Second Edition PARTNERSHIP REVISED CORPORATION COOPERATIVE LAW BUSINESS LAWS AND REGULATIONS Laws ¢ Principles Jurisprudence ATTY. ANDRIX D. DOMINGO,CPRA, MBAPhilippine Copyright, 2021 ISBN: 978-621-8205-01-7 No part of this book may be reproduced in any form or any means without the written permission of the author. Any copy of this book without the signature of the author in colored pen on this page either proceeds from an illegitimate source or is in possession of one who has no authority to dispose of the same. ALL RIGHTS RESERVED Published by: COACHING FOR RESULTS PUBLISHING #02 Ampucao, Itogon, Benguet buslaw1234@gmail.comABOUT THE AUTHOR ATTY. ANDRIX DANG-OWAN DOMINGO, CPA, MBA Present and Former CPA Reviewer/Special Lecturer in REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS (RFBT) The Review School of Accountancy, Inc. (ReSA), Manila Philippine Accountancy Review for Excellence, Manila Saint Paul School of Professional Studies, Palo, Leyte University of Cebu, Cebu City University of San Carlos, Cebu City University of San Jose-Recoletos, Cebu City University of the Visayas, Cebu City St. Joseph College, Maasin City Far Eastern University, Silang, Cavite Emilio Aguinaldo College, Dasmarifias City University of Baguio, Baguio City University of the Cordilleras, Baguio City Saint Louis University, Baguio City Urdaneta City University, Urdaneta City Collegio de Dagupan, Dagupan City University of Luzon, Dagupan City University of Pangasinan, Dagupan City Nueva Ecija Training and Review Center, Cabanatuan City Pampanga CPA Review, Angeles City CPA Review and Training Center, Urdaneta City Nation's Foremost CPA Review, Inc., Baguio City Dagupan Accountancy Review King’s College of the Philippines, Benguet Southern Mindanao Academic Review & Training Services, Davao City General Santos City and Cagayan de Oro City Center of Excellence for Review and Training Services, Davao City, Cebu City and Butuan City Hearing Officer Legal Services Division, Civil Service Commission Former School of Law Professor University of Baguio, Baguio City Cordillera Career Development College, Benguet Former Trial Lawyer Domingo Law Office, Baguio CityPREFACE (Second edition) This humble work is intended primarily for accountancy students, business students and Certified Public Accountant (CPA) board examination candidates. This work, however, could likewise provide a good material for students of law. Simplified examples were incorporated and decisions of the Supreme Court were digested in a simple manner which serves as a tool for easier comprehension of the pertinent articles or sections. Definition of terms used in the different articles were incorporated to enable the readers to appreciate and comprehend well the meaning of the law. This book is published in the hope that this humble work will be of great help to readers. True or False Questions and Multiple Choice Questions were provided at the end of every chapter for purposes of review. I want to express my gratitude and appreciation for the valued persistent assistance and support rendered by my friends Christian, Ronaldo, Sunshine, Beverly, Johana, Irene, Amie, Floyd, Marie, Anne Marie and my brother Warden. J want to express my heartfelt gratitude to my loving wife, Pinky, my lovely daughters, Xyanne and Xyra, Mama Conchita, my sisters-in-law, my friends, colleagues, students, and relatives who have helped me in writing this book. Special thanks to Mama Lerina and Papa Francisco, my parents-in- !aw, and to all relatives who played with Xyanne and Xyra while I was writing this book. and to GOd be the glory! Andrix D. DomingoTABLE OF CONTENTS PARTNERSHIP CHAPTER 1 GENERAL PROVISIONS Meaning of profession Essential requisites of a contract of partnership Characteristics of a contract of partnership Partnership vs. Joint Venture Doctrine of Delectus Personae Best evidence of the existence of a partnership Artificial Person/Juridical Person Partnership by Estoppel Partnership vs. Co-ownership Effects of an unlawful partnership Form of contract of partnership Purpose of registration Partnership vs. Association Classification of Partnership Kinds of Universal Partnership Presumption in favor of universal partnership of profits True or false questions Multiple choice questions CHAPTER 2 OBLIGATIONS OF THE PARTNERS Kinds of partners Section 1 Obligations of the Partners Among Themselves Legal relations created by a contract of partnership Examples of obligations and rights of partners Partnership with a fixed term Partnership for a particular undertaking Partnership at will Obligation of every partner Manner of appraisal Essence of partnership Capitalist partner vs. Industrial partner Remedies of capitalist partners against industrial partner who engaged in business for himself Obligation of capitalist partners to contribute additional capital Obligation of a managing partner who collects debt Article 1792 vs. Article 1793 Risk of loss Obligation of the partnership to every partner Rules for distribution of profits and losses ofa partnership Third person designating the share of partners in the profits and losses Why an industrial partner is not liable for losses? Pages OVA ANB RE 13 18 18 20 23 23 26 28 31 32 37 37 39 40 40 42 42 42 45 46 46 47 48 49 50 Si. 52 52 53 ar 58Who shall manage the partnership? ‘Two modes of appointment When two or more managing partners have been entrusted with the management Stipulation requiring unanimity of action Rules when manner of management has not been agreed upon Who can demand true and full information? Section 2 Property rights of a partner Rights in specific partnership property Interest in the partnership Right to participate in the management Effects of conveyance by partner of his whole interest in the partnership Rights of the assignee What is meant by a “charging order” upon partner's interest in the partnership? What is redemption? Section 3 Obligations of the partners with regard to third Persons Liability for contractual obligations Separate obligation of a partner Stipulation against liability Partner as agent of the partnership Equitable Interest Admission Instances where knowledge of a partner is considered knowledge of the partnership Liability of partnership for misappropriation Partnership by estoppel Partner by estoppel True or false questions Multiple choice questions CHAPTER 3 DISSOLUTION AND WINDING UP What is dissolution? Three final stages ofa partnership Is the agreement of the partners affecting liquidation valid? What is the meaning of “retirement” in dissolution? Kinds of dissolution Without violation of the agreement between partners In contravention of the agreement between the partners By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership When a specific thing which a partner had promised to contribute to the partnership perishes before delivery By the death of any partner 58 59 60 62 63 65 71 71 71 71 76 76 78 79 80 81 82 82 84 87 89 90 92 96 96 100 101 111 11. 111 113 113 119 119 123 125 125 126By the insolvency of any partner or of the partnership By the civil interdiction of any partner Who can sue for judicial dissolution? On application by or for a partner On the application of the purchaser of a partner's interest Partnership is liable Partnership is not liable Partner's liability is discharged Kinds of winding-up or liquidation Who will wind up? Rights of partners in case of liquidation caused by violation or non-violation of the partnership contract Three rights of a partner who is entitled to rescind Liabilities of the partnership shall rank in order of payment Required new contribution Preference with respect to properties in possession of the court Rights of a partner who retires or dies and the business is continued without any settlement of accounts Who has the right to an account of his interest? Who has an obligation to render an account? When to render an account? Multiple choice questions CHAPTER 4 LIMITED PARTNERSHIP Characteristics of limited partnership Essential requisites in the formation of a limited partnership Presumption in favor of a general partnership Contribution of a limited partner The surname of a limited partner shall not appear in the partnership name Liability for a false statement in the certificate Liability of a limited partner who takes part in the control of the business ; Additional limited partners may be admitted after the formation Rights of a limited partner Contributor who erroneously believes that he has become a limited partner General-limited partner Liabilities of a general-limited partner Allowable business transactions of a limited partner with the partnership | ; Prohibited business transactions of a limited partner with the partnership 4 Preference to some limited partners . Share of the profits or compensation by way of income of a limited partner Requisites for the return of contributions ofa limited partner 127 127 128 128 130 134 135 137 137 137 139 142 143 145 146 150 150 150 151 154 159 159 161 161 162 162 163 163 163 164 165 165 165 166 166 166 167 168When can the contributions ofa limited partner be returned? When may a limited partner have the partnership dissolved and liquidated? Liability of a limited partner for unpaid contribution to the partnership Liability of a limited partner as a trustee to the partnership Liability of a limited partner despite return of his contribution Rights of an assignee of a limited partner Who is a substituted limited partner? Rights and liabilities of a substituted limited partner Retirement, death, insolvency, insanity or civil interdiction of a general partner Death of a limited partner Charging the interest of a limited partner Cancellation of the certificate of limited partnership Requirements for amendment Requirements for cancellation General partner/partnership vs. Limited partner/partnership Partnership vs. Corporation True or false questions Multiple choice questions CORPORATION TITLE 1 GENERAL PROVISIONS, DEFINITIONS AND CLASSIFICATIONS Corporation is an artificial being Characteristics of a corporation What is government-owned or controlled corporation? What is “Piercing the Veil of Corporate Fiction”? Elements of piercing the veil of corporate fiction Succession Powers ofa corporation What is a stock corporation? What is a non-stock corporation? Other classes of corporation General law vs. Special law Corporations created by special laws or charters Components of a corporation Doctrine of equality of shares Who may classify shares? What are voting shares? The right to vote in stock corporations The right to vote in non-stock corporations What are non-voting shares? What is a common stock? What is a preferred stock? 168 168 169 169 170 171 171 171 172 172 173 174 175 175 176 178 179 179 186 186 186 187 188 189 194 194 195 195 196 198 199 199 203 203 203 203 204 206 206 206What are redeemable shares? Instances when holders of non-voting shares are allowed to vote What are founders’ shares? What are redeemable shares? Kinds of redeemable shares What is trust fund doctrine? What are treasury shares? What are watered stocks? Multiple choice questions TITLE 2 INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS One Person Corporation Incorporator vs. Corporator Steps in the creation of a corporation Number of Incorporators Qualifications of Incorporators Partnerships as Incorporators Domestic Corporations or Associations as Incorporators Foreign Corporations as Incorporators Signatories of the Articles of Incorporation Designation of Incorporators as Directors or Trustees Foreign Nationals in the Articles of Incorporation Additional Requirements for Certain Corporations Revival of Corporate Existence Subscription What is paid-up capital? Articles of incorporation Three-fold nature of the articles of incorporation ‘The name of the corporation Purpose clause Principal office of the corporation Term of existence Number of Board of Directors or Trustees Authorized capital stock Limitations in the amendment of the articles of incorporation Amended guidelines and procedures on the use of corporate and partnership names Requirements before one can qualify as a de facto corporation Doctrine of estoppel Failure to formally organize and commence its business within 5 years from the date of its incorporation Continuous inoperation for at least 5 consecutive years Multiple choice questions TITLE 3 BOARD OF DIRECTORS/TRUSTEES AND OFFICERS Acts of management and ownership 206 207 208 209 209 211 211 212 213 222 222 222 223 223 224 224 224 224 225 225 225 225 227 233 233 233 233 233 234 234 235 235, 235 236 241 249 249 251 252 253 259 259Where do corporate powers reside? What is business judgment rule? Governing body of a corporation Derivative suit Authority of the board of directors or trustees Corporation exercises its powers through its board of directors Three levels of control May corporate powers be directly conferred upon corporate officers? Qualifications of a board of director/trustee Independent Director Requirements for the election of directors/trustees Corporate officer Corporate officers Corporate officer vs. corporate employee Objective of the report of election Disqualification of directors, trustees or officers Power to remove directors or trustees Filling of vacancies in the office of the director/trustee Replacement Director/Trustee Emergency Board of Director Limitation on compensation Doctrine of corporate opportunity Error in business judgment Self-dealing directors or trustees or officers Interlocking directors Executive committee Multiple choice questions TITLE 4 POWERS OF CORPORATIONS Corporate powers Power of a corporation to sue Power to extend or shorten corporate term What is appraisal right? Three instances of distribution of corporate capital Increase or decrease of authorized capital stock Incurring, creating or increasing bonded indebtedness Pre-emptive right Substantially all of the corporate assets Instances when a corporation may acquire its own shares Basis of unrestricted retained earnings What is retained earnings? Dividends Cash dividends vs. Stock dividends Payment of dividends is not a matter of right Capital and stock dividends Limitations on Dividends 259 259 261 262 262 262 263 265 267 268 269 270 272 272 274 276 277 281 281 281 285 286 287 289 293 294 296 303 303 304 305 305 307 308 309 310 314 314 315. 319 319 319 320 322 322Management contract What is ultra vires act? Multiple choice questions TITLE 5 BYLAWS What are by-laws? What is the purpose of a by-law? Are third persons bound by by-laws? By-laws are subordinate to the Articles of Incorporation By-laws are indispensable to corporations Effect of substantial compliance with by-laws Adoption of by-laws Articles of incorporation vs. By-laws Effectivity of by-laws Amendment of by-laws Binding Effects of the By-laws Multiple choice questions TITLE 6 MEETINGS Remote Communication Teleconferencing Videoconferencing Computer conferencing Audio conferencing Requirements for stockholders’ or members’ meetings Kinds of meetings of stockholders or members Quorum in meetings of stockholders’ or members’ Articles of Incorporation vs. Stock and Transfer Book Meetings of stockholders or members Quorum at a regular or special meeting of directors or trustees Meetings of directors or trustees Participation in board meetings through remote communication Voting in case of joint ownership of stock Voting trust agreement vs. Proxy Voting trust Three tests of voting trust agreement Requirements and limitations imposed on voting trust agreement Multiple choice questions TITLE 7 STOCKS AND STOCKHOLDERS Derivative suit Derivative suit vs. individual suit vs. class suit Subscription contract Kinds of subscription Amount of consideration Shares of stock vs. Certificate of stock 324 325 327 332 332 332 333 333 335 335 335 335 336 338 338 339 341 341 341 341 341 342 346 350 351 352 353 357 358 359 362 363 366 367 370 371 a7 377 380 382 383 384 386Mode of transfer of stocks as provided by law Transfer of shares by means of succession Effect of endorsement of the certificate of stock Who is a highest bidder? Payment of unpaid subscription Rights of a stockholder Liabilities of stockholders Multiple choice questions TITLE 8 CORPORATE BOOKS AND RECORDS Basis of stockholder’s right of inspection Right of inspection not absolute Books and records required to be kept by the corporation Limitations on the right of inspection Stock transfer agent Multiple choice questions ‘TITLE 9 MERGER AND CONSOLIDATION What is merger? What is consolidation? Law authorizing merger or consolidation * Steps to accomplish a merger or consolidation Multiple choice questions TITLE 10 APPRAISAL RIGHT What is appraisal right? Four instances of appraisal right Valuation date Effect of demand and termination of right Effects of transfer of dissenting shares Multiple choice questions TITLE 11 NON-STOCK CORPORATIONS Non-stock corporation Characteristics of a non-stock corporation Requirements for termination of membership Stock Corporation vs. Nonstock Corporation Multiple choice questions TITLE 12 CLOSE CORPORATIONS Corporations that cannot incorporate as a close corporation Characteristics of a close corporation [Articles of incorporation of a close corporation Conditions for the validity of restriction on the right to transfer shares Right of first refusal Transfer 388 388 389 393 393 397 397 398 403 406 406 406 407 407 409 Alt 411 411 412 415 420 423 423 423 425 425 427 430 433 433 434 436 440 441 444 444 446 447 447 447 449Amendment of articles of incorporation Deadlock in a close corporation Provisional director Remedies available to a stockholder Stock corporation vs. Close corporation Multiple choice questions TITLE 13 SPECIAL CORPORATIONS Chapter 1 Educational Corporations Composition of the board Chapter 2 Religious Corporations Corporation sole Corporation aggregate Effectivity of a corporation sole Chapter 3 One Person Corporations One Person Corporation Who are not allowed to form OPC’s Term of existence Minimum capital stock not required for One Person Corporation The One Person Corporation is not required to submit and file corporate bylaws Display of corporate name Single stockholder as director, president Special Functions of the corporate secretary Nominee and alternate nominee Incapacity or death of the single stockholder Reportorial requirements In case of death of the single stockholder Multiple choice questions TITLE 14 DISSOLUTION Modes of dissolution Voluntary dissolution where no creditors are affected Voluntary dissolution where creditors are affected Dissolution by shortening corporate term Grounds for Involuntary Dissolution Multiple choice questions TITLE 15 FOREIGN CORPORATIONS Foreign corporation What is the meaning of “doing business”? Not doing business Right of a foreign corporation to bring suit Doctrine of Isolated Transactions Resident agent Doing business without a license Multiple choice questions 451 452 452 453 454 455 458 458 458 461 461 461 462 466 466 466 467 467 468 469 469 470 470 471 473 475 476 482 482 484 485 486 488 491 494 494 494 499 499 499 502 505 509TITLE 16 INVESTIGATIONS, OFFENSES, AND PENALTIES Cease and Desist Orders Contempt Unauthorized use of corporate name Independent auditor Obtaining corporate registration through fraud Fraudulent conduct of business Acting as intermediaries for graft and corrupt practices Retaliation against whistleblowers Whistleblower Multiple choice questions TITLE 17 MISCELLANEOUS PROVISIONS Outstanding capital stock Reportorial requirements of Corporations Visitorial Power and Confidential Nature of Examination Results Powers, Functions, and Jurisdiction of the Commission Development and Implementation of Electronic Filing and Monitoring System Arbitration for Corporations Multiple choice questions COOPERATIVE CHAPTER 1 GENERAL CONCEPTS AND PRINCIPLES Branch Office Principal/Main Office Net Worth Manual of Operation Certificate of Authority Inspection Report Voluntary closure of cooperative branch Satellite Office Letter of Authority Services/activities allowed in a cooperative satellite office Voluntary closure of cooperative satellite office What is 2 cooperative? Cooperative principles Definition of Terms Multiple choice questions CHAPTER 2 ORGANIZATION AND REGISTRATION Purposes of cooperatives Objectives and Goals of a Cooperative Cooperative Powers and Capacities Organizing a primary cooperative 512 512 513 513 $19 519 520 520 520 521 522 525 525 526 S27 528 531 531 534 536 536 537 537 538 538 539 540 540 540 540 542 542 543 544 547 553 553 553 554 557Multipurpose cooperative Term Articles of Cooperation Signage specification Bylaws Registration Certificate of registration Revised Guidelines governing the registration of cooperatives Registration of primary cooperatives Share Share capital Cooperative name and prohibition Bond of membership Registration of secondary and tertiary cooperatives Amendment of Articles of Cooperation and Bylaws Division of cooperatives Merger and consolidation of cooperatives ‘Types and categories of cooperatives Revised Guidelines in the registration of labor service and workers cooperatives Guidelines in the registration of service cooperative organized among professionals to practice a particular profession Workers cooperative Agriculture Cooperative Small-scale mining cooperative Job Contracting/sub-contracting workers service cooperative Prohibition against labor-only contracting Categories of cooperative Revised Guidelines for the registration of primary cooperatives What is federation of cooperatives? Functions of a federation of cooperatives What is cooperative union? Revised Guidelines in the registration of cooperative federation and union Multiple choice questions CHAPTER 3 MEMBERSHIP Kinds of membership Regular member Associate member Laboratory cooperative Guardian cooperative Affiliation Government officers and employees Multiple choice questions 558 558 558 560 560 562 563 563 564 565 565 565 567 S68 571 572 575 582 582 585 592 595 597 599 601 602 602 606 606 607 608 612 622 622 622 622 622 622 623 626 630CHAPTER 4 ADMINISTRATION Composition of the general assembly Exchusive Powers of the general assembly Meetings Quorum Voting system Composition and term ofthe Board of Directors Powers of the Board of Directors Meeting of the Board and Quorum requirement Vacancy in the Board of Directors Officers of the cooperative Committees of cooperatives Standard training curricula for cooperative officers Required training for cooperative officers Certificate of Compliance Liability of Directors, Officers and Committee Members Compensation Dealings of Directors, Officers, or Committee Members Disloyalty of a Director legal use of confidential information Removal Multiple choice questions CHAPTER 5 RESPONSIBILITIES, RIGHTS AND PRIVILEGES OF COOPERATIVE Signage specification Books to be kept open Inspection Registry of members Reports Bonding of accountable officers Preference of claims Instrument for salary or wage deduction Primary lien Tax treatment of cooperative Privileges of cooperatives Operating Cooperative Multiple choice questions CHAPTER 6 INSOLVENCY OF COOPERATIVES Multiple choice question CHAPTER 7 DISSOLUTION OF COOPERATIVES Modes of Dissolution Voluntary dissolution where no creditors are affected Voluntary dissolution where creditors are affected Involuntary Dissolution of a cooperative 633 633 633 634 635 636 636 637 639 640 640 642 646 650 652 652 653 655, 656 657 657 659 665 665 665 666 669 670 674 675, 676 677 677 679 682 687 690 691 692 692 693 694 697Dissolution by Order of the Authority Dissolution by failure to organize and operate Liquidation of a Cooperative Multiple choice questions CHAPTER 8 CAPITAL, PROPERTY, AND FUNDS Capital Capital sources Limitation on share capital holdings Assignment of share capital contribution or interest Capital build-up Shares Investment of capital Revolving capital Multiple choice question CHAPTER 9 AUDIT, INQUIRY AND MEMBERS’ RIGHT TO EXAMINE Annual audit Financial audit Social Audit Key areas in social performance assessment Governance and management audit report for cooperatives Governance and management audit working paper Audit Report Safety of records Multiple choice questions CHAPTER 10 ALLOCATION AND DISTRIBUTION OF NET SURPLUS Net Surplus Order of Distribution Multiple choice questions CHAPTER 11 AGRARIAN REFORM COOPERATIVES Definition and purpose Cooperative estate Preferential right Privileges Organization and registration Multiple choice questions CHAPTER 12 COOPERATIVE BANKS Supervision Organization, Membership, bank Administration of cooperative banks and Establishment of a cooperative 698 698 700 714 717 717 717 718 718 719 719 719 720 721 723 723 723 726 727 728 729 730 730 731 733 733 733 737 738 738 739 739 740 741 742 744 744 744Quorum and voting rights Powers, Functions, and Allied undertakings of cooperative banks Capital requirements of cooperative banks Privileges and incentives of cooperative banks Assistance to cooperative banks Applicability of banking laws and regulations Multiple choice questions CHAPTER 13 INSURANCE COOPERATIVE Types of insurance provided Applicability of Insurance Laws Multiple choice question CHAPTER 14 PUBLIC SERVICE COOPERATIVES Definition and coverage Regulation of public service cooperatives Engagement in allied business by transportation service cooperatives Renewal of franchise and vehicle registration Multiple choice question CHAPTER 15 CREDIT COOPERATIVES Definition and Objectives Conversion of credit cooperatives to financial service cooperatives Multiple choice questions CHAPTER 16 FINANCIAL SERVICE COOPERATIVES Definition and Functions of Financial Service Cooperatives Membership and affiliation Regulation and Supervision Financial Service Cooperative Federations Deputized federation Multiple choice questions CHAPTER 17 ELECTRIC COOPERATIVE Registration of electric cooperatives Voting requirement for registration Documents to be submitted for registration with the Authority Effects of registration with the Authority Share capital in Electric Cooperatives Cancellation of registration with the Authority Multiple choice question CHAPTER 18 MISCELLANEOUS PROVISIONS Compliance with other laws Register of Cooperatives 745 746 746 747 748 748 749 751 751 751 752 753 733 753 754 754 787 758 758 759 760 761 761 761 762 763 764 768 770 770 770 778 779 780 781 783 784 784 784Settlement of disputes, conciliation, and mediation proceedings Multiple choice questions CHAPTER 19 FINAL PROVISIONS Multiple choice question PRELIMINARY EXAMINATION MIDTERM EXAMINATION FINAL EXAMINATION 784 806 807 812 813 834 854PARTNERSHIP CHAPTER 1 GENERAL PROVISIONS Art. 1767. By the contract of partnership, 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. Two or more persons may also form a partnership for the exercise of a profession. (1665a) A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them.! Meaning of Profession Profession is “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.” Essential requisites of a contract of partnership 1, There must be a valid contract; 2. There must be a contribution of money, property, or industry to a common fund; 3. The partnership must be organized for gain or profit; and 4. The partnership should have a lawful object or purpose, and must be established for the common benefit or interest of the partners. What are the two tests to determine the exi istence of a partnership? . First test Determine whether or not there is an agreement to contribute money, property or industry to a common fund. 2. Second test Determine whether or not there is an intent of the contracting Parties to divide the profits among themselves. PARTNERSHIP - A JURIDICAL PERSON To be considered a juridical personality, a partnership must fulfill ‘equisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part these r ana eeaeere tae ‘Heirs of Jose Lim vs. Juliet Villa Lim, G.R No, 172690, March 3, 2010, “the matter ofthe Petition for Authority to Continue Use othe Firm Name Sycip, etal. july 30, 1979 1CHAPTER 1 - GENERAL PROVISIONS of the partners to divide the profits among themselves. It may be constituted in any form; a public instruments necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership.3 Characteristics of a contract of partnership 1. Consensual It is a contract that is perfected by mere consent because all of the partners had a meeting of minds to enter into a contract of partnership. 2. Commutative ‘The contribution of each partner, whether money, property or industry, is considered as the equivalent of the contribution of the other partners. 3. Principal It is a contract that does not depend on other contracts for its existence. 4. Bilateral Itis a contract entered into by two or more persons. 5. Onerous Each partner must contribute money, property, or industry. Of course, a partner can contribute one, some or all of these. 6. Nominate It is a contract which has a name in law. 7. Preparatory It is a contract in preparation for another contract or contracts. Example: Aand B entered intoa contract of partnership for the purpose of selling furniture. In this case, A and B initially entered into a contract of partnership in preparation for contract of sale. Money ‘The medium of exchange authorized or adopted by a government as part of its currency.4 Property Any external thing over which the rights of os: enjoyment are exercised.s . eee ea 2 Marjorie Tocao and Wiliam. Blo vs.CAand Nene g seep. 1158, Black’s Law Dictionary, Tenth Edition. ER N12 08, Oct, ate. seep. 1410, Black's aw Dicsonary, Tenth Edition.CHAPTER 1 - GENERAL PROVISIONS Industry Diligence in the performance of a task. A particular form or branch of productive labor. Note: The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. Problem: Sisters X and Y, entered into a "Joint Venture Agreement (JVA)" with Z for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of Z, who then had it registered in his name. By mortgaging the property, Z obtained from Q Bank a loan of P400,000 which, under the JVA, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project was not realized, and the land was subsequently foreclosed by Q bank. Is there partnership? Answer: A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides: ART. 1767. By the contract of bind themselves to contribute money, ‘fund, with the intention of dividing the partnership two or more persons Property, or industry to a common profits among themselves. Under the above-quoted Agreement, X and Y would contribute Property to the partnership in the form of land which was to be developed into a subdivision; while Z would give, in addition to his industry, the amount needed for general expenses and other Costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intent: - cis. It should be stressed that the parties implemented the contract. Thus, X and Y transferred the title to the land to facilitate its use in the name of Z. On the other hand, Z caused the subject land to be mortgaged, the proceeds of which were used for the survey and the ca ee ‘seep. 1410, Black's Law Dictionary, Tenth Edition,CHAPTER 1 - GENERAL PROVISIONS subdivision of the land. Z developed the roads, the curbs, and the gutters of the subdivision Z's actions clearly belie X and Y's contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, g partner may contribute not only money or property, butalsa industry? Partnership vs. Joint Venture A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses between them. A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, ie., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint venture is generally governed by the law on partnership. DOCTRINE OF DELECTUS PERSONAE is the very foundation and essence of partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages? An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine ofdelectus personaeallows the partners to have the power, although not necessarily the right to dissolve the partnership. ‘Among partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.1° * see Antonia Torres and Emeteria Baring vs. CA and Manuel Torres, G R. No. 134559, December 9, 1999. ‘Aurelio K Litonjua Jr. vs Eduardo K Litonjua, Sr. etal, GR. Nos. 166299-300, December 13, 2005, + Marjorie Tacao and Wiliam T. Belo vs. CA and Nenita A. Anay, GR. No. 127405, October 4, 2000, Gregorio F. Ortega, etal vs. CA, GR No, 109248, July 3, 1995, 4CHAPTER 1 - GENERAL PROVISIONS Delectus personarum (“choice of persons”) or Delectus personae (“Choice of the person”) The rule that when personal relations are important, a person cannot be compelled to associate with another person; specifically, the principle that one has the right to select the person or persons with one whom one might form a partnership.1! Note: Although a partnership is based on delectus personae or mutual agency, whereby any partner can generally represent the partnership in its business affairs, it il it i It must be remembered that a partnership is a juridical entity that has a distinct and separate personality from the persons composing it. In Aguila v. Court of Appeals, the complainant had a cause of action against the partnership. Nevertheless, it was the partners themselves that were impleaded in the complaint. The Court dismissed the complaint and held that. i itself The Court added that the partners could not be held liable for the obligations of the partnership unless it was shown that the legal fiction of a different juridical personality was being used for fraudulent, unfair, or illegal purposes.‘ Note: In the spirit of fair play, itis a better rule that q partner must first partnership, A partner may raise several defenses during the trial to avoid or mitigate his obligation to the partnership liability. Necessarily, before he could present evidence during the trial, he must first be impleaded and informed of the case against him. It would be the height of injustice to rob an innocent partner of his hard-earned personal belongings without giving him an opportunity to be heard.13 Partnership at will A partnership that i is a partnership at will. The birth and life of a Partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership.1+ a 4% see p, $18, Black's Law Dictionary, Tenth Edition, Michael C.Guy vs, Atty. Glenn C. Gacott, CR No, 206147, January 13, 2016. ablichael G Guy vs. Atty. Glenn C, Gacott, GR. No. 206147, January 13, 2016 ** Gregorio F. Ortega, etal, vs. CA, G.R. No, 109248, July 3, 1995 SCHAPTER 1 - GENERAL PROVISIONS Problem: ; A contract of partnership of a law firm has the following provisions, among others: 1. "The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm, and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so." and 2, "The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners." Is the purpose of the partnership, as stated in its Articles of partnership, the sole determinant if it is a partnership for a particular undertaking? Answer: The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking, There would, therefore, be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a i 15 Problem: On behalf of "Q Corp,," X and Y entered into a contract, for the purchase of fishing nets of various sizes from G, Inc. They claimed that they were engaged in a business venture with Z, who, however, was not a signatory to the agreement. The total price of the nets amounted to 532,045. Four Hundred pieces of floats worth P68,000 were also sold to the Corporation. The buyers, however, failed to pay for the fishing nets and the floats; hence, G, Inc. filed a collection suit against X, Y and Z. The suit was brought against the three in their capacities as general partners, on the allegation that "Q Corp." was a nonexistent corporation as shown by @ Certification from the Securities and Exchange Commission. Instead of answering the Complaint, X filed a Manifestation admitting his liability. Y and Z filed their Answer. $5 see Gregorio F. Ortega, etal. vs. CA, GR. No, 109248, uly 3, 1995. 6CHAPTER 1 - GENERAL PROVISIONS The trial court ordered the sale of the fishing nets at a public auction. G, Inc. won the bidding and deposited with the said court the sales proceeds of P900,000. Are the acts of X, Y and Z deemed to have entered into a partnership? Answer: It is clear that X, Y and Z had decided to engage in a fishing business, which they started by buying boats. In their Compromise Agreement, X, Y and Z subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term “common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they Moreover, itis clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Z to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded.16 Best Evidence of The Existence of a Partnership In Idos v. Court of Appeals, the Supreme Court said: The best evidence of the existence of the partnership, which was not Yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court Since the ter) the petitioner and private complainant remained as co-partners. x x x1? Note: A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even ifit is shown that they have not contributed any capital of their own toa "common find." Their i itor i ssari Being Partner, they are all liable for debts incurred by or on behalf of the Partnership. The liability for a contract entered into on behalf of an SS {7 {&t Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc, G.R. No, 136448, November 3, 1999. "Velted in Marjorie Tocao and William. Belo vs. CAand Nenita A. Anay, G.R No. 127405, October 4, 2000, 7CHAPTER 1 - GENERAL PROVISIONS unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.® Art. 1768. The partnership has a judicial personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph. (n) Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that of each of the partners.” The partners cannat be held liable for the obligations of the partnership unless jt is shown that the legal fiction of a different juridical personality is being useq for fraudulent, unfair, or illegal purposes. Hence, it is the partnership, not its gents, which should be impleaded in any litigation involving tered in its name.!? offic property Article 1772 of the New Civil Code (NCC) states: Art. 172, Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with the requirements of the preceding paragraph shail not affect the liability of the partnership and the members thereof to third persons. ARTIFICIAL PERSON / JURIDICAL PERSON An entity, such as a corporation, created by law and given certain legal rights and duties of a human being; a being, real or imaginary, who for the purpose of legal reasoning is treated more or less as a human being,20 Example: ‘A, B, and C entered into a contract of partnership named ABC Partnership. In here, there are four persons, that is, three natural persons (A,B, and C) and one juridical person (ABC Partnership). ‘Thus, ABC Partnership can: 1. acquire and possess real and personal property; 2. incur obligations; and 3. bring civil or criminal actions? 38 Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc, GR. No, 136448, November 3, 1999, 1 Alfredo N. Aguila Jr vs. Ch and Feliciad S, a, De Abrogar, .R. Ne. 127347, November doseep. 1325, lacks Law Dicionary,Tenthediton, eras 1999. 21 Art 46, New Civil Code (NCC)CHAPTER 1 - GENERAL PROVISIONS Problem: Xintroduced Z to Y, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. X volunteered to finance the joint venture and assigned to Z the job of marketing the product considering her experience and established relationship with W Co., a manufacturer of kitchen wares in the U.S.A. Under the joint venture, X acted as capitalist, Y as president and general manager, and 7 as vice-president for sales.Z organized the administrative staff and sales force while Y hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to different branches, The parties agreed that X’s name should not appear in any documents relating to their transactions with W Company. Instead, they agreed to use Z's name in securing distributorship of cookware from that company. The parties agreed further that Z would be entitled to: (1) 10% of the annual net profits of the business; (2) commission of 6% of the overall weekly production; (3) 30% of the sales she would make; and (4) 2% for her demonstration services. The agreement was not reduced to writing on the strength of X assurances that he was sincere, dependable, and honest when it came to financial commitments. Z having secured the distributorship of cookware products from W Co. and organized the administrative staff and the sales force, the cookware business took off successfully. They operated under the name of ¥ Enterprise, a sole proprietorship registered in Y's name. X made good his monetary commitments to Z. Subsequently, Z learned that Y had signed a letter addressed to the Cubao sales office to the effect that she was no longer the vice- president of Y Enterprise. The following day, she received a note that Y had barred her from holding office and conducting demonstrations in both Makati and Cubao offices. Consequently, Z filed a complaint against Xand Y. Does partnership exist? Answer: ‘The fact that there appears to be no record in the Securities and Exchange Commission of a public instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph.CHAPTER 1 - GENERAL PROVISIONS X and Y admitted that Z had the expertise to engage in the business of distributorship of cookware. Z contributed such expertise 3 the partnership and hence, under the law, she was the industrial 9, managing partner. It was through her reputation with W Co. that the partnership was able to open the business of distributorship of tha company’s cookware products; it was through the same efforts that the business was propelled to financial success, ‘The business venture operated under Y Enterprise did not resyj, » emplover-employee relationship between X and Y and Z. While itj; the receipt of a percentage of net profits constitutes only prima at the recipient is a partner in the business, the evidency case at bar controverts an employer-employee relationship es, In the first place, Z had a voice in the management of the cookware distributorship, including selection of vid constitute the administrative staff and the sales force admissions militate against an employer-employee She admitted that Z received only commissions ang and representation allowances and nota fixed salary. edly, Y unilaterally excluded Z from the partnership ty self and/or for X financial gains resulting from Z's efforts to ness venture a success. Her instruction to the marketing not to allow Z to hold office in both the Makati and Cubao sales retely spoke of her perception that Z was no longer necessary ‘ness operation, and resulted in a falling out between the tw, a mere falling out or misunderstanding between partners does not convert the partnership into a sham organization. The partnership exists until dissolved under the law. Since the partnership created by X ang Y and Z has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the wil ofa partner.22 facie evidence between the 0 busi Problem: X filed a complaint against V and Y, daughter and wife, respectively of the deceased Z, for Winding Up of Partnership Affairs and Accounting X alleged that he verbally entered into a partnership with Z in the distribution of LPG in Manila. For business convenience, X and Z allegedly agreed to register the business name of their partnership, Shellite, under the name of Z asa sole proprietorship. The partnership allegedly had Z as manager. As compensation, Z would receive a manager's fee of 10% of the gross profit. 2 sce Marone Toao and Wiliam. Belov Chand Nenita A. Anay, GR. No. 127406, October 4, 2000, 10CHAPTER 1 - GENERAL PROVISIONS Allegedly, from the time that Shellite opened for business, its business operation was profitable. Upon 2's death, his surviving wife, Y and particularly his daughter, V, took over the operations and management of Shellite without X's consent. Despite X's repeated demands upon Y and V for accounting and winding up of the partnership, Y and V failed to comply. Did X and Z enter into a contract of partnership? Answer: The action for accounting filed by X 3 years after Z's death was well within the prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes in 6 years while the right to demand an accounting for a partner's interest as against the person continuing the business accrues at the date of dissolution, in the absence of any contrary agreement. Considering that the death of a partner results in the dissolution of the partnership, in this case, it was Z's death that X as the surviving partner had the right to an account of his interest as against V and Y. In a desperate bid to cast doubt on the validity of the oral partnership between X and Z, Y and V maintain that said partnership that had initial capital of P200,000 should have been registered with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil Code. True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000 or more must register with the SEC, however, this registration requirement is not mandatory. Article rs The failure to register the contract of partnership does not invalidate the same as among the partners, so long as the contract has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can be assumed that the members themselves knew of the contents of their contract. In the case at bar, non-compliance with this directory provision of the law will not invalidate the partnership considering that the totality of the evidence proves that X and Z indeed forged the partnership in question.28 Art. 1769. In determining whether a partnership exists, these rules shall apply: (4) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; (2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share any profits made by the use of the property; Se * see Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto T. Chua, G.R. No. 143340, August 15,2001 44,CHAPTER 1 - GENERAL PROVISIONS (3) The sharing of gross returns does not of itself establish partnership, whether or not the persons sharing them have a joint or common right or interestin any property from which the returns are derived; (4) The receipt by a person ofa share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) Asa debt by installments or otherwise; (b) As wages ofan employee or rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (c) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (n) Rule 1; Persons who are not partners as to each other are not partners as to third persons Example: Xand ¥ are not partners as to each other. Thus, as to Z, a third person, it follows that they are not also partners. The exception is that ifX misrepresents to Z that they are partners with ¥ and the latter consented or ¥ did not object; then, as to Z, Xand ¥ will be considered as partners by operation of law. This is the concept of partnership by estoppel. Partnership by Estoppel Where a partnership not duly organized has been recognized as such in its dealings with certain persons, itshall be considered as “partnership by estoppel” and the persons dealing with it are estopped from denying its partnership existence Rule 2: Co-ownership or co-possession does not of itself establish a partnership Example: Xand ¥ are recipients of a gift consisting of an undivided parcel of ond from Z. In this case, X and Y are co-owners and not partners. see Paul MacDonal etal, ve The Nationa City Bank of New York GR. No, L-7991, May 21, 1956, 12CHAPTER 1 - GENERAL PROVISIONS Partnership vs. Co-ownership Partnership — Co-ownership Cre ‘eation Created by contract Created by contract and law Juridical Personality It has legal or juridical | It has no juridical personality. personality. Thus it can sue | Thus it cannot sue or be sued. and be sued. Purpose For profit Common enjoyment of a thing or right. Itis not necessarily for profit. Profit Itmay be stipulated upon. Profits must always depend on the proportionate shares, Any stipulation to the contrary is VOID. Dissolution It is dissolved by death or incapacity of a partner. It is not dissolved by the death or incapacity of co-owner. Form It may appear in any form. However, when real property is contributed, a _ public instrument is required. No public instrument is needed even if real property is the object of co-ownership. Rule 3: The sharing of gross returns does not of itself establish a partnership Note: There is a disputable presumpi what is tion of establishing a partnership if being shared by two or more persons are net profit. However, if what is being shared by two or more persons are gross returns or gross profit, then there is no presumption of establishing a partnership. Example: Ina merchandising business, the basi Gross Sales Less: Cost of Sales Gross Profit Less: Expenses Net Profit or Net Loss Note: ic formula for net profit is: Px Gx) xx fod sacar (xx) It can be observed from the illustration that even if there isa Positive amount or figure for Gross Profit, you cannot still ascertain if 13CHAPTER 1 - GENERAL PROVISIONS it will arrive at Net Profit because it may still turn out to be Net 1 as the expenses are controlling factor. os For example, ifthe Gross Profit is P50,000 and the Expenses jg 20,000, then there is a Net Profit of P30,000. However, if the Gross Profit remains at P50,000 and the Expenses amounts to P60,000 then there is a Net Loss of P10,000. Hence, the sharing of gross returns does not of itself establish a partnership. Rule 4; The receipt by a person ofa share of the profits of a business prima facie evidence that he is a partner in the business Prima facie Sufficient to establish a fact or raise a presumption unless disprove, or rebutted; based on what seems to be true on first examination, eve, though it may later be proved to be untrue.25 Example YX received from Y PS0,000 as his share in the net profit of their business amounting to P100,000. In this case, there is a disputable presumption that X and Y are partners in a contract of partnership. Note: From the above, it appears that the fact that those who agree to {form a co-ownership share or do not share any profits made by the use of the property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the others. It is evident that an isolated transaction whereby two or mort persons contribute funds to buy certain real estate for profit in the absence, of other circumstances showing a contrary intention cannot be considereda partnership. Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to theif contribution, but who severally retain the title to their respective 2 seep. 1382, Black's Law Dictionary Tenth Edition, 4CHAPTER 1 - GENERAL PROVISIONS contribution, are not thereby rendered partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself which the proceeds derived. A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to share the profits and losses on the sale of land create a partnership; the parties are only tenants in common. Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common, and to divide the profits of disposing it, the brother and the other not being entitled to share in plaintiffs’ commission, no partnership existed as between the three parties, whatever their relation may have been as to third parties. In order to constitute a partnership inter se, there must be: (a) An intent to form the same; (b) generally participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to make contract, manage the business, and dispose of the whole property. xxx. though they may use it for the purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and use of such property and the application of the proceeds therefrom.26 Exceptions to Rule 4: a. Asa debt by installments or otherwise Example: A partnership named ABC Co. earned a net profit of P100,000 for itsfirst year of operation. X isa creditor of ABC Co. in the amount of P5000. Later, ABC Co. paid the PS,000 to X and this amount was taken from its net Profit for the year. Is X a partner in the ABC Co.? No, even though X received P5,000 which came from the net profit of ABC Co, he is not a Partner because this is in payment of its debt to X. b. As wages of an employee or rent to a landlord Example: , Yand Z formed XYZ pai rtnership. Vis the accountant of the Partnership. In the contract of employment between XYZ partnership and V, it was stipulated that the latter will receive 15% of the net profit *6Federico jarani, Ir. vs. Antonieta Jarantilla, GR No. 154486, December 1,2010. 15CHAPTER 1 - GENERAL PROVISIONS of the partnership. Is Va partner? No, V is an employee even though his salary will come from the net profit of the partnership. Their agreement is a contract of employment. c. As an annuity to a widow or representative of a deceased partne, Example: H, L and } formed HJ partnership. Subsequently, H died survived by his widow, W. It was agreed between |, J, and W that W will receive 5% of the annual net income of the partnership pending liquidation. W will not become a partner. d. As an interest on a loan Example: X, ¥, and Z formed XYZ partnership. One of its creditors is W, The credit is P100,000 with a stipulation as to interest of 6% per annum It was agreed between XYZ partnership and W that the payment of interest will come from the annual net profit of XYZ partnership. W isnot a partner in XYZ partnership. e. As the consideration for the sale of a goodwill of a business or other property Example: X, ¥, and Z formed XYZ partnership. Qsold his only parcel of land to XYZ partnership. In their contract of sale, it was agreed that the payment will come from the annual profit of XYZ partnership. Qis not a partner in XYZ partnership, Problem: The heirs of the late X, namely: X's widow Y; and theit children A, and B filed a Complaint against W, widow of the late H, who was the eldest son of X and Y. Y, A and B alleged that sometime in 1980, X, together with his friends U and V, formed a partnership to engage in the trucking business, Initially, with a contribution of P50,000 each, they purchased a truck to be used in the hauling and transport of lumber of the sawmill. X managed the operations of this trucking business until his death on August 15, 1981. Thereafter, X's heirs, including # and partners agreed to continue the business under the managemet! of H. On May 18, 1995, H died, leaving W as his sole surviving heir. y, A and B claimed that W took over the administration of the 16CHAPTER 1 - GENERAL PROVISIONS aforementioned properties, which belonged to the estate of X, without their consent and approval. W claimed that H was himself a partner of U and V. W also claimed that per testimony of Y, sometime in 1980, X gave H P50,000 as the latter's capital in an informal partnership with U and V. When H and W got married in 1981, the partnership only had one truck; but through the efforts of H, the business flourished. W also alleged that when X died in 1981, he left no known assets, and the partnership with U and V ceased upon his demise. W also stressed that X left no properties that H could have held in trust. Who is the partner in the trucking business, X or H? Answer: Applying Article 1769 of the Civil Code to the facts of this case, the following circumstances tend to prove that H was himself : 1) Y testified that X gave H PS0,000, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership;(2) H ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of Y, Aand B: (3) all of the properties, particularly the nine trucks of the partnership, were registered in the name of H; (4) U testified that H did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business; and (5) none of Y, A and B, as heirs of X, the alleged partner, demanded periodic accounting from H during his lifetime. A demand for periodic accounting is evidence of a partnership.27 Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a) Lawful object or purpose The object or purpose of a partnership must be within the commerce of man, not impossible, and it must not be contrary to law, morals, good customs, public order or public policy. Examples of Unlawful Partnership 1. Apartnership formed for gambling purposes. 2. A partnership formed to furnish houses for prostitution purposes. © see Heirs of Jose Lim vs, Juliet Villa Lim, G.R. No, 172690, March 3, 2010, 17CHAPTER 1 - GENERAL PROVISIONS 3. partnership formed to create illegal monopolies or combinations in restraint of trade, Effects of an unlawful partnership 1. The contract is void from the very beginning; Note: A void contract is as if it never existed from the very beginning. Thus, it has no legal personality. 2. The profits shall be confiscated in favor of the government; 3. The instruments or tools and proceeds of the crime shall be forfeiteg in favor of the government?3; and 4, The contributions of the partners shall not be confiscated unless they fall under no. 3. Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (1667a) FORM OF CONTRACT OF PARTNERSHIP General Rule: No form is required. Thus, the contract may be oral or in writing. Exception: If real properties or real rights in real properties are contributed regardless of the value. A public instrument is needed; otherwise, the contract of partnership is void. REAL RIGHTS A right that is connected with a thing rather than a person, Red rights include ownership, use, habitation, usufruct, predial servitude, pledge and real mortgage. PUBLIC INSTRUMENT A document prepared by a notary public in the presence of the parties who sign it before witnesses.2? 2 Ar. 1409, NCC Arc 45, Revised Penal Code 2 see p. 1519, Black’s Law Dictionary, Tenth Edition 3 Seep. 1427, Blacks Law Dictionary, Tenth EditionCHAPTER 1 - GENERAL PROVISIONS Example: A and B agreed to form a partnership where A promised to contribute his only parcel of land while B undertook to contribute P100,000. In this case since A will contribute his only parcel of land, a real property, their contract must be executed in a public instrument. Otherwise, it is void. What ifA will contribute his only car while B will contribute P100,000? The contract may be oral or in writing whether private or public instrument and the contract of partnership is valid. A partnership may be constituted in any form Problem: X, Y, and Z, are brother and sisters, who are co-owners of certain lots which were then being leased to SHELL Co. They agreed to open and Operate a gas station thereat to be known as XYZ Shell Service Station with an initial investment of P950,000 to be taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint affidavit was executed by them which was prepared by Atty. W. Yand Z agreed to help their brother X by allowing him to operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical purposes and in order not to run counter to the company's policy of appointing only one dealer, it was agreed that X would apply for the dealership. ¥ helped in managing the business. For some time, X submitted financial statements regarding the operation of the business to Y and Z, but thereafter X failed to render subsequent accounting, Hence, a demand was made on X to render an accounting of the profits. Thereafter, Y and Z filed a complaint. Does a partnership exist between members of the same family arising from their joint ownership of certain properties? Answer: Let it be noted that it is against the policy of SHELL that the business of the dealerisa partnership. It should be a sole proprietorship. Evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by the testimonies of Y and Atty. W. X submitted to Y and Z periodic accounting of the business. X gave a written authority to Y, his sister, to examine and audit the books of their "common business”. Y assisted in the running of the business. ii Partnership when they bound themselves to contribute money to a common fund with the intention of dividing the profits among themselves. The sole dealership by X and the issuance of all government permits and licenses in the name of X was in compliance with the afore- 19CHAPTER 1 - GENERAL PROVISIONS stated policy of SHELL and the unde only one dealer of the SHELL products.*? nding of the parties of having Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear ina public instrument, which must be recorded in the Office of the Securities anq Exchange Commission. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (1) Partnership havinga capital of P3,000 or more (personal property only) ‘The contract of partnership must appear in a public instrument and by pecorded in the office of the SEC. Take note that non-compliance with the requirement of execution in a public instrument will not make the contract void, Hence, itis still valid. Partnership having a capital of below P3,000 (personal property only) No form is required. Thus, it may be verbal. Purpose of registration The registration is to set “a condition for the issuance of licenses tv engage in business or trade. In this way, the tax liabilities of big partnerships ot be evaded, and the public can also determine more accurately thei ‘membership and capital before dealing with them.”=3 Problem: X filed a complaint against V and Y, daughter and wife respectively of the deceased Z, for Winding Up of Partnership Affairs ant Accounting. X alleged that in 1977, he verbally entered into a partnershit with Z in the distribution of LPG in Manila. For business convenience, and Z allegedly agreed to register the business name of their partnership Shellite, under the name of Z as a sole proprietorship. The partnershit allegedly had Z as manager. As compensation, Z would receive i manager's fee of 10% of the gross profit. Allegedly, from the time that Shellite opened for business on [ul 8, 1977, its business operation was profitable. Upon Z's death in the later part of 1989, his surviving wife, Y a particularly his daughter, V, took over the operations and management Shellite without X's consent. Despite X's repeated demands upon Y and! 2 gee BligioEstansia, rvs CA, etal, CR No.1-49962, Apri 27,1988, Dean Capistrano IV Civ Code of the Philippines, p. 260, 20CHAPTER 1 - GENERAL PROVISIONS for accounting and winding up of the partnership, Y and V failed to comply. Did X and Y form a partnership? Answer: In a desperate bid to cast doubt on the validity of the oral partnership between X and Z, Y and V maintain that said partnership had initial capital of 200,000 which should have been registered with the SEC since registration is mandated by the Civil Code, True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000 or more must register with the SEC, however, this registration requirement ismot mandatory, Article 1768 of the Civil Code explicitly provides that the partnership retains its juridical personality even if it fails to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so long as the contract has the essential requisites, because the main purpose of registration is to give notice to ; . ; elves kne of the contents of their contract. In the case at bar, non-compliance with this directory provision of the law will not invalidate the partnership considering that i a4 Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a) Note: An inventory is still required if aside from real property, personal property is contributed. However, the inventory need not include the personal property. Apartnership may be constituted in any form, save when immovable property or real rights are contributed thereto or when the partnership has a capital of at least P3,000, in which case a public instrument shall be necessary. And an inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to it.35 Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long as real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners, contributed immovables. In context, the more important consideration is that i i 24 see Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto T, Chua, G.R. No. 143340, August 15, 2001, > Aurelio K.Litonjua, Jr. vs. Eduardo K. Litonjua, Sr. etal, G.R. Nos. 166299-300, December 13, 2005, 21CHAPTER 1 - GENERAL PROVISIONS of 36 attached to the publicinstrument else there is legally no partnership zeae mn eal WHAT IS THE INTENTION OF ARTICLE 1773? Article 1773 was intended primarily to protect third persons. Thus eminent Arturo M. Tolentino states that under the aforecited provision wr is a complement of Article 1771, the execution of a public instrument wou be useless if there is no inventory of the property contributed, becaus, without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice thiry persons. This will result in fraud to those who contract with the partnership in the belief in the efficacy of the guaranty in which the immovables may consist. Thus, i is made The case at bar does not involve third parties who may tt prejudiced.” Whig, Art. 1774, 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. (n) The reason for the above-stated provision is that a partnership hasa judicial personality separate and distinct from that of each of the partners, hence, immovable property to be acquired must be in the name of the partnership and if conveyed must also be in the partnership name. Example: A,B, and C formed ABC partnership. Thus, ABC partnership will bea donee or a buyer of a specific real property then it shall be registered in its name and not in the name of one or some or all of the partners. Consequently, if this will be conveyed, like sale or donation, the seller or donor must only be in the name of the partnership. Art 1775, Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical = Personality, ané shall be governed by the provisions relating to co-ownersht, (1669) 3 Wo Le tuardo K Luonjua Sr etal, GR Nos. 166299-300, De December 9, 1999, 22CHAPTER 1 - GENERAL PROVISIONS Partnership vs. Association fe Partnership Association Juridical Personality Ithas juridical personality [thas no juridical personality. Purpose Itis for profit. “Tt may not be for profit. Contribution of Members There is a contribution of money, | There is no contribution of capital property, or industry or a / although fees are usually collected combination of these. from the members to maintain the organization. Liability The partnership is the one liable. | Members are individually liable for the debts of the association. The associations or societies here cannot sue because it has no legal personality. However, the fact that it has no legal personality as a partnership cannot be invoked by the “partners” for the purpose of evading compliance with obligations contracted by them, because they who caused the nullity of a contract are prohibited from availing of its benefits.3¢ Art. 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) CLASSIFICATION OF PARTNERSHIP 1. According to object a, Universal partnership Two Kinds (1) Universal partnership of all present property 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, (2) Universal partnership of all profits It comprises all that the partners may acquire by their industry or work during the existence of the partnership. 11 Manresa 289-290, 23CHAPTER 1 - GENERAL PROVISIONS b. Particular partnership A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation 2, According to liability a, General partnership It is one where all the partners are general partners, Aj, general partners here are liable up to the extent of their separate properties after the assets of the partnership have been exhausted, b. Limited partnership Itis one where there is at least one general partner and one limited partner. A general partner is liable beyond his contribution while a limited partner is liable only to the extent of his contribution. Note: Limited partnership will be discussed in chapter 4. 3. According to duration a. Partnership at will It is one where there is no fixed term or it is not formed for a particular undertaking, or it is one for a fixed term or particular undertaking which is continued after the termination of such term or particular undertaking without any express agreement. Example: ‘A,B, and C formed a partnership where A contributed cash of P500,000. For B, computers valued at P200,000 and C, his only truck valued at P300,000. In here, there is no fixed term agreed upon nor itis for a particular undertaking so that it can be dissolved anytime. b. Partnership with a fixed term It is one where the life or period of existence of the partnership has been agreed upon by the partners. Example: A,B, and C formed a partnership where A contributed cash of P500,000. For B, computers valued at P200,000 and C, his only truck valued at P300,000. The partners agreed that the life of the partnership will be 15 years. In here, the partnership, as a rule, can be dissolved after the lapse of 15 years. 24CHAPTER 1 - GENERAL PROVISIONS ¢. Partnership for a particular undertaking It is one where it will exist until the purpose is accomplished. Example: A,B, and C formed a partnership for the manufacture of 300 tables fora particular school where A contributed cash of P150,000, B contributed lumber valued at P200,000 and C, the use of his truck. In here, the partnership will be dissolved after the completion of the 300 tables. 4. According to representation to others a, Ordinary partnership It is one where 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. Example: A, B, and C established a partnership where A contributed cash of P50,000, B contributed a specific car worth P200,000 and C, his industry. b, Partnership by estoppel It is one where persons, by words spoken or written or by conduct, represent themselves, or consent to another representing them to anyone, as partners in an existing partnership or with one or more persons not actual partners. Example: A,B, and C are partners in ABC partnership. Subsequently, X misrepresented to ¥ that he is a partner in ABC partnership. When ¥ inquired from A, B and C if X is one of their partner, A, B, and C answered in the affirmative. In here A, B, C and X are partners by estoppel and there is also a partnership by estoppel so that if Y suffered damages because of that misrepresentation, the net assets of ABC partnership is liable together with the separate property of xX 5. According to the legality of its existence a. De jure partnership It is one which has complied with all the legal requirements for its creation. 25CHAPTER 1 - GENERAL PROVISIONS Example: A, B, and C formed ABC Partnership where A contributed cash of P1,000,000, B contributed his only parcel of land and C will contribute his industry during the term of the partnership which is 10 years. The contract of partnership was written in a public instrument The partners made also an inventory which they all signed and thereafter they attached it to their contract of partnership. In here, we have a de jure partnership. b. De facto partnership It is one which has not complied with all the legal requirements for its creation. Example: A, B, and C formed ABC Partnership where A contributed cash of P1,000,000, B contributed his only car and C will contribute his industry during the term of the partnership. Their agreement is verbai. In here, the partnership is a de facto partnership as it was not written in a public instrument and it was not registered in the SEC. ‘Art 1777. Auniversal partnership may refer to all the present property orto all the profits. (1672) Kinds of Universal Partnerships 1. Partnership of all present property 2. Partnership of all profits Art 1778. 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. (1673) The contributions of the partners here are the following: 1.Al the properties actually belonging to the partners; and 2. The profits acquired with said properties. Art. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property ofall the partners, as well as all the profits which they may acquire therewith, A stipulation for the common enjoyment of any may also be made; but the property which the partne; other profits TS may acquire 26CHAPTER 1 - GENERAL PROVISIONS subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. (1674a) Future Property (Inheritance, Legacy, or Donation) Future properties cannot be included because 1, As arule, contracts regarding successional rights cannot be made; 2. A partnership demands that the contributed things be determinate, known, and certain; 3.A universal partnership of all present properties really implies a donation, and it is well-known that generally, future property cannot be donated.39 Example: A, B, and C entered into a partnership named ABC Partnership. A contributed all his present properties comprising two parcels of land. B contributed his only property which is a specific car. C contributed his house and lot which is his only property. The contract of partnership formed by A, B, and C is a universal partnership of all present property. Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may Possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675) Partners retain their ownership over their present and future property. What passes to the partnership are the profits and the use of the same.40 Example: A, B, and C entered into a partnership named ABC Partnership. A contributed the use of his of two parcels of land. B contributed also the use of his specific car for purposes of delivery of goods. C contributed his house and lot to be used by the partnership as warehouse, The contract of partnership formed by A, B, and C is a universal partnership of all profits. 9711 Manresa 304-314; Art. 751, NCC. 4011 Manresa 303. 27CHAPTER 1 - GENERAL PROVISIONS Universal Partnership of _all | Universal Partnership of present Property (During the existence {At the time of constitution of the | partnership) ay artnershij a ee AIL the present property. actualy | Only the usufruet (use and fruitsyc belonging to the partners are | the properties of the partpa”| contributed to the partnership which | becomes common property of all tt | become common property of all the | partners and the partnership, : | partners and the partnership | All profits acquired through eho) | General Rule Only the profits of said contributed | “industry” or “work” of the partners | property become common property | become common property. but not profits arising from other property of the partners. Exception | ted, the profits from other ers may become properties subsequently by inheritance, legacy or be included in the Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. (1676) Presumption in favor of universal partnership of profits The universal partnership of profits imposes less obligation because their real and personal properties are retained by them in naked ownership. Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership, (1677) Rationale: A universal partnership is virtually a donation to each other of the Partner's properties (or at least, their usufruct). Therefore, if persons are prohibited to donate to each other, they should not be allowed to do indirectly What the law forbids directly.4! 7 611 Manrese 217 28CHAPTER 1 - GENERAL PROVISIONS Effect of Violation of Art. 1782 | The partnership is null and void, and its nullity may be raised anytime. No legal personality was ever acquired." Examples of persons who cannot enter into a universal partnership 1. Legally married spouses;# Note: However spouses may enter into a particular partnership like the exercise of a profession or vocation. 2. Persons living together as husband and wife without a valid marriage;** 3. Persons who were guilty of adultery or concubinage at the time of the donation;#6 4. Persons found guilty of the same criminal offense, in consideration thereof” 5.A person or persons and a public officer or his wife, descendants and ascendants, by reason of his office. Problem: A limited partnership, named "WIG Ltd.," was formed by Was the general partner, and J and G, as the limited partners. The partners contributed, respectively, P20,000, P18,000 and P20,000 to the partnershi, Subsequently, general partner W and limited partner J got married and, thereafter, limited partner G sold his share in the partnership to them. Was the partnership dissolved after the marriage of the partners, Wand J and the subsequent sale to them by G of his share? Answer: The thesis that the limited partnership, WJG Ltd., has been dissolved by operation of law because of the marriage of the only general partner, W to the originally limited partner, J one year after the partnership was organized is rested upon the theory that: A husband and a wife may not enter into a contract of general co- partnership, because under the Civil Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from entering 11 Manresa 317, Art.87, Family Code of the Philippines, ‘Commissioner of internal Reverie vs, William J, Suter and CA, G.R. No. L-25532, February 28, 1969. 45 Art 87, Family Code of the Philippines. Art. 739, NCC. © Art, 739, NCC. 29CHAPTER 1 - GENERAL PROVISIONS into universal partnerships. It follows that the marriage of partner, necessarily brings about the dissolution of a pre-existing partnership, WIG, Ltd. was iver r Auniversal partnership requires either that the object of the association be all the present property of the partners, as contributed by them to the common fund, or else “all that the partners may acquire by their industry or work during the existence of the partnership". WJG Ltd, was not such a universal partnership, since the contributions of the partners were fixed sums of money, P20,000 by W and P18,000 by J ang neither one of them was an industrial partner. It follows that WIG, Lig was nota partnership that spouses were forbidden to enter. Nor could the subsequent marriage of the partners operate tg m , f ided f purnose.*? Art. 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. (1678) The above-stated article defines a particular partnership. Examples: 1. Aand B formed AB Partnership where A contributed P1,000,000 and B contributed his only parcel of land, They agreed to engage in buy and sell of motor vehicles. 2.A and B formed AB Partnership where A contributed P10,000,000 while B contributed P3,000,000 and his industry, being an engineer, {for the construction ofa building as they will engage in the business of leasing apartment units. 3. A and B, both certified public accountants, entered into a contract of partnership to engage in accounting, audit, and tax consultancy. Note: If the partnership is a universal partnership, a husband and wife cannot enter into such contract. However, ifthe partnership is a particular partnership, they can. “248 Commissioner of internal Revenue vs, William Suter nd CA, GA No. 25532, February 28, 1969, 30CHAPTER 1 - GENERAL PROVISIONS TRUE OR FALSE 1. A partnership may be constituted in any form. 2.A partnership may be constituted in any form, save when immovable property or real rights are contributed thereto or when the partnership has a capital of below P3,000, in which case a public instrument shall be necessary. 3. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall also have juridical personality. 4.Immovable property to be acquired must be in the name of the partnership but if conveyed, it is not necessary that it be in the partnership name. 5.An inventory is still required if aside from real property, personal property is contributed. 6. The sharing of gross returns does not of itself establish a partnership, except when the persons sharing them have a joint or common right or interest in any property from which the returns are derived. 7. Ifa person receives a share in the profits of a business, he is a prima facie presumed to be a partner in business. 8. In partnership, there is co-ownership and co-possession of partnership property. 9, Partnerships with a capital of P3,000.00 or more must register with the SEC. Registration requirement is mandatory. 10. The receipt by a person of a share of the profits of a business is conclusive evidence that he is a partner in the business. 11. A general partner is liable only to the extent of his contribution while a limited partner is liable beyond his contribution. 12. An oral contract of partnership is as good as a written one. 13. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. 14. An unjustified dissolution by a partner can subject him to action for damages. 15. When an unlawful partnership is dissolved by a judicial decree, the profits shall not be confiscated in favor of the State. 16.A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. 17. Where an immovable property is contributed in a partnership a private instrument shall be necessary. 18. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of all present property. 19. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. 31