PARTNERSHIP

Rules Regarding Industrial Partners

1. Industrial partner becomes a debtor of the partnership for his work or services from the moment the partnership relation begins. 2. Industrial partners cannot engage in another business. 3. Industrial partners cannot be compelled to contribute more than what he has agreed to contribute. 4. They can be excluded from sharing in the profits and losses of a partnership.

Effects of an Unlawful Partnership

1. The contract is void ab initio and the partnership never existed in the eyes of the law [Art 1409(1) CC] 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 [Art 45 RPC] 4. The contributions of the partners shall not be confiscated unless they fall under No. 3 [Art 1411 CC]

Requirements for Partnership With Contribution of Immovable Property

1. The contract must be in a public instrument [Art 1771] 2. An inventory of the property contributed must be made, signed by the parties, and attached to the public instrument. [Art 1773] ● The absence of either formality renders the contract void. Despite the lack of an express provision in Art 1771, it should be read alongside Art 1773. ○ This means partnerships with contribution of immovable property that are not in a public instrument are void, even if there is inventory. ● Art 1773 is primarily for the protection of third persons. With regard to them, a de facto partnership or partnership by estoppel may exist. (Torres v. CA)

Other kinds of partners not industrial, managerial, capitalist or by estoppel

General Partner -> one whose liability to third persons extends to his separate property (may be a capitalist or industrial partner) Limited Partner -> one whose liability to third persons is limited to his capital contribution. ● Only has relevance when it comes to limited partnerships

Kinds of Partners

Industrial (Arts. 1789, 1797) Capitalist (Arts. 1789, 1790, 1797, 1808) Managing (Arts. 1792, 1800-1802) By estoppel (Arts. 1825) May corporations be partners?

Capitalist Partner

One who contributes money or property to the general fund.

Industrial Partner

One who contributes only his labor, industry or personal service. ● An action for specific performance to compel the partner to perform the work or service is not available as a remedy because this amounts to involuntary servitude [Sec 18(2), Art III, 1987 Constitution]

Managing Partner

One who manages the affairs or business of the partnership. ● may be appointed either in the articles of partnership, or after the constitution of the partnership.

When Inventory Is Not Required

in cases involving immovable property which may be possessed or even owned by the parties but not contributed by any of the partners. ● A partnership contract which states that the partnership was created to operate a fishpond (not 'to engage in a fishpond business') is not void because no inventory of the fishpond was made, since there was no evidence that the fishponds in question were contributed by the parties. (Agad v. Mabolo and Agad & Co) ● Inventory need not include personal property.

Partner by Estoppel

one who is not really a partner, not being party to a partnership agreement, but is liable as partner for the protection of innocent third persons. ● represented as being in fact a partner, but who is not so as between the partners themselves. ● Also known as 'nominal' or 'limited partner'

Rules Regarding Capitalist Partners

● A capitalist partner is not bound to contribute to the partnership more than what he has agreed to contribute. ○ Except in case of an imminent loss of the business, absent an agreement to the contrary, he is under obligation to contribute an additional share to save the venture. If he refuses to contribute, he shall be obliged to sell his interest to the other partners. ● Capitalist partners are only prohibited from engaging in outside business which is of the same kind of business in which the partnership is engaged, unless there is a stipulation to the contrary

Exceptions Where The Law May Impose An Implied Contract For Compensation

● A partner engaged by his co-partners to perform services not required of him is entitled to receive the compensation agreed upon. ● Where there is extraordinary neglect on the part of one partner to perform his duties toward the firm's business, thereby imposing the entire burden on the remaining partner. ● One partner may employ his co-partner to do work for him outside and independent of the co-partnership, and become personally liable therefor. ● Partners exempted by the terms of the partnership from rendering services to the firm may demand pay for services rendered.

Right to Receive Profits Where Partnership Is Unlawful (Arbes v. Polistico)

● Art 1770 permits no action for the purpose of obtaining the earnings made by an unlawful partnership, because to do that, the partner will have to base his action on the partnership contract, which is null and void for having an unlawful object. ● The profits earned by the unlawful partnership don't represent contributions by the partners, but are the result of the object of the partnership. ● It would be immoral and unjust for the law to permit a profit from an industry prohibited by law. ● No accounting or recovery can be demanded of a partner for the profits earned by an unlawful partnership, owing to the principle of in pari delicto.

When Partnership is Considered Registered

● Since objective of Art 1772 is to give notice to interested parties of the membership and composition of the partnership, registration is achieved from the date the papers are presented to and left for record with the SEC. ● When the certificate of recording the instrument is issued on a later date than when the instrument was presented to the SEC, the certificate's effectivity retroacts to the date it was presented. ○ In other words, the partnership is considered to have been registered on the date the partnership papers are presented to the SEC and left for record. [SEC Opinion, Feb 8 1962 and Feb 5, 1963]

Rights And Obligations With Respect To Management

● Unless the contract provides otherwise, each partner in a general partnership has a right to an equal voice in the conduct and management of the partnership, regardless of their capital contribution or services. ● However, the partners may select a managing partner or make such allocation of functions as the needs of the business dictate.