partnership

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 gov’t 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 partner’s shares in the partnership

KINDS OF PARTNERS GENERAL

BASIS

LIMITED

Personally liable

PARTNERSHIP OBLIGATIONS

Capital contribution

Equal rights

MANAGEMENT RIGHTS

No rights

Proper party

PARTICIPATION IN LAWSUITS

Not a party

Not assignable unless with consent of other partners

ASSIGNABILITY OF PARTNERSHIP INTEREST

Freely assignable

Cannot engage in similar business if capitalist; in any business if industrialist

PROHIBITION

No prohibition

Dissolution of partnership

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,

• •

• •