Article 1306
bilateral, onerous, commutative, principal,
“The contracting parties may establish such
stipulations, clauses terms and conditions as
may deem convenient, provided they are not
contrary to law, morals, good customs, public
order, or public policy.”
Emphasis on Freedom to contract.
Free to write or enter any contract as long as it
is not contrary to law, morals, good customs,
public order, or public policy.
Contract is the law between parties and if it is
not contrary to the above then it must be
followed.
E.g. contract for sale of drugs/firearms, forcing
someone to marry, to commit a crime, fraud,
etc.
Public Policy – “No subject or citizen can
lawfully do that which has a tendency to be
injurious to the public or against the public
good or contravenes some interests of the
society.”
E.g. sellers not allowing sale to certain groups
(against public policy = against right of
ownership), against right to freely dispose
property
Article 1767
“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 among
themselves.
Two or more persons may also form a
partnership for the exercise of a profession.”
A partnership is formed through a contract
made by two or more people.
Concept: Association, legal relation, joint
undertaking, status, organization, entity
7 Characteristics: Consensual, nominate,
preparatory
Nominate Contract – rights and obligations
prescribed by law (compared to other contracts
is only stipulated by the persons). Standardized
and has a special designation.
A partnership contract, in essence, is a contract
of agency.
Delectus Personae – “choice of a person”; as a
partner, you voluntarily choose to trust your
partners. Why the law gives wide authority to
one partner, to bind another by contract or
otherwise.
Article 1768
“The partnership has a juridical personality
separate and distinct from that of each of the
partners, even in case of failure to comply with
the requirements of Article 1772, first
paragraph.”
Goodwill of a business - the established
reputation of a business regarded as a
quantifiable asset” “e.g., as represented by the
excess of the price paid at a takeover for a
company over its fair market value.” “When a
company acquires another entire business. The
amount of goodwill is the cost to purchase
the business minus the fair market value of the
tangible assets, the intangible assets that can be
identified, and the liabilities obtained in the
purchase.”
Article 1769
“In determining whether a partnership exists,
these rules shall apply:
(1) Except as provided by Article 1825,
persons who are not partners as to each
other are not partners as to third
persons;
(2) Co-ownership or co-possession does
not of itself establish a partnership,
 whether such-co-owners or co-
possessors do or do not share any
profits made by the use of the property;
(3) The sharing of gross returns does
not of itself establish a partnership,
whether or not the persons sharing
them have a joint or common right or
interest in any property from which the
returns are derived;
(4) The receipt by a person of a share of
the profits of a business is prima facie
evidence that he is a partner in the
business, but no such inference shall be
drawn if such profits were received in
payment:
(a) As a debt by installments or
otherwise;
(b) As wages of an employee or
rent to a landlord;
(c) As an annuity to a widow or
representative of a deceased
partner;
(d) As interest on a loan, though
the amount of payment vary
with the profits of the business;
(e) As the consideration for the
sale of a goodwill of a business
or other property by
installments or otherwise. (n)”
Estoppel – asserting something contrary.
Misleading. Even if they weren’t really partners
they misled a third person through their acts
and consent and thus have to face the
consequences (liabilities). (parang you dug your
own hole. You made a situation that you cant
get out of/escape from.)
Prima Facie – “first impression/accepted until
proven otherwise”; sufficient evidence unless
proven otherwise. Receiving a share of profits is
prima facie evidence (sufficient evidence) that
he is a partner, unless the profit was received as
payment for (1) debt by installments, (2) wages
of an employee/rent to a landlord, (3) annuity
to a widow/representative of a deceased
partner, (4) interest on a loan, (5) consideration
for the sale of a goodwill of a business or other
property by installments.
Article 1770
“A partnership must have a lawful object or
purpose, and must be established for the
common benefit or interest of the partners.”
When an unlawful partnership is dissolved by a
judicial decree, the profits shall be confiscated
in favor of the State, without prejudice to the
provisions of the Penal Code governing the
confiscation of the instruments and effects of a
crime.
Article 1772
“Every contract of partnership having a capital
of three thousand pesos or more, in money or
property, shall appear in a public instrument,
which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirements of the
preceding paragraph shall not affect the liability
of the partnership and the members thereof to
third persons.”
Public Instrument – legal document recorded by
a public office (e.g. SEC). Genuine, authentic.
Article 1825
“When a person, by words spoken or written or
by conduct, represents himself, or consents to
another representing him to anyone, as a
partner in an existing partnership or with one or
more persons not actual partners, he is liable to
any such persons to whom such representation
has been made, who has, on the faith of such Net profit is your business’s revenue after
representation, given credit to the actual or subtracting all operating, interest, and tax
apparent partnership, and if he has made such expenses, in addition to deducting your COGS.
representation or consented to its being made To calculate net profit, you must know your
in a public manner he is liable to such person, company’s gross profit. Your business’s net
whether the representation has or has not been profit is known as a net loss if the number is
made or communicated to such person so negative.
giving credit by or with the knowledge of the
Your business might have a high gross profit and
apparent partner making the representation or
a significantly lower net profit, depending on
consenting to its being made:
how many expenses you have.
(1) When a partnership liability results, he is
Who are capable of entering contracts?
liable as though he were an actual member of
the partnership; Those with legal ability/legal capability
(2) When no partnership liability results, he is
liable pro rata with the other persons, if any, so
consenting to the contract or representation as
to incur liability, otherwise separately.

When a person has been thus represented to be

a partner in an existing partnership, or with one
or more persons not actual partners, he is an
agent of the persons consenting to such
representation to bind them to the same extent
and in the same manner as though he were a
partner in fact, with respect to persons who rely
upon the representation. When all the
members of the existing partnership consent to
the representation, a partnership act or
obligation results; but in all other cases it is the
joint act or obligation of the person acting and
the persons consenting to the representation.”

Gross vs. Net Profit

The difference between gross profit and net

profit is when you subtract expenses.

Gross profit is your business’s revenue minus

the cost of goods sold. Your cost of goods
sold (COGS) is how much money you spend
directly making your products. But, your
business’s other expenses are not included in
your COGS. Gross profit is your company’s profit
before subtracting expenses.