21 JUNE 2017 | PARTNERSHIP

WHERE WERE WE 3. Privity contract shall bind only those who have expressed their
consent to the contract. (Contracts take effect only between the
parties, their assigns and heirs, except in case where the rights
Contract meeting of the minds between two persons whereby one binds and obligations arising from the contract are not transmissible
himself, with respect to the other, to give something or to render some by their nature, or by stipulation or by provision of law. [1311])
service.
4. Mutuality - The contract must bind both contracting parties; its
A contract has three essential elements validity or compliance cannot be left to the will of one of them.
1. Consent (1308)
2. Object
3. Cause or consideration The contract of partnership is generally contractual. However, there are
instances when the law requires that the same should follow some
Applying the concept of a contract in partnership, the law provides that formalities.
by a contract of partnership, two or more persons bind themselves to a. A partnership may be constituted in any form, except where
contribute money, property or industry to a common fund, with the immovable property or real rights are contributed thereto, in
intention of dividing profits among themselves. which case a public instrument shall be necessary. (1771)

a. Consent agreement of the parties to bind themselves b. Every contract of partnership having a capital of three thousand
b. Object money, property or industry contributed to a common pesos or more, in money or property, shall appear in a public
fund instrument, which must be recorded in the Office of the
c. Consideration to divide the profits among themselves Securities and Exchange Commission.

To enter a contract of partnership, a person must have legal capacity to Failure to comply with the requirements of the preceding
do so. The following have no legal capacity to enter a contract: paragraph shall not affect the liability of the partnership and the
1. Minors members thereof to third persons. (1772)
2. Insane or demented persons
3. Deaf-mute who cannot write c. A contract of partnership is void, whenever immovable
4. Persons suffering from civil interdiction property is contributed thereto, if an inventory of said property
5. Incompetents who are under guardianship is not made, signed by the parties, and attached to the public
instrument. (1773)
Take note: A minor who has property can enter into a partnership through
his or her guardians. FORMALITIES OF PARTNERSHIP
While partnership is generally consensual, there are certain formalities
Partnership v. co-ownership required which, if not complied with, may affect its existence or even its
Partnership Co-ownership relationships:
Created by contract Created by law, generally
Juridical personality separate and None 1. When the amount of contribution is more than P3,000 is contributed
distinct from that of each partner must contain a public document duly notarized
Purpose: realization of profits Common enjoyment of a thing or
right; not necessarily involving TN: But this is intended for convenience, meaning if it was not complied
sharing of profits with, partnership continues to exist. For convenience means that if you
(See De Leon, pp. 48-49) want to enjoy the credibility of the public, register with the SEC.

Object of the partnership must be legal, or the purpose of the partnership 2. When immovable properties are contributed, regardless of value it
must be lawful; otherwise, no partnership can arise from a void contract. must be contained in a public document duly signed and an inventory
[So, the object must be lawful. Example of unlawful object: gambling] must be attached.

A partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners. (1770)
Principles of contracts
1. Liberality - The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1306)
2. Consensuality Contracts are perfected by mere consent, and
from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in
keeping with good faith, usage and law. (1315)
TN: This affects existence when it is not complied with. This is for
purposes of protecting certain parties with whom parties may enter into
or establish relationships.
What must the document contain
The document must contain the value, nature, location, and evidence of
proofs of ownership of the property.
Effect of lack of inventory
Without an inventory, the partnership is void.
Characteristic elements of partnership
1. Consensual perfected by mere consent
2. Nominate it has a special name in the law

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3. Bilateral it is entered into by two or more persons and the b. Disadvantage: Arduous process of creating a
rights and obligations arising therefrom are reciprocal corporation; management is limited to a group of
4. Onerous each of the parties contribute something in order to people the Board.
benefit himself
5. Commutative the undertaking of each person is considered Partnership having juridical personality
as the equivalent of that of the others The partnership has a juridical personality separate and distinct from that
6. Principal it does not depend for its existence upon some other of each of the partners, even in case of failure to comply with the
contract requirements of article 1772, first paragraph. (1768)
7. Preparatory it is entered into as a means to an end, i.e. to
engage in business for the realization of profits with the view of Natural person v. juridical person
dividing the same among themselves Natural through procreation
Juridical fiction of law
TN: Context of partnership
1. Agreement to be partners Rights of a natural person
2. Contribute money, property or industry Civil rights
3. Intend to divide profit a. Right to life, liberty and property
b. Due process of law, equality under the law
There should be a division of profits in the context of partnership. c. Right against illegal search and seizure
d. Right against self-incrimination
Partnership v. Conjugal partnership of gains e. Right to remain silent
Partnership Conjugal partnership of gains f. Right against involuntary servitude
Separate and distinct juridical None g. Right to abode and travel
personality
Profits are divided according to Divided equally Political rights
the agreement or in proportion to a. To vote and be voted upon
their respective contributions
Purpose: to obtain profits To regulate property relations of Juridical persons have no political rights.
husband and wife Can a juridical person have the right to remain silent?
(See De Leon, pp. 50-52) Yes. I cannot be compelled to produce a document.
I cannot be compelled to send my officers to testify. I have the
Co-owner v. co-possessor right to remain silent. Due process? We have the right to due
(Not sure) process, we have the right to equal protection of laws even if I
1. Co-owner owns an indivisible thing am not a natural person. Illegal search and seizure? Yes. All
2. Co-possessor does not have title over the thing, but merely these rights are enjoyed by a natural, and juridical person.
possesses it
What are the rights that cannot be enjoyed by a juridical
Rights of an owner person?
1. Right to Right to possess (jus possidendi) Political rights to vote and be voted upon. Right against
2. Right to use (jus utendi) involuntary servitude because it is a personal act. Right to travel and
3. Right to dispose (jus dispodendi) abode because the partnership does not exist physically.
4. Right to the fruits (jus fruendi)
TN: As an owner, you many contribute any or all of these rights (1769) In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not
Types of business organization partners as to each other are not partners as to third persons;
1. Sole proprietorship
2. Partnership (2) Co-ownership or co-possession does not of itself establish a
3. Corporation partnership, whether such-co-owners or co-possessors do or do
not share any profits made by the use of the property;
Advantages or disadvantages
1. Sole proprietorship (3) The sharing of gross returns does not of itself establish a
a. Advantage: more control of the business; all profits partnership, whether or not the persons sharing them have a
go to you alone joint or common right or interest in any property from which the
b. Disadvantage: less capital returns are derived;
2. Partnership
a. Advantage: more capital; share in the losses; more (4) The receipt by a person of a share of the profits of a business is
minds at work prima facie evidence that he is a partner in the business, but no
b. Disadvantage: conflict of interest between partners, such inference shall be drawn if such profits were received in
less profits because they are shared; liability extends payment:
to properties of partners (a) As a debt by installments or otherwise;
3. Corporation (b) As wages of an employee or rent to a landlord;
a. Advantage: more capital; more stable; liability is (c) As an annuity to a widow or representative of a deceased
limited only to the shares of the stockholders; partner;

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(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.

PRESUMPTION OF PARTNERSHIP
The law establishes a presumption to determine if there is a partnership
when the people receive shares of profits.

But this may be refuted by other circumstances. These are instances when
a partner shares profits, but the share is intended for something else not
as a share of a partner.

1. Payment of a salary

2. Creditor is paid through shares

3. Annuity of a widow it may refer to the existence of previous

partnership where a partner died, and there was an earlier agreement that
if one of the partners die, the widow should be entitled to any share of
the profit.

Technically, when a partner dies, the partnership is dissolved because the

partnership is dependent on the fiduciary relationship among partners.
So, if the remaining partners decide to continue, a new partnership is
formed. The widow does not become a partner.

TN: Difference between partnership & corporation no such relationship

is required because the relationship among stockholders is not that that
close. No such relationship between trust & confidence exists in a corp.)

The death of a partner is the death of a partnership because there is no

right of succession, unlike in a corporation (death of a stockholder does
not affect the existence of a corporation even because the stock holdings
are passed on to the heirs).

4. As an interest on a loan

5. As the consideration for the sale of a goodwill of a business it is

possible that someone may be sharing profits as payment for his goodwill.
Goodwill is the value that is attached to the good name of a business.
E.g. big businesses like San Migue

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