PARTNERSHIP

• Contract of Partnership


  A contract whereby two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves
• Essential Elements of Partnership

  • Agreement to contribute money, property or industry to a common fund
  • Intention to divide the profits among the contracting parties
• Characteristics of Partnership


  • Bilateral
  • Onerous
  • Nominate
  • Consensual
  • Commutative
  • Principal
  • Preparatory
  • Profit Oriented
• Typical Incidents of Partnership

  • Partners share in the profits and losses
  • Partnership has a juridical personality separate and distinct from that of each of the partners
  • Partners have equal rights in the management and conduct of the partnership business
  • Every partner is an agent of the partnership, and entitled to bind the other partners by his acts
  • All partners are personally liable for the debts of the partnership with their separate property
  • A fiduciary relationship exists between the partners
  • On dissolution, the partnership is not terminated, but continues until the winding up of partnership is completed
• Essential Features of Partnership

  • There must be a valid contract
  • The parties must have legal capacity to enter into contract
  • There must be a mutual contribution of money, property, or industry to a common fund
  • The object must be lawful
• Consequences of a partnership formed for an unlawful purpose:
• Judicial decree is not necessary to dissolve an unlawful partnership, however, it may sometimes be advisable that a judicial decree of dissolution be secured for the convenience and peace of mind of the parties
• Primary purpose of partnership

  To obtain profits and to divide the same among the parties
• Exceptions to general rule that any person who is capacitated to contract may enter into a contract of partnership


  • Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership
  • Person suffering from civil interdiction
  • Persons who cannot give consent to a contract
• A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated
• Formalities needed for the creation of a partnership

  • If property or real rights have been contributed to the partnership:

  Personal Property less than P3000 - may be oral

  Personal Property P3000 or more - must be in a public instrument and registered with Securities and Exchange Commission

  Real Property - must be in a public instrument with an inventory of said property signed by the parties, attached to the public instrument, and registered in the Registry of Property

  Limited Partnership - must be registered as such with the SEC, otherwise, it is not valid as a limited partnership but may still be considered a general partnership with juridical partnership
• Rules to Determine Existence of Partnership

  • Except as provided by Article 1825 (Partnership by Estoppel), persons who are not partners as to each other are not partners as to third persons
  • Co-ownership or co-possession does not itself establish a partnership
  • The sharing of gross returns does not of itself establish a partnership
  • The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in certain ways
• Types of Partnership as to Object

  • Universal Partnership of all present property
  • Universal Partnership of all profits
  • Particular Partnership
• Universal Partnership of all present property

  The partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as profits they may acquire therewith
• Universal Partnership of all profits


  Comprises all that the partners may acquire by their industry or work during the existence of the partnership
• Persons disqualified from entering into universal partnership:
• Particular Partnership


  One which has for its object, determinate things, their use and fruits, or a specific undertaking or the existence or the exercise of a profession or a vocation
• Types of Partnership as to Duration

  • Partnership at will
  • Partnership with a fixed period
• Types of Partnership as to Liability of Partners

  • General Partnership
  • Limited Partnership
• Differences between General and Limited Partnerships


  • General partners are personally liable for partnership obligations, limited partners' liability extends only to their capital contributions

  General partners have equal right in the management of business, limited partners have no participation in the management

  General partners' contribution can be money, property, or industry, limited partners' contribution is cash or property, and not services

  General partners are proper parties to proceedings by/against partnership, limited partners are not proper parties unless certain exceptions apply

  General partners' interest is not freely assignable, limited partners' interest is freely assignable

  General partnership must operate under a firm name, limited partnership must operate under a firm name followed by the word "Limited"

  General partners cannot engage in any business for their own account, limited partners have no such prohibition

  Retirement, death, insolvency, insanity of general partner dissolves partnership, same events for limited partner do not have the same effect

  General partnership may be constituted in any form, limited partnership must be created by the members after substantial compliance in good faith of the requirements set forth by the law
• Partnership by Estoppel


  One who, by words or conduct, directly or indirectly represents himself as a partner in an existing partnership or in a non-existing partnership
• Elements before a partner can be held on the ground of estoppel


  • Defendant represented himself as partner or is represented by others as such, and did not deny/refute such representation

  Plaintiff relied on such representation

  Statement of defendant is not refuted
• Liabilities in case of Estoppel

  • If all actual partners consented to the representation, then the liability of the person who represented himself to be a partner or who consented to such representation and the actual partner is considered a partnership liability

  When there is no existing partnership and all those represented as partners consented to representation, then the liability of the person who represented himself to be a partner, and all who made and consented to such representation, is joint or pro rata

  When there is no existing partnership and not all but only some of those represented as partners consented to the representation, or none of the partnership in an existing partnership in the existing partnership consented to such representation, then the liability is separate
• Professional Partnership


  A partnership formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business
• In a professional partnership, it is the individual partners that are deemed engaged in the practice of profession and not the partnership. Thus, they are responsible for their own acts
• When there is partnership tort

  • By any wrongful act or omission of any partner, acting in the ordinary course of business of the partnership or with authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership

  One partner, acting within the scope of his apparent authority, receives money or property form a third person, and misapplies it

  The partnership, in the course of its business, receives money or property, and it is misapplied by any partner while it is in the custody of the partnership
• Partners are solidary liable with the partnership for any penalty or damage arising from partnership tort
• Modes of Appointment of Manager

  • Appointment through Articles of Partnership

  Appointment Other Than Articles of Partnership
• Rule where there are two or more managers

  • Without specification of their respective duties and without stipulation requiring unanimity of action - Each may separately execute all acts of administration (unlimited power to administer), but if any of the manager opposes, decision of the majority prevails. In case of tie, decision of the controlling interest (who are also managers) shall prevail.

  With stipulation that none of the managing partners shall act without the consent of the others - Unanimous consent of all the managing partners shall be necessary for the validity of the acts, and absence or inability of any managing partner cannot be alleged, except where there is imminent danger of grave or irreparable injury to the partnership.
• Rule when the manner of management has not been agreed upon

  • All partners shall be considered agents and whatever any of them may do alone shall bind the partnership, without prejudice to the provisions of Article 1801. None of the partners may, without the consent of the other, make any important alteration in the immovable property even if it may be useful to the partnership.
• Rights and Obligations of Partnership


  • Refund the amounts disbursed by partners in behalf of the partnership plus corresponding interest

  Answer for obligations the partner may have contracted in good faith in the interest of the partnership business

  Answer for risk in consequences of its management
• Obligations of partners among themselves

  • Contribution of property

  Contribution of money and money converted to personal use

  Prohibition in engaging in business for himself

  Contribute additional capital

  Managing partner who collects debt

  Partners who receives share of partnership credit

  Damages to partnership

  Keep partnership books

  Render information

  Accountable as fiduciary
• Risk of Loss


  • Specific and determinate things which are not fungible where only the use is contributed - Partners

  Specific and determinate things the ownership of which is transferred to the partnership - Partnership

  Fungible things (Consumable) - Partnership
• Effect if a partner fails to contribute the property which he promised to
• Obligations of partners among themselves

  • Contribution of property (Article 1786)
  • Contribution of money and money converted to personal use (Article 1788)
  • Prohibition in engaging in business for himself (Article 1789)
  • Contribute additional capital (Article 1791)
  • Managing partner who collects debt (Article 1792)
  • Partners who receives share of partnership credit (Article 1793)
  • Damages to partnership (Article 1794)
  • Keep partnership books (Article 1805)
  • Render information (Article 1806)
  • Accountable as fiduciary (Article 1807)
• Risk of Loss


  • Specific and determinate things which are not fungible where only the use is contributed - Partners
  • Specific and determinate things the ownership of which is transferred to the partnership - Partnership
  • Fungible things (Consumable) - Thing brought and appraised in the inventory
• If a partner fails to contribute the property which he promised to deliver into the partnership: 1. Partner become ipso jure a debtor of the partnership even in the absence of demand (Article 1786). 2. Remedy of the other partner is not rescission but specific performance with damages and interest from defaulting partner from the time he should have complied with his obligations.
• Rule regarding contribution of money to partnership

  • Contribute on the date fixed the amount partner has undertaken to contribute to the partnership
  • Reimburse any amount the partner converted to his won use
  • Indemnify the partnership for the damages caused to it by delay in the contribution or conversion of any sum for the partner's personal benefit
  • Pay the agreed or legal interest, if the partner fails to pay his contribution on time or in case he takes any amount from the common fund and converts it to his own use
• Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership (Article 1790). It is not applicable to an industrial partner unless, besides his services, he has contributed capital pursuant to an agreement.
• Liability of a capitalist partner to contribute additional capital

  • General Rule: A capitalist partner is not bound to contribute to the partnership more than what has been agreed to contribute
  • Exception: 1. In case of imminent loss of the business. 2. There is no agreement to the contrary