2014 UP Agency and Partnership Reviewer PDF

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[Type text] [Type text] [Type text] PAGE 297 UP LAW BOC AGENCY AND PARTNERSHIP CIVIL LAW (1) Those who are prohibited from giving each PARTNERSHIP other any donation or advantage cannot enter into a universal partnership [Art. 1782]; Contract of Partnership (2) A corporation cannot enter into a part...

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UP LAW BOC

AGENCY AND PARTNERSHIP

PARTNERSHIP Contract of Partnership DEFINITION

By the contract of partnership: (1) Two or more persons; (2) Bind themselves to contribute money, property, or industry to a common fund; (3) With the intention of dividing the profits among themselves [Art. 1767] Article 1767 defines partnership from the viewpoint of a contract. From the contract arises the partnership relation [De Leon (2010)]

CIVIL LAW

(1) Those who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership [Art. 1782]; (2) A corporation cannot enter into a partnership in the absence of express authorization by statute or charter. Although a corporation cannot enter into a partnership contract, it may, however, engage in a joint venture with others [Auerbach vs. Sanitary Wares Manufacturing Corp (1989)]. On the other hand, there is no prohibition against a partnership being a partner in another partnership [De Leon (2010)]

OBJECT OBJECT OF UNIVERSAL PARTNERSHIP

ESSENTIAL FEATURES

(1) There must be a valid contract; (2) The parties must have legal capacity; (3) There must be a mutual contribution of money, property, or industry to a common fund; (4) The object must be lawful; (5) The primary purpose must be to obtain profits and to divide the same among the parties; (6) The partnership has a juridical personality separate from individual partners [Art. 1768].

A universal partnership may refer to: (1) All present property : (a) The partners contribute all the property which belongs to them to a common fund, with the intention of dividing the same among themselves, as well as the profits they may acquire therewith [Art. 1778]. (b) The property contributed includes all those belonging to the partners at the time of the constitution of the partnership. (c) A stipulation for the common enjoyment of any other profits may also be made. However, the property which the partners may acquire subsequently by inheritance, legacy or donation cannot be included in such stipulation, except the fruits thereof [Art. 1779]. (2) All the profits: (a) It comprises all that the partners may acquire by their industry or work during the existence of the partnership.

As such, any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name [Art. 1774].

PARTIES General rule: Any person capacitated to contract may enter into a contract of partnership. As such, the following persons cannot enter into a contract of partnership: (1) Those suffering from civil interdiction; (2) Minors; (3) Insane or demented persons; (4) Deaf-mutes who do not know how to write; (5) Incompetents who are under guardianship.

(b) Only the usufruct over the property of the partners passes to the partnership [Art. 1780].

Exceptions : The capacity of the following persons to enter into a contract of partnership, though capacitated to contract generally, are limited:

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Art. 1781. When the articles of universal partnership does not specify its nature (all present property or all the profits), the partnership will be considered as one only of all the profits.

UP LAW BOC

AGENCY AND PARTNERSHIP

CIVIL LAW

DURATION

OBJECT OF PARTICULAR PARTNERSHIP

COMMENCEMENT

Art. 1783. A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.

Art. 1784. A partnership begins from the moment of the execution of the contract, unless otherwise stipulated.

EFFECT OF UNLAWFUL OBJECT

TERM

If the partnership has an unlawful object or purpose: (1) The contract is void ab initio [Art. 1409, par. 1]. (2) Once dissolved by judicial decree: (a) The profits shall be confiscated by favor of the State; (b) The instruments or tools and proceeds of the crime shall also be forfeited in favor of the State [Art. 1770]. (3) The contributions of partners shall not be confiscated unless they are instruments or tools of the crime [De Leon (2010)].

As to period, a partnership may either be: (1) For a fixed term or particular undertaking; or (2) At will, the formation and dissolution of which depend on the mutual desire and consent of the parties. Any one of the partners may, at his sole pleasure, dictate the dissolution of the partnership, even in bad faith, subject to liability for damages [Ortega v. CA (1995)].

EXTENSION

A partnership term may be extended by: (1) Express renewal; or (2) Implied renewal, when these requisites concur: (a) The partnership is for a fixed term or particular undertaking; (b) It is continued after the termination of the fixed term or particular undertaking without any express agreement [Art. 1785].

FORM General rule: The contract may be constituted in any form [Art. 1771]. Exceptions: (1) Where immovable property or real rights are contributed: (a) The contract must appear in a public instrument; and (b) Attached to such instrument must be an inventory, signed by the parties, of the property contributed [Arts. 1771 and 1773]; (2) Where the capital is at least P3,000, in money or property: (a) The contract must appear in a public instrument; and (b) It must be recorded in the Office of the Securities and Exchange Commission (SEC).

RULES TO DETERMINE EXISTENCE When the intent of the parties is clear, such intent shall govern. When it does not clearly appear, the following rules apply: (1) Persons who are not partners to each other are not partners as to third persons, subject to the provisions on partnership by estoppel. (2) Co-ownership or co-possession does not of itself establish a partnership, even when there is sharing of profits in the use of the property. (3) Sharing of gross returns does not of itself establish a partnership, even when the parties have joint or common interest in any property from which the returns are derived.

As to the second, failure to comply with these requirements, however, does not affect the liability of the partnership and the partners to third persons [Arts. 1768 and 1772].

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AGENCY AND PARTNERSHIP

(4) The receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner. As to the fourth, no such inference is drawn if the profits are received in payment: (1) As a debt by installments or otherwise; (2) As wages of an employee of rent to a landlord; (3) As an annuity to a widow or representative of a deceased partner; (4) As interest on a loan, though the amount of payment vary with the profits of the business; (5) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise [Art. 1769].

KINDS (1) As to the legality of its existence: (a) Partnership de jure is one which has complied with all the requisites for its lawful establishment; (b) Partnership de facto is one which failed to so comply. (2) As to its object: (a) Universal partnership: (i) Of all present property; (ii) Of profits; (b) Particular partnership. (3) As to its duration: (a) For a fixed term or particular undertaking; (b) At will. (4) As to the liability of the partners: (a) General partnership, consisting of general partners only, who are liable pro rata for partnership obligations with all their after exhaustion of partnership assets; (b) Limited partnership, includes, aside from general partner/s, limited partners, who are not personally liable for partnership obligations. (5) As to its publicity: (a) Secret partnership, where the existence of certain persons as partners is not made known by the partners; (b) Open or notorious partnership, the existence of which is made known to the public by the partners.

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CIVIL LAW

(6) As to its purpose: (a) Commercial or trading partnership, for transaction of business; (b) Professional or non-trading partnership, for the exercise of profession. A profession has been defined as “a group of men pursuing a learned art as a common calling in the spirit of public service – no less a public service because it may incidentally be a means of livelihood” [In the Matter of the Petition for Authority to Continue Use of Firm name “Sycip, Salazar, etc.”/“Ozaeta, Romulo, etc.” (1979)]. A professional partnership is a particular partnership [Art. 1783].

KINDS OF PARTNERS

(1) Capitalist partner, whose contribution is money or property; (2) Industrial partner, contribution is only his industry; (3) General partner, whose liability to third persons extends to his separate property; (4) Limited partner, whose liability to third persons is limited to his capital contribution; (5) Managing partner, who was designated to manage the affairs or business of the partnership; (6) Liquidating partner, who takes charge of the winding up of partnership affairs; (7) Partner by estoppel, who is not really a partner but is liable as such for the protection of innocent third persons; (8) Continuing partner, who continues the business after dissolution of the partnership by admission of a new partner, or retirement, death or expulsion of existing partners; (9) Surviving partner, who remains a partner after dissolution by death of any partner; (10) Subpartner, who is not a member of the partnership but contracts with a partner with regard to the share of the latter in the partnership; (11) Ostensible partner, who takes active part in the business of the partnership and is known by the public; (12) Secret partner, who takes active part in the business, but is unknown to the third persons as a partner;

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AGENCY AND PARTNERSHIP

(13) Silent partner, who does not take active part in the business, but may be known to be a partner by third persons; (14) Dormant partner, who does not take active part in the business and is not known or held out as a partner; (15) Original partner, who has been a partner since the constitution of the partnership; (16) Incoming partner, who is about to be taken as a member into an existing partnership; (17) Retiring partner, who is withdrawing from the partnership. Industrial partner

PARTNERSHIP AND OTHER CONTRACTS DISTINGUISHED Partnership Operates with name and personality

Capitalist partner

Form of contribution Industry

Money or property equitable

According to agreement; if none, in proportion to contribution

Share in losses Exempted as to losses as between partners, but liable to third persons, without prejudice to reimbursement from capitalist partners

According to agreement; if none, in the same proportion as the agreed share in profits; if none, in proportion to contribution

Engagement in business Cannot engage in business for himself, unless the partnership expressly permits him to do so; should he do so without permission, the capitalist partners may: (1) exclude him from the firm; or (2) avail themselves of the benefits obtained in violation of the prohibition, with right to damages in either case [Art. 1789]

Joint venture firm legal

Operates without firm name and legal personality

Generally relates to a continuing business of various transactions of a certain kind

Usually limited to a single transaction

Corporations may not enter into a partnership

Corporations enter into ventures

may joint

Under Philippine law, a joint venture is a form of partnership and should thus be governed by the laws of partnership [Auerbach vs. Sanitary Wares Manufacturing Corp. (1989)].

Share in profits Just and share

CIVIL LAW

Cannot engage, for his own account, in the same kind of business as that of the partnership, unless there is a stipulation to the contrary; should he do so, he shall bring to the common fund any profits accruing to him from his transactions and shall personally bear all the losses [Art. 1808]

Partnership

Co-ownership

Generally created by either express or implied contract

Generally created by law and may exist even without a contract

Has a separate juridical personality

Has no separate juridical personality

Generally, the purpose is to obtain profits

The purpose is the common enjoyment of a thing or right

Duration limitation

no

An agreement to keep a thing undivided for more than ten years is not allowed, but may be extended

mutual between

There is no mutual representation among co-owners

Death or incapacity of a partner dissolves the partnership

Death or incapacity of a co-owner does not dissolve the coownership

A partner cannot dispose of his interest, so as to make the assignee a partner, without consent of others

A co-owner can dispose of his share without consent of others

There is agency partners

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has

UP LAW BOC

AGENCY AND PARTNERSHIP

Partnership

Corporation

CIVIL LAW

Partnership

Conjugal Partnership of Gains

Created by voluntary agreement of two or more partners of either sex

Arises in case the spouses, of opposite sex, agree before marriage

Distributes its profits to those who contributed capital to the business

Governed agreement

by

Governed by law

Can only be organized where there is a law authorizing its organization

Has personality

juridical

Has juridical personality separate and distinct from its individual members Can only act through agents Composed of an aggregate of individuals

Taxable as in a corporation Created by agreement

Created by operation of law

Involves at least two persons

Except for corporation sole, requires at least five incorporators

Personality commences from the moment of execution of the contract

Personality commences from the issuance of certificate of incorporation

Can exercise any power authorized by partners

Can exercise only powers conferred by the Corporation Code or by its articles of incorporation, and such as are necessary or incidental to the exercise of such powers

When management is not agreed upon, every partner may act for the partnership

Management is vested in the board of directors or trustees

Partners are generally liable for partnership debts

Stockholders are liable only to the extent of their shares

A partner cannot dispose of his interest, so as to make the assignee a partner, without consent of others

A stockholder has the right to transfer his shares without consent of others

Duration limitation

The term limit is 50 years, but may be extended

has

no

May be dissolved at any time by one or all of the partners

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juridical

Commencement date may be stipulated

Commencement is on the date of the celebration of the marriage and any stipulation to the contrary is void

Share in profits may be stipulated; otherwise, in proportion to contribution

Share in profits is equal

Management shared by all partners, unless otherwise agreed upon

Administration belongs to the spouses jointly, but decision of husband prevails in case of disagreement

Partner can dispose of interest even without consent of others

Spouse cannot dispose of interest during marriage, even with consent

Partnership

Association

Has personality

May only be dissolved with the consent of the state

Has no personality

juridical

Has no personality

juridical

Organized for profit

Not always organized for profit

Capital is contributed

Capital is not contributed, although fees are collected from members

The partnership is primarily liable; the partners are liable only subsidiarily

The members are liable individually for debts which they authorized or ratified

Share in profits may be stipulated; otherwise, in proportion to contribution

Share in profits is equal

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AGENCY AND PARTNERSHIP

Rights and Obligations of the Partnership

(2) The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business; (3) The capitalist partner refuses deliberately (not because of financial inability) to contribute an additional share to the capital; and (4) There is no agreement that even in case of imminent loss of the business, the partners are not obliged to contribute.

RIGHT TO CONTRIBUTION The partnership has a right to the contribution (or the partners are obliged to contribute). The money or property thus contributed, or their use or fruits, become the property of the partnership.

CONTRIBUTION PROPERTY

OF

MONEY

CIVIL LAW

Any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners, unless there is an agreement to the contrary [Art. 1791].

OR

With respect to contribution of property, a partner is obliged to: (1) To contribute, at the beginning of the partnership or at the stipulated time, the money, property or industry which he undertook to contribute; (2) In case a specific and determinate thing is to be contributed: (a) To warrant against eviction in the same manner as a vendor; and (b) To deliver to the partnership the fruits of the property promised to be contributed, from the time they should have been delivered, without need of demand [Art. 1786]; (3) In case a sum of money is to be contributed, or in case he took any amount from the partnership coffers, to indemnify the partnership for: (a) Interest; and (b) Damages, from the time he should have complied with his obligation, or from the time he converted the amount to his own use, respectively [Art. 1788].

CONTRIBUTION OF INDUSTRY

An industrial partner is obliged to contribute his industry at the stipulated time. General rule: An industrial partner cannot engage in business for himself. Should he do so, the capitalist partners, as well as industrial partners [De Leon (2010)] may either: (1) Exclude him from the firm; or (2) Avail themselves of the benefit which he may have obtained. Exception: He may engage in business for himself when the partnership expressly permits him to do so [Art. 1789].

RIGHT TO APPLY PAYMENT RECEIVED TO PARTNERSHIP CREDIT

AMOUNT OF CONTRIBUTION

General rule: A partner authorized to manage, who collects a demandable sum owed to him in his own name from a person who also owes the partnership a demandable sum, is obliged to apply the sum collected to both credits pro rata, even if he issued a receipt for his own credit only.

General rule: Partners are to contribute equal shares to the capital of the partnership. Exception: When there is an agreement to the contrary, the contribution shall follow such agre...