BUSINESS LAW
CHAPTER 1: GENERAL PROVISIONS
Art. 1767. A contract of partnership is one have no legal personality and shall be governed
wherein two or more persons bind themselves to by the provisions on CO-OWNERSHIP (Art.
contribute money, property, or industry to a 1775).
common fund, with the intention of dividing the ● "kept secret among the members" = secrecy
profits among themselves. directed not to third persons but to some of the
● Two or more persons may also form a partners
partnership for the exercise of a
profession. CHARACTERISTICS of a contract of
● Partnership is also a juridical person; its partnership:
personality is separate and distinct from 1. Consensual
the partners (entity theory)- Art. 1768 2. Commutative
3. Principal
SEPARATE JURIDICAL PERSONALITY 4. Bilateral
Art. 1768. The partnership has a juridical 5. Onerous
personality separate and distinct form that of each 6. Nominate
of the partners, even in case of failure to comply 7. Preparatory
with the requirements of Article 1772, first
paragraph. Concept Highlights:
1. Essentially Contractual in nature (Art.
As a JURIDICAL PERSON, a partnership may: 1767, 1784)
1. acquire and possess property of all kinds; 2. Separate Juridical Personality (Art.
2. incur obligations; and 1768)
3. bring civil or criminal actions, in 3. Delectus Personae = The selection or
conformity with the laws and regulations choice of the person. The right to choose
of their organization. with whom a person wishes to associate.
● The assignment of a partner of his
ELEMENTS OF A PARTNERSHIP: share does not make assignee a
1. There shall be a partnership whenever: partner (Art. 1804 and 1813)
2. There is a meeting of the minds= ● The existence of the partnership is
partnership is perfected by mere consent. closely tied-up to the particular
3. To form a common fund; contractual relationship of the partners
4. With intention that profits (and losses) will (Ortega v. CA, G.R. No. 109248, July
be divided among the contracting parties. 3, 1995 Doctrine of Delectus
Personae)
ESSENTIAL FEATURES: ● The birth and life of a partnership at
1. There must be a VALID CONTRACT. will is predicated on the mutual desire
2. There must be a mutual contribution of and consent of the partners.
money, property, or industry to a ● The right to choose with whom a
COMMON FUND. person wishes to associate himself is
3. There must be a LAWFUL OBJECT, the very foundation and essence of
PURPOSE and the parties must have that partnership.
LEGAL CAPACITY to enter into the 4. Mutual Agency (Art. 1803) - Every
contract parties have the (Art 1670) Partner is an agent of the partnership
4. The purpose or primary purpose must be
to obtain PROFITS and DIVIDE the same MEANING of MUTUAL AGENCY
among the parties. ● In the absence of contractual stipulation,
all partners shall be considered agents and
● It is also required that the articles of whatever any one of them may do alone
partnership must NOT be kept SECRET among shall bind the partnership (Art. 1803[1],
the members; otherwise, the association shall 1818)
BUSINESS LAW
CHAPTER 1: GENERAL PROVISIONS
● Partners can dispose of partnership
property even when in partnership name FORM OF PARTNERSHIP CONTRACT
(Art. 1819) GENERAL RULE: No special form is required for
● An admission or representation made by the validity of a contract.
any partner concerning partnership affairs
is evidence against the partnership (Art. EXCEPTIONS:
1820)- Admission of one is admission of all 1. Where immovable property/real rights are
● Notice to any partner of any matter contributed (Art. 1771)
relating to partnership affairs is notice to A. Public instrument is necessary
the partnership (Art. 1821)- notice to one B. Inventory of the property contributed
is notice to all must be made, signed by the parties and
● Wrongful act or omission of any partner attached to the public instrument
acting for partnership affairs makes the otherwise it is VOID
partnership liable (Art. 1822)- fault of one 2. When the contract falls under the coverage of
is fault of all the Statute of Frauds (Art. 1409)
● Partnership bound to make good losses for 3. Where capital is P3,000 or more, in money or
acts or misapplications of partners (Art. property (Art. 1772)
1823) UNLIMITED LIABILITY A. Public instrument is necessary
● All partners are liable pro rata with all B. Must be registered with SEC
their properties and after partnership
assets have been exhausted, for all EFFECT OF ABSENCE OF REQUIREMENTS UNDER
partnership debts (Art. 1816)- even ARTICLES 1771 AND 1773 CONDITION OF
industrial partner is liable to the third PARTNERSHIP WHERE REAL PROPERTY IS
party but he may seek reimbursement CONTRIBUTED BAUTISTA, E. DE LEON
from capitalist partners. 1. No public Instrument, No Inventory =
● Any stipulation against personal liability of VOID
partners for partnership debts is void, 2. With Public Instrument, No Inventory =
except as among them (Art. 1817) VOID
● All partners are liable solidarily with the 3. No Public Instrument, With Inventory
partnership for everything chargeable to =VALID, but either party may compel
the partnership when caused by the execution of public instrument so it may
wrongful act or omission of any partner be registered in the registry of property;
acting in the ordinary course of business nonetheless, partnership agreement may
of the partnership or with authority from be enforced (cf. Arts. 1356 to 1358)
the other partners and for partner's act or 4. With Public Instrument, With Inventory =
misapplication of properties (Art. 1824) VALID
● A newly admitted partner into an existing NOTE: SEC Opinion, 1 June 1960: For purposes of
partnership is liable for all the obligations convenience in dealing with government offices
of the partnership arising before his and financial institutions, registration of
admission but out of partnership property partnership having a capital of less than Php
shares (Art. 1826) 3,000is recommended
● Partnership creditors are preferred to
those of each of the partners as regards
the partnership property (Art. 1827)
● Upon dissolution of the partnership, the
partners hall contribute the amounts
necessary to satisfy the partnership
liabilities (Art. 1839[4], [7])
5. Personal liability of partners for
partnership debts
BUSINESS LAW
CHAPTER 1: GENERAL PROVISIONS
BUSINESS LAW
CHAPTER 1: GENERAL PROVISIONS
PARTNERSHIP DISTINGUISHED FROM CO-OWNERSHIP AND CORPORATION
PARTNERSHIP CO-OWNERSHIP CORPORATION
Created by a contract, Created by law Created by law
CREATION by mere agreement of
the parties
Has a juridical None Has a juridical personality
JURIDICAL personality separate separate and distinct from that
PERSONALITY and distinct from that of each stockholder
of each partner
Realization of profits Common enjoyment of 50 years maximum, extendible to
a thing or right not more than 50 years in any
Depends on AOI one instance Disposal( Now
PURPOSE
Duration/ Term of indefinite)
existence No limitation
10 years maximum
Partner may not Co-owner may freely Stockholder has a right to
dispose of his do so transfer shares without prior
TRANSFERABILITY individual interest consent of other stockholders
OF INTEREST unless agreed upon by
all partners
Mutual Agency every In absence of Management is vested with the
POWER TO ACT partner may bind stipulation to contrary, right of Representation (BOD &
WITH 3RD partnership (each a Co-owner cannot BOT)
PERSONS partner is agent of represent
partnership
1.) Death of partner 2.) Death of co-owner 3.) Death of stockholder does
EFFECT OF DEATH results in dissolution does not necessarily not dissolve corporation
of partnership dissolve co-ownership
May be dissolved at May be dissolved Can only be dissolved with the
any time by the will of anytime by the will of consent of the state or of
DISSOLUTION
any or all of the any or all of the co- incorporators
partners owners
1.) From the moment 2.) None 3.) From date of issuance of
COMMENCEMENT of execution of certificate of incorporation by the
OF JURIDICAL contract of partnership SEC Heirs of Tan Eng Kee v.
PERSONALITY CA,G.R. No. 126881,. October 3,
2000
Partnership Distinguished from Joint
Venture
BUSINESS LAW
CHAPTER 1: GENERAL PROVISIONS
● Death, insolvency, or civil interdiction of a
A particular partnership is distinguished from joint
partner dissolves the partnership (Art.
venture to wit:
1830 [5],[6],[7])
1. a joint venture (an American concept like
our joint account) is a sort of informal ● Petition by partner will dissolve the
partnership, with no firm name and no partnership when a partner has been
legal personality. In a joint account, the declared insane; or the partner has
participating merchants can transact become incapable of performing his part
business under their own name, and can of the partnership contract; a partner has
be individually liable; therefore, and been found guilty of such conduct as
2. usually, but not necessarily a joint venture tends to affect prejudicially the
is limited to a single transaction, although partnership business; partner willfully or
the business of pursuing to a successful persistently commits a breach of
termination may continue for several partnership agreement; the partnership
years; a partnership generally relates to a business can only be carried at a loss;
continuing business of various transactions other equitable reasons (Art. 1831)
of a certain kind.
Under Philippine law, a joint venture is a FORM of NOTE:
PARTNERSHIP, specifically a particular partnership
● SEC Opinion, 28 April 1995: The death of
which has for its object specific undertaking.
Aurbach v. Sanitary Wares,180 SCRA 130 (1989) a partner, as a general rule, dissolves the
The Supreme Court has, however, recognized a partnership by operation of law, except if
distinction between these two business forms and the articles of partnership stipulate for the
has held that although a corporation cannot enter continuance of the partnership relations
a partnership, it may, however, engage in a joint upon the death of any of the partners.
venture with others. ● SEC Opinion, 5 August 1997: If the
remaining partners of the dissolved
WEAKNESSES OF A PARTNERSHIP
partnership intended for all legal intents
● Partners are co-owners of the partnership and purposes, to continue the partnership
properties and enjoy personal possession business even after the death of a partner,
(Art. 1811) there is continuity of personality of the
partnership as there exists a "partnership
● Partners may individually dispose of real
at will."
property of the partnership even when in
partnership name (Art. 1819) RULES TO DETERMINE EXISTENCE OF
● Dissolution of the partnership can come PARTNERSHIP
about by the change in the relationship of
GENERAL RULE:
the partners, such as when a partner
Persons who are NOT partners as between
chooses to cease being part of the
themselves, CANNOT be partners as to third
partnership (Art. 1828, 1830[1]b)
persons. (Art. 1769)
● Expulsion of partner dissolves the
partnership (Art. 1830[1]d) EXCEPTION:
● Dissolved by the loss of the thing Partnership by Estoppel under Article 1825
OTHER RULES TO DETERMINE WHETHER A
promised to be contributed to the
PARTNERSHIP EXISTS: (See Art. 1769)
partnership (Art. 1830[4])
1. Co-ownership or co-possession does not of
itself establish a partnership
BUSINESS LAW
CHAPTER 1: GENERAL PROVISIONS
2. The sharing of gross returns does not of 2. Where, without the knowledge or
itself establish a partnership, whether or participation of the partners, the firm's
not the persons sharing them have a joint profits in a lawful business have been
or common right or interest in any increased by wrongful acts, the innocent
property from which the returns are partners are not precluded as against the
derived. guilty partners from recovering their share
3. The receipt by a person of a share of the of the profits. (De Leon, p. 65)
profits of a business is prima facie CLASSIFICATIONS OF PARTNERSHIP:
evidence that he is a partner in the
business, UNLESS such were received in AS TO EXTENT OF ITS SUBJECT MATTER
payment: 1. UNIVERSAL PARTNERSHIP
a) As debt by installments or otherwise; A. UNIVERSAL PARTNERSHIP OF ALL
b) As wages or rent; PRESENT PROPERTY
c) As annuity; comprises the following:
d) As interest on loan; ● Property which belonged to each of the
e) As consideration for sale of goodwill of
partners at the time of the constitution of
business/other property by
the partnership
installments
Art. 1770. A partnership must have a lawful object ● Profits which they may acquire from all
or purpose and must be established for the property contributed
common benefit or interest of the partners. B. UNIVERSAL PARTNERSHIP OF
PROFITS
When an unlawful partnership is dissolved by a
● comprises all that the partners may
judicial decree, the profits shall be confiscated in
favor of the State, without prejudice to the acquire by their industry or work during
provisions of the Penal Code governing the the existence of the partnership
confiscation of the instruments and effects of a NOTE: Persons who are prohibited from giving
crime. donations or advantage to each other cannot
enter into a universal partnership. (Art. 1782)
EFFECTS OF AN UNLAWFUL PARTNERSHIP:
1. The contract is void ab initio and the 2. PARTICULAR PARTNERSHIP — has for its
partnership never existed in the eyes of objects:
the law. (Art. 1409[1]) A. Determinate things
2. The profits shall be confiscated in favor of B. Their use or fruits
the government. (Art. 1770) C. Specific undertaking
3. The instruments or tools and proceeds of D. Exercise of profession or vocation
the crime shall also be forfeited in favor of
the government. (Art. 1770, Art. 45-RPC) AS TO LIABILITY OF PARTNERS
4. The contributions of the partners shall not 1. GENERAL PARTNERSHIP — consists of
be confiscated unless they fall under no. general partners who are liable pro rata and
3. (See Arts. 1411 and 1412) subsidiarily and sometimes solidarily with their
separate property for partnership debts.
NOTE: Judicial decree is not necessary to dissolve 2. LIMITED PARTNERSHIP — one formed by
an unlawful partnership. 2 or more persons having as members one or
more general partners and one or more
EFFECT OF PARTIAL ILLEGALITY: limited partners, the latter not being
1. Where a part of the business of a personally liable for the obligations of the
partnership is legal and a part illegal, an partnership
account of that which is legal may be had.
AS TO DURATION
BUSINESS LAW
CHAPTER 1: GENERAL PROVISIONS
3. PARTNERSHIP AT WILL — one in
which no time is specified and is not
formed for a particular undertaking or
venture which may be terminated anytime
by mutual agreement
4. PARTNERSHIP WITH A FIXED TERM
— the term for which the partnership is to
exist is fixed or agreed upon or one
formed for a particular undertaking
AS TO LEGALITY OF EXISTENCE
1. DE JURE PARTNERSHIP — one which
has complied with all the legal
requirements for its establishment
2. DE FACTO — one which has failed to
comply with all the legal requirements for
its establishment
AS TO PURPOSE
1. COMMERCIAL OR TRADING
PARTNERSHIP — one formed for the
transaction of business
2. PROFESSIONAL OR NON-TRADING
PARTNERSHIP — one formed for the
exercise of a profession
