I. GENERAL PROVISIONS OF PARTNERSHIP Flashcards
Definition of a partnership
Two or more persons bind themselves to contribute:
- Money OR
- Property OR
- Industry
With the INTENTION of DIVIDING PROFIT among themselves
NOTE: A partnership may also be formed for the exercise of a profession. (Art. 1767)
Elements of a partnership
- Valid contract
- Legal capacity of parties
- Mutual contribution of money, property, or industry
- Lawful object
- Primary purpose to carry on a business for profit-sharing
NOTE: Articles must not be kept secret otherwise it has no legal personality and is deemed a co-ownership.
Object and purpose of a partnership
- Must be lawful
2. Must be for the common interest/benefit of the partners (Art. 1770)
Requisites and effect of when there is an unlawful cause or the object is a crime in partnership
Requisites:
- Nullity proceeds from ILLEGAL cause/object of the contract
- The act constitutes a criminal offense
Effect:
- Both parties are in pari delicto and shall have no action against each other AND
- Both shall be prosecuted
NOTE: Provisions of the Penal Code relative to the disposal of effects or instruments of a crim apply to the things/price of contract. (Art. 1411)
Form of a partnership
GR: Any form
EXC:
1. If it involves IMMOVABLE PROPERTY or REAL RIGHTS contributed, it shall be in a PUBLIC INSTRUMENT. (Art. 1771)
2. If the capital is Php3,000 or MORE, whether money or property, it shall be in a PUBLIC INSTRUMENT REGISTERED WITH SEC. (Art. 1772)
When a partnership begins
GR: A partnership begins from the moment of the execution of the contract
EXC: Unless it is otherwise stipulated (Art. 1784)
Name of a partnership
GR: A partnership shall have a firm name which may or may not include the name/s of the partner/s.
EXC: The surname of a limited partner shall not appear in the partnership name unless:
1. It is also the surname of the general partner OR
2. Prior to the time when the partner became limited, the business had been carried on under a name in which his surname appeared (Art. 1846)
NOTE: Those who include their names in the firm name and are NOT members of the partnership shall be subject to the liability of a partner. (Art. 1815)
When shall a partnership comply with the Statute of Frauds
A partnership contract shall be UNENFORCEABLE unless it is made in writing and subscribed by the party charged, or his agent when
It is an agreement that by its terms is not to be performed within a year from the making (Art.1403(2a))
Personality of a partnership
The partnership has a separate and distinct juridical personality from that of each of the partners, even in case of failure to comply with Art. 1772 par. 1 (public instrument recorded with SEC when capital is more than Php 3,000)
Explain the partner’s co-ownership over specific property of the partnership
A partner is co-owner with his partners of specific partnership property.
The incidents of co-ownership are such that:
1. A partner has an equal right with his partners to possess specific partnership property for partnership purposes
EXC: He has no right to possess such property for any other purpose without the consent of his partners
- A partner’s right to specific property is not assignable
EXC: Except in connection with the assignment of rights of all the partners in the same property - A partner’s right to specific property is not subject to attachment or execution
EXC: Except on a claim against the partnership.
When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws
A partner’s right to specific property is not subject to legal support under Art. 291
NOTE: No. 1 is subject to the provisions of Partnership and to any agreement between the partners (Art. 1811)
Are partnerships subject to income tax?
NO
SEC. 26. Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.
Explain the rules of mutual agency in a partnership
When the manner of agreement has not been agreed upon:
All partners shall be considered agents, whatever any one of them may do alone shall bind the partnership, without prejudice to Art. 1801
None of the partners may make any important alteration in the partnership’s immovable property without the consent of the others, even if it may be useful to the partnership
EXC: If the refusal of consent is manifestly prejudicial to the partnership’s interest, the court’s intervention may be sought (Art. 1803)
General rule and exceptions when it comes to mutual agency in partnership
GR: Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on the usual way of business of the partnership, binds the partnership.
EXC:
- Unless the partner acting has no authority to act AND the person whom he Is dealing with has knowledge of his lack of authority
- If the act of a partner is not apparently for the carrying on of business of the partnership in the usual way
ETE: Unless authorized by the other partners (Art. 1818)
One or more but less than all partners have NO authority to
1, Assign the partnership property in trust for creditors or on the assignee’s promise to pay for the debts of the partnership
2. Dispose of the goodwill of the business
3. Do any other act which would make it impossible to carry on the ordinary business of a partnership
4. Confess a judgment
5. Enter into a compromise concerning a partnership claim or title
6. Submit a partnership claim or liability to arbitration
7. Renounce a claim of the partnership
NOTE: NO ACT of a partner in contravention if a restriction on authority shall bind the partnership to persons having knowledge of the restriction. (Art. 1818)
Conveyance of title of the partnership property
GR: Any partner may convey title to such property by a conveyance executed in the partnership name
EXC:
Unless the partner’s act binds the partnership under the provisions of the first paragraph of Article 1818 (lack of authority but the contracting party knows) OR
Unless such property has been conveyed by the GRANTEE or a person claiming through grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority
Specific cases:
Where title to a real property is in the name of the partnership and a partner executes a conveyance in his own name: it passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the paragraph of Article 1818
Where title to real property is in the name of one but not all of the partners and the record does not disclose the right of the partnership: the partners in whose name the title stands may convey title to such property, but the partnership may recover if the partners’ act does not bind the partnership under the provisions of the first paragraph of Art. 1818 (lack of authority and contracting party knows)
EXC: Unless the purchaser of his assignee is a holder for value, without his knowledge
Where the title to real property is in the name of one or more or all partners, or in a third person in trust: a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under Art. 1818
Where the title to real property is in the names of all partners: a conveyance executed by all passes all their rights in such property. (Art. 1819)
Admissions or representations made by partners
An admission or representation made by any partner concerning partnership affairs WITHIN THE SCOPE OF HIS AUTHORITY is evidence against the partnership. (Art. 1820)
