Sources : OCC, Uniform Partnership Act, Uniform Limited Partnership Act

1767

Partnership

-It is also a status and a fiduciary relation subsisting between persons carrying on a business in common with a view on profit. (Paras)

Characteristics

1. Consensual—perfected by mere consent, although such consent must be manifested in certain cases by proper formalities

2. Bilateral/ Multilateral—entered into between two or more persons

3. Nominate—designated by a specific name

4. Principal—its existence does not depend on the life of another contract

5. Onerous—certain contributions have to be made

6. Preparatory—after it has been entered into, other contracts essential in the carrying out of its purposes can be entered into

Elements

A. Valid contract (Consent and capacity, Object which is the subject matter of the contract, cause which is established)

Articles of Partnership—embodies the terms of association which contain the name, nature or purpose and location of the firm and defining the powers, rights, liabilities and duties of ther partners, their contributions, the manner by which profits and losses are to be shared and procedure for dissolving the partnership.

B. There must be a contribution of money, property or industry (intellectual or physical) to a common fund (credit, commercial or economic and goodwill may be contributed as it is considered as property)

Money—legal tender in the Philippines Property—real, personal, corporeal or incorporeal.

Even goodwill may be contributed. A license may be contributed.

Industry—means an 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).

It can be credit or industry not necessarily cash or fixed assets.

C. The object must be lawful.

D. There must be an intention of dividing the profit among the partners since it is for the common benefit or interest of the partners.

*object must be for profit not for common enjoyment, otherwise only a co-ownership is formed. Pecuniary aim

must be the principal aim it can have other ends like social, moral, spiritual.

The sharing is merely presumptive and not conclusive evidence of partnership.

A stipulation excluding one partner from sharing of losses is void.

E. There must be the affectio societatis—the desire to formulate an ACTIVE union with people among whom there exist mutual confidence and trust.

“Fiduciary” in nature: It is a personal relation in which the element of delectus personae (choice of the person/s) exists. It is because of this that one partner has authority to bind the other, or the right to dissolve the partnership provided in good faith.

*In the same vein, just because partners appear in the contract, does not necessarily mean that a partnership existed. There must be a new personality that will be formed separate and distinct from each of the members.

History (Roman Law)

1. There was no limit to the number of partners.2. A partner was not considered the implied agent of

the others. A partner had to obtain an express mandate from each.

3. The partners were liable jointly, not solidarily.4. The partners had the right to the beneficium

competentiae, that is, they were held financially ;liable only insofar as they would not be reduced to destitution.

5. The heirs of a deceased partner could not succeed to the rights of the deceased, even by express stipulation.

6. A roman partner could not retire in order to enjoy alone a gain which he knew was awaiting him.

Before the NCC became effective, there were two kinds of partnership: civil and commercial or mercantile. The difference lies in the ends desired not the manner of the organization. In the absence of a clear showing, the form was held indicative of its nature. Code of Commerce governs the latter. The NCC repealed this and now governs all transactions in partnership, whether civil or mercantile.

Trust—legal relationship between one person having the equitable ownership in property and another owning the legal title to such property the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter. Agency—agent acts for his principal. A partner is both a principal (for his own interest) and an agent (for the firm and the others).

Joint Adventure or Joint Accounts—is a sort of informal partnership, with no firm name, and no legal personality. In joint account, the participating merchants can transact business under their own name, and can be individually liable therefor.

It is limited to a single transaction, although the business of pursuing it to a successful termination may continue for a number of years; a partnership generally relates to a continuing business of various transactions of a certain kind.

1

Syndicate—particular undertaking for some temporary objective

Partnership CorporationCreation Voluntary Special charter

or general lawExistence No time limit Not more than

50 years Liability May be liable

with their private property

Liable only for payment of their subscribed capital stock

Transferability of interest

The transferee does not become a partner unless all consent

A transfer makes the transferee a stockholder

Ability to bind Generally, a partner acts on behalf of the partnership as agents, consequently they can bind both firm and the partners

Stockholders cannot bind corporation since they are not agents

Mismanagement

Partner can sue a partner

A stockholder cannot sue a member of the board, must be in the name of the corporation

Nationality Country of creation

Country of incorporation

Legal personality

Vested from the time of contract

From registration in SEC and all requisites have been complied with

Dissolution Death, retirement, insolvency, civil interdiction, insanity

CAPACITY TO BECOME A PARTNER

Incapacitated: Unemancipated minors, insane or demented persons, deaf-mutes who don’t know how to read and write, persons suffering from civil interdiction, incompetents who are under guardianship

Capacitated persons:

>minor, unless parent or guardian consents otherwise partnership is voidable, unless other partners are in the same situation, in which case the contract is unenforceable.

>a married woman with regard to conjugal funds, or who is an administrator of the partnership, the court must give its consent/authority.

>a partnership can be a partner either with a private individual or with other partnerships, there is no prohibition

>a corporation unless authorized by statute, charter, it has no capacity to enter into a partnership. It cannot become a partner on grounds of public policy, since in a partnership the corporation would be bound by the acts of

persons who are not its duly appointed and authorized agents and officers. However, a corporation can enter into a joint venture with another where the nature of that venture is in line with the business authorized in its charter. A corporation may act as a managing partner in line with the corporate businesses of the corporations concerned.

Can a corporation and an individual form a general partnership?

GR: No, because a corporation may not be bound by persons who are neither directors nor officers of the corporation. However, a corporation may form a general partnership with another corporation or an individual provided:

(1) the articles of incorporation expressly allows the corporation to enter into partnerships

(2) the articles of partnership must provide that all partners will manage the partnership (managing partners) and they shall all be jointly and severally liable.

1768-juridical personality

If requisites are not complied with, the partnership maintains its juridical personality. ART 1772 is only intended to be prerequisites for the issuance of licenses (tax purposes and for accountability/information to persons dealing with the partnership) to engage in the business or trade NOT for the acquisition of a juridical personality by the partnership.

Failure to register does not invalidate the contract of partnership so long as the contract has essential requisites, because the main purpose of registration is to give notice to third persons, and it can be assumed that members themselves knew the contents of the contract

Consequences of being a juridical entity

1. Separate and distinct2. Can acquire and possess property of all kinds (Art 46)3. Bring civil or criminal actions4. Can be adjudged insolvent even if the members are

solvent5. Unless sued, a partner has no right to appear in

court, if the partnership is already represented

Not lawfully organized

1. It possesses no legal personality, it cannot sue. Partners can sue in their individual capacity.

2. Partnership by estoppel applies.

1769—Rules in Determining Partnerships

Requisites

1. Intention to create—the designation may be indicative of their intention

2. Common fund obtained from contributions3. Joint interest in the profits

It is the substance and not the name of the arrangement that determines the legal relationship. It can be determined from the conduct of the parties, documentary evidence and testimony of parties.

2

-Sharing of gross returns alone does not indicate a partnership, since in a partnership; the partners share net profits after satisfying all of the partnership’s liabilities.

-Sharing of net profits is prima facie evidence that one is a partner except the enumerations.

Creditors are not partners for their interest is the receipt or payment of their credits only.

-Co-ownership exists whenever the ownership of an undivided thing or right belongs to different persons. A fiduciary relationship does not necessarily exist in co-ownership unlike in partnership.

-Burden of proof and presumption

1. The existence of a partnership must be proved and will not be presumed.

2. The law presumes that persons who are acting as partners have entered into a contract of partnership.

3. Burden is proof is on the person asserting termination, if the partnership is shown to exist.

-Incidents of partnership

1. The partners share in profits and losses.2. They have equal rights in the management and

conduct of the partnership business.3. Every partner is an agent of the partnership, and

entitled to bind the other partners by his acts, for the purpose of its business.

4. Every partner is an agent of partnership and entitled to bind the other partners by his acts, for the purpose of its purposes.

5. All partners are personally liable for the debts of the partnership with their separate property except that limited partners are not bound beyond the amount of their investment.

6. A fiduciary relation exists between the partners.7. On dissolution, the partnership is not terminated, but

continues until the winding up of partnership is completed.

1770—lawful object or purpose

Lawful—must be within the commerce of man, possible, and not contrary to law, morals, good customs, public order or public policy. Otherwise, it is VOID AB INITIO.

Is a judicial decree needed to dissolve an unlawful partnership?

No, because the contract is void from the very beginning.

Consequences of Unlawful Parnership

1. If guilty of crime, the instruments or tools are forfeited in favor of the government

2. The partners forfeit the proceeds or profits, but NOT their contributions, provided no criminal prosecution has been instituted.

3. Partnership has no legal personality4. Partners must be returned of their contribution.5. In cases of partial illegality, an accounting may be

had on the legal transactions.6. Innocent partners may go against guilty partners for

their share in the profits.

7. Subsequent illegality does not nullify the contract. An accounting may be had as to the business transacted prior to such time.

1771—FORMALITIES

1. GR: No form is required for VALIDITY or ENFORCEABILITY, regardless of the value. The contract may be ORAL.

2. Exception: Whenever real properties or real rights are contributed—regardless of value—

a. public instrument is needed, otherwise it is VOID.

b. there must be an inventory of immovables which must be signed by the parties and attached to the public instrument. (It is important to show how much is due from each partner to complete his share in the common fund and how much is due to each of them in the event of liquidation. Without inventory, it is VOID.)

c. Must be registered for effectivity3. An agreement to form a partnership does not itself

create one. So long as it remains executory, it is inchoate.

4. An agreement to enter into partnership in future time is covered by Statute of Frauds and unenforceable unless reduced in writing.

1772—REGISTRATION IN SEC

Registration is a condition for the issuance of licenses to engage in a business or trade.

Effect of non-registration

1. Still valid and has legal personality*if real prop is contributed, a public instrument is needed

2. One can compel the other to register

1773-IMMOVABLE PROPERTY IS CONTRIBUTED

1. There must be a public instrument.2. The inventory must be made, signed by parties and

attached to the public instrument.

Compliance is absolute and indispensible for validity.

Applicability: only to property contributed by partners, not to property possessed or owned by the partnership

1. Applies regardless of the value of RP2. Applies even if only real rights over real properties

are contributed3. Also if, aside from real property, cash or personal

property is contributed.

Registration in the Register of Property to make transfer effective as far as third persons are concerned. With regard to them, a de facto partnership exists.

Inventory shows the description and designation of immovable or real property. It shows much is due from each partner to complete his share in the common fund and who much is due to each of them in case of liquidation.

3

1774 ACQUISITION OF PROPERTY UNDER PARTNERSHIP NAME

Applies to both real and personal property

See article 46

Limitations

1. An alien cannot own lands, except thru hereditary succession.

2. Even if entirely owned by a Filipino, a partnership may not acquire, lease, or hold public agricultural lands in excess of 1,024 has.

3. Cannot lease lands adapted to grazing in excess of 2,000 has.

1775—IF ARTICLES ARE KEPT SECRET

1. Not considered a juridical entity.2. It may be sued by third persons under a common

name it uses.3. It cannot sue.4. AS to third parties, they are partnership, but as

between themselves, only the rules on co-ownership apply.

5. A “partner” may be sued in his individual capacity, notwithstanding the absence of partnership.

RATIO: for the protection of the members and third persons from fraud and deceit

1776—CLASSIFICATIONS

A. Manner of Creationa. Orally constitutedb. Private instrumentc. Public instrumentd. Registered in SEC

B. Objecta. Universal

i. With all present propertyii. With all profits (the individual

properties are owned by partners, but the usufruct passes to the firm)

b. Particular—the object are determinate things, their use or fruits, specific undertaking, or the exercise of a profession or occupation

C. Liabilitya. Limitedb. General

D. Legalitya. Lawfulb. Unlawfulc. De jure—one which has complied with all

the legal requirementsd. De Facto—failed to comply

E. Durationa. Partnership with fixed term—For a specific

period or till the purpose is accomplishedb. Partnership at will—one in which no time is

specified and is not formed for a particular undertaking and which may be terminated at anytime by mutual agreement or by will of any partner alone; or one which has a

fixed term and continued by the partners after termination of such term

F. Representation to othersa. Ordinary—actually exists among the

partners and also as to third personsb. Partnership by estoppel—one which in

reality is not a partnership, but considered as such only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence.

G. Publicitya. Secret—one wherein the existence of

certain persons as partners is not avowed or made known

b. Open or notoriousH. Purpose

a. Commercial—one formed for businessb. Professional—formed for exercise of

profession

General Partnership—is one where all the partners are general partners who are liable even with respect to their individual properties, after the assets of the partnership have been exhausted

Limited Partnership—one where at least one partner is a general partner and the others are limited partners.

A limited partner is one whose liability is limited only up to the extent of his contribution.

If all partners are limited, it cannot be registered. It will be considered general partnership instead.

Partnership de facto—when the managing partner continues to act for the benefit of all the partners without causing their rights to be recorded in the RD

Partnership by Estoppel

Ex. When two or more persons attempt to create a partnership but fail to comply with the legal formalities essential to juridical personality.

KINDS OF PARTNERS

1. Capitalist—one who contributes money or property to common fund

2. Industrial—one who contributes only his industry or personal service

3. General—one whose liability to third persons extends to his separate property

4. Limited—one whose liability to third persons is limited to his capital contribution

5. Managing—one who manages the affairs who may be appointed in the articles or after constitution

6. Liquidating—one who takes charge of the winding up of partnership affairs upon dissolution

7. Partner by estoppel—one who is not really a partner, but liable for the protection of third persons.

8. Continuing—one who continues the business of a partnership after it has been dissolved by reasons of admission, retirement, death or expulsion

9. Surviving—one who remains after partnership has been dissolved by death of any partner

10. Subpartner—one who, not being a member, contracts with a partner with reference to the latter’s share.

4

FORMALITIES NEEDED FOR CREATION

A. Personal Propertya. Less than 3,000—may be oralb. 3,000 or more—must be in a public

instrument and registered in SEC. Even if not complied, the partnership is still valid

B. Real Property—regardless valuea. Public instrumentb. Attached inventoryc. Registered* in the Registry of Property

where the property is located (to be effective against third parties)

*Otherwise, it is VOID and has no juridical personality

C. Limited Partnership—must be registered indicating that it is limited in the SEC, otherwise it is not valid as limited but a general one.

1777-78—UNIVERSAL PARTNERSHIP

A. of all present property: one which comprises all that the partners may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract. The contribution here consists of

a. all the properties actually belonging to partners

b. The profits acquired with said propertiesB. Of all profits—one which comprises all that the

partners may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract.

ALL PROFITS ALL PRESENT PROPERTY

a)Only the usufruct of the properties of partners becomes common property

*refers only to property possessed by the partner at the time of the celebration of the contract. If acquired after, it does not belong to the firm as a matter of right.

All property actually contributed belonging to the partners are common property

Naked ownership is retained by partners

Owned by all partners and by partnership

b) All profits acquired by industry or work of the partners become common (as a matter of right)

Stipulation as to exclusion is valid

Only the profits of contributed common property (not other profits)

Profits from other sources may become common if there is a stipulation

Properties acquired by inheritance, legacy, donation cannot be included,

but the FRUITS thereof can be included in the stipulation.

FUTURE PROPERTY (why prohibited to be included?)

1. Contracts re: succession rights cannot be made2. A partnership demands that things be determinate,

known and certain.3. A universal partnership of all present properties

implies a donation, and a future property cannot be donated.

1781—presumption in favor of partnership of profits

1. Applies only when a universal partnership has been entered into

2. Ratio: Less obligation is imposed in the universal partnership of profits because their real and personal properties are retained by them in naked ownership.

3. Reformation of the contract is the remedy in case a universal partnership of all present properties is desired.

1782—persons who together cannot form a universal partnership--VOID

1. Husband and wife, as a rule2. Those guilty of adultery and concubinage (739)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 particular partnership or be members thereof.

RATIO: It is virtually a donation to each other of the partner’s properties. If persons are prohibited to donate to each other, they should not be allowed to do indirectly what the law forbids.

1783—PARTICULAR PARTNERSHIP

Ex. Construct a building, buy and sell real estate, practice law, a firm engaged in importation, marketing, distribution and operation of radios, amusement machines etc

In the universal partnership, the scope is vague and indefinite contemplating a general business with some degree of continuity, while particular partnership is limted and well-defined, being confined to an undertaking of a single, temporary or ad hoc in nature.

5

6