General

Provisions
BUSINESS LAWS AND REGULATIONS
Partnership
A contract wherein 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.
Problem
Sisters Mary and Antonette, entered into a “Joint Venture Agreement (JVA)” with John for the
development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed
of Sale covering the said parcel of land in favor of John, who then had it registered in his name. By
mortgaging the property, John obtained from ABC Bank a loan of ₱400,000 which, under the JVA,
was to be used for the development of the subdivision. All three of them also agreed to share the
proceeds from the sale of the subdivided lots.

The project was not realized, and land was subsequently foreclosed by ABC bank.

Is there a partnership?
Answer
Yes. A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:

“Article 1767. By the contract of partnership 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.”
Elements of a Partnership
There shall be a partnership whenever:
1. There is a meeting of minds
2. To form a common fund
3. With the intention that profits (and losses) will be divided among the
contracting parties.
Essential Features
1. There must be a valid contract.

2. The parties must have legal capacity to enter into the contract

3. There must be a mutual contribution of money, property, or industry to a common fund.

4. There must be a lawful object.

5. The purpose or primary purpose must be to obtain profits and divide the same among the
parties.
CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP

Consensual Commutative Principal Bilateral

Onerous Nominate Preparatory

 DOCTRINE OF DELECTUS PERSONAE

The right to choose with whom a person wishes to associate himself is

the very foundation and essence of partnership.

No one can become a member of the partnership association without

the consent of all the other associates.
 LEGAL CAPACITY

The following cannot give their consent to a contract of partnership:

A. Unemancipated Minors
B. Insane or demented minors
C. Deaf-mutes who do not know how to write
D. Persons who are suffering from civil interdiction; and
E. Incompetents who are under guardianship

Persons who are prohibited from giving each other any donation or
advantage cannot enter into a universal partnership.

Unless authorized by law, a corporation is without capacity or power to enter

into a contract of partnership.
BUSINESS
LAWS AND
REGULATIONS
RU L E S FO R D I ST R IBUT ION O F P RO F ITS A N D
LO S SE S
P RO P ERT Y R I G H T S O F A PA RT NE R
D I S S OLUT ION A N D W I N D I NG U P
 KINDS OF PARTNERS

Industrial Limited
General Secret
Dormant

Capitalist

Liquidating Silent
Continuing
Partners by Partner
Estoppel

Managing

Subpartner Surviving Ostensible

Partner Nominal
 CLASSIFICATION OF PARTNERSHIP

As to Liability of Partners
1. General Partnership – consists of general partners who are liable
pro rata and subsidiarily and sometimes solidarily with their
separate property for partnership debts.

2. Limited Partnership – one formed by 2 or more persons have as

members one or more general partners and one or more limited
partners, the latter not being personally liable for the obligations of
the partnership
 CLASSIFICATION OF PARTNERSHIP

As to Duration
1. Partnership at will – one in which no times is specified and is not
formed for a particular undertaking or venture which may be
terminated anytime by mutual agreement

2. Partnership with a fixed term – the term for which the partnership
is to exist is fixed or agreed upon or one formed for a particular
undertaking
 CLASSIFICATION OF PARTNERSHIP

As to Legality of Existence
1. De Jure Partnership – one which has complied with all the legal
requirements for its establishments

2. De Facto– one which has failed to comply with all the legal
requirements for its establishments
 CLASSIFICATION OF PARTNERSHIP

As to Purpose
1. Commercial or Trading – one formed for the transaction of
business

2. Professional or Non-Trading Partnership – one formed for the

exercise of a profession
 CLASSIFICATION OF PARTNERSHIP

According To Representation To Others

1. Ordinary Partnership
2. Partnership by Estoppel
• If two persons not partners represent themselves as partners to strangers, a
partnership by estoppel results
• When two persons, who are partners, in connivance with a friend who is not
a partner inform a stranger that said friend is their partner, a partnership by
estoppel also result to the end that the stranger should not be prejudiced
 DUTIES OF EVERY PARTNER

1. Contribute - duty to CONTRIBUTE what had been promised

2. Deliver - duty to DELIVER the FRUITS of what should have been
delivered
3. Warrant - duty to WARRANT
 RULES ON THE DUTY TO CONTRIBUTE

1. the contribution must be made at the time the partnership is

entered into UNLESS a different period is stipulated
2. no demand is needed to put the partner in default
3. the partner must exercise due diligence in preserving the property
to be contributed before he actually contributes the same
4. a partner who promises to contribute to the partnership becomes a
promissory debtor of the partnership
 RULES ON THE DUTY TO DELIVER THE FRUITS
1. If property has been promised, the fruits thereof should also be
given

2. The fruits referred to are those arising from the time they should
have been delivered, without a need of any demand

3. If the partner is in bad faith, he is liable not only for the fruits
actually produced, but also for those that could have been
produced
 RULES ON THE DUTY TO DELIVER THE FRUITS
4. If money has been promised, interest and damages from the time
he should have complied with his obligation should be given

5. No demand is needed to put the partner in default

6. It is delivery, actual or constructive that transfers ownership

 RULES ON THE DUTY TO WARRANT
1. the warranty in case of eviction refers to specific and determinate
things already contributed

2. there is EVICTION whenever by a final judgment based on a right

prior to the sale or an act imputable to the partner, the partnership
is deprived of the whole or a part of the thing purchased
RULE WHEN CONTRIBUTION CONSISTS OF GOODS
1. APPRAISAL of VALUE is needed to determine how much was
contributed

HOW APPRAISAL MADE

• as PRESCRIBED in the CONTRACT
• in default, by EXPERTS chosen by the partners, and at CURRENT PRICES
RULE WHEN CONTRIBUTION CONSISTS OF GOODS
Partnership with contribution of immovable property

Where immovable property, regardless of its value, is contributed by

any of the parties, the failure to comply with the following requirements
will render the partnership contract void in so far as the contracting
parties are concerned:
1. The contract must be in public instrument
2. An inventory of the property contributed must be made, signed by
the parties, and attached to the public instrument.
RULE WHEN CONTRIBUTION CONSISTS OF GOODS
Partnership with capital of ₱3,000 or more

There are 2 requirements, namely:

1. The contract must appear in a public instrument;
2. It must be recorded or registered with the SEC.

However, failure to comply with above requirements does not prevent the
formation of the partnership or affects its liability and that of the partners to third
persons.
OBLIGATIONS OF CAPITALIST AND INDUSTRIAL PARTNER

CAPITALIST PARTNER - one who FURNISHES CAPITAL

• NOT EXEMPTED from LOSSES

• he can engage in other business PROVIDED there is no competition
between the partnership and his business
• share in the profits according to agreements

In case of an imminent loss of the business, and there is no agreement to

the contrary, he is under obligation to contribute an additional share to save the
venture. If he refuses to contribute, he shall be obliged to sell his interest to the
other partners.
OBLIGATIONS OF CAPITALIST AND INDUSTRIAL PARTNER

INDUSTRIAL PARTNER - one who FURNISHES INDUSTRY or LABOR

• he is EXEMPTED from LOSSES as between the partner BUT liable to

strangers without prejudice to reimbursement from the capitalist partner
• he CANNOT engage in any other BUSINESS WITHOUT the express
CONSENT of the other partners, OTHERWISE
• he can be EXCLUDED from the firm plus damages OR the BENEFITS he
obtains from the other businesses CAN BE AVAILED of by the other partners
plus damages (whether or not there is COMPETITION)

In case of imminent loss of the business, the industrial is exempted from

the requirement to contribute an additional share. Having contributed his entire
industry, he can do nothing further.
 OBLIGATIONS OF MANAGING PARTNER
RULE if MANAGING PARTNER COLLECTS A CREDIT - the sum thus collected
shall be applied to the two credits in proportion to their amounts

Requisites:
1. existence of at least 2 debts – PARTNERSHIP and PARTNER
2. both sums are demandable
3. the collecting partner is the managing partner
 LIMITATIONS ON ALIEN PARTNERSHIP
1) if 60% capital is not owned by Filipinos
• the firm cannot acquire by purchase or otherwise AGRICULTURAL Philippine
lands
2) foreign partnership may “lease” lands provided the period does not
exceed 99 years
3) foreign partnership may be “MORTGAGEES” of land
• period of 5 years, renewable for another 5 years
• they cannot purchase it in a foreclosure sale
SECRET PARTNERSHIP WITHOUT JURIDICAL PERSONALITY

Associations whose articles or agreements are kept secret among the

members and wherein anyone of them may contract in his own name
with third persons are deprived of juridical personality for evidently
such associations are not partnerships.
BUSINESS
LAWS AND
REGULATIONS
RU L E S FO R D I ST R IBUT ION O F P RO F ITS A N D
LO S SE S
P RO P ERT Y R I G H T S O F A PA RT NE R
D I S S OLUT ION A N D W I N D I NG U P
1. To identify the different rules on distribution of profits

2. To appreciate the purpose of excluding the industrial

partner in sharing the partnership losses

3. To understand the role of third persons in designing the

sharing of profits and losses

4. To differentiate the powers of a managing partner

appointed in the articles of partnership with the managing
partner that is not

5. To determine the rules applicable when there are more

than two managing partners

6. To identify and explain the property rights of a partner

OBJECTIVES
After the discussion, there will be a mini-quiz of
MCQ.

EVALUATION
RULES FOR DISTRIBUTION OF PROFITS AND LOSSES

HOW PROFITS ARE DISTRIBUTED

1. according to AGREEMENT
2. IF NONE, according to amount of CONTRIBUTION

• an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE share in the profits

HOW LOSSES are DISTRIBUTED

1. according to AGREEMENT as to losses
2. IF NONE, according to agreement as to PROFITS
3. IF NONE, according to amount of CONTRIBUTION
DESIGNATION OF SHARE IN PROFITS AND LOSSES BY A THIRD PERSON

• third person is NOT a PARTNER -- appointed to only distribute shares

• the designation of shares by third persons may be IMPUGNED, IF it

is MANIFESTLY INEQUITABLE
• the designation of shares by third persons CANNOT be IMPUGNED
EVEN IF MANIFESTLY INEQUITABLE IF:
• the aggrieved partner has already BEGUN to EXECUTE the decision
• the aggrieved partner has not IMPUGNED the distribution within 3 months he
had knowledge
STIPULATION EXCLUDING PARTNER FROM ANY SHARE IN PROFITS AND
BUSINESS

1. Stipulation generally void, but partnership subsists

2. Stipulation, a factor to show no partnership exists
3. Where partner excluded is industrial partner
RULES AND OBLIGATIONS WITH RESPECT TO MANAGEMENT

1. Appointment as manager in the articles of the partnership

• His power is revocable only upon just and lawful cause and upon the vote of
the partners representing the controlling interest.

2. Appointment as manager after constitution of the partnership

• power to act may be REVOKED at ANY TIME with or without just cause
• REMOVAL should be done by the controlling interest
 COMPENSATION FOR SERVICES RENDERED

1. Partner generally not entitled to compensation

2. Exceptions
• Partner’s work was beyond normal partnership functions
• In a capacity other than that of a partner
RULE WHEN THERE ARE 2 OR MORE MANAGERS

CONDITIONS
• 2 or more partners are managers
• there is no specification of respective duties
• there is no stipulation requiring UNANIMITY
RULE WHEN THERE ARE 2 OR MORE MANAGERS

SPECIFIC RULES:
• each may separately execute all acts of administration
 UNLIMITED POWER to ADMINISTER

IF any of the managers OPPOSE

 MAJORITY RULE
 IN CASE OF A TIE
- persons owning controlling interest prevail provided they are
also managers
 WHERE UNANIMITY OF ACTION IS STIPULATED

1. the CONCURRENCE of all shall be necessary for the validity of the

acts
2. the ABSENCE or DISABILITY of ANYONE of them CANNOT BE
ALLEGED UNLESS there is imminent danger of grave or
irreparable injury to the partnership

RULE ON DUTY of THIRD PERSONS

 third persons are not required to inquire as to whether or not a
partner with whom he transacts has the consent of all the managers
RULES TO BE OBSERVED WHEN THE MANNER OF MANAGEMENT HAS NOT
BEEN AGREED UPON

1. all the partners are considered AGENTS

• whatever any one of them may do alone shall bind the partnership

2. IF the acts of one are opposed by the rest, the majority shall prevail

3. when a partner acts in his OWN NAME, he does not bind the
partnership
RULES TO BE OBSERVED WHEN THE MANNER OF MANAGEMENT HAS NOT
BEEN AGREED UPON

4. authority to bind the firm does not apply if somebody else has been
given authority to manage in the articles of organization or through
some other means

5. ALTERATIONS REQUIRE UNANIMITY

- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is prejudicial to the interest of the
partnership
- COURTS INTERVENTION may be sought
 RULES ON ASSOCIATE OF PARTNER

1. every partner may associate another person with him in his share

2. for a partner to have an associate in his share

• consent of all the other partners is NOT REQUIRED

3. for the associate to become a partner

• ALL MUST CONSENT
 RULES ON PARTNERSHIP BOOKS

1. kept at the principal place of business of the partnership

2. at any reasonable hour, every partner shall have access to and may
inspect and copy any of them
 DUTY TO RENDER INFORMATION

DUTY of PARTNERS TO GIVE INFORMATION

• good faith not only requires that a partner should not make any
FALSE CONCEALMENT, BUT he should abstain from all
concealment
 DUTY TO ACCOUNT

Every partner must account to the partnership

1. any benefit acquired
2. any profits received
3. any use of partnership property
 RIGHT TO DEMAND A FORMAL ACCOUNT

any partner shall have the right to a formal account as to

partnership affairs
1. if wrongfully excluded from partnership BUSINESS
2. if wrongfully excluded from partnership PROPERTY by his co-
partners
3. if the right exists under the terms of agreement
4. if the other partner receives other benefits, profits or uses
partnership property
5. whenever other circumstances render it just and reasonable
 PROPERTY RIGHTS

1. rights in specific PARTNERSHIP PROPERTIES

2. INTERESTS in the PARTNERSHIP
3. right to PARTICIPATE in the MANAGEMENT
RIGHTS OF A PARTNER IN SPECIFIC PARTNERSHIP PROPERTY

Rule: a partner is CO-OWNER with his partners of SPECIFIC

PARTNERSHIP PROPERTY

1. he has equal rights with his partners to POSSESS the property BUT
only for PARTNERSHIP PURPOSES
• he may possess such property for other purposes PROVIDED the other
partners expressly or impliedly gives their CONSENT

2. he CANNOT ASSIGN his right to the property EXCEPT if all the

other partners assign their rights in the same property
RIGHTS OF A PARTNER IN SPECIFIC PARTNERSHIP PROPERTY

3. his right to the property is NOT SUBJECT to ATTACHMENT or

EXECUTION, EXCEPT on a claim against partnership

4. his right to the property is NOT SUBJECT to LEGAL SUPPORT

*if there is PARTNERSHIP DEBT, the specific property can be

attached
END
BUSINESS
LAWS AND
REGULATIONS
C O N V E YA N C E PA RT N E R ’ S I N T E R E ST
R I G H T S O F T H E A S S I GN E E
P R E F E R E N T I A L R I G H T S O F PA RT N E R S H I P
C R E D I TO R S
FIRM NAME
 PARTNER’S INTEREST

A PARTNERS INTEREST in the partnership is his SHARE of the

PROFITS and SURPLUS.

IT CAN BE:
1. ASSIGNED
2. ATTACHED
3. be subject to LEGAL SUPPORT
 EFFECTS OF CONVEYANCE BY PARTNER OF HIS INTEREST IN THE
PARTNERSHIP

IF he conveys his WHOLE INTEREST

A. partnership may still remain
B. partnership may be dissolved

the ASSIGNEE does not necessarily become a partner

- the ASSIGNOR is still the partner, with a right to demand accounting and
settlement
 EFFECTS OF CONVEYANCE BY PARTNER OF HIS INTEREST IN THE
PARTNERSHIP

the ASSIGNEE CANNOT interfere in the MANAGEMENT or

ADMINISTRATION of the firm

the ASSIGNEE CANNOT also DEMAND

A. INFORMATION
B. ACCOUNTING
C. INSPECTION of partnership books
 RIGHTS OF THE ASSIGNEE

1. to get whatever profits the assignor-partner would have obtained

2. to avail himself of the usual remedies in case of fraud in the management

3. to ask for ANNULMENT of the contract of assignment IF:

A. he was induced to enter into it through any of the vices of consent; or
B. he himself was incapacitated to give consent

4. to demand an accounting BUT only if the partnership is dissolved

PREFERENTIAL RIGHTS OF PARTNERSHIP CREDITORS

1. partnership creditors are entitled to PRIORITY over partnership

assets, including the partners interest in the profits

2. SEPARATE or INDIVIDUAL creditors have PREFERENCE in separate

or individual properties
PREFERENTIAL RIGHTS OF PARTNERSHIP CREDITORS

when the CHARGING ORDER is applied for and granted, the court may
appoint a receiver of the partners share in the profits

1. the receiver appointed is entitled to any relief necessary to conserve the

partnership assets for partnership purposes

2. interest charged may be redeemed at any time before foreclosure

PREFERENTIAL RIGHTS OF PARTNERSHIP CREDITORS

when the CHARGING ORDER is applied for and granted, the court may
appoint a receiver of the partners share in the profits

AFTER FORECLOSURE the interest may still be redeemed by (without

causing dissolution)
1. with separate property, by any one or more of the partners; or

2. with partnership property, by any one or more partners with the consent
of all the partners whose interests are not so charged or sold - consent
of the delinquent partner not needed
 FIRM NAME
1. every partnership shall operate under a FIRM NAME
2. the firm name may or may not include the name of one or more of the
partners
3. STRANGERS who include their names in the firm are liable as partners
because of ESTOPPEL, BUT do NOT have the RIGHTS of partners
4. IF a LIMITED PARTNER includes his name in the firm name, he has
obligations BUT not the rights of a general partner
END
BUSINESS
LAWS AND
REGULATIONS
OBLIGATIONS OF THE PARTNERS WITH
REGARD TO THIRD PERSONS
DISSOLUTION AND WINDING UP
LIMITED PARTNERSHIP
RULE ON LIABILITY FOR CONTRACTUAL OBLIGATIONS

All partners, including industrial ones, shall be liable pro-rata

with all their property and after all the partnership assets have
been exhausted

under the law the liability of the partners is subsidiary and joint
NOT principal and solidary
RULE ON LIABILITY FOR CONTRACTUAL OBLIGATIONS

NOT APPLICABLE for TORTS or CRIMES

• LOSS
• INJURY
• MISAPPROPRIATION
RULE ON LIABILITY FOR CONTRACTUAL OBLIGATIONS

• while an INDUSTRIAL PARTNER is exempted by law from LOSSES

as between the partners, he is NOT EXEMPTED from liability insofar
as third persons are concerned

• he may recover what he has paid from the CAPITALIST partners

ENTRY OF A NEW PARTNER INTO AN EXISTING PARTNERSHIP

RULE:
→ he shall be liable for all the obligations of the partnership BUT his
liability will extend only to his share in the partnership property

→ his own individual property shall be excluded

→ same liability of a limited partner

 PREFERENCE OF PARTNERSHIP CREDITORS

RULE:
• the creditors of the partnership shall be preferred to those of such
partner as regards the partnership property

without prejudice to this right

the private creditors of each partner may ask the attachment and
public sale of the share of the latter in the partnership assets
 PREFERENCE OF PARTNERSHIP CREDITORS

IF a partner sells his share to a third party, BUT the firm itself still
remains SOLVENT, partnership creditors CANNOT assail the validity
of the sale by alleging that it is made in fraud of them, since they have
not really been prejudiced
 DISSOLUTION AND WINDING UP

• the change in the relation of the partners caused by any partner

causing to be associated in the carrying on of the business
• it is the point of time the partners cease to carry on the business
together
 DISSOLUTION AND WINDING UP

WINDING UP
• the process settling business affairs after dissolution

TERMINATION
• the point in time after all the partnership affairs have been wound up
 DISSOLUTION AND WINDING UP

RULE ON DISSOLUTION
on dissolution the partnership is not terminated BUT continues until
the winding up of partnership affairs is completed
 DISSOLUTION AND WINDING UP

EFFECT on OBLIGATIONS

1. just because a partnership is dissolved this does not necessarily

mean that a partner can evade previous obligations entered into by
the partnership
2. dissolution saves the former partners from new obligations to which
they have not expressly or impliedly consented UNLESS the same
be essential for winding up
 DISSOLUTION AND WINDING UP

CAUSES OF DISSOLUTION

1. without VIOLATION of the AGREEMENT between the partners

A. TERMINATION of the DEFINITE TERM or PARTICULAR UNDERTAKING
B. EXPRESS WILL or ANY PARTY in GOOD FAITH (PARTNERSHIP by WILL)
C. EXPRESS WILL of ALL of the PARTNERS except those who have
(interests) ASSIGNED or whose interests have been (separate debts)
CHARGED
D. EXPULSION in good faith of a member
 DISSOLUTION AND WINDING UP

CAUSES OF DISSOLUTION

2. in CONTRAVENTION of the agreement between the partners

by the EXPRESS WILL of ANY PARTNER at any time
3. UNLAWFULNESS of the BUSINESS
4. LOSS – thing promised
A. SPECIFIC THING – PERISHES before delivery
B. USUFRUCT is lost EXCEPT if ownership had been transferred to the
partnership
 DISSOLUTION AND WINDING UP

CAUSES OF DISSOLUTION

5. DEATH of ANY partner

6. INSOLVENCY of any partner or of the partnership
the insolvency need not be judicially declared, it is enough that the assets be
less than the liabilities
7. CIVIL INTERDICTION of any partner
8. DECREE of COURT
 DISSOLUTION AND WINDING UP

CAUSES OF DISSOLUTION

• if the cause is not justified or no cause was given, the withdrawing

partner is liable for DAMAGES BUT in no case can he be compelled
to remain in the firm
 DISSOLUTION AND WINDING UP

DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:

1. partner declared “insane” in any judicial proceeding or is shown to

be of UNSOUND MIND
2. partner becomes INCAPABLE of performing his part of the
partnership contract
3. partner has been guilty of such CONDUCT as tends to affect
prejudicially the business
 DISSOLUTION AND WINDING UP

DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:

4. partners PERSISTENT BREACH of agreement

5. the business of the partnership can only be denied on at a loss
6. other circumstances which render dissolution equitable
 DISSOLUTION AND WINDING UP

EFFECTS OF DISSOLUTION

• when the firm is dissolved, a partner can no longer bind the

partnership
• a dissolved partnership still has the personality for the winding
up of its affairs
• the firm is still allowed to collect previously acquired credits
• the firm is still bound to pay of its debts
 DISSOLUTION AND WINDING UP

EFFECTS OF DISSOLUTION

• where the dissolution is caused by the ACT, INSOLVENCY or

DEATH of a partner, each partner is liable to his co-partners for
his share of any liability created by any partner acting for the
partnership