Law on Partnership - General Provisions

Question 1

By the contract of partnership two or more persons bind themselves to contribute ______, ______, or ______ to a ________, with the intention of dividing the profits among themselves.

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

Answer 1

Money; property; industry; common fund; profession

Question 2

What is the legal definition of partnership?

Answer 2

The legal definition of partnership, often referred to as “co-partnership,” is presented from the viewpoint of a contract.

Question 3

Provide definitions of a partnership.

Answer 3

A partnership is the following:
1. A contract
2. An association
3. A legal relation
4. A status arising out of a contract
5. An organization
6. An entity distinct from its members
7. Joint undertaking

Question 4

Describe the partnership’s relation to sole proprietorship and corporation.

Answer 4

As a form of business organization, it falls between two EXTREMES of organizational form — the single proprietorship and the corporation.

Question 5

What may partners contribute with each other?

Answer 5

Partners may contribute their (1) money, (2) property (3) effects, (4) labor, (5) skill, or (6) some combination of these to a partnership.

Question 6

How does Article 1767 of the Civil Code relate to the concept of partnership?

Answer 6

Article 1767 of the Civil Code considers the term “partnership” as the agreement itself out of which a partnership is created, characterizing it as a contract.

Question 7

How does the Anglo-American idea of partnership differ to the Civil Code’s view in terms of the basis of the concept?

Answer 7

The Anglo-American idea of partnership is based on the RESULT of the contract or agreement of the parties creating the partnership, representing the juridical relation growing out from the express or implied agreement of the parties. The Civil Code views the partnership as the agreement itself.

Question 8

Is the difference between the Civil Code and American concept of partnership substantial or superficial?

Answer 8

The difference between the Civil Code and American concept of partnership is more apparent than real, emphasizing the semantic distinction between considering a partnership as the agreement itself (Civil Code) and as the juridical relation resulting from the agreement (American concept).

Question 9

What is a basic tenet of Spanish and Philippine law regarding the juridical personality of a partnership?

Answer 9

A basic tenet of Spanish and Philippine law is that a partnership has a JURIDICAL personality of its own, distinct and separate from that of each of the partners (Art. 1768).

Question 10

How does the American and English law view the juridical personality of a partnership?

Answer 10

The American and English law does NOT RECOGNIZE a separate juridical personality for a partnership; instead, a partnership is considered merely an extension of its members. Some U.S. states classify partnerships as legal entities.

Question 11

What theory of partnership does the Uniform Partnership Act codify, and how does it differ from the entity theory?

Answer 11

The Uniform Partnership Act codifies the “aggregate theory” of partnership more than the “entity theory” or Roman Law theory. Unlike the entity theory, which views a partnership as a separate legal entity, the aggregate theory considers a partnership as a conglomerate of individuals, not as a separate legal entity from its owners.

Question 12

What is the aggregate theory of partnership of the US legal system in terms of its obligation to pay taxes?

Answer 12

The aggregate theory of partnership states that a partnership form of business does not exist separately as a legal entity from its owners; therefore, a partnership is not treated as an entity that pays taxes.

Question 13

What is the taxation treatment of partnerships in the Philippine jurisdiction?

Answer 13

Partnerships (except general professional partnerships) are treated as corporations for income tax purposes and are subject to tax as such.

Question 14

Is the practice of a profession considered a business or enterprise for profit in a general professional partnership?

Answer 14

Strictly speaking, the practice of a profession is NOT considered a business or enterprise for profit.

Question 15

What does the law allow regarding the joint pursuit of a profession by two or more persons?

Answer 15

The law allows the joint pursuit of a profession by two or more persons as partners. However, in such cases, it is the individual partners, not the partnership itself, who engage in the practice of the profession and are responsible for their own acts.

Question 16

Can individuals practice a profession as a corporate entity?

Answer 16

No, the law does not allow individuals to practice a profession as a corporate entity. Personal qualifications necessary for the practice of a profession cannot be possessed by a corporation.

Question 17

According to the aggregate theory, why could a partner not maintain an action against his partnership?

Answer 17

Under the aggregate theory, since a partnership is seen as an aggregate of individuals rather than a separate entity, a partner suing the partnership would essentially be suing himself. In this view, obtaining a judgment both in favor of and against the same person simultaneously is not possible.

Question 18

How is practicing law in terms of a partnership characterized?

Answer 18

The right to practice law is a privilege or franchise rather than a natural or constitutional right.

Question 19

What is the distinction between a partnership for the practice of law and partnerships formed by other professionals or for business?

Answer 19

The text emphasizes that a partnership for the practice of law is not akin to partnerships formed by other professionals or for business. It is not formed for carrying on trade or business or for holding property. It is ONLY a mere relationship or association for a non-business purpose.

Question 20

How is the use of nom de plume, assumed, or trade names in law practice viewed? Why?

Answer 20

The use of a nom de plume, assumed name, or trade name in law practice is deemed improper.

In legal practice, the right to practice law is often regulated by state-specific licensing requirements. Using a misleading name or representation, such as a nom de plume, might create a FALSE IMPRESSION that all members have EQUAL PROFESSIONAL STANDING or are LOCALLY ADMITTED when that may not be the case.

In the formation of partnerships for the practice of law, no person should be admitted or held out as a practitioner or member who is not a member of the legal profession duly authorized to practice, and amenable to professional discipline.

Question 21

How is the partnership for practice of law distinguished from partnership for business?

Answer 21

The practice of law is distinguished from business by emphasizing its intimate and peculiar relationship to the administration of justice, and it is cautioned against being considered a mere “money-making trade.”

Question 22

What are the primary characteristics that distinguish the legal profession from business?

Answer 22

The primary characteristics that distinguish the legal profession from business include:

(a) A DUTY of public service, with emolument being a by-product, where one can attain eminence without necessarily making much money.
(b) A RELATION as an “officer of court” to the administration of justice, involving sincerity, integrity, and reliability.
(c) A FIDUCIARY relationship with clients in the highest degree.
(d) A RELATIONSHIP with colleagues at the bar characterized by candor, fairness, and an unwillingness to resort to business methods of advertising, encroachment on their practice, or direct dealing with each other’s clients.

Question 23

What are the characteristic elements of a partnership?

Answer 23

1. Consensual
2. Nominate
3. Bilateral
4. Onerous
5. Commutative
6. Principal
7. Preparatory

Question 24

Why is the contract of partnership considered consensual?

Answer 24

The contract of partnership is considered consensual because it is perfected by mere consent, meaning it is established upon the express or implied agreement of two or more persons.

Question 25

What makes the contract of partnership nominate?

Answer 25

The contract of partnership is considered nominate because it has a special name or designation in the legal system.

Question 26

Why is the contract of partnership characterized as bilateral?

Answer 26

The contract of partnership is characterized as bilateral because it is entered into by two or more persons, and the rights and obligations arising from it are always reciprocal.

Question 27

How is the onerous nature of the contract of partnership described?

Answer 27

The contract of partnership is described as onerous because each party aspires to procure a benefit for themselves through the giving of something.

Question 28

What does the term “commutative” mean in the context of the contract of partnership?

Answer 28

The term “commutative” means that the undertaking of each partner is considered as the equivalent of that of the others in the contract of partnership.

Question 29

Why is the contract of partnership considered principal?

Answer 29

The contract of partnership is considered principal because its existence or validity does not depend on some other contracts.

Question 30

Describe the preparatory nature of the contract of partnership.

Answer 30

The contract of partnership is characterized as preparatory because it is entered into as a means to an end, specifically to engage in business or a specific venture for the realization of profits with the intention of dividing them among the contracting parties.

Question 31

What is a partnership contract according to Art. 1818?

Answer 31

It is a contract of agency.

Question 32

What are the essential features of a partnership
contract?

Answer 32

(1) There must be a VALID contract;
(2) The parties (two or more persons) must have LEGAL CAPACITY to enter into the contract;
(3) There must be a mutual contribution of money, property, or industry to a COMMON FUND;
(4) The OBJECT must be LAWFUL; and
(5) The primary purpose must be to OBTAIN profits and to DIVIDE the same among the parties.

It is also required that the articles of partnership MUST NOT BE KEPT SECRET among the members.

Question 33

Explain partnership relations as to its origin and in terms of contracts.

Answer 33

Partnership relations have their origin in an agreement, either express or implied, and exclude associations that do not stem from a contractual foundation.

Question 34

Is the existence of partnerships created by law alone or by the operation or implication of law?

Answer 34

No, there is no such thing as a partnership created solely by law or by the operation or implication of law alone.

Question 35

Differentiate between the contract and the partnership relation?

Answer 35

Partnership relation is not the contract itself, but the result of the contract. In other words, the partnership relation is the outcome or consequence of the voluntary agreement between the parties.

Question 36

How is the partnership relation evidenced in terms of form?

Answer 36

The partnership relation is evidenced by the terms of the contract, which can be oral or written, express or implied from the acts and declarations of the parties. This is subject to the provisions of Articles 1771 to 1773 and the Statute of Frauds.

Question 37

Can the election to become a member of a partnership be sufficient to establish the partnership relation?

Answer 37

Yes, the election to become a member of a partnership can be sufficient to establish the partnership relation, and the member does not need to sign any articles of partnership.

Question 38

Can the partnership relation be informally created?

Answer 38

The partnership relation can be informally created, and its existence can be proved by manifestations of the parties involved.

Question 39

What is the customary document used to embody the terms of the partnership association?

Answer 39

Articles of Partnership

Question 40

What information is typically included in the Articles of Partnership?

Answer 40

The Articles of Partnership typically include information such as the following:
1. Name, nature or purpose, and location of the firm
2. Powers, rights, duties, and liabilities of the partners among themselves
3. Contributions of the partners
4. Manner in which profits and losses are to be shared
5. Procedures for dissolving the partnership

Question 41

What are the requisites for a partnership contract?

Answer 41

The requisites are:
1. consent and capacity of the contracting parties
2. the object (subject matter) of the contract
3. the cause (established purpose).

Question 42

What is a necessary element for making an agreement for a partnership valid as in the case of other contracts?

Answer 42

A necessary element for making an agreement for a partnership valid is the existence of a valid consideration between the partners.

Question 43

A bought a secondhand car. He told B that he would give B half the profit of its sale if B would repair the car. B did not repair the car. A hired C to do the work and later sold the car at a profit. Is B entitled to any of the profit.

Answer 43

No, there was no partnership between A and B because of the absence of consideration for A’s promise.

Question 44

What personal relation exists in a partnership?

Answer 44

In a partnership, there exists a personal relation in which the element of DELECTUS PERSONAE (choice of person) is emphasized, involving trust and confidence between the partners, thus their FIDUCIARY NATURE, UNLESS otherwise provided in the partnership agreement.

Question 45

Can the presence of a period for a specific duration prevent the dissolution of a partnership?

Answer 45

No, the presence of a period for specific duration or the statement of a particular purpose for the creation of a partnership does not prevent its dissolution by the act or will of a partner.

Question 46

What does the doctrine of delectus personae allow partners in terms of the power to dissolve a partnership?

Answer 46

The doctrine of delectus personae allows partners the power, although not necessarily the right, to dissolve the partnership.

Question 47

Can any partner dictate the dissolution of a partnership? What is the requirement?

Answer 47

Yes, any partner may dictate the dissolution of the partnership at their sole pleasure. The dissolution must be done in good faith. If done in bad faith, it can potentially result in liability for damages.

Question 48

Translate delectus personae.

Answer 48

“Choice of a person.”

Question 49

This element of delectus personae is true only in the case of what?

Answer 49

In case of general partner, not as regards a limited partner.

Question 50

What does the law presume in the absence of a choice of person or delectus personae in a partnership?

Answer 50

The law presumes a lack of partnership.

Question 51

Under what circumstances may a person be subjected to partnership liability under principles of estoppel? What is the nature of such partnership liability?

Answer 51

A person may be subjected to partnership liability under principles of estoppel when he holds himself out, or permits himself to be held out, as a partner in an enterprise. In such cases, there is no actual or legal partnership relation, but merely a partnership liability imposed by law in favor of third persons.

Question 52

Can a partnership be created without a definite intention to create it?

Answer 52

Yes, a partnership may be created without any definite intention to create it.

The substance, not the name of the arrangement, determines the legal relationship, although the designation adopted by the parties is considered indicative of their intention.

Question 53

How is the existence or non-existence of a partnership determined in the absence of a written agreement?

Answer 53

In the absence of a written agreement, the existence or non-existence of a partnership must be determined from the following:
1. the conduct of the parties
2. any documentary evidence bearing thereon
3. the testimony of the parties.

Question 54

Unless otherwise provided, majority commences at the age of what?

Answer 54

18 years

Question 55

By what manner does emancipation generally take place?

Answer 55

Attainment of majority

Question 56

What are the two ways for emancipation to take place?

Answer 56

(1) By the marriage of the minor; or
(2) By recording in the Civil Register of an agreement in a public instrument executed by the parents exercising parental authority and the minor at least eighteen years of age. Such emancipation shall be irrevocable.

Question 57

What is essential for the parties to have before a valid contract of partnership can be formed?

Answer 57

The necessary legal capacity to enter into the contract

Question 58

Who cannot give their consent to a contract of partnership for having no legal capacity?

Answer 58

The following cannot give their consent to a contract of partnership:

(a) Unemancipated minors
(b) Insane or 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

Question 59

According to Article 1782, who cannot enter into a UNIVERSAL partnership?

Answer 59

Persons who are prohibited from giving each other any donation or advantage cannot enter into a UNIVERSAL partnership.

Question 60

Can a married woman enter into a contract of partnership without her husband’s consent?

Answer 60

A married woman may enter into a contract of partnership even without her husband’s consent. However, the husband may object under certain conditions.

Question 61

What is the general rule regarding donations or grants of gratuitous advantage between spouses during the marriage, according to Article 87?

Answer 61

According to Article 87, the general rule is that every donation or grant of gratuitous advantage, whether direct or indirect, between spouses during the marriage shall be void.

Question 62

Are there any exceptions to the prohibition of gratuitous advantages between spouses according to Art. 87?

Answer 62

Yes, there is an exception. Article 87 allows for moderate gifts that spouses may give each other on the occasion of any family rejoicing.

Question 63

Does the prohibition mentioned in Article 87 apply only to legally married couples?

Answer 63

No, the prohibition also extends to persons living together as husband and wife without a valid marriage.

Question 64

What does Article 73 stipulate regarding the exercise of a legitimate profession, occupation, business, or activity by either spouse without the consent of the other?

Answer 64

Article 73 states that either spouse may exercise any legitimate profession, occupation, business, or activity without the consent of the other. However, the other spouse may object only on VALID, SERIOUS, or MORAL grounds.

Question 65

In case of a disagreement between spouses regarding one’s objection to the other’s exercise of a profession or activity in Art. 73, what does the court decide?

Answer 65

In case of disagreement, the court shall decide:
(a) Whether the objection is proper, AND
(b) Whether benefit has accrued to the family prior to the objection or thereafter. If the benefit accrued prior to the objection, the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent.

Question 66

According to Article 73, what does the provision not prejudice?

Answer 66

The provision of Article 73 does not prejudice the rights of creditors who acted in good faith.

Question 67

Is there a prohibition against one partnership being a partner in another partnership?

Answer 67

No, there is no prohibition against a partnership being a partner in another partnership.

Question 68

Does a corporation have the inherent capacity or power to enter into a contract of partnership? Why?

Answer 68

No, unless authorized by STATUTE or its CHARTER, a corporation is without the capacity or power to enter into a contract of partnership.

This is because in a partnership, the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, which is inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively, .

Question 69

According to the Uniform Partnership Act, what is the stance on corporations becoming partners?

Answer 69

The Uniform Partnership Act, on the other hand, expressly allows corporations to become partners.

Question 70

In what circumstances can a corporation enter into a joint venture or partnership with another entity?

Answer 70

A corporation may enter into a JOINT VENTURE or partnership with another entity when the NATURE of the venture ALIGNS with the business authorized by its charter.

If the partnership agreement specifies that the two partners will manage the partnership WITHOUT SURRENDERING the management of corporate interests, the partnership may be allowed.

Question 71

How does the entry of a foreign corporation as a limited partner in a limited partnership impact its status of “doing business” in the Philippines?

Answer 71

If the entry of the foreign corporation as a limited partner is solely for INVESTMENT PURPOSES and it refrains from participating in the management and control of the business operations of the partnership, it is not deemed “doing business” in the Philippines. In such cases, obtaining a license to do business in the Philippines is not necessary. This practice aligns with R.A. No. 7042, the Foreign Investment Act.

Question 72

One of the essential features of a partnership is the need of partners to provide to a common fund. Explain its significance to the existence of a partnership.

Answer 72

(1) WITHOUT the element of mutual contribution to a common fund there can be NO partnership, (2) although its PRESENCE is NOT
necessarily a CONCLUSIVE EVIDENCE of the existence of partnership.

Question 73

Provide examples of mercantile documents that might be mistaken to be thought of as money. What are they, then?

Answer 73

(1) Checks, (2) drafts, (3) promissory notes payable to order are examples of mercantile documents. They are not money but only REPRESENTATIVES of money.

Question 74

How does Article 1249 describe contribution of money?

Answer 74

There is no contribution of money until they have been cashed.

Question 75

What are all the classifications of property as contributions to a common fund allowed?

Answer 75

1. Real
2. Personal, corporeal (tangible) or incorporeal (intangible)

Question 76

Why can the following be contributed:
1. credit such as promissory note; or
2. other evidence of obligation; or
3. even a mere goodwill?

Answer 76

They’re all considered property.

Question 77

What has been held regarding the license to construct and operate a cockpit as a potential contribution to the common fund?

Answer 77

It may be given as a contribution to a partnership.

Question 78

How can the word “industry” as a contribution to a common fund be interpreted?

Answer 78

(1) The active COOPERATION, (2) The WORK of the party associated, which may be either personal MANUAL efforts or INTELLECTUAL, and for which one receives a share in the profits of the business.

Question 79

Can partners NOT contribute any capital of their own to a common fund and still establish a partnership?

Answer 79

Yes, they can, for the contribution may be in the form of credit or industry not necessarily cash or fixed assets.

Question 80

What does Article 1845 say about limited partners and industry or services?

Answer 80

Limited partners CANNOT contribute mere idustry or services.

Question 81

How can a partner contributing his industry or services be distinguished from a lessor of services? In what sense?

Answer 81

The former is independent of the other partners,
that is, he is not subject to the supervision of the other partners, while the lessor is under the supervision of the lessee or employer.

Question 82

What are required in a partnership in terms of the contribution to a common fund?

Answer 82

1. Money, property, or industry
2. Proof of its existence

Question 83

What would happen if one partner only gives and the other merely receives a portion of the interest in the profits of the enterprise started by the former partner?

Answer 83

WITHOUT anything being PROMISED by the latter toward the accomplishment of its object, NO enforceable CONTRACT exists.

However, IF the latter TAKES PART in carrying on the enterprise, and thus subjects himself to partnership liability to outsiders, he furnishes SUFFICIENT CONSIDERATION for the former’s PROMISE and acquires all the rights of a CO-PARTNER.

Question 84

Is a partner not being a signatory to an agreement conclusive evidence that he is not a partner?

Answer 84

No, even without a signature, parties might still contribute to a common fund, so the fact there’s no signature in a contractual agreement does not necessarily disprove one’s association to a partnership.

Question 85

When is the object of a partnership illegal or unlawful?

Answer 85

When it is contrary to law, morals, good customs, public order, and public policy.

Question 86

Generally, a partnership may be organized for any purpose. What is the exception? Provide an example.

Answer 86

It may not engage in an enterprise for which the law requires a specific form of business organization. For example, partnerships cannot make banking an enterprise, as only stock corporations can undertake it.

Question 87

What law decided that only stock corporations can undertake a banking enterprise?

Answer 87

General Banking Law of 2000 (R.A. No. 8791)

Question 88

Provide instances of unlawful objects of partnership.

Answer 88

1. Creating illegal monopolies or combinations in restraint of trade
2. Carrying on gambling
3. Engaging in smuggling
4. Leasing furnished apartments
   to prostitutes
5. Preventing competition in bidding for government contracts
6. Controlling the price of a commodity in the interest of its members

Question 89

What is the very reason for the existence of a partnership, the element that distinguishes the contract of partnership from voluntary religious or social organizations?

Answer 89

Obtaining profit or gain directly through or as a result of the business to be carried on.

Question 90

What happens if one has no right to participate in the profits?

Answer 90

One cannot be deemed as partner.

Question 91

Is it required that the realization of pecuniary profits can only be the exclusive aim of a partnership?

Answer 91

It is sufficient that it is the principal purpose even if there are, incidentally, moral, social, or spiritual ends.

Question 92

Is the sharing in net profits conclusive evidence of a partnership?

Answer 92

No, it is merely presumptive or a prima facie evidence, not a conclusive, even if cogent, evidence of partnership, for the presumption of partnership arising from such profit-sharing agreement may be rebutted and outweighed by other circumstances.

Question 93

The partnership has a _________ separate and distinct from that of each of the partners even in case of __________ with the requirements of ________, _____ paragraph.

Answer 93

juridical personality; failure to comply; Article 1772; first

Question 94

How can a partnership be sometimes referred as?

Answer 94

“Firm” or “company”

Question 95

How many distinct parties are there in a partnership?

Answer 95

The number of partners plus one (the partnership itself)

Question 96

Being a juridical partnership, what can a partnership do and be?

Answer 96

1. It can enter into contracts
2. It can acquire and possess property of all kinds in its name
3. It can incur obligations and be declared insolvent.
4. It can bring civil or criminal actions IN CONFORMITY with the laws and regulations of its organizations.

Question 97

Is it sufficient that service of summons or other process be served on any partner in suing the partnership? Is the death of any partner a ground for the dismissal of a pending suit against a partnership?

Answer 97

Yes, as every partner is an agent to the partnership. No.

Question 98

Can a partner sue on a cause of action in their own name AND for his own benefit?

Answer 98

No, for only the partnership itself can sue and be sued in its firm name or by its duly authorized representative.

Question 99

What is the general rule on the juridical identity of partnerships and its implications on the liability of individual partners? What is the exemption?

Answer 99

The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for a fraudulent, unfair, or illegal purpose.

Question 100

Is organizing a corporation or a partnership that could claim a juridical personality of its own and transact business as such a matter of absolute right?

Answer 100

No, it is a privilege which may be enjoyed only UNDER SUCH TERMS as the State may deem necessary to impose.

Question 101

In determining whether a partnership
exists, what rules shall apply according to Article 1769?

Answer 101

1. Persons who are not PARTNERS as to each other are not partners as to third persons.
2. CO-PARTNERSHIP or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors 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 CONSIDERATON for the sale of a goodwill of a business or other property by installments or otherwise.

Question 102

In case of doubt as to the terms of the contract or as to the lack of the execution of the same, what article applies?

Answer 102

Article 1769 applies.

Question 103

What basis decides the issue whether
a partnership exists?

Answer 103

It is to be decided on the basis of all circumstance. Even one element of a circumstance may cast doubt to dispute the existence of the partnership, the collective effect
of these circumstances is to be considered to support a finding of the existence of the parties’ intent.

Question 104

Persons who are partners as ____________ are partners as to ____________.

Answer 104

between themselves; third persons

Question 105

Is the designation or belief of the parties regarding their relationship as a partnership relevant in determining its existence?

Answer 105

No, whether or not the parties call their relationship or believe it to be a partnership is immaterial.

Question 106

Generally, persons who are not partners as between themselves cannot be partners as to third persons. What’s the exception to this rule?

Answer 106

Partnership by estoppel, where PERSONS by their acts, consent, or representations have MISLED third persons or parties into believing that the former are partners in a non-existing partnership, such persons BECOME SUBJECT to LIABILITIES of partners to all who, in GOOD FAITH, deal with them in their apparent relations.

Question 107

When is there co-ownership (or co-possession)?

Answer 107

Whenever the ownership (or co-possession) of an undivided thing or right belongs to
different persons.

Question 108

Is co-ownership an essential element of partnership? Does co-ownership of property itself establish the existence of a partnership?

Answer 108

Yes, it is an ESSENTIAL ELEMENT, although It does not of itself establish the existence of a partnership.

Question 109

Is a contract required for co-ownership?

Answer 109

No, it does not.

Question 110

Does co-ownership become a partnership if they share in the profits derived from the joint ownership of property?

Answer 110

The profits must be DERIVED from the OPERATION of the business or UNDERTAKING by the members of the association and NOT merely from PROPERTY OWNERSHIP.

Additionally, mere sharing of returns does NOT establish a PARTNERSHIP if there is NO CLEAR INTENT to form one.

Question 111

What if a partner contributes to the partnership only the use or enjoyment of a specific thing?

Answer 111

The partners become co-owners, not of the property, but of the right to use such property.

Question 112

What do partnerships have or require to make it distinct from co-ownerships?

Answer 112

Unlike co-ownerships, partnerships must be born from a clear INTENT between partners to FORM the save to derive profits from its OPERATION.

Unlike co-ownerships, partnerships also have a FIDUCIARY RELATIONSHIP.

Question 113

Distinguish partnerships and co-ownerships as to remedies in case of disputes or differences between them.

Answer 113

If the parties are partners, the remedy for a dispute or difference between them would be an action for (1) dissolution, (2) termination, and (3) accounting.

Where the relationship is that of co-owner, the remedy would be an action, as, for instance, for non-performance of a contract.

Question 114

A and B inherited from their father an apartment which is leased to third persons. Are they partners?

Answer 114

No, they are merely co-owners of the property, whether or not they share in the profits made by the lease of the property, and not of the lease business itself.

Question 115

Under Article 147 of the Family Code, what rules shall govern the property acquired by a man and a woman who live together exclusively even without the benefit of marriage? What rules governed it before the new Civil Code?

Answer 115

Rules on co-ownership. It will be in accordance to an informal civil partnership

Question 116

Does a mere sharing of gross returns alone does not indicate a partnership? If not, does it at least constitute a prima-facie evidence?

Answer 116

No, since partners share net profits after
satisfying all the partnership’s liabilities, not even constitute a prima-facie evidence of such relation.

Question 117

In experience, what has been found generally that where the contract requires a given
portion of “gross returns” to be paid over?

Answer 117

The portion is paid over as Commission, Wages, Rent, Interest on a loan, etc.

Question 118

What is the exception to the rule that a mere sharing of GROSS returns alone does not indicate a partnership?

Answer 118

If there is further evidence of mutual management and control, a partnership may result, though, opinions will differ with respect to the precise extent of management and control necessary to create an inference of partnership.

Question 119

If the “compensation’’ given to the manager of a project who had put substantial sum in the venture is pegged to profits, what does the said compensation actually constitute?

Answer 119

It is actually his share in the net profits of the partnership as partner and not as employee.

Question 120

What is the basic test of partnership, whether inter se or as to third persons?

Answer 120

It is whether the business is carried on in behalf of the person sought to be held liable, for persons who are partners in fact may not avoid the consequences of the relation by mere word of denial.

Question 121

It is not merely the sharing of ______, but the sharing of them as co-owner of the _______ or
________, that makes one a partner.

Answer 121

profits; business; undertaking

Question 122

According to the general rule of evidence, the existence of a partnership must be ______ and will not be ______.

Answer 122

proved; presumed

Question 123

Although the law does not presume a partnership, it’s not always the case. When does it presume its existence? To whom would the burden of proof rest upon in this case?

Answer 123

It presumes persons have entered into a contract when they are acting as partners. The burden of proof is on the party denying its existence.

Question 124

When a partnership is shown to continue existing, what does the law presume? To whom would the burden of proof rest upon in this case?

Answer 124

The presumption is that it continues in the absence of evidence to the contrary, and the burden of proof is on the person asserting its termination.

Question 125

Although the absence of these words hold much weight into the interpretation that a partnership may not exist, the existence of these words is NOT SUFFICIENT PROOF for those who allege there is an agreement and thus a partnership. What are these words?

Answer 125

Partners, partnerships.

Question 126

What are other terms that might mean “partner” but can also mean an employee?

Answer 126

Associate.

Question 127

Are pronouns “we” and “us” sufficiently conclusive?

Answer 127

No.

Question 128

Would the parties’ intention to avoid their relation as partners and their act of expressly stipulating they’re not partners matter?

Answer 128

No, for if they to do a thing that, IN LAW, constitutes a partnership, they are partners, whether their intention was to create or avoid that creation, or even when they expressly stipulated they’re not partners in the agreement.

Question 129

Enumerate some incidents of the typical incidents of a partnership?

Answer 129

1. The partners share in PROFITS and LOSSES.
2. They have EQUAL (1) rights in the management and (2) conduct of the partnership business.
3. Every partner is an AGENT of the partnership, and entitled to BIND the other partners by his acts, for the purpose of its business. He may also be LIABLE for the entire PARTNERSHIP OBLIGATIONS.
4. All partners are PERSONALLY liable for the debts of the partnership with their SEPARATE PROPERTY, except that LIMITED partners ARE NOT bound beyond the amount of their investment.
5. ) A FIDUCIARY relation exists between the partners.
6. On DISSOLUTION, the partnership is NOT TERMINATED, but CONTINUES until the WINDING UP of partnership is completed.

Question 130

Define labor union.

Answer 130

It is any association of employees which exists in whole or in part for the purpose of collective bargaining or of dealing with employers concerning terms and conditions of employment.

Question 131

Define trust.

Answer 131

A trust is the legal relationship between one person (beneficiary) having the equitable ownership in property and another (trustee) owning the legal title to such property, the equitable ownership of the FORMER entitling him to the performance of certain DUTIES and the exercise of certain POWERS by the LATTER.

Question 132

Distinguish trust from partnerships.

Answer 132

An outstanding distinction between the partnership and trust relations is that in the partnership, all of the members are principals and are agents for each other, while the trustee is only a principal and is not an agent.

Question 133

Distinguish co-ownership and partnership as to the following:
1. Creation
2. Juridical Personality
3. Purpose
4. Duration
5. Disposal of interests
6. Power to act with third persons.
7. Effect of death

Answer 133

1. Co-ownership is generally created by law. It may exist even without a contract, but partnership is always created by a contract, either express or implied.
2. A partnership has a juridical personality separate and distinct from that of each partner, while a co-ownership has none.
3. The purpose of a partnership is the realization
   of profits, while in co-ownership, it is the common enjoyment of a thing or right which does not necessarily involve the sharing of profits.
4. Under the law, there is no limitation upon the duration of a partnership while in co-ownership, an agreement to keep the thing undivided for more than ten years is not allowed.
5. A partner may not dispose of his individual interest in the partnership so as to make the assignee a partner unless agreed upon by all of the partners, while a co-owner may freely do so.
6. In the absence of any stipulation to the contrary, a partner may bind the partnership, while a co-owner cannot represent the co-ownership; hence, a judgment secured against only one of the co-owners will not bind the other co-owners.
7. The death of a partner results in the dissolution of the partnership, but the death of a co-owner does not necessarily dissolve the co-ownership.

Question 134

Define conjugal partnership of gains.

Answer 134

Conjugal partnership of gains is a partnership formed by the marriage of husband and wife by virtue of which they place in a common fund the fruits and income of their separate properties and those acquired through their efforts or by chance, and unless otherwise agreed upon in the marriage settlements, divide equally, upon the dissolution of the marriage or the partnership, the net gains or benefits obtained by either or both of them during the marriage.

Question 135

Distinguish conjugal partnership of gains and partnership as to the following:
1. Parties
2. Laws Governing
3. Juridical Personality
4. Commencement
5. Purpose
6. Distribution of Profits
7. Management
8. Disposition of Shares

Answer 135

1. Parties:
   Ordinary partnership involves voluntary agreement among two or more partners, regardless of gender.
   Conjugal partnership arises when future spouses, a man and a woman, agree to govern their property relations during marriage.
2. Laws Governing:

Ordinary partnerships are generally governed by the stipulation of the parties.
Conjugal partnerships are governed by law.

3. Juridical Personality:
   An ordinary partnership has juridical personality.
   A conjugal partnership of gains has no juridical personality.
4. Commencement:
   Ordinary partnership begins upon the execution of the contract, unless stipulated otherwise.
   Conjugal partnership of gains starts on the date of marriage, and any contrary stipulation is void.
5. Purpose:
   Ordinary partnership aims to obtain profits.
   Conjugal partnership regulates property relations between husband and wife during marriage.
6. Distribution of Profits:
   In an ordinary partnership, profits are divided according to the agreement or in proportion to capital contributions.
   In a conjugal partnership, spouses’ shares in profits are divided equally.
7. Management:
   Ordinary partnership management is shared equally unless specified in articles; in conjugal partnership, the husband’s decision prevails in case of disagreement.
8. Disposition of Shares:
   In an ordinary partnership, a partner’s interest may be disposed of without other partners’ consent.
   In a conjugal partnership, each spouse’s share cannot be disposed of during marriage, even with the other’s consent.

Question 136

A partnership must have a ______ object or _______, and must be established for the _____________ or ________ of the partners.

When an unlawful partnership is ________ by a __________, the profits shall be ________ in favor of the State, without prejudice to the provisions of the ________ governing the ________ of the _________ and _______________.

Answer 136

lawful; purpose; common benefit; interest

dissolved; judicial decree; confiscated; Penal Code; confiscation; instruments; effects of a crime

Question 137

According to Article 1770, what are the two essential elements of a contract of partnership?

Answer 137

1. Legality of the object
2. Community of benefit or interest of the partners.

Question 138

What are the effects of an unlawful partnership?

Answer 138

The following are the consequences of a partnership formed for an unlawful purpose:
(1) The contract is VOID AB INITIO and the partnership never existed in the eyes of the law
(2) The PROFITS shall be CONFISCATED in favor of the government
(3) The INSTRUMENTS or tools and proceeds of the crime shall also be FORFEITED in favor of the government
(4) The contributions of the partners shall not be confiscated unless they fall under No. 3 (no confiscation to contributions not linked to crime)

Question 139

Upon the happening of an unlawful event, what would happen?

Answer 139

(1) A partnership will be dissolved by operation of law and (2) that makes it unlawful for the business of the partnership to be carried on, or for the members to carry it on in partnership.

Question 140

Is a judicial decree not necessary to dissolve an unlawful partnership?

Answer 140

A judicial decree is not necessary to dissolve an unlawful partnership. However, it may sometimes be advisable that a judicial decree of dissolution be secured for the convenience and peace of mind of the parties.

Question 141

When are third persons who deal with an unlawful partnership only protected? Even then, when are they ineligible for protection?

Answer 141

They are protected if they are unaware of its illegal purpose or character, unless such knowledge can be presumed as where the transaction is PLAINLY unlawful.

Question 142

What does Article 1770 say about the returning of contribution to partners upon dissolution because of an unlawful object?

Answer 142

Article 1770 does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned to the partners. Contributions are not included in the disposal prescribed for said profits, so the GENERAL RULES OF LAW must be followed, and hence, the partners must be reimbursed
the amount of their respective contributions.

Question 143

Upon dissolution of partnership because it’s unlawful, what is the manager or administrator of the partnership holding the contribution belonging to others bound to do?

Answer 143

He is bound to the contribution to partners belonging to them respectively. Any other solution would be immoral, and the law will not consent to the contribution remaining in the possession of the manager or administrator who has refused to return them by denying to the partners the action to demand them.

Question 144

Why is the return of profit where partnership is unlawful not allowed?

Answer 144

In order to demand the proportional part of said profits, the partner would have to base his action on the contract, which is null and void.

Question 145

Is the illegality of the object presumed?

Answer 145

It will not be presumed; it must appear to be of the essence of the relationship.

Question 146

What is the effect of partial illegality of partnership business? What is the effect when other partners have no knowledge or participation.

Answer 146

Where a part of the business of a partnership is legal and a part illegal, an account of that which is legal may be had.

Where, without the knowledge or participation of the partners, the firm’s profits in a lawful business have been increased by wrongful acts, the innocent partners are not precluded as against the guilty partners from recovering their share of the profits.

Question 147

Explain the effect of the happening of an event subsequent to the making of a valid partnership contract which would render illegal the business of the partnership as planned.

Answer 147

That will not nullify the contract. Where the business for which the partnership is formed is legal when the partnership is entered into, but afterward becomes illegal, an accounting may be had as to the business transacted prior to such time.

Question 148

Explain community of interest in partnerships.

Answer 148

It basically means the partners must be co-owners of the business, which is the basis of the partnership relation.

Question 149

Every partnership appears to be founded on a community of interest. Does this mean every community of interest would constitute a partnership?

Answer 149

It does not necessarily constitute a partnership. For example, tenants in common of land are not partners.

Question 150

A partnership may be constituted in any _______, except where __________ or ________ are contributed thereto, in which case a___________ shall be necessary.

Answer 150

form; immovable property; real rights; public instrument

Question 151

Generally, no special form is required for the validity or existence of the contract of partnership. What if immovable property or real rights are contributed? Discuss its significance to third parties.

Answer 151

The execution of a public instrument is required for the validity of a contract of partnership whenever immovable property is contributed thereto. To affect third persons, the transfer of real property to the partnership must be duly registered in the Registry of Property of the province or city where the property contributed is located.

Question 152

How can partnerships exist if agreement is implied and not express?

Answer 152

Its existence may be implied from the acts or conduct of the parties, as well as from other declarations, and such implied contract would be as binding as a written and express contract.

Question 153

Every contract of partnership having a ______ of _____________, in money or property, shall appear in a __________, which must be recorded in the Office of the ______________________.

Failure to comply with the requirements of the preceding paragraph shall not ____________ of the partnership and the members thereof to _________.

Answer 153

capital; three thousand pesos or more; public instrument; Securities and Exchange Commission

affect the liability; third persons

Question 154

What are two requirements where the capital of the partnership is P3,000.00 or more?

Answer 154

(a) The contract must appear in a public instrument; and
(b) It must be recorded or registered with the Securities and Exchange Commission.

Question 155

What happens upon failure to comply with the requirement where the capital of the partnership is P3,000.00 or more?

Answer 155

It does not prevent the formation of the partnership or affect its liability and that of the partners to third persons.

But any of the partners is granted the right by the law to compel each other to execute the contract in a public instrument.

Question 156

Explain a public instrument’s relation to registration and explain the rationale behind the latter.

Answer 156

A public instrument is imposed as a prerequisite to registration, and registration is necessary as “a condition for the issuance of licenses to engage in business or trade. In this way, the tax liabilities of big partnerships cannot be evaded, and the public can also determine more accurately their membership and capital before dealing with them.”

Question 157

What does the Securities and Exchange Commission perform insofar as the recording of articles of partnership is concerned?

Answer 157

The works of a mercantile registrar

Question 158

When the certificate of recording of the instrument is issued on a date subsequent to the date of presentation thereof, when will the instrument’s effectivity be?

Answer 158

Its effectivity RETROACTS as of the LATTER date. In other words, the date the partnership papers are PRESENTED to and left for record in the Commission is considered the effective date of registration of the articles of partnership.

Question 159

A contract of partnership is ______, whenever immovable property is contributed thereto, if an ___________________ is not made, _____ by the parties, and ________ to the public instrument.

Answer 159

void; inventory of said property; signed; attached

Question 160

What are the requirements where immovable property, regardless of its value is contributed? What happens if the requirements are not met?

Answer 160

The contract will be rendered void if the following requirements are not met:
(a) The contract must be in a public instrument
(b) An inventory of the property contributed must be made, signed by the parties, and attached to the public instrument.

Question 161

What is Article 1773’s primary intention?

Answer 161

Protection of third persons.

Question 162

When does Article 1773 not apply in the case of immovable property?

Answer 162

It does not apply when immovable property may be possessed or even owned by the partnership, but NOT CONTRIBUTED by any of the partners.

Question 163

What happens as to third parties if there is no inventory of immovable property contributed?

Answer 163

This will result in fraud to those who contract with the partnership in the belief of the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by law when no such inventory is made.

Question 164

Any immovable property or an _____ therein may be _______ in the partnership name. Title so _______ can be conveyed only in the ________.

Answer 164

interest; acquired; acquired; partnership name.

Question 165

Why should immovable property be acquired in the partnership name?

Answer 165

Since a partnership has juridical personality separate from and independent of that of the persons or members composing it.

Question 166

What governs the LEGAL EFFECTS of conveyance of property standing in the name of the partnership?

Answer 166

They shall be governed by Article 1819, paragraphs one and two.

Question 167

Associations and societies, whose articles are _____________ among the members, and wherein any one of the members may contract ________________________, shall have no____________, and shall be governed by the provisions relating to____________.

Answer 167

kept secret; in his own name with third persons; juridical personality; co-ownership

Question 168

Based on Article 1775, what must partners be fully informed of?

Answer 168

Not only of the agreement but of all matters affecting the partnership.

Question 169

Why is it essential that the articles of partnership be given publicity? What happens to members transacting for these secret partnerships?

Answer 169

It is essential for the protection not only of the members themselves but also third persons from fraud and deceit to which otherwise they would be easy victims. A member who transacts business for the secret partnership in his own name becomes personally bound to third persons unaware of the existence of such association, in the same way and for the same reason that an agent who acts in his own name when dealing with third persons is directly bound in favor of such persons who may only sue or be sued by the agent and not his principal.