LAW - The legislative pronouncement of the rules which should guide one’s actions

in society.
- A rule of conduct, just obligatory promulgated by legitimate authority, and
of common observance and benefit.

CIVIL LAW – those that deal with the relationship between persons and the
regulation of properties.

Examples:
The Civil Code of the Philippines (Republic Act No. 386)
The Corporation Code of the Philippines (Batas Pambansa Bilang 68)

PARTNERSHIP – a contract whereby two or more persons bind themselves to

contribute money, property or industry to a common fund, with the intention of the
dividing the profits among themselves, or in order to exercise a profession.

REQUISITES OF PARTNERSHIP

1. There must be a valid contract.

2. The parties must have legal capacity to enter into a contract.

 Who are incapacitated to enter into a contract of partnership?

- minors, insane or demented persons, deaf-mutes who do not know how to read
and write, persons suffering from civil interdiction and incompetents who are
under guardianship

3. There must be a mutual contribution of money, property or industry to a common

fund.
4. The object must be lawful.

 What are the consequences if a partnership is formed for an unlawful purpose?

a.The contract is void from the start and the contract never existed from the
viewpoint of the law.
b.The profits shall be confiscated in favor of the government.
c.The instruments or tools and proceeds of the crime shall also be forfeited in favor
of the government.
d.The capital contribution of the partners must be returned unless it falls under the
term “instruments and effects of a crime” in which event they shall also be
confiscated in favor of the government.
5. The primary purpose must be to obtain profits and to divide the same among the
parties.

CHARACTERESTICS OF PARTNERSHIP

1. Mutual agency – Any partner may act as an agent of the partnership in

conducting its affairs.
2. Unlimited liability – Except for limited partners, the personal assets (assets not
contributed to the partnership) of any partner may be used to satisfy the
partnership creditor’s claims upon liquidation, if partnership assets are not
enough to settle liabilities to outsiders.
3. Limited life – a partnership may be dissolved at any time by action of the
partners or by operation of law.
4. Mutual participation in profits – A partner has the right to share in partnership
profits.
5. Co-ownership of contributed assets – Property contributed to the partnership
are owned by the partnership by virtue of its separate legal entity.

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6. Legal entity – A partnership has a legal personality separate and distinct from
that of each of the partners.

PARTNERSHIP AS A JURIDICAL PERSON

A partnership in itself is a juridical person, separate and distinct from the partners
composing it. It has the capacity of acting as a legal unit, therefore,

a.The partnership can acquire and posses property of all kinds.

b.It can incur obligations, that is, it can enter into contracts.
c.It can bring civil or a criminal action, that is, it can sue and be sued.
d.Summons upon the managing partner will bind the partnership, it not being
necessary to summon all partners.
e.The partnership as an entity may be adjudged insolvent even if the partners are
solvent.
f. The death of a partner would not warrant the dismissal of the case against the
partnership because the latter was sued as a distinct personality.

KINDS OF PARTNERSHIP

A. As to subject matter

1. Universal partnership – one which refers to present properties or to all profits.

a. Universal partnership of all present properties – 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 they
may acquire therewith.

b. Universal partnership of profits – comprises all that the partners may

acquire by their industry or work during the existence of the partnership. (Ex.
salary, wages, earnings in business trades)

2. Particular partnership – it has for its object determinate things, their use or
fruits or a specific undertaking or the exercise of a profession.

B. As to duration

1. Partnership at will – term of existence is unlimited or is not formed for a

particular undertaking.
2. Partnership with a fixed term – there is a specific term or period for its
existence and the expiration thereof dissolves the partnership.

C. As to liability of the partners

1. General partnership – one consisting of general partners, who are liable pro-
rata and subsidiarily, sometimes solidarily with their separate property for
partnership debts.

2. Limited partnership – one formed by two or more persons having as members

one or more general partners and one or more limited partners, the latter not being
personally liable for the obligations of the partnership.

KINDS OF PARTNERS

A. As to liability

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1. General partner – one whose liability to third persons extend to his separate
property after all the assets of the partnership has been exhausted.
2. Limited Partner – one who is liable for partnership debts only up to the extent of
his contribution/interest in the partnership.

B. As to contribution

1. Capitalist partner – one who contributes money or property to the common fund
of the partnership.
2. Industrial partner – one who contributes only his industry or personal service or
labor.

C. As to management/participation in the partnership

1. Managing partner – one who manages the affairs or business of the

partnership.
2. Liquidating Partner – one who takes charge of the winding-up or liquidation of
the partnership affairs after dissolution.
3. Ostensible partner – one who takes active part and known to the public as a
partner in the business.
4. Secret partner – one who takes active part in the business but is not known to
be a partner by outside parties.
5. Silent partner – one who does not take any active part in the business although
he may be known to be a partner.
6. Dormant partner – one who does not take active part in the business and is not
known or held out as a partner.

FORM OF PARTNERSHIP CONTRACT

1. If contribution is money or personal/movable property

The contract may be oral or written, express or implied.

If the capital of the partnership is more than Php3,000.00, the contract must
appear in a public instrument and must be recorded or registered with the
Securities and Exchange Commission (SEC).

Question - Suppose the partnership has more than Php3,000.00 in money or

personal property as capital but it was merely orally constituted and was not
registered with the SEC, is the validity of the contract of partnership affected?

Answer – No because the requirement is only directory and is just a matter of

formality. Even if not registered, the partnership has a juridical personality
separate and distinct from that of each of the partners. The purpose of the
registration is necessary as a condition for the issuance of license to engage in
business 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.

2. If immovable/real property or real rights are contributed

The partnership contract must appear in public instrument, together with an

inventory of the immovable or real rights contributed and signed by the parties.

“Public Instrument” - one which is acknowledged by the person who executed the
document before a notary public or any official authorized to administer oath.
The person making the acknowledgment formally declares that the instrument is

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 his free act and deed, while the officer taking the same attests and certifies that
such party is known to him and that he is the same person who executed the
instrument and acknowledged that he entered in the contract of partnership freely
and voluntarily.

Q – What is the effect of the failure to comply with the above requirements?

A – It will render the partnership void (never existed in the eyes of the law).
Consequently, no juridical personality of the partnership arises, the parties can
not compel each other to observe the required form and the partners can now
ask the return of their capital contribution.

CREATION/COMMENCEMENT OF PARTNERSHIP

A partnership begins or acquires its juridical personality from the moment the
contract of partnership is executed unless otherwise stipulated that it will begin at a
later date. A partnership is a consensual contract, hence, it exists from the moment
of the celebration of the contract by the partners or the parties come to an
agreement to establish the partnership.

DURATION OF PARTNERSHIP

A partnership may be established for any period of time agreed upon by the
partners.

OBLIGATIONS OF PARTNERS

1. To contribute at the beginning of the partnership or at the stipulated time the

money, property, or industry which he may have promised to contribute.
2. Not to convert firm money for his own use.
3. Not to engage in unfair competition with his own firm.
4. To account for and hold as trustee unauthorized personal profits.
5. Pay for damages caused by his fault.
6. Duty to credit to the firm payment made by the debtor who owes him and the
firm.
7. To share with the other partners the share of the partnership credit which he has
received from an insolvent firm debtor.
8. Liable to pay with their own properties claims of third persons arising out of
contracts entered into in the name and for the account of the partnership if the
assets of the partnership have been exhausted.

RIGHTS OF A PARTNER

1. Property rights
a. His rights in specific partnership property.
- A partner has an equal right to possess specific partnership for partnership
purposes, but he has no right to possess such property for any purpose (ex.
personal) without the consent of his partners.

b. His right to participate in the management

c. His interest in the partnership

- The partner’s interest in the partnership consists of his share in the profits
during the life of the partnership and his share in the surplus after its dissolution.

Profit – the excess of returns over expenditures in a transaction or series of

transactions or the net income of the partnership for a given period of time.

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 Surplus – refers to the assets of the partnership after partnership debts and
liabilities are paid and settled and the rights of the partners among themselves
are adjusted.

RULES FOR THE DISTRIBUTION OF PROFITS

i. The partners share the profits according to their agreement.

ii. If there is no such agreement, the share of each capitalist partner shall be in
proportion to his capital contribution and the share of the industrial partner shall
be as may be just and equitable under the circumstances.:

2. The right to reimbursement for amounts advanced to the partnership

3. The right to inspect and copy partnership books.
4. The right to true and full information of all things affecting the partnership.
5. The right to demand a formal account.
6. Right to form contract of sub-partnership.
7. Right to ask for the dissolution of the firm at the proper time.

DISSOLUTION AND WINDING UP OF PARTNERSHIP

Dissolution – is the change in the relation of the partners caused by any partner
ceasing to be associated in carrying out the business. It is that point in time when
the partners cease to carry on the business together.

Liquidation – the process of settling the business or partnership affairs after

dissolution.

Termination – that point in time after all the partnership affairs have been settled.

CAUSES OF DISSOLUTION OF A PARTNERSHIP

1. Without violation of the agreement between the partners

a. By termination of the term or undertaking
b. By express will of any partner, acting in good faith, when no term or particular
undertaking is specified.
c. By the express will of all the partners
d. By expulsion of any partner from the business in accordance with such a
power conferred by the agreement between the partners.

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 anytime.
3. The business becomes unlawful
4. Loss of a specific thing contributed to the partnership
5. Death of any partner
6. Insolvency of any partner or of the partnership
7. Civil interdiction of any partner
8. By decree of court upon the application of any partner under any of the following
grounds:
a. Insanity of a partner
b. Incapacity of a partner
c. Partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business
d. Willful violation of agreement
e. Business can be carried on only at a loss
f. Other circumstances rendering dissolution equitable
Ex. refusal to give share of a partner in partnership profits