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Four elements of a partnership

Under Article 1767 of the Civil Code of the Philippines, the elements are the following;

1. There is a meeting of minds.

2. To form a common fund.
3. With the intention that profits (and losses) will be divided among contracting practice.
4. There must be a contribution of money.

B. Risk of loss of things contributed (Article 1795)

1. Specific and determinate things which are not fungible where only the use is
- the risk of loss is borne by the partner because he remains the owner of the things
2. Specific and determinate things the ownership of which is transferred to the
- the risk of loss is for the account of the partnership, being the owner
3. Fungible things or things which cannot be kept without deteriorating even if they
are contributed only for the use of the partnership
- the risk of loss is borne by the partnership for evidently the ownership was being
transferred since use is impossible without the things being consumed or impaired
4. Things contributed to be sold
- the partnership bears risk of loss for there cannot be any doubt that the partnership
was intended to be the owner; otherwise’ the partnership could not affect the sale
5. Things brought and appraised in the inventory
- the partnership bears the risk of loss because the intention of the parties was to
contribute to the partnership the price of the things contributed with an appraisal in the
inventory. There is thus an implied sale making the partnership owner of the said things,
the price being represented by their appraised value.

C. Art. 1801 – Rule where there are 2 or more Managers

· Applicability of the Article

1. there are two or more managers;
2. there is no specification of respective duties; and
3. there is no stipulation requiring unanimity

· Specific Rules:
1. Each may separately execute all acts of administration;
2. Except if any of the managers should oppose (division of the majority of the managers
shall prevail)
- if there is a tie, the partners owning the controlling interest prevail; provided they are
also managers

· when opposition may be made

- before the acts produce legal effects insofar as third persons are concerned
D. Art. 1803 – Rule when manner of management has not been agreed upon

a. Generally, each partner is an agent

b. Although each is an agent, still if the acts are opposed by the rest, the majority should
prevail for the presumed intent is for all the partners to manage as in Art. 1801;
c. When a partner acts as an agent, it is understood that he acts in behalf of the firm;
therefor when he acts in his own name, he does not bind the partnership generally
d. On the other hand, the authority to bind the firm does not apply if somebody else had
been given authority to manage in the articles of organization or thru other means.

E. Art. 1808 – Prohibition against a Capitalist Partner

· Business Prohibition on Capitalist Partner

- prohibited from engaging for his own account in any operation which is the kind of
business in which the partnership is engaged

Instances where there is no prohibition

a. when there is an express stipulation allowing the capitalist partner to engage himself;
b. when the other partners expressly allow him to do so;
c. when the other partners impliedly allowed him to do so;
d. when the company ceases to be engaged in business during the period of liquidation and
winding up; and
e. when the general-capitalist partner becomes merely a limited partner in a competitive

· Effect of Violation
a. the violator shall bring the partner shall of the profits illegally obtained;
b. he shall personally bear all the losses

F. Art. 1816 – Liability for Contractual Obligations of Partners

· Partnership Liability
· Individual Liability

Liability Distinguished from Losses

- an industrial partner is exempted by law for losses’ but not from liability;
- third persons may sue the firm and the partners, including the industrial partners;
- partners will be personally liable only after the assets of the partnership have been

Stipulations such as those exempting all the industrial partners and some of the capitalist
partners, insofar as third persons are concerned, would be null and void
G. Art. 1818 – Partner as an Agent of Partnership

When a partner can bind or cannot bind the firm

a. Art. 1818 speaks of an instance when the partner is an agent; and
b. when he can and cannot bind as agent
· Agency of a partner
- partnership is a contract of mutual agency
- each partner acting as a principal on his own behalf and as an agent for his co-partners or
the firm

When can a partner bind the partnership

a. when he is expressly authorized or impliedly authorized; and
b. when he acts in behalf and in the name of the partnership

When will act not bind the partnership

A. when, although for apparently carrying on in the usual way the business of the
partnership,” still the partner has in fact NO AUTHORITY, and the third party knows that the
partner has no authority;
B. when the act is not for apparently carrying on in the usual way of the partnership and the
partner has no authority

NOTE: The 7 kinds of acts enumerated in Art. 1818 are instances of acts which are NOT for
apparently carrying on in the usual way the business of the partnership.
In the 7 instances, the authority must be unanimous except if the business has been

· Reasons why 7 acts are “unusual”

a. assign the firm property – firm will virtually be dishonored
b. dispose of the goodwill – good will is valuable property
c. do any other act which would make it impossible to carry on – this is evidently prejudicial
d. confers a judgment – if done before a case is filed, this is null and void; if done later, the
firm would be jeopardized
e. compromise – an act of ownership and may be said to be equivalent to alienation
f. arbitration – an act of ownership which may not be justified
g. renounce a claim – why should a partner renounce a claim that does not belong to him
but to the partnership?

H. Art. 1830 – Causes of Dissolution

1. as to first cause
- partnership agreement has not been violated
4 instances:
v termination of the definite term or specific undertaking;
v express will of a partner who must act in good faith when there is no definite term and
specific undertaking;
v 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;
v by the expulsion of any partner from the business bona fide in accordance with such
p[power conferred by the agreement between the partners

3. In contravention of the agreement between the partners, where the circumstances do

not permit a dissolution under any other provision of this article, by the express will of any
partner at any time;
4. when a specific thing, which a partner had promised to contribute to the partnership,
perishes before delivery
5. by the death of any partner;
6. by the insolvency of any partner or of the partnership;
7. by the civil interdiction of any partner; and
8. by decree of court

note: partners in their contract cannot limit the cause for dissolution,


—change in the relation of the partners caused by any partner ceasing to be associated in the
carrying on of the business; partnership is not terminated but continues until the winding up
of partnership affairs is completed.