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CHAPTER 1GENERAL PROVISIONSARTICLE 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 for the exercise of a p...

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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 for the exercise of a profession. (1665a) A partnership exists when two or more persons agree to place their money, effects, labor and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. Profession • 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 ESSENTIAL REQUISITES OF A CONTRACT OF PARTNERSHIP 1. There must be a valid contract 2. There must be a contribution of money, property of industry to a common fund 3. The partnership must be organized for gain or profit 4. The partnership should have a lawful object or purpose, and must be established for the common benefit or interest of the partners WHAT ARE THE TWO TESTS TO DETERMINE THE EXISTENCE OF A PARTNERSHIP? 1. First test • Determine whether or not there is an agreement to contribute money, property or industry to a common fund 2. Second test • Determine whether or not there is an intent of the contracting parties to divide the profits among themselves REQUISITES FOR A PARTNERSHIP TO BE CONSIDERED A JURIDICAL PERSONALITY 1. Two or more persons bind themselves to contribute money, property or industry to a common fund 2. Intention on the part of the partners to divide the profits among themselves Take note: A partnership may be constituted in any form A public instrument is necessary only where immovable property or real rights are contributed to the partnership Having complied with the requisites of a partnership is what matters where no immovable property or real rights are involved An oral contract is as good as a written one

CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP 1. Consensual • It is a contract that is perfected by mere consent because all of the partners had a meeting of minds to enter into a contract of partnership 2. Commutative • The contribution of each partner, whether money, property or industry, is considered as the equivalent of the contribution of other partners 3. Principal • It is a contract that does not depend on other contracts for its existence 4. Bilateral • It is a contract entered into by two or more persons 5. Onerous • Each partner must contribute money, property or industry (a partner can contribute one, some or all of these) 6. Nominate • It is a contract which has a name in law 7. Preparatory • It is a contract in preparation for another contract or contracts Money • The medium of exchange authorized or adopted by a government as part of its currency Property • Any external thing over which the rights of possession, use, and enjoyment are exercised Industry • Diligence in the performance of a task • A particular form or branch of productive labor Joint Venture • Has no separate legal juridical personality • Hardly distinguishable from a partnership since their elements are similar • It is generally governed by the law on partnership Doctrine of delectus personae • Allows the partners to have the power to dissolve a partnership (although not necessarily the right to dissolve a partnership) Delectus personarum – choice of persons Delectus personae – choice of the person Partnership at will • A partnership that does not fix its term • The birth and life of this partnership is predicated on the mutual desire and consent of the partners

Take note: The right to choose with whom a person wishes to associate himself is the very foundation and essence of partnership The purpose of the partnership is not the specific undertaking referred to in the law

(c) As an annuity to a widow or representative of a deceased partner (d) As interest on a loan, though the amount 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. (n)

BEST EVIDENCE OF THE EXISTENCE OF A PARTNERSHIP • The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private complainant remained as copartners.

Rule 1: Persons who are not partners as to each other are not partners as to third persons

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. (n)

Rule 2: Co-ownership or co-possession does not of itself establish a partnership

Partnership by Estoppel • A partnership not duly organized that has been recognized in its dealings with certain persons and the persons dealing with it are estopped from denying its partnership existence

PARTNERSHIP VS. CO-OWNERSHIP Partnership

Artificial person/ Juridical person • An entity, such as a corporation, created by law and given certain legal rights and duties of a human being; a being, real or imaginary, who for the purpose of legal reasoning is treated more or less as a human being Take note: The Civil Code provides that an action to enforce an oral contract prescribes in 6 years while the right to demand an accounting for a partner’s interest as against the person continuing the business accrues at the date of dissolution, in the absence of any contrary agreement The failure to register the contract of partnership does not invalidate the same as among the partners, as long as the contract has the essential requisites Main purpose of registration: to give notice to third parties ARTICLE 1769. In determining whether a partnership exists, these rules shall apply: (1) Except as provided by article 1825, 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, whether such co-owners or co-possessors do or do not share any profits made by the use of the property (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in 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

Creation

Created by contract

Juridical Personality

It has legal/juridical personality. Thus, it can sue or be sued.

Purpose

For profit

Profit

It may be stipulated upon.

Dissolution

Form

It is dissolved by death or incapacity of a partner. It may appear in any form. However, when real property is contributed, a public instrument is required.

Co-ownership Created by contract and law It has no juridical personality. Thus, it cannot sue or be sued. Common employment of a thing or right. It is not necessarily for profit. Profit must always depend on the proportionate shares. Any stipulation to the contrary is VOID It is not dissolved by the death or incapacity of co-owner No public instrument is needed even if real property is the object of co-ownership.

Rule 3: The sharing of gross returns does not of itself establish a partnership Take note: There is a disputable presumption of establishing a contract of partnership if what is being shared by two or more persons are net profit. There is no presumption of partnership if what is being shared by two or more persons are gross returns or gross profit.

Rule 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

ARTICLE 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners.

Prima facie • It is sufficient to establish a fact or raise a presumption unless disproved or rebutted • It is based on what seems to be true on first examination, even though it may later be proved to be untrue

When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a)

Take note: An isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered partners o They have no common stock or capital o They have no community of interest as principal proprietors in the business itself which the proceeds derived A joint purchase of land, by two, does not constitute a co-partnership. The parties are only tenants in common. In order to constitute a partnership inter se, there must be: o An intent to form the same o Generally participating in both profits and losses o Community of interest The common ownership of property does not itself create a partnership between the owners, though they may use is for the purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and use of such property and the application of the proceeds therefrom EXCEPTIONS TO RULE 4 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 e. As the consideration for the sale of a goodwill of a business or other property Take note: A demand for accounting is an evidence of a partnership

Lawful object or purpose • The object or purpose of a partnership must be within the commerce of man, not impossible, and it must not be contrary to law, morals, good customs, public order or public policy Examples of Unlawful Partnership a. A partnership formed for gambling purposes b. A partnership formed to furnish houses for prostitution purposes c. A partnership formed to create illegal monopolies or combinations in restraint of trade Effects of an Unlawful Partnership 1. The contract is void from the very beginning 2. The profits shall be confiscated in favor of the government 3. The instruments or tools and proceeds of the crime shall be forfeited in favor of the government 4. The contributions of the parties shall not be confiscated unless they fall under no. 3 ARTICLE 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (1667a) FORM OF CONTRACT OF PARTNERSHIP General rule: No form is required. Thus, the contract may be oral or in writing. Exception: If real properties or real rights in real properties are contributed regardless of the value. A public instrument is needed; otherwise, the contract of partnership is void. Real rights • A right that is connected with a thing rather than a person • It includes ownership, use, habitation, usufruct, predial servitude, pledge, and real mortgage Public Instrument • A document prepared by a notary public in the presence of the parties who sin it before witnesses

ARTICLE 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n) Partnership having a capital of P3,000 or more (personal property only) • The contract of partnership must appear in a public instrument and must be recorded in the office of the SEC • Non-compliance with the requirement will not make the contract void. Hence, it is still valid. Take note: The registration requirement is not mandatory. Partnership having a capital below P3,000 (personal property only) • No form is required. Thus, it may be verbal. Purpose of registration • To set a condition for the issuance of licenses to engaged in busines or trade • In this way, the tax liabilities of big partnerships cannot be evaded, and the public can also determine more accurately their membership and capital before dealing with them ARTICLE 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a) Take note: An inventory is still required if aside from real property, personal property is contributed. However, the inventory need not include the personal property. WHAT IS THE INTENTION OF ARTICLE 1773? • To protect third persons Take note: The execution of a public instrument would be useless if there is no inventory of the property contributed because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons

ARTICLE 1774. 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. (n) Take note: Immovable property to be acquired must be in the name of the partnership and if conveyed must also be in the partnership name ARTICLE 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. (1669) PARTNERSHIP VS. ASSOCIATION Juridical Personality Purpose

Partnership It has juridical personality For profit

Contribution of Members

Contribution of money, property, or industry or a combination of these

Liability

The partnership is the one liable

Association It has no juridical personality May not be for profit No contribution of capital although fees are usually collected from the members to maintain the organization Members are individually liable for the debts of the association

Take note: The associations or societies cannot sue because it has no legal personality. However, the fact that it has no legal personality as a partnership cannot be invoked by the “partners” for the purpose of evading compliance with obligations contracted by them, because they who caused the nullity of a contract are prohibited from availing of its benefits ARTICLE 1776. As to its object, a partnership is either universal or particular. As regards the liability of the partners, a partnership may be general or limited. (1671a) CLASSIFICATION OF PARTNERSHIP 1. According to object a. Universal partnership ➢ Two Kinds: 1. Universal partnership of all present property • The partners contribute all the property which actually belongs to them to a common fund, with the intention od dividing the same among themselves, as well as the profits which they may acquire therewith

2.

2.

3.

4.

5.

Universal partnership of all profits • It comprises all that the partners may acquire by their industry or work during the existence of the partnership b. Particular partnership ➢ Has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation According to liability a. General partnership ➢ It is one where all the partners are general partners ➢ All general partners here are liable up to the extent of their separate properties after the assets of the partnership have been exhausted b. Limited partnership ➢ It is one where there is at least one general partner and one limited partner ➢ A general partner is liable beyond his contribution ➢ A limited partner is liable only to the extent of his contribution According to duration a. Partnership at will ➢ It is one where there is no fixed term or it is not formed for a particular undertaking or it is for a fixed term or particular undertaking which is continued after the termination of such term or particular undertaking without any express agreement b. Partnership with a fixed term ➢ It is one where the life or period of existence of the partnership has been agreed upon by the partners c. Partnership for a particular undertaking ➢ It is one where it will exist until the purpose is accomplished According to representation to others a. Ordinary partnership ➢ It is one where two or more person bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing profits among themselves b. Partnership by estoppel ➢ It is one where persons, by words spoken or written or by conduct, represent themselves, or consent to another representing them to anyone, as partners in an existing partnership or with one or more persons not actual partners According to the legality of its existence a. De jure partnership ➢ It is one which has complied with all the legal requirements for its creation

b.

De facto partnership ➢ It is one which has not complied with all the legal requirements for its creation

ARTICLE 1777. A universal partnership may refer to all the present property or to all the profits. (1672) KINDS OF UNIVERSAL PARTNERSHIPS 1. Partnership of all present property 2. Partnership of all profits ARTICLE 1778. 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. (1673) CONTRIBUTIONS OF THE PARTNERS IN PARTNERSHIP OF ALL PRESENT PROPERTY 1. All the properties belonging to the partners 2. The profits acquired with said properties ARTICLE 1779. In a universal partnership of all present property, the property which belonged to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith. A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. (1674a) Future Property (Inheritance, Legacy or Donation) • Cannot be included in a universal partnership of all present property because: o As a rule, contracts regarding the successional rights cannot be made o A partnership demands that the contributed things be determinate, known and certain o A universal partnership of all present properties really implies a donation, and it is well-known that generally, future property cannot be donated ARTICLE 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675) Take note: Partners retain their ownership over their present and future property. What passes to the partnership are the profits and the use of the sam...