Ppc Reviewer

7/30/2019 Ppc Reviewer

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Finals Reviewer PARTNERSHIP 1st Sem; 2003

INTRODUCTION the Roman law, the law merchant and equity, and the

common law courts.Brief Historical BackgroundGoverning law in our jurisdiction

Development of partnershipThe earliest form of Before the new Civil Code, commercial or mercantile

conducting business was the single entrepreneur partnerships were governed by the Code ofCommerceownership plan (one individual). Under this system, and non-commercial or civil partnerships by theoldgrowth of the business was limited (limitation of capital, Spanish Civil Code. The new Civil Codesuperseded theskill or knowledge) and so partnership was developed. in toto the

provisions in the Code of Commerce relating toAncient origin of partnership as a business partnerships. Consequently, the new Civil CodeorganizationDevelopment of partnership often provisions are intended to provide all the rules regarding

credited to the Romans. partnerships. There is no more distinction betweencommercial and civil partnerships.

Romans. As early as 2300 B.C. the Babylonian system of The partnerships contemplated are thoseformed for

laws provided for regulation of partnership. Commercial private interest or purpose.partnerships at that time were generally for singletransactions or undertakings. Sources of our law on partnership

Following the Babylonian period, there were clear-cut The Civil Code provisions on partnership weremostlyreferences to partnerships in Jewish law. taken from the old Civil Code and from the USs UniformPartnership Act and the .

The relative newness of the law of partnershipSome provisions were taken from the Code of

Despite its long history of use, there is not a Commerce as well as from the opinions of civilians. Newcorrespondingly long line of precedents and decisions rules were also formulated by the CodeCommission.dealing with the subject. This is because English courtsof justice scarcely dealt with the subject. Disputesbetween merchants were disposed of by special courts.

The law of merchantsIn the Middle Ages, CHAPTER 1. GENERAL PROVISIONSmerchants had a special and peculiar kind of law thatwas applicable to them and their legal affairs. Art. 1767. By the contract of partnership two orDuring this period, the common law courts ofmore persons bind themselves to contributeEngland were slow and methodically exact as to form. money, property, or industry to a common fund,Merchants moved more rapidly than the law and with the intention of dividing the profits amongrequired speedier justice. Hence, the special courts. themselves.English law of partnershipIn time the special Two or more persons may also form acourts were discontinued and the law courts took over. partnership for the exercise of a profession.

Chief Justice, Lord Mansfield sought to establish acommon law for commercial matters. It was not until Concept of partnership

the latter years of the 18th century that the law of

partnership as we know it today began to assume both partnership (often called co-partnership)from theform and substance. viewpoint of a contract.In 1778, Lord Mansfield decided a case that dealt Partnership, however, has also been defined as:

An association;with the rights of partnership. In 1794, William Watson 1.)

A legal relation;wrote a text on partnership. 2.)

A status;Beginning of law of partnershipThese two 3.)

An organization;sources mark the beginning of printed precedents and 4.)


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An entity;the publication of the principles of law in partnerships. 5.)

A joint undertaking.Increase in use of partnership and complexity of[See6.) pp. 7-8 of De Leon (2002 Ed.) for full definitions. I think

business brought forth a rapid succession of decisions on OK na if we just know the codal definition anyway.]partnerships. Partnership is a legal concept, but the determination

American Uniform ActsAttempt made in US to drawn from the circumstances attending its creation andsecure uniformity of state laws dealing with partnership. operation.The Uniform Partnership Act and the Uniform LimitedPartnership Act helped to achieve this uniformity. The Civil law concept and American concept of partnershipUniform Partnership Act is similar with Englands distinguishedPartnership Act of 1890. English settlers brought the Civil Code Americanpartnership concept to their new country as part of the Basis ofPartnership as a Partnership as acommon law. concept contract: the relation: the

Modern partnership law contains a combination of agreement itself result of theprinciples and concepts developed from three sources: out of which a contract or

Helen C. Arevalo 1 Section 3D


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partnership is agreement; the 3.)Bilateral: two or more parties, reciprocal rightscreated. juridical relation. and obligations;

PossessionEntity theory: Aggregate 4.)Onerous: Each of the parties aspires to procure

of separate Partnership has a theory: No a benefit through the giving of something;

personalityjuridical separate juridical 5.)Commutative: undertaking of each partner is

personality of its personality; considered the equivalent of that of the others;own, distinct and merely an 6.)Principal: does not depend upon some other

separate from that extension of its contract for its existence/validity;

of each of the members, a 7.)Preparatory: entered into as a means to an end.partners. conglomerate of A partnership contract, in its essence, is a contract of

individuals. agency.Tax Partnerships, Partnership not

Consequence except general taxed. Individual Essential features of partnership

professional members 1.)There must be a valid contract;partnerships, are severally pay 2.)Parties must have legal capacity to enter into

treated for income their income the contract;tax purposes as taxes, partnership 3.)Mutual contribution of money, property, or

corporations and regarded merely industry to a common fund;subject to tax as as source of 4.)Object must be lawful;such. income. 5.)Primary purpose: to obtain profits and to divide

them among the parties.General Professional Partnership It is also required that the articles of partnership

Par. 2 relates to the exercise of a profession. must not be kept secret among the members;[Profession: a group of men pursuing a learned art as a otherwise, the association shall have no legal personality

common calling in the spirit of public service no less a public and shall be governed by the provisions relating toco-service because it may incidentally be a means of livelihood.] ownership.

The practice of a profession is not a business or anenterprise for profit. However, the law allows the joint Existence of a valid contractpursuit thereof by two or more persons as partners. It is Partnership relation fundamentally contractualthe individual partners, and not the partnership, whoPartnership is a voluntary relation created by

engage in the practice of the profession and are agreement of the parties.responsible for their own acts as such. The law does not Actually, the partnership relation is not the

contractallow the practice of a profession as a corporate entity. itself, but the result of the contract.Personal qualifications for such practice cannot be FormThe relation is evidenced by the terms of

possessed by a corporation. the contract which may be oral or written, express orimplied from the acts and declarations of the parties.

Partnership for the practice of law Articles of partnershipWhile the partnership

A mere association for non-business purpose - relation may be informally created and its existence

Right to practice law not a constitutional right but a proved by the manifestations of the parties, it isprivilege or franchise. It cannot be likened to customary to embody the terms of the association in apartnerships formed by other professionals or for written document known as Articles of Partnership.business. RequisitesSince partnership is contractual, all

It is not formed for the purpose of carrying on trade the essentials of a valid contract must bepresent:or business or of holding property. Thus, use of a nom 1.)Consent and capacity of parties;

de plume, assumed, or trade name is improper. 2.) Object;Distinguished from businessIt is intimately and 3.)Cause.

peculiarly related to the administration of justice; not a A person cannot enter into a contract ofpartnershipmere money-making trade. Primary characteristics solely by himself; there must be two contractingparties.which distinguish it: For a partnership to be valid, there must be a valid1.)Duty of public service; consideration existing as between the partners. Each2.)Relation as an officer of court to the surrenders to the partnership some sort of contribution.administration of justice; Partnership relation fiduciary in nature


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3.)Highly fiduciary relation to clients; Partnership is a form of voluntary association entered4.)Relation to colleagues at the bar characterized into by the associates. It is a personal relation inwhichby candor, fairness, etc. the element ofdelectus personae exists, involving as it

does trust and confidence between the partners.Characteristic elements of partnership Membership requires the consent of all. Its fiduciary

1.)Consensual: perfected by mere consent nature and the liability of each partner for the acts of

(express/implied); the others require that each person be granted the right2.)Nominate: has a special name/designation in our to choose with whom he will be associated with.law;



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Among partners, mutual agency arises and the Proof of contributionProof is necessary thatdoctrine ofdelectus personae allows them to have the there be contribution of money, property, or

industry topower to dissolve the partnership. Any partner may, at a common fund with the intention of dividingthe income

his sole pleasure, dictate dissolution at will. He must, or profits obtained therefrom. If only onepartner gives,however, act in good faith or hell be liable for damages. no enforceable contract exists.Application of principles of estoppel

Partnership liability may be imposed when one holds Legality of the object

himself out, or permits himself to be held out, as a The object is unlawful when it is contrary to law,partner. There is no actual or legal partnership relation morals, good customs, public order, or publicpolicy. Ifbut merely a partnership liability imposed by law in purpose unlawful, no partnership can arise as thefavor of third persons. contract is inexistent and void ab initio.

Legal capacity of the parties to enter into the Purpose to obtain profits

contract The very reason for existence of partnership

IndividualsGeneral rule: any person who is The idea of obtaining pecuniary profit or gain is the very

capable of entering into contractual relations may be a reason for the existence of a partnership.partner. The following cannot: Need only be the principal, not exclusive aim

1.)Minors; pecuniary profit need not be the exclusive aim. It is

2.)Insane or demented persons; sufficient that it is the principal purpose even if there3.)Deaf-mutes who do not know how to write; are, incidentally, other ends.4.)Persons who are suffering from civil interdiction;5.)Incompetents who are under guardianship. Sharing of profitsPersons who are prohibited from giving each other Not necessarily in equal sharesThere must be

any donation cannot enter into a universal partnership. intention to divide the profits but notnecessarily inPartnershipsThere is no prohibition against a equal shares. There must be a joint interest in the

partnership being a partner in another partnership. All profits.the members of the constituent partnerships will be held A stipulation which excludes a partner fromany

liable to the creditors of the combined partnership. participation in the profits is void.CorporationsUnless authorized by statute or by Not conclusive evidence of partnershipThe

its charter, a corporation is without capacity or power to sharing of profits is merely presumptive and

notenter into a contract of partnership. This is based on conclusive evidence of partnership.public policy, since in a partnership the corporationwould be bound by the acts of persons who are not its Sharing of lossesduly appointed and authorized agents and officers, Necessary corollary of sharing in profitsThe

which would be entirely inconsistent with the policy that right to share in the profits carries with it theduty tothe corporation shall manage its own affairs separately contribute to the losses, if any. A community inlosses isand exclusively. a necessary corollary of a participation in profits.Exceptions: Agreement not necessaryIt is not necessary for

1.)Joint ventures where the nature of the venture is the parties to agree on a system of sharinglosses, forin line with the business authorized by its the obligation is implied from the partnership relation. Ifcharter. only the share of each partner in the profits has been2.)Partnership agreement provides that the two agreed upon, the share of each in the losses shall bein

partners will manage the partnership so that the the same proportion.management of corporate interest is not Generally, a stipulation which excludes one or moresurrendered. partners from any share in the profits or losses is void.3.)Entry of foreign corp as a limited partner in a


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limited partnership merely for investment Art. 1768. The partnership has a juridicalpurposes.personality separate and distinct from that of eachof the partners even in case of failure to comply

Contribution of money, property, or industry to a with the requirements of art. 1772, 1st paragraph.

common fund

Existence of proprietary interestThe partners Partnership, a juridical person

must have a proprietary interest in the business or As an independent juridical person, a partnership

undertaking, that is, they must contribute capital which may enter into contracts, acquire and possesspropertymay be money, or property, or their services, or both, to of all kinds in its name, as well as incurobligations andthe common business. bring civil or criminal actions.

MoneyLegal tender in the Phils. Thus, a partnership may be declared insolvent even ifPropertyReal or personal, corporeal or incorporeal.IndustryActive cooperation, the work of the party the partners are not. It may enter into contracts and

associated. may sue and be sued in its firm name or by its duly

authorized representative. It is sufficient that service ofsummons be served on any partner.



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Partners cannot be held liable for the obligations of 1769 shall apply. This article seeks to excludefrom thethe partnership unless it is shown that the legal fiction of category of partnership certain featuresenumerateda different juridical personality is being used for a therein which, by themselves, are not indicative of

thefraudulent, unfair or illegal purpose. existence of a partnership.

Effect of failure to comply with statutory Persons not partners as to each other

requirements Persons who are partners as between themselves areUnder art. 1772Partnership still acquires partners as to third persons. Generally, the converse is

personality despite failure to comply with the true: if they are not partners between themselves, theyrequirements of execution of public instrument and cannot be partners as to third persons.registration of name in SEC. Partnership is a matter of intention, each partnerUnder arts. 1773 and 1775Partnership with giving his consent to become a partner. However,

immovable property contributed, if without requisite whether a partnership exists between the partiesis ainventory, signed and attached to public instrument, factual matter. Where parties declare they are notshall not acquire any juridical personality because the partners, this, as a rule, settles the question

betweencontract itself is void. This is also true for secret themselves. But where a person misleads thirdpersonsassociations or societies. into believing that they are partners in a non-existentpartnership, they become subject to liabilities of

To organize a partnership not an absolute right partners (doctrine of estoppel).

It is but a privilege which may be enjoyed only under Whether or not the parties call theirrelationship orsuch terms as the State may deem necessary to impose. believe it to be a partnership is immaterial.Thus, withthe exception of partnership by estoppel, a partnershipArt. 1769. In determining whether a cannot exist as to third persons if no contract of

partnership exists, these rules shall apply: partnership has been entered into between the parties

1.) Except as provided by art. 1825, persons themselves.

who are not partners as to each other arenot partners as to 3rd persons; Co-ownership or co-possession

2.) Co-ownership or co-possession does not of There is co-ownership whenever the ownership of an

itself establish a partnership, whether such undivided thing or right belongs to different persons.co-ownership or co-possessors do or do not Clear intent to derive profits from operation of

share any profits made by the use of the businessCo-ownership does not of itself establish the

property; existence of a partnership, although it is one of its

3.) The sharing of gross returns does not ofessential elements. This is true even if profits areitself establish a partnership, whether orderived from the joint ownership. The profits must be

not the persons sharing them have a joint derived from the operation of business by the members

or common right or interest in any property of the association and not merely from propertyfrom which the returns are derived; ownership.

4.) The receipt by a person of a share of the The law does not imply a partnership between co-profits of a business is prima facie evidence owners because of the fact that they develop or operate

that he is a partner in the business, but no a common property, since they may rightfully do this bysuch inference shall be drawn if such virtue of their respective titles. There must be a clear

profits were received in payment: intent to form a partnership.

a.) As a debt by installments or Existence of fiduciary relationshipPartners

otherwise; have a well-defined fiduciary relationship between them.b.) As wages of an employee or rent to Co-owners do not. Should there be dispute, the remedy

a landlord; of partners is an action for dissolution, termination andc.) As an annuity to a widow oraccounting. For co-owners it would be one, for instance,

representative of a deceased for non-performance of contract.

partner; People can become co-owners without a contract but


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d.) As interest on a loan, though the they cannot become partners without one.amount of payment vary with the Persons living together without benefit of

profits of the business; marriageProperty acquired governed by rules on co-

e.) As the consideration for the sale of a ownership.goodwill of a business or other

property by installments or Sharing of gross returns

otherwise. Not even presumptive evidence of partnership

The mere sharing of gross returns alone does not evenRules to determine existence of partnership constituteprima facie evidence of partnership, since in a

In general, to establish the existence of a partnership, the partners share profits after satisfying allpartnership, all of its essential features or characteristics of the partnerships liabilities.

must be shown as being present. In case of doubt, art.



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Reason for the rulePartner interested in both Tests and incidents of partnership

failures and successes; it is the chance of loss or gain In determining whether a partnership exists, itisthat characterizes a business. Where the contract important to distinguish between tests or indicia andrequires a given portion of gross returns to be paid over, incidents of partnership.

the portion is paid over as commission, wages, rent, etc. Only those terms of a contract upon whichtheWhere there is evidence of mutual management parties have reached an actual understanding, either

Where there is further evidence of mutual expressly or impliedly, may afford a test by which to

management and control, partnership may result. ascertain the legal nature of the contract.Some of the typical incidents of a partnership are:

Receipt of share in the profits 1.)The partners share in profits and losses.

Strong presumptive evidence of partnership2.)They have equal rights in the mgt and conduct

An agreement to share both profits and losses tends of the partnership business.strongly to establish the existence of a partnership. It is 3.)Every partner is an agent of thepartnership, andnot conclusive, however, just prima facie and may be entitled to bind the others by his acts. He may

rebutted by other circumstances. also be liable for the entire partnershipWhen no such inference will be drawnUnder obligations.

par. 4 of art. 1769, sharing of profits is not prima facie 4.)All partners are personally liable for the debtsofevidence of partnership in the cases enumerated under the partnership with their separate propertysubsections (a) (e). In these cases, the profits are not except that limited partners are not boundshared as partner but in some other respects or beyond the amount of their investment.purpose. 5.)A fiduciary relation exists between the partners.

The basic test of partnership is whether the business 6.)On dissolution, the partnership is notis carried on in behalf of the person sought to be held terminated, but continues until the winding upofliable. partnership is completed.Sharing of profits as ownerIt is not merely the Such incidents may be modified by stipulation of the

sharing of profits, but the sharing of them as co-owner partners.of the business or undertaking, that makes one partner.Test: Does the recipient have an equal voice as Partnership distinguished from a labor unionproprietor in the conduct and control of the business? Partnership Labor UnionDoes he own a share of the profits as proprietor of the Purpose To enable its members, Collective

business producing them? as principals, to conduct bargaining;One must have an interest with another in the profits a lawful business, trade, dealing with

of a business as profits. or profession for employerspecuniary gain of concerning terms

Burden of proof and presumption partners, and no one and conditions of

The burden of proving the existence of a partnership may become a partner employment.rests on the party having the affirmative of that issue. w/o consent of all.The existence of a partnership must be proved and

will not be presumed. Partnership distinguished from a business trust

The law presumes that those acting as partners haveentered into a contract of partnership. Where the law Partnership Trustpresumes the existence of partnership, the burden ofAgency All members are Trustee is only a

proof is on the party denying its existence. principals and principal and is notWhen a partnership is shown to exist, the agents for each an agent.

presumption is that it continues and the burden of proof other.is on the person asserting its termination. Ownership Partners are co-Beneficiary has

One who alleges partnership cannot prove it merely of property owners of specific equitable ownership

by evidence of an agreement using the term partner. partnership of property whileNon-use of the term, however, is entitled to weight. property. trustee owns legalThe question of whether a partnership exists is not title to such

always dependent upon the personal arrangement or property.understanding of the parties. Parties intending to do a


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thing which in law constitutes partnership are partners.Legal intention is the crux of partnership. Parties may Partnership distinguished from co-ownershipcall themselves partners but their contract may be Partnership Co-ownershipadjudged something quite different. Conversely, parties Creation Always created by Generally created

may expressly state that theirs in not a partnership yet contract, whether by law. It maythe law may determine otherwise on the basis of legal express or implied. exist even w/o aintent. However, courts will be influenced to some contract.

extent by what the parties call their contract. Juridical Has a juridical No separatepersonality personality separate juridical



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and distinct from personality. one or more belongs to boththat of each partner. appointed jointly, husbands

Purpose Realization of profits. Common managers. decision prevails

enjoyment of a in case ofthing or right. disagreement.

Duration No limitation under 10 year limit. Disposition Whole interest of a Share of eachthe law. of shares partner may be spouse cannot be

Disposal ofPartner may not Co-owner may disposed of disposed of

interests dispose of his assign w/o without consent of during marriage

individual interest in consent of other others. even w/ consentthe partnership so as co-owners. of other.to make theassignee partner w/oconsent of all. Partnership distinguished from a voluntary

Power to Partner may bind Co-owner cannot associationact w/ 3rd partnership. represent co- Partnership Voluntary

persons ownership. association

Effect ofDeath of partner Death of co-Juridical Meron. Wala.death results in dissolution. owner does not personality

necessarily Purpose Always for Not.

dissolve co-pecuniary profit.ownership. Contributions Contribution of Although fees

of members capital, either are usually

money, property collected fromPartnership distinguished from conjugal or services. the members, no

partnership of gains contribution ofOrdinary/ Conjugal capital.

business partnership of Liability ofPartnership is Members are

partnership gains members the one liable in individually liableParties Created by Arises in case the the 1st place for for debts of

voluntary future spouses debts of the firm. association.agreement of 2 or a man and amore partners woman agree

belonging to either that it shall Partnership distinguished from a corporationsex. govern their Partnership Corporation

property relations Manner ofMere agreement of Law or operationduring marriage. creation parties. of law.

Laws which Stipulation of the Law. Number ofAt least two. At least five.

govern parties. incorporatorsJuridical Meron. Wala. Commence-From moment of From date of

personality ment ofexecution of issuance ofCommence-Begins from Commences juridical contract of certificate of

ment moment of precisely on the personality partnership. incorporation by

execution of date of the SEC.contract, unless celebration of the Powers Partnership may Corp can only

otherwise marriage and any exercise any power exercise powersstipulated. stipulation to authorized by expressly

contrary is void. partners provided granted by lawPurpose To obtain profits. To regulate the not contrary to or implied from

property relations morals, good those granted orof husband and customs, etc. incident to itswife during existence.marriage. Management When mgt not Power to manage

Distribution Divided according Equal. agreed upon, every vested in boardof profits to agreement or in partner is agent. of directors or

proportion to trustees.


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capital Effect ofPartner can sue co-Suit againstcontributions. mismanage-partner who member of board

Management Shared equally by Although ment mismanages. of directors or

partners unless administration trustees who



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mismanages confiscation of the instruments and effects of amust be in name crime.

of corp.Right ofWala. Meron. Object or purpose of partnershipsuccession The provision of the 1st paragraph reiterates 2

Extent ofPartners (except Stockholders essential elements of a contract of partnership: 1.liability to 3rd limited partners) liable only to legality of the object; and 2. community of benefit or

persons are liable extent of the interest of the partners.

personally and shares The parties possess absolute freedom to choose thesubsidiarily subscribed by transaction or transactions they must engage in. The(sometimes them. only limitation is that the object must be lawful and forsolidarily) for the common benefit of the members.partnership debts The illegality of the object will not be presumed; it

to 3rd persons. must appear to be of the essence of the relationship.Transfer-Partner cannot Stockholder has

ability oftransfer his interest generally the Effects of an unlawful partnershipinterest so as to make right to transfer 1.)The contract is void ab initio and the partnership

transferee a his shares w/o never existed in the eyes of the law;partner w/o prior consent of 2.)The profits shall be confiscated in favor of the

consent of others. the other government;Delectus stockholders. 3.)The instruments or tools and proceeds of the

personarum. crime shall also be forfeited in favor of the

Term ofAny period of time 50 years max. government;

existence stipulated by the extendible to 4.)The contributions of the partners shall not be

partners. another 50. confiscated unless they fall under #3.Firm name Limited partnership Corp may adopt A partnership is dissolved by operation of law upon

reqd to add word any firm name the happening of an event which makes it unlawful.Ltd. provided not A judicial decree is not necessary to dissolve an

same or similar unlawful partnership. However, advisable that judicialto any registered decree be secured. 3rd persons who deal w/ partnership

firm name. w/o knowledge of illegal purpose are protected.Dissolution May be dissolved at Can only be

any time by the will dissolved with Right to return of contribution where partnershipof any or all of the consent of State. is unlawful

partners. Partners must be reimbursed the amount of theirGoverning Civil Code. Corporation respective contributions. The partner who limits himselflaw Code. to demanding only the amount contributed by him need

not resort to the partnership contract on which to basehis claim or action. Since the purpose for which the

Similarities between a partnership and a contribution was made has not come into existence, the

corporation mgr or administrator must return it, and he who has

1.)Both have juridical personality separate and paid his share is entitled to recover it.distinct from that of the individuals composingit; Right to receive profits where partnership is2.)Both can only act through its agents; unlawful

3.)Both are organizations composed of an Law does not permit action for obtaining earningsaggregate of individuals; from an unlawful partnership because for that purpose,4.)Both distribute profits to those who contribute the partner will have to base his action upon thecapital to the business; partnership contract, which is null and without legal5.)Both can only be organized where there is a law existence by reason of its unlawful object; and itis self-authorizing is organization; evident that what does not exist cannot be a cause of6.)Partnerships are taxable as corporations. action.

Profits earned do not constitute or represent theArt. 1770. A partnership must have a lawful partners contribution. He must base his claim on theobject or purpose, and must be established for the contract which is void.


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common benefit or interest of the partners. It would be immoral and unjust for the law to permit

When an unlawful partnership is dissolved by a a profit from an industry prohibited by it.

judicial decree, the profits shall be confiscated in The courts will refuse to recognize its existence, and

favor of the State, without prejudice to the will not lend their aid to assist either of the parties

provisions of the Penal Code governing the thereto in an action against each other. Therefore, there

can be no accounting demanded of a partner for the



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profits which may be in his hands, nor can recovery be When partnership agreement covered by thehad. Statute of FraudsAn agreement to enter in a

partnership at a future time, which by its terms is not toEffect of partial illegality of partnership business be performed w/in a year from the making thereof is

Where a part of the business is legal and part illegal, covered by the Statute of Frauds. Such

agreement isan account of that which is legal may be had. unenforceable unless it is in writing or at least evidencedWhere, w/o the knowledge or participation of the by some note or memorandum.

partners, the firms profits in a lawful business havebeen increased by wrongful acts, the innocent partners Partnership implied from conductare not precluded as against the guilty partners from Binding effectExistence of partnership may be

recovering their share of the profits. implied from the acts or conduct of the parties, as wellas from other declarations, and such implied contract

Effect of subsequent illegality of partnership would be as binding as a written and express contract.

business Ascertainment of intention of partiesIn

Contract will not be nullified. Where the business for determining whether a particular transactionconstituteswhich the partnership is formed is legal when the a partnership, as between the parties, the intentionaspartnership is entered into, but afterward becomes disclosed by the entire transaction, and asgatheredillegal, an accounting may be had as to the business from the facts and from the language employedby thetransacted prior to such time. parties as well as their conduct, should be ascertained.

Conflict between intention and terms of

Community of interest between the partners for contractIf the parties intend a general partnership,

business purposes they are general partners although their purpose is to

The salient features of an ordinary partnership are a avoid the creation of such a relation.community of interest in profits and losses, a communityof interest in the capital employed, and a community ofArt. 1772. Every contract of partnership havingpower in administration. a capital of three thousand pesos or more, inThis community of interest is the basis of the money or property, shall appear in a public

partnership relation. However, although every instrument, which must be recorded in the Office

partnership is founded on a community of interest, of the Securities and Exchange Commission.every community of interest does not necessarily Failure to comply with the requirements of theconstitute a partnership. preceding paragraph shall not affect the liability ofProperty used in the business may belong to one or the partnership and the members thereof to third

more partners, so that there is no joint property, other persons.

than joint earnings. To state that partners are co-ownersof a business is to state that the have the power ifRegistration of partnershipultimate control. But partners may agree upon Partnership with capital of P3,000 or more 2

concentration of management, leaving some of their requirements:members entirely inactive or dormant. 1.)The contract must appear in a public instrument;Only one of these features, profit-sharing, seems to 2.)It must be recorded or registered w/ the

SEC.be absolutely essential. But a mere sharing of profits of However, failure to comply w/ the aboveitself does not of necessity constitute a partnership. requirements does not prevent the formation oftheThe court must consider all the essential elements in partnership or affect its liability and that of the

partnerslight of the facts of the particular case before deciding to 3rd persons. But any partner is granted theright bywhether a partnership exists. law to compel each other to execute the contract in a

public instrument.Art. 1771. A partnership may be constituted in Purpose of registrationRegistration is necessaryany form, except where immovable property oras a condition for the issuance of licenses to engage in

real rights are contributed thereto, in which case a business and trade. In this way, the tax liabilities of big


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public instrument shall be necessary. partnerships cannot be evaded and the public can

determine more accurately their membership and capitalForm of partnership contract before dealing with them.General ruleNo special form required for validity When partnership considered registeredThe

or existence of the contract of partnership. Contract may objective of the law is to make the recordedinstrumentbe made orally or in writing regardless of the value of open to all and to give notice thereof to

interestedthe contributions. parties.Where immovable property or real rights are This objective is achieved from the date the

contributedExecution of public instrument necessary partnership papers are presented to and left for

recordfor validity of contract of partnership. To affect 3rd in the Commission. This is the effective date ofpersons, the transfer of real property to the partnership registration. If the certificate of recording isissued on amust be duly registered in the Registry of Property. subsequent date, its effectivity retroacts to date of

presentation.



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Secret partnerships without juridical personality

Art. 1773. A contract of partnership is void, Partnership relation is created only by the voluntary

whenever immovable property is contributed agreement of the partners. It is essential that the

thereto, if an inventory of said property is not partners are fully informed not only of the agreementmade, signed by the parties, and attached to the but of all matters affecting the partnership. Secret

public instrument. partnerships are not by nature partnerships.Secret partnerships shall be governed by the

Partnership with contribution of immovable provisions relating to co-ownership.property

Where immovable property contributed, failure to Importance of giving publicity to articles ofcomply w/ the following requisites will render the partnership

partnership contract void: It is essential that the arts of partnership be given1.)The contract must be in a public instrument; publicity for the protection not only of the members2.)An inventory of the property contributed must themselves but also 3rd persons from fraud anddeceit. Abe made, signed by the parties, and attached to member who transacts business for the secretthe public instrument. partnership in his own name becomes personally boundArt. 1773 is intended primarily to protect 3rd persons. to 3rd persons unaware of the existence ofsuch

W/ regard to 3rd persons, a de facto partnership or association.partnership by estoppel may exist. There is nothing to Partnership liability may still result, however,

in casesprevent the court from considering the partnership of estoppel.agreement an ordinary contract from which the partiesrights and obligations to each other may be inferred and Art. 1776. As to its object, a partnership isenforced. either universal or particular.As regards the liability of the partners, a

When inventory is not required partnership may be general or limited.

An inventory is required only whenever immovableproperty is contributed. If not contributed or if personal Classifications of partnershipproperty, no inventory required. As to extent of its subject matter

1.)Universal partnership. (Art. 1777)Importance of making inventory of real property in a.)Universal partnership of all present

a partnership property. (Art. 1778)An inventory is very important in a partnership to b.)Universal partnership of profits. (Art.show how much is due from each partner to complete 1780)his share in the common fund and how much is due to 2.)Particular partnership. (Art. 1783)each of them in case of liquidation. As to liability of the partners

The execution of a public instrument of partnership 1.)General partnership: one consisting of generalwould be useless if there is no inventory of immovable partners who are liable pro rata and subsidiarily

property contributed because w/o its description and and sometimes solidarily w/ their separate

designation, the instrument cannot be subject to property for partnership debts.inscription in the Registry of Property, and the 2.)Limited partnership: one formed by two or morecontribution cannot prejudice 3rd persons.persons having as members one or more generalpartners and one or more limited partners, the

Art. 1774. Any immovable property or an latter not being personally liable for the

interest therein may be acquired in the obligations of the partnership.

partnership name. Title so acquired can be As to durationconveyed only in the partnership name. 1.)Partnership at will: one in w/c no time is

specified and is not formed for a particularAcquisition or conveyance of property by undertaking or venture and w/c may be

partnership terminated at any time by mutual agreement of

Since partnership has juridical personality of its own, the partners, or by the will of any one partnerit may acquire immovable property in its own name. alone; or one for a fixed term or particularTitle so acquired can be conveyed only in the undertaking w/c is continued after the end of thepartnership name.term or undertaking w/o express agreement.2.)Partnership with a fixed term: one w/c the term


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Art. 1775. Associations and societies, whose for w/c the partnership is to exist is fixed or

articles are kept secret among the members, and agreed upon or one formed for a particular

wherein any one of the members may contract in undertaking.his own name with third persons, shall have no As to the legality of its existence

juridical personality, and shall be governed by the 1.)De jure partnership: one w/c has complied w/ all

provisions relating to co-ownership. the legal requirements for its establishment.



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2.)De facto partnership: one w/c has failed to 10.)Subpartner: one who, not being a member ofcomply w/ all the legal requirements for its the partnership, contracts w/ a partner w/establishment. reference to the latters share in the partnership.As to representation to others Other classifications

1.)Ordinary or real partnership: one w/c actually 1.)Ostensible partner: one who takes active part

exists among the partners and also as to 3rd and known to the public as a partner.persons. 2.)Secret partner: one who takes active part in the2.)Ostensible partnership or partnership or business but is not known to be a partner bypartnership by estoppel: one w/c in reality is not outside parties nor held out as a partner by thea partnership, but is considered a partnership other partners. He is an actual partner.only in relation to those who, by their conduct or 3.)Silent partner: one who does not take any activeadmission, are precluded to deny or disprove its part in the business although he may be knownexistence. to be a partner.As to publicity 4.)Dormant partner: (a.k.a. sleeping partner) one

1.)Secret partnership: one wherein the existence of who does not take active part in the businesscertain persons as partners is not avowed or and is not known or held out as a partner. Hemade known to the public by any of the would be both a silent and a secret partner.partners. 5.)Original partner: one who is a member of the2.)Open or notorious partnership: one whose partnership from the time of its organization.

existence is avowed or made known to the 6.)Incoming partner: a person lately, or about topublic by the members of the firm. be, taken into an existing partnership as aAs to purpose member.

1.)Commercial or trading partnership: one formed 7.)Retiring partner: one withdrawn from thefor the transaction of business. partnership; a withdrawing partner.2.)Professional or non-trading partnership: oneformed for the exercise of a profession. Art. 1777. A universal partnership may refer to allthe present property or to all the profits.

Kinds of partnersUnder the Civil Code Art. 1778. A partnership of all present property

1.)Capitalist partner: one who contributes money is that in which the partners contribute all theor property to the common fund. property which actually belongs to them to a2.)Industrial partner: one who contributes only his common fund, with the intention of dividing theindustry or personal service. same among themselves, as well as all the profits

3.)General partner: (a.k.a. real partner) one they may acquire therewith.whose liability to 3rd persons extends to hisseparate property. Art. 1779. In a universal partnership of all4.)Limited partner: (a.k.a. special partner) one present property, the property which belongs towhose liability to 3rd persons is limited to his each of the partners at the time of the constitutioncapital contribution. of the partnership, becomes the common property5.)Managing partner: (a.k.a. general or realof all the partners, as well as all the profits whichpartner how confusing!) one who manages the they may acquire therewith.affairs or business of the partnership. A stipulation for the common enjoyment of any6.)Liquidating partner: one who takes charge of the other profits may also be made; but the propertywinding up of partnership affairs upon which the partners may acquire subsequently bydissolution. inheritance, legacy or donation cannot be included7.)Partner by estoppel: (a.k.a. partner by in such stipulation, except the fruits thereof.

implication or nominal partner or even quasi-

partner) one who is not really a partner but is Universal partnership of all present propertyliable as a partner for the protection of innocent explained

3rd persons. He is one represented as being a A universal partnership of profits is one w/cpartner but who is not so between the partners comprises all that the partners may acquire by theirthemselves. industry or work during the existence of the partnership8.)Continuing partner: one who continues the and the usufruct of movable or immovable property w/cbusiness of a partnership after it has been each of the partners may possess at the time of thedissolved by reason of the admission of a new celebration of the contract.partner, or the retirement, death or expulsion of In this kind of partnership, the following become theone or more partners. common property of all the partners:


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9.)Surviving partner: one who remains after a 1.)Property w/c belonged to each of them at thepartnership has been dissolved by the death of time of the constitution of the partnership;any partner. 2.)Profits w/c they may acquire from the property

contributed.



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Contribution of future property Limitations upon the right to form a partnership

General rule: future properties cannot be Persons who are prohibited by law to give donationscontributed. The very essence of the contract of cannot enter into a universal partnership for thereason

partnership that the properties contributed be included that each of the partners virtually makes adonation. Toin the partnership requires the contribution of things allow it would be permitting them to do indirectlywhat

determinate. The position of a partner is like that of a the law expressly prohibits.donor, and donations cannot comprehend future A partnership formed in violation of this article isnullproperty. Thus, property subsequently acquired by 1. and void. Consequently, no legal personality isacquired.inheritance; 2. legacy; or 3. donation cannot be included A husband and wife, however, may enterinto aby stipulation except the fruits thereof. Hence, any particular partnership or be members thereof.stipulation including property so acquired is void. Relevant provisions:Profits from other sources (not from properties 1.)Art. 87: Donations between spouses during

contributed) will become common property only is marriage void, except moderate gifts ontheres a stipulation.occasion of family rejoicing. Also applies to thoseliving together as husband and wife w/o valid

Art. 1780. A universal partnership of profits marriage.

comprises all that the partners may acquire by 2.)Art. 739: The following donations are void:

their industry or work during the existence of the a.)Those made between persons who arepartnership. guilty of adultery or concubinage at the

Movable or immovable property which each oftime of the donation (no need for

the partners may possess at the time of the conviction; preponderance of evidencecelebration of the contract shall continue to only required);

pertain exclusively to each, only the usufruct b.)Those made between persons found

passing to the partnership. guilty of the same criminal offense, in

consideration thereof;Universal partnership of profits explained c.)Those made to a public officer or his

A universal partnership of profits is one w/c wife, descendants and ascendants, bycomprises all that the partners may acquire by their reason of his office.industry or work during the existence of the partnershipand the usufruct of movable or immovable property w/c Art. 1783. A particular partnership has for itseach of the partners may possess at the time of the object determinate things, their use or fruits, or acelebration of the contract. specific undertaking, or the exercise of aOwnership of present and future propertyThe profession or vocation.

partners retain their ownership over their present andfuture property. What passes to the partnership are the Particular partnership explained

profits or income and the use or usufruct of the same. A particular partnership is one w/c is neither aConsequently, upon dissolution, such property is universal partnership of present property nor auniversalreturned to the partners who own it. partnership of profits.Profits acquired through chanceSince the law The fundamental difference between a universal

only speaks of profits w/c the partners may acquire by partnership and a particular partnership lies inthe scopetheir industry or work, profits acquired purely by chance of their subject matter or object. In theformer, theare not included. object is vague and indefinite, contemplating a generalFruits of property subsequently acquiredFruits business w/ some degree of continuity, while in the

of property subsequently acquired by the partners do latter, it is limited and well-defined, beingconfined to annot belong to the partnership. Such profits, however, undertaking of a single, temporary, or ad hoc

nature.


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may be included by express stipulation.Business of partnership need not be continuing in

Art. 1781. Articles of universal partnership, nature

entered into without specification of its nature, The carrying on of a business of a continuing natureonly constitute a universal partnership of profits. is not essential to constitute a partnership. An

agreement to undertake a particular piece of work or aPresumption in favor of universal partnership pfsingle transaction or a limited number of transactions

profits and immediately divide the resulting profits would seemReason for presumption: universal partnership of to fall w/in the meaning of the term partnership asprofits imposes less obligations on the partners, since used in the law.they preserve the ownership of their separate property. Rule under American lawThe above is not true

under the Uniform Partnership Act w/c does not includeArt. 1782. Persons who are prohibited fromjoint ventures w/c exists for a single transaction or a

giving each other any donation or advantage limited number of transactions.cannot enter into a universal partnership.



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Joint ventureWhile a joint venture is not a formal Art. 1784. A partnership begins from thepartnership in the legal or technical sense, both are moment of the execution of the contract, unless itgoverned, subject to certain qualifications, practically by is otherwise stipulated.

the same rules or principles of partnership. This islogical since in a joint venture, like in a partnership, Commencement and term of partnership

there is a community of interest in the business and a As a consensual contract, a partnership existsfrommutual right of control and an agreement to share the moment of the celebration of the contract. Itsjointly in profits and losses. registration with the SEC is not essential to give it

Corporation as a partnerWhile under the juridical personality.

Philippine Civil Code, a joint venture is a form of The birth and life of a partnership is predicated onpartnership w/ a legal personality separate and distinct the mutual desire and consent of the parties.Unlikefrom the parties composing it, and should thus be corporations, no time limit is prescribed by law for agoverned by the law of partnership, the Supreme Court partnerships lifetime. Partners may fix in theircontracthas recognized the distinction between these two any term.business forms, and has held that although acorporation cannot enter into a partnership contract, it Rules governing partnership relation

may, however, engage in a joint venture if the nature of What is necessary for the existence ofpartnership isthe venture is authorized by its charter.that the essential requisites of a contract of partnershipare present even when the partners have not yetactually started business/given contributions, etc.

CHAPTER 2. OBLIGATIONS OF THE PARTNERS Where a partnership relation results, the law itself

fixes the incidents and consequences of this relation ifSECTION 1. OBLIGATIONS OF THE PARTNERS the parties fail to do so. This is true even if parties call

AMONG THEMSELVES their relation something different or state that they are

not partners.Relations created by a contract of partnership

1.)Relations among the partners themselves; Executory agreement of partnership

2.)Relations of the partners with the partnership; The above rule on commencement of a partnershipis3.)Relations of the partnership with third persons; not absolute.4.)Relations of the partners with third persons. Future partnershipThe partners may stipulate

some other date for the commencement of theRights and obligations, in general, or partners partnership. There can be a future partnership which at

inter se the moment has no juridical existence yet.

Partnership relationship essentially one ofIf it is not to start within a year of the making of the

mutual trust and confidenceEach partner is a contract, it should be in writing in order to betrustee and a cestui que trust at the same time. He is a enforceable (Statute of Frauds).trustee to the extent that his duties bind him, a cestui Agreement to create partnershipA partnership

que trust as far as the duties that rest on his co-in fact cannot be predicated on an agreement to enter

partners. into a co-partnership at a future day unless it is shownThe many particular rights and duties are but aspects that such an agreement was actually

consummated. Soof the broad fiduciary relation. long as the agreement remains executory theFiduciary relationship remains until partnership partnership is inchoate.

terminatedThe relation of trust applies also to The death of either party to an executory agreement

matters concerned with the formation of the partnership prevents the formation of the firm, since suchand when a partnership is dissolved, the assets of the agreement is based on the continuance of thelife ofpartnership must still be managed in accordance with each.this fiduciary principle. The fiduciary obligation of a Failure to agree on material termsMay prevent

partner remains until the relationship is terminated and any rights and obligations from arising oneither side forthe equities between the partners adjusted and lack of complete contract.


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satisfied.Relationship in a limited partnershipThe rights Art. 1785. When a partnership for a fixed termand obligations of the partners as to each other are or particular undertaking is continued after theprovided on the theory that a partner is both a principal termination of such term or particular undertakingand an agent in relation to his co-partners. But the without any express agreement, the rights andrelationship between a limited partner and the other duties of the partners remain the same as theypartners in a limited partnership does not involve the were at such termination, so far as is consistent

element of trust and confidence, as in the case of a with a partnership at will.general partnership. A continuation of the business by the partnersor such of them as habitually acted therein during

the term, without any settlement or liquidation of



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the partnership affairs, is prima facie evidence of a 1.)To contribute at the beginning of the partnership

continuation of the partnership. or at the stipulated time the money, property, or

industry he had promised;Continuation of partnership beyond fixed term 2.)To answer for eviction in case the partnership is

A partnership with a fixed term is one which the term deprived of the determinate property

of its existence has been agreed upon expressly (definite contributed;period) or impliedly (particular enterprise or 3.)To answer to the partnership for the fruits of thetransaction). The expiration of such term or property the contribution of which he delayed,

accomplishment of undertaking will cause automatic from the date they should have been contributeddissolution. up to the time of actual delivery;Rights and duties of partnersPartnership may 4.)To preserve said property with the diligence of a

be extended or renewed by the partners by express good father of a family pending delivery to theagreement, written or oral, or impliedly, by the mere partnership;continuation of the business after the termination pf 5.)To indemnify the partnership for any damagesuch term or particular undertaking without any caused to it by the retention of the same or bysettlement or liquidation. In such case, the rights and the delay in its contribution.duties remain the same.With such continuation, the partnership is dissolved Effect of failure to contribute property promised

and a new one, a partnership at will, is created by Failure to contribute makes the partner ipso jure a

implied agreement the continued existence of which will debtor of the partnership even in the absenceof anydepend upon the mutual desire and consent of the demand.partners. Remedy: not rescission but an action for specificDissolution of partnershipAny one of the performance (to collect what is owing) with damages

partners may, at his sole pleasure, dictate a dissolution and interest.of a partnership at will. He must, however, act in goodfaith or else be liable for damages. Liability of partner in case of eviction

Even a partnership for a fixed term may be The partner is bound in the same cases and in theterminated by the express will of any partner before the same manner as the vendor is bound withrespect to thetime mentioned. There is no such thing as an vendee with regard to specific and determinate thingsindissoluble partnership. which he may have contributed. This matter is governed

by the law on sales.Continuation of partnership for an indefinite term

Partnership for a term impliedly fixedAn Liability of partner for fruits of property in case ofagreement may evidence an understanding that the delay

relation should continue until the accomplishment of a No demand is necessary to put the partner atfault.particular undertaking or certain things have been done The injury to the partnership is constant.or have taken place.Partnership with mere expectation that Liability of partner for failure to perform service

business will be profitableA hope that the stipulatedpartnership earnings would pay for all the necessary Partner generally not liableUnless there is a

expenses does not establish even by implication a fixed special agreement to that effect, the partnersare notterm or particular undertaking. Mere expectation that a entitled to charge each other, or thepartnership, for

business would be successful is not sufficient to create a their services in the firm business.partnership for a term. ExceptionThe general rule that partners are not

entitled to compensation for their services is inapplicableArt. 1786. Every partner is a debtor of the where the reason of it fails.

partnership for whatever he may have promised to If a partner neglects or refuses, without reasonablecontribute thereto. cause, to render the service which he agreed to perform

He shall also be bound for warranty in case ofby reason of which the partnership suffered loss, heeviction with regard to specific and determinate should be responsible for this breach.

things which he may have contributed to the If the partner is compelled to make good the loss,

partnership, in the same cases and in the same each member of the firm, including himself, will receive


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manner as the vendor is bound with respect to the his proportion of the amount in the distribution of assets

vendee. He shall also be liable for the fruits this cannot be considered compensation for services

thereof from the time they should have been rendered. The proper measure of damages in such case

delivered, without the need of any demand. is the value of services wrongfully withheld.

Obligations with respect to contribution of Art. 1787. When the capital or a part thereofproperty which a partner is bound to contribute consists of

goods, their appraisal must be made in the mannerprescribed in the contract of partnership, and in



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the absence of stipulation, it shall be made by partnership money or property received by him for a

experts chosen by the partners, and according to specific purpose of the partnership.current prices, the subsequent changes thereof Where there is mere failure to returnNo

being for the account of the partnership. estafa. Remedy: civil action for liquidation of the

partnership and a levy of its assets.Appraisal of goods or property contributedAppraisal is necessary to determine how much has Art. 1789. An industrial partner cannot engage

been contributed by the partners. In the absence ofin business for himself unless the partnershipstipulation, the share of each partner in the profits or expressly permits him to do so; and if he should dolosses is in proportion to what he may have contributed. so, the capitalist partners may either exclude himThe appraisal is made: from the firm or avail themselves of the benefits

1.)In manner prescribed by contract of partnership; which he may have obtained in violation of this2.)If no stipulation, by experts chosen by the provision, with a right to damages in either case.

partners and according to current prices.After the goods have been contributed, the Obligations of industrial partner

partnership bears the risk or gets the benefits of An industrial partner is one who contributes hissubsequent changes of value. industry, labor or services to the partnership. He isIn the case of immovable property, the appraisal is considered the owner of his services, which is his

made in the inventory of said property; otherwise it may contribution to the common fund.

be made as provided in art. 1787. Unless the contrary is stipulated, he becomes adebtor of the partnership for his work or services from

Art. 1788. A partner who has undertaken to the moment the partnership relation begins. In effect,

contribute a sum of money and fails to do so the partnership acquires an exclusive right to avail itselfbecomes a debtor for the interest and damages of his industry. Consequently, if he engages in business

from the time he should have complied with his for himself, such act is considered prejudicial to theobligation. interest of the other partners.

The same rule applies to any amount he may Action for specific performance not available against

have taken from the partnership coffers, and his him involuntary servitude.liability shall begin from the time he converted the

amount to his own use. Prohibition against engaging in business

As regards an industrial partnerAbsolute

Obligations with respect to contribution of money prohibition: any kind of business.

and money converted to personal use As regards capitalist partnersProhibition

1.)To contribute on the date due the amount he extends only to any operation which is of the samekindhas undertaken to contribute; of business in which the partnership is engaged.2.)To reimburse any amount he may have takenfrom the partnership coffers and converted to Remedies where industrial partner engages inhis own use; business

3.)To pay the agreed or legal interest, if he fails to The capitalist partners have the right either to:pay his contribution on time or in case he takes 1.)Exclude him from the firm; orany amount from the common fund and 2.)Avail themselves of the benefits which he mayconverts it to his own use; have obtained.4.)To indemnify the partnership for the damages In either case, they have a right to damages.caused to it by the delay in the contribution orfor the conversion of any sum for his personal Art. 1790. Unless there is a stipulation to thebenefit. contrary, the partners shall contribute equalshares to the capital of the partnership.

Liability of guilty partner for interest and damages

The guilty partner is liable for interest and damages Extent of contribution to partnership capital

not from the time judicial or extra judicial demand is Partners can stipulate contribution of unequalfundsmade but from the time he should have complied with to the common fund, but in the absence of suchhis obligation or from the time he converted the amount stipulation, the presumption is that theircontributionto his own use. Unless otherwise stipulated, obligation to shall be in equal shares.contribute arises from the commencement of the Obviously, this does not apply to an industrial


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partnerpartnership (perfection of the contract). unless he also contributes capital.

Liability of partner for failure to return partnership Art. 1791. If there is no agreement to themoney received contrary, in case of an imminent loss of theWhere fraudulent misappropriation committed business of the partnership, any partner who

Partner is guilty of estafa if he misappropriates refuses to contribute an additional share to the

capital, except an industrial partner, to save the



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venture, shall be obliged to sell his interest to the Does not apply to partner not authorized to manage.

other partners. Where manner of mgt not agreed upon and all partners

participate in mgt, every partner considered managingObligation of capitalist partner to contribute partner.additional capital Right of debtor to application of payment

General rule: Capitalist partner not bound to Debtor given right to prefer payment of credit of partnercontribute more than what he agreed to. if it should be more onerous to him.Except: In case of imminent loss of the business, andthere is no agreement to the contrary, he is under Art. 1793. A partner who has received, in wholeobligation to contribute an additional share to save the or in part, his share of a partnership, when theventure. If he refuses to contribute, he shall be obliged other partners have not collected theirs, shall beto sell his interest to the other partners. obliged, if the debtor should thereafter becomeRequisites for application of rule insolvent, to bring to the partnership capital what

1.)Imminent loss of the business of the he received even though he may have givenpartnership; receipt for his share only.

2.)Majority of capitalist partners are of the opinionthat an additional contribution to the common Obligation of partner who receives share offund would save the business; partnership credit3.)Capitalist partner refuses deliberately (not coz Requisites for application of rule

he aint got no money) to contribute an 1.)A partner has received, in whole or in part, hisadditional share to the capital; share of the partnership credit;4.)There is no agreement that even in case of an 2.)The other partners have not collected theirimminent loss of the business the partners are shares;not obliged to contribute. 3.)The partnership debtor has become insolvent.The industrial partner is exempt. Having contributed Reason for imposing obligation to returnthe

his entire industry, he can do nothing further. debt becomes a bad debt. It would be unjust for thatReason for the sanctionRefusal of partner to one partner not to share in the loss. Provision is based

contribute additional share reflects lack of interest in the on community of interest among thepartners.continuance of the partnership. Unjust for him to reapbenefits when he doesnt also help. Credit collected after dissolution of thepartnership

Art. 1792. If a partner authorized to manage Does the obligation refer only to that collected during

collects a demandable sum, which was owed to the existence of the partnership or does it also refer tohim in his own name, from a person who owed the that collected after dissolution?

partnership another sum also demandable, the Some commentators answer this question in the

sum thus collected shall be applied to the two affirmative basing their answer in the community andcredits in proportion to their amounts, even equality which ought to exist among the partners.

though he may have given a receipt for his own Manresa and Ricci believed otherwise. Reasons:

credit only; but should he have given it for the 1.)It would not be just that he who diligentlyaccount of the partnership credit, the amount shall collected his quota should suffer the

be fully applied to the latter. consequence of the negligence of his associates.The provisions of this article are understood to 2.)Upon dissolution, the tie that unites the

be without prejudice to the right granted to the partnership ceases. Thus, the reason for the

debtor by article 1252, but only if the personal obligation disappears.credit of the partner should be more onerous to

him. Art. 1794. Every partner is responsible to the

partnership for damages suffered by it through hisObligation of managing partner who collects debt fault, and he cannot compensate them with theRequisites for application of rule profits and benefits which he may have earned for

1.)There exists at least two debts, one where the the partnership by his industry. However, thecollecting partner is creditor, and the other, courts may equitably lessen this responsibility ifwhere the partnership is creditor; through the partners extraordinary efforts in2.)Both debts are demandable; other activities of the partnership, unusual profits3.)The partner who collects is authorized to have been realized.

manage and actually manages the partnership.Reason for applying payment to partnership Obligation of partner for damages to partnership


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creditThe law safeguards the interests of the This article follows the general rule in contracts that

partnership by preventing the possibility of their being any person guilty of negligence or fault in thefulfillmentsubordinated by the managing partner to his own of his obligation shall be liable for damages. Theinterest to the prejudice of the other partners. partners fault, however, must be determined in



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Partnership bears risk of loss because intention a.)The share of each capitalist partner shallof parties was to contribute to the partnership be in proportion to his capitalthe price of the things contributed with an contribution.appraisal in the inventory. There is thus an b.) Industrial partner shall receive such

implied sale making the partnership owner. share, which must be satisfied firstThe above presuppose that the things have been before the capitalist partners shall dividedelivered actually or constructively. Before delivery, risk



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profits or losses of the partnershipAppointment may be revoked at

Stipulation generally void, but partnership any time for any cause whatsoever.

subsistsPartnership must exist for common benefit Reason: revocation not founded on a change of

willand interest of the partners. Hence, such a stipulation on the part of the partners. Appointment notconditioncontravenes the very purpose of partnership contract of contract. It is merely a simple contract of

agencyprofit-sharing among partners. However, although which may be revoked at any time. It is believedthatstipulation void, partnership otherwise valid, subsists the vote for revocation must also represent the

controlling interest.



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1.)If one or more of the managing partners shallScope of power of a managing partneroppose the acts of the others, then the decision

General rule: partner appointed as manager has all of the majority of the managing partners shallthe powers of a general agent as well as all the prevail. Right to oppose can be exercised only byincidental powers necessary to carry out the object of those entrusted with mgt.

the partnership in the transaction of its business. 2.)In case of tie, matter shall be decided by theException: when powers of mgr specifically restricted. vote of the partners owning the controllingA managing partner may not bind the partnership by interest.

a contract wholly foreign to its business. REQUISITES FOR APPLICATION OF RULE

1.)Two or more partners have been appointed asCompensation for services rendered managers;

Partner generally not entitled to compensation 2.)There is no specification of their respective

In the absence of an agreement to the contrary, each duties;

member of the partnership assumes the duty to give his 3.)There is no stipulation that one of themshall nottime, attention, and skill to the mgt of its affairs, so far, act without the consent of all the others.at least, as may be reasonably necessary to the successof the common enterprise; and for this service a share Art. 1802. In case it should have beenof the profits is his only compensation. stipulated that none of the managing partners

In managing partnership affairs, a partner is shall act without the consent of the others, thepractically taking care of his own interest or managing concurrence of all shall be necessary for validity ofhis own business. the acts, and the absence or disability of any oneIn the absence of any prohibition in the arts. ofof them cannot be alleged, unless there is

partnership for the payment of salaries to general imminent danger of grave or irreparable injury topartners, there is nothing to prevent the partners to the partnership.

enter into a collateral verbal agreement to that effect.ExceptionsIn proper cases, the law may imply a When unanimity of action stipulatedcontract for compensation: Concurrence necessary for validity of actsThe

1.)A partner engaged by his co-partners to perform partners may stipulate that none of the managingservices not required of him in fulfillment of the partners shall act without the consent of the others.

Induties and in capacity other than that of a such a case, the unanimous consent of all the managingpartner. partners shall be necessary for the validity of their acts.2.)When there is extraordinary neglect on the part This consent is so indispensable that neitherabsenceof one partner to perform his duties, imposing nor disability of any one of them may be alleged asentire burden on remaining partner. excuse to dispense with requirement.3.)One partner may employ the other to do work Exception: When there is imminent danger of gravefor him outside of and independent of the co-or irreparable injury to the partnership then a partnerpartnership. may act alone without consent of partner who is absent4.)Partners exempted by terms of partnership from or under disability.rendering services may demand pay for services Consent of managing partners not necessary inrendered. routine transactionsThe requirement of written

5.)Where one partner is entrusted w/ mgt and authority refers evidently to formal and unusualwrittendevotes his whole time and devotion at the contracts.instance of the other partners who are attendingto their individual business and giving no time or Art. 1803. When the manner of management has notattention to the partnership business. been agreed upon, the following rules shall beobserved:

Art. 1801. If two or more partners have been 1.) All the partners shall be consideredintrusted with the management of the partnership agents and whatever any one of themwithout specification of their respective duties, or may do alone shall bind the partnership,without stipulation that one of them shall not act without prejudice to the provisions of

without the consent of all the others, each one article 1801.may separately execute all acts of administration, 2.) None of the partners may, without the

but if any one of them should oppose the acts of consent of the others, make any


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the others, the decision of the majority shall important alteration in the immovableprevail. In case of tie, the matter shall be decided property of the partnership, even if it mayby the partners owning the controlling interest. be useful to the partnership. But if the

refusal of consent by the other partners isWhere respective duties of two or more managing manifestly prejudicial to the interest of

partners not specified the partnership, the courts interventionEach one may separately perform acts of may be sought.

administration



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Rules when manner of management has not beenagreed upon Keeping of partnership booksAll partners considered managers and agents Partner with duty to keep partnership books

All partners shall have equal rights in the mgt and The duty to keep true and correct books showingthe

conduct of partnership affairs. All of them shall be firms accounts, such books being at all times opentoconsidered mgrs and agents and whatever any one of inspection of all members of the firm, primarilyrests onthem may do alone shall bind the partnership. If there is the managing or active partner. It ispresumed that thetimely opposition, however, the matter shall be decided partners have knowledge of the contents oftheby majority vote. In case of tie, vote of partners partnership books and that said books stateaccuratelyrepresenting controlling interest. the state of accounts, but errors can be corrected.Unanimous consent required for alteration of Rights with respect to partnership books

immovable propertyThe consent need not be Books should be kept at the principal place of business

express. It may be presumed from the fact of knowledge as each partner has the right to free access

to them andof the alteration without interposing any objection. to inspect or copy any of them at any reasonabletime,Prohibition only applies to immovable property even after dissolution.

because of the greater importance of this kind of Inspection rights not absolute, can be restrainedproperty, and the alteration thereof must be important. from using info for other than partnershippurpose.This would be an act of strict dominion. Access to partnership booksRights can be

If refusal to give consent is manifestly prejudicial to exercised at any reasonable hour. This meansthe interest of the partnership, court intervention may reasonable hours on business days throughoutthe yearbe sought. Consent may be presumed from silence (lack and not merely during some arbitrary periodof a fewof opposition despite knowledge). days chosen by the managing partners.

If alteration is necessary for preservation of theproperty, consent of the other partners not required. Art. 1806. Partners shall render on demand trueand full information of all things affecting the

Art. 1804. Every partner may associate another partnership to any partner or the legal

person with him in his share, but the associate representative of any deceased partner or of anyshall not be admitted into the partnership without partner under legal disability.the consent of all the other partners, even if the

partner having an associate should be a manager. Duty to render information

There must be no concealment between partners inContract of subpartnership all matters affecting the partnership. Info must be usedNatureThe partnership formed between a only for partnership purpose.

member of a partnership and a 3rd person for a division Not just on demand but partner also hasduty ofof the profits coming to him from the partnership voluntary disclosure. But duty to render info does

notenterprise is termed subpartnership. arise with respect to matters appearing in partnership

It is a partnership within a partnership and is distinct books since each partner has the right toinspect those.and separate from the main or principal partnership. Good faith not only requires that a partnershould notRight of person associated with partners share make a false statement but also that he should abstain

Subpartnership agreements do not affect the from any false concealment.

composition, existence, or operations of the firm. Thesubpartners are partners inter se, but in the absence ofArt. 1807. Every partner must account to the


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the mutual assent of all the parties, a subpartner does partnership for any benefit, and hold as trustee fornot become a member of the partnership, even if the it any profits derived by him without the consentother partners know about the agreement. of the other partners from any transactionNot being a member of the partnership, he does not connected with the formation, conduct, or

acquire the rights of a partner nor is he liable for its liquidation of the partnership or from any use bydebts. him of its property.Reason for the rulePartnership is based on

mutual trust and confidence among the partners. Partner accountable as fiduciaryInclusion of new partner would be a modification of the The relation between the partners isessentiallyoriginal contract of partnership requiring unanimous fiduciary involving trust and confidence, eachpartner

consent of all the partners. Prohibition applies even if being considered in law, as he is, in fact, theconfidentialperson associated is already a partner. agent of the others. The duties of a partner areanalogous to those of a trustee.

Art. 1805. The partnership books shall be kept, Duty to act for common benefitCannot use and

subject to any agreement between the partners, at apply exclusively to own individual benefit partnershipthe principal place of business of the partnership, assets or results of knowledge and info gained in

and every partner shall at any reasonable hourcharacter of partner.

have access to and may inspect and copy any of Managing partners particularly owe a fiduciary duty

them. to inactive partners.



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Duty begins during formation of partnershipengaged and which is competitive w/ said business.

Principle of good faith applies not only during Violation obligation to bring to common fund anypartnership but during the negotiations leading to the profits derived and in case of losses, he shallbear themformation of the partnership. alone. Partners, however, by stipulation may permit it.

Also, a person who agreed w/ another to form a The law permits him to carry on a business notpartnership has the obligation to account for connected or competing with that of the partnership.commissions and discounts received in acquiring Law is silent on whether he can engage in same lineproperty for the future partnership. of business for the account of another. Prohibition stillDuty continues even after dissolution ofapplies because of fiduciary position imposing duties of

partnershipDuty of partner to act w/ utmost good utmost good faith. He may not carry on any other

faith towards his co-partners continues throughout the business in rivalry w/ the partnership.entire life of the partnership even after dissolution for Reason for prohibitionFiduciary nature of

whatever reason or whatever means, until the relationship imposes obligation of utmost good faith.relationship is terminated, i.e. the winding up of Rule prevents use of info obtained in course of

partnership affairs is completed. transaction of partnership business or by reason ofDuty to account for secret and similar profitsconnection w/ firm regarding business secrets and

The duty of a partner to account as a fiduciary operates clientele of firm to its prejudice.to prevent from making a secret profit out of theoperation of the partnership and from carrying on the Art. 1809. Any partner shall have the right to abusiness for his private advantage or a business in formal account as to partnership affairs:competition w/ the firm w/o consent of other partners. 1.) If he is wrongfull

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