PARTNERSHIPS Reviewer Individuals – should have the necessary legal capacity.

1767 Partnership is a contract wherein two or more

Who cannot give their consent?
persons bind themselves to contribute (1) Money, (2) 1. Unemancipated Minors.
Property or (3) Industry to a common fund, with the 2. Insane or demented persons.
intention of dividing the profits among themselves. 3. Deaf-mutes who can’t write.
CHARACTERISTICS (CNB-OCP-PC) 4. Persons suffering from Civil Interdiction.
1. Consensual – perfected by mere consent upon 5.Incomeptents who are under Guardianship.
express/implied agreement of 2 or more persons. 6.Persons who are prohibited from giving each other
2. Nominate – has a special name/designation on law. Donations or Advantage.
3. Bilateral – entered into by two or more persons and the
rights and obligations arising therefrom are always **Partnerships generally have no prohibition against a
reciprocal. partnership being a partner in another partnership.**
4. Onerous – each of the parties aspires to procure for
himself a benefit through the giving of something. 3. CONTRIBUTION OF MPI TO A COMMON FUND.
5. Commutative – undertaking of each of the partners is
considered as the equivalent of the others. Existence of proprietary interest.
6. Principal – doesn’t depend for its existence or validity 1. Money – legal tender in the Philippines; checks, drafts,
upon other contracts. promissory notes payable to order, are not considered
7. Preparatory – entered into as a means to an end. money.
8. Contract of Agency. 2. Property – real/personal, corporeal/incorporeal; credit and
promissory notes are considered property.
ELEMENTS 3. Industry – active corporation services.
1. There must be a meeting of the minds.
2. To form a common fund. NOTE:
3. With intention that profits and losses will be divided  A limited partner cannot contribute mere industry
among the parties. or services.
 Should be distinguished from a lessor of services.
ESSENTIAL FEAUTRES
 Proof of Contribution is necessary with the
1. EXISTENCE OF VALID CONTRACT.
intention of dividing the income or profits obtained.
Form – no formality is required unless it falls within the
Statute of Frauds. Evidenced by the terms of the contract.
4. THERE MUST BE A LAWFUL OBJECT
May be expressed, implied, oral or written.
Articles of Partnership – states the name, purpose,
Effect of Illegality – no partnership can arise as the contract
location, powers, rights, duties, and liabilities of each
is inexistent and void ab initio.
partner.
REQUISITES:
5. PURPOSE IS OBTAINING PROFITS AND DIVIDE
1. Consent and Capacity of the contracting parties.
IT AMONG PARTIES/PARTNERS.
2. Object which is the subject matter of the contract.
3. Cause which is established.
Very REASON of EXISTENCE – the idea of pecuniary
4. Valid Consideration between partners.
profit or gain should be principal, but not necessarily the
exclusive aim.
DELECTUS PERSONAE – This is where mutual agency
arises. It allows them to have the power to dissolve the
SHARE OF PROFITS
partnership in good faith. (not necessarily the right); It
1. Not necessarily equal in shares – only necessary that there
involves trust and confidence between the partners.
be an intention to divide the profit among the partners.
 No one can be a member without the consent of
2. A stipulation excluding one or more partners from any
ALL the partners; it has a fiduciary nature.
participation in the profits is VOID.
 The presence of a period for a specific duration or 3. Profit-Sharing is merely presumptive and not conclusive,
statement of a particular purpose for its creation even if cogent, evidence of partnership.
cannot prevent the dissolution of a partnership by
an act or will of a partner. SHARE OF LOSSES
1. A community in losses is a necessary corollary of a
PRINCIPLE OF ESTOPPEL - a partnership liability can participation in profits.
be imposed upon a person under estoppel where he holds 2. Not necessary to agree upon a system of sharing losses,
himself out, or permits himself to be held out, as a partner in losses must be in the same proportion.
an enterprise. 3. A stipulation excluding one or more partners from any
- There is no actual or legal partnership relation but merely a participation in the profits is VOID.
partnership liability by law in favor of third persons.
- In case there is no written agreement between parties, the
existence or non-existence of the partnership must be
determined from the conduct of the parties.
2. LEGAL CAPACITY OF PARTIES TO ENTER INTO
A CONTRACT.
A partner may be a natural person, juridical person, or a
joint venture.
1770 Object or Purpose of a Partnership.
ESSENTIAL ELEMENTS
1. Legality of the Object.
2. Community of Benefit or interest in the partners.
EFFECTS OF UNLAWFUL PARNTERSHIP
1. Contract is void ab initio and the partnership never
existed before the law.
2. Profits shall be confiscated in favor of the government.
3. Instruments or tools and proceeds of the crime shall also
be forfeited in favor of the government.
4. Contributions of the partners shall not be confiscated
unless they fall under number 3.
**JUDICIAL DECREE is not necessary to dissolve an
unlawful partnership.
1771 Form of Partnership Contract.
GR: No special form is required for the validity or existence
of the contract. The contract may be made orally or in
writing.
XPN: Where contribution is immovable property, or real
rights, a public instrument is necessary.
1772 Registration of Partnership.
A Partnership with a capital of Php. 3,000.00 or more
REQS:
1. Contract must appear in a public instrument.
2. Must be recorded or registered with the SEC
- However, failure to do so will not prevent the formation of
the partnership, nor affect its liability.
PURPOSE OF REGISTRATION
1. For the issuance of licenses to engage in business or trade.
2. So the tax liabilities cannot be evaded.
3. Public can also determine their membership and capital
before dealing with them.
1773 Contribution of immovable property.
REQS:
1. Contract must be in a public instrument.
2. Inventory of property contributed must be made, signed
by the parties and attached to the public instrument.
* Absence of these will render the contract VOID.
* Intended primarily for 3rd persons, a de facto partnership
or by estoppel may exist.
When Inventory is NOT required.
1. When immovable property is possessed or owned by the
partnership but NOT contributed by the partners.
2. Personal Property.
Importance of Inventory.
1. To show how much is due from each partner to complete
his share in the common fund.
2. How much is due to each of them in case of liquidation.
1774 Acquisition/Conveyance of Property. – immovable
property may only be acquired and conveyed in the
partnership name.
1776 CLASSIFICATIONS OF PARTNERSHIP:
1. EXTENT:
a. Universal Partnership
i. Universal Partnership of all present property.
i. Universal Partnership of profits.
b. Particular Partnership – A partnership formed for a
specific undertaking, or exercise of a vocation or profession.
2. LIABILITY:
a. General – consists of general partners who are liable pro
rata and subsidiarily, sometimes solidary with their separate
property for partnership debts. (Equally Liable)
b. Limited – formed by two or more general partners + one
or more limited partners. Limited partners are not personally
liable for the obligations of the partnership.
3. DURATION:
a. At Will – no time is specified and is not formed for a
particular undertaking or venture.
b. With a Fixed Term – existence is fixed or agreed upon or
formed for a particular undertaking.
4. LEGALITY:
a. De Jure – complied with all the legal requirements for its
establishment.
b. De Facto – has not complied with all legal requirements
for its establishment.
5. REPRESENTATION TO OTHERS
a. Ordinary/Real – one which actually exists among the
partners and also to 3rd persons.
b. Ostensible/By Estoppel – in reality is not a partnership
but has the liability of a partnership.
6. PUBLICITY
a. Secret – existence to certain persons as partners is
unknown to the public and or any of the partners.
b. Open/Notorious – Existence is known to the public.
7. PURPOSE
a. Commercial/Trading – for transaction of business.
b. Professional/Non-Trading – exercise of profession.
KINDS OF PARTNERS
1. Capitalist – contributes money/property to common fund.
2. Industrial – contributes only industry/service.
3. General/Real – liability to 3rd persons extends to his
separate property; may be capitalist or industrial.
4. Limited/Special – liability is limited to his capital
contribution.
5. Managing - manages affairs or business this guy is
appointed.
6. Liquidating – takes charge of the winding up of a
partnership upon dissolution.
7. Continuing - continues business after it has been
dissolved by REASON of (1) Admission of new partner; (2)
Retirement; (3) Death; (4) Expulsion; of one or more
partners.
8. Surviving – remains after a partnership has been
dissolved by death of any partner.
9. Subpartner – not being a member of a partnership, 2. If there is no agreement.
contracts with a partner with reference to a latter’s share in a. Proportionate to profit-sharing ratio.
the partnership. b. Industrial partners shall not be liable for losses.
10. Estoppel/Nominal – not a Real partner, not being a 3. If no profit-sharing is stipulated
party to a partnership agreement, BUT is liable as a partner a. Losses shall be borne by the partners in
for the protection of 3rd persons. proportion to their capital contributions.
b. Purely industrial partners will not be liable for
losses.
1782 Limitations in Forming a Partnership
Persons who are prohibited from giving each other 1808 Prohibition Against Partner Engaging in Business.
donations or advantage cannot enter into a universal Capitalist – RELATIVELY prohibited to engage in the
partnership. Otherwise, it is void. same/similar line of business.
1. Between persons guilty of adultery or concubinage at Industrial – ABSOLUTELY prohibited to engage in the
the time of donation. same/similar line of business.
2. Made between persons found guilty of the same criminal
offense in consideration thereof REMEDIES:
3. Made to a public officer or his wife, descendants, and 1. Bring to Common Fund all profits ACCRUED during his
ascendants by reason of his office. own transactions.
2. Bear for ALL the losses.
Husband and Wife may enter into a PARTICULAR 3. Be EVICTED.
partnership.
- Where partners retained their separate interests –
capital contributions were separately owned and
1810 Extent of Property Rights of a Partner:
contributed before marriage. A. PRINCIPAL RIGHTS
1. Specific Partnership Property
1783 Particular Partnership 2. Interest in the Partnership
Scope – limited and well-defined, being confined to an 3. Participate in the management.
undertaking of a single, temporary, or ad hoc nature.
Examples: B. RELATED RIGHTS:
1. Acquisition of immovable property for the purpose of 1. Reimbursement of advanced amounts and indemnification
reselling it a profit. of risks as consequences of management.
2. Professional Partnership 2. Access and inspection of partnership books.
3. Joint Ventures – created for a temporary or limited 3. True and full information affecting partnership affairs.
purpose. 4. Formal Accounting.
5. Dissolution under certain conditions.
OBLIGATIONS OF PARTNERS PROPERTY PARTNERSHIP PARTNERSHIP CAPITAL
1. Relations among the partners themselves. Variable Consent
Depends of Market Value Depends on Agreement.
2. Relations of the partners with the partnership. All original contribution + Aggregate of the individual’s
3. Relations of the partnership with 3rd persons with whom it subsequently acquired contributions
contracts. +/- upon partnership’s unanimous
4. Relations of the partners with such 3rd persons. consent.
GR: Property used, when there is no express agreement,
will not be partnership property.
1784 Commencement and Term of a Partnership
GR: commences form the time of execution of the contract. XPN: Implied intent of the partners.
XPN: when there is a contrary stipulation. 1. Property is listed as an asset in partnership books.
NOTES: 2. Income generated by property is RECEIVED by
1. Registration with the SEC is not essential to give it partnership.
juridical personality. 3. Taxes are also paid by partnership.
2. Necessary that all requisites are present.
3. Partners may stipulate some other date for XPN to XPN: Repair and Maintenance of property Only.
commencement – makes the partnership inchoate (not fully
developed but has already begun.), or unperformed, thus not GR: Property used when there is no express agreement will
yet consummated, has not started yet. not be partnership property.

1797 Rules for Distribution of Profits and Losses (among XPNS:

partners) 1. Equal Rights to possess specific partnership property for
partnership purposes.
Distribution of Profits 2. No right to Possess of for other purpose without the
1. Partners share the profits according to their agreement. consent of the partners.
2. If there is no agreement: 3. Not assignable.
a. Proportionate to capital contribution. XPN: In connection with assignment of rights of all
b. Industrial partner will first receive his share partners in the same property.
before the capitalist partners; amount is not fixed as long 1812 Nature of Partners Interest.
as it is just and equitable under the circumstances. Formula:
Distribution of Losses
1. Distributed according to agreement.
Undistributed Shares of PROFITS + Undistributed Shares
of SURPLUS (Excess of assets – liabilities) = interest.
Done by:
1. Agreement
2. Proportion to contribution.
1815 Requirement of Firm Name
Firm – Name, Title, Style under which a company transacts
business.
Importance: To distinguish the partnership which has a
personality separate and distinct from individuals or ither
partnerships.
Right to choose name – may choose any name
PROVIDED it is not misleading and it does not use the
name of deceased partners.
Use of Name of Deceased Partners – Allowed only when the
firm indicates in all its communications that the said partner
is deceased.
LIABILITIES OF INCLUSION OF NAME – persons
who are not partners but include their names in the firm
name do no acquire a partner’s right. Only the liabilities
insofar as 3rd persons without notice are concerned.
DISSOLUTION AND WINDING
UP
1828 Effects of change in membership.
3 Stages during the end of a partnership.
1. DISSOLUTION – change in the relation of partners
caused by any partner ceasing to be associated in the
carrying on of a business. Does not necessarily mean that
the business ceases to exist for the partners.
Partnership is not terminated.
Partnership continues for a limited purpose.
- making good all outstanding engagements,
settling all accounts, collecting all property,
Transactions of new business are prohibited.
- No new business should be undertaken, but
Affairs should be liquidated and distribution
made to those entitled to a partner’s interest (1812)
2. WINDING UP – actual process of settling the partnership
affairs after dissolution; involves collection and distribution
of partnership assets, payment of debts, and determination of
the value of each partners’ interest (1812) in the partnership.
3. TERMINATION – all partnership affairs are completely
wound up and finally settled; signifies the end of the
partnership life.
1830 Causes of Dissolution (Extra Judicial)
1. Effected without violation of Partnership Agreement in
GOOD FAITH
a. Termination of definite term/particular undertaking
b. Express WILL of ANY partner in Good Faith
c. Express WILL of ALL partners (may also be
implied/unanimous)
d. Expulsion of any partner done in Good Faith
e. If any of the abovementioned are done in bad faith, such
affected members may claim damages.
f. May be vested in 1 partner exclusively.
2. Effected in contravention of partnership agreement.
a. Partner can withdraw any time without consent of others
if there is sufficient reason (must be done expressly)
b. Delectus Personae
3. Business becomes UNLAWFUL – involuntary;
appointment of a position; conflict of interest; contrary to
law to continue business.
4. Loss of a specific thing
a. BEFORE delivery
- Partnership is dissolved; no contribution as to the thing
contributed cannot be substituted with another.
b. AFTER delivery
- Partnership is NOT dissolved; but it assumes the loss of a
thing having acquired ownership; may contribute additional
capital to save venture.
c. USE/ENJOYMENT only CONTRIBUTED
- Partner who reserved ownership cannot fulfill his
undertaking to make available the sue of the specific thing
contributed.
- Partner bears loss; considered in default with respect to his
contribution.
5. DEATH of a partner – any deceased partner ceases to be
associated in the carrying of business.
GR: Ipso facto dissolution of partnership.
XPN: Clause in the articles of partnership providing for the
continuation of the partnership even after death of one of the
partners.
1831 Judicial Dissolution.
1. Application by a partner
a. Insanity
b. Incapacity
c. Misconduct and persistent breach of partnership
agreement (permanent mischief)
d. Business can be carried out only at a loss.
e. Other circumstances
- abandonment of business
- Fraud in the management of business
- Refusal w/o justifiable cause to render accounting of
partnership affairs.
2. Application by a purchaser of a partner’s interest:
a. After termination of a specified term/particular
undertaking
b. Any time if Partnership was at will when the interest was
assigned when the changing issue was issued.
1839
PRIORITY SYSTEM FOR DISTRIBUTION OF
PARTNERSHIP PROPERTY / SETTLING ACCOUNTS:
1. Assets of partnership:
 Partnership property (including good will)
 Contributions of partners for payment of all
liabilities
2. Order of application of assets:
 Owing to partnership creditors
 Owing to partners other than for capitals and profits
such as loans / advances
 Owing for the return of capital contributed by the
partners
 If any asset is left, shall be contributed as profits to
partners proportionally
3. Loans and advances by partners:
 Capital contributions are returnable only on
dissolution
 Loans are payable at maturity
 Accumulated profits may be withdrawn at any time
by majority’s consent
L & A = amounts paid into the partnership in excess of a
partner’s capital contribution
4. Capital contributed by partners:
 If assets are insufficient to repay capital investments,
the deficit is a capital loss w/c requires contribution
 Return of amount equivalent to capital contribution of
each partner shall be increased by his share of undistributed
profits / decreased by his share of net losses
 Industrial:
 GR: not entitled to any of firm capital on
dissolution
 XPN: if there is an agreement
 Total capital contribution is not equal to gross assets
to be distributed to the partners during dissolution
5. Rights of partner where assets are insuffici ent:
 A partner / his legal rep (to the extent of amount w/c
he has paid in excess of his share of liability)
 Assignee, for the creditor’s benefit
 Any person appointed by court
 Will have the right to enforce the contributions of
the partners
 If any partner does not pay, others will have to pay
 REMEDY: can sue non-paying partner for
indemnification
6. Liability of deceased partner’s individual property
 Liable for his share of contribution necessary to satisfy
the liabilities of the partnership incurred while he was a
partner
7. Priority of payments:
DOCTRINE OF MARSHALLING ASSETS:
a. Partnership property – pay first the partnership
creditors
b. Individual property – pay first separate creditors
8. Distribution of insolvent partner’s property:
PRINCIPLE OF EQUITY:
a. Owing to separate creditors
b. Owing to partnership creditors
c. Owing to partners thru contribution
 REMEDY OF SEPARATE CREDITOR: Can execute
against asset of the firm only to the extent of the interest of
the partner in firm assets