Partnership for the exercise of a profession

 Not a business or an enterprise for profit

 The law does not allow individuals to practice a profession as a corporate entity.
Reason: A corp could not have personal qualification required of a professional such as age,
good moral character, academic aptitude and educational attainment.

Commencement of a Partnership

 From the moment of the execution of the AOP unless otherwise stated.

General Rule: No special form is required for its validity or existence. Hence, the contract may be in
oral or writing.

 If the agreement is not to be performed within 1 year, such contract is covered by Statute of
Frauds. In which case, the agreement must be in writing. Otherwise, this agreement
becomes unenforceable.

 If real rights or property is contributed to the partnership regardless of value:

1. Must be in writing or must be in public instrument with inventory (notarized)
2. Signed by the parties
3. Registered in the Registry of Deeds

Violation of this rule renders the contract of partnership void.

 If money or personal property amounting to 3000 or more is contributed to the

partnership:
1. Must be in public instrument
2. Registered with SEC

Failure to comply does not render the partnership void. It is still VALID.

Registration, in this respect, is not a mandatory provision.

Elements of a Partnership

1. Consensual – perfected by mere consent (upon express or implied agreement)

2. Nominate – has a special name in the law
3. Bilateral – rights and obligations between the parties are reciprocal.
4. Onerous – parties must give something
5. Commutative – undertakings of the partners are the same or equal
6. Principal – not an accessory or does not depend on another contract for existence and
validity
7. Preparatory – entered into as a means to an end.

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 mutual contribution of money, property or industry to a common fund
4. The object must be lawful
5. The purpose or primary purpose must be to obtain profits and to divide the same among the
parties.

Existence of a Valid Contract

 Without a valid contact, a partnership may not exist.

Delectus Personae

 No one can become a member of the partnership without the consent of all partners
 A fiduciary relation exists between the partners. Meaning, there’s mutual trust and
confidence between the partners

 A limited partnership cannot be created by mere voluntary agreement alone.

There’s a need for the approval of SEC

Not a partnership since they are not created by expressed or implied contract

1. Religious societies
2. Conjugal or community partnership

Legal capacity of parties to enter into a contract

 Any person may be a partner who is capable under the law of entering into contractual
relations.

Persons who cannot give consent

1. Minors
2. Insane or demented persons
3. Deaf-mutes who do not know how to read and write
4. Persons who are suffering from civil interdiction
5. Incompetents who are under guardianship.

 A partnership can be a partner in another partnership.

 Corporation cannot enter into a contract of partnership.
Reason: A corporation cannot be bound by the acts of person who are not its duly
appointed and authorized officer and agents. It shall manage its own affairs separately and
exclusively.
Contribution to a common fund

 Property contributed may be real or personal, tangible and intangible  credit such as
promissory note or other evidence of obligation or even a mere goodwill may be contributed
as it is considered property.

 A limited partner cannot contribute mere industry or services but only cash or property.

 If the object of partnership is unlawful, the partnership becomes void ab initio or void from
the beginning

 A partnership may not engage in an enterprise for which the law requires a specific
form of business org. BANKING SHOULD ONLY BE CORPORATION

Cooperatives are allowed to engage in to a banking business as long as license or

permit has been issued by the BSP.

 Even an unprofitable business can be a partnership provided its goal is to obtain

profits.
 Receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business.
 The receiving partner shall not be entitled to receive payment where there are no
profits.

 There is a co-ownership whenever the ownership of an undivided thing or righr belongs to

diff persons
 Co-ownership is generally created by law.

Partnership Co-ownership
Creation Contract needed No contract needed
Juridical personality Has Has none
Purpose Realization of profits Common enjoyment of the
thing or right
Duration No such limitation More than 10 yrs is not allowed
Disposal of interest May not dispose individual May freely do so
interest for assignee (unless
agreed)
Power to act with 3rd persons Partners bind the partnership Co-owner will not bind other
co-owner
Effect of death dissolution Not dissolved
 Partnership
Parties Either sex
Laws which govern Stipulation of the partners
Juridical personality Has
Commencement Moment of execution of
contract (unless stipulated)
Purpose Obtain profits
Distribution of profits According to agreement
Management Shares equally (unless there is
appointment)
Distribution of Shares Interest may be disposed
without consent of others
CPG
Future spouses
Governed by law
Has none
Date of the celebration of
marriage (any stipulation is
void)
Regulate the property relations
Shares are divided equally
Administration belongs to both,
husband’s decision shall prevail
(in case of conflict)
Cannot be disposed during
marriage even with the
consent.

Silent partner – need not be a secret partner. If he withdraws, he must give notice to persons who
do business with the firm to escape liability in the future

Dormant partner – may retire without giving notice and cannot be held liable for the obligations of
the firm subsequently. Only interest in joining is the sharing of profits

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

Common property of all the partners:

1. Property which belonged to each of them at the time of constitution of partnership

2. Profits they may acquire from the contribution

UNIVERSAL PARTNERSHIP OF PROFITS

 Partners retain their ownership over their present and future property.
 What pass to the partnership are the profits and the usufruct of the property. Upon
dissolution, such property is returned to partners who own it.
 Profits acquired by the partners through chance (lottery or by lucrative title) without the
employment of any physical or intellectual efforts, are not included.
 Fruits of property subsequently acquired by the partners do not belong to the partnership
unless by express stipulation.
 Profits acquired by the use of industry or work and usufruct belong to the partnership as a
matter of right unless there is express stipulation is necessary to exclude them.
  When the articles of partnership do not specify the nature of universal partnership, it is
presumed to be partnership of profits.
Reason: there is less burden on the partners.

Limitations upon the right to form a universal partnership

1. Persons who are prohibited by law to give donations cannot enter into a universal
partnership for the reason that each of the partners virtually makes a donation.
2. Partnership formed in violation of this article is null and void. No legal personality acquired.

 Every donation or grant of gratuitous advantage, direct or indirect, between spouses

during marriage shall be void except moderate gifts for family rejoicing.
 A husband and wife cannot join a universal partnership.

VOID DONATION

1. Made between persons guilty of adultery or concubinage at the time of the donation.
Declaration of nullity may be brought by the spouse of the donor or done. The guilt may be
proved by preponderance of evidence.
2. Made between persons found guilty of the same criminal offense.
3. Made to a public offer or his wife, descendants, and ascendants by reason of his reason.

 Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.
 He shall also be liable for fruits thereof from the time they should have been delivered,
without the need of any demand

 As a general rule, in obligations consisting of payment of sum, indemnity for damages shall
only be paid upon demand.
 Partnership is an exception to this rule.
 The partner’s obligation to contribute property becomes due and demandable even in the
absence of any demand.
 The guilty partner is liable for both interest and damages not from the time judicial or
extrajudicial demand is made

Obligation with respect to contribution of property

  Remedy in eviction, delay, or retention of contribution is not rescission or cancellation of
contract of partnership, but:
a. Action for specific performance
b. Damages and interest from the time he should have complied
 Such case conforms with vendor-vendee analogy, thus governed by law on sales.

Industrial partner cannot engage in business for himself unless the partner expressly permits
him to do so.

Consequences:

 Exclude him from the firm

 Avail themselves of the benefits which he may have obtained in violation of this
provision
 Plus damages for either one

Industrial partner Capitalist partner

Cannot engage in any kind of business Cannot engage in the same kind of business
unless there is stipulation

Imminent loss of the business

Any partner who refuses to contribute additional capital (except industrial partner) to save the
venture, shall be obliged to sell his interest other partners, except if there is agreement to the
contrary.

Application of Payments

If the managing partner collects a demandable sum which was owned to him, from a person who
also owned the partnership another sum also demandable, the collected amount shall be applied to
2 credits in proportion to their amounts even though he may given a receipt for his own credit only.

But if the receipt is to the partnership, the amount is fully applied thereto.

Requisites for Application of Sum of Money

 1. There exist at least 2 debts, one where the collecting partner is creditor, and the other
where the partnership is the creditor.
2. Both debts are demandable
3. The partner who collects is authorized to manage and actually manages the partnership.

 If no receipt, apply to the partnership

 The collecting partner should be MANAGING partner
 The provision does not apply if the collecting partner is not a managing partner.
 Reason is for the managing partner to attend more to the interest of the partnership than
his own.
 Where the manner of management has not been agreed upon and all the partners
participate in the management of partnership, then every partner shall be considered a
managing partner.
 If the personal credit of the partner is more onerous (has higher interest rate), debtor can
prefer the payment to him.

A partnership 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
given receipt for his share only

This is based on the community of interest among the partners.

General Rule: Every partner is responsible to the partnership for damages suffered by it through his
fault, and he cannot compensate them with the profits and benefits which he may have earned for
the partnership by his industry.

Exception: Court may equitably lessen/mitigate this responsibility if through the partner’s
extraordinary efforts in other activities of the partnership, unusual profits have been realized.

 Any person guilty of negligence or fault in the fulfilment of his obligation, shall be liable for
damages.
 Compensation requires that the negligent partner be both a creditor and a debtor of the
partnership. However, in this case, the partner is a debtor for the industry, and the debtor
for the damages.

The risk or loss of specific and determinate things which are not fungible, contributed so that
only their use and fruits may be for the common benefit, shall be borne by the partner who
owns them.

If the things contributed are

1. Fungible
5 cases shown; Partnership borne the risk except 1

1. Specific and determinate things which are not fungible and only the use is contributed –
borne by partner.
2. Specific and determinate things the ownership transferred to the partnership
3. Fungible things or things which cannot be kept without deteriorating even if contributed
only for the use of the partnership
4. Things contributed to be sold
5. Things brought and appraised in the inventory.

 The above cases presuppose that the things contributed have been delivered actually or
constructively to the partnership; before delivery, the risk of loss is borne by the partner.
 If the loss is due to the fault of any partner, shall be liable for damages.

 P/L shall be distributed in conformity with the agreement

 If only the share of profit is agreed upon, share in the loss shall be the same proportion
 Absence of stipulation, share in P/L is in proportion to the contribution.
 Industrial partner is not liable for losses.
 If besides his services, he has contributed capital, he shall also receive a share in the profits
proportioned to his capital.
 Industrial partner shall receive just and equitable share, which must be satisfied first before
the capitalist partners divide the profits.
 If industrial partner has capital, two shares. 1 st is for his industry that should be satisfied first.
2nd is for his capital proportion on the remaining profit for others.

 If the partners have agreed to entrust to a third person the designation of the share of each
one in the P/L, such designation may be impugned only when it is manifestly inequitable.
  In no case may a partner who has begun to execute the decision of the third person, or who
has not impugned the same within a period of 3 months from the time he had knowledge
thereof, complain of such decision.
 The designation of P/L cannot be entrusted to one of the partners.
Reason: The article follows the gen rule on contracts that the fulfilment of a contract cannot
be left to the will of one of the contracting parties.

Stipulation Exempting from P/L

1. Stipulation generally void, but partnership subsists. P/L shall be apportioned as if there were
no stipulation.
2. Where partner excluded from loss is industrial partner, naturally valid.
3. If there are losses, he labored in vain, thus, already contributed his share in the losses.

Termination of Managing Partner

 The partner who has been appointed manager in the AOP may execute all acts of
administration despite the opposition of his partners, unless he should act in bad faith.

His power is may not be revoked without just or lawful cause.

The vote of the partners representing the controlling interest shall be necessary for such
revocation of power.

 The managing partner is appointed after constitution of Partnership

He may be revoked at any time for any cause.

It should be noted that the provision is applicable to a partner only not a stranger.

A partner is not entitle to compensation for his services other than his share of the profits.