REVIEW

Salient points to remember

GENERAL RULE: No special form is required for the validity or existence of the contract of partnership

EXCEPTIONS:

Having a capital of three thousand pesos Whenever an immovable property,

or more, in money or property*
1. Must be in a public instrument
2. Recorded in the Office of the SEC
regardless of value, is contributed in the
partnership**
1. Must be in a public instrument
2. An inventory of the property
contributed must ne made, signed by the
parties, and attached to the public
instrument

*failure to comply with the above requirements does not prevent the formation of the partnership or affect its liability and that of the partners to third persons
** failure to comply with the following requirements will render the partnership contract void in so far as to the contracting parties are concerned.
Universal Partnership of all present property
Property contributed becomes the common property
of all the partners, as well as all the profits which
they may acquire therewith
PROHIBITION AGAINST ENGAGING IN BUSINESS
Industrial Partner
Prohibition is absolute and applies whether the
industrial partner is to engage in the same business
in which the partnership is engaged or in any kind of
business
Universal partnership of profits
Partners retain the ownership of their present and
future property. What pass to the partnership are the
profits or income and the usufruct or use of the
same.
Capitalist Partner
Prohibition extends to only to any operation which is
of the same kind of business in which the partnership
is engaged unless there is a stipulation to the
contrary
ARTICLE 1795
Risk of loss of things contributed
1. Specific and determinate things which are not fungible where only the use is contributed – the risk is borne by the
partner because he remains the owner of the things
2. specific and determinate things the ownership of which is transferred to the partnership – the risk is for the account
of the partnership, being the owner
3. Fungible things or things which cannot be kept without deteriorating even if they are contributed only for the use of
the partnership –risk of loss is borne by the partnership
4. Things contributed to be sold –partnership bears the risk of loss
5. Things brought and appraised in the inventory- partnership bears the risk of loss

ARTICLE 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf
of the partnership and for the corresponding interest, from the time the expenses are made; it shall also answer to
each partner for the obligations he may have contracted in good faith in the interest of the partnership business, and
for the risk in consequence of its management.
 
Responsibility of the partnership to a partner
If a partner has advanced funds for the partnership, he is entitled to recover the amounts advanced by him with
interest. This must be so for the reason that a partner is a mere agent of the partnership and under the rules of agency,
an agent who advances funds for his principal may recover the same interest.
Distribution of Profits
1. Partners share the profits according to their agreement
2. if there is no stipulation:
a. the share of each capitalist partner shall be in proportion to his capital contribution.
b. the industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall
divide the profits, as may be just and equitable under the circumstances. The share of the industrial partner in the
profits is not fixed as in the case of the capitalist partners as it is very difficult to ascertain the value of the services of a
person.

Rules in loss sharing

1. The stipulation in the partnership agreement regarding loss sharing must be followed.
2. If there is no such agreement, but the contract provides for a profit sharing ration, the profit sharing ratio shall also be
the loss sharing ration.
3. In the absence of loss sharing and profit sharing stipulations in the contract, then the loss shall be borne by the
partners in proportion to their capital contributions; but a purely industrial partner is exempted from participation in the
loss.
 Art. 1798. If the partners have agreed to entrust to a third person the designation of the share of each one in
the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case
may a partner who has begun to execute the decision of the third person, or who has not impugned the
same within a period of three months from the time he had knowledge thereof, complain of such decision.
 
The designation of profits and losses cannot be entrusted to one of the partners.

-the designation by the third person would generally be binding UNLESS manifestly inequitable. A partner who
has begun to execute the decision of the third person or who fails to impugn the same within three months
from the time he had knowledge of it can no longer complain.

Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void.
 
- Only the stipulation is void but the partnership, if otherwise valid subsists and the profits or losses shall be
apportioned as if there were no stipulation of the same.
Stipulation to exclude a partner from profits or losses is void
The law does not allow a provision in the contract of partnership excluding one or more partners from sharing in
the profits and losses. The reason is that a partnership is organized for the common benefit or interest of the
partners.
 
Reason for exclusion of industrial partner An industrial partner is not liable for losses because if the partnership
fails to realize any profits, the industrial partner would have contributed his labor in vain. Furthermore, the
industrial partner cannot withdraw the work already done by him for the partnership.
Art. 1800. The partner who has been appointed manager in the articles of the partnership may execute all acts of the
administration despite the opposition of his partners, unless he should act in bad faith, and his power is irrevocable
without the just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for
such revocation of power. A power granted after the partnership has constituted may revoked at any time. Each partner
has a right to an equal voice in the conduct of the partnership business. This right is not dependent on the amount or
size of the partner’s capital contribution.

Scope of the power of the managing partner

General rule: partner appointed as manager has all the powers of a general agent as well as all the incidental powers
necessary to carry out the object of the partnership in the transaction of its business.
Exception: When powers of manager is specifically restricted. A managing partner may not bind the partnership by
contract foreign to its business.

Appointed as manager after the constitution of the partnership

Partner appointed may execute all acts of administration notwithstanding the opposition of the other partners, unless
he should act in bad faith. His power is revocable only upon just and lawful cause and upon the vote of the partners
representing the controlling interest.
Reason: revocation represents change in terms of contract.
In case of mismanagement: Usual remedies allowed by law including dissolution.
Partner Generally not entitle to compensation
In the absence of an agreement to the contrary, each member of the partnership assumes the duty to give his time,
attention, and skill to the management of its affairs, as may be reasonably necessary to the success of the common
enterprise; and for this service a share of the profits is his only compensation. In managing partnership affairs, a partner
is practically taking care of his own interest or managing his own business. In the absence of any prohibition in the
articles of partnership for the payment of salaries to general partners, there is nothing to prevent the partners to enter
into a collateral verbal agreement to that effect.
EXCEPTIONS:
In proper cases, the law may imply a contract for compensation;
A partner engaged by his co-partners to perform services not required of him in fulfilment of the duties and in capacity
other than that of a partner.
When there is extraordinary neglect on the part of one partner to perform his duties, imposing entire burden on
remaining partner.
One partner may employ the other to do work for him outside of and independent of the co-partnership.
Partners exempted by terms of partnership from rendering services may demand pay for services rendered.
Where one partner is entrusted with management and devotes his whole time and devotion at the instance of the
other partners who are attending to their individual business and giving no time or attention to the partnership
business.
Art. 1801. If two or more partners have been intrusted with the management of the partnership without the
specification of their respective duties or without the stipulation that one of them shall not act without the consent of
all others, each one separately execute all acts of administration, but if anyone of them should oppose the act of each
other, the decision of the majority shall prevail. In the case of tie the partners owning the controlling interest shall
decide the matter.

Requisites:
1. Two or more partners have been appointed as managers;
2. There is no specification of their respective duties; and
3. There is no stipulation that one of them shall not act without the consent of all the others.

Each managing partner may separately perform acts of administration.

4. If one of more of the managing partners shall oppose the acts of the others, then the decision of the majority of the
managing partners shall prevail. Right to oppose can be exercised only by those entrusted with the management of
the partnership and not by any partner.
5. In case of tie, the matter shall be decided by the vote of the partners owning the controlling interest, that is more
than 50% of the capital investment.

ART. 1802 In case it should have been stipulated that none of the managing partner shall act without the consent of the
others, the concurrence of all shall be necessary for validity of the acts, and the absence or disability of any one of them
cannot alleged, unless there is imminent danger of grave or irreparable injury to the partnership.
The partners may stipulate that none of the managing partners shall act without the consent of the others. In such a
case, the unanimous consent of all the managing partners shall be necessary for the validity of their acts. This consent is
so indispensable that neither absence nor disability of any one of them may allege as excuse to dispense with
requirement.

Exception: When there is imminent danger of grave or irreparable injury to the partnership then a partner may act
alone without consent of partner who is absent or under disability.

Consent of managing partners not necessary in routine transactions

The requirement of written authority refers evidently to formal and unusual written contracts.

Art. 1803. When the manner of management has not been agreed upon, the following rules shall observed:
 
All partners shall be considered agents and whatever any one of them may do alone shall bind the partnership without
prejudice to the provision of article 1801
 
None of the partners may, without the consent of others, make any important alteration in the immovable property of
the partnership, even if it may be useful to the partnership, but if there ids refusal of the consent by the other partners
is manifestly prejudicial to the interest of the partnership, the court’s intervention may be sought.
Rules when manner of the management that has not agreed upon all partners considered as managers and agents
All partners shall have equal rights in the management and conduct of partnership affairs. All of them shall be considered
managers and agents and whatever any one of them may do alone shall bind the partnership. If there is timely
opposition, however, the matter shall decided by majority vote. In case of tie, vote of partners representing
controlling interest.

Unanimous consent required for alteration of immovable property

The consent need not be express. It may be presumed from the fact of knowledge of the alteration without interposing
any objection. Prohibition only applies to immovable property because of the greater importance of this kind of property,
and the alteration thereof must be important. This would be an act of strict dominion. If refusal to give consent is
manifestly prejudicial to the interest of the partnership, court intervention maybe sought. Consent may be presumed
from silence (lack of opposition despite knowledge).If alteration is necessary for preservation of the property, consent of
the other partners not required.

Art. 1804. Every partner may associate another person with him in his share, but the associates shall not admitted into
the partnership without the consent of all other partners, even if the partner having an associate should be a manager.

Subpartnership – partnership formed between a member of a partnership and a third person for a division of profits
coming to him from the partnership enterprise.
-The subpartners are partners inter se, but, in the absence of the mutual assent of all the parties, a subpartner does not
become a member of the partnership, even though the agreement is known to the other members of the partnership.
Not being a member of the partnership, he does not acquire the rights of a partner nor is he liable for its debts.

Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of
the business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy
any of them.

Books should kept at the principal place of business as each partner has the right to free access to them and to inspect
or copy any of them at any reasonable time, even after dissolution. Inspection rights is not absolute and can be
restrained from using information gathered for other than partnership purpose.

Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to any
partner or the legal representative of any deceased partner or of any partner under legal disability.

Duty to render information

There must be no concealment between partners in all matters affecting the partnership. Information must used only for
partnership purpose. Not just on demand but partner also has duty of voluntary disclosure. However, duty to render info
does not arise with respect to matters appearing in partnership books since each partner has the right to inspect those.
Good faith not only requires that a partner should not make a false statement but also that he should abstain from any
false concealment.
Art. 1808. The capitalist partners cannot engage for their own account in any operation, which is of the kind of business
in which the partnership is engaged, unless there is a stipulation to the contrary.

Any capitalist partner violating this prohibition shall bring to the common funds any profit accruing to him from his
transactions, and shall personally bear all the losses.

-The capitalist partner is only prohibited from engaging for his own account in any operation which is the same as or
similar to the business in which the partnership is engaged.

In case of violation of this prohibition, capitalist partner shall bring to the common fund any profits derived by him
from his transactions and in case of losses, he shall bear them alone.

Reason for prohibition

Fiduciary nature of relationship imposes obligation of utmost good faith. Rule prevents use of information obtained
in course of transaction of partnership business or because of connection w/ firm regarding business secrets and
clientele of firm to its prejudice.
Art. 1809. Any partner shall have the right to a formal account as to partnership affairs:
 
If he is wrongfully excluded from the partnership business or possession of its property by his co-partner;
 
If the right exists under the terms of any agreement;
 
Provided by article 1807;
 
Whenever other circumstances render it just and reasonable

General rule: During existence of partnership, a partner is not entitled to a formal account of partnership affairs. Reason:
rights of partner amply protected in Articles 1805 and 1806. In addition, it would cause much inconvenience and
unnecessary waste of time.
 
Exception: In the special and unusual situations enumerated under art. 1809. Right of partner to demand an accounting
w/o bringing about dissolution is a necessary corollary to right to share in profits. A formal account is a necessary
incident to the dissolution of the partnership.