LAW ON PARTNERSHIP

August 20, 2022 (memorize highlighted)

- Article 1767: By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of diving the profits among
themselves
o Legal nature
- Two or more persons may also form a partnership for the exercise of a profession (1665a)
o Profession is defined as a “group of men pursuing a learned art as a common calling in
the spirit of public service – no less a public service because it may incidentally be a
means of livelihood.”
o Public service is not limited to government/charity/societal works. Profession is already
considered public service
o Examples: Law firms, accounting firms, engineering firms, etc
- Civil Code, Supreme Court have different definitions: contract, association, legal status,
organization, entity, joint undertaking.
- Different definitions but in essence: It is a contract
- Principal objective: To have a share in the profits or assets of the partnership

Characteristics

- Consensual – perfected by mere consent, upon the express or implied agreement

- Nominate – has special name in our law, there is a specific law
- Bilateral – two or more persons, obligations and rights are reciprocal
o Reciprocal example: seller gives goods/services, customer pays at the arrival of goods.
Upon fulfillment of obligation, if walang inambag do not expect to have a share in the
benefits
- Onerous – parties to procure benefit through the giving of something
- Commutative – undertaking of each of the partners is considered as the equivalent of that of
others
o No partner is superior than the other regardless if industrial or capital
- Principal – does not depend for its existence upon some other contracts
- Preparatory – means to an end (because they want to attain something)
o Business venture is the end you wish to attend
- Contract of Agency
o Article 1868 of the Civil Code states that by the contract of agency, a person (agent)
binds himself to render some service or to do something in representation or on behalf
of another (principal), with the consent or authority of the latter.
o One partner can act in behalf of the other partner without authority
o Legal luminary states partners can be the agents of their partners. Partners can
represent other partners in entering another contract, extension of partnership.
Partners have knowledge of the transaction
o As long as valid, following the stipulations of the partnership
 o Example: Special Power of Attorney – can appoint agent to act in your behalf to say sign
some documents. That agent is an extension of your personality. Can act within their
authority

Essential Features

- There must be valid contract

o Partnership relation fundamentally contractual, agreement (3 requisites of a contract:
consent, object, parties) – voluntary relation created by agreement of parties
 No such thing as a partnership is created by law, by operation or implication
alone
 Contractual – all essential elements of a contract must
o Partnership relation fiduciary in nature – element of delectus personae exists, involving
as it does trust and confidence between the partners
 Built from trust and confidence of entrusting assets to the other partners
 Right to choose co-partners
 Power to dissolve partnership
 If a partner dies, partnership is dissolved. If partners decide to continue, heirs
cannot inherit his place in the partnership (delectus personae)
o Application of Principle of Estoppel – “touch move”
 He holds himself out, or permits himself to be held out, as a partner in an
enterprise
 Ex: When Person A goes to Person B to deceive them into thinking he’s part of
partnership X when in reality he’s not. Person B believed and bought something
from the “partnership.” Person B has a right to demand from partnership X if
the company knows Person A deceived, benefitted from the transaction, and did
not warn Person B. Person A is included in being liable
 very common when dealing with contracts
- Parties must have legal capacity to enter into the contract – any person who cannot give
consent cannot be a partners
o “Person” can be treated in its general sense, including groups and entities and
corporations
o Article 1782 – persons who are prohibited from giving each other any donation
o Married women – may enter into partnership w/o husband’s consent
o Partnership Inception – no prohibition against a partnership being a partner in another
partnership
- Mutual contribution of money, property, or industry to a common fund
o Existence of proprietary interest
 Must contribute capital, money or property, services
 w/o mutual contribution there is no partnership
 Money – referring to currency which is legal tender in the Philippines (check is
not considered, have to encash)
 Property – real, personal, corporeal, incorporeal
  Industry – the active cooperation, the work of the party associated, which may
be either personal manual efforts or intellectual, and for which he receives a
share in the profits (not merely salary)
 Person can choose to contribute all three, but they cannot choose to not
contribute any
 Proof of Contribution – even if parties agree that one of the partners will not
contribute anything, that stipulation is considered invalid and in effect there is
no partnership
- Object must be lawful – object is unlawful if contrary to law, morals, good customs, public order
or public policy
o Law provides requirement for the organization to engage in only this particular
transaction
o If object is unlawful (create illegal monopolies or combinations in restraint of trade) firm
is considered to be running an illegal business
- Primary purpose must be to obtain profits and divide the same amount of profits
o Need only be one of the principal causes, not exclusive aim even if there are
incidentally, moral, social and spiritual ends
o Partnership is still a business organization

Rules to determine existence of partnership (Article 1769)

In determining whether a partnership exists, these rules shall apply:

- (1) Except as provided by Article 1825, persons who are not partners as to each other are not
partners as to themselves.
- (2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-
owners or co-possessors do or do not share any profits made by the use of the property
- (3) The sharing of gross returns does not of itself establish 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 from.
o Sharing of gross returns from single and distinct transactions
- (4) The receipt by a person of a share of the profits of the business is prima facie evidence that
he is a partner in the business, but no such inference is drawn if such profits were received in
payment:
o As a debt by installments or otherwise;
o As wages of an employee or rent to a land lord;
o As an annuity to a widow or representative of a deceased partner;
o As interest of a loan, though the amount of payment may vary with the profits of the
business;
o As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise
 Sharing of profits in the business venture
 Prima Faci – by that fact alone, it can already establish the partnership. Ex: have
a share in the profits of the business, partnership can be established. Unless
nature of share is:
Intention to create partnership

- Always a matter of intention, each party giving his consents to become a partner.
- You have to express intention to give consent to the partnership
o Whether a partnership exists the parties is a “factual matter” – look into the situation

Exception: Partnership by estoppel

o Acts, consent or representations have misled third persons or parties into believing that
the former are partners in a non-existing partnership
o Partner by estoppel – only focusing on the individual who deceived
o Partnership by estoppel – two or more people are not in a partnership, but deceive third
person that they are partners. If the deceivers (w each other’s consent) engage in a
transaction with third person with third person believing their partnership, deceivers
will be partners as to third person
 Recognize that the “partnership” exists so third person can demand from the
deceivers
 Partnership itself that committed the deceit, not the “partners” themselves
August 28, 2022

Classifications of Partnership

As to its object

- Universal Partnership (UP)

o UP of all Present Property – a partner has to contribute all of his properties to which he
owns at the time of the contribution/duration of the partnership
 Future properties cannot be included (inheritance, legacy, donation)
 Divide profit among themselves
 Apply if expressly stipulated
o UP of Profits – contribute civil fruit or income from the sale/use of properties
 Universal assumption if not stated

As to its duration

- Partnership with a fixed term

o Agreed term, partnership will expire beyond term
o Partnership by will

As to its liability

- General Partnership – pro rata liability (proportionate to their contribution)

o Solidarily Liable – creditor can go after any of the debtors for full amount
o Joint Liability – assumption is liability is divided equally
- Limited Partnership -

As to the legality of its existence

- De Jure Partnership
 o All essential features of a partnership are present
- De facto partnership
o Not all essential features are present, but agreed upon

Kinds of Partners:

- Capitalist Partner
o Contribute money or property
o Cannot engage in any other business of the same nature as that of the partnership
- Industrial Partner
o Contribute labor or industry

Rights and Powers of a partner

- Right to manage the partnership

o All partners have the co-equal right to manage
o Partners are considered as agents of the partnership
o Exception: when they appoint a Managing Partner
o Managing Partner – executes all acts of administration (acts made by owner of the
property) despite the opposition of his partners, irrevocable power
- Right to specific partnership property
o Use property for the partnership, no right to possess for any other purpose w/o the
consent of the other partners
o Individual: cannot assign property to third person; Partnership: can assign property to
another person
- Right to participate in profits (and the obligation to share in losses)
o A stipulation which excludes any of the partners from any share in the profits and losses
is void
- Partner’s interest in partnership (equity interest)
o Share in profits and surplus