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

Features of Partnership
1) Valid contract
2) Legal capacity to contract
3) Mutual contribution of money, property or industry
4) 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) Minors
2) Insane or demented persons
3) Deaf-mutes who do not know how to write
4) Persons suffering from civil interdiction
5) 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 husbands 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) imminent loss of business.
2) majority of partners agree that additional contribution will save the business.
3) capitalist partner refuses to contribute.
4) 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.

Scope of Power of a Managing Partner
1) General Rule a partner appointed as manager has all the necessary and incidental powers to carry
out the object of the partnership in the transaction of its business.
a) to issue receipt
b) to purchase on credit (buying and sell of clothes)
c) to dismiss employee for justifiable reasons

2) Exceptions when the powers of the managing partner are specifically restricted or expressly
withheld.

Powers of 2 or More Managing Partners Whose Respective Duties Are Unspecified
Rule if partners perform separate acts of administration
1) if one or more shall oppose the acts of the others then decision of the majority of the managing
partners shall prevail.
2) in case of tie, the matter shall have to be decided by the vote of the partners owing controlling
interest, that is more than 50% of the capital investment.

Requisites for Application of Rule
1) 2 or more persons have been appointed as manager.
2) There is no specification of their respective duties.
3) There is no stipulation that one of them shall not act without the consent of all others.

Rules When Manner of Management Has Not Been Agreed Upon
1) all partners considered managers
- if there is no designation.
- their decision shall bind the partnership.
- in case of opposition of a partner, there shall be a majority vote.
2) alteration in immovable property
- there must be a unanimous consent.
- consent need not be express.
- presumed from the fact of knowledge of alteration without interposing any objection.
- It is an act of strict dominion.
- if refusal to give consent is prejudicial to the interest of partnership, the court may step in.

Sub-partnership
- a partner may associate another person without consent of other partners.
- sub-partnership agreements do not in any way affect the composition, existence, or operations of the
firm.
- sub-partners do not acquire the rights of a partner nor is he liable for its debts.


Article 1810
Property Rights of a Partner
-Principal Rights-
1) his interest in the partnership.
2) his right to participate in the management.
3) his right in specific partnership property.

-Related Rights-
1) right to reimbursement for:
- amount advanced to the partnership.
- indemnification for risks in consequence of management.
2) right of access and inspection of partnership books.
3) right to all information affecting the partnership.
4) right to a formal accounting of partnership affairs.
5) right to have the partnership dissolved under certain conditions.

Partnership Property/ Partnership Capital
-property-
- the value may vary from day to day with changes in the market value of the partnership assets.


-capital-
- is constant, it remains unchanged and is not affected by fluctuations in the value of partnership
property.

-property-
- includes not only the capital contributions of the partners, but all property subsequently acquired with
partnership funds.

- capital-
- represents the combined contribution of the partners. (cash or property)

Article 1811
Incidents of Co-Ownership
- a partner is co-owner with his partners of specific partnership property.
- rules on co-ownership do not apply.
- a partner has equal right to posses specific partnership property for partnership purposes.
- should a partner use partnership property for personal use, he must account to the others for profits
derived from it.
- has a right to formal accounting if wrongfully excluded from possession of property.
- wrongful exclusion from possession of partnership property is ground for dissolution.
- by agreement, the right to posses specific partnership property may be surrendered.
- a partners right in specific partnership property is not assignable because it is impossible to determine
the extent of his beneficial interest in the property until after liquidation of partnership affairs.
- as property of the partnership, the same could not be disposed or mortgaged even by the partner who
contributed the same without the consent of the other partners.
- the land as property of the partnership, is not subject to attachment or execution except on a claim
against the partnership.
- the land is not subject to legal support under Article 195 of the Family Code since it belongs to the
partnership and not to the partners.
- but a partners interest in the partnership itself may be levied upon by a judgement creditor because it
his is property.
- their interest in the partnership is, of course subject to legal support.
- a separate creditor of an individual partner may reach the interest of a partner in the partnership, they
cannot go after specific partnership property.

Article 1812
Nature of Partners Interest in the Partnership
- a partners interest in the profits is assignable.
- profit means excess in returns over expenditure in a transaction or net income for a given period of
time.
- surplus refers to assets of the partnership after partnership debts and liabilities are paid and settled.
- profits are shared:
a) in conformity to the agreement, otherwise,
b) in proportion to the capital contribution.
- the industrial partner shall receive a just and equitable share.

Article 1813
Effect of Assignment
- rights withheld from assignee:
a) right to interfere in the management.
b) right to require any information or account.
c) right to inspect any of partnership books.
- the legal effect of such a conveyance is the same as that of a partner associating another in his share or
interest.

Rights of Assignee
1) to receive the profits accruing to the assigning partner.
2) to avail himself of the usual remedies provided by law in the event of fraud in management.
3) to receive the assignors interest in case of dissolution.
4) to require an account of partnership affairs but only if it is dissolved.
- the purchaser of a partners interest may apply to the court for the dissolution of the partnership:
a) after termination of the specified term or undertaking;
b) any time if it is a partnership at will.

Article 1814
Remedies of Separate Judgment Creditor of a Partner
- separate creditor of a partner cannot attach or levy upon specific partnership property for the
satisfaction of his credit.
- he can secure judgement on his credit and apply with the court for a charging order subjecting the
interest of the debtor-partner in the partnership with payment of unsatisfied amount with interest.
- the claims of the partnership creditor must be satisfied first before the separate creditors of the
partners can be paid.
- the interest of the debtor-partner may be redeemed with a separate property of any one of the
partner, or with partnership property but with consent of the all the partners whose interest are not
sold.


Right of Partner Under Exemption Laws
- under Article 1814, a partner cannot claim any right under the homestead laws or exemption laws
when specific partnership property is attached for partnership debt.
- with respect to the partners interest in the partnership, the partner may avail himself of the
exemption laws after partnership debts have been paid.

Article 1815
Firm
- name, title, or style under which a company transacts business.
- the term implies a partnership.
- is synonymous with company.
- a partnership must have a firm name in order to distinguish the partnership from other partnerships.
- it helps to facilitate business transactions.
- under the Business Name Law, a firm name must be registered with the DTI.

Firm Name
- may adopt any name it wishes as long as
a) it is not identical with a name adopted by another company.
b) not previously adopted by another entity.
c) is not contrary to law.
- the Supreme Court ruling prohibiting the use of a deceased partners name was abandoned in view of
Rule 302 of the Code of Professional Responsibility which states: the use of the name of a deceased
partner is permissible provided that the firm indicates in its communications that said partner is
deceased.

Liability for Inclusion of Name in Firm Name
- persons who are not partners who include their name in the firm name, do not acquire the rights of a
partner, but under Article 1815, they shall be subject to the liability of a partner, insofar as 3
rd
persons
without notice are concerned.

Article 1816
Partnership Liability
- partners are principals to the other partners and agents for them and the partnership.
- they are liable to 3
rd
persons who have dealt with one of them.
- GENERAL RULE: a partner has the right to make all partners liable for contracts he makes for the
partnership in the name and for the account of the partnership.

Individual Liability
- a partner may assume a separate undertaking in his name with a third party to perform a partnership
contract or make himself solidarily liable on a partnership contract.
- in such a case he is personally bound by the contract even if be shown that that only the partnership
derived benefit from it.

Nature of individual Liability
- the debts and obligation of the partnership are, in substance, also the debts and obligations of each
individual member of the firm. The liability to creditor is pro rata and subsidiary.
1) pro rata
- means equally or jointly and not proportionately.
- pro rating is based on the number of partners and not on the amount of their contribution in the
common fund.
- non-enforcement of a partners liability cannot increase the liability of the other partners.

2) subsidiary
- because the partners become personally liable only after all the partnership assets have been
exhausted.

3) industrial partner
- ordinarily is not liable for losses, but he can recover the amount he has paid from the capitalist
partners, unless there is an agreement to the contrary.
- industrial partners are liable for debts of the partnership to 3
rd
persons.
- exemption of the industrial partner to pay losses relates exclusively to the settlement of the
partnership affairs among the partners themselves and has nothing to do with the liabilities of the
partners to third persons.

Liability/Loss
- inability of the partnership to pay a debt to 3
rd
party does not necessarily mean that the business is at
loss.

Article 1817
- a stipulation among the partners contrary to the pro rata and subsidiary liability is void an no effect
insofar as it affects the rights of 3
rd
persons.
- it is valid and enforceable only as among the partners.

Article 1818
- when a partner acts within his actual, implied or apparent authority, he acts as an agent of his co-
partners and the partnership.
- actual authority of each partner is contained in the partnership agreement.
- if the agreement is silent as to the partners authority, each partner has implied authority to do all
things necessary to carry out the ordinary business of the partnership.
- apparent authority is based on the doctrine of estoppels.
- the relation of partners to 3
rd
is founded on the doctrine of mutual agency.
- every 3
rd
person has the right to assume that every general partner has the power to bind the
partnership especially those partners acting with ostensible authority.
- third persons are not bound, in entering into a contract with any of the partners, to ascertain whether
or not the partner with whom the transaction is made has the consent of the other partners.
- his knowledge is enough that he is contracting with a partner, unless he has knowledge that the
partner has no authority to act for the partnership.
- there is a general presumption that each individual partner is an agent of the firm and that he has
authority to bind the firm in carrying out the partnership transactions.
- the presumption is sufficient to permit 3
rd
persons to hold the firm liable for transactions entered into
by a partner.
- 3
rd
parties should not assume that the partner has unlimited authority.
- when the 3
rd
party deals with a partner who has no express, implied, or apparent authority, the
partnership is not liable for his acts unless the other partners ratify his act or stopped from asserting
the partners lack of authority.
- acts by a partner not for carrying on the usual business if the partnership will not bind the partnership
unless authorized by the partners.

2 Requisites Where Partnership Is Not Liable
1) when the partner acting has no authority.
2) the 3
rd
person knows that the acting partner has no authority.

Article 1819
- title to the property is not held by the partnership although as between the partners there is no
question that it is partnership property.
- the presumption is that property purchased with partnership funds belongs to the partnership unless a
contrary intent is shown.
- the real property may be registered or owned in the name of:
a) the partnership (p 1,2)
b) one or more, but not all the partners (p3)
c) one or more or all the partners, or in a third person in trust for the partnership (p4)
d) all the partners (p5)

Article 1820
- General Rule: a person is not bound by the admission, statement or agreement of another of which he
has no knowledge.