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 arederived.
The receipt by a person of a share of the profits of a business is prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
As a debt by installments or otherwise.
As wages of an employee or rent to a landlord.
As an annuity to a widow or representative of a deceased partner.
As interest on a loan, though the amount of payment vary with the profits of
thebusiness.
As the consideration for the sale of a goodwill of a business or other property
by installments or otherwise.
In general, to establish the existence of a partnership, all of its essential
featuresor characteristics must be shown as being present. In case of doubt,
art.1769 shall apply. This article seeks to exclude from the category of
partnership certain features enumerated herein which, by themselves, are
not indicative of the existence of apartnership.
Persons not partners as to each other Persons who are partners as between
themselves are partners as to third persons. Generally, the converse is true:
if they are not partners between themselves, they cannot be partners as to
third persons. Partnership is a matter of intention, each partner giving his
consent to become a partner. However, whether a partnership exists
between the parties Is a factual matter. Where parties declare they are not
partners, this, as a rule, settles the question between them.But
where a person misleads third persons into believing
that they are partners in a non-existent
Partnership, they become subject to liabilities of partners (doctrine of
estoppel).Whether or not the parties call their relationship or believe it to be
a partnership is immaterial. Thus, with the exception of partnership by
estoppel, a partnership cannot exist as to third persons if no contract of
partnership has been entered into between the parties themselves.
Co-ownership or co-possession
There is co-ownership whenever the ownership of an undivided thing or right
belongs to different persons.
Clear intent to derive profits from operation of business
Co-ownership does not of itself establish the existence of a partnership,
although it is one of its essential elements. This is true even if profits are
derived from the joint ownership. The profits must be derived from the
operation of business by the members of the association and not
merely from property ownership. The law does not imply a partnership
between co-owners because of the fact that they develop or operate a
common property, since they may rightfully do this by virtue of their
respective titles. There must be a clear intent to form a partnership.
Existence of fiduciary relationship
Partners have a well-defined fiduciary relationship between them. Co-owners
do not. Should there be dispute; the remedy of partners is an action for
dissolution, termination and accounting. For co-owners it would be one, for
instance, for non- performance of contract. People can become co-owners
without a contract but they cannot become partners without one.
Persons living together without benefit ofmarriage
Property acquired governed by rules on co- ownership.
Sharing of gross returns not even presumptive evidence of partnership
The mere sharing of gross returns alone does not even constitute prima facie
evidence of partnership, since in a partnership, the partners share profits
after satisfying all of the partnership’s liabilities.
Art. 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 dividing the profits amongthemselves.
Definition
Partnershipis a contract whereby two or more persons bind themselves to
contribute money, property or industry to a common fund with the intention
of dividing profits amongthemselves.
Elements
Intention to form a contract of partnership
Participation in both profits andlosses
Community ofinterests
Basic Features
Voluntaryagreement
Association forprofit
Mutual contribution to a commonfund
Lawful purpose orobject
Mutual agency ofpartners
Articles must not be keptsecret
Separate juridicalpersonality
Characteristics
Consensual – perfected by mere consent.
Bilateral – formed by two or more persons creating reciprocal rights and
obligations.
Preparatory – entered into as a means to anend.
Nominate – has a special name or designation.
Onerous – contributions in the form of either money, property and/or industry
must bemade.
Commutative – the undertaking of each partner is considered as the
equivalent of that of theothers.
Principal – its existence or validity does not depend on some othercontract.
Principle of Delectus Personae (choice of persons) – a person has the right to
select persons with whom he wants to be associated with in partnership.
Art. 1768. The partnership has a juridical personality separate and distinct
from that of each of the partners even in case of
Failure to comply with the requirements of Article 1772, first paragraph.
Partnership, a juridical person
As an independent juridical person, a partnership may enter into contracts,
acquire and possess property of all kinds in its name, as well as incur
obligations and bring civil or criminal actions. Thus, a partnership may be
declared insolvent even if the partners are not. It may enter into contracts
and may sue and be sued in its firm name or by its duly authorized
representative. It is sufficient that service of summons be served on
anypartner.
Partners cannot be held liable for the obligations of the partnership unless it
is shown that the legal fiction of a different juridical personality is being used
for a fraudulent, unfair or illegal purpose.
Effect of failure to comply with statutory requirements
Under Art 1772
Partnership still acquires personality despite failure to comply with the
requirements of execution of public instrument and registration of name in
SEC.
Under Arts 1773 and 1775
Partnership with immovable property contributed, if without requisite
inventory, signed and attached to public instrument, shall not acquire any
juridical personality because the contract itself is void. This is also true for
secret associations or societies.
To organize a partnership not an absolute right
It is but a privilege which may be enjoyed only under such terms as the State
may deem necessary to impose.
Art. 1769. In determining whether a partnership exists, these rules shall
apply:
Except as provided by Article 1825, persons who are not partners as to each
other are not partners as to third persons.
Co-ownership or co-possession does not of itself establish a partnership,
whether such co-ownership or co- possessors do or do not share any profits
made by the use of theproperty.
