PARTNERSHIP NOTES CHAPTER 1

GENERAL PROVISIONS

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. Two or more
persons may also form a partnership forth exercise of a profession.

CHARACTERISTICS OF THE CONTRACT

consensual
nominate
principal
bilateral or multilateral
onerous
preparatory

ESSENTIAL FEATURES OF PARTNERSHIP

there must be a valid contract

(Delectus personae) no one can become a member of partnership associations without the
consent of all the other associates
the parties must have a legal capacity to enter into the contract
The ff. cannot give their consent to contract of partnership
a. unemancipated minors
b. insane or demented persons
c. deaf mutes who do not know how to write
d. person who are suffering from civil interdiction
e. incompetents who are under guardianship
(Married woman may enter into the contract of partnership even without the consent of his
husband, but the latter may object under certain conditions)

*there is no prohibition against partnership being a partner in another partnership. Unless

authorized by law, Corporation is without capacity or power into a contract of partnership*

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

(Without contribution theres no partnership)
a. Money- there is no contribution of money until those checks have been cashout.
b. Property- (real/personal)(movable/immovable)
c. Industry- work or services(manual effort or intellectual)
 Object must be lawful
Object is unlawful when it is contrary to (law, morals, good customs, public order, public
policies) (void)
The purpose or primary purpose must be obtain profits and to divide the same among
the parties
(Preparatory) (Parties intend to share the profits in certain proportions)

Sharing of Profits (prima facie evidence)

(Partnership is for common benefit or interest of the partners, it is necessary that there be an
intention to divide the profits, among the members, not necessary in equal share)
Sharing of Losses
(Similar to sharing of profits)

Article 1768
The partnership has a juridical 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.
Effect of failure to comply with statutory requirements
(Article 1772. Every contract of partnership having acapital of three thousand pesos or more,
in money or property, shall appear in a public instrument, whichmust be recorded in the Office
of the Securities andExchange Commission.)

The partnership in general can:

1. Acquire and possess property of all kinds
2. Incur obligations
3. Bring civil and criminal actions
o Be adjudged insolvent even if the individualmember are financially solventUnless he is
personally sued, a partner has no right tomake a separate appearance in court, if
thepartnership being sued in already represented.
o If an association is not lawfully organized as apartnership, it possesses no
legal personality therefore, it cannot sue as such.
o One who enters into a contract with a partnership as
such cannot when sued later on for recovery of thedebt allege the lack of legal personality on
the part ofthe firm, even if indeed it has no personality.(borrower as the case may be is
in estoppel)

Article 1769.

In determining whether a partnership exists, theserules shall apply:

(1) Except as provided by article 1825, persons whoare not partners as to each other are not partners
asto third persons;

(2) Co-ownership or co-possession does not of itselfestablish a partnership, whether such-co-owners

or co-possessors do or do not share any profits made by theuse of the property;

(3) The sharing of gross returns does not of itselfestablish a partnership, whether or not the
personssharing them have a joint or common right or interestin 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:

(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 adeceased partner;

(d) As interest on a loan, though the amount ofpayment vary with the profits of the business;

(e) As the consideration for the sale of a goodwillof a business or other property by installments
orotherwise.

PROOF NEEDED TO ESTABLISH A PARTNERSHIP

No definite criterion can be set up except that allthe characteristics of the contract must be proved as
being present.

Rules to determine existence of partnership

1. Persons not partners as to each other
(If they are no partners to each other, they cannot be partners to third persons)
(But if person by his acts, consent or representation have misled third person into believing that
he former is are partners in non-existing partnership, such person is subject to liabilities of
partners to all who, in good faith, deal with them in their apparent relation)
2. Co-ownership or co-possession
(The profits must be derived from the operations of the business or undertaking by the
members of the associations and not merely from property ownership.)
3. Sharing of gross returns
(The partners must share profits after satisfying the partnerships liability)
4. Receipt of share in the profits
(An agreement to share profits and losses tends strongly to establish the existence of a
partnership, and conversely.)
 Test and incidents of partnership
(Determining whether a partnership exists)
Partners share profit and loss
They have equal rights I management and conduct
Every partner are agent of the partnership(entitled to bind other partner by his act)
All partner are personally liable for the debts, with their separate property (except limited
partner)
A fiduciary relation exist
On dissolution, a partnership is not terminated, but continues until winding up is completed.
Distinguished Partnership Co-Ownership
Creation Always created by a contract By law, even without contract
Juridical Personality Has JP, separate and distinct none
Purpose Realization of profits Enjoyment of the thing or right
Duration No limitation An agreement to keep the thing
undivided for more than 10 yrs.
is not allowed
Disposal of interest May not dispose his individual May freely do so
interest
Power to act with third A partner may bind the Co owner may not bind other
person partnership co owner
Effect of death Result in dissolution Dissolve the co ownership

Distinguished Partnership Corporation

How created A partnership is created by A corporation is created by the
agreement of the parties state in the form of a special
character or a general enabling
law

How long it exists No time limit, except agreement of
the parties
Liability to strangers may be liable with their private
property beyond their contribution
to the firm
Transferability of The transfer of his interest to
interest another does not make the
transferee a partner unless all other
partners consent
Not more than 50 years,
may be reduced but never
extended
liable only for their payment of
their subscribed stock
Transfer of interest makes
the transferee stockholder,
even without the consent of
the others
Ability to bind firm Generally, partners acting on behalf Generally the stockholders
of the partnership are agents thereof; cannot bind the corporation
consequently they can bind the firm since they are not agents
and the partners thereof
Mismanagement A partner can sue a partner who A stockholder cannot sue the
mismanages board of director who
mismanages: the
action must been the name of
the corporation
P
Nationality National of the country it was National of the country under
A created whose laws it was incorporated,
R except for wartime purposes or
T for the acquisition of land,
N natural resources and the
E operation of public utilities
R
Attainment of legal Firm becomes a juridical Firm becomes a juridical
S
personality personality from the time the person from the time it is
H contract begins registered with the SEC and
I all requisites have been
P complied with
Dissolution Death, retirement, insolvency, civil Such cause does not dissolve the
V interdiction, or insanity of partner firm
dissolves the firm