contract of partnership

PARTNERSHIP PRELIMINARY EXAMINATION COVERAGE

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amgisidroMEMORY AIDPARTNERSHIP PRELIMINARY EXAMINATION COVERAGE(ARTICLES 1767-1817, NCC)

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DEFINITION REQUISITES

ENUMERATION DISTINCTION

RULE * INCORPORATED IN CLASS DISCUSSIONS


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GENERAL PROVISIONSARTICLES 1767-1783

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CONTRACT OF PARTNERSHIP*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. (Art. 1767, NCC)

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PROFESSIONA group of men pursuing a learned art as a

common calling in the spirit of public service

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CHARACTERISTIC ELEMENTS OF PATNERSHIP (CBCPON-P)*

1. CONSENSUAL – perfected by mere consent2. BILATERAL – entered into by two or more persons whose rights and obligations

are reciprocal3. COMMUTATIVE – undertaking of each of the partner is considered as the

equivalent of that of the others4. PRINCIPAL – does not depend upon any other contract for its validity or

existence5. ONEROUS – each of the parties aspires to procure for himself a benefit through

contributing money, property or industry to a common fund6. NOMINATE – has a special name or designation in our law7. PREPARATORY – a means by which other contracts will be entered into as the

partnership pursues its business

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ESSENTIAL FEATURESOF PARTNERSHIP*

1. Valid partnership contract;2. Parties must have legal capacity;3. Mutual contribution of money, property, or

industry to a common fund;4. Object must be lawful; and5. Obtain profits and to divide the same among

the parties (as primary purpose)amgisidro


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ELEMENT OF DELECTUS PERSONAEChoice of the person or choice of the persons

(The right to choose with whom a person wishes to associate or continue to associate himself is the very foundation and essence of partnership.)

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FIDUCIARY RELATIONSHIP*The relation between the partners which

essentially involves mutual trust and confidence, each partner being considered in law, as he is in

fact, the confidential agent of the others

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THOSE WHO CANNOT GIVE THEIRCONSENT TO A CONTRACT OF PARTNERSHIP

1. Unemancipated minors;2. Insane or demented persons;3. Deaf-mutes who do not know how to write;4. Persons who are suffering from civil interdiction; and5. Incompetents who are under guardianshipIN ADDITION (relative incapacity):6. Spouses or those living together as husband and wife without a

valid marriage to enter into a universal partnership7. Corporations (unless authorized by law)

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FORM OF CONTRIBUTION (MPI)• Money• Property• Industry

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RULES TO DETERMINEEXISTENCE OF PARTNERSHIP*

1. 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;

3. The sharing of gross returns does not of itself establish a partnership; however,

4. Receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner

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EXCEPTION, ARTICLE 1769(4), NCC*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 a deceased partner;d) As interest on a loan, though the amounts 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. amgisidro


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DOCTRINE OF ESTOPPELOne where persons by their acts, consent, or representations have misled third persons or

parties into believing that the former are partners in anon-existing partnership – such

persons become subject to liabilities of partners to all who, in good faith, deal with them in their

apparent relations

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CO-OWNERSHIPOwnership (or possession) of an undivided thing

or right belongs to different persons

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PARTNERSHIP vs. CO-OWNERSHIPContract Creation Law

Separate and distinct from that of each partner Juridical personality None

Realization of profits Purpose Common enjoyment of a thing or right

No limitation DurationAn agreement to keep the thing

undivided for more thanten years is not allowed

GR: Partner, not allowedEXC: Agreement by all of the partners Disposal of interests Co-owner may freely do so

Partner may bind the partnership Power to act with third persons

Co-owner cannot representthe co-ownership

Dissolved Effect of death Not dissolved

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CONJUGAL PARTNERSHIP OF GAINSA partnership formed by the marriage of husband and

wife by virtue of which, they place in a common fund the fruits and income from their separate properties and

those acquired through their efforts or by chance, and unless otherwise agreed in the marriage settlements, divide equally, upon the dissolution of the marriage or the partnership, the net gains or benefits obtained by

either or both of them during the marriage (Art. 206, FC)

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PARTNERSHIP vs. CONJUGAL PARTNERSHIP OF GAINS

Partners belonging to either sex Parties Future spouses – a man and a woman

Stipulation of the parties Governing laws Law

Separate and distinct from that of each partner Juridical personality None

GR: Execution of the contractEXC: Contrary stipulation Commencement On the date of the celebration of

marriage; contrary stipulation is void

Realization of profits Purpose Regulate property relations of spouses

Agreement or pro-rata Distribution of profits Divided equally

GR: Shared equallyEXC: Appointment of managing partners Management Jointly; husband’s decision prevails

in case of disagreementMay be disposed of even without the consent of the other partners

Disposition of shares Cannot be disposed

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PARTNERSHIP vs.VOLUNTARY ASSOCIATION

Separate and distinct from that of each partner

Juridical personality None

Realization of profits Purpose Not apparentContribution of capital either in the form of money, property, or industry

Contributions of members

No contribution of capital

Partnership is the one liable in the first place Liability of members Members are

individually liable

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EFFECTS OFUNLAWFUL PARTNERSHIP*

1. Contract is void ab initio and the partnership never existed in the eyes of 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; and4. Contributions of the partners shall not be confiscated

unless they be also proceeds of the crime

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FORM OF PARTNERSHIP CONTRACT*

General Rule: No special formException:a) Personal property (capital of Php3,000 or more)

1. Contract must be in a public instrument; and2. Recorded or registered with the Securities and Exchange Commission

b) Immovable or real property1. Contract must be in a public instrument; and2. An inventory of the property contributed must be made, signed by

the parties, and attached to the public instrument.

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PARTNERSHIP WITH CONTRIBUTION OF IMMOVABLE PROPERTY, TO BE VALID*

1. Contract must be in a public instrument;2. Inventory of the property contributed must

be made;3. Signed by the parties; and4. Attached to the public instrument

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CLASSIFICATIONS OF PARTNERSHIP*1. Universal partnership2. Particular partnership3. General partnership4. Limited partnership5. Partnership at will6. Partnership with a fixed term7. De jure partnership8. De facto partnership9. Ordinary or real partnership10. Ostensible partnership or partnership by estoppel11. Secret partnership12. Open or notorious partnership13. Commercial or trading partnership14. Professional or non-trading partnership

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AS TO THE EXTENT OFITS SUBJECT MATTER*

1. Universal partnershipOne which refers to all the present property or to all

profits2. Particular partnership

One which has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation; one which is neither a universal partnership of present property nor a universal partnership of profitsamgisidro


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AS TO LIABILITY OF THE PARTNERS*1. General partnership

One consisting of general partners who are liable pro rata and subsidiarily, sometimes solidarily, with their separate property for partnership debts2. Limited partnership

One formed by two or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnershipamgisidro


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AS TO ITS DURATION*1. Partnership at will

One in which no time is specified and is not formed for a particular undertaking or venture and which may be terminated anytime by mutual agreement of the partners, or by the will of any one partner alone, or one for a fixed term or particular undertaking which is continued by the partners after the termination of such term or particular undertaking without express agreement2. Partnership with a fixed term

One in which the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking, and upon the expiration of the term or completion of the particular enterprise, the partnership is dissolved, unless continued by the partners

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KINDS OF PARTNERSHIP AT WILL*1. Partnership without a fixed duration2. Partnership with a fixed term or particular

undertaking which is continued by the partners after the termination of such term or particular undertaking without express agreement

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AS TO THE LEGALITY OF ITS EXISTENCE

1. De jure partnershipOne which has complied with all the legal

requirements for its establishment 2. De facto partnership

One which has failed to comply with all the legal requirements for its establishment

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AS TO REPRESENTATION TO OTHERS

1. Ordinary or real partnershipOne which actually exists among the partners and

also as to third persons2. Ostensible partnership or partnership by estoppel

One which in reality is not a partnership, but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existenceamgisidro


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AS TO PUBLICITY*1. Secret partnership

One wherein the existence of certain persons as partners is not avowed or made known to the public by any of the partners2. Open or notorious partnership

One whose existence is avowed or made known to the public by the members of the firmamgisidro


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AS TO PURPOSE1. Commercial or trading partnership

One formed for the transaction of business2. Professional or non-trading partnership

One formed for the exercise of a profession

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KINDS OF PARTNERSUNDER THE CIVIL CODE*

1. Capitalist partner2. Industrial partner3. General partner4. Limited partner5. Managing partner6. Liquidating partner7. Partner by estoppel8. Continuing partner9. Surviving partner10. Subpartner

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KINDS OF PARTNERS(OTHER CLASSIFICATIONS)*

1. Ostensible partner2. Secret partner3. Silent partner4. Dormant partner5. Original partner6. Incoming partner7. Retiring partner

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AS TO NATURE OF CONTRIBUTION*

1. Capitalist partnerOne who contributes money or property to

the common fund2. Industrial partner

One who contributes only his industry or personal service

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AS TO LIABILITY*1. General partner

One whose liability to third persons extends to his separate property; he may either be a capitalist or industrial partner2. Limited partner / special partner

One whose liability to third persons is limited to his capital contribution; he does not participate in the management of the businessamgisidro


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AS TO NATURE OFMANAGEMENT WORK*

1. Managing partnerOne who is authorized and actually manages the

affairs or business of the partnership; he may be appointed in the articles of partnership or after the constitution of the partnership2. Liquidating partner

One who takes charge of the winding up of partnership affairs upon dissolutionamgisidro


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AS TO REPRESENTATION*1. Partner by estoppel / partner by

implication / nominal partner / quasi-partner

One who is not really a partner, not being a party to a partnership agreement, but is liable as a partner for the protection of innocent third persons; liable for the debts of the firm to those who in good faith believed him to be a partneramgisidro


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AS TO OCCURRENCE OF DISSOLUTION*

1. Continuing partnerOne who continued the business of a partnership

after it has been dissolved by reason of the admission of new partner, or the retirement, death, or expulsion of one or more partners2. Surviving partner

One who remains after a partnership has been dissolved by the death of any partneramgisidro


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SUBPARTNEROne who, not being a member of the

partnership, contracts with a partner with reference to the latter’s share in the partnership;

a person whom a partner may associate with him in his share without the consent of the other

partners

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AS TO KNOWLEDGE BY THE PUBLIC*

1. Ostensible partnerOne who takes active part and known to the public

as a partner in the business, whether or not he has an actual interest in the firm; if he is not actually a partner, he is subject to liability by the doctrine of estoppel2. Secret partner

One who contributes only his industry or personal serviceamgisidro


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AS TO POWER INPARTNERSHIP MANAGEMENT*

1. Silent partnerOne who does not take any active part in the business

although he may be known to be a partner; if he withdraws from the partnership, he must give notice to those persons who do business with the firm to escape liability in the future2. Dormant partner / sleeping partner

One who does not take active part in the business and is not known or held out as partner; both a silent and a secret partneramgisidro


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AS TO TIME OF ADMISSION/WITHDRAWAL*

1. Original partnerOne who is a member of the partnership from the

time of its organization2. Incoming partner

A person lately, or about to be, taken into a partnership as a member3. Retiring partner / withdrawing partner

One withdrawn from the partnershipamgisidro


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UNIVERSAL PARTNERSHIPOF ALL PRESENT PROPERTY*

A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith (Art. 1778, NCC)

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PROPERTY INCLUDED (p.42)*1. Property belonging to the partners at the time of the

constitution of the partnership (present property)2. Profits that may be acquired from the present property3. Property acquired by each partner after the formation of

the partnership but only if stipulated and shall include:a) The property itself except that the stipulation shall not

include property acquired by inheritance, legacy, or donationb) The profits and fruits therefrom including those from

property acquired by inheritance, legacy or donation

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UNIVERSAL PARTNERSHIP OF PROFITS*

One which comprises all that the partners may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract

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PROPERTY INCLUDED (p.44)*1. Profits obtained by the partners by their work or industry

during the existence of the partnership(those acquired by chance or lucrative title are excluded)2. The usufruct (the use) of the property belonging to each

partner at the time of the constitution of the partnership3. The profits and fruits from the properties aforementioned

(Nos. 1 & 2)4. Profits and fruits, if stipulated, of property acquired by each

partner after the constitution of the partnership

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OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES

ARTICLES 1784-1809

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RELATIONS CREATED BY ACONTRACT OF PARTNERSHIP

1. Among the partners themselves;2. Partners with the partnership;3. Partnership with third persons with who it

contracts; and4. Partners with such third persons

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OBLIGATIONS OF THE PARTNERS WITHRESPECT TO CONTRIBUTION OF PROPERTY*

1. To contribute at the beginning of the partnership or at the 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; and

3. To answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery

IN ADDITION:4. To preserve said property with the diligence of a good father of a family pending

delivery to the partnership; and5. To indemnify the partnership for any damage caused to it by the retention of the

same or by the delay in its contribution

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WHAT ARE TO BE DELIVERED*1. Fruits

a) Natural fruitsb) Industrial fruitsc) Civil fruits

2. Accessories3. Accessions

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EVICTIONOne that shall take place whenever by a final judgement based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or a part of the thing purchased

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ESSENTIAL ELEMENTS FOR EVICTION*

1. Final judgment;2. Purchaser has been deprived in whole or in part of the

thing sold;3. Deprivation was by virtue of a right prior to the sale (or

one imputable to the seller) effected by the seller;4. Vendor has been previously notified of the complaint

for eviction at the instance of the purchaser

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RULE AS TO APPRAISAL OF GOODSOR PROPERTY CONTRIBUTED*

1. Stipulation on the contract of partnership2. In the absence of stipulation, by experts

chosen by the partners and according to current prices

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INSTANCES WHERE OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF MONEY AND MONEY CONVERTED TO PERSONAL USE ARISE

a) Money promised but not given on time; orb) Partnership money converted to the personal

use of the partner

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OBLIGATIONS WITH RESPECT TO CONTRIBUTION OFMONEY AND MONEY CONVERTED TO PERSONAL USE*

1. To contribute on the due date 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 his own use;

3. To pay the agreed or legal interest, if he fails to pay his contribution on time or incase he takes any amount from the common fund and converts it to his own use; and

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

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PROHIBITION ONCAPITALIST PARTNERS*

RELATIVE PROHIBITIONGeneral Rule: Of the kind of business in which the partnership is engagedException: Contrary stipulationEffect of violation:1. Bring to the common fund any profits accruing to him; and2. In case of losses, he shall bear them alone(if not the same kind of business: allowed so long as partnership does not prohibit such activity)amgisidro


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PROHIBITION ONINDUSTRIAL PARTNERS*

ABSOLUTE PROHIBITIONGeneral Rule: Cannot engage in business for himselfException: Expressly permitted by the partnershipEffect of violation:1. Exclude industrial partner from the firmwith damages;

or2. Avail themselves of the benefits which he may have

obtained with damagesamgisidro


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REQUISITES FOR APPLICATION OF RULE ON OBLIGATION OF CAPITALIST PARTNER TO CONTRIBUTE ADDITIONAL CAPITAL*

1. Imminent loss of the business of the partnership;2. Majority of the capitalist partners are of the opinion that an

additional contribution to the common fund would save the business;

3. Capitalist partner refuses (deliberately, not because of his financial inability to do so) to contribute additional share to the capital; and

4. No agreement that even in case of an imminent loss of the business the partners are not obliged to contribute

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RULE ON OBLIGATION OF MANAGING PARTNER WHO COLLECTS DEBT*

a) Account of the partner credit1. Partner2. Partnership(in proportion their amounts, without prejudice to the right granted to the debtor if personal credit to the partner should be more onerous to him)

b) Account of the partnership credit1. Partnership alone

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REQUISITES FOR APPLICATION OF RULE ON OBLIGATION OF MANAGING PARTNER WHO COLLECTS DEBT*

1. At least two debts, one where the collecting partner is creditor, and the other, where the partnership is the creditor;

2. Both debts are demandable; and3. The partner who collects is authorized to

manage and actually manages the partnership

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REQUISITES FOR APPLICATION OF RULE ON OBLIGATION OF PARTNER WHO RECEIVES SHARE OF PARTNERSHIP CREDIT*

1. A partner has received, in whole or in part, his share of the partnership credit;

2. The other partners have not collected their shares; and

3. The partnership debtor has become insolvent

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RULE ON THE RISK OF LOSSOF THINGS CONTRIBUTED*

a) BY THE PARTNER (OWNER)1. Specific and determinate things which are not fungible where only

the use is contributedb) BY THE PARTNERSHIP1. Specific and determinate things the ownership of which is transferred

to the partnership2. Fungible things or things which cannot be kept without deteriorating

even if they are contributed only for the use of the partnership3. Things contributed to be sold4. Things brought and appraised in the inventory

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RESPONSIBILITY OFPARTNERSHIP PARTNERS

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; and

3. To answer for the risks in consequence of its management

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DISTRIBUTION OF PROFITS*GENERAL RULE: Divide equallyEXCEPTIONS:1. According to partners’ agreement2. If there is no agreement, in proportion to

each capitalist partner’s capital contribution(Industrial partner’s share must be satisfied first)

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DISTRIBUTION OF LOSSES*GENERAL RULE: Divide equallyEXCEPTIONS:1. According to partners’ agreement2. If there is no agreement, profit-sharing ratio3. If there is no profit-sharing ratio, in proportion to

capitalist partner’s capital contribution(Purely industrial partners shall not be liable)amgisidro


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INDUSTRIAL PARTNER’S SHARE*a) PROFITS

As may be just and equitableb) LOSSESGeneral Rule: Not liable (pure industrial partner)Exception: If besides his services he has contributed capital (capitalist-industrial partner)

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RULE ON POWERS OF TWO OR MORE MANAGING PARTNERS WHOSE RESPECTIVE DUTIES ARE UNSPECIFIED*

1. Each one may separately perform acts of administration.

2. If one or more of the managing partners shall oppose to the acts of the others, then the decision of the majority (per head) of the managing partners shall prevail.

3. In case of tie, the matter shall have to be decided by the vote of the partners owning the controlling interest.

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REQUISITES FOR APPLICATION OF RULE ON POWERS OF TWO OR MORE MANAGING PARTNERS WHOSE RESPECTIVE DUTIES ARE UNSPECIFIED*

1. Two or more partners have been appointed as managers;

2. No specification of their respective duties; and

3. No stipulation that one of them shall not act without the consent of all the others

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RULES WHEN MANNER OF MANAGEMENT HAS NOT BEEN AGREED UPON

1. All partners considered managers.2. Unanimous consent is requires for any important

alteration in immovable property of partnership.(If refusal to give consent by the other partners is manifestly prejudicial to the interest of the partnership, the intervention by the court may be sought for authority to make the necessary alteration)

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SUBPARTNERSHIPThe partnership formed between a member of

the partnership and a third person for a division of the profits coming to him from the

partnership enterprise

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ANY REASONABLE HOURReasonable hours on business days throughout the year and not merely during some arbitrary period of a few days chosen by the managing

partners

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RIGHTS OF PARTNER TO A FORMAL ACCOUNT (GROUNDS)

1. If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

2. If the right exists under the terms of any agreement;3. As provided by Article 1807;(Duty to account for secret and similar profits and duty to make full disclosure of information affecting the partnership)4. Whenever other circumstances render it just and

reasonable

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PROPERTY RIGHTSOF THE PARTNERS

ARTICLES 1810-1814

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EXTENT OF [PRINCIPAL] PROPERTY RIGHTS OF A PARTNER

1. Rights in specific partnership property2. Interest in the partnership3. Right to participate in the management

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EXTENT OF [RELATIVE] PROPERTY RIGHTS OF A PARTNER

1. Right to reimbursement for amounts advanced to the partnership and to indemnification for risks in consequence of management;

2. Right of access and inspection of partnership books;3. Right to true and full information of all things affecting the

partnership;4. Right to a formal account of partnership affairs under certain

circumstances; and5. Right to have the partnership dissolved also under certain

conditions

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PARTNERSHIP PROPERTY vs. PARTNERSHIP CAPITAL

Variable – value may vary from day to day with changes in the market value of the partnership assets

Changes in value

Constant – remains unchanged as the amount fixed by the

agreement of the partners, and is not affected by fluctuations in

the value of partnership propertyNot only the original capital contributions of the partners, but all property subsequently acquired on account of the partnership or with partnership funds, including partnership name and the goodwill of the partnership

Assets included

Aggregate of the individual contributions made by the

partners (in cash or in property or services the value of which has

been fixed in the partnership agreements)

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PARTNER’S INTERESTIN THE PARTNERSHIP

A partner’s proportionate share in the profits during the life of the partnership as a going concern and his share in the surplus after its

dissolution; generally assignable in the absence of a contrary stipulation

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PROFITExcess of returns over expenditure in a

transaction or series of transactions; or the net income of the partnership for a given period of

time

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SURPLUSAssets of the partnership after partnership debts and liabilities are paid and settled and the rights of the partners among themselves are adjusted

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RIGHTS WITHHELD FROM ASSIGNEE OF PARTNER’S INTEREST

1. To interfere in the management;2. To require any information or account; or3. To inspect any of the partnership books

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RIGHTS OF ASSIGNEE OFPARTNER’S INTEREST

1. To receive in accordance with his contract the profits accruing to the assigning partner;

2. To avail himself of the usual remedies provided by law in the event of fraud in the management;

3. To receive the assignor’s interest in case of dissolutions; and4. To require an account of partnership affairs, but only in case

the partnership is dissolved, and such account shall cover the period from the date only of the last account agreed to by all the partners

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OBLIGATIONS OF THE PARTNERS WITH REGARD TO THIRD PERSONS

ARTICLES 1815-1817

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FIRMName, title, or style under which a company

transacts business; a partnership of two or more persons; a commercial house

(used as synonymous with “company”)

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PRO-RATA (AS TO LIABILITY)Equally or jointly and not proportionately which is its literal meaning because the pro-rating is based on the number of partners and not the amount of their contributions to the common

fund subject to adjust among the partners

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LIABILITY vs. LOSS*Liability (Contractual) Legal basis Losses (Financial)

Arts. 1816-1817 Applicable provisions Arts. 1797-1799

Both parties (even a purely industrial partner)

Parties involved

Capitalist and industrial partners with money and property involved

1. Exhaust partnership property

2. If insufficient, pro-rata liability (partners)

General rules

1. Stipulation2. No stipulation, in

proportion to contribution

3. Third party designation

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LIABILITY vs. LOSS*Partner’s separate assets (capital and capital-industrial partners)

Remedy for general rule None. Not provided by law

No exception Exception Pure industrial partner1. As among the partners

– valid2. In relation to third

persons – void (as against public policy)

Effect of counter

stipulation

1. Capitalist – void2. Capitalist-industrial –

void3. Pure industrial – valid

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contract of partnership

Documents

essence of partnership

common calling

common fundobject

common fundnominate

contributing money

valid marriage

lawful andobtain profits

learned art