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Property rules

Understanding partnership

(First of two parts)

“Perfect partners don’t exist,” said athlete Wayne Rooney. “Perfect conditions exist for a limited time in which partnerships express themselves best.”

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If you’re establishing a business partnership, understanding its nature and the rights and obligations of the parties involved is imperative.

Local civil law defines partnership as a contract in which two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves.

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In Ortega v. Court of Appeals, the Supreme Court characterized partnership as one where mutual agency exists among its partners—that is, the birth and life of a partnership at will are predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the foundation of a partnership. In this regard, as a general rule, persons who do not intend to become each other’s partners are not partners to third persons. Moreover, co-ownership or co-possession of a property does not by itself establish a partnership, whether the co-owners or co-possessors share any profits earned.

A partnership must be evidenced by a public instrument where immovable property or real rights have been contributed therein. Failure to attach to this instrument an inventory of said property, signed by the parties, shall render the contract of partnership void as to third parties. Thus, in Torres v. Court of Appeals, the Supreme Court clarified that the lack of said inventory will not completely release the partners from their respective obligations to each other pursuant to their contract.

A partnership which entirely consists of properties contributed by the partners may be classified as a universal partnership of all present property. Under this set up, the contributed properties shall be commonly owned by the partners, as well as all profits earned therefrom. A stipulation for the common enjoyment of any other profits may also be made, including fruits earned from properties acquired by the partners through inheritance, legacy or donation. These properties, however, shall not form part of this universal partnership.

Meanwhile, a universal partnership of profits comprises all that the partners may acquire by their industry or work during its existence. In this set-up, the partnership only acquires the usufruct to the movable and immovable properties possessed by its partners, including the right to profits therein. Said properties shall continue to exclusively pertain to the partners possessing them.

Partners acquire rights to, among others, the specific partnership property by becoming co-owners thereof. Thus, subject to the relevant provisions of the Civil Code and a contrary agreement between the partners, each of them has an equal right to possess said property for partnership purposes. If a partner would intend to possess this property for any other purpose, his partners must consent thereto beforehand.

Moreover, a partner’s right in specific partnership property is not assignable, except in connection with the assignment of rights of all partners thereto. Neither may his right be subject to attachment or execution, which are the subjects of court proceedings, except on a claim against the partnership, nor be subject to legal support.

As mentioned, every partner is an agent of the partnership for the purpose of its business. Every partner’s act of apparently carrying on in the usual way the business of the partnership of which he is a member binds it, unless this partner has in fact no authority to act for the partnership in the particular matter, and the third person he has been dealing with does not know of the fact of lack of authority.

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Meanwhile, a partner’s act which is not apparently for the carrying of the partnership’s business in the usual way does not bind it unless authorized by the other partners.

Except when authorized by the other partners or unless they have abandoned the business, one or almost all partners are not authorized to, among others: (a) assign the partnership property in trust for creditors or on the assignee’s promise to pay the debts of the partnership; and (b) do any other act which would make it impossible to carry on the ordinary business of the partnership.

(To be continued)

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