Business Law and Regulation
Article 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry (skill) to a common fund, with the
intention of dividing the profits among themselves.
-even if they both have losses balance they should divide it among themselves
General Professional Partnership
-Two or more persons may also form a partnership for the exercise of a profession
(like for example; law firms, accounting firms)
Ex: A and B, both CPA, can form a general professional partnership to go in to public
accounting
(two or more person na nagkaroon ng agreement na mag cocontribute sila ng
money, property man o industry sa isang common fund which is sa partnership)
A partnership exists when two or more persons agree to place their money, effects,
labor and skill in lawful commerce or business, with the understanding that there
shall be a proportionate sharing of its profits and losses among them.
TAKE NOTE
●A partnership may be constituted in any form
●A public instrument is necessary only where immovable property or real rights are
contributed to the partnership
●Having complied with the requisites of a partnership is what matters where no
immovable property or real rights are involved
●An oral contract is a good as a written one
Charcateristics of a Contracts of Partnership
1. Consensual- it is a contract that is perfected by mere consent because all of the
partners had a meeting of minds to enter into a contract of partnership
(binigay ng mga partners ang kanila consent for that alone perfected na yung
partnership)
2. Commutative - the contribution of each partner, whether money, property or
industry, is considered as the equivalent of the contribution of other partners.
(kung ano man ginawa ng isang partner it will bind the partnership, “parang ginawa
narin ng isang partner”)
3. Principal- it is a contract that does not depend on other contracts for its validity
(it can stand on its on hindi niya kailangan ng ibang contract para maging valid or
legally existing)
4. Bilateral or Multilateral- it is a contract entered into by two or more persons
(bilateral siya since meron two or more persons para matawag na partnership)
5. Onerous- each partner must contribute money, property or industry (a partner
can contribute one, some or all of these)
(mag bigay ka ng something and at the same time you are expecting that has
equivalent value)
6. Nominate- it is a contract which has a name in law
(special designation siya, may special name na batas mismo nagbigay, contract of
partnership, contract sale, contract of lease, contract of loan)
7. Preparatory- it is a contact in preparation for another contract or contracts
(from the word its self prepare, since yung mga partner pumasok sa isang contract
dahil yung end goal nila is to earn profit and divide themselve)
Existence of valid contract
1. A form of voluntay and personal association (there must be a valid contract)
Delectus personae - choose the person or the group of people you want to associate
with (based on trust and confidence)
2. Creation and proof of existence - basically freely yung partnership compared sa
coorporation
3. Other forms of association excluded
* Money- the medium of exchange authorized or adopted by a government as a part
of its currency
*Property- any external thing over which the rights of possession, use, and
enjoyment are exercise
*Industry- Diligence in the performance of a task- a particular form or branch of
productive labor
Legal Capacity of parties to enter into the contract
1) General Rule - Any person may be a partner who is capable under law of entering
a contractual relations. (Dapat can legally give consent)
Peeps who cannot legally give consent:
a) Unemancipated minors
b) Insane and demented persons
c) Deaf-mutes who do not know how to write
d) Persons who are suffering from civil interdiction
e) Incompetents who are under guardianship
2) Exceptions - Peeps who are prohibited from giving each other any donation or
advantage, cannot enter into a universal partnership
3) Capacity of partnership/corporation to be a partner
Kinds of Partners as to Liability
1. General Partner - is a partner who is liable for partnership debts to the extent of
his or her separate property
(ang liability or liabile lang siya is up to his separate property)
2. Limited Partner - is a partner who is liable for partnership debts to the extent of
his or her capital contribution only
(ang cinontribute ni Y ay 500k and he is a limited partner then liable lang siya up to
500k, yun lang ang kaniyang liability up to his capital contribution)
3. General - Limited Partner - is a partner who is pro-rata to partnership creditors to
the extent of his or her separate assets after the partnership assets have been
exhausted (as to third persons, a general-limited partner is a general partner)
Article 1768. The partnership has a juridical personality separate and distinct from
that of each of the partners, even in case of failure to comply with the requirements
of article 1772, first paragraph.
For example, A, B, and C formed a partnership and they call it ABC partnership, so
eventually there four person in this partnership, it is A, B, C, and ABC partnership,
that was meant by personality separate and distinct from that of each of the
partners
Even though ABC partners it is not a natural person but in the eyes of the law calls it
juridical person
Artificial person/Juridical Person- an entity, such as a corporation, created by law
and given certain legal rights and duties of a human being: a being, real or imaginary,
who for the purpose of legal reasoning is treated more or less as a human being
Article 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not partners as to each other
are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether
such-co-owners or co-possess or do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(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.
Article 1770. A partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners.
Two points from the first paragraph
1. Legality of the objects
2. Community of benefit or interest of the partner
Effects of an unlawful partnership
1. The contract is void ab initio (void from the very beginning) partnership never
existed in the eyes of the law
2. The profits shall be confiscated in favor of the government
3. The instrument or tools and proceeds of the crime shall be also be forfeited in the
favor of the government
4. The contributions of the partners shall not be confiscated unless they fall under
no.3
Article 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed there in which case a public
instrument shall be necessary
Article 1772. Every contract of partnership having a capital of three thousand pesos
or more, in money or property, shall appear in a public instrument, which must be
recorded in the office of the Securities and Exchange Commission
Failure to comply with the requirements of the preceding paragraph shall not affect
the liability of the partnership and the members thereof the third persons
Two requirements where the capital is P3,000 or more (money or property)
1. Contract must appear in public instrument
2. Must be recorded or registered with the SEC
-To make the recorded instrument open to all and to give notice thereof to
interested parties
Article 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property
-Is not made, signet by the parties, and attached to the public instrument
Basta may immovable property na contribution, follow the requirments kung ayaw
mong ma void ang parternship contract
1. The contreact must be in a public instrument
2. An inventory of the property contributed must be made, signed by the parties and
attached to the public instrument
-Intended primarily to protect third persons.
Article 1174. Any immovable property or an interest therein maybe acquired in the
partnership name. Title so acquired can be conveyed only in the partnership name
-A partnership has a juridical identity separate and distinct from its partner it is only
logical that a partnership can acquire properties on its name and title can be only
conveyed in the partnership name
Article 1175. Association and societies, whose articles 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
provision relating to co-ownership
-kapag yung articles are kept among the members and not known to the public or to
the third persons, you cannot consider that as a juridical personality and it does not
considered as a partnership
Article 1776. As to its object, a partnership is either universal or particular
As regards to liability of the partners, a partnership may be general or limited
Classifications of Partnerships:
1. As to the Object:
a. Universal Partnership of All Present Property – defined in Article 1778.
b. Universal Partnership of All Profits – defined in Article 1780.
c. Particular Partnerships – defined in Article 1783
2. As to the Liability
a. General – general partners are liable PRO-RATA and subsidiarily, sometimes
solitarily, with their own property/assets if the partnership is insolvent. (may include
industrial partners)
b. Limited – limited partners are liable only up to the extent of their contribution.
3. As to Duration:
a. At will – no particular undertaking, can be dissolved at any time.
b. With a Fixed Term – may only be dissolved upon the end of its term unless
continued by the partners.
4. As to Legality of Existence:
a. De Jure – complied with ALL requirements.
b. De Facto – failed to comply with ALL requirements.
5. As to Representation to Others:
a. Ordinary/Real – actually exists.
b. Ostensible/by Estoppel – exists only to partners.
6. As to Publicity:
a. Secret – some partners are not known to the public.
b. Open/Notorious – all partners are known to the public
7. As to Purpose:
a. Commercial/Trading – business transactions.
b. Professional/Non-Trading – exercise of professions
Kinds of Partners
1) Under the Civil Code
a) Capitalist partner - contributes money or property
b) Industrial partner - contributes only his industry or personal service
c) General partner - either capitalist and or industrial, liability to third persons
extends to his/her separate property
d) Limited partner - liabilty to 3rd persons is limited to capital contribution (wala
siyang karapatan to control the partnership)
e) Managing partner - manages the business affairs
f) Liquidating partner - take chage of winding up affairs
g) Partner by estopped - not really a partner but liable as a partner for the protection
of 3rd persons
h) Continuing partner - continues the business after dissolution
i) Surviving partner - remaining partner after partnership dissolved due to death of
one
j) Subpartner - not member of the partnership, contracts with a legit partner with
reference to the latter’s share in the partnership (assignment of interest)
Article 1777. A universal partnership may refer to all the present property or to all
the profits
Article 1778. A partnership of all present property is that in which the partners
contribute all the property which actually belongs to them to a common fund, with
the intention of dividing the same among themselves, as well as all the profits which
they may acquire therewith
Article 1779. In a universal partnership of all present property, the property which
belonged to each of the partners at the time of the constitution of the partnership,
becomes the common property of all the partners, as well as all the profits which
they may acquire therewith.
A stipulation for the common enjoyment of any other profits may also be made; but
the property which the partners may acquire subsequently by inheritance, legacy, or
donation cannot be included in such stipulation, except the fruits thereof.
(pinapakita nito na may limitations ang pwedeng ma contribute ng mga partner,
which yung mga partners they may possibly acquire, pero yung fruits from that
legacy or donation pwede nila macontribute)
Art. 1777-79 (explanation)
Universal partnership of all present property
-Universal Partnership of all present property is one in which the partners contribute
all the properties which actually belong to each of them at the time of the
constitution of the partnership to a common fund, with the intention of dividing the
same among themselves as well as the profits which they may acquire therewith.
The following become the common property of the partner:
1. Property which belonged to each of them at the time of the constitution of the
partnership
2. Profits which they may acquire from the property contributed
Contribution of Future Property
General rule, future properties cannot be contributed
i. Inheritance
ii. Legacy
iii. Donation
Exception, yung fruits nila
Article 1780. A universal partnership of profits compromises all that the partners
may acquire by their industry or work during the existence of the partnership (yung
mga profits na maacquire nila during the existence of the partnership yun lang yung
magiging part of common property)
Movable or immovable property which each of the partners may possess at the time
of the celebration of the contract shall continue to pertain exclusively to each, only
the usufruct passing to the partnership (pero yung mga movable or immovable or
the properties basically na cinontribute nila magiging exclusive property parin nila
bali yung usufruct lang yung magagamit or right to use)
Article 1781. Articles of universal partnership, entered into without specification of
its nature, only constitute a universal partnership of profits (a depositary is generally
not liable for the loss of the deposited property unless the loss occurs due to their
negligence or failure to properly take care of the property)
Article 1782. Person who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership
Bakit prohibited?
- Nature kase ng contribution to the partnership is like a DONATION
Take note, sa universal Partnership lang bawal, sa Particular Partnership lang siya
pwede.
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
- It is basically a partnership which is neither a universal partnership of present
property nor a universal partnership of profits
- Sample, General Professional Partnership
