THE LAW ON PARTNERSHIPS Arts.

1767-1867 PART 1

ASSIGNED READING: To be summarized

1. Kinds of persons under the law 2. Kinds of business organizations 3. Partnership: definition 4. Characteristic elements of partnership 5. Essential elements of partnership 6. Rules in determining existence of partnership 7. Kinds of partnership 8. Classifications of businesses 9. Kinds of partners 10. Comparison between general and limited partners

INTRODUCTION
KINDS OF PERSONS UNDER THE CIVIL CODE 1. NATURAL/INDIVIDUAL 2. ARTIFICIAL/JURIDICAL
A. Partnership B. Corporation C. Cooperatives

KINDS OF BUSINESS ORGANIZATIONS

A. B. C. D. Sole proprietorship Partnership Corporation Cooperatives

PARTNERSHIP
ART 1767
By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. CHARACTERISTIC ELEMENTS OF PARTNERSHIP 1. Consensual 5. Commutative 2. Nominate 6. Principal 3. Bilateral 7. Preparatory 4. Onerous 8. Fiduciary

ESSENTIAL FEATURES OF PARTNERSHIP

1. There must be a valid contract (delectus personae Choice of the person) 2. Legal capacity of the parties (Art 1327-1329) 3. Mutual contribution of money, property and industry MONEY currency (medium of exchange) w/c is legal tender in the Philippines PROPERTY tangible/intangible, real/personal, movables/immovables, res alicujus INDUSTRY physical or mental

ESSENTIAL FEATURES OF PARTNERSHIP

4. Lawful purpose/object subject to the Freedom to contract clause
ART 1770 par 2 Effects of an unlawful partnership
Contract is void ab initio Profits will be confiscated in favor of the government Instruments/proceeds/tools of the crime shall be forfeited in favor of the govt unless belonging to a 3rd person who did not participate but those not within the commerce of man will be destroyed. 4. Lawful purpose/object subject to the Freedom to contract clause

5. Primary purpose is to divide profits; carries with it the obligation to share in loss except for industrial partners but NOT in liabilities (Art 1769 vs Art 1816)

FORMAT OF PARTNERSHIP CONTRACT

GEN RULE: Art 1771: Partnership contracts are valid in whatever form. Art 1768: Partnership has juridical personality even if there is no compliance with Art 1772 (de facto) w/c requires that a partnership with capital of more than P3K must be in a public instrument and recorded with the SEC Art 1773: If immovable is contributed, an inventory signed by the parties should be attached to the public instrument.

WHEN DOES A PARTNERSHIP EXIST?

GEN RULE: Intention of the parties prevail Art. 1769 Rules to determine whether a partnership exists or not 1. Persons who are not partners to each other are not partners as to third persons except those in estoppel (Art 1825) 2. Co-ownership/co-possession does not by itself establish partnership 3. Sharing of gross returns does not by itself establish partnership

WHEN DOES A PARTNERSHIP EXIST?

4. Receipt of a person of share in the profits is PRIMA FACIE evidence of partnership, except if such share is for: a. payment of debt b. Wages c. Annuity d. Interest of loan e. Consideration for sale of goodwill or property

KINDS OF PARTNERSHIP
UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY all properties of the partners before, during and after constitution of the partnership belong to the partnership UNIVERSAL PARTNERSHIP OF PROFITS only those acquired after the constitution of the partnership belong to the partnership Note: husband and wife cannot enter into universal partnerships

KINDS OF PARTNERSHIP
PARTICULAR PARTNERSHIP object is determinate; for a specific undertaking or for the exercise of a profession GENERAL PARTNERSHIP all partners are general partners who are liable even with their own properties LIMITED PARTNERSHIP at least has one general partner with other limited partners who are only liable to the extent of their contributions.

KINDS OF PARTNERSHIP
PARTNERSHIP AT WILL has no specified term for its existence DE JURE PARTNERSHIP one which exists in fact and in law DE FACTO PARTNERSHIP one which has no complete documents ORDINARY/REAL PARTNERSHIP one which exists among themselves and as to 3rd persons SECRET PARTNERSHIP one where the partners are not publicly known

KINDS OF PARTNERSHIP
OSTENSIBLE/APPARENT/EVIDENT/IN ESTOPPEL (Art 1825) OPEN/NOTORIOUS PARTNERSHIP one where the partners are publicly avowed COMMERCIAL/TRADING one whose primary purpose is for profits PROFESSIONAL/NON-TRADING one for the exercise of a profession or vocation

KINDS OF PARTNERS
CAPITALIST one who contributes money and/or property; answerable for loss and liabilities; prohibited from engaging in similar kind of business (Art 1808) INDUSTRIALIST one who contributes services, mental or physical; not liable for partnership loss (Art 1769) but will answer for partnership liabilities or contractual obligations to 3rd persons subject to reimbursement from capitalists (Art 1816); prohibited from engaging in any kind of business (Art 1769) QUERY: Are the businesses of selling banana que and selling banana only classified the same?

KINDS OF PARTNERS
LIMITED/SPECIAL PARTNER mere contributor/investor; cannot contribute industry MANAGING PARTNER one who has been tasked to manage the affairs of the partnership; may nor may not have been appointed in the articles of partnership LIQUIDATING PARTNER one who is tasked to take charge of the affairs of the partnership on dissolution

KINDS OF PARTNERS
PARTNER BY ESTOPPEL/NOMINAL PARTNER a partner by implication OSTENSIBLE PARTNER one known to the public as partner and participates actively SECRET PARTNER one who takes active part in the partnerships affairs but is now publicly known as a partner SILENT PARTNER one who does not take active part in partnership business

KINDS OF PARTNERS
DORMANT PARTNER/ SLEEPING PARTNER one who is both silent and does not participate INCOMING PARTNER one belatedly accepted in the partnership RETIRING PARTNER one who has withdrawn from the partnership SUBPARTNER technically not a partner/member of the partnership but shares in a partners shares in the partnership

KINDS OF PARTNERS
GENERAL Personally liable Equal rights Proper party Not assignable unless with consent of other partners Cannot engage in similar business if capitalist; in any business if industrialist Dissolution of partnership BASIS PARTNERSHIP OBLIGATIONS MANAGEMENT RIGHTS PARTICIPATION IN LAWSUITS ASSIGNABILITY OF PARTNERSHIP INTEREST PROHIBITION LIMITED Capital contribution No rights Not a party Freely assignable

No prohibition

EFFECT OF DEATH, INSANITY, INSOLVENCY OF PARTNER

No effect

Money, property, industry

CONTRIBUTION

Money, property

REFERENCES

De Leon, H.S. (2010), The Negotiable Instruments Law, Quezon City: REX Printing Company, Inc. De Leon, H.S. (2010), The Law on Partnerships and Corporation Code, Quezon City: REX Printing Press REFERENCES Black's law dictionary (8th ed) (2007). St. Paul, MN. : West Pub. Commercial laws of the Philippines.]. (2009). Manila: Rex, Decasa, Lucila M. (2009). Handbook on private corporations: domestic and foreign. Manila: Rex. De Leon, Hector S. (2010). (10th ed).The Corporate code of the Philippines: annotated. Manila: Rex, De Leon, Hector S. (2010). (2010 ed.).The Philippine negotiable instruments law and allied laws annotated Manila: Rex, Torress, Justo P. (2008). The law on business organizations (partnerships and corporation). Manila: Rex, Villanueva, Cesar L. (2010).Philippine Corporate law. Manila: Rex,