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Partnership Reviewer

Partnership Reviewer

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Published by Chapapa
business organization, partnersship, notes, memory aid, reviewer
business organization, partnersship, notes, memory aid, reviewer

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Published by: Chapapa on Jun 28, 2009
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03/20/2015

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Finals Reviewer
P
ARTNERSHIP
 
1
st
Sem; 2003
Helen C. Arevalo 1 Section 3D
INTRODUCTIONBrief Historical Background
Development of partnership 
The earliest form of conducting business was the single entrepreneurownership plan (one individual). Under this system,growth of the business was limited (limitation of capital,skill or knowledge) and so partnership was developed.
Ancient origin of partnership as a businesorganization – 
Development of partnership oftencredited to the Romans.Historically, partnership was used long before theRomans. As early as 2300 B.C. the Babylonian system of laws provided for regulation of partnership. Commercialpartnerships at that time were generally for singletransactions or undertakings.Following the Babylonian period, there were clear-cutreferences to partnerships in Jewish law.
The relative newness of the law of partnership – 
Despite its long history of use, there is not acorrespondingly long line of precedents and decisionsdealing with the subject. This is because English courtsof justice scarcely dealt with the subject. Disputesbetween merchants were disposed of by special courts.
The law of merchants – 
In the Middle Ages,merchants had a special and peculiar kind of law thatwas applicable to them and their legal affairs.During this period, the common law courts of England were slow and methodically exact as to form.Merchants moved more rapidly than the law andrequired speedier justice. Hence, the special courts.
English law of partnership – 
In time the specialcourts were discontinued and the law courts took over.Chief Justice, Lord Mansfield sought to establish acommon law for commercial matters. It was not untilthe latter years of the 18
th
century that the law of partnership as we know it today began to assume bothform and substance.In 1778, Lord Mansfield decided a case that dealtwith the rights of partnership. In 1794, William Watsonwrote a text on partnership.
Beginning of law of partnership – 
These twosources mark the beginning of printed precedents andthe publication of the principles of law in partnerships.Increase in use of partnership and complexity of business brought forth a rapid succession of decisions onpartnerships.
American Uniform Acts – 
Attempt made in US tosecure uniformity of state laws dealing with partnership.The Uniform Partnership Act and the Uniform LimitedPartnership Act helped to achieve this uniformity. TheUniform Partnership Act is similar with England’sPartnership Act of 1890. English settlers brought thepartnership concept to their new country as part of thecommon law.Modern partnership law contains a combination of principles and concepts developed from three sources:the Roman law, the law merchant and equity, and thecommon law courts.
Governing law in our jurisdiction
Before the new Civil Code, commercial or mercantilepartnerships were governed by the Code of Commerceand non-commercial or civil partnerships by the oldSpanish Civil Code. The new Civil Code superseded theold Civil Code and expressly repealed
in toto
theprovisions in the Code of Commerce relating topartnerships. Consequently, the new Civil Codeprovisions are intended to provide all the rules regardingpartnerships. There is no more distinction betweencommercial and civil partnerships.The partnerships contemplated are those formed forprivate interest or purpose.
Sources of our law on partnership
The Civil Code provisions on partnership were mostlytaken from theold Civil Code and from the US’s UniformPartnership Act and the Uniform Limited Partnership Act.Some provisions were taken from the Code of Commerce as well as from the opinions of civilians. Newrules were also formulated by the Code Commission.
CHAPTER 1. GENERAL PROVISIONSArt. 1767. By the contract of partnership two ormore persons bind themselves to contributemoney, property, or industry to a common fund,with the intention of dividing the profits amongthemselves.Two or more persons may also form apartnership for the exercise of a profession.Concept of partnership
The above article gives the legal definition of partnership (often called “co-partnership”) from theviewpoint of acontract.Partnership, however, has also been defined as:1.)
 
An association;2.)
 
A legal relation;3.)
 
A status;4.)
 
An organization;5.)
 
An entity;6.)
 
A joint undertaking.
[
See pp. 7-8 of De Leon (2002 Ed.) for full definitions. I thinkOK na if we just know the codal definition anyway.
]
Partnership is a legal concept, but the determinationof the existence of a partnership may involve inferencesdrawn from the circumstances attending its creation andoperation.
Civil law concept and American concept of partnershipdistinguished
Civil Code AmericanBasis of concept
Partnership as acontract: theagreement itself out of which aPartnership as arelation: theresult of thecontract or
 
Finals Reviewer
P
ARTNERSHIP
 
1
st
Sem; 2003
Helen C. Arevalo 2 Section 3D
partnership iscreated.agreement; the juridical relation.
Possessionof separatepersonality
 “Entity theory”:Partnership has a juridicalpersonality of itsown, distinct andseparate from thatof each of thepartners. “Aggregatetheory”: Noseparate juridicalpersonality;merely anextension of itsmembers, aconglomerate of individuals.
TaxConsequence
Partnerships,except generalprofessionalpartnerships, aretreated for incometax purposes ascorporations andsubject to tax assuch.Partnership nottaxed. Individualmembersseverally paytheir incometaxes, partnershipregarded merelyas source of income.
General Professional Partnership
Par. 2 relates to the exercise of a profession.
[
Profession
: a group of men pursuing a learned art as acommon calling in the spirit of public service – no less a publicservice because it may incidentally be a means of livelihood.]
The practice of a profession is not a business or anenterprise for profit. However, the law allows the jointpursuit thereof by two or more persons as partners. It isthe individual partners, and not the partnership, whoengage in the practice of the profession and areresponsible for their own acts as such. The law does notallow the practice of a profession as a corporate entity.Personal qualifications for such practice cannot bepossessed by a corporation.
Partnership for the practice of law
A mere association for non-business purpose - 
Right to practice law not a constitutional right but aprivilege or franchise. It cannot be likened topartnerships formed by other professionals or forbusiness.It is not formed for the purpose of carrying on tradeor business or of holding property. Thus, use of a
nomde plume,
assumed, or trade name is improper.
Distinguished from business – 
It is intimately andpeculiarly related to the administration of justice; not amere money-making trade. Primary characteristicswhich distinguish it:1.)
 
Duty of public service;2.)
 
Relation as an officer of court to theadministration of justice;3.)
 
Highly fiduciary relation to clients;4.)
 
Relation to colleagues at the bar characterizedby candor, fairness, etc.
Characteristic elements of partnership
1.)
 
Consensual: perfected by mere consent(express/implied);2.)
 
Nominate: has a special name/designation in ourlaw;3.)
 
Bilateral: two or more parties, reciprocal rightsand obligations;4.)
 
Onerous: Each of the parties aspires to procurea benefit through the giving of something;5.)
 
Commutative: undertaking of each partner isconsidered the equivalent of that of the others;6.)
 
Principal: does not depend upon some othercontract for its existence/validity;7.)
 
Preparatory: entered into as a means to an end.A partnership contract, in its essence, is a contract of agency.
Essential features of partnership
1.)
 
There must be a valid contract;2.)
 
Parties must have legal capacity to enter intothe contract;3.)
 
Mutual contribution of money, property, orindustry to a common fund;4.)
 
Object must be lawful;5.)
 
Primary purpose: to obtain profits and to dividethem among the parties.It is also required that the articles of partnershipmust not be kept secret among the members;otherwise, the association shall have no legal personalityand shall be governed by the provisions relating to co-ownership.
Existence of a valid contract
Partnership relation fundamentally contractual – 
Partnership is a voluntary relation created byagreement of the parties.Actually, the partnership relation is not the contractitself, but the result of the contract.
Form – 
The relation is evidenced by the terms of the contract which may be oral or written, express orimplied from the acts and declarations of the parties.
Articles of partnership – 
While the partnershiprelation may be informally created and its existenceproved by the manifestations of the parties, it iscustomary to embody the terms of the association in awritten document known as “Articles of Partnership”.
Requisites – 
Since partnership is contractual, allthe essentials of a valid contract must be present:1.)
 
Consent and capacity of parties;2.)
 
Object;3.)
 
Cause.A person cannot enter into a contract of partnershipsolely by himself; there must be two contracting parties.For a partnership to be valid, there must be a validconsideration existing as between the partners. Eachsurrenders to the partnership some sort of contribution.
Partnership relation fiduciary in nature – 
Partnership is a form of voluntary association enteredinto by the associates. It is a personal relation in whichthe element of 
delectus personae
exists, involving as itdoes trust and confidence between the partners.Membership requires the consent of all. Its fiduciarynature and the liability of each partner for the acts of the others require that each person be granted the rightto choose with whom he will be associated with.
 
Finals Reviewer
P
ARTNERSHIP
 
1
st
Sem; 2003
Helen C. Arevalo 3 Section 3D
Among partners, mutual agency arises and thedoctrine of 
delectus personae
allows them to have thepower to dissolve the partnership. Any partner may, athis sole pleasure, dictate dissolution at will. He must,however, act in good faith or he’ll be liable for damages.
Application of principles of estoppel – 
Partnership liability may be imposed when one holdshimself out, or permits himself to be held out, as apartner. There is no actual or legal partnership relationbut merely a partnership liability imposed by law infavor of third persons.
Legal capacity of the parties to enter into thecontract
Individuals – 
General rule: any person who iscapable of entering into contractual relations may be apartner. The following cannot:1.)
 
Minors;2.)
 
Insane or demented persons;3.)
 
Deaf-mutes who do not know how to write;4.)
 
Persons who are suffering from civil interdiction;5.)
 
Incompetents who are under guardianship.Persons who are prohibited from giving each otherany donation cannot enter into a universal partnership.
Partnerships – 
There is no prohibition against apartnership being a partner in another partnership. Allthe members of the constituent partnerships will be heldliable to the creditors of the combined partnership.
Corporations – 
Unless authorized by statute or byits charter, a corporation is without capacity or power toenter into a contract of partnership. This is based onpublic policy, since in a partnership the corporationwould be bound by the acts of persons who are not itsduly appointed and authorized agents and officers,which would be entirely inconsistent with the policy thatthe corporation shall manage its own affairs separatelyand exclusively.Exceptions:1.)
 
Joint ventures where the nature of the venture isin line with the business authorized by itscharter.2.)
 
Partnership agreement provides that the twopartners will manage the partnership so that themanagement of corporate interest is notsurrendered.3.)
 
Entry of foreign corp as a limited partner in alimited partnership merely for investmentpurposes.
Contribution of money, property, or industry to acommon fund
Existence of proprietary interest – 
The partnersmust have a proprietary interest in the business orundertaking, that is, they must contribute capital whichmay be money, or property, or their services, or both, tothe common business.
Money – 
Legal tender in the Phils.
Property – 
Real or personal, corporeal or incorporeal.
Industry – 
Active cooperation, the work of the partyassociated.
Proof of contribution 
Proof is necessary thatthere be contribution of money, property, or industry toa common fund with the intention of dividing the incomeor profits obtained therefrom. If only one partner gives,no enforceable contract exists.
Legality of the object
The object is unlawful when it is contrary to law,morals, good customs, public order, or public policy. If purpose unlawful, no partnership can arise as thecontract is inexistent and void
ab initio
.
Purpose to obtain profits
The very reason for existence of partnership – 
The idea of obtaining pecuniary profit or gain is the veryreason for the existence of a partnership.
Need only be the principal, not exclusive aim – 
pecuniary profit need not be the exclusive aim. It issufficient that it is the principal purpose even if thereare, incidentally, other ends.
Sharing of profits
Not necessarily in equal shares – 
There must beintention to divide the profits but not necessarily inequal shares. There must be a joint interest in theprofits.A stipulation which excludes a partner from anyparticipation in the profits is void.
Not conclusive evidence of partnership – 
Thesharing of profits is merely presumptive and notconclusive evidence of partnership.
Sharing of losses
Necessary corollary of sharing in profits – 
Theright to share in the profits carries with it the duty tocontribute to the losses, if any. A community in losses isa necessary corollary of a participation in profits.
Agreement not necessary – 
It is not necessary forthe parties to agree on a system of sharing losses, forthe obligation is implied from the partnership relation. If only the share of each partner in the profits has beenagreed upon, the share of each in the losses shall be inthe same proportion.Generally, a stipulation which excludes one or morepartners from any share in the profits or losses is void.
Art. 1768. The partnership has a juridicalpersonality separate and distinct from that of eachof the partners even in case of failure to complywith the requirements of art. 1772, 1
st
paragraph.Partnership, a juridical person
As an independent juridical person, a partnershipmay enter into contracts, acquire and possess propertyof all kinds in its name, as well as incur obligations andbring civil or criminal actions.Thus, a partnership may be declared insolvent even ithe partners are not. It may enter into contracts andmay sue and be sued in its firm name or by its dulyauthorized representative. It is sufficient that service of summons be served on any partner.

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