PARTNERSHIP

ATTY. FUTOSHI IVAN T. MATSUYAMA

3BMA & 3CMA
GENERAL PROVISIONS
Article 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.
GENERAL PROVISIONS
Twin requirements to determine the existence of
partnership:
(1)Two or more persons bound themselves to contribute
money, property, or industry to a common fund; AND
(2)Said persons intend to divide the profits among
themselves
 GENERAL PROVISIONS
A contract of partnership is consensual in nature.

Note: A partnership begins from the moment of the

execution of the contract, unless it is otherwise stipulated.
(Article 1784)
 GENERAL PROVISIONS
Difference of a consensual and real contract:

Consensual contract – a contract that is perfected by mere consent and

from that moment, the contracting parties may reciprocally demand
performance with respect to each other. (See: Article 1319; Cognition Theory)

Real contract – are contracts which are not perfected until the delivery of
the object of the obligation. (Example: deposit, pledge and commodatum)
 GENERAL PROVISIONS
A partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated. (Article 1784)

Heirs of Jose Lim vs. Lim (G.R. No. 172690, March 3,

2010)
”The best evidence of the existence of the partnership is the
contract or articles of partnership”.
GENERAL PROVISIONS
Important considerations:
1. The essential requisites of a contract must be present
2. Principle of autonomy of contracts, obligatory force of
contracts, mutuality of contracts applies, relativity of
contract (depending on the stipulation) applies
3. Primary intention is to obtain profits and divide the same
among the parties
GENERAL PROVISIONS
Important considerations:
4. Partners are considered agents of the partnership
5. Deluctus Personae – a partner selects his or her partner
and thus by entering into a partnership, generally, the act
of one is the act of all
GENERAL PROVISIONS
Article 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not partners as to each other are not partners as to third
persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-
possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or 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, but no such inference shall be drawn if such profits were received in payment:
(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 or representative 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.
 GENERAL PROVISIONS
Article 1768. The partnership has a juridical personality separate and distinct from that of each
of the partners, even in case of failure to comply with the requirements of article 1772, first
paragraph.

Article 1772. Every contract of partnership having a capital of three thousand pesos or more, in
money or property, shall appear in a public instrument, which must be recorded in the Office of
the Securities and Exchange Commission.

Rule: Non-compliance with: (1) Public instrument requirement; or (2) Recording to SEC, DOES
NOT affect the juridical personality of the partnership as well as its liability to third persons.
GENERAL PROVISIONS
Article 1775. Associations and societies, whose articles
are kept secret among the members, and wherein any one
of the members may contract in his own name with third
persons, shall have no juridical personality, and shall be
governed by the provisions relating to co-ownership.
 GENERAL PROVISIONS
Article 1770. A partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners.

Hence, the contract of partnership is void if object or purpose is unlawful.

Reason: Article 1306, Article 1409 (1)

Effect: Article 1770 (2)

 GENERAL PROVISIONS
G.R. A partnership may be constituted in any form. (Article 1771)

Article 1356. Contracts shall be obligatory, in whatever form

they may have been entered into, provided all the essential
requisites for their validity are present.
 GENERAL PROVISIONS
Exception:
Article 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.

Article 1356. “…However, when the law requires that a contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable.”

NOTE: In Torres vs. CA (320 SCRA 428), the Supreme Court ruled that such requirement is intended
merely for protection of third persons. Hence, when the case does not involve third parties whose
rights have been prejudiced, they cannot deny the existence of the partnership due to failure to meet
the requirements of Article 1773.
GENERAL PROVISIONS
Partnership name
G.R. A partnership has the right to adopt any name. It
may or may not include the name of one or more
partners.

Limitation: (1) Name of a deceased partner; (2) In case of

limited partnership, the name “limited” must be included.
CLASSIFICATION OF PARTNERSHIP
Universal Partnership Particular Partnership
Where the contract of partnership Where the contract of partnership has for its
encompasses expressly or impliedly either object determinate things, their use or
all present properties of the partners or fruits, or a specific undertaking, or the
covering all of the profits exercise of a profession, or vocation
CLASSIFICATION OF PARTNERSHIP
According to object or purpose
Universal
Where
Partnership Particular Partnership

The contract of partnership encompasses Where the contract of partnership has for its
expressly or impliedly either all present object determinate things, their use or
properties of the partners or covering all of fruits, or a specific undertaking, or the
the profits exercise of a profession, or vocation
CLASSIFICATION OF PARTNERSHIP
Kinds of universal partnership
Of all present
Whereproperty Of profits

Include all properties of each partner at the Include properties that the partners may
time of constitution and profits that they acquire by their industry or work during the
may acquire therewith BUT shall not include existence of the partnership BUT shall not
properties subsequently acquired by each include movable or immovable property
partner through inheritance, donation, or which each of the partners may possess at
legacy EXCEPT the fruits thereof the time of the celebration of the contract.
HOWEVER, the usufruct over such properties
shall be included
CLASSIFICATION OF PARTNERSHIP
NOTE:
If not specified in the articles or contract of partnership,
the presumption is that the partnership is deemed a
universal partnership of profits.
CLASSIFICATION OF PARTNERSHIP
According to liability
Where
General partnership Limited partnership
is one where all the partners are unlimitedly liable is one where the partners are liable for partnership debts only to
the extent of their stipulated contributions as stated in the articles
of partnership
All partners shall be liable pro rata beyond the partnership assets As a rule, a limited partner is not liable as a general persons as to
for all contracts which may have been entered into in its name, third persons. Exceptions:
under its signature, and by a person authorized to act for the (1) When the LP takes part in the control of the business;
partnership (2) When the LP participate in the management of the
partnership’s business;
(3) When the surname of the LP appears in the partnership
name . This shall not apply when (i) the surname of the LP is
also the surname of a general partner; (ii) Prior to the time
when the limited partner became such, the business had been
carried on under the name in which his surname appeared;
(iii) when the third person knows that the LP is a LP, and not a
general partner
CLASSIFICATION OF PARTNERSHIP
Note:
Article 1854. A limited partner also may loan money to and
transact other business with the partnership, and, unless he is
also a general partner, receive on account of resulting claims
against the partnership, with general creditors, a pro rata share of
the assets.
CLASSIFICATION OF PARTNERSHIP
Note:
Article 1853. A person may be a general partner and a limited partner in the
same partnership at the same time, provided that this fact shall be stated in the
certificate provided for in article 1844.
A person who is a general, and also at the same time a limited partner, shall have
all the rights and powers and be subject to all the restrictions of a general partner;
except that, in respect to his contribution, he shall have the rights against the
other members which he would have had if he were not also a general partner.
CLASSIFICATION OF PARTNERS
According to nature of contribution
Where
Capitalist partner Industrial partner

Is one who contributes money or property to the common fund Is one who contributes only his or her industry

A capitalist partners cannot engage for their own account in any An industrial partner cannot engage in business for himself, unless
operation which is of the kind of business in which the partnership the partnership expressly permits him to do so.
is engaged, unless there is a stipulation to the contrary.
If he or she should do so, the capitalist partners may either
Any capitalist partner violating this prohibition shall bring to the exclude him or her from the firm or avail themselves of the
common funds any profits accruing to him from his transactions, benefits which he or she may have obtained in violation of this
and shall personally bear all the losses. provision, with a right to damages in either case.

Not a ground to exclude the erring partner from the partnership. The erring partner may be excluded from the partnership.

In case of imminent loss, a capitalist partner who refuses to In case of imminent loss, an industrial partner is not required to
contribute an additional share to the capital, except an industrial make additional contribution.
partner, to save the venture, shall he obliged to sell his interest to
the other partners, unless there is an agreement to the contrary
CLASSIFICATION OF PARTNERS
According to nature of contribution
Where
Capitalist partner Industrial partner

The capitalist partner is liable for the losses in the same The industrial partner is not liable for losses.
proportion to what he or she may have contributed. Any stipulation
to the contrary shall be void.
CLASSIFICATION OF PARTNERS
According to time of entry
Where
Original partner Incoming partner

One who became as such at the time of the constitution of the One who became a new member of an existing partnership
partnership

As to old obligations or obligations incurred prior to admission –

liable as through he or she had been a partner when such
obligation were incurred. However, his or her liability shall be
satisfied only out of partnership property, unless there is a
stipulation to the contrary.
 CLASSIFICATION OF PARTNERS
Managing partner Dormant/silent/secret Continuing and Liquidating partner
partner retiring partners
Is one who has been Is one whose connection Continuing – are those Is one who takes charge
entrusted with the to the partnership is who remain in the of the liquidation and
management of the concealed and who partnership in case the winding up of the
partnership does not take any active business of the partnership affairs
part in it partnership is continued
after its dissolution
Retiring – are those
cease to be part of the
partnership
Classification of partners
Managing partner
Article 1803. When the manner of management has not been agreed upon, the following rules
shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall
bind the partnership, without prejudice to the provisions of article 1801.

Article 1801. If two or more partners have been intrusted with the management of the partnership
without specification of their respective duties, or without a stipulation that one of them shall not act
without the consent of all the others, each one may separately execute all acts of administration,
but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In
case of a tie, the matter shall be decided by the partners owning the controlling interest.
Classification of partners
Managing partner
Article 1800. The partner who has been appointed manager in the
articles of partnership may execute all acts of administration
despite the opposition of his partners, unless he should act in
bad faith; and his power is irrevocable without 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 been constituted may be revoked at any time.
Classification of partners
Dormant or silent partner, effect:
As a rule, the dissolution of the partnership does not of itself discharge
the existing liability of any partner.

However, with respect to obligations incurred by the partnership after

dissolution, the liability of the dormant partner shall be satisfied out of
the partnership assets alone.
Classification of partners
Liquidating partner
As a rule, the liquidating partner is the partner classified as
such in the contract of partnership.

In the absence, the partner who has wrongfully dissolved the

partnership or the representative of the last surviving partner,
not insolvent.
Classification of partners
Liquidating partner, rule:
As a rule, the partnership is not bound by the acts of the liquidating partner.

Exceptions: (1) if the partner had extended credit to the partnership prior to
dissolution and had no knowledge or notice of his want of authority; (2) Had
not extended credit to the partnership prior to dissolution, and, having no
knowledge or notice of his want of authority, the fact of his want of authority
has not been advertised in the manner provided for advertising the fact of
dissolution.
Classification of partners
Retiring partners, liability:
(1)As to existing obligations upon dissolution – the partner
remains liable, unless there is an agreement to the
contrary
(2)As to subsequent obligations upon dissolution – the
partner is not liable so long as he gives notice of
withdrawal
Obligations of partners
Between themselves:
Article 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation.

The same rule applies to any amount he may have taken from
the partnership coffers, and his liability shall begin from the
time he converted the amount to his own use.
Obligations of partners
Between themselves:
Article 1807. Every partner must account to the
partnership for any benefit, and hold as trustee for it any
profits derived by him without the consent of the other
partners from any transaction connected with the
formation, conduct, or liquidation of the partnership or
from any use by him of its property.
Obligations of partners
Between themselves:
Article 1794. Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may have
earned for the partnership by his industry. However, the courts
may equitably lessen this responsibility if through the partner's
extraordinary efforts in other activities of the partnership, unusual
profits have been realized.
Obligations of partners
As to third persons:
Rule. Every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the
partnership name of any instrument, for apparently carrying on in the
usual way the business of the partnership of which he is a member binds
the partnership, unless the partner so acting has in fact no authority to
act for the partnership in the particular matter, and the person with whom
he is dealing has knowledge of the fact that he has no such authority.
Obligations of partners
As to third persons:
An act of a partner which is not apparently for the
carrying on of business of the partnership in the usual way
does not bind the partnership unless authorized by the
other partners.
Obligations of partners
Acts requiring concurrence of all partners:

(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the
partnership;

(2) Dispose of the good-will of the business;

(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;

(4) Confess a judgment;

(5) Enter into a compromise concerning a partnership claim or liability;

(6) Submit a partnership claim or liability to arbitration;

(7) Renounce a claim of the partnership.

Obligations of partners
Article 1816. All partners, including industrial ones, shall be liable
pro rata with all their property and after all the partnership assets
have been exhausted, for the contracts which may be entered into
in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership.
Article 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners.
Obligations of partners
Article 1826. A person admitted as a partner into an
existing partnership is liable for all the obligations of the
partnership arising before his admission as though he had
been a partner when such obligations were incurred,
except that this liability shall be satisfied only out of
partnership property, unless there is a stipulation to the
contrary.
Obligations of partners
Partnership by estoppel – See Article 1825.
Dissolution
Dissolution:
The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying
on of the business.

Note: Dissolution does not automatically mean that the partnership is

extinguished. Partnership continues to exist for the purpose of winding up.
Dissolution
Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in the
agreement;
(b) By the express will of any partner, who must act in good faith, when no definite
term or particular is specified;
(c) By the express will of all the partners who have not assigned their interests or
suffered them to be charged for their separate debts, either before or after the
termination of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide in accordance with
such a power conferred by the agreement between the partners.
Dissolution
In violation of the agreement between the partners.
Reason: Mutual agency of the partners.
Dissolution
By operation of law:
(1) By any event which makes it unlawful for the business of the partnership to be carried on or for the members
to carry it on in partnership;
(2) When a specific thing which a partner had promised to contribute to the partnership, perishes before the
delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership
thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not
be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;
(3) By the death of any partner;
(4) By the insolvency of any partner or of the partnership;
(5) By the civil interdiction of any partner.
Dissolution and winding up
See: Article 1831.
Winding up
Rule of thumb: Those which are performed for the purpose of settling liabilities,
distribution of assets, or any act not for the purpose of continuing the business

Note: Except so far as may be necessary to wind up partnership affairs or to

complete transactions begun but not then finished, dissolution terminates all
authority of any partner to act for the partnership

See: Article 1831-1835