***

Art. 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 profits among themselves.

Two or more persons may also form a partnership for the exercise of a
profession.

***

Q: What is a partnership?

A: A partnership is a contract with two essential elements: (a) an agreement to

contribute money, property, or industry to a common fund, and (b) an intention to divide
the profits among the contracting parties.

Q: What makes partnership a contract?

A: The concurrence of three elements: consent among capacitated parties, subject

matter or object, and cause or consideration. The subject matter of the contract of
partnership is the pursuit of a lawful business with the intention of dividing profits or
losses gained therefrom. The cause or consideration for each contracting party is the
promised contribution of money, property or industry by the other party or parties.

Q: Who can be parties to a contract of partnership?

A: By “persons”, the law generally meant natural persons with legal capacity to act.
Strictly speaking, therefore, juridical persons like corporations cannot form partnerships.
Nonetheless, a corporation may enter into a joint venture with another corporation if such
is in furtherance of the business authorized by their respective charters. Joint venture
agreements are technically partnerships because of the mutual contribution of resources
for a profitable undertaking. Significant commercial benefit can be derived when
businesses are pursued through the combined resources of large corporations. For
instance, the government has tapped private sector initiatives in the construction of
important infrastructure facilities under the build-operate-transfer scheme made possible
through joint venture agreements among several corporate entities.

Q: What is meant by legal capacity?

Possession of legal capacity means the absence of impediments such as immaturity,

insanity and incompetency. The law presumes that persons below the age of majority, of
unsound mind, or suffering from a debilitating physical condition such as being a deaf-
mute, are unable to completely understand the essence of onerous undertakings, hence,
must be under the care of legal guardians to protect them against possible abuse and
exploitation. Thus, they cannot give consent to a contract, nor bind themselves in a
partnership.

Possession of legal capacity also means freedom from public policy restrictions
imposed in certain circumstances. For instance, when a person is convicted of a crime
punishable by reclusion temporal under the Revised Penal Code that carries the principal
penalty of incarceration ranging from 12 years and 1 day to 20 years, the accessory
penalty of civil interdiction likewise attaches with a similar duration. Civil interdiction
deprives the offender of the right to manage his property and to dispose the same, among
others; hence, he is not qualified to engage in a partnership where he will necessarily
dispose property to be able to make a contribution to the common fund.

Another example of public policy restriction is in the case of businesses imbued with
public interest where a limitation on foreign equity is imposed either by the Constitution or
by special statutes. For instance, under the Constitution, ownership of private land is
limited to Filipino citizens or corporations and associations that are at least 60% Filipino-
owned. Thus, when the partnership business necessarily entails ownership of agricultural,
residential, commercial or industrial land, alien partners may be allowed only if their
contributions do not exceed 40% of the total capitalization of the partnership. For a
complete list of these limitations, refer to the most recent Foreign Investments Negative
List promulgated under the Foreign Investments Act of 1991 otherwise known as Republic
Act No. 7042, as amended by Republic Act No. 8179.
Q: How many partners can there be in a partnership?

A: Two or more. The law has not specified a ceiling but has granted to the parties the
prerogative of setting the optimum number of partners taking into consideration the
principles of mutual agency, unlimited liability and delectus personae.

Q: What is meant by mutual agency, unlimited liability and delectus

personae and how do these principles influence the decision on the number of
partners?

A: As a general rule, the partners are mutual agents of the partnership and of each
other which means that any one of them may enter into business transactions that will
have a binding effect on the whole partnership. It becomes an important consideration
therefore that partners trust each other’s capability to make sound business judgments
because one imprudent action on the part of any partner may result in injury not only for
the partnership but for the rest of the partners as well because under the concept of
unlimited liability, when the partnership assets are no longer sufficient to cover partnership
debts, creditors may run after the personal properties of the partners. Thus, great care
should be exercised when choosing one’s partners taking into account not only intellectual
capability but even such aspects as physical health, emotional maturity and ethical values.

Q: What contributions are expected from a partner?

A: Money, property or industry. Money is not limited to Philippine pesos but can
include foreign currency. Property can be real or personal, tangible or intangible. Industry
means work or services that can include all human faculties susceptible of useful
application.

There is a bit of history behind the acceptability of foreign currency as payment for
obligations contracted in the Philippines. Under Article 1170 of the Spanish Civil Code,
which was extended to the Philippine Islands by Royal Decree in 1889, payment of money
debts shall be made in the currency stipulated, but, if it is not possible to deliver such
currency, then payment can be made in legal tender. This exact provision was carried
over in Article 1249 of the Civil Code of the Philippines. On June 16, 1950, however,
Congress passed Republic Act No. 529, otherwise known as An Act to Assure Uniform
Value To Philippine Coin and Currency. Under this statute, a contract that gives the
obligee the right to require payment in a particular kind of currency other than Philippine
currency is against public policy and therefore null and void and of no effect. This was
eventually repealed in 1996 with the enactment of Republic Act No. 8183 which reverted
to the rule that recognized the right of the parties to a contract to agree that their
obligation or transaction shall be settled in their desired currency at the time of payment.

Q: Two neighbors agreed to put up a soup kitchen to feed orphans and

street children in their community. They agreed to contribute P20,000.00 each.
One was put in charge of purchasing ingredients and cooking the soup while
the other took care of serving the children and washing the bowls and spoons
thereafter. Is a partnership created?

A: No. This charitable undertaking, though performed by two individuals helping each
other, is not a partnership because its objective is not to obtain profit for the parties.

Q: In gratitude to the administrators of the soup kitchen, the city

government presented them with a medal and a plaque of appreciation both
made of 14k gold. If they agreed for one to keep the medal while the other
shall have the plaque, is a partnership created?

A: No. Dividing the valuable tokens between them is not the division of profit
contemplated by the law. This does not digress from the charitable nature of the
undertaking keeping it outside the purview of a business partnership.

Q: A husband and his wife vowed to live a life of togetherness. They merged
their properties as well as their salaries to form a common fund to support the
needs of their family. They shared the bliss of having children who obeyed,
respected and loved them in return. Are they partners?
A: While spouses are referred to as “lifetime partners”, they are not considered to be
engaged in the kind of partnership that Art. 1767 envisions. For one, their common
properties and funds are not invested in business and they do not aim to profit from
raising a family.

The terms and conditions of a business partnership depend on the stipulation of the
parties, which has the force of law between them. The incidents of marriage, on the other
hand, are specifically provided under the Family Code and cannot be tinkered with by the
parties. For instance, the spouses cannot agree to maintain extramarital affairs. Aside
from such being a violation of the direct command of the Family Code for the spouses to
observe mutual love, respect and fidelity, the same may also constitute the crime of
adultery or concubinage, as the case may be. The spouses cannot collude and seek the
annulment of their marriage based on sham reasons but the parties in a business
partnership may seek the dissolution of their partnerships the very moment they lose trust
and confidence in each other. Other differences include the following:

1. As a general rule, a partnership may be created in any form but a marriage

calls for a ceremony to be solemnized by an officer authorized by law such as a judge, a
priest or a city mayor, during which the parties are to declare that they take each other as
husband and wife before the solemnizing officer and in the presence of at least two
witnesses. Moreover, a marriage license must be secured before the marriage ceremony,
and thereafter a marriage contract is executed.

2. The parties in a marriage are only two who must be a man and a woman.
The contract of partnership can admit more parties regardless of gender.

3. The partnership acquires legal personality upon its creation. Marriage does
not create a new person despite the figurative “union” of husband and wife.

4. The partnership commences from the moment of the execution of the

contract unless the parties prefer another date. There is no such option for the spouses in
a marriage; the relationship is established at the precise moment that they exchange
marital vows.
Q: A barkada of five law students planned to put up their own law firm
should they eventually earn their law degree and successfully hurdle the bar
examination. Time and again, the Supreme Court has consistently
characterized the practice of law as neither a trade nor craft but a noble
profession. Since a business partnership necessarily entails a profit-oriented
undertaking are lawyers in a firm engaged in a partnership?

A: Yes, the law permits the creation of a general professional partnership although,
strictly speaking, the exercise of a profession is neither a business undertaking nor an
enterprise for profit. The intention is to enable professionals to obtain mutual help through
the benefit of the partnership setting. Note the phraseology of the second paragraph of
Art. 1767 that a partnership “may also” be formed for the exercise of a profession, making
it an exception to the general rule stated in the first paragraph.

Q: What is a profession?

A: The practice of a profession typically refers to an occupational undertaking that

requires specialized knowledge and often long and intensive preparation including
instruction in skills and methods as well as in the scientific, historical, or scholarly
principles underlying such skills and methods, maintaining by force of organization or
concerted opinion high standards of achievement and conduct and committing its
members to continued study and to a kind of work which has for its prime purpose the
rendering of a public service. In the Philippine context, the concept is understood to refer
more specifically to the forty-six professions (ranging from Accountancy to Veterinary
Medicine) currently regulated and for which licensure examinations are administered by
the Professional Regulations Commission pursuant to special statutes, as well as the legal
profession which is under the authority of the Supreme Court as provided for in the
Constitution.

Q: How does a partnership compare with other contracts?

A: A partnership is consensual because it is perfected and consummated by the mere

consent of the parties. Unlike a contract of sale where perfection takes place at the
moment of agreement but consummation happens only upon the delivery of the thing
sold, the partnership is already consummated even if a partner’s promised contribution is
yet to be delivered.

A partnership is bilateral because the parties commit themselves to reciprocal rights

and obligations in contrast with a contract of donation, where pecuniary benefit is one
way. Corollary thereto, a partnership is onerous because of the mutual burden that it
requires from the partners while a donation is gratuitous because the consideration is
liberality.

A partnership is a nominate contract because the law has designated a special

name for it. Innominate contracts, on the other hand, have no names as in the case of an
exchange of a particular good for a corresponding service.

A partnership is a principal contract because its existence does not depend on

another contract. On the other hand, a contract of mortgage is an example of an
accessory contract that depends on the existence of the principal contract of loan.

A partnership is preparatory in the sense that after it has been entered into, other
contracts essential in carrying out its purpose follow suit.

***

Art. 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.

***

Q: What is the significance of having juridical capacity?

A: As a juridical person, a partnership may, in its own name, acquire and possess
property of all kinds, as well as incur obligations and bring civil or criminal actions.
 It has also been ruled that an association of individuals under an assumed name
and with a distinct legal entity (such as a corporation and, it is herein submitted that the
same rule applies to a partnership) does not waive constitutional liberties by organizing as
a collective body. Hence, its property cannot be taken without just compensation, it can
only be proceeded against by due process of law, and it enjoys protection against unlawful
discrimination and against unreasonable searches and seizures.

Q: Why is the failure to comply with the requirements of Article 1772

insufficient to negate the juridical personality of a partnership?

A: The juridical personality of a partnership comes to existence upon mutual

agreement of the parties, not by the fact of its recording in the Securities and Exchange
Commission. The latter is only an administrative requirement for purposes of government
supervision and regulation.

***

Art. 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.

***

Q: Is intention to form a partnership an absolute requirement?

A: Yes, the parties must have a common intention to be each other’s partner. This is
an offshoot of the first element of the contract of partnership, which is consent or mutual
agreement among the partners. Hence, if the parties do not intend to be partners among
themselves, they are likewise not partners from the viewpoint of third persons. There are
cases, however, when this principle can be abused, as when innocent third persons who
have been led to believe in the existence of the partnership incurred damage as a result of
such reliance. Equity comes into play through the doctrine of estoppel and the parties can
be held liable as if they were partners. Please refer to Article 1825 and the discussion
below it.

Q: What is co-ownership or co-possession?

A: There is co-ownership whenever the ownership of an undivided thing or right

belongs to several persons.

Q: Why is co-ownership or co-possession insufficient to establish a

partnership?

A: As previously mentioned, the parties must have a common intention to be each

other’s partner. On the other hand, co-ownership or co-possession can result without the
parties’ intention, as in the case of inheritance. For instance, the assets of an intestate
decedent shall automatically pass at the moment of death to his or her heirs who thereby
become co-owners without intention to be such. Even if the inherited assets might
appreciate in value with the mere passage of time, the co-owners who benefit therefrom
are still not engaged in a partnership.

In some cases, a co-ownership can also be formed with a conscious intention of

collective enjoyment of the co-owned property. For instance, three friends can purchase a
vacation house and have the same titled jointly in their names. They can designate the
particular months allotted to each other’s use and enjoyment of the property. Note that
the common intention, however, is not to be each other’s partner in a business
undertaking even if they might later decide to sell the vacation house at a price higher
than their acquisition cost and divide the profits of the sale equally among them.

Because of this lack of common intention to be each other’s partner, the principle
of delectus personae does not come into play in a co-ownership. Hence, while a partner
cannot take in a substitute to take his place as partner without the unanimous consent of
all the others, a co-owner can dispose his undivided share without the consent of the
other co-owners. Along the same vein, the death of a co-owner will pass his undivided
share to his own heirs who shall become new co-owners of the surviving co-owner but the
death of a partner dissolves the partnership.

Q: Three brothers inherited the amount of P1,000,000.00 upon the death of

their father. They put the money in a joint bank account and equally divided
the quarterly interest that it earned. Are they partners?



A: No. The brothers are merely co-owners of the funds deposited in a joint bank
account. They are not engaged in a partnership although interest income is generated
and divided because the profit envisioned by the law is that which is obtained from
operating a business.

Q: What will make the above example qualify as a partnership undertaking?

A: If the brothers showed conscious efforts to make their money grow by investing it
in a lawful business and not just by keeping it passively in the bank. For instance, one
brother started lending a few thousand pesos to some friends and neighbors at an interest
of 1% per month. Another prepared the necessary contracts to document the loans while
the last took on the duty of collecting the monthly installment payments of their debtors.
At the end of the year, the brothers computed their earnings and divided the same in
equal proportions.

Q: Can the eldest of the three brothers above decide to take in a wealthy
neighbor, to be an additional partner?

A: No. The eldest brother alone cannot decide on accepting a new partner regardless
of the high respect that older siblings are traditionally accorded in Philippine culture. A
unique feature of the contract of partnership is delectus personae, which translated
literally, means “choice of person”. The eldest brother may be attracted by the amount of
capital that their wealthy neighbor can contribute to their money-lending business but
cannot impose his desire upon his other brothers who may not like the personal qualities
of the neighbor. For instance, one brother may have doubts over the neighbor’s personal
integrity. It is also possible that another brother feels that the neighbor is too arrogant
and difficult to deal with. Thus, the neighbor cannot be admitted as a new partner
because this imposition cannot be made by one partner upon the others.

Q: Why is the sharing of gross returns insufficient to establish a

partnership?

A: This is an occasion to recall the second element of the contract of partnership. The
object of the partnership is to engage in lawful business for the purpose of dividing the
profits earned therefrom. By “division of profits”, the law obviously meant net profits or
that which is left after satisfying partnership obligations. It cannot be a division of gross
profits because this will negate the very essence of the partners’ engagement in business,
that is, shared capital, shared liabilities, and shared profits or losses.

Q: Does this mean that a person who receives a share in the net profits of a
partnership is automatically considered a partner?
A: Not necessarily. While receiving a share in the net profits of a business is one of
the hallmarks of being a partner, there are particular instances when such conclusion is
inappropriate as when a share in the net profits was promised to a partnership creditor as
payment for interest on, or as installment payment of, an indebtedness incurred by the
partnership. The same treatment shall be accorded when the partnership has procured
the services of a person and undertook to pay the latter’s salary from a percentage of the
net profits of the business or when the partnership acquired property via purchase or
lease and pays the consideration therefor in a similar manner. It can also happen when,
upon the death of a partner, it is deemed more practical to continue, instead of liquidate,
the partnership business, hence, instead of the deceased partner’s interest in the
partnership being given in lump-sum to his surviving spouse and/or children, periodic
payments similar to an annuity can be given from the net profits of the continuing
partnership.

***

Art. 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.

***

Q: Is there a limitation in the stipulation of conditions attending the

constitution of a partnership?

A: As in all other kinds of contracts, the partners may stipulate what they deem best
for their business and for each other except those that are contrary to law, public policy,
public order and morals.

Q: What are the consequences of an unlawful partnership?

A: There is no contract to speak of as the same is void ab initio and the partnership
never existed in the eyes of the law. The profits of the partnership shall be confiscated in
favor of the government. The capital contributions of the partners shall also be forfeited if
they served as instruments or tools in the commission of the crime. Any other asset of the
partnership that can be traced as proceeds of the crime is likewise forfeited. In any case,
articles that are not subject of lawful commerce shall be destroyed.

Q: What is the effect of the unlawful partnership to third persons?

A: Third persons dealing with the partnership can expect no remedy from the law
regardless of whether or not they have been completely apprised of the illegality of the
partnership business. Good faith is no excuse for ignorance of the law, nor can it breathe
life into an inexistent contract.

***

Art. 1771. 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.

***

Q: Does a contract of partnership require a specific form?

A: The general rule is that a partnership may be constituted in any form. Hence, an
oral contract of partnership is generally valid. However, when an immovable property or a
real right is contributed to the common fund, the law requires that the contract of
partnership be embodied in a public instrument.

Q: What is a public instrument?

A: A public instrument is one which is acknowledged before a notary public, or before

any officer authorized to administer oaths, by the person who executed the same. An
acknowledgment is a solemn declaration that the execution of the instrument was the
declarant’s free and voluntary act and deed.
Q: What immovable properties are usually contributed in a partnership?

A: Contributions of immovable properties usually take the form of land and buildings.
Note, however, that the law has enumerated a wide range of immovable properties that
can be contributed if these are going to be useful in the partnership business:

1. Land, buildings, roads and constructions of all kinds adhered to the soil;

2. Trees, plants, and growing fruits, while they are attached to the land or form
an integral part of an immovable;

3. Everything attached to an immovable in a fixed manner, in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the
object;

4. Statues, reliefs, paintings or other objects for use or ornamentation, placed

in buildings or on lands by the owner of the immovable in such a manner that it reveals
the intention to attach them permanently to the tenements;

5. Machinery, receptacles, instruments or implements intended by the owner of

the tenement for an industry or works which may be carried on in a building or on a piece
of land, and which tend directly to meet the needs of the said industry or works;

6. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of

similar nature, in case their owner has placed them or preserves them with the intention
to have them permanently attached to the land, and forming a permanent part of it; the
animals in these places are included;

7. Fertilizer actually used on a piece of land;

8. Mines, quarries, and slag dumps, while the matter thereof forms part of the
bed, and waters either running or stagnant;

9. Docks and structures which, though floating, are intended by their nature
and object to remain at a fixed place on a river, lake, or coast;
 10. Contracts for public works, and servitudes and other real rights over
immovable property.

Q: What is a real right and how does it differ from a personal right?

A: A real right is a right belonging to a person over a determinate thing that can be
asserted against the whole world. In contrast, a personal right is a right belonging to a
person to demand the fulfillment of an obligation from a specific passive subject only.

Q: Give an example of a real right that can be contributed by a partner to

the common fund of the partnership.

A: Leasehold interest under a registered contract of lease.

A contract of lease generally gives the lessee a personal right, that is, to possess
and enjoy the property subject of the lease, that can be asserted against a specific passive
subject, the lessor. The right is binding only between the parties, hence, if the lessor sells
the property to a third person who is not aware of the existence of the lease and the latter
decides to terminate the same, the lessee’s only recourse is against the lessor for breach
of contract and recovery of damages. However, if the lease has been registered with the
Registry of Deeds, the right becomes a real right that can be asserted by the lessee
against the whole world. This means that any third person that subsequently deals with
the property is obliged to respect the rights of the lessee. If the lessee joins a
partnership, this real right over the leased property can be a valuable contribution to the
common fund.

Q: What is the consequence if a partner contributed an immovable property

or a real right but the contract of partnership is not embodied in a public
instrument?

A: The answer of most commentators to this query is that the absence of the public
instrument renders the contract of partnership void. The contrary position is submitted
here because nothing in this article indicates that the contract is rendered void by the
mere failure to prepare it in the form of a public instrument. The rationale behind the
requirement for a public instrument is the administrative process of registering the
conveyance and transferring title over the contributed property from the partner to the
partnership.

***

Art. 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.

***

Q: What is the consequence if the partnership capital is worth three

thousand pesos or more but the contract of partnership is not embodied in a
public instrument and not recorded with the Office of the Securities and
Exchange Commission?

A: Again, the contract of partnership is not rendered void by the failure to embody the
same in a public instrument. Moreover, as discussed earlier under Article 1768, the
juridical personality of the partnership is not determined by these requirements, hence,
non-compliance will not affect the liability of the partnership and the members thereof to
third persons. This does not mean, however, that compliance with these requirements is
bereft of good purpose. For one, compliance of these requirements is necessary before
the partnership can secure local government permits without which the partnership cannot
commence business operation.

Q: What is the rationale behind this recording requirement?

A: The ultimate goal is protection of the general public. Through this recording
requirement, the government is able to monitor the lawful operation of partnership
businesses, i.e., whether products are manufactured and services are rendered in
conformity with pertinent consumer protection laws, whether employee wages and
benefits are paid in compliance with current labor laws and regulations, whether physical
structures are built according to the standards set in various environmental and public
safety laws, whether proper taxes are reported and paid, etc.

***

Art. 1773. 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.

***

Q: What is the consequence if a partner contributed an immovable property

but an inventory is not made, signed by the parties and attached to the public
instrument?

A: This time, the contract of partnership is void. Note the difference between this and
Article 1771. It is the failure to properly prepare the inventory that renders the contract of
partnership void, not the absence of a public instrument.

Q: Why is the requirement of an inventory so important that its absence

shall result in the contract of partnership being rendered void?

A: The importance of the inventory is based primarily on the need to protect third
persons who are likely to have considered the apparent composition of the partnership
assets before engaging in substantial business with the partners. The inventory, which
should present an accurate description of the nature and value of the immovable
properties contributed by the partners, serves as assurance that the partnership is worth
doing business with.

On the other hand, even in situations where third persons are not yet involved, the
inventory is still important because it sets forth how much of each party’s promised
contribution has been delivered through it and how much remains due. It thus determines
the rights and obligations of the parties.

***
 Art. 1774. Any immovable property or an interest therein may be
acquired in the partnership name. Title so acquired can be conveyed only in the
partnership name.

***

Q: What is the rationale behind this article?

A: The separate juridical personality of the partnership enables it to acquire property

in its own name and not in the name of the partners. Hence, to pass title, the property
must also be conveyed in the partnership name, and not in the name of the partners,
which, at best, will only pass equitable interest (see Article 1819, second paragraph, in
relation to Article 1818, first paragraph).

***

Art. 1775. Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members may contract in his
own name with third persons, shall have no juridical personality, and shall be
governed by the provisions relating to co-ownership.

***

Q: Why are persons associated in the manner described above not

considered partners?

A: Because of the obvious lack of intention to be partners as reflected in the ability of

the members to contract with third persons in their own names. This clearly shows that
the members do not intend to represent each other, nor the association to which they
belong. The fact that they are also keeping their articles under wraps indicate the
intention to keep their association private, hence, the law withholds the grant of public
identity in the form of juridical personality.

Q: Can such associations sue under a common name, assuming it has one?
A: No. It cannot sue as such, because it has no legal personality and therefore, cannot
ordinarily be a party to a civil action.

Q: Can such associations be sued by third persons under its common name,
assuming it has one?

A: Yes, for the protection of innocent third parties.

Q: can the members of such an association when sued for obligations

contracted or torts committed by them invoke the lack of juridical personality
as a defense?

A: No. The ultimate goal of this article is to protect innocent third persons who stand
to be defrauded in this eventuality. The members of the association cannot lawfully
benefit from their own wrongdoing.

***

Art. 1776. As to its object, a partnership is either universal or particular.

As regards the liability of the partners, a partnership may be general or

limited.

***

Q: What is the difference between a universal partnership and a particular

partnership?

A: The query can be easier answered if one starts from the definition given to a
particular partnership, that which is limited in scope to a well-defined object as when it is
established for the purpose of carrying out a specific enterprise or for the practice of a
common profession. Thus, even if there is no counterpart definition for a universal
partnership, the inevitable conclusion is that a universal partnership is one that has a more
encompassing scope. Here, the law gave two kinds, when all present property, or all
profits, of the partners are involved.
Q: What is the difference between a general partner and a limited partner?

A: A general partner is personally liable for the obligations of the partnership. On the
other hand, the liability of a limited partner is limited only to his capital contribution. Such
limited liability flows from the fact that limited partners do not participate in the
management and control of the partnership, which is the domain of the general partner.

***

Art. 1777. A universal partnership may refer to all the present property or
to all the profits.

Art. 1778. A partnership of all present property is that in which the

partners contribute all the property which actually belongs to them to a
common fund, with the intention of dividing the same among themselves, as
well as all the profits which they may acquire therewith.

Art. 1779. In a universal partnership of all present property, the property,

which belongs to each of the partners at the time of the constitution of the
partnership, becomes the common property of all the partners, as well as all
the profits, which they may acquire therewith.

A stipulation for the common enjoyment of any other profits may also be
made; but the property which the partners may acquire subsequently by
inheritance, legacy, or donation cannot be included in such stipulation, except
the fruits thereof.

***

Q: What happens to the property of each partner in a universal partnership

of all present property?

A: In a universal partnership of all present property, properties that belong to each of

the partners at the time of the constitution of the partnership become common property
of all the partners, as well as the profits that they may acquire from the said property.
Stipulation can also be made for the common enjoyment of profits from other sources.

Q: Are there properties that do not pass to the universal partnership?

A: Yes. Properties that the partners may acquire subsequently by inheritance, legacy,
or donation. It goes into the very core of the partnership contract that the parties should
have a mutual understanding of the nature of each other’s contribution to the common
fund. On the other hand, what a partner might receive as future inheritance can only be
determined at the moment of death of his or her decedent, hence, the same cannot form
part of the partner’s contribution in the partnership not only because of its uncertainty, but
more so because of a greater public policy that proscribes speculation thereon.

***

Art. 1780. A universal partnership of profits comprises all that the

partners may acquire by their industry or work during the existence of the
partnership.

Movable or immovable property which each of the partners may possess

at the time of the celebration of the contract shall continue to pertain
exclusively to each, only the usufruct passing to the partnership.

***

Q: Is it possible to set aside a small portion of a partner’s profit from

industry or work for his personal use and not include the same in the universal
partnership of profits?

A: Yes, provided an express stipulation is made for such exclusion.

Q: What is meant by usufruct?

A: 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.

Q: What happens to movable and immovable properties possessed by a

partner at the time of the constitution of the partnership?
A: Usufruct over the said property passes on to the partnership but the same shall
revert back to the partner at the point of dissolution.

Q: Are profits earned from movable and immovable properties acquired by a

partner after the constitution of the partnership included in the universal
partnership of profits?

A: No, but the partners can stipulate their inclusion.

Q: Are profits acquired by chance included in the universal partnership of

profits?

A: No, because these are not gained through the industry or work of the partners.

***

Art. 1781. Articles of universal partnership, entered into without

specification of its nature, only constitute a universal partnership of profits.

***

Q: What is the presumption when the nature of the universal partnership is

not specified?

A: In case of doubt as to whether a universal partnership is one of all present property

or of profits alone, the law presumes that the partners intended the latter, which is less
onerous or burdensome.

***

Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into a universal partnership.

***
Q: Why are persons prohibited from giving each other any donation likewise
prohibited from entering into a universal partnership?

A: Because of the magnitude of the necessary contributions in a universal partnership,

the partners typically find themselves in the same position as people making substantial
donations. Hence, public policies behind restrictions on certain donations likewise find
application in universal partnerships.

Q: When are donations void?

A: The following are specific scenarios where the law has made a definite declaration
that donations shall be void:

1. When a donation is made directly or indirectly to one’s spouse or common-

law partner, except in cases of moderate gifts on occasions of family rejoicing;

2. When the donation is made between persons who were guilty of adultery or
concubinage at the time of the donation;

3. When the donation is made between persons found guilty of the same
criminal offense, in consideration thereof; and

4. When the donation is made to a public officer or his wife, descendants and
ascendants, by reason of his office.

Q: Why are spouses prohibited from donating to each other?

A: Spouses are prohibited from donating to each other to avoid the possibility of abuse
considering the intimate relationship between them, which makes it easy for a dominant
spouse to coerce a submissive one.

Q: What are moderate gifts on occasions of family rejoicing?

A: Moderate gifts on occasions of family rejoicing are donations of reasonable value
depending on the status or social position of the family as well as on prevailing customs
and traditions in the community.

Q: Why are common-law partners subject to a similar prohibition when they

are not legally married?

A: Common-law partners are prohibited from donating to each other for the same
reason as between spouses. The law even presumes that the danger of abuse by a
manipulative partner is greater because the relationship lacks the certainty and stability of
the marital tie.

Q: Give an example of a void donation made between persons found guilty

of the same criminal offense.

A: A person convinces another to kill the former’s business rival by offering an

expensive property in return for the favor. If the latter agrees to the deal, both are guilty
of murder with the former as principal by inducement and the latter as principal by direct
participation. The transfer of the expensive property is considered a void donation.

Q: What is the rationale behind the prohibition on direct and indirect

donations to public officers?

A: The law aims to promote integrity in public service.

Q: What is the effect of a partnership formed in violation of this article?

A: A partnership formed in violation of this article is null and void.

Q: Can a husband and wife who are both certified public accountants put up
an accounting firm?

A: Yes. While spouses may not enter into a universal partnership, there is no
prohibition on their formation of a particular partnership such as general professional
partnership.
 ***

Art. 1783. A particular partnership has for its object determinate things,
their use or fruits, or specific undertaking, or the exercise of a profession or
vocation.

***

Q: Give an example of a particular partnership, which has for its object a

determinate thing and its use or fruits.

A: Siblings who converted an idle land that they inherited into a wellness farm,
cultivating organic vegetables and raising cage-free chickens, selling the produce to
specialty restaurants and earning profit therefrom.

Q: Give an example of a particular partnership which has for its object a

specific undertaking.

A: College friends pooling together the graduation gifts that they received from their
parents to fund the entrepreneurial plan that they submitted as baccalaureate thesis.
Other properties that they may own (e.g., bank deposits, laptop computers) as well as
income that they may derive from other sources (e.g., first paycheck from regular
employment) or other business undertakings (e.g., interest income from money lent to
friends and neighbors) are not covered.

Q: Give an example of a particular partnership which has for its object the
exercise of a profession or vocation.

A: Civil engineers putting up a construction firm for the purpose of practicing their
common profession.

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