“...

Christ, 4 in whom are hidden all the which is to obtain profits and to divide the
treasures of wisdom and knowledge.” profits among the partners
Colossians 2:3
Characteristics of a partnership Contract
AE3 RFBT Prelims Reviewer
1. Consensual - perfected by mere consent
Contract of Sale - is a contract whereby one
of the contracting parties (seller or vendor) 2. Bilateral or multilateral - entered
obligates himself to transfer the ownership of between two or more persons
and to deliver a determinate thing, and the
3. Nominate - designated by a specific name
other party (buyer or vendee) obligates himself
to pay for said thing in a price certain in money 4. Principal - its existence does not depend on
or its equivalent. the life of another contract
Essential Requisites of a Contract of Sales 5. Preparatory - in the sense that after it has
been entered into, other contract essential in
1. Consent or meetings of the mind - consent to
the carrying out of its purpose can be entered
transfer ownership in exchange for a price
into
2. Determinate subject matter - there is no sale
6. Onerous- the partners contribute money,
of generic object
property, industry to a common fund.
3. Price certain in money or its equivalent - this
Essential Requisites for the existence of a
is the cause or consideration. The price need
Partnership
not be in money.
1. There must be an intention to create a
Redemption.
partnership
Kinds of Redemption
2. There must be a common fund (capital)
1. Conventional redemption - shall take obtained from contribution
place when the vendor reserves the right to
3. There must be a joint interest in profits
repurchase the thing sold, with the obligation to
comply with the provisions of article 1616 (to Enumerate the instances when a contract
return to the vendee the price of the sale, the of partnership must be in a public
expenses of the contract, and the necessary instrument and registered with the SEC.
and useful expenses made on the thing sold,
and other stipulations which may have been 1. When immovable property or real rights are
agreed upon. contributed to the partnership (regardless of
the amount thereof)
2. Legal redemption - is the right to be
subrogated, upon the same terms and 2. Where the capital of the partnership is
conditions stipulated in the contract, in the P3,000.00 or more, in money or property
place of one who acquires a thing by purchase
or dation in payment, or by any other 3. If the partnership is a limited partnership, a
transaction whereby ownership is transmitted certificate signed under oath by the partners
by onerous title. and recorded with the SEC is required.

Contract of partnership - By the contract of ART 1771-A partnership may be organized in

partnership two or more persons bind any form, except where immovable property or
themselves to contribute money, property, or real rights are contributed thereto, in which
industry to a common fund, with the intention case a public instrument shall be necessary.
of dividing the profits among themselves. Two Gen Rule- partnership maybe oral but when
or more persons may also form a partnership real property or real rights are contributed, it
for the exercise of a profession. must be in a public instrument. When real
properties are attached to the public
Essential requisites of a Partnership instrument, in the absence of said public
instrument, the partnership is VOID.
1. There must be a valid contract Article 1772.Every contract of partnership
having a capital of three thousand pesos or
2. There must be a mutual contribution of
more, in money or property, shall appear in a
money, property or industry to a common fund
public instrument, which must be recorded in
3. It must have a lawful object or purpose the Office of the Securities and Exchange
Commission. Failure to comply with the
4. The partnership must be established for the requirements of the preceding paragraph shall
common benefit or interest of the partner not affect the liability of the partnership and the
members thereof to third persons.
Stages in a contract of partnership -one which in reality is not a
partnership but is considered as one
1. Preparation or Conception - parties are still with respect to those who, by reason
negotiating the terms and condition of the of their conduct or admission are
contract precluded from denying its
existence.
2. Perfection - parties have already arrived or
Obligation of a Partner
reached an agreement as to its terms and
conditions 1. To give his contribution
3. Consummation - the terms and conditions 2. Not to convert partnership or firm money or
are already performed property for his own or personal use
Essential Features of a partnership 3. Not to engage in unfair competition with his
own firm
1. It must be a valid contract
4. To account for and hold as trustee
2. The parties must have a legal capacity to
unauthorized personal profits
enter a contract
5. Pay for damages caused by his own fault
3. There must be contribution of money,
property or services to common fund 6. Duty to credit to the firm payment made by a
debtor who owes him and the firm
4. The object must be lawful
7. To share with the other partners the share of
5. The primary purpose is to obtain profits and
the partnership credit which he has received
to divide the same among the parties
from an insolvent debtor
Classification of Partnership
Property rights of a partner
1. As to Object
1. Right in specific partnership property
a. Universal
i. With all present property 2. Interest in the partnership
ii. With all profits (the individual
properties continue to be 3. Right to participate in the management
owned by the partners, but the
usufruct thereof passes to the Classification of a partner
firm)
1. Capitalist partner - one who furnishes the
b. Particular- here the object is
capital; one who contributes money or property
determinate things, their use or fruits;
to the common fund
a specific undertaking, or exercise of
a profession or occupation. 2. Industrial partner - one who furnishes
2. According to Liablity industry or labor; one who contributes his
a. General Partnership – all the services or industry to the partnership. Such
members are general partners. industry may be physical or intellectual
b. Limited partnership – here there is industry
at least one GENERAL PARTNER and
the rest are limited partners. 3. Capitalist-industrial partner - one who
3. According to Duration both contribute capital and industry
a. For specific partnership
(partnership for a fixed term)– exist 4. General partner - one who is liable beyond
until the purpose for which the firm his contribution
has been organized has been
5. Limited partner - one who is liable only to
completed or accomplished
the extent of his contribution
b. Partnership at will – no period has
been stipulated so that it’s duration 6. Managing partner - one who manages
depends upon the will of the partner actively the affairs of the partnership
4. As to representation to others
a. Ordinary partnership- one which 7. Silent partner - one who does not
actually exists among the partners participate in the management although he
as well as to third persons shares in the profit and losses
b. Partnership by Estoppel - one
who consented to the 8. Liquidating partner - one who liquidates or
misinterpretation of a person of winds up the partnership affairs after it was
being a member when in truth and dissolved
in fact, he is not a member.
Distinction of Capitalist and Industrial Admission of a new partner. What are the
Partner effect as his admission as a new partner
regarding partnership liabilities incurred
1. As to contribution - the capitalist partner prior to his admission?
contributes money and property; industrial
partner contributes his industry 1. When he is expressly or impliedly authorized

2. As to prohibition to engage in other 2. When he acts for and in behalf of the

business - a capitalist partner cannot engage partnership.
in the same or similar enterprise as that of his
firm; an industrial partner cannot engage in Article 1826. A person admitted as a partner
any business for himself. into an existing partnership is liable for all the
obligations of the partnership arising before his
3. As to profit - a capitalist partner shares his admission as though he had been a partner
profits according to the agreement thereof; of when such obligations were incurred, except
non, pro rata as to his contribution; an that this liability shall be satisfied only out of
industrial partner receives a just and equitable partnership property, unless there is a
share stipulation to the contrary.

4. As to losses - a capitalist partner shares in GEN RULE - person admitted as a new partner
the losses per stipulation in the contract, if to an existing partnership is liable for all
none, based on the agreement as to the profit; obligation contracted prior to his admission to
if none, pro rata as to their individual the partnership BUT HIS LIABIITY WILL
contribution; an industrial partner is exempted EXTEND ONLY TO SHARE ON THE
from losses as between partners but liable to PARTNERSHIP PROPERTY NOT HIS
stranger without prejudice to reimbursement INDIVIDUAL PROPERTY.
form the capitalist partners Note** All partners are solidarily liable
with the partnership for every chargeable
Is an industrial partner liable for losses? to the partnership under ART 1822 to 1823.
Liability?
Art 1822 Where, by any wrongful act or
Loss - General Rule an industrial partner is omission of any partner acting in the ordinary
exempt from loss suffered among partners course of the business of the partnership or
with the authority of his co-partners, loss or
Liability - all partners including industrial
injury is caused to any person, not being a
partners are liable as indebtedness to third
partner in the partnership, or any penalty is
persons.
incurred, the partnership is liable therefor to
Note* Partnership liablity once paid becomes a
the same extent as the partner so acting or
partnership loss. As among partners, an
omitting to act.
industrial partner is exempt to losses.
Art 1823.The partnership is bound to make
Effects of Admission made by a partner
good the loss: (1) Where one partner acting
made before or after dissolution of the
within the scope of his apparent authority
partnership
receives money or property ofa third person
Article 1820.An admission or representation
and misapplies it; and(2) Where the
made by any partner concerning partnership
partnership in the course of its business
affairs within the scope of his authority in
receives money or property of a third person
accordance with this Title is evidence against
and the money or property so received is
the partnership.
misapplied by any partner while it is in the
Restriction on the rule: custody of the partnership.

1. Admission made BEFORE dissolution are In contractual obligation, the liability is

binding only when the partner has authority to joint (those arising from partnership
act on the particular matter obligation)

2. Admission made AFTER dissolution are Instances when a partner may bind the
binding only if the admissions are necessary to partnership
WIND UP the business.
1. When he is expressly or impliedly authorized
Distinguish loss from to liability.
2. When he acts for and in behalf of the
Loss - responsibility as among partners, only partnership
or among partner, except Industrial Partner
Differentiate Title and Equitable Interest
Liability - responsibility towards third person.
Title - ownership
Equitable Interest - all other interests which
a partner may have in the partnership except
title

Causes or Grounds of for dissolution of a

partnership

1. Act

2. Insolvency

3. Death

Dissolution of partnership - is the change in

the relation of the partners caused by any
partner ceasing to be associated in the carrying
out the business

Dissolution - is the point of time the partners

ceased to carry on the business together

Winding-up or Liquidation - is the process of

settling the business affairs after dissolution

Termination - is the point of time after the

partnership affairs have been wound up.

Right granted to a partner

1. Right of lien or retention

2. Right of subrogation

3. Right of indemnification

Partnership liabilities in the order of

payment

1. Those owing to creditor other than partners

2. Those owing to partners other than for

capital and profits

3. Those owing partners in respect of capital

4. Those owing to partners in respect of profits

Partnership assets consist of the ff:

1. Partnership property including goodwill

2. Contributions of the partners

Grounds for dissolution of a limited

partnership

1. Death

2. Retirement

3. Insanity

4. Civil Interdiction

5. Insolvency