**Name:** [Student Name]
**Subject:** Business laws and regulations
**Section Code:** [Section Code]
1. The general rule is, when a person received a share of the profits of a business it raises a prima facie evidence that he is a partner in the business.
a. Is the rule absolute? Why or why not?
The rule that the receipt of a share of the profits of a business is prima facie evidence of a partnership is not absolute. The law itself provides several important exceptions where sharing in profits does not lead to an inference of partnership. Therefore, while profit sharing is a strong indicator, it is not a conclusive test of a partnership’s existence.
The governing provision is Article 1769 of the Civil Code of the Philippines. This article establishes the rules for determining whether a partnership exists. Paragraph (4) states:
“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…”
The law then lists specific instances where receiving profits does not create a presumption of partnership. These exceptions are crucial because they recognise that profits can be distributed for reasons other than a partnership relationship. The exceptions are:
i. **As a debt by installments or otherwise.** If a person receives a share of profits as payment for a debt, they are a creditor, not a partner. For example, if a lender agrees to be repaid from the profits of the company they lent money to, this arrangement does not make them a partner. Their primary relationship with the business is that of a creditor.
ii. **As wages of an employee or rent to a landlord.** An employee may have a contract where their salary or bonus is tied to the business’s profitability. Similarly, a landlord might lease property to a business with the rent amount being a percentage of the business’s profits. In both cases, the recipient is an employee or a landlord, not a partner. Their relationship is defined by an employment or lease contract, respectively, not a partnership agreement.
iii. **As an annuity to a widow or representative of a deceased partner.** In order to provide for the family of a deceased partner, a partnership may agree to pay them an annuity out of the profits. This is a way of recognising the past contribution of the deceased partner, but it does not make the widow or representative a partner in the ongoing business. They have no role in management or liability for partnership debts.
iv. **As interest on a loan, though the amount of payment vary with the profits of the business.** This is similar to the first exception concerning debt. A person who lends money to a business might agree to receive interest that fluctuates based on the business’s profitability. This is known as a participating loan. Despite the return being linked to profits, the person’s status is that of a lender, not a partner.
v. **As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.** When a business is sold, the seller might agree to receive payment in installments from the future profits of that business. This arrangement does not make the seller a partner with the new owner. They are simply receiving the payment for the asset they sold.
In conclusion, the rule is not absolute because the law acknowledges that profits can be shared as a form of payment or compensation in various non-partnership contexts. The ultimate test of a partnership is the intention of the parties to form a partnership, carry on a business as co-owners, and share in profits as profits (De Leon, 2010). The exceptions listed in Article 1769 ensure that courts look beyond the mere fact of profit-sharing to determine the true nature of the relationship.
b. What is prima facie evidence? Is it the same as conclusive evidence? Briefly explain.
*Prima facie* evidence is not the same as conclusive evidence. There is a significant legal distinction between the two concepts.
*Prima facie* is a Latin term meaning “at first sight” or “on its face.” In law, *prima facie* evidence is evidence that, unless rebutted, is sufficient to prove a particular fact or issue. It is adequate to establish a fact and will stand as proven unless it is contradicted and overcome by other evidence (Black, 2009). For example, as discussed in the previous question, receiving a share of profits is *prima facie* evidence of being a partner. This means that if no other information is provided, a court could presume a partnership exists. However, this presumption is not final. The opposing party has the right to present evidence to challenge or rebut this presumption, such as showing the profits were received as wages or in payment of a debt.
Conclusive evidence, on the other hand, is evidence that is so strong and convincing that it cannot be contradicted or rebutted by any other evidence. Once conclusive evidence of a fact is presented, the matter is considered proven, and the court will not accept any evidence to the contrary. It is “incontrovertible” and requires the fact-finder to come to a specific conclusion (Garner, 2011). An example of conclusive evidence in the Philippines can be found in the statement under Article 1431 of the Civil Code regarding estoppel: “Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.”
In summary, the key difference is their effect. *Prima facie* evidence creates a rebuttable presumption; it is a starting point that can be challenged. Conclusive evidence creates an irrebuttable presumption; it is an endpoint that ends the debate on a particular fact.
2. Contracts can be in any form as long as all the essential requisites are present, unless the law requires a certain formality.
a. In the case of a Partnership, how may the contract be executed for purposes of acquiring a juridical personality.
In Philippine law, a partnership acquires a separate and distinct juridical personality from the moment the contract of partnership is perfected. This is a fundamental principle of partnership law and is explicitly stated in the Civil Code.
Article 1768 provides: “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.”
This means that the partnership becomes a legal entity, capable of owning property, incurring obligations, and suing or being sued in its own name, right from its inception. The creation of this juridical personality is not dependent on subsequent formalities like registration with the Securities and Exchange Commission (SEC), although such formalities may be required for other purposes.
The execution of the contract, for the purpose of creating this juridical personality, follows the general rule of contracts. A partnership is a consensual contract, meaning it is perfected by the mere consent of the parties. Article 1771 of the Civil Code states this principle clearly:
“A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.”
Therefore, for the purpose of acquiring juridical personality, the contract of partnership is executed and perfected the moment 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. This can be a simple oral agreement or a private written document. Once there is this “meeting of the minds” on the essential elements of the partnership, the law immediately grants it a separate juridical personality, enabling it to act as a single entity. The exception regarding immovable property noted in Article 1771 is a formality requirement for the validity of the contract itself, which is discussed further in the next part.
b. Outline the rules and cite the provision of law to justify your answer.
While a partnership is generally a consensual contract that grants immediate juridical personality, the law does impose specific formal requirements in certain situations. These rules do not always affect the existence of the partnership between the partners but can affect its validity or its relations with third parties. The key provisions are found in Articles 1771, 1772, and 1773 of the Civil Code.
**1. The General Rule: No Specific Form Required**
* **Provision:** Article 1771 states, “A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.”
* **Outline:** The default rule is that the contract of partnership is valid and binding regardless of its form. It can be oral or in a private writing. As long as the partners have a valid agreement to contribute money, property, or industry to a common fund and to share profits, a partnership exists.
**2. Where Partnership Capital is P3,000 or More**
* **Provision:** Article 1772 provides, “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.”
* **Outline:**
* **Requirement:** If the total capital contribution (in money or property, not industry) is P3,000 or more, the law requires two things: (1) the contract must be in a public instrument (a document notarized by a notary public), and (2) it must be registered with the SEC.
* **Effect of Non-Compliance:** The second paragraph of Article 1772 is crucial. It clarifies that failure to comply with these requirements does not prevent the formation of the partnership or invalidate its existence. The partnership still acquires a separate juridical personality as per Article 1768. The primary consequence is that the partnership and its partners remain liable to third parties. The purpose of this rule is to protect third persons who deal with the partnership and to allow for public record-keeping. The partners cannot use their own failure to comply with the law as a defense to avoid their obligations to others.
**3. Where Immovable Property is Contributed**
* **Provision:** Article 1773 states, “A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.”
* **Outline:**
* **Requirement:** This article sets out the strictest formal requirements. If any partner contributes real property (like land or a building) or real rights to the partnership, the contract must meet two absolute conditions for validity:
1. The contract of partnership must be in a public instrument.
2. An inventory of the immovable property contributed, signed by all the partners, must be made and attached to that public instrument.
* **Effect of Non-Compliance:** Unlike the rule in Article 1772, failure to comply with the requirements of Article 1773 has a fatal consequence: the contract of partnership is **void**. This means that, in the eyes of the law, no partnership was ever formed. This strict requirement is intended to protect third parties by ensuring a clear and public record of the ownership of the immovable property, preventing fraud, and defining the assets of the partnership. Without this formality, the transfer of real property is not properly documented, and the partnership itself is considered non-existent from the beginning.
References
Black, H.C. (2009) *Black’s Law Dictionary*. 9th edn. St. Paul, MN: West Group.
De Leon, H.S. and De Leon, H.M. (2010) *Comments and Cases on Partnership, Agency, and Trusts*. Rex Book Store.
Garner, B.A. (ed.) (2011) *Black’s Law Dictionary*. 3rd pocket edn. St. Paul, MN: West Group.
Republic of the Philippines (1949) *Civil Code of the Philippines (Republic Act No. 386)*.
