PARTNERSHIP

HISTORY 2300 BC Babylonians system of laws formulated regulations on partnership Middle Ages law of merchants in England Late 18th Century Lord Mansfield, CJ of England, common law for commercial matters, law on partnership 1778 case decision by Lord Mansfield on partnership 1794 text on partnership by William Watson Englands Partnership Act of 1890 American Uniform Acts - The Uniform Partnership Act and the Uniform Limited Partnership Act; an attempt to secure uniformity of state lwas dealing with partnership Philippines Code of Commerce, then Old Spanish Civil Code to the New Civil Code PARTNERSHIP PROPER 1767. By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a commom fund, with the intention of dividing the profits among themselves. Two or more persons may also form partnership for the exercise of profession. Partnership Concepts under Civil Code a. It is a contract formed upon the agreement of the parties b. It has a separate juridical personality different from the parties c. Treated for income tax purposes as a corporation EXCEPT general professional partnerships Paragraph two -profession is a group of men pursuing a learned art as a common calling in the spirit of pub service -it is the individual partners who practice the profession, not the partnership, bec the latter cannot possess personal qualifications for such practice -partnership for the practice of law is not a constitutional right but a privilege or a franchise -it is different from partnerships of other professions because the practice of law is related to the administration of justice: a. duty of public service b. relation as an officer of court to the adminsitration of justice c. highly fiduciary relation to client d. relation to colleagues at the bar, charac terized by candor and fairness

Characteristics: 1. Consensual perfected by agreement 2. Nominate named by law 3. Bilateral reciprocal rights and obli of partners 4. Commutative undertaking of each partner deemed equivalent to that of the others 5. Onerous each acquires to benefit by giving something 6. Principal existence does not depend on some other contract 7. Preparatory a means to an end; in essence, partnership is a contract of agency Essential Features: 1. There must be a valid contract 2. Parties must have legal capacity to enter into a contract 3. Object must be lawful 4. Mutual contribution of money, prop, industry to a common fund 5. Primary purpose is to obtain and divide profits among selves 6. Articles of partnership must be known to each partner, otherwise, no legal personality and to be treated as coownership Form relation is evidenced by terms w/c may be written or oral, express or implied from acts and declarations of parties Articles of Partnership terms of the association must be embodied in a written document Requisites (contract) consent and capacity of parties, object and cause Delectus Personae right of each partner to choose who to admit in the association. No person may be admitted without the consent of all. Parties to Partnership 1. Individuals who is capable of entering into contractual relationship. Those who cant: a. minors b. insane c. deaf-mutes who dont know how to write d. persons suffering from civil interdiction e. incompetents who are under guardianship 2. Partnerships a partnership may also be partners with other partnerships; members of constituent partnerships to be held liable to the creditors of the combined partnership

3. Corporations cannot be partners in partneship unless authorized by statute or by its charter Reason: in partnership, the corporation will be bound by the acts of persons not duly authorized while in corporation, the entity should manage its affairs exclusively and separately, although with exceptions. Contribution of money, property or industry to a common fund -each partner must have a proprietary interest in business -they must contribute a. money legal tender in the Philippines b. property real, personal, corporea, incorporeal c. industry active cooperation there must be proof of contribution of each partner and intention of the parties to divide profits among themselves Legality of Object object must not be contrary to law, public policy, morals, good customs -if purpose is unlawful, void partnership Purpose to gain profits -profit does NOT need to be the ONLY purpose but the principal aim Division of Profits profit is not required to be divided in equal shares. Only the intention to divide it among the partners is essential - sharing of profits is not a conclusive evidence of partnership - stipulation excluding one partner from share of profit is VOID Sharing of Losses the right to receive a share in profit carries with it the duty to contribute to losses -Need not be stipulated for it is implied - stipulation excluding one partner to share losses is VOID 1768. The partnership has a separate and distinct personality from that of each partner even in case of failure to comply with the requirements of Art. 1772, 1st paragraph. Juridical Personality of Partnership may enter into contracts, acquire property and incur obligation, may sue and be sued under its own name -service of summons need only be served to one of the partners -partnership may be declared insolvent even when the partners are not -partners cannot be made liable for the partnerships obligations unless it is shown that a legal fiction of a

different juridical personality is being used for fraudulent purposes -partnership still acquires juridical personality despite non-compliance with Art. 1772 which is execution of pub instrument and registration of name in SEC, 1773 and 1775 which is the requirement of inventory of immovable properties contributed in partnership w/c must be signed and attached to a pub instrument before a partnership can acquire juridiccal personality Organizing partnership not an absolute right but a privilege 1769. In determining whether or not partnership exists, these rules shall apply: 1. Except as provided under Art. 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 in itself establish a partnership whether such co-owners or copossessors 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 joining them have a joint common right or interest in any property from which the returs are derived 4. The receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner 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 varies with the profits of the business e. as the consideration for a sale of a goodwill of a business or other property by installments or otherwise General Rule: all essential reqs must be met to form a partnership. In case of doubt, 1769 prevails. -Partnership is a matter of intention but when one misleads the other that they are partners in a nonexistent partnership, they are liable as partners. -Co-ownership is not partnership bec in the latter, the profits must be derived from an operation of a business and there must be a clear intention to form partnership -Sharing of profits not a presumptive evidence of partnership bec partners first satisfy liabilities before sharing profits -mutual mngt also evidence of partnership

Burden of Proof burden of proving its existence lies on one who has the affirmative of that issue -existence must be proved, not presumed -presumption in law: those acting as partners have entered into a partnership contract. Whoever denies it has the burden of proof as to its non-existence -when partnership is shown to exist, presumption continues. Whoever disputes it must prove termination Legal intention is the crux of partnership