CHAPTER 1 (2) Universal partnership of all profits It comprises

Business Laws and Regulations all that the partners may acquire by their industry or
work during the existence of the partnership. b.
Nature of Partnerships Particular partnership A particular partnership has
for its object determinate things, their use or fruits,
Article 1767 of the New Civil Code of the Philippines defines or specific undertaking or the exercise of a
partnership as "a contract whereby two or more persons bind profession or vocation.
themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits among 2. According to lability
themselves". Two or more persons may form a partnership for a. General partnership
the exercise of their professions. It is one where all the partners are general partners.
All general partners here are liable up to the extent
CHARACTERISTICS OF PARTNERSHIP of their separate properties after the assets of the
partnership have been exhausted.
1. Mutual Agency - every partner has the authority to act for b. Limited partnership
the partnership and become binding if such act is within It is one where there is at least one general partner
his express or implied authority. and one limited partner. A general partner is liable
2. Limited Life - partnership exists on contract drawn by the beyond his contribution while a limited partner is
partners and can be terminated anytime the partners so liable only to the extent of his contribution.
desire causing the partnership to be dissolved. Retirement,
withdrawal, death, bankruptcy, incapacity of a partner 3. According to duration
and admission of a new partner dissolve the partnership. a. Partnership at will
3. Unlimited Liability - a partnership is said to have It is one where there is no fixed term or it is not
unlimited liability because the partnership creditors can formed for a particular undertaking, or it is one for a
run after the personal assets of the partners (except fixed term or particular undertaking which is
limited partners) after all partnership assets have been continued after the termination of such term or
exhausted in payment of its obligation. particular undertaking without any express
4. Co-ownership - when a property is invested by a partner agreement.
in the partnership, such property is no longer owned by b. Partnership with a fixed term
him but by the partnership and because partners are It is one where the life or period of existence of the
co-owners, each and every one of them acquires equity partnership has been agreed upon by the partners. c.
over such investment equivalent to their profit or loss Partnership for a particular undertaking It is one
sharing agreement. where it will exist until the purpose is accomplished.
5. Plurality of Capital and Drawing Accounts - this is one of
the unique characteristics of a partnership wherein each 4. According to representation to others
partner is provided with a capital and drawing accounts. a. Ordinary partnership
6. Profit and Loss Distribution - as stipulated in their It is one where two or more persons bind themselves
agreement, a partner has to share for every amount of to contribute money, property, or industry to a
profit that the business makes or loss that the business common fund, with the intention of dividing the
incurs. profits among themselves.
b. Partnership by estoppel
ADVANTAGES OF A PARTNERSHIP It is one where persons, by words spoken or written
or by conduct, represent themselves, or consent to
1. It can easily be formed and dissolved because it exists on another representing them to anyone, as partners in
agreement. an existing partnership or with one or more persons
2. Better management can be attained considering the not actual partners.
combined expertise of the partners.
3. A bigger amount of capital can be raised as compared to a 5. According to the legality of its existence
sole proprietorship. a. De jure partnership
4. There is a great advantage of forming a partnership for the It is one which has complied with all requirements
exercise of profession because such partnership is exempted for its creation.
from payment of income tax. b. De facto partnership
5. The interest of one partner cannot be transferred to a new It is one which has not complied with all the legal
partner without the consent of other partners requirements for its creation.

DISADVANTAGES OF A PARTNERSHIP KINDS OF PARTNERS

1. A partner's personal assets can be ran after by the 1. As to contribution

partnership creditor in case the partnership could not pay all its a. Capitalist partners
obligations (except for a limited partner after all partnership Those who contribute money or property or both
assets are exhausted). money and property to the common fund.
2. Misunderstanding and disputes may arise among partners. b. Industrial partners
3. Limited source of capital as compared to a corporation Those who contribute only their industry or labor to
4. Possible divisiveness in reaching a decision the common fund.
5. Limited life of existence c. Capitalist-industrial partners
Those who contribute money or property and
CLASSIFICATION OF PARTNERSHIP industry or both money, property and industry to the
1. According to object common fund.
a. Universal partnership 2. As to liability
(1) Universal partnership of all present property a. General partners
The partners contribute all the property which Those who can be held liable to third persons for
actually belongs to them to a common fund, with the partnership obligations even to the extent of their
intention of dividing the same among themselves, as separate property.
well as all the profits which they may acquire b. Limited partners
therewith. Those who cannot be held liable to third persons for
partnership obligations.
3. As to management Essential requisites of a contract of partnership:
a. Managing partners
Those who manage actively the business or affairs of the 1. There must be a valid contract
partnership. 2. There must be a contribution money, property, or industry
b. Silent partners to common fund;
Those who do not take active part in the business or 3. The partnership must be organized for gain or profit; and
affairs of the partnership though they share in the 4. The partnership should have a lawful object or purpose,
profits or losses. and must be established for the common benefit or interest of
c. Liquidating partners the partners.
Those who take charge of the winding up or
liquidation of the partnership affairs after Two test to determine the existence of a partnership:
dissolution.
4. As to third persons 1. First Test
a. Ostensible partners 2. Second Test
Those who take active part and known to the public
as a partner in the partnership. A partnership as a contract has the following characteristics:
b. Secret partners
Those whose connection with the partnership is not 1. Consensual
known to the public. 2. Bilateral
c. Dormant partners 3. Principal
Those who do not take active part in the business 4. Commutative
and are not known to the public as partners. Thus, 5. Onerous
they are both secret and silent partners. 6. Nominate
5. As to membership 7. Preparatory
a. Real partners
Those partners in an existing legal partnership. ARTICLE 1768
b. Partners by Estoppel The partnership has a juridical personality separate and distinct
Those who are not really partners but represent from that of each of the partners, even in case of failure to
themselves, or consent to another or others comply with the requirement of Article 1772.
representing them to anyone as partners in an
existing partnership or in one that is fictitious or ARTICLE 1771
apparent as a general rules, a contract of partnership may be made orally
6. As to continuation of the business affairs after dissolution or in writing, unless real property or rights are contributed, in
a. Continuing partners which case, it should be in a public instrument.
Those who continue the partnership business after
the dissolution of the partnership. General Rule:
b. Discontinuing partners No form is required. Thus, the contract may be oral or in
Those who do not continue the partnership business writing
after the dissolution of the partnership.
7. As to the nature of membership Exception:
a. Original partners If real properties or real rights in real properties are
Those who are members of the partnership from the contributed regardless of the value. A public instrument is
time of its constitution. needed; otherwise, the contract of the partnership is void.
b. Incoming partners
Those who became members of the partnership ARTICLE 1772
after its establishment. Every contract of partnership having a capital of three
c. Retiring partners thousand pesos (Php3,000) or more, in money or property,
Those who withdraw from the partnership. shall appear in a public instrument, which must be recorded in
8. As to state of survivorship the Office of the Securities and Exchange Commission.
a. Surviving partners
Those who continue the partnership after its Purpose of Registration
dissolution by reason of death of a partner. The registration is to set a condition for the issuance of licenses
b. Deceased partners to engage in business or trade. In this way, the tax liabilities of
Those who died while being a member of the big partnerships cannot be evaded, and the public can also
partnership determine more accurately their membership and capital
9. As to the effect of expulsion before dealing with them.
a. Expelled partners
Those who are expelled from the partnership by the ARTICLE 1773
other partners for a valid cause. If real property, regardless of value, is contributed by any of the
b. Expelling partners partners, the contract of the partnership must be public
Those who caused the expulsion of a partner for a instrument, and attached to it should be an inventory of the
valid cause. property contributed, duly signed by the parties.
10. As to the value of the contribution
a. Majority partners ARTICLE 1774
Those whose contribution to the partnership Any immovable property or an interest therein may be
represents the majority or controlling interest. acquired in the partnership name. Title so acquired can be
b. Nominal partners conveyed only in the partnership name.
Those whose contribution to the partnership
represents the minority interest. ARTICLE 1775
Associations whose articles are kept secret among the
ARTICLE 1767 members and where they contract in their own name with the
By the contract of partnership two or more persons bind third persons are not partnerships because they do not have
themselves to contribute money, property, or industry to a juridical personality, and are governed by the provisions.
common fund, with the intention of dividing the profits among
themselves.
ARTICLE 1778. entitled to compensation for his services other than his
In a universal partnership of all present property, the partners share of the profits.
contribute all the properties that belong to them to a common
fund together with the profits they may acquire from said b. When two or more managing partners have been
properties. entrusted with the management

ARTICLE 1779 1. Without specification of their respective duties and

They may also agree to include all other profits they may without specification that one of them shall not act
subsequently receive but the property that the partners may without the consent of the others.
acquire, subsequently by inheritance, legacy, or donation General Rule:
cannot be included in their agreement, except the fruits Each one may execute all acts of administration
thereof. Exceptions:
a. Decision of the majority of the managing partners shall
ARTICLE 1780 prevail; and
A universal partnership of profits comprises all that the b. In case of a tie, decision of the partners having the
partners may acquire by their industry or work during the controlling interest (holds more than 50% of capital
existence of the partnership. Only the usufruct over the investment) shall prevail, provided they are also
property of the partners passes to the partnership. managers.

ARTICLE 1782 2. Where unanimity of action stipulated Concurrence

Persons who are prohibited by law to give donations to each necessary for validity of acts
other, such as a husband and wife, cannot form a universal The partners may stipulate that none of the managing
partnership. partners shall act without the consent of the others. In
such a case, the unanimous consent of all the managing
ARTICLE 1783 partners shall be necessary for the validity of their acts.
Contemplates a particular partnership known as a professional This consent is so indispensable that neither the absence
partnership formed by professionals who join together to nor disability of any one of them may be alleged as excuse
practice their profession or justification to dispense with this requirement. The only
exception is when there is an imminent danger of grave or
Duration of Partnership irreparable injury to the partnership, in which case, a
As to duration, a partnership may either be for a fixed term or a partner may act alone without the consent of the partner
particular undertaking or at will. who is absent or under disability, without prejudice to his
liability for damages under Article 1794 (Article 1802)
Duration of Partnership
ARTICLE 1785. II. Non-agreement on the manner of management (Article
A partnership term may be extended expressly or impliedly, 1803)
when the partnership is for a fixed term or particular
undertaking and is continued, without any express agreement, A. All partners shall be considered agents and whatever any
after the termination of the fixed term or particular one of them may do alone binds the partnership subject to
undertaking. Article 1801.
B. Unanimous consent is required for any important
Rules on Management alteration of immovable property, even if it may be useful to
the partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the
l. Manner of management has been provided in the partnership, the court's intervention may be sought.
partnership agreement.
Power of a Managing Partner
a. when a managing partner has been appointed.
(1) The minor power to issue receipts;
Article 1800 (2) Authority to purchase on credit;
Partner who has been appointed manager in the articles of (3) Authority to secure loans to complete the construction of a
partnership may execute all acts of administration despite the "casco" for use in the business and necessary to carry out the
opposition of his partners, unless he should act in bad faith; express object of the partnership:
and his power is irrevocable without just or lawful cause. The (4) Authority to dismiss an employee, particularly, when there
vote of the partners representing the controlling interest shall is a justifiable cause for dismissal as when the employee hurled
be necessary for such revocation of power. A power granted at the manager abusive and unsavory remarks in the presence
after the partnership has been constituted may be revoked at of the customers of the firm; and
any time. (5) All acts of administration, including the right to sue debtors
of the partnership
Article 1800 speaks of two (2) distinct cases of appointments:
Exceptions:
(1) Appointment as manager in the article of partnership (1) No authority to buy supplies or properties unnecessary for
The partner appointed by common agreement in the the business;
articles of partnership may execute all acts of (2) No authority to sell the business without the consent of all
administration notwithstanding the opposition of the partners; and
other partners, unless he should act in bad faith. His (3) No authority to bind the partnership by a contract wholly
power is revocable only upon just and lawful,cause and foreign to its business
upon the vote of the partners representing the controlling
interest.
(2) Appointment as manager after the constitution of
the partnership
The management granted by the partners may be revoked
at any time for any cause whatsoever. It should be noted
that Article 1800 refers to a partner, not a stranger, who
has been appointed as manager. As a rule, a partner is not
Obligations of the Partners 4. When the general-capitalist partner becomes a limited
partner in a competitive enterprise.
Section 1. Obligations of the Partners among Themselves
Effect of non-compliance:
Legal relations created by a contract of partnership 1. He shall bring to the partnership all the profits illegally
obtained;
1. Relations between partners 2. He is liable, personally, for all the losses; 3. He may be
2. Relations between partners and the partnership ousted for loss of trust and confidence.
3. Relations between partners and the third persons
4. Relations between the partnership and third persons OTHER OBLIGATION OF A PARTNER TO THE PARTNERSHIP
AND TO THE OTHER PARTNERS
TO GIVE HIS CONTRIBUTION
1. AMOUNT: Unless there is a stipulation to the contrary, the 1. Not to convert partnership funds/ property for his own use
partners shall contribute equal shares to the capital of the (Art. 1788)
partnership. 2. To account for and hold as trustee, unauthorized (or secret)
2. WHEN: As a rule, the contribution must be provided upon personal profits (Art. 1807)
the perfection of the contract, except if the partners stipulate 3. Pay for damages caused by his fault (Art. 1794)
otherwise. 4. Share with other partners the share of the partnership
3. DELAY: A partner who has undertaken to contribute a sum credit which he has received from an insolvent firm debtor (Art.
of money and fails to do so becomes a debtor for the interest 1743)
and damages from the time he should have complied with his 5. Keep the partnership books in the principal office (except
obligation. Thus, no demand shall be necessary since the law when otherwise agreed) and allow other partners to have
specifically provides for the liability in case of delay. access, inspect and copy the same.
4. A partner is likewise liable similar to a vendor: 6. Reimburse the partnership of damages suffered by it
a. He is bound to deliver the fruits thereof from the time through his fault.
they should have been delivered, without need of demand a. The liability for damages is not compensable with
(Art. 1786). profits and benefits earned for the partnership;
b. b. A partner must exercise due diligence in preserving b. Damages, however, may be decreased by courts if
the thing promised to be contributed; otherwise, he shall through the partner’s extraordinary efforts, the
be liable for loss and deterioration. partnership earned unusual profits.
c. Warrant the thing delivered against eviction 7. To inform the other partners on all matters affecting the
partnership or relative to partnership affairs.
Risk of Loss: 8. To observe the diligence of a good father of a family in all his
LOSS BORNE BY THE PARTNER: dealings.

1. Thing contributed is specific and determinate which is NOT Obligations of the Partners : To Third Persons
fungible and only their use and fruits may be for the common
benefit; and Firm Name
2. . There is a stipulation that he shall bear the loss of the thing  Every partnership shall operate under a firm name, which
brought and appraised in the inventory. may or may not include the name of one or more of the
partners.
TO GIVE ADDITIONAL CONTRIBUTION IN CASE OF IMMINENT  Strangers who include their name in the firm are liable as
LOSSES partners because of estoppel but do not have the nights
of partners. — this is to protect customers from being
In case of an imminent loss of the business of the partnership, misled.
partners are required to give additional contributions. Who are  If a limited partner included his name in the firm name,
required: he shall be liable as a general partner.
1. Capitalist partners (unless there is a stipulation to the
contrary) LIABILITY AFTER EXHAUSTION OF PARTNERSHIP ASSET
2. Industrial partners if there is a stipulation to that effect  All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership
Consequence of failure: any partner who refuses to contribute assets have been exhausted, for the contracts which may
an additional share to the capital to save the venture shall he be entered into in the name and for the account of the
obliged to sell his interest to the other partners partnership, under its signature and by a person
authorized to act for the partnership. However, any
NOT TO ENGAGE IN ANOTHER BUSINESS partner may enter into a separate obligation to perform a
partnership contract.
 Industrial partners - cannot engage in business for himself  Any stipulation to the contrary shall be void, except as to
except when the capitalist partners permit him to do so. the partners.

Effect of non-compliance: The capitalist partners may either AUTHORITY TO ACT FOR AND IN BEHALF OF THE PARTNER
1. Exclude him from the firm or
2. Avail themselves of the benefits which he may have Every partner is an agent of the partnership for the purpose of
obtained in violation of this provision. its business.
The authority of the partner to act in behalf of the partnership
 Capitalist partners — the prohibition is limited to may be:
businesses in the industry as that of the partnership which 1. Express — those expressly granted to the partner; or
may result in competition. 2. Implied — those which may be implied from the express
Exceptions: authority; or
1. When it is expressly stipulated that the capitalist partner can 3. Apparent — when he apparently carries on the usual
so engage himself; business of the partnership and the person to whom he is
2. When the other partners allow him to do so, whether dealing has no knowledge of the fact that he has no such
expressly or impliedly; authority. If the partner is not carrying on the usual business of
3. During the period of liquidation and winding up, when the the partnership, the act will not bind the partnership unless it is
partnership is already non-existent. authorized by the other partner.
AUTHORITY TO ACT FOR AND IN BEHALF OF THE PARTNER
Consent of ALL partners necessary to:
1. Assign the partnership property in trust for creditors or on
the assignee's promise to pay the debts of the partnership;
2. Dispose of the good-will of the business;
3. Do any other act which would make it impossible to carry on
the ordinary business of a partnership;
4. Confess a judgment;
5. Enter into a compromise concerning a partnership claim or
liability;
6. Submit a partnership claim or liability to arbitration;
7. Renounce a claim of the partnership. Except when
authorized by the other partners or unless the abandoned the
business.

ADMISSION AND NOTICES

 Admission of Partners: an admission made by one partner
within the scope of his authority is evidence against the
partnership.
 Notice to a Partner: operates as notice to the partnership,
except in case of fraud committed by such partner.

SOLIDARY LIABILITY FOR TORTS/QUASI-DELICT

Where, by any wrongful act or omission of any partner acting

in the ordinary course of the business of the partnership or
with the authority of co-partners, loss or injury is caused to
any person, not being a partner in the partnership, or any
penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act.

SOLIDARY LIABILITY FOR MISAPPROPRIATION

The partnership is bound to make good the loss, in two

situations:
1. Pertains to partner as receiver: Where one partner acting
within the scope of his apparent authority receives money or
property of a third person and misapplies it.
2. Pertains to partnership as receiver: Where the partnership
in the course of its business receives money or property of a
third person and the money or property so received is
misapplied by any partner while it is in the custody of the
partnership.

In cases of both Torts and Misappropriation, all the partners

are solidarily liable as to each other and the partnership

PARTNER BY ESTOPPEL

1. One who represents himself as a partner of an existing

partnership with or without consent of the partnership:
a. When the partnership consented — a partnership by
estoppel is created between the original members and the
deceiver. A partnership liability results.
b. When the partnership did NOT consent — deceiver
becomes a partner by estoppel where he is liable as a
partner but does not acquire the rights thereof. No
partnership liability exists.
2. One who represents himself as a partner of a NON-existent
partnership. Liability of parties is pro rata, since there is no
partnership liability.

LIABILITY OF NEW (INCOMING) PARTNER

 Debts incurred prior to admission: liable up to his

contribution (Except if there is stipulation)
 Debts incurred after admission: liable up to his personal
assets.