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ATP de Leon Based
ATP de Leon Based
(a) Form
Essential features of partnership. - The relation is evidenced by the
terms of the contract which may be:
(1) There must be a valid contract; 1. oral or written
(2) The parties (two or more persons) must have 2. express or implied
legal capacity to enter into the contract; - from the acts and declarations
of the parties, subject to the
(3) There must be a mutual contribution of provisions of Articles 1771 to
money, property, or industry to a common 1773 and to the Statute of
fund; Frauds.
(4) The object must be lawful; and - Thus, an election to become a
member of a partnership was
(5) The primary purpose must be to obtain
held sufficient to render a
profits and to divide the same among the
member a “partner,” there
parties.
being no necessity that the
- It is also required that the articles of member should sign any articles
partnership must not be kept secret of partnership.
among the members; otherwise,
(b) Articles of Partnership -Each partner surrenders to the
partnership an interest in his property,
- While the partnership relation labor, skill, or energy, in accordance
may be informally created and with the express or implied
its existence proved by stipulations of their mutual
manifestations of the parties, it agreement.
is customary to embody the
terms of the association in a (2) Partnership relation fiduciary in
written document known as nature
“Articles of Partnership.” - Partnership is a form of voluntary
association entered into by the
- stating the name, nature or associates. It is a personal relation
purpose and location of the in which the element of delectus
firm, and defining, among personae exists, involving as it does
others, the powers, rights, trust and confidence between the
duties, and liabilities of the partners.
partners among themselves,
their contributions, the (a) Right to choose co-partners.
manner by which the profits
and losses are to be shared, -Unless otherwise provided in
and the procedure for the partnership agreement, no
dissolving the partnership. one can become a member of
the partnership association
(c) Requisites. without the consent of all the
other associates.
-Since partnership is
fundamentally contractual, all (b) Power to dissolve partnership.
the essentials of a valid contract
must be present. - Neither would the presence of
a period for its specific duration
Under the law, the following requisites must or the statement of a particular
concur: purpose for its creation prevent
the dissolution of any
1) Consent and capacity of the contracting partnership by an act or will of
parties; a partner
2) Object which is the subject matter of the - Verily, any one of the partners
contract; and may, at his sole pleasure,
3) Cause which is established. dictate a dissolution of the
partnership at will.
- a person cannot enter into a contract
of partnership solely with himself; - He must, however, act in good
there must be at least two competent faith, not that the attendance
parties. of bad faith can prevent the
dissolution of the partnership
- in order to make an agreement for a but that it can result in a
partnership valid, there must be a valid liability for damages.
consideration existing as between the
partners. (c) Application of principles of estoppel.
- A partnership liability may be (d) Persons who are suffering from civil
imposed upon a person under interdiction; and
principles of estoppel where he
holds himself out, or permits (e) Incompetents who are under
himself to be held out, as a guardianship.
partner in an enterprise.
- In such cases, there is no - Under Article 1782, persons who are
actual or legal partnership prohibited from giving each other any
relation but merely a donation or advantage cannot enter into a
partnership liability imposed by universal partnership.
law in favor of third persons.
- A married woman may enter into a contract
- In case there is no written of partnership even without her husband’s
agreement between the consent, but the latter may object under
parties, the existence or non- certain conditions
existence of a partnership must
be determined from the (2) Individuals.
conduct of the parties, any - There is no prohibition against a
documentary evidence bearing partnership being a partner in
thereon, and the testimony of another partnership
the parties. (3) Corporations
-unless authorized by statute or by
Legal capacity of the parties to enter into the itscharter, a corporation is without
contract. capacity or power to enter into a
contract of partnershipis without
(1) Individuals. capacity or power to enter into a
contract of partnership
(2) Need only be the principal, not exclusive - Be that as it may, the right to share in
aim. the profits carries with it the duty to
contribute to the losses, if any.
- It is sufficient that it is the
principal purpose even if there (2) Agreement not necessary.
are, incidentally, moral, social, - It is not necessary for the parties to
or spiritual ends. In a agree upon a system of sharing losses,
partnership, the parties intend for the obligation is implied from the
to share the profits in certain partnership relation but if only the
proportions. share of each partner in the profits has
Sharing of profits. been agreed upon, the share of each in
the losses shall be in the same
-A partnership is essentially a business proportion.
enterprise established for profit.
Note:
(1) Not necessarily in equal shares.
Generally, a stipulation which excludes
- it is necessary that there be an one or more partners from any share in
intention to divide the profits among the profits or losses is void.
the members, although not
necessarily in equal shares. ART. 1768. The partnership has a juridical
personality separate and distinct from that of
- If all the other elements create a each of the partners even in case of failure to
partnership, a stipulation which comply with the requirements of Article 1772,
excludes one or more partners from first paragraph. (n)
any participation in the profits (or
losses) is void
(2) Not conclusive evidence of partnership Partnership, a juridical person.
-Persons who are partners as between (1) Clear intent to derive profits from operation
themselves are partners as to third of business.
persons. Generally, the converse is true, a. The profits must be derived from the
to wit: if they are not partners as operation of the business or
between themselves, they cannot be undertaking by the members of the
partners as to third persons. association and not merely from
(1) Intention to create partnership property ownership.
- A partner may transfer to the Ruling:
partnership, as his contribution, The co-ownership is
merely the use or enjoyment of a automatically converted into a
specifi c thing, retaining the partnership. From the moment
ownership thereof. of partition, A and B, as heirs,
are entitled already to their
(b) The law does not imply a partnership respective defi nite shares of
between co-owners or co-possessors the estate and the income
because of the fact that they develop thereof, for each of them to
or operate a common property, since manage and dispose of as
they may rightfully do this by virtue of exclusively his own without the
their respective titles. Thus, in a case, intervention of the other heirs,
it was held that two isolated and, accordingly, he becomes
transactions whereby two persons liable individually for all taxes in
purchased two (2) parcels of land and connection therewith. If, after
then another three (3) parcels of land such partition, an heir allows his
and sold the same a few years shares to be held in common
thereafter, did not thereby make with his co-heirs under a single
them partners. management to be used with
(2) Existence of fiduciary relationship. the intent of making profi t
thereby in proportion to his
- If the parties are partners in the share, there can be no doubt
business undertaking, there is a well- that, even if no document or
defined fiduciary relationship instrument were executed for
between them as partners. the purpose, for tax purposes,
- On the other hand, if the parties are at least, an unregistered17
merely co-owners, there is no partnership is formed.
fiduciary relationship between them.
2. Two persons contributed money to
- If the parties are partners, the remedy buy a sweepstakes ticket with the
for a dispute or difference between intention to divide the prize which
them would be an action for they may win.
dissolution, termination, and
accounting. Ruling:
A, B, etc. formed a partnership.
- Where the relationship is that of co-
The partnership was not only
owner, the remedy would be an action,
formed, but upon the
as for instance, for non-performance of
organization thereof and the
a contract.
winning of the prize, it
LLUSTRATIVE CASES: appeared that B personally
appeared in the offi ce of the
1. Heirs agreed, after partition, to use Philippine Charity Sweepstakes,
common properties and income in his capacity as co-partner,
therefrom as a common fund with the and as such collected the prize.
intention of making profit for them in All these circumstances repel
proportion to their shares in the the idea that A, B, etc.
inheritance. organized and formed a
community of property only.
them have a joint or common right
or interest in any property from
3. Children sold lots given by their father which the returns are derived.”
and divided the proceeds There must be an unmistakable
intention to form a partnership or
Facts: O, after completing payment to joint venture
S on two lots, transferred his rights to
his four children, C, etc. to enable
them to build their residences. S sold (3) Persons living together without benefi t of
the two lots for P178,708.12 to C, etc. marriage.
who resold them more than a year
later to T for P313,050, treating the - This doctrine is no longer applicable
profit of P134,341.88 as capital gains under the Family Code in view of the
an paying an income tax on one-half following provisions:
of their respective shares (or P33,584) “Art. 147. When a man and a woman
of the profit. who are capacitated to marry each
other, live exclusively with each other
Issue: Did C, etc. form a partnership as husband and wife without the
under Article 1767? benefit of marriage or under a void
marriage, their wages and salaries shall
Held: No. (1) Division of profits was be owned by them in equal shares and
merely incidental. — They were co- the property acquired by both of them
owners pure and simple. To consider through their work or industry shall be
them as partners would obliterate the governed by the rules on co-ownership
distinction between a co-ownership x x x.” U
and a partnership. C, etc. were not
engaged in any joint venture by - Under Article 147, the property
reason of that isolated transaction.18 acquired by a man and a woman
The original purpose was to divide the who live together as husband and
lots for residential purposes. If later wife shall be governed by the rules
on they found it not feasible to do so on co-ownership.
because of the high cost of Sharing of gross returns.
construction, then they had no choice
but to resell the same to dissolve the (1) Not even presumptive evidence of
co-ownership. The division of the partnership.
profits was merely incidental to the - As distinguished from the general
dissolution of the co-ownership which rule recognizing sharing of profits as
was, in the nature of things, a presumptive evidence of
temporary state. It has to be partnership (infra.), the sharing of
terminated sooner or later gross returns has been held not to
constitute even prima facie
(3) There must be an unmistakable evidence of the relation.
intention to form a partnership. —
(2) Reason for rule. —
Article 1769(3) provides that “the - The reason behind the rule is a
sharing of gross returns does not of sound and practical one, for when a
itself establish a partnership business is carried on in behalf of a
whether or not the persons sharing given person as partner, he is
conceived as being interested in its the conduct and control of the
failures as well as its successes business? Does he own a share of
the profits as proprietor of the
- it is the chance of gain or loss which business producing them?” Thus, if
characterizes a business, whether in one takes a share of the profits as
the form of a partnership or payment of a debt, he is not a
otherwise partner.
- In other words, to be a partner, one
(3) Where there is evidence of mutual must have an interest with another
management. — in the profits of a business as
- Where, however, there is further profits.
evidence of mutual management
and control, a partnership may Burden of proof and presumption.
result, even though the agreement In accordance with the general rule of
calls for a portion of “gross evidence, the burden of proving the
returns.” existence of a partnership rests on the
Receipt of share in the profits party having the affirmative of that
issue
(1) Strong presumptive evidence of
partnership. (1) The existence of a
- the sharing of profits and losses is partnership must be
prima facie evidence of an intention proved and will not be
to form a partnership but not a presumed.
conclusive evidence. The (2) The law presumes that
presumption of partnership arising persons who are acting as
from such profitsharing agreement partners have entered
may be rebutted and outweighed into a contract of
by other circumstances. partnership. Where the
law presumes the
(2) When no such inference will be drawn. existence of a partnership
- The basic test of partnership, (supra.), the burden of
whether inter se or as to third proof is on the party
persons, is whether the business is denying its existence.
carried on in behalf of the person (3) When a partnership is
sought to be held liable. shown to exist, the
- And persons who are partners in presumption is that it
fact may not avoid the continues in the absence
of evidence to the
consequences of the relation by
mere word of denial. contrary, and the burden
(3) Sharing of profits as owner. of proof is on the person
- It is not merely the sharing of asserting its termination.
profits, but the sharing of them as (68 C.J.S. 466.)
co-owner of the business or (4) One who alleges a
undertaking, that makes one a partnership cannot prove
partner. it merely by evidence of an
- A test given is this: “Does the agreement wherein the
recipient of a share of the profits parties call themselves
have an equal voice as proprietor in partners, since use of the
term “partner” in popular call themselves partners in
sense, or as a matter of no uncertain terms, yet
business convenience, will their contract may be
not necessarily import an adjudged something quite
intention that a legal different. Conversely,
partnership should result. parties may expressly
(31 Words and Phrases stipulate that their
274.) But while use of contract is not a
“partnership” or partnership yet the law
“partners” in an alleged may determine otherwise
oral agreement claimed to on the basis of legal intent.
have constituted It is true, however, that
partnership is not courts will be influenced to
conclusive that some extent by what the
partnership did not exist, parties call their contract.
non-use of such terms is
entitled to weight. Tests and incidents of partnership.
(5) Among other meanings, (1) Only those terms of a contract upon
“associate” means which the parties have reached an
“partner,” but a mere actual understanding, either
employee may also be an expressly or impliedly, may afford a
“associate.” “We” and test by which to ascertain the legal
“us,” when used in an nature of the contract.
editorial sense, are not
conclusive of either Some of the typical incidents of a
partnership or partnership are:
employment. (Ibid., 274.) (a) The partners share in profits
(6) The question of whether or and losses. (Arts. 1767, 1797,
not a partnership exists is 1798.) This community of
not always dependent interest in profits is not
upon the personal incidental to the ordinary
arrangement or agency;
understanding of the
parties. Parties intending (b) They have equal rights in the
to do a thing which in law management and conduct of
constitutes partnership are the partnership business
partners, whether their
(c) Every partner is an agent of the
purpose was to create or
partnership, and entitled to
avoid the relation (Ibid.,
bind the other partners by his
278.), or even expressly
acts, for the purpose of its
stipulated in their
business. (Art. 1818.) He may
agreement that they were
also be liable for the entire
not to become partners.
partnership obligations;
We, therefore, arrive at (d) All partners are personally
the rule that legal liable for the debts of the
intention is the crux of partnership with their separate
partnership. Parties may property except that limited
partners are not bound bind themselves to between one person
beyond the amount of their contribute money, (beneficiary) having
investment property, or industry the equitable
to a common fund, ownership in property
(e) A fiduciary relation exists
with the intention of and another (trustee)
between the partners (Art.
dividing the profits owning the legal title
1807.); and
among themselves. to such property, the
(f) On dissolution, the partnership equitable ownership
is not terminated, but of the former entitling
continues until the winding up him to the
of partnership is completed. performance of
(Art. 1828.) certain duties and the
exercise of certain
powers by the latter.
Partnership distinguished from Labor Union. all of the members are the trustee is only a
principals and are principal and is not an
PARTNERSHIP LABOR UNION agents for each other agent.
Two or more persons Any association of a partner is a “co- Only the trustee and
bind themselves to employees which owner” with his not the benefi ciaries
contribute money, exists in whole or in partners of specifi c is empowered to make
property, or industry part for the purpose of partnership property. contracts to carry on
to a common fund, collective bargaining the business affairs
with the intention of or of dealing with and the only one who
dividing the profits employers concerning has legal title to the
among themselves. terms and conditions property.
of employment
(2) Like a corporation, a partnership can act only - The illegality of the object will not
through agents; be presumed; it must appear to be
of the essence of the relationship.
(3) Like a corporation, a partnership (except a
corporation sole) is an organization composed Effects of an unlawful partnership
of an aggregate of individuals;
1. The contract is void ab initio and the
(4) Like a (stock) corporation, a partnership partnership never existed in the eyes of
distributes its profits to those who contribute the law
capital to the business (although an industrial 2. The profits shall be confiscated in favor
partner also shares in partnership profits); of the government
3. The instruments or tools and proceeds
(5) Like a corporation, a partnership can be of the crime shall also be forfeited in
organized only where there is a law authorizing favor of the government
its organization; and 4. The contributions of the partners shall
(6) A partnership, no matter how created or not be confiscated unless they fall
organized (except a general professional under No. 3.
partnership) is taxable as a corporation, subject NOTE:
to income tax.
- A partnership is dissolved by
ART. 1770. A partnership must have a lawful operation of law upon the
object or purpose, and must be established for happening of an event which makes
it unlawful for the business of the Right to receive profits where partnership is
partnership to be carried on, or for unlawful
the members to carry it on in
partnership - Article 1770 permits no action for
- A judicial decree is not necessary to the purpose of obtaining the
dissolve an unlawful partnership. earnings made by an unlawful
However, it may sometimes be partnership, during its existence as
advisable that a judicial decree of a result of the business in which it
dissolution be secured for the was engaged, because for that
convenience and peace of mind of purpose, the partner will have to
the parties. base his action upon the
- Third persons who deal with the partnership contract, which is null
partnership without being aware of and without legal existence by
its illegal purpose or character are reason of its unlawful object; and it
protected unless such knowledge is self-evident that what does not
can be presumed as where the exist cannot be a cause of action
transaction is plainly unlawful. - The profi ts earned in the course of
the partnership do not constitute or
represent the partner’s
Right to return of contribution where contribution but are the result of
partnership is unlawful. the industry, business, or
speculation which is the object of
- the partners must be reimbursed
the partnership;
the amount of their respective - in order to demand the
contributions proportional part of said profi ts,
- The partner who limits himself to the partner would have to base his
demanding only the amount action on the contract, which is null
contributed by him need not resort and void since the partition or
to the partnership contract on distribution of profi ts is one of the
which to base his claim or action. juridical effects thereof
Since the purpose for which the - it would be immoral and unjust for
contribution was made has not
the law to permit a profit from an
come into existence, the manager industry prohibited by it
or administrator of the partnership - Therefore, there can be no
holding said contribution retains accounting demanded of a partner
what belongs to others, without any for the profits which may be in his
consideration, for which reason he hands, nor can a recovery be had
is bound to return it, and he who
has paid in his share is entitled to
recover it Effect of partial illegality of partnership
- Any other solution would be business.
immoral, and the law will not
consent to the contribution - Where a part of the business of a
remaining in the possession of the partnership is legal and a part
manager or administrator who has illegal, an account of that which is
refused to return them by denying legal may be had.
to the partners the action to - Where, without the knowledge or
demand them. (Arbes vs. Polistico, participation of the partners, the
53 Phil. 489 [1929] firm’s profits in a lawful business
have been increased by wrongful partnership or the members
acts, the innocent partners are not partners inter se.
precluded as against the guilty - the court must consider all the
partners from recovering their essential elements of a partnership
share of the profits in the light of the facts of the
particular case before deciding
Effect of subsequent illegality of partnership whether or not a partnership exists.
business.
- The happening of an event ART. 1771. A partnership may be constituted in
subsequent to the making of a valid any form, except where immovable property
partnership contract which would or real rights are contributed thereto, in which
render illegal the business of the case a public instrument shall be necessary.
partnership as planned, will not (1667a)
nullify the contract.
- an accounting may be had as to the
business transacted prior to such
time