PARTNERSHIP & AGENCY

 
 
 
General Provisions
 
Art. 1767 – Definition:
Partnership – a contract whereby 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, or in order to exercise profession.
 
Profession – a 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.
 
Characteristics of Partnership
1.        Consensual
2.        Nominate
3.        Bilateral
4.        Onerous
5.        Commutative
6.        Principal
7.        Preparatory
 
         A partnership contract, in its essence, is a contract of agency
 
Elements
1.        consensual;
2.        there must be a contribution of money, property or industry to a common fund;
3.        the subject must be a lawful one;
4.        there must be an intention of dividing the profit among the partners;
5.        there must be a desire to formulate an active union (affectio societatis);
6.        a new personality, that of the firm – must arise, distinct from the separate personality of each of the members
 
Essential Features of Partnership
1.        there must be a valid contract;
2.        the parties must have legal capacity to enter into the contract;
3.        there must be a mutual contribution of money, property, or industry to a common fund;
4.        the object must be lawful; and
5.        the primary purpose must be to obtain profits and to divide the same among the parties
 
Differentiation:
 
Partnership (P) vs. Corporation (C)
a.        creation
P – voluntary agreement of parties
C – created by the state in the form of a special charter or by a general enabling law
b.        how long it exists
P – no time limit except agreement by parties
C – not more than 50 years; may be reduced, but never extended
c.        liability to strangers
P – may be liable with their private property beyond their contribution to the firm
C – liable only for payment of their subscribed capital stock
d.        transferability of interest
P – even if a partner transfers his interest to another, the transferee does not become a partner unless all other parties
consent
C – a transfer of interest makes the transferee a stockholder, even without the consent of the others
e.        ability to bind the firm
P – generally, partners acting on behalf of the partnership are agents thereof; consequently they can bind both the firm and
the partners
C – generally, the stockholders cannot bind the corporation since they are not agents thereof
f.          mismanagement
P – a partner can sue a partner who mismanages
C – a stockholder cannot sue a member of the board of directors who mismanages: the action must be in the name of the
corporation
g.        nationality
P- a partnership is a national of the country it was created
C – a corporation is a national of the country under whose laws it was incorporated, except for wartime purposes or for the
acquisition of land, natural resources and the operation of public utilities in the Philippines, in which case the veil of the
corporate identity is pierced and we go to the nationality of the controlling stockholders
h.        attainment of legal personality
P – the firm becomes a juridical person from the time the contract begins
C – the firm becomes a juridical person from the time it is registered in the Securities and Exchange Commission, and all
requisites have been complied with
i.          dissolution
P – death, retirement, insolvency, civil interdiction, or insanity of a partner dissolves the firm
C – such causes do not dissolve the corporation
 
Ordinary Partnership (OP) vs. Conjugal Partnership of Gains (CPG)
a.        how created
OP – by will or consent of the parties
CPG – created by operation of law upon the celebration of the marriage
b.        law that governs
OP – in general, it is the will of the partners that governs matters like object, length of existence, etc; the law is only
subsidiary
CPG – in general, it is the law that governs
c.        legal personality
PO - possesses a legal personality
CPG – does not possess any legal personality distinct from that of the husband or wife; hence, it cannot sue or be sue as
such
d.        commencement of the partnership
PO – begins at the moment of the execution of the contract but a contrary stipulation is allowed
CPG – commences precisely on the date o the celebration of the marriage – no contrary stipulation is allowed
e.        purpose
PO – formed for profit
CPG – not formed particularly for profit
f.          division of profits
as a rule, profits are divided according to previous agreement; and if there is no agreement, in proportion to the amount
contributed
CPG – as a rule, profits are divided equally (but settlement can provide otherwise)
g.        management
PO – as a rule, management is conferred upon the partners so appointed by the others; otherwise, all are equally
considered agents of the firm
CPG – as a rule, the administration and enjoyment of the conjugal partnership property belong to both spouses jointly
h.        dissolution
PO – there are many grounds for dissolution
CPG – there are few grounds for dissolution
i.          liquidation of profits
PO – there may be division of profits even without dissolution
CPG – there will be no liquidation or giving of profits till after dissolution
 
Partnership (P) vs. Co-Ownership (Community of property Tenancy in Common) (CO)
a.        creation
 P – created by contract only (express or implied)
CO – created by contract, law and other things
b.        juridical
P – has juridical or legal personality
CO – has none, hence, it cannot sue or be sued as such
c.        purpose
P – for profit
CO – collective enjoyment (hence, not necessarily for profit)
d.        agency or representation
P – as a rule, there is mutual representation
CO – as a rule, there is no mutual representation (although it is enough for one co-owner to bring an action for ejectment
against a stranger)
e.        transfer of interest
P – cannot substitute another as partner in his place, without unanimous consent
CO – can dispose of his share without the consent of the others
f.          length of existence if created by contract
P – no term limit is set by law
CO – must not be for more that 10 years (although agreement after termination may be renewed) (hence, if more than 10
years, the excess is VOID)
         20 years is the maximum if imposed by the testator or donee of the common property
g.        profits
P- may be stipulated upon
CO – profits must always depend on proportionate shares (any stipulation to the contrary is VOID)
h.        dissolution
P – dissolved by death or incapacity of a partner
CO – not dissolved by the death or incapacity of co-owner
i.          form
P – may be made in any form except when real property is contributed (here, a public instrument is required)
CO – no public instrument needed even if real property is the object of the co-ownership
 
Partnership (P) vs. Joint-Stock Company (JSC)
a.        as to composition
P – essentially, an association of persons
JSC – essentially, an association of capital
b.        as to division of capital
P – capital is not divided into shares
JSC – although a special form of partnership, its capital is divided into shares, like in a corporation
c.        as to management
P – generally, in all the partners
JSC – generally, in a board of directors
d.        as to liability
P – partners may be liable with their individual properties after exhaustion of the partnership assets
JSC – liability of the members is only up to the extent of their shares if such is what the statute provides
e.        effect of transfer of interest
P – transferee of partner’s share does not become a partner unless all the other partners consent
JSC – transferee of member’s shares himself becomes a member without any necessity of consent from the other members
 
Partnership (P) vs. Social Organizations (SO)
a.        as to contribution
P – capital is given in money, property or services
SO – no capital is given although, of course, fees are usually collected
b.        as to liability of debts
P – partners are liable only after the partnership assets are exhausted
SO – members are the ones individually liable for the debts of the organization, debts authorized or ratified by said
members
c.        as to purpose of objective
 P – organized for gain, principally financial
SO – organized usually only for social or civic objectives
d.        as to personality
P – a legal person
SO – not a legal person
 
Partnership (P) vs. Voluntary Association (V)
a.        juridical personality
P – has juridical personality
V - none
b.        purpose
P – always organized for pecuniary profit
V – such objective is lacking
c.        contribution of members
P – there is contribution of capital, either in the form of money, property, or services
V – for social purposes, although fees are usually collected from the members to maintain the organization, there is no
contribution of capital
d.        liability of members
P – the partnership, as a rule, is the one liable in the first place for the debts of the firm
V – the members are individually liable for the debts of the association, authorized by them either expressly or impliedly, or
subsequently ratified by them
 
Partnership vs. Business Trusts
                - when certain persons entrust their property or money to others who will manage the same for the former, a business
trust is created. The investors are called cestui que trust; the managers are the trustees.   In a true business trust, the cestui que
trust (beneficiaries) does not at all participate in the management; hence, they are exempted from personal liability, in that they
can be bound only to the extent of their contribution.
 
Partnership vs. Tenancy
a.        a partner acts as agent for the partnership whom he represents; the tenant does not represent the landlord.
b.        a partnership is a legal person; no such person is created in the relationship between landlord and tenant.
 
 
Partnership vs. Agency
a.        “agency” may in one sense be considered the broader term because: partnership” is only a form of “agency.”
b.        an agent never acts for himself but only for his principal; a partner is both a principal (for his own interest) and an agent (for
the firm and the others).
 
Partnership vs. Joint Adventure (joint accounts)
a.        a joint adventure is a sort of informal partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be individually liable therefor.
b.        usually but not necessarily, a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing it
to a successful termination may continue for a number of years; a partnership generally relates to a continuing business of
various transactions of a certain kind.
 
Partnership vs. Labor Union
- a labor union is any association of employees which exists in whole or in part for the purpose of collective bargaining
or of dealing with employers concerning terms and conditions of employment.
-   partnerships and labor unions have some characteristics in common, but the purpose of partnership is essentially to
enable its members, as principals, to conduct a lawful business, trade, or profession for pecuniary gain of partners, and no one
may become a partner without consent of all partners
 
Partnership vs. Syndicate
                - a syndicate is usually a particular partnership, that is, it may have been organized to carry out a particular
undertaking or for some temporary objective
 
Art. 1768 – Partnership is a juridical person separate and distinct from each of the partners.
 
Consequences:
1.        Its juridical personality is separate and distinct from that of each of the partners.
2.        The partnership can:
-          acquire and possess property of all kinds;
-          incur obligations;
-          bring civil or criminal actions;
-          can be adjudged insolvent even if the individual members be each financially solvent
3.        A partner has no right to make a separate appearance in court, if the partnership being sued is already represented, unless
he is personally sued.
 
         Limitations on Alien Partnership
- Secs. 2, 7, 10 and 11 of Art. 12 of the 1987 the Philippine Constitution
 
         Rules in case of Associations now lawfully organized as Partnerships
1.        If an association is not lawfully organized as a partnership, it possesses no legal personality. Therefore, it cannot sue.
However, the “partners,” in their individual capacity can.
2.        One who enters into contract with a “partnership” as such cannot, when sued later on for recovery of the debt, allege the
lack of legal personality on the part of the firm, even if it indeed had no personality.
 
 
Art. 1769 – Determinants for the Existence of a Partnership
 
         Purpose:
- to indicate some test to determine if what may seem to be a partnership really is one, or it is not
 
         Requisites for Existence of Partnership
1.        intention to create a partnership;
2.        common fund obtained from contributions;
3.        there was joint interest in the profits;
 
Therefore:
        mere co-ownership or co-possession; mere profit sharing or GROSS returns do not establish a partnership
 
Sharing of net profits
-          a prima facie evidence that one is a partner except in the 5 instances under Art. 1769
 
Art. 1770 – Lawful Object or Purpose
1.        must be within the commerce of man, possible and not contrary to law, morals, good customs, public order or public policy
2.        if a partnership has several purposes, one of which is unlawful, the partnership can still validly exist so long as the illegal
purpose can be separated from the legal purpose
 
         Judicial decree is not necessary to dissolve an unlawful partnership.
-          the contract is void and therefore never existed from the viewpoint of the law
 
         Consequences of Unlawful Partnerships
1.        Art. 45, RPC
2.        The partners forfeit the proceeds or profits, but not their contributions, provided no criminal prosecution has been instituted.
 
-          if the contributions have already been made, they can be returned;
-          if the contributions have not yet been made, the parties cannot be made to make the contributions
3.        An unlawful partnership has no legal personality.
 
Art. 1771 – Formalities of Partnership
 
1.        General Rule:
-for the validity of the contract, as well as for enforceability, no form is required, regardless of the value of the
contributions
 
                Exception:
 
                - whenever real properties or real rights in real properties are contributed – regardless of the value – a public
instrument is needed. Moreover, an inventory of the immovables is needed. This must be signed by the parties and attached to
the public instrument
 
1.        for effectivity of the partnership contract insofar as innocent third persons are concerned, the same must be registered if
real properties are involved.
 
 
 
Art. 1772 – Partnership with capital of Php 3,000 or more – Registration with the SEC
 
         Purpose of the registration with the office of the SEC
-          to set a condition for the issuance of licenses to engage in business or trade
 
Effect of non-registration
1.        even if not registered, the partnership having a capital of Php 3,000.00 or more is still a valid one, and therefore has legal
personality;
2.        if registration is needed, or desired, any of the partners of a valid partnership can compel the others to execute the needed
public instrument, and to subsequently cause its registration.
 
Art. 1773 – Where real property is contributed
 
         Requirements where real property is contributed
1.        There must be a public instrument regarding the partnership;
2.        The inventory of the realty must be made, signed by the parties, and attached to the public instrument
 
         Applicability
1.        applies regardless of the value of the property;
2.        applies even if only real rights over real property are contributed;
3.        applies also if cash or personal property is contributed
 
Registration
– transfer of the land to the  partnership must be duly recorded in the Registration of Property to make the transfer
effective insofar as third persons are concerned
 
Art. 1774 – Acquisition of property under the Partnership name
 
-          applicable to immovable as well as personalty because the partnership is a juridical entity, capable of owning and
possessing property
-          alien partners must comply with the requirements as provided for in Sec. 7, Art 12 of the 1987 Constitution
 
         Limitations on Acquisition
-          a partnership, even if entirely of Filipino capital may not:
1.        acquire, lease or hold public agricultural lands in excess of 1,024 hectares;
2.        lease public lands adapted to grazing in excess of 2,000
 
Art. 1775 – Secret Partnership
 
         If articles are kept secret
 1.           the association here is certainly not a partnership and therefore not a legal person, because anyone of the
members may contract in his own name with third persons and not in the name of the firm;
2.           although not a juridical entity, it may be sued by third persons under the common name it uses, otherwise, said
innocent third parties may be prejudiced;
3.           however, it cannot sue as such, because it has no legal personality and therefore, cannot ordinarily be a party
to a civil action;
4.           therefore, insofar as innocent third parties are concerned, the partners can be considered as members of a
partnership; but as between themselves, or insofar as third persons are prejudiced, only the rules on co-
ownership must apply.  Same rule applies in the case of a partnership by estoppel
 
         Note:
-          contracts entered into by a partner in his own name may be sued upon still by him in his own individual capacity,
notwithstanding the absence of partnership
 
         Partnership needs publicity to prevent fraud/deceit
 
Art. 1776 – Classification of Partnership
 
a.        as to object/subject matter
1.        Universal Partnership
-  may   refer to all   the present
property or to all the profits
a.          universal of all present property
- that which the partners contribute all the property which actually belongs to them to a common
 
b.          universal of profits
-          comprises all that the partners may acquire by their industry or work during the existence of the partnership
2.        Particular Partnership
- object are determinate things, their use or fruits; a specific undertaking or the exercise of a profession or occupation
 
b.        as to liability of partners
1.        General
- they are liable even with respect to their individual properties, in pro rata after the assets of the partnership have been
exhausted, for the  contracts which may be entered into in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership
2.        Limited
-          formed by two or more persons having as members one or more general partners and one or more limited partners.
 
         The limited partners as such shall not be bound by the obligations of the partnership
 
         A limited partner is one whose liability is limited only up to the extent of his contribution
 
c.        as to duration
1.        at will
2.        at a fixed term
-          the term of existence has been agreed upon expressly or impliedly
-          the expiration of the term thus fixed or the accomplishment of the particular undertaking specified will cause the
automatic dissolution of the partnership
 
d.        as to legality of existence
1.        de jure –
2.        de facto
 
e.        as to representation
1.        ordinary/real
2.        ostensible/ partnership by estoppel
 
f.          as to publicity
1.        secret
2.        open or notorious
 
g.        as to purpose
1.        commercial
2.        professional
 
         Kinds of Partners
1.        Capitalist Partners
-          one who furnishes capital;
-          not exempted from losses; can engage in other business provided there is no competition between the partner and his
business
 
2.        Industrial
-          one who furnishes industry or labor;
-          can be a general partner but never a limited partner;
-          exempted from losses as between the partner; cannot engage in any other business without express consent of the
partners, otherwise
- he can be excluded from the firm (plus damage)
- or the benefits he obtains from the other business can be availed of by the other partners (plus damages)
 
3.        General/Real
-          one who is liable beyond the extent of his contribution
 
4.        Managing
-          one who manages actively the firm’s affairs
 
5.        Liquidating
-          one who liquidates or winds up the affairs of the firm after it has been dishonored
 
6.        Partner by estoppel/Quasi-partner
-          one who is not really a partner but who may become liable as such insofar as third persons are concerned
 
7.        Continuing
8.        Surviving
9.        Subpartner
 
         Other classifications
a.        ostensible partner
-          one whose connection with the firm is public and open
 
b.        secret
-          one whose connection with the firm is concealed or kept a secret
 
c.        silent
-          one who does not participate in the management, though he shares in the profits or losses
 
d.        dormant/sleeping
-          one who is both a secret and silent partner (not managing)
 
e.        original
f.          incoming
g.        retiring
 
Arts. 1778-80 – Universal Partnership
 
         2 kinds of Universal Partnership
A. Universal property of all present property
-          one which comprises all that the partners may acquire by their industry or work during the existence of the partnership
and the usufruct of movable or immovable property which each of the partners may possess at the time of the
celebration of the contract.
         The following become common property of all the partners:
1.        property which belonged to each of them at the time of the construction of the partnership
2.        profits which they may acquire from the property contributed
 
         Property which the partners may acquire subsequently by inheritance, legacy or donation cannot be included for the
stipulation for common enjoyment
         Fruits thereof may be included
 
B. All profits
-          comprises all that the partners may acquire by their industry or work during the existence of the partnership
 
         Distinction between all profits and all present property
 
         All profits
-          only the usufruct of the properties of the partners become common property; naked ownership is retained by each of
the partners
-          all profits required by the industry or work of the partners become common property
         All present property
-          all the property actually belonging to the partners are contributed- and said properties become common properties
-          as a rule, aside from the properties, only the profits of the said contributed common property
         Note:
-          profits from other sources may become common, but only if there is a stipulation to such effect.
-          Properties subsequently acquired by inheritance, legacy or donation, cannot be included in the stipulation, but the
fruits thereof can be included in the stipulation
 
Art. 1781 – Presumption in favor of partnership of profits
 
-          applicable only when a universal partnership has been entered into
 
         note:
-          future property cannot be included in the stipulation regarding universal partnership of all present property
Reasons:
1.        contracts regarding successions rights cannot be made;
2.        partnership demands that the contributed things be determinate, known and certain;
3.        universal partnership of all present properties really implies a donation and future property cannot be donated
 
 
Art. 1782 – Persons prohibited by law to give donation- cannot enter into Universal Partnership
 
Reason: they should not be allowed to do indirectly what the law forbids directly
 
Art. 1783 – Particular Partnership
- it has for its object determinate things, their use of fruits, or specific undertaking, or the exercise of a profession or vocation
 
         Doctrine:
If two (2) individuals form a particular partnership for a deal in reality, it does not necessarily follow that all deals are for the
benefit of the partnership.  In the absence of agreement, each particular deal results in a particular partnership. If one of
them, on his account, and using his own funds, should make transactions in the same business, it is his own undertaking