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BUSINESS LAW ATTY. MARY ANN SAGANA

LECTURE AID PARTNERSHIP

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.

Essential Characteristics:
a. Consensual e. Principal
b. Bilateral f. Nominate
c. Onerous g. Preparatory
d. Commutative

Essential requisites:
a. There must be a valid contract
b. The parties must have legal capacity to enter into the contract
Persons incapacitated to enter into a contract of universal partnership:
1. spouses during the existence of the marriage
2. between persons who are guilty of adultery or concubinage
3. between persons guilty of the commission of the same offense in consideration thereof
4. between public officer or his wife or some other person by reason of the public office.
c. There must be mutual contribution to the common fund
Contribution to a common fund:
1. Property real, personal, tangible or intangible
2. Money cash, and legal tender except if there is a stipulation
3. Industry mental or physical
IMPORTANT: limited partners can only contribute money of property.
d. The object must be lawful
Effects of unlawful partnership:
1. Void ab initio
2. Profits shall be confiscated in favor of the government
3. Instruments or tools and proceeds of the crime shall be forfeited in favor of the government
4. Capital contributions will be returned to the partners unless the contributions were used as
instruments or tools in the commission of the crime
e. The purpose or primary purpose must be to obtain profits and to divide the same among the
partners OR to exercise profession
f. The Articles of Partnership must not be secret to among its members

Consequences of a partnership being a person:

a. has a personality separate and distinct from the partners
b. may acquire and possess properties
c. can sue and be sued upon
d. can be adjudged insolvent although the partners are solvent
e. can incur obligations
f. can enter into contracts

Formalities required for the creation of a partnership:

- Partnership may be constituted in any form except in the following cases:
a. Where personal property is contributed and the capital is P3,000.00 or more-
1. The contract must appear in a public instrument
2. It must be registered with the Securities and Exchange Commission (SEC)
b. Where immovable property or real rights thereto are contributed regardless of value-
1. The contract must appear in a public instrument
2. An inventory of the property, signed by the partners, must be attached to the public
instrument
3. In case of limited partnership
a. The partners must sign and swear to a certificate or articles of limited partnership which
states the matters prescribed by law
b. They must file such certificate with the SEC.

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 Statute of Frauds in a Partnership:
a. Sale of personal property when the price is not les than Php500, unless there is delivery of payment
b. Sale of real property or any interest thereon
c. Promise to answer for the debt, default or miscarriage of another person
d. Agreement to form a partnership shall be performed after 1 year
e. Lease of partnership property for more than 1 year

Principle of Delectus Personarum/personam/personae

- a rule inherent in every partnership wherein no one can become a member of the partnership
association without the consent of all the partners.
- mutual trust and confidence between and among the partners

Rules to determine the existence of a partnership:

1. Persons who are not partners to each other are not partners as to third persons.
Exception: partnership by estoppel.
Partner by Estoppel - A person who represents himself, or consents to another/others
representing him to anyone, as a partner either in an existing partnership or in one
that is fictitious or apparent.

2. Co-ownership of a property does not itself establish a partnership, even though the co- owners share
in the profits derived from the incident of joint ownership.
3. Sharing of gross returns alone does not indicate a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property.
4. Sharing of net profit (or simply profit) shall give rise to a disputable presumption of the existence of a
partnership, except when 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 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.

Classification of Partnership:
1. as to object. 5. as to publicity
a. universal partnership a. secret partnership
1. of all present property b. notorious/open partnership
2. of profits
b. particular partnership

2. as to liability of the partners: 6. as to its duration:

a. general partnership a. partnership at will
b. limited partnership b. partnership with a fixed period

3. as to the legality of existence:

a. de jure partnership
b. de facto partnership 7. as to purpose
a. commercial/trading
4. as to representation to others b. professional/ non- trading
a. ordinary/real partnership
b. ostensible/partnership by estoppel

Classes of partners:
1. As to contributions 4. Other classifications
a. capitalist a. liquidating
b. industrial b. real
c. dormant
2. As to liability d. ostensible
a. general e. secret
b. limited
5. Other related terms
3. As to management a. sub-partner, associate, assignee
a. managing b. nominal/partner by estoppel
b. silent

Contract of Sub-partnership
- one formed between a member of a partnership and a third person for a division of profits coming to
him from the partnership enterprise.
- it is a partnership within a partnership distinct and separate from the main or principal partnership.

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PARTNERSHIP
1. has juridical personality separate and
distinct from the partners
2. partners are agents for the partnership
and for other partners
3. partner is part co-owner with his co-
partners with respect to partnerships
property
4. power of attorney if not required for a
partner to act, provided the act is within the
scope of partnership
PARTNERSHIP
1. created by mere agreement of the
parties
2. may be organized by only two
persons
3. juridical personality commences
from the moment of execution of the
contract of partnership
4. may exercise any power
authorized by the partners as long as
it s not contrary to law, morals, etc.
5. if no agreement as to
management every partner is an
agent of the partnership
6. a partner as such may sue a co-
partner who mismanages
7. has no right of succession
8.the partners are liable personally
and subsidiarily for partnership debts
9. based on delectus personam
10. may be established for any
period of time stipulated by the
partners
11. may be dissolved at anytime by
the will of any or all partners
12. death of a general partner
dissolves the partnership
13. governed by the Civil Code
GENERAL PARTNERSHIP
1. composed of general partners
2. as a general rule may be
constituted in any form
3. must operate under a firm name
GENERAL PARTNER
1. Liable personally for partnership
obligations after all partnership
assets are exhausted
2. Can participate in the
management of the partnership
3. May contribute money, property or
industry to common fund
4. Name of the general partner may
appear in firm name
5. Limitation on the right to engage
in another business or in the same
kind of business as that of the
partnership
AGENCY
1. no juridical personality
2. agent is not a principal himself
3. agent is not a co-owner of the
principal
4. power of attorney is ordinarily
required before an agent can act in
behalf of the principal
CORPORATION
1. created by operation of law
2. requires at least 5 incorporators
3. juridical personality commences
from the moment of issuance of the
Certificate of Incorporation by the SEC
4. can exercise such powers expressly
granted by law or incident to its
existence
5. power to do business is vested in
the board of directors/trustees
6. suit against the board of director
who mismanages must be brought in
the corporations name
7. has right of succession
8. the stockholders are liable to the
extent of the shares subscribed by
them
9.not based on delectus personam
10. may not be formed for a period
exceeding 50 years, but subject to
extension
11. may be dissolved only with the
consent of the State
12. death of a shareholder does not
dissolve a corporation
13. governed by the Corporation Code
LIMITED PARTNERSHIP
1. composed of at least one general
partner and one limited partner
2. must be contained in a certificate of
limited partnership
3. must operate under a firm name
followed by the word limited
LIMITED PARTNER
1. Cannot be held liable
2. Cannot participate
3. Can contribute money or other
property only
4. Name of limited partner does not
appear in firm name
5. No such limitation in limited
partnership
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 Obligations of the partners with respect to contribution of money or property:
1. Contribute at the beginning of the partnership or at the time stipulated
2. Answer for eviction
3. Answer for the fruits of the property contributed in case of delay in the delivery
4. Exercise diligence over the property pending delivery
5. Indemnify the partnership for any damage or interest in case of money, caused by the retention
of the same or delay in the delivery

Other obligations of a partner:

1. Pay for interest and damages for any sum of money which he may have taken from the
partnership coffers;
2. Contribute additional share to the capital in case of imminent loss;
3. Bring to the partnership capital his share of a partnership credit which he received from a debtor
who subsequently became insolvent;
4. Indemnify the partnership for damage caused by his fault and he cannot compensate them with the
profits or benefits he may have earned for the partnership;
5. Render true and full information of all things affecting the partnership upon demand of any partner or
his representative;
6. Account to the partnership and hold as trustee any benefit derived by him without the consent of the
other partners form any transaction relating to partnership business;
7. Share in the loss of the partnership.

Obligations of an industrial partner:

1. Contribute the industry he promised
2. NOT to engage in any other business for himself, otherwise:
a. Capitalist partners may exclude him from the firm and demand payment of damages
b. Capitalist partners may avail themselves of the benefits which he may have obtained form the
other business and demand payment of damages
EXCEPTION:
- when expressly permitted by the partnership

Capitalist partner:
- CANNOT engage in any operation or business similar to the business of the partnership, otherwise:
a. Shall be liable to the partnership for any profit obtained from his transactions
b. Shall personally bear all his losses
EXCEPTION:
-when the business is not the same or similar to that of the partnership
- if there is a stipulation to the contrary

Obligations of the partnership to the partners:

1. Refund amounts disbursed by a partner in behalf of the partnership AND the corresponding interest
from the time the expenses are made
2. Answer for the obligations that the partnership may have contracted in good faith
3. Answer for the risks in consequence of its management

Management of the Partnership

Vested by agreement in one, or some, or all of the partners or even in a third person, either in the
articles of partnership or after the partnership had already been constituted. If there is no
agreement, it is vested in all of the partners.
RULES:
1. The manager is appointed in the Articles of Partnership:
- He may execute all acts of administration despite opposition of other partners unless there is
bad faith
- The power is irrevocable without just and lawful cause
2. The manager is appointed orally or in an instrument other than Articles of Partnership:
- He may execute all acts of administration
- The power may be revoked at any time with or without just and lawful cause
3. In case two or more managers are appointed without specific duties:
- Each one may separately execute acts of administration but in case of an opposition, the
decision of the majority of the managers shall prevail.
- In case of a tie, the matter will be decided by the managing partners owning the controlling
interest or more than 50% of the investments
- If appointed in the Articles of Incorporation
- The power is irrevocable without just and lawful cause
- If appointed orally or in an instrument other than Articles of Incorporation
- The power may be revoked at any time with or without just and lawful cause
4. In case two or more managing partners are appointed with a stipulation that none of them shall act
without the consent of the other:
- The concurrence of all is necessary for the validity of their acts EXCEPT when there is
imminent danger of grave or irreparable injury to the partnership
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 - If appointed in the Articles of Partnership
-The power is irrevocable without just and lawful cause
- If appointed orally or in an instrument other than Articles of Incorporation
- The power may be revoked at any time with or without just and lawful cause
5. In case there is no stipulation as to the manner of management:
- All partners shall be considered agents of the partnership
- None of the partners may make any important alteration in the immovable property even if it
may be useful to the firm
- In case of an opposition, the decision of the majority of the partners shall prevail and in case
of a tie, the matter shall be decided by the partners representing the controlling interest, or
more than 50% of the investments.

RULE: If a partner authorized to manage collects a demandable sum which was owed to him in his own
name, from a person who owed the partnership another sum also demandable, the sum thus
collected shall be applied to the two credits in proportion to their amounts, even though he may
have given a receipt for his own credit only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to the credit of the partnership.

Rights of a partner:
1. Receive his share of profits of the partnership
2. Participate in the management of the firm
3. Associate another person in his share of the profits
4. Inspect the partnership books at any reasonable hour
5. Demand formal accounting even before dissolution:
a. If the partner is wrongfully excluded from the partnership business or profession of its
property by his co-partners
b. If the right exists under the terms of any agreement
c. If a partner has derived profits from any transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its property
d. Whenever other circumstances render it just and reasonable
6. Ask for dissolution of the firm by court decree

Acts of strict dominion wherein consent of all partners shall be necessary:

1. Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of
the partnership;
2. Dispose of the good-will of the business;
3. Do any other act which would make it impossible to carry on the ordinary business of a partnership;
4. Confess a judgment;
5. Enter into a compromise concerning a partnership claim or liability;
6. Submit a partnership claim or liability to arbitration;
7. Renounce a claim of the partnership.

Property rights of a partner:

1. his right to specific partnership property
2. his interest in the partnership (his share in the profits and surplus)
3. his right to participate in the management.
Rights of a partner in specific partnership property:
1. has an equal right with other partners to possess specific partnership property for partnership
purposes
2. not assignable, except in connection with the assignment or rights of all partners in the same
property
3. not subject to attachment or execution, except on a claim against the partnership
4. not subject to legal support

Effects of conveyance by a partner of his interest in the partnership:

1. conveyance of his whole interest-partnership may either remain or be dissolved;
2. assignee does not necessarily become a partner;
3. assignee cannot interfere in the management or administration of the partnership business or
affairs;
4. assignee cannot also demand information, accounting and inspection of the partnership books.

Distribution of profits & losses:

1. the partners share in the profits and losses according to their agreement
2. in the absence of such:
a. capitalist partner - in proportion to his contribution
b. industrial partner - what is just and equitable under the circumstances but he shall not be
liable for losses

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Obligations of a newly admitted partner:
1. Obligations already existing before admission
- liability is up to the extent of contribution, unless otherwise agree.
2. Obligations incurred after admission
- liability is up to the extent of separate property, unless admitted as a limited partner
DISSOLUTION
- the change in the relation of the partners caused by any partner ceasing to be associated in carrying
on the business.
EFFECT on the right of the partners to act as agents -- all authority of any partner to act for the
partnership will be terminated.
EXCEPT: 1. Contracts necessary to wind up partnership affairs
2. Contracts already perfected and begun but not then finished
3. The dissolution being by act of any partner, the partner acting for the partnership had
no knowledge of the dissolution; or
4. The dissolution being by the death or insolvency of a partner, the partner acting for
the partnership had no knowledge or notice of the death or insolvency.

CAUSES FOR THE DISSOLUTION OF A PARTNERSHIP:

1. Without violation of the agreement between the partners:
a. termination of definite term
b. express will of any partner in good faith
c. express will of all partners
d. expulsion of any partner
2. In contravention of the agreement between the partners where the circumstances do not permit a
dissolution under any other provision of this article, by the express will of any partner at any time.
3. Event which makes it unlawful for the business of the partnership to be carried or for the members to
carry it on in partnership
4. Insolvency of any partner or the partnership
5. Loss of specific thing promised as a contribution before delivery
6. Civil interdiction of any partner
7. Death of any partner
8. Decree of court
a. at the instance of the partnership
1. partners insanity
2. incapacity of a partner to perform his part of the partnership contract
3. partners act or conduct prejudicial to the partnership
4. partners willful and persistent breach of the partnership agreement
5. partnership is operating for a loss
6. other similar circumstances making the dissolution equitable
b. at the instance of a purchaser of a partners interest
1. after the termination of the specified term or particular undertaking
2. at any time if the firm was a partnership at will when the interest was assigned or
when the charging order was issued
WINDING UP
- the process of settling the business or partnership affairs under dissolution.

Judicially a way of winding up a dissolved partnership under the control and direction of the proper
court upon cause shown by any partner, his legal representative of his assignee

Extra-judicially way of winding up by the partners themselves without the intervention of the court.

Partnership assets:
1. Partnership property including goodwill
2. Contributions of the partners necessary for the payment of all liabilities

Termination
- the point in time when all partnership affairs are wound up or completed and is the end of the
partnership life.

Order of payment in the winding up of partnership liabilities:

a. those owing to creditors other than partners
b. those owing to partners other than for capital or profits
c. those owing to partners in respect of capital
d. those owing to partners in respect of profits

Limited Partnership - formed by two or more persons having as members one or more general partners
and one or more limited partners.

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 RULES:
- the limited partners shall not be bound by the obligations of the partnership
- the limited partners do not participate in the control or management of the business of the
partnership
- partnership debts shall be paid out of the common fund and the separate properties of the general
partners
- a limited partner can only contribute money or property
- a limited partners name cannot appear in the partnership name, otherwise he will be liable as a
general partner, except:
1. the surname of the limited partner is the same as the surname of a general partner
2. before the limited partner became as such, the business had been carried on under a name
in which his surname appeared
3. third persons extended credit to the partnership with the knowledge that he is limited partner

General-Limited partner - has all the rights and powers and is subject to all liabilities of a general
partner, but still a limited partner as to liability to contribute capital
Substitute Limited partner - a person admitted to all the rights of a limited partner who has died or has
assigned his interest in a partnership
Preferred Limited partner - given priority over all limited partners in the return of investment,
compensation and other matters provided the agreement will appear in the
certificate of limited partnership

Dissolution may be caused by:

1. Retirement of a general partner
2. Death of a general partner
3. Insolvency of a general partner
4. Insanity of a general partner
5. Civil interdiction of a general partner

Order of payment in the winding up of partnership liabilities:

a. those owing to creditors, except those to limited partners on account of their contribution, and to
general partners
b. those to limited partners in respect to their share of the profits and other compensation by way of
income in their contributions
c. those to limited partners in respect of their capital contributions
d. those to general partners other than for capital and profits
e. those to general partners in respect to profits
f. those to general partners in respect to capital

/mrs