1. What is the contract of partnership and what are its requisites?

According to Art. 1767, the contract of partnership is defined as: By the contract of
partnership two or more persons bind themselves to contribute money, property, or
industry to a common fund with the intention of dividing the profit.

In which a partnership is an arrangement in which two or more people agree to donate

capital, property, or industry to a common fund in exchange for a share of the income.

The following are its requisites:

1) There must be a valid contract;

2) The parties must have legal capacity to enter into a contract;
3) There must be a mutual contribution of money, property, or industry to a common
fund;
4) It must have a lawful object or purpose;
5) The primary purpose must be to obtain profits and to divide the profits in
proportion among the parties.
2. What are the tests or indicia to determine the existence of partnership?

It's critical to differentiate between tests or indicia and incidents of relationship when
deciding whether or not a partnership occurs. Just the provisions of a contract on which
the parties have come to an actual agreement, either explicitly or implicitly, should be
used to determine the contract's legal existence.

Just such terms of contract  on which the parties have agreed should be used as a
basis to determine whether or not a relationship exists.

The following are the typical incidents of a partnership under the law:

1. The partners share in profits and losses.

2. They have equal rights in the management and conduct of the partnership business.

3. Every partner is an agent of the partnership, and entitled to bind the others by his
acts. 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. Such incidents may be modified by stipulation of the partners.
 3. Assuming that there is a mutual contribution of money, property or
industry to a common fund, is the receipt by a person of a share of profits
of a business conclusive evidence that he is a partner in the business?

The receipt of share in the profits is strong presumptive evidence of partnership. A

commitment to share gains and losses is a good indicator of the existence of a
relationship. It is not definitive. Sharing of profits is a prima facie evidence(Art. 1769)
that the person is a partner in the enterprise, in which the stipulated reasons that the
person/party is not a partner, and other circumstances/reasons can rebut it.

4. How shall the profits and losses of a partnership be distributed?

Article 1797 provides: “The profits and losses shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion. In the absence of
stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be just
and equitable under the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion to his capital.”

This article provide these rules of profit and loss sharing:

Rules in profit sharing:

1. The partners share the profits in accordance with the ratio established by their
contract.
2. If there is no such stipulation in the partnership contract, then:
 If all are capitalist partners they have the profits in proportion to their
capital contributions;
 If there are capitalist as well as industrial partners, the industrial partner
get a share each that is just and equitable while the capitalist partners
divide the remainder in proportion to their capital contributions; and
 If there is a capitalist-industrial partner, he gets a share in the profits as an
industrial partner and an additional share in proportion to his capital
contribution to be determined as in (b), above.

Rules in loss sharing:

1. The stipulation in the partnership agreement regarding loss sharing must be

followed.
 2. If there is no such agreement, but the contract provides for a profit sharing ration,
the profit sharing ratio shall also be the loss sharing ration.
3. In the absence of loss sharing and profit sharing stipulations in the contract, then
the loss shall be borne by the partners in proportion to their capital contributions;
but a purely industrial partner is exempted from participation in the loss.
4. Under our law, may the partners enter into an agreement whereby one or
more of them shall not share in the profits and losses?

Under Article 1797: The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion. In the absence of
stipulation, the share of each partner in the profits and losses shall be in proportion
to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in proportion to his
capital.

The law forbids a provision of a partnership that prevents one or more partners from
sharing profits and losses. The justification for this is that a relationship is set up for
the benefit or interest of the parties as a whole.

Only the industrial partner is excluded (Art 1797), exempting him from losses is
valid, however to the rights of the third persons.

5. Can an industrial partner engage in a business other than that of a

partnership?

Under 1789, An industrial partner cannot engage in any business for himself, UNLESS
the partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits which
he may have obtained in violation of this provision, with a right to damages in either
case.

Industrial partner barred from engaging in business to prevent any conflict of interest
between the industrial and the partnership, and to insure faithful compliance by said
partner with his prestation.

6. Can a Capitalist partner engage in a business other than that of a

partnership?
Art. 1808. The Capitalist partners cannot engage for their own account in any operation,
which is of the kind of business in which the partnership is engaged, unless there is a
stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to
the common funds any profit accruing to him from his transactions, and shall personally
bear all the losses.

Prohibition against capitalist partner to engage in business is relative, unlike the

industrial partner who is absolutely prohibited from engaging in any business for
himself. The capitalist partner is only forbidden from engaging in any transaction on his
own account that is the same as or close to the partnership's company and is
competitive with said enterprise.

7. Who shall manage the partnership?

Under Art. 1801. If two or more partners have been intrusted with the management of
the partnership without the specification of their respective duties or without the
stipulation that one of them shall not act without the consent of all others, each one
separately execute all acts of administration, but if anyone of them should oppose the
act of each other, the decision of the majority shall prevail. In the case of tie the partners
owning the controlling interest shall decide the matter. Where respective duties of two or
more managing partners not specifies.

Partner appointed in arts of partnership may execute all acts of administration

notwithstanding the opposition of the other partners, unless he should act in bad faith.
Only a just and lawful cause and a vote of the partners representing the controlling
interest will revoke his authority.

8. What is meant by the principle of “delectus personae” in partnership

relations?

Under 1804, Every partner may associate another person with him in his share, but the
associates shall not admitted into the partnership without the consent of all other
partners, even of the partner having an associate should be a manager of sub-
partnership nature.

The meaning by the principle of “delectus personae” in partnership relations refer to the
rule in which it is inherent by the all the partnership that no one can become a partner
without the consent of other partners. The “delectus personae” or the choice of the
persons means that an individual has the right to choose the people with whom he
wants to form a relationship.

10. What are the property rights of a partner? Are these rights assignable?
Discuss.
Under Art. 1810: The property rights of a partner are:

1. His rights in specific partnership property;

2. His interest in the partnership;

3. His right to participate in the management, extent of property rights of a partner.

A partner's right to specific partnership property cannot be assigned unless it is in

conjunction with the assignment of all partners' interests in the same property; a
partner's right to specific partnership property cannot be attached or executed unless
there is a lawsuit against the partnership.