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PARTNERSHIP
It is a CONTRACT whereby two or more persons (1) bind themselves to CONTRIBUTE
money, property, or industry to a COMMON FUND (2) with the intention of dividing the PROFITS
among themselves or in order to EXERCISE a PROFESSION
a STATUS and a FIDUCIARY RELATION subsisting between persons carrying on a
business in common with a view on profit
BUSINESS TRUSTS
when certain persons entrust their property or money to others who will manage the same for
the former
RULE:
the partnership has a PERSONALITY SEPARATE and DISTINCT from that of each partner
PARTNERSHIP BY ESTOPPEL
IF 2 persons not partners represent themselves as partners to strangers, a partnership by
estoppel results
WHEN 2 persons, who are partners, in connivance with a friend who is not a partner inform a
stranger that said friend is their partner, a partnership by estoppel also result to the end that the
stranger should not be prejudiced
one of the causes for the dissolution of a partnership is “any event which makes it unlawful
for the business of the partnership to be carried on”
RULE:
when an UNLAWFUL PARTNERSHIP is dissolved by a judicial decree, the PROFITS shall be
CONFISCATED in FAVOR of the STATE
G. R.
a partnership may be constituted in any form
EXCEPTION: PUBLIC INSTRUMENT
1. IMMOVABLE PROPERTY is contributed
2. REAL RIGHTS are contributed
* need for INVENTORY of IMMOVABLES
** for EFFECTIVITY of the partnership contract insofar as innocent third persons are
concerned the same must be REGISTERED if REAL PROPERTIES are INVOLVED
a partnership contract is NOT CONVERED by the STATUTE of FRAUDS
an AGREEMENT TO FORM a partnership does not itself create a partnership
when there are conditions to be fulfilled or when a certain period is to lapse, the partnership
is not created till after the fulfillment of the conditions or the arrival of the term and this is true even if
one of the parties has already advanced his agreed share of the capital
RULE:
any immovable property or an interest therein maybe acquired in the partnership name
title so acquired can be conveyed only in the partnership name
IF the partnership has ALIENS, it CANNOT OWN LANDS, whether public or private or whether
agricultural or commercial EXCEPT through HEREDITARY SUCCESSION
LIMITATIONS ON ACQUISITION
1. AGRICULTURAL LANDS – 1024 HECTARES
2. lease of public lands (GRAZING) – 2000 HAS.
CLASSIFICATION OF PARTNERSHIPS
A) ACCORDING TO MANNER OF CREATION
1. ORALLY constituted
2. constituted in a PRIVATE INSTRUMENT
3. constituted in a PUBLIC INSTRUMENT
4. REGISTERED – S.E.C.
B) ACCORDING TO OBJECT
1. UNIVERSAL
2. PARTICULAR
C) ACCORDING TO LIABILITY
1. LIMITED PARTNERSHIP
2. GENERAL PARTNERSHIP
D) ACCORDING TO LEGALITY
1. LAWFUL OR LEGAL
2. UNLAWFUL OR ILLEGAL
E) ACCORDING TO DURATION
1. for a SPECIFIC PEIOD or FIXED PERIOD
2. PARTNERSHIP AT WILL
F) ACCORDING TO REPRESENTATION TO OTHERS
1. ORDINARY PARTNERSHIP
2. PARTNERSHIP BY ETOPPEL
G) AS TO LEGALITY OF EXISTENCE
1. DE JURE PARTNERSHIP
2. DE FACTO PARTNERSHIP
H) AS TO PUBLICITY
1. SECRET PARTNERSHIP
2. NOTORIOUS / OPEN PARTNERSHIP
I) AS TO PURPSE
1. COMMERCIAL / TRADING
2. PROFESSIONAL / NON-TRADING
GENERAL PARTNERSHIP
one where all the partners are general partners
they are LIABLE even with respect to their individual properties, after the assets of the partnership
has been exhausted
LIMITED PATNERSHIP
one where at least one partner is a general partner and the others are limited partners
one whose liability is limited only up to the extent of his contribution
a partnership where all the partners are limited partners cannot exist as a limited partnership
REFUSED REGISTRATION
IF it continuous as such, it will be considered as a general partnership and all the partners will be
general partners
RULE:
articles of universal partnership, entered without specification of its nature, only constitute a
universal partnership of PROFITS
RULE:
persons who are prohibited from giving each other any donation or advantage cannot enter into
universal partnership
WHO:
1. HUSBAND and WIFE
2. those guilty of ADULTERY or CONCUBINAGE
3. those guilty of the same criminal offense if the partnership was entered into in consideration of
the same
while spouses cannot enter into a universal partnership, they can enter into a particular partnership
or be members thereof
a universal partnership is virtually a donation to each other of the partners properties or at least
their usufruct
PARTICULAR PARTNERSHIP
a particular partnership has for its OBJECT:
1. DETERNMINATE THINGS – their use or fruits
2. SPECIFIC UNDERTAKING
3. EXERCISE of a PROFESSION or VOCATION
DURATION OF PARTNERSHIP
UNLIMITED
* MAY BE AGREED UPON
1. EXPRESSLY – definite period
2. IMPLIEDLY – upon achievement of its purpose
PARTNERSHIP AT WILL
a partnership wherein its continued existence really depends upon the will of the partners or even
on the will of any of them
2 KINDS:
1. when there is no term, express or implied
2. when it is continued by the habitual managers although the period has ended or the purpose
has been accomplished
CAPITALIST PARTNER
one who FURNISHES CAPITAL
* NOT EXEMPTED from LOSSES
* he can engage in other business PROVIDED there is no competition between the partnership
and his business
* share in the profits according to agreements
INDUSTRIAL PARTNER
one who FURNISHES INDUSTRY or LABOR
* he is EXEMPTED from LOSSES as between the partner BUT liable to strangers without
prejudice to reimbursement from the capitalist partner
* he CANNOT engage in any other BUSINESS WITHOUT the express CONSENT of the other
partners, OTHERWISE
1. he can be EXCLUDED from the firm
- plus damages OR
2. the BENEFITS he obtains from the other businesses CAN BE AVAILED of by the other
partners
- plus damages
whether or not there is COMPETITION
* in computing always look for ----- NET PROFITS
----- NET LOSSES
GENERAL PARTNER
one who is liable “beyond” the extent of his contribution
LIMITED PARTNER
one who is liable “only” to the extent of his contribution
*** an industrial partner can only be a general partner, never a limited partner
MANAGING PARTNER
one who manages actively the firm’s affairs
SILENT PARTNER
one who does not participate in the management, though he shares in the PROFITS or LOSSES
LIQUIDATING PARTNER
one who winds up or liquidates the affairs of the firm after it has been dissolved
OSTENSIBLE PARTNER
one whose connection with the firm is public and open
SECRET PARTNER
one whose connection with the firm is concealed or kept secret
DORMANT PARTNER
one who is both a secret (hidden) and silent (not managing) partner
NOMINAL PARTNER
one who is not really a partner BUT who may become liable as such insofar as third persons are
concerned
RULE:
partners shall CONTRIBUTE EQUAL SHARES to the capital of the partnership
* it is permissible to contribute UNEQUAL SHARES IF there is a stipulation to this effect
* in the absence of proof, the shares are presumed to be equal
CONDITIONS before a capitalist partner is obliged to sell his shares / interest to the other
partners [IL, RC, NA]
1. if there is IMMINENT LOSS of the BUSINESS of the partnership
2. he REFUSES to CONTRIBUTE an ADDITIONAL SHARE to the CAPITAL
3. there is no agreement to the contrary
* INDUSTRIAL PARTNER IS EXEMPTED
RULE:
* where a partner receives his share in the partnership credit
CONDITIONS:
1. a partner has received his share in the partnership credit – in whole or in part
2. the other partners have not collected their part of the credit
3. the debtor subsequently becomes INSOLVENT
RULE: - the partner shall be obliged to bring to the partnership capital what he received even though
he may have given receipt for his share only
* DOES NOT APPLY when debt was collected after dissolution of the partnership
RULE:
* every partner is responsible to the partnership for damages suffered by it through his fault
* he cannot compensate them with the profits and benefits, which he may have earned for the
partnership by his industry
* the courts may equitably lessen his responsibility
Page 8 of 19
* an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE share in the profits
*RULES to be observed when the manner of management has not been agreed upon:
1. all the partners are considered AGENTS
whatever any one of them may do alone shall not bind the partnership
2. IF the acts of one are opposed by the rest, the majority shall prevail
3. when a partner acts in his OWN NAME, he does not bind the partnership
4. authority to bind the firm does not apply if somebody else has been given authority to manage
in the articles of organization or through some other means
5. ALTERATIONS REQUIRE UNANIMITY
- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is prejudicial to the interest of the partnership
- COURTS INTERVENTION may be sought
* prescription begins to run only upon the dissolution of the partnership when the final accounting is
done
RULE:
* a partner is CO-OWNER with his partners of SPECIFIC PARTNERSHIP PROPERTY
RULE:
* a PARTNERS INTEREST in the partnership is his SHARE of the PROFITS and SURPLUS
IT CAN BE: [A, A, LS]
1. ASSIGNED
2. ATTACHED
3. be subject to LEGAL SUPPORT
RULE:
every partnership shall operate under a FIRM NAME
* the firm name may or may not include the name of one or more of the partners
*** STRANGERS who include their names in the firm are liable as partners because of ESTOPPEL,
BUT do NOT have the RIGHTS of partners
** IF a LIMITED PARTNER includes his name in the firm name, he has obligations BUT not the
rights of a general partner
** while an INDUSTRIAL PARTNER is exempted by law from LOSSES as between the partners, he
is NOT EXEMPTED from liability insofar as third persons are concerned
he may recover what he has paid from the CAPITALIST partners
* under the law the liability of the partners is subsidiary and joint NOT principal and solidary
RULE:
* every partner is an “agent” of the partnership for the purpose of its business
G.R.- the act of every partner for apparently carrying on in the USUAL WAY the business of the
partnership of which he is member binds the partnership
EXCEPT:
1. if he has NO AUTHORITY and
2. the person with whom he was dealing with HAS KNOWLEDGE of the fact that he has no such
authority
RULE:
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
* a 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
2. where title is in the name of the partnership and partner sold in his OWN NAME
IF DONE IN USUAL BUSINESS
buyer does not become owner BUT ACQUIRES EQUITABLE INTEREST
IF NOT DONE IN USUAL BUSINESS
buyer does not become owner and is not even entitled to equitable interest
3. where title is in the name of one or more BUT not all the partners
partners in whose name the title is named MAY CONVEY BUT the PARTNERSHIP may
RECOVER such property IF done not in its USUAL BUSINESS EXCEPT if he had transferred it to
a Holder for value
4. when property “held in trust” by partner
a sale only conveys EQUITABLE INTEREST
5. when title is in the name of all partners
conveyance executed by all partners possess all rights of such property
EQUITABLE INTEREST
-BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP
2. the partner having knowledge, had reason to believe that the fact related to a matter which
had some possibility of being the subject of the partnership business AND he was so situated
that he could communicate it to the partner acting on that particular matter
*→ SERVICE of PLEADINGS on the partner in a law firm is also service on the whole firm and the
other partners
LOSS OR INJURY
PARTNER BY ESTOPPEL
→ a person who represents himself or consents to another / others representing him to anyone as a
partner either in an existing partnership or in one that is fictitious or apparent
PARTNERSHIP BY ESTOPPEL
→ when all the members of the existing partnership consent to such representation of a partner by
estoppel
BURDEN of PROOF
→ the creditor or whoever alleges the existence of a partner or partnership by estoppel has the
burden of proving the existence of the MISREPRESENTATION AND INNOCENT RELIANCE on it
**→IF a partner sells his share to a third party, BUT the firm itself still remains SOLVENT, partnership
creditors CANNOT assail the validity of the sale by alleging that it is made in fraud of them, since they
have not really been prejudiced
WINDING UP
→ the process settling business affairs after dissolution
TERMINATION
→ the point in time after all the partnership affairs have been wound up
RULE ON DISSOLUTION
*→ on dissolution the partnership is not terminated BUT continues until the winding up of partnership
affairs is completed
*EFFECT on OBLIGATIONS
1. just because a partnership is dissolved this does not necessarily mean that a partner can
evade previous obligations entered into by the partnership
2. dissolution saves the former partners from new obligations to which they have not expressly or
impliedly consented UNLESS the same be essential for winding up
*CAUSES OF DISSOLUTION
1. without VIOLATION of the AGREEMENT between the partners
A) TERMINATION of the DEFINITE TERM or PARTICULAR UNDERTAKING
B) EXPRESS WILL or ANY PARTY in GOOD FAITH (PARTNERSHIP by WILL)
C) EXPRESS WILL of ALL of the PARTNERS except those who have (interests)
ASSIGNED or whose interests have been (separate debts) CHARGED
D) EXPULSION in good faith of a member
2. in CONTRAVENTION of the agreement between the partners
→ by the EXPRESS WILL of ANY PARTNER at any time
3. UNLAWFULNESS of the BUSINESS
4. LOSS – thing promised
A) SPECIFIC THING – PERISHES before delivery
B) USUFRUCT is lost EXCEPT if ownership had been transferred to the partnership
5. DEATH of ANY partner
6. INSOLVENCY of any partner or of the partnership
7. CIVIL INTERDICTION of any partner
8. DECREE of COURT
***→ if the cause is not justified or no cause was given, the withdrawing partner is liable for
DAMAGES BUT in no case can he be compelled to remain in the firm
*→ the insolvency need not be judicially declared, it is enough that the assets be less than the
liabilities
Page 15 of 19
EFFECTS OF DISSOLUTION
RULE:
*→ when the firm is dissolved, a partner can no longer bind the partnership
*→ a dissolved partnership still has the personality for the winding up of its affairs
→ the firm is still allowed to collect previously acquired credits
→ the firm is still bound to pay of its debts
RULE:
*→ the dissolution of the partnership does not itself discharge the “existing liability” of any partner
Page 16 of 19
RULE:
*→ the INDIVIDUAL PROPERTY of a DECEASED PARTNER shall be liable for all obligations of the
partnership incurred while he was a partner BUT subject to prior payments of his separate debts
*→ IF there be a NOVATION of the OLD PARTNERSHIP DEBTS and such novation is done after
one of the partners has “retired” and without the consent of such partner
→ said partner cannot be held liable by creditors who made the novation with knowledge of the
firm’s dissolution
JUDICIAL:
→ under the control and direction of the court, upon proper cause that is shown to the court
*→ profits that will actually enter the firm after dissolution as a consequence of transactions already
made before dissolution are included because they are considered as profits existing at the time of
dissolution
*→ any other income earned after the time, like interest or dividends on stock owned by the partners
or partnership at the time of dissolution should not be distributed as profits BUT as merely additional
income to the capital
*→ IF the partnership assets are insufficient, the other partners must contribute more money or
property
ORDER OF PREFERENCE:
1. INDIVIDUAL or SEPARATE CREDITORS
2. PARTNERSHIP CREDITORS
3. those owing to other partners by way of contribution
*When creditors of the dissolved partnership are also creditors of the partnership continuing
business:
1. new partner is admitted without liquidation
2. a partner retires and assigns his rights IF the business is continued without liquidation of the
partnership affairs
3. all but one partner retires without liquidation
4. when all partner assigns their right to a person who will assume their debt
5. after wrongful dissolution, remaining partners continue the business without liquidation
6. when partner expelled and remaining partners continue the business without liquidation
*→ liability of third person becoming a partner in the partnership continuing the business to the
creditors of the dissolved partnership shall be satisfied out of the partnership property ONLY
G.R. – when a partner retires, he is entitled what is due him after liquidation BUT no liquidation is
needed if there is already a settlement at the date of dissolution
*→ when our internal Revenue Code includes “partnerships” among the entities subject to the tax on
“corporations”, said code which are not necessarily “partnerships” in the technical sense of the term
*→ PARTNERSHIPS – includes a SYNDICATE, GROUP, POOL, JOINT VENTURE, or other
unincorporated organization, through or by the means of which any business, financial operation, or
venture is carried on
*→ a joint venture need not be undertaken in any of the standard forms,
or in conformity with the usual requirements of the law on partnerships, in order that one could be
deemed constituted for purposes of the TAX on corporations
2. all that the partners may acquire by their industry or work during the existence of the
partnership
*→ the subsequent marriage of the partners could not operate to dissolve the partnership because it
is not one of the causes provided for dissolution by law with regards to limited partnerships
*→ partnership has distinct and separate personality from that of its partners
*→ a husband and wife may not enter into a contract of general co-partnership/ UNIVERSAL
partnership