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PARTNERS

Partnetship
Min 2 Max None
Corporation:
1 15
Cooperative
Min 15

Money, Property - Capitalist Partner


Industry/Services - Industrial Partner

Best Test- Sharing of profits and losses

Corp can't enter a partnership (except joint venture)

One of the partners can't be exempted from contribution.

Delivery isn't required. Consent/Promise is enough (Consent)

When one didnt contribute, partnership is still valid, but the remedy is to compel
specific performance

Demand is not a requirement.

Characteristics of Partnership:
1. Consensual - created by mere consent
2. Nominate - name
3. Bilateral/Multilateral
4. Onerous - There is a prestation, contribution, payment, promise
5. Commutative - equivalent consideration
6. Principal - can stand alone
7. Preparatory - preparation for another contract (e.g. sale, lease)

Check and USD are not legal tender. If accepted, a there must be a waiver.

Elements of Partnership
1. Valid Contract - Consent Object Cause (COC)
2. Legal Capacity
3. Mutual Contribution
4. Object must be lawful
5. Primary purpose - Share profits

One advantage of partnership over corporation:


- Choice of the person
- Partnership has Fiduciary Relationship (Trust and Confidence)
- Used for Agency and Partnership

ARTICLE 1768
2 Kinds of Persons
Natural - actual human
Juridical Person - Separate and distinc personality (Doctrine of Corporate Fiction)
1. Private - Partnership Corporation
2. Public - Municipality, Barangay, Provinces

Advantage of being a jurdical person


- Can enter a contract
- Can sue and be sued
- Can acquire properties

Juridical Capacity - fitness to be the subject of legal relation


Capacity to Act - the power to do act of legal effects
=These two can only be applied to natural person=

ARTICLE 1769

Apply this article if there is doubt,

If 5 elements are present, there is a valid partnership.

General Rule:
1. Required Contribution
2. Share in the Management
3. Share in the Losses
=If all are present, you are a partner"

In case of doubt:
1. Third persons are not persons. (E. 1825
2. Co-ownership/Co-possesion is not a partnership.
3. Partners do not share Gross returns but Net Returns.

Receipt of a person in share of profits (GR. A partner)


Except (5 instances)
a. Debt by installments or otherwise
b. Wages of an employee or rent to a landlord
c. annuity to a widow or representative
of a deceased partner
d. interest on a loan, though the amount of
payment vary with the profi ts of the business
e. consideration for the sale of a goodwill of a business or other propert
vvvvvv
1. Violating delectus personarum
2. Receiving in a different capacity
3. Receipt of the profit is only incidental, not principal.

3 tests to determine that the partner is really a partner:


1. Required contribution
2. Participating in Decision making
2. Participating in Losses

ARTICLE 1770
Lawful Object - Capital
Lawful Purpose - Business itself

4 Effects of Unlawful Partnership


1. Void ab initio (Void from the start)
- Hence, no judicial declaration. Judicial declaration is not required because
it's void from start
2. Profits will be confiscated in favor of the government
3. All instrumentalities, tools, and proceeds will be confiscated in favor of the
government.
4. Capital will be returned to the partners. If illegal, will be confiscated.

ARTICLE 1771

Form of Partnership
GR - No form is required (Consensual)
E - A form is required:
1. 1771/1773
- Immovable property is contributed (Land/Building)
- Form Required: Public Instrument + Inventory
- Effect if not complied: Void

2. 1403 (2) (Statute of Fraud)


- More than 1 year
- Form Required: Writing
- Effect if not complied: Unenforceable

3. 1844 (Limited Partnership)


- Limited Partnership
- Form Required: PI + Registered
- Effect if not complied: General Partnership

Seperate/Individual/Private Property - Synonyms

ARTICLE 1772
3,000 pesos or more contributions must appear in a Public Instrument + Registered.
However, is optional (1722 par.2 and 1768). This is merely for BIR monitoring and
administrative purposes (SEC).

ARTICLE 1773
Inventory must be made, signed and attached to the public instrument. It indicates
location, owner, size, and other details. It is important to specify the object.

ARTICLE 1774
Acquisition (buy) or conveyance (sell) should be in partnership name.

ARTICLE 1775
Secret partnerships have no distinct partnership and juridical personality.
- governed by the law on Co-ownership

ARTICLE 1776
Kinds of Partnership:
a. Universal v. Particular
Husband and wife can't create universal, only particular.
1. Purpose:
Universal - very broad and vague
Particular - specific, well-defined

b. General v. Limited
General Partner - Contributed and Separate Property are liable
Limited Partner - Only contributed is liable

c. At Will v. Fixed
At Will - no period
Fixed - period exists

d. De Jure (IN LAW) v. De Facto (IN FACT)


De Jure - All requirements are complied
De Facto - residual definition

e. Ordinary/Real - Valid Parnership


v.
Estoppel/Ostensible Parnership - Invalid Parnership
f. Secret v. Open/Notorious
g. Commercial (Trading Business) v. Professional (Non-Trading/Exercise of
Profession)

Kinds of Parners
Capitalist (Money,Property) v. Industrial (Services)
General v. Limited
Sub Partner (Not a partner) v. Substituted Limited Partner (A partner)
Silent (does not manage) v. Managing v. Liquidating (Does manage at the time of
dissolution)

Known Manage
Ostensible / /
Secret /
Silent /
Dormant

Dormant partner is not liable at the time of dissolution

ARTICLE 1777
A universal partnership may refer to all the present property or to all the
profits.

If there is a doubt between a general and limited parnership, partnership will be


interpreted as a general one.

2 kinds of universal partnership:


1. All Present Property - Ownership is being transferred
2. All Profits - Usufruct (right to use/ Jus Utendi)

At the time of dissolution, Properties contributed will not be returned under


Universal partnership of all present property. On the other hand, properties
contributed will be returned to the partner under Universal partnership of profits,
for he remains the owner of the property

ARTICLE 1778
Universal of All Present Property
1. All Properties owned at the time of creation
2. Profits from properties contributed
3. Stipulation for the common enjoyment of any other profits but the properties
which may be subsequently acquired by inheritance, legacy or donation - PROPERTIES
ACQUIRED BY LUCRATIVE - NO (Except the fruits thereof)

ARTICLE 1780
Universal of All Profits
1. Industry or work during the existence of the partnership
2. Usufruct (right to use/ Jus Utendi)
- Not included - profits by chance acquired by lucrative title

ARTICLE 1781
Presumption in favor of All Profits - in case of doubt

ARTICLE 1782
Persons who are prohibited to enter in a Universal Partnership
If 1 is incapacitated - Voidable
If both are incapacitated - Unenforceable
If 1 or both are prohibited - Void
(Article 87 / Article 739 CC (3)
ARTICLE 1783
Particular Partnership
4 Instances:
1. Determinate things
2. Use or Fruits
3. Specific Undertaking
4. Exercise of a Profession

DISTINCTIONS
Co-ownership
- Purpose: Common Enjoyment
- Who decides: All
- How is it created: By law or agreement
Conjugal Partnership of Gains
- Purpose: Regulate property relation
- Who decides: Either Husband or Wife
- How is it created: Merge
Voluntary Association
- Purpose: varies
- Who decides: Officer
- How is it created: Agreement
Partnership
- has juridical personality
- Purpose: Profit
- Who decides: All
- How is it created: By contract
Corporation
- has juridical personality
- Purpose: Profit
- Who decides: Board of Directors (Corp) / Board of Trustees (Coop)
- How is it created: By law

CHAPTER 2
ARTICLE 1784
Commencement of Partnership
GR - Consensual - mere consent
E - Future Partnership (Period/Condition)
- Recognized by law
If more than 1 year, must be in writing - if not, unenforceable

ARTICLE 1785
Continuation beyond Fixed - w/ period
After reaching a certain period, dissolution.
If not liquidated, the partnership continues, but AT WILL having the same rights.

ARTICLE 1786
Obligations with respect to contribution
1. Contribute at the beginning or stipulated time
2. Answer for eviction (contributed not owned by the partner)
3. Answer for the fruits
1164 - time the obligation to deliver it arises
1537 - perfection
1786 - it shouldve been contributed
4. Presence/DGFF (Dilligence of a Good Father of a Family / Observe ordinary
dilligence)
5. Liable for damages (Demand is not required)

Remedy for failure to contribute


- action for SPECIFIC PERFORMANCE

ARTICLE 1787
Appraisal v. Inventory (1773)
Appraisal - Valuation of the property
Inventory - Ownership

Appraisal Inventory
Movable / /
Immovable / x (void)

GR - Stipulation of Partners determines the valuation of the partnership

Valuation is important because if there's no agreement, capital contribution.


Default rule = Equal

E - Experts chosen based on current price

ARTICLE 1788
No demand is required. Automatically, the partners will be liable for damages in
case of delay.

2 Instances:
1. Failed to contribute (No need for demand. Automatically liable)
- Liable from the time it should've been contributed
2. Converted for his personal use
- For Personal Purpose, not allowed - Misappropriation
- For a Partnership Purpose, allowed
- Liable from the time he took and convert it for personal

GR - Partner can't be liable for estafa/theft


E - Money is already alloted for specific purpose

1789
Same Business Diff. Business
Industrial X X
Capitalist X /
Limited / /
- He is only a mere contributor
INDUSTRIAL PARTNER
GR - IP is not allowed. Why? LOYALTY.
E - expressly allowed, not implied/presumed.

Effect of Violation
1. Exclusion
2. Availment - all profit of IP will be taken by the Partnership

CAPITALIST Partner
GR - Same business not allowed
E - Consent of other partners, can be implied/presumed

Effect of Violation
1. Bring the common fund any profit
2. Personally bear all losses

ARTICLE 1790
Presumption as to contribution (Corporation - Doctrine of Equality of Shares)
GR - Equal
E - Stipulation

ARTICLE 1791
Obiligation to give additional capital
GR - In case of IMMINENT LOSS
E - no obligation to give
1. Stipulation
2. Industrial Partner
3. Partner is Insolvent

ARTICLE 1794
GR - Damages are not subject to set off or compensation
E - Unusual profits have been realized
Effect - Equitably lessened

ARTICLE 1792
Obligations of Managing Partner (MP)
Example:
If A owes the partnership and its MP
Rules - Look at the Receipt
1. If in the name of MP
- proportionate application
2. If in the name of Partnership
- SOLELY to the partnership
3. If no name, solely to the partnership (Fiduciary Relationship)
E - NOT applicable
1. Not the MP
2. Not opt due
3. More onerous (1252)

ARTICLE 1793

1792 v. 1793
2 accounts 1 account
MP x

Obligation of Partner who receives a share of partnership credit


- bring back/share it to the partnership

ARTICLE 1795
Risk of Loss (Res Perit Domino - "The thing perishes with the owner)
What is contributed?
1. If owndership (4) - Partners bares the losses
2. If use/usufruct - Partnership bares the loss

Dissolution (Effect)
1. If ownership is transferred, at the time of dissoulution, it can no longer be
redeemed
2. If use is transferred, at the time of dissolution, the thing will be returned to
the partner

ARTICLE 1796
Responsibility of Partnership to Returns
a. To refund the amounts disbursed by him
b. Answer for obligations contracted in Good Faith
c. Answer for risks in consequence of management

ARTICLE 1797
Distribution of Profits and Losses
Liability - Responsibility to Third Persons
Losses - Responsibility among partners

Industrial partners are liable for contractual liability, but not to losses

A. Distribution of Profits
G - Stipulation (Profit Sharing)
E - Capital Contributions

B. Distribution of Losses
G - Stipulation (Loss Sharing)
E - No Loss Sharing = Profit Sharing
E - No Loss Sharing and No Profit Sharing = Capital Contributions

Industrial Partner
G - Stipulation
E - No Stipulation = Just and Equitable

Industrial partner cannot be made liable for losses even if there's stipulation.

Industrial and Capitalist Partner


G - Stipulation
E - No Stipulation = Capital Contribution + Just & Equitable

ARTICLE 1798
Designation of share in profits and losses by Third Person
GP - Partners (Mutuality)
E - TP was allowed
E-E - If decision of TP is manifestly inequitable
- It can be questioned within 3 months from knowledge of decision of
the affected partner
E - 1. Lapsed
2. Executed

ARTICLE 1799
PACTUM LEONINA - Void
- Stipulation exluding one of the parners from profit & loss sharing
- If made at the start - Partnership is VOID.
- If made after the creation of Partnership - Partnership is valid, but the
stipulation is void (PACTUM LEONINA).

ARTICLE 1800
Acts of administration v. Acts of Ownership

Acts of Administration
- usual course of business
- Who decideds: managing partner
Acts of Ownership
- Alteration
- Who decides: all partnets

Controlling Interest v. Majority of the Partners

Controlling Interest - capital contribution


Majority of the Partners - no. of partners

Can we remove the managing partner?


1. If MP was appointed at the start, Irrevocable.
E - If 2 requisites are present:
1. Just and lawful cause
2. Vote of the controlling interest
2. If MP was appointed after the creation of the partnership, revocable, mere
agent.

If third person manager, can be revoked at any point of time

ARTICLE 1801 and 1802


Similarity
- 2 or more Managing Partners appointed
- No specification of duties

Difference
- In 1801, unanimity is not required. On the other hand, 1802 requires.

ARTICLE 1801
G - Each one may perform Acts of Administration
E - If one MP opposes, decision of majority of MPs shall prevail
E - E - In case of tie, vote of contracting interest of partners

Unanimity - no opposition

ARTICLE 1802
G - Unanimous consent of all MPs
E - Imminent danger of grave or irreparable injury to the partnership
Effect - One can decide

ARTICLE 1803
NO MP was appointed
1st paragraph
G - All are MP
Follow ARTICLE 1801
2nd paragraph
Acts of Ownership
G - Consent of all partners
E - Manifestly prejudicial to the interest of partnership
Effect - court intervention

Sub-Partnership
ARTICLE 1804
Sub-partnership doesn't have partnership

ARTICLE 1805
G - Stipulation where to keep partnership books
E - Principal place of business of the partnership

Why is it important? Right of inspection


E - Unreasonable hour/day

In corporation, principal place of office.

ARTICLE 1806
Duty of voluntary disclosure of material facts / Duty to to render information
- Fiduciary Relationship

ARTICLE 1807
Partner accountable as Fiduciary (Sec.30 of corpo)
Secret profit/Secret commissions are NOT ALLOWED

Effect of violated
1. must account to the partnership
2. holds as trustee

ARTICLE 1808
Capitalist Partner
G - Same business not allowed
E - Consent of other partners
Effect if violated,can be implied/presumed
1. Bring any profit to the common fund
2. Personally bear all loses

ARTICLE 1809
Right to Formal Accounting

Formal Accounting v. Inspection are not the same

Formal accounting - FS, long process


Inspection - Mechanical act

G - Partner cant demand formal accounting


E - 4 instances - allowed
1. Wrongfully excluded
2. Stipulation
3. 1807- Secret profits
4. Just and Reasonable

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Rights of Partner v. Property Rights

ARTICLE 1810
Property Rights:
1. Right in Specific Partnership Property
2. Interest (1812) - Only interest is assignable
a. Profit - during the existence of the partnership
b. Surplus - at the time of the partnership dissolution
3. Management

ARTICLE 1811
Nature of Partner's not in Specific Partnership Property
1. Possess/ Use for partnership purpose - Allowed
Personal - Not Allowed
E - COnsent of all partners
2. Assignment/Sell of Right
G - Not allowed
E - Consent of All
3. Attachment/Execution
Similarity - Creditor is taking the property of partnership
- Both cases have court intervention
Difference - Attatchment is done at the start. Execution is done at the end.

G - No
E - Consent of all
4. Legal Support
G - Not allowed/No obligation

ARTICLE 1813
Effect of assignment of partner's whole interest
How to become assignee?
1. Selling it to TP
2. Donating it to TP
3. Using it as a security for the loan

Rights not given - Manage/Inspect/Ask Information


Rights given - profit/surplus

Assignees - not a partner


sub-partner - not a partner
Substituted Limited Parner - a partner

ARTICLE 1814
CHARGING ORDER
How to remove (2 ways):
1. Partnership Property w/consent of all
2. Seperate property of other partners

ARTICLE 1827
Separate creditor as preference over separate property
Partnership creditor as preference over partnership property

----------- CHAPTER 4 (Obligation of Partners with TPs)----------


ARTICLE 1815 - Firm Name

Partnership is being registered to SEC while Business Name is to be registed to DTI

4 instances:
a. Liability of TPs' name inclusion(1825)
- not a partner because of delectus personarum, no rights, but creats
liability
b. Death partner
- Partnership will be dissolved
G - Not allowed to use partnership name
E - Cause/Deceased/Informing the public by newspaper publication
c. Inclusion of LP's name
- No
- Effect: Will be liable as general partner
d. Should not be similar to another name

Limited Partnership - he'll become a general partner


General Partnership - allowed

ARTICLE 1816
Liability for contractual obligations

Loss - pertains of responsibility to the partners


Liability - pertains of responsibility to TPs

PRO RATA - equally/jointly based on no. of partners (including industrial partners)


SUBSIDIARY - only after exhausting partnership assets

-----Review------
Rignt ng partner sa property ng partnership
Property Rights of the partner
- Specific parnetship property
- interest in partnership
- participate in the management

What is assignable?
- Interest only, not 1 and 3
What can be attached by the separate creditor?
- Interest

Effects of partner's right in specific partnership property

- Not to be possessed, except consent of all


- Not assignable, except consent of all
- Not subject to attachment or execution, except consent of all
- Not subject to legal support

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