GENERAL OVERVIEW OF THE LAW ON PARTNERSHIP

Title IX, Book IV of Republic Act No. 386, New Civil Code of the Philippines
LEGAL BASIS
(Arts. 1767-1867)

By the contract of partnership two or more persons bind themselves to

DEFINITION contribute money, property or industry to a common fund, with the intention
of dividing the profits among themselves (1767)

The contract of a partnership in the essence is a contract of agency:

1. consensual;
2. must be a contribution of money, property or industry to a common
fund;
ELEMENTS 3. the subject must be a lawful one
4. there must be an intention of dividing the profit among the partners
5. there must be a desire to formulate an active union (affectio societatis);
6. a new personality, that of the firm – must arise, distinct from the
separate personality of each of the members

The contract of a partnership in the essence is a contract of agency.

1. Consensual, perfected by mere consent, upon the express or implied
agreement of members.
2. Nominate, has a special name or designation in law.
3. Bilateral, entered into by 2 or more persons and the rights and
obligations arising there from are always reciprocal.
4. Onerous, each of the parties aspires to procure for himself a benefit
CHARACTERISTICS through the giving of something.
5. Commutative, the undertaking of each of the partner is considered as
the equivalent of that of the others.
6. Principal, it does not depend for tis existence or validity upon some
other contract.
7. Preparatory, entered into as a means to an end, to engage in business
for the realization of profits with the view of dividing them among the
contracting parties

- There must be a valid contract.

- Delectus Personae – no one can become a member of the partnership
association without the consent of all the other associates. The right to choose
with whom a person wishes to associate or continue to associate himself is
CONSENT the very foundation and essence of partnership.
➔ How is the - The parties must have legal capacity to enter into the contract.
contract - There must be a mutual contribution of money, property or industry to a
perfected? common fund.
➔ Who are
 Money – Philippine currency.
capacitated and
 Property – Real or personal, tangible or intangible. Credit such as
incapacitated to
promissory note or other evidence of obligation or even a mere
enter into a
goodwill may be contributed as it is considered property.
contract?
➔ How is consent  Industry – the work or services of the party associated may be either
manifested? personal manual efforts or intellectual, and for which he receives a
share of profits of the business.
- The object must be lawful.
- The purpose must be to obtain profits and to divide the same among the
parties.

PARTIES PARTNERS

RFBT 2 Worksheet No. 1: General Overview of the Law on Partnership 1

BANDULA, Charena F.
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 OBJECT Mutual contribution to a common fund
➔ What is the - to contribute money, property or industry to a common fund (1767)
obligation of the
parties?

CAUSE/ Joint interest in the profits

CONSIDERATION - to divide the profits among themselves (1767)
➔ Why did the party
agree to the
contract or
agreement?

FORMALITIES There are three relatively common partnership types: general partnership
➔ Is a form required (GP), limited partnership (LP) and limited liability partnership (LLP). A fourth,
for this kind of the limited liability limited partnership (LLLP), is not recognized in all states.
contract?

The common law imposes a duty of utmost fairness and good faith on one
partner to the others. In addition, the Partnership Act 1890 sets out specific
principles in sections 28-30:
 the partners must divulge to one another true accounts and all relevant
OBLIGATIONS information connected with the business and their relationship
 to share any profit or benefit received, without the consent of the
partners, in connection with the partnership or from carrying on a
competing business
 the duty not to compete with the partnership without the others’ consent

Rights of Partners
1. Right to take part in the conduct of the business [Section 12(a)] -
According to Section 12(a) of the Indian Contract Act, 1932 every
partner has a right to take part in the conduct of the business.
2. Right to be consulted [Section 12 (c)] - According to Section 12(c) of
the said Act, any difference arising as to ordinary matters connected
with the business may be decided by a majority of the partners, and
every partner shall have the right to express his opinion before the
matter is decided, but no change may be made in the nature of the
business without the consent of all the partners.
3. Right to Access and inspect the books [Section 12(d)] - According to
Section 12(d) of the Indian Partnership Act, every partner has a right
to have access to and to inspect and copy any of the books of the
firm;
RIGHTS 4. Right to Indemnify [Section -13(e)] - According to Section 13(e) of the
Indian Partnership Act 1932, the firm shall indemnify a partner in
respect of payments made and liabilities incurred by him.
5. Right to Claim Remuneration, Profit and Interest on Capital Section
13(a) Section 13(b), Section 13 (c) and Section 13(d)]
a. a partner is not entitled to receive remuneration for taking part
in the conduct of the business;
b. the partners are entitled to share equally in the profits earned,
and shall contribute equally to the losses sustained by the firm;
c. where a partner is entitled to interest on the capital subscribed
by him, such interest shall be payable only out of profits;
d. a partner making, for the purposes of the business, any
payment or advance beyond the amount of capital he has
agreed to subscribe, is entitled to interest thereon at the rate of
six percent. per annum;

MODES OF 1. Without violating the agreement:

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BANDULA, Charena F.
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 EXTINGUISHMENT a. Termination of the definite term or specific undertaking
b. Express will of any partner in good faith, when there is no
definite term and no specified undertaking
c. Express will of all partners (except those who have assigned
their interests or suffered them to be charged for their separate
debts) either before or after the termination of any specified term
or particular undertaking
d. Expulsion of any partner in good faith of a member

2. Violation of the agreement

3. Unlawfulness of the business
4. Loss
a. Specific thing promised as contribution is lost or perished before
delivery
b. Loss of a specific thing contributed before or after delivery, if
only the use of such is contributed
Note: The partnership shall not be dissolved by the loss of the thing when it
occurs after the partnership has acquired the ownership thereof.
5. Death of any of the partners
6. Insolvency of any partner or of the partnership
7. Civil interdiction of any partner
8. By decree of court under Art. 1831, NCC
a. a partner has been declared insane or of unsound mind
b. a partner becomes in any other way incapable of performing his
part of the partnership contract
c. a partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business
d. d. a partner wilfully or persistently commits a breach of the
partnership agreement
e. the business of the partnership can only be carried on at a loss
f. other circumstances render a dissolution equitable

Article 1843. A limited partnership is one formed by two or more persons

under the provisions of the following article, having as members one or more
general partners and one or more limited partners.
Article 1844. Two or more persons desiring to form a limited partnership
Article 1845. The contributions of a limited partner may be cash or property,
but not services.
Article 1846. The surname of a limited partner shall not appear in the
partnership name unless:
1. It is also the surname of a general partner, or
2. Prior to the time when the limited partner became such, the business
OTHER PERTINENT
has been carried on under a name in which his surname appeared.
FACTS
Article 1847. If the certificate contains a false statement, one who suffers loss
by reliance on such statement may hold liable any party to the certificate who
knew the statement to be false:
1. At the time he signed the certificate, or
2. Subsequently, but within a sufficient time before the statement was
relied upon to enable him to cancel or amend the certificate, or to file a
petition for its cancellation or amendment as provided in article 1865.
Article 1848. A limited partner shall not become liable as a general partner
unless, in addition to the exercise of his rights and powers as a limited partner,
he takes part in the control of the business.

RFBT 2 Worksheet No. 1: General Overview of the Law on Partnership 3

BANDULA, Charena F.
2BSAIS-1