• Subject: Law 1102

• Course/Subject Description:

“Business Laws and Regulations 1”

• Partnership is governed by the “Law on
Partnerships” under the Civil Code of
the Philippines;

• Corporation is governed by Batas

Pambansa Blg. 68, known as “The
Corporation Code of the Philippines.”
Partnership
• Article 1767. By the contract of
partnership two or more persons binds
themselves to contribute money,
property or industry to a common
fund, with the intention of dividing the
profits among themselves.
• Two or more persons may also form
a partnership for the exercise of a
profession. (1665a)
• Thus, a partnership is an association of
two or more persons to carry on as co-
owners of business of profit.
• Partnership does not include religious
associations, conjugal partnership and
similar entities;
• Reason: Partnership’s purpose is to obtain
profits to be distributed among the
partners.
• Partnership contract is based on trust
and confidence.

• Hence, no one can become a partner

in a partnership without the consent of
all the partners.
• Paragraph 2 refers to a general
professional partnership or a
partnership for the exercise of a
profession.

• Practice of profession, strictly speaking,

is not a business for enterprise or profit.
• Practice of profession as a corporate
entity (corporation) is not allowed by
law.

• Reason: personal qualifications, like

college degree, good moral
character.
Elements of Partnership

• 1. Consensual – perfected by mere consent (express or

implied agreement);

• 2. Nominate – has a special name or designation;

• 3. Bilateral – entered into by 2 or more persons with

reciprocal rights and obligations;

• 4. Onerous – each party aspires to get a benefit for

himself;
Elements of Partnership

• 5. Commutative – undertaking of each partner is

considered as equivalent of that of the others;

• 6. Principal – its existence or validity does not depend

upon some other contracts;

• 7. Preparatory – entered into as a means to an end;

• > To enter into business to earn profits and, thereafter,
divide the same.
Partnership – fiduciary in nature

• A. Voluntary association;

• B. Personal relation:
• 1. Right to choose co-partner (delectus personae);

• Consent of all partners is required for new member,

unless otherwise provided in the Partnership
Agreement.
Partnership – fiduciary in nature

• 2. Power to dissolve partnership.

• No period, duration or purpose will stop a partner to

dissolve the partnership, if he chooses to.

• But prior notice to other partners may be required if

provided by the Partnership Agreement.
Essential Features of Partnership

• 1. Valid contract;

• > voluntary;
• > delectus personae;
• > written document – Articles of Partnership; (informal
partnership – could be proved by the conduct or acts
of the parties)
• > At least 2 competent parties/persons;
• 2. Parties have legal capacity to enter into contract;

• > Person who cannot legally give consent to a

contract cannot be a partner;

• Persons who cannot give consent to a partnership:

• A. Unemancipated minors;
• B. Insane or demented persons;
• C. Deaf-mutes who cannot read and write;

• * Demented – person suffers from dementia; driven to behave irrationally due to anger, distress, or
excitement.
• D. Persons who suffer from civil interdiction; and
• E. Incompetents who are under guardianship.

• * Civil interdiction is a legal restraint upon a person making him incapable of exercising his/her rights and
managing his/her estate.

• Civil Interdiction is an accessory penalty to the following principal penalties:

• 1. Death if commuted to life imprisonment;

• 2. Reclusion perpetua (imprisonment of at least 20 years and one day to a maximum of 40 years); and

• 3. Reclusion temporal (12 years and 1 day to 20 years).

• Under Article 34 of the Revised Penal Code, civil interdiction has the effect of depriving a person of his
following rights:

• 1. Parental rights;
• 2. Guardianship over the ward;

• 3. Marital authority; and

• 4. Right to manage property and to dispose of the same by acts inter vivos.
• 3. Mutual contribution of money, property, or industry to a
common fund;
• Proprietary or financial interest in the business by the partners;

• A. Money – legal tender in the Philippines;

• > Thus, checks, promissory notes and other mercantile documents
are not money but only representatives of money;

• B. Property –
• > may be real or personal;
• > tangible or intangible;
• Thus, property may include promissory note, credit and goodwill.

• C. Industry – means work or services of the party associated like

personal manual efforts or intellectual;
• 4. Object must be lawful;

• Object is unlawful if it is:

• A. Contrary to law;
• B. Contrary to morals;
• C. Contrary to good customs;
• D. Contrary to public order; or
• E. Contrary to public policy.
• 5. The purpose is to obtain profits and to divide the
same among the partners.

• > Not necessarily equal shares;

• > Sharing of profits is not conclusive that there is existence of
Partnership;
• > Sharing of losses – not mention in Article 1767 because
partnership is for profits;
• > But share in the profits carries with is the obligation to share
also in the losses;
• > No agreement on the losses is necessary.
Advantages of forming a partnership:

• 1. Easy to form;

• 2. Improved growth possibilities;

• 3. Freedom from bureaucracy;

Disadvantages of forming a partnership:

• 1. Instability;
• 2. Difficulty in obtaining large sums of
capital;
• 3. Firm is tied to the acts and judgment of
one partner as agent;
• 4. Difficulty in severing partnership ties;
• Art. 1768. The partnership has a
judicial personality separate and
distinct from that of each of the
partners, even in case of failure to
comply with the requirements of
Article 1772, first paragraph. (n)
• Juridical personality of a Partnership is separate
and distinct from the partners;

• Partnership may acquire and possess

properties; incur obligations; sue and be sued;

• X & Co. (Partnership of A and B);

• A;
• B.

• Declaration of insolvency;

• Case against X & Co.

Effect of Failure to Comply with the
Requirements of Arts. 1772, 1773 and 1775
• Arts. 1772 - Requirements:

• > Partnership must be in (a) public instrument;

and (b) registered with the SEC if the capital
exceeds P3,000;

• > In case of failure to comply – Partnership still

aqcuires juridical personality;
• Arts. 1773 - Requirements:

• Art. 1773. A contract of partnership is void,

whenever immovable property is contributed
thereto, if an inventory of said property is not made,
signed by the parties, and attached to the public
instrument. (1668a)

• > Thus, Partnership shall not acquire juridical

personality;
• Arts. 1175 - Requirements:

• Art. 1775. Associations and societies, whose

articles are kept secret among the members, and
wherein any one of the members may contract in
his own name with third persons, shall have no
juridical personality, and shall be governed by the
provisions relating to co-ownership. (1669)

• > Thus, Partnership shall not acquire juridical

personality;
• Art. 1769. In determining whether a
partnership exists, these rules shall apply:
• (1) Except as provided by Article 1825,
persons who are not partners as to each
other are not partners as to third persons;
• (2) Co-ownership or co-possession does
not of itself establish a partnership, whether
such-co-owners or co-possessors do or do
not share any profits made by the use of the
property;
 (3) The sharing of gross returns does not of
itself establish a partnership, whether or not
the persons sharing them have a joint or
common right or interest in any property from
which the returns are derived;
(4) The receipt by a person of a share of
the profits of a business is prima facie
evidence that he is a partner in the business,
but no such inference shall be drawn if such
profits were received in payment:
* prima facie denotes evidence that, unless rebutted, would be sufficient to prove a particular proposition or
fact.
• (a) As a debt by installments or otherwise;
• (b) As wages of an employee or rent to a
landlord;
• (c) As an annuity to a widow or representative
of a deceased partner;
• (d) As interest on a loan, though the amount of
payment vary with the profits of the business;
• (e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise. (n)
Partnership is a matter of intention:

• > If parties expressly declare that they are not

partners, this is a rule between them;

• > But if partnership exists as defined by law, it is

immaterial what the parties call or believe their
relationship;
Partnership by estoppel:

• > A partnership exists as to the parties even if

there is no contract of partnership;
• > But NO partnership exists as to third persons if
there is no contract of partnership, either
express or implied;
• > Where persons by their, acts, consent or
representation have misled third persons or
parties into believing that the former are
partners (even if it is not), they shall be liable as
partners.
Example:

• If A and B are not partners to each other,

neither will they be partners with respect to C, a
third person.

• But if A, with the consent of B, represent to C

that they are partners, then, A and B will be
considered partners as to C, even if they are
not really partners.
Co-ownership or co-possession:
• > There is co-ownership (or co-possession)
whenever the ownership (or possession) of
an undivided thing or right belongs to
different persons;

• > Co-ownership of property does not by

itself establish the existence of a partnership.
Examples:
• > A and B inherited from their father an apartment
which is leased to third persons. Are A and B
partners?
• > No. A and B are merely co-owners or co-
possessors.

• > A and B put up money to buy sweepstakes tickets

for the sole purpose of dividing equally the prize
money which they may win. Are they partners?
• > Yes. A and B formed a partnership.
Sharing of gross returns:
• > Mere sharing of gross returns alone does not
indicate a partnership.
• Example:
• > A, owner of passenger jeepney, agrees with
B, a driver, that he shall have full control and
use of the jeepney to carry passengers, pay for
cost of repairs and other expenses, and that the
gross receipts are to be divided between them.
Are they partners?
• > No. There is no mention as to the sharing of
profits.
Tests and Incidents of Partnership:
• 1. Terms of agreement control
• > the terms of the contract entered by the parties
determines the existence of partnership;

• 2. Typical incidents once existence is established:

• A. They share in the profits and losses;
• B. They have equal rights in the management and
conduct of the partnership business;
• C. Every partner is an agent of the partnership;
Tests and Incidents of Partnership:
• D. All partners are personally liable for the debt of
the partnership with their separate property except
that limited partners are not liable beyond their
capital investments;

• E. A fiduciary relations exists between the partners;

and

• F. If partnership is dissolved (Dissolution), it is not

terminated but continues until the “winding-up” of
the partnership affairs is completed;
Distinction of Partnership and Co-
ownership
Co-ownership Partnership

Generally created by law; Created by contract, either

Creation
Can exist without a contract express or implied
Co-owners have no separate and Partners have separate and
Juridical
distinct personality from that of the distinct personality from that of a
Personality
co-ownership partnership

Common enjoyment of a thing or

Purpose Realization of profits
right
Agreement to keep the thing
Duration undivided would NOT exceed ten No limit
(10) years
Co-owner may dispose individual
Disposal of Partner cannot unless agreed
interest without need of consent from
Interests upon by all partners
co-owner
Power to Act Co-owner cannot represent the
with 3rd co- ownership; judgment against a Generally binds the partnership
Person co- owner cannot bind other co-
owner
Effect of
Partner’s Co-ownership is not dissolved Partnership is dissolved
Death
Conjugal Partnership of Gains
• A partnership formed as a result of marriage
where the husband and wife put in a common
fund the fruits and income of their separate
properties and those acquired through their
efforts or by chance – to be divided equally
upon the dissolution of marriage.

• Marriage settlements; pre-nuptial agreements

Distinction of Partnership and Conjugal
Partnership of Gains
Conjugal Partnership of Gains Partnership

Future spouses – a man and a

Parties Two or more persons of either sex
woman

Governing Family Code of the Philippines

Stipulation of the parties
Laws (Articles 105 to 133)

Partners have separate and

Juridical
No separate personality distinct personality from that of
Personality
a partnership

On the date of the celebration of Generally, from the execution of

Commencement
marriage contract

To regulate the property relations of

Purpose To obtain profits
husband and wife during marriage
Based on agreement of parties,
Distribution of
Divided equally or proportionate to capital
Profits
contribution
Belongs to both spouses;
Shared equally by all the
Management In case of disagreement, the
partners; unless one is appointed
husband’s decision shall prevail
Share of each spouse cannot be Whole interest of a partner may
Disposition of
disposed of during the marriage be disposed without the consent
Shares
even with the consent of the other to other partners
• Art. 89. No waiver of rights, shares and
effects of the absolute community of
property during the marriage can be made
except in case of judicial separation of
property.
Distinction of Partnership and Voluntary
Associations
Voluntary Associations Partnership

(Social Clubs, Committees, etc.)

Partners have separate and

Juridical
None distinct personality from that of a
Personality
partnership

Purpose Usually not for profit For profit

Contribution The contribution is for fees, dues, etc.

Contribution of capital
of Members and not for capital

Liability of Members are individually liable for Partnership is firstly liable for the
Members the debts of the association debts of the firm
 Art. 1770. A partnership must have a lawful
object or purpose, and must be established
for the common benefit or interest of the
partners.
When an unlawful partnership is dissolved
by a judicial decree, the profits shall be
confiscated in favor of the State, without
prejudice to the provisions of the Penal Code
governing the confiscation of the instruments
and effects of a crime. (1666a)
Effects of unlawful partnership:
• Examples of unlawful object:
• 1. Contract is void ab initio;
• 2. Profits shall be confiscated in favor of the
government;
• 3. Instruments, tools and proceeds of the
crime shall be confiscated in favor of the
government;
• 4. Contributions of partners shall not be
confiscated, unless they are part of No. 3.
 Art. 1771. A partnership may be constituted
in any form, except where immovable
property or real rights are contributed thereto,
in which case a public instrument shall be
necessary. (1667a)
 Art. 1772. Every contract of partnership
having a capital of three thousand pesos or
more, in money or property, shall appear in a
public instrument, which must be recorded in
the Office of the Securities and Exchange
Commission.
Failure to comply with the requirements of
the preceding paragraph shall not affect the
liability of the partnership and the members
thereof to third persons. (n)
 Registration of Partnership is necessary as a
pre-requisite for the issuance of license to
engage in business or trade.

Registration of articles of partnership is not

for the purpose of giving the partnership a
juridical personality; but for access to interested
persons.
 Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to
the public instrument. (1668a)
 Immovable regardless of value;

 Why inventory of property contributed is

important?
- to show much is due from each partner to
complete his share;
- as basis on how much will be due to each
partner in case of liquidation;
- to protect third persons.
 Art. 1774. Any immovable property or an
interest therein may be acquired in the
partnership name. Title so acquired can be
conveyed only in the partnership name. (n)

* Attribute of having a separate juridical personality.

 Art. 1775. Associations and societies,
whose articles are kept secret among the
members, and wherein any one of the
members may contract in his own name with
third persons, shall have no juridical
personality, and shall be governed by the
provisions relating to co-ownership. (1669)
 Partner’s right to information
- Partners must be fully informed of all the
matters concerning/affecting the partnership;
- to protect third persons;

 Partnership must have a firm name where it

shall conduct its business;
 Firm’s name must be identifiable from the
partners and other partnerships;
 Art. 1776. As to its object, a partnership is
either universal or particular. As regards the
liability of the partners, a partnership may be
general or limited. (1671a)
Classification of Partnerships:
• 1. According to subject matter:
• (a) Universal partnership – all of the partners contribute
all of their properties to the common fund and speaks of
no particular purpose or subject matter, as long as the
purpose in forming a partnership is to obtain profits and
is not contrary to law, morals, public order and public
policy.

• (i) Universal partnership of all present property (Art. 1778); and

• (ii) Universal partnership of profits (Art. 1780);

• There are seldom, if none, universal partnership.

• (b) Particular partnership – partnership which has for
its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession
or vocation (Art. 1783).
• (2) According to liability:

• (a) General partnership – composed of

general partners who are liable pro rata
and subsidiarily, sometimes solidarily, where
such liabilities extend to their personal
properties.
• (b) Limited partnership – (usually attaches
the word “Ltd” or ‘limited” at the end of the
company name), one formed where one or
more are general partners, and one or more
are limited partners, where the liability of the
latter to third persons is limited to their
capital contribution.
• (3) According to duration:

• (a) Partnership at will – no time is specified and not

formed for a particular undertaking or venture, and
may be terminated anytime by mutual agreement
of the partners;

• (b) Partnership for a fixed term – is one which the

term of its existence has been agreed upon
expressly (as when there is a definite period) or
impliedly, (as when a particular enterprise or
transaction is undertaken).
• Expiration of the term thus fixed or the
accomplishment of the particular undertaking
specified will cause the automatic dissolution of
partnership.
ASSIGNMENT:
• Make a case digest on the following cases:

• 1. CIR vs. William J. Suter and CTA, L-25532, 28

February 1969;
• 2. Magalona vs. Pesayco, 59 Phil. 453.

• Format:
• A. Facts;
• B. Issues;
• C. Ruling of the Court.