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CHAPTER 1 GENERAL PROVISIONS Article 1767: 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.

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Concepts of Partnership:
1. An association of two or more persons to carry on as co-owners a business for profit. 2. A legal relation based upon the expressed or implied agreement of two or more competent persons whereby they unite their property, labor or skill in carrying on some lawful business as principals for their joint profits. 3. A joint undertaking to share in the profit and loss.

Profession: group of men pursuing a learned art as a

common calling in the spirit of public service no less a public service because it may incidentally be a means of livelihood.

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Characteristic Elements of Partnership

The contract of a partnership in the essence is a contract of agency. 1. Consensual, perfected by mere consent, upon the express or implied agreement of members. 2. Nominate, has a special name or designation in law. 3. Bilateral, entered into by 2 or more persons and the rights and obligations arising therefrom are always reciprocal. 4. Onerous, each of the parties aspires to procure for himself a benefit through the giving of something. 5. Commutative, the undertaking of each of the partner is considered as the equivalent of that of the others. 6. Principal, it does not depend for tis existence or validity upon some other contract. 7. Preparatory, entered into as a means to an end, to engage in business for the realization of profits with the view of dividing them among the contracting parties.

association without the consent of all the other associates. The right to choose with whom a person wishes to associate or continue to associate himself is the very foundation and essence of partnership. The parties must have legal capacity to enter into the contract. There must be a mutual contribution of money, property or industry to a common fund. a. Money Philippine currency. b. Property Real or personal, tangible or intangible. Credit such as promissory note or other evidence of obligation or even a mere goodwill may be contributed as it is considered property. c. Industry the work or services of the party associated may be either personal manual efforts or intellectual, and for which he receives a share of profits of the business. The object must be lawful. The purpose must be to obtain profits and to divide the same among the parties. The parties intend to share the profits in certain proportions.

The sharing of the profits is prima facie evidence of a partnership.

Article 1768: The partnership has a juridical

personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, 1st paragraph (n). As a juridical person, a partnership may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal actions in conformity with the laws and regulations of its org.

Article 1769: In determining whether a partnership

exists, these rules shall apply: 1. Except as provided by article 1825, persons who are not partners as to each other are not partners as to 3rd persons; 2. Co-ownership or co-possession does not of itself establish a partnership, whether such coowners or co-possessors do or do not share any profits made by the use of the property; 3. The sharing of the gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;

Essential Features of Partnership

1. There must be a valid contract. a. Delectus Personae no one can become a member of the partnership

4. The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if 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 amounts of payments 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.

Article 1773: A contract of partnership is void,

whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties and attached to the public instrument. 1. Contract must be in a public instrument. 2. An inventory of the property contributed must be made, signed by the parties and attached to the public instrument.

Article 1774: Any immovable property or an interest

therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name.

Article 1775: Associations and societies, whose articles

are kept secret among the members and wherein anyone of the members may contact in his name with the third persons, shall have no juridical personality and shall be governed by the provisions relating to coownership.

Article 1770: A partnership must have a lawful object

or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime.

Article 1776: As to its object, a partnership is either

universal or particular. As regards the liability of the partners, a partnership may be general or limited.

Effects of an unlawful partnership

1. Contract is void ab initio and the partnership never existed in the eyes of law. 2. Profits shall be confiscated in favor of the government. 3. Instruments or tools and proceeds of the crime shall also be forfeited in favor of the government. 4. Contributions of the partners shall not be confiscated unless they fall under no.3.

Classification of partnership.
As to the extent of its matter 1. Universal partnership a. Of all present property property which belonged to each of the partners at the time of the constitution of the partnership. Profits which they acquire from all the property contributed. a. Of profits comprises all that the partners may acquire by their industry or work during the existence of partnership. 2. Particular partnership has for its objects: a. Determinate things b. Their use or fruits c. Specific undertaking d. Exercise of profession or vocation Note: Persons who are prohibited from giving donations or advantage to each other cannot enter into a universal partnership. (Art. 1782) As to liability of the partners 1. General partnership consists of general partners who are liable pro rata & subsidiarily, sometimes solidarily with their separate property for partnership debts;

Article 1771: A partnership may be constituted in any

form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. General Rule: No special form is required for the validity or existence of the partnership.

Article 1772: Every contract of partnership having a

capital of P3000.00 or more, in money or property, shall appear in a public instrument, which must be recorded in SEC. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons.

2. Limited partnership -- one form by 2 or more persons having as members one or more general partners & one or more limited partners, the latter not being personally liable for the obligations of the partnership. As to its duration 1. Partnership at will one in which no time is specified & is not formed for a particular undertaking or venture & which may be terminated anytime by mutual agreement. 2. Partnership with a fixed term the form for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking. As to legality of existence 1. De jure has complied with all the legal requirements for its establishment 2. De facto has failed to comply with all the legal requirements for its establishment. As to representation to others 1. Ordinary or real one which actually exists among the partners & also to third persons. 2. Ostensible or partnership by estoppel one in which in reality is not partnership but is considered only in relation to those who, by their conduct or admission are precluded to deny or disprove its existence. As to its publicity 1. Secret existence of certain persons as partners is not avowed or made known to the public. 2. Open or notorious known to public. As to its purpose 1. Commercial or trading formed for the transaction of the business 2. Professional or non-trading existence for profession

6. Liquidating one who takes charge of the winding up of partnership affairs upon dissolution 7. Partners by estoppel one who is not really a partner but is liable as partner for the protection of innocent 3rd persons. Also known as partner by implication or nominal partner. 8. Subpartner one who is not a member of the partnership who contracts with a partner with the reference to the latters share in partnership 9. Continuing partner one who continues the business after it has been dissolved. 10. Surviving partner one who remains after a partnership has been dissolved by the death of any partner. Partners that are subject to liability for all partnership obligations. 11. Ostensible one who takes active part & known to the public as partner in the business. 12. Secret one who takes active part in the business but not known to be a partner by outside parties. 13. Silent one who does not take any active part in the business although he may be known to be a partner. 14. Dormant one who does not take active part in the business & is not known or held out as partner. 15. Incoming person lately or about to be, taken into a partnership as a member. 16. Retiring one withdrawn from the partnership

Article 1777: A universal partnership may refer to all

the present property or all profits.

Article 1778: A partnership of all present property is

that in which 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 which they may acquire therewith.

Kinds of Partners
1. Capitalist contributes money or property to the common fund. 2. Industrial contributes only his industry or personal service 3. General one whose liability to 3rd persons extends to his separate property 4. Limited or special partner liability to 3rd persons is limited to his capital contributions. 5. Managing- one who manage the business.

Article 1779: In a universal partnership of all present

property, the property which belong to each of the partners at the time of the constitution of all partnership, become the common property of all the partnership, as well as all the profits which they may acquire therewith. A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruit thereof.

Article 1780: A universal partnership of profit

comprises all that the partner may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. Partners retain their ownership over their present & future property. Pass to the partnership are the profits or income and the usufruct gives a right to enjoy the property of another with the obligation of preserving its form & substance.

without any express agreement, the rights & duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of continuation of the partnership.

Article 1786: Every partner is a debtor of the

partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with the regard to specific & determinate things which he may have contributed to the partnership, in the same cases & in the same manner as the vendor is bound with the respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of nay demand. Obligations with respect to contribution of property 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. To answer for eviction in case the partnership is deprived of the determinate property contribute 3. To answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery. 4. To preserve said property with the diligence of a good father of a family pending delivery to the partnership; and 5. To indemnify the partnership for any damage caused to it retention of the same or by the delay in its contribution. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or part of the thing purchased.

Article 1781: Articles of universal partnership, entered

into without specification of its nature, only constitute a universal partnership of profits.

Article 1782: Persons who are prohibited from giving

each other any donation or advantage cannot enter into a universal partnership. For the reason that each of the partners virtually makes a donation. Ff. donations shall be void: 1. Those made between persons who were guilty of adultery or concubinage. 2. Those made between persons found guilty of the same criminal offense. 3. Those made to a public officer or his wife, descending & ascendants by reason of his office

Article 1783: A particular partnership has its object

determinate things, their use or fruits or a specific undertaking or the exercise of a profession or vocation.


Four Distinct Juridical Relations 1. Relations among the partners themselves 2. Relations of the partners with the partnership 3. Relations of the partnership with the 3rd persons with whom it contracts 4. Relations of the partners with such 3rd persons

Article 1784: A partnership begins from the moment of

the execution of the contract, unless it is stipulated.

Article 1787: When the capital or a part thereof

which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of the stipulation, it shall be made by experts chosen by the partners, and according to

Article 1785: When a partnership for a fixed term or

particular undertaking is continued after the termination of such term or particular undertaking

current prices, the subsequent changes thereof being for the account of the partnership. Appraisal of goods or property contributed 1. The appraisal of the value of the goods contributed is necessary to determine how much has been contributed by the partners. 2. In the case of immovable property, the partnership made in the inventory of said property.

Article 1791: If there is no agreement to the contrary,

in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners. Requisites for application of rule 1. There is an imminent loss of the business 2. The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business 3. The capitalist partner refuses to contribute an additional share to the capital 4. There is no agreement that even in case of an imminent loss of the business the partners are not obliged to contribute.

Article 1788: A partner who has undertaken to

contribute a sum of money and fails to do so become a debtor for the interest and damage from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. Obligations with respect to the partnership capital 1. To contribute on the date due the amount he has undertaken to contribute to the partnership 2. To reimburse any amount he may have taken from the partnership coffers & converted to his own use. 3. To pay the agreed or legal interest 4. To indemnify the partnership for the damages caused to it by the delay in the contribution or the conversion of any sum for his personal benefit.

Article 1792: 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 latter. Requisites for application to the rule 1. There exist at least 2 debts, one where the collecting partner is creditor & the other, where the partnership is the creditor 2. Both debts are demandable 3. The partner who collects is authorized to manage & actually manages the partnership

Article 1789: An industrial partner cannot engage in

business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have to obtained in violation of this provision, with a right to damage in either case. Prohibitions against engaging in business 1. As regards an industrial partner the prohibition is absolute & applies whether the partner is to engage in the same business in which the partnership is engaged. 2. As regards capitalist partners the prohibition extends only to any operation which is of the same kind of business in which the partnership is engaged.

Article 1793: A partner who has received, in whole or

in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. Requisites for application of rule 1. A partner has received, in whole or in part, his share of the partnership credit 2. The other partners have not collected their shares 3. The partnership debtor has become insolvent

Article 1790: Unless there is a stipulation to the

contrary, the partners shall contribute equal shares to the capital of the partnership.