Partnership (Arts. 1767-1783, Civil Code of the Philippines) PDF

BUSLAW Atty. Jal A. Marquez Page 1 of 10 X------------x PARTNERSHIP (Arts. 1767-1783, Civil Code of the Philippines) Chapter 1 – General Provisions business to be carried on is the...

BUSLAW Atty. Jal A. Marquez Page 1 of 10 X------------x PARTNERSHIP (Arts. 1767-1783, Civil Code of the Philippines) Chapter 1 – General Provisions business to be carried on is the very reason for the Article 1767. By the contract of existence of a business partnership two or more persons partnership. bind themselves to contribute  It is necessary that there be money, property, or industry to a an intention to divide the common fund, with the intention profits, among the members, of dividing the profits among although not necessarily in themselves. equal shares. Two or more persons may also  The right to share in the form a partnership for the profit carries with it the exercise of a profession. (1665a) obligation to share also in the losses, if any. Notes:  Often called co-partnership Characteristic elements:  No one can become a 1) Consensual member of the partnership 2) Nominate association without the 3) Bilateral consent of all the other 4) Onerous associates. 5) Commutative  Contract of Partnership may 6) Principal be express (by Articles of 7) Preparatory Partnership) or implied.  There is no partnership (5) Essential features: which is created by law or by 1) Valid contract; operation or implication of 2) Parties must have legal law. capacity to enter into the  As a rule, contracting parties contract; in a partnership must have 3) Mutual contribution of the necessary legal capacity money, property, or industry to enter into the contract. to a common fund;  Exception, spouses. (see 4) Object must be lawful; and Arts. 73 and 87 of the Civil 5) Primary purpose must be to Code) obtain profits and to divide  A partnership may be a the same among the parties. partner in another partnership. Profession  A corporation is without  A calling in the preparation capacity or power to enter for or practice of which into a contract of academic learning is partnership. required and which has for  The idea of obtaining its prime purpose the pecuniary profit for gain rendering of public service. directly as a result of the BUSLAW Atty. Jal A. Marquez Page 2 of 10 X------------x  The law does not allow Partnership as a juridical person individuals to practice a  A partnership may acquire profession as a corporate and possess property of all entity because personal kinds, as well as incur qualifications such as age, obligations and bring civil or good moral character, etc. criminal actions conformity for such practice cannot be with the laws and possessed by a corporation. regulations of its organization. Mutual contribution to a common  A partnership having a fund capital of Php3,000 or more  The partners must have a acquires a juridical proprietary or financial personality even if it was not interest in the business. executed in a public  There can be no partnership instrument and registered without the element of with the Securities and mutual contribution to a Exchange Commission (SEC) common fund. (Art. 1772).  Forms of contribution:  A partnership does not 1) Money; acquire juridical personality 2) Property; and in cases under Arts. 17731 3) Industry and 1775.2  Property may be real or personal, tangible or intangible. Hence, credit or Article 1769. In determining other evidence of obligation whether a partnership exists, or even a mere goodwill may these rules shall apply: be contributed. (1) Except as provided by article  Industry means the work or 1825, persons who are not services of the party partners as to each other are associated, which may be not partners as to third either personal manual persons; efforts or intellectual, and (2) Co-ownership or co-possession for which he receives a share does not of itself establish a in the profits of the partnership, whether such-co- business. owners or co-possessors do or do not share any profits made by the use of the property; Article 1768. The partnership has a juridical personality separate and distinct from that of each of 1 Article 1773. A contract of partnership is void, whenever the partners, even in case of immovable property is contributed thereto, if an failure to comply with the inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a) requirements of article 1772, first 2 Article 1775. Associations and societies, whose articles paragraph. (n) 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. (1669) BUSLAW Atty. Jal A. Marquez Page 3 of 10 X------------x (3) The sharing of gross returns a) Persons who are not partners does not of itself establish a as between themselves partnership, whether or not cannot be partners as to the persons sharing them third persons, except have a joint or common right partnership by estoppel or interest in any property under Art. 1825. from which the returns are b) Co-ownership of property derived; does not of itself establish (4) The receipt by a person of a the existence of partnership, share of the profits of a although co-ownership is an business is prima facie essential element of evidence that he is a partner partnership. in the business, but no such c) The mere sharing of gross inference shall be drawn if returns alone does not such profits were received in indicate a partnership, since payment: in a partnership, the sharing (a) As a debt by installments or of them as a co-owner of the otherwise; business makes one a (b) As wages of an employee partner. or rent to a landlord; d) As a rule, there is a (c) As an annuity to a widow or presumption that a person is representative of a a partner in the business deceased partner; when he receives a share of (d) As interest on a loan, the profits of the business. though the amount of There is no presumption in payment vary with the cases enumerated under profits of the business; paragraphs a-e. (e) As the consideration for the sale of a goodwill of a Partnership vs. Co-ownership business or other property 1. Generally 1. Always by installments or created by created by a otherwise. (n) law, thus contract, may exist express or Notes: even without implied;  This provision lays down the a contract; rules for determining 2. Has a 2. No juridical whether or not an juridical personality; association is one of personality partnership. separate and  Partnership is different from distinct from conjugal partnership of that of each gains. partner;  Partnership is different from 3. Purpose is 3. Purpose is voluntary associations the the common organized for social realization of enjoyment of purposes (e.g., social clubs, profits; a thing or committees, etc.) right; BUSLAW Atty. Jal A. Marquez Page 4 of 10 X------------x 4. Has no 4. An agreement 1. Contract is void ab initio duration of to keep the meaning it never existed in existence; thing the eyes of law; undivided for 2. Profits shall be confiscated more than in favor of the government; (10) years is 3. The instruments or tools and not allowed; proceeds of the crime shall 5. A partner 5. A co-owner also be forfeited in favor of may not may dispose the government; and dispose of of his 4. The contributions of the his individual individual partners shall not be interest in interest in confiscated unless they fall the the co- under no. 3. partnership ownership so as to make even without the assignee the consent Article 1771. A partnership may a partner of all the co- be constituted in any form, without the owners; except where immovable consent of all property or real rights are the partners; contributed thereto, in which case 6. As a rule, a 6. A co-owner a public instrument shall be partner may may not bind necessary. (1667a) bind the the co- partnership; ownership; Form of partnership contract 7. Death of a 7. Death of a co-  As a rule, there is no special partner owner does form required for the dissolves the not validity or existence of the partnership. necessarily contract of partnership, thus dissolve the it may be made orally or in co-ownership. writing.  Exception, when an immovable property or real Article 1770. A partnership must rights are contributed, the have a lawful object or purpose, contract of partnership must and must be established for the be in a public instrument. common benefit or interest of the  Further, the transfer of real partners. property to the partnership When an unlawful partnership is must be duly registered in dissolved by a judicial decree, the the Registry of Property of profits shall be confiscated in the province or city where favor of the State, without the property contributed is prejudice to the provisions of the located to affect third Penal Code governing the persons. confiscation of the instruments and effects of a crime. (1666a) Article 1772. Every contract of Effects of an unlawful partnership: partnership having a capital of BUSLAW Atty. Jal A. Marquez Page 5 of 10 X------------x three thousand pesos or more, in Requirements where an immovable money or property, shall appear property is contributed to the in a public instrument, which partnership: must be recorded in the Office of 1) Contract must be in a public the Securities and Exchange instrument; and Commission. 2) Inventory of the property Failure to comply with the contributed must be made, requirements of the preceding signed by the parties, and paragraph shall not affect the attached to the public liability of the partnership and instrument. the members thereof to third persons. (n) Article 1774. Any immovable (2) requirements where the capital property or an interest therein of the partnership is Php3,000 or may be acquired in the more, in money or property: partnership name. Title so 1) Contract must be in a public acquired can be conveyed only in instrument; and the partnership name. (n) 2) It must be recorded or registered with the SEC.  A partnership, having a juridical personality separate Note: from and independent of the  Failure to comply with above partners, may acquire and requirements does not convey immovable property prevent the formation of the in its name. partnership or affect its liability and that of the partners to third persons. Article 1775. Associations and  The recording or registration societies, whose articles are kept of the articles or contract of secret among the members, and partnership is not for the wherein any one of the members purpose of giving the may contract in his own name partnership a juridical with third persons, shall have no personality but to notify juridical personality, and shall be interested parties thereof. governed by the provisions relating to co-ownership. (1669) Article 1773. A contract of  It is necessary that the partnership is void, whenever articles of partnership be immovable property is given publicity for the contributed thereto, if an protection not only of the inventory of said property is not partners but also of third made, signed by the parties, and persons. attached to the public instrument. (1668a) BUSLAW Atty. Jal A. Marquez Page 6 of 10 X------------x Article 1776. As to its object, a a. At will – one in which no partnership is either universal or time is specified and is particular. not formed for a As regards the liability of the particular undertaking or partners, a partnership may be venture and which may be general or limited. (1671a) terminated anytime by mutual agreement of the Classifications of partnership partners, or by the will of 1) As to the extent of its any one partner alone, or subject matter: one for a fixed term or a. Universal – one which particular undertaking refers to all the present which is continued by the property or to all profits; partners after the (Art. 1777) termination of such term i. Universal partnership or particular undertaking of all present property; without express (Art. 1778) and agreement; (Art. 1785) ii. Universal partnership b. With a fixed term – one of profits. in which the term for b. Particular – one which which the partnership is has for its object to exist is fixed or agreed determinate things, their upon or one formed for a use or fruits, or a specific particular undertaking, undertaking, or the and upon the expiration exercise of a profession of the term or completion or vocation. (Art. 1783) of the particular 2) As to liability of the enterprise, the partners: partnership is dissolved, a. General – one consisting unless continued by the of general partners who partners. are liable pro rata and 4) As to the legality of its subsidiarily (Art. 1816), existence: sometimes solidarily (Art. a. De jure – one which has 1822-24), with their complied with all the separate property for legal requirements for its partnership debts; establishment (Art. 1772); b. Limited – one formed by b. De facto – one which has two or more persons failed to comply with all having as members one or the legal requirements for more general partners its establishment. and one or more limited 5) As to representation to partners, the latter not others: being personally liable for a. Ordinary or Real – one the obligations of the which actually exists partnership. (Art. 1843) among the partners and 3) As to its duration: also as to third persons; BUSLAW Atty. Jal A. Marquez Page 7 of 10 X------------x b. Ostensible or Partnership 4) Limited or Special partner – by Estoppel – one which one who does not participate in reality is not a in the management of the partnership, but is business and whose liability considered a partnership to third persons is limited to only in relation to those his capital contribution (Art. who, by their conduct or 1843); admission, are precluded 5) Managing or Real - one who to deny or disprove its manages the affairs or existence. (Art. 1825) business of the partnership 6) As to publicity: (Art. 1800); a. Secret – one wherein the 6) Liquidating – one who takes existence of certain charge of the winding up of persons as partners is not partnership affairs upon avowed or made known dissolution (Art. 1836); to the public by any of 7) Partner by estoppel or the partners; Partner by implication or b. Open or Notorious – one Nominal partner – one who whose existence is is not really a partner, not avowed or made known being a party to a to the public by the partnership agreement, but members of the firm. is liable as a partner for the 7) As to purpose: protection of innocent third a. Commercial or Trading – persons; (Art. 1825) one formed for the 8) Continuing – one who transaction of business continues the business of a (Art. 1767); partnership after it has been b. Professional or Non- dissolved by reason of the trading – one formed for admission of a new partner, the exercise of a or the retirement, death, or profession. expulsion of one or more partners (Art. 1840); Kinds of partners 9) Surviving – one who remains 1) Capitalist – one who after a partnership has been contributes money or dissolved by the death of any property to the common partner (Art. 1842); and fund (Art. 1767); 10) Subpartner – one who, not 2) Industrial – one who being a member of the contributes only his industry partnership, contracts with a or personal service (Art. partner with reference to the 1789); latter’s share in the 3) General – a capitalist or partnership. (Art. 1804) industrial partner whose 11) Ostensible – one who takes liability to third persons active part and known to the extends to his separate public as partner in the property; (Art. 1843) business, whether or not he BUSLAW Atty. Jal A. Marquez Page 8 of 10 X------------x has an actual interest in the the profits which they may firm; (Art. 1834) acquire therewith. (1673) 12) Secret – one who takes active part in the business but is not known to be a partner by Article 1779. In a universal outside parties nor held out partnership of all present as a partner by the other property, the property which partners, although he belonged to each of the partners participates in the profits at the time of the constitution of and losses of the the partnership, becomes the partnership; common property of all the 13) Silent – one who does not partners, as well as all the profits take any active part in the which they may acquire business although he may be therewith. known to be a partner; A stipulation for the common 14) Dormant or Sleeping – one enjoyment of any other profits who does not take active may also be made; but the part in the business and is property which the partners may not known or held out as acquire subsequently by partner. He is both a Silent inheritance, legacy, or donation and Secret partner; cannot be included in such 15) Original – one who is a stipulation, except the fruits member of the partnership thereof. (1674a) from the time of its organization; Universal Partnership of all present 16) Incoming – a person lately, property or about to be, taken into a  One in which the partners partnership as a member; contribute all the properties and which actually belong to 17) Retiring – one withdrawn each of them at the time of from the partnership; a the constitution of the withdrawing partner. partnership to a common fund, with the intention of dividing the same among Article 1777. A universal themselves as well as the partnership may refer to all the profits which they may present property or to all the acquire therewith. profits. (1672)  As a rule, future properties such as those acquired through inheritance, legacy Article 1778. A partnership of all or donation, cannot be present property is that in which contributed except the fruits the partners contribute all the thereof property which actually belongs  The following become the to them to a common fund, with common property of all the the intention of dividing the same partners: among themselves, as well as all  BUSLAW Atty. Jal A. Marquez Page 9 of 10 X------------x 1) Property which lucrative title without belonged to each of employment of any physical them at the time of the or intellectual efforts, are constitution of the not included, since the law partnership; and speaks only of profits which 2) Profits which they may the partners may acquire by acquire from the their industry or work. property contributed.  Fruits of property subsequently acquired by the partners do not belong Article 1780. A universal to the partnership. partnership of profits comprises all that the partners may acquire by their industry or work during Article 1781. Articles of universal the existence of the partnership. partnership, entered into without Movable or immovable property specification of its nature, only which each of the partners may constitute a universal partnership possess at the time of the of profits. (1676) celebration of the contract shall continue to pertain exclusively to  This refers to the each, only the usufruct passing to presumption in favor of the partnership. (1675) universal partnership of profits in case the articles of Universal Partnership of Profits partnership is silent as to  One which comprises all that whether said universal the partners may acquire by partnership is one of present their industry or work property or of profits only. during the existence of the partnership and the usufruct 3 of movable or immovable property which Article 1782. Persons who are each of the partners may prohibited from giving each other possess at the time of the any donation or advantage cannot celebration of the contract. enter into universal partnership.  The partners retain the (1677) ownership over their present and future property while Limitations on the right to form a the profits or income of said universal partnership properties as well as its use  Persons who are prohibited pass to the partnership. by law to give donations  Profits acquired by the (e.g., husband and wife, partners through chance, except moderate gifts, Art. such as lottery or by 87 FC, see Art. 7394 CC) 4Article 739. The following donations shall be void: 3 Art. 562. Usufruct gives a right to enjoy the property of (1) Those made between persons who were guilty of another with the obligation of preserving its form and adultery or concubinage at the time of the donation; substance, unless the title constituting it or the law otherwise (2) Those made between persons found guilty of the same provides. (467) criminal offense, in consideration thereof; BUSLAW Atty. Jal A. Marquez Page 10 of 10 X------------x cannot enter into a universal partnership as each of the partners practically makes a donation.  A partnership formed in violation of this provision is null and void. Article 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. (1678) Particular Partnership  One which is neither a Universal partnership or present property nor a Universal partnership of profits.  E.g., 1) Those formed for the acquisition of an immovable property for the purpose of reselling it at a profit or for the common enjoyment of its use and the benefits derived therefrom; 2) Those established for the purpose of carrying out a specific enterprise such as the construction of a building; or 3) Those formed for the practice of a profession or vocation. (3) Those made to a public officer or his wife, descendants and ascendants, by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action. (n)