Partnership: Based on Atty.

Prime Ramoss Syllabus

A. Concept, definition and Essential Elements:

a. Art. 1767: By the 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. 1

Concept of Partnership
A partnership is a contract of two or more persons, competent persons to place their money, effects, labor and
skill, or some or all of them, in lawful commerce or business and to divide the profits and bear the losses in certain
portions.

It is an association of two or more persons to carry on as co-owners of a business for profit. It is a legal relation
based upon the express or implied agreement of two (2) or more competent persons whereby they unite their property,
labor or skill in carrying on some lawful commerce or business and ti divide the profits and bear the losses in certain
portions. 2

Basis of Concept:

While the Civil Code speaks of a partnership as a contract, the American Concept of Partnership is that of a
relation.

Possession of Separate Personality:

A partnership being considered merely an extension of its members, although some states of the Union classify
the partnership as the legal entity. A partnership, as provided by Uniform Partnership Act, is generally regarded as a
conglomerate of individuals. The individual members of the partnership severally pay their income taxes, the
partnership business being regarded as merely as a source of income.
Partnership, for purposes of taxation, are treated as corporation and subjected to income tax, except general
professional partnership. 3

General Professional Partnership:

A profession has been defined as a group of men pursuing a learned art as a common calling in the spirit of
public service ---- no less a public service because it may incidentally be a means of livelihood.
The practice of profession is not a business or an enterprise for profit. However the law allows the jpint purisit
thereof by two (2) or more persons as partners. In this case, the individual partners, and not the partnership, is
responsible for their own acts as such. 4

Partnership for the Practice of Law:

A mere association for non-business purpose. The practice of law is in the form of privilege. A partnership for the
practice of law cannot be likened to partnership formed by other professionals or businss. It is not partnership formed
for the purpose of carrying on trade or business or of holding property,

Distinguished from business: Primary characteristic of dinstinction.

Duty of public service
A relation as an officer of court
A relation to clients in the highest fiduciary degree
A relation to colleagues at the bar characterized by candor, fairness, and unwillingness to resort to current
business methods.

Characteristic elements of partnership:

Consensual
Nominate
Bilateral
Onerous
Commutative
Principal
Preparatory

1
New Civil Code: Art. 1767. Definition of Partnership
2
H. De Leon,. Comments and Cases on Partnership, Agency and Trust, 2014 ed., p. 8
3
H. De Leon, Comments and Cases on Partnership, Agency and Trust, 2014 ed., p. 8-9
4
Id
Essential features of Partnership:

1. Valid Contract
2. Legal Capacity
3. Mutual Contribution of Money Property or Industry
4. Lawful object
5. Primary purposes is to carry on business for profits and divide the same among themselves

Existence of a valid contract:

Partnership relation fundamentally contractual Partnership is a voluntary relation created by agreement of the parties.
Partnership relation is not the contract itself, but the result of the contract.

Form:
The relation is evidenced by terms of the contract. It may be oral, written, express or implied. An election to become a
member of partnership was held sufficient to render a member partner, there being no necessity that the member
should sign any articles of partnership.
There is no formality required in setting up general partnership unless it falls within the statute of frauds. There are
formal requirements in creating LIMITED PARTNERSHIP.

Articles of Partnership:
Costumary embodiment of the association. In AOI it must be stated there the name, nature or purpose, and location of
the firm as well as defining the powers, rights, duties, and liabilities of the partners among themselves, their
contributions, the manner by which the profits and losses are to be shared, and the procedure for dissolving the
partnership.

Requisites:
Since contract ofpartnership is contractual, it must contain all the requisites of a valid contract. Later disagreements is
not important among the parties, what is important is the unanimous assent of the parties at the time of the agreement
to associate as partners at the creation of the relationship.

Partnership relation fiduciary in nature:

It is a form of voluntary association. It is a personal relation in which the element of delectus personae exist, involving as
it does trust and confidence between the partners.

Right to choose co-partners:

Unless otherwise provided, no one can become a member of partnership without the consent of all other associates.

Power to dissolve partnership:

Among partners, mutual agency arises. Partners has the power, but not necessary a right, to dissolve the partnership.
The partner must act in good faith in dissolving partnership. Bad faith can result to liability and damages but does not
prevent the dissolution of the partnership.

Application of principles of Estoppel:

A partnership liability may be imposed upon a person under principles of estoppel. There is no actual or legal
partnership in relation but merely partnership liability. A partnership may be created without any definite intention to
create it. What determine the relationship is the substance and not the name of arrangements.

Legal capacity of the parties to enter into the contract:

Individuals:
The contracting parties bust have necessary legal capacity to enter into partnership. As a general rule, ay person may
be a partner who is capable of entering into contractual relations.

Disqualified to enter:
Unemancipated minors
Insane or demented person
Deaf mutes who do not know how to write.
Persons who are suffering from civil interdiction
Incompetents who are under guardianship

*A married woman may enter into partnership even without her husbands consent, but the latter may object under
certain conditions.
Partnerships:
There is no prohibition as to being a partner into another partnership however in case of liability, all those partners in
2nd partnership is liable.

Corporations:
Statute provides, a corporation has no capacity to enter into partnership. This is based in public policy.

Allowed in corporations:
Joint venture when the venture is in line with its business authorized by its charter.
Management of interest when there is agreement that two partnership will manage the corporate interest.
Limited partnership for investment purposes foreign corp which is for the purpose of investment. 5

b. Contribution to Common fund

Art. 1767: By the 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.6

Two or more persons may also form a partnership for the exercise of a profession.

Contribution of Money, Property, or Industry to a common fund:

Existence of proprietary interest:

Partners must have proprietary interest in the business or undertaking that is, they MUST contribute capital which may
be money or property or their services or both, to the common business. Without these, there is no partnership.

Form of contribution:
It can be in three forms: (1) Money (2) Property (3) Industry

Money:
Refers to the currency which is the legal tender in the Philippines

Property:
This refers to contribution whether be it real or personal property. Notes, credit or even goodwill may be contributed
since they are considered property.

Industry:
This means the active cooperation, the work of the party associated, which may be either personal manual efforts or
intellectual and for which he receives a share in the profits of the business.

Contribution of industry:
The law does not specify what kind of industry is allowed to be contributed. In a limited partnership, a limited partner
cannot contribute mere industry or service.
This must be distinguished from the lessor of service. In partnership, the partner who contributed industry is not under
the supervision of the partners, the lessor on the other hand is subject to the supervision of the partners.

Proof of contribution:
Proof is necessary that there is a contribution of money, property or industry to common fund with the intention of
dividing the profits among themselves.

Legality of the object:

Effect of legality:
The object is unlawful if it is contrary to law, morals, good customs, public order, or public policy. If it is illegal, there is
no partnership.

Business partnership may not engage in:

A partnership may be organied for any purpose except that it may not engage in an enterprise for which the law
requires specific form of business organization.

Purpose to obtain profits:

The very reason for existence of partnership:

A partnership is fored to carry on a business for profit. Carrying on implies continuity but not essential. There are
partnership which are created for a shorter term as long as the elements are present. The idea of obtaining pecuniary

5
Id
6
Id
profit or gain directly through or as a result of the business to be carried on is the very reason for the existence of
partnership. Profit motive is all that needed but partnership unprofitable can still be partnership as long as the purpose
is to produce profit that will be divided among partners.7

Need only be the principal, not exclusive aim:

Profit: Aim is not necessary but it is the principal purpose.

Sharing of Profits:

Not necessarily in equal shares:

Since it is engaged for the common benefit of the partners, it is necessary that there be an intention to divie the profits
among the members, although not in equal shares.

Not conclusive evidence of partnership:

Sharing of profit is presumptive not conclusive. There are numerous instance of parties who have common interest in
the profits and losses of an enterprise but are not partners.

Sharing of Losses:

Necessary corollary sharing in profits:

The law is silent as to sharing of losses it only provides sharing of profits. However, the right to share profits carries with
it the right to share losses, if any.

Agreement not necessary:

It is not necessary for the parties to agree upon a system if sharing losses, for the obligation is implied from the
partnership relation but if only the share of each partner in the profits has been agreed upon, the share of each in losses
shall be in the same proportion.

B. Who may be partners

Art. 1327 NCC: The following cannot give consent to a contract:
I. Unemancipated Minors;
II. Insane or demented persons, and deaf mutes who do not know how to write.

Art. 1782: Persons who are prohibited from giving each other any donation or advantage cannot enter into
universal partnership. 8

Notes:

7
Id
8
New Civil Code: Art. 1327 and Art. 1782