THE LAW ON
PARTNERSHIPS
Arts. 1767-1867
ASSIGNED READING: To be
summarized
• 1. Kinds of persons under the law • 2. Kinds of business organizations • 3. Partnership: definition
• 4. Characteristic elements of partnership • 5. Essential elements of partnership
• 6. Rules in determining existence of partnership • 7. Kinds of partnership
• 8. Classifications of businesses • 9. Kinds of partners
• 10. Comparison between general and limited partners
INTRODUCTION
• KINDS OF PERSONS UNDER THE CIVIL CODE • 1. NATURAL/INDIVIDUAL
• 2. ARTIFICIAL/JURIDICAL
– A. Partnership – B. Corporation – C. Cooperatives
• KINDS OF BUSINESS ORGANIZATIONS
– A. Sole proprietorship – B. Partnership
– C. Corporation – D. Cooperatives
PARTNERSHIP
• ART 1767
– By a 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.
CHARACTERISTIC ELEMENTS OF PARTNERSHIP 1. Consensual 5. Commutative
2. Nominate 6. Principal
3. Bilateral 7. Preparatory 4. Onerous 8. Fiduciary
ESSENTIAL FEATURES OF
PARTNERSHIP
• 1. There must be a valid contract (delectus
personae – “Choice of the person”)
• 2. Legal capacity of the parties (Art 1327-1329) • 3. Mutual contribution of money, property and
industry
– MONEY – currency (medium of exchange) w/c is legal tender in the Philippines
– PROPERTY – tangible/intangible, real/personal, movables/immovables, res alicujus
ESSENTIAL FEATURES OF
PARTNERSHIP
• 4. Lawful purpose/object – subject to the “Freedom to contract” clause
– ART 1770 par 2 – Effects of an unlawful partnership
• Contract is void ab initio
• Profits will be confiscated in favor of the government
• Instruments/proceeds/tools of the crime shall be forfeited in favor of the gov’t unless belonging to a 3rd person who did not
participate but those not within the commerce of man will be destroyed.
• 4. Lawful purpose/object – subject to the “Freedom to contract” clause
• 5. Primary purpose is to divide profits; carries with it the obligation to share in loss except for industrial partners but NOT in liabilities (Art 1769 vs Art 1816)
FORMAT OF PARTNERSHIP
CONTRACT
• GEN RULE: Art 1771: Partnership contracts are valid in whatever form.
• Art 1768: Partnership has juridical personality even if there is no compliance with Art 1772 (de
facto) w/c requires that a partnership with
capital of more than P3K must be in a public instrument and recorded with the SEC
• Art 1773: If immovable is contributed, an inventory signed by the parties should be attached to the public instrument.
WHEN DOES A
PARTNERSHIP EXIST?
• GEN RULE: Intention of the parties prevail
• Art. 1769 – Rules to determine whether a
partnership exists or not
• 1. Persons who are not partners to each
other are not partners as to third persons
except those in estoppel (Art 1825)
• 2. Co-ownership/co-possession does not by
itself establish partnership
• 3. Sharing of gross returns does not by itself
establish partnership
WHEN DOES A
PARTNERSHIP EXIST?
4. Receipt of a person of share in the profits is
PRIMA FACIE evidence of partnership,
except if such share is for:
a. payment of debt
b. Wages
c. Annuity
d. Interest of loan
e. Consideration for sale of goodwill or
property
KINDS OF PARTNERSHIP
• UNIVERSAL PARTNERSHIP OF ALL
PRESENT PROPERTY – all properties of the partners before, during and after constitution of the partnership belong to the partnership
• UNIVERSAL PARTNERSHIP OF PROFITS – only those acquired after the constitution of the partnership belong to the partnership
– Note: husband and wife cannot enter into universal partnerships
KINDS OF PARTNERSHIP
• PARTICULAR PARTNERSHIP – object is
determinate; for a specific undertaking or for the exercise of a profession
• GENERAL PARTNERSHIP – all partners are general partners who are liable even with their own properties
• LIMITED PARTNERSHIP – at least has one general partner with other limited partners who are only liable to the extent of their
KINDS OF PARTNERSHIP
• PARTNERSHIP AT WILL – has no specified term for its existence
• DE JURE PARTNERSHIP – one which exists in fact and in law
• DE FACTO PARTNERSHIP – one which has no complete documents
• ORDINARY/REAL PARTNERSHIP – one which exists among themselves and as to 3rd persons
• SECRET PARTNERSHIP – one where the partners are not publicly known
KINDS OF PARTNERSHIP
• OSTENSIBLE/APPARENT/EVIDENT/IN
ESTOPPEL (Art 1825)
• OPEN/NOTORIOUS PARTNERSHIP – one where the partners are publicly avowed
• COMMERCIAL/TRADING – one whose primary purpose is for profits
• PROFESSIONAL/NON-TRADING – one for the exercise of a profession or vocation
KINDS OF PARTNERS
• CAPITALIST – one who contributes money and/or
property; answerable for loss and liabilities; prohibited from engaging in similar kind of business (Art 1808) • INDUSTRIALIST – one who contributes services,
mental or physical; not liable for partnership loss (Art 1769) but will answer for partnership liabilities or
contractual obligations to 3rd persons subject to
reimbursement from capitalists (Art 1816); prohibited from engaging in any kind of business (Art 1769)
• QUERY: Are the businesses of selling banana que and selling banana only classified the same?
KINDS OF PARTNERS
• LIMITED/SPECIAL PARTNER – mere
contributor/investor; cannot contribute industry • MANAGING PARTNER – one who has been
tasked to manage the affairs of the partnership; may nor may not have been appointed in the articles of partnership
• LIQUIDATING PARTNER – one who is tasked to take charge of the affairs of the partnership on dissolution
KINDS OF PARTNERS
• PARTNER BY ESTOPPEL/NOMINAL PARTNER – a partner by implication
• OSTENSIBLE PARTNER – one known to the public as partner and participates actively
• SECRET PARTNER – one who takes active part in the partnerships affairs but is now publicly
known as a partner
• SILENT PARTNER – one who does not take active part in partnership business
KINDS OF PARTNERS
• DORMANT PARTNER/ SLEEPING PARTNER – one who is both silent and does not participate • INCOMING PARTNER – one belatedly
accepted in the partnership
• RETIRING PARTNER – one who has withdrawn from the partnership
• SUBPARTNER – technically not a
partner/member of the partnership but shares in a partner’s shares in the partnership
KINDS OF PARTNERS
GENERAL BASIS LIMITED
Personally liable PARTNERSHIP
OBLIGATIONS
Capital contribution
Equal rights MANAGEMENT RIGHTS No rights
Proper party PARTICIPATION IN
LAWSUITS
Not a party Not assignable unless with
consent of other partners
ASSIGNABILITY OF PARTNERSHIP
INTEREST
Freely assignable
Cannot engage in similar business if capitalist; in any business if industrialist
PROHIBITION No prohibition
Dissolution of partnership EFFECT OF DEATH,
INSANITY, INSOLVENCY OF PARTNER
No effect
REFERENCES
• De Leon, H.S. (2010), The Negotiable Instruments Law, Quezon City: REX Printing
Company, Inc.
• De Leon, H.S. (2010), The Law on Partnerships and Corporation Code, Quezon City: REX
Printing Press
• REFERENCES
• Black's law dictionary (8th ed) (2007). St. Paul, MN. : West Pub.
• Commercial laws of the Philippines.]. (2009). Manila: Rex,
• Decasa, Lucila M. (2009). Handbook on private corporations: domestic and foreign. Manila:
Rex.
• De Leon, Hector S. (2010). (10th ed).The Corporate code of the Philippines: annotated.
Manila: Rex,
• De Leon, Hector S. (2010). (2010 ed.).The Philippine negotiable instruments law and allied
laws annotated Manila: Rex,
• Torress, Justo P. (2008). The law on business organizations (partnerships and
corporation). Manila: Rex,
