Lecture 6

Partnership
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.

Art 1768. The partnership has a juridical personality separate and

distinct from that of each of the partners.
Art 1769. Rules to determine whether a partnership exists:
(1)Persons who are not partners as to each other are not partners as to third persons
(except: Art 1825- estoppel)

(2) Co-ownership or co-possession ≠ Partnership

– even if they share profits from the use of the property;

(3) Sharing of gross returns ≠ Partnership

-- even if there is a common interest in any property from which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business is PRIMA FACIE
EVIDENCE that he is a partner in the business;
EXCEPT if such profits were received-- 
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of
the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
Partnership– how is it formed?

Gen Rule: constituted in ANY FORM (Art 1771)

Exceptions:

(1) Where IMMOVABLE or REAL RIGHTS are contributed

(Art 1771, 1773)

(2) Where capital is P3,000 or more, in MONEY or PROPERTY

(Art 1772, 1768)
A. Immovable or Real Rights are contributed
 Appear in a Public Instrument
 Inventory of properties, signed by the parties and attached
to the public instrument

Failure to comply? VOID contract of partnership (no SJP)

B. At least P3,000 Capital

 Appear in a Public Instrument
 Recorded in SEC

Failure to comply? VALID contract of partnership (SJP)

KINDS of PARTNERSHIPS

Object:
1. Universal
o All present Property
o All the Profits
2. Particular
o Determinate property, their use or fruits
o Specific undertaking
o Exercise of a profession or vocation

Liability:
1. General - liable up to personal assets
2. Limited - liable up to investment only
Notes on Universal Partnership:
oArt 1779 -- the property which belonged to each of the partners
at the time of the constitution of the partnership, becomes the
common property of all the partners, as well as all the profits
which they may acquire therewith
oArt 1779 NOT included are property which the partners may
acquire subsequently by inheritance, legacy, or donation -- except
the FRUITS thereof
oArt 1781 Articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership
of profits
oArt 1782 Persons who are prohibited from donating to each
other cannot enter into universal partnership (i.e. Husband and
wife, including those in common law relationships)
 Obligations of Partners to Each Other
1. Contribute EQUAL shares to the partnership capital --
unless otherwise agreed
2. Every partner is a DEBTOR of the partnership for whatever
he may have PROMISED to contribute thereto.
3. In case of IMMINENT LOSS of the partnership business,
each partner must contribute an additional share to the capital
to save the venture (except: Industrial partner)
If REFUSE? – must SELL his interest to other partners
4. A MANAGING PARTNER collects a sum owed to him and
the partnership– apply payment as follows:
1.PROPORTIONATELY to both credits - even if receipt is given for own
credit only
2.FULLY to Partnership credit – if receipt is given for Partnership credit
INDUSTRIAL PARTNER
Equitable share in the profits
Does not share in the losses
 Cannot engage in business for himself  unless expressly permitted
by the Partnership
 In case of violation, remedy of capital partners:
1. Exclude him from the partnership + damages
2. Avail themselves of the benefits obtained + damages

CAPITALIST PARTNER
Cannot engage in SAME business  unless authorized in the
contract of partnership
 In case of violation, obligation of erring partner:
• Shall bring to the common fund all the profits
• Shall personally bear all the losses
 Distribution of Profits & Loss
o Profits and Losses s shall be distributed
1: in conformity with the AGREEMENT
If agreement covers only profits, share in the losses shall be in the
same proportion
2: if no agreement, IN PROPORTION TO THE CONTRIBUTION

o Partners can entrust to a Third Party the designation of P&L --

which can only be impugned if manifestly inequitable [Note:
designation of P&L cannot be entrusted to one of the partners]

o A stipulation which excludes one or more partners from any

share in the profits or losses is VOID [except Industrial
Partners which shall not share in the LOSSES]
 Management of Partnership
MANAGING PARTNER

(A)Appointed in the Articles of Partnership

o May execute all acts of administration despite opposition
of other partners  unless: Bad Faith
o REVOKE? Only with just and lawful cause
vote of partners w/ controlling interest
(B)Appointed AFTER the constitution of the
partnership
o REVOKE? Anytime
If there are 2 or more MP, no specification as to their respective
duties:
EACH may separately execute ALL acts of administration
If one of them oppose: vote of Majority of MPs
in case of TIE: Partners with Controlling Interest prevails

If stipulated that none of MP shall act w/o consent of the others:

Concurrence of ALL for the act to be valid
Cannot allege the absence or disability of any MP to avoid
requirement of unanimity;
Except: Imminent danger of grave or irreparable injury to
the partnership
If there is NO MANAGING PARTNER APPOINTED:

(a)Acts of ADMINISTRATION
 act of ONE binds the partnership
Each partner is an agent of the partnership

(b) Acts of ALTERATION in the real property of the partnership

 act of ALL to bind the partnership
 if refusal of other partners is manifestly prejudicial to the
partnership – -> Court intervention
Right to demand formal ACCOUNTING of Partnership
affairs:

(1) Partner is wrongfully excluded from the partnership

business or possession of its property by his co-partners;
 
(2) The right exists under the terms of any agreement;
 
(3)  Partner derives profits without consent of other partner- in
connection with any partnership transaction

(4) Other just and reasonable circumstances

 Property Rights of a Partner

(1) His rights in specific partnership property

-- each partner is a co-owner of partnership
property

(2) His interest in the partnership

-- share of the profits and surplus

(3) His right to participate in the management

Incidence of CO-OWNERSHIP

oEqual right to possess partnership property for partnership

purposes (not for personal purposes, unless consent given by
other partners)
opartner's right in specific partnership property is not assignable
(right is personal)
opartner's right in specific partnership property is not subject to
attachment or execution, except on a claim against the
partnership
opartner's right in specific partnership property is not subject to
legal support
Conveyance of Partnership Interest– Effects:
A conveyance by a partner of his whole interest in the partnership does not of
itself dissolve the partnership.  share of the profits and surplus

ASSIGNEE does not become a PARTNER:

XCannot interfere in the management or administration of the partnership
business or affairs,
XCannot require any information
XCannot demand accounting of partnership transactions (except: dissolution)
XCannot inspect the partnership books

Rights of ASSIGNEE:
Receive profits to which the assigning partner would otherwise be entitled.
Receive his assignor's interest in case of partnership dissolution
Avail himself of the usual remedies, in case of fraud in the partnership.