BUSINESS LAWS AND REGULATIONS

PARTNERSHIP
CHAPTER 1
GENERAL PROVISIONS

Art. 1767

Partnership
● contract whereby 2 or more persons bind themselves to contribute money, property,
industry to a common fund, with the intention of dividing the profits among themselves.

General Professional Partnership

● partnerships formed for the purpose of practicing a common profession.

Essential Requisites of Partnership:

1.There must be a valid contract.
● Doctrine of delectus personae (personarum)
- a person is free to choose his partner/s.

2.There must be a mutual contribution of money, Property, or industry to a common fund.

● Property to be contributed
a. Real or Personal
b. Tangible or intangible
● Industry:
a. Physical manual efforts
b. Intellectual Industry
● Limited partner
a. Cash
b. Other property (not services).

3.It must have a lawful object/purpose

● Unlawful object- VOID
● Unlawful if it is contrary to:
a. law
b. morals
c. good customs
d. public order
● If illegality constitutes a crime, partners will be:
a. Criminally prosecuted
b. Profits, effect, instruments of crime will be confiscated in favor of the gov't.

4.Partnership must be established for the common benefit/interest of the partners which
is to obtain profits & to divide the profit.
● Very purpose of business partnership:
 a. Obtain profits
● Partnership formed for practice of common profession purpose:
a. render service to public

Characteristics of a Contract of Partnership

1.Consensual
● perfected by mere consent.

2.Commutative
● the contribution of each partner is considered as the equivalent of the contribution of the
other partners.

3.Principal
● contract that doesn't depend on other contract's existence

4.Bilateral
● contract entered into by 2 or more persons.

5.Onerous
● each partner must contribute money, property,industry.

6.Nominate
● contract w/c has a name in law

7.Preparatory
● contract in preparation for another contract/s.

Money
● medium of exchange authorized/ adopted by a gov't as part of its currency.

Property
● any external thing over w/c the rights & possession, use, and enjoyment are exercised.

Industry
● Diligence in the performance of a task
● A particular form / branch of a productive labor.

Partnership vs Joint Venture

Partnership Joint Venture

Long -term Short-term (specific project/goal).

Partnership at Will
● doesn't fix its term.
● its birth & life is predicated on the mutual desire & consent of the partners

Art. 1768

Artificial Person/Juridical Person

● an entity (corporation), established through legal means and granted specific legal rights
& responsibilities similar to those of a human being for the purpose. of legal analysis.

Art. 1769

Rules in determining whether a Partnership Exists

1.Persons who are not partners as to each other are not partners as to 3rd persons
● Partnership by Estoppel
- If someone's actions/words lead others to believe they are a partner in a
business, they can be legally treated. as a partner.

2.Co-ownership or co-possession does not of itself establish a partnership

Partnership vs Co-ownership
As to… Partnership Co-ownership

Creation ● By Contract ● By contract & law

Juridical Personality ● Has legal (juridical ● No legal (juridical

personality. personality.
● Can sue or be sued. ● Can't sue or be sued.

Purpose ● For profit ● Common enjoyment

of a thing/right

Profit ● May be stipulated ● May depend on the

upon proportionate shares

Dissolution ● By death/incapacity of ● Doesn't dissolve by

a partner death or incapacity

Form ● Any form; when real ● No public instrument

property, public needed at all.
instrument is required.

3.Sharing of gross returns doesn't of itself establish a partnership

4.Receiving a portion of a business' profits is considered initial evidence that the person
is a partner in that business.
● Prima facie
- used to describe that an evidence is sufficient to make a preliminary judgment,
but they can still be challenged or rebutted w/ additional evidence/arguments.

Exceptions to Rule #4:

a. As a debt by installments/otherwise
b. As wages of an employee/rent to a landlord.
c. As an annuity to a widow or representative of a deceased partner
d. As an interests on a loan
e. As the consideration for the sale of a goodwill of a business/other property.

Art. 1770

Examples of unlawful Partnership:

1. Formed for gambling purposes
2. Formed to furnish houses for prostitution purposes
3. Formed to create illegal monopolies/combinations in restraint trade.

Effects of Unlawful Partnership:

1. Contract is VOID from thel very beginning
2. Profits shall be confiscated in favor of the gov't.
3. Instruments and proceeds of crime shall be forfeited in favor of the gov't.
4. Contribution of partners shall not be confiscated unless they fall under no. 3

Art. 1771

Form of Contract of Partnership

General Rule
● No form required. Can be Oral or Writing.

Exception
● If real properties/rights are contributed, a public instrument is needed.

Real Rights
● connected w/ a thing rather than & person.
● ex. ownership, use, habitation, usufruct, predial servitude, pledge, real mortgage.

Public Instrument
 ● document prepared by a notary, public in the presence of parties who sign it before
witnesses

Art. 1772

Partnership with a capital of P3,000 or more (personal property only)

● must be in a public instrument & recorded in the office of SEC, non-compliance is still
VALID.

Partnership with a capital below $3,000 (personal property only)

● No form. Can be verbal.

Purpose of Registration
● To set a condition for the issuance of licenses to engage in business or trade.

Art. 1773

When contract of Partnership is VOID:

1. Whenever immovable property is contributed. /real property
2. If an inventory of said property is not made, signed by the parties, and attached to the
public instrument.

Intention of Art 1773

● To protect 3rd persons

Art. 1774

General Rule
● The partnership is allowed to acquire immovable property/interests related to it.
● Once acquired, ownership title should only be transferred using the partnership's name.

Reason
● Because partnership has a judicial personality separate & distinct from that of each
partner.

Art. 1775

Partnership vs. Association

As to.. Partnership Association

Juridical Personality ✔️ ✖️
 Purpose ● for profit ● May not be for profit

Contribution of members ● Money, property, or ● No contribution of

industry, or capital although fees
combination of these. are collected from
members

Liability ● Partnership is liable ● Members are

individually liable

Art. 1776

Classification of Partnership
1.According Object
a. Universal Partnership;
● Present Property
- partners contribute all property w/c belongs to them to a common fund for
the purpose of dividing it among themselves, as well as the profits of that
may be acquired.

● Profits
- includes everything that partners may obtain through their efforts while
partnership is active.

b. Particular Partnership
● formed w/ the purpose of focusing on particular things, their usage or benefits,
specific projects, or engaging in a particular profession/occupation.

2.According to Liability
a. General Partnership
● all partners are general partners.
● All are liable up to the extent of their separate properties after the assets of the
partnership have been exhausted.

b. Limited Partnership
● at least 1 general partner & 1 limited partner
● General: liable beyond his contribution
● Limited: liable only to the extent of his contribution

3.According to Duration
a. Partnership at Will
b. Partnership w/a fixed term
● period of existence of the partnership has been agreed upon by partners
 c. Partnership for a particular undertaking
● exist until the purpose is accomplished

4.According to Representation to Others

a. Ordinary Partnership
● where 2 or more persons bind themselves to contribute w/ the intention of
dividing profits

b. Partnership by Estoppel
● occurs when individuals portray themselves as partners w/ an existing
partnership or alongside one/more individuals who are not officially part of the
partnership.

5.According to Legality of its Existence

a. De Jure
● one which has complied w/ all the legal requirements for its creation.

b. De Facto
● one w/c has NOT complied w/ all the legal requirements for the creation.

Art. 1777

Kinds of Universal Partnership

1. Property
2. Profits

Art. 1778

Contributions of the Partners (Partnership of all Present Property):

1. All properties actually belonging to the partners.
2. Profits acquired w/ said properties.

Art. 1779

Universal Partnership of all present property

● property w/c belongs to each partner at the time of the constitution of the partnership
becomes the common property of all, as well as the profits they acquire.
● stipulation for the common enjoyment of any other profits may be made.

*Future property can't be included in the stipulation (fruits can be included).

Future Properties (inheritance, legacy, donation) can't be included because:
1. Contracts about successional rights can't be made
2. Partnership demands that contributed things be determinate, known, and certain.
3. UPAPP implies donation, and it is well-known that future property can't be donated.

Art. 1780

UPAPP vs UPAP
Property Profits
At the time of constitution of partnership During the existence of the partnership

● All present property belonging to the ● Only the usufruct (used fruits) of the
partners are contributed to the properties becomes common property.
partnership w/c become a common
property

General Rule ● All profits acquired through "industry"

● Only the profits of said contributed or "work" become common property
property become common property
but not profits arising from other
property of the partners.

Exception
● If stipulated, profits from other
property of partners may become
common.

Art. 1781

General Rule
● Articles of universal partnership w/o specification of its nature, only constitutes on UPAP.

Presumption in favor of UPAP

● imposes less obligations because their real & personal properties are retained by them
in direct ownership/form.

Art. 1782

Rationale:
● Universal Partnership
- a donation to each other of the partner's properties
 ● Persons prohibited to donate to each other are not allowed to do indirectly what the law
forbids directly.

Effect of Violation of Art. 1782:

● Partnership—null & void
● Nullity may be raised anytime.

Examples of persons who can't enter into Universal Partnership:

1. Legally married spouses
* Exception: Particular Partnership (eg. exercise of a profession).
2. Persons living together w/o valid marriage.
3. Persons who were guilty of adultery at the time of donation
4. Persons found guilty of the same criminal offense
5. Persons & public officer/his wife, descendants & ascendants by reason of his office

Art. 1783

Particular Partnership
● has for its object determinate things, their use of fruits, or specific undertaking, or the
exercise of a profession.