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Concept of partnership

1. A partnership - is an ASSOCIATION of two or more persons to carry on as co-owners a business for


2. A partnership is a LEGAL RELATION based upon the expressed or implied agreement of two or more
competent persons whereby they unite their property, labor or skills in carrying on some lawful business
as principals for their join profit.

Characteristic elements of partnership

1. Consensual - because it is perfected by mere consent, that is upon the express or implied agreement
of two or more persons;

2. Nominate - because it has a special name or designation in our law;

3. Bilateral - because it is entered into by two or more persons and the rights and obligations arising
therefrom are always reciprocal;

4. Onerous - because each of the parties aspires to procure for himself a benefit through the giving of

5. Commutative - because the undertaking of each of the partner is considered as the equivalent of that
of the others;

6. Principal - because it does not depend for its existence or validity upon some other contract;

7. Preparatory - because it is entered into as a means to end, i.e to engage in business for the realization
of profits with the view of dividing them among the contracting parties

Partnership distinguished from co-ownership

1. Creation - Co-ownership is generally created by law. It may exist even without a contract but
partnership always created by contract.

2. Juridical personality - A partnership has a juridical personality separate and distinct from that of each
partner, while a co-ownership has none;

3. Purpose - The purpose of a partnership is the realization of profits, while in co-ownership, it is the
common enjoyment of a thing or right.
4. Duration - Under the law, there is no limitation upon the duration of a partnership, while in co-
ownership, an agreement to keep the thing undivided for more than ten years is not allowed.

5. Disposal of interests - A partner may not dispose of his individual interest in the partnership so as to
make the assignee a partner unless agreed upon by all of this partners, while a co-ownership may freely
do so.

6. Power to act with third persons - In the absence of any stipulation to the contrary a partner may bind
the partnership, while a co-owner cannot represent the co-ownership, hence a judgment secured
against only one of the co-owners will not bind the other co-owners

7. Effect of death - the death of a partner results in the dissolution of the partnership, but the death of a
co-owner doesn’t not necessarily dissolve the co-ownership.

Partnership distinguished from conjugal partnership of gains.

1. Parties - A business partnership is created by the voluntary agreement of two or more partners
belonging to either sex, while a conjugal partnership arises in case the future spouses - a man and a
woman - agree that shall govern their property relations during marriage.

2. Laws which govern - The ordinary partnerships are a rule, governed by the stipulation of the parties,
whereas a conjugal partnership is governed by the law.

3. Juridical personality - A partnership has a personality under the law separate from the members
composing it, while a conjugal partnership of gains has none;

4. Commencement - A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated, while a conjugal partnership of gains commences precisely on the date of the
celebration of the marriage, and any stipulation to the contracy is void.

5. Purpose - The primary purpose of the ordinary partnership is to obtain profits, while that of a conjugal
partnership is to regulate the property relations of husband and wife during the marriage.

6. Distribution of profits - In the ordinary partnership. the profits are divided according to the
agreement of the partners or in proportion to their respective capital contributions, while in a conjugal
partnership, the shares of the spouses in the profits are divided equally.

7. Management - In the ordinary partnership, the management is shared equally by all the partners
unless one or more of them are appointed managers in the articles of partnership, while in a conjugal
partnership although the administration belongs to both spouses jointly, the husband's decision shall
prevail in case of disagreement.
8. Disposition of shares - In the ordinary partnership, the whole interest of a partner may be disposed of
without the consent of the other partners, while in a conjugal partnership, the share of each spouse
cannot be disposed of during the marriage even with the consent of the other.

Partnership distinguished from voluntary associations

1. Juridical personality - a partnership has a juridical personality, while in a voluntary association has

2. Purpose - A partnership is always organized for cuniary profit, while in a voluntary association, this
objective is lacking;

3. Contributions of members - In a partnership, there is a contribution of capital, either in the form of

money, property, or services, while in a voluntary association for social purposes, although fees are
usually collected from the members to maintain the organization, there is no contribution of capital;

4. Liability of members - The partnership, as a rule, is the one liable in the first place for the debts of the
firm while in a voluntary association, authorized by them, either expressly or impliedly, or subsequently
ratified by them.

Classifications of partnership

1. As to the extent of its subject matter

A. Universal partnership - or one which refers to all the present property or to all profits.

B. Particular partnership - This is defined in Article 1783

2. As to liability of the partners

A. General Partnership - or one consisting of general partners who are liable pro rata and
subsidiarily, with them separate property for partnership debts;

B. Limited partnership - or 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.

3. As to its duration

A. Partnership at will - or one in which no time is specified and is not formed for a particular
undertaking or venture and which may be terminated anytime by mutual agreement of the partners.

B. Partnership with a fixed term - or one for which the partnership is to exist is fixed or agreed
upon or one formed for a particular undertaking, and upon the expiration of the term.
4. As to the legality of it existence

A. De jure partnership - or one which has complied with all the legal requirements for its

B. De facto partnership - or one which has failed to comply with all the legal requirements for its

5. As to representation to others.

A. Ordinary or real partnership - or one which actually exists among the partners and also as to
third persons;

B. Ostensible partnership or partnership by estoppel - or one which in reality is not a

partnership, but is considered a partnership only in relation to those who, by their conduct or admission,
are precluded to deny or disprove its existence.

6. As to publicity

A. Secret partnership - or one whose existence of certain persons as partners is not avowed or
made known to the public by any of the partners;

B. Open or notorious partnership - or one whose existence is avowed or made known to the
public by the members of the firm.

7. As to purpose

A. Commercial or trading partnership - or one formed for the transaction of business

B. Professional or non-trading - or one formed for the exercise of a profession.

Kinds of partners

1. Under the Civil Code

A. Capitalist partner - or one who contribute money or property to the common fund.

B. Industrial partner - or one who contributes only his industry or personal service.

C. General partner - or one whose liability to third persons extends to his separate property he
may either be a capitalist or industrial partner.

D. Limited partner - or one whose liability to hire persons is limited to his capital contributions.
He is also known as SPECIAL PARTNER. Unlike the general partner, he does not participate in the
management of the business;
E. Managing partner - or one who manages the affairs or business of the partnership; he may be
appointed either in the articles of partnership or after the constitution of the partnership. He is also
known as a general or REAL PARTNERSHIP.

F. Liquidating partner - or one who takes charge of the winding up of partnership affairs upon

G. Partner by estoppel - or one who is not really a partner, not being a party to a partnership
agreements, but is liable as a partner for the protection of innocent third persons.

H. Subpartner - or one who, not being a member of the partnership, contracts with a partner
with reference to the Latter's share in the partnership.

2. Other classifications

A. Ostensible partner - or one who takes active part and known to the public as a partner in the
business, whether or not he has an actual interest in the firm. If he is not actually a partner, he is subject
to liability by the doctrine of estoppel.

B. Secret partner - or one who takes active part in the business but is not known to be a partner
by outside parties nor held out as a partner by the other partners, although he participates in the profits
and losses of the partnership;

C. Silent partner - or one who does not take any active part in the business although he may be
known to be a partner.

D. Dormant partner - or one who does not take active part in the business and is not known or
help out as partner.

E. Incoming partner - or a person lately, or about to be, taken into a partnership as a member.

F. Retiring partner - or one withdrawn from the partnership; a withdrawing partner.

Executory Agreement of Partnership

1. Future partnership - The partners may stipulate some other date for the commencement of the
partnership. Persons who have entered into a contract to become partners at some future time or on
the happening or fulfillment of some condition or future contingency do not become partners.

2. Agreement to create partnership - A distinction must be made between a partnership actually

consummated and an agreement to enter into a contract of partnership at a future time. So long as the
agreement remains executory, nor partnership can be said to exist.
Prohibition against engaging in business.

1. As regards an industrial partner - The prohibition is absolute and applies whether the industrial
partner is to engage in the same business in which the partnership is engaged or in any kind of business.

2. As regards capitalist partners - The prohibition is only to any operation which is of the same kind of
bla in which the partnership is engaged unless there is a stipulation to the contrary.

Compensation of damages with profits earned for partnership by guilty partner.

1. Damages not generally subject to set-of - As a general rule, the damages caused by a partner to the
partnership cannot be compensated or offset by the profits or benefits where he may have earned for
the partnership by his industry.

2. Exception - If unusual profits are realized through the extraordinary efforts of the partner at fault, the
courts are authorized by the law to equitably mitigate or lessen his liability for damages. This rule rests
on equity.

Risk of loss of things contributed

1. Specific and determinate things which are not fungible where only the use is contributed - The risk
is borne by the partner because he remains the owner of the things (like car);

2. Specific and determinate things the ownership of which is transferred to the partnership - The risk is
for the account of the partnership, being the owner;

3. Fungible things or things which cannot be kept without deteriorating even if they are contributed
only for the use of the partnership- The risk of loss is borne by the partnership for evidently the
ownership was being transferred since use is impossible without the thing being consumed.

4. Things contributed to be sold - The partnership because risk of loss for there cannot be any doubt
that the partnership was intended to be the owner; otherwise, the partnership could not effect the sale

5. Things brought and appraised in the inventory - Partnership bears the risk of loss because the
intention of the parties was to contribute to the partnership the price of things contributed with an
appraisal in the inventory.
Riles when manner of management has not been agreed upon

1. All partners considered managers - The partners may fail to designate who among them shall act as
manager, either when their contract is perfected or subsequently.

2. Unanimous consent required for any important alteration in immovable property of partnership -
Under the second paragraph, the unanimous consent of all the partners is necessary for any important
alteration in the immovable property of the partnership.

Right of partner to formal account.

1. General rule - In general, during the existence of the partnership, a partner is not entitled to a formal
account of partnership affairs.

2. Exceptions - However, in the special and unusual situations enumerated under Article 1809, the
justification for a formal accounting even before dissolution of the partnership cannot be doubted.