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Law on Business Organizations Reviewer
1
PARTNERSHIP
Art. 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.
Definition
Partnership is a contract whereby two or
more persons bind themselves to
contribute money, property or industry to a
common fund with the intention of dividing
profits among themselves.
Elements
1. Intention to form a contract of
partnership
2. Participation in both profits and losses
3. Community of interests
Basic Features
1. Voluntary agreement
2. Association for profit
3. Mutual contribution to a common fund
4. Lawful purpose or object
5. Mutual agency of partners
6. Articles must not be kept secret
7. Separate juridical personality
Characteristics
1. Consensual – perfected by mere
consent.
2. Bilateral – formed by two or more
persons creating reciprocal rights and
obligations.
3. Preparatory - entered into as a means
to an end.
4. Nominate – has a special name or
designation.
5. Onerous – contributions in the form of
either money, property and/or industry
must be made.
6. Commutative – the undertaking of each
partner is considered as the equivalent
of that of the others.
7. Principal – its existence or validity does
not depend on some other contract.
Principle of Delectus Personae (choice of
persons) – a person has the right to select
persons with whom he wants to be
associated with in partnership.
Art. 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.
Partnership, a juridical person
As an independent juridical person, a
partnership may enter into contracts,
acquire and possess property of all kinds in
its name, as well as incur obligations and
bring civil or criminal actions. Thus, a
partnership may be declared insolvent even
if the partners are not. It may enter into
contracts and may sue and be sued in its
firm name or by its duly authorized
representative. It is sufficient that service
of summons be served on any partner.
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.
Effect of failure to comply with statutory
requirements
Under Art 1772
Partnership still acquires personality despite
failure to comply with the requirements of
execution of public instrument and
registration of name in SEC.
Under Arts 1773 and 1775
Partnership with immovable property
contributed, if without requisite inventory,
signed and attached to public instrument,
shall not acquire any juridical personality
because the contract itself is void. This is
also true for secret associations or societies.
To organize a partnership not an absolute
right
It is but a privilege which may be enjoyed
only under such terms as the State may
deem necessary to impose.
Art. 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-ownership or co-
possessors do or do not share any
profits made by the use of the property.
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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.
In general, to establish the existence of a
partnership, all of its essential features or
characteristics must be shown as being
present. In case of doubt, art.1769 shall
apply. This article seeks to exclude from the
category of partnership certain
features enumerated herein which, by
themselves, are not indicative of the
existence of a partnership.
Persons not partners as to each other
Persons who are partners as between
themselves are partners as to third persons.
Generally, the converse is true: if they are
not partners between themselves, they
cannot be partners as to third persons.
Partnership is a matter of intention, each
partner giving his consent to become
a partner. However, whether a partnership
exists between the parties is a factual
matter. Where parties declare they are not
partners, this, as a rule, settles the question
between them. But where a person
misleads third persons into believing that
they are partners in a non-existent
partnership, they become subject to
liabilities of partners (doctrine of
estoppel).Whether or not the parties call
their relationship or believe it to be a
partnership is immaterial. Thus, with the
exception of partnership by estoppel, a
partnership cannot exist as to third persons
if no contract of partnership has been
entered into between the parties
themselves.
Co-ownership or co-possession
There is co-ownership whenever the
ownership of an undivided thing or right
belongs to different persons.
Clear intent to derive profits from
operation of business
Co-ownership does not of itself establish
the existence of a partnership, although it is
one of its essential elements. This is true
even if profits are derived from the joint
ownership. The profits must be derived
from the operation of business by
the members of the association and
not merely from property ownership. The
law does not imply a partnership between
co-owners because of the fact that they
develop or operate a common property,
since they may rightfully do this by virtue of
their respective titles. There must be a clear
intent to form a partnership.
Existence of fiduciary relationship
Partners have a well-defined fiduciary
relationship between them. Co-owners do
not. Should there be dispute; the remedy of
partners is an action for dissolution,
termination and accounting. For co-owners
it would be one, for instance, for non-
performance of contract. People can
become co-owners without a contract but
they cannot become partners without one.
Persons living together without benefit
of marriage
Property acquired governed by rules on co-
ownership.
Sharing of gross returns not even
presumptive evidence of partnership
The mere sharing of gross returns alone
does not even constitute prima facie
evidence of partnership, since in a
partnership, the partners share profits after
satisfying all of the partnership’s liabilities.
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Reason for the rule
Partner interested in both failures and
successes; it is the chance of loss or gain
that characterizes a business. Where
the contract requires a given portion of
gross returns to be paid over, the portion is
paid over as commission, wages, rent, etc.
Where there is evidence of mutual
management
Where there is further evidence of mutual
management and control, partnership may
result.
Receipt of share in the profits strong
presumptive evidence of partnership
An agreement to share both profits
and losses tends strongly to establish the
existence of a partnership. It is not
conclusive, however, just prima facie and
may be rebutted by other circumstances.
When no such inference will be drawn
Under par. 4 of art. 1769, sharing of profits
is not prima facie evidence of partnership in
the cases enumerated under subsections (a)
– (e). In these cases, the profits are not
shared as partner but in some other
respects or purpose. The basic test
of partnership is whether the business is
carried on in behalf of the person sought to
be held liable.
Sharing of profits as owner
It is not merely the sharing of profits, but
the sharing of them as co-owner of the
business or undertaking that makes one
partner. Test: Does the recipient have an
equal voice as proprietor in the conduct and
control of the business? Does he own a
share of the profits as proprietor of the
business producing them? One must have
an interest with another in the profits of a
business as profits.
Burden of proof and presumption
The burden of proving the existence of a
partnership rests on the party having the
affirmative of that issue. The existence of
a partnership must be proved and will not
be presumed. The law presumes that those
acting as partners have entered into a
contract of partnership. Where the law
presumes the existence of partnership, the
burden of proof is on the party denying its
existence. When a partnership is shown to
exist, the presumption is that it continues
and the burden of proof is on the person
asserting its termination. One who alleges
partnership cannot prove it merely by
evidence of an agreement using the term
“partner”. Non-use of the term, however,
is entitled to weight. The question of
whether a partnership exists is not always
dependent upon the personal arrangement
or understanding of the parties. Parties
intending to do a thing which in law
constitutes partnership are partners.
Legal intention is the crux of partnership.
Parties may call themselves partners but
their contract may be adjudged something
quite different. Conversely, parties may
expressly state that theirs in not a
partnership yet the law may determine
otherwise on the basis of legal intent.
However, courts will be influenced to some
extent by what the parties call their
contract.
Tests and incidents of partnership
In determining whether a partnership
exists, it is important to distinguish
between tests or indicia and incidents of
partnership. Only those terms of a contract
upon which the parties have reached an
actual understanding, either expressly or
impliedly, may afford a test by which to
ascertain the legal nature of the contract.
Some of the typical incidents of a
partnership are:
1. The partners share in profits and losses.
2. They have equal rights in the mgt and
conduct of the partnership business.
3. Every partner is an agent of the
partnership, and entitled to bind the
others by his acts. He may also be liable
for the entire partnership obligations.
4. All partners are personally liable for
the debts of the partnership with their
separate property except that limited
partners are not bound beyond the
amount of their investment.
5. A fiduciary relation exists between
the partners.
6. On dissolution, the partnership is not
terminated, but continues until the
winding up of partnership is completed.
Such incidents may be modified by
stipulation of the partners.
Similarities between a partnership and a
corporation
1. Both have juridical personality separate
and distinct from that of the individuals
composing it;
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2. Both can only act through its agents;
3. Both are organizations composed of an
aggregate of individuals;
4. Both distribute profits to those who
contribute capital to the business;
5. Both can only be organized where there
is a law authorizing is organization;
6. Partnerships are taxable
as corporations.
Art. 1770. A partnership must have a lawful
object or purpose, and must be established
for the common benefit or interest of the
partners. When an unlawful partnership is
dissolved by a judicial decree, the profits
shall be confiscated in favor of the
State, without prejudice to the provisions
of the Penal Code governing the
confiscation of the instruments and effects
of a crime. Object or purpose of partnership
The provision of the 1st paragraph
reiterates 2 essential elements of a
contract of partnership:
1. Legality of the object; and
2. Community of benefit or interest of the
partners. The parties possess absolute
freedom to choose the transaction or
transactions they must engage in. The
only limitation is that the object must
be lawful and for the common benefit
of the members. The illegality of the
object will not be presumed; it must
appear to be of the essence of the
relationship.
Effects of an unlawful partnership
1. The contract is void and the partnership
never existed in the eyes of the law;
2. The profits shall be confiscated in favor
of the government;
3. The instruments or tools and proceeds
of the crime shall also be forfeited in
favor of the government;
4. The contributions of the partners shall
not be confiscated unless they fall
under #3.
A partnership is dissolved by operation of
law upon the happening of an event which
makes it unlawful. A judicial decree is
not necessary to dissolve an unlawful
partnership. However, advisable that
judicial decree be secured. 3rd persons who
deal w/ partnership w/o knowledge of
illegal purpose are protected.
Right to return of contribution where
partnership is unlawful
Partners must be reimbursed the amount of
their respective contributions. The partner
who limits himself to demanding only the
amount contributed by him need not resort
to the partnership contract on which to
base his claim or action. Since the purpose
for which the contribution was made has
not come into existence, the manager or
administrator must return it, and he who
has paid his share is entitled to recover it.
Right to receive profits where partnership
is unlawful
Law does not permit action for obtaining
earnings from an unlawful partnership
because for that purpose, the partner will
have to base his action upon the
partnership contract, which is null and
without legal existence by reason of its
unlawful object; and it is self-evident that
what does not exist cannot be a cause
of action. Profits earned do not constitute
or represent the partner’s contribution. He
must base his claim on the contract which is
void. It would be immoral and unjust for the
law to permit a profit from an industry
prohibited by it. T he courts will refuse to
recognize its existence, and will not lend
their aid to assist either of the parties
thereto in an action against each other.
Therefore, there cannot be no accounting
demanded of a partner for the profits which
may be in his hands, nor can recovery be
had.
Effect of partial illegality of partnership
business
Where a part of the business is legal and
part illegal, a n account of that which is
legal may be had. Where, w/o the
knowledge or participation of the partners,
the firm’s profits in a lawful business has
been increased by wrongful acts, the
innocent partners are not precluded as
against the guilty partners from recovering
their share of the profits.
Effect of subsequent illegality of
partnership business
Contract will not be nullified. 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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Community of interest between the
partners for business purposes
The salient features of an ordinary
partnership are a community of interest in
profits and losses, a community of interest
in the capital employed, and a community
of power in administration. This community
of interest is the basis of the partnership
relation. However, although every
partnership is founded on a community of
interest, e very community of interest does
not necessarily constitute a partnership.
Property used in the business may belong
to one or more partners, so that there is no
joint property, other than joint earnings.
To state that partners are co-owners of a
business is to state that they have the
power if ultimate control. But partners may
agree upon concentration of management,
leaving some of their members entirely
inactive or dormant. Only one of these
features, profit-sharing, seems to be
absolutely essential. But a mere sharing of
profits of itself does not of necessity
constitute a partnership. The court must
consider all the essential elements in light
of the facts of the particular case before
deciding whether a partnership exists.
Art. 1771. A partnership may be constituted
in any form, except where immovable
property or real rights are contributed
thereto, in which case a public instrument
shall be necessary .Form of partnership
contract
General rule
No special form required for validity or
existence of the contract of partnership.
Contract maybe made orally or in writing
regardless of the value of the contributions.
Where immovable property or real rights
are contributed
Execution of public instrument necessary
for validity of contract of partnership. To
affect 3rd persons, the transfer of real
property to the partnership must be duly
registered in the Registry of Property.
When partnership agreement covered by
the Statute of Frauds
An agreement to enter in a partnership at a
future time, which by its terms is not to be
performed w/in a year from the making
thereof is covered by the Statute of Frauds.
Such agreement is unenforceable unless it
is in writing or at least evidenced by some
note or memorandum.
Partnership implied from conduct
Binding effect
Existence of partnership may be implied
from the acts or conduct of the parties, as
well as from other declarations, and such
implied contract would be as binding as a
written and express contract.
Ascertainment of intention of parties
In determining whether a particular
transaction constitutes a partnership, as
between the parties, the intention as
disclosed by the entire transaction, and
as gathered from the facts and from the
language employed by the parties as well
as their conduct, should be ascertained.
Conflict between intention and terms
of contract
If the parties intend a general partnership,
they are general partners although their
purpose is to avoid the creation of such a
relation.
Art. 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. Failure to comply
with the requirements of the preceding
paragraph shall not affect the liability of the
partnership and the members thereof to
third persons. Registration of partnership
Partnership with capital of P3, 000 or more
Requirements:
1. The contract must appear in a public
instrument;
2. It must be recorded or registered w/
the SEC. However, failure to comply w/
the above requirements does not
prevent the formation of the
partnership or affect its liability and
that of the partners to 3rd persons. But
any partner is granted the right bylaw
to compel each other to execute the
contract in a public instrument.
Purpose of registration
Registration is necessary as a condition for
the issuance of licenses to engage in
business and trade. In this way, the tax
liabilities of big partnerships cannot be
evaded and the public can determine more
Law on Business Organizations Reviewer
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accurately their membership and capital
before dealing with them.
When partnership considered registered
The objective of the law is to make the
recorded instrument open to all and to give
notice thereof to interested parties. This
objective is achieved from the date the
partnership papers are presented to and
left for record in the Commission. This is the
effective date of registration. If the
certificate of recording is issued on a
subsequent date, its effectively retroacts to
date of presentation.
Art. 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.
Partnership with contribution of immovable
property
Where immovable property contributed,
failure to comply w/ the following
requisites will render the partnership
contract void:
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. Art. 1773 is intended
primarily to protect 3rd persons. W/
regard to 3rdpersons, a de facto
partnership or partnership by estoppel
may exist. There is nothing to prevent
the court from considering the
partnership agreement an ordinary
contract from which the parties’ rights
and obligations to each other may be
inferred and enforced.
When inventory is not required
An inventory is required only whenever
immovable property is contributed. If not
contributed or if personal property, no
inventory required.
Importance of making inventory of real
property in a p a r t n e r s h i p
An inventory is very important in
a partnership to how much is due from each
partner to complete his share in the
common fund and how much is due to each
of them in case of liquidation. The
execution of a public instrument of
partnership would be useless if there is no
inventory of immovable property
contributed because w/o its description and
designation, the instrument cannot be
subject to inscription in the Registry
of Property, and the contribution cannot
prejudice 3rd persons.
Art. 1774. Any immovable property or an
interest therein may be acquired in the
partnership name. Title so acquired can be
conveyed only in the partnership name.
Acquisition or conveyance of property by
partnership
Since partnership has juridical personality of
its own, it may acquire immovable property
in its own name. Title so acquired can
be conveyed only in the partnership name.
Art. 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. Secret
partnerships without juridical personality
Partnership relation is created only by the
voluntary agreement of the partners. It is
essential that the partners are fully
informed not only of the agreement but of
all matters affecting the partnership. Secret
partnerships are not by nature
partnerships. Secret partnerships shall be
governed by the provisions relating to co-
ownership.
Importance of giving publicity to articles
of partnership
It is essential that the arts of partnership be
given publicity for the protection not only of
the members themselves but also 3rd
persons from fraud and deceit. A member
who transacts business for the secret
partnership in his own name becomes
personally bound to 3rd persons unaware of
the existence of such association.
Partnership liability may still
result, however, in cases of estoppel.
Art. 1776. As to its object, a partnership is
either universal or particular. As regards the
liability of the partners, a partnership may
be general or limited. Classifications of
partnership
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As to extent of its subject matter
1. Universal partnership. (Art. 1777)
a. Universal partnership of all present
property. (Art. 1778)
b. Universal partnership of profits.
(Art. 1780)
2. Particular partnership. (Art. 1783)
As to liability of the partners
General partnership: one consisting of
general partners who are liable pro rata and
subsidiary and sometimes solidarily w/ their
separate property for partnership debts.
Limited partnership: one formed by two or
more persons having as members one or
more general partners and one or more
limited partners, the latter not being
personally liable for the obligations of the
partnership.
As to duration
Partnership at will: one in w/c no time is
specified and is not formed for a particular
undertaking or venture and w/c may be
terminated at any time by mutual
agreement of the partners, or by the will of
any one partner alone; or one for a fixed
term or particular undertaking w/c is
continued after the end of the term or
undertaking w/o express agreement.
Partnership with a fixed term: one w/c the
term for w/c the partnership is to exist is
fixed or agreed upon or one formed for
a particular undertaking.
As to the legality of its existence
De jure partnership: one w/c has complied
w/ all the legal requirements for
its establishment.
De facto partnership: one w/c has failed to
comply w/ all the legal requirements for its
establishment.
As to representation to others
Ordinary or real partnership: one w/c
actually exists among the partners and also
as to 3rd persons.
Ostensible partnership or partnership or
partnership by estoppel: one w/c in reality
is not a partnership, but is considered a
partnership only in relation to those who,
by their conduct or admission, are
precluded to deny or disprove its existence.
As to publicity
Secret partnership: one wherein the
existence of certain persons as partners is
not avowed or made known to the public by
any of the partners.
Open or notorious partnership: one whose
existence is avowed or made known to the
public by the members of the firm.
As to purpose
Commercial or trading partnership: one
formed or the transaction of business.
Professional or non-trading partnership:
one formed for the exercise of a profession.
Kinds of partners
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
3rd persons extends to his separate
property.
4. Limited partner: one whose liability to
3rd persons is limited to his capital
contribution.
5. Managing partner: one who manages
the entity.
6. Liquidating partner: one who takes
charge of the winding up of partnership
affairs upon dissolution.
7. Partner by estoppel: one who is not
really a partner but is liable as a partner
for the protection of innocent 3rd
persons. He is one represented as being
a partner but who is not so between
the partners themselves.
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
w/ a partner w/reference to the latter’s
share in the partnership.
Other classifications
1. Ostensible partner: one who takes
active part and known to the public as a
partner.
2. Secret partner: one who takes active
part in the business but is not known to
be a partner by outside parties nor held
Law on Business Organizations Reviewer
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out as a partner by the other partners.
He is an actual partner.
3. Silent partner: one who does not take
any active part in the business although
he may be known to be a partner.
4. Dormant partner: one who does not
take active part in the business and is
not known or held out as a partner. He
would be both a silent and a secret
partner.
5. Original partner: one who is a member
of the partnership from the time of its
organization.
6. Incoming partner: a person lately, or
about to be, taken into an existing
partnership as a member.
7. Retiring partner: one withdrawn from
the partnership; a withdrawing partner.
Art. 1777. A universal partnership may
refer to all the present property or to
all the profits.
Art. 1778. A partnership of all present
property is that in which the partners
contribute all the property which actually
belongs to them to a common fund, with
the intention of dividing the same among
themselves, as well as all the profits they
may acquire therewith.
Art. 1779. In a universal partnership of all
present property, the property which
belongs to each of the partners at the time
of the constitution of the partnership
becomes the common property of all the
partners, as well as all the profits which
they may acquire there with. A stipulation
for the common enjoyment of any other
profits may also be made; but the property
which the partners may acquire
subsequently by inheritance, legacy or
donation cannot be included in such
stipulation, except the fruits thereof.
Universal partnership of all present
property explained
A universal partnership of profits is one w/c
comprises all that the partners may
acquire by their industry or work during the
existence of the partnership and the
usufruct of movable or immovable property
w/c each of the partners may possess at the
time of the celebration of the contract. In
this kind of partnership, the following
become the common property of all the
partners:
Property w/c belonged to each of them at
the time of the constitution of the
partnership;
Profits w/c they may acquire from the
property contributed.
Contribution of future property
General rule: future properties cannot be
contributed. The very essence of the
contract of partnership that the properties
contributed be included in the partnership
requires the contribution of things
determinate. The position of a partner is
like that of a donor, and donations
cannot comprehend future property. Thus,
property subsequently acquired by
1.inheritance; 2. Legacy; or 3. Donation
cannot be included by stipulation except
the fruits thereof. Hence, any stipulation
including property so acquired is void.
Profits from other sources (not from
properties contributed) will become
common property only is there’s a
stipulation.
Art. 1780. A universal partnership of profits
comprises all that the partners may acquire
by their industry or work during
the existence of the partnership. Movable
or immovable property which each of the
partners may possess at the time of the
celebration of the contract shall continue to
pertain exclusively to each, only the
usufruct passing to the partnership.
Universal partnership of profits explained
A universal partnership of profits is one w/c
comprises all that the partners may acquire
by their industry or work during the
existence of the partnership and the
usufruct of movable or immovable property
w/c each of the partners may possess at the
time of the celebration of the contract.
Ownership of present and future property
The partners retain their ownership over
their present and future property. What
passes to the partnership are the profits or
income and the use or usufruct of the same.
Consequently, upon dissolution, such
property is returned to the partners who
own it.
Profits acquired through chance
Since the law only speaks of profits w/c
the partners may acquire by their industry
or work, profits acquired purely by chance
are not included.
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Fruits of property subsequently acquired
Fruits of property subsequently acquired by
the partners do not belong to
the partnership. Such profits, however, may
be included by express stipulation.
Art. 1781. Articles of universal partnership,
entered into without specification of its
nature, only constitute a universal
partnership of profits.
Presumption in favor of universal
partnership of profits
Reason for presumption: universal
partnership of profits imposes less
obligations on the partners, since they
preserve the ownership of their separate
property.
Art. 1782. Persons who are prohibited from
giving each other any donation or
advantage cannot enter into a universal
partnership. Limitations upon the right to
form a partnership
Persons who are prohibited by law to give
donations cannot enter into a universal
partnership for the reason that each of the
partners virtually makes a donation. To
allow it would be permitting them to do
indirectly what the law expressly prohibits.
A partnership formed in violation of this
article is null and void. Consequently, no
legal personality is acquired. A husband and
wife, however, may enter into a particular
partnership or be members thereof.
Relevant provisions:
Art. 87: Donations between spouses during
marriage void, except moderate gifts on
occasion of family rejoicing. Also applies
to those living together as husband and
wife w/o valid marriage.
Art. 739: The following donations are void:
Those made between persons who are
guilty of adultery or concubinage at the
time of the donation (no need for
conviction; preponderance of evidence only
required);
Those made between persons found guilty
of the same criminal offense,
inconsideration thereof;
c.)Those made to a public officer or his wife,
descendants and ascendants, by reason of
his office.
Art. 1783. A particular partnership has for
its object determinate things, their use or
fruits, or a specific undertaking, or the
exercise of a profession or vocation.
Particular partnership explained
A particular partnership is one w/c is
neither a universal partnership of present
property nor a universal partnership of
profits. The fundamental difference
between a universal partnership and a
particular partnership lies in the scope of
their subject matter or object. In the
former, the object is vague and
indefinite, contemplating a general business
w/ some degree of continuity, while in the
latter, it is limited and well-defined, being
confined to an undertaking of a
single, temporary, or ad hoc nature.
Business of partnership need not be
continuing in nature
The carrying on of a business of a
continuing nature is not essential to
constitute a partnership. An agreement to
undertake a particular piece of work or a
single transaction or a limited number of
transactions and immediately divide the
resulting profits would seemt o fall w/in the
meaning of the term “partnership” as used
in the law.
Rule under American law
The above is not true under the Uniform
Partnership Act w/c does not include joint
ventures w/c exists for a single transaction
or a limited number of transactions.
Joint venture
While a joint venture is not a formal
partnership in the legal or technical sense,
both are governed, subject to certain
qualifications, practically by the same rules
or principles of partnership. This is logical
since in a joint venture, like in
a partnership, there is a community of
interest in the business and a mutual right
of control and an agreement to share jointly
in profits and losses.
Corporation as a partner
While under the Philippine Civil Code, a
joint venture is a form of partnership w/ a
legal personality separate and distinct from
the parties composing it, and should thus
be governed by the law of partnership,
the Supreme Court has recognized the
distinction between these two business
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forms, and has held that although a
corporation cannot enter into a partnership
contract, it may, however, engage in a joint
venture if the nature of the venture is
authorized by its charter.
Art. 1784. A partnership begins from the
moment of the execution of the contract,
unless it is otherwise stipulated. (1679)
Art. 1785. When a contract for a fixed term
or particular undertaking is continued after
the termination of such term or particular
undertaking without any express
agreement, the rights and duties of the
partners remains the same as they were at
such termination, so far as is consistent
with a partnership at will.
A continuation of the business by the
partners or such of them as habitually acted
therein during the term, without any
settlement or liquidation of the partnership
affairs, is prima facie evidence of a
continuation of the partnership.
Partnership at will is one in which no term
of existence has been fixed and which may
be terminated at the will of any partners.
Art. 1786. Every partner is a debtor of the
partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case
of eviction with regard to specific and
determinate things which he may have
contributed to the partnership, in the same
cases and in the same manner as the
vendor is bound with respect to the vendee.
He shall also be liable for the fruits thereof
from the time they should have been
delivered, without the need of any demand.
Obligations of partners to contribute:
1. Shall deliver at the beginning of the
partnership or, if a different date has
been agreed upon, at the stipulated
time the properties he agreed to
contribute;
2. Shall answer for eviction, in case the
partnership is deprived of the
ownership of any specific property he
contributed;
3. Shall answer to the partnership for the
fruits of the properties whose delivery
he delayed from the date he should
have contributed it up to actual delivery
without necessity of any demand;
4. Shall preserve said properties with the
diligence of a good father of a family
pending their delivery to the
partnership;
5. And shall indemnify the partnership for
any damage caused it by the retention
of said properties or by the delay in
their contribution.
Art. 1787. When the capital or part thereof
which a partner is bound to contribute
consists of goods, their appraisal must be
made in the manner prescribed in the
contract of partnership, and in the absence
of stipulation, it shall be made by experts
chosen by the partners, and according to
current prices, the subsequent changes
thereof being for the account of the
partnership.
Art. 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 is own
use.
Liability of partner for estafa
Failure to return the money taken, there is
the element of fraudulent appropriation of
the money delivered to a partner with
specific instructions for the use of the
partnership, then estafa is committed under
the Revised Penal Code.
Art. 1789. An industrial partner cannot
engage in any business for himself, UNLESS
the partnership expressly permits him to do
so; and if he should do so, the capitalist
partners may either exclude him from the
firm or avail themselves of the benefits
which he may have obtained in violation of
this provision, with a right to damages in
either case.
Industrial partner is one who contributes
his industry or labor in the partnership.
Industrial partner barred from engaging in
business
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To prevent any conflict of interest between
the industrial and the partnership, and to
insure faithful compliance by said partner
with his prestation.
Art. 1790. Unless there is a stipulation to
the contrary, the partners shall contribute
equal shares to the capital of the
partnership.
Art. 1791. If there is no agreement to the
contrary, in case of an imminent loss of the
business of the partnership, any partner
who refuses to contribute an additional
share to the capital, except an industrial
partner, to save the venture, shall be
obliged to sell his interest to the other
partners.
Art. 1792. If a partner authorized to
manage collects a demandable sum, which
was owed to him in his own name, from a
person who owned the partnership another
sum also demandable, the sum thus
collected shall be applied to the two credits
in proportion to their amounts, even
though he may have given a receipt for his
own credit only; but should he have given it
for the account of the partnership credit,
the amount shall be fully applied to the
latter.
The provisions of this article are understood
to be without prejudice to the right granted
to the debtor by Art. 1252, but only if the
personal credit of the partner should be
more onerous to him.
Requisites:
1. Two existing debts
2. Both debts must be demandable
3. The one who collected the debt is a
partner who is authorized to manage
and is actually managing the
partnership
Art. 1793. A partner who has received, in
whole or in part, his share of a partnership
credit, when the other partners have not
collected theirs, shall be obliged, if the
debtor should thereafter become insolvent,
to bring to the partnership capital what he
received even though he may have given
receipt for his share only.
Art. 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.
Partner liable for damages caused the
partnership
Art. 1794 follows the general rule of
contracts that where a person is at fault in
the fulfillment of his obligations he shall be
liable for the payment of damages. The
partner’s fault, however, must be
determined in accordance with the
circumstances of person, time and place.
Liquidation necessary to ascertain
damages
It is first necessary that a liquidation of the
business thereof be made to the end that
the profits and losses may be known and
the causes of the latter and the
responsibility of the defendant as well as
the damages which each partner may have
suffered, may be determined.
Art. 1795. The risk of specific and
determinate things, which are not fungible,
contributed to the partnership so that only
their use and fruits may be for the common
benefit, shall be borne by the partner who
owns them.
If the things contributed are fungible, or
cannot be kept without deteriorating, or if
they were contributed to be sold, the risk
shall be borne by the partnership. In the
absence of stipulation, the risk of things
brought and appraised in the inventory,
shall also be borne by the partnership, and
in such case the claim shall be limited to the
value at which they were appraised.
Risk of Specific and determinate things
The risk of specific and determinate things
which are not fungible, like a boat, only the
use of which is contributed, shall be borne
by the partner as the ownership thereof is
not transferred to the partnership. This
follows the general rule that the thing
perished with the owner.
Things fungible or perishable
If the things contributed are fungible or
cannot be kept without deteriorating
Law on Business Organizations Reviewer
(perishable) like wine, oil, etc., even if they
are contributed only for the use of the
partnership, the risk of loss shall be for the
account of the partnership for the latter
cannot make use of them without their
getting consumed or presumed.
Things contributed to be sold
If the things contributed are to be sold, the
partnership bears the risk of loss, for
obviously the partnership is the intended
owner; otherwise, the firm cannot make the
sale.
Things brought and appraised in inventory
The partnership bears the risk of loss of
things brought and appraised in the
inventory as this has the effect of an implied
sale thus making the partnership the owner
of said things.
Art. 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
also receive a share in the profits in
proportion to his capital.
Rules in profit sharing:
1. The partners share the profits in
accordance with the ratio established
by their contract.
2. If there is no such stipulation in the
partnership contract, then:
1. If all are capitalist partners they
have the profits in proportion to
their capital contributions;
2. If there are capitalist as well as
industrial partners, the industrial
partner get a share each that is
just and equitable while the
capitalist partners divide the
remainder in proportion to their
capital contributions; and
3. If there is a capitalist-industrial
partner, he gets a share in the
profits as an industrial partner and
an additional share in proportion to
his capital contribution to be
determined as in (b), above.
Rules in loss sharing:
1. The stipulation in the partnership
agreement regarding loss sharing must
