Classes of Partners and Partnerships

Monday, September 5, 2022 7:37 PM

As to the Object of the Partnership: Universal or limited partnership

Universal partnership

Article 1776. As to its object, a partnership is either universal or particular. As regards the liability of
the partners, a partnership may be general or limited. (1671a)
- universal partnership
• encompasses either all present properties of the partners or to all of the profits (1777)
• A partnership of all present property is that in which the partners contribute all the property which
actually belongs to them to a common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire therewith. (1778)
• the property which belonged to each of the partners at the time of the constitution of the
partnership, becomes the common property of all the partners, as well as all the profits which
they may acquire therewith. (1779)
• A stipulation for the common enjoyment of any other profits may also be made; but the property
which the partners may acquire subsequently by inheritance, legacy, or donation cannot be
included in such stipulation, except the fruits thereof. (1779 par.2)
- in the universal partnership of profits| comprises all that the partners may acquire by their industry or
work during the existence of the partnership. As well as the usufruct of all Movable or immovable
property which each of the partners may possess at the time of the celebration of the contract shall
pertain to the partnership
- default rule under article 1781| Articles of universal partnership, entered into without specification of
its nature, only constitute a universal partnership of profits.

Question when does this default rule apply?

- the answer to this must made by distinguishing limited partnership and universal partnership

Limited Partnership
-1783| A particular partnership has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation.
• Every professional partnership and joint venture arrangement would constitute a particular
partnership

Legal significance of the distinction between the two

1. 187 of Family code| persons prohibited from donating to each cannot enter into a universal
partnership
- can spouses validly enter into a particular partnership between each other when their property
relations are governed by a legal property regime?
• CIR v. Suter| does not apply when the partners entered into a limited partnership, the man being
the general partner and two women being the limited partners, and a year later the man married
one of the limited partners, and the spouse bought out the interest of the other limited partner.
2. The rights and obligations that may arise from subsequent ventures pursued by the partners would
be determined on whether they are bound under a universal or particular type of partnership
• Lyons v. Rosenstock| two partners were never part of a universal partnership, but that they
were at best partners in particular partnerships for the previous projects
- The other conclusion we can draw from Lyons is that a universal partnership is never presumed,
not even from various transactions or ventures concluded between the partners

***extra*** Question: why would Article 1783, in defining a particular partnership, include the
'exercise of a vocation' which may not include one that seeks to provide a livelihood for the so-called
partners, such as religious or civic vocation?

2. As to Duration
(a) Partnership with Fixed Term;

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(a) Partnership with Fixed Term;
(b) Partnership for a Particular Undertaking;
(c) Partnership at Will.

- Both partnerships with fixed term and for a particular undertaking are automatically dissolved upon
the expiration of the stipulated term or the achievement of the particular undertaking
- in a partnership at will, the partnership has an indefinite term and it would be dissolved only when an
act or cause of dissolution happens or arises
• Article 1785| when a partnership for a fix term or particular undertaking is continued after it has
terminated without any express agreement, partnership then become one at will and "the rights
and duties of the partners remain the same as they were at such termination, so far as is
consistent with a partnership at will."
- "A continuation of the business by the partners or such of them as habitually acted therein
during the term, without any settlement or liquidation of the partnership affairs, is prima facie
evidence of a continuation of the partnership."
- Ortega v. CA| partner dictating a dissolution must act in good faith
• Obiter| every partner even in a partnership with fixed term or for a particular undertaking can
able to dissolve the partnership upon the application of the principles of mutual agency and
delectus personae,
• designation of the purpose in the articles of partnership does not prevent it from being a
partnership at will
- what the law contemplates is a specific undertaking or project which has a definite or definable
period of completion
- Rojas v. Maglana|
• First articles of partnership were duly registered
• subsequently the original partners accept an industrial partner but do not register a new
partnership; then industrial partners retire
• the original partners continue under the same set-up as the original partnership,
• resulted a reversion back into the original partnership under the terms of the registered articles of
partnership.
--> no new partnership at will

3. As to Extent of Partners' Liabilities

(a) General Partnership, where all the partners are unlimitedly liable; and
(b) Limited Partnership, where there is one or more general partner who are unlimitedly liable, with one
or more limited partners, who are liable for partnership debts only to the extent of their stipulated
contributions under the registered articles of partnership.
- Lim Tong Lim; 1816| The liability of general partners
- all partners shall be liable pro rata beyond the partnership assets for all the contracts which may have
been entered into in its name, under its signature, and by a person authorized to act for the
partnership.
- consistent with the rules on delicts and quasi-delicts: may be solidarily liable in the following
instances:
1. where, by any wrongful act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act;
2. where one partner acting within the scope of his apparent authority receives money or property of a
third person and the money or property so received is misapplied by any partner while it is in the
custody of the partnership

KINDS OF PARTNERS
Capitalist Partner Industrial Partner
contributes money and/or property to the contributes only his industry or his service
partnership - law does not specify what kind of industry
liable for the losses sustained by the business Not liable
and any stipulation to the contrary would be
void;

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may not engage in business or commercial
undertaking which is competing of the
partnership business;
bound to make additional contributions to the
partnership in case of an imminent loss
cannot engage in any other form of business or
commercial undertaking at all during his tenure as
industrial partner
no such obligation.

Original partner Subsequent or incoming partner

who is with the partnership at the time of its
constitution;
who come in during the life of a pre-existing
partnership.
his liability with respect to the partnership obligations
which were incurred prior to his admission into the
partnership shall be satisfied only out of partnership
property, unless it is otherwise stipulated

Managing Partner, who has been given the management of the partnership enterprise

Liquidating Partner, who takes charge of the liquidation and winding-up of partnership affairs;

Retiring Partner, who ceases to be part of the partnership which is continued after dissolution, as
compared with the partners who remain with the venture as Continuing Partners;

Partner by Estoppel, who is not a formal partner in an existing partnership, but his acts have led third
parties dealing with the partnership to believe that he is a partner, and thereby becomes liable as a
regular partner as to such relying creditors

WHO MAY VALIDLY BECOME PARTNERS?

1. May Spouses Validly Enter into a Partnership Relation?

a. Spouses Cannot Enter into a Universal Partnership

- 1782| Persons who are prohibited from giving each other any donation or advantage cannot enter into
universal partnership
• Bautista| the rationale of the prohibition under article 1782 as to be "founded on the theory that a
contract of universal partnership is for all purposes a donation. Its purpose, therefore, is to
prevent persons disqualified from making donations each other from doing indirectly what the law
prohibits them from doing directly
- implication of the placement of 182 after two articles covering definition nature and effects of
universal partnership
• spouses may validly become partners in a particular partnership, which would include a
professional partnership, and both general and limited partnerships.

Question: Can spouses, between themselves or with third parties, validly enter into a contract of
partnership for gain provided the resulting partnership is not a universal partnership?
- CIR v. Suter| relying on 1677 now 1782
• since the prohibition for spouses covers expressly only universal partnerships, then they can
validly be partners in a limited partnership, with the husband being the general partner and the
wife being the limited partner.
- villanueva| it would be error to base it only on 1782
• Note: partnership here was established before partners were married
--> In essence, Suter holds that spouses are not disqualified from becoming partners in a limited
partnership, provided both of them are limited partners; or at least one of them is a limited partner.

b. Spouses Are Not Qualified to Enter into Other Forms of Partnership for Gains
- position of villanueva| whether it be universal or particular, general or limited partnership
1. every form of partnership effectively makes partners "donors" to one another of their contributions in
the partnership
• Although it has a separate juridical personality, partnership law gives them co-ownership interest
• In limited partnership where husband is the general partner and wife is a limited partner|

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 • In limited partnership where husband is the general partner and wife is a limited partner|
contribution of wife is under the control of the husband| indirect violation of Article 87 of the
Family Code "Every donation or grant of gratuitous advantage, direct or indirect, between the
spouses during the marriage shall be void.
• Even if these contributes are not considered as donations or for taking gratuitous advantage| 1490
of NCC prohibits sales or any other onerous dispositions between spouses not governed by
complete separation of proprety
2. property regime that must govern spouses must be in accordance with the provisions of the Family
Code, and cannot be the n subject of regular partnership rules under the Partnership Law of the New
Civil Code

(1) Spouses Governed by the Absolute Community of Property Regime

- 75, 88 of FCC
- The absolute community of property regime actually establishes a sort of "universal partnership"
between the spouses in that it includes "all property owned by the spouses at the time the celebration
of the marriage or acquired thereafter."

Question: Can spouses governed by the absolute community of property regime, vary the effects
between them on certain community property, by contributing them into a particular partnership for
gain?
• Article 89 of FC| No waiver of rights, interest shares and effects of the absolute community of
property during the marriage can be made except in case of judicial separation of property."
- 1782 must be merely suppletory and not the main rule in property regime of spouses

(2) Spouses Governed by the Conjugal Partnership of Gains

- 105, 108 of FC
- Under Article 105 of the Family Code, the conjugal partnership of gains can govern the property
relating of spouses only when it has been so stipulated in the marriage settlements

Question: May spouses therefore enter into a contract of particular partnership for gain by contributing
thereto either conjugal property, or their separate properties?
- for conjugal property| constitutes as donation
• it would also conflict with provisions governing marriage settlements
- For separate properties| partnership law would contravene how such separate properties would
answer for family affairs

(3) Spouses Governed by the Complete Separation of Property Regime

- May spouses governed by the complete separation of property regime validly enter into a contract of
particular partnership?
• Would amount to donation

c. Contract of Partnership May Offend Against the Provisions of the Family Code
- article 76 and 77 prohibit modifications of marriage settlements after marriage
- partnership is for profit while family code provisions governing property regime transcends profit
motives
- there are several areas where real conflict would arise between doctrines under partnership law and
those under the FC

(1) lssue on Control and Binding Effects of the Acts of Partners

- 1803 (1)| In partnership law, the act of one binds the other partners and partnership property
• Article 96 for ACP and 124 for CPG| both spouses are co-administrators of the conjugal properties;
and any contract, especially an act of disposition or encumbrance of the community or the
conjugal property, done by one without the consent of the other partner, would be void.
- 145 of FC for complete separation of property| spouses can dispose of, possess, administer and enjoy
his or her own separate estate, without need of the consent of the other
• Partially overcome the provisions of FC governing property regime

(2) Charges to Partnership Properties

- partnership law| chargeable against any claim or contract entered into pursuant to partnership affairs
- ACP and CGP| there are specific listings of what should first be chargeable

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- ACP and CGP| there are specific listings of what should first be chargeable
- Separation of property| both spouses shall bear the family expenses in proportion to their income, or,
m case of insufficiency or default thereof, to the current market value of their separate properties.
--> if ACP. CGP and separate property is allowed to be contributed into the partnership for gain, the
rules of first preference of partnership creditors to partnership property would undermine the claims of
personal creditors of spouses, as well as the ability of marriage properties to properly provide for the
family support and upkeep
• Spouses may also defraud their marriage creditors

d. Professional Partnerships

Question: May spouses between themselves, or together with other professionals, enter validly into a
contract of profession partnership, which by definition of Article 1783 of New Civil Code, is always a
particular partnership?
- Yes. a professional partnership essentially covering the contribution of service by the spouses; does
not primarily bind actual community or conjugal properties
• Are not really pursued for profit but more for civic or vocational ends
- gains approval also from 73 FC| "Either spouse may exercise any legitimate profession,
occupation, business or activity without the consent of the other."

2. May Corporations Validly Qualify to Become Partners?

- American jurisprudence| No. A corporation can act only through its duly authorized officers and
agents and is not bound by the acts of anyone else, while in a partnership each member binds the firm
when acting within the scope of the partnership

a. Jurisprudential Rule
- Tuason v. Bolanos| a corporation has no power to enter into a partnership.
• Policy of the law is that the corporation shall manage its own affairs separately and exclusively
• But: a corporation may validly enter into a joint venture agreement, "where the nature of that
venture is in line with the business authorized by its charter.
- reason:
1. partnership arrangements expose the corporation to any and various liabilities and risks which
cannot be evaluated and anticipated by the board of directors
2. joint venture arrangement, allows the board of directors to fully bind the corporation to matters
essentially within the board's business appreciation and anticipation because it is for a specific
undertaking

b. SEC Rules
- recognized the general rule that a corporation cannot enter into a contract of partnership with an
individual or another corporation on the premise that it would be bound by the acts of the persons who
are not. its duly appointed and authorized agents and officers, which is inconsistent with the policy of
the law
• Exception: they can enter into a limited partnership provided that the power to enter into a
partnership is provided for the in the corporation charter
- reason:
• As a limited partner, a corporation would not be bound beyond the amount of its investment by
the acts of other partners who are not its duly appointed and authorized agents
--> in short, it would be protected from the unlimited liability of the other partners

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