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Partnership (Art 1767 – 1867) ingredients of income, which are

capital or service
The earliest form of conducting
business was single entrepreneur Partnership is an entity distinct and
ownership apart from the members composing it
and for the purpose of which it was
1767- By the contract of partnership created it is a living persons having its
two or more persons bind themselves own assets and liabilities and any
to contribute money property or benefit or liability attaching to a
industry to a common fund with the member of the partnership results
intention of dividing the profits among from the partnership relation
themselves
A partnership is a joint undertaking to
Concept of partnership share profit and loss

A partnership is a contract of two or Characteristic elements of partnership


more competent persons to place
their money effects labor and skill or The contract of partnership is:
some or all of the in lawful commerce
or business and to divide the profits Consensual because it is perfected by
and bear the losses in certain mere consent that is upon the express
proportions or implied agreement of two or more
persons
Partnership is a association of two or
more persons to carry on as co Nominate because it has a special
owners of a business for profit name or designation in our law

Partnership is a legal relation based Bilateral because two or more persons


upon the express or implied and the rights and obligations enter it
agreement of two or more competent into arising therefrom are always
persons whereby they unite their reciprocal
property labor skill in carrying on
some lawful business as principals for Onerous because each of the parties
their joint profit aspires to procure for himself a
benefit through the giving of
A partnership is the status arising out something
of a contract entered into by two or
more persons whereby they agree to Commutative because the undertaking
share as common owners the profits of each of the partners is considered
of a business carried on by all or any as the equivalent of that of the others
of them on behalf of all of them
Principal because it does not depend
A partnership is an organization for for its existence or validity upon some
production of income to which each other contracts
partner contributes one or both of the
Preparatory because it is entered into parties subject to the provisions of Art
as a means to and end 1771 to 1773 and statute of frauds.

A partnership contract in its essence is In other words no formalities is


a contract of agency (see art 1818) required in setting up a general
partnership unless it falls within the
Essential features of partnership statute of frauds Art 1403 however
there are formal requirements for
- there must be a valid contract creating a limited partnership
- the parties two or more must
have legal capacity Articles of partnership- while the
- there must be a mutual partnership relation may be
contribution of money informally created and its existence
property or industry to a proved by the manifestation of the
common fund parties it is customary to embody the
- the object must be lawful and terms of the association in a written
- the primary purpose must be document known as articles of
to carry on a business for partnership stating:
profits and to divide the same
among the parties - the name
- nature or purpose and location
The partnership must not be kept of the firm
secret among one another otherwise - defining among others the
the association shall have no legal powers rights duties and
capacity and shall be governed by the liabilities of the partners
laws of co-ownership (art 1775) among themselves their
contributions
Existence of a valid contract - the manner by which the
profits and losses are to be
Partnership relation fundamentally shared
contractual- partnership is a - the procedure for dissolving
voluntary relation created by the partnership
agreement of the parties. It excludes
from its concept all other associations Requisites- Since partnership is
which do not have their origin in a fundamentally contractual all the
contract express or implied. There is essentials of a valid contract must be
no such thing as a partnership created present
by law or operation or implication of
law alone. Partnership relation is not - consent and capacity of the
the contract itself but a result of the contracting parties
contract. - object which is the subject
matter of the contract
Form- the relation is evidenced by the - cause which is established by
terms of the contract which may be Art 1318 (essential requisites
oral or written express or implied of a contract) later
from the acts and declarations of the disagreements among the
partners will not automatically - Application of principles of
destroy the partnership. What estoppel a partnership liability
is important is the unanimous may be imposed upon a person
assent of the parties at the time under principles of estoppel
of the agreement to associate where he hold himself out or
as partners at the creation of permits himself to be held out
the relationship as a partner in an enterprise in
such cases there is no actual or
as in other cases of contract in order legal partnership relation but
to make an agreement for a merely a partnership liability
partnership valid there must be a imposed by law in favor of
valid consideration existing as third persons.
between the partners. Each partner
surrenders to the partnership an Legal capacity of the parties to
interest in his property labor skill or enter into the contract
energy in accordance with the express
or implied stipulations of their mutual The word persons as used in art 1767
agreement. may be interpreted to mean persons
in the biological sense or persons in
Partnership relation fiduciary in the legal sense (juridical entitites)
nature- Partnership is a form of thus a partner may be a person a
voluntary association entered into by partnership a corporation or a joint
the associates it is a personal relation venture
in which the element of delectus
persona (choice of the person) exists Before there can be a valid contract of
involving as it does trust and partnership it is essential that the
confidence between the partners. contracting parties have the necessary
legal capacity to enter into the
- right to choose co partners contract
unless otherwise provided in
the agreement no one can GR- any person is capable of entering
become a member of the into contractual relation
partnership association XPN- those who cannot give their
without the consent of all the consent to a contract of partnership
other associates. - unemancipated minors
- Power to dissolve partnership - insane or demented persons
neither would the presence of a - deaf mutes who do not know
period for its specific duration how to write
or the statement of an - persons who are suffering from
particular purpose for its civil interdiction
creation prevent the - Incompetents who are under
dissolution of any partnership guardianship
by an act or will of a Under Art 1782 persons who are
partner(causes for dissolution prohibited from giving each other any
art 1830) donation or advantage cannot enter
into a universal partnership
A married woman may enter into a partnership is merely for
contract of partnership even with her investment purposes and it
husband’s consent but the latter may shall not take part in the
object under certain conditions.(art management and control of the
73) business operation of the
partnership it shall not be
Partnerships there is no prohibition deemed doing business in the
against a partnership being a partner Philippines and hance it is not
in another partnership when two or required to obtain a license to
more partnerships combine with each do business in the Philippines
other creating a distinct partnership. as required by section 123-126
of the corporation code. Such
Corporations the doctrine adopted investment is allowed under
by our supreme court is that unless RA 7042
authorized by statute or by its charter
a corporation is without capacity of Contribution of money property or
power to enter into a contract of industry to a common fund
partnership. The limitation is based
on public policy since in a partnership Existence of proprietary interest- the
the corporation would be bound by partners must have a proprietary
the acts of persons who are not its interest in the business or
duly appointed and authorized agents undertaking that is they must
and officers which would be entirely contribute capital which may be
inconsistent with the policy of the law money or property or their services or
that the corporation shall manage its both to the common business.
own affairs separately and exclusively.
Form of contribution- the contribution
XPN of a partner may be in the 3 forms of
money property and industry or any
1. a corporation however my two or one of them.
enter into a joint venture - money is the legal tender in the
partnership with another Philippines
where the nature of the - property may be real or
venture is in line with the personal corporeal or
business authorized by its incorporeal hence credit such
charter. as promissory note or other
2. Where the partnership evidence of obligation or even
agreements provides that the a mere goodwill may be
two partners will manage the contributed as they are
partnership so that the considered property. License to
management of corporate construct and operate a cockpit
interest is not surrendered the may be given as a contribution
partnership may be allowed. to a partnership
3. Where the entry of the foreign - industry in the absence of
corporation as a limited money or property or in
partner in a limited concurrence with these two the
law permits contribution of Purpose to obtain profits
industry. The word industry
has been interpreted to mean The very existence of partnership- a
the active cooperation the partnership is form to carry on a
work of the party associated business for profit. A short term
which may be either personal business may qualify as a partnership
manual efforts or intellectual eg. Joint venture the goal must be to
and for which he receives a generate profit
share in the profits of the
business (not a salary) Need only be the principal not
exclusive aim- the realization of
A partnership may therefore exist pecuniary profit however by engaging
even if it is shown that the partners in some business activity through
have not contributed any capital for their joint venture need not be the
the contribution may be in the form of exclusive aim of partnership it is
credit or industry. sufficient that it is the principal
purpose. In partnership the parties
XPN- a limited partner in a limited intend to share the profits in certain
partnership cannot contribute mere proportions.
industry or services.
Sharing of profits
Proof of contribution- in partnership
proof is necessary that there be Not necessarily in equal shares- there
contribution of money property or must be a joint interest in the profits
industry to a common fund with the without the sharing of the profits it
intention of dividing the income or cannot be said that an agreement of
profits obtained therefrom partnership has been enter into and
exist.
Legality of the object
If there is a stipulation which excludes
Effect of illegality – the object is one or more partners from any
unlawful when it is contrary to law participation in the profit or losses is
moral good customs public order or void since the essence of partnership
public policy no partnership may arise is that the partners share in the profit
as the contract is inexistent and void and losses
ab initio
not conclusive evidence of
Businesses partnership may not partnership- the sharing of profits is
engage in – subject to this general merely presumptive and not
limitation on contracts a partnership conclusive even if cogent evidence of
may be organized for any purpose partnership. (1769) thus if the
except that it may not engage in an division of profits is merely used as a
enterprise for which the law requires guide to determine the compensation
a specific form of business due to one of the parties such one is
organization such as banking. not a partner.
Sharing of losses - every contract of partnership
having a capital of 3000 or
Necessary corollary of sharing in more in money or property
profits- the definition of partnership shall appear in a public
refers to profits only and is silent as to instrument which must be
losses the reason is that the object of a recorded in the office of the
partnership is primarily the sharing of SEC
profits while the distribution of losses
is but a consequence of the same. The Such failure shall not affect the
right to share in the profits carries liability of the partnership and
with it the duty to contribute to the members thereof to third persons
losses if any
With regards to article 1773 and 1775
Agreement not necessary- it is not
necessary for the parties to agree 1773 the partnership shall be void
upon a system of sharing of losses for whenever an immovable property is
the obligation is implied from the contributed thereto if an inventory of
partnership relation. Same proportion said property is not made signed by
of profit and loss the parties and attached to the public
instrument
Article 1768- The partnership has a 1775- when articles are kept secret
juridical personality separate and among the members and wherein any
distinct from that of each of the one of the member may contract in his
partners even in case of failure to own name with third persons shall
comply with the requirements if have no juridical capacity and shall be
artivle 1772 first paragraph governed by the law on co-ownership.

Partnership a juridical person- a To organize a partnership not an


partnership is sometimes referred to absolute right
as a firm or a company it connote an
entity separate from its aggregate To organize a cororation or a
individual partners partnership that could claim a
juridical personality of its own and
As a juridical person a partnership transact business as such is not a
may enter in to contracts acquire and matter of absolute right but a privilege
possess property of all kinds in its which may be enjoyed only under
name as well as incur obligations and such terms as the state may deem
bring civil or criminal action in the necessary to impose.
conformity with the laws and
regulation of its organization. Article 1769 (in case of ambiguity)

Effects of failure to comply with it lays down the rules for determining
statutory requirements whether an association is one of
partnership. To establish the existence
Statutory requirements are to wit: of partnership all of its essential
features or characteristics be present
Persons not partners as to each or interest in any property from
other which the returns are derived

Persons who are partners as between There is no presumption of


themselves are partners as to third partnership with the sharing of gross
persons with whom the partnership[ returns. Art 1812 a partners interest
transacts business if they are not in the partnership is his share of
partners with each other then they profits and surplus.
cannot be partners to third persons
Receipts of share in the profits
There must be intention to create
partnership Strong presumption of partnership.
An agreement to share both the
A partnership can never exist as to profits and the losses tends strongly
third persons if no contract of to establish the existence of
partnership exist however they are partnership and vice versa.
estopped where persons by their act
consent or representations have Such presumption is not a conclusive
misled third persons or parties into proof of partnership.
believing that the former are partners
in a non existent partnership such Moreover if such profits were
persons become subject to liabilities received in payment of debts wages of
of partners to all who in good faith employees or payment to a landlord
deal with them in their apparent or annuity to a widow or legal
relations representative of a deceased partner
or interest on a loan etc. There can be
Co ownership or co possession no partnership

Co ownership of property does not if Burden of proof


itself establish the existence of a
partner although co-ownership. Two The law presumes that person who
or more persons can be co owners or are acting as partners have entered
co-posserors without contract. Eg. into a contract of partnership where
Inheritance or law. the law presumes the existence of a
partnership the burden of proof is on
There must be an existence of the party denying its existence
fiduciary relationship if there would
be a dispute among partners the Test and incidents of partnership
remedy would be dissolution
termination and accounting. The partners share in profits and
losses
The sharing of gross returns does
not of it self establish a partnership They have equal rights or voice in the
whether or not the persons sharing management and conduct of the
them having a joint or coomon right partnership
Every partner is deemed an agent of thing or right
the partnership and entitled to bind which does not
the other partners by his act for the necessarily
purpose of its business involve the
sharing of profits
All partners are personally liable for Can only keep the No limitation
the debts of the partnership with their thing not more imposed upon the
separate property except limited than 10 years duration of a
partners are not bound beyond the partnership
amount of their investment May freely May not dispose
dispose of his individual
The books of the partnership shall be interest unless
kept subject to any agreement agreed upon by
between the partners at the principal all the partners
place of business of the partnership Cannot represent In the absence of
the co-ownership any stipulation a
A fiduciary relation exist between the hence a judgment partner may bind
partners againt only one of the partnership
the co-owners with a third
A capitalist partner cannot carry on will not bind the person
any competing business venture other co-oweners
unless there is a stipulation to the The death of a co- The death of a
contrary while an industrial partners owner will not partner results in
is absolutely prohibited from engaging dissolve the co- the dissolution of
in any kind of business ownership the partnership

On dissolution the partnership is not Partnership distinguished from a


terminated but continues until the corporation
winding up of the partnership is
completed Partnership Corporation
Is created by Created by law or
Partnership distinguished from the mere agreement operation of law
co-ownership of the parties
Is organized by Required at least
Co-ownership Partnership two or more 5 incorporators
Is created by law Always created by persons xpn corporation
and may exist a contract either sole
without a express or Juridical capacity Capacity begins
contract implied starts from the only from the
No juridical Has juridical start of the date of issuance
capacity capacity separate contract of of the certificate
and distinct from partnership of incorporation
the partners by sec
Common The realization of May exercise any May only exercise
enjoyment of the profits power authorized powers expressly
by the partners granted by law or A limited partner May adopt any
provided not implied from is required by law firm name
contrary to law those granted or to add LTD to its provided it is not
morals good incident to its name the same as or
customs etc existence similar to any
Every partner is The power to do registered firm
an agent of the business and name
partnership manage its affairs May be dissolved Can only be
is vested on the at any time by the dissolved with
board of directors will of any or all the consent of the
or trustees the partners state
A partner may The sit against a Governed by the Governed the
sue its co-partner member of the civil code corporation code
who mismanages board of directors
or trustees who Similarities of partnership and
mismanages must corporation
be in the name of
the corporation - both have juridical capacity
No right to Has right to - can act only through agents
succession succession - is composed of an aggregate of
Liability to third The stockholders individuals
persons are shall be liable - profits are distributed to those
personal and only up to the who contribute capital to the
subsidiary extent of the business
shares subscribed - can be organized only where
A partner cannot A stockholder has there is a law authorizing its
transfer his generally the organization
interest in the right to transfer - taxable as a corporation
partnership his shares
without the without the prior Art 1770
consent of all the consent of the the
other existing other Effects of an unlawful partnership
partners stockholders
because a - the contract is void ab initio
corporation is not and the partnership never
based on the existed in the eyes of the law
same principle - profits shall be confiscated in
Can exist for any May not be favor of the government
period of time formed for a term - instruments or tools and
stipulated by the in excess of 50 proceeds of the crime shall alse
partners years not be forfeited in favor of the
extendible to not government
more than 50 - contributions of the partners
years in any shall not be confiscated unless
instance
they fall under in the preceding
paragraph Art 1772

A partnership is dissolved by GR: a partnership does not need to be


operation of law upon the happening registed with the SEC
of an event which makes it unlawful XPN: unless the capital of the
for the business of the partnership to partnership has three thousand or
be carried on or for the members to more in money or property shal
carry it on in partnership art 1830 appear in a public document which
must be recorded in the SEC
Judicial decree not necessary to
dissolve partnership. Third parties are Failure to comply with the
the protected ones in case of requirements shall not affect the
dissolution as long as they are liability of the partnership and the
unaware of its illegal character members thereof to third persons

Partial illegality of partnership Art 1773


effect
A contract of partnership is void when
The part of the business of the ever immovable property is
partnership which is legal may contributed thereto if an inventory of
continue said property is not made signed by
the parties and attached to the public
When without the knowledge or document
participation of the partners the firm’s
profits in a lawful business have been An inventory is required whenever
increased by wrongful acts the immovable property is contributed.
innocent partners are not precluded Does not apply when said property is
from receiving their share of the possessed or even owned by the
profits partner but not contributed.

If the partnership is planned as a legal Art 1774


business and entered into as a legal
business the illegality of the
partnership will not nullify the
contract and the parties may ask for
the accounting of the partnership

Art 1771

GR: no special form is required for the


validity of the contract may be made
orally or in writing
XPN: when immovable property or
real rights are contributed a public
instrument shall be necessary