PARTNERSHIP

 It is a CONTRACT whereby two or more persons:

(1) bind themselves to contribute Money, Property, or Industry to a

COMMON FUND

(2) with the intention of dividing the PROFITS among themselves

 a STATUS and a FIDUCIARY RELATION subsisting between persons

carrying on a business in common with a view on profit

> may also form a partnership for the EXERCISE of a PROFESSION

(GPP)

CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP

[C, C, L, I, P]

1. CONSENSUAL CONTRACT;
 perfected by mere consent + Object + Cause (C.O.C – Contract)

2. CONTRIBUTION of money, property or industry to a COMMON FUND;

3. Object must be LAWFUL;

4. INTENTION of DIVIDING the PROFIT among the PARTNERS

5. PARTNERS (two or more) must have legal capacity to enter into the contract

 the objective of the Partnership must be for profit and not merely for the
common enjoyment otherwise only a co-ownership has been formed.
HOWEVER, pecuniary profit need not be the only aim, it is enough that it is the
principal purpose

RULES ON CAPACITY TO BECOME A PARTNER

1. a person capacitated to enter into contractual relations may become a

partner

2. an UNEMANCIPATED MINOR CANNOT become a partner UNLESS his

parent or guardian consents

3. a MARRIED WOMAN, cannot contribute conjugal funds as her

contribution to the partnership UNLESS she is permitted to do so by her
husband OR UNLESS she is the administrator of the conjugal partnership,
in which the COURT must give its consent authority

4. a PARTNERSHIP being a juridical person by itself can form another

partnership

5. a CORPORATION cannot become a partner on grounds of public policy

6. a partner shares not only in profits but also in the losses of the firm
RULE:

 the partnership has a PERSONALITY SEPARATE and DISTINCT from

that of each partner

CONSEQUENCES OF THE PARTNERSHIP BEING A JURIDICAL ENTITY

1. its juridical personality is SEPARATE and DISTINCT from that of each

partner

2. the partnership can in GENERAL:

A) acquire and possess property of all kinds

B) incur obligations
C) bring civil and criminal actions
D) can be adjudged insolvent even if the individual members be each
financially solvent

3. unless he is generally sued, a partner has no right to make a separate

appearance in court, if the partnership being sued is already represented

RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY ORGANIZED AS

PARTNERSHIP

1. it possesses NO LEGAL PERSONALITY

 it cannot sue as such, however, the partners can sue in their individual
capacity

2. one who enters into a contract with a partnership as such cannot when
sued later on for recovery of the debt, allege the lack of legal personality
on the part of the firm, even if indeed it had no personality

 ESTOPPEL

 whether a partnership has a juridical personality or not depends on its

PERSONAL LAW of the partnership or the law of the place where the partnership
was organized

RULES TO DETERMINE THE EXISTENCE OF A PARTNERSHIP

1. persons who are not partners to each other are not partners as to third
persons

EXCEPTION:

 PARTNERSHIP BY ESTOPPEL

2. CO-OWNERSHIP of a property does not itself establish a partnership,

even though the co-owners share in the profits derived from the incident of
joint ownership
 3. SHARING OF GROSS RETURNS ALONE does not indicate a partnership
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived

4. the receipt of the share in the profits is a strong presumptive evidence of

partnership HOWEVER, no such inference will be drawn if such profits
were received in payment

A) as a DEBT by installments or otherwise

B) as WAGES of an employee
C) as RENT to a landlord
D) as an ANNUITY to a widow or representative of a deceased partner
E) as INTEREST on a LOAN, though the amount of payment vary with
the profits of the business
F) as the CONSIDERATION for the sale of a GOOD WILL of a
business or other property or otherwise
 creditors are not partners, for their only interest in the sharing of
profits is the receipt or payment of their credits

 in a partnership, the partners are supposed to trust and have confidence

in all the partners

PARTNERSHIP BY ESTOPPEL

 IF 2 persons not partners represent themselves as partners to strangers,

a partnership by estoppel results

 WHEN 2 persons, who are partners, in connivance, with a friend who is

not a partner inform a stranger that said friend is their partner, a partnership by
estoppel also result to the end that the stranger should not be prejudiced

RULE: LAWFUL OBJECT or PURPOSE

 a partnership must have LAWFUL OBJECT or PURPOSE, and must be

established for the common benefit or interest of the partners

 it must be within the commence of man, possible and not contrary to

law, morals, good customs, public order or public policy

 IF a partnership has SEVERAL PURPOSES, one of which is

UNLAWFUL, the partnership can still validly exist so long as the illegal
purpose can be separated from the legal purposes

 VOID AB INITIO

 NO need for JUDICIAL DECREE to dissolve an unlawful partnership

 one of the causes for the dissolution of a partnership is “any event which
makes it unlawful for the business of the partnership to be carried on”
RULE:

 when an UNLAWFUL PARTNERSHIP is dissolved by a judicial decree, the

PROFITS shall be CONFISCATED in FAVOR of the STATE

HOW IS PARTNERSHIP CONSTITUTED?

G. R.
 a partnership may be constituted in any form

EXCEPTION: PUBLIC INSTRUMENT

1. IMMOVABLE PROPERTY is contributed

* need for INVENTORY of IMMOVABLES

2. REAL RIGHTS are contributed

** for EFFECTIVITY of the partnership contract insofar as innocent

third persons are concerned the same must be REGISTERED if
REAL PROPERTIES are INVOLVED

 a partnership contract is NOT COVERED by the STATUTE of

FRAUDS

 an AGREEMENT TO FORM a partnership does not itself create a

partnership

 when there are conditions to be fulfilled or when a certain period is

to lapse, the partnership is not created till after the fulfillment of the
conditions or the arrival of the term and this is true even if one of the
parties has already advanced his agreed share of the capital

RULE: PERSONAL PROPERTY

If CAPITAL IS LESS THAN 3,000.

if CAPITAL is P3,000 or more

REQUIRED:

1. PUBLIC INSTRUMENT

2. RECORDED – S.E.C.

*  FAILURE TO COMPLY – shall not effect the liability of the partnership

and its members to third persons

**  IF REAL PROPERTIES have been contributed, REGARDLESS of the

VALUE, a public instrument is needed for the attainment of legal
personality
REQUIREMENTS WHERE IMMOVABLE / REAL PROPERTY IS
CONTRIBUTED

1. PUBLIC INSTRUMENT

2. INVENTORY – signed and attached to the PUBLIC INSTRUMENT

 applies regardless of the value of the real property
 applies even if only real rights over the real property are
contributed
 applies if aside from real property, cash or personal property is
contributed

 TRANSFER of land to the partnership must be duly “recorded” in the

REGISTER OF DEEDS to make the transfer effective insofar as third
persons are concerned

RULE:

 any immovable property or an interest therein maybe acquired in the

partnership name

 title so acquired can be conveyed only in the partnership name

IF the partnership has ALIENS, it CANNOT OWN LANDS, whether public or
private or whether agricultural or commercial EXCEPT through
HEREDITARY SUCCESSION

EFFECT OF CERTAIN TRANSACTIONS

1. contracts entered into by a “partner” in his own name may be sued upon
still by him in his individual capacity, not withstanding the absence of a
partnership

2. when two or more individuals, having a common interests in a business

bring a court action, it should be presumed that they prosecute the same
in their individual capacity as co-owners and not in behalf of a partnership
which does not exist in legal contemplation

CLASSIFICATION OF PARTNERSHIPS

A) ACCORDING TO MANNER OF CREATION

1. ORALLY constituted
2. constituted in a PRIVATE INSTRUMENT
3. constituted in a PUBLIC INSTRUMENT
4. REGISTERED – S.E.C.

B) ACCORDING TO OBJECT
1. UNIVERSAL, with all present property and will all profits
2. PARTICULAR
C) ACCORDING TO LIABILITY
1. LIMITED PARTNERSHIP
2. GENERAL PARTNERSHIP

D) ACCORDING TO LEGALITY
1. LAWFUL OR LEGAL
2. UNLAWFUL OR ILLEGAL

E) ACCORDING TO DURATION
1. for a SPECIFIC PERIOD or FIXED PERIOD or until the purpose is
done or accomplished
2. PARTNERSHIP AT WILL

F) ACCORDING TO REPRESENTATION TO OTHERS

1. ORDINARY PARTNERSHIP
2. PARTNERSHIP BY ESTOPPEL

G) AS TO LEGALITY OF EXISTENCE
1. DE JURE PARTNERSHIP
2. DE FACTO PARTNERSHIP

H) AS TO PUBLICITY
1. SECRET PARTNERSHIP
2. NOTORIOUS / OPEN PARTNERSHIP

I) AS TO PURPSE
1. COMMERCIAL / TRADING
2. PROFESSIONAL / NON-TRADING

GENERAL PARTNERSHIP
 one where all the partners are general partners

 they are LIABLE even with respect to their individual properties, after the
assets of the partnership has been exhausted

LIMITED PARTNERSHIP
 one where at least one partner is a general partner and the others are limited
partners

 one whose liability is limited only up to the extent of his contribution

 a partnership where all the partners are limited partners cannot exist as a
limited partnership

 REFUSED REGISTRATION

 IF it continuous as such, it will be considered as a general partnership and

all the partners will be general partners
PARTNERSHIP AT WILL

 a partnership wherein its continued existence really depends upon the will of
the partners or even on the will of any of them

2 KINDS:
1. when there is no term, express or implied
2. when it is continued by the habitual managers although the period has
ended or the purpose has been accomplished

KINDS OF UNIVERSAL PARTNERSHIP

1. PARTNERSHIP OF ALL PRESENT PROPERTY

2. PARTNERSHIP OF ALL PROFITS

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

 CONTRIBUTION of
1. ALL the properties actually belonging to the partners
2. the PROFITS acquired with said property
 BECOMES COMMON PROPERTY
 EXCEPT all FUTURE PROPERTY
 FRUITS of FUTURE PROPERTY – INCLUDED IF STIPULATED
UPON

UNIVERSAL PARTNERSHIP OF PROFITS

 comprises all that the partners may acquire by the INDUSTRY or WORK of the
partners become common property regardless of within said profits were
obtained through the usufruct contributed

 EXCEPT PRIZES and GIFTS

RULE:

 articles of universal partnership, entered without specification of its nature, only

constitute a universal partnership of PROFITS

RULE:

 persons who are prohibited from giving each other any donation or advantage
cannot enter into universal partnership

WHO:
1. HUSBAND and WIFE
2. those guilty of ADULTERY or CONCUBINAGE
3. those guilty of the same criminal offense if the partnership was entered
into in consideration of the same

 while spouses cannot enter into a universal partnership, they can enter into a
particular partnership or be members thereof

 a universal partnership is virtually a donation to each other of the partners

properties or at least their usufruct
PARTICULAR PARTNERSHIP

 a particular partnership has for its OBJECT:

1. DETERNMINATE THINGS – their use or fruits

2. SPECIFIC UNDERTAKING
3. EXERCISE of a PROFESSION or VOCATION

OBLIGATIONS OF THE PARTNERS

RULE:

 a PARTNERSHIP BEGINS from the moment of the EXECUTION of the

CONTRACT

*  even if contributions have not yet been made the firm already exists, for
partnership is a consensual contract

DURATION OF PARTNERSHIP

 UNLIMITED
*  MAY BE AGREED UPON
1. EXPRESSLY – definite period
2. IMPLIEDLY – upon achievement of its purpose

3 IMPORTANT DUTIES OF EVERY PARTNER [C, D-F, W]

1. duty to CONTRIBUTE what had been promised

2. duty to DELIVER the FRUITS of what should have been delivered
3. duty to WARRANT

RULES ON THE DUTY TO CONTRIBUTE

1. the contribution must be made at the time the partnership is entered into
UNLESS a different period is stipulated

2. no demand is needed to put the partner in default

3. the partner must exercise due diligence in preserving the property to be

contributed before he actually contributes the same

4. a partner who promises to contribute to the partnership becomes a

promissory debtor of the partnership

RULES ON THE DUTY TO DELIVER THE FRUITS

1. IF property has been promised, the fruits thereof should also be given

2. the fruits referred to are those arising from the time they should have been
delivered, without a need of any demand
 3. IF the partner is in BAD FAITH, he is liable not only for the fruits actually
produced, BUT also for those that could have been produced

4. IF MONEY HAS BEEN PROMISED, INTEREST and DAMAGES from the

time he should have complied with his obligation should be given

5. NO DEMAND is needed to put the partner in default

6. it is DELIVERY, actual or constructive that TRANSFERS OWNERSHIP

RULES ON THE DUTY TO WARRANT

1. the warranty in case of eviction refers to specific and determinate things
already contributed

2. there is EVICTION whenever by a final judgment based on a right prior to

the sale or an act imputable to the partner, the partnership is deprived of
the whole or a part of the thing purchased

RULE WHEN CONTRIBUTION CONSISTS OF GOODS

 APPRAISAL of VALUE is needed to determine how much was contributed

HOW APPRAISAL MADE

1. as PRESCRIBED in the CONTRACT
2. in default, by EXPERTS chosen by the partners, and at CURRENT
PRICES
* necessity of the INVENTORY – APPRAISAL

RULE on RISK of LOSS

 after goods have been contributed, the partnership bears the risk of
subsequent changes in the value

RULE:
 a partner who has undertaken to contribute a sum of money and fails to do
so becomes a debtor for the interest and damages from the time he should
have complied with his obligation

KINDS OF PARTNERS:

CAPITALIST PARTNER

 one who FURNISHES CAPITAL

* NOT EXEMPTED from LOSSES
* he can engage in other business PROVIDED there is no competition
between the partnership and his business
* share in the profits according to agreements

INDUSTRIAL PARTNER

 one who FURNISHES INDUSTRY or LABOR

* he is EXEMPTED from LOSSES as between the partners BUT liable to
strangers without prejudice to reimbursement from the capitalist partner
 * he CANNOT engage in any other BUSINESS WITHOUT the express
CONSENT of the other partners, OTHERWISE
1. he can be EXCLUDED from the firm
- plus damages OR
2. the BENEFITS he obtains from the other businesses CAN BE AVAILED of
by the other partners
- plus damages
 whether or not there is COMPETITION
* in computing always look for ----- NET PROFITS
----- NET LOSSES

CAPITALIST – INDUSTRIALIST PARTNER

 one who contributes BOTH CAPITAL and INDUSTRY

GENERAL PARTNER
 one who is liable “beyond” the extent of his contribution

LIMITED PARTNER
 one who is liable “only” to the extent of his contribution

*** an industrial partner can only be a general partner, never a limited partner

MANAGING PARTNER
 one who manages actively the firm’s affairs

SILENT PARTNER
 one who does not participate in the management, though he shares in the
PROFITS or LOSSES

LIQUIDATING PARTNER
 one who winds up or liquidates the affairs of the firm after it has been dissolved

OSTENSIBLE PARTNER
 one whose connection with the firm is public and open

SECRET PARTNER
 one whose connection with the firm is concealed or kept secret

DORMANT PARTNER
 one who is both a secret (hidden) and silent (not managing) partner

NOMINAL PARTNER
 one who is not really a partner BUT who may become liable as such insofar as
third persons are concerned

RULE ON CAPITAL CONTRIBUTION

 partners shall CONTRIBUTE EQUAL SHARES to the capital of the partnership

* it is permissible to contribute UNEQUAL SHARES IF there is a stipulation to

this effect
 * in the absence of proof, the shares are presumed to be equal

CONDITIONS before a capitalist partner is obliged to sell his shares /

interest to the other partners [IL, RC, NA]

1. if there is IMMINENT LOSS of the BUSINESS of the partnership

2. he REFUSES to CONTRIBUTE an ADDITIONAL SHARE to the CAPITAL

3. there is no agreement to the contrary

* INDUSTRIAL PARTNER IS EXEMPTED

*RULE if MANAGING PARTNER COLLECTS A CREDIT

REQUISITES:
1. existence of at least 2 debts ---- PARTNERSHIP
---- PARTNER
2. both sums are demandable
3. the collecting partner is the managing partner

* the sum thus collected shall be applied to the two credits in

proportion to their amounts

RULE:
* where a partner receives his share in the partnership credit

CONDITIONS:
1. a partner has received his share in the partnership credit – in whole or in
part
2. the other partners have not collected their part of the credit
3. the debtor subsequently becomes INSOLVENT

RULE:

- the partner shall be obliged to bring to the partnership capital what he received
even though he may have given receipt for his share only

* DOES NOT APPLY when debt was collected after dissolution of the
partnership

RULE:
* every partner is responsible to the partnership for damages suffered by
it through his fault

* he cannot compensate them with the profits and benefits, which he may
have earned for the partnership by his industry

* the courts may equitably lessen his responsibility

RULE on RESPONSIBILITY of the FIRM

1. to REFUND amounts disbursed on behalf of the firm plus legal interest

from the time expenses where made

2. to ANSWER to each partner for OBLIGATIONS he may have entered into

in good faith in the interest of the partnership, as well as the risks in
consequence of its management

* REFUND must be made even in case of failure of the enterprise entered

into, provided the partner is not at fault

* AMOUNT DISBURSED – does not refer to the ORIGINAL CAPITAL

*HOW PROFITS ARE DISTRIBUTED

1. according to AGREEMENT
2. IF NONE, according to amount of CONTRIBUTION

*HOW LOSSES are DISTRIBUTED

1. according to AGREEMENT as to losses
2. IF NONE, according to agreement as to PROFITS
3. IF NONE, according to amount of CONTRIBUTION

* an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE share

in the profits

*RULE on INDUSTRIAL PARTNERS’ LIABILITIES

- may be held liable by third persons BUT he may recover what he has paid
from the other capitalist partners

*RULE on DESIGNATION by THIRD PERSON of SHARES in PROFITS and

LOSSES

* third person is NOT a PARTNER -- appointed to only distribute shares

* the designation of shares by third persons may be IMPUGNED, IF it is

MANIFESTLY INEQUITABLE

* the designation of shares by third persons CANNOT be IMPUGNED

EVEN IF MANIFESTLY INEQUITABLE IF:
1. the aggrieved partner has already BEGUN to EXECUTE the decision
2. the aggrieved partner has not IMPUGNED the distribution within 3
months he had knowledge