Q: What is a partnership?

A: A partnership is contract of two or more competent persons to place their money, effects,
labor and skill, or some or all of them, in lawful commerce or business and to divide the profits
and bear the losses in certain proportions
Q: what are the characteristic elements of partnership?
A:
1. Consensual- it is perfected by mere consent
2. Nominate-because it has a special name or designation in our law
3. Bilateral- because it is entered into by two or more persons and the rights and obligations
arising therefrom are always reciprocal
4. Onerous-because each of themselves a benefit through the giving of something
5. Commutative- because the undertaking of each of the partners is considered as the
equivalent of that of the others
6. Principal-because it does not depend for its existence or validity upon some other
contracts; and
7. Preparatory-because it is entered into as a means to an end

Q: what are the essential features of a partnership?

A:
1. There must be a valid contract
2. The parties (two or more) must have legal capacity to enter into the contract
3. There must be a mutual contribution of money, property or industry to a common fund
4. The object must be lawful
5. The primary purpose must be to carry on a business for profits and to divide the same
among the parties.
Q: what happens when the articles of partnership was kept as a secret among the members?
A: the association shall have no legal personality and shall be governed by the provisions of the
Civil Code relation to co-ownership

Q: Define Articles of Partnership

A: it states the name, nature or purpose and location of the firm, and defining, among others, the
powers, rights, duties, and liabilities of the partners among themselves, their contributions, the
manner by which the profits and losses are to be shared, and the procedure for dissolving the
partnership.
Q: what are the requisites of a valid partnership?
A:
1. Consent and capacity of the contracting parties
2. Object which is the subject matter of the contract
3. Cause which is established

Q: What is the application of principles of estoppel?

A:
-a partnership liability may be imposed upon a person under principles of estoppel where he
holds himself out, or permits himself to be held out, as a partner in an enterprise.
-in such cases, there is no actual or legal partnership relation but merely a partnership liability
imposed by law in favor of third persons
- a partnership may be created without any definite intention to create it.
-in case there is no written agreement between the parties, the existence or non-existence of a
partnership must be determined from the conduct of the parties, any documentary evidence
bearing thereon, and the testimony of the parties.

Q: When does emancipation takes place?

A:
1. By the marriage of the minor; or
2. By recording in the Civil Register of an agreement in a public instrument executed by the
parents exercising parental authority and the minor at least eighteen years of age. SUCH
EMANCIPATION SHALL BE IRREVOCABLE.
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Donations
-every donation or grant of gratuitous advantage, direct or indirect, between the spouses
DURING THE MARRIAGE SHOULD BE VOID.
- except moderate gifts which the spouses may give each other on the occasion of any family
rejoicing.
-the prohibition shall also apply to persons living together as husband and wife without a valid
marriage.
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GR: Either spouse may exercise any legitimate profession, occupation, business or activity
without the consent of the other.
Exception: only on valid, serious or moral grounds
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Corporations
-is without any capacity or power to enter into a contract of partnership
-however, may enter into joint venture.
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Contribution of money, property, or industry to a common fund
Money- understood as referring to currency which is legal tender in the Philippines
Property- it may be real, or personal, corporeal or incorporeal
-hence, credit such as promissory note or other evidence of obligation or even a mere goodwill
may be contributed, as they are considered property
Industry-has been interpreted to mean the active cooperation, the work of the party associated,
which may be either personal manual efforts or intellectual, and for which he receives a share in
the profits (not merely salary) of the business.
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Legality of the object- as in other kinds of contract, the purpose of a partnership must be lawful,
otherwise, no partnership can arise as the contract is inexistent and void ab initio.
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Purpose to carry on a business
-for profits
-all that is needed is a profit motive. Hence, even an unprofitable business can be a partnership
provided that the goal of the business is to generate profits and to return these profits to the
partners as owners of the business.
-it is sufficient that it is the principal purpose even if there are, incidentally, moral. Social or
spiritual ends. In a partnership, the parties intend to share the profits in certain proportions.

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Sharing of profits
-one without any right to participate in the profits, cannot be deemed as a partner since the
essence of partnership is that the partners share in the profits and losses.
-HOWEVER, the sharing in profits is merely presumptive and not conclusive, even if cogent,
evidence of partnership.
- it is not necessary for the parties to agree upon a system of sharing losses, for the obligation is
implied from the partnership relation.
- in view of the separate juridical personality possessed by a partnership, the partners cannot be
held liable for the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for a fraudulent, unfair or illegal purpose.
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Burden of proof and presumption
-the burden of proving the existence of a partnership rests on the party having the affirmative of
that issue
-we therefore, arrive at the rule that the legal intention is the crux of the partnership
Partnership Business Trust
All of the members are principals and are The trustee is only a principal and is not an
agents for each other. agent.

A partner shares the same rights with his Only the trustee and not the beneficiaries is
other partners. empowered to make contracts to carry on the
business affairs and the only one who has
legal title to the property.

Distinction Partnership Co-ownership

Creation Is always created by a Is generally created by law, it
contract, either express or may exist even without a
implied contract.
Juridical Personality It has a juridical personality A co-ownership has no
separate and distinct from separate juridical personality
that of each partner.
Purpose The purpose of a partnership It is the common enjoyment
is the realization of profits of a thing or right which does
not necessarily involve the
sharing of profits.
Duration Under the law, there is no -in co-ownership, an
limitation upon the duration agreement to keep the thing
of a partnership. undivided for more than 10
years is not allowed.
Disposal of interests A partner may not dispose of While a co-ownership may
his individual interests in the freely do so.
partnership as to make the
assignee a partner unless
agreed upon by all of the
 partners.
Power to act with third In the absence of any While a co-owner cannot
persons stipulation to the contrary, a represent the co-ownership.
partner may bind the
partnership.
Effect of death The death of a partner results The death of a co-owner does
in the dissolution of the not necessarily dissolve the
partnership. partnership.

Q: What are the effects of an unlawful partnership?

A:
1. The contract is void ab initio and the partnership never existed in the eyes of the law
2. Neither partner has the right to require the division of the profits, if any
3. The profits shall be confiscated in favor of the government,
4. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the
government, and
5. The contributions of the partners shall not be confiscated unless THEY ARE THE
PROPERTY OF A THIRD PERSON NOT LIABLE FOR THE OFFENSE. But those
articles which are not subject of lawful commerce shall be destroyed.

Q: What is the effect of the nullity of the proceeds?

A:
Both parties being in pari delicto When only one of the parties is guilty
They shall have no action against each other The innocent one may claim what he has
and both shall be prosecuted. given, and shall not be bound to comply with
his promise.

The party who is at fault cannot recover what

he has given by reason of the contract, or ask
for the fulfillment of what has been promised
by him.

Q: What is the effect of partial illegality of partnership business?

A:
1. Where a part of the business of a partnership is legal and a part illegal, an account of that
which is legal may be held.
2. The innocent partners are not precluded as against the guilty partners from recovering
their share of the profits.
Q: What is the effect of subsequent illegality of partnership business?
A: where the business for which the partnership is formed is legal when the partnership is
entered into, but afterward becomes illegal, an accounting may be had as to the business
transacted prior to such time.
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Form of Partnership Contract
GR: no special form is required for the validity or existence of the contract of partnership.
Exception:
1. Where immovable property or real rights are contributed
-they require the execution of a public instrument for the validity of a contract of
partnership whenever immovable property is contributed thereto.
-to affect third persons, the transfer of real property to the partnership must be duly
registered in the Registry of Property of the province or city where the property
contributed is located.
2. When partnership agreement covered by Statute of Frauds
- an agreement to enter in a partnership at a future time, which “by its terms is not to be
performed within a year from the making thereof.”
-such agreement is unenforceable unless the same be in writing or at least evidenced by
some note or memorandum thereof subscribed ty the parties.
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Registration of partnership
-partnership with capital of Php3,000 or more in money or property
a. the contract must appear in a public instrument; and
b. it must be recorded or registered with the SEC
-HOWEVER, 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.
-but any of the partners is granted the right by the law to compel each other to execute the
contract in a public instrument. Of course, this right cannot be availed of if the partnership is
void.
Ratio: the requirement of public instrument is imposed as a pre-requisite to registration, and
registration is necessary as “a condition for the issuance of licenses to engage in business or
trade.”
-the Securities and Exchange commission performs the works of a mercantile registrar insofar as
the recording of articles of partnership is concerned.
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Q: What are the requirements of a partnership with contribution of immovable property
A:
1. The contract must be in a public instrument
2. An inventory of the property contributed must be made, signed by the parties, and
attached to the public instrument.
Q: What is the effect of it on the contracting parties if the formalities were not followed?
A: the absence of either formality renders the contract void.

Q: What is the effect of it as to third persons?

A: Such article is intended primarily to protect third persons. With regard to them, a de facto
partnership or partnership by estoppel may exist.
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Q: When inventory is not required?
A:
1. When immovable property is not contributed
2. When property contributed is personal(movable)
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Q: What is the importance of making inventory of real property in a partnership?
A:
1. Share in the common fund and in case of liquidation
2. Inscription in the Registry of Property.
Note: any immovable property or interest therein may be acquired in the partnership name.
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What are the classifications of a partnership?
I. As to the extent of its subject matter
Universal partnership Particular Partnership
Or one which refers to all present property It is a partnership which is neither a
or to all profits universal partnership of present property
 nor a universal partnership of profits

Universal partnership of all present property Universal partnership of profits

In which the partners contribute all the It comprises all that the partners may
property which actually belongs to them to acquire by their industry or work during the
a common fund, with the intention of existence of the partnership.
dividng the same among themselves, as well
as all the profits they may acquire therewith

II. Liability of the partners

General partnership Limited partnership
One that is consisting of general partners One formed by two (2) or more persons
who are liable pro rate and subsidiarily and having as members one or more general
sometimes solidarily with their separate partners and one or more limited partners,
property for partnership debts the latter not being personally liable for the
obligations of the partnership.

III. As to its duration

Partnership at will Partnership with a fixed term
Which no time is specified and is not One which the term for the partnership is to
formed for a particular undertaking or exist is fixed or agreed upon or upon or one
venture and which may be terminated at formed for a particular undertaking and
anytime by mutual agreement of the upon the expiration of the term or
partners or by the will of any one partner completion of the particular enterprise, the
alone partnership is dissolved, unless continued
by the partners.

IV. As to the legality of its existence

De Jure partnership De facto partnership
One which has complied with all the legal One which has failed to comply with all the
requirements for its establishment legal requirements for its establishment

V. As to representation to others.
Ordinary or real partnership Ostensible partnership or partnership by
estoppel
One which actually exists among the One which in reality is not a partnership but
partners and also as to third persons is considered a partnership only in relation
to those who by their conduct or admission
are precluded to deny or disprove its
existence.
VI. As to publicity
Secret partnership Open or notorious partnership
Wherein the existence of certain persons as One whose existence is avowed or made
partners is not avowed or made known to known to the public by the members of the
the public by any of the partners firm

VII. As to the purpose

Commercial or trading partnership Professional or non-trading partnership
One formed for the transaction of business One formed for the exercise of a profession

Q: What are the different kinds of partners

A:
Under the Civil Code
1. Capitalist partner-one who contributes money or property to the common fund
2. Industrial partner-one who contributes only his industry or personal service
3. General partner-one whose liability to third persons extends to his separate property; he
may be either a capitalist or industrial partner.
4. Limited partner-one whose liability to third persons is limited to his capital contribution
5. Managing partner-one who manages the affairs or business of the partnership he may be
appointed either in the articles of partnership or after the constitution of the partnership
6. Liquidating partner-one who takes charge of the winding up of partnership affairs upon
dissolution
7. Partnership by estoppel-one who is not really a partner, not being a party to a partnership
agreement, but is liable as a partner for the protection of innocent third persons.
8. Continuing partner-one who continues the business of a partnership after it has been
dissolved by reason of the admission of a new partner or the retirement, death or
expulsion of one or more partners.
9. Surviving partner-one who remains after a partnership has been dissolved by the death of
any partner
10. Subpartner-one who not being a member of the partnership, contracts with a partner with
reference to the latter’s share in the partnership.
Q: What is a universal partnership of all present property?
A:
In this kind of partnership, the following become the common property of all the partners:
1. Property which belonged to each of them at the time of the constitution of the partnership
2. Profits which they may acquire from the property contributed
Gr: future properties cannot be contributed. Thus property subsequently acquired by inheritance,
legacy or donation cannot be included by stipulation.
Exception: profits or gains that may be derived therefrom.

Q: What is the universal partnership of profits?

A
Included Not Included
1. profits or income and the use or 1.The ownership of each parties over their
usufruct of the present and future present and future property.
property. 2. Profits acquired through chance, such as
2. Profits which the partners may acquire lottery or by lucrative title without
by their industry or work during the employment of any physical or intellectual
existence of the partnership as well as efforts.
the usufruct of their present properties 3. Fruits of property subsequently acquired by
belong to the partnership as a matter the partners do not belong to the partnership.
of right.
EXCEPT: BY EXPRESS STIPULATION.

Q: What is the status where the articles of partnership do not specify the nature of the
partnership?
A: It will be presumed that the parties intended merely a partnership of profits. The reason for
this presumption is that a universal partnership of profits imposes less obligations on the partners
since they preserve the ownership of their separate property.
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Q: What are the donations deemed to be void?
A:
1. Those made between persons who were guilty of adultery or concubinage at the time of
the donation
2. Those made between persons found guilty of the same criminal offense
3. Those made to a public officer or his wife, descendants and ascendants
-it is not required that there be a previous conviction for adultery or concubinage. This can be
inferred from the clause that “the guilt of the donor and the done may be proved by
preponderance of evidence.”
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Universal Partnership Particular Partnership
 The object is vague and indefinite, It is limited and well-defined being confined
contemplating a general business with some to an undertaking of a single, temporary, or ad
degree of continuity. hoc nature.
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Q: What are the relations created by a contract of partnership?
A:
1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with third persons with whom it contracts; and
4. Relations of the partners with such third persons

Q: what are the rights and obligations, in general, of partners inter se?
A:
-a partner is a trustee to the extent that his duties bind him with respect to his co-partners and the
partnership, and a cestui que trust as far as the duties that rest on his co-partners
-when a partnership is dissolved, the assets of the partnership must still be managed in
accordance with his fiduciary principle
-the rights and obligations of the partners as to each other are provided on the theory that a
partner is both a principal and an agent in relation to his co-partners.

Q: What are the obligations with respect to contribution of property?

A:
1. To contribute at the beginning of the partnership OR at the stipulated time the money,
property, or industry which he may have promised to contribute
2. To answer for eviction in case the partnership is deprived of the determinate property
contributed; and
3. To answer to the partnership for the fruits of the property the contribution of which he
delayed, form the date they should have been contributed up to the time of actual delivery
4. To preserve said property with the diligence of a good father of a family pending delivery
to the partnership
5. To indemnify the partnership for any damage caused to it by the retention of the same or
by delay in its contribution
Note: it necessarily follows that the same cannot be withdrawn or disposed of by the contributing
partner without the consent or approval of the partnership or of the other partners.
Q: What is the remedy of other partners or the partnership?
A: An action for specific performance (to collect what is owing) not recission.

Q: When can there be an eviction?

A: whenever by a final judgment based on a right prior to the sale or an act imputable to the
vendor, the vendee is deprived of the whole or a part of the thing purchased.

Q: When is a partner who has undertaken to contribute a sum of money to the partnership be held
liable?
A: the guilty partner is liable from the time he should have complied with his obligation or from
the time he converted the amount to his own use, as the case may be.

Q: What is the liability of a partner for failure to return partnership money received?
A:
Where fraudulent misappropriation is Where there was mere failure to return
committed
A partnership is guilty of estafa The action that lies with the partner who
furnished capital for the recovery of his
This happens when a partner misappropriates money is a civil one arising from the
partnership money or property received by partnership contracted for a liquidation of the
him for a specific purpose of the partnership. partnership and a levy on its assets.

Q: What are the obligations of an industrial partner?

A:
1. Unless the contrary is stipulated, he becomes a debtor of the partnership for his work or
services from the moment the partnership relation begins.
2. Action for specific performance is not available as a remedy because this will amount to
involuntary servitude which, as a rule, is prohibited by the Constitution.
3. Prohibited to engage in the same business in which the partnership is engaged or in any
kind of business. Else without the express permission of the partnership and the industrial
partner engages himself, the capitalist partners have the right either to exclude him from
the firm or to avail themselves of the benefits which he may have obtained.

Q: What is the prohibition against engaging in business?

A:
 Industrial Partner Capitalist Partner
Absolute and applies whether the industrial Only to any operation which is of the same
partner is to engage in the same business in kind of business in which the partnership is
which the partnership is engaged or in any engaged unless there is a stipulation to the
kind of business. contrary.

Q: When does the obligation of a capitalist partner to contribute additional capital begins?
A: The following are the requisites before a capitalist partner may be obliged to sell his interest
to others:
1. There is an imminent loss of the business of the partnership
2. The majority of the capitalist partners are of the opinion that an additional contribution to
the common fund would save the business
3. The capitalist partner refuses deliberately (NOT BECAUSE OF HIS FINANCIAL
INABILITY TO DO SO) to contribute an additional share to the capital; and
4. There is no agreement that even in case of an imminent loss of the business, the partners
are not obliged to contribute.

Obligation of managing partner who collects debt

Q: What are the requisites for application of rule?
A:
1. There exist at least two (2) debts, one where the collecting partner is creditor, and the
other, where the partnership is the creditor
2. Both debts are demandable
3. The partner who collects is authorized to manage and actually manages the partnership.
GR: the sum received by the managing partner shall be applied to the two (2) credits in
proportion to their amounts.
Exception: where he received it for the account of the partnership, in which case the whole sum
shall be applied to the partnership credit only.
Note: the article does not apply where the partner who collects for his own credit only is not
authorized to manage, for there can be no ground for suspicion that he may have acted
improperly to create an undue advantage to himself.
Q: What is the right of debtor to application of payment?
A: The debtor is given the right to prefer payment of the credit of the partner if it should be more
onerous to him in accordance with his right to application of payment.
NOTE: IN ORDER FOR SUCH APPLICATION TO EXIST, THERE SHOULD BE A PRIOR
DEMAND FIRST.
Obligation of partner who receives share of partnership credit
-required to share to the other partners what was given to him for it will be unjust if he will not
share it.
Q: What are the requisites for application of rule?
A:
1. A partnership has received, in whole or in part, his share of the partnership credit
2. The other partners have not collected their shares
3. The partnership debtor has become insolvent.

Obligation of partnership for damages to partnership.

GR: The damages caused by a partner to the partnership cannot be offset by the profits or
benefits which he may have earned for the partnership by his industry.
Exception: If unusual profits are realized through the extraordinary efforts of the partner at fault,
the courts may equitably mitigate or lessen his liability for damages.

Risk of loss of things contributed

Partner Partnership
Specific and determinate things which are not Specific and determinate things THE
fungible where only the USE IS OWNERSHIP of which is transferred to the
CONTRIBUTED partnership
Fungible (consumable) things or things which
cannot be kept without deteriorating EVEN if
they are contributed only FOR THE USE of
the partnership
Things contributed to be sold
BEFORE things are brought and appraised in Things brought and appraised in the
the inventory inventory, the partnership bears the risk of
loss because of the intention of the parties
was to contribute to the partnership the price
of the things contributed with an appraisal in
the inventory.

Q: What is the responsibility of the partnership to the partners?

A:
-being a mere agent, the partner is not personally liable, provided, however, that he is free from
all fault and he acted within the scope of his authority.
- in the absence of an agreement to the contrary, no partner is entitled to compensation for his
services to he partnership without the consent of all the partners unless it can be implied from the
circumstances that the parties intended a partner to receive additional compensation where the
partner’s work was beyond normal partnership functions.

Q: What is the share of each partner in the profits and losses?

A:
1. According to stipulation
2. In proportion to what he may have contributed, but the purely industrial partner shall not
be liable for the losses.