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Partnership Review Notes (undergrad) 2.

De facto partnership
E. As to representation of others
I. Contract of Partnership 1. Real partnership
It is a contract where two or more persons bind 2. Partnership by estoppel (1769, 1825)
themselves to contribute money, property or industry F. As to Publicity
to a common fund, with the intention of dividing profits 1. Secret Partnership
among themselves. (Art. 1767) 2. Notorious or open Partnership
F. As to purpose
Characteristics of the contract of partnership 1. Commercial or trading
2. Professional or non-trading
1. Consensual it is perfected by mere consent although such
consent must be manifested in certain cases by proper Universal Partnership All Present Property (UPAPP)
formalities. One wherein the partners contribute all the property
2. Nominate it is designated by a specific name. which actually belong to them to a common fund with
3. Principal its existence does not depend on the life of the intention of dividing the same among themselves
another contract. as well as all the profits which they may acquire
4. Onerous there are certain contributions that have to be therewith. (Art. 1778)
made. Only properties that belonged to each partners at the
5. Preparatory in the sense, that after it has been entered time of the constitution of the partnership becomes
into, other contracts essential in the carrying out of its common property to all partners. This excluded future
purposes can be entered into. properties. ( Art. 1779)
because partnership demands that the
Essential Requisites contributed things must be determinate,
known and certain.
1. There must be a valid contract. Profits from other sources may become common only
The other essential elements of contract if there is a stipulation to such effect.
must be present.
There is not required form but the contract is Universal Partnership of Profits (UPP)
subject to the provisions of Art. 1771, 1773 Comprises all that the partners may acquire by their
and Statute of Frauds. industry or work during the existence of the
partnership and the usufruct of movable or immovable
2. The parties must have legal capacity to enter into the property which each partner may possess at the time
contract. of the celebration of the contract. (1780)
3. There must be a mutual contribution of money This is presumed by law when a universal partnership
property or industry to a common fund. has been entered into without specification. (1781)
The common fund may be intangible such as Reason: UPP imposes less obligations on
credit or industry. (Lim Tong Lim v. Phil. the partners since they preserve the
Fishing Gear Industries Inc, November 3, ownership of their separate property.
Note: as rule, universal partnership cannot be entered into by
4. The object or purpose must be lawful. (Art. 1770) persons who are prohibited from giving each other donation or
The object or purpose must be within the advantage.(Art. 1782 NCC, Art 739 NCC, Art. 87 FC)
commerce of man, possible and not contrary
to law, morals, good customs, public order or The reason is that universal partnership is virtually a donation
public policy, otherwise the partnership to each other of the partners properties or at least their
contract is VOID AB INITIO. (art. 1409) usufruct. Therefore if persons are prohibited to donate to each
If a partnership has several purposes, one of other directly, they cannot be allowed by law to donate
which is unlawful, the partnership can still indirectly.
exist so long as the illegal purpose can be
separated from the legal purposes. Particular Partnership
5. The primary purpose must be obtain to profits and It has for its object determinate things, their use or
divide the same among themselves fruits, or specific undertaking, or the exercise of a
6. There must be at least one general partner. profession or vocation.

Test of Partnership Existence III. Kinds of Partners

WON there is an agreement to contribute money,
property, or industry to a common fund. A. As to Nature of contribution
WON there is intent of the contracting parties to divide 1. Capitalist contributes money or property
the profits among themselves. 2. Industrial contributes only his industry or personal service.

II. Juridical Personality of a Partnership B. As to Liability

It is distinct and separate from that of each of the 1. General Partner liability to third persons extends to his
partners. separate property
Even if the partnership contract does not appear in a 2. Limited Partner liability to third persons is limited to his
capital contribution.
public instrument and recorded with the SEC, it still
has juridical personality. (1768, 1772 par. 1)
C. As to Management
1. Managing Partner manages the business or affairs of the
Classification of Partnership
2. Silent Partner does not take any active part in the
A. As to object
business although he may be known to be a partner.
1. Universal Partnership
3. Liquidating Partner takes charge of the winding up of the
a. Of all present property
partnership affairs upon dissolution.
b. Of profits
2. Particular Partnership
Capitalist Partner vs. Industrial Partner
B. As to liability
1. General partnership
2. Limited partnership Capitalist Partner Industrial Partner
C. As to duration Contribution
1. Partnership at will Contributes money or Contributes industry.
2. Partnership with a fixed period property.
D. As to legality of existence Prohibition to engage in other business
1. De jure partnership Cannot generally engage in Cannot engage in any
the same or similar enterprise business for himself.
s that of his firm.
Profits C. Obligation Not to Engage in other business for himself.
Shares in the profits Receives a just and equitable
1. Industrial Partner
according to agreement share.
Gen. rule: He cannot engage in any business for
thereon; if none, pro rata to
his contribution. Exception: the partnership expressly permits him to
Losses do so.
1. The stipulation as to Exempted as to losses as If he should do so: the rule is that the other partners
losses; between partners, but is liable either opt for his exclusion from the firm or avail of the
2. If none, the to 3rd persons without benefits which the erring partner may have obtained
agreement as to prejudice to reimbursement plus damages in both instance.(1789)
profits, from capitalist partners. This is the rule even if the business is not a
3. If none, pro rata to competition because as an industrial partner
contribution. all his industry is supposed to be given only
to the partnership.
IV. Obligations of the Partners The prohibition applies to a capitalist-
industrialist partner.
Relations Created by a Contract of Partnership
1. Among the partners themselves 2. Capitalist Partner
2. The partners with the partnership The prohibition extends only to any operation which is
3. The partnership with the 3rd persons whom it contracts of the same or similar kind of business in which the
with. partnership is engage, unless there is a stipulation to
4. The partners with such 3rd persons the contrary. (1808)
Obligations of Partners Among Themselves The test is possibility of unfair competition.
Violation of the general rule may result to his ouster
A. With respect to contribution of property and ultimately the dissolution of the firm.
1. To contribute what has been promised.
The law says that every partner is a debtor of the D. Obligation to Contribute Capital and Additional Capital
partnership for whatever he may have promised to
contribute thereto. (Art. 1786) 1. Contribution to Partnership Capital
In case partner fails to contribute the remedy is to Gen. Rule: It depends upon the stipulation of parties.
collect what was owed plus damages.(Sancho vs. In the absence of stipulation , the presumption is that
Lizarraga, 55 Phil. 601) But if defaulting partner is the contribution shall be in equal shares.
already dead, rescission may prosper. (Pabaln v.
Velez, 22 Phil. 29) 2. Contribution of Additional capital
Gen Rule: A partner is not bound to contribute
2. To warrant property contribute in case of eviction. additional capital.
The law provides that he shall also be bound for Exception: In case of imminent loss of the business
warranty in case of eviction with regard to specific and and there is no agreement to the contrary, capitalist
determinate things which he may have contributed to partners are under obligation to contribute an
the partnership. (Art. 1786) additional share to save the venture.
The warrant only refers to the things already o If he refuses, he shall be obliged to sell his
contributed. interest in the partnership to other partners.
3. To deliver the fruits of thereof from the time they should have
been delivered without the need of any demand. (Art. 1786) E. Obligation of the Managing Partner who Collects Debt.
In case of bad faith on the part of the partner he is Gen. Rule: any sum received shall be applied to the
liable for the fruits produced and those that could two credits in proportion to their amounts even though
have been produced.( Manresa) he may have given a receipt for his own credit only.
o This follows that in case the managing
Note: When contribution is in goods, the amount thereof must partner gave receipt under the partnership
be determined by proper appraisal of the value thereof at the name, the whole amount shall be credited to
time of the contribution. (Art. 1787) the firms credit only. (except where he
received it entirely for the account of the
4. To preserve the property with the diligence of a good father partnership. Art. 1792)
of a family pending delivery to the partnership. (Art. 1163) The debtor is given the right to prefer payment of the
credit of the partner only if should be more onerous to
5. To indemnify for any damages caused by the retention of the him.
property or by delay in its contribution. (Art. 1788 & 1170) This rule applies only if the creditor partner is a
managing partner.
B. With respect to contribution of money and money converted
to personal use
F. Obligation of Partner who receives share in partnership
1. To contribute on the date due the amount promised to be
Such partner is obliged to bring to the partnership
given. (1788)
Here the liability arises from the commencement of capital what he received even though he may have
given receipt for his share only, if the debtor becomes
the partnership, unless otherwise stipulated.
2. To reimburse any amount he may have taken from the
Reason: when the debtor becomes
partnership coffers and converted to his own personal use.
(1788) insolvent, the debt in favor of the partnership
becomes a bad debt and is a loss which
3. To pay the agreed legal interest , if he fails to contribute at must be borne by all the partners.
the promised time or converted the money for personal use. This rule does not apply where the partnership is
already dissolved because at this time, there is no
4. To indemnify the partnership for any damages incurred due more partnership capital.
to delayed contribution or conversion.
For conversion, the liability arises from the time he G. Obligation of Partner for Damages
converted the amount for his own use. Gen. Rule: Every partner is responsible to the
Partner may be guilty of estafa if there is fraudulent partnership for damages suffered by it through his
misappropriation. fault and he cannot compensate them with profits and
benefits which he may have earned for the In the event of the death of the negligent partner, suit
partnership by his industry. (1794) for recovery may be had against his estate. (See Po
o there cannot be compensation because in Yeng Cheo v. Lim Ka Yam, 44 Phil.646)
compensation it requires that the 2 persons
are reciprocally debtors and creditors of H. Duty to Render Information (1806)
each other. I. Duty to account for any benefit and hold as trustee
However, equity may mitigate liability if there be extra unauthorized profits (1807)
ordinary efforts resulting in extraordinary profits.
(1794) V. Rules For Distribution of Profits and Losses