GENERAL PROVISIONS

Definition (Art. 1767)

General rule

Partnership is a contract of two or more persons

binding themselves to contribute money,
property, or industry to a common fund, with
the intention of dividing the profits among
themselves.

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.

two or more persons may also form a

partnership for the exercise of a profession.
Profession is a group of men pursuing a
learned art as a common calling in the spirit of
public service no less a public service because
it may incidentally be a means of livelihood.
Elements (Art. 1767, 1770)
1. Consensual perfected by mere consent.
2. Nominate has a special name of designation in
our law.
3. Bilateral entered by two or more persons.
4. Onerous each of the parties aspires to obtain
for himself a benefit through giving of something.
5. Commutative actions of a partner is equivalent
of that of the others.
6. Principal independent contract.
7. Preparatory a means to an end.
8. Lawful must have lawful object of purpose.
9. Communal for common benefit or interest of
the partners.
Characteristics (Art. 1768, 1775)

It has juridical personality separate and distinct

from that of each of the partners.
Articles or agreement must be known to third
persons. Failure of this result to partnership
having no juridical personality.

Rules to determine its existence (Art. 1769, 1825)

In general, to establish the existence of a partnership,
all of its essential features or characteristics must be
present. In case of doubt, the following will apply:
1. Except for partners by estoppel, 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.
3. Sharing of gross returns does not of itself
establish a partnership.

Exception
Such profits were received in payment:
1. As a debt by installments or otherwise.
2. As wages of an employee or rent to a
landlord.
3. As an annuity to a widow or representative of
a deceased partner.
4. As interest on a loan, though the amounts of
payment vary with the profits of the business.
5. As the consideration for the sale of a goodwill
of a business or other property by
installments or otherwise.
Requirements for its creation
a. Formal (Art. 1772)
Where the capital of the partnership is P3,000.00 or
more, in money or property
1. The contract must appear in a public instrument.
Public instrument is one which is acknowledged
before a notary public or any official
authorized to administer oath, by the person
who executed the same.
2. It must be recorded or registered with the
Securities and Exchange Commission.
NOTE: Failure to comply with the above requirements
does not prevent the formation of the
partnership or affect its liability and that of the
partners to third persons.
b. Legal (Art. 1771, 1773)
General rule
No special form is required for the validity or
existence of the contract of partnership.
Exception

When immovable property is contributed, failure to

comply with the following requirements will render
the partnership contract void:
1. The contract must be in a public instrument.
2. An inventory of the property contributed (a)
must be made, (b) signed by the parties, and (c)
attached to the public instrument.
Kinds of partners
Capitalist partner contributes money or property to
the common fund.

Known as partner by implication or nominal

partner.
Liquidating partner takes charge of the winding up
of partnership affairs upon dissolution.
Classification of Partnership
A. As to object (Art. 1776)
Universal Partnership

General partner liability to third persons extends to

his separate property.

1. All present property (Art.1778-1779)

Partners contribute all the properties which
actually belong to each of them at the time of the
constitution of the partnership to a common fund,
with the intention of dividing the same among
themselves as well as the profits which they may
acquire therewith.

Limited partner liability to third persons is limited to

his capital contribution.

In this kind of partnership, the following become the

common property of all the partners:

Industrial partner contributes his industry or

personal service.

Also known as special partner.

Does not participate in the management of
the business.
Managing partner manages the affairs or business of
the partnership.
May be appointed either in the articles or
after constitution of the partnership.
Known as a general or real partner.
Silent partner does not take any active part in the
business although he may be known to be a
partner.
Secret partner takes active part in the business but is
not known to be a partner by outside parties
nor held out as a partner by the other
partners.
Dormant partner does not take active part in the
business and is not known or held out as
partner.
Ostensible partner takes active part and known to
the public, whether or not he has actual
interest in the firm.
Partner by estoppel not really a partner, but is liable
as a partner for the protection of innocent
third persons.

1. Property which belonged to each of them at

the time of the constitution of the
partnership.
2. Profits which they may acquire from the
property contributed.
General rule
Future properties, such as inheritance, legacy and
donation, cannot be contributed nor included by
stipulation.
Exception
Fruits of the said properties may be included by
stipulation.
2. All profits (Art. 1780-1781)
Comprises all that the partners may acquire
by their industry or work during the existence of
the partnership and the usufruct of movable or
immovable property which each of the partners
may possess at the time of the celebration of the
contract.
Usufruct gives a right to enjoy the property of
another with the obligation of preserving its
form and substance, unless the title
constituting it or the law otherwise
provides.

Possession visible power or control over a thing, as

distinct from lawful ownership.
NOTE:
o Partners retain their ownership over present
and future property.
o Profits acquired by chance, such as lottery, are
not included.
o Fruits of property subsequently acquired by
the partners do not belong to the partnership
but may, however, be included by express
stipulation.
Presumption

No time is specified and is not formed for a

particular undertaking or venture.
C. As to liability of the partners
1. General Partnership
Consisting of general partners who are liable
pro rata and subsidiarily, sometimes solidarily,
with their separate property for partnership
debts.
2. Limited partnership (Art. 1843)
Formed by two or more persons having as
members one or more general partners and one
or more limited partners.

Where the articles of the partnership do not specify

the nature of the partnership, it will be presumed that
the parties intended merely a partnership of profits.

When a partnership begins (Art.1784)

Reason

A partnership begins from the moment of the

execution of the contract.

Universal partnership of all profits imposes less

obligations on the partners, since they preserve the
ownership of their separate property.

Exception

NOTE: The presumption applies only when a universal

partnership has been organized.
Persons who cannot join/form a universal partnership
(Art. 739, 1782; Art. 87 FC)
1. Married Spouses
2. Persons living together as spouses without a
valid marriage.
3. Persons who were guilty of adultery or
concubinage.
4. Persons found guilty of the same criminal
offense, in consideration thereof.
Particular Partnership (Art. 1783)
Types:
For its object, determinate things, their use or
fruits.
A specific undertaking
The exercise of a profession or vocation.
B.

As to term
1. Fixed term/Particular undertaking (Art. 1783)
the term for which the partnership is to exist is
fixed or agreed upon; or
Formed for a particular undertaking.
2. At will (Art. 1785)

General rule

1. Future partnership
Partners may stipulate some other
date future time or on the happening or
fulfillment of some condition or future
contingency for the commencement of the
partnership.
2. Agreement to create partnership
So long as the agreement remains
executory, no partnership can be said to exist.