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Law On Partnership
Law On Partnership
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PARTNERSHIP
It is a CONTRACT whereby two or more persons (1) bind themselves to
CONTRIBUTE money, property, or industry to a COMMON FUND (2) with the intention
of dividing the PROFITS among themselves or in order to EXERCISE a PROFESSION
a STATUS and a FIDUCIARY RELATION subsisting between persons carrying
on a business in common with a view on profit
CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP
[C, C, L, I, AS, NP]
1. CONSENSUAL
perfected by mere consent
2. CONTRIBUTION of money, property or industry to a COMMON FUND
3. object must be a LAWFUL one
4. INTENTION of DIVIDING the PROFIT among the PARTNERS
5. AFFECTIO SOCIETATIS
the desire to formulate an ACTIVE UNION, with people among whom there
exist a mutual CONFIDENCE and TRUSTS
6. NEW PERSONALITY
the object must be for profit and not merely for the common enjoyment
otherwise only a co-ownership has been formed. HOWEVER, pecuniary profit
need not be the only aim, it is enough that it is the principal purpose
BUSINESS TRUSTS
when certain persons entrust their property or money to others who will
manage the same for the former
RULES ON CAPACITY TO BECOME A PARTNER
1. a person capacitated to enter into contractual relations may become a partner
2. an UNEMANCIPATED MINOR CANNOT become a partner UNLESS his parent
or guardian consents
3. a MARRIED WOMAN, cannot contribute conjugal funds as her contribution to the
partnership UNLESS she is permitted to do so by her husband OR UNLESS she
is the administrator of the conjugal partnership, in which the COURT must give its
consent authority
4. a PARTNERSHIP being a juridical person by itself can form another partnership
5. a CORPORATION cannot become a partner on grounds of public policy
a partner shares not only in profits but also in the losses of the firm
RULE:
the partnership has a PERSONALITY SEPARATE and DISTINCT from that of
each partner
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LIMITATIONS ON ACQUISITION
1. AGRICULTURAL LANDS 1024 HECTARES
2. lease of public lands (GRAZING) 2000 HAS.
RULES
IF
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2.
3.
4.
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B) any one of the members may contract in his own name with third
persons
NOT a partnership NOT a LEGAL PERSON
it may be sued by third person under the common name it uses
it cannot sue as such and cannot be ordinarily be a party to a civil action
insofar as innocent third parties are concerned
the parities can be considered as members of a partnership
as between themselves or insofar as third persons are prejudiced
only the rules of co-ownership must apply
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one where at least one partner is a general partner and the others are limited partners
one whose liability is limited only up to the extent of his contribution
a partnership where all the partners are limited partners cannot exist as a limited
partnership
REFUSED REGISTRATION
IF it continuous as such, it will be considered as a general partnership and all the
partners will be general partners
KINDS OF UNIVERSAL PARTNERSHIP
1. PARTNERSHIP OF ALL PRESENT PROPERTY
2. PARTNERSHIP OF ALL PROFITS
*UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY
CONTRIBUTION of
1. ALL the properties actually belonging to the partners
2. the PROFITS acquired with said property
BECOMES COMMON PROPERTY
EXCEPT all FUTURE PROPERTY
FRUITS of FUTURE PROPERTY INCLUDED IF STIPULATED UPON
*UNIVERSAL PARTNERSHIP OF PROFITS
comprises all that the partners may acquire by the INDUSTRY or WORK of the
partners become common property regardless of within said profits were obtained
through the usufruct contributed
EXCEPT PRIZES and GIFTS
RULE:
articles of universal partnership, entered without specification of its nature, only
constitute a universal partnership of PROFITS
RULE:
persons who are prohibited from giving each other any donation or advantage cannot
enter into universal partnership
WHO:
1. HUSBAND and WIFE
2. those guilty of ADULTERY or CONCUBINAGE
3. those guilty of the same criminal offense if the partnership was entered into in
consideration of the same
while spouses cannot enter into a universal partnership, they can enter into a
particular partnership or be members thereof
a universal partnership is virtually a donation to each other of the partners properties
or at least their usufruct
PARTICULAR PARTNERSHIP
a particular partnership has for its OBJECT:
1. DETERNMINATE THINGS their use or fruits
2. SPECIFIC UNDERTAKING
3. EXERCISE of a PROFESSION or VOCATION
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1. the warranty in case of eviction refers to specific and determinate things already
contributed
2. there is EVICTION whenever by a final judgment based on a right prior to the
sale or an act imputable to the partner, the partnership is deprived of the whole
or a part of the thing purchased
RULE WHEN CONTRIBUTION CONSISTS OF GOODS
APPRAISAL of VALUE is needed to determine how much was contributed
HOW APPRAISAL MADE
1. as PRESCRIBED in the CONTRACT
2. in default, by EXPERTS chosen by the partners, and at CURRENT PRICES
* necessity of the INVENTORY APPRAISAL
RULE on RISK of LOSS
after goods have been contributed, the partnership bears the risk of subsequent
changes in the value
RULE:
a partner who has undertaken to contribute a sum of money and fails to do so
becomes a debtor for the interest and damages from the time he should have
complied with his obligation
CAPITALIST PARTNER
one who FURNISHES CAPITAL
* NOT EXEMPTED from LOSSES
* he can engage in other business PROVIDED there is no competition between
the partnership and his business
* share in the profits according to agreements
INDUSTRIAL PARTNER
one who FURNISHES INDUSTRY or LABOR
* he is EXEMPTED from LOSSES as between the partner BUT liable to
strangers without prejudice to reimbursement from the capitalist partner
* he CANNOT engage in any other BUSINESS WITHOUT the express
CONSENT of the other partners, OTHERWISE
1. he can be EXCLUDED from the firm
- plus damages
OR
2. the BENEFITS he obtains from the other businesses CAN BE AVAILED of by the
other partners
- plus damages
whether or not there is COMPETITION
* in computing always look for ----- NET PROFITS
----- NET LOSSES
CAPITALIST INDUSTRIALIST PARTNER
one who contributes BOTH CAPITAL and INDUSTRY
GENERAL PARTNER
one who is liable beyond the extent of his contribution
LIMITED PARTNER
one who is liable only to the extent of his contribution
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*** an industrial partner can only be a general partner, never a limited partner
MANAGING PARTNER
one who manages actively the firms affairs
SILENT PARTNER
one who does not participate in the management, though he shares in the PROFITS
or LOSSES
LIQUIDATING PARTNER
one who winds up or liquidates the affairs of the firm after it has been dissolved
OSTENSIBLE PARTNER
one whose connection with the firm is public and open
SECRET PARTNER
one whose connection with the firm is concealed or kept secret
DORMANT PARTNER
one who is both a secret (hidden) and silent (not managing) partner
NOMINAL PARTNER
one who is not really a partner BUT who may become liable as such insofar as third
persons are concerned
RULE:
partners shall CONTRIBUTE EQUAL SHARES to the capital of the partnership
* it is permissible to contribute UNEQUAL SHARES IF there is a stipulation to this
effect
* in the absence of proof, the shares are presumed to be equal
CONDITIONS before a capitalist partner is obliged to sell his shares / interest to
the other partners [IL, RC, NA]
1. if there is IMMINENT LOSS of the BUSINESS of the partnership
2. he REFUSES to CONTRIBUTE an ADDITIONAL SHARE to the CAPITAL
3. there is no agreement to the contrary
* INDUSTRIAL PARTNER IS EXEMPTED
*RULE if MANAGING PARTNER COLLECTS A CREDIT
REQUISITES:
1. existence of at least 2 debts ---- PARTNERSHIP
---- PARTNER
2. both sums are demandable
3. the collecting partner is the managing partner
* the sum thus collected shall be applied to the two credits in
proportion to their amounts
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RULE:
* where a partner receives his share in the partnership credit
CONDITIONS:
1. a partner has received his share in the partnership credit in whole or in part
2. the other partners have not collected their part of the credit
3. the debtor subsequently becomes INSOLVENT
RULE: - the partner shall be obliged to bring to the partnership
capital what he received even though he may have given receipt for
his share only
* DOES NOT APPLY when debt was collected after dissolution of the partnership
RULE:
* every partner is responsible to the partnership for damages suffered by it through his
fault
* he cannot compensate them with the profits and benefits, which he may have
earned for the partnership by his industry
* the courts may equitably lessen his responsibility
RES PERIT DOMINO
*RULES ON WHO BEARS THE RISK OF LOSS
1. if SPECIFIC and DETERMINATE THINGS NOT FUNGIBLE whose USUFRUCT
is enjoyed by a firm
the PARTNER who OWNS it bears the loss for ownership was never
transferred to the firm
2. FUNGIBLE or DETERIORABLE
FIRM bears the loss for it is evident ownership was transferred
3. THINGS CONTRIBUTED to be SOLD
FIRM bears the loss for evidently the firm was intended to be the owner
4. CONTRIBUTED under APPRAISAL
FIRM bears the loss because this has the effect of an implied sale
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* REFUND must be made even in case of failure of the enterprise entered into,
provided the partner is not at fault
* AMOUNT DISBURSED does not refer to the ORIGINAL CAPITAL
*HOW PROFITS ARE DISTRIBUTED
1. according to AGREEMENT
2. IF NONE, according to amount of CONTRIBUTION
*HOW LOSSES are DISTRIBUTED
1. according to AGREEMENT as to losses
2. IF NONE, according to agreement as to PROFITS
3. IF NONE, according to amount of CONTRIBUTION
* an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE share in the
profits
*RULE on INDUSTRIAL PARTNERS LIABILITIES
- may be held liable by third persons BUT he may recover what he has paid from the
other capitalist partners
*RULE on DESIGNATION by THIRD PERSON of SHARES in PROFITS and LOSSES
* third person is NOT a PARTNER -- appointed to only distribute shares
* the designation of shares by third persons may be IMPUGNED, IF it is MANIFESTLY
INEQUITABLE
* the designation of shares by third persons CANNOT be IMPUGNED EVEN IF
MANIFESTLY INEQUITABLE IF:
1. the aggrieved partner has already BEGUN to EXECUTE the decision
2. the aggrieved partner has not IMPUGNED the distribution within 3 months he
had knowledge
*RULE IF APPOINTMENT OTHER THAN in the ARTICLES of PARTNERSHIP
1. power to act may be REVOKED at ANY TIME with or without just cause
REMOVAL should be done by the controlling interest
2. EXTENT of POWER
as long as he remains manager, he can perform all acts of administration
BUT if others oppose and he persists, he can be removed
*RULE WHEN there are 2 or MORE MANAGERS
CONDITIONS:
1. 2 or more partners are managers
2. there is no specification of respective duties
3. there is no stipulation requiring UNANIMITY
SPECIFIC RULES:
1. each may separately execute all acts of administration
UNLIMITED POWER to ADMINISTER
2. IF any of the managers OPPOSE
MAJORITY RULE
IN CASE OF A TIE
- persons owning controlling interest prevail provided they are also managers
* right to oppose is not given to NON-MANAGERS
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* OPPOSITION should be done BEFORE the acts produce legal effects insofar as
third persons are concerned
RULE WHEN UNANIMITY is REQUIRED
1. the CONCURRENCE of all shall be necessary for the validity of the acts
2. the ABSENCE or DISABILITY of ANYONE of them CANNOT BE ALLEGED
UNLESS there is imminent danger of grave or irreparable injury to the
partnership
RULE ON DUTY of THIRD PERSONS
third persons are not required to inquire as to whether or not a partner with whom he
transacts has the consent of all the managers
*RULES to be observed when the manner of management has not been agreed
upon:
1. all the partners are considered AGENTS
whatever any one of them may do alone shall not bind the partnership
2. IF the acts of one are opposed by the rest, the majority shall prevail
3. when a partner acts in his OWN NAME, he does not bind the partnership
4. authority to bind the firm does not apply if somebody else has been given
authority to manage in the articles of organization or through some other means
5. ALTERATIONS REQUIRE UNANIMITY
- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is prejudicial to the interest of the
partnership
- COURTS INTERVENTION may be sought
RULES on ASSOCIATE of PARTNER
1. every partner may associate another person with him in his share
2. for a partner to have an associate in his share
consent of all the other partners is NOT REQUIRED
3. for the associate to become a partner
ALL MUST CONSENT
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the ASSIGNOR is still the partner, with a right to demand accounting and
settlement
3. the ASSIGNEE CANNOT interfere in the MANAGEMENT or ADMINISTRATION
of the firm
the ASSIGNEE CANNOT also DEMAND [I, A, I]
A) INFORMATION
B) ACCOUNTING
C) INSPECTION of partnership books
*** while a partners INTEREST in the firm may be CHARGED or LEVIED upon, his
INTEREST in a specific firm PROPERTY CANNOT be attached.
RIGHTS of the ASSIGNEE
1. to get whatever profits the assignor-partner would have obtained
2. to avail himself of the usual remedies in case of fraud in the management
3. to ask for ANNULMENT of the contract of assignment IF:
A) he was induced to enter into it through any of the vices of consent
B) he himself was incapacitated to give consent
OR
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* this is binding on the firm even if the partner was not really authorized
PROVIDED that the third party is in GOOD FAITH
RULE on UNUSUAL ACTS
one or more but less than all the partners HAVE NO AUTHORITY TO:
[AP, DG, AI, CJ, EC, SA, RC]
1. ASSIGN the PARTNERS PROPERTY
2. DISPOSE of GOODWILL
3. do any other act which would make it impossible to carry on the ordinary
business of the partnership
4. CONFESS a judgment
5. ENTER into a COMPROMISE
6. SUBMIT to ARBITRATION
7. RENOUNCE to CLAIM
*RULES on CONVEYANCE of REAL PROPERTY
1. where title to real property is in the partnership name
any partner may convey title to such property by a conveyance executed in the
partnership name
* PARTNERSHIP MAY RECOVER SUCH PROPERTY
EXCEPT:
1. if the firm is engaged in the buying and selling of land (USUAL
BUSINESS)
2. if property was conveyed to a HOLDER for VALUE and who had NO
KNOWLEDGE of the partners LACK of AUTHORITY
2. where title is in the name of the partnership and partner sold in his OWN NAME
IF DONE IN USUAL BUSINESS
buyer does not become owner BUT ACQUIRES EQUITABLE INTEREST
IF NOT DONE IN USUAL BUSINESS
buyer does not become owner and is not even entitled to equitable interest
3. where title is in the name of one or more BUT not all the partners
partners in whose name the title is named MAY CONVEY BUT the
PARTNERSHIP may RECOVER such property IF done not in its USUAL BUSINESS
EXCEPT if he had transferred it to a Holder for value
4. when property held in trust by partner
a sale only conveys EQUITABLE INTEREST
5. when title is in the name of all partners
conveyance executed by all partners possess all rights of such property
EQUITABLE INTEREST
-BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP
*RULE on ADMISSION or REPRESENTATION MADE by a PARTNER
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LOSS OR INJURY
RULE on WRONGFUL ACT or OMISSION of a PARTNER (SOLIDARY LIABILITY)
* the partnership is solidarily liable with the partner if the wrongful act or omission
1. the partner is acting in the ordinary course of business of the partnership
OR
2. with authority of his co-partners
* innocent partners have right to recover from the guilty partner
* When the firm and other partners not liable:
1. if the wrongful act or omission was NOT DONE
A) within scope of partnership business
B) with authority of the other co-partners
2. if the act or omission is NOT WRONGFUL
3. if the act or omission, although wrongful did not make the partner concern liable
- DAMNUN ABSQUE INSURIA
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4. if the wrongful act or omission was committed after the firm had been dissolved
and the same was not in connection with the process of winding up.
LIABILITY of PARTNERSHIP for MISAPPROPRIATION (SOLIDARY LIABILITY)
1. RECEIVING PARTY MISAPPROPRIATES
2. ANY PARTNER MISAPPPROPRIATES
- money or property in custody of partnership
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
PARTNERSHIP BY ESTOPPEL
when all the members of the existing partnership consent to such representation of a
partner by estoppel
RULES AND SITUATIONS:
1. if a third person is misled and acts because of such misrepresentation
the deceiver is a partner by estoppel
2. if the partnership consented to such misrepresentation
partnership liability results
3. if the firm had not consented
no partnership liability results BUT the deceiver is considered still as a partner
by estoppel with all the obligations but not the rights of a partner
4. when a person represents himself as a partner of a NON-EXISTENT partnership
NO partnership liability results BUT the deceiver and all persons who may
have aided him in the misrepresentation are still liable
liability would be JOINT or PRO-RATA
* when although there is misrepresentation, if the third party is not deceived, the
doctrine of estoppel does not apply
BURDEN of PROOF
the creditor or whoever alleges the existence of a partner or partnership by estoppel
has the burden of proving the existence of the MISREPRESENTATION AND
INNOCENT RELIANCE on it
ENTRY OF A NEW PARTNER into an EXISTING PARTNERSHIP
RULE:
* he shall be liable for all the obligations of the partnership BUT his liability will extend
only to his share in the partnership property
* his own individual property shall be excluded
* same liability of a limited partner
PREFERENCE of PARTNERSHIP CREDITORS
RULE:
* the creditors of the partnership shall be preferred to those of such partner as
regards the partnership property
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* the insolvency need not be judicially declared, it is enough that the assets be less
than the liabilities
DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:
(I, UM, I-PP, C, PB, BL, OC)
1. partner declared insane in any judicial proceeding or is shown to be of
UNSOUND MIND
2. partner becomes INCAPABLE of performing his part of the partnership contract
3. partner has been guilty of such CONDUCT as tends to affect prejudicially the
business
4. partners PERSISTENT BREACH of agreement
5. the business of the partnership can only be denied on at a loss
6. other circumstances which render dissolution equitable
IN CASE OF PURCHASER of PARTNERS INTEREST
1. after the termination of the specified term or particular undertaking
2. AT ANY TIME, if the partnership was a partnership at will when the interest was
assigned or when the charging ordered was issued
* proof as to the existence of the firm must first be given
* even if a partner has not yet been previously declared insane by the court,
dissolution may be asked, as long as the insanity is duly proved in court
* in a suit for dissolution, the court may appoint a RECEIVER at its discretion
EFFECTS OF DISSOLUTION
RULE:
* when the firm is dissolved, a partner can no longer bind the partnership
* a dissolved partnership still has the personality for the winding up of its affairs
the firm is still allowed to collect previously acquired credits
the firm is still bound to pay of its debts
DISSOLUTION CAUSED by A-I-D
RULE: (STILL BOUND) as to each partners
G.R. where the dissolution is caused by the ACT, INSOLVENCY or DEATH of a
partner, each partner is liable to his co-partners for his share of any liability created by
any partner acting for the partnership
EXCEPTION: - individual liabilities
1. if dissolution by ACT
the partner acting for the partnership HAD KNOWLEDGE of the dissolution
OR
2. if dissolution by DEATH or INSOLVENCY
the partner acting for the partnership HAD knowledge or notice of the death or
insolvency
* only the partner acting assumes liability
*AFTER DISSOLUTION, a partner can still bind the PARTNERSHIP
(WU, UT, TB)
1. By any ACT appropriate for WINDING UP partnership affairs
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* any other income earned after the time, like interest or dividends on stock owned by
the partners or partnership at the time of dissolution should not be distributed as profits
BUT as merely additional income to the capital
BETTER RIGHTS of INNOCENT PARTNERS
innocent partners have better rights than guilty partners and that the guilty partners
are required to indemnify for the damages caused
* RIGHT of INOCENT PARTNERS TO CONTINUE the BUSINESS
in essence this is a new partnership
can use the same firm name
can ask new members to join
BUT shall: for protection of guilty partners
1. give a BOND approved by the court
2. to PAY guilty partners his interests at the time of dissolution MINUS DAMAGES
* a guilty partner who is EXCLUDED will be indemnified against all present or future
partnership liabilities
RIGHT TO GET CASH
in case on non-continuance of the business, the interest of the partner should if he
desires be given in cash
assets may be sold
a guilty partner, in ascertaining the value of his interest is not entitled to a
proportional share of the value of GOOD WIL
RIGHTS OF INNOCENT PARTNERS IN CASE of RESCISSION based on FRAUD
AND MISREPRESENTATION
1. Right to LIEN or RETENTION SURPLUS
CAPITAL
ADVANCES
2. Right of SUBROGATION as creditor
3. Right of INDEMNIFICATION
*ORDER of PAYMENT in WINDING-UP of PARTNERSHIP LIABILITIES
GENERAL PARTNERSHIP: [C, R, C, P]
1. those owing to creditors other than partners
2. those owing to partners other than for capital or profits REIMBURSEMENTS
3. those owing to partners in respect to CAPITAL
4. those owing to partners in respect to PROFITS
* IF the partnership assets are insufficient, the other partners must contribute more
money or property
PREFERENCE with RESPECT to the ASSETS
1. regarding partnership property
partnership creditors have preference
2. regarding individual properties of partners
individual creditors are preferred
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* the common ownership of property does not itself create a partnership between the
owners, though they may use it for the purpose of making gains AND they may without
becoming partners, agree among themselves as to the management and use of such
property and the application of the proceeds therefrom
* the sharing of returns does not in itself establish a partnership within the persons
sharing therein have a joint or common right or interest in the property
there must be:
1. clear intent to form a partnership
2. the existence of a juridical personality different from the individual partners
AND
3. the freedom of each party to transfer or assign the whole property
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