lOMo

1: GENERAL PROVISIONS
LAW2 - Business Laws and
Regulations BSA | SEM 1 2023

CONCEPT OF PARTNERSHIP either money, property and/or industry

Art. 1767. By the contract of partnership two or must be made
more persons bind themselves to contribute 5. Commutative - undertaking of each
money, property, or industry to a common fund, partner is the same with the others
with the intention of dividing the profits among 6. Principal - its existence or validity does
themselves. not depend on some other contract
7. Preparatory - entered into as a means
Two or more persons may also form a partnership to an end
for the exercise of a profession. (1665a)
ESSENTIAL FEATURES
Some other definitions: 1. Valid Contract
➔ Association of two or more persons to 2. Legal Capacity
carry on as co-owners a business for 3. Mutual Contribution
profit 4. Object must be lawful
➔ A joint undertaking to share in the profit or 5. Primary purpose to obtain profit and divide
loss such
★ Profession - a calling in the preparation
for or practice of while academic learning EXISTENCE OF A VALID CONTRACT
is required and which as for its 1. A form of voluntary and personal
prime purpose the rendering of public association
service. (Refers to the General Professional 2. Creation and proof of existence
Partnership (GPP) or a partnership for the 3. Other forms of association excluded (Take
exercise of a profession) note of limited partnership)
★ Take note, it's not a business for profit.
But ★ Principle of Delectus Personae (choice
the law allows the joint pursuit of persons) - a person has the right to
★ Cannot incorporate practice of profession. select persons with whom he wants to
be associated with in partnership
ELEMENTS
1. Intention to form a contract of LEGAL CAPACITY OF PARTIES TO ENTER INTO THE
partnership CONTRACT
2. Participation in both profits and losses
1) General Rule - Any person may be a partner
3. Community of interests
who is capable under the law of entering into
contractual relations. (Must be legally able to give
BASIC FEATURES consent)
1. Voluntary agreement
2. Association for profit People who cannot legally give consent:
3. Mutual contribution to a common fund a. Unemancipated minors
4. Lawful purpose or object ➔ Minors who haven’t reached age of
5. Mutual agency of partners majority (Philippines = 18 years old)
6. Articles must not be kept secret b. Insane and demented persons
7. Separate juridical personality ➔ Not of sound mind
c. Deaf-mutes who do not know how to write
CHARACTERISTICS ➔ Could be taken advantage of
d. Persons who are suffering from civil
1. Consensual - perfected by mere consent interdiction
2. Nominate - has a special ➔ When a person is stripped of some
name/designation in the law of his civil rights (managing and
3. Bilateral - entered by two or more disposal of assets, marital authority,
persons creating reciprocal rights and parental authority)
obligations e. Incompetents who are under guardianship
4. Onerous - give something to procure
another thing; contributions in the form of

Downloaded by Nelma Mae Ruz

 lOMo

➔ Another person having control over

INTENTION TO REALIZE AND DIVIDE PROFIT
one’s assets
2) Exceptions - Persons who are prohibited ❖ Sharing of Profits
from giving each other any donation or I. Not necessarily in equal shares -
advantage (for ref, Art. 87) cannot enter Necessary intention to earn profits
into a universal partnership (Art. 1782) and divide it amongst partners, but
3) Capacity of partnership/corporation to be a not required na equal shares. (No
partner right to participate in profits, not
➔ A partnership can be a partner in another deemed as a partner); equal
partnership. division of profits is required, equal
➔ A corporation can be a partner but it has shares is not required
limitations. Unless authorized by law, a II. Not conclusive evidence of
corporation cannot be a partner in a partnership - sharing of profits
partnership. is only presumptive, not
conclusive, that a partnership.
Some instances where sharing of
MUTUAL CONTRIBUTION TO A COMMON FUND profits and losses were not
I) Proprietary or Financial Interest partners (Ex. Co-ownership)
2) Form of Contribution ❖ Sharing of Losses
➔ Money - Legal tender in the Philippines I. Necessary corollary of sharing in
(Monetary instruments must be encashed profits - Silent si Art. 1767 sa
first) losses, but such is a
➔ Property - Real or Personal; Tangible or consequence of the same
Intangible II. Agreement not necessary - Now, if
➔ Industry - the work or services of the party subsequent stipulation excludes
associated, which may be either personal one or more partners from the
manual efforts or intellectual, and for share of P/L, only the stipulation is
which he receives a share in the profits void
(not merely salary) of the business
PARTNERSHIP, A JURIDICAL PERSON
LEGALITY OF OBJECT Art. 1768. The partnership has a juridical
➔ Object - What was agreed upon by personality separate and distinct from that of
the parties to the contract each of the partners, even in case of failure to
comply with the requirements of article 1772, first
1) Effect of illegality paragraph. (n)
➔ The object is considered to be unlawful
when it is contrary to law, morals, good As an independent juridical person, a
customs, public order, and public policy partnership may enter into contracts, acquire
➔ Purpose must be lawful, otherwise void and possess property of all kinds in its name,
ab initio (void from the very beginning) as well as incur obligations and bring civil
2) Business partnership not permitted to or criminal actions. Thus, a partnership may
engage in be declared insolvent even if the partners are
➔ Partnership may be organized for any not. It may enter into contracts and may sue
purpose except that it may not engage in and be sued in its firm name or by its duly
an enterprise for which the law requires a authorized representative. It is sufficient
specific form of business combination. (Ex. that service of summons be served on any
General Banking Law) partner.

INTENTION TO REALIZE AND DIVIDE PROFIT Partners cannot be held liable for
1) Very reason for existence of partnership the obligations of the partnership unless it is
➔ Obtain pecuniary profit or gain directly shown that the legal fiction of a different
as a result of the business to be juridical personality is being used for a
carried (Pertains only to General fraudulent, unfair or illegal purpose.
Partnership)
2) Sufficient if obtaining profit is the EFFECT OF FAILURE TO COMPLY WITH
principal purpose
➔ Obtaining profit not necessary exclusive STATUTORY REQUIREMENTS
Under Art 1772 - Partnership still acquires
personality despite failure to comply with the

Downloaded by Nelma Mae Ruz

 lOMo

requirements of execution of public instrument present. In case of doubt, Art. 1769 shall apply.
and registration of name in SEC. This article seeks to exclude from the category
of partnership certain features enumerated
Under Arts 1773 and 1775 - Partnership herein which, by themselves, are not indicative
with immovable property contributed, if of the existence of a partnership.
without requisite inventory, signed and
attached to public instrument, shall not ➔ Where terms of contract not clear
acquire any juridical personality because the ● Generally, all essential features and
contract itself is void. This is also true for secret characteristics must be shown as
associations or societies. being present
● If unclear, Art. 1769 shall apply
➔ Where existence disputed
TO ORGANIZE A PARTNERSHIP NOT AN
● May be disputed or questioned by
ABSOLUTE RIGHT an affected party
It is but a privilege which may be enjoyed only ● Factual matter
under such terms as the State may deem
necessary to impose. PERSONS NOT PARTNERS AS TO EACH
OTHER
Art. 1769. In determining whether a partnership Persons who are partners as between themselves
exists, these rules shall apply: are partners as to third persons.

(1) Except as provided by article 1825, persons who ★ Partnership, a matter of intention -
are not partners as to each other are not persons who are partners in fact may not
partners as to third persons; avoid the consequences of such relation
★ Partnership by estoppel - where persons
(2) Co-ownership or co-possession does not of by their acts, consent, or representations
itself establish a partnership, whether such have misled third persons or parties into
co-owners or co-possessors do or do not share believing that the former are partners in a
any profits made by the use of the property; non-existing partnership, such persons
become subject to liabilities of partners to
(3) The sharing of gross returns does not of itself all who, in good faith, deal with them in
establish a partnership, whether or not the their apparent relations
persons sharing them have a joint or common ★ Thus, with the exception of partnership by
right or interest in any property from which the estoppel, a partnership cannot exist as to
returns are derived; third persons if no contract of partnership
has been entered into between the parties
(4) The receipt by a person of a share of the themselves.
profits of a business is prima facie (at first sight)
evidence that he is a partner in the business, but CO-OWNERSHIP OR CO-POSSESSION
no such inference shall be drawn if such profits
There is co-ownership whenever the ownership
were received in payment:
of an undivided thing or right belongs
to different persons.
(a) As a debt by installments or
otherwise; ★ Art. 484 provides that co-ownership (or
(b) As wages of an employee or rent to a co-possession) whenever ownership (or
landlord; (c) As an annuity to a widow or possession) of an undivided thing or right
representative of a deceased partner; belongs to different persons
(d) As interest on a loan, though the amount of ★ Remember this difference
payment vary with the profits of the business; ➔ Co-ownership of property does not
(e) As the consideration for the sale of a goodwill itself establish the existence of a
of a business or other property by installments or partnership
otherwise. (n) ➔ But, “co-ownership” is an essential
element of partnership
RULES TO DETERMINE EXISTENCE OF ★ Take note, the profits must be derived from
business operations or undertakings to be
PARTNERSHIP considered a partnership. Such right to P/L
In general, to establish the existence of a must be shared as a CO-OWNER of the
partnership, all of its essential features or business that makes one a partner.
characteristics must be shown as being

Downloaded by Nelma Mae Ruz

 lOMo

legally those who

PARTNERSHIP DISTINGUISHED FROM give can marry
consent (man and
CO-OWNERSHIP woman)
1) Creation - Co-ownership is generally created 2) Laws Articles of Family Code
by operation of law. On the other hand, which govern partnershi
partnership is created by contract (expressed or p
implied) 3) Yes No
2) Juridical personality - Partnership has a Juridical
juridical personality separate and distinct from personalit
that of each partner. Co-ownership does not. 4) Upon Marriage
3) Purpose - Partnership, realization of profit.
Commenceme execution of
Co-ownership, common enjoyment of a thing or
nt contract,
right.
4) Duration - Partnership, according to law, has unless
no limitation. Co-ownership, no agreement for otherwise
more than 10 years. stipulated
5) Disposal of Interest - Partnership, a partner 5) Purpose To conduct To govern
can only dispose to an assignee to make business the property
him a partner with the agreement from other operations to relationship
partners. Co-ownership, freely. gain profit between
★ Right of first rule - Ibenta muna sa
and to divide husband and
co-owners yung interest mo. Pag walang
the profits wife
tumanggap, saka pa lang ibebenta
sa third persons. among
6) Power to act with third persons - In a themselves
partnership, unless contrary, a partner may bind 6) Depends on Husband
the partnership. In a co-ownership, it only binds Distribution the agreement and wife
the co-owner, not the other co-owners. of profits or sinabi ng divide
7) Effect of death - In a partnership, the death of batas equally
a partner/s will dissolve the partnership. In 7) Management Partners can Husband and
a co-ownership, it is not necessarily dissolved. manage wife are
PARTNERSHIP DISTINGUISHED FROM CONJUGAL partnership equally
PARTNERSHIP OF GAINS unless governing.
merong Dispute =
According to Art. 106, Family Code, Conjugal
assigned na husband’s
partnership of gains is a partnership formed by
marriage of husband and wife by virtue of which, managing decision
they place in a common fund the fruit and partner prevails
income from their separate properties and those 8) Disposition Admit partner Divided equally
acquired through their efforts or by chance, of shares by disposing
and unless otherwise agreed in the marriage interest =
settlements, divide equally, upon the need consent
dissolution of the marriage or the of other
partnership, the net gains or benefits obtained
partner
by either or both of them during the marriage.
PARTNERSHIP DISTINGUISHED FROM VOLUNTARY
Family Code - Replaced and amended some of
ASSOCIATIONS
the provisions of the New Civil Code that governs
family relations Organized for special purposes

Partnership Voluntary
Conjugal Partnership of Gains
Associations
Partnership
1) Juridical Yes No
Personality
1) Parties As long as can Restricted to

Downloaded by Nelma Mae Ruz

 lOMo

of the partnership and the members thereof to

2) Purpose Earn profits Kung ano third persons. (n)
man gusto
nila gawin Two requirements where the capital is P3,000 or
more (money or property):
3) Common - 1) Contract must appear in public instruments
Contributions of fund (money, 2) Must be recorded or registered with the SEC
members property,
But take note, noncompliance of such does not
industry)
prevent partnership formation or affect the
liabilities to third parties. (Partner can compel, as
4) Liability Partnership Liable as to long as it's not void, to execute the contract in a
> Partners’ each of their public instrument)
property own liabilities
that they have So what is the point of the
acquired due registration?
to their position ➔ To make the recorded instrument open to
all and to give notice thereof to interested
and action
parties. (And also, tax compliance)
Art. 1773. A contract of partnership is void,
Art. 1770. A partnership must have a lawful object
whenever immovable property is contributed
or purpose, and must be established for the
thereto, if an inventory of said property is not
common benefit or interest of the partners.
made, signed by the parties, and attached to the
public instrument. (1668a)
When an unlawful partnership is dissolved by a
judicial decree, the profits shall be confiscated in
As long as there is an immovable property as a
favor of the State, without prejudice to the
contribution, follow the requirements if you don't
provisions of the Penal Code governing the
want your partnership contract voided:
confiscation of the instruments and effects of a
1) The contract must be in a public
crime. (1666a) instrument
2) An inventory of the property contributed must
Two points taken from the first paragraph: be made, signed by the parties, and attached to
1) Legality of the objects the public instrument
2) Community of benefit or interest of the partner
What is the purpose of this requirement?
Effects of an unlawful partnership ➔ Intended primarily to protect third persons.
1) The contract is void ab initio and
the partnership never existed in the eyes of the Art. 1774. Any immovable property or an interest
law therein may be acquired in the partnership name.
2) The profits shall be confiscated in favor of the Title so acquired can be conveyed only in
government the partnership name. (n)
3) Instrument or tools and proceeds of the crime
shall also be forfeited in favor of the government Art. 1775. Associations and societies, whose
4) Contributions of the partners shall not be articles are kept secret among the members, and
confiscated unless they fall under No. three wherein any one of the members may contract in
his own name with third persons, shall have no
Art. 1771. A partnership may be constituted in any juridical personality, and shall be governed by the
form, except where immovable property or real provisions relating to co-ownership. (1669)
rights are contributed thereto, in which case a
public instrument shall be necessary. (1667a) Art. 1776. As to its object, a partnership is either
universal or particular.
Art. 1772. Every contract of partnership having a
capital of three thousand pesos or more, in As regards the liability of the partners, a
money or property, shall appear in a public partnership may be general or limited. (1671a)
instrument, which must be recorded in the Office
of the Securities and Exchange Commission.
CLASSIFICATIONS OF PARTNERSHIP
Failure to comply with the requirements of the 1) As to the extent of the subject matter
preceding paragraph shall not affect the
liability

Downloaded by Nelma Mae Ruz

a. Universal partnership (or one which
lOMo

refers to all the present property or to all

profits)

Downloaded by Nelma Mae Ruz

 lOMo

I. Universal partnership of all f. Liquidating partner - take charge

present property (defined in Art. of winding up affairs
1778); and g. Partner by estopped - not really a
II. Universal partnership of profits partner but liable as a partner for the
(defined in Art. 1780) protection of third persons
b. Particular Partnership (Art. 1783) h. Continuing partner - continues
2) As to liability of the partners the business after dissolution
a. General Partnership (pro rata and i. Surviving partner - remaining partner after
subsidiarily, sometimes solidarily, etc) partnership dissolved due to death of one
b. Limited Partnership (One or more general j. Subpartner - not member of the
partners and one or more limited partners) partnership, contracts with a legit partner
with reference to the latter’s share in the
3) As to its duration partnership
a. Partnership at will
b. Partnership with a fixed term 2) Other classifications
a. Ostensible partner - takes active part and
4) As to legality of its existence known to the public (Does not matter if an
a. De jure partnership (complied with all legal actual partner. If not actual partner, liable
requirements) by doctrine of estoppel)
b. De facto (failed to comply with all the legal b. Secret partner - takes active part but not
requirements) publicly known
c. Silent partner - does not take active part,
5) As to representation to others known to be a partner
a. Ordinary or real partnership - Actually d. Dormant partner - does not take active
exists among the partners and to third part, unknown
persons e. Original partner - member from the
b. Ostensible partnership or partnership by formation
estoppel - In reality not a partnership, f. Incoming partner - about to be taken to
but is considered a partnership only in the partnership
relation to those who, by their own g. Retiring partner - withdrawing partner
conduct or admission are precluded to
deny or disprove its existence Art. 1777. A universal partnership may refer to
all the present property or to all the profits. (1672)
6) As to publicity
a. Secret partnership - Existence of some Art. 1778. A partnership of all present property is
partners not known to the public that in which the partners contribute all
b. Open or notorious partnership - Known to the property which actually belongs to them
the public to a common fund, with the intention of dividing
the same among themselves, as well as all the
7) As to purpose profits which they may acquire therewith. (1673)
a. Commercial are trading partnership -
Formed for business transaction Art. 1779. In a universal partnership of all present
b. Professional or non-trading partnership - property, the property which belonged to each of
Formed for the exercise of a profession the partners at the time of the constitution of the
partnership, becomes the common property of all
KINDS OF PARTNERS the partners, as well as all the profits which they
may acquire therewith.
1) Under the Civil Code
a. Capitalist partner contributes - money or
A stipulation for the common enjoyment of any
property
other profits may also be made; but the property
b. Industrial partner - contributes only his
which the partners may acquire subsequently by
industry or personal service
inheritance, legacy, or donation cannot be
c. General partner - either capitalist and/or
included in such stipulation, except the
industrial, liability to third persons
fruits thereof. (1674a)
extends to his or her separate properly
d. Limited partner - liability to third persons
is limited to capital contribution UNIVERSAL PARTNERSHIP OF ALL PRESENT
e. Managing partner - manages the PROPERTY
business affairs

Downloaded by Nelma Mae Ruz

 lOMo

Universal partnership of all present property is one It is only prohibited in a Universal Partnership, and
in which two partners contribute all the properties allowed in a Particular Partnership.
which actually belong to each of them at the
time of the constitution of the partnership ★ Art. 87 provides prohibition of donation
to a common fund, with the intention of dividing between spouses, except moderate gifts
the same among themselves as well as the ★ Art. 739 provides the following donations
profits which they may acquire therewith as void
The following become the common property of ➢ Between persons guilty of adultery
the partners: or concubinage when the donation
1) Property which belonged to each og them at was made
the time of the constitution of the partnership, and ➢ Between persons found guilty of the
2) Profits which they may acquire from same criminal offense
the property contributed ➢ Made to a public officer or his
wife descendants and ascendants
by reason of his office
CONTRIBUTION OF FUTURE PROPERTY
General rule, future properties cannot be Art. 1783. A particular partnership has for its object
contributed: determinate things, their use or fruits, or a
I. Inheritance specific undertaking, or the exercise of a
II. Legacy profession or vocation. (1678)
III. donation
Exception: Their fruits
PARTICULAR PARTNERSHIP
Reason: Should be a determinate
thing It is basically a partnership, which is neither a
universal partnership of present property nor a
Art. 1780. A universal partnership of profits universal partnership of profits
comprises all that the partners may acquire by
their industry or work during the existence of the Ex: General Professional Partnership
partnership.
—
Movable or immovable property which each of
the partners may possess at the time of the Relationships formed when a partnership is
celebration of the contract shall continue to created
pertain exclusively to each, only the usufruct - Between the
passing to the partnership. (1675) partners
- Between the partners and the
partnership
UNIVERSAL PARTNERSHIP OF PROFITS
- Between the partnership and the third parties
It comprises all that the partners may acquire by who it has transacted with
their industry or work during the existence of the - Between the parties and those third
partnership and the usufruct of movable or parties
immovable property which each of the partners
may possess at the time of the celebration to Executory contract
conduct. - Not yet fulfilled/partially
fulfilled
1) Ownership of present and future property
2) Profits acquired through chance Executed contract
3) Fruits of property subsequently acquired - Already executed

Art. 1781. Articles of universal partnership, entered Future partnership

into without specification of its nature, only - Napagkasunduan pa lang ng partners na
constitute a universal partnership of profits. (1676) magccreate sila ng partnership pero sa future pa

Art. 1782. Persons who are prohibited from giving

each other any donation or advantage cannot
enter into universal partnership. (1677)

Why prohibited?
➔ Nature of contribution to the partnership is
like a donation.

Downloaded by Nelma Mae Ruz