PARTNERSHIP

September 2, 2019 Monday Other things to take note of in distinguishing the two:
WWW – 2hrs Universal Partnership of Universal Partnership of
All Present Properties All Profits
CLASSIFICATION OF PARTNERSHIP (UPAPP) (UPAP)
Outline: All the present properties at Respective partner-owner who
(A) As to the extent of its Subject Matter/Object time of the agreement belongs contributed the property will
(1) Universal Partnership to the partnership including remain as the owner of said
(a) Universal Partnership of All Present profits derived therein property
Properties (UPAPP)
(b) Universal Partnership of All Profits (UPAP) Ownership is not divested
(2) Particular Partnership from the partner neither is it
transferred to the partnership
(B) As to liability of partners
(1) General Partnership What is given as contribution
(2) Limited Partnership is the usufructuary of the
property
(C) As to its duration
(1) Partnership at will Contribution:
(a) Partnership which from the very start did not Acquired from industry or work
have a fixed period + usufruct of properties
(b) Partnership was for a fixed period, but after
the expiration of the agreed period, partners
decided to continue with the business
(2) Partnership with a fixed term
(2) Particular Partnership – has for its object determinate
(D) As to the legality of its existence things, their use or fruits, or a specific undertaking, or the
(1) De jure partnership exercise of a profession or a vocation
(2) De facto Partnership

(E) As to representation to others (B) As to liability of partners

(1) Ordinary or real partnership (1) General Partnership – one who is liable pro rata or
(2) Ostensible partnership or partnership by estoppel subsidiarily and sometimes solidarily with their separate
property for partnership’s debt
(F) As to publicity
(1) Secret partnership (2) Limited Partnership – one formed by two or more persons
(2) Open or notorious partnership having as members one or more general partners and one or
more limited partners – limited partners not being personally
(G) As to purpose liable for the obligations of the partnership
(1) Commercial or trading partnership
(2) Professional or non-trading partnership
(C) As to its duration
Note: Recitation focused more on classifications (A) to (C) (1) Partnership at will – no time is specified and is not formed
For the discussion proper, refer below: for a particular undertaking or venture; may be terminated at
any time by mutual agreement of partners, or by the will of any
(A) As to the extent of its subject matter/object one partner alone
(a) Universal Partnership – refers to all present property or to all
profits; object is vague and indefinite Two types:
(a) Partnership which from the very start did not have a
Universal Partnership of Universal Partnership of fixed period
All Present Properties All Profits (b) Partnership was for a fixed period but after expiration
(UPAPP) (UPAP) of the agreed period – partners decided to continue
Partners contribute all the Comprises all that the with the business
properties which actually partners may acquire by their
belongs to them to a common industry or work during the (2) Partnership with a fixed term – term is fixed as agreed upon
fund, with the intention of existence of the partnership by the partners
dividing the same among
themselves, as well as profits Movable or immovable
that they may acquire property which each of the (D) As to the legality of its existence
therewith. partners may possess at time (1) De Jure Partnership – one which has complied with all the
of the celebration of the legal requirements for its establishment
Property which belong to each contract shall continue to
of the partners at the time of pertain exclusive to each, only (2) De facto Partnership – one which has failed to comply with
the constitution of partnership the usufruct passing to the all the legal requirements for its establishment
becomes common property of partnership
all partners, as well as all
profits which they may acquire
therewith

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(E) As to representation to others
(1) Ordinary or real partnership – one which actually exists
among the partners and also as to third persons
(2) Ostensible partnership or partnership by estoppel –
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
(F) As to publicity
(1) Secret partnership – one wherein the existence of
certain persons as partners is not avowed or made
known to the public by any of the partners;
(2) Open or notorious partnership – one whose existence
is avowed or made known to the public by the
members of the firm
(G) As to purpose
(1) Commercial or trading partnership – one formed for
the transaction of business
(2) Professional or non-trading partnership – one formed
for the exercise of a profession
COMPLIANCE OF FORMAL REQUIREMENTS IF PROPERTIES
CONTRIBUTED INVOLVE IMMOVABLE PROPERTIES
SITUATION.
A – owns a car, motorcycle, tractor
B – owns a rice land and corn land
C – owns 10 heads of cows and 10 heads of carabaos, duly
marked
• In this situation, if the parties decide to enter into
partnership, they should enter into a formal partnership
because it involves immovable properties.
• The requisites for a contract of partnership involving an
immovable properties are the following:
(1) The contract must be in writing in a public
instrument
(2) An inventory must be made and attached to the
public instrument
(3) It must be registered with the Registry of Deeds
(ROD) to bind third persons
INVENTORY
An inventory contains a list of assets and more importantly, the
assessed value of the properties are indicated therein.
Purpose of Inventory: There must be an inventory because in
case of dissolution, the partners will know how to distribute the
partnership.
Assuming that all the formalities are complied with, there now
exists a partnership.
Q: Who now owns the properties mentioned?
WHEN THERE IS NO CERTAINTY
WHETHER OWNERSHIP WAS TRANSFERRED
(1) Qualify WON they do not have any other property
besides the property they contributed because without
any other facts, we assume that this is all they had.
(2) Granting that those were all their properties
contributed, it would make their undertaking as that of
a Universal Partnership.
a. If expressly stipulated that they will enter into a
Universal Partnership of All Present Properties –
UPAPP will govern
If UPAPP – the Partnership is the owner of the
property contributed. It is the partnership that
bears the loss as the owner.
b. If there is no specification as to what kind of
Universal Partnership – the law presumes that
they have entered into a Universal Partnership of
All Profits (UPAP).
If UPAP, the partner-owner is still the owner. Only
the usufruct of the thing contributed and those
acquired by the partner through his work or
industry is owned by the partnership. The partner-
owner bears the loss for those still owned by him.
HOWEVER, the fruits will belong to the
partnership.
Law on Interpretation of Contracts
In case of doubt or ambiguity, the interpretation
that involves the least transmission of rights
must be adopted. In this situation, the least
transmission of rights is a Universal Partnership
of all Profits (UPAP).
Note: Interpretation only applies if there is doubt
or ambiguity. There is no need to interpret when
the parties expressly agree that the properties
will belong to the partnership.
c. If expressly agreed that they will only engage in a
specific kind of business and they will only
contribute a specific thing to the partnership –
then they have entered into a Particular
Partnership.
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RIGHTS OF AN OWNER
(1) Right to possess (jus possidendi)
(2) Right to use (jus utendi)
(3) Right to dispose (jus dispodendi)
(4) Right to the fruits (jus fruendi)
KINDS OF FRUITS
(1) Natural Fruits - spontaneous products of the soil, and
the young and other products of animals
Example: grass, trees and plants on lands without
intervention of human labor
(2) Industrial Fruits - produced by lands of any kind
through cultivation of labor
Example: cultivated vegetables, products of land
brought by human labor
(3) Civil Fruits – those derived by virtue of a juridical
relation
Example: rents of buildings, price of lease
Illustration – UNIVERSAL PARTNERSHIP OF ALL PROFITS (UPAP)
(a) As to the ownership of the properties contributed:
Car, Motorcycle, Tractor – ownership still retained by A
Rice Land and Corn Land – ownership still retained by B
10 heads of cows and 10 heads of carabaos, duly marked –
ownership still retained by C
(b) If 5 out of the 10 cows are butchered
Authority to sell – belongs to Mr. C since he owns the cows
Proceeds of the sale of butchered meat – belongs to Mr. C
(c) As to the ownership of fruits (milk) from the cows:
Milk from the 10 heads of cow – Partnership
(d) Expenses for the maintenance and repair of the tractor
It will be shouldered by the Partnership because the Partnership
enjoys the fruits.
Reason: It would be unfair if the partnership enjoys the fruits
and the partner has to pay for the expenses.
EFFECT IF PARTNERS MARRY EACH OTHER
(a) Marriage contracted BEFORE entering into a Partnership –
PROHIBITED. This will affect the Universal Partnership of All
Profits.
Reason for the prohibition: The prohibition is for the protection
of third party creditors and to avoid fraudulent transfer of
properties. It is prohibited under the law because a spouse
cannot donate to each other since this will be considered a
fraudulent transfer of property.
Example: If the husband owes X and he wants to avoid payment
of his obligation, he can just give his properties to his wife in
order to defraud the creditor. The creditor can no longer pursue
and satisfy the debt.
This will have the same effect if the husband enters into a
Universal Partnership because he can easily say that he no
longer have properties because he has already contributed it to
the partnership.
(b) Marriage contracted AFTER entering into a Partnership
If the partners marry each other AFTER the commencement of
the contract of partnership, it will not affect the Universal
Partnership of All Profits (UPAP).
In this situation, the partners married only AFTER the contract of
partnership was executed. Thus, there is nothing to protect. The
moment the husband took the loan, it was already in the name
of the partnership.
OBLIGATIONS OF A PARTNER (DAPAI)
(1) Deliver the thing/property he promised to contribute to the
partnership
(2) Answer for eviction in case the partnership is deprived of
the determinate property contributed
(3) Answer for the fruits of the property the contribution of
which he delayed from the time they should have been
delivered, without need of any demand
(4) To preserve the property with the diligence of a good
father of a family
(5) To indemnify the partnership for any damage caused by
the delay of the contribution
SITUATION.
Q: If you promise to the partnership that you will contribute your
car on September 1, and it’s now September 2, and you have
not delivered it yet, what happens to the partnership? Will it be
dissolved?
A: No. Since the partnership was already consummated, failure
to deliver the car on the period agreed will make the partner a
debtor to the partnership.
Q: C promised to deliver them on September 1, and it’s now
September 2. On September 5, this was the time when C
delivered the cows. It was discovered that the reason for the
delay is because he was waiting for 5 cubs to come out. The
cubs were born on September 3. Who will be entitled to the 5
cubs?
A: The partnership.
CONTRIBUTIONS AND APPRAISAL
CONTRIBUTION
Article 1790. Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of the
partnership.
Comments:
(a) If there is a stipulation or an agreement – contribution will
be based on agreement
(b) If no stipulation – presumed that they should contribute
equally
Importance: It is important to know the partner’s contribution in
case of profit sharing and when there is no stipulation as how to
go about it.
APPRAISAL
Article 1787. When the capital or a part thereof which a
partners 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 stipulation, it shall be made
by experts chosen by the partners, and according to current
prices, the subsequent changes thereof being for account of the
partnership
Purpose of appraisal: The property must be appraised to
determine how much the contribution is. It is the basis for
determining the partner’s share of the profits or losses.
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How to conduct appraisal:
It must be conducted according to the agreement of the parties
and in the absence of such agreement, they will choose an
expert and have him appraise it according to current prices.
Thus, in a given situation where the parties did not stipulate how
the appraisal shall be conducted and they went to consult
Governor Gwen Garcia to determine the value of their respective
contributions and she in turn determined the value, her
appraisal cannot be applied and cannot bind the parties.
Note: In the absence of a stipulation, in order to be bound by
the appraisal, it must be done by experts.
(example: appraisal companies)
SITUATION.
Q: Cavalida is the owner of the tractor. Andrino is the owner of
the Riceland. The both of them agreed that the Riceland will be
valued at PHP5million. One year after, the Riceland is now
worth PHP10million. Andrino now says that his share in the
profits must be doubled since the value of the property doubled.
Is this allowed?
A: No. The increase of PHP5million will benefit the partnership.
The subsequent changes in the value will be on account of the
partnership. (Basis: Article 1787)
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 obtained in violation of this provision, with a
right to damages in either case.
SITUATION. Business wasn’t doing well. There’s nothing to do in
the business. Partner B then decided to have a banana cue
stand beside the auto repair shop. While waiting for customers,
he decided to prepare banana cue. The line of customers buying
banana cue was much longer than the line for the repair. What
can Partner A do?
Remedy of the Partner:
Unless the partners agreed that Partner B will be allowed to put
up a banana cue stand, Partner A has the following remedies:
(1) Exclude Partner B from the partnership + Damages
(2) Partner A can avail of the benefits received by Partner
B in his banana cue business + Damages

Q: If the Riceland is now occupied by squatters so that the value

has gone down?
A: Andrino’s equity will not be affected, the partnership suffers
the loss. Subsequent changes in the value will be
shouldered/suffered by the partnership. (Basis: Article 1787)

KINDS OF PARTNERS AS TO THEIR CONTRIBUTION

(1) Capitalist Partner – one who contributes money or property
to the common fund (Article 1767)

(2) Industrial Partner – one who contributes only his industry or

personal service (Article 1789; 1767)

EXTENT OF CONTRIBUTION OF AN INDUSTRIAL PARTNER

Note: An industrial partner contributes his entire industry and
time but subject to reasonable resting period. It is humanly
impossible to be of service 24/7. Whatever can be considered
reasonable depends on the situation.

We cannot also say that because you are a 50% partner, you
should only work for 50% of the day – meaning 12 hours. You
cannot assign percentages to your industry. Although, clearly, it
has to be well defined.

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