Article 1767 1809 Partnership

- 2 or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves. - 2 or more person may also form a partnership for the exercise of a profession. - A partnership begins from the moment of the celebration of the contract, unless otherwise stipulated. (Article 1784) - As long as the essential requisites are present even when the partners have not yet given their contributions or fixed the conditions or details of the partnership (accidental), there is already a partnership.

Other definitions
1) 2) 3) 4) 5) 6) Association Legal Relation Undertaking Status Organization Entity

As a Profession
- The practice of a profession is not a business or enterprise for profit. - The law does not allow individuals to practice a profession as a corporate entity. - Personal qualifications (age, good moral character, college degree) for such practice cannot be possessed by a corporation.

Elements of a Partnership
1) 2) 3) 4) 5) 6) Consensual perfected by mere consent. Nominate it has a special name or designation. Bilateral both parties are bound reciprocally. Onerous both expects to benefit through the giving of something. Principal does not depend on another contract for its validity. Preparatory it is entered as a means to an end, the realization of profits.

Features of Partnership
1) 2) 3) 4) Valid contract Legal capacity to contract Mutual contribution of money, property or industry Purpose must be to obtain profit and divide it among themselves - There must be intention to divide the profits among the members, although not necessarily in equal shares. - The distribution of losses is but a consequence of the same. - Stipulation to exclude a partner from a share of profit or loss is void.

General Rule
- Any person may be a partner who is capable under the law of entering into contractual relations.

Cannot Give Consent To A Contract Of Partnership

1) 2) 3) 4) 5) Minors Insane or demented persons Deaf-mutes who do not know how to write Persons suffering from civil interdiction Incompetents who are under guardianship

Exception
- Under Article 1782, persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership because such contribution is considered a donation. A married woman may enter into a contract of partnership even without her husband s consent, but the husband may object under certain conditions. - Both spouses may enter into a particular partnership.

Forms of Contribution
a) Money there is no contribution of money until they have been cashed. b) Property may be real or personal, tangible or intangible. c) Industry a limited partner in a limited partnership cannot contribute mere industry or service. - partners can stipulate the contributions of unequal shares to the common fund, absent the stipulation, the presumption is that it shall be in equal shares. (Article 1770) - principle is consistent with rule that partners have equal rights. - future properties cannot be contributed since contributions need to be determinate things. - property acquired by inheritance, legacy or donation cannot be included by stipulation except the fruits thereof, any such stipulation is void. - they may be included only by express stipulation.

As a Juridical Person
- A partnership may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal actions in conformity with the laws, and regulations of its organization.

Persons Not Partner As To Each Other

1) Partnership is a matter of intention, and where the parties expressly declare they are not partners, this settles the question as between themselves. 2) Exception from Article 1769 p1 is the partnership by estoppel. Thus, where a person by their acts, consent or representations have mislead third persons or parties into believing that the former are partners in a non existing partnership, such persons become subject to liabilities of partners to all who, in good faith, deal with them in their apparent relations. (Art. 1825)

Incidents of Partnership
1) Partners share in profit and losses. 2) Equal rights in the management and conduct of partnership business. 3) Every partner is an agent of the partnership is an agent of the partnership and entitled to bind the other partners by his acts, for the purpose of its business. 4) All partners are personally liable for the debts of the partnership with their separate property except that limited partners are not liable beyond their capital investment. 5) A fiduciary relation exists between the partners.

6) On dissolution, the partnership is not terminated, but continues until the winding up of the partnership is completed.

Effects of an Unlawful Partnership

1) The contract is void ab initio. 2) The profits shall be confiscated in favour of the government. 3) The instruments or tools and proceeds of the crime shall be forfeited in favor of the government. 4) The contribution of the partners shall not be confiscated unless they fall under no. 3. - A judicial decree is not necessary to dissolve an unlawful partnership, except for the convenienceand peace of mind of the parties.

General Rule
- no special form is required for the validity or existence of the contract of partnership.

Exceptions
1) The capital of partnership is 3 thousand or more in which case it must appear in a public instrument and registered with the SEC. 2) Real property is donated to the partnership then it must be an inventory signed by the parties and registered with the Registry of Deeds.

Classification of Partnership
1) Universal Partnership refers to all the present property or to all the profits. a) all present property partners contribute all their present property to the partnership with the intention of dividing the profits among themselves. b) all profits the partners retain their ownership over their present and future property, what passes to the partnership are the profits and or income and the usufruct or use of the same. 2) General Partnership partners liable pro rata and subsidiarily, sometime solidarily with their separate property for partnership debts. 3) Limited Partnership has one or more general partners and one or more limited partners, the limited partner not being personally liable for the obligations of the partnership. 4) Partnership At Will has no time specified and not formed for a specific undertaking and may be terminated anytime by mutual agreement or by will of one partner alone. 5) Partnership With A Fixed Term has for its term a fixed period and is formed for a specific undertaking. - expires upon accomplishment of the particular undertaking. - expires upon end of its term. 6) De Jure Partnership or one which has complied with the legal requirements for its establishment. 7) De Facto partnership or one which has failed to comply with the legal requirements for its establishment. 8) Ordinary or Real Partnership or one which actually exists among the partners and also as to third persons. 9) Ostensible or by Estoppel or not a real partnership but is considered one only for to those who, by their conduct or admission, are precluded to deny or disprove its existence.

Kinds of Partners
a) Capitalist Partner one who contributes money or property to a common fund. - can engage in other business but not the same as the partnership.

unless there is a stipulation to the contrary. general rule: a capitalist partner is not bound to contribute more than what he agreed to contribute. b) Industrial Partner one who contributes only his industry or personal service. - cannot engage in other business, rule is absolute. - to prevent conflict between industrial partner and partnership. - to ensure faithful compliance by said partner with his obligation. c) General Partner one whose liability to third persons to third persons extends to his separate property. d) Limited Partner one whose liability to third persons is limited to his capital contribution, also known as a special partner, does not participate in the management of the business. e) Managing Partner - one who manages the affairs of the partnership. f) Liquidating Partner one who takes charge of the winding up of partnership affairs upon dissolution. g) Partner by Estoppel one who is not really a partner, but is liable as a partner for the protection on innocent third persons. h) Continuing Partner one who continues the partnership after it has been dissolved i) Surviving Partner one who remains after a partnership has been dissolved by reason of the retirement, death or expulsion of the partner. j) Subpartner -one not being a membership of the partnership, contracts with a partner. k) Ostensible Partner - one who takes active part and known to the public as a partner in the business. l) Secret Partner one who takes active part in the business but not known to be a partner by the public. m) Silent Partner one who does not take any active part in the business although he may be known to be a partner. n) Dormant Partner - one who does not take active part in the business and is not known or held out as a partner. o) Original Partner one who is a member of the partnership from the time of its organization. p) Incoming Partner about to be taken into a partnership as a member. q) Retiring Partner one who withdraws from the partnership.

Presumption
Where the article of partnership do not specify the nature of the partnership, whether it is of property or profits only, it is presumed that it is of profits. - The reason is that this imposes less obligations on the partners since they preserve the ownership of their separate property. - This applies only when a universal partnership is organized.

Relations Created by the Contract of Partnership

4 distinct juridical relations are created: 1) Among the partners themselves 2) Partners with the partnership 3) Partnership with third persons with whom it contracts 4) Partners with such third persons

Obligation of Partners
1) To contribute at the beginning of the partnership or at a stipulated time the money, property or industry which he may have promised to contribute. 2) To answer for eviction in case the partnership is deprived of the determinate property contributed.

3) To answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should be contributed up to the time of actual delivery. 4) To preserve such property with diligence of a good father of a family pending delivery to the partnership. (Article 1163) 5) To indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its contribution. (Article 1788, 1170)

Remedy and Liability of Partner failure to contribute

- action for specific performance with damages from the defaulting partner. in case of eviction - Is bound in the manner a vendor is bound to the vendee. delay in fruits - no demand is necessary.

Appraisal of Goods or Property Contributed

1) in the absence of stipulation, the share of each partner in the profits and losses is in proportion to what he may have contributed. (Article 1797) 2) the appraisal is made firstly, in the manner prescribed by the contract of partnership, secondly, in the absence of stipulation, by experts chosen by the partners and according to the current prices. 3) after the goods have been contributed, the partnership bears the risk or gets the benefit of subsequent changes in their value. - In case of immovable property, the appraisal is made in the inventory of the property (Article 1773), otherwise 1787 will apply.

Obligations With Respect to Contribution of Money and Money Converted to Personal Use
1) to contribute on the date due the amount he has undertaken to contribute to the partnership. 2) to reimburse any amount he may have taken from the partnership coffers and converted to is own use. 3) to pay the agreed or legal interest, if he fails to pay his contributions on time or in case he takes any amount from the common fund and converts it to his own use. 4) to indemnify the partnership for the damages caused to it by the delay in the contribution or the conversion of any sum for his personal benefit.

Remedies Against Industrial Partner Who Engages in Another Business

- capitalist partners have a right either to exclude him from the partnership or to avail themselves of the benefits which he may have obtained.

Obligation of Capitalist Partner to Contribute Additional Capital

- in case of imminent loss of business, and no agreement to the contrary, he is under obligation to contribute additional share to save the venture. - if he refuses to contribute, he shall be obliged to sell his interest to the other partners.

Requisites
1) 2) 3) 4) imminent loss of business. majority of partners agree that additional contribution will save the business. capitalist partner refuses to contribute. no agreement among partners that they will not contribute.

- refusal to contribute shows lack of interest in the continuance of the partnership.

Obligation of Managing Partner Who Collects Debt

- if person is indebted to both the partner and the partnership. - any sum received by the managing partner shall be applied to the two credits in proportion to their amounts. - except if the amount is received for the partnership, in which case the whole amount shall be applied to the partnership. - the article does not apply where the partner who collects . - based on community of interest among partners.

Requisites for Application of Rule

1) there exists at least 2 debts, and 2 creditors, the partner and the partnership. 2) both debts are demandable. 3) the partner who collects is authorized to manage and actually manages the partnership which is the underlying principle of partnership.

Obligation of Partner for Damages to Partnership

- follows the general rule under Article 1170. - The partners fault must be determined in accordance with the nature of the obligation and the circumstances of the person, time and the place.

Compensation of Damages
- As a general rule, the damages caused by a partner to the partnership cannot be compensated or offset by the profits or benefits which he may have earned of the partnership by his industry. - Exception if unusual profits are realized through the extraordinary efforts of the partner at fault, the courts are authorized by law to equitably mitigate or lessen his liability for damages.

Risk of Loss of Things Contributed

1) Specific and determinate things which are not fungible where only the use is contributed the risk is borne by the partner, because he remains the owner. 2) Specific and determinate things the ownership of which is transferred to the partnership the risk is for the account of the partnership, being the owner. 3) Fungible things even if contributed only for the use of the partnership risk is borne by the partnership for evidently the ownership was being transferred since use is impossible without the things being consumed or impaired. 4) Things contributed to be sold the partnership bears risk of loss for there cannot be any doubt that the partnership was intended to be the owner, otherwise, the partnership cannot effect the sale. 5) Things brought and appraised partnership bears the risk of loss because the intention of the parties was to contribute to the partnership the price of the things contributed with an appraisal in the inventory.

Responsibility of Partnership Partners

- Absence of stipulation to the contrary, every partner is an agent of the partnership for the purpose of its business, hence the ff obligation: 1) To refund amounts disbursed by him in behalf of the partnership plus the corresponding interest from the time the expenses are made. 2) To answer for the obligation he may have contracted in good faith in the interest of the partnership business. 3) To answer for risk in consequence of its management.

Distribution of Profits and Loss

1) Distribution of Profits The partners share the profits according to their agreement without violating Article 1799. Absent such agreement, the share shall be in proportion to its capital contribution. Share of industrial partner shall be satisfied first before the capitalist partners divides the profits.

2) Distribution of Losses - Losses shall be shared according to 1799. - Absent such agreement, the share of each in losses shall be in accordance of profit-sharing ratio, but industrial partners shall not be liable. - Absent a no profit-sharing stipulation in the contract, then losses shall be borne by partners in proportion to their capital contributions, but industrial partners shall not be liable. - Industrial partners are exempt from the share in loss because he cannot withdraw the work or labor already done by him, unlike the capitalist partner who can withdraw their capital.

Distribution of Share in Profits and Loss by Third Persons

- Can be delegated to third persons by common consent. - Binding to partners unless manifestly inequitable. - Failure to impugn it within 3 months (to prevent paralysation in operation of business) becomes binding, partner is deemed guilty of estoppels or have given his consent to it.

Stipulation on Exclusion from Profits

- Is void. - The partnership must exist for the common benefit and interest of the partners.

2 Distinct Cases of Appointment

1) Appointment as manager in the articles of partnership - May execute all the acts of the acts of administration notwithstanding the opposition of the other partners unless he should act in bad faith. - His power is irrevocable only upon just and lawful cause and upon the vote of the partners representing the controlling interest. - The reason for this principle is that revocation represents a change in the terms and condition of the contract.

2) Appointment as manager after constitution of the partnership - It is merely a contract of agency. - Can be revoked anytime. - The appointment not being a condition of the contract.