LAW ON PARTNERSHIPS AND CORPORATIONS

CHAPTER 1

PARTNERSHIP
        - viewpoint of a CONTRACT — where partnership
relation arises

as a business organization
   - the partnership has its own juridical personality
   - falls between two extremes
            • single proprietorship
            • corporation

ELEMENTS — there is a contract of partnership when:

        1. there is a meeting of minds
        2. to form a common fund
        3. with intention that profits and losses will be
divided among contracting parties

ESSENTIAL FEATURES
        1. there must be a valid contract
        2. the parties must have legal capacity
        3. there must be a mutual contribution of money,
property, or industry to a common fund
        4. the object must be lawful
        5. the primary purpose must be to obtain profits
and divide the same among the parties
        6. the partnership has a juridical personality
separate from individual partners [Article 1768]

NOTE!!!
          Any immovable property or an interest therein
may be acquired in the partnership name. Title so
acquired can be conveyed only in the partnership name.
[Article 1774]

EFFECT OF UNLAWFUL OBJECT OR PURPOSE

        1. the contract is void ab initio [Article 1409 (1)]
        2. once dissolved by judicial decree:
            a. the profits shall be confiscated by the favour
of State or government
            b. the instruments or tools and proceeds of the
crime shall also be forfeited in favour of the State
[Article 1770]
            c. the contribution of partner shall not be
confiscated unless they are instruments or tools of the
crime [De Leon (2010)]

NOTE!!!
         Partnership is dissolved by the operation of law
(even without judicial decree) when the business
become unlawful

ASSOCIATIONS WITHOUT LEGAL PERSONALITY —

association with the following has no legal personality
and is governed by the provisions of co-ownership
        1. the articles are kept secret among the members
        2. any of the members may contract with his own
name with third persons [Article 1775] — it may,
however, be sued by third persons under the common
name it uses [Section 15, Rule 3, Rules of Court]

CHARACTERISTICS — the contract of partnership is:

        1. consensual - perfected by mere consent
        2. nominate - it has specific name
        3. bilateral or multilateral - it is entered into by two
or more persons
        4. principal - its existence does not depend on
another contract
        5. onerous - money, property, or industry are
contributed by the parties
        6. preparatory - it is entered into to carry out a
business or specific venture
        7. commutative - the undertaking of each is
considered as equivalent of that of the others

PARTIES TO THE CONTRACT

General Rule!!!
        - any person capacitated to contract may enter into
a contract of a partnership

Following person cannot enter into a contract of

partnership
        1. those suffering from civil interdiction
        2. minors
        3. insane or demented persons
        4. deaf-mutes who do not know how to write
        5. incompetence who are under guardianship

Exceptions!!! - the capacity of the following persons to

enter into a contract of partnership, though capacitated
to contract generally, are limited

        1. those who are prohibited from giving each other

any donation or advantage cannot enter into a universal
partnership [Article 1782]
        2. a corporation cannot enter into a partnership in
the absence of express authorization by statue or
character

NOTE!!!
     RCC Section 35 (h) – every corporation incorporated
under this code has the power and capacity to enter into
a partnership, joint venture, merger, consolidation, or
any other agreement with natural and juridical persons\

FORM OF THE CONTRACT

General Rule!!!
      - contract may be constituted in any form [Article
1771]

Exceptions (1) !!!

        - where immovable property or real rights are
contributed
             a. contract must appear in a public instrument
             b. attached to such instrument must be an
inventory, signed by the parties , of the property
contributed [Article 1771 and 1773]
Effect of absence of formal requirements
        - contract of partnership is void (some other
contracts like co-ownership is made)
        - it can be sued but it cannot sue [Rules of Court
Rule 3, Sections 1 and 15]

Exceptions (2) !!!

        - where the capital is at least 3,000, in money or
property
             a. contract must appear in public instrument
             b. it must be recorded in the SEC

Effects of absence of formal requirements

        - partnership still exist and the liability of the
partnership and its members to third person are not
affected (despite non-registration with the SEC) [Article
1768 and 1772]

KINDS OF PARTNERSHIP
        * as to object
        * as to duration
        * as to liability
        * as to publicity
        * as to purpose

AS TO OBJECT
        1. universal partnership
        2. particular partnership

UNIVERSAL PARTNERSHIP
        1. all present property
            a. partners contribute all the property which
belongs to them to a common fund, with the intention of
dividing the same among themselves, as well as the
profits they may acquire therewith [Article 1778]
            b. the property contributed includes all those
belonging to the partners at the time of the constitution
of the partnership
            c. a stipulation for the common enjoyment of any
other profits may also be made. However, the property
which the partners may acquire subsequently by
inheritance, legacy, or donation cannot be included in
such stipulation, except fruits thereof [Article 1779]

        * all present property and their profits

        * after-acquired property and their profits (provided
it’s stipulated and not arising from lucrative title or by
chance)

        2. all the profits

            a. it comprises all that the partners may acquire
by their industry or work during the  existence of the
partnership
            b. only the usufruct over the property of the
partners passes to the partnership [Article 1780]

        * the USE of all present property

        * profits of all present property
        * profits acquired during the existence of the
partnership (except those arising from lucrative title or
by chance)
        * after-acquired property and their profits (provided
it is stipulated and not arising from lucrative title or by
chance)

SILENCE — when the articles of universal partnership

does not specify its nature (whether all present property
or all profits), the partnership will be considered as one
only of all the profits [Article 1781]

 Universal partnership of all profits

        - farm land (present property, thus, excluded)
        - inherited building (lucrative, thus, exclude)
whether all profit or all property
        - car (include if stipulated) after-acquired property
        - fruits from the farmland (fruit of present property,
include)
        - rent income of building (include even without
stipulation because it is profit)
        - cash (nasa present property siya, univ.
partnership of all properties)
NOTE!!!
STIPULATION IS ONLY NEEDED IN AFTER-
ACQUIRED PROPERTIES

PERSON PROHIBITED FROM GIVING EACH OTHER

DONATION (cannot enter universal partnerships)
        1. between spouses during marriage, except
moderate gifts (prohibition applies to live in partners
                  • si manny niregaluhan niya si jinky ng 10M
worth Hermes bag (allowed pa rin as moderate gift —
it's the capacity that counts, not the value of the
property)

        2. between persons who were guilty of adultery or

concubinage at the time of donation
                  • if you will be found guilty if related sa kabit
thingy, hindi allowed na magdonate

        3. persons found guilty on the same criminal

offense (against public policy)

        4. yung kakaibiganin yung mayor ganon, haha

PARTNERSHIP OF ALL PROFITS

AS TO LIABILITY OF PARTNERS
1. General Partnership
        - kukunin yung pambayad sa liability sa assets ng
partnership
        - if hindi enough yung property ng partnership,
then, kukuha na sa property or personal assets ng
partners
        - atleast one general partner ang hahabulin up to
his personal properties

2. Limited Partnership
        - atleast have one limited partner and general
partner
        - mahirapan maningil si third person because may
partner na hindi magiging liable up to his personal
properties kase limited partner siy
AS TO PUBLICITY
1. Secret Partnership
        - certain persons as partners is not made know to
public

2. Open or Notorious Partnership

        - contrary to the stated above

AS TO PURPOSE
1. Commercial or Trading Partnership
2. Professional or Non-Trading

KINDS OF PARTNERS
AS TO LIABILITY
1. General Partner
- liable for partnership’s debt up to extent of his
personal properties kapag wala ng pondo and
partnership [Article 1816]
2. Limited Partner
- one who is liable for partnership debts to extent of
his capital contribution only [Article 1843]
3. General-Limited Partner
- he is liable pro rata to the extent of his personal
property kapag exhausted na ang properties ng
partnership but he can claim reimbursement of the
amount he has paid from the general partners
AS TO CONTRIBUTION
1. Capitalist Partner
        - money or property
2. Industrialist Partner
        - industry only or skill
3. Capitalist-Industrial Partner
 - not only money, or property, but also industry

OTHER CLASSIFICATIONS
1. Managing Partner
- manages the business or affairs of the
partnership
2. Liquidating Partner
- takes charge of winding up the affairs after it is
dissolved
3. Nominal Partner
- not actually a partner but may become liable
(partner by estoppel)

4. Ostensible Partner
- active and known to the public (allowing his name
to be included in the firm name
5. Secret Partner
- one whose connection with the partnership is kept
to the public
6. Silent Partner
- has no voice or active part in the management of
the business (though his shares in profits and losses
may be known to the public)
7. Dormant Partner
- who does not participate in the management and
not known to the public (both secret and silent partner)

PARTNERSHIP BY ESTOPPEL
        - a person not a partner but became a partner due
to estoppel
CHAPTER 2

SECTION 1

When does partnership begins?

        - from the moment the execution of the contract,
unless otherwise stipulated [Article 1784]

OBLIGATION AS TO CONTRIBUTION — with respect

to contribution of property, a partner is obliged to:

        1. to contribute, at the beginning of the partnership

or at the stipulated time, the money, property or industry
which he undertook to contribute
        2. incase a specific and determinate thing is to be
contributed
            a. warrant against eviction in the same manner
as a vendor
        * kunwari nagcontribute ako ng car, dapat akin yun
meaning i can dispose it and the partnership can enjoy
it. If nanalo yung nagkeclaim na sa kanya yun then
mawawalan ng car, yung partnership kase hindi pala sa
akin yung car and ma-eevict ako and hahabulin — i
violated my warranty against eviction
            b. to deliver to the partnership the fruits of the
property promised to be contributed, from the time they
should have been delivered without the need of demand
[Article 1786]
        * i.e i obliged myself to deliver a farmland on or
before September 19. If i didn't deliver within that time –
there is delay
        - with regards to the property — there must be
demand. NO DEMAND, NO DELAY
        - regarding the fruits, such should be deliver
WITHOUT ANY DEMAND
        3. in case sum of money is to be contributed
            a. interest
        -  u failed to delivered it to the day, you will be
indemnified for the interest — legal rate (6%) per
annum, and damages but not always demandable
            b. damages
        - not always demandable
        - look first if the claim has a legal ground

Generally, obligations consisting payment of a sum of

money, the indemnity for damages consists only in the
payment of interest

ARTICLE 1778 is an EXCEPTION!

AMOUNT OF CONTRIBUTION
General Rule!!!
        - partners are obliged to contribute equal shares to
the capital of the partnership

Exception!!!
        - when there is an agreement to the contrary, the
contribution shall follow such agreement [Article 1790]

[Article 1787] — Determining the value of contribution

in goods, the appraisal must be made

        1. in the manner prescribed the partnership

contract
        2. In the absence thereof, kung ano na yung price
na andun or they pa-value sa experts

Subsequent changes in the price will be for the benefit

or will be suffered by the partnership [Article 1787]

[Article 1789] — Prohibition against engaging in

business

prohibition will be dependent on the type of partner

a. Industrial
        - u cannot enter into your own business because
the business is difference because u are contributing an
industry or skill
        - you cannot withdraw naman your skill and then
use it to another business
        - unless, you are allowed by the partnership
What if you are not allowed to and pinilit mo?
        - alisin ka ng partners, hindi ka na considered as
partners
        - they can ask you for damages
        - the partners will get the profits under your
business + damages

b. Capitalist
        - you cannot engage or di ka pwedeng magpatayo
ng own business mo na kagaya nung business ng
partnership, UNLESS hindi mo kokumpetensiyahin yung
business ng partnership niyo

Exception: there is stipulation to the contrary

ADDITIONAL CAPITAL CONTRIBUTION [Article

1791]
        - in case of imminent loss (need na solusyonan)
you can't kalas to the partnership
        - you should give another contribution to the
partnership, in the presence of legal
        - if ayaw mo na, u will be excluded sa partnership
and u should sell your share to the other partners

Exception: if u are industrial partner – hindi kasali ang

capitalist

REQUISITES OF ARTICLE 1791

        1. there is an imminent loss (grave tendency of
losing your venture)
        2. majority of capitalist partner are of the opinion
that additional contribution would save the business
        3. capitalist partner refuses deliberately
        * what if di ka na capacitated to contributed?
        - you are excused naman if ano unless ayaw mo
lang talaga magcontribute
        4. DEFAULT: there is an obligation to provide
additional contribution
        - kunwari may add. contri, i can fight or ilaban na
may legal agreement na pwede irefuse, you cannot
obliged me to sell my interest
        - in the ABSENCE of legal agreement, i am
obliged to do so

[Article 1792] ― Right to apply payment to partnership

credit
        - may partnership tayo, may nagbayad and kay
josephine nagbayad - she will deliver it sa kaha ng
partnership
        - it is RELEVANT in a way na... basta may two
options

APPLIED TO PARTNERSHIP' CREDIT

        1. if paid to a person authorized to collect tapos
kapag may nacollect siya and he issued receipt under
the partnership name
        - payment should be applied to the partnership
credit

If he issues receipt under his own name application

should be PROPORTIONATE — why? because he
should not place his own interest over partnership's
interest

APPLIED TO PARTNER'S CREDIT

        1. if paid to a person
        2. partnership debt is not due
        - pwedeng hindi mo pa i-apply sa partner's credit
kung hindi pa naman due
        3. more onerous than the partnership debt
        - if the partner's credit is more onerous ganon, dun
mo siya i-aapply - only if he issues receipt under his
own name