
interest. (Art. 1774)
Title of acquired property can only be conveyed in the
partnership name.

1. Contributions are immovable property or real Secret Partnership

rights (Art. 1771) Secret Partnership (Art. 1775)
 Inventory of property must be made
 Inventory is signed by the parties Association and societies whose articles of agreement
 Inventory is attached to the public are kept secret among members.
instrument (Art. 1773)
Any one of the members may contract in his own name
E: Immovable property possessed or owned by with third persons.
the partnership but not contributed by any of
the partners No juridical personality. Governed by rules of Co-
ownership.
NB: Absence of inventory is FATAL
Publicity of Articles of Partnership
2. Contract of partnership having a capital of 3k
pesos or more in money or property (Art. 1772) Important for protection of members and third persons
 In public instrument from fraud and deceit.
 Recorded in Office of SEC Classification of Partnership (As to)
NB: Subject 1. Universal Partnership
Failure to comply shall not affect the liability of Matter/Object  UP of all present
property
the partnership and the members thereof to third
 UP of Profits
persons. 2. Particular Partnership
Any partners is granted the right by law to
compel each other to execute the contract in a
public instrument.

Effective date of registration of partnership is

the date the partnership papers are presented to Liability 1. General – liable pro rata or
and left for record in the SEC. Effectivity subsidiarily (art. 1816)
retroacts from issuance of certificate of 2. Limited – limited partners
recording to day of presentation for recording. are not liable for obligations
of partnership
3. Limited General Partnership (Art. 1843) Duration 1. At will
 Registered in SEC - No time specified
- Not formed for
Partnership covered by Statute of Fraud particular undertaking

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- May be terminated
anytime by mutual
agreement\
- Continued fixed term
agreement without
express agreement (Art.
1785)
2. With fixed term
Legality of 1. De Jure – complied with all
Existence legal requirements for
establishment
2. De Facto – failed to comply
with all legal requirements
for establishment
Representation 1. Ordinary or Real – exist
to others among partners and third
persons
2. Ostensible or By Estoppel –
in reality not a partnership
but considered as one only
in relation to those
precluded to deny its
existence
Publicity 1. Secret Partnership –
existence of certain persons
as partners is not publicly
known
2. Open/ Notorious –existence
is known to the public
Purpose 1. Commercial – formed for
transaction of business
2. Profession – for exercise of
profession
Universal Partnership
1. Of All Present Property (Art. 1778 &1779)
Partners contribute all property which actually belongs
to them to a common fund, with intention of dividing
the same among themselves as well as the profits they
may acquire.
Object/Subject Matter
 All property which belong to partner at time of
constitution of partnership;
 Profits which partners may acquire from
property contributed.
Profits from properties not contributed
May become common property by stipulation
Properties that CANNOT be Contributed Even
with Stipulation
Properties which partners may acquire subsequently
by:
a. Inheritance
b. Legacy
c. Donation
E: Fruits of properties subsequently acquired by ILD
2. Of Profits (Art. 1780)
Comprises all that the partners may acquire by their
industry or work during the existence of the
partnership and the usufruct of the movable or
immovable property which each of the partners may
possess at the time of the celebration of the contact.
Object/Subject Matter
 Profits acquired by industry or work during
existence of partnership
 Usufruct of movable or immovable property
which partner may possess at time of
celebration of contract.
E:
 Profits acquired through change, i.e. lotto
winnings
 Fruits of property subsequently acquired
UNLESS included by stipulation
Particular Partnership
Object/Subject Matter (Art. 1783)
 Determinate things
 Use or fruits of determinate things
 Specific undertaking
 Exercise of a profession or vocation
Joint Venture
Partnership created for some temporary or limited
purpose
GR: Corporation cannot enter into partnership
E: Corporation can enter into joint venture if nature of
the venture is authorized by the corporation’s charter.
Kinds of Partners
Capitalist – contributes money or property to
common fund
Industrial – contributes industry or personal service
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General – liability to 3rd persons extend to separate

property

Limited – liability too 3rd persons limited to capital

contribution

Presumption of Universal Partnership of Profit

When articles of partnership do not specify the nature

of the partnership, it will be presumed that the parties
intended merely a universal partnership of profits.
(Art. 1781)

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PARTNERSHIP 2017 (PRE-MID) | Atty. Victor Niere
OBLIGATIONS OF THE PARTNERS
Obligations of the Partners among Themselves
(Art. 1784 – 1809)
Juridical relations created by partnership
1. Among partners
2. Partners with partnership
3. Partnership with third persons with whom it
contracts
4. Partners with third persons
Commencement of Partnership
From moment of execution of contract UNLESS
otherwise stipulated. (Art. 1784)
As long as essential requisites of partnership are
present, the partnership exist even if the partners have
not yet begun carrying on its business or given their
contributions.
Executory agreement of Partnership
Partners may stipulate some other date for
commencement of partnership. As long as the
agreement remains inchoate or unperformed, the
partnership is not consummated. And so long as the
agreement remains executory, the partnership is
inchoate.
Death of party to an executory agreement prevents
formation of partnership.
Continuation of Partnership Beyond Fixed Term
GR: Expiration of term fixed or accomplishment of
undertaking specified causes automatic dissolution of
partnership.
E: Extension of Partnership
 Express agreement
 Impliedly by continuation of business after
termination of term without any settlement or
liquidation (no express agreement)
Effect of IMPLIED continuation beyond fixed term
Partnership with fixed term is dissolved and a new one
is created by implied agreement. Continued existence
will depend on mutual desire and consent of partners.
Rights and duties of partners remain the same as they
were at such termination, so far as is consistent with a
partnership at will. (Art. 1785)
Termination of partnership
Any one of the partners may dictate dissolution of
partnership at will, in good faith. Bad faith does not
prevent dissolution but can result to liability for
damages to other partners.
NB: Continuation of business by partners without any
settlement or liquidation of the partnership affairs is
prima facie evidence of continuation of partnership.
Obligation of Parties with Respect to Contribution
of Property
1. To contribute at the beginning of partnership what
was promised to be contributed
2. Answer for eviction in case partnership is
deprived of the determinate property contributed
3. Answer for delay of contribution of fruits of
property from date they should have been
contributed to date of delivery
4. Preserve property with diligence of good father of
family pending delivery to partnership
5. Indemnify partnership for any damages caused by
retention or delay of contribution
NB: Contribution becomes property of partnership. It
cannot be withdrawn or disposed of by contributing
partner without consent or approval of partnership or
other partners.
Partner as Debtor (Art. 1786)
When partner fails to contribute what he has promise.
Remedy is action for specific performance.
Partner as Warranty (Art. 1786)
With regards to specific and determinate things
contributed
Warranty that partner has right to contribute the thing
Warrant that the thing is free from hidden faults,
defects, or any charge or encumbrance.
Liability for delay of Fruits to be contributed (Art.
1786)
Partner has obligation to deliver fruits of property or
thing to be contributed but was delayed.
He is liable from time the property should have been
contributed up to date of delivery.
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Liability of Partner for Failure to Perform Service
Stipulated
GR: No liability
E:
a. Neglect or refusal without reasonable cause
to render the service by which the partnership
suffered loss
b. Partner is compelled to make good the loss
c. If the proper measure of the damages or loss
is the value of the services wrongfully
withheld, defendant should be charged this
value.
Appraisal of Good if Property Contributed (Art.
1787)
Required when capital or part thereof consist of goods.
Manner of appraisal
 Manner prescribed in the contract of
partnership
 If no stipulation, made by experts chosen by
partners, according to current prices.
NB: If contribution is immovable property, appraisal
is made in the inventory.
Obligations with Respect to Contribution of
Money and Money Converted to Personal Use
Partner who has undertaken to contribute sum of
money and fails to do so becomes DEBTOR for the
interest and damages from the time he should have
complied with his obligation.
Same rule applies to any amount he may have taken
from the partnership/ liability shall begin from time he
converted the amount to his own use. (Art. 1788)
Obligation of Partner
1. Contribute, on date due, the amount he has
undertaken to contribute
2. Reimburse amount he converted to his own
use
3. Pay agreed or legal interest if he fails to pay
contribution time or in case he takes any
amount for own use
4. Indemnify partnership for damages cause by
delay in contribution or conversion
Liability of Partner as DEBTOR for interest and
damages
From time he should have complied with his
obligation or from time he converted the amount to his
own use.
NB: Obligation of partner to give his promised
contribution arises from commencement of
partnership (upon perfection of the contract).
Obligations of Industrial Partner
Industrial Partner
One who contributes his industry, labor, or services to
the partnership.
Prohibition
Cannot engage in business for himself. ANY KIND
OF BUSINESS whether same business as partnership
or not.
UNLESS partnership expressly permits him to do so.
Remedies when industrial partner engages in
business
Capitalist partners have right to;
 Exclude him from firm with right to damages
 Avail themselves of the benefits which he
may have obtained with right to damages
Prohibition for Capitalist Partners
Covers only business of the same kind in which the
partnership is engaged in.
Extent of Contribution of Partnership Capital
GR: EQUAL SHARES to capital
E: Stipulation
Obligation of Capitalist Partner to Contribute
Additional Capital
GR: Capitalist partners are not bound to contribute
more than what he agreed to contribute.
E: (Art. 1791)
In case of imminent loss of business, and there is no
obligation to the contrary, he is obligated to contribute
an additional share.
If he refuses to contribute, he shall be obliged to sell
his interest to others.
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E to E: Industrial partners not required to contribute D is indebted to ABC Partnership for 4,500. A has
additional share. received 1,500 as share. When B and C were collecting
from D, he was already insolvent. A can be required to
Requisites for capitalist to be required to share the 1,500 to B and C.
contribute/or sell his share:
Obligation of partner for Damages to partnership
1. Imminent loss of business of partnership
2. Majority of the capitalist partners are of the To be liable/ responsible to partnership for damages
opinion that an additional contribution to suffered by it through his fault.
common fund would save the business
3. Deliberate refusal of capitalist partner to To secure benefits for the partnership. Thus profits he
contribute earned pertains to the partnership.
4. No agreement that in case of imminent loss Obligation to exercise diligence in performance of
the partners are not required to contribute ogligation as partner.
Obligation of Managing Partner Who Collects (Art. 1794)
Debt
GR: Liability cannot be offset with profits and
(Art. 1792) benefits which partner at fault have earned for the
To apply debt collected owed to partner in his own partnership.
name, in case debtor is indebted to partner personally E: liability can be equitably lessened by court if
and at the same time to the partnership, to the credits through partner’s extraordinary efforts in other
in proportion to their amount even if receipt was given activities of the partnership, unusual profits have been
for the personal credit only. realized.
If amount was given for the partnership credit, it shall Risk of Loss of Things Contributed
be fully applied to the latter.
(Art. 1795)
Debtor has right to prefer payment of credit which is
more onerous to him. Thing contributed: Risk borne by:
Specific and Partner who owns the
Requisites for application of rule: determinate things; thing
not fungible;
1. There are 2 debts
only use is contributed
a. One where collecting partner is Specific and Partnership
creditor determinate thing
b. One where partnership is creditor ownership of which is
2. Both debts are demandable transferred to
3. Partner who collects is authorized to manage partnership
and actually manages partnership Fungible things or Partnership since there
things which cannot be is transfer of ownership
Obligation of Partner Who receives Share of kept without since thing cannot be
Partnership Credit deteriorating used without
impairment or
To bring to the partnership capital his received share
consumption of thing
of partnership when other partners have not collected
their share and debtor becomes insolvent. Things contributed to Partnership
be sold
Requisites for application of rule:
Things brought and Partnership
1. Partner has received his share in partnership appraised in inventory
credit
2. Other partners have not collected their share
Responsibility of partnership to partners
3. Partnership debtor has become insolvent
(Art. 1796)
Example:

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Partnership has obligation to:
1. Refund amounts disbursed by partner in
behalf of the partnership plus interest
2. Answer for obligations the partner may have
contracted in good faith in the interest of the
partnership
3. Answer for risk in consequence of his
management
NB: No partner is entitled to compensation for his
services to partnership without consent of all the
partners.
Rules for Distribution of Profits and Losses
(Art. 1797)
GR: In conformity with agreement.
E:
If only share of profit has been agreed upon, share of
losses shall be in same proportion.
If no stipulation whatsoever, share of profits and losses
shall be in proportion to what he may have contributed.
Industrial partners
Not liable for losses.
For profits, just and equitable share.
If he contributed capital, share in profits shall be in
proportion to his capital.
Designation by a Third Person of Share in Profits
and Losses
GR: Designation of profits and losses cannot be
entrusted to one of the partners.
E: Third persons can designation.
(Art. 1798)
If third person is entrusted to designate the share of
profits and losses of each partner, it may be impugned
only if MANIFESTLY INEQUITABLE.
No complaint will prosper as to the designation if
 A partner has begun to execute the decision
of the third person
 Decision was not impugned within a period
of 3 months from time there was knowledge
thereof
Stipulation Excluding a Partner from any share in
Profits or Losses
(Art. 1799)
Rule: VOID but partnership subsists.
E:
The one excluded is not intended to be a partner,
stipulation is valid.
Industrial partner. Excluded from losses by law.
Rights and Obligation with Respect to
Management
2 cases of appointment: (Art. 1800) Appointment as
manager in articles of partnership
 May execute all acts of administration
despite opposition of partners (unless acted in
bad faith)
 Power is irrevocable without just or lawful
cause
 Revocation needs vote of partners
representing controlling interest
1. Appointment as manager after constitution of
partnership
 May be rocked any time for any cause
Powers of managing partner
All powers of a general agent as well as incidental
powers necessary to carry out the object of the
partnership in the transaction of its business.
Exception if power is expressly restricted.
Compensation for Services rendered by partner
GR: No compensation
E: Implied contract for compensation by law
In cases when:
Partner is to perform services not required of him in
fulfillment of his duties
Extraordinary neglect to perform his duties by one
partner thereby imposing burden to remaining partner.
Partner employed by co-partner to work for him
outside of the co-partnership.
Partners exempted from rendering services but
rendered the same.
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Partner manages partnership devoting his whole time A partner may associate another person with him in his
thereto. share, but the associate shall not be admitted into the
partnership without consent of the other partners.
Where Respective Duties of Two or More
Managers Not Specified

(Art. 1801) Keeping of Partnership Books

Each one ma separately execute all acts of (Art. 1805)

administration.
Duty to Render Information
If there is opposition, the decision of majority shall
prevail. (Art. 1806)

If there is a tie, it will be decided by partners owning Partner Accountable as Fiduciary

controlling interest. (Art. 1807)
Requisites: Prohibition against Capitalist Partner Engaging in
Two or more partners have been appointed as Business
managers; (Art. 1808)
There is no specification of respective duties: Same kind of business in which the partnership is
No stipulation that one of them shall not act without engaged in.
consent of all others Effect of engagement:
Unanimity of Action Stipulated Capitalist partner shall bring to the common fund any
(Art. 1802) If it is stipulated that none of the managing profit accruing to him from his transactions. And shall
partners shall act without consent of other. personally bear all losses.

GR: Concurrence of all partners shall be necessary for Right of Partner to a Formal Account
the act to be valid. (Art. 1809)
Absence of one partner cannot be alleged. Action for accounting
E: Imminent danger of grave or irreparable injury to Asks that assets of partnership be accounted for, sold,
the partnership. and distributed according to the agreement of the
Rules When Manner of Management Has Not partners.
Been Agreed Upon GR: Not allowed
(Art. 1803) E:
1. All partners shall be considered agents and 1. Partner was wrongfully excluded from
whatever anyone of them may do alone shall bind partnership business
the partnership 2. Right exist under terms of agreement
2. None of the partners, without consent of other, 3. 1807
make important alteration in the immovable 4. Just and reasonable
property of the partnership, even if useful to
partnership. Prescription: up to dissolution of partnership

E: if refusal to consent in (2) is prejudicial to interest Obligations of the Partners with Regard to Third
of partnership, court’s intervention may be sought. Persons (1816 & 1817)

Contract of Subpartnership Liability for Contractual Obligations of

Partnership
(Art. 1804)

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(Art. 1816)

Contracts entered into in the name and for the

account of partnership under its signature

All partner, liable pro rata with all their property, after
all partnership assets have been exhausted.

E: A partner assumes undertaking for solidary

liability.

NB:

Industrial partners included but has right to recover

amount paid from capitalist partners.

Exemption of industrial partner to pay losses relates

exclusively to settlement of partnership affairs among
partners themselves. It had nothing to do with
liabilities of partners to third persons.

Stipulation against Liability

(Art. 1817)

GR: VOID

E: Among partners.

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