LAW002- GENERAL PROVISIONS

Bachelor of Science in Accountancy

1767. By the contract of partnership two or  A partnership is bilateral and

more persons bind themselves to contribute reciprocal in nature because there are
money, property, or industry to a common fund, several partners with an obligation to
with the intention of dividing the profits among each other (contribute money,
themselves. building) and reciprocal in a sense
that all their obligation arose from the
Two or more persons may also form a same cause.
partnership for the exercise of a profession. 4. Onerous- “burdensome”; each of the parties
aspires to procure himself a benefit through
Partnership is a contract. the giving of something.
Contract- meeting of minds between two or  Burdensome in a partnership because
more persons each of the partners are obliged to
contribute something (money,
Partnership for the exercise of profession: property, or industry)
Accountants, lawyers, and other professionals 5. Commutative- undertaking (promise) of each
form a partnership for the exercise of of the partners is considered as the
professions. equivalent of that of the others.
 It does not mean that the
The practice of a profession is not a business or contribution in a partnership is equal
an enterprise for profit. However, the law allows in value (if maghatag ug 100,000 na
the joint pursuit thereof by two or more persons kwarta, dili required na you give a
as partners. It is the individual partners and not property na worth 100,000 sab)
the partnership, who engage in the practice of  What is important is that we feel that
the profession and are responsible for their own what we have given-up is equivalent
acts. to what we have received regardless
of its worth.
Characteristics of a partnership (CNBOCPP)  Example- Sharing of profit: One of
1. Consensual- perfected by a mere consent the partners in a partnership
 GN: A contract is NOT necessarily to contributed 50,000, it does not
be in writing to be perfected, as long automatically mean that in the
as there is a “meeting of minds” sharing of profit, she will get a bigger
 Kinds of perfecting a contract: (1) portion. Because if they have an
Real; consent and delivery (contract agreement that when it comes to
of loan), (2) Solemn/formal; for its sharing of profit partners are equal-
perfection there must be compliance then that will prevail despite of the
with the formalities provided by the amount of their actual contributions.
law- where the law requires that it UNLESS, there is no agreement,
must be in writing/notarized where the amount of actual
(donation). contribution is only relevant.
2. Nominate- has a special name or designation 6. Principal- can stand on its own
 Kinds of contracts when it comes to  The validity and the existence of a
designation: (1) Nominate, (2) contract is not dependent upon
Innominate; has no designation or another contracts.
name under our law but still  Accessory- cannot stand on its own,
considered a valid contract “I give that depends upon the principal contract
you give”, “I give that you may do”, “I (mortgage)
do that you may do”, and “I do that 7. Preparatory- enters into a contract as a
you may give”. means to an end. Meaning, with the
3. Bilateral- entered by two or more persons intention to engage or to execute further
and the rights and obligations arising contracts involving that partnership.
therefrom are always reciprocal.
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

Essential features of partnership accepted by the creditor as a form of

1. There must be a valid contract payment
a. Defective contracts for unenforceable
contracts, voidable contracts, i. Can be:
recessible, and void contracts 1. Coins and bills- coins
has limitations
Existence of a valid contract: 2. Dollar– converted
 Partnership relation fundamentally 3. Check- in cashed
contractual- partnership is a 4. Promissory notes
voluntary relation created by the
agreement of the parties. Essential 4. Object must be lawful
requisites of a valid contract (1)  legal; not contrary to law, morals,
Consent and capacity of the customs
contracting parties (2) Object (3)  If not legal, the contract is a void
Cause. contract
 Partnership relation fiduciary in
nature- mutual trust must exist. A 5. Primary purpose must be to obtain profits
personal relation in which the and divide them among the parties.
element of delectus personae exists.  Profit is the very reason for the
existence of a partnership, this is what
Delectus Personae separates them from other voluntary
a. Involves a personal relation wherein or other social organizations.
no one can become a partner without  Need only be the principal and not
the consent of the other partners. the exclusive aim.
b. The right to choose with whom a
person wishes to associate himself Sharing of profits
with is the foundation of a a. It is not required by the law that the
partnership. partners share equally.
c. The consent of all partners must be b. Sharing of profit is merely
taken for a partner to associate presumptive (disputable) and not
himself with another. conclusive (no need for proof; the law
already presumes “mao na gyud na
2. Parties must have legal capacity to enter into siya”)
a contract
a. Incapacitated persons: (1) minor, (2) Sharing of losses
deaf and mutes who do not know a. Even if ART 1767 refers to “profit” and
how to read and write, and (3) insane silent to “losses”, it is understood that
or demented persons. with the intention of dividing the profits
b. If one of the parties is incapacitated in among themselves, automatically there
a contract- it will be voidable. will also be losses.
b. Loss- consequence of the same
Voidable VS void contracts c. Not necessary to agree upon the sharing
 Void- does not exist from the of losses
beginning. d. A stipulation that excludes one or more
 Voidable- valid until annulled. partners from any share in the profits or
losses is void.
3. Mutual contribution of money, property, or
industry to a common fund Partnership and Corporation
a. Money- “legal tender” form of  A partnership can be a partner in another
payment that you could compel to be partnership. All the members of the
constituent partnerships will be held
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

liable to the creditors of the combined ii. Contract must be

partnership. The partnership is called the registered or recorded
resulting partnership. with the SEC
 A corporation cannot be a partner in a b. Failure to comply with the above
partnership, unless authorized by statute requirements does not prevent
or by its charter. the partnership to acquire juridical
a. Based on a public policy, A personality.
corporation is without capacity or c. But any partner is granted the
power to enter into a contract of right by the law to compel each
partnership. Since in a other to execute the contract in a
partnership, the corporation public instrument.
would be bound by the acts of
persons who are not its duly
appointed and authorized agents 1769. In determining whether a partnership
and officers, which would be exists, these rules shall apply:
entirely inconsistent with the
policy that the corporation shall (1) Except as provided by article 1825, persons
manage its own affairs separately who are not partners as to each other are not
and exclusively. partners as to third persons;
b. In a corporation you will not know
the stockholders or the persons (2) Co-ownership or co-possession does not of
behind unlike in partnerships itself establish a partnership, whether such co-
where you know the partners that owners or co-possessors do or do not share any
you trust. profits made by the use of the property;

1768. The partnership has a juridical personality (3) The sharing of gross returns does not of itself
separate and distinct from that of each of the establish a partnership, whether or not the
partners even in case of failure to comply with persons sharing them have a joint or common
the requirements of Article 1772, first paragraph right or interest in any property from which the
returns are derived;
Partnership, a juridical person
 Two kinds of persons under the law: (4) The receipt by a person of a share of the
(1) Natural person (2) Juridical person profits of a business is prima facie evidence that
 Juridical person- law grants a juridical he is a partner in the business, but no such
personality separate and distinct from inference shall be drawn if such profits were
that of each of the partners. received in payment:
a. As a separate juridical person, a a. As a debt by installments or otherwise;
partnership can acquire and b. As wages of an employee or rent to a
posses property of all kinds in its landlord;
name, enter into a contract, incur c. As an annuity to a widow or
obligations, and file actions in representative of a deceased partner;
court as a partnership. d. As interest on a loan, though the amount
of payment vary with the profits of the
Effect of failure to comply with statutory business;
requirements e. As the consideration for the sale of a
 Article 1772 goodwill of a business or other property
a. Partnership with capital of 3,000 by installments or otherwise.
or more: ________________________________________
i. Contract must appear in a
public instrument
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

1769 lays down the rules for determining a. Y, creditor of partnership X, is entrusted by
whether or not an association of persons is the partners to manage the business, Y shall
considered a partnership. receive in addition to his compensation, a
share in the net profits of the business in
settlement of his credit.
GN of establishing a partnership b. Y, an employee, shall receive a fixed salary
 Essential features and characteristics or being the owner of the house rented by
mentioned (rules) the partnership X, shall receive a percentage
 In case of doubt, rules of 1769 shall apply of the monthly net profits of the business as
(Where terms of contract are not clear payment.
and existence is disputed by another c. Annuity of a widow
party) d. Y, creditor of partnership X, agreed that the
payment of interest shall e taken from the
Rules to determine the existence of a net profits.
partnership e. Y sold a property to partnership X, and he
1. Persons not partners as to each other agreed that the purchase price shall be paid
a. GN: Persons who are not partners as out of the net profits of the business.
to each other are not partners as to
third persons Gross Returns VS Net Profits
b. Partnership is a matter of intention.  Sharing of gross returns does not constitute
There is an agreement or intention prima facie evidence of the existence of
among the partners to create a partnership
partnership.  Sharing of net profits constitutes prima facie
2. Co-ownership or co-possession evidence but not conclusive evidence.
a. GN: Co-ownership or co-possession a. Since you can show a proof that you
does not of itself establish a receive money for payment, the par4
partnership. enumerations shall apply.
b. There is co-ownership whenever the
ownership of an undivided thing or Test and incidents of partnership
right belongs to different persons 1. Share in profits or losses
(heirs to a property) 2. Equal rights in the management and
3. Sharing of gross returns conduct of the partnership business
a. GN: The sharing of gross returns does 3. Every partner is an agent of the
not of itself establish a partnership. partnership
i. Because in a partnership, 4. All partners are personally liable for the
the partners are only debts of the partnership with their
entitled to profit after separate property except the limited
satisfying all of the partners that are not bound beyond the
partner’s liabilities. amount of their investment.
4. Receipt of share in the profits 5. Fiduciary relation exists between the
a. GN: The receipt by a person of a share partners
of the profits of a business is prima 6. On dissolution, partnership is not
facie (rebuttable or disputable) terminated, but continues until the
evidence that he is a partner in the winding up of partnership is completed.
business.
b. Instances wherein you may have 1770. A partnership must have a lawful object or
received a share in the profit but you purpose, and must be established for the
are not considered as a partner. common benefit or interest of the partners.

Example: In the following case, Y is not a partner

in partnership X.
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

When an unlawful partnership is dissolved by a contract void as to only the

judicial decree, the profits shall be confiscated in partners themselves.
favor of the State, without prejudice to the b. 1771 and 1773 cannot be used as
provisions of the Penal Code governing the a defense by the partners against
confiscation of the instruments and effects of a the 3rd person. 3rd persons shall
crime. not suffer by the acts of the
partners in connection to 1771
For a valid contract of partnership, object must and 1773.
be lawful and legal c. If the contract will be void also to
the 3rd person, it will be unfair.
Although the parties posses absolute freedom to
choose, the only limitation is that, it must not be 2. To affect the 3rd persons, partnership
contrary to the law, customs, public order, contract must be registered if real
morals, and etc. A partnership which has properties are involved in the ROD where
unlawful object or purpose is VOID. the property is located.
a. If 3rd person is in good faith and
Effects of unlawful partnership the partnership is not registered,
1. Partnership contract is void ab initio 3rd person shall have a better
(from the very beginning) right over the property (selling of
2. If there is profit, the profit shall be property to another person
confiscated in favor of the government. without your knowledge, thus, the
3. Instruments or tools and proceeds of the importance of it being registered
crime shall also be forfeited so you can monitor)
4. The contributions of the partners shall 3. An agreement to form a partnership at a
not be confiscated unless they future time-more than a year, is covered
contributed instruments or tools of the by the Statute of Frauds, thus, must be in
crime. writing.

1772. Every contract of partnership having a

1771. A partnership may be constituted in any capital of three thousand pesos or more, in
form, except where immovable property or real money or property, shall appear in a public
rights are contributed thereto, in which case a instrument, which must be recorded in the Office
public instrument shall be necessary of the Securities and Exchange Commission.

Form of a partnership contract Failure to comply with the requirements of the

GN: no special form is required for the validity or preceding paragraph shall not affect the liability
existence of the contract of partnership. Contract of the partnership and the members thereof to
may be made orally or in writing regardless of third persons.
the value of contributions.
1773. A contract of partnership is void, whenever
EXCEPT when: immovable property is contributed thereto, if an
1. Public instrument is necessary where inventory of said property is not made, signed by
immovable property (land, building) or the parties, and attached to the public
real rights are contributed (1771) An instrument.
inventory of the property contribute must
be made, signed by the parties, and 1774. Any immovable property or an interest
attached to the public instruments (1773) therein may be acquired in the partnership
a. Failure to comply with the name. Title so acquired can be conveyed only in
requirements (public instrument) the partnership name.
will render the partnership
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

Partnership has a juridical personality separate

from that of the members. So, it can acquire a As regards the liability of the partners, a
property (house, car, and industry) under the partnership may be general or limited.
name of the partnership.
Partnership and partners
Form of partnership contract  Partnership- refers to the group of
 Personal property persons, the organization itself
a. Less than 3,000, may be orally  Partners- ones who composes the
constituted partnership.
b. 3,000 or more, there must be a public
instrument registered with the SEC
for licensing purposes.
 Real property (regardless of the value) Classifications of Partnership
a. Public instrument, with an attached 1. As to the extent of its subject matter
inventory a. Universal partnership
b. Registered with ROD to affect the 3 rd i. Refers to all the present
person property or to all profits.
(1777)
Limited partnership must be registered with SEC, ii. Two kinds of universal
otherwise, it would be considered as a general partnership
partnership. 1. Universal partnership
of all present property.
1775. Associations and societies, whose articles (1778)
are kept secret among the members, and 2. Universal partnership
wherein any one of the members may contract in of profits (1780)
his own name with third persons, shall have no b. Particular partnership
juridical personality, and shall be governed by i. Has for its object determinate
the provisions relating to co-ownership things, their use or fruits, or a
specific undertaking, or the
Partnership, association and societies exercise of profession or
 Partnership is not the same with the vocation (1783)
association or societies because partnership ii. Common than the universal
there is a “voluntary agreement” between partnership (when partners
the parties where the contribute money, want to engage in a specific
property, or industry with an intention to business, exercise their
divide profits among themselves. profession)
 While association does not contribute and 2. As to liability of the partners
divide profits. a. General partnership
i. one consisting of general
Secret partnership without juridical personality partners who are liable pro
 It is essential that the partners are fully rata and subsidiarily and
informed not only of the agreement but all sometimes solidarily with their
the matters affecting the partnership. separate property for
 Associations whose agreements are kept in partnership debts
secret among the members are deprived of
juridical personality for evidently such Pro-rata
associations are not partnerships.  Liable in accordance to
their capital contribution in
1776. As to its object, a partnership is either the absence of stipulation
universal or particular. (in some instances, it is
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

equally among the particular enterprise, the

partners) partnership is dissolved, unless
continued by the partners.
Subsidiarily 4. As to the legality of its existence
 Only be personally held a. De jure partnership
liable after the partnership i. Has complied with all the legal
assets have already been requirements for its
exhausted. establishment
b. De facto partnership
Solidarily i. Has failed to comply with all
 Any of the debtors can be the legal requirements for its
held liable for the whole establishment.
amount of the obligation- ii. Has meeting of the minds, but
solidary liability did not comply with the
requirements under the law.
b. Limited partnership 5. As to representation to others
i. Not formed by limited a. Ordinary or real partnership
partners only, there must be i. one which actually exists
at least 1 general partner, and among the partners and also
at least 1 limited partner. as to third persons
ii. Formed by two or more b. Ostensible partnership
persons having as members i. “partnership by estoppel”
one or more general partners ii. one which in reality is not a
and one or more limited partnership, but is considered
partners, the latter (limited) a partnership only in relation
not being personally liable for to those who, by their conduct
the obligations of the or admission, are precluded to
partnership. deny or disprove its existence.
3. As to its duration
a. Partnership at will Principle of estoppel
i. No time is specified and is not  You cannot deny the representations or
formed for a particular admissions that you have made to the
undertaking or venture prejudice of third person.
ii. May be terminated at  Example: There is no meeting of the
anytime by mutual agreement minds, but has already made
of the partners, or by the will representation to 3rd persons that they
of any one partner alone; one are partners. If the 3rd person demands
for a fixed term or particular for liability, you cannot raise a defense
undertaking which is that there is no really a partnership and
continued by the partners that the partners are not liable because
after the termination of such you already made a representation that
term or particular undertaking there is as if a partnership, even of there
without express agreement is no meeting of the minds. Thus, the 3rd
b. Partnership with a fixed term person can demand for the liability.
i. one in which the term for
which the partnership is to 6. As to publicity
exist is fixed or agreed upon a. Secret partnership
or one formed for a particular i. the existence of certain
undertaking persons as partners is not
ii. Upon the expiration of the avowed or made known to
term or completion of the
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

the public by any of the persons. (protect and not prejudice

partners the 3rd person who relied in the
b. Open or notorious partnership representation)
i. one whose existence is b. He is one who is represented as being
avowed or made known to in fact a partner but who is not so as
the public by the members of between the partners themselves.
the firm. c. also known as partner by implication
7. As to purpose or nominal partner.
a. Commercial or trading partnership
i. Formed for the transaction of Example:
business For instance, A, B, and C entered into a
b. Professional or non-trading partnership agreement, except for D. But when
partnership they rented out an office, D made representation
i. Formed for the exercise of a that he is partners with A, B, and C. D is not really
profession. a partner to them since he is not included during
the meeting of the minds, but he made
representation. Regardless of D not being a
partner to the partnership, the lessor may
Kinds of partners: Classification demand liability from the partnership and also to
 Capitalist partner D (partner by estoppel)
a. contributes money or property to the b. For the reason that a partner by
common fund estoppel can exist in a true
 Industrial partner partnership, real partnership, or a
a. contributes only his industry or partnership by estoppel.
personal service
 General partner  Continuing partner
a. also known as real partner a. one who continues the business of a
b. one whose liability to third persons partnership after it has been dissolved
extends to his separate property b. by reason of:
a. he may be either a capitalist or 1. admission of a new partner
industrial partner 2. retirement
 Limited partner 3. death
a. also known as special partner, since 4. expulsion of one or more
he cannot be personally liable to partners
more than what he has contributed.  Surviving partner
b. one whose liability to third persons is a. one who remains after a partnership
limited to his capital contribution has been dissolved by the death of
 Managing partner any partner
a. one who manages the affairs or  Sub-partner
business of the partnership a. one who, not being a member of the
b. He is also known as general or real partnership, contracts with a partner
partner with reference to the latter’s share in
 Liquidating partner the partnership
a. one who takes charge of the winding b. but he cannot be a partner in the
up of partnership affairs upon absence of consent of all the other
dissolution partners.
 Partner by estoppel
a. one who is not really a partner, not Other classifications
being a party to a partnership  Ostensible partner
agreement, but is liable as a partner a. one who takes active part in the
for the protection of innocent third business and is known to the public as
LAW002- GENERAL PROVISIONS
Bachelor of Science in Accountancy

a partner in the business, whether or  If you enter into this kind of partnership,
not he has an actual interest in the all that you own today (time partnership
firm. is constituted) will be contributed to the
b. May or may not be a partner by partnership and also all the profits from
estoppel. Thus, he may be an actual that property
partner or a nominal partner. a. That is why it is rare for partners
 Secret partner to enter into this kind of
a. one who takes active part in the partnership.
business but is not known to be a  GN: FUTURE properties cannot be
partner by outside parties nor held contributed,
out as a partner by the other partners a. the very essence of a contract of
 Silent partner partnership is that the properties
a. one who does not take any active contributed must be determinate
part in the business although he may a. Inheritance, legacy (not covered in
be known to be a partner. the universal of all present
b. need not be a secret partner property)
 Dormant partner
a. one who does not take active part in
the business and is not known or
held out as partner.
b. both a silent and a secret partner 1779. In a universal partnership of all present
c. His only interest in joining the property, the property which belongs to each of
partnership would be the sharing of the partners at the time of the constitution of
the profits earned. the partnership, becomes the common property
d. “sleeping partner” of all the partners, as well as all the profits
 Original partner which they may acquire therewith.
a. one who is a member of the
partnership from the time of its A stipulation for the common enjoyment of any
organization other profits may also be made; but the
 Incoming partner property which the partners may acquire
a. a person lately, or about to be, taken subsequently by inheritance, legacy or donation
into an existing partnership as a cannot be included in such stipulation, except
member the fruits thereof.
 Retiring partner
a. one withdrawn from the partnership;
a withdrawing partner 1780. A universal partnership of profits
comprises all that the partners may acquire by
1777. A universal partnership may refer to all the their industry or work during the existence of the
present property or to all the profits. (1672) partnership.

1778. A partnership of all present property is Movable or immovable property which each of
that in which the partners contribute all the the partners may possess at the time of the
property which actually belongs to them to a celebration of the contract shall continue to
common fund, with the intention of dividing the pertain exclusively to each, only the usufruct
same among themselves, as well as all the profits passing to the partnership. (1675)
they may acquire therewith.
Refers to the universal partnership of profits
Refers to the universal partnership of all present  All the profits of the parties acquired at
property the time they entered into the
partnership is contributed.
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Bachelor of Science in Accountancy

 If A have a property, the property will not  Presumption only applies when in their
be contributed but only the profit of the partnership agreement it is indicated that
property from the time it is created. they entered into a universal partnership,
only failed to indicated whether it is one
Example of “present property” or of “profits”
Acquired by chance a. If not indicated or silent, it should
A and B entered into a universal partnership of not be assumed that it is a
profits and during the time partnership is universal partnership because
created, B won a lottery ticket. Even though B more often it is a particular
won the lottery from the time it is created, it partnership.
cannot be included since the lottery is acquired
by chance and profits acquired by partners 1782. Persons who are prohibited from giving
through chance is not included for purposes of each other any donation or advantage cannot
1780. enter into a universal partnership.

Acquired property after entering into a  Persons who are prohibited by law to give
universal partnership of profits donations cannot enter into a universal
 Property will not be included as a capital partnership for the reason that each of the
contribution and also the fruits of partners virtually makes a donation.
property subsequently acquired by the
partners do not belong to the  A partnership formed in violation of this
partnership. article is null and void.
 Suppose on Aug, A and B entered into a  A husband and wife may not enter into a
universal partnership of profits, then by universal partnership. However, may enter
September B acquired a land. The land into a particular partnership or be members
and the income or the fruits of the land is thereof.
not included in the universal partnership a. GN: under our law, husband and wife
of profits as a general rule cannot sell each other.
a. Only the fruits or profits of the i. They cannot also donate to
properties in existent at the time each other, except gifts of
of creation is included, moderate values in
subsequent properties are not accordance to their
included, unless expressly circumstances.
stipulated. ii. Husband and wife are
prohibited from giving each
1781. Articles of universal partnership, entered other because under the law,
into without specification of its nature, only the presumption is that
constitute a universal partnership of profits. husband and wife have
absolute community, “what is
Presumption in favor of universal partnership of yours is mine, what is yours is
profits mine”
 When the articles of partnership do not
indicate or specify the nature of 1783. A particular partnership has for its object
partnership, but is stated that it is a determinate things, their use or fruits, or a
universal partnership, the presumption is specific undertaking, or the exercise of a
that it is a universal partnership of profits. profession or vocation.
a. For the reason that a universal
partnership of profits imposes less Defines a particular partnership.
obligations on the partners or
“less burdensome” Particular partnership
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Bachelor of Science in Accountancy

 May be for the exercise of profession or

engaging in business, specific undertaking
(contractors of a condo unit)
 The fundamental difference between a
universal partnership and a particular
partnership lies in the scope of their subject
matter or object

Examples of a particular partnership

1. Those formed for the acquisition of an
immovable property for the purpose of
reselling it at a profit or for the common
enjoyment of its use and the benefits derived
therefrom
2. Those established for the purpose of carrying
out a specific enterprise such as the
construction of a building, or those formed
for the practice of a profession or vocation.