Law on the profits

Business among
Organizations themselves.
Reviewer Definition
1 Partnership is
PARTNERSHI a contract
P whereby two
Art. 1767. By or
the contract more persons
of partnership bind themselves
two or more to contribute
persons bind money,
themselves to property or
contribute industry to a
money, common
property, or fund with the
industry to a intention of
common fund dividing profits
with the among
intention of themselves.
dividing Elements
1. Intention to 5. Mutual
form a contract agency of
of partners
partnership 6. Articles must
2. Participation not be kept
in both profits secret
and losses 7. Separate
3. Community juridical
of interests personality
Basic Features Characteristics
1. Voluntary 1. Consensual
agreement – perfected
2. Association by mere
for profit consent.
3. Mutual 2. Bilateral –
contribution to formed by
a common fund two or more
4. Lawful persons
purpose or creating
object reciprocal
rights and
obligations.
3. Preparatory - of that of the
entered into as a others.
means 7. Principal –
to an end. its existence or
4. Nominate – validity does
has a special not depend on
name or some other
designation. contract.
5. Onerous – Principle of
contributions in Delectus
the form of Personae
either money, (choice of
property and/or persons) – a
industry person has the
must be made. right to select
6. Commutative persons with
– the whom he
undertaking of wants to be
each associated with
partner is in partnership.
considered as Art. 1768.
the equivalent The
partnership property, or
has a industry to a
juridical common fund
personality with the
separate and intention of
distinct from dividing
Law on the profits
Business among
Organizations themselves.
Reviewer Definition
1 Partnership is
PARTNERSHI a contract
P whereby two
Art. 1767. By or
the contract more persons
of partnership bind themselves
two or more to contribute
persons bind money,
themselves to property or
contribute industry to a
money, common
fund with the 3. Mutual
intention of contribution to
dividing profits a common fund
among 4. Lawful
themselves. purpose or
Elements object
1. Intention to 5. Mutual
form a contract agency of
of partners
partnership 6. Articles must
2. Participation not be kept
in both profits secret
and losses 7. Separate
3. Community juridical
of interests personality
Basic Features Characteristics
1. Voluntary 1. Consensual
agreement – perfected
2. Association by mere
for profit consent.
2. Bilateral – must be made.
formed by 6. Commutative
two or more – the
persons undertaking of
creating each
reciprocal partner is
rights and considered as
obligations. the equivalent
3. Preparatory - of that of the
entered into as a others.
means 7. Principal –
to an end. its existence or
4. Nominate – validity does
has a special not depend on
name or some other
designation. contract.
5. Onerous – Principle of
contributions in Delectus
the form of Personae
either money, (choice of
property and/or
industry
persons) – a
2. Participation in both profits and losses
3. Community of interests
Basic Features

person has the

1. Voluntary agreement
2. Association for profit
3. Mutual contribution to a common fund

right to select 4. Lawful purpose or object

5. Mutual agency of partners
6. Articles must not be kept secret

persons with 7. Separate juridical personality

Characteristics
1. Consensual – perfected by mere consent.

whom he 2. Bilateral – formed by two or more persons

creating reciprocal rights and obligations.
3. Preparatory - entered into as a means to an
wants to be end.
4. Nominate – has a special name or

associated with
designation.
5. Onerous – contributions in the form of either
money, property and/or industry must be

in partnership.
made.
6. Commutative – the undertaking of each
partner is considered as the equivalent of that

Art. 1768. of the others.

7. Principal – its existence or validity does not
depend on some other contract.

The Principle of Delectus Personae (choice of

persons) – a person has the right to select

partnership persons with whom he wants to be associated

with in partnership.

has a
Art. 1768. The partnership has a juridical
personality separate and distinct from that of
each of the partners even in case of failure to

juridical
comply with the requirements of Article 1772,
first paragraph.

personality Partnership, a juridical person

As an independent juridical person, a
partnership may enter into contracts, acquire

separate and and possess property of all kinds in its name, as

well as incur obligations and bring civil or
criminal actions. Thus, a partnership may be

distinct from declared insolvent even if the partners are not.

It may enter into contracts and may sue and be
sued in its firm name or by its duly authorized
PARTNERSHIP
Art. 1767. By the contract of partnership two or representative. It is sufficient that service of
more persons bind themselves to contribute summons be served on any partner.
money, property, or industry to a common fund
with the intention of dividing the profits among Partners cannot be held liable for the
themselves. obligations of the partnership unless it is shown
that the legal fiction of a different juridical
Two or more persons may also form a personality is being used for a fraudulent, unfair
partnership for the exercise of a profession. or illegal purpose.
(1665a) Effect of failure to comply with statutory
requirements
Definition Partnership is a contract whereby Under Art 1772 Partnership still acquires
two or more persons bind themselves to personality despite failure to comply with the
contribute money, property or industry to a requirements of execution of public instrument
common fund with the intention of dividing and registration of name in SEC.
profits among themselves. Under Arts 1773 and 1775 Partnership with
immovable property contributed, if without
Elements requisite inventory, signed and attached to
1. Intention to form a contract of partnership public instrument, shall not acquire any juridical
personality because the contract itself is void. the parties call their relationship or believe it to
This is also true for secret associations or be a partnership is immaterial. Thus, with the
societies. exception of partnership by estoppel, a
To organize a partnership not an absolute right partnership cannot exist as to third persons if
It is but a privilege which may be enjoyed only no contract of partnership has been entered
under such terms as the State may deem into between the parties themselves.
necessary to impose.
Co-ownership or co-possession
Art. 1769. In determining whether a partnership There is co-ownership whenever the ownership
exists, these rules shall apply: of an undivided thing or right belongs to
1. Except as provided by Article 1825, persons different persons.
who are not partners as to each other are not Clear intent to derive profits from operation of
partners as to third persons. business
2. Co-ownership or co-possession does not of Co-ownership does not of itself establish the
itself establish a partnership, whether such co- existence of a partnership, although it is one of
ownership or copossessors do or do not share its essential elements. This is true even if profits
any profits made by the use of the property. are derived from the joint ownership. The
profits must be derived from the operation of
3. The sharing of gross returns does not of itself business by the members of the association and
establish a partnership, whether or not the not merely from property ownership. The law
persons sharing them have a joint or common does not imply a partnership between co-
right or interest in any property from which the owners because of the fact that they develop or
returns are derived. operate a common property, since they may
4. The receipt by a person of a share of the rightfully do this by virtue of their respective
profits of a business is prima facie evidence that titles. There must be a clear intent to form a
he is a partner in the business, but no such partnership.
inference shall be drawn if such profits were
received in payment: Existence of fiduciary relationship
a. As a debt by installments or otherwise. Partners have a well-defined fiduciary
b. As wages of an employee or rent to a relationship between them. Co-owners do not.
landlord. Should there be dispute; the remedy of partners
c. As an annuity to a widow or representative of is an action for dissolution, termination and
a deceased partner. accounting. For co-owners it would be one, for
d. As interest on a loan, though the amount of instance, for nonperformance of contract.
payment vary with the profits of the business. People can become co-owners without a
e. As the consideration for the sale of a goodwill contract but they cannot become partners
of a business or other property by installments without one.
or otherwise.
Persons living together without benefit of
In general, to establish the existence of a marriage
partnership, all of its essential features or Property acquired governed by rules on
characteristics must be shown as being present. coownership.
In case of doubt, art.1769 shall apply. This Sharing of gross returns not even presumptive
article seeks to exclude from the category of evidence of partnership
partnership certain features enumerated herein The mere sharing of gross returns alone does
which, by themselves, are not indicative of the not even constitute prima facie evidence of
existence of a partnership. partnership, since in a partnership, the partners
share profits after satisfying all of the
Persons not partners as to each other partnership’s liabilities.
Persons who are partners as between
themselves are partners as to third persons. Reason for the rule
Generally, the converse is true: if they are not Partner interested in both failures and
partners between themselves, they cannot be successes; it is the chance of loss or gain that
partners as to third persons. Partnership is a characterizes a business. Where the contract
matter of intention, each partner giving his requires a given portion of gross returns to be
consent to become a partner. However, paid over, the portion is paid over as
whether a partnership exists between the commission, wages, rent, etc.
parties is a factual matter. Where parties Where there is evidence of mutual
declare they are not partners, this, as a rule, management
settles the question between them. But where a Where there is further evidence of mutual
person misleads third persons into believing management and control, partnership may
that they are partners in a non-existent. result.
artnership, they become subject to liabilities of Receipt of share in the profits strong
partners (doctrine of estoppel).Whether or not presumptive evidence of partnership
An agreement to share both profits and losses terms of a contract upon which the parties have
tends strongly to establish the existence of a reached an actual understanding, either
partnership. It is not conclusive, however, just expressly or impliedly, may afford a test by
prima facie and may be rebutted by other which to ascertain the legal nature of the
circumstances. contract. Some of the typical incidents of a
partnership are:
When no such inference will be drawn
Under par. 4 of art. 1769, sharing of profits is 1. The partners share in profits and losses.
not prima facie evidence of partnership in the 2. They have equal rights in the mgt and
cases enumerated under subsections (a) – (e). conduct of the partnership business.
In these cases, the profits are not shared as 3. Every partner is an agent of the partnership,
partner but in some other respects or purpose. and entitled to bind the others by his acts. He
The basic test of partnership is whether the may also be liable for the entire partnership
business is carried on in behalf of the person obligations.
sought to be held liable. 4. All partners are personally liable for the debts
of the partnership with their separate property
Sharing of profits as owner except that limited partners are not bound
It is not merely the sharing of profits, but the beyond the amount of their investment.
sharing of them as co-owner of the business or 5. A fiduciary relation exists between the
undertaking that makes one partner. Test: Does partners.
the recipient have an equal voice as proprietor 6. On dissolution, the partnership is not
in the conduct and control of the business? terminated, but continues until the winding up
Does he own a share of the profits as proprietor of partnership is completed. Such incidents may
of the business producing them? One must have be modified by stipulation of the partners.
an interest with another in the profits of a
business as profits. Similarities between a partnership and a
corporation
Burden of proof and presumption 1. Both have juridical personality separate and
The burden of proving the existence of a distinct from that of the individuals composing
partnership rests on the party having the it
affirmative of that issue. The existence of a 2. Both can only act through its agents;
partnership must be proved and will not be 3. Both are organizations composed of an
presumed. The law presumes that those acting aggregate of individuals;
as partners have entered into a contract of 4. Both distribute profits to those who
partnership. Where the law presumes the contribute capital to the business;
existence of partnership, the burden of proof is 5. Both can only be organized where there is a
on the party denying its existence. When a law authorizing is organization;
partnership is shown to exist, the presumption 6. Partnerships are taxable as corporations.
is that it continues and the burden of proof is
on the person asserting its termination. One Art. 1770.
who alleges partnership cannot prove it merely A partnership must have a lawful object or
by evidence of an agreement using the term purpose, and must be established for the
“partner”. Non-use of the term, however, is common benefit or interest of the partners.
entitled to weight. The question of whether a When an unlawful partnership is dissolved by a
partnership exists is not always dependent judicial decree, the profits shall be confiscated
upon the personal arrangement or in favor of the State, without prejudice to the
understanding of the parties. Parties intending provisions of the Penal Code governing the
to do a thing which in law constitutes confiscation of the instruments and effects of a
partnership are partners. crime. Object or purpose of partnership.

Law on
Legal intention is the crux of partnership.
Parties may call themselves partners but their
contract may be adjudged something quite

Business
different. Conversely, parties may expressly
state that theirs in not a partnership yet the law
may determine otherwise on the basis of legal
intent. However, courts will be influenced to
some extent by what the parties call their
contract.
Organizations
Tests and incidents of partnership
In determining whether a partnership exists, it
Reviewer
is important to distinguish between tests or
indicia and incidents of partnership. Only those 1
PARTNERSHI whereby two
P or
Art. 1767. By more persons
the contract bind themselves
of partnership to contribute
two or more money,
persons bind property or
themselves to industry to a
contribute common
money, fund with the
property, or intention of
industry to a dividing profits
common fund among
with the themselves.
intention of Elements
dividing 1. Intention to
the profits form a contract
among of
themselves. partnership
Definition 2. Participation
Partnership is in both profits
a contract and losses
3. Community Characteristics
of interests 1. Consensual
Basic Features – perfected
1. Voluntary by mere
agreement consent.
2. Association 2. Bilateral –
for profit formed by
3. Mutual two or more
contribution to persons
a common fund creating
4. Lawful reciprocal
purpose or rights and
object obligations.
5. Mutual 3. Preparatory -
agency of entered into as a
partners means
6. Articles must to an end.
not be kept 4. Nominate –
secret has a special
7. Separate name or
juridical designation.
personality
5. Onerous – Principle of
contributions in Delectus
the form of Personae
either money, (choice of
property and/or persons) – a
industry person has the
must be made. right to select
6. Commutative persons with
– the whom he
undertaking of wants to be
each associated with
partner is in partnership.
considered as Art. 1768.
the equivalent The
of that of the partnership
others. has a
7. Principal – juridical
its existence or personality
validity does separate and
not depend on distinct from
some other that
contract.
of each of the
partners even in
case of